Clean Harbors, Inc.

Greetings and welcome to the Clean Harbors third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to turn the floor over to your host, Michael McDonald, General Counsel for Clean Harbors. Sir, the floor is yours.

Thank you, Christina, and good morning, everyone. With me on today's call are our co-chief executive officers, Eric Gerstenberg and Mike Battles, our EVP and chief financial officer, Eric Dukas, and SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our Investor Relations website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions, only as of today, October 30, 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 will include references to non-GAAP measures. Lean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of these measures to the most regularly comparable gap measures are available in today's news release, on our website, and in the appendix of today's presentation. Let me turn the call over to Eric Gerstenberg to start. Eric? Thanks, Michael. Good morning, everyone, and thank you for joining us. As we typically do, we'll begin with safety. Our people work in some of the toughest environments, but we do so in the safest possible way every single day. We began Q3 with an internal awareness push to ensure that our employees continue to prioritize safety. Our total recordable incident rate on a year-to-day basis now stands at .69, which reflects our position as an industry leader in safety. We are continuing to focus on our comprehensive safety programs to send our 24,000 people home uninjured every day. That, above all else, represents the foundation of our company. Turning to our Q3 performance on slide three, our financial performance reflected solid year-over-year growth in both segments, but overall was not quite as strong as we had expected, largely a result of less favorable pricing environment that affected SKSS. The ES segment saw healthy demand for both disposal and recycling services, as we again experienced record volumes of tainterized waste in the quarter, and continued positive pricing momentum. Our field service business showed significant top-line growth the second consecutive quarter, energized by our March acquisition of HepaCo. In industrial services, the scope and extent of our turnaround this fall was less than we originally anticipated, resulting in a weaker quarter for that part of our business. Within SKSS, in September. Mike will discuss this in more detail and highlight the steps we are taking in this business. As expected, corporate costs were higher in the quarter as a result of acquisitions, insurance costs, and healthcare expense, partly offset by cost reduction efforts and lower incentive compensation. Turning to slide four, adjusted EBITDA in the ES segment increased by 15% on a 13% increase in revenue, translating to a 40 basis point margin improvement. HEPCO accounted for half of the segment's $150 million revenue increase, with the remainder from organic growth driven by higher volume and pricing of our services. Q3 marked the 10th consecutive quarter of year-over-year improvement in this segment's adjusted EBITDA margin in its 12th consecutive quarter of year-over-year growth in adjusted EBITDA. Field services grew 68% on the top line, primarily reflecting the HEPCO acquisitions. Higher network volumes and pricing drove an 8% increase in technical services revenue. Incineration utilization increased to 89% from 86%, underscoring the robust demand and strong backlog in our network. Average pricing in the incinerators rose 6% as we pushed through more volume. Safety clean environmental services has grown steadily in 2024, with revenue in this segment up 8% in Q3. with other core branch offerings also performing very well. Turning to slide five, our new state-of-the-art incinerator in Kimmel, Nebraska, is on track to begin accepting hazardous waste in November as we complete final inspections. I had the pleasure of visiting with our team at the facility last week. Building a 70,000-ton incinerator is a complex project, and the team has done an outstanding job completing the largest construction project in Clean Harbor's history on time. Kimball mirrors the highly successful incinerator we opened in Arkansas in 2017 and will facilitate a smoother flow through our network while addressing the market's need for more outlets for complex waste streams. At an industry level, the recovery of economy post-COVID, reshoring trends, and the closure of captive incinerators such as 3M spotlighted the need for the increased capacity. The commercial launch at Kimball will help to address the glaring need capacity in North America as it scales up over the next 12 to 18 months. We are confident that our incinerators and our entire disposal network will benefit from today's favorable market dynamics and future outlook, whether that is additional reshoring, government spending on programs including the infrastructure bill, the CHIPS Act, and the Inflation Reduction Act, or upcoming regulations in areas like PFAS. Regarding PFAS, formed like AFFF firefighting foam, or mixed in with contaminated soil, sludges, or water. Clean Harvest offers commercially scalable options today that can provide a full solution for this emerging multi-billion dollar marketplace, from testing and remediation to filtration and disposal, whether incineration or through landfill sequestration. In November, we will advance our next round of testing PFAS incineration. Both the EPA and the DOD have committed to onsite participation at our incinerator during our scheduled testing. We are confident in the outcome of that testing. We believe the data will continue to support our previous testing results that clearly demonstrated that PFAS can be safely eliminated in our incinerators up to six nines of destruction efficiency. We are hopeful that our testing will help shape the regulatory framework expected to be issued next year by government agencies. With that, let me turn things over to Mike.

Mike? Thank you, Eric, and good morning, everyone. Turning to slide six, the SKSS segments on revenues increased 6%, and EBITDA increased 32%. However, as Eric mentioned, the typical seasonal momentum we see in the summer months did not translate into improved demand and better base oil pricing in Q3. In particular, we saw softening demand in the market in September. Pricing significantly deteriorated as we closed out the quarter. and that has carried over into Q4. With this market backdrop, we ultimately missed our expectations in this segment, this quarter, by about 11 million. The acquisition of Noble Oil helped drive waste oil collections up 17% to 69 million gallons. Average collection cost was at a small paper oil level in the quarter. We are balancing our feedstock with our re-refinery's need with collecting oil at the best possible price. Our strategy for SKSS has been to minimize volatility through various initiatives, including selling more blended gallons, producing more Group 3 and capitalizing on our capital partnership, and opportunities to differentiate our low-carbon footprint products. In Q3, our blended volumes were 21% of our total volumes, up sequentially from 19% of the total in Q2. Our Group 3 program is moving forward, and we have selected our next refinery for full-time Group 3 production. As it relates to our multi-year closed-loop partnership, we're excited to support BP Castrol in this program. We are confident that their sales and marketing prowess will advance the standing of more sustainable oil in large fleets. We remain optimistic about the potential of this partnership. Turning to capital allocation on slide seven, our strategy for the growth of the business remains driven by ROIC. and we are well-positioned to execute it, given our cash balance, low leverage, and strong cash flow expected in Q4. We continue to look for areas to invest in this business directly, with the Kimbell incinerator being the best example of that. But we also see smaller expansion opportunities, like what we're doing in the Baltimore site, which we believe we can replicate at other locations in the coming years. On the M&A front, we are happy with the early returns of the HEPCO and Noble deals we completed this year, Our pipeline of acquisition candidates is robust as we continue to evaluate numerous opportunities, both large and small. We are seeking acquisitions that bring permanent facilities or unique assets, drive margin improvement through economies of scale and synergies, and can increase cash flow conversion and ultimately generate the best shareholder returns. We also intend to pursue our buyback plan as we effectively have for the past decade. Entering the final quarter of Q4 was an overall healthy demand environment in North America and a positive outlook for our ES sector. Customers have come to rely on Clean Harbors for their environmental and industrial needs and opportunities to continue to grow through favorable price dynamics including reshoring, infrastructure spending, PFAS, and potential captive closures. On the services side, we remain enthusiastic about the potential for field service growth through the addition of EPICO and its emergency response capabilities. We expect technical services and SK environmental businesses to continue to steadily grow feed volumes into our network. Within industrial services, we're taking actions in response to a weak fall turnaround season and expect to return to revenue growth in that business in 2025. Within SKSS, we will continue to focus on stabilizing this business given the current demand environment for base oil and blended products. We're also taking steps to reduce our cost structure, including idling our California re-refinery here in Q4. We also plan to aggressively bring our collection costs down as we manage our re-refining spread in an uncertain pricing environment. Despite some market challenges related to base oil and refining customers, we expect to end 2024 with strong momentum across our network of disposal facilities and service offerings, giving us a positive trajectory for profitable growth in 2025. With that, let me turn it over to our CFO, Eric Dukas.