Clean Harbors, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Safety: Achieved the lowest ever quarterly TRIR of 0.40 in Q2, with year-to-date TRIR at 0.45, reflecting commitment to operational excellence.
• Financial Performance: Consolidated adjusted EBITDA margin was 21.7%, up 60 basis points. Environmental Services showed sustained profitable growth, while SKSS stabilized. Corporate segment costs were lower year-over-year, partly offset by higher insurance, severance, and technology investments.
• PFAS: PFAS remediation is a national priority, and the company is positioned to offer an end-to-end solution with RCRA-permitted incinerators demonstrating strong destruction of key PFAS compounds and low emissions.
• Capital Allocation: Strong cash flow, improved leverage, and balance sheet. Active in evaluating M&A and organic investments, including the purchase of the Phoenix site to replicate the hub concept.

Segment Performance

• Environmental Services: Segment adjusted EBITDA margin grew year-over-year for the 13th consecutive quarter. Primary drivers: increased volumes, pricing, and efficiency gains. Safety-Kleen Environmental led growth at 9% due to pricing gains and core service offerings. Technical Services saw a 4% revenue increase from higher incineration and landfill volumes, with incineration price up 7% on a mix-adjusted basis. Field Services revenue was down due to fewer large events but had strong base business margins. Industrial Services revenue was slightly up year-over-year with margin improvement despite a challenging customer spending environment.
• Safety-Kleen Sustainability Solutions (SKSS): Revenue decreased year-over-year due to lower market pricing and reduced volumes, but Q2 delivered $38 million, exceeding expectations. The shift to a CFO position continued, with 64 million gallons of waste oil gathered in Q2, up 11% sequentially. Progress was made on direct blended sales and a partnership with BP Castrol.

Guidance

• Reiterated 2025 adjusted EBITDA guidance midpoint of $1.18 billion (range $1.16B-$1.2B), up 6% year-over-year. Q3 adjusted EBITDA expected to grow 9%-12% vs prior year, led by 10%-14% growth in Environmental Services. Environmental Services adjusted EBITDA midpoint expected to increase 6%-8% from 2024. SKSS full-year adjusted EBITDA midpoint $140 million. Corporate adjusted EBITDA midpoint expected up 5%-7% vs 2024. Full-year adjusted free cash flow guidance $430M-$490M, midpoint $460M, ~30% increase from 2024.

Risks

• Tariff uncertainty impacting some customers.
• Potential for captive closures affecting incineration waste streams.
• Seasonality and potential slowdown in certain segments like SKSS.

Question and Answer

Q: Broad macro view and market share A: Volumes into network at all-time highs, pipeline up year-over-year. Diverse verticals help offset slowdowns in some areas.

Q: Refinery turnarounds and ES guidance A: Back half ES guidance not dependent on significant IS turnaround ramp. Turnaround count up 15% year-over-year but average revenue down.

Q: PFAS update and EPA guidelines A: PFAS study at Utah incinerator showed excellent results, EPA participation, expected EPA announcement in third quarter.

Q: Kimball scale-up and EBITDA contribution A: Kimball on track to meet tonnage objectives, ahead of track, expected to contribute incrementally to EBITDA over time.

Q: M&A opportunities and capital allocation A: Disciplined M&A process, focused on returns, internal investments like Phoenix hub also important for long-term value.

Q: Environmental Services margins and back half outlook A: Margin expansion in Q2 from pricing, volume, and efficiency gains. Back half margin expansion expected to continue due to easier comps and ongoing cost efficiencies.

Q: Hub concept strategic advantages A: Hub concept leverages cross-selling, efficiencies, shared assets, cost consolidation, and distribution benefits.