Clean Harbors, Inc.

Greetings, and welcome to the Clean Harbors Second Quarter 2025 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors. Mr. McDonald, please go ahead.

Thank you, Christine, and good morning, everyone. With me on today's call are our co-chief executive officers, Eric Gerstenberg and Mike Paddles, our EVP and chief financial officer, Eric Dugas, and our 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, July 30th, 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 to the statements made today other than through filings made concerning this reporting period. Today's discussion includes references to non-GAAP measures. Dean Harber's believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliation of these measures, the most directly comparable GAP measures, are available in today's news release, on our IR 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 always, let me start with our safety results. we achieved our lowest ever quarterly TRIR of 0.40 in Q2, setting a new company benchmark for safety performance. Year-to-date, our TRIR stands at 0.45, reflecting our ongoing commitment to operational excellence and a culture of continuous improvement. This approach delivers significant benefits, including measurable advantages to costs and fewer lost workdays. There are also intangibles, like a stronger reputation with our customers, the ability to attract the best people, and most importantly, making sure everyone knows they're protected and valued at work. Turning to our financial performance on slide three, our results in Q2 highlighted the sustained, profitable growth of environmental services and the stabilization of safety, clean, sustainable solutions as both segments came in ahead of our expectations. Consolidated adjusted EBITDA margin increased by 60 basis points to 21.7%, driven by strong demand of our disposal and recycling assets and lower SG&A costs. Mike will cover SKSS shortly, but it's clear our waste oil collection strategies in that segment are delivering results. Corporate segment costs were lower year over year due to cost-cutting actions in non-recurring items that were included in Q2 of 2024, partly offset by higher insurance, severance costs, and technology investments. Overall, our results reflect continued business momentum from late Q1. Turning to our segment reviews, beginning with ES on slide four. Segment-adjusted EBITDA margin grew year-over-year for the 13th consecutive quarter. The primary drivers were increased revenue, waste projects, and pricing programs more than offset the fewer large emergency response events in Q2 this year. Looking at revenues by segment components, Safety Clean Environmental led the growth at 9% driven by pricing gains and growth in core service offerings. The number of parts wash services was down slightly from a year ago due to actions we were taking on the waste collection side. as well as the more advanced parts wash models we are introducing that generate higher revenue per stop. In addition, the safe SK branches continue to drive substantial volumes of containerized waste into our permitted facilities. In technical services, higher incineration and landfill volumes supported by pricing programs drove a 4% revenue increase. Incineration price rose 7% on a mix-adjusted basis. Incineration utilization was 89% versus 88% a year ago. For comparison purposes, this quarter's utilization number excludes the new Kiln and Kimball as we ramp up. With the inclusion of Kimball, our utilization rate would still be strong at 86%. We are successfully completing our shakedown process of the new unit, which processed more than 10,000 tons in the quarter. We are also seeing more network efficiency in terms of waste and transportation as Kimball processes greater volumes and waste types. Even with the tariff uncertainty hitting some of our customers in early April, incineration demand remained high throughout Q2 and continues to show no signs of slowdown with reshoring and manufacturing expansion top of mind for many of our key customers across multiple verticals. At the same time, we still see the potential for captive closures as we continue to have good discussions with several operators who are looking to cut costs by partnering with a vendor that has the capacity and network redundancy to safely handle and dispose of their incineration waste streams. Field services revenue was down from a year ago due to fewer large events. However, the team performed very well in Q2, generating strong margins on its base business. Within industrial services, Revenue was up slightly year over year, reflecting a larger number of turnarounds that carried a lower average spend. Due to these market conditions, we have been enhancing workforce and equipment utilization while taking out costs. We are seeing the benefits of those efforts as margins improved from a year ago, despite what has been a challenging environment for customer spending. We remain cautiously I wanted to touch on PFAS, given investor interest in this topic. The threat of litigation is creating a sense of urgency at the local, state, and federal levels to address contamination, either in water supplies or at site locations. Based on our discussions with the federal EPA and supported by their public statements, this administration remains committed to addressing the public health threat from PFAS. In addition, many states are attempting to mitigate the threat of forever chemicals as more than 350 PFAS-related legislative bills have been introduced across 39 states. PFAS remediation is rapidly becoming a national priority, and we are the only company positioned to offer an end-to-end solution that includes permanent, scalable destruction. With new EPA guidance pending and state-level action accelerating, we are prepared to lead in what many expect to be a multibillion-dollar opportunity. We believe that our record-permitted high-temperature incinerators with rigorous pollution controls remain the most viable and commercially scalable option for customers. The data from our last PFAS incineration site, which was performed in conjunction with the EPA, demonstrated that our incinerator achieved six nines of destruction of the key PFAS compounds and with emissions eight to ten times lower. very compelling data for any customers or government entities that may have been unsure about the safety or effectiveness of PFAS incineration. At the same time, our PFAS total solution offering continues to gain traction in the marketplace. With that, let me turn things over to Mike to discuss SKSS and capital allocation. Mike?

Thank you, Eric, and good morning. Turning to our SKSS results on slide five, For the past several quarters, the team has done a terrific job shifting our customers to higher charge for oil, or CFO, which helped drive our better-than-anticipated results in this segment. Our revenue decreased year-over-year, as expected, reflecting lower market pricing and reduced volume sold. The $38 million we delivered in Q2 exceeded our expectations and reflects meaningful progress the team has made across a range of initiatives. We continue to aggressively manage our re-refining spread while lowering our cost structure and improving the efficiency of our operations. The shift to a CFO position that began in November continued in Q2. In the quarter, we gathered 64 million gallons of waste oil, which is up 11% sequentially. We believe we are achieving a healthy balance between charging appropriately for the used oil collection services we provide against the value of waste oil in the market and the quantities we need to optimally run our plants. We made progress and kept several key initiatives in Q2, We modestly increased our direct blended sales in the quarter. These sales provide greater stability to our business as pricing tends to be less volatile and they represent our highest margin gallons. During the quarter, we also advanced our partnership with BP Castrol as we support their more circular offering for corporate fleets. This lower carbon footprint solution is attracting more interest in the market with several fleets signed up and more evaluating the offering. We continue to grow our Group 3 gallons and are on track to add several million gallons of Group 3 this year versus last year, which should support greater stability in this segment. Turning to slide six, we continue to evaluate opportunities to execute on various elements of our capital allocation strategy with the goal of generating the best long-term returns. In Q2, strong cash flows resulted in higher cash balances and our leverage improved. As a result, our strong balance sheet only got stronger putting us in the ideal position to grow both internally and externally. On the M&A front, we remain active in valuating both on-transactions and larger transactions that would provide us with more permanent facilities, leverageable assets with high synergy potential, or ones that support our market position. Given our expansive network of assets, we believe that the right acquisition affords us the ability to unlock considerable long-term value, but we remain selective as always. Internally, we are evaluating additional organic investments to drive shareholder returns. With Kimball now on the path to success, we're looking at ways to increase incineration throughput at other locations in the years ahead. In Q2, we purchased our new Phoenix site where we will replicate the hub concept we're executing in Baltimore. We have other reasons to apply the same playbook going forward, as well as adding more processing or recycling capabilities like e-waste to other locations. We're also addressing the potential for further processing of our re-refining byproducts, as we believe there's value to be harvested there. With $700 million in cash, low leverage, a strong free cash flow, and free cash flow expected in the second half of 2025, we're in an ideal position to accelerate our growth and scale through both organic investments and strategic M&A. The pipeline is strong, and we fully expect to deploy significant capital in the quarters ahead in ways that enhance growth and long-term margins. As we're entering the back half of 2025 with strong momentum and a high level of confidence in our ability to deliver outstanding results, with the ongoing reshoring trend and substantial planned industrial investments in the U.S., our optimism is supported by a promising economic outlook. Reshoring is no longer a headline. It is becoming a funded reality. Our customers are breaking ground, expanding production, and creating more demand for our services. Although near-term trade trends trade headwinds persist. We expect that the tangible benefits of the recent tax bill and incentive to invest in America manufacturing will drive greater customer activity. We see no indication that a healthy customer demand for our services will slow down anytime soon. We have multiple customers with plans to move ahead with remediation projects in the coming quarters, all of which would further support our recycling disposal assets, including Kimball. In SKSS, We remain focused on driving increased returns throughout its value chain through disciplined collection pricing, optimized re-refining operations, and the expansion of programs like our blended direct sales and cash flow more circular partnership. Our favorable outlook is underpinned by a powerful combination of macro and company-specific catalysts. We remain focused on executing our pricing strategies, cost mitigation efforts, and operational efficiencies to drive further margin improvement. We anticipate leveraging the strength of both our operating segments to achieve record top-line and bottom-line results in 2025. With that, let me turn it over to our CFO, Eric Dukas.

Eric Dukas Thank you, Mike, and good morning, everyone.

Turning to the income statement on slide eight, our Q2 results came in slightly ahead of the guidance we provided on our Q1 earnings call. Within environmental services, we grew revenue and expanded EBITDA margins in that segment, despite a challenging comp with prior year, and SKSS performed better than we expected. Total company revenue was essentially flat with Q2 of 2024, as the growth in ES offset the decline in SKSS. Q2 adjusted EBITDA of $336 million was driven by higher earnings in our ES segment and improvement in corporate costs first prior year, which more than offset the lower SKSS EBITDA contribution. As Eric mentioned, one of the areas we are especially proud of is our margin performance. Our Q2 adjusted EBITDA margin of 21.7% was up an impressive 60 basis points from a year ago. The team delivered a better than expected margin in Q2 through pricing, greater overall volumes within our disposal and recycling assets, strong labor management, and disciplined SG&A cost reductions. SG&A expense as a percentage of revenue decreased 70 basis points from a year ago to 12 percent. For full year 2025, we anticipate SG&A expense as a percentage of revenue will be in the low to mid 12 percent range. Depreciation and amortization in Q2 came in as expected at $116 million, up primarily due to Kimball and increased landfill amortization due to higher landfill volumes. For 2025, we continue to expect depreciation and amortization in the range of $440 to $450 million. Income from operations in Q2 was $210.3 million, down slightly from the same period last year, primarily due to higher depreciation and amortization that I just mentioned. As expected, Q2 net income also declined modestly year over year, with earnings per share of $2.36. Turning to the balance sheet and slide nine, cash and short-term marketable securities at quarter end nearly $700 million. Our strong balance sheet remains a competitive advantage for us and gives us the flexibility to execute the capital allocation strategy that Mike covered. Our net debt to EBITDA ratio at quarter end was down to approximately two times, with no material debt amounts due until 2027. Our overall interest rate at quarter end remained at 5.3%. As I highlighted on our Q1 call, following a Moody's upgrade earlier this year, our overall debt rating is just one notch below investment grade, and our secured debt is at an investment grade rating. Turning to cash flows on slide 10, net cash from operating activities in Q2 was $208 million. Adjusted free cash flow was a Q2 record of $133 million. up nearly $50 million, which is approximately 60% greater than the prior year. CapEx net of disposals was $87 million, down substantially from the prior year when our Kimball construction was still in full swing. In Q2 of this year, we purchased the Phoenix property and spent the bulk of the $15 million that we allocated for that project this year we will be renovating and building out this location to create our next strategic hub facility. For 2025, we continue to expect our net capex, excluding the Phoenix Growth Project, to be in the range of $345 to $375 million. During Q2, we bought back approximately 62,000 shares of stock for a total spend of $12 million. currently have $430 million remaining under our share repurchase program authorization. Turning to our guidance on slide 11, based on our year-to-date results, along with current market conditions for both of our operating segments, we are reiterating the midpoint of our 2025 adjusted EBITDA guidance of $1.18 billion, based on a range of $1.16 billion to $1.2 billion. That midpoint represents year-over-year growth of 6% in adjusted EBITDA. Looking at our annual guidance from a quarterly perspective, we currently expect adjusted EBITDA for Q3 to grow 9% to 12% compared with the prior year, whereby a 10% to 14% growth in the ES segment. For full year 2025, Adjusted EBITDA guidance will translate to our reporting segment as follows. In environmental services, we expect adjusted EBITDA in 2025 at the midpoint of our guidance to increase 6% to 8% for 2024. As highlighted earlier, overall project pipeline is encouraging and should feed good volumes into our facilities network. PFAS and reshoring continue to represent good upside potential for us in the back half of the year and certainly over the longer term. For SKSS, we continue to expect full-year 2025 adjusted EBITDA at the midpoint of our guidance to be $140 million. We exceeded our expectations in each of the first two quarters due to the terrific work by the SKSS team in improving our collection rates while controlling costs. We anticipate growth and profitability in this segment in both the third and fourth quarters. Within corporate, at the midpoint of our guide, we expect negative adjusted EBITDA to now be up 5 to 7% compared to 2024. The year-over-year increase relates to the company's expected growth, higher wages and benefits, technology investments, and rising insurance costs, partly offset by our many cost savings initiatives. For adjusted free cash flow, full year guidance remains in the range of $430 to $490 million, or a midpoint of $460 million, which represents nearly a 30% increase from 2024. In summary, our growth in Q2 a continuation of the momentum we experienced in late Q1. The demand environment has held up well for us, even in the face of tariff uncertainty that has impacted some of our customers. I share the enthusiasm of our entire executive team about our growth prospects for the second half of 2025 and beyond. One of the hallmarks of Clean Harbors is our consistency and resiliency as evidenced by our financial performance. We see no material changes in our markets today that would prevent us from continuing on our current path of profitable growth. We look forward to the remainder of this year as we execute against our longer-term 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 Tyler Brown with Raymond James. Please proceed with your question.

Hey, good morning, guys. Good morning, Tyler. Hey, um... I just wanted to get your all kind of broad view on the macro. It sounded like yesterday a competitor was maybe a touch more downbeat on their call, but you guys seem pretty optimistic. I think you used the word enthusiasm. You noted healthy demand. You've got a good pipeline, maybe some reshoring activity, but just any thoughts broadly, do you feel like you're taking share or maybe you can help us just appreciate how your diverse portfolio really positions you to win? despite what looks like a pretty slow industrial macro?

Yeah, Tyler, this is Eric. I'll begin, and I'm sure these guys will add on. First of all, our volumes into our network continue to be at all-time high. Our drum receipts into our processing plants, our incinerators, our TSDF, very, very strong. Our overall pipeline from our sales team in all regions, is up year over year, so very strong. The verticals that we're servicing, very strong waste from our verticals, as well as our project demands, our project pipeline that we're seeing going into the Q3, as Eric mentioned in his script, very, very solid, driving volumes into our landfills, our incinerators, some into our wastewater treatment plants. So all of our indicators for disposal and recycling assets, as we've talked about, have been very good and continue. Whether or not we're taking a share, we think so. We absolutely do think that our footprint enables us to leverage better relationships with our customers, servicing their national footprints, and that's where we've really seen some strong growth. We also have done a great job of growing with new customers. have had a number of different plans in place with a variety of different types of sales roles, hunters to go get new business to drive into our networks. On the service side of our businesses, our branch offerings, field services, mentioning that, year to date, we have opened 13 more field service branches, and what that allows us to do is service more emergency response events. Our goal is to make sure that we are the the first call on all of our emergency response events. So field service team, industrial service team, even with, as mentioned in our script, we talk about that and how the refinery business seems to be stabilizing a little bit. Our count of turnarounds is in excess of 15% more than last year, although the revenue was a little bit tampered because they're controlling our trying to expand our base of facilities we service with our top-tier accounts. So very strong in a number of different areas as we enter into Q3. No signs of letting up.

The only thing I would add to that, Todd, and Eric said it well, is around the pipeline. The sales pipeline that we see is very robust across all different regions and across all many verticals. You know, one of the things that may differentiate us is we are not tied to any one end market. Our verticals are very broad, as you know, Tyler. And so, you know, if there's been slowdowns in certain parts of our business, we've been making it up in other parts of our business because of our very diverse end market approach. So, and that's been a competitive advantage for us.

Yeah, excellent. That is excellent color. So, I do want to come back, though, because I get this question a lot from investors around the refinery turnarounds. So it sounds like that's maybe showing some signs of life, but how much of the back half ES guidance is really predicated on a ramp in those refinery turnarounds? And how much of a risk is that if it doesn't materialize?

Yeah, Tyler, just to begin, the back half doesn't have a significant ramp at all, isn't dependent on IS turnaround. So overall for the year, I continue to say that the count of turnarounds we're servicing is up 15% year over year, but our back end guidance really is not dependent on a significant ramp of IS turnarounds. What we're really focusing on IS is making sure we're servicing the best customers with the best margins, and efficiently managing our labor and how we service those turnarounds in just the base industrial holistically. We've been making sure that we implement a new service platform for that, which really enhances our margin improvement

Okay, that's extremely helpful. My last one, Eric Dugas, can you shape the benefit from bonus depreciation here in 25? And this is maybe just big picture, but do those changes possibly make some other, let's say, larger investments organically more attractive in the coming years?

Yeah, Tyler, great question. You know, when you look at the enactment of the most recent act there, we do believe that here in 2025, we'll see some incremental cash tax savings from that. We've estimated that at somewhere between $10 and $15 million of incremental cash this year and some more in 2026, still refining those estimates, but that's what we're looking at. But I think you touched on, you know, something that's probably even more important and we're more excited about as it relates to the act is I think it's just another step to drive companies and further investment in the U.S., which is certainly a good thing for Clean Harbors on balance. So I think we're even starting to see with some of the discussion we're seeing with customers today around some movement and some activity in incremental investment and build-out, which has come from a lot of different factors, but I think the recent tax law changes are driving that as well. So we're really excited about manufacturing in the U.S., and we think it's a continued tailwind for us.

But, Tyler, to your point, though, I don't think that that changes our view on capital deployment. We have been very aggressive in capital deployment for CapEx, and we will continue to do that. You know, we do it based on return on invested capital, and the cataflows on that change doesn't really impact that as much.

Okay. Yep. No, that's very helpful. Thanks, guys.

Good job. Thanks, Tyler.

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

Hi guys, good morning. First off, you've reported just under half of your full year guidance in SKSS through the first half of the year. And given that the fourth quarter sometimes has negative seasonality, what gives you confidence in seeing an uptick in the third quarter from the second quarter in SKSS EBITDA? Related, you made a comment about improvement in the third and fourth quarter. Could you clarify and say, did you mean that EBITDA margin or EBITDA dollars would be better in 3Q and 4Q in SKSS?

Yeah, Dave, this is Mike. I'll take it. When you think about SKSS, we are seeing, you know, if you remember last year was a tough, kind of tough calm for SKSS. They had a pretty bad pretty bad Q3, if you recall. So the comps on that get a lot better here in Q3 of 2025. And so we are forecasting positive growth kind of year on year in Q3 versus Q3 last year. And, you know, the two busiest quarters are Q2 and Q3 for the oil business. And so we see a good kind of positive momentum in that business. Really, Dave, it comes down to the shift we made really in Q3 last year in early Q4 where we moved away from our paper oil to a charged oil and focused on the pricing we are charging to pick up the oil versus feeding our plants. And as you know, we closed the plant in Q3 and Q4 last year. And so those costs are there. So it should help from a profitability standpoint year on year. And so really that's what's driving how we get to the 140 through the first half of the year. And so really we feel very confident and as we see here today, better than ever from a reset perspective as far as how we feel about our ability to charge for used motor oil and our ability to leverage that in the marketplace and let that be the driver of profitability versus feeding our plants.

Okay, thank you.

And I'm also interested in your outlook for turnaround activity and major projects in the back half. You said that turnarounds are up 15% in the second quarter, and you also said that you have confidence that the maintenance deferrals are behind us. If I put those two together, even though that's not in your guidance, if that level of activity continued, would it represent an acceleration in the back half of the year? Is that potential upside? I'm not trying to bake it in, but it sounds like if I put those two things together, the outlook is pretty good, and you're saying it's not in your current outlook.

Hey, Dave. Eric Dugas here. I think you got it right. As Eric said, when we look at the back half for industrial services, our guidance does not necessarily depend upon a great comeback there. We are cautiously optimistic that we'll see a better back half with the turnaround schedule we have here, and we do feel like we're starting to come out of the maintenance deferrals. So, I think any kind of significant upside in the back half would be upside to our current guidance as well. Got it.

Thanks very much, guys. Dave, just to clarify one key point. The overall turnaround count that we're servicing in 2025, that's up about 15% compared to 2024. And the average spend, the average revenue that we're invoicing on the turnaround is down 15%. roughly about 10%, 15%. So the turnarounds have obviously been compacted a little. They're not doing as much specialty services.

However, we really see that we are turning the corner, as mentioned here. There's not a lot in our guidance around it, but the team's doing a great job servicing the turnarounds ahead of us.

Okay. Thanks for that clarification, Eric.

Our next question comes from the line of Larry Solo with CJS Securities. Please proceed with your question.

Good morning, guys. I guess just in that same vein, you talked about the tariff uncertainty starting probably in April. Has that persisted? Has that changed at all? And is that kind of tied into some of these delays on the remediation projects you spoke about? Yes. I guess that's a separate kind of subject from the industrial turnarounds, right?

Yeah, Larry, I wouldn't correlate our growth in projects and remediation and stuff to anything going on with tariffs. I think that we've just been doing a solid job of looking out and servicing our customers and making sure that we're ahead of any of their remedial projects. The spending is clear. The pipeline is up. We have some that have already begun into the Q3. So there's a lot of activity across the board. But we've also been doing a good job at getting ahead of those projects and those events.

And now we see them starting to take hold and have a real, real solid project pipeline here. Yeah, when you look at the project work that's feeding our landfills, Larry, this is work that started. It's there. So it's not – some of it is – as Eric said, the pipeline is very strong. We feel good about the back half of the year. But that's work that hasn't been executed yet. This work is either signed, sealed, delivered, or started already.

Gotcha. Okay, and then just switching gears on the PFAS, I appreciate some of the update and looks like you're getting a little more push from the state side. Any update? I know you guys were presenting or had this incineration study, DOD and EPA. I think that was going to be presented soon. Any update there and just thoughts on when we might get some guidelines from the EPA or more guidelines? I know that's important, but I guess maybe with the states pushing harder, maybe other paths to get customers to drive not just orders but revenue.

Larry, sure. So as mentioned earlier, we completed our PFAS study at our incinerator in Utah, and the results of that study was excellent. Just a real strong performance across the board, proving that high-temperature thermal incineration is the preferred method for destruction of PFAS compounds. That being said, with us and um we've been working with them on obviously pushing to get the their announcement out uh and backing that but um you know with what's been going on with the epa it's been a little bit delayed we expect that and anticipate that hopefully here in the third quarter but the evidence is clear that being said also the market is acting as if regulations are in place and that's evidence of how our pipeline is growing and some of the projects that we're doing, the amount of business that we're servicing on the PFAS side into our network has been growing. So there's indications. I mean, we all know it's a bad material, and it affects human health and the environment. And even without those changes, the administration is clear, and they've said that they continue to want to act on it, and we are.

We're seeing that discipline from our customers. Got it. Thanks, Eric. Sure. Thanks, Larry.

Our next question comes from the line of James Rusciutti with Needham & Company. Please proceed with your question.

Thanks. Good morning. Just a couple of questions. I think you had talked about your expectations for Kimball, I think, in previous cores. I don't know. You may have given some broad guidance on it. in the call this morning, and I may have missed it, but I'm just wondering how we should think about the scale-up in the back half and then looking out to next year in terms of how we might think about the EBITDA contribution.

Yeah, James, I'll begin, and then Eric will add on. The scale-up from a tonnage standpoint, we're ahead of track. We had talked about through 2025, and we're meeting that objective. Also, the benefit that we've looked at from an EBITDA perspective to our network overall, we've talked about the $10 million number in the past. We continue to ramp up. We see strong volumes, and into and through the next three to four years, ramping up to more full-scale production.

Yes.

The only thing I would add to that, Jim, as well, as Eric said, still confident around the incremental EBITDA from bringing this unit online across the network. But also, point in mind, as we move throughout the year with more production, more EBITDA coming through that unit, right now it is a little bit of a drag to our margins. So the incremental margin that we produced in ES this quarter, there was a little drag from the startup. You have a full allocation of costs, but not a plant running at its full capacity yet. So That is kind of some upside that we'll continue to see, as Eric mentioned, going forward over the coming quarters and years as the plant rolls up. But I think, to reiterate Eric's point, really happy with production so far and the volumes that we're getting through there. Yeah, nothing has changed, Jim, in our view of the long-term geochemical.

Thanks. The follow-up question I have is a little bit more longer term. And I'm just going back to the analyst event that you guys held back in March, I guess, 2023. And obviously, there's been a lot of changes, certainly in the political environment. But I'm wondering if your view of the M&A opportunities out there has changed. I almost get the sense that you're looking at more organic investment opportunities. So maybe you could talk a little bit about the way you're thinking about the business longer term.

Hey, Jim, this is Mike. I appreciate the question. You know, when we think about M&A, the pipeline is very full of opportunities, some small, some medium. But we are focused on on making sure we get a good return for our shareholders. And we are very disciplined around that. It's got to make kind of cultural fit, financial sense. We've got to see a path to synergy, the path to value. We're trying to improve our, you know, get our ROIC up and get that business kind of contributing at the rate that we think is important to us. At the same time, to your point, there are a lot of internal investments that are out there, whether they be You know, the Phoenix hub we talked about, the Baltimore hub, the investment in Kimball, there's more out there. And those are terrific investments as well. You know, they take longer to execute on, but frankly, you know, they don't come with a lot of goodwill, if you will. So I think that's really a – I think we are measuring all those things. We think that those are all great uses of our capital. We look at – we share that. It's all based on returns. And so whether that's, you know, M&A that's in our swim lane, or capital projects that drive long-term value. I think, as you can see from the balance sheet and the cash flow generation, there's going to be plenty of opportunity to do all of that going forward.

Got it. Thank you.

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

Hey, guys. Thanks for taking the questions. Can we talk about environmental services margins? Because you entered the quarter with a very tough comp from last year. You didn't have as much ER revenue. You had the drag from Kimball. And you still expanded 30 pips year over year. So can we first unpack the puts and takes of getting that expansion? And then can you share with us, quantitatively if possible, how we should think about margin trends in ES for the balance of the year? Our goal is to get the overall environmental services business to close to those 30% EBITDA margins. And as you know, over the past few years, we've really been executing on that plan. In the second quarter, we saw strong margin improvement from all the service businesses.

Our safety clean environmental branch business, very strong margin improvement on the lines of business that drive waste intervention. we saw margin expansion. On the field services side, as pointed out, yeah, we were down on large emergency response events. Last year, we did about 24 million. This year, about 10 million. But our base business and how we've driven efficiencies in the business, the number of overall ERs, we've had a lot of base business ERs and base business from our Industrial services as well. We talked about that, our industrial services margins. We saw improvement even with the flat line we've seen in overall revenue or just slightly ahead of last year. We've driven margin improvement through managing labor tightly of our crews on how we respond to base business customers. We saw a margin group. So really pleased overall with how each of the different business units have driven cost efficiencies in our business, how we've been driving price, how we've been driving volume, managing our labor properly. All those things really came to fruition here in the second quarter as we continued down that path of driving towards that third

Appreciate it. And the second part of the question around how to think about margins for the second half of the year, NES?

Yeah, no, I think all the progress that Eric just articulated around pricing, labor management, cost efficiency, transportation, those continue. As you know, the comp in Q3 gets a lot easier because there's not that large of that work that Eric mentioned earlier. So I think that the margin progression that we're going to see for the But Q3 and Q4, you know, our 13 consecutive quarters, I think, is going to expand based on kind of how we're looking at our own internal models. And so I'm of the view that, you know, we're going to have, and this train continues, especially around all the things we're talking about when we talk about pipeline and the view we see around our sales pipeline and our ability to execute against that. So I'm very bullish on the back half of the year, March expansion in environmental services. And in 2026, none of these, I don't think any of these things are one-off. I think they are. clearly, you know, long-term structural changes we're making in the organization that drive profit growth.

Right. I think the comps do get easier in the back half as well, so it's fair to think about expansion probably at a higher rate, right, in the back half. I mean, that seems to be implied.

Very much so. Very much so.

Okay.

But you're right. We came into the quarter with a view that perhaps Q2 would be a margin contraction given all the event work we had last year, but as Eric said, you know, every one of our businesses did very well from a margin expansion standpoint.

Thanks, Mike. I just want to pick up on the M&A question and maybe try to put a little bit of meat on the bone here as net leverage continues to trend down. Anything you can share on LOIs, size of targets? I mean, you're talking about a very full pipeline here. Just help us understand a little bit more what you're looking at.

You know, it's really tough to get very specific as to the target because, you know, we want to make sure we're disciplined and we sometimes go very late in the process and don't go further. So it's really hard to say, you know, what's going to close, when it's going to close. We get questions like that all the time, like what's your view over the next 12 to 18 months. It's very difficult to give that answer. I'd rather talk about our process, which I think is incredibly disciplined but incredibly robust. We have a team of people who've done over 75 acquisitions in our history. And I do think that we have an incredible, talented team of people who can execute on not just on the DODIS side, but on the integration synergy capture side. We really, especially businesses that we bought last year like Capico, we are seeing terrific returns on that. And Eric articulated in the margins story around field service, that's internalizing those emergency response call-outs has been a huge win for us. So I think that... The engine is very strong, and we're getting a good pipeline of things to look at, both large and medium, small and medium, some large. And we'll continue to be very active with our strong balance sheet.

All right. Well, stay tuned. Thank you.

Thanks, Noah. Thanks, Noah.

Our next question comes from the line of James Shum with TD Callen. Please proceed with your question.

Hey, good morning, guys. Good morning. Hey, Jim. So on the SKSS guidance, you guys sound very confident in the 140 this year. But if we just look at the numbers, and you were asked this before, but if you just look at the first half and then 3Q, you know, is supposed to be up year over year, but that could be 42 million. It's still – I don't think that gives investors a ton of confidence, like, you know, because 4Q could be weak. So – I just wanted to ask, is there something else? It is FIFO accounting, right? So if your pricing has been going up, are we working through the backlog of pricing from six months ago that was lower than... So maybe you have something in hand that we can't see, that we're not aware of, But maybe you could just talk to the charge for oil pricing that maybe has gone up, and so 3Q could look a lot stronger than 2Q based on what you already have in the system. Any help you could give there would be great.

Sure, Jim, and this is Eric Dugas, so I'll take that. I think a lot of what you said there is right on. But just to talk about the second half and the growth prospects there that Mike touched on, certainly we see sequential growth in SKSS from Q2 to Q3. And one of the primary drivers of that is, in fact, the lower cost inventory that is now in the system. So we've sold through under a FIFO basis. We've sold through that higher cost inventory from last year. That gives us comfort into Q3 and Q4 here that we're going to expand the profitability of the business. We do expect to continue to see kind of the seasonality, typical seasonality from Q3 to Q4, but probably not as deep as last year. So like we said, and I think our prepared comments, we've been very happy with the first half of the year. Each Q1 and Q2, we've exceeded expectations in this business a little bit. We're almost 50% to our full year goal. and we anticipate greater profitability in the back half here. So very, very good. Again, I would just emphasize that the team has done a phenomenal job here transforming the economics and changing to a charge-for-oil position, and I think the market has followed, and that's been great, and that's probably the single biggest driver of the change here and our comfort and our guidance this year.

Okay, great, Eric. Thanks for that. And then I just wanted to ask, in environmental services, can you talk about your pricing and contract structures, how they vary? How many of your contracts are long-term contracts? And then if you could just specifically address, are there long-term price agreements for your incinerator volumes?

Yeah, James. This is Eric here. I'll start with that. Most of our contracts with our larger customers are in the one-to-three area, one-to-three-year area, where we have a very, very disciplined price improvement plan with our contracts, with our customers. Every time they're getting reviewed, our cadence is such that we're reviewing prices across the board and do that on a cadence a couple of contracts are getting renewed so we continue to have opportunity there we all know that price improvement has continued to outpace inflation and so overall we continue to have opportunity to drive price improvement we're doing it we're outpacing inflation and we see more opportunity okay thank you for that and then just on the on the incinerator part uh is that is that

Is that what you're referring to, typically a one- to three-year agreement there? Is that the same throughout ES?

Yeah, it's really our top-tier customers across the board. It's not related just specifically to incineration. It's really all the waste streams, all the services, whether it's labor, equipment, materials, disposal pricing. That's across the board in the ES side.

Okay, got it. Thank you very much.

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 Toby Somer with Truist. Please proceed with your question.

I wanted to start out and see if you could provide us some additional color on the strategic and financial advantages of the hub concept that you talked about in your prepared remarks that you're sort of proliferating throughout the system.

Yeah, Toby, I'll begin. So when we think about and how we talk about Phoenix and Baltimore and some of the other major hubs, Chicago as an example, that's where we're getting leverage across the different business units. We combine multiple types of businesses that we have within the organization at one location. They're working off the same customers. They're cross-selling. They're sharing people, assets. The costs that we feed of supplies and transportation through our network gets leveraged. So it's really an entire mix of driving efficiencies, driving cross-sell, working together as a team, collaborating on how we better serve our customers, and really meeting those needs across all the different businesses. Distribution side, we're selling a lot of products as well, whether it be oil, whether it be materials and supplies. How we get back calls on our transportation through those hubs and a spoke network, very important for us. So we really look at that as an opportunity. We also consolidate real estate costs as well. When we find a good hub, get out of all of the smaller branches, get everybody in a big location, and we

Yeah, so there are real dollar savings that Eric articulated around cross-selling, around logistics, around maintenance, kind of all those and kind of these larger hubs. I think just as important, it provides an opportunity for our employees to develop and grow without having them to have to move. And so when you have a larger hub like that, when you get a smart young person, he or she can move around in the site, do different things, whether it's different parts of the business, whether it's distribution or maintenance, as Eric just articulated. You know, oil and refining, all those types of services that we provide in these hubs gives people an opportunity to grow and develop without having to leave the company or move. And so really that, I think, from a turnover standpoint, and our turnover is very, very low, but our turnover standpoint, and we've been able to keep good people in the company because they can grow and develop in the site, this much larger site.

Thank you for that.

From a competitive behavior perspective within EES, what does it look like from a pricing vantage point? Are you seeing any players out in the market nip at business, at prices that don't generate the kind of returns that you want, and therefore you're kind of foregoing some business because of that?

Toby, I would say more now than ever what there is very disciplined competitors in our space, and that's improved substantially over the past couple of years. So it's, you know, I think for the most part when we're getting our margin improvements, we're really, we are driving price, but we're also driving efficiency. And there's a disciplined environment out there now. As we know, what we do and the waste streams that we handle, it's difficult. And we should get paid accordingly for those services. And I think the investments that different companies have made into the ES space shows that discipline and higher multiples are being paid.

So there has to be price discipline there. Thank you very much. Thank you, Toby.

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

Thanks, Christine, and thanks, everyone, for joining us today. Our next investor event will be at the Raymond James Virtual Industrial Showcase in mid-August, followed by more IR activity in the September timeframe. Have a great, safe day, and enjoy the rest of your summer.

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.