Clean Harbors, Inc.

Greetings, and welcome to the Clean Harbors fourth quarter and full year 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors. Thank you, sir. You may begin.

Thank you, Christine, and good morning, everyone. With me on today's call are our co-chief executive officers, Eric Gersteverg and Mike Battles, 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 a caution not to place undue reliance on these statements, which reflect management's opinions only as of today, February 19th, 2025. 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 of the statements made today, other than through filings made concerning this reporting period. Today's discussion includes references to non-GAAP measures Clean Harvest believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of these measures to the most directly comparable GATT 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 Ernstberg to start. Eric? Thanks, Michael. Good morning, everyone, and thank you for joining us. We continue to execute on our strategic priorities in Q4. delivering strong consolidated results and beating street expectations. The quarter was highlighted by sustained momentum in our environmental services segment and concluded 2024 as another strong year with consolidated EBITDA growth of 10%. Before we get into the results, let me spotlight our team's outstanding safety performance. We remain laser focused on safety and continuous improvement in the quarter, which contributed to a total recordable incident rate that enabled us to surpass our 2024 goal. While we're proud of this achievement, we recognize that safety is an ongoing journey. Turning to our financial performance on slide three, our results were in line with our expectations, as our ES segment capped a record year with solid fourth quarter. Steady demand for our ES services allowed us to conclude 2024 with strong waste collection volumes, particularly containerized waste, and a healthy flow of project work. resulting in full-year revenue growth of 11 percent and adjusted EBITDA margins exceeding 25 percent. SKESS, as expected, faced a challenging commodity pricing environment, with market conditions for base oil and lubricants further deteriorating toward year end. As announced in November, our team took very aggressive actions in our used oil collection pricing to offset the lubricant pricing deterioration. Reflecting the strength of the year overall, we delivered record revenue, adjusted EBITDA, and adjusted free cash flow in 2024. Operationally, we also achieved a number of milestones, including the completion and commercial launch of our Kimball, Nebraska incinerator, the acquisition and integration of HEPCO and Noble Oil, growth in our workforce and improved retention as we lowered turnover by 250 basis points, the launch of our total PFAS solution, initial expansion of our Baltimore hub, curricular offering, and more than 20,000 emergency response events. Turning to our segment's reviews, beginning with ES on slide 4, adjusted EBITDA increased 11% with a 9% increase in revenue, translating to a 50 basis point margin improvement. HEPA-CO accounted for half of the segment's 103 million revenue increase, with the remainder from organic growth driven by a combination of volume and price. Q4 marked the 11th consecutive quarter of year-over-year improvement in the ES segment adjusted EBITDA margin, which has increased by more than 500 basis points when compared with Q4 of 2021. Looking at segment components, field services revenue grew 47%, driven primarily by HEPCO and organic growth. In technical services, higher network volumes and pricing drove an 8% rebound, pricing in the incinerators rose 4%, while achieving 94% incineration utilization in the quarter. Demand was robust, and our plans ran very efficiently. We are beginning to realize the benefits from investments and process improvements we have made in our network in the recent years. Safety Clean Environmental Services completed another year of steady revenue growth within the segment, generating 6% in Q4. We performed 246,000 parts wash services in the quarter up from a year ago. Other core branch offerings also performed well, particularly containerized waste services. Our industrial services team did a great job driving price improvements and managing their cost structure during the slower fall turnaround season. Turning to slide five, after completing final inspections and incurring some startup-related costs, our new incinerator in Kendall, Nebraska launched commercial operations in December, original timeline. Our engineering team did an outstanding job hitting every milestone of this complex project. Kimball's design mirrors the Arkansas incinerator we opened in 2017. The initial shakedown phase for Kimball is underway. We expect the incinerator to ramp up gradually as we optimize its operations over the next 12 to 18 months. The opening of the incinerator comes at an opportune time for our customers. Kimball's ability to handle more complex waste streams aligns well with the demand environment, which is highlighted by reshoring, infrastructure spending, efforts to regulate PFAS, and the current administration's pro-growth agenda. Kimball increases our overall North American capacity by 12%, presenting solutions for captive incineration customers. We have a proven playbook that we continue to share with our captive customers to evaluate their strategic options, including closure. Before turning the call over to Mike, I want to touch on PFAS, which is a topic we often get asked about. We shared on our Q3 call that we were planning to conduct our next round of testing to meet the EPA's more stringent emission standards for PFAS incineration. That testing took place in November at our Utah facility with both the EPA and DOD onsite during testing. These tests involved considerable data collection to scientifically prove that PFAS elimination in our incinerators occurs up to six nines of destruction no emissions concerns. We expect the results of the testing to be available in Q2, and we are confident that the data will continue to support our previous testing results, clearly demonstrating that PFAS can be safely eliminated using our high-temperature record-permitted incinerators. We appreciate the government's active participation in our latest study. The consensus is building around the need to address these forever chemicals and eliminate their threat to human health. Many industry analysts believe that PFAS remediation and destruction carries the potential of creating a multi-billion dollar marketplace, and we are seeing an ever-increasing pipeline to support that belief. We expect PFAS to remain a priority for the current administration and state regulators. We look forward to keeping you updated on the results of our study once they are finalized. With that, let me turn things over to Mike. Mike?

Thank you, Eric, and good morning, everyone. Turning to our SKSS segment results on slide six, revenue and dividend decreased year over year in Q4, reflecting soft demand and lower pricing during what is already a seasonally weak quarter. These results reflect the ongoing challenges in the base oil and lubricants market. In response to that market softness, we took action on several fronts. In mid-November, we shifted to a charge for oil position. We also idled our California re-refinery in Q4 to address our inventory buildup and support our CFO initiative. We believe these actions, along with comprehensive cost-cutting initiatives, will support this business in 2025. In the quarter, we gathered 63 million gallons of waste oil, higher than the prior year, reflecting the addition of noble oil. Due to a November shift in our collection approach, Q4 collection costs were at a CFO average versus a PFO average in Q3. we expect to continue to increase our price to collect used motor oil in 2025. Our goal is always to balance the feedstock levels our refineries need with collecting oil at the best possible price. In addition to aggressively moving to CFO and reducing oil collection costs in light of base oil pricing, our strategies to minimize volatility in this business include selling more blended gallons, producing Group 3, and capitalizing on our partnerships that leverage our low carbon footprint products like we have with BP Castrol. Our blended volumes in the quarter came in as expected at 20% of total volume sold. Our Group 3 program has moved forward, and we expect to increase Group 3 production this year. Our Castrol partnership generates its first major fleet customer for their more circular offering toward year-end. Their sales and marketing rollout continues, and we're excited to see the potential of this partnership get realized with more large fleets. Turning to capital allocation on slide seven, we ended the year with a healthy cash balance and low leverage that will enable us to execute the overall Clean Harbors growth strategy. We continue to look for opportunities, whether those are internal or external, to generate the best returns on our shareholders' capital. Internally, we continue to see opportunity to invest within multiple parts of the company. Eric detailed our success with launching Kimble, which is a $200 million-plus project that will pay an attractive return for decades. We have smaller lucrative opportunities as well. In 2024, we allocated approximately $20 million of capital to the expansion of our Baltimore location. In 2025, we intend to replicate that success through another similar growth project by expanding our presence in Phoenix in response to rapid market growth in the Southwest region, particularly in the semiconductor market. We are purchasing and upgrading a site that will have comprehensive hazardous waste collection and service capabilities at an estimated cost of $15 million. We remain very active in the M&A front, evaluating potential acquisition candidates that will support our growth plans while enabling us to capture synergies and drive additional volumes into our network. The pipeline is as active as ever. We intend to execute a share buyback plan to at least maintain a flat share count and be opportunistic with large purchases when conditions are ideal, just as we have for the past decade. In conclusion, we enter the first quarter of 2025 in great shape. We expect another year of consistent profitable growth led by our ES segment. We are bullish about our prospects this year as demand for our services remains strong, with multiple tailwinds supporting us from reshoring to infrastructure investments to PFAS to potential captive closures. We continue to have a healthy waste backlog and a robust pipeline of remediation and waste projects. A commercial ramp-up of our Kimball incinerator is underway. The outlook for field services is positive given the early returns on HEPCO and the growing need of our skilled workforce and ER capabilities. We anticipate a recovery in industrial services this year after a challenging 2024 and fully expect our SK Environmental Services to continue to achieve record waste collection to support our network. In 2025, Clean Harbor celebrates its 45th anniversary. Our commitment to our core values has never been stronger. We believe that we have the ideal growth strategies in place to deliver an outstanding financial performance in 2025, including record adjusted dividend and cash flows. In addition, we anticipate continued margin improvement based on our pricing, cost mitigation plans, and productivity initiatives. With that, let me turn it over to our CFO, Eric Dukes.