Clean Harbors - Q3 2016
November 2, 2016
Transcript
Operator (participant)
Greetings, and welcome to the Clean Harbors third quarter 2016 conference call. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors. Thank you, Mr. McDonald. You may begin.
Michael L. McDonald (General Counsel and Secretary)
Thank you, Jesse, and good morning, everyone. On the call with me are Chairman and Chief Executive Officer Alan S. McKim, EVP and Chief Financial Officer Mike Battles, and our SVP of Investor Relations Jim Buckley. Slides for today's call are posted on our website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, November 2, 2016. Information on potential factors and risks that could affect the company's actual results of operations is included in our SEC filings.
The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in this morning's call, other than through filings that will be made concerning this reporting period. In addition, today's discussion will include references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release, on our website, and in the appendix of today's presentation. Now, I'd like to turn the call over to our CEO, Alan McKim. Alan?
Alan S. McKim (Chairman and CEO)
Thanks, Michael, and good morning, everyone. Thank you for joining us. I'm fighting a pretty bad cold, so please bear with me as I go through my prepared remarks. Beginning on slide 3, our financial performance fell short of expectations in Q3, as we were affected by ongoing weakness in the energy and industrial markets and the effects of significant severance and integration costs. Our results for the quarter also demonstrate our ability to continue to take costs out and streamline our business. Despite the lower revenue, we delivered gross margins of 32.6%, our highest level since mid-2008. I think that speaks to the team's hard work in reducing costs during a difficult period of our business.
The current macroeconomic environment has meant lower waste volumes and limited project spending in Tech Services and Industrial Services and Field Services, while Oil and Gas and Lodging Services face continued headwinds. In sharp contrast, however, our Safety-Kleen segments delivered solid results in the quarter, reflecting crisp execution of our growth strategy. Safety-Kleen Environmental delivered its ninth consecutive quarter of increased profitability. KPP more than doubled Adjusted EBITDA from Q2 as we continued to effectively manage our spread.
Equally important, during the quarter, we made great progress on several exciting strategic initiatives that we believe will enhance our earnings power, and these include completing multiple acquisitions to support our direct lube business and our Tech Service expansion, particularly on the West Coast, successfully divesting our catalyst business, gearing up for our national launch of our closed loop direct lube oil offering, strengthening our executive team, and advancing several new service offerings that I'll discuss later in my remarks. Turning to the segment review on slide 4, revenue and profitability in Tech Service declined, mostly due to the lack of remediation projects and landfill volumes, which were down 49%, consistent with the market. Lower industrial production affected our volumes, and lower energy and production waste streams remained the norm. Incineration utilization was 90%.
That's up from Q2, but down on a year-over-year basis, reflecting the decreased volume at our Canadian location, which handles much lower priced material. Our U.S. incinerators saw an uptick in activity sequentially, as we benefited from fewer down days. Turning to slide 5, Industrial and Field Service had another below-average quarter, which saw no major emergency response events or large, unexpected outages at our customers' plants. The base work at customer sites and day-to-day activities in this segment continues, but remain under significant margin pressure, particularly in businesses exposed to energy. In addition, Western Canada still has not recovered from the Fort McMurray fire. Our team has done a good job pursuing what limited opportunities exist. We've continued to reduce costs in the segment, particularly in Western Canada. Despite lower revenue, personnel utilization rate was 82% in Q3, reflecting the head count actions we have taken.
Moving to slide 6, Kleen Performance Products direct revenue was up substantially as we fully benefit from our move to charge for oil versus pay for oil a year ago. As a result, adjusted EBITDA increased 88% from a year ago, and margins nearly hit 25%. We also benefited from higher prices, as our posted base oil price was at $2.17 for the quarter, above the first half of the year. Blended sales come in as expected, at 33% in the quarter, as we continue to rely on distributors to move our blended lubricants, and we'll probably be at a similar level in Q4, after which we should start seeing that percentage climb over the course of 2017, as our closed loop direct sales model drives our blended sales higher.
Turning to slide 7, Safety-Kleen Environmental Services was again a strong performer, registering healthy organic and direct revenue growth. That growth translated into an 18% increase in profitability based on business mix, improved pricing, and the benefits of cost reductions. On a trailing 12-month basis, adjusted EBITDA in this segment has grown more than 40% from the same period 2 years ago. Parts washer services were slightly up in the quarter, while waste oil collections were flat. In Q3, our collection costs were $0.04 per gallon higher than Q2, due to the increase in the price of crude and base oil. However, our collection costs are down $0.27 a gallon from Q3 of 2015.
Turning to slide 8, Lodging Services saw its revenue increase for the first time in 3 years, as we received a temporary boost in occupancy from the Fort McMurray fire, with the utilization of sellable rooms up to 49% from 19% a year ago. Our mobile camp business continues to be hurt by the lack of drilling activity. Adjusted EBITDA and margins were up in Lodging due to the cost reductions and higher revenue. Turning to Oil and Gas on slide 9, with the average rig counts in the U.S. and Western Canada down 45% from a year ago, our 49% drop in revenue was expected. Our average rig service and utilization reflect these poor market conditions. We have seen U.S. rig counts slowly climbing in recent months, but the industry has a long way to go to get back to the 2013 levels.
Our focus here remains on eliminating costs to at least achieve breakeven as we manage through this downturn, and we are aggressively repositioning assets into other segments of our business as well. Turning to slide 10, during the quarter, we completed a series of bolt-on acquisitions we discussed on Q2 call and began the process of integrating their collective capabilities into our network. We also completed the sale of our Catalyst subsidiary, transitioning that business to the buyer and generating nearly $50 million in proceeds. We have continued to execute against the 2016 $100 million cost reduction program we launched last December. We expect to conclude this year with better than $100 million reductions in our run rate achieved.
However, as I highlighted on our Q2 call, we have launched an internal initiative to take another $100 million of costs and annualized gross costs out of our expense structure by year-end of 2017. Synergies from recent acquisitions, coupled with maximizing transportation efficiencies, centralizing G&A functions, reducing additional headcount, further optimizing our network and other targeted initiatives, will enable us to achieve this 2017 goal. To support our cost savings efforts, we appointed Chris Melisek as Executive Vice President of Transportation, Logistics, and Operational Effectiveness. During his 35-year career, Chris has held leadership positions at a number of companies, most recently at Republic Services, and immediately prior to that, he was an associate principal at McKinsey & Company, and he will be a key contributor to helping us achieve our cost savings targets for 2017.
We also added other seasoned executives, business executives, to lead an array of other strategic initiatives. First, we continued to advance towards the national rollout of our closed loop offering in our lube oil business. In Q3, we began direct lubricant sales in upstate New York, and more recently, successfully launched in the Chicago market. Several more markets are set to begin by year-end, followed by the national launch of our packaged product offering. In Q3, we appointed David Vergo as President of Safety-Kleen. Dave is a dynamic leader who joined us from Univar, one of the largest chemical distributors in the world, where he was most recently the President of Industrial Chemical Sales. Dave will oversee the rollout of our closed loop offering, as well as extend the momentum of our Safety-Kleen Environmental branch and KPP businesses.
Second, given the critical importance of our organic growth of our future success, we have strengthened our sales team with the addition of Steve Mohan as Chief Sales Officer. Steve joined us from Republic Services, where he was most recently SVP of Sales and responsible for more than $8 billion in annual revenues. His sales and business development skills will be invaluable asset for us going forward. Third, to enhance our customer service offerings and increase customer retention, we hired Grace Cowan as our SVP of Customer Service and Customer Satisfaction, and she has held various senior leadership positions over a 30-year career, including SVP of Customer Experience at Waste Management. And fourth, we are expanding our offerings in healthcare services. Today, we conduct millions of dollars of healthcare industry business in CleanPack, drums, and other lines of business.
Moving further upstream into the area of sharps and regulated medical waste is a natural extension of our existing offerings, and we believe will drive more waste into our network of disposal assets. Medical waste is a service our customers requested for years, and we are leveraging our existing infrastructure to launch our healthcare service offering in several initial markets in the U.S. We will continue to expand our service offerings across the U.S. and Canada in 2017 and 2018. Finally, we've formalized our efforts in the daylighting hydro excavation market by shifting hydrovacs and other underutilized assets from our industrial and energy business, particularly in the Fort McMurray area. We are successfully introducing our daylighting services into several U.S. markets. We have put an internal team together, spearheaded by one of our strongest industrial services leaders.
Daylighting is not new line of business for us, but given our fleet of hydrovacs and our history of nondestructive digging work with utilities, refineries, and other customers, we see it as an attractive long-term growth opportunity that required limited capital to initialize and get off the ground. Turning to our capital allocation strategy on slide 11, we continue to make internal investments in our business, such as the El Dorado incinerator. Our focus remains on investments that can generate meaningful long-term growth, including some of the exciting new areas I just outlined. We look at all acquisitions on the same relative long-term return basis and continue to seek businesses that can acquire at attractive valuations. Share repurchases remain a fundamental component of our overall capital allocation strategy. Moving briefly to our outlook on slide 12.
Our overall focus in all our segments will be a combination of pursuing organic growth and lowering our costs. Within Tech Services, our focus is on the opening of our new incinerator in Arkansas, which remains on schedule for startup later this quarter, and with its official commercial launch to follow. We remain excited about our expanded capability on the West Coast from the recent acquisitions, and our sales teams continue to build a sizable project pipeline, particularly in the remediation and landfill space, which have clearly struggled in recent quarters. We intend to reverse that trend. In industrial and field, we continue to build our base business by expanding our footprint through a collaboration with Safety-Kleen and by winning critical insight awards, where our personnel work at customer locations.
We believe these embedded employees will be key to helping this segment rebound, particularly as the overall industrial markets begin to recover. Within KPP, our primary focus is on the rollout of the closed loop I discussed, while continuing to aggressively manage our spread. The team is currently hard at work integrating our recent acquisitions and maximizing their collective capabilities. We can now process as much as 240 million gallons of waste oil a year, blend and package well over 100 million gallons annually, and have an oil terminal network of more than 80 locations to support our collection and our distribution. Within Safety-Kleen Environmental, we expect that over the next five years, we can continue to increase revenues by more than 30%, while also achieving EBITDA margins of 30%.
We can more deeply penetrate the customer base of our latest acquisitions, as well as the general marketplace. On the waste oil collection side, our focus remains on driving down total collection costs. The outlook for our Lodging and Oil and Gas segment on slide 13 remains largely negative until we start seeing material changes in exploration budgets and the number of drill rigs. The recent trajectory is showing a little promise, but until that growth accelerates, our focus will be primarily around cost controls and reallocation of assets. And as I mentioned on our last call, we need to structure this business to handle the lower-for-longer scenario the energy market finds itself in. In summary, our overall performance reflects the market conditions affecting many of our energy and industrial-related businesses.
We expect more of the same in Q4, but we do believe that we're nearing the bottom of this downturn. Industrial production in the U.S. finally turned positive in September. Oil seems to be stabilizing at around $45-$50 a barrel, and both our Safety-Kleen segments are showing tangible momentum in generating profitable growth. Our new incinerator will soon begin contributing, and we remain confident about prospects to fill it in the years ahead. As an organization, we are aggressively reacting to this low growth environment with the recent launch of multiple strategic initiatives, such as the OilPlus program, healthcare services, and daylighting. We're taking the strategic steps necessary to effectively position Clean Harbors for the long term. With that, let me turn it over to our Chief Financial Officer, Mike Battles. Mike?
Michael L. Battles (EVP and CFO)
Thank you, Alan, and good morning, everyone. Turning to our income statement on slide 15, revenue declined by 18% in Q3, primarily due to the $145 million contribution from emergency response activity in Q3 of 2015, as well as the continued industrial slowdown, softness in energy, and fewer large project opportunities. Gross profit for the quarter was $237.6 million, which translates to a gross margin of 32.6%. That is a 360 basis point improvement from the year-ago and reflects the success of the aggressive cost actions we have taken in the face of weak market conditions and a corresponding lower revenue. In addition, our success in moving the waste oil collection market from pay for oil to charge for oil benefited our current year, our current year-over-year improvement in gross margin.
SG&A expenses in the quarter were up from a year ago, primarily as a result of incentive compensation and compensation adjustments we made last year, which significantly reduced our SG&A in Q3 of 2015 on a whole dollar and percentage basis. In terms of absolute dollars, we now expect full year SG&A expense to be up 3%-4% from 2015, based on a variety of factors, including increased severance integration costs, the sales investments we have made, a small amount of incentive compensation this year, and SG&A related to acquisitions we have made, largely offset by substantial cost actions, both early in the year and here in Q4. Depreciation and amortization increased $4.3 million, reflecting the series of acquisitions we completed this year.
As a result of our M&A activity, we continue to expect depreciation and amortization in the range of $285-295 million for 2016. Income from operations in Q3 was $16.8 million, inclusive of a $34 million goodwill impairment charge we took for Lodging. Our adjusted income from operations was $50.8 million, still well below prior year due to the lower revenue and business mix. Third quarter 2016 adjusted EBITDA was $126.7 million, inclusive of $5.8 million in integration and severance-related costs related to headcount reductions, management changes, expenses associated with integration of acquired companies and other costs. This compares with integration and severance costs of $2.5 million in Q3 a year ago.
We reported a GAAP net loss in the quarter of $10.3 million, or $0.18 per share. Adjusting for the goodwill impairment, the sale of our catalyst business, and unbenefited tax losses in Canada, we recorded $9.3 million in adjusted net income or $0.16 per share. Turning to the balance sheet on slide 16. Before covering these items, I wanted to point out that we recently amended and extended our $400 million credit facility. It is a facility that we've never drawn on, but we are currently using as collateral on approximately $140 million in letters of credit related to certain permits and insurance. The original facility was scheduled to expire in January of 2018, and we extended it through a new five-year structure at more favorable terms with slightly better covenants.
We had a fair amount of interest in this facility, and market rates were attractive. Cash and cash equivalents in September at September 30 was $257.9 million, which reflect the closing of several acquisitions during Q3 at a cost of approximately $150 million. DSO in the quarter was flat at 71 days. Our goal was to bring that number down below 70 this year. While we have made some progress through process improvements related to collections, the combination of a challenging environment with many industrial and energy customers, some of which, some of whom are stretching out payments terms well beyond 30 days, resulted in an overall lack of progress on DSO. We are making a big push to collect AR in Q4 and drive DSO down.
Q3 CapEx, net of disposals, was $50.5 million, which includes $12.5 million of CapEx related to the construction of our El Dorado incinerator. Last year, we spent $64.8 million, with $21.1 million of incinerator-related spend. We also invested capital this quarter in the growth initiatives that Alan highlighted, including the closed loop and a small platform for healthcare services and daylighting. We remain on track to hit our capital spend commitment in 2016 of $200 million of CapEx, net of disposals, which includes nearly $50 million on the El Dorado incinerator. While we have yet to complete our budgeting process, our intention is to set a net CapEx target for 2017 in the range of $160 million-$170 million.
Cash flow from operations in Q3 was $58.8 million, down from last year's total, largely tied to this 18% reduction in revenue and business mix. Based on our year-to-date performance and our reduced 2016 adjusted EBITDA guidance, we are revising our expectation for cash flow from operations this year to be in the range of $270 million-$280 million. Given our expectation of net CapEx of approximately $200 million and proceeds from our catalyst sale of nearly $50 million, we now expect free cash flow in the range of $120 million-$130 million for 2016. Buyback activity was minimal in Q3, as we repurchased $6.2 million worth of stock.
We have approximately $106 million remaining under our existing $300 million plan. Moving to guidance on slide 17. Based on our year-to-date performance and our current market outlook, we are updating our 2016 Adjusted EBITDA guidance range. On our Q2 call, we provided guidance in the range of $430 million-$450 million, based on some assumptions for the industrial and energy-related waste streams and consumer spending not significantly worsening. However, certain lines of business, such as landfills and industrial services, remain more challenged than expected. In addition, as our cost-cutting and integration efforts move forward, our severance and integration expenses are higher than we originally had anticipated. We now expect severance and integration costs to exceed $20 million for the full year.
Therefore, based on those factors, we are reducing our Adjusted EBITDA 2016 guidance to $400 million-$410 million. Here's how that revised guidance plays out from a segment perspective. We now expect Tech Services to be down 6%-7% from 2015 due to the lower volume for both energy and industrial throughout the year and lack of 2016 projects, particularly in our landfill business. This is down from our previous guidance of slightly down for the year. We are confident that 2017 will be a bounce back year for Tech Services, as we see a large pipeline of projects on the horizon. Our SK Environmental segment remains on track to deliver record results of, in 2016.
We continue to expect that business to achieve 2016 Adjusted EBITDA growth in the high teens from 2015. Within our Industrial and Field Services segment, excluding the effect of the emergency response in both years, and based on pricing and margin pressures we are facing this year, we expect Adjusted EBITDA in this segment to decline by approximately 33% from a year ago, consistent with our prior guidance. For Kleen Performance Products, we expect a solid finish to the year with a Q4 performance slightly below our seasonally strong third quarter. For the full year, we expect Adjusted EBITDA to increase approximately 70% from 2015. For our Logistics and Oil and Gas segments, we have further reduced our expectations.
On a combined basis, we now expect the Adjusted EBITDA of those two segments to be breakeven to slightly negative for the full year. Looking ahead to 2017, we do not intend to provide specific guidance today for the upcoming year. Given the variability in our business in recent years, we are going to complete our budgeting process and set capital spend before setting official guidance targets for 2017. However, we have a lot of positive factors heading into the next year from an Adjusted EBITDA perspective, including our planned cost-cutting initiatives, the acquisitions we've completed this year, the contribution of the new El Dorado incinerator, the rollout of our closed loop offering, and the new revenue initiatives Alan outlined.
So at this point, we expect significant Adjusted EBITDA growth from 2016 to 2017, and we're confident that the midpoint of our 2017 Adjusted EBITDA guidance range will be in the high 400s. We need to complete our budgeting process before we can get any more specific than that. With that, Jesse, please open up the call for questions.
Operator (participant)
Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is coming from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Noah Kaye (Analyst)
Thanks. Good morning, and thanks for walking through, you know, some of the high level thoughts around 2017. Just want to pin down one element of the potential improvement, and that's the cost reduction. I think you said on the last call, and you elaborated on this today, that you'd be exiting at more than $100 million annualized run rate. So I mean, you're getting at least, I would imagine, $50 million in incremental savings next year, and that's, you know, in addition to any further cost reduction efforts you could achieve. Do I have that right?
Michael L. Battles (EVP and CFO)
Yeah. So, Noah, this is Mike. You know, at the end of the day, you know, we made good progress on the one we did earlier in the year. We are gonna exit the year kind of achieving that and beating our kind of original numbers of kind of net 50. We're confident that we go into 2017, kind of with that in the bag. As we look at kind of, let's say, the new cost actions we put in place here in Q2 and Q3, we're making really good progress to that end, and that should be, you know, in addition to what we're doing.
It's tough for me to put an exact number whether it's $50 million more or $30 million more, but certainly there's an uptick there from the cost actions we took, both in the beginning of the year and here in the late in the year, to kind of rightsize our business.
Noah Kaye (Analyst)
Okay, thanks. And then maybe turning to KPP, you're seeing the EBITDA ramp that you expected. You did mention that you thought the blend rate would kind of be in the 33% range again for 4Q. I think that's down a touch from, you know, what you might have expected earlier in the year. You'd said about trying to get into the mid- to high 30s. How much of that is due to kind of some of the additional capacity you've brought on and kind of the timing of how that all works? Or is there something else that's kind of taking a little bit more time to get the blend rate up? Just how should we think about that?
Alan S. McKim (Chairman and CEO)
You know, I -- we have begun our national rollout of some of our products across the 190 or so Safety-Kleen branches. And that, you know, obviously, that's taken a little bit of our time and some of our product we're actually, you know, packaging now and putting it in inventory and moving that out into the network. So probably a little bit of impact from that. But clearly, you know, there's been a great receptiveness to, you know, that service offering that we've been piloting, and we're excited about that. At the same token, you know, we still have key wholesale distributors that buy a lot of our product that are partners of ours.
There was a little bit of weakness in some of the volume that we sold to some of them in the third quarter. You know, there's been so much uncertainty about which way pricing is gonna go on base oil, and we saw a lot of orders being held back, quite frankly. So I think, you know, there's gonna be a little bit of ups and downs every quarter as we report that blended number out. And I think as we get into next year, we're gonna probably give you a better metric on how well we're doing with our direct blended quantity and volume, which I think will be more consistent with how well we're really doing with our closed loop system.
Michael L. Battles (EVP and CFO)
Yeah, no, I would say kind of the path to glory is not a straight line, right? So it's, there's gonna be fits and starts here, and then I think we've done a good job, and as Alan said in his prepared remarks of really the rollout that we have, and again, putting out packaged product across our 190 branches is quite an endeavor, and so that is just starting.
And so we are confident as we go into 2017, that that's gonna be a, you know, a success story we're gonna talk about. And as Alan said, we'll get into more granularity in 2017 calls-
Alan S. McKim (Chairman and CEO)
Yeah
Michael L. Battles (EVP and CFO)
... as to kind of document that success. Because at the end of the day, you know, it's not just one number, it's a variety of numbers.
Alan S. McKim (Chairman and CEO)
... Yeah, 'cause some of those volumes will swing up and down a little bit per quarter when you're selling it through wholesale. But the key is a direct number will be a better reporting metric to give you a set of better color on how well we're doing.
Noah Kaye (Analyst)
Okay, thank you. Hope the cold gets better, Alan. I'll jump back in queue. Thank you.
Alan S. McKim (Chairman and CEO)
Thank you. Me too.
Operator (participant)
Thank you. Our next question is coming from the line of Joe Box with KeyBank. Please proceed with your question.
Joe Box (Analyst)
Hey, good morning, guys.
Michael L. Battles (EVP and CFO)
Hey, Joe.
Joe Box (Analyst)
I just wanted to drill into the statement in the release that some of your customers are really reluctant to spend on large scale projects. Curious what these are, are these greenfield projects, turnarounds, or EPA-required cleanups? And how much of these could be, you know, cyclically driven or just kind of timing related? Ultimately, what I'm trying to understand is, you know, what they are and why you're assuming that, you know, they pick up in 2017 and result in higher EBITDA.
Alan S. McKim (Chairman and CEO)
You know, we have a dedicated sales organization that works with other, you know, many, many companies that are either directly working for the EPA or, you know, we're directly working for our customers on their remediation projects. And some of those are Superfund related. Some of them have to do with, you know, remediation and closure of sites. And we have a pipeline on that. We track, you know, that business very closely because it is so important for our landfill business. And I would just characterize that as, you know, people being very concerned about spending money and trying to push, you know, what they spend money on as far out as they can. And, you know, especially as it relates to the oil and anything to do with oil.
People just absolutely have tightened up every single dollar that they're spending. You know, when you look at our landfills, whether it's in California or North Dakota or Alberta, particularly those three landfills we have that are right in that, you know, E&P market, those have been really, really hurt. You know, we still see opportunity out there, where in fact, you know, we had a nice win even this past week, you know, a $12 million kind of project for us, which is a nice kind of win for us. That was great to see, but, you know, we need to see, you know, $100 million of volume coming through that, and we're just not there yet.
Joe Box (Analyst)
So let's just say hypothetically, you know, 2017 starts to look a little bit more like 2016 in terms of project deferrals. Obviously, they're not gone, they're just getting pushed. Is it still fair to expect, you know, up EBITDA within the Tech Services business, or could it be potentially, you know, flat to down?
Michael L. Battles (EVP and CFO)
Yeah, we see, you know, as industrial production kind of comes back online, Joe, we, we have seen some light in the tunnel. And we're, and we're hopeful that as you go into 2017, that there, you know, it is a bounce back year. You know, we do have a lot of initiatives, not the least of which is the El Dorado incinerator that's out there, and that, you know, and then we get kind of good traction on filling that. And so, you know, we're hopeful as we look at 2017 from a by segment standpoint. Again, we have to go through a budget process, as I said in my prepared remarks, but we're hopeful that that's, you know, it's, it's gonna be a good year for tech, and we're gonna reverse the trend of, you know, of, kind of down revenue.
Joe Box (Analyst)
Appreciate that. And then just one, you know, quick accounting issue here. So $18.4 million of severance and integration year to date, it sounds like it's gonna be over $20 million for the full year now. Are you expecting any more integration and severance going into next year? Obviously, it matters when you guys include it into Adjusted EBITDA.
Michael L. Battles (EVP and CFO)
Yeah, Joe. So, you know, we're looking at, you know, certain cost actions, some of which are gonna take place here in Q4, some of which will take place in 2017. So I don't think they're huge dollars, but we'd be kidding ourselves if we said there's none, right? But I don't think it... At this juncture, what I've seen, the list I've seen and the analysis I've seen, it's kind of short money here in 2017.
Alan S. McKim (Chairman and CEO)
Yeah.
Joe Box (Analyst)
Okay, appreciate that. Thank you, guys.
Michael L. Battles (EVP and CFO)
Yep.
Operator (participant)
Thank you. Our next question is coming from the line of Larry Solow with CJS Securities. Please proceed with your question.
Larry Solow (Analyst)
Good morning.
Alan S. McKim (Chairman and CEO)
Hey, Larry.
Michael L. Battles (EVP and CFO)
Hey, Larry, how are you?
Larry Solow (Analyst)
Good, good, good. Just a couple of follow-ups on, just a little drilling on the technical services side. Just on the incinerator, so, looks like capacity utilization was about, I think, 88% in the U.S. As El Dorado comes on board online, I guess, next year in full, you know, do you expect that this number to, I assume, obviously come down a little bit on a relative basis, but, is there sort of some waste streams that are not being processed today that will, you know, will only go to-- will be aided by El Dorado?
And do you sort of need a pickup in this industrial production, you know, as an aside, to really get, you know, things going on, on the technical services side, or some of your initiatives, including El Dorado, gonna help without even getting a necessary pickup in industrial production?
Alan S. McKim (Chairman and CEO)
Yeah, a couple things. I mean, we tend to have about $30 million in deferred, you know-
... in the waste and inventory. So certainly we have capacity constraints with some of our plants today. Our drum business has been extremely strong.
It's more been with our bulk business, although we have seen that picking up. We've also seen some great opportunities on the captive side. You know, the report that just came out last week for us from our team that's really focused on that is looking at new proposals. I think we touched on it in Q2 with some of the recent-
... chemical consolidation that have taken place. Some of those captive incinerators, you know, will be looking now to outsource. So we feel very good about the capability, and we're and the demand. And we're actually, you know, setting up long-term contracts with a number of key customers, particularly to do with the unique direct burn capability that this plant now has. So I have no concern that El Dorado isn't gonna find, you know, a great spot in the market here.
Larry Solow (Analyst)
Okay.
Michael L. Battles (EVP and CFO)
So, Larry-
Larry Solow (Analyst)
Yeah, please.
Michael L. Battles (EVP and CFO)
As you think of January, this thing comes online, you know, we're not going to be at 88% kind of-
Larry Solow (Analyst)
Absolutely.
Michael L. Battles (EVP and CFO)
We'll try to make sure we kind of speak to that and talk about-
Larry Solow (Analyst)
Right
Michael L. Battles (EVP and CFO)
...the different two as we kind of color it, because it's going to take time, and, you know, day one, you put that much capacity online, it just doesn't, it doesn't solve itself. But Alan's points are spot on, though. I think that, I think that there's a good trajectory out there for that, that new incinerator, because its unique capabilities are going to ramp up relatively quickly.
Larry Solow (Analyst)
Great, understood. And then, on just turning quickly to the industrial field segment, just the outlook for plant turnarounds, obviously, this year or the last couple of years, we were supposed to, you know, get a little bit of a cyclical turnaround, and things have been more pushed out, more emergency turnaround or work. Obviously, that's helped you a little bit. What's your thoughts as you look into 2017?
Alan S. McKim (Chairman and CEO)
You know, I would characterize it again, Western Canada has really been, you know, essentially shut down with-
... with any kind of spending and any kind of delays of costs that they could put in place to spend money there. And so our industrial business, both in the oil sands and the Alberta market particularly, has really been negatively impacted. And, you know, we're not anticipating that to get any stronger, to be honest with you. So, you know, we're really trying to get, you know, our business right-sized and, you know, focus on, you know, maybe even expanding outside of that energy space, because so much of our industrial has been refinery and oil-related, so moving into some of the other industries that we probably haven't penetrated enough yet.
Larry Solow (Analyst)
Okay. And then just lastly, on the healthcare and medical waste initiatives, I think if I look back over the last few years, if I'm not mistaken, I know you had tried to, or at least in certain areas, ramp up these initiatives. Sort of, can you just give us a little bit what, you know, what's different this time? And I guess you assume you'll, you know, be taking some share from competitors.
Alan S. McKim (Chairman and CEO)
Yeah, yeah. Well, number one, it certainly is a growth market, that-
... we see. And number 2, this is our first, you know, this is... We were in the healthcare services back in the early 1990s, and so we got out of that business, you know, a long time ago. And so for the past four or five years, you know, we certainly provide service to the healthcare industry, retail-
Larry Solow (Analyst)
Right
Alan S. McKim (Chairman and CEO)
... you know, pharmaceuticals, so forth. And, you know, we do in excess of $50 million in this space. But as far as going out and servicing sharps and red bag waste, we have not done that, you know, in 20 years. So, it was about time. The demand is there, the market is growing, and, you know, a strong number two competitor, quite frankly, is needed in the marketplace.
Larry Solow (Analyst)
Absolutely. Okay. Great. Thanks, Alan.
Michael L. Battles (EVP and CFO)
Yeah, Larry, we've made investments in a small amount of investment in certain types of trucks and certain types of routing to kind of meet that demand in certain markets. And so it's going to be a slow roll as we roll into 2017 and beyond, but we're excited about the opportunity.
Larry Solow (Analyst)
Excellent. Appreciate it. Thanks.
Operator (participant)
Thank you. Our next question is coming from the line of Michael Hoffman with Stifel. Please proceed with your question.
Michael Hoffman (Analyst)
Hi, thank you very much. If we could start with the technical services, Alan, what’s the percentage of revenues in your landfill business that’s from, or, you know, an industrial production, recurring waste volume versus project today, versus what you thought it was going to be in 2016, when you laid out the original guidance?
Alan S. McKim (Chairman and CEO)
Yeah, I'd be guessing, Michael, on the percentage.
Michael L. Battles (EVP and CFO)
Yeah. It's tough to guess. A big part of our landfills are based on projects versus recurring. It's tough to kind of put an exact number because because it moves around so much. But I would say that, I don't know, Jim, what we said in the past, but it's maybe-
James M. Buckley (SVP of Investor Relations)
Yeah, I mean, in general, Michael, it's a 50% base and 50% project. That's how we've always presented landfills. And if you look at-
Michael Hoffman (Analyst)
Okay, but that's not big portion. You just said big portion.
Alan S. McKim (Chairman and CEO)
Well, if you look at the drop from last year, Q3 to Q3, it's a 49% drop. And if we were to dissect that, most of that is large projects that we worked on last year, some of which were Oil and Gas related, but they're projects that aren't, you know, haven't been replaced this year. And so that's why the volume drop off has been so significant.
Michael Hoffman (Analyst)
Yeah, no, I get that. I'm just trying to understand if I start with this is... You think it's near a bottom, is the landfill today filled 90% with recurring volume and 10% with project, because that's how low it got?
Michael L. Battles (EVP and CFO)
That's not-
Alan S. McKim (Chairman and CEO)
Probably not a bad-
Michael L. Battles (EVP and CFO)
That's not a crazy, not a crazy answer.
Alan S. McKim (Chairman and CEO)
Not a crazy answer, yeah.
Michael Hoffman (Analyst)
Okay. All right. That helps. And then I know that there was a question about the turnarounds. I'm not sure I understood it correctly, so I'm going to ask it again. Did you not see a normal turnaround season this year, as anticipated?
Michael L. Battles (EVP and CFO)
Well, we did. We certainly saw some turnaround work, but at the end of the day, it was at kind of what price point, right? And so we are under kind of... The utilization in that part of the business is still pretty good, but at kind of much lower prices. So, certainly as it relates to kind of Western Canada and other parts that are in the energy sector, you know, we are under kind of, you know, as other companies in our space are, under incredible price pressures. So that is kind of, I guess, a downward pressure.
Alan S. McKim (Chairman and CEO)
The other thing I would add, Michael, is last year, in both Q2 and Q3, our unplanned work in the turnaround group was larger than our planned work, and that was not the case this year. So to Mike's point about even pricing and rates, clearly, when we're on an unplanned outage-
... it's at a much higher margin and work rate than it is on a planned basis. So most of the planned work went off as scheduled this quarter. There just wasn't the unplanned outages, as Alan mentioned in his script.
Michael Hoffman (Analyst)
Okay. Are you anticipating a sequential decline in the margin in Q4? You did 12.4 in Q2, Q3.
Michael L. Battles (EVP and CFO)
Repeat the question, Michael. I'm sorry.
Michael Hoffman (Analyst)
Do you expect a sequential decline in profit margins in that business in Q4 versus Q3? You did 12.4% adjusted EBITDA margins.
Michael L. Battles (EVP and CFO)
I'll have to get back to you with that specific number. I don't have the kind of the work paper in front of me.
Michael Hoffman (Analyst)
Okay. But so, I mean, what I guess I'm also trying to get to is, it would appear that we're getting, the business now looks like it's structurally living in a, you know, 12%-14% EBITDA margins in the more active quarters, and there's still the seasonal dip in the first quarter. That, that seems to be the trend at this juncture, given where your, your commentary about pricing and activity levels.
Alan S. McKim (Chairman and CEO)
Yeah, that's probably fair, Michael.
Michael Hoffman (Analyst)
Okay. All right. And then with regards to the free cash flow, don't want to get over my skis, but I did just want to frame this. If, if I take the midpoint of this year at $125, you don't spend El Dorado next year, I'm at $175, and there's growth of 3%-5%. Is that the right way to think about it?
Michael L. Battles (EVP and CFO)
Well, in that $125 is a sale of a business, right?
Michael Hoffman (Analyst)
Okay.
Michael L. Battles (EVP and CFO)
So I think we're on the same, the catalyst sale of, you know, $50 million.
Michael Hoffman (Analyst)
Got it. All right.
Michael L. Battles (EVP and CFO)
Let's start-
Michael Hoffman (Analyst)
All right, so I got to take 75 plus the 50 and then some kind of growth. So I'm basically looking at free cash probably as flat year-over-year in 2017.
Alan S. McKim (Chairman and CEO)
I think with the higher EBITDA, you should have-
Michael L. Battles (EVP and CFO)
Yeah, we should have some more of that. And then also, you know, Michael, I would say we're not done selling businesses. And so just so we're on the same page, we are-
Alan S. McKim (Chairman and CEO)
Yeah
Michael L. Battles (EVP and CFO)
... We are looking at other opportunities that are out there, so it won't kind of population of one.
Michael Hoffman (Analyst)
Okay. So, Alan, I apologize if this comes out too aggressive, but I'm not sure how to ask any differently. What gives you confidence that you can predict aspects of the business that are more nonrecurring in nature, so it's dependent on somebody making a decision, as opposed to there's the stream of activity that happens, and you participate in your share or better? What gives you confidence you can predict that?
Alan S. McKim (Chairman and CEO)
Well, I think, you know, we have, you know, biweekly calls here on key performance indicators across all our different lines of business. And, you know, as you know, Michael, this past year and a half, we have substantially invested in sales. We have added a tremendous amount of sales and business development leaders. That certainly hasn't materialized in our top line. But one thing we, I think, have today better than we've ever had, is visibility into what lines of business, what's happening with our competition, you know, what does the pipeline look like? And, I would say that, you know, coupled with, you know, sort of our every other week forecast call, I think we're getting better and better visibility into what we, quite frankly, have just experienced.
Because the last 24 months has been, you know, as you all know, catching a falling knife here with how the price of oil has permeated through, you know, the reductions in spending by many, many, many customers of ours, directly and indirectly related to energy. So I feel pretty confident about it.
Michael L. Battles (EVP and CFO)
Michael, I would add to say that we've made investments, as Alan said, made investments in sales headcount, but also made investments in sales systems to help us track that better and to get better, better, more accountability, more metrics and, and, and investment in leadership, as, as Alan mentioned in his prepared remarks, to kind of drive that, drive that sales across the organization.
Alan S. McKim (Chairman and CEO)
Yeah.
Michael Hoffman (Analyst)
Okay. So, I mean this next question with a little bit of humor, but, you know, New England humor is, you know, you say yonder, and it can be 10 to 2 yards and 20 miles. So what's upper 400s mean? 470 or 490?
Michael L. Battles (EVP and CFO)
We have to go through our...
Alan S. McKim (Chairman and CEO)
Yeah.
Michael L. Battles (EVP and CFO)
Go ahead.
Alan S. McKim (Chairman and CEO)
Maybe I'll just comment-
Michael L. Battles (EVP and CFO)
Go ahead
Alan S. McKim (Chairman and CEO)
... one thing. I mean, for the last three years, the company generated $500+ million of EBITDA, and that was certainly our budget this year. We are extremely disappointed where we're coming in. Even if you add back the severance and integration costs, you know, the team has worked extremely hard in a really, really difficult market. All of us would be very, very, you know... It would be very important for us to get back to that level that we're at. But when you consider that we've lost about $150 million of EBITDA from our Oil and Gas and Lodging business over the last two years, it has been, you know, a very, very difficult market for us to kind of work our way out of, as that deterioration took place.
So getting back to that $500 million plus level, considering that $150 million is kind of not in that number anymore, I think would be a wonderful, a wonderful win for the company.
Michael Hoffman (Analyst)
Okay. Mike, last question. What is the rollover of the current $100 million to be captured in a waterfall on your EBITDA in 2017, and then what's your contribution of the new KPP expectation in the 2017? So if I take $400 as the floor, add what from the rollover of cost and then the new?
Michael L. Battles (EVP and CFO)
Yeah, no, I get it. You know, we have the old plan, and I think we're going to exit the year kind of well north of any number we've kind of announced publicly. So, you know, and we have the new plan, which is still in the formation stage. As Alan said, it's a gross number. You know, we're still working through that. I'd say we kind of go into 2017 with a kind of $30-$40 million of goodness, based on kind of both, you know, both severance and both plans we're putting in place.
Michael Hoffman (Analyst)
... Okay, that's helpful. Thank you very much. Appreciate it.
Alan S. McKim (Chairman and CEO)
Thank you.
Operator (participant)
Thank you. The next question is coming from the line of Al Kaschalk with Wedbush. Please proceed with your question.
Albert Kaschalk (Analyst)
Hi, good morning, guys.
Alan S. McKim (Chairman and CEO)
Good morning, Al.
Michael Hoffman (Analyst)
Hey, Al.
Albert Kaschalk (Analyst)
I wanna focus. I know you don't wanna talk about the guidance, but you put it out there, and I'm wondering if you could help us, just from a large bucket perspective, talk about the components to the growth. And I know you've described them as cost initiatives and acquisition, but can you add a little more detail around that? Whether it's 20%, 50%, the majority of it's coming from X, the majority is coming from Y. We're just out there with some numbers now that certainly need to come down from a consensus standpoint, but help us on the roadmap there a little bit, yet without the formal guides.
Michael L. Battles (EVP and CFO)
Sure, no problem. So, you know, we'll, you know, as we said, we said high 400s for a reason, right? Is because we got to go through a budget process, and we have to—we don't just can't look at all the positives. I'd love to take, you know, add the closed loop and add the cost, cost initiatives and add kind of healthcare and add, and, and add El Dorado incinerator and, you know, and, and, and do all the goodness and then come up with a number that's, you know, that looks awesome. But we got to go through a budget process because there are some, some, you know, some things go back and forth, and we got to be careful about that. And so, and so, you know, I'd hate to kind of go into very specifics by pillar.
I will say that we debated a lot. That sentence was debated quite a bit among the people in this room and with our board, and so we feel confident that, you know, kind of high 400s is a good midpoint again. But we have to go through a process and go through it by pillar. We have meetings going in November. People are, my team and the executive team are working hard to kind of work our way through that to make sure we come up with the thoughtful numbers, kind of, so we can come back to you and give you kind of good guidance. But I'd say today, it's high 400s. We have, as Alan said, we have a lot of good initiatives that are out there.
Some will go fast, some take longer. We're putting another cost action in place. We're working through that and executing against that here in Q4 and in Q1. And so we feel positive for the future from an EBITDA standpoint. And as Alan said, no one's more disappointed about kind of where we're landing here in 2016 than we are, and we're hopeful that 2017 is gonna be a good bounce back year.
Albert Kaschalk (Analyst)
Okay.
Alan S. McKim (Chairman and CEO)
I know you're looking for-
Michael L. Battles (EVP and CFO)
You want, you want it by segment, you want to segment this and this is-
Albert Kaschalk (Analyst)
No, no. Look, and, and in fairness here, in fairness here.
Alan S. McKim (Chairman and CEO)
We can tell you, I mean, the momentum in Safety-Kleen is gonna continue and substantially improve. We believe, as I mentioned in my opening remarks, you know, we believe we can get that business at a 30% EBITDA business, and we can see that. You know, we're in the fifth inning here, and we really believe that we've got some great opportunities in that business to grow both the top line and leverage the bottom line there. So I think you can appreciate not only the cross-selling that's going on between Safety-Kleen and our, you know, legacy field service, tech service business, but really the opportunity now to cross-sell with KPP, to be able to go out and sell product direct to our customers.
That, you know, we're very optimistic about that. Not overly optimistic for next year, but I think you could say that, you know, just look at the Safety-Kleen growth and EBITDA improvement over the next 3-4 years, and we're really excited about that acquisition we made.
Michael L. Battles (EVP and CFO)
As we put thoughts around 2017, you know, we don't think that there's a big bounce back in Oil and Gas and Lodging. We don't think there's a big bounce back in industrial. Like, we just don't; we're not anticipating those guys to be, you know, kind of, you know, everything's great. You know, we do expect, you know, some growth from tech. We do expect KPP and SK Environmental to continue to produce. We have some very modest assumptions around some of our new initiatives, whether it be healthcare services or daylighting. So, I think it's reasonable, but again, we got to go through a kind of a process to kind of validate that.
Albert Kaschalk (Analyst)
Okay, then that's fair enough. I guess the two pieces that I was hoping to get some color and maybe to clarify for the market is the contribution on the Tech Services side from El Dorado, and then secondly, the acquisitions that you've announced. I don't know if those were necessarily revenue generating per se, as opposed to capabilities, and I'm thinking specifically about the packaging component. But are there specific things from an acquisition standpoint that you have on board now that will help you just from an execution standpoint, drive towards that upper 400 number?
Alan S. McKim (Chairman and CEO)
Yeah.
Michael L. Battles (EVP and CFO)
So, Al, yeah, so, you know, without getting too specific, you know, the El Dorado incinerator, I'd say 5-10.
And I'd say, I'd say on the acquisitions, you know, you know, 30-40 or 30-45 of incremental EBITDA coming out of those, out of those, and that's primarily around the closed loop, as Alan mentioned. And so, but I don't want to get too much more specific than that. Again, we got to go through a process, but that's-
Alan S. McKim (Chairman and CEO)
I think it's really important, too, that the acquisitions we made, and you continue to see the continued improvement with Safety-Kleen and KPP this year-
Michael L. Battles (EVP and CFO)
That's no accident.
Alan S. McKim (Chairman and CEO)
You know, they're not reported as, you know, under those particular acquisitions and sort of integrated in those two businesses, and you're gonna continue to see those numbers more and more show up in Safety-Kleen and KPP, right?
Michael L. Battles (EVP and CFO)
Right. When I give you that type of number, it's gonna be in SK Environmental-
Alan S. McKim (Chairman and CEO)
Yeah
Michael L. Battles (EVP and CFO)
... and in KPP.
Alan S. McKim (Chairman and CEO)
Yeah.
Michael L. Battles (EVP and CFO)
That's where, that's where it's gonna primarily show, even though there were some Part B permits and other things that we were using in tech and in industrial field for it.
Albert Kaschalk (Analyst)
Okay. I don't know if it's fair to say or not, but you did comment at some point, either in the prepared remarks or in a question, but more asset sales or potential asset sales? I know everything is, you know, you're focused aggressively on getting the cost in line and looking now for the growth component. But is there anything more you can shed on in terms of the divestitures or non-core businesses in that process, please? Thank you.
Alan S. McKim (Chairman and CEO)
Sure. Yeah, as you know, we went through a pretty elaborate review in a couple of years ago, and certainly updated the board again in September. We still do have a number of lines of business that you know, we feel probably, you know, we're not the natural owner for, and so we're looking at divesting some of those businesses and also looking at all the certainly all the rolling stock and the assets that we have that have been tied up in the Oil and Gas business and repositioning it, reallocating it to other parts.
So there's been a lot of effort on both, externally looking at selling, some of those, you know, non-core businesses, as well as, you know, moving assets, out of these, markets that have been decimated with the price of oil. So I you know to you know it would be premature for us to kind of talk about which ones, here, you know, because we need to go through the process, but we'll certainly keep you, you know, informed as we go.
Albert Kaschalk (Analyst)
Excellent. Thanks, guys. Good luck.
Alan S. McKim (Chairman and CEO)
Yeah, thank you.
Michael L. Battles (EVP and CFO)
Thanks, Alan.
Operator (participant)
Thank you. The next question is coming from the line of Sean Hannan with Needham & Company. Please proceed with your question.
Sean Hannan (Analyst)
Yes, thanks. Good morning, folks. First question here, primarily for Mike, just wanted to see if I could get some type of a number around normalized SG&A when you're pulling out that outside severance integration from the quarter. What would that have been versus the $111 million? And really, what can you get to from a dollar spend standpoint?
Michael L. Battles (EVP and CFO)
So, Sean, I'd say that in of the $20 million we have this year, I'd say, is it half?
Alan S. McKim (Chairman and CEO)
In the quarter, Sean, it was $5 million on the SG&A side. That was severance integration. Year to date, it's about $13 million. I'm not sure what it would be in Q4.
Michael L. Battles (EVP and CFO)
Looking into 2017, so looking into 2017, we have kind of cost actions in place that if you think of kind of the, say, the early 2016 kind of cost action plan, I'd say a majority of those costs were coming out of, let's say, cost of goods sold. They were direct headcount, they were areas that affect travel costs within direct sales, and so the direct headcount, and so that was, I'd say, you know, let's say 70-30, right? The second, this new one we're talking about now is more focused on G&A than on, than on, let's say, direct headcount. And so we're hopeful as we go into 2017, you know, that's gonna be, you'll see, you know, kind of a 2017 number that is, you know, below kind of what we're looking at here for 2016.
Sean Hannan (Analyst)
Okay. That's helpful. And then if you could perhaps, Alan, expand a little bit more. Haven't heard too much today on the views of the progress you're making in pulling out that Oil and Gas business and logistics. Should we interpret that maybe on one side of the coin, some of the signs of stability and energy could provide a little bit of optimism in getting that accomplished in some near quarters? Or, on the other side of the coin, the actions you're taking, pulling out some of the assets there, repurposing them, should that be interpreted as maybe some signals your cost has been pulling back more recently? Just some more color there would be great. Thanks.
Alan S. McKim (Chairman and CEO)
Yeah, we're really keeping all of our options open, as you can. You know, we've spent quite a bit of money auditing that business, being able to meet, you know, the new international accounting standards, position the options that we now have. So I would say that, in light of sort of the deterioration in the market, and then certainly the Fort McMurray fire and how that particularly shut down one of our major customers who haven't started back up again, quite frankly, and that had a big reduction in our industrial business, but also a huge reduction in one of our landfills. So, just that one incident really set us back quite a bit in that market. So I think we have several options.
We just, we wanna make sure that we do everything that's right for the employees and the customers we're servicing today, first and foremost, and then make sure that we're positioned to have alternatives. But right now, we're, you know, we're running that business. It's our company, and, and we're running it, and, we wanna make it a profitable business.
Sean Hannan (Analyst)
Okay. And then last question here. In terms of the daylighting efforts, can you perhaps remind us what type of revenues you're generating already in that type of an effort today? And then a little bit more specificity around, you know, the types of dollars you're putting to use to build that out and what you could see as relevant revenue opportunities. Thanks.
Alan S. McKim (Chairman and CEO)
I don't have that number, the revenue on top, but we have about 130 units. As we mentioned, we've been repositioning as the market has changed in the Oil and Gas space, we repositioned that into the Gulf and into the western, you know, the Western U.S. market. We're actually opening up a couple of other branch locations. All of this is done at an existing location. I mean, one of the things, whether it's healthcare or daylighting, or you're looking at Safety-Kleen's expansion, the company has over 700 locations. We can really leverage that infrastructure, leverage all that transportation, you know, maintenance, everything. So even though we're opening up new branches, it's always at an existing location that we're just leveraging and expanding.
So moving those 130 rigs, you know, in comparison to, you know, we've got a couple of competitors, probably have 400 of those rigs, and, you know, Badger's got 1,000 of them, right? So, you know, we're, you know, we've been in that business predominantly in Western Canada, and now we're expanding it into the U.S., and we, you know, we expect to continue to add more trucks to that fleet as this takes off.
Michael L. Battles (EVP and CFO)
I don't think-
Sean Hannan (Analyst)
Okay, and
Michael L. Battles (EVP and CFO)
I don't think, Larry, it's a huge capital investment.
Sean Hannan (Analyst)
Sean.
Michael L. Battles (EVP and CFO)
Excuse me, Sean. I don't think it's a huge capital investment as we look at kind of 2017 to kind of get into-
Sean Hannan (Analyst)
Yeah
Michael L. Battles (EVP and CFO)
... these markets. It's repositioning assets. It's a modest investment, leveraging our current footprint.
Alan S. McKim (Chairman and CEO)
Yeah, we could stay within that $160-$170 capital and still meet our needs on both-
Michael L. Battles (EVP and CFO)
That's right
Alan S. McKim (Chairman and CEO)
... healthcare and daylighting.
Michael L. Battles (EVP and CFO)
That's right. That's right. That was done in contemplation of those two initiatives.
Sean Hannan (Analyst)
Okay, great. Thanks for taking my question.
Alan S. McKim (Chairman and CEO)
Yep. Thanks, Sean.
Operator (participant)
Thank you. Our next question is coming from the line of David Manthey with Robert W. Baird. Please proceed with your question.
David J. Manthey (Analyst)
Yeah. Hi, guys. I hope we can talk a little bit about strategy here. I'm wondering why you decided to sell the catalyst business. I thought that was a tie-in with your other industrial services and turnaround businesses. Does that imply that you're backing out of industrial services as well, or just the energy part, as you referenced earlier, Alan?
Alan S. McKim (Chairman and CEO)
You know, the catalyst business, you know, it just seemed to fit, you know, with another, you know, company that bought it, obviously, who does a lot more of that, you know, specialized reactor work, you know, bolt, you know, so, you know, the whole bolt tightening, the work that goes on to these catalyst treatment units. It was more synergistic than it was with our disposal and our normal day in and day out industrial work, if you would. And so, it just seemed to make more sense when we looked at it. And we, you know, we made a good gain on that when we sold those assets. I think the gain, Michael, was roughly?
Michael L. Battles (EVP and CFO)
Fifteen million.
Alan S. McKim (Chairman and CEO)
$16 million. So I think, I think we did a good job of, of divesting that. And I, I don't think we're backing out of industrial per se, but really just looked at that was a one-off.
James M. Buckley (SVP of Investor Relations)
Yeah, yeah, Dave, this is Jim Buckley. In talking to the industrial team about it, they had said that this was much more of an à la carte type of sale for us, that because these things are done on a 12-month, 14-month type interval, they're not directly tied to the turnarounds as much as our pigging and chemical cleaning and some of the work we do with furnaces and others. So that it was much easier to separate from industrial. It wasn't, you know, you're taking something out, and it's gonna unravel the whole ball of yarn.
David J. Manthey (Analyst)
Okay. And, just for, for accounting here, can you tell us what segment that was in, in your previous reporting? And then if you could give us an idea of kind of the run rate, quarterly run rate of revenues and EBITDA?
Michael L. Battles (EVP and CFO)
Sure. It was in our industrial and field segment. The EBITDA number was very small. It was for the first, you know, eight or nine months. I don't know, Jim, if you know the number. I think it was tiny.
James M. Buckley (SVP of Investor Relations)
Yeah, I think the fifty-five million was the revenue last year, which is what we mentioned when we announced the sale. That was sort of the annualized revenue, and the EBITDA was-
Michael L. Battles (EVP and CFO)
1 to 2.
James M. Buckley (SVP of Investor Relations)
Yeah, I think for last year, it was in the mid-single digits. Yeah.
David J. Manthey (Analyst)
Okay. Thank you. And then finally, on the closed loop offering, when you say you're launching this, I'm wondering, when you say you're launching it, is that that you already have contracts lined up that you're going to begin servicing? Does it mean that you're just putting the trucks out first and then offering to sell it? I'm just trying to understand how you're rolling it out and how it should look as it comes into your P&L.
Alan S. McKim (Chairman and CEO)
Yeah. Our, our initial launch is really to do with our packaged products, so you know, our drums, our totes, and our packaged products being distributed through the distribution centers and the Safety-Kleen branch network. And so that is underway as we speak. And, and so we've been, you know, training our sales organization. Safety-Kleen has about 450 salespeople, and so we've been training that, that sales organization who already sells, you know, close to $100 million of other allied products, which include, you know, other chemicals and, and supplies. So, it, it's, it's first and foremost, you know, selling our, our packaged products.
And then, like Chicago and like, out in, New York, selling bulk material, where we're actually, you know, putting bulk trucks that deliver, you know, large full truckload quantities or square trucks out there. That, that is sort of a rollout over the next three or four years across those 80 terminals that we have.
David J. Manthey (Analyst)
Right. But, you know, as you put those trucks into the markets, do you already have contracts lined up, or are you putting the trucks out and then going out to the market?
Alan S. McKim (Chairman and CEO)
You know, it depends. In some markets, you know, we have strong relationships with our distributors who provide the services for our customers in those markets today, and we'll continue to work with, you know, those good partners that we have. In other cases, we have very limited distribution and have the capability to distribute, so we'll do it ourselves. And so some of the contracts exist, and it's just flipping them over. In other cases, it's building, you know, new contracts, and we're working on that, you know, as we speak.
David J. Manthey (Analyst)
Okay, so it sounds like it, it layers in over time. There's no step function here.
Alan S. McKim (Chairman and CEO)
Sure. Yeah.
David J. Manthey (Analyst)
Yeah.
Alan S. McKim (Chairman and CEO)
It's, it's-
Michael L. Battles (EVP and CFO)
It, it depends on the customer, you know, David. It depends. If you're talking about a mom-and-pop kind of oil change shop, it's just there's no contract per se. It's going out there and offering these products to that shop. If it's through a national chain, well, then, yeah, it's more of a negotiated contract.
Alan S. McKim (Chairman and CEO)
Yep.
David J. Manthey (Analyst)
Got it. Okay, thank you very much.
Alan S. McKim (Chairman and CEO)
Thanks.
Operator (participant)
Thank you. As a reminder, if you'd like to ask a question at this time, please press star one on your telephone keypad. Our next question is coming from the line of William Griffin with Barclays. Please proceed with your question.
William Griffin (Analyst)
Hey, guys. Good morning.
Alan S. McKim (Chairman and CEO)
Good morning, William.
William Griffin (Analyst)
You noted that RFO had decreased by $0.04 this quarter. I was just wondering what you're seeing out there in terms of competitors charging for oil, and how is that impacting the RFO price you're able to get? And secondly, just wondering if you could talk about the sensitivity of RFO to oil prices, and at what point you'd expect that to swing back to either neutral or even pay for oil? Thanks.
Alan S. McKim (Chairman and CEO)
Thanks. Yeah, I think it's a long ways away before we would see that get back to neutral or pay for oil. You know, the markets are extremely volatile, as we all know, and we have lost some volume as anticipated, particularly in some of those large national accounts where, you know, some other service providers may be willing to provide that service at a no charge or less charge than what we're currently providing. We've actually recently got re-awarded some business, placing tanks back at some of those sites now where they couldn't get the service they were looking for.
So I think, you know, during this time of change in the market, you have a lot of churn, and a lot of customers unhappy about, you know, receiving a check and now charging for oil. But we also think that they've moved more towards a charge directly to their customers, realizing that, you know, the price of oil is, it's costing them to get rid of the oil. It's costing them the money to get rid of their oil filters. The price of metal, recycled metal is way down, so price to get rid of waste antifreezes is gone up. So all of these kind of commodities have been under so much pressure that, you know, you lose a little bit of volume during all this transition.
But I think all in all, customers are now adapted to it, and I think our competition is, you know, has adapted to it as well, quite frankly.
William Griffin (Analyst)
Great. Thank you.
Alan S. McKim (Chairman and CEO)
Yep.
Operator (participant)
Thank you. It appears we have no additional questions at this time, so I'd like to pass the floor back over to management for any additional concluding comments.
Alan S. McKim (Chairman and CEO)
Okay, thanks. Thanks for joining us today. We will be attending a number of upcoming events with investors, starting with the Baird Industrial Conference in Chicago and a Stifel event in Baltimore next week. We look forward to seeing you there, at other conferences in the months ahead as well. So thanks again for joining us today.
Operator (participant)
Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation, and you may disconnect your lines at this time.