CLEAN HARBORS INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: Total recordable incident rate YTD at 0.69, industry leader in safety; focus on comprehensive safety programs to keep employees safe.
• Q3 Performance: ES had healthy demand for disposal/recycling, record containerized waste volumes, and positive pricing momentum. Field services grew due to HEPACO acquisition. Industrial Services had weaker quarter due to less extensive turnarounds. SKSS had revenue and profits up Y-o-Y but softer Q3 demand and pricing.
• Capital Allocation: Focus on ROIC; Kimbell incinerator on track to start in November; pipeline of acquisition candidates; intent to pursue buyback plan.
• PFAS Initiatives: Robust demand for PFAS solutions; testing to meet EPA standards for PFAS incineration, expected to shape regulatory framework.

Segment Performance

• Environmental Services (ES): Adjusted EBITDA increased by 15% on a 13% revenue increase. Revenue from HEPACO acquisition accounted for half of the $150 million revenue increase in the segment. Field services grew 68% primarily due to the HEPACO acquisition. Incineration utilization was at 89%, with average pricing up 6%. SK Environmental Services revenue was up 8% in Q3.
• SKSS: Revenues increased 6% and EBITDA increased 32%, but Q3 saw softer demand and pricing, especially in September. Waste oil collections were up 17% to 69 million gallons, but pricing deteriorated significantly.

Guidance

• Revised 2024 adjusted EBITDA midpoint to $1.11 billion, a 10% increase from 2023. ES adjusted EBITDA expected to increase 13%-15% from 2023; SKSS expected to decrease 12%-14% from 2023; corporate adjusted EBITDA negative up 12%-13%. Free cash flow range lowered to $280 million-$320 million due to higher inventories in SKSS and delayed AR cash generation from HEPACO integration.

Risks

• Pricing pressures in SKSS due to market softness.
• Inventory buildup in SKSS leading to idling of California re-refinery.
• Integration delays affecting receivables and cash flows.

Question and Answer

Q: Talk about Q3 implied Q4 guide and SKSS.

A: ES core business was strong, while SKSS was affected by base oil market softness. ES had healthy volume growth and margin improvement, but Industrial Services had a slowdown.

Q: SKSS cash flow in 2025.

A: Kimbell CapEx is expected to drop, working capital should improve as AR and inventory issues are addressed.

Q: ES margin expansion in 4Q.

A: ES margin would improve excluding the slowdown in Industrial Services; start-up costs for Kimbell may have some impact but overall margin expansion expected.

Q: SKSS inventory and margin.

A: Inventory in SKSS will take into 2025 to work through, with Q4 likely seeing margin hit due to higher-priced inventory vs. market.

Q: HEPACO AR collection delay.

A: Timing issue due to integration into billing system, being resolved, with no bad debt risk.

Q: Internal inflation and incinerator pricing.

A: Labor inflation at 3%-4%; incineration pricing to continue rising with robust demand.

Q: PFAS business run rate.

A: PFAS business had a $80M-$90M run rate in 2024, with robust demand continuing.

Q: SKSS Group III impact.

A: Group III has benefits, but full impact lags, with some cost savings already seen.

Q: California re-refinery.

A: Re-refinery idled with no additional costs, planned to remain idle for 6 months to a year, used as distribution center environmentally.

Q: Customer churn and price sensitivity.

A: Low customer churn, robust demand, customers receptive to pricing due to strong service network and disposal facilities