Clean Harbors, Inc. Q3 FY2025 earnings call

• Safety Performance: TRIR of 0.49 through September 30, on track for another record year, with safety driving benefits like operational efficiency and employee retention.
• Q3 Results: Year-on-year growth in waste volumes, but shortfall in Industrial and Field Services and higher-than-anticipated employee health care costs led to Q3 results slightly short of expectations.
• PFAS: Successful study with EPA and DoD confirmed incinerators can safely destroy PFAS, and PFAS expected to generate $100M-$120M in revenue this year, up 20%-25% from prior year with further acceleration expected.
• SKSS Initiatives: Lowered waste oil collection costs via CFO program, partnered with BP Castrol, growing Group III production, and announced $210M-$220M SDA Unit project to upgrade VTAE into 600N base oil.
• Capital Allocation: Active in M&A, evaluating bolt-on and larger acquisitions, planning over $500M in internal investments, and $50M share repurchases in Q3.

Environmental Services (ES): Q3 performance reflected year-on-year growth in overall waste volumes. Segment adjusted EBITDA margin grew year-over-year for the 14th consecutive quarter, with revenue up 3% and adjusted EBITDA up 7%. Technical Services had 12% growth, incineration utilization was 92% (excluding Kimball unit, still 88% including it), landfill volumes up 40% year-over-year. Safety-Kleen Environmental Services rose 8% through pricing gains and core service offerings. Field Services revenue declined 11% year-over-year due to absence of medium to large response projects. Industrial Services revenue down 4% as customers in chemical and refining verticals limited spending on turnarounds. Safety-Kleen Sustainable Solutions (SKSS): Results in line with expectations. Revenue decreased, but adjusted EBITDA was essentially unchanged with a 100 basis point margin improvement due to CFO program, cost reduction initiatives, and efficiency gains. Gathered 64 million gallons of waste oil in Q3.

• Revised 2025 adjusted EBITDA guidance to $1.155 billion to $1.175 billion, midpoint $1.165 billion. ES expected to grow over 5% from 2024. SKSS full year adjusted EBITDA midpoint $140 million. Raised full year adjusted free cash flow guidance to midpoint $475 million, representing over 30% growth from 2024.
• Anticipate Q4 carryover effects in Field Services or Industrial Services to be offset by facilities performance, project pipeline, and PFAS opportunities.

• Macro Factors: Tariff-related uncertainty and other macro factors in the North American economy have ripple effects on some customers.
• Health Care Costs: Higher than expected in Q3, potential ongoing increases as a trend many companies combat.
• Industrial and Field Services: Slowdown in turnarounds and projects in chemical and refinery verticals, with no meaningful recovery expected before spring turnaround season in 2026.

Q: So it feels like there's a lot of puts and takes out there. The industrial malaise, I guess, continues to march on a bit. But Eric Dugas, just it looks like you brought the midpoint down, call it, $15 million. But if you had to bucket the culprits, would you say it was really the field and industrial shortfall? And then how big was the health care issue? You brought it up a few times. Was that onetime? Or is that a go-forward step-up in cost?

A: Sure, Tyler. So in terms of the total takedown, the $15 million, a lot of that is reflected in our Q3 results. Industrial Services being the most predominant piece of that, we estimate maybe $7 million. Field Services, really just the lack of those medium and large projects that we've seen a good chunk of in earlier quarters, probably about $4 million. And then the healthcare in the Environmental Services segment is about $4 million and probably about $6 million overall to the entire company. So I think you're absolutely right in terms of a lot of puts and takes. We still see really strong momentum and good volumes in more of our waste disposal-related businesses of tech services and SKE and think those will perform quite strong kind of here into Q4 and into 2026. I guess the last point on healthcare, Tyler, it is a trend I think a lot of companies are combating. We have built in the increases into our Q4 guidance, and we're in the process of doing some things to make sure that we can offset some of the increases we're seeing there. But probably not entirely unusual, but certainly higher cost than we would have liked here in Q3.

Q: Okay. Okay. That's helpful. And then I appreciate that you guys aren't giving '26 guidance. But conceptually speaking, I mean, should we think about EBITDA on a more consolidated basis kind of flattening out year-over-year just into maybe the first part of '26. It sounds like maybe, Eric Gerstenberg, you're not looking for an industrial pickup really until the spring turnaround season? Or are there enough internal levers to kind of drive the EBITDA growth even in the first half without a whole lot of economic help?

A: Yes, Tyler, I'll start. And certainly not expecting a real rebound of an industrial turnarounds until the spring. However, we're going to continue to grow our EBITDA across our waste collection businesses and our service businesses as well. So we're looking at next year, preliminary. We're still of a budget process to go through. But 5% EBITDA growth, I mean, we're really still targeting that. We think we can do that based on the demonstration of cost-cutting initiatives and volume and pricing growth in those waste businesses.

Q: Okay. That's extremely helpful. And then I do just want to come back to capital allocation, Mike and Eric, just obviously, you guys announced a very sizable organic growth project. I'm sure someone will go over all of that. There was another decent buyback in the quarter. But just realistically, what should we be expecting on the M&A front? I mean, how does that pipeline look? Are you looking at bigger deals? Are you looking at smaller deals? Do you think you can get something across the line this year? Or is that something maybe more into '26?

A: Yes, Tyler, the answer to that question is yes. So we are looking at larger deals. We're looking at smaller deals. I think that we obviously, we talk about the SDA and happy to go into that and maybe other projects we're thinking about. But in the interim, we want to remain prudent. We want to remain disciplined, like we have for the company's history, frankly. But certainly in the past couple of years, we certainly try to be very thoughtful about it and make sure we're getting a good return on our shareholders' investment. And I think there's plenty of things out there, both large sizes, publicly available and smaller things that are out there. And so we remain very active. In the interim, we did buy back some shares. I don't think that's a change in trends. That's more like we saw opportunities there to take advantage of some market dislocation, and we took advantage of that, and we bought back over $115 million worth this year. And so I think that's a good return on our shareholders' investment. So we'll continue down that path. I don't think that's a change in strategy. But we see ourselves as a growth company. We see ourselves as M&A company, and we'll continue to do things like that.