Questions Flashcards
(27 cards)
Business Model
Describe the value proposition SES brings?
Let me explain to you what happens if SES does not perform our services:
1. Customers experience costly shutdowns/downtime
2. Production levels suffer or come to a halt - Can be $$$
3. Customers incur increase maintenance & repair costs
4. Help customer meet environmental and sustainability goals & regulatory requirements
Business Model
2- Describe the value proposition SES brings ?
SERVICES
- Services are Daily/Weekly/Qtrly: reoccuring, predictable and planned by customers
IS - Routine - Required to keep plant processes running (Daily/Weekly/Monthly)
- Outages - Weekly Monthly 1 -2 year (Spring /Fall)
- Unplanned - Unit goes down
Contaminated process
PD - Routine Safety devices
WM - Routine EPA Regulations - Have MSAs (“hunting licenses”) with nearly all customers
- ~80% IS business (Core IS & Hydro/Waterblasting) business is recurring, preventative maintenance;
- ~20% of IS business is outage related
- ES (Comprehensive Waste Management, Environmental Technical Services and Product Destruction; ~25% of revenue) is regulatory driven in nature
Business Model
How recurring is the nature of each service?
- We are a Prevenative Maintenance Company
- Services are Daily/Weekly/Qtrly: reoccuring, predictable and planned by customer
- The nature of customers work, in addition to dated equipment and plants, also makes this recurring – these have to be regularly maintained. SES is in the *preventative maintenance business *and there are negative consequences if SES does not show up; work is so critical all customers have backup vendors
SES defines “recurring” as revenue recognized by a customer in three of
Business Model
Discuss the Company’s primary competitors and SES’ market positioning
Clean Harbors (Veolia/Hydrochem/Thompson)- IS and Waste
Heritage - Waste
Debusk & Evergreen North American for IS (South)
HTH - IS West
Business Model
Why do you believe that SES has outperformed peers in the space, particularly other companies that have or are owned by private equity
e.g., Thompson, Envirovac, K2, etc
- Can answer with: we are different from these companies that may have the same look and feel Diversification of service offerings
1.Comprehensive Waste Management- Product Destruction & Environmental Technical Services are not something competitors can offer
3.Hydro automated services
- Product Destruction & Environmental Technical Services are not something competitors can offer
- Focus on premium, high-margin end markets Ag/Grain/Food Processing, Chemicals and Utilities are top end markets
- *
Metals is #2 end market but lowest overall margin)
Do not have any current exposure to Oil & Gas; plan to grow into select Midwest refineries with higher margins and additional outage work; although, do have not plans to perform any type of work in the Gulf Coast
Business Model
How do you expect SES to perform in an economic cycle?
- Expect to perform very well due to diversified services & end markets
For example: Have pushed Ag/Grain/Food Processing; steady end market regardless of an economic cycle - SES is the last outsourced provider to be forced from a facility
- Oftentimes customers bring in SES to augment their own staff during these times
- Environmental Services business is decoupled from economic cycles (e.g., airbags need destroyed & hazardous waste needs processed regardless of economic conditions)
~~~
* If any changes in dem& occurs, SES is a business “on wheels” & can re-
Business Model
To what extent is SES influenced by regulatory demand drivers?
- ~30% of the business (EBITDA) is driven by regulatory demand drivers
Waste Mgmt 20% driven by RCRA 90/180 day rule
Product Destruction 10% & is driven primarily by mandatory recalls of safety devies - The other ~70% of the business is primarily recurring preventative maintenance (Core IS & Hydro/Waterblasting)
IS - Keep Equipment efficient to meet emissions and discharge standards
## Footnote
EBITDA: Waste 20% PD 10% IS 70%
Business Model
How have you been able to mitigate labor constraints?
Discuss employee turnover / wage inflation over the past few years.
Hhiring the correct/best professionals
Having a clear career path
that incorporates set promotion schedules & pay increases
Employees referral bonuses; SES employees to recruit in the industry - great tool
Wage inflation, SES is able to push through price increases that “stick” with customers
70% Turnover (improving YOY) better than competitors
Fully loaded field hourly rate of ~$29/hour
Service Offering
Describe how the services fit together & the synergy between Industrial Services & Environmental Services offerings.
- Nearly every customer needs all of these services; e.g. - all preventative maintenance customers have a need for Comprehensive Waste Management & Environmental Technical Services
- SES can compete with any competitor on a basis of Industrial Services while also handling mid-size volumes of waste (i.e., Comprehensive Waste Management & Environmental Technical Services)
Service Offering
Why did the Product Destruction business tail off in 2021, & how can we get comfortable with the sustainability of the new Product Destruction work (e.g., TK Services)?
TK was originally working with SES, General Dynamics & Clean Harbors (did not like CH) in 2020; contract with General Dynamics was two-year agreement (compared to SES’ one-year contract) & were bound to this contractually so went with General Dynamics after 2020
- TK was happy with SES’ services originally & sought out new contract for 2023; evergreen contract
SES has more environmentally friendly process; processes & recycles materials rather than incinerating &/or disposing in a landfill
General Dynamics is focused on military munitions & SES is one of few providers of scale that TK can utilize
~30M desiccant airbags being investigated from TK
~30-50M airbag inflators being investigated from another airbag manufacturer
* It will take 20+ years to work through existing inventory, creating a very predictable volume for Product Destruction
Service Offering
Discuss the waste & recycling business – what are the items SES is recycling & what are the drivers of this business? Are you handling hazardous waste?
Haz and Non Haz waste is handle in containers 5 g - 30 yd3 boxes
Recyclables - Pastics / Cardboard / Wood in compators -metals
Haz - SES handles processing but is not liable for disposal; generators
Service Offering
How predictable is the Environmental Technical Services business? Is this episodic/one-time business?
Typically small, regular-way events & re-occurring - e.g., pump failures, drum spills, etc.; 300+ jobs per year
We don’t chase the large events like the East Palistine derailment - Cu
Customers/End Markets
Who are some of your top customers for each service line?
How much more potential is there (e.g., new sites, service extensions) w
- Do you have contracts with each customer? MSAs? How are they structured? Is there a renewal process?
Overall
* Cleveland Cliffs: $8.3mm
* North Star: $7.9mm
* Primient: $6.8mm
* Honda: $4.8mm
* Cargill: $4.1mm
* ** Core IS & Hydro/Waterblasting:**
* North Star: $7.9mm
* Cleveland Cliffs: $7.1mm
* Primient: $6.8mm
* Comprehensive Waste Management:
* AstraZeneca: $1.5mm
Gorilla Glue: ~$590k
Milacron: ~$445k*
* Product Destruction:
* Honda: $4.4mm
TK Services: $3.5mm
Quantum Metals: $1.5mm
* Environmental Technical Services:
* Cleveland Cliffs: $1.1mm
* Suncoke: $900k
- No contracts for the most part; do have MSAs with ~90% of customers
- Contracted on a PO basis; gives SES the ability to raise prices more easily
Customers/End Markets
How is pricing determined for each service/customer?
Have you had price increases recently?
- Every project is evaluated independently based on scope, resources & potential of the customer
- Average ticket size is ~$3,500
- Pricing is based on PO; gives SES the ability to raise prices more easily
Customers/End Markets
What are nested customers?
How many do you have?
- ~20 nested sites; SES employees report directly to customer sites
- See page 11 of CIP for detail on nested sites
Customers/End Markets
Why are you focused on the ag/grain/food processing & chemicals end markets?
- Ag/food/grain is much less cyclical & premium margins
- Chemicals is more technical; not all competitors can handle this work
Customers/End Markets
How do you feel about the O&G & refinery end market?
- Would not look at Gulf Coast O&G – but do like Midwest refineries business
- High level of nested work
- Focus on safety
- Need for automated services, which SES has
- High barriers to entry
- Pricing in Midwest is up to 30% higher than compared to Gulf Coast
Aging equipment needs to be serviced
Customers/End Markets
How have you been able to grow/increase wallet share with customers?
Diverse offering along with performance during routine and outage work
Customers/End Markets
What is a typical sales cycle & how are opportunities won?
(RFP, bid process?)
- Sales cycle could be longer than 1-year, but once won, have great relationships
- Top-notch sales team within each service line; led by Jim Keuhn
Customers/End Markets
Any significant / recent lost customers?
Why do you lose customers?
- Overall – “win some & lose some business”
We have won many more customers than lost
* “You win some, you lose some”; competitive tension like in any other business
Customers/End Markets
Any bonding requirement?
No current bonding requirements
Management Team
Describe your transition to becoming CEO.
- Not new to CEO suite; have been in seat for two years & with company longer/prior to that
- Was recruited to be CEO & have been groomed directly by Dean Wallace for this position
Management Team
What is Dean Wallace’s role today in the business? What role is Dean contemplating post-close?
- Member of the Board
- Dean is active from an M&A - he connects well with founder/owners);
- I see Dean 1-2 Qtr (no office at SES)
when it comes to diligence & integration the SES team is in charge - Equipment and Team evaluation as well a the Strategic plan
Dean has great relationships, I’m confident in my ability to duplicate with relationships & can also initiate these same conversations; note
Dean does not have an office at SES any longer
What is management looking for in a new partner?
- Looking for a partner that can help drive growth; have bold & ambitious growth plan
???Someone that has taken 100M company to 400M??? - Rosewood has been a great partner but have been invested for ~5 years & is at the end of investment hold period
- Want a partner who is going to form a board, which includes outside expertise (e.g., customer relationships, experience with ERPs, integration, etc.)
