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.

Thank you, Mike, and good morning, everyone. Turning to the income statement on slide nine, we started off the year on a strong note with another great performance by the ES segments. The positive demand trends that have underpinned three straight years of healthy revenue growth in this segment continued in Q1, as revenues across all four businesses in PS were up from the prior year. Adjusted EBITDA of $230 million was above the expectations we provided on our Q4 call and up $15 million from a year ago. Our adjusted EBITDA margin in the quarter was 16.7%, up 20 basis points year-on-year and driven by the ES segment. Gross margin in the quarter was 29.5%, an increase of 80 basis points from a year ago. Within gross margin, we are seeing the benefit of our continued focus on pricing, greater productivity, and operational efficiencies. SG&A expense as a percentage of revenue was 13.2% in Q1, which is slightly higher than the prior year's quarter. Some of that increase was acquisition-related, as we absorbed some initial SG&A costs and incurred some incremental transaction-related severance costs, as well as higher professional fees. We expect this percentage to improve in the upcoming quarters as we continue to manage SG&A headcount and further integrate the HEPCO and Noble Oil acquisitions. For the full year 2024, Depreciation and amortization in Q1 came in at $95 million, up from a year ago due to our acquisitions. For 2024, we now expect depreciation and amortization in the range of $390 to $400 million. Income from operations in Q1 was approximately $125 million, up slightly from the prior year. Q1 net income was $69.8 million, resulting in an earnings per share of $1.29. Turning to the balance sheet highlights on slide 10, cash and short-term marketable securities at quarter end were $443 million. In connection with the HEPCO and Noble transactions, we added $500 million in incremental debt to our term loan to finance those deals. Even with those additional borrowings, our balance sheet remained strong. We ended Q1 with total debt of $2.8 billion, a net debt-to-EBITDA ratio of 2.4 times and continued to have no significant debt amounts coming due until 2027. Our weighted average pre-tax cost of debt at quarter end was 5.7%. Turning to cash flows on slide 11, cash provided from operations in Q1 was 19 million, reflecting our seasonally weakest quarter. CapEx net of disposals was 137 million, up significantly from prior year, due to investments in our facilities network, including approximately $20 million for our Kimball expansion and $15 million for our Baltimore facility. In the quarter, adjusted free cash flow was a negative $118 million, which was in line with our expectations. In addition to capex spend, this total reflects the timing of incentive comp payments, interest payments, and working capital. For the full year 2024, 30 million. This range includes the new additions of HEPCO and Noble Oil, plus approximately 65 million to complete the construction of our Kimball incinerator, and approximately 20 million for the purchase and expansion of the Baltimore facility. During Q1, we bought back approximately 27,000 shares of stock at a total cost of $5 million, or an average price of approximately $183 a share. On March 31st, we had $549 million remaining in our repurchase program. Moving to slide 12, based on our Q1 results, current market conditions, and our recent acquisitions, we are raising our 2024 adjusted EBITDA to a range of $1.10 billion to $1.15 billion, with a midpoint of $1.125 billion. This guidance assumes $30 million of contribution from HEPCO this year, and approximately $5 million from Noble Oil. Looking at our annual guidance from a quarterly perspective, we are expecting Q2 adjusted EBITDA growth of 7% to 8% versus prior year. We expect ES to continue its upward trajectory, and SKSS should benefit from the rising base oil pricing environment to deliver growth versus prior year. We now expect this revised to translate to our segments as follows. In environmental services, we expect adjusted EBITDA in 2024 at the midpoint of our guidance to increase 10 to 12% for 2023. Leveraging our network of assets, volume growth in our core lines of business, pricing strategies, the addition of HEPA Co. and multiple cost mitigation initiatives will drive this result. For SKSS, we expect full year 2024 adjusted EBITDA at the midpoint of our guidance to increase 6% to 8% in 2023. Given current market conditions and where we are today, we expect pricing to improve here in Q2 and into the back half. The promising initiatives that Mike outlined give us confidence that we can achieve this anticipated level of growth despite the slow start of the year. In our corporate segment, At the midpoint of our guide, we expect negative adjusted EBITDA results to be up 8% to 9% this year compared to 2023. More than half of that increase is additional costs from the acquired companies and related severance and integration costs. Looking at it, million for 2024, or a midpoint of $370 million. If you take that midpoint and add back the Kimball and Baltimore spend, you arrive at adjusted free cash flow of $455 million, which is greater than 40% of our adjusted EBITDA expectations at the midpoint. In summary, Q1 was a great start to the year. We expect the favorable demand environment to support strong profitable growth throughout the remainder of this year. ES segment has a healthy backlog of waste, a robust project pipeline, including PFAS opportunities, and our services business all have good momentum. And we expect our SKSS segment to begin posting year-over-year growth this year. Overall, we look forward to the remainder of this year and continue to execute against our longer-term vision 2027 goals. And with that, Christine, please open the call for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Michael Hoffman with Stiefel. Please proceed with your question.

Good morning and well done, given this is normally a seasonal tough quarter. If we think about in ES, you said it in the comments, but I want to clarify, you absolutely had volume growth, where last year we were really looking at most of the growth was price-driven in some M&A. There's a clear improving volume trend, and then on the price side, you're managing a positive price-cost spread, so you're driving operating leverage there as well. Is that a correct observation?

Absolutely, Michael. This is Eric. Our volumes have been very strong to start 2024 here, particularly in the drum growth area across our network of TSDFs, incinerators, so real strong volume growth across the board. Price efforts, as you know, we continue to have a very disciplined approach across the board. And, uh, we see that, uh, continuing to outpace inflation, continue a lot of focus there.

And then on the billable hour segments, IS and field services, can you talk about what your billable hour utilization look like?

Yeah, Michael, this is, uh, first of all, Michael, congratulations on your new role. We're all excited for you.

Uh, uh, we're going to miss you. We're all excited for you for your new role, uh, in the NWRI, so that's congratulations. To answer your question on utilization, we have been able to do a good job of utilizing people. We've gotten some good data out of the system to really drive utilization for both FS and IS, and I think that what's really been driving that productivity is also we've been doing a good job with voluntary turnover. Our turnover is down 400 basis points year over year, and having more experienced people in those roles drives productivity, less training time, less startup time, and that's really been helping us with utilization, which is, again, a key metric that we measure across the organization, especially in those high labor hours like in IS and FS.

Just to add one other point, Michael, to that is that we really have seen a great job by our teams cross-selling and driving utilization of people by sharing people and applications real positive trend for the team working together out there to service our customer needs.

And just to tease out a little bit, I mean, given the performance, it feels like you ought to be in the mid to upper eighties and billable hour utilization, which is a nice place to be in that type of business.

Absolutely. That's where it is. That's where it is.

Yep. Okay. And then, um, with regards to, uh, PFAS, um, We all know and I think we all believe there's a great opportunity coming and you have an underlying base level of activity. But one of the things we still need just to manage everybody's expectation is a remediation MCL. We've got a drinking water, but that's not really your niche, even though you are doing drinking water at Naval Base Pearl. We really need a remediation MCL. Is that correct in understanding what creates the real momentum eventually?

Yeah, absolutely. Yeah, no doubt about it, Michael, but I continue to reiterate that we really are in the drinking water. We're seeing a lot of opportunities there. As you know from our total focus here across the board, we're really focused on sampling, analysis, baseline, whether it be a remediation event, whether it be drinking water, whether it be industrial, and giving our customers that baseline so Certainly, we've mentioned many times that our pipeline continues to grow, and we're the total solutions provider with our network of incinerators and our landfills and our wastewater treatment plants and our team remediation that's out there training them in industrial water. So the pipeline we see strong. Our team is out there. We're also working with... EPA directly on our aragonite incinerator where we're doing updated testing. There's been more parameters that have been put in place on a new method for background incineration throughput and efficiency, and we're working with them to redo and upgrade that test to continue to show that high-temperature repra-thermal incineration is the preferred method. So your point is dead on with remediation. We need that standard. However, we continue to see bullish opportunities and pipeline growing there in many different areas.

And just to close the loop on your comment about the testing, you feel really good about being able to meet OTM 50 where you hit the ball out of the park on OTM 45. But there's nothing about OTM 50 that you say precludes you from proving to EPA thermal is the right answer.

Highly, highly confident, not a problem.

And would you use the same consulting group to help do that test since they've got an experience?

Yeah, absolutely, absolutely. I think it's also important to note that we see more and more interest in cooperation with EPA on helping to make sure that the tests and the parameters and everything that we're doing there, they're supportive of. So good cooperation there.

All right. Well, thank you, Clean Harbors, for the kind words. I do appreciate that. And thank you for taking the questions.

Thanks, Michael. All right, Michael. We'll see you Monday.

Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Yes, hi. Good morning, everyone. Hi, Jerry. I'm wondering if we could just... Hi. I'm wondering if we could just ask you to update us on your M&A pipeline today. Obviously, pretty active, a couple of quarters for you folks. Can you talk about what's the range of outcomes in terms of potential additional deal flow over the next 12 to 24 months based on your discussions?

Yeah, Jerry, this is Mike.

I think that the pipeline remains really strong, and we closed two deals here, both the HEPCO transaction, which was pretty material, but also an acquisition in the oil space. And we look at a lot of deals in both parts of the business, you know, two to three a week at least. And we have discussions, and a lot of them don't make the cut, so it's hard to kind of prove a negative on this call. But we do do a lot. It has to make strategic sense. It has to make financial sense. We kind of have to measure that. But the pipeline remains strong on both businesses. Obviously, you know, we're excited about the HEPCO deal. I think that's going to turn out to be a home run. Noble also should be a really good deal. We're looking for acquisitions in that type of area. So pipeline strong, very active. Our leverage is in pretty good shape. You know, we're generating a fair amount of interest in our term loan we did for the connection with the HEPCO transaction. I think more to come. Very active. As we try to go after Vision 2027, we're going to generate a fair amount of free cash flow in the back half of the year, and we'll want to put to work.

Super. And then in terms of the marketing arrangement that you reach with Safety Clean, can you expand a little bit about that? Where's the pricing point versus virgin base oil? Are we starting to see a premium open up? And what's the opportunity under the agreement for that premium to widen over time?

Yeah, I think that it's – we don't give out financial details on our deal with Castrol. We're really excited about the opportunity, as I said, In my prepared remarks, it validates the sustainability of our base water. It immediately lowers our customers' and their customers' carbon footprint. There's a lot of good value. We've been talking about going after large fleets for years, and we partnered with Castrol, and they have the marketing and the sales muscle to go and penetrate those markets. And I think that it really is going to be a great partnership. I do think that overall, selling more contracted oil is at a better price than the spot market, but we're not going to give financial details on this call.

In terms of the industrial services business, at the analyst day, we discussed a pretty clean runway in terms of improving billable terms and driving higher contracted business. buildable hours. Can you just update us on progress on that journey this year? How much of a contributor was that in the quarter, and where do we stand in terms of potential additional upside on continuing to improve those terms?

Yeah, Jerry, our industrial team continues to do a solid job of placing more of our employees at a billable rate within the sites that we work on day in, day out. Large chemical plants, large refineries, building out our insight programs, the tools that we can provide for them, the automated tools. All that is in an effort to have more of our industrial teams day in, day out, with high billable hours at our customer sites. And the team is really focused on doing that, and the results are showing that.

So it was a meaningful driver in the quarter, Eric?

It has. We see our utilization of our employees continue to improve year over year. That, along with some of the things that we've been doing on a pricing side, better price improvement on our billable labor on-site has also been a key driver. The Thompson Industrial continues to work with our teams very well, and the teams working together, Thompson and our HBC on customer sites and growing our verticals has also shown up in our results.

Thank you. You're welcome. Thanks, Jerry.

Our next question comes from the line of Toby Somer with Truist. Please proceed with your question.

Hey, good morning.

This is Jasper Bibbon for Toby. Following up on environmental services down performance in the first quarter in the higher guide, would there be any way to I guess, quantify the expected pricing outperformance relative to your initial assumptions?

Yeah, across the board, we would say that about 50% to 60% is price and about 40% volume. And we're really focused on making sure price is ahead of inflation in our cost structure, along with efficiencies, improvements that we're seeing. And volumes are robust, as we mentioned earlier, in the first quarter, and we anticipate that continuing to grow as we go into the second half of the year when we look to get our new Kimbell incinerator on board here.

And so, Jeff, this is Eric. I'm going to have to say that comment a little bit. I would say that in terms of pricing, I think it was in line with our expectations in terms of what we see in the marketplace and what we're able to do against our goals. I think volume became a larger piece of the pie here in Q1. because of the significant growth that we're seeing on drum counts that Eric Gerstenberg mentioned earlier. So, you know, the 60-40 pricing, we probably came into the quarter thinking it would be a little bit higher on the pricing side of that equation, but volumes have just been really strong, not just with drums, but also, you know, you probably noticed the growth in field services as well as SK Branch. Those businesses both grew at about 10% this quarter. So volume is certainly a key component this quarter as well.

Yeah, it's helpful. And then you mentioned the improvement in base oil demand through the quarter. I was just hoping you could maybe give a bit more color on what you've seen in April so far from a pricing and spread perspective.

Yeah, this is Mike. I think that we ended the quarter kind of on a good note. There were two posted price increases, not all of which will get into Q2, but a good chunk of them will. And I think that we have some growth from Q1 into Q2. And we see kind of the summer driving season, the normal seasonality returning. And I think April, you know, so far is actually going to be a pretty good month in the oil business. And that gives us a good running start into the quarter.

Makes sense. Last one for me, just any change to the interest expense assumptions for the 24 guys with the incremental borrowings in the quarter?

No, I think we're still in line kind of with what we guided. We did guide it. But that incremental debt, the $500 million today, it's roughly at 7%. So I'll let you kind of do the math there. But when you think about overall cash flow for the year, We have some moving parts in our debt portfolio coming up here, and we'll continue to be very smart with how we manage that.

Yeah, I think the team has done a good job of managing interest rate risk. It's only at 5.7% here in Q1. I think the team's done a good job of getting good returns on their cash. So that's at 4% or 5%. So really the arbitrage of the incremental debt hasn't been too bad from the P&L standpoint.

Got it. Thanks for taking the questions.

Our next question comes from the line of James Ricciuti with Needham. Please proceed with your question.

Good morning. Question on HEPCO. I know it's early, but I'm just wondering how we should be thinking about the revenue synergies. Seems like there's some real good opportunities here.

Yeah, James. So Eric here, I'll begin. One thing that HEPCO has really brought to the table is there the largest railroads, and I've had a great team that responds to not only events but ongoing services for the rail industry. We're going to plan on building on that nationwide so that we're a participant in all rail activities. So that's a great revenue synergy there. We also have seen some great work with our teams working together across the customer base and sharing assets already. There's about 22 of those that are in new markets for us so that we can grow with the customer base there. The other 18-ish are working in conjunction with our teams at existing field service branches, sharing assets and people to grow our revenue base. So great opportunities there. They also brought to the table a wonderful, throughout North America. So great opportunities in all three of those areas.

Yeah, so far, Jim, it really is a hand in glove. You really see a great partnership. And even in the – we owned it for a week in the month of March, and we were already sharing resources across the network, even in the first week of ownership, which is just terrific.

Got it. By the way, did you size the acquisition-related severance expense that impacted SG&A? Or maybe could you size that?

Yeah, there were about $4 million of severance and integration kind of running through corporate this quarter.

Got it. And last question. Great. Thank you. Last question I had is just in light of the announcement with cash flow, and by the way, congratulations on that, I'm wondering, is that spurring discussions? Are you in discussions potentially that you could talk to with other lubricant suppliers? Or will you just see how this plays out and hopefully others come on board?

We just announced the partnership with Castrol. We're going to work with Castrol. We did some trials, did some pilots. great relationship. We're excited about working with Castro. So we're going to drive that. They have this great brand, very well-respected brand in the industry, and we're excited to work with them.

And James, just to add to that, as Mike mentioned earlier, the great partnership there is really to help grow fleet sales. Castro brand has been in a number of large fleets already, and the circular offer of and then putting our re-refined base oil into those fleets under the Castro brand is the real opportunity there. So great stuff.

Yeah, it makes sense. Good partner to have. Thank you. Congratulations.

Thank you.

Our next question comes from the line of David Manthe with Baird. Please proceed with your question.

Good morning, everyone. Thank you. Hi, David. Good morning.

First question, big picture. Should we assume that the guidance update here reflects the acquisitions being added and a little bit of 1Q outperformance and maybe a little change in the corporate expense? But the message here, if I'm reading it right, confidence is high, but there's no real underlying change in your EBITDA expectations, just given that we're early in the year. Is that how we should read this guidance update?

Hey, Dave, it's Eric Dugas. I think you're reading into it the right way. You know, being early in the year, you know, the guide is, the raise is, you know, counting the new acquisitions, as we talked about and laid out in the prepared remarks, and then kind of the success we saw in Q1, and then maybe a little bit of uptick throughout the whole year. But given Q1, you know, given our history of wine and meat and beet, we said, you know, in the exact right way.

Okay. And on the first quarter turnarounds, were any of those unplanned and therefore offsetting expected work for later in this year? I think that you have sort of a once in every five year kind of turnaround at Deer Park coming up in the second quarter. And as it relates to that, just wondering if we should factor that into utilization or ES growth profitability in the second quarter specifically.

bit, a small amount of weather-related activities that were associated with that deep freeze that occurred in January, but it was pretty small. Last year, when we ran into those issues, we spent some nice capital on upgrading the weather protection across our El Dorado facility, so that prevented one of our trains from having to come down in those deep freeze, so we really saw the results of being able to stay on line for the most part through that deep freeze. There is a little on one of the trains. In addition to that, we have planned turnarounds. We had a major outage that we did up at our Canadian incinerator in Sarnia that really drove most of the incremental down days that we had year over year in Q1. So that was planned activities. So by and large, to answer your question, planned activities, we do have a large shutdown that we're working through at our Deer Park plant. As you mentioned, That's a seven, eight-year event that we're doing to retool some of the wastewater treatment activities down there that are on the back end of that plant. That is proceeding extremely well. The team's doing a good job. So we expected the 79%, 80% in that area, and we still fully anticipate with the activities that we have underway that we'll be into that mid to high upper 80s for 2024.

The only thing I'd add to that, Dave, is that to that point in Q2, the margin in ES, there'll be good margin growth and there'll be material margin growth, but it won't be as substantive as what we see in Q1.

Right. And just to follow on that train of thought here, my understanding is that the kiln right now in Deer Park isn't able to take certain materials because of the state of the kiln today. I'm wondering going forward, could we see an uptick in value there just given that you'll have that refreshed and ready to go?

David, the That site, along with our El Dorado site, can take everything. So it's not that we're adding additional capabilities. The capabilities there are as robust as any plant in our network and any plant in the industry, for that matter. So we handle a significant amount of the direct burn streams from that Gulf market on there, but by and large, very robust capabilities, and that will continue.

Got you. Thank you. Thank you.

Our next question comes from the line of Timna Tanners with Wolf Research. Please proceed with your question.

Yeah, hey, good morning, everyone. Hope you're doing well.

Good morning.

Good morning.

Wanted to ask about the base oil outlook, what you're budgeting in your guidance given the comments about the uptick. It's so great to see some of the measures you're taking. We're hopeful to see the negative comparisons behind, but just wanted a little bit more color on how you're thinking about the trajectory in your estimates forecast.

Yeah, this is Mike, and thanks for the question.

You know, we are going to have – it's a pretty modest uptake. You know, we try to be thoughtful as we've given guys. We've been burnt a little bit in the past by it, so we were – although the base oil price and posted pricing has gone up, you know, quite a bit over the past month or so, we've been pretty cautious. and it's a pretty modest increase in the pricing environment. We're hopeful to come back here in the United States from now and report a nice B to that number and, to your point, put the negative Bs kind of behind us.

Okay, fair. That's helpful. And then regarding capital allocation, what drives the pace of buybacks quarter to quarter? How do you think about that? How do you balance the pipeline for M&A with buybacks and any debt paydown, which you don't have to do, it sounds like, but could do. Just any thoughts there?

Yeah, Tim and Eric here. When we think about buybacks, we're really opportunistic under that program. I think we utilize it when we think the share price is extremely undervalued, and we also utilize it so as not to dilute our current shareholders as new shares come into the into the market. So that's really the way we've handled that program in the last couple years. Each of the last two years we've bought back about $50 million and that's accomplished those goals. So I would anticipate that we'll continue to use the program in that manner. When I think about overall capital allocation, as evidenced by what we did this quarter with the two acquisitions, acquisitions and accretive internal growth projects like Kimball and like the Baltimore project, those are where we'll put most of our capital. And we'll continue that going forward. In fact, that's always an option. We certainly like our debt portfolio from the perspective of we do have some debt where we can pay down if that's an attractive option for us. You know, but certainly I think acquisitions has and will continue to be the heavy hammer there when it comes to capital allocation.

Okay. Helpful very much. Thank you.

Thank you. Thank you.

Our next question comes from the line of Noah Kay with Oppenheimer. Please proceed with your question.

Hey, good morning. Thanks for taking the questions.

First, you discussed it previously, just coming in a little bit more granular on the free cash flow guide walk, you know, raising EBITDA 50 million, operating cash flow looks like about 10 million or so. So it doesn't sound like that was interest expense. maybe some capex related to HEPCO, but to just help us maybe think about the bridge there.

Yeah, I mean, no, it's Eric. I think I'd start with the uptick in EBITDA from the acquisitions and the good Q1 growth. And then I think as I reconcile from kind of EBITDA to free cash flow and the rationale for keeping free cash flow guys flat to what we said last quarter, it's really the incremental debt. So you've got, based upon today's rates, about... you know, $25 million of incremental interest payments on the debt. And then as we know, when we buy these acquisitions, there's always some incremental capex. So there's probably another, as you saw, we increased our capital expenditures this year by $10 million. So you've kind of got $35 million there in our free cash flow guide that's incremental to last quarter. But keep in mind, I think, when we look at certainly the two acquisitions, You know, we have a little bit of synergies kind of built into the forecast, not much, as we continue to integrate this business throughout the year. But as those synergies come, and particularly with HEPCO, we feel really, really good about the synergies, having owned them for about a month now. Certainly from a free cash flow perspective, those things will become more accretive towards the end of the year and certainly on into 2025.

Thanks for anticipating the synergies question. I think you had targeted $20 million after year one, and if you're not putting in much this year, obviously that could be upside. Okay, how do we think about Kimball ramping capacity and how we think about mix? Maybe we can sort of start with 4Q and then think about the plan for call the first half of next year.

Yeah, no, Eric here. So we're excited to be on schedule. and into Q4 of this year coming online. Our focus will begin really around the drum volumes that are throughout our network that we've seen really substantial drum volumes increase year over year. So we'll have really a ramp up in Q4 and then into 2025 we would anticipate doing 2025 to 30,000 clean water streams as we ramp up throughout the course of the year.

Okay, terrific.

And just to circle back on PFAS, you know, Michael asked the questions around that opportunity. I guess just to simplify it for me, what impacts has the team seen as a result of some of these regulations? And I know there was some visibility to those coming, so not necessarily suggesting a speaker was open, but just talk about the impacts on the pipeline that you've seen now that we have some official regulations and the circular designation.

Yeah, Noah, as we've said previously, we're doing about 50 to 70 million of PFAS-related work throughout our network from all the different opportunities we go into 2025. So real strong pipeline growth. And I would say the pipeline growth is pretty diverse. It's looking at industrial water opportunities, drinking water opportunities, sampling and background analysis, but also remedial events. We do see activity where already customers are saying, hey, we want to plan a remediation because we have a construction event that we want to use that site for. We also see some opportunities across with AFFF change-outs throughout different districts where regulations and the heightened awareness of all PFAS related is causing fire departments to want to have a plan where they, or I'm sorry, different customers that they need to have a plan to change out their AFFF in their lines that need to be drained and recharged. So that disposal of existing AFFF is some of the opportunities that we see as well, and how we might service that on a broad basis, knowing that there are many areas that need that before they have an event. They need to make sure they put non-PFAS-related AFFF in their lines. So it's really across the board where we're seeing opportunities.

So, Noah, just to go back to Michael's question and your question, obviously new regulation, very important. How clean is clean? We've said that many, many times. But I don't think we're stopping, nor are our customers stopping, in areas like AFFF and other areas where we know there's a high concentration of PFAS. We rolled out the total PFAS solution. We talked about that last quarter. We're doing a lot of training, a lot of marketing around that, and we're getting all our sales organizations educated on the benefits, because it affects all our businesses. As Eric said, you know, AFFF firefighting foam, whether it be soils, whether it be, you know, even field service clean-out work, it's going to affect all different lines of our business as we continue to grow. And I do think that this has got, you know, the fact that we've got the drinking water standards out there, and they're getting more and more regulation around circular rules around this, you know, we have that solution. it's very, very important for us and our customers to have a total destruction solution, and we have that today.

Perfect. Thanks so much for the comprehensive answer.

Thank you. Thanks, Noel.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Larry Solo with CJS Securities. Please proceed with your question.

Great. Good morning, guys. Most of my questions have been answered. Noah stole my last couple there. I guess just coming back to the cadence, just the cadence on SKSS. It sounds like obviously you're building in a pretty nice ramp. Looks like you almost have to get to like an average of like 50 million a quarter to kind of get to the midpoint of the numbers. So do we is it kind of an ease second quarter a little bit up and then the back half of the year is really where you get that, the full impact of, you know, some of these projects too. And, and some of the, the ramp of the base oils are the blended.

I mean, yeah, yeah, you got it right there. There's a pretty big jump from where we ended Q1 into Q2. I think that's better pricing. That's better production in our plants and a few other good things that are happening for us, including group three and our rollout. And, uh, and, and so you're a bit of, a bit of a beat in Q2, obviously a big beat in Q3 because of, uh, of where we are versus the fee we add in Q3 and Q4.

Right. Gotcha. Okay. And then just on Kimball, on the CapEx, I think $65 million this year, does that basically complete the majority, the bulk of the spending, and then going forward, it's just the incremental maintenance stuff?

Yeah, that's right, Larry. It will. The $65 million will get us to that $200 million mark, and we'll have some related startups gets us full spend.

Got it. Okay, great. And then just lastly, Hippoco, it sounds like, you know, you're reaffirming all the, sounds like things are going good. It's early on, obviously, early days, but the synergies, I guess, you're not building in much this year, it feels like, right? But maybe there is a little bit upside there, but you're still kind of holding firm. So within the first 12 months, you don't realize that 20 million, but Beyond that 12 months, that $20 million should be realized, right? Is that kind of a good way to look at it? You could do $60 million EBITDA next year maybe. Is that fair?

Yeah, that's how we're thinking about it, Larry. I think a smaller amount of synergies this year, obviously, as we roll in, we'll have some offsetting severance integration costs we talked about. But certainly that $20 million number, 12 months from now, that's the run rate. And I think it's safe to say we feel really good about that. a strong possibility it's probably a little bit better. So, you know, really love the acquisition. Fits in nicely. And as Mike and Eric alluded to, we, you know, first week in March, you know, really nice to see them fit in with Clean Harbor. So, feel good.

Got it. Great. Excellent. Thanks. Thanks, guys. Appreciate it.

Thank you. Mr. Gersenberg, we have no further questions at this time. I would like to turn the floor back over to you for closing comments.

Thanks for joining us today. Next week, management will be at the Waste Expo in Las Vegas and participating in CIFL's Investor Summit there, as well as the Oppenheimer Industrial Growth Conference later in the week. We also have several conferences lined up in Boston and New York in early June. For that active calendar, we look forward to seeing some of you at these and other events. Thank you.

Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day. Hello. Thank you. Thank you. 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, 2021. 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. industry. 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 for 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 HEPA Co. 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 charge-for-oil collection model versus the pay-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. SafetyClean 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.

Thank you, Mike, and good morning, everyone. Turning to the income statement on slide nine, we started off the year on a strong note with another great performance by the ES segment. positive demand trends that have underpinned three straight years of healthy revenue growth in this segment continued in Q1, as revenues across all four businesses in PS were up from the prior year. Adjusted EBITDA of $230 million was above the expectations we provided on our Q4 call and up $15 million from a year ago. Our adjusted EBITDA margin in the quarter was 16.7%, up 20 basis points year-on-year and driven by the ES segments. Gross margin in the quarter was 29.5%, an increase of 80 basis points from a year ago. Within gross margin, we are seeing the benefit of our continued focus on pricing, greater productivity, and operational efficiencies. SG&A expense as a percentage of revenue was 13.2% in Q1, which is slightly higher than the prior year's quarter. Some of that increase was acquisition-related, as we absorbed some initial SG&A costs and incurred some incremental transaction-related severance costs, as well as higher professional fees. We expect this percentage to improve in the upcoming quarters as we continue to manage SG&A headcount and further integrate the HEPCO and Noble Oil acquisitions. For the full year 2024, Depreciation and amortization in Q1 came in at $95 million, up from a year ago due to our acquisitions. For 2024, we now expect depreciation and amortization in the range of $390 to $400 million. Income from operations in Q1 was approximately $125 million, up slightly from the prior year. Q1 net income was $69.8 million, resulting in an earnings per share of $1.29. Turning to the balance sheet highlights on slide 10, cash and short-term marketable securities at quarter end were $443 million. In connection with the HEPCO and Noble transactions, we added $500 million in incremental debt to our term loan to finance those deals. Even with those additional borrowings, our balance sheet remained strong. We ended Q1 with total debt of $2.8 billion, a net debt-to-EBITDA ratio of 2.4 times and continued to have no significant debt amounts coming due until 2027. Our weighted average pre-tax cost of debt at quarter end was 5.7%. Turning to cash flows on slide 11, cash provided from operations in Q1 was 19 million, reflecting our seasonally weakest quarter. CapEx net of disposals was 137 million, up significantly from prior year, due to investments in our facilities network, including approximately $20 million for our Kimball expansion and $15 million for our Baltimore facility. In the quarter, adjusted free cash flow was a negative $118 million, which was in line with our expectations. In addition to capex spend, this total reflects the timing of incentive comp payments, interest payments, and working capital. For the full year of 2024, and $30 million. This range includes the new additions of HEPA Co. and Noble Oil, plus approximately $65 million to complete the construction of our Kimball incinerator, and approximately $20 million for the purchase and expansion of the Baltimore facility. During Q1, we bought back approximately 27,000 shares of stock at a total cost of $5 million, or an average price of approximately $183 a share. On March 31st, we had $549 million remaining in our repurchase program. Moving to slide 12, based on our Q1 results, current market conditions, and our recent acquisitions, we are raising our 2024 adjusted EBITDA to a range of $1.10 billion to $1.15 billion, with a midpoint of $1.125 billion. This guidance assumes $30 million of contribution from HEPA Co. this year, approximately five million from noble oil. Looking at our annual guidance from a quarterly perspective, we are expecting Q2 adjusted EBITDA growth of seven to eight percent versus prior year. We expect ES to continue its upward trajectory and SKSS should benefit from the rising base oil pricing environment to deliver growth versus prior year. We now expect this revised full year to translate to our segments as follows. In environmental services, we expect adjusted EBITDA in 2024 at the midpoint of our guidance to increase 10% to 12% for 2023. Leveraging our network of assets, volume growth in our core lines of business, pricing strategies, the addition of HEPA Co., and multiple cost mitigation initiatives will drive this result. For SKSS, we expect full year 2024 adjusted EBITDA at the midpoint of our guidance to increase 6% to 8% in 2023. Given current market conditions and where we are today, we expect pricing to improve here in Q2 and into the back half. The promising initiatives that Mike outlined give us confidence that we can achieve this anticipated level of growth despite the slow start of the year. In our corporate segment, At the midpoint of our guide, we expect negative adjusted EBITDA results to be up 8% to 9% this year compared to 2023. More than half of that increase is additional costs from the acquired companies and related severance and integration costs. Looking at it, million for 2024, or a midpoint of $370 million. If you take that midpoint and add back the Kimball and Baltimore spend, you arrive at adjusted free cash flow of $455 million, which is greater than 40% of our adjusted EBITDA expectations at the midpoint. In summary, Q1 was a great start to the year. We expect a favorable demand environment to support strong profitable growth throughout the remainder of this year. ES segment has a healthy backlog of waste, a robust project pipeline, including PFAS opportunities, and our services business all have good momentum. And we expect our SKSF segment to begin posting year-over-year growth this year. Overall, we look forward to the remainder of this year and continue to execute against our longer-term vision 2027 goals. And with that, Christine, please open the call for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Michael Hoffman with Stiefel. Please proceed with your question.

Good morning and well done, given this is normally a seasonal tough quarter. If we think about in ES, you said it in the comments, but I want to clarify, you absolutely had volume growth, where last year we were really looking at most of the growth was price-driven in some M&A. There's a clear improving volume trend, and then on the price side, you're managing a positive price-cost spread, so you're driving operating leverage there as well. Is that a correct observation?

Absolutely, Michael. This is Eric. Our volumes have been very strong to start 2024 here, particularly in the drum growth area across our network of TSDFs, incinerators, so real strong volume growth across the board. Price efforts, as you know, we continue to have a very disciplined across the board, and we see that continuing to outpace inflation, continue a lot of focus there.

And then on the billable hour segments, IS and field services, can you talk about what your billable hour utilization look like?

Yes, Michael. First of all, Michael, congratulations on your new role. We're all excited for you.

We're going to miss you. We're all so excited for you for your new role in the NWRI, so that's congratulations. To answer your question on utilization, we have been able to do a good job of utilizing people. We've gotten some good data out of the system to really drive utilization for both FS and IS, and I think that what's really been driving that productivity is also we've been doing a good job with voluntary turnover. Our turnover is down 400 basis points year over year, and having more experienced people in those roles drives productivity, less training time, less startup time, and that's really been helping us with utilization, which is, again, a key metric that we measure across the organization, especially in those high labor hours like in IS and FS.

Just to add one other point, Michael, to that is that we really have seen a great job by our teams cross-selling and driving utilization of people by sharing people and assets across our customer needs.

And just to tease that a little bit, given the performance, it feels like you ought to be in the mid to upper 80s in billable hour utilization, which is a nice place to be in that type of business.

Absolutely. That's where it is.

Yep. Okay. And then with regards to PFAS, we all know and I think we all believe there's a great opportunity coming and you have an underlying base level of activity, but one of the things we still need just to manage everybody's expectation is a remediation MCL. We've got a drinking water, but that's not really your niche, even though you are doing drinking water at Naval Base Pearl. We really need a remediation MCL. Is that correct in understanding what creates the real momentum eventually?

Yeah, absolutely. Yeah, no doubt about it, Michael, but I continue to reiterate that we really are in the drinking water. We're seeing a lot of opportunities there. As you know from our total focus here across the board, we're really focused on sampling, analysis, baseline, whether it be a remediation event, whether it be drinking water, whether it be industrial, and giving our customers that base Certainly, we've mentioned many times that our pipeline continues to grow, and we're the total solutions provider with our network of incinerators and our landfills and our wastewater treatment plants and our team remediation that's out there training them in industrial water. So the pipeline we see strong. Our team is out there. We're also working with... EPA directly on our aragonite incinerator where we're doing updated testing. There's been more parameters that have been put in place on a new method for background incineration throughput and efficiency, and we're working with them to redo and upgrade that test to continue to show that high-temperature repra-thermal incineration is the preferred method. So your point is dead on with remediation. We need that standard. However, we continue to see bullish opportunities and pipeline growing there in many different areas.

And just to close the loop on your comment about the testing, you feel really good about being able to meet OTM 50 where you hit the ball out of the park on OTM 45. But there's nothing about OTM 50 that you say precludes you from proving to EPA thermal is the right answer.

Highly, highly confident, not a problem.

And would you use the same consulting group to help do that test since they've got an experience?

Yeah, absolutely, absolutely. I think it's also important to note that we see more and more interest in cooperation with EPA on helping to make sure that the tests and the parameters and everything that we're doing there, they're supportive of. So good cooperation there.

All right. Well, thank you, Clean Harbors, for the kind words. I do appreciate that. And thank you for taking the questions.

Thanks, Michael. All right, Michael. We'll see you Monday.

Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Yes, hi. Good morning, everyone. Hi, Jerry. I'm wondering if we could just... Hi. I'm wondering if we could just ask you to update us on your M&A pipeline today. Obviously, pretty active, a couple of quarters for you folks. Can you talk about what's the range of outcomes in terms of potential additional deal flow over the next 12 to 24 months based on your discussions?

Yeah, Jerry, this is Mike.

I think that the pipeline remains really strong, and we closed two deals here, both the HEPCO transaction, which was pretty material, but also an acquisition in the oil space. And we look at a lot of deals in both parts of the business, you know, two to three a week at least. And we have discussions, and a lot of them don't make the cut, so it's hard to kind of prove a negative on this call. But we do do a lot of deals. It has to make strategic sense. It has to make financial sense. We kind of have to measure that. But the pipeline remains strong on both businesses. Obviously, you know, we're excited about the HEPCO deal. I think that's going to turn out to be a home run. Noble also should be a really good deal. We're looking for acquisitions in that type of area. So pipeline strong, very active. Our leverage is in pretty good shape. You know, we're generating a fair amount of interest in our term loan we did for the connection with the HEPCO transaction. I think more to come. Very active. As we try to go after Vision 2027, we're going to generate a fair amount of free cash flow in the back half of the year, and we'll want to put to work.

Super. And then in terms of the marketing arrangement that you reach with Safety Clean, can you expand a little bit about that? Where's the pricing point versus virgin base oil? Are we starting to see a premium open up? And what's the opportunity under the agreement for that premium to widen over time?

Yeah, I think that it's – we don't give out financial details on our deal with Castrol. We're really excited about the opportunity, as I said, In my prepared remarks, it validates the sustainability of our base water. It immediately lowers our customers and their customers' carbon footprint. There's a lot of good value. We've been talking about going after large fleets for years, and we partnered with Castrol, and they have the marketing and the sales muscle to go and penetrate those markets. And I think that it really is going to be a great partnership. And I do think that, you know, overall, you know, selling more contracted oil is at a better price than the spot market. But we're not going to give financial details on this call.

And in terms of the industrial services business, you know, at the analyst day, we discussed a pretty clean runway in terms of improving billable terms and driving higher contracted business. buildable hours. Can you just update us on progress on that journey this year? How much of a contributor was that in the quarter, and where do we stand in terms of potential additional upside on continuing to improve those terms?

Yeah, Jerry, our industrial team continues to do a solid job of placing more of our employees at a billable rate within the sites that we work on day in, day out. Large chemical plants, large refineries, building out our insight programs, the tools that we can provide for them, the automated tools. All that is in an effort to have more of our industrial teams day in, day out, with high billable hours at our customer sites. And the team is really focused on doing that, and the results are showing that.

So it was a meaningful driver in the quarter, Eric?

It has. We see our utilization of our employees continue to improve year over year. That, along with some of the things that we've been doing on a pricing side, better price improvement on our billable labor on-site has also been a key driver. The Thompson Industrial continues to work with our teams very well, and the teams working together, Thompson and our HBC on customer sites and growing our verticals has also shown up in our results.

Thank you. You're welcome. Thanks, Jerry.

Our next question comes from the line of Toby Somer with Truist. Please proceed with your question.

Hey, good morning.

This is Jasper Bibbon for Toby. Following up on environmental services about performance in the first quarter and the higher guide, would there be any way to I guess, quantify the expected pricing outperformance relative to your initial assumptions?

Yeah, across the board, we would say that about 50% to 60% is price and about 40% volume. And we're really focused on making sure price is ahead of inflation and our cost structure, along with efficiencies, improvements that we're seeing. And volumes are robust, as we mentioned earlier. in the first quarter, and we anticipate that continuing to grow as we go into the second half of the year when we look to get our new Kimbell incinerator on board here.

And so, Jeff, Eric, I'm going to have to say that comment a little bit. I would say that in terms of pricing, I think it was in line with our expectations in terms of what we see in the marketplace and what we're able to do against our goals. I think volume became a larger piece of the pie here in Q1, because of the significant growth that we're seeing on drum counts that Eric Gerstenberg mentioned earlier. So, you know, the 60-40 pricing, we probably came into the quarter thinking it would be a little bit higher on the pricing side of that equation, but volumes have just been really strong, not just with drums, but also, you know, you probably noticed the growth in field services as well as FK Branch. Those businesses both grew at about 10% this quarter. So volume is certainly a key component this quarter as well.

Yeah, it's helpful. And then you mentioned the improvement in base oil demand through the quarter. I was just hoping you could maybe give a bit more color on what you've seen in April so far from a pricing and spread perspective.

Yeah, this is Mike.

I think that we ended the quarter kind of on a good note. There were two posted price increases, not all of which will get into Q2, but a good chunk of them will. And I think that we have some growth from Q1 into Q2. And we see kind of the summer driving season, the normal seasonality returning. And I think April, you know, so far is actually going to be a pretty good month in the oil business. And that gives us a good running start into the quarter.

Makes sense. Last one for me, just any change to the interest expense assumptions for the 24 guys with the incremental borrowings in the quarter?

No, I think we're still in line kind of with what we guided. We did guide it. debt. But that incremental debt, the $500 million today, it's roughly at 7%. So I'll let you kind of do the math there. But when you think about overall cash flow for the year, You know, we have some moving parts in our debt portfolio coming up here, and we'll continue to be very smart with how we manage that.

Yeah, I think the team has done a good job of managing, you know, interest rate risk. It's only at 5.7% here in Q1, and the team's done a good job of getting good returns on their cash. So, you know, that's at, you know, 4% or 5%. So, really, the arbitrage of the incremental debt hasn't been too bad from the P&L standpoint.

Got it. Thanks for taking the questions.

Our next question comes from the line of James Ricciuti with Needham. Please proceed with your question.

Hi. Good morning.

Hi, Jim.

How are you?

A question on HEPCO. I know it's early, but I'm just wondering how we should be thinking about the revenue synergies. Seems like there's some real good opportunities here.

Yeah, James. So, Eric, I'll begin. One thing that HEPCO has really brought to the table is that great relationships with some of the largest railroads. And I've had a great team that responds to not only events, but ongoing services for the rail industry. We're going to plan on building on that nationwide so that we're a participant in all rail activities. So that's a great revenue synergy there. We also have seen some great work with our team's sharing assets already. Out of the 40 different branches that HEPCO has brought to the table, there's about 22 of those that are in new markets for us so that we can grow with the customer base there. The other 18-ish are working in conjunction with our teams at existing field service branches sharing assets and people to grow our revenue base. So great opportunities there. They also brought to the table a wonderful throughout North America. So great opportunities in all three of those areas.

Yeah, so far, Jim, it really is a hand in glove. You really see a great partnership. And even in the – we owned it for a week in the month of March, and we were already sharing resources across the network, even in the first week of ownership, which is just terrific.

Got it. By the way, did you size the acquisition-related severance expense that impacted SG&A? Or maybe could you size that?

Yeah, there were about $4 million of severance and integration kind of running through corporate this quarter.

Got it. And last question. Great. Thank you. Last question I had is just in light of the announcement with cash flow, and by the way, congratulations on that, I'm wondering, is that spurring discussions? Are you in discussions potentially that you could talk to with other lubricant suppliers? Or will you just see how this plays out and hopefully others come on board?

We just announced the partnership with Castrol. We're going to work with Castrol. We did some trials, did some pilots. great relationship. We're excited about working with Castro. So we're going to drive that. They have this great brand, very well-respected brand in the industry, and we're excited to work with them.

And James, just to add to that, as Mike mentioned earlier, the great partnership there is really to help grow fleet sales. Castro brand has been in a number of large fleets already, and the circular offer of and then putting our re-refined base oil into those fleets under the Castro brand is the real opportunity there. So great stuff.

Yeah, it makes sense. Good partner to have. Thank you. Congratulations.

Thank you.

Our next question comes from the line of David Manthe with Baird. Please proceed with your question.

Good morning, everyone. Thank you. Hi, David. Good morning.

First question, big picture. Should we assume that the guidance update here reflects the acquisitions being added and a little bit of 1Q outperformance and maybe a little change in the corporate expense? But the message here, if I'm reading it right, confidence is high, but there's no real underlying change in your EBITDA expectations, just given that we're early in the year. Is that how we should read this guidance update?

Hey, Dave, it's Eric Dugas. I think you're reading into it the right way. You know, being early in the year, you know, the guide is, the raise is, you know, counting the new acquisitions, as we talked about and laid out in the prepared remarks, and then kind of the success we saw in Q1, and then maybe a little bit of uptick throughout the whole year. But given Q1, you know, given our history of wine and meat and beef, into it the exact right way.

Okay. And on the first quarter turnarounds, were any of those unplanned and therefore offsetting expected work for later in this year? I think that you have sort of a once in every five year kind of turnaround at Deer Park coming up in the second quarter. And as it relates to that, just wondering if we should factor that into utilization or ES growth profitability in the second quarter specifically.

amount of weather-related activities that were associated with that deep freeze that occurred in January. But it was pretty small. Last year, when we ran into those issues, we spent some nice capital on upgrading the weather protection across our El Dorado facility. So that prevented one of our trains from having to come down in those deep freeze. So we really saw the results of being able to stay online for the most part. through that deep freeze. There is a little on one of the trains. In addition to that, we have planned turnarounds. We had a major outage that we did up at our Canadian incinerator in Sarnia that really drove most of the incremental down days that we had year over year in Q1. So that was planned activities. So by and large, to answer your question, planned activities, we do have a large shutdown that we're working through at our Deer Park plant. As you mentioned, That's a seven, eight-year event that we're doing to retool some of the wastewater treatment activities down there that are on the back end of that plant. That is proceeding extremely well. The team's doing a good job. So we expected the 79%, 80% in that area, and we still fully anticipate with the activities that we have underway that we'll be into that mid to high upper 80s for 2024.

The only thing I'd add to that, Dave, is that to that point in Q2, the margins in ES, you know, there won't be enough. There'll be good margin growth and there'll be material margin growth, but it won't be as substantive as what we see in Q1.

Right. And just to follow on that train of thought here, my understanding is that the kiln right now in Deer Park isn't able to take certain materials because of the state of the kiln today. I'm wondering, going forward, could we see an uptick in value there, just given that you'll have that refreshed and ready to go?

David, the That site, along with our El Dorado site, can take everything. So it's not that we're adding additional capabilities. The capabilities there are as robust as any plant in our network and any plant in the industry, for that matter. So we handle a significant amount of the direct burn streams from that Gulf market on there. But by and large, very robust capabilities, and that will continue.

Got you. Thank you. Thank you.

Our next question comes from the line of Timna Tanners with Wolf Research. Please proceed with your question.

Yeah, hey, good morning, everyone. Hope you're doing well.

Good morning.

Good morning.

Wanted to ask about the base oil outlook, what you're budgeting in your guidance given the comments about the uptick. It's so great to see some of the measures you're taking. We're hopeful to see the negative comparisons behind, but just wanted a little bit more color on how you're thinking about the trajectory in your estimates forecast.

Yeah, this is Mike, and thanks for the question.

You know, we are going to have – it's a pretty modest uptake. You know, we try to be thoughtful as we've given guys. We've been burnt a little bit in the past by it, so we were – although the base oil price and posted pricing has gone up, you know, quite a bit over the past month or so, we've been pretty cautious. and it's a pretty modest increase in the pricing environment. We're hopeful to come back here in the United States from now and report a nice B to that number, and to your point, put the negative Bs kind of behind us.

Okay, fair. That's helpful. And then regarding capital allocation, what drives the pace of buybacks quarter to quarter? How do you think about that? How do you balance the pipeline for M&A with buybacks and any debt pay down, which you don't have to do, it sounds like, but could do. Just any thoughts there?

Yes, Emma. Eric here. When we think about buybacks, we're really opportunistic under that program. I think we utilize it when we think the share price is extremely undervalued, and we also utilize it so as not to dilute our current into the market. So that's really the way we've handled that program in the last couple of years. Each of the last two years we've bought back about $50 million and that's accomplished those goals. So I would anticipate that we'll continue to use the program in that manner. When I think about overall capital allocation, as evidenced by what we did this quarter with the two acquisitions, acquisitions and accretive internal growth projects like Kimball and like the Baltimore project, those are where we'll put most of our capital. and we'll continue that going forward. In fact, that's always an option. We certainly like our debt portfolio from the perspective of we do have some debt where we can pay down if that's an attractive option for us. But certainly I think acquisitions has and will continue to be the heavy hammer there when it comes to capital allocation.

Okay. Helpful very much. Thank you.

Thank you. Thank you.

Our next question comes from the line of Noah Kay with Oppenheimer. Please proceed with your question.

Hey, good morning. Thanks for taking the questions.

First, you discussed it previously, just coming in a little bit more granular on the free cash flow guide walk, you know, raising EBITDA 50 million, operating cash flow looks like about 10 million or so. So it doesn't sound like that was interest expense. maybe some CapEx related to HEPCO, but to just help us maybe think about the bridge there.

Yeah, I mean, no, it's Eric. I think you start with the uptick in EBITDA from the acquisitions and the good Q1 growth, and then I think as they reconcile from kind of EBITDA to free cash flow and the rationale for keeping free cash flow guys flat to what we said last quarter, it's really the incremental debt. So you've got, based upon today's rates, about... you know, $25 million of incremental interest payments on the debt. And then as we know, when we buy these acquisitions, there's always some incremental capex. So there's probably another, as you saw, we increased our capital expenditures this year by $10 million. So you've kind of got $35 million there in our free cash flow guide that's incremental to last quarter. But keep in mind, I think, when we look at certainly the two acquisitions, You know, we have a little bit of synergies kind of built into the forecast, not much, as we continue to integrate this business throughout the year. But as those synergies come, and particularly with HEPCO, we feel really, really good about the synergies, having owned them for about a month now. Certainly from a free cash flow perspective, those things will become more accretive towards the end of the year and certainly on into 2025.

Yeah, thanks for anticipating the synergies question. I think you had targeted $20 million after year one, and if you're not putting in much this year, obviously that could be upside. Okay, how do we think about Kimball ramping capacity and how we think about mix? Maybe we can sort of start with 4Q and then think about the plan for call the first half of next year.

Yeah, no, Eric here. So we're excited to be on schedule and into Q4 of this year and coming online. Our focus will begin really around the drum volumes that are throughout our network that we've seen really substantial drum volumes increase year over year. So we'll have really a ramp up in Q4 and then into 2025 we would anticipate doing 20, 25 to 30,000 tons streams as we ramp up throughout the course of the year.

Okay, terrific.

And just to circle back on PFAS, Michael asked the questions around that opportunity. I guess just to simplify it for me, what impact has the team seen as a result of some of these regulations? And I know there was you know, some visibility to those coming, so not necessarily suggesting, you know, a speaker was open, but just talk about the impacts on the pipeline that you've seen now that we have some official regulations and the circular designation.

Yeah, no, we've, as we've said previously, we're doing about 50 to 70 million of PFAS-related work throughout our network from all the different opportunities we see on our total So real strong pipeline growth. And I would say the pipeline growth is pretty diverse. It's looking at industrial water opportunities, drinking water opportunities, sampling and background analysis, but also remedial events. We do see activity where already customers are saying, hey, we want to plan a remediation because we have a construction event that we want to use that site for. We also see some opportunities across with AFFF change-outs throughout different districts where regulations and the heightened awareness of all PFAS-related is causing fire departments to want to have a plan where they, or I'm sorry, different customers that they need to have a plan to change out their AFFF in their lines that need to be drained and recharged so that disposal of existing AFFF is some of the opportunities that we see as well, and how we might service that on a broad basis, knowing that there are many areas that need that before they have an event. They need to make sure they put non-PFAS-related AFFF in their lines. So that's, it's really across the board where we're seeing opportunities.

So, Noah, just to go back to Michael's question and your question, Obviously, new regulation, very important. How clean is clean? We've said that many, many times. But I don't think we're stopping, nor are our customers stopping, in areas like AFFF and other areas where we know there's a high concentration of PFAS. We rolled out the total PFAS solution. We talked about that last quarter. We're doing a lot of training, a lot of marketing around that, and we're getting all our sales organizations educated on the benefits. It affects all our businesses. As Eric said, you know, AFFF firefighting foam, whether it be soils, whether it be, you know, even field service clean-out work, it's going to affect all different lines of our business as we continue to grow. And I do think that this has got, you know, the fact that we've got the drinking water standards out there and they're getting more and more regulation around circular rules around this, you know, we have that solution. You know, it's very, very important for us and our customers to have a total destruction, you know, a total destruction solution, and we have that today.

Perfect. Thanks so much for the comprehensive answer.

Thank you.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Larry Solo with CJS Securities. Please proceed with your question.

Great. Good morning, guys. Most of my questions... Hey, most of my questions have been answered. Noah stole my last couple there. I guess just coming back to the cadence, just the cadence on SKSS, it sounds like obviously you're building in a pretty nice ramp. It looks like you almost have to get to like an average of like $50 million a quarter to kind of get to the midpoint of the numbers. So is it kind of an ease, second quarter a little bit up, and then the back half of the year is really where you get the full impact of some of these projects too and some of the ramp of the base oils?

Yeah, you got it right, Larry. There's a pretty big jump from where we ended Q1 into Q2. I think that's better pricing, that's better production in our plants, and a few other good things that are happening for us, including Group 3 and our rollout. And so a bit of a beat in Q2, obviously a big beat in Q3 because of where we are versus the B we had in Q3 and Q4.

Right. Gotcha. Okay. And then just on Kimball, on the CapEx, I think $65 million this year, does that basically complete the majority, the bulk of the spending, and then going forward, just the incremental maintenance stuff?

Yeah, that's right, Larry. It will. The $65 million will get us to that $200 million mark, and we'll have some related startup additional capital, but that really gets us to that full spend.

Got it. Okay, great. And then just lastly, Hippico, it sounds like you're reaffirming all the – it sounds like things are going good. It's early on, obviously, early days. But the synergies, I guess, you're not building in much this year, it feels like, right? But maybe there is a little bit upside there, but you're still kind of holding firm. So within the first 12 months, you don't realize that $20 million, but beyond that 12 months, that $20 million should be realized, right? Is that kind of a good way to look at it?

Yeah.

you could do 60 million EBITDA and yeah, next year maybe, or, you know, is that fair?

Yeah, that's how we're thinking about it, Larry. I think a smaller amount of synergies this year, obviously, as we roll in, we'll have some offsetting severance integration costs we talked about, but certainly that 20 million number, you know, 12 months from now, that's the run rate. And, uh, I think safe to say we, we feel really good about that, uh, strong possibility. It's probably a little bit better. So, um, You know, really love the acquisition. Fits in nicely. And as Mike and Eric alluded to, we, you know, first week in March, you know, really nice to see them fit in with Clean Harbor. So, feel good.

Got it. Great. Excellent. Thanks. Thanks, guys. Appreciate it.

Thank you. Mr. Gerstenberg, we have no further questions at this time. I would like to turn the floor back over to you for closing comments.

Thanks for joining us today. Next week, management will be at the Waste Expo in Las Vegas. as well as the Oppenheimer Industrial Growth Conference later in the week. We also have several conferences lined up in Boston and New York in early June. With that active calendar, we look forward to seeing some of you at these and other events. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.