Clean Harbors, Inc.

Greetings, and welcome to the Clean Harbors, Inc. Second Quarter 2022 Conference Call. At this time, all participants are in 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. Thank you, sir. You may begin.

Thank you, Christine, and good morning, everyone. With me on today's call are Chairman, President, and Chief Executive Officer Alan S. McKim, EVP and Chief Financial Officer Mike Battles, President and Chief Operating Officer Eric Gerstenberg, and SVP of Investor Relations Jim Buckley. Slides for today's call are posted on our Investor Relations 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, August 3, 2022. Information on potential factors and risks that could affect our 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 statements made in today's call other than through filings made concerning this reporting period. Today's discussion includes references to non-GAAP measures. Clean Harvest believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of these measures, the most directly comparable gap measures, are available in today's news release, on our website, and in the appendix of today's presentation. With that, I'd like to turn the call over to our CEO, Alan McKim. Alan?

Thanks, Michael. Good morning, everyone, and thank you for joining us. I'd like to start by talking once again about safety and It's a critical metric for us and our employees that is often underappreciated by investors. For customers, it's one of the most important numbers that we deliver and can oftentimes decide who wins in a competitive bid. For 2022, we challenged a team with an ambitious goal of delivering a total recordable incident rate, or TRAR, of under one for the year. Through June 30th, we are currently at 0.82%, and in a good position to achieve that milestone for the first time in our 42-year history. Our level of safety far exceeds anything that our peers are delivering and is a competitive differentiator for us. The team is doing a phenomenal job this year. Turning to Q2 financial results on slide three, we far exceeded our guidance for the quarter on the strength of both of our operating segments, each of which was a great story to tell. I'll let Mike walk you through the specifics of our financials, but I want to focus on four key takeaways from our results this quarter before going through the segments. First, demand for our services, particularly our scarce disposal assets, has never been higher. As U.S. manufacturing continues to flourish, we are processing more volumes of high-value waste than ever before, largely due to partnerships with companies like 3M, who closed their captive incinerator earlier this year, and other captives are also in the final stages of determining whether they will shut down and outsource. Second, Hydrochem PSE, now branded as HPC Industrial, which includes our legacy industrial service business, is proving to be a great acquisition. The deal elevated our industrial service offerings, provided us with an impressive set of assets and talented employees, and gave us a market leadership position. While we still have work to do to capture all the synergies available to us, the cultural fit remains strong, and we are excited about the long-term prospects for this business. Third, all our service businesses, whether the field services, safety, clean, and environmental, our retail or energy services are on a positive trajectory. While our organic growth results were impressive this quarter, We believe they could have been even higher if the labor market weren't so tight and we could have hired more and faster. And lastly, the rise in our safety, clean, sustainability solutions profitability to record levels is not transitory. While we are benefiting from a historically widespread, many of the favorable market changes are long-lasting in nature. For example, the positive impacts of IMO 2020 are permanent. And as ESG becomes more prevalent, we are seeing interest in our sustainable base oil and blended products grow exponentially. We expect to command a premium for our green products in the future. Years ago, we were forced to discount our base oil output to move volumes. Those days are long gone. Overall, in an inflationary and supply-change challenged environment, our team executed exceptionally well. to meet the record demand for our services through effective pricing, cost reduction programs, process improvements, and best-in-class industry performance. Turning to segments on slide four, environmental services grew 51% in Q2. Approximately 60% of that growth was generated by the addition of HPC. While the remainder of the results of increased disposal, recycling, and service demand, excuse me, incineration utilization was 90%, and average incineration pricing increased by 18%. At the same time, landfill volumes rose by 36% from a sizable pickup in remediation and waste projects. We capitalized on an extensive spring turnaround season in our industrial services group, while field services grew 35%, through a steady stream of emergency response projects and the addition of HPC's utility business. COVID decon work generated $5 million in the quarter, about half the size of a year ago. Safety Clean Environmental also grew 21% in Q2, with healthy demand for its core service offerings. Looking at our environmental service segment profitability, adjusted EBITDA rose 53% in Q2 on the higher revenue, supported by our pricing efforts to offset inflation, coupled with cost reductions and technology investments to enhance our overall productivity. Segment margin expanded by 40 basis points from a year ago, and more than 500 basis points on a sequential basis from Q1. If you exclude HPC, which has not even hit its full stride in terms of capturing synergies, margins were up 250 basis points from a year ago. Moving to slide five, revenue in our safety clean sustainability segment was up 31% in Q2 on the back of higher pricing of our oil products versus a year ago. Adjusted EBITDA rose by more than 30 million or 53%. We continue to maximize our re-refining spread by carefully managing our collection costs on the front end and capitalizing on pricing and market demand on the back end. Waste oil collection volumes were up again in the quarter as we gathered 60 million gallons at favorable cost levels, up from 57 million a year ago. Our sales of blended products and direct volumes came in as expected in the quarter, given the ongoing additive shortages in the market and the profitability that we're generating on our base oil sales. The value of our base oil also continues to rise not just due to industry conditions, but the recognition of the quality, scarcity, and reliability of our re-refined products. In conjunction with that view, we recently launched our Clean Plus brand to really fully capture that value. Turning to slide six, we continue to evaluate opportunities to execute on all elements of our capital allocation strategy. On the M&A front, we completed a bolt-on acquisition late in the quarter of a vacuum gas oil refinery and waste oil collection business based primarily in Georgia and Florida. This acquisition will not only generate additional production for us, but will reduce our overall transportation costs by providing a local outlet for the waste oil we collect in the Southeast U.S. Part of our strategy also includes divesting businesses that we believe are outside of our core focus. In Q2, we sold non-core Western Canadian assets that were part of our legacy oil and gas segment for proceeds of approximately $18 million. Given the unique nature of these assets and the limited crossover with Clean Harbors Core Services, we determined that this business would perform better under new ownership. From a CapEx perspective, the build-out of our Nebraska incinerator remains on plan and on schedule, and that substantial investment will bring 70,000 tons of needed capacity into the market in early 2025. In the interim, We are continuing to make investments around our expanding throughput in various parts of our disposal and recycling network to facilitate our growth. And this year, we're adding a considerable amount of landfill cell capacity. Mike will touch upon our debt and share repurchase program in his comments. But let me conclude by saying that we see no indication of the trends that supported our stellar Q2 results slowing in the back half of 22. Our network of disposal and recycling assets remain in high demand, and that demand should accelerate faster in the years ahead through infrastructure spending, strict enforcement of US and Canadian regulations, captive incinerator closures, a robust project pipeline, and reshoring of multiple industries. We will continue to invest in and grow our network in order to meet this increased demand. Within our service businesses, we are continuing to hire as rapidly as possible to meet the demand and to facilitate additional growth. For SKSS, our refining business is well managed in all phases from the collection to the production to sales. There's been a paradigm shift in this business over the past two years since the implementation of IMO 2020. In addition, our sustainability products continue to gain traction with our customers. So as we move through the back half of 22, we will continue to leverage our superior systems and processes to drive margin improvement like we've seen in the first half of the year. We have an industry-leading executive team and focused and fostered a culture of accountability to optimize our performance. We expect to deliver record top and bottom line results this year, along with a robust free cash flow to support our capital allocation strategy. So, with that, let me turn it over to Mike Battles. Mike?