Okay, let's go ahead and get started with the next presentation. So for those of you that don't know me, I'm Tyler Brown, Senior Analyst here at RayJay. I cover the waste industry, rocks, transports. You guys have probably seen me already today. I've had a number of these already, but this afternoon, post-lunch crowd, I appreciate everybody coming in, by the way, at 1:05 P.M. Good crowd. But this afternoon I'm very excited to have Clean Harbors with us. So presenting today, the two Erics: Eric Gerstenberg, the Co-CEO-
Hello
Eric Dugas, the CFO. Jim Buckley over here heads up the IR effort. Fantastic guy if you ever need any help on Clean Harbors. But for those that may not know Clean Harbors, I don't think we have any slides, but just real quick, I mean, it's one of the largest, if not the largest, hazardous waste management companies in North America, quite frankly. But they specialize in a number of different things. We're gonna get into that. Remediation, you know, emergency response, et cetera, et cetera, but really has a very, very strong moat in their core technical disposal assets, and so we're gonna talk a little bit about that.
But we don't have any slides, but I think if we could, Eric, if we could just kinda give a lay of the land, who you are, 'cause you do a lot of things.
Sure.
You do a lot of things, and maybe give us a lay of the land, how it kinda all fits together. We'll jump into Q&A. Again, this is interactive. If anybody has questions, please raise your hand, let me know. We will stop everything and take your question, and we'll answer it expeditiously. With that, Eric, I'll turn it over to you.
Well, good afternoon, everyone. Thank you all for attending and the interest in our company. We, first of all, talking about what our mission is at Clean Harbors, we are really focused around creating a safer, cleaner environment through the proper management and disposal of hazardous waste. As Tyler alluded to, we're the largest hazardous waste management provider throughout North America. We have over 22,000 employees. We have a branch offering in every state, every province throughout North America. We have over $5.5 billion of revenue that's generated throughout the organization. Talk a little bit about our high-level business model and what we do. It starts with our 700 branches that are really focused around performing services for our customers, gathering, collecting hazardous waste. We have...
In those branch network, we have over 60 different lines of business that we service for customers. We do that through 5 different types of operating branch types, and I'll just walk through those quickly. We have our Technical Services branch types, and their job is to go out and package and collect and transport hazardous waste into our spokes. We have our Safety-Kleen Environmental branches, and those branches go out and collect smaller quantities of hazardous waste from smaller generators of hazardous waste and also embed things such as parts wash units, which allow manufacturers and automotive companies to wash parts in their maintenance activities. We also have what's called Field Services branches. Field Services branches predominantly support the utilities industry. They go out and respond to emergency responses. They provide pressure washing and cleaning activities, vac activities, clean tanks.
And then moving on to our next segment, we have our Industrial Services branch types. Industrial Services, thinking of that as we have people that are embedded, working day in, day out at the largest chemical plants and the refineries throughout North America. They provide vacuum services, tank clean-out, support their turnarounds. Those first four branches are in our Environmental Services segment that we report out. Our last branch type is what's called our bulk product and service branch type. They reside under our Safety-Kleen Sustainability Solutions. These BPS branches go out and collect used motor oil that have been changed out from normal maintenance activities. Also, antifreeze, collect that, that needs to be recycled.
So those five different branch types in our two business units perform services, gather waste, and then through a network of over 5,000 drivers and over 20,000 vehicle types, we transport that waste into our spoke and hub system. Those spoke and hubs aggregate that waste, provide economics and long-haul transportation that we do through a network of over 2,200 different rail cars, a network of over 2,500 van trailers and tanker transports that provide long-haul transportation and into our wonderful moat, as Tyler referred to it, of our 100 disposal assets and recycling sites. So in that, we have incinerators. Our incinerators manage 70% of the commercial hazardous waste generated throughout North America.
We also have some wonderful landfills that we manage, wastewater treatment sites, recycling assets, that are all converting these waste products into ultimate disposal and/or recycling what we can pull out and then sell back into the market. So a nice platform across the board.
Perfect. So let's. I'm sure everybody wants to talk about base oil, Safety-Kleen. But we're gonna start with environmental services, which kind of the preponderance of your EBITDA at this point. So to just make sure we have it, so ES is really about the collection, the transportation, and the disposal of hazardous waste. Is that, like, a very high-level way to think about it?
High-level view, absolutely.
Okay. So if you can, just kinda unpack again the collection side. So what exactly is it that you're doing? So it could be an emergency response, it could be going into a plant, very intimate relationship with the customer. Maybe just talk a little bit, again, a little bit more, a little bit deeper on how the collection side of the world works.
Sure, Tyler. I'll touch on a few of our verticals that we service. Number one, I'd say that every manufacturing, chemical process, retail process generates some form of hazardous waste, and there is limited capacity and permits that allow that waste to be processed throughout North America. There is not a lot of new permits being issued, so that moat is really what gives us our stronghold around our customer base. We have over 300,000 customers, starting with chemical. Chemical is about 17% of our business overall. Thinking about some of the large chemical suppliers, the DuPonts, the 3Ms, the Dows of the world, they generate hazardous waste through their manufacturing process. So we're able to go out and package their materials.
They make a lot of unique byproducts as well, that require strategic incineration capabilities that allow us to inject their materials direct into our incineration units. So chemical industry has been growing for us. It continues to really be focused around a change of suite of products that they are making, that generate more difficult-to-handle waste streams that are perfect for our types of sites to be able to manage. Other industries that we supply, I mentioned utilities. Tyler mentioned emergency response. Anytime there is an event, whether a transformer collapses or whether a manhole in some of the bigger cities needs to be cleaned out before the utilities can go in there and replace the infrastructure to do it, they call us to be able to do the cleaning before their people are going to go into the manholes or deal with the downed transformer.
So that's active. Obviously, with the weather events that we all see throughout North America and all over, that drives additional utility business, so repeatable emergency response business. Manufacturing, we continue to see onshoring in manufacturing. We support the manufacturing bases with their parts washers, but also their collection and aggregation of hazardous waste that might come in tanker quantities, van quantities. We manage over 3.5 million containers of hazardous waste into our network on an annual basis. So a few of the verticals to touch on there.
Perfect. So let's talk. So you talked about the Technical Service business. I think you said 70% share in incineration, but what about the fragmentation on that side, the field and industrial service? Now—and you have been acquisitive in this space, so it's gotten maybe a little bit more consolidated, but can you talk about the fragmentation there?
Yeah. So on the, on the service part, when we, we send our trucks out to go service our, our, our customers, there is some fragmentation on the service side of the business. What differentiates us is that we have completed over 70 different acquisitions throughout the history of the company. And we leverage our assets, our rolling stock, and our people to be able to provide premier service to those customers, and that's what's different and separates us from many of the smaller companies out there. So when you think of a big utility, that might be a regional utility, they have service level agreements for our type of, the services we provide. That means we need to get out to their sites within two hours.
And to meet that service level agreement, you need the breadth of branches, collection of assets, and rolling stock that we have to be able to service them. So even though it's fragmented, which continues to remain opportunity for us to grow more of our footprint organically and doing some acquisitions, we are creating a stronghold with those customers that need that premier service. And everybody wants to be serviced within two hours when you're having an emergency response event, and that's what we provide through our roll-up. Tyler mentioned we've done a few different acquisitions over the last year and a half. Two years ago, we bought a HydroChemPSC acquisition, an industrial service, fragmented market. By buying that HydroChemPSC and tucking into our footprint, we combine that with our legacy industrial service.
It gives us a better footprint to provide reliable service for big refineries and chemical plants that have those turnarounds. We can call on our assets and people to be able to match that service need that they have. We also did one with Thompson Industrial a year ago. Both of those opportunities, great synergies. We're able to tuck them in, leverage their rolling stock, leverage their people. We've been able to reduce our turnover. So that's what's important when you're operating in a fragmented market. And every time we get hazardous waste that's generated from those responses, it's feeding our moat of facilities.
Perfect. So when I think about, though, the actual collection, I think it, I think it's very human capital intensive. Frankly, guys in spacesuits going around-
Yeah
you know, cleaning out some nasty stuff. Obviously, labor was a major pinch point over the last couple of years. So maybe, Eric Dugas, if you could talk about, you know, how do you guys price that business? How do you ensure margin durability in a business that is very human capital intensive?
Yeah, that's a great question, and I'll touch on that, Tyler. You know, when I think about our Field Service and our Industrial Services business being more labor intensive and how we've been able to price that, I go back to some comments that Eric just talked about with retention and our people and being able to keep our folks, keep open positions filled in that business. And what that allows us to do is, we are the largest player in most of these spaces in the national footprint. We have the labor, and people see the value in that, and they're willing to pay for it. So we have seen, we have been successful pricing our labor. We track that through labor coverage ratios.
But when you think about, you know, Field Services and industrial services in the context of our entire Environmental Services segment, we raised margins last year 160 basis points in ES. And a good piece of that was continued synergies that we got from the acquisitions that Eric mentioned, but also being able to strategically price labor.
... as well as the disposal. So, you know, 160 basis points last year in 2023, that was coming off 110 basis points of margin expansion in that segment in the prior year. As we look at the outlook this year, the guidance we provided a couple of weeks back, we don't quite have that type of, of, of spread on our 2024 numbers, but we certainly think there's upside to what we've, what we've guided to. So really, labor has been a great story for us.
But it basically shows the durability of that business, the ability, the flexibility to price in excess of unit cost inflation.
Absolutely. Absolutely.
Hopefully, a longer-term story. So, okay, so we've collected hazardous waste, you and I, Eric. We've collected it. We need to get it to final resting place, but in between, there could be vast different distances.
Mm.
Can you talk about logistics capabilities and how that sets you maybe apart from some of your other players?
Yeah. Yeah, absolutely. Thanks, Tyler. So I mentioned earlier our over 700 branches that we have that collect the waste. Those are our spokes, our service branches, and we have hubs. We have 40-50 hubs that are also strategically located around those service branches, that we're able to sweep our regional van trailers and tanker trailers and to be able to go out and touch all of our branches, aggregate it into one hub location. At those hubs, we consolidate. They're called TSDFs, Treatment, Storage, and Disposal Facilities, that have tanks that we can aggregate in bulk liquids and bulk solids and accumulate drums for long-haul transportation. We have a large fleet for national transportation that moves it from those hubs to those facilities. Over the past couple of years, we've done a great job of internalizing all that subcontract transportation.
Still have a ways to go, but by and large, the movements that we make from our hubs into our disposal facilities are Clean Harbors long-haul equipment, Clean Harbors long-haul drivers, along with an aggregation of our over 2,200 rail cars that allow us to get those efficiencies of scale to service all of our customer needs.
Yeah, simply not easy to replicate.
Right.
Right. I mean, it's transportation. You're a major... You've talked about internalization. You are a major buyer of transportation, though.
We are. We, we are, 1, 14th largest motor carrier throughout North America. 2, we do still have over $100 million of transportation that we subcontract, that we can continue to lay on drivers, invest some capital in rolling stock, and internalize that and get more efficiencies.
Okay, so we've collected the waste. We've transported, or we are in the process of transporting it. Where are we gonna transport it to? So you have a collection of disposal assets. Can you talk a little bit about the different verticals on the disposal side that you have, and why does some waste go to landfill, and why does some waste go to incineration?
Yeah, so to begin, it's really around EPA and state and provincial regulations that create this foundation of how all hazardous waste must be managed. So each of those waste streams have different characteristics. Those characteristics and the foundation of the regulations break out how that waste must be managed. When we go out and service a customer, the first thing that we do is we create a profile of what that waste stream is all about. That profile is a long document, online, easy to use. However, it creates a waste classification code, which dictates how that material would be transported and what is the disposal technology that it's gonna be managed through. Our first job is to really look at how we can take some of those waste streams and recycle it.
So solvents is a type of waste stream that might get generated from the pharmaceutical industry, the semiconductor industry. They generate solvents that can be recycled through our distillation systems. We have eight recycling plants that recycle solvents. We also, moving on from there, material needs to be incinerated. That is the best disposal technology for most of the most complex waste streams. 70% of the capacity we manage, we also, from our incineration network, we work with companies that have their own captive incinerators. That's an incinerator that might be on their site, and we partner with them on the waste streams that their units can't burn to bring into our network. We also have a wonderful network of wastewater treatment facilities that do the normal things of stripping out metals and contaminants to treat that water for discharge.
We have this great collection of hazardous waste landfills. Those landfills are very unique assets that are lined, that are able to take materials that might be contaminated with metals to stabilize, put in the ground, manage that collectively. Really nice collection of this over 100 disposal facilities.
The simple reality is these disposal facilities are not easy to come by.
Correct.
I mean, I don't know, when was the last time a hazardous waste landfill was permitted?
Yeah.
Even an incinerator. You know, I know there's been some green- some expansions of incineration, but even on a greenfield side.
Yeah, great point, Tyler. There, I can't think of... Being in the industry that I have been 34 years, I can't think of the last greenfield site that was created. There has been two incinerators that are in the process of one which we have over the past 20 years. We built a new incinerator, which was on-site at one of our already existing incineration locations, so expanding that permit. That was the first one in over 20 years. We're building another one in Kimball, Nebraska, and so that really hard to replicate. Over 500 permits for these facilities, not easy to get in today's day and age.
Yeah, and I think you talked about at the Analyst Day that there was, like, 41 captive incinerators still left. So maybe just double-click on that and make us or help us understand what is a captive versus a commercial incinerator, and what's the difference there?
Yeah, great. So 41 captives, operating at 30 different locations throughout North America. A captive is when a company has their own hazardous waste incinerator. They can only burn the material that they generate; they can't take it in commercial. We're commercial. We're able to accept waste from a majority of different customers into our network. So a captive incinerator is a company that has their own unique incinerator on site, and what's happened is those captives, 20 years ago, there used to be a hundred captives. Now, there's only 41. So the market size has shrunk. Why has it shrunk? It shrunk because what these people manufacture and what these companies manufacture, the suite of products has changed, so their incineration units have become less efficient, have required capital to invest to upgrade to the new regulations, and then that's where we, we come in.
Those 30 companies that manage the 41, they are existing customers of ours as well. We meet with them on a periodic basis to help them analyze their cost structure and make good decisions going forward, whether they're gonna invest capital into their units or sign up with us for a long-term agreement to be able to manage all their waste, shut down their captive. That could be a good win-win for both companies.
Right. But to be clear, the captives have to effectively burn their own waste.
Correct. Uh-
They cannot... They're not a commercial operation.
That's right.
Now, there has been some concern, and I would like to just kinda chat about it, but there has been a captive conversion in Arkansas, where they took an old captive incinerator and are in the process, "they" being another company, of converting it into a commercial incinerator. I'm curious about, is there a risk that there could be more of those conversions over time, and how would that potentially disrupt the supply-demand dynamics in incineration?
Yeah, great question. First, just a matter of clarification, that site actually was a commercial site.
Yeah.
It accepted spent potliner waste from the aluminum industry. They had a commercial permit that they leveraged and converted. That being said, there is some captives that have the potential of being converted, and it really depends on the permits and the operating characteristics that those units operate on and within the regulations of the state and the EPA, whether that'll be allowed. For the most part, we feel extremely comfortable saying that those captives aren't gonna be converted. They were built 20, 30 years ago for unique types of waste streams, and to be able to scale them up and redo them, very difficult thing to do and change the permits. So we're... By and large, very few could even think about converting from a commercial basis.
Okay, so that may not happen, but you are expanding Kimball. You expanded El Dorado a few years ago. There is this one conversion, I guess, that's going to ultimately add more capacity into the market. But generally speaking, and you guys have talked about having a very strong backlog of waste-
Yes.
So it doesn't feel that there's really any big disruption, again, kinda coming back to that supply-demand dynamic?
No, not at all. Really, our projections, the volumes that we've been increasing year over year, the reshoring, the regulation changes that are out there, the infrastructure bill, all those things, are contributing to a significant backlog, and with the capacity coming online of our unit and the conversion of that other unit that's down in Arkansas, we think that there is ample generation of waste volumes that will fill up that capacity in the short term as they come online.
And then, of course, the captive opportunities that we spent a few minutes talking on, that's a, that's another tailwind for Clean Harbors-
Yeah
... with the new capacity coming online.
Yeah. And so, you know, bigger picture, I mean, it's interesting. I mean, Clean Harbors could be a big beneficiary of a nearshore/reshore trend, right? I mean, matter of fact, we had Vulcan Materials, who crushes rocks, you know, in a previous session, and they were very bullish on the heavy non-residential construction market, i.e., those types of things. So can you talk about... You know, can you talk about the long-term outlook? Because when I think about-- I hear things like lithium batteries, and I think of pharmaceuticals or semiconductors, those seem that there would be a hazardous waste stream on the back end that could be on the come.
Oh, absolutely.
Yeah, I'll take that one, and I absolutely agree with you, Tyler. I think those are many of the tailwinds that that we see internally. Certainly, the reshoring, you know, we're a lot of times, with companies' reshoring plans, we're kind of on the front end of that. Companies, when they decide, "Hey, I'm gonna build another plant," or, "I'm gonna increase production," they need to make sure that there's a place for that waste to go. And so we get into conversations with customers ahead of time, as they're shoring up those resources.
The other tailwinds you mentioned, pharma, lithium batteries, other things like that that are certainly on the come, those are all part of kinda internal strategic decisions that we're making every day, thinking about investments in those spaces, driving more capabilities that we can provide to our, to our customers, 'cause they're gonna need those things. So, you know, all those is why we're really bullish about the business. That's why we think demand remains as strong as it is today, if not stronger, and that's why we'll be able to kinda fill that incremental capacity when Kimball comes online.
Yeah. So it may not just be nearshore/reshore, though, as well. I mean, we have the potential for PFAS regulations. Maybe you could talk a little bit about that. It has been scientifically proven that you can reach effective annihilation of PFAS in your incinerators.
Mm.
Can you just talk about, you know, how big is PFAS today, and maybe what could that opportunity look like off into the future?
Yeah, I'll touch on it. I'm sure-
Yeah
... Eric will add. We, last year, we did about $50 million-$70 million in PFAS disposal solutions. And what Clean Harbors is really great at is we provide a total solutions for PFAS. And what I mean by that is we have eight different things that we are looking at from the PFAS and have the capabilities to do today. So we do analytical, we do sampling, we'll do the remediation work, we'll do the transportation into our network. We have landfill capabilities, we have incineration capabilities. And to build on the incineration capabilities, as Tyler just mentioned, we went out a couple of years ago and worked with a private party to prove out, by doing tests of our incineration unit, that high-temperature thermal incineration is a preferred disposal methodology to effectively destroy PFAS. So really leading-edge stuff.
We're continuing to work with the EPA to make sure that they're - we're doing another test. We're pulling them in to work with us on doing additional testing to help make sure that the country has proper disposal solutions to manage PFAS, that it's gonna be good. So our total solutions network is really the only scalable network that exists out there today with multiple different product lines or services to be able to help solve the problem that PFAS faces our environment today.
Yeah, I mean, I think of you guys as an industrial production story, but maybe there could be a plus sign on the other side of that industrial production.
Yeah, absolutely, Tyler. I think, you know, I harken back to... We did our first Investor Day in some time back in March, and we talked about that very, that very thing. And many of the tailwinds that we've spoken about in the last few minutes are reasons that we believe. We kind of think about the business as a GDP or IP plus plus, you know, so 1-3 percentage points of growth on top of normal GDP or IDP, or IP, excuse me, however you want to measure it.
Yeah. So while we're on the Analyst Day, the Vision 2027.
Yeah.
You know-
I like the way you do that.
Yeah. Sorry, the people in TV land can't see my hand gestures. But anyway, but when you think about part of that plan was there's obviously an internal growth story there.
Yep.
There's a margin story there. We've kind of touched on those, but there's also an M&A side of that. Can you just talk a little bit about the prospects for M&A? That's been really good over the last couple of years. Do you still see a really strong pipe? And then, you know, what is the criteria you look at just to make sure that you're, you know, doing the right deals at the right time?
Yeah, I'll start, and Eric chime in as needed. But I think first to address kind of what that pipeline looks like, I would say over the last, you know, six months, I think the number of deals that cross our desks has really increased. There seems to be a lot more activity out there. You know, the types of opportunities we see, we see them relative to both of our segments, but really kind of keen on kind of the acquisitions that can build out our Environmental Services segment. Many of the opportunities we see are, you know, coming from just the turnover in PE-owned firms. We have some family businesses where succession planning may be a question, and those are coming out to market.
But, you know, maybe it's, you know, better clarity on rates, maybe it's other factors, but certainly more opportunities that we're really excited about. We do probably pass on more opportunities than we pursue, because when we look at these opportunities, we wanna make sure that they fit into the Clean Harbors culture. We wanna make sure that they fit into our business operationally, they make financial sense. So all those things. And HEPACO was like a culmination of all those different criteria. You know, going back to Vision 2027, yeah, we did have, you know, very, lofty, kind of a $4 billion of incremental investment in acquisitions, but that's how Clean Harbors has grown over the last 40+ years.
So, you know, when we think about that $4 billion of incremental investments through 2027, if we don't get to that level, we won't view Vision 2027 as having failed, right? You know, we'll make the acquisitions that we think are appropriate, starting with HEPACO. I think that'll be a great acquisition for us. But we'll also sprinkle in some kind of organic capital investments, internal projects, maybe not the size and scope of a Kimball, but there's other things out there that we think we can grow with. So, really feeling really good about Vision 2027. Certainly, the organic model that we put out there, Tyler, feeling really good about that. Probably a little ahead of schedule in terms of the ES segment.
Right. Then, can you just talk a little bit about the balance sheet? It has improved quite a bit. So you have-
Strong. Very strong.
This is a very cash generative business, so maybe just talk about, you know, the funding mechanisms for that M&A.
Yeah. So, so certainly we've, you know, we, we've challenged ourselves to keep a very strong balance sheet. We're about 2x levered, today. Pro forma, after the HEPACO acquisition, where we'll go out to the market and increase our, our term loan by $400 million, will be about 2.3 times. So plenty of kind of dry powder on the debt side of things, and, and that's probably where we would, we would look to fund most of our deals, but try to stay, you know, kind of below that 3 times levered. We, we would go above 3 times for the right deal, but making sure that we kind of see a path down between 2 and 3-
Yeah, just-
is where we wanna live.
To just stress, so right now, the CapEx line is being burdened somewhat by the Kimball's-
Kimball, yeah.
That will start to moderate, I guess, in 2025 and certainly by 2026.
Mm-hmm. Yeah, I mean, the way I think about CapEx, I think, is really your question. What should you think about a normal run rate? We're a little bit, you know, a little bit on the high side of the norm right now because of the sizable investments, both the Kimball, finishing that plan, as well as a Baltimore build-out that we talked about a few weeks back. But going forward, I think we would live in kind of the 5.5%-6% of revenue figure, would be our normal annual run rate. And then, of course, there'll be some strategic, some larger strategic-type things that we would talk about on top of that. But 5.5%-6%, kind of normal run rate.
Perfect. On time, on budget.
That's right.
We are right at time.
Over budget.
Over budget.
Exceeding budget.
Yeah, succeeding. But anyway, well, there is a breakout, so if anybody'd like to continue the discussion, that will be downstairs. But thank you all for joining us.
Thank you.
Thank you all for your interest.