Mike Battles, who's Co-CEO, and Eric Dugas, who's Chief Financial Officer, thanks for being up here. You're such a smart alec. Wearing the bow tie. It looks very good.
Thanks for having us.
Can you actually tie it?
Yeah, I tried to grow a mustache. We're taking a decade.
Yeah. All right. Clean Harbors is the largest hazardous industrial waste service company in the United States, North America, actually. Just framing that. What you're seeing over the last six, seven years is the waste industry is becoming far more integrated in both ends of solid waste, all the way through industrial, medical hazardous. You're a pure play in hazardous with a little bit of medical in that thrown in there because of your incinerators. I want to start with the marketplace. If we have a stock market angle on this for a second, looks at Clean Harbors different. You're an industrial waste business. They immediately go, oh, well, there's more cyclicality. How do you feel about your macroeconomic outlook today, sitting here in May, versus when you started the year? Because a lot's happened.
Yeah. Michael, thanks for having us. And thanks for the Stifel team to have us here today at the Investor Summit. It's really quite an honor to be here. I think that if you looked at January and February, we'd have our operating reviews. They were saying weather was terrible, and snowing in New Orleans and all what you kind of hear and read about. We were like, OK, but maybe it gets better. We were concerned that this was bigger than just weather. It wasn't weather. It was weather plus plus. February was better than January, and March was better than February, and April is now going to be better than March. I think that it really was weather. I do think that our pipeline remains very strong. I think that the growth is solid.
I don't think that I don't see today certainly.
You're not seeing the customer base pull their foot off of the accelerator at this juncture?
Not at all. As a matter of fact, you know we had a, as you talked about in our earnings call last week, we had a kind of a great April from a drum count standpoint. That is really kind of a good indicator, not just of what goes into our landfill, but that feeds our whole waste network. That was actually a pretty good start as you look at some of the data points in kind of early April.
OK. Now let's talk about the business. Clean Harbors is structurally two businesses. You've got Environmental Services, and then you have the used oil Safety-Kleen Sustainable Solutions. They're going to tackle the environmental solutions business. In my old hat, I would have thought of it as a fixed facility, treatment, storage, disposal, sort of that collect it, process it, final disposal. There was a lot of services side that may have driven a disposal piece. I want to break that up. I want to talk about the two pieces. Overall, you've improved the margins of that segment 500 basis points over the last six to eight years. As you sit here today, how much of that do you think is absolutely structural versus it's helped by a healthy underlying business climate?
Yeah, I'll take that, Michael. I think it's really both. When you think about the things that have impacted our margins over the last six, eight years, I think you probably got to go back to our new incinerator in El Dorado, Arkansas. I think that really was kind of a jumping-off point, giving us more value in a very difficult to replicate high-margin asset. When you think about some of the other things that have happened, obviously the arrangement we got into with 3M closing their captive, I think that was another catalyst to drive more volumes through the network. I think internally, we've done a lot of great things around pricing.
I think we're much better from an intel perspective and a competition perspective, knowing what people are doing, looking at the services we're delivering across the board to our customers, and really driving margins from that perspective. Certainly in the high inflationary times that we saw coming out of COVID, pricing allowed us to really grow through that and continue to increase our margins. I guess the last thing I'd say too, though, is just utilization of all of our assets. By driving more of the services, we are linking sales specialists to our general account managers. That's driving more work and more volume into the network. We're using all of our very hard-to-permit, very accretive assets throughout the network to deliver service. I think it's really been more volume.
What I think I'm hearing, though, is that the macro was not a macroeconomic. It was macro choices. That's the repositioning of volume. Then there's a better operating leverage, just ran the business better. What I'm hearing is you could be confident that the majority of that $500 is really structural.
For the most part.
For the most part.
We've done a lot of great work at Clean Harbors.
Yeah. I mean, it's inevitable you'll have an economic cycle. And then your business is on the margin a little more sensitive to that than a pure solid waste play. But it's not truly cyclical. What I'm hearing is that there's not a you're not waking up going, half of that margin's at risk in a cycle.
Absolutely not. I'd say we're not recession-proof, over-recession-resistant. I'd also say that we've gone 12 straight quarters of year-over-year on the Environmental Services business, since we brought it up, 12 straight quarters of year-over-year EBITDA margin growth. That's, in my mind, a consistent story. It hasn't been all smooth for the past three years of what we're talking about. I do think that tells you that I think people who have followed us for many years see Clean Harbors as very cyclical because of our exposure to oil that's going back 10, 15 years ago. That's a much smaller piece of the puzzle these days.
Yeah, yeah, the oil field.
Yeah, the Western Canadian oil field, that's a very small piece of the puzzle these days.
$20 million EBITDA.
I think that we are more like the solid waste than we ever have been. I think that shows in our ability to grow margins consistently, regardless of the cycle. Yeah, as you know, Michael, industrial production has been kind of meh for years, yet we've still been able to grow.
OK. Lots of strong drum in the media about tariffs and what have you. Everybody's saying it's going to trigger a recession, this, that, and another. Other than a business-making and the opportunity, I'm going to take advantage of it and pass a price increase through, has it actually affected volume?
No, as Mike was saying earlier, we haven't seen that yet.
Right. More services demands? Because that tends to be a really discretionary.
Services is still strong. We talked about last week when we did earnings, you think about our field services business. Still did about 5,000 emergency response services. Really kind of on the same pace that we were last year, maybe a little bit more in terms of pure kind of emergency response. There are pockets here and there, but there are also areas of growth that we are seeing.
Yeah, so in part of that conversation, people forget there's been this reshoring thing going on for a while. We were adding 300,000-400,000 new jobs a year from that. It looks like that pace is about the same in 2025.
I see no sign of slowing down. I would say, though, that has nothing to do really with tariffs. The low price of crude has put pressure on refiners, which has put pressure on our industrial services business. If you think about kind of where we were last year, Michael, and kind of where we were in Q1, I'd say that's one area where we have.
That's discretionary maintenance choices of.
To a point.
To a point.
To a point.
Yeah, you can't string it out forever. You have all your playing out.
That's right. That's right. I think that's kind of the one area where you think about, well, what's impacting you? Well, low price of crude has put a lot of pressure on our customers. Our industrial services business is a big part of that. And that's been under pressure.
If we start living in a $50-$70 range instead of $70-$100, does the customer right-size, or is it just more of a mindset?
I mean, I think you can't postpone these forever. And as you know, you get an upset plant, that costs you tens of millions, not millions. I think that's the balancing act of playing. And so we're working with our customers to.
They're trying to play out that they think maybe we'll get a lift in the price here sooner than later, and therefore.
I guess my view on it is that our turnaround schedule looks pretty bullish, pretty good. I am hopeful that we kind of get back. That industrial services for the year is slightly positive. We had a tough start to the year. We are down 10% revenue growth in Q1 year over year. That was tough.
How much of that was weather?
I think some of it was weather. I think some of it was slowdown.
OK. OK. Capacity, disposal capacity, which is predominantly a conversation about incineration. The reality is there's probably an ample amount of landfill capacity. You're a big landfill player. Republic is a big landfill. The incineration capacity has been one that I think in some levels actually surprises players in the market, not necessarily you as a company, but the overall marketplace. It absolutely seems to have surprised the regulators that as the composition of the waste stream has become more and more complicated, more high hazard, the ability to process that through incineration has become more constrained. Where do we stand in that marketplace today? Because you've added capacity now twice in the last six years. You have another major competitor who's ostensibly going to open up new capacity sometime in 2025. Where is that capacity issue around that segment of the disposal market?
Yeah, I mean, I think, as you mentioned, we've opened up some new capacity here with our new Kimball incinerator, opened it up in December. I'd say so far, kind of our expectations of both from that plant, how many volumes we can get in and it's operating, has been right on line. I think the way we look at it, when we look at the market and some of our competitors and many of our customers look at the market, I think general consensus is that this incremental capacity will be soaked up because of the complex nature of waste streams, because of some of the longer-term tailwinds that we're seeing around reshoring, around infrastructure investments. Certainly, there's a lot of captive incinerator operators out there.
You would think that logic would tell you that now with additional capacity coming online, they'd be interested in making a move like 3M did. I don't think we need that, Michael, to fill the new incinerator or to soak up the capacity. I do think that could be a catalyst here in the next couple of years.
Do you think we stay short, though?
I don't see that. I think that there's plenty of opportunity there. I think we're open for business. I know there's some customers here in the room. We're certainly open for business. We're happy. We welcome kind of all your waste streams that you provide to us. I do think that just so we're on the same page, incineration pricing has never gone backwards. It's never gone backwards. I mean, I don't see that happening no matter what happens with Gum Springs and when our competitors open up their new plant. I'm of the view that this is a constrained industry, and it needs to be priced accordingly.
Yeah, so the generator is still going to seek storage capacity extensions then because the marketplace, even with the new capacity coming on, is still tight.
Yeah, I mean, I think that's a good ask for them. Yeah, again, like everything else, you can delay the clock. You can't stop the clock.
What was it that motivated 3M? Did you all help get them to make that decision, or did they come to that conclusion on their own?
Yeah, I think that 3M had had problems with their incinerator, with their capacity. They were getting fined, and they were looking for a solution. It came down to math, though. We had to prove to them and prove to ourselves that we could do that work for them at a way cheaper than they could do it themselves. That was really the math. Obviously, they wanted to get that plant closed. They were having problems with it keep getting dinged by regulators. It was kind of all worked together with a perfect storm. They could get a good win. They could close that incinerator, and we can become a great partner with them. It's been a true win-win. They've been a great reference for us as we've gone and talked to other potential cap. Now, not as big as 3M.
3M was the biggest.
Yeah, I mean, they were 40,000 tons.
Right. I think my point being, though, is that that relationship has done really well. We've been a win-win for both parties. We've been using them as a reference with others.
The captive incinerator market's roughly a million tons, roughly. Not all of that is applicable to your infrastructure.
That's right.
Is it a couple hundred thousand, potentially, if it would fit you as far as waste streams categories?
It's tough to say for sure. We'd always say that there's an equal amount of what we have capacity in the net worth. There's another equal amount out there in the marketplace. Let's say we have 549,000 tons of capacity. Maybe there's another 500,000 tons out there.
Now you're at a higher number, aren't you?
Yeah, with Kimball opening up.
You have opened Kimball.
Going from.
There's an opportunity that not all of that's going to close. I mean.
That's right.
Some portion would. So there's.
Again, as Eric said earlier, I wouldn't need captive to close to fill Kimball. I mean, that would be helpful. I don't think that.
No, no. I guess.
We have an internal model with reshoring and moving waste through our network to kind of fill that thing up.
There is a realistic prospect that 10%-20% of that over a 10-year period is likely to close. Which means the point of this ask and comment, this market remains tight. There is a prospect here of a tight market for a while.
I would agree with that.
I think that's the observation. Therefore.
I guess I wouldn't worry. I guess to answer the broader question, I'm not worried that when our competitor opens up their plant and our plant's running at a higher capacity than it is this year, there's going to be concern around pricing pressure, which is what I hear from some investors.
OK. You did a lot of M&A on the services side, taking yourself from a high teens, low 20% share to much bigger. How has that changed that business model? Because that's a discretionary action within limits, those services, because they tend to be tied to maintenance cycles. Your turnarounds were an example of that. How has the M&A helped make that a more stable, a little more predictable business that can absorb end market variability on what's happening?
I just think it's a much bigger business than it was when we made a large acquisition in 2021 with HPC Industrial. I think that's allowed us to be a little more price disciplined in the marketplace since we're such a larger share now and to survive the bumps that we're talking about here.
Introduce more end markets.
Of course.
You've diversified the end markets broadly.
Of course. We provide kind of a bigger share of wallet to our customers, which I think has always been helpful. Because these customers are all the same chemical companies who are going and picking up their hazardous waste.
Right. Right. OK. When you think about M&A as part of a growth strategy in the ES segment, is this more of a now fill around the edges, or is there something big out there that you should do?
Yeah, I mean, I think when we think about it on the ES side, it's looking at there's probably a few geographies out there that we could fill in. I think it's looking at areas where we can continue to increase our capabilities around certain of the nature of our assets. Obviously, we have a new incinerator, but there's lots of other disposal activities that we undertake. It's maybe plugging in some of those hard-to-replicate permitted sites in some other areas, whether that be wastewater or something like that. Ultimately, on the ES side, Michael, we're really looking for things that can feed the beast. You've heard us say that before, but really take in more volumes, leverage our fixed costs, and leverage our strong infrastructure. Those are the types of things we're looking for.
If there's adjacencies there that can provide a really nice platform for further growth, we'll look at those things as well.
I've seen the map. I've seen it dynamically in the office. And when you see all the dots in it, all of a sudden you lose sight of the country because it just absorbs the whole thing. But manufacturing and industrial production, industrial activity in this country has changed dramatically. They've engineered out a lot of things as far as waste streams and the like. How have you continually revisited your portfolio and said, OK, well, this was an asset that worked really brilliantly in the 1990s, loses its relevance in the 2000s? Where are we in that life cycle aspect?
I think a perfect example of that is retail. I mean, retail, that was a rounding error that it was, let's say, five years ago, Michael. Now it's 3%-4% of our overall revenue, which is on $6 billion. It's a pretty big number. That's retail just going after containerized waste, bringing it into our network. Not all of it goes into incineration or into end disposal, but that retail business has been growing for us. That's where, because you're right, ultimately, things get engineered out over some period of time. At the same time, there's more waste streams that get the regulators never stop. They're going after these large retailers around putting lithium batteries in the dumpster, if you will. That type of work has been a big win for us.
OK. When you think of the complexity of the waste stream, I got to imagine if I looked at the waste categories between the four characteristics and the listed waste and what was in the actual manifest in 1990 and what I'm looking at in those manifests in 2025, there's a huge difference in what those waste streams are.
I think they're much more complex, to be fair.
Only getting more complex is a fair observation.
Hence the need for our plants to be MACT compliant, to be kind of up to the latest standards to kind of incinerate kind of the nasty of the nasty. That's a technical thing about it.
OK. PFAS.
Sure.
I'm still a believer that PFAS, from a stock market standpoint, is a very investable thesis. Sadly, the market, I think, got ahead of itself in the expectation of the win. Where are you as a company in a PFAS journey?
Yeah, I mean, I think we're definitely in the early innings there. What I would say, Michael, and I think everybody is, to your point, I think it's evolving. It's going to have a really long tail to it. I mean, Mike and I were even sharing some emails as early as yesterday about PCBs. We're still collecting PCBs. When did the rules change around those? I think it's got a very long tail. We, as an organization, I mean, we introduced our total PFAS solution about a year ago this time, which really is a complete suite of services that we can provide to folks from the initial testing upfront, right on through remediation, collection, and ultimate disposal. We believe we're really the only company that can provide that full suite of services at scale.
If you think about revenue levels, we've mentioned $80 million-$100 million is what we did last year. I give a range because there's some aspects of those revenues that have multiple components. Certainly, PFAS is part of that. We see that growing 10%-15%, 20% this year as we gain more traction.
Just to put this in perspective, five years ago, when I was an analyst and I did write that I thought this was an investable thesis, that business was $20 million-$25 million revenue.
That's right. Yeah.
You've tripled it in a five-year period. I mean, the real panacea, though, is ultimately broad-based, comprehensive remediation. DOD is desperate to do this work. What's in the way of that work happening at this point?
I think if you've been following what the EPA and the new administrator, Lee Zeldin, has talked about, he's an advocate. He came out last week, as you may know, with kind of hiring a PFAS leader to wake up every morning thinking about how to remediate PFAS in soil and water and everywhere. Also, they're going to do more update testing once a year versus once every three years. These types of things are winners for us. We feel like you say, well, we need more regulation. I don't know. I think the states are very active. There are over 61 lawsuits in the courts with over 16 different states to push PFAS along faster. It's not just government, when they're going to come up with new regulation. It's happening either way.
To Eric's point, when you think about the journey of PFAS, and you talked about this earlier when we were over our skis, I mean, PCBs, for example, it took over 13 years from the time it was designated as potentially hazardous to be regulated as hazardous. Thirteen years. And then 15 years later, we're still pulling out PFAS out of the ground. We still get $15 million-$20 million of our revenue last year was from PCBs. My point being is that some investors don't have this long of a horizon. I get that. It is a long journey. We know that the same types of things with PCBs, same types of things, cancer and liver disease and other things happen with PFAS. It's at a much greater scale with PCBs. I mean, that is a long-term winner.
I don't see whatever happens with regulators and Zeldin and the administration, I think this is happening kind of regardless. That 20% can grow faster. If it's in soil, we do it today, especially around the military. As you know, Michael, we're doing a test with the EPA and the DOD at our Aragonite, Utah facility that can prove that we can meet the highest standards of compliance. That's coming out in late Q2, early Q3. We're really excited about sharing that with you.
You're doing it. This is your third.
Third test.
Third test to manage VOCs at a level where.
That's right.
Assured destruction.
We think it's going to be, we're hopeful that it's going to be a great kind of great answer and kind of validate. You think about what Zeldin, the EPA, they're trying to partner with business. This is a great example of that.
Just for the record, you succeeded in assured destruction on the level one. You seeded it on level two.
That's right.
When do they actually stop saying, OK, I want you to keep testing it and say?
We're hoping to prove it. We're hopeful this is it. This is going to, if nothing else, show companies who are polluting, who are making this, there is a solution out there.
There's a form of assured destruction.
That's right.
I mean, it's a niche in a good way. Not everybody's going to take their PFAS, concentrated PFAS, and come at you from an incineration standpoint. There's a role for it because there are other disposal options in the hierarchy that make sense.
Sure. Yeah.
You can play in all those.
Yeah. We have permitted landfills. We have deep well.
Deep well injection.
We have it all. I think that if our customers want moving it from one hole to another hole, I'm not sure that helps us a lot. Incineration is the solution.
Right.
Especially in high concentrations.
You can do that within the existing infrastructure and still meet all of your hazardous waste demand.
That's our total PFAS solution that I mentioned earlier.
Yeah. Right. I mean, that's part of the thing that everybody understands. I mean, DOD is desperate not to have another Camp Lejeune class action lawsuit. So they really want to get on with it.
I agree.
I mean, when you work with them, where are they? Because I mean, we have to all remember in the summer of 2023, they promulgated their own disposal hierarchy. The EPA got it worked up, blah, blah, blah. This is a whole new world politically.
I think they're very supportive of moving forward and cleaning up their military bases and their airfields.
They had 700 sites. They've gotten it down to like 275. They were told to go back and retest. Where do you think we land? About 300-350?
Tough to say.
OK.
I think just to put a final point on it along the same lines, though, when you think non-DOD sites, when you think about private sites, if you will, for lack of a better term, I think we're seeing a lot of customers. I know we're seeing a lot of customers that they find some PFAS issue. And they're looking to deal with it now to avoid future litigations. Some of the work that we're seeing come in, irregardless of whatever the regulations are, people are doing the right thing now and getting ahead of it.
OK. I say that to the very end so we did not have to spend more than 5% or 6% of this conversation talking about used oil. The opening question would be, why not position that as there is a minimum level this will always produce at? When it is better, it is better. We will tell you what that is. It will always be X. It is supposed to hopefully return back to it is a $200 million EBITDA business.
Yeah. I got to take a step back, Michael, and explain to the audience a little bit about what we're doing with our SKSS business. We go out and pick up 250 million gallons of used motor oil at automotive dealerships and other industrial services. We process that through nine re-refineries that we take that dirty motor oil and make base oil out of it, which is the building block of motor oil. That process, we take that 250 and make about 150 million gallons of base and blended oil. What's happened is that right after the pandemic, oil prices spiked. There was a crater demand for oil and our profitability because the price of the base oil that we were selling went up quite a bit. We were collecting, we had a $300 million plus year.
Over the past couple.
Profitability.
EBITDA. Over the past couple of years, it's kind of been steadily on a drumbeat down. I think that the mindset at Clean Harbors has always been we have these great re-refineries. To make sure that our cost per gallon is at its lowest level from a cost accounting standpoint, we have to maximize the volume. We never want to have a plant run low because it makes the cost per gallon go up. That's always been the mindset. When we push pricing on our used motor oil collection, at some point, we've lost gallons to the point where the plants couldn't run efficiently. We'd be like, stop, stop. We have to go fill the plants and pay what we need to pay to get the plants full.
That was the mindset since I've been here for 13 years or 12 of those 13 years. Last year, we changed the mindset. We said, you know what? Some of these plants are marginally profitable anyway, especially one in California that we closed and others that we should think about not thinking about it from keep the plants full, but let's keep the price right of our UMO collection and let the gallons kind of fall where they may. If that means closing a plant or two to maintain a level of profitability, that's what we have to do. We kind of locked arms in the canoe. That's what we did. We held price. We did lose some gallons in the fall and the winter. We did lose some gallons. We were concerned. What's happened now is terrific.
The price has stabilized. The industry has followed. We did not really lose as many gallons as we thought we were going to lose. We kind of changed the game a little bit because now what happens is that since we are the biggest player, we started acting like it. That forced them, and we did have to close a plant in California. We shuttled back another one on the East Coast. Ultimately, we feel like we found a good place now where that is going to drive a much higher level, a much more consistent level of profitability than we have in the past. Really just a different mindset.
What's that number?
I think the $140 million we've given now, we beat Q1 by $8 million. We didn't raise guidance for the year because once is not a pattern. It's a mixture. Let's have a couple three-quarters of that before we start claiming victory here. That was a good starting point. I think that showed we didn't lose as many gallons. Actually, coming into April, we're gaining some gallons back that we lost in the wintertime. That really is very positive for us. We're hopeful that we turn the corner on this and stop the drumbeat of negative. Exactly what you said. Keep it the same and grow from there.
OK. So a shameless plug.
Here it comes.
For them, actually. They're not a member, but I'd like to get them to be a member. Castrol is out there and has a booth. I don't actually know the booth number. As soon as you come in, they're going to be on the near wall. That's their partner. Everybody who's in the services side, if you're not actually using re-refined oil as your underlying lubricant, you're spending too much money. They can save you money in your total lubricant equation. Here's the important thing to know is that base oil, you can step on that molecule an infinite number of times. In fact, the process basically makes it purer and purer and purer every single time. You get back to a clear liquid lubricant. You then put the additives in, which gives it a bluish hue.
You know your oil's bad because it turns black because the additive package basically bakes down. Go talk to Castrol. You will be stunned what you could save in money. They are a major provider of that base oil for Castrol and then blend it and make it into your hydrogen carbon.
That was a good plug, That was a good plug.
It was a shameless plug. Sorry.
I appreciate that.
All right. We're at the end of our time. Thanks for coming. I do appreciate it.
Thanks for having us.
I love the bow tie.