CLEAN HARBORS INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Safety Performance: Laser-focused on safety, achieved a total recordable incident rate surpassing 2024 goal.
• Financial Performance: Consolidated EBITDA growth of 10% in 2024. ES segment had a solid fourth quarter, SKSS faced challenging commodity pricing. Delivered record revenue, adjusted EBITDA, and adjusted free cash flow in 2024.
• Milestones: Completed and launched Kimball, Nebraska incinerator; acquired and integrated HEPAKO and NOBLE Oil; growth in workforce and improved retention; launched Total PFAS solution; expanded Baltimore hub; partnership with Castrol; over 20,000 emergency response events.
• Kimball Incinerator: Launched commercial operations in December, initial shakedown phase underway, expected to ramp up gradually over 12-18 months, increases North American capacity by 12%.
• PFAS Testing: Testing in November at Utah facility with EPA and DoD, results expected in Q2, confident PFAS can be safely eliminated using incinerators.

Segment Performance

• Environmental Services (ES): Adjusted EBITDA increased 11% with a 9% revenue increase, translating to a 50 basis point margin improvement. HEPAKO accounted for half of the $103 million revenue increase. Field services revenue grew 47%, technical services revenue increased 8%, average pricing in incinerators rose 4%, and incineration utilization was 94%. Safety-Kleen Environmental Services had steady revenue growth, with 6% in Q4, 246,000 parts wash services, and strong containerized waste services. Industrial services drove price improvements and managed cost structure.
• SKSS (Safety-Kleen Environmental Services): Revenue and EBITDA decreased year over year in Q4 due to soft demand and lower pricing. Actions taken include shifting to a charge-for-oil position, idling California refineries, and cost-cutting initiatives. Collected 63 million gallons of waste oil in Q4, higher than prior year due to Noble Oil acquisition.

Guidance

• 2025 Adjusted EBITDA: Expected range of $1.15 billion to $1.21 billion, midpoint $1.18 billion.
• Quarterly Guidance: Q1 adjusted EBITDA growth 4%-6% in ES segment, flat on consolidated basis. ES segment adjusted EBITDA expected to increase 5%-8% from 2024. SKSS full-year adjusted EBITDA midpoint $140 million. Corporate adjusted EBITDA expected negative, up 3%-7% from 2024. Adjusted cash flow expected range $430-$490 million, midpoint $469 million. Plan to invest $50 million in Phoenix growth project.

Risks

• Market Conditions: SKSS faces challenges in base oil and lubricants market with soft demand and lower pricing.
• Regulatory Changes: Uncertainty around PFAS regulations and potential changes in MAC standards for incinerators, which could impact operations and costs.
• Weather and Geographic Disruptions: California wildfires affected branch collections and had modest impact on Q1 guidance.

Question and Answer

Q: Any incremental opportunities from California wildfires cleanup?

A: Participating in cleanup, modest benefits in Q1 but net neutral due to slowdown in region.

Q: Kimball incinerator ramp-up and utilization?

A: Started with weather issues, team overcoming startup issues, expecting tonnage throughput in Q1, incremental EBITDA contributions of $8M-$12M this year, ramping up to $25M-$45M over next 3-4 years.

Q: PFAS revenue growth?

A: Pipeline growing, but no significant revenue growth built into guidance, active market with 20% quarter-over-quarter pipeline increase.

Q: SKSS capacity and pricing?

A: Nameplate capacity comparable after acquisition of Noble and closure of Newark, California; aggressive CFO pricing leading to some lost gallons, but not over-collecting.

Q: Impact of Trump administration's power policy?

A: No material effect on regulations affecting business, new EPA leader supportive of regulations and PFAS remediation.