Clean Harbors, Inc.

Greetings, and welcome to the Clean Harbor's second quarter 2023 earnings 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 our co-chief executive officers, Eric Gerstenberg and Mike Battles, and our EVP and chief financial officer, Eric Dugas, 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're 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 2, 2023. Information on potential factors and risks that could affect our results 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 today other than through filings made concerning this reporting period. Today's discussion includes references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release, on our website, and in the appendix of today's presentation. Let me turn the call over to Eric Gerstenberg to start. Eric? Thanks, Michael. Good morning, everyone, and thank you for joining us. Turning to our Q2 financial results on slide three, our second quarter performance underscores the strength of our environmental services segment, where our adjusted EBITDA margin climbed by 140 basis points from a year ago. This is a highly resilient business that is supported by scarce permitted assets, a strong safety record, technical expertise, a highly trained workforce, close customer relationships, and effective capital allocation. Q2 marked our ES segment's seventh consecutive quarter of growth and profitability. Its performance partly offset the decline of our safety clean sustainable solution segment, which experienced some headwinds resulting from the adverse conditions that continue to affect the base oil and lubricant markets. Before I review the segments in more detail, I'd like to After a record Q1 performance, we delivered a second quarter TRIR of .68, the best Q2 in our history, which keeps us on track to achieve our ambitious annual TRIR goal of .70. The record-breaking heat across much of the country posed a unique challenge in Q2 and continues to do so as we move through the third quarter. Because our team is often required to wear personal protective equipment, To everyone on our team, we appreciate all the proactive steps you take to keep yourself and your colleagues safe. Turning to environmental services on slide four, segment revenue increased 7%. The growth of our services business was underpinned by pricing and volume initiatives. Each of the segment's four business units posted year-over-year gains, with industrial services and safety clean environmental branch businesses leading the way. Industrial services revenue grew 11% on the heels of a strong spring turnaround season and initial contributions from our Thompson acquisition. Our second full year of HBC, which we acquired in late 2021, is trending better than we anticipated. Safety claim environmental revenue climbed 16%, with the demand for businesses' core offerings continuing. response-related projects. Technical services revenue grew modestly, largely attributed to the many planned maintenance and repair days at our disposal facilities to address weather-related outages that occurred in Q1. As expected, utilization at our incinerators reached 84% this quarter, up four points sequentially but down six points from Q2 last year, which had fewer down days. Looking ahead, we anticipate less down days in the back half of this Average incineration price was up 8% in Q2. We made some important repairs and investments in the incinerators that limited utilization, but our operations team worked hard to maximize the throughput to address our increasing backlog of waste. Landfill volume in the corridor was flat for the prior year. This year, our base business was particularly strong with a good mix of high-value waste, which resulted in average pricing increasing by 21%. Looking at segment profitability at 13% adjusted EBITDA growth, the ES segment once again outpaced the top line. Given our highly leverageable network of assets, higher revenues should consistently drive greater profitability. As noted last quarter, we are also benefiting from a number of productivity programs and cost reduction efforts across the organization. To counter inflationary pressures, we've been targeting 100 million of company-wide cost reductions in 2023. much of it in ES. As a result of all these factors, we increased our ES margins and are now topping 26%. Overall, a great quarter for the ES segment. Before handing it off to Mike to take you through SKSS, let me touch on a recent development related to PFAS that should benefit our environmental services business materially in the coming years. Turning to slide five, in July, the U.S. Department of Defense issued new guidelines related to the incineration of materials containing PFAS, which research indicates is present at hundreds of military installations. The DoD has authorized commercial hazardous waste incineration as a method of addressing these forever chemicals. The DoD guidance also allowed for hazardous waste landfills as an alternative remediation method. Last year, we published the results of a comprehensive third-party study that clearly demonstrated that we could effectively destroy a wide range of PFAS compounds, including AFFF firefighting foam, at commercial scale. In that study, we proved that we can consistently achieve at least six nines of destruction, which is the gold standard for thermal methods. Additionally, the EPA conducted its own pilot study at its North Carolina facility and came up with similar conclusions about the potential for incineration. Given the compelling results of our study, harvest long-term. That being said, we don't expect a material amount of opportunities from the DOD this year. The EPA still must set final guidelines related to acceptable levels of contamination in soil and water and provide recommended methods of storage, removal, transportation, and destruction. In the interim, we plan to work closely with the DOD