Clean Harbors, Inc.

Good day, ladies and gentlemen, and welcome to the Clean Harbors First Quarter 2024 Earnings Conference Call. At this time, all participants are in 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 turn the floor over to your host, Michael McDonald, General Counsel for Clean Harbors. Sir, the floor is yours.

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 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 on these of today, May 1, 2024. 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 Rosenberg to stop. Eric? Thanks, Michael. Good morning, everyone, and thank you for joining us. Before we get into our prepared remarks, I want to take a moment to recognize our 23,000-strong Clean Harvest team for their efforts in Q1. Thank you for your focus and dedication to safely delivering on our commitments to customers and the communities we serve. I also wanted to welcome the HEPCO and NOBL teams to Clean Harvest. I also wanted to highlight our safety results for Q1. Not a financial metric, but in our view, the most important metric. Our total recordable incident rate, or TRIR, was 0.69 per quarter, which gets us off to a good start to the year. Starting on slide three, we opened the year with an even stronger than expected first quarter performance as we exceeded the guidance we provided on our year-end earnings call. Our 5% top-line growth year over year. Robust demand continues across our environmental services segment. All of our ES businesses – technical services, safety clean environmental, industrial services, and field services – delivered better than expected growth in the quarter. Volumes coming into our disposal and recycling network continue to increase. Our ES segment grew both organically and through strategic M&A from EPICO. Within SKSS, which Mike will cover in more detail, lubricant pricing was soft until the very end of the quarter. Our corporate segment was up year over year due to compensation, acquisitions, and professional fees. Turning to environmental services on slide four, segment revenue increased 10%, with two-thirds driven by organic growth from volumes and pricing, first quarter of 2023. Q1 represented our 10th consecutive quarter of year-over-year adjusted EBITDA growth in this segment and the highest Q1 adjusted EBITDA margin for the ES in company's history. Our technical services business was the primary contributor to ES top-line growth, posting a revenue increase of 11%. A record level of Q1 drum volumes flowed throughout our network. As a result of heavy Q1 maintenance schedule and weather disruptions in January, which we noted on our year-end call, incineration utilization was 79% in the quarter, in line with our expectations. Average incineration pricing increased 6% in the quarter, thanks to mix in pricing. Despite all the turnaround time we've had in the early part of 2024, we still expect that our incinerators should deliver mid- to high-80s utilization for the full year. Modestly, year over year, healthy drum volumes in base business drove a 16% increase in average price per ton. As with our incinerators, landfills should deliver a very good quarter in 2024 given the market conditions we see today. Those favorable conditions should also support the other 100-plus permanent hazardous waste management facilities we maintain in our network. Safety Clean Environmental Services generated another quarter of revenue growth, climbing 9%, largely on the strength of containerized waste and other core services. Field service revenue was up 10% in Q1, driven by consistent base business, ER events, and high employee utilization. The field service results included in the first week of contributions from HEPCO, which we acquired towards the end of March. Early returns on that acquisition have us very encouraged about its future potential. Industrial service revenue grew 7% in the quarter, largely from the addition of Thompson, as that group continues to focus on higher margin work and cost controls. Overall, E has produced an excellent start to 2024 in Q1. With that, let me turn things over to Mike. Mike?

Thanks, Eric, and good morning. Turning to SKSF on slide five, the year began with a challenging demand environment for both base oil and lubricants, which led to lower pricing, particularly for our non-contracted volume sold in the spot market. Our volumes produced and sold were similar to the prior year, so it really was the pricing environment that impacted us, which you can see in the year-over-year adjusted EBITDA comparison. The weakness in pricing was partially offset by the shift we had completed to a charged oil collection model versus the paid-for oil average we had a year ago in our waste oil collection services. We gathered 55 million gallons of Waste oil, as we aggressively manage our spread, together feed stock at the best price possible. Despite the difficult Q1, we're encouraged by more recent trends. Base oil demand has begun to recover, leading to a rising market prices as we head into the balance of the year. In Q1, we increased our blended sales volumes by 36% as we focus on more value-added products. Blended sales, where pricing tends to be less volatile than base oils, accounted for 21% of our total volume sold, up from 15% a year ago. Another program which will insist in both the stability and profitability of this segment is our Group 3 base oil project. We now have dedicated one of our smaller re-refineries to full-time Group 3 production. We are enthusiastic about the long-term potential for this initiative as we move to open more Group 3 production in the coming quarters. And lastly, We have been hard at work in recent years to find the ideal partner that recognizes the value of our clean plus base oil and lower carbon footprint it carries. We wanted to align with someone who had the brand recognition to meaningfully impact the lubricants market. Turning to slide six, we are partnering with Castrol on the nationwide launch of More Circular, a lower carbon footprint offering. This is an exciting and innovative program, and we're thrilled to work alongside with the industry's leading brands to bring it to their customers. Under the terms of this multi-year agreement, Castrol will be responsible for selling this sustainable product offering by using a considerable marketing muscle to drive its success. Safety Clean will be responsible for the collection of waste oil from Castrol customers in the program. We will also supply our base oil to Castrol to include in their more circular lubricants. We see this arrangement as a strong validation of our high-quality sustainable base oil given the recognition of Castrol's lubricants and brand. This program evolved following a series of highly successful market trials and will be officially launched later this month at a key industry expo. We are thrilled to have Castrol's endorsement by partnering with us on their own closed-loop solution. We have said that as EV transition plays out over the next several decades, we see our green base oil as an ideal bridge for this market. It offers an opportunity for companies, particularly those with large vehicle fleets, to immediately lower their carbon footprint. We look forward to updating you on this promising program in the quarters ahead. Turning to slide seven, Eric and I, along with the entire executive team, are laser-focused on our capital allocation strategy. We are now in the second year of Vision 2027, our five-year growth plan, that relies on a mix of organic growth and acquisitions. As I outlined on our last call, and I believe it bears repeating, the foundation of the strategy is to drive margin improvement every year through pricing and productivity gains, and by achieving economies of scale on not only a highly leveraged network of permanent facilities and unique assets, but also a highly trained personnel who provide our customers with increased value from our services. This will continue to lead increasing cash flow generation and long-term shareholder value creation. The HEPCO acquisition was our headline M&A transaction in Q1. We also recently completed an attractive bolt-on deal with the acquisition of Noble Oil to support our collection footprint in the mid-Atlantic market and add more re-refining capacity. We continue to evaluate other potential transactions and see a healthy pipeline of candidates. We expect to remain active with acquisitions as we execute against Vision 2027. In terms of growth capex, we continue to advance our Kimmel, Nebraska incinerator, which remains on track to open commercially in Q4. Suffice to say, we are eager to bring this $200 million investment online, as that capacity is much needed in the market based on many trends, from reshoring to new regulations such as PFAS to government infrastructure spending. Adding this permitted scarce asset will create another long-term competitive advantage for clean harbors. On our last call, we detailed the planned $20 million expansion of our Baltimore facility to create a regional hub with manufacturing capabilities. We completed the purchase in Q1 and will be investing in and upgrading the site over the course of the year, with material savings to be achieved in 2025. Let me conclude my remarks by emphasizing how bullish we are on our growth prospects in 2024. favorable market dynamics, and the current economy should support our continued momentum. We have a clear line of sight across multiple businesses that should enable us to achieve our profitable growth plans for this year. Demand for our services continues to accelerate, as evidenced by Eric's mention of our record deferred revenue and strong pipeline of products. In addition, our conversations with customers about their future needs and the opening of the Kimball Incinerator reinforces our confidence in the ES segment. For SKSS, with all the initiatives highlighted earlier, several of which have great multi-year potential, we expect to return that segment to more stable, profitable growth in 2024. Overall, we have much to be excited about in both our operating segments this year. With that, let me turn it over to our CFO, Eric Dudas.