Clean Harbors Q1 2025 Earnings Report

Greetings, and welcome to the Clean Harbors First Quarter twenty twenty five 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's now my pleasure to introduce your host, Jim Buckley, Senior Vice President of Investor Relations for Clean Harbors. Mr. Buckley, please go ahead.

Thanks, Jim. Good morning, everyone, and thank you for joining us. To start, I want to highlight our safety results for Q1. They are not a financial metric, but as we often say, they are our most important metric. Our total recordable incident rate, or TRIR, was an outstanding 0.46 in the quarter.

That represents not just our best Q1, but the best quarter in the company's history. Hats off to our entire team for the energy and effort they put into having our safety programs, for fostering a strong safety culture and for protecting themselves and each other. Turning to our financial performance on Slide three. Our overall Q1 results finished ahead of expectations. Our ES segment began the year with an encouraging first quarter that included a strong contribution in March after a period of unfavorable weather in January.

Our SKSS segment outperformed our guidance due to better pricing of our used oil collection services that Mike will discuss. Overall, company revenue was up 4% in Q1. Demand trends for our disposal and recycling assets were positive. We exited the quarter with momentum in most of our ES segment businesses and are optimistic about SKSS' ability to achieve its annual target. Our adjusted free cash flow and corporate segment results were also in line with expectations we provided in February.

All in all, a solid start to 2025 for the company. Turning to our segment review, beginning on Slide four with ES. Adjusted EBITDA increased 4% with a 3% increase in revenue, resulting in a 10 basis point margin improvement. Our top line growth increased due to the 2024 acquisition of Hefeco as well as growth from pricing and higher incineration utilization, which offset a year over year decline in industrial services driven by the refinery sector. Looking at our revenue by segment components, field services grew 32 driven mostly by HEPCO supported by organic growth in our legacy business.

In total, we responded to more than 5,000 emergency response events in Q1, in line with recent quarters. In technical services, higher incineration volumes and pricing drove a 5% revenue increase. Incineration price rose more than 5% in Q1 on a mix adjusted basis. Incineration utilization was an impressive 88% versus 79% in Q1 'twenty four. For comparison purposes, this quarter's utilization number excludes the new in Kendall as we ramp up.

As we have stated publicly, our goal for the new kiln this year is to process 28,000 more tons or more, with growth in 2026 as we complete our shakedown process. In Q1, the new incinerator processed 5,000 tons, running well despite challenging weather conditions in January. Overall, incineration demand was high all quarter long and shows no signs of slowing as reshoring and other market dynamics play out. We are continuing to realize the benefits of investments we have made in our disposal and recycling network to enable more efficient processing and movement of waste. Safety Kleen Environmental Services continued its consistent and steady performance, notching another quarter of profitable growth by increasing revenues by 5% from a year ago.

We performed 245,000 parts wash services in the quarter, down slightly from a year ago, reflecting the service interruptions from bad weather. Our pricing initiatives, record containerized waste services and new products, including some innovative aqueous parts washers drove the growth in this business. We faced some challenges in Q1 with our Industrial Services business, where revenue was down 10% from a year ago as we continue to see some refinery customers delay spending and defer maintenance in the current environment. Lastly, I'm sure someone will ask questions about tariffs. While we suspect that tariff and trade uncertainty may be behind some of the industrial services weakness this quarter, refinery customers have been under pressure for some time due to local crack spreads.

We haven't seen a material impact from tariff uncertainty on our waste volumes in TS or in SK branch or on the number of ERs we've conducted in field services. A stated goal of the current administration is to generate more U. S. Manufacturing and industrial production, which should ultimately benefit clean harvest. We do not expect any of the core environmental regulations that have been the foundation of our business and have protected human health and the environment across The U.

S. For decades to change under the current administration. As it relates to tariffs and our supply chain, most of our purchasing is domestically sourced, so we don't anticipate any disruptions to our growth plans. That said, we have recently enacted a nominal price increase to offset the higher costs we expect for our vehicle fleet, the chemicals we use and other supplies. To protect our margins, we remain committed to further adjusting our pricing and reducing our cost structure to offset any additional inflation that may come as a result of tariffs.

With that, let me turn things over to Mike to discuss SKSS and capital allocation. Mike?

Thank you, Mike, and good morning, everyone. Turning to the income statement on Slide eight, our Q1 results topped the guidance we provided on our Q4 earnings call. The solid results were achieved with continued year over year growth and profitability in our ES segment and better than expected results in SKSS. Overall, we grew total company revenues in the quarter by $55,000,000 or 4%, with the ES segment accounting for two thirds of that growth.

Q1 adjusted EBITDA of $235,000,000 was driven by higher earnings in our ES segment, which offset a slight decline in SKFS and slightly higher corporate costs as compared to Q1 of last year. Our adjusted EBITDA margin of 16.4% in Q1 was down year over year, but in line with our expectations. Even with a tough start to the quarter due to extreme weather, the team achieved expected margin performance in Q1 by delivering a good mix of high margin work and controlling spending. SG and A expense as a percentage of revenue was 12.8% in Q1. For the full year 2025, we continue to anticipate SG and A expense as a percentage of revenue will be in the mid-twelve percent range.

Depreciation and amortization in Q1 came in as expected at $112,000,000 up due to acquisitions and our first full quarter of Kimball. For 2025, we continue to expect depreciation and amortization in the range of $440,000,000 to $450,000,000 Income from operations in Q1 was 111,600,000.0 down from the same period a year ago when we had less depreciation and amortization. Q1 net income was also down, as expected, versus the same period a year ago as we delivered earnings per share of $1.09 Turning to Slide nine and the balance sheet. Cash and short term marketable securities at quarter end approached $600,000,000 Given that high cash balance, we continue to view our balance sheet as a competitive advantage, particularly given the uncertainty in the credit markets. Our net debt to EBITDA ratio at quarter end remained at approximately 2.1 times with no material debt amounts due until 2027.

Our overall interest rate at quarter end was 5.3. During the quarter, we received a credit rating upgrade by Moody's based upon our recent financial performance, overall growth and our strong capital policies. This upgrade puts our overall debt rating just one notch below investment grade and our secured debt at an investment grade rating. Turning to our cash flows on Slide 10. Net cash from operating activities in Q1 was $1,600,000 which was as expected.

CapEx, net of disposals, was just over 117,000,000 down from the prior year as we have completed our Kimball CapEx spend. We expect the majority of the $15,000,000 associated with our Phoenix project that we called out on our Q4 call to occur here in Q2 as the site was purchased in early April. For the quarter, adjusted free cash flow was a negative $116,000,000 and consistent with Q1 a year ago. In addition to CapEx spend, the negative free cash flow in both periods reflects the timing of incentive comp payments, interest payments and seasonal working capital increases. For 2025, we continue to expect our net CapEx, excluding the Phoenix growth project, to be in the range of $345,000,000 to $375,000,000 During Q1, we bought back nearly 260,000 shares of stock at a total spend of $55,000,000 We currently have more than $430,000,000 remaining under our repurchase program authorization, and we continue to view our shares, particularly in light of the recent pullback as undervalued. Moving to guidance on Slide 11. Based on our Q1 results, along with current market conditions for both of our operating segments, we are reiterating our twenty twenty five adjusted EBITDA guidance range of 1,150,000,000.00 to $1,210,000,000 or a midpoint of $1,180,000,000 which represents 6% annual growth. Looking at our annual guidance from a quarterly perspective, we currently expect adjusted EBITDA for Q2 to grow 1% to 3% compared with the prior year, with 3% to 5% growth in the ES segment and lower expense in the corporate segment, which will more than offset an expected year over year decline in SKSS. As a reminder, we also had a number of good sized ERs in Q2 a year ago in the ES segment.

For full year 2025, adjusted EBITDA guidance will translate to our reporting segments as follows. In Environmental Services, we continue to expect adjusted EBITDA in 2025 at the midpoint of our guidance to increase 5% to 8% from 2024. Demand for disposal, recycling, remediation work and SK branch offerings have all continued year to date. The only exception, as previously noted, is industrial services, where customers can defer maintenance or slow spending during times of economic uncertainty. Our Kimball facility will continue its ramp towards full production as planned.

Given the momentum from reshoring projects and PFAS as well as support from our sales team, we expect our facilities network to process record volumes this year. We also expect to see continued expansion in the SK branch and field services businesses. For SKSS, we continue to expect full year 2025 adjusted EBITDA, the midpoint of our guidance, to be $140,000,000 While we exceeded our expectations for Q1, given the outstanding work by the team in improving our collection rates, we remain cautious in our assumptions for this segment given its commodity exposure. Within corporate, the midpoint of our guide, we continue to expect negative adjusted EBITDA to be up 3% to 7% compared to 2024. The year over year increase primarily relates to the company's expected revenue growth, wages and benefits and insurance, partly offset by our cost savings initiatives.

For adjusted free cash flow, our 2025 guidance remains in the range of $430,000,000 to $490,000,000 or a midpoint of $460,000,000 which represents a nearly 30% increase from 2024. As we highlighted last quarter, this range excludes our $15,000,000 growth investment to create a new hub location in Phoenix. We believe the exclusion of long term growth projects creates a more accurate picture of our free cash flow generation as a company. In summary, Q1 was a good start to 2025. We continue to expect the demand environment and our pricing initiatives to support our anticipated profitable growth this year.

The ES segment has a strong backlog of waste, a robust pipeline of project opportunities, including PFAS, and most of our services businesses have good momentum. Within SKSS, we believe we should stabilize this business this year as we focus our energy and strategies to maximize the value of these assets while minimizing any downside potential. Overall, we are encouraged by the trajectory of the company and look forward to the remainder of this year as we continue to execute against our longer term goals. With that, Melissa, please open the call for questions.

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

Yes, Larry, I'll take a first shot at that one. So what we're trying to do right now when some of our customers are talking about tariffs and what the impacts could have on their businesses is we're trying to get closer to our key customers and expand our overall wallet with them and grow within those key customers to drive industrial services, field services. So we think there is great opportunity for the company to continue to grow with large customers and continue to work through that based on our presence, our capabilities, our network, our redundancy of our disposal network. All those are positive things of how we can continue to grow with those customers.

Right. No, no, no, that's all fair. And I appreciate all that color. And just on environmental, just I know you don't break exact price volume down in guidance. But incinerator pricing sounds like it's going up mid single.

Is it fair to say sort of the mid single digit overall growth in Environmental is maybe a little bit more favor pricing and a little bit of volume growth. Is that a kind of good way to break that out on an overall basis?

If I could just squeeze one more Kimball ramping sounds like pretty much in line. Fair to say that was probably a little bit dilutive or maybe just modestly positive on the, earnings side? And anything you're learning from the ramp Kimball versus Eldorado from a few years ago? Thanks.

Yes, Larry, I'll talk to the ramp up compared to El Dorado. The team has done an awesome job at bringing this plant online. And we continue to ramp up faster than what we did with El Dorado when that unit came online. The design has been proven. We worked through a lot of shakedown issues despite the weather and can't talk enough about how great the team did.

And we are really excited about how it's run coming out of the gates here for us.

Thanks, Larry.

You. Our next question comes from the line of James Ricchiuti with Needham and Company. Please proceed with your question.

Hey, Jim, this is Mike. I'll start and Eric certainly can chime You know, I the way I see it is that the valuations are still pretty high. For these valuable assets, these permanent related facilities, the valuations per assets are still high. As Eric Dugas said in his prepared remarks, we have a very strong balance sheet and we have a network of assets and that we can leverage those assets to drive synergies both from a cost standpoint and a cross sell initiative to drive value to make these deals work. So we're excited about the pipeline of deals. We haven't seen the deals slow up or speed up.

It's still the same store. A lot of assets to look at. We've been very busy in that area. We want to be very selective. We want to be have to make financial sense, have to make strategic sense, have to make cultural sense.

It all has to work. But if we get to those funds and we look at a lot of assets, we'll be aggressive in the marketplace because we do feel like as you know, Jim, you've followed us for many years. When things are tough, that's a great opportunity for us to find value. And we've been able to capitalize on that and be a little contrarian, and that's been the basis of the company.

Yeah, we have continued active discussions with multiple captives and helping to evaluate their cost structure. As we've said multiple times in the past, every captive every company that owns a captive out there is part of our customer base. We service them during shutdowns and other waste streams that their incinerator can't handle. We also do see today a continued opportunity that people are evaluating their cost structure and knowing that we have such a great network of service branches to be able to make sure that their waste volumes are moved on time should they contemplate a captive, we can provide that as a company. And that's unique to us and the industry.

So it continues to be a great opportunity. And yes, the pipeline and opportunities look strong for us.

It's not we did not base our ramp up, the growth of the company at all on additional captive closures. So as we've talked about how we'll go from 28,000 tons to ramp up over the next couple, three years, captive closures was not contemplated at all in that volume that we're going to take in and manage as a company.

Thank you.

Thank you. Our next question comes from the line of Jerry Revich with Goldman Sachs. This

Adam, this is Mike. And first of all, thank you for pointing that out. We appreciate your recognition. We've had our challenges with that business, so we appreciate you acknowledging that it's done well. What I would say is that we changed tactics and was very aggressive on CFO pricing.

And we did that with a public announcement and we were aggressive in Q4 and we stayed aggressive in Q1 and we're going continue to stay aggressive. I think the industry has followed, if that's your question. We do think that there's been that there's a since we're the national player, we're the largest collector of used motor oil in the country, I think that other people recognize the fact that they're under pressure to try to manage the spread as well. So they're having to do the same thing. So I don't I see this as a we were assuming we'd lose more gallons.

And that's really what surprises for the quarter that the collection gallons are actually up year over year. And there's some M and A in there that clouds a little bit. But the level of collection gallons still be very high and a year over year, which is a testament to the fact that we believe that the industry is kind of full of used motor oil. Pricing is there. We are aggressive.

We're to remain aggressive. And I'm really excited about, as Eric said, we feel good about the 140 we kind of committed to today. And nothing changes that. As matter of fact, I feel better than I did ninety days ago.

Sure, Adam. Eric here. So you're exactly right. As we move into kind of Q2 and Q3, organic growth does increase from Q1 here, which as we tried to call out, was greatly impacted by weather. But as we move into Q2, obviously, pricing strategies, the great volume momentum we're seeing, we do have a headwind with those ERs in Q2.

I think last year when we spoke to the Street in July around Q2, we talked about roughly $24,000,000 of larger types of ERs. So that is a headwind, but making up for some of that will be just overall growth in field services. So we opened 10 new field services branches this quarter, so there will be some organic growth there to help offset. And then as you move into Q3, again, same kind of pricing strategies, good volume. And as Eric Gerstenberg mentioned a moment ago, that's where we're hoping to see some stronger turnarounds in the industrial services business that will go up against that Q3 comp last year.

And then Q4 probably a little bit smaller just sequentially from an organic growth, but again, over last year. So those are the largest puts and takes, but the underpinning of all that is all the great things we're doing in the businesses and environmental services, the Kimball ramp up, pricing strategies, cost cutting initiatives, all those things, introduction of some new technologies, those are all driving the organic growth.

Thanks, Adam.

Our next question comes from the line of Davis Banton with BMO Capital Markets. Please proceed with your question.

Yes. Yes, Davis, can answer that question. It's growing. It's going to grow up in 2,000,000 to 3,000,000 more gallons this year than last year. It's a slow ramp.

We want to make sure our plant works well. Collection logistics is always a challenge, make sure we're getting all the group theory that we need to fill the plant and move forward. But that goes along kind of unabated here in 2025.

Okay, great. Thanks. I'll turn it over.

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Gerstenberg for any final comments.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.