Republic Services, Inc. (RSG) Q2 2021 Earnings Report, Transcript and Summary

Good day, and welcome to the Second Quarter 2021 US Ecology Incorporated Earnings Conference Call. All participants will be in a listen-only mode. [Operator instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Eric Gerratt, Chief Financial Officer. Please go ahead, sir.

Good morning and thank you for joining us today. Joining me on the call this morning are Chairman, President, and Chief Executive Officer Jeff Feeler; Executive Vice President and Chief Operating Officer, Simon Bell; and Executive Vice President of Sales and Marketing, Steve Welling. Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include, but are not limited to, those discussed in the company's filings with the Securities and Exchange Commission. These risks and uncertainties also include, but are not limited to, statements regarding the continued impact of the ongoing COVID-19 pandemic, the macroeconomic impact of specific end markets in which we operate, and our expectations for financial results for 2021. Management cannot control or predict many factors that determine future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only on the date such statements are made. We undertake no obligation to revise or update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. For those joining by webcast, you can follow along with today's presentation. For those listening by phone, you can access today's presentation on our website at www.usecology.com. Throughout yesterday's earnings release and our call and presentation today, we refer to adjusted EBITDA, adjusted earnings per diluted share, cash earnings per diluted share and adjusted free cash flow. These metrics are not determined in accordance with generally accepted accounting principles and are therefore susceptible to varying calculations. A definition, calculation, and reconciliation to the financial statements of adjusted earnings per diluted share, cash earnings per diluted share, adjusted EBITDA, and adjusted free cash flow can be found in Exhibit A of our earnings release. We believe these non-GAAP metrics are useful in evaluating our reported results. With that, I'd like to turn the call over to Jeff.

Thank you, Eric, and good morning to everyone joining the call today. I would like to begin first by personally thanking all of my colleagues on the US Ecology team who are working hard to continue to keep people and our environment safe for our communities. Our emergency response teams are currently responding to the wildfires that are impacting the western parts of the United States and Canada, protecting critical infrastructure that we all depend on. My thoughts and well wishes are with these team members and all of those that are involved for their continued safety in these challenging times. Turning to our second quarter results, for those that are following the webcast presentation, I'll direct your attention to Slide 5. Strong industrial trends and solid momentum continued to accelerate in the second quarter of 2021, allowing us to drive revenue growth across each of our business segments, with total revenue up 13% compared to the second quarter of 2020. Due to project deferment and unfavorable service mix in the quarter concentrated primarily in our Waste Solutions segment, our results came in below expectations, both from a margin and EBITDA perspective. We do expect to see continued improvement in the coming months and quarters. Turning first to Field Services, our strong execution in this segment delivered double digit revenue growth and EBITDA growth when stripping out a contingency consideration gain recorded in the second quarter of last year. This growth was reflected across substantially all of our service offerings. We are encouraged by the recovery and remain confident in our ability to more than offset the COVID-19 decontamination work that we had last year. Our energy waste segment delivered results ahead of expectations and reported its fourth quarter of sequential EBITDA improvement with rising disposal volumes driven by improved rig counts and related business activity. We remain encouraged by the trends in our energy waste segment with oil remaining above $70 per barrel. Our waste solutions segment returned to revenue growth in the second quarter with strong base business revenue growth, up 7% from the second quarter last year and is up 3% sequentially from the first quarter earlier this year, reflecting broad improvement in our end markets, including metals manufacturing, mining and E&P, general manufacturing, and chemical manufacturing. With this growth, our base business is up 2% in the first six months of the year compared to the first six months last year, keeping us on track to achieve our expected base business target growth of 5% to 7% for the full year. The growth in this segment reflects an overall improvement in the industrial sector that we are seeing in our services side of the business as well as those industrial production metrics that are being reported. However, some industry headwinds remain as customers continue to manage through supply chain disruptions, labor challenges, and transportation shortages, while others, like our refinery based customers, are managing their maintenance spending to focus on free cash flow generation. We expect these headwinds to lessen over the coming quarters. Additionally, our base business growth is being further constrained by third party incineration capacity, which is causing restrictions in our waste receipts across the industry. Our waste solutions segment was impacted during the quarter by a 13% decline in event business compared to the second quarter last year, due in large part to projects shifting to the back half of the year and into 2022, along with the early completion of a few larger projects. The event business revenue decline had a disproportionate impact on our second quarter margin due to an unfavorable service mix as replacement projects were at a lower average selling price and margin profile compared to the second quarter last year. Overall, the second quarter we delivered adjusted EBITDA of $34.2 million and generated free cash flow of $11.6 million. Despite the year-over-year decline in adjusted EBITDA, we continue to see strong fundamentals driven by the industrial recovery as seen by our solid base business and services revenue growth, which is expected to continue into the second half of the year. Before I turn the call back over to Eric to further review our financial results, I want to provide a quick update on some of our latest sustainability initiatives. Providing environmental solutions for our customers' complex needs is at the heart of what we do, and we have compiled a nearly 70 year history of regulatory and operational expertise. This week, we released our 2020 ESG Supplement Report, which is available on our website that builds upon our previously issued sustainability report and includes more detailed disclosures based off SASB, an independent nonprofit that develop sustainability accounting standards. I want to take a quick moment and point out a couple of highlights from this report. On the environmental front, in 2020, we protected our environment by ensuring safe treatment, recycling, and final disposal of more than 4.6 billion pounds of customers' hazardous waste. We also treated more than 68 million gallons of wastewater and recycled more than 22 million pounds of metal and more than 1.7 million gallons of oil. We are pleased to report that 39% of our power consumption used in our facilities in 2020 came from renewable energy sources. We are making significant progress gathering our baseline greenhouse gas emissions data in 2021 and are on track to publish these results and reduction goals by the end of the year. On the social front, our Inclusion and Diversity Committee continues to promote our shared values of diversity, equity, and inclusion and improve engagement with employees. We are dedicated to promoting a culture of safety. And while we are already significantly better than industry average statistics, we continue to bring down the number of safety incidents and accidents across our organization. We also recognize the difficulties of the ongoing pandemic has had on our team members and have provided more than 46,000 hours of incremental COVID related paid time off for our team members to deal with these uncertain and trying times. We are proud of the special culture we've created here at US Ecology that is built on inclusion, respect, protecting the environment, and continuous improvement, and we look forward to continue building on this strong foundation. With that, I'll turn it back to Eric.

Thanks Jeff. Starting with consolidated results on Slide 8, revenue for the second quarter of 2021 was $240.8 million. Revenue for the waste solutions segment was $108.4 million for the second quarter of 2021, up 5% compared to $103 million in the second quarter of 2020. The increase was driven by a 4% increase in treatment and disposal revenue and an 11% increase in transportation revenue. As Jeff mentioned, the growth in our treatment and disposal revenue was due to a 7% increase in base business, partially offset by a 13% decrease in event business in the second quarter of 2021 compared to last year. The Field Services segment delivered revenue of $124.7 million in the second quarter, up 20% compared to $103.5 million in the second quarter of 2020. The increase was across most of our field services business lines. Total gross margin was 23% in the second quarter, down from 26% in the second quarter last year. Gross margin for our waste solutions segment was 33% in the second quarter of 2021, down from 41% in the second quarter of 2020, reflecting a less favorable service mix, which resulted in lower treatment and disposal margin as well as lower gross margin on transportation revenue. Treatment and disposal margin for the waste solutions segment was 38% in the second quarter of 2021, down from 45% in the second quarter of 2020. As Jeff mentioned, the decline in mix of event business had a disproportionate impact on our margin, and we estimate that approximately five full points of the treatment and disposal margin decline was a result of lower average selling prices on replacement projects compared to the prior year. Gross margin for our field segment improved to 15% in the second quarter, compared to 14% in the second quarter last year. Selling, general and administrative spending, or SG&A, was $51.2 million in the second quarter of 2021 and included $785,000 of business development and integration expenses. This compared to $49.7 million in the second quarter of 2020, which included $3 million in business development and integration expenses. In the second quarter of 2020, we recognized a gain of approximately $2.2 million on the settlement of an earn out contract related to the legacy NRC business, which was recorded as a reduction of SG&A expenses for the quarter. Excluding this gain as well as business development and integration expenses, SG&A increased 3% in the second quarter of 2021 compared to the second quarter last year. This increase was primarily related to higher incentive compensation and benefit costs. Adjusted EBITDA was down 12% from the same quarter last year, which included the $2.2 million earn out contract settlement I just mentioned. Excluding this gain from the second quarter of 2020, adjusted EBITDA was down 6% in the second quarter of 2021 attributable to the decline in event business and a less favorable service mix in our waste solutions segment in the second quarter compared to the second quarter last year. Turning to Slide 9, we exited the quarter with a solid balance sheet and strong liquidity. Despite the lower margins compared to the prior year, we were able to generate adjusted free cash flow of $11.6 million in the second quarter of 2021. We had cash of 85.2 and $83 million of available capacity on our revolving line of credit at the end of the second quarter. Net borrowings were $699.2 million at June 30, 2021. Turning now to our business outlook, as included in our release yesterday, we are revising our 2021 full year guidance as shown on Slide 11. We now expect 2021 adjusted EBITDA to range from $165 million to $175 million, down from our previously issued guidance of $175 million to $185 million. Adjusted free cash flow is now expected to range between 42 and $57 million, down from our previously issued guidance range of $60 million to $77 million. Adjusted earnings per diluted share is now expected to range from $0.37 to $0.60 compared to our previous range of $0.65 to $0.88. Revenue is expected to range from $940 million to $990 million, which is consistent with our previous range. Our guidance revision is primarily due to the deferment event of event business to 2022, early project completions, and large scale emergency response work that did not materialize in the first half of the year. With respect to event business, we estimate that approximately $3 million of adjusted EBITDA will shift out of 2021 and into 2022. The majority of this shift is due to ongoing pandemic related challenges that have resulted in delays in mobilization or delays in regulatory approvals at our customer site. In addition, two of our event projects coming into 2021 finished earlier than anticipated, which will impact our full-year adjusted EBITDA outlook by approximately $3 million. Our guidance also assumes that we will likely - we are likely to see additional delays in deferments in the second half of 2021 as project sites continue to navigate logistical challenges due to truck shortages in the US and Canada. While these factors are impacting our outlook for the remainder of 2021, our business fundamentals remain strong, and the pipeline of event business opportunities and improved bidding activity should benefit us in 2022 and beyond. A lack of large emergency response projects in the first half of the year is also responsible for approximately $3 million of our downward revision to adjusted EBITDA guidance. As Jeff mentioned in his opening remarks, we are currently deploying teams to respond to the wildfires in the West, and we're still early in the storm season that typically runs through October. Finally, we are expecting additional costs and inflationary pressures in the back half of 2021 in areas such as labor, supplies, and treatment reagents. Though we can recover some of these increased costs or future pricing adjustments, the timing of these adjustments may not be completed in 2021. We remain encouraged by the underlying industrial trends and pace of business activity and we are seeing conditions strengthen across all of our segments. We anticipate additional recovery and growth in our base business and remain on track to achieve our 5% to 7% growth target for the full year. While growth in our services businesses has been limited by challenging labor conditions, we remain confident of the potential of this segment as we look ahead. Our energy waste business continues to show positive trends and will likely exit the year above our initial targets. Before I turn the call back to Jeff, I'd like to again reiterate that our business fundamentals remain strong, and we are seeing continued improvement across all segments. We continue to expect better financial performance in the second half of the year, both from improving fundamentals as well as historically strong seasonality that typically benefits us. With that, I'll turn the call back to Jeff.

Thanks Eric. We are encouraged by what we're seeing in the fundamentals of the industrial recovery and the current trajectory that we're on. We communicated at the beginning of the year that the biggest risk to our 2021 outlook was replacing and growing upon record levels of event business in 2020. While we are disappointed that continuing effects of the pandemic have shifted projects into the second half of the year and in 2022, we are encouraged by the bidding activity and opportunities and the overall health of the pipeline. As Eric mentioned the large emergency response events that have not developed in the first half of the year pose the risk to the second half and if they did not materialize. While these headwinds are mitigated by strong base business and services work, along with the positive trends we're seeing in the Energy segment, these risks to our initial guidance are difficult and were difficult to overcome in the remaining six months. Turning to our longer term outlook, we are still marching toward our five year targets with organic revenue growth of 5% to 7% per year, driving $100 million of free cash flow and achieving double digit returns on invested capital by the end of 2025, while lowering our leverage levels to two to two and a half times, we remain confident in our ability to achieve these targets. Before I conclude and open up the call for questions, I'd like to recognize our talented team here at US Ecology. This past quarter, I've had the ability to finally get out and travel to our facilities and sit down with our team members. I continue to be impressed by our people in how they continue to protect human health in the environment, while navigating through ever changing circumstances. We have the right people and the right assets to respond to our customers' needs, and we continue to be a trusted partner for our customers. And together, we are building a sustainable future for all. With the remaining focus on executing our strategy to drive long-term growth and value creation, I am looking forward to all that's to come. With that, operator, let's open up the call for questions.

Thank you. We will now begin the question-and-answer session. [Operator instructions] And the first question will come from Michael Hoffman with Stifel. Please go ahead.

Hey, Jeff and team. Thanks for taking the Q's. Can we tease out on the guidance, since no change in revs, but changing EBITDA? Clearly, there's a bridge there where something is better, but something is worse and then the mix works down to the $10 million. So on the $10 million in the EBITDA you said $3 million is emergency response. What were the pros and then the other negative that get me to the net of the $10 million?

So yeah, so the deferral on the event business from this year into next, Michael, is about $3 million of EBITDA. There's another $3 million on event business for projects coming into the year that were included in our initial guidance that have completed early. And so that's about another $3 million. And then you've got the $3 million for the large scale emergency response that was in our guidance that we didn't experience in the first half of the year. And then the rest is really a function of some of the inflationary pieces and things like that that I discussed.

Okay. But sales are staying constant. So there's - if I gross this up into a revenue impact, there's an offset in revs that's happening as well, which means there's an offset in EBITDA, right?

Correct.

So this - the negative is bigger gross, but there's a positive - I'm trying to tease out that there's a positive going on here as well. That's part of the business outperformed, the part of the business underperformed.

Correct. And Michael, if you look at the revenue guidance, so there's the kind of summary guidance table in the release and if you look at the revenue by segment, for our revenue guidance the total is the same, but there is a bit of a shift between waste solutions to field services within that guidance range, which, again, that field services revenue comes at a lower margin than the waste solutions.

Got it. All right. I got - I'm on my 14th earnings call this week, so I haven't gotten to that yet. Okay. Corporate overhead, your number looks like it's really big as a percentage of revenues. Can you talk through what are the big chunks and maybe how you put things that some might put in OpEx versus put it in so that people appreciate this isn't some big target for an opportunity to slash and cut -

Yeah. One of the things, as we look at our overhead or our SG&A, and it's hard to compare it to peers because I don't always know exactly what's included in theirs versus ours. But I know for us, the large component of SG&A, I mean, it includes labor for, obviously, the corporate functions as well as a lot of the administrative expenses and people at our facilities as well and within our regions. The other thing that's included in our SG&A is we have a pretty large chunk of intangible amortization, that relates to non-permit related intangible assets that the biggest jump in those was when we did the NRC acquisition in 2019, but we have upwards of $8 million of intangible asset amortization that flows through SG&A through the first six months. If you strip some of that noise the intangible amortization, business development integration expenses out of our SG&A, we're at about 16.5% of revenue at the end of 2020, we're around 17% year to date through 2021. But I think some of that noise that's within our SG&A and our overhead is that intangible asset amortization, which is a pretty big number.

Okay. What's the incremental business - what's the incremental margin for business coming on in energy waste?

I'm sorry, Michael. I didn't hear that.

I'm sorry. The incremental margin for energy waste as business recovers, what's that look like? Lots of the peers are in a similar business, talk about that being 70%, 80%. Is yours that good?

Yeah. I don't know that it's 70% or 80%. But if you look at our revised guidance and kind of what we did in the second quarter for the energy waste segment, I mean, we had a pretty good recovery in our EBITDA margins. They were back in the mid 20s. And so I would expect - and as we look back at that business pre-pandemic and pre-acquisition, it's an EBITDA margin business that's closer to our waste solutions segment, so low to mid 30s in a normal environment, potentially higher, but we already made a lot of progress getting it back in that 25% range. The new guidance that we put out yesterday for that business, our EBITDA margin is 25% to 28%. So some pretty good improvement with more upside as it improves.

This is Simon here, Michael. Some of the comparables you're talking about, would they include the services component because I'm not sure that all of them do, which would also impact that incremental margin when comparing to just the disposal assets.

Yeah. Most of them it would be about disposal, so that's fair enough. And then on waste services side, based on commitment that you're going to do 5% to 7% for the year and you've done what you've done for first half at a plus 2% get to the midpoint, you're doing 12% base business in the second half?

Yeah. It's somewhere around 10% to 12%. And really, I would expect that Q3 will be the largest. And part of that is it's typically our strongest quarter, and that's a lower comparable if you go back to 2020.

Okay. So it's just a tough question, and I would like - I hope it comes across plate, not sounding nasty. Why model in a guidance for big things that require an event to occur you can't control?

Good question, Michael. The reality is we modeled that in based off history. If you go back to all the way down into 2015, a lot of events have happened and a lot more than what we modeled in. And last year was with all the conditions being shut down and depressed, we didn't see much materialize. So if you go back look in history, those things occur. And so the reality is we believe those to occur in a more normal state, and we model them out what we believed at the time would materialize this year and still may materialize in the back half of the year.

And that's the wildfires or weather events?

Yeah. It could be a whole bunch of different things. It could be chemical plant accidents. It could be a lot of things. I mean, we've had events in the past that a singular accident outside of a major pipeline break could be $20 million to $50 million, I mean, they are big events. We didn't anything like that in. And the reality is more smaller we define it as something over $1 million, which can happen. And we talked about this in our guidance and what was out there when we first launched it.

Yes. Yes. You did say at the time, specifically on the event side, I think, more so than the emergency response. What's the risk that these transportation restrictions on capacity there is just lack of drivers for paying people stay home persist through d fall into early '22. And therefore, does that - that doesn't provide any relief on the project activity? Or are there time lines on some of this that are mandated by a court order or what have you, where this is going to happen in '22 if it doesn't happen in '21. How do I think about that project number?

Yeah, Michael. We have a number of different projects that are going to be mandated by regulatory drivers oppose it. But your bigger question is what the industries are facing with right now with driver shortages is real. I mean we're not the only one navigating it. Everybody else is navigating it, and it does create a headwind and we called it out. So when you look at risks into just project based work and even to a certain degree, our base business that has some inherent risks. I know that everybody is trying to - is looking forward to government programs getting released and other things like that, so hopefully more people enter the labor market. But that is a real risk that we're navigating, along with others in the space. So I can't quantify what that can do, but the reality is it's inherent in what we're dealing with right now.

Okay. Thanks for taking my questions.

All right. Thanks Michael.

The next question will come from Jeff Silber with BMO Capital Markets. Please go ahead.

Thanks so much.

Hey, Jeff.

You talked a little bit about the truck driver issue. From a labor constraint perspective, are there any other pockets of labor where you're having trouble finding people or filling jobs?

Yeah. Jeff, this is Simon. The drivers are certainly the most challenging in terms of labor shortages. But the short of it is, yes, we're seeing challenges across the board, chemical operators, equipment operators, just general labor. It's different in different regions. But certainly, we're having some pockets where we're having challenges, and we're not able to fully realize the full potential of jobs out there. We've got a lot of programs moving, which we think are going to help us there. But, yes, it is beyond drivers.

And I'll just add, Jeff, on that is we have a couple of hundred plus positions open that we're actively recruiting for. And it comes back to that fundamental is there's 9 plus million people in the United States alone that are sitting on the sidelines today. And all the data shows that there's over 9 million of job openings. So the reality is there is some impacts that we're hoping that we'll release here in the coming months on there to help mitigate what we're seeing. But we're competing for talent. We're trying to get talent. If we had more people, we would be able to drive more revenue. We are being held back on our growth potential right now because of labor. And we're trying to diligently compete for that and be able to get good talent in and being able to service our customers. But it is a reality we're facing right now.

All right. That's helpful. And if we can shift gears over to the pricing environment, I mean, we're hearing from everybody that they're able to put through price increases. I wouldn't say very easily, but - in a fairly easy method to some extent. Can you talk about what the pricing environment is out there, both from your perspective and from a competitive perspective?

Sure. I'll let Steve address and I'll fill in.

Sure. So we did take some price increases in Q1 and Q2 in select markets. And depending on the service line, we do have the ability to potentially do additional increases in the second half of the year. We've been looking at that. It's a balance of whether –what's the competitive market because we want to make sure we don't price ourselves out and losing work. What are the timing notifications because on our waste disposal business, we have, in some cases, 60 to 90 day notification to make an adjustment? So we're looking at what we can do. There are a number of areas we can move quickly. There are certain other service lines, though, that we are stuck with an annual adjustment. So it just really depends. But it's something that we have flexibility there.

Okay, that's really helpful. Thanks.

Yeah. Jeff, I'll just add a little bit to this. I think the global takeaway on this is we do have the ability to push pricing through as Steve just talked about. And it depends based on contractual arrangements and that type of thing and the timing thereof. The caution we put up is we're –we've been able to manage all the inflationary pressures for the most part to the first half of the year. Really, the notifications we're starting to see now and what we kind of put a headwind in part of our guidance is we're starting to see more of those starting to come through in the back half of the year. And we're really analyzing what the overall impacts are and timing of when we can actually start adjusting price, especially since we already did one price increase earlier this year. The last thing we want to do is be in raising prices every week on our customers because it's not good. So we're trying to get our arms around all of that determine the best strategies of when we go to market to make sure we can fully capture what we're seeing. And that's why we put a headwind it may not be fully implemented by 2021 and really focused on 2022.

All right. That's really helpful. Thanks so much.

Thanks Jeff.

The next question will come from William Grippin with UBS. Please go ahead.

Great. Thank you. Just had one here on the EBITDA guide, it looks like the guidance implies a pretty significant second half ramp in margin versus the first half. I mean, you just talked about cost inflation pressures possibly accelerating here in the second half. Could you just give a little color on, I guess, what's driving that half-on-half increase in the margin?

Yeah. I think the biggest - one of the biggest things is just additional activity that we typically see seasonally in the third quarter, and we're projecting a really strong fourth quarter as well. And so as that - particularly on the event business side picks up, some of that large scale ER picks up, it comes in at a higher incremental margin. So that's really the biggest driver of that lift you see from the first half to the second half, which isn't uncommon that we typically see each year, a decent sized lift in our second half over the first as the event business and the activity in the third and fourth quarters pick up.

Okay. Thank you.

[Operator instructions] Our next question will come from Tyler Brown with Raymond James. Please go ahead.

Hey. Good morning, guys.

Good morning.

Hey, Tyler.

So I hastily kind of put together this little Q - like the guidance from Q1 and the guidance from Q2. And I just want to kind of go through this because I got to understand the guide pieces. So if we start in waste solutions, you're looking for, call it, an $8 million, and this is all at the midpoint, so an $8 million revenue and a $6 million EBITDA. I think you fleshed that out pretty well, $3 million of deferral, $3 million of kind of projects that have ended early. So you assume about a 75% incremental margin there. So first off, is that a good placeholder for incrementals and decrementals in that waste solutions business? Or is there something unique there?

I got to think about that, Tyler. That sounds pretty reasonable to me and not uncommon with what we see. So I think, yes, as that event business scales up and scales down, it can cut both ways at a pretty high incremental margin.

I mean, it's really defining the operating leverage these landfills have those incremental tons that come through really flow down to the bottom line.

Okay. So that makes sense. Now I'm confused on field services. So you raised revenue, but you lowered EBITDA by like $4 million. So why would that be? What exactly is going on there?

So some of it, Tyler, well, a portion of it is the large scale ER that didn't happen in the first half that, again, similar to some of our event business comes through at a really high incremental margin on the waste solutions side. So that is a piece of it as well as just some of the mix and some of what we're seeing and some of the cost and inflationary challenges that we're expecting in that piece of the business that Jeff touched on a bit in terms of drivers and labor and some of those things. And if you look at the guidance - the revised guidance versus the previous, it's about 100 basis points of margin that went down in this version of the guidance versus the previous.

Okay. That's helpful. And then on the energy waste side, again, kind of just like a funny change to the guide because you raised revenue by $3 million, but EBITDA by $6 million. And you guys talked about - I mean, again, I'm just kind of confused as to why that would go up so much.

Yes. It's again, incremental. It's that incremental margin as it's recovered. We're also feeling a lot of the benefits of some of the cost cutting that we did last year on both labor side, rentals things like that. And so you've really seen us pick up traction really since the second or third quarter last year and seen that improving margin and so incremental revenue comes through at a better margin than it did say a year ago.

Okay. So you have those incremental cost cuts layering in, okay. And then just, again - just kind of, this is hastily put together, but it looks like the overall corporate costs also we're going to be higher, but I would have thought that incentive compensation would have been a cushion there or is that not the case? Again, this is all relative to the last guide, not to last year, but relative to the last guide.

I would say there's some incentive compensation shift there, but that's about at least through the first six months in the guidance about where we kind of expected coming into the year. We are seeing some headwinds in terms of some of our benefits costs, some of our insurance costs, and then just overall labor.

Okay. So that's a lot where some of that inflation is picking up, okay. Okay. Well, that all is very helpful. So real quickly, I think you had talked about $50 million of EBITDA in Q3, is that a good placeholder?

Yeah, I would say, right around there is about right. We actually - our guidance and our forecast, which - just to be clear, so our forecast is - our current forecast is the midpoint of our guidance and if you look at it and break it down by quarter, we're actually showing that Q4 will be a bit stronger than Q3. But Q3 is kind of about in that $50 million range.

Okay. Super helpful. And then on the interest cost and tax rate, just to make sure we have that I know you changed your credit agreement a little bit.

Yes. So the credit agreement, really, the big change, the big positive change is we extended the revolver out another five years. We also, while we're at extended - or increased the covenant permanently. So it steps down and there's actually a chart in the appendix of the presentation for today that shows the new levels. But in terms of interest, we're expecting interest expense to be pretty similar to what we guided before, maybe a bit less. And then on the tax rate, we are seeing some of the change in the EPS guidance is we are seeing or expecting a higher tax rate than we were coming into the year in last quarter. A lot of that is due to, as we look at the forecast and where the revenue is shifting. Some of it is shifting into some of our higher tax jurisdictions, Canada is one good example. And we continue to see our state effective rate continue to increase. So there's about a 250, 300 basis point increase in our tax rate for the year now versus what we thought coming into the year.

Yeah. Okay. It's all like something was going on there. Okay. That's helpful. And then on the CapEx, so you held CapEx at the, call it, $87 million, how does that look - does it actually trickle up in 2020 and then kind of start to trickle down later or more into the mid part of the decade? Or how should we think about that, again, assuming no acquisitions, but just kind of looking at the business today?

Yeah. This is Simon. I would say 2022 is going to be another heavy spend on the landfill side. So I would expect probably a slight increase over 2021, then 2023 kind of returning lowering maybe to mid 80s and then really seeing benefits into the '24, '25 because of the reduction in the landfill spend. It was just a case, and it would be a long explanation, but we have to - with the most efficient thing and it made the most sense for us to build a large portion of the landfill in '21 and '22, pulling some of that spend forward, but we should see the benefits moving into '23, '24.

Okay. That's helpful. And then my last one here, I know there's some talk about truck drivers and such. I know a thing or two about that. But one other aspect is the railroads. So I'm curious, the rail - if you look at train speeds and dwell obviously, the rails are struggling. There's a couple of things. I'm curious if you're seeing increased accessorial charges or if you're seeing just an overall slowing in rail velocity if that is problematic for you as well?

Yes. Again, this is Simon. Tyler, it's something we're watching very closely, and we've heard about some of these slowdowns. But the corridors that we're using today, I'm not seeing a lot of impacts, not seeing a lot of delays that may be in part because a lot of the material comes from out East and heads East and maybe they're not dealing with the wildfires like they are out West. So something on the rail side today, I would call it stable, but carefully watching it.

Okay. Yeah. It could be your traffic mix, not to get into a long discussion about this, but yes, that makes sense.

Our business really isn't too dependent on the timing of the rail. I mean, it could result in the need for extra cars to rent. But for the most part, as long as it's leaving the customer site, they seem to be happy.

Okay. All right, guys. Thank you so much for the time.

Thanks Tyler.

This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Feeler for any closing remarks. Please go ahead, sir.

Great. I just want to thank those for attending the call today and look forward to updating you in coming quarters.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.