Q3 2023 Clean Harbors Inc Earnings Call

Greetings and welcome to clean harbors third quarter of 2023 earnings Conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

To ask a question today. Please press star one on your telephone keypad he.

He may pressed star two to remove yourself from the queue.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Michael Mcdonald General Counsel. Thank you Sir you may begin.

Thank you Christine.

With me on today's call R O Chief Executive officers.

And R. E V P. The Chief Financial Officer are Jews and that is P. P. As Investor Relations, Jim Buckley Blatchford today's column posted on our Investor Relations website, we invite you to follow up.

That is we are discussing today that are not historical facts you're consist all looking statements within the meaning of private Securities Litigation Reform Act of 1995 participants caution not place undue reliance on these days, which reflect management's opinions only as of today November 1st 2023.

Information on potential factors risks that could affect a result is included in our SEC filings. The company undertakes no obligation arise publicly released the results of any revision to the statements made today other than through filing space concerning this for 40 years.

Today's discussion includes references to not yet measures.

<unk> believes that such information provides an additional measurement consistent historical comparison is false.

Reconciliation of these measures the most directly comparable GAAP measures are available in today's news release on our website and the appendix of today's presentation let.

Let me turn the call over to Eric Rosenberg to stop Eric.

Thanks, Michael Good morning, everyone and thank you for joining us.

Turning to our queue three financial performance on slide three or environmental services segment deliberate it's eight consecutive quarter profitable growth in Q3, and we expanded our margins by 120 basis points.

You're experiencing some playing challenges in the quarter demand remains high for those scares assets that support our disposal recycling services.

Within our services businesses are trained and skilled workforce continues to be highly utilized and then demand from customers.

R. S. K S. S second pay some production challenges at a re refineries in the back half of the quarter that led to lower than expected sales volumes and profitability.

We're off pricing significantly improved in late two three with our aggressive shipped to a higher charge for oil throughout Q3, we cycled through our higher priced inventory and we ever return to full production in our plans to start to you for all of this will enable us to end the year strong and that's K I S. S mindful discuss more of this.

And his prepared remarks give.

Some of the challenges arising in both operating segments. We found short of our financial expectations in Q3 about half of the Q3 mess was related to environmental services segment and the other half was related to S. K S. S. We won't get more into the details again and H in a moment, but we believe R Q3 shortfall unrelated this man.

Or market conditions, we believe the outlook for both segments continues to be strong.

Before turning to the segment detail I want to highlight are outstanding safety results safety forms the backbone of our reputation and our relationship with our customers and.

[noise] accused raise a team battle through record breaking summer heat and other adverse weather conditions to deliberate quarterly C. R. I R.

Six two.

Q3 in our history, which keeps us on track to achieve our ambitious annual T R I or cold 0.7 up.

Everyone on our team was having today. Thanks for all you do and keep everyone safe and allow our colleagues to go home Uninjured every day.

Turning to environmental services on slide four second revenue increased 6% due to growth of our services businesses hire dispose of revenue and the addition of Thompson industrial overall.

Overall growth was underpinned by it makes them pricing in volume initiatives and the various business units.

And Q3, our safety cleaned environmental services business, let them away with 14% top line broke.

Sending it's already outstanding 20 twenty-three.

Park Squash services were up from prior year, reflecting the expansion of advocates customer base for its core offerings.

Service revenue was up three per cent and a quarter.

No large scale emergency response events in a limited number of medium sized projects.

Technical services rose slightly ear over a year less than we expected largely resulting from the backup in the incineration network and lower fuel recovery revenue. This year her slash when diesel prices hit $7 a gallon.

While our facilities revenues grew in Q3, we expected a stronger performance, but we were impacted by the additional maintenance days articulate in late September over all our plans had been running extremely hard since the pandemic with a high Mexico, a highly complex waste dreams and significant volumes of containerized waist drawing.

During the quarter, we had to pull forward a plant Q4 turnaround at our El Dorado facility to September to improve performance, which cost us approximately eight to 9 million of aggregate EBITDA between Paris and lost revenue.

We also made some needed preemptive repairs and other critical investments that other locations that yielded about $3 million in additional costs that originally expected we haven't been doing considerable repair work this year at southern plants due to the after effects of the deep freeze in the winter of 2021 and other small freeze earlier this year.

Given these events incinerator utilization came in below or Q3 expectations that 86% flat with the prior year.

Average incineration pricing goes up three per cent and a quarter due to continued pricing initiatives offset by limitations on processing backlogs containerized incineration wasted quarter, mainly related to our planet turnarounds. We view this mixed shifts as temporary.

Plants are running well today the backlog in drunk count both at our sites and within the marketplace remains had extremely high levels, which will thrive more favorable mixed in the coming quarters.

Landfill volume in the corridor was up 19%, we want several large projects, including one western Canada.

Business in landfills also remains healthy.

Industrial services grew five per cent and a quarter as we expanded our presence in the presence in the south east and into some select vertical such as steel industry through this Thompson acquisition.

The team is focused on capturing significant cost synergies through Thompson and our second full year of owning H B C to approve marches in this business are results throughout 2000 twenty-three reflects our success in those efforts.

Trying to overall segment profitability adjusted EBITDA growth was 11% far outpacing revenue as we leveraged our network and vital fixed assets the productivity and efficiency initiatives. We have we have ongoing in both our plants and our service branches are having a positive impact on margins, we are taking up costs.

The counter inflation, but we're also exploring ways to apply data analytics, AI and robotic process automation to make profitability games as we grow the business in the coming years.

Two three we saw R E S margins top 25 per cent.

Solid broke and we see the opportunity to increase our longer term margins, the 30% or higher.

Before handing it off to Mike Let me provide an update on the construction of our Kimble incinerator on slide five 180 million project is excreting the preceding extremely well I recently traveled out to the facility in Memphis, Nebraska Governor Jim Collins, whose administration has been very supportive of this project and the jobs that will bring to the western.

Part of his state governor pulling in the other elected officials sign the final steel beam that was put in place as part of the topping off ceremony in early October.

Operator: Greetings, and welcome to Clean Harbors 3rd quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. To ask a question today, please press star one on your telephone keypad. You may press star two to remove yourself from the queue. As a reminder, this conference is being recorded.

When I visited the site I was impressed by how well all the key components of the planet coming together our team is doing a terrific job keeping us on track and on budget as you can see on the slide the road retail does now in place as as a central steel structure of the plan itself coming.

Michael Mcdonald: It is now my pleasure to introduce your host, Michael McDonald, General Counsel. Thank you, sir. You may begin. Thank you, Christine. Good morning, everyone.

Coming months, we will be moving forward rapidly with construction.

Our initial goal when we watch this project wasn't to have the facility operational in the first half of 2025.

Michael Mcdonald: With me on today's call are our Co-Chief Executive Officers, Eric Gerstenberg and Mike Battles, and our EVP and Chief Financial Officer, Eric Dugas, an SBP of Invest Relations, Tim Buckley. Slides for today's call are posted on our Invest Relations website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meeting of private securities, including litigation or form act of 1995.

Given that we are slightly ahead of schedule today, we are now targeting the new film start date to be prior to that year round 2024.

We were all excited to ship this incinerator and a commercial operation given the demand we continue to see in the marketplace along with what we expect to see in the years ahead from Reshoring national infrastructure investments and other trends were having good discussions with customers about their future needs.

Michael Mcdonald: Participants are cautioned not to place under reliance on these statements, which reflect management's opinions only as of today, November 1, 2023. Information on potential factors and risks that could affect our results is included in our SEC violence. The company undertakes no obligation to revise or publicly release the results of any revision to the statements made today, other than through filings made concerning misreporting period. Today's discussion includes references to non-gap measures. Clean Harvest believes that such information provides an additional measurement, consistent historical comparison of its performance. Reconciliation of these measures to the most directly comparable gap measures are available in today's news release on our website in the appendix of today's presentation.

Well, it's ongoing conversations with owners of captive incinerators, we expect the 70000 tonnes of capacity assembled to be readily absorbed by the marketplace.

With that let me turn things over to Mike to discuss S. K S S and the capital allocation life [laughter].

Thanks, Derek and good morning.

I didn't see kimble come online as rapidly as possible.

It'll be a big one for the company and our stakeholders.

Moving to S. K at that time to slide six this segment underperformed. This border we're seeing much better days here in Q4 on.

On the top line two three S gas as revenue declined 21 per cent, primarily due to lower baseball pricing versus a year ago when supply scared cause he drove pricing to record levels.

Eric Gerstenberg: Let me turn the call over to Eric Gerstenberg to stop. Eric. Thanks, Michael.

We entered you 300 down we enter accused me on a downward trend in pricing and posted pricing dropping 67, and Q2, including the June reduction that impacted us in the first part of two three.

Eric Gerstenberg: Good morning, everyone, and thank you for joining us. Turning to our Q3 financial performance on slide three, our environmental services segment delivered its eight consecutive quarter, profitable growth in Q3, and we expanded our margins by 120 basis points. While we experienced some planned challenges in the quarter, demand remains high for those scarce assets that support our disposal and recycling services. Within our services businesses, our training and skill workforce continues to be highly utilized and in demand from customers.

Subsequently prices stabilize the mid August followed by a second price increase in September give.

Given the rising pricing environment. Some someone would you not take effect until October we're off to a good start to the queue for selling baseball in October at favorable pricing.

Looking at year over year profitability.

After a record few three adjusted if it had a year ago.

Lower pricing and is this your third quarter put pressure on her own adjusted EBITDA margins.

Eric Gerstenberg: Our SKSF segment pays some production challenges at our refineries in the back half of the quarter that led to lower than expected sales volumes and profitability. While volumes were off, pricing significantly improved in late Q3. With our aggressive shift to a higher charge for oil throughout Q3, we cycled through our higher priced inventory and we ever turned a full production in our plans to start Q4. All of this will enable us to end the year strong in SKSS.

In terms of expectations. The biggest factor too I message segment was interruptions do expected production at several of our Abe refineries, including a delayed restart of our California facility.

The Easter drops as having a dual impact of higher than expected plant costs as well as lower volumes pays well and other products for us to sell.

In fact, it's September we sold more than 4 million gallons left the base oil and we had forecasted and we spoke to you in early August.

Eric Gerstenberg: Michael discussed more of this in his prepared remarks. Given some of the challenges arising in both operating segments, we felt short of our financial expectations in Q3. About half of the Q3 miss was related to environmental services segment, and the other half was related to SKSS. We will get more into the details in a moment, but we believe our Q3 shortfall is unrelated as man or market conditions. We believe the outlook for both segments continues to be strong.

These repairs and cause we're all completed in Q3.

And since then our plan to run extremely well and putting a californian facility.

As most of you know we actively manage and we were finding spreading this bitch.

And she's outline I'm previous calls baseball pricing downward trajectory, but much of the year until recently.

[noise] sponsor market conditions.

S. K I S. S team and then Hypervigilant and do an interesting despite infraction we saw it in the first three quarters.

Eric Gerstenberg: Before turning to the segment detail, I want to highlight our outstanding safety results. Safety forms a backbone of our reputation and our relationship with our customers. In Q3, the team battle through record-breaking summer heat and other adverse weather conditions to deliver a quarterly TRIR 0.62, the best Q3 in our history, which keeps us on track to achieve our ambitious annual TRIR goal of 0.7L. To everyone on our team listening today, thanks for all you do and keep everyone safe and allow our colleagues to go home on injured every day.

We continued we have continued to collect the bodies, we need for our plants at the best price impossible to stabilize that spread.

And Q2, we shifted from a pay for oil or P. F O approach to attract for oil model.

[laughter] and Q3, we raised that average CFL, even further while collecting 59 million gallons.

As we look ahead to the fourth quarter, we see both ends up my we were finding spread improve it.

We consumed are higher price inventory in Q3 and will benefit from lower costs inventory being sold in Q4.

Eric Gerstenberg: Turning to environmental services on slide 4, segment revenue increased 6% due to growth of our services businesses, higher disposal revenue, and the addition of Thompson Industrial. Overall growth was underpinned by a mix of pricing and volume initiatives in the various business units. In Q3, our safety clean environmental services business led the way with 14% top line growth, extending its already outstanding 2023. Parts wash services were up from prior year, reflecting the expansion of everyday customer base for its core offerings.

In addition to price increases we saw in the back half of Q3, we're also benefit us in queue for as we tend to sell greater volume and a quarter.

Blended product is another area, where we see incremental salesman that.

This valuable instead of products is derived from processing or baseball and to finish lubricant, such as hydraulic motor such and such as motor well, where I draw fluid.

Blended product I was kind of a 21 per cent of the total output of our plants in Q3.

That's up from 17% a year ago, and 19% of Youtube as he continued to wait customers in this area.

Eric Gerstenberg: Field service revenue was up 3% in the quarter, despite no large scale emergency response events in a limited number of medium-sized projects. Technical services rose slightly year-over-year, less than we expected, largely resulting from the backup of the incineration network and lower fuel recovery revenue this year versus last, when diesel prices hit $7 a gallon.

I can rest volumes, which represent are closed loop approach right eight per cent in Q3, I'm from seven per cent due to Ah.

Remains to increase that blended volumes not only this year Ah Gulf War basis, with both direct and wholesale channels.

Eric Gerstenberg: While our facilities revenue grew in Q3, we expected a stronger performance, but we were impacted by the additional maintenance days, particularly in late September. Overall, our plans have been running extremely hard since the pandemic, with a high maximum of highly complex waste streams and significant volumes of containerized waste. During the quarter, we had to pull forward a planned Q4 turnaround at our El Dorado facility to September to improve performance, which cost approximately 8-9 million of aggregate EBITDA between repairs and loss revenue.

Overall, it's been a challenging year fresh K S. S. The team has made it well through the pricing tournament.

We are on track record collections at favourable CFO levels, and we will deliver annual vines produced in our plants.

Well produced will deliberate record annual vines producing their plants. Despite the Q3 outfits.

Strong before will enable us to conclude Q3 and enter a few four on a positive note in this segment.

Even within a week you three we expect this segment to still deliver I adjusted bitter margin north of 20 per cent this year.

Eric Gerstenberg: We also made some needed preemptive repairs and other critical investments at other locations that yielded about $3 million in additional costs that originally expected. We have been doing considerable repair work this year at our southern plans due to the after effects of the deep freeze in the winter of 2021 and other small freeze earlier this year. Given these events, incinerator utilization came in below our Q3 expectations at 86%, flat with the prior year.

It remains a staff of strong castle generator and a high R. A y C business for us.

One of the ways the intended probably grow essakane backs in the coming years is to upgrade some of our group to outlet intergroup free product. We're excited shared today.

Really think recently concluded a successful scaled pilot project to make room, three oil and one of our plants.

We are confident that will meet the requirements that we will meet the required interview specifications to sell it into the marketplace.

Eric Gerstenberg: Average incineration pricing was up 3% in the quarter, due to continued pricing initiatives offset by limitations on processing our backlog of containerized incineration waste in the quarter, mainly related to our planned turnaround. We view this mixed shift as temporary as the plans are running well today. The backlog and drum count both at our sites and within the marketplace remains at extremely high levels, which will drive more favorable mix in the coming quarters.

The value of qualifying qualifying goofy base oil or scoop two varies over time.

More recently it typically carries a premium.

One to $2 per gallon.

July 2024.

Scale up the project and initially initially produce a few gallons a few million gallons of group three oil and one of our locations.

Will that will that bring that successful program. So some other facilities in the coming years to extract even more value from existing assets.

Eric Gerstenberg: Landfill volume in the quarter was up 19% as we want several large projects, including one Western Canada. Bates business and landfills also remains healthy. Industrial services grew 5% in the quarter, as we expanded our presence in the southeast and into some select verticals such as the steel industry through the Thompson Actress. The team is focused on capturing significant cost synergies through Thompson in our second full year of owning HPC to improve margins in this business.

Going to fly a seven and a capital allocation strategy.

Nothing that happened in Q3 changes my perspective on this.

On the vision 2027 strategy, we laid out and Ah.

[noise] your day in March.

We expect to grow both organically and through acquisition.

A highly leveraged a whole network of assets and people we have seen the positive Margaret improvement that's codamine scale provide for both cost synergies and cross selling.

Eric Gerstenberg: Our results throughout 2023 reflect our success in those efforts. Our plans and our service branches are having a positive impact on margins. We are taking our costs to counter inflation, but we are also exploring ways to apply data analytics, AI, and robotic process automation to make profitability gains as we grow the business in the coming years. In June 3, we saw our ES margins top 25 percent with solid growth, and we see the opportunity to increase our longer term ES margins to 30 percent or higher.

So whether it's pursuing the next pursuing the next kimble liked internal project or a creative acquisitions, we have multiple avenues for growth we.

Continues to assess opportunities to invest in capex to drive organic growth.

On the M&A fun.

A number of getting eggs in Q3 and is always remain highly selected.

P. P C a healthy flow petrol transactions for both operating seconds.

Do gifts will cover a balance sheet in more detail, but I wanted to highlight.

That we're very well positioned to be opportunistic with respect to potential M&A.

A year and we expect to be at our lowest leverage point more than a decade.

Summarize what like you three results did not meet your expectations. We view this be the factors behind that performance short term in nature.

Eric Gerstenberg: Before handing it off to Mike, let me provide an update on the construction of our Kimballon Cinerator on slide 5. The 180 million project is exceeding extremely well. I recently traveled out to the facility and met with Nebraska Governor Jim Pellan, who the administration has been very supportive of this project and the jobs it will bring to the western part of his state.

We expect R E S segment to deliberate to continue.

Continuing to deliver profitable growth in my view improvement in the coming quarters.

We see high demand for our services nearly across the board.

With customers value valuing a breath of offerings and strong service and safety record.

Eric Gerstenberg: Governor Pellan and the other elected officials signed the final steel beam that was put in place as part of the topping off ceremony in early October. When I visited the site, I was impressed by how well all the key components of the plan are coming together. Our team is doing a terrific job keeping us on track and on budget. As you can see on the slide, the rotary kiln is now in place as is the central steel structure of the plan itself.

We expect Egypt for businesses within the Sks within the segment to achieve problem profitable growth in 2023.

Our backlog of waste positions us to close out the year on an upward trajectory.

The plans are running great and the project pipeline within the Es segment also remains healthy as spending on reassuring government infrastructure and regulatory driven clean up to continue.

Eric Gerstenberg: In the coming months, we will be moving forward rapidly with construction. Our initial goal when we launched this project was to have the facility operational in the first half of 2025. Given that we are slightly ahead of schedule today, we are now targeting the new kiln start date to be prior to the year end of 2024.

Well, then sks S. We may we remain focused on controlling costs across the business, particularly on the collection side I'll still insurance cause it's supply and that's nice output at re refineries.

Give them more beige oil lubricant, Arkansas today, we affected posed a large spectral increase in profitability in queue for an entry 2024 with possible match up in this business.

Eric Gerstenberg: We are all excited to ship this in Cinerator into commercial operation. Given the demand, we continue to see in the marketplace along with what we expect to see in the years ahead from reshoring national infrastructure investments and other trends. We are having good discussions with customers about their future needs, as well as ongoing conversations with owners of captain of the Cinerators. We expect 70,000 tons of capacity to be readily absorbed by the marketplace.

With that let me turn it over to our CFO Eric dues.

Thank you Mike good morning, everyone.

Turning to the income statement on July 9th.

Hard to make out like Q3 was a challenging quarter for us compared to expectations, particularly on the plant site.

But the overall demand picture remains strong.

R. E. S segment continued to achieve profitable revenue growth, which essentially offset the year over year hotline declined S. K F. S that was driven by lower base oil pricing and resulted in Q3 revenues that were essentially flat with a year ago.

Mike Battles: With that, let me turn things over to Mike to discuss SKSS and the capital allocation. Thanks Derek and good morning. We are all excited to see Kimball come online and rapidly as possible. It will be a big win to the company and our stakeholders. Moving to SKSS on the slide 6, this segment underperformed the squatter, but we are seeing much better days here in Q4. On the top line, Q3 SKSS revenue decline is 21%.

It's Eric Gerstenberger outlined at the start of the call adjusted EBITDA came in below our expectations at $255 million compared with 308.6 million in Q3 last year.

Mike Battles: I primarily do the lower basal pricing versus a year ago, when supply scarcity drove pricing to record levels. We enter Q3 on a downward trend in pricing, with posted pricing dropping 60 cents in Q2, including a June reduction that impacted us in the first part of Q3. Marie. Subsequently, prices stabilized in mid-August, followed by a second pricing increase in September. Given the rising pricing environment, some of which did not take effect until October, were off to a good start in Q4, selling baseball in October at favorable pricing.

Our adjusted EBITDA margin and a quarter with 18.7%.

Gross margin in the quarter was 30.9%.

Lower than Q3 of last year due to large year over year decline in S. K S. S.

Ah, Yes, gross margin was up 190 basis points that 33.2% as we offset inflation in wage pressures with appropriate price increases and realized cost savings.

We remain focused on increasing productivity and operational efficiencies along with pricing initiatives with any yes.

Mike Battles: Looking at year-over-year profitability, after a record Q3-adjusted dividend a year ago, lower pricing in this year's third quarter for pressure on our adjusted dividend and margins. In terms of expectations, the biggest factor to our medicine segment was interruptions to expected production at several of our 8 re-refineries, including a delayed restart of our California facility. These disruptions had the dual impact of higher than expected plant costs, as well as lower buying of baseloyl and other products for us to sell.

Continued to drive margin expansion.

SG&A expense as a percentage of revenue was 12.5% in Q3 due to higher I T investments and related professional fees.

For the full year, we know anticipate being in the mid 12% range.

Overall, the team has done a good job managing SG&A head count, while battling inflation and wage pressures.

Depreciation and amortization in Q3 increased to 93 million consistent with our expectations and reflecting the Thompson acquisition completed earlier this year.

Mike Battles: In fact, in September, we sold more than 4 million gallons left of baseloyl than we had forecasted when we spoke to you in early August. These repairs and costs were all completed in Q3, and since then, our plants have run extremely well, including our California facility. As most of you know, we actively managed the re-refining spread in this business. As we outlined on previous calls, basel pricing was on a downward trajectory from much of the year until recently.

For 23, we continue to anticipate depreciation and amortization in the range of 350 to 369.

Income from operations in Q3 was $154.4 million.

Yeah I'm from prior year as expected given lower overall profitability.

Net income for the quarter was $91.3 million.

Mike Battles: In response to market conditions, the SKS-Steen has been hyper-vigilant in addressing the spread-compression we saw in the first three quarters. We continued to collect the volumes we need for our plants as the best pricing possible to stabilize that spread. In Q2, we shifted from a pay for oil or PFO approach to a charge for oil model. In Q3, we raised that average CFO even further, while collecting 59 million gallons. As we look ahead to the fourth quarter, we see both ends of our re-refining spread improvement.

And earnings per share a one dollar and 68 cents.

Turning to the balance sheet highlights on fly 10 cash.

Cash and short term marketable securities at quarter end, where 420 million.

Approximately $94 million from June.

And looking at our portfolio remain very comfortable with where we sit today.

He ended this past quarter with that of 2.3 billion and with no currently outstanding amounts coming due until 2027.

Leverage on a net debt to EBITDA basis as of September 30th remained at approximately two times.

Mike Battles: We consumed our higher price inventory in Q3, and will benefit from lower cost inventory being sold in Q4. In addition, the two price increases we saw in the back half of Q3 were also benefit us in Q4, as we tend to sell greater volumes in the quarter. Lendon products is another area where we see incremental sales momentum. This value-lighted set of products is derived from processing our basel oil into finished lubricant such as hydraulic oil or hydraulic fluid.

And a weighted average pre tax cost of debt at the end of Q3 was 5.4% with approximately 85 per cent of our portfolio.

That fixed rates.

Starting to cash flows and fly 11th <unk>.

Cash provided from operations in Q3 is 221 million.

Cutbacks none of disposals, there's 105.4 million in the corner.

From prior year, she was at Kimble project, which accounted for 22 million a R Q3 capex.

Mike Battles: Lendon products sales accounted for 21% of the total output of our plants in Q3, as of from 17% a year ago, and 19% in Q2, as we continue to win customers in this area. Our direct volumes, which represent our closed loop approach, were at 8% in Q3, up from 7% in Q2. Our goal remains to increase our blended volumes, not only this year, but on a go-for basis, with both direct and wholesale champs.

And a quarter adjusted free cash flow was 114.7 year old.

For 2023, we continue to expect capex to be in the range of $400 million to $420 million.

Full year spend I mean, kimble incinerator now expected to be approximately 85 million.

In addition to that project, we continue to see opportunities to invest in other areas of the business.

Mike Battles: Overall, it's been a challenging year for SKSS, but the team has managed well through the pricing terms. We are on track record collections at favorable CFO levels, and will deliver annual volume produced in our plants, will deliver record annual volume produced in our plants to fight the Q3 upsets. Strong Q4 will enable us to conclude Q3 and enter Q4 on a positive note in this section. Even within a week, two, three, we expect this segment to still deliver our adjusted bitter margin north of 20% this year.

The equipment and our transportation fleet.

These investments will minimize third party rental spending as well as men maintenance costs by replacing older equipment and foster growth through those added resources.

We also are continuing to invest in our plants, including winterized nation projects at our incinerators down South.

They're in Q3, we bought back when the 58000 shares of stock at a total cost of $10 million.

Approximately $85 million remains on our existing buyback program.

Mike Battles: It remains a strong cathode generator and a high ROIC business force. One of the ways we intend to properly grow SK events in the coming years is to upgrade some of our Group 2 output into Group 3 product. We're excited to share today that we recently concluded a successful scale pilot project to make Group 3 oil at one of our plans. We are confident that we'll meet the required industries specifications to sell it into the marketplace.

Moving to slide 12 based.

Based on our queue three results in current market conditions for both are operating segments. We are revising our 2023 adjusted EBITDA guidance to a range of 1.005 billion to 1.025 billion with a mid point of 1.015 billion.

Looking at our annual guidance from quarterly perspective, we expect Q for adjusted EBITDA to be approximately 15% above Q4 of 2022 as we expect growth in both of our operating seconds.

Mike Battles: The value of qualifying Group 3 base oil versus Group 2 varies over time. But more recently, it typically carries a premium of $1 to $2 per gallon. Throughout 2024, we intend to scale up the project and initially produce a few gallons, a few million gallons of Group 3 oil at one of our locations. We'll then bring that successful program to some other facilities in the coming years to extract even more value from existing assets.

For full year 2023, adjusted EBITDA guidance will translate into our operating segments as follows.

And environmental services now expect adjusted EBITDA at the midpoint of our guidance increase nearly 15% full year of 2022.

With the Q3 plant challenges behind US, we expect higher production levels in Q4 at demand for our services continues to be robust.

Mike Battles: During the slide seven in our capital allocation strategy, nothing that happened in Q3 changes our perspective on the vision 2027 strategy that we laid out at our investor day in March. We expect to grow both organically and through acquisition, given the highly levered to vote network of assets and people. We have seen the positive margin improvement that economies scale provide for both cost energies and cross selling. So whether it's pursuing the next pursuing the next Kimberlite internal project or accreted acquisitions, we have multiple avenues for growth.

S. K S. S. Now expect full year 2023, adjusted EBITDA at the midpoint of our guidance to decrease in the 40 per cent range due to lower base oil pricing this year versus last.

With the recent uplift with a recent uplift and be base oil pricing that Mike reference, we expect to see a sequential increase in queue for from Q3 that show allow us to close out the year strong.

Mike Battles: We continue to assess opportunities to invest in Catholics to drive organic growth. On the M&A fund, we evaluated the number of candidates in Q3 and as always remain highly selected. We continue to see a healthy flow of potential transactions for both offering seconds.

Ah corporate segment at the midpoint of our guide we now expect negative adjusted EBITDA to be up approximately 9% this year from 2022.

This reflects areas such as increasing insurance costs.

In salaries and benefits as well as impacts of the tops in that position.

Mike Battles: Eric Dugas will cover our balance sheet in more detail. But I wanted to highlight that we are very well positioned to be opportunistic with respect to potential M&A. At your end, we expect to be at our lowest leverage point in more than a decade.

In light of the reduction and adjusted EBITDA. We are also revising unadjusted free cashflow expectation for 2023.

We now expect free cash flow be within the range of 300 to 330 nuts or.

Or a bitcoin a 359.

Mike Battles: To summarize, while our Q3 results did not meet your expectations, we viewed the factor behind our performance as short term in nature. We expect our ES segment to continue to deliver profitable growth and margin improvement in the coming quarters. We see high demand for our services nearly across the board with customers valuing our breadth of offerings and strong service and safety records. We expect each of our four businesses within the ESS segment to achieve profitable growth in 2023.

Let me remind everyone that this year's free cash flow guidance includes approximately $85 million for the Kimble incinerator project.

If you add that spend back the midpoint of our adjustment free cash flow lightens be about $400 million or approximately 40 per cent of our current adjusted EBITDA midpoint expectation.

In conclusion, I want to echo some of the thoughts that both Mike inherit chairs.

We reported results below our expectations nothing that has occurred in the quarter has changed our view and harbors multi year growth prospects.

Mike Battles: Our backlog of ways positions us to close out the year on an upward trajectory. The plans are running great and the project pipeline within the ESS segment also remains healthy as spending on reshoring government infrastructure and regulatory driven cleanup continues. Within ESS, we remain focused on controlling costs across the business, particularly on the collection side, also ensuring expensive supply and maximize output at our re-refining.

Despite the challenges in the quarter R. E. S segment delivered top line growth and leverage that to achieve meaningful margin expansion and increased EBITDA.

And R. S. K S. S segment I re refineries are all back running well again.

And Ah, California refinery is back on line we.

We expect a good cue for.

Leaving us to exit twenty-three with positive momentum.

Mike Battles: Get more bass oil and lubricant marketers today. We've expected post a large spectral increase in profitability in Q4 and enter 2020 bore with possible momentum in this business.

Looking ahead, we were maintenance Susie aspect about our growth prospects in both segments.

Our sales and project pipelines remain healthy.

And finally, well I appreciate the fact that analysts and investors want to ask about our expectations for 2024.

Eric Dugas: With that, let me turn it over to our CFO, Eric Dugas. Thank you, Mike, and good morning, everyone. Turning to the income statement on slide 9, as Eric and Mike outlined, Q3 was a challenging border for us to correct expectations, particularly on the plant side. But the overall demand picture remains strong. Our ES segment continued to achieve profitable revenue growth, which essentially offset the year-over-year top-line decline in SKSS that was driven by lower bass oil pricing in resulting in Q3 revenues that were essentially flat with a year ago.

Consistent with our historical practices, we are not providing guidance at this time as we have a budgeting process that we need to complete first.

I will say that there is nothing in our 2023 performance or in the market today.

That leads us to meaningfully deviate from the 2024 expectations that we assumed and our vision 2027 organic growth model that we introduced back in March.

And it might mentioned, we also intend to remain opportunistic on the acquisition front compliment our organic growth.

Eric Dugas: At the Eric Gerstenberg outline of the start of the call, adjusted EBIDOT came in below our expectations at $255 million, compared with the 308.6 million in Q3 last year. Our adjusted EBIDOT margin in the quarter was 18.7%. Gross margin in the quarter was 30.9%. Lower than Q3 of last year due to large year-over-year decline in SKSS. While ES gross margin was up 190 basis points to 33.2%, as we offset inflation, in-wage pressures with appropriate price increases in realized cost sales.

That Christine please open up the call for questions [noise].

Thank you.

Even though I became.

And answer session.

Yeah.

Question Today, Please press star one on your telephone keypad.

Total indicate your line is my question.

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Sounds like it's going to be stinker equipment.

One moment, please lollipop for questions.

Thank you Oh first question comes from the line of Tyler Brown.

With your question.

Hey, good morning.

Eric Dugas: We remained focused on increasing productivity and operational efficiencies, along with pricing initiatives within ES, to continue to drive margin expansion. SGNA expense as a percentage of revenue was 12.5% in Q3 due to higher IT investments and related professional fees. For the full year, we now anticipate being in the mid-12% range. Overall, the team has done a good job managing SGNA headcount while battling inflation in-wage pressures. Appreciation and amortization in Q3 increased to 93 million, consistent with our expectations and reflecting the Thompson acquisition completed earlier this year.

I got him when he.

Hey, so I just want them I want to kind of make sure I have it. So I know that you didn't give specific Q3 guidance.

You, obviously had a number of implied in your prior midpoint. So can you guys kind of walk us through the Delta of call. It. It's 255 persons maybe the two I'm Gonna say 285 ish.

Likely in that prior guidance, so basically how does that $30 million breakdown.

Eight to 9 million from Arkansas 3 million from some other incinerators in in the restaurant and that's K S. S.

Is that a good way to break break it down if you need any help there would be helpful.

Yeah sure time, this is Mike and I'll I'll answer the question. So the way it broke down from what we said.

Eric Dugas: For 20 credit free, we continue to anticipate appreciation and amortization in the range of 350 to 360 million. Income from operations in Q3 was 154.4 million, down from prior year as expected, given lower overall profitability. Net income for the quarter was 91.3 million, resulting in earnings per share of $1.68. 30 to the balance sheet highlights on flight 10, cash and short-term marketable securities at quarter end were 420 million, up to approximately 94 million per June.

You know 90 days ago was about 12 million up the mess was in the environmental services segment.

As Eric Mexican prepared remarks centered around pulling a turnaround for it around along with some other challenges some preemptive things we get other the other plants about 13 million up and this is in the S. K S. S segment and that has a double impact of a plant going down late in the quarter.

As well as so that's you know coffee additional cost you get back online as well as the lost revenue from from not being able to sell that much oil and two four and as I said in my remarks, we were down 4 million gallons Ah in the month of September which was a surprise to us Alaska.

Eric Dugas: In looking at our debt portfolio, we remained very comfortable with where we sit today. We ended this past quarter with debt of 2.3 billion, and with no currently outstanding amounts coming due until 2027. Leverage on a net debt to EBITDA basis as of September 30 has remained at approximately 2 times. And our weighted average pre-tax cost of debt at the end of Q3 was 5.4% with approximately 85% of our portfolio being at fixed rate.

The last piece was you know corporate cost lots each time it was corporate costs about 5 million. There was a one off projects, we did ah that that cost more than we expected in the corner.

As well as their insurance costs.

And then on.

What did what exactly happened was it a mechanical issue was in a chemistry problem.

I'm just I'm just curious.

[laughter], Yeah silos, there just to clarify that.

Eric Dugas: Grace, Sorry, the cash flow on flight 11, cash provided from operations in Q3 was $220.1 million. CapEx, net of disposals, was $105.4 million in the quarter. Up from prior year, due to the Campbell project, which accounted for $22 million of our Q3 CapEx. In the quarter, adjusted free cash flow was $114.7 million. For 2023, we continue to expect our net CapEx to be in the range of $400 to $420 million. Full year spent on a Campbell incinerator is now expected to be approximately $85 million.

Within S. K S. S. We were starting up we didn't have an accelerated turnaround come forward from Q4, and accuse rates and that's K S. S. What we're doing is we're restarting our California based plant coming on line for baseball. It started that plan up earlier in the year, we were making D. G O.

As we progress through Q3, as we progressed into Q3, we anticipated being online for base oil and generating base oil and selling that volume.

Actually we brought it online delayed in the quarter at the tail end of Q3, which was the effect there along with some other minor.

Production issues that some of the other plans, but the the core issue in an R. S. K S. S segment was bringing on the cute Ah the California refinery later than we expected generating baseball.

Eric Dugas: In addition to that project, we continue to see opportunities to invest in other areas of the business, including equipment and our transportation fleet. These investments will minimize third-party rental spending as well as maintenance costs by replacing older equipment and foster growth through those added resources. We also are continuing to invest in our plans, including winterization projects and our incinerators down south.

Okay. Okay. That's that's very helpful.

The group three pilot program I think might be you said it would be a few million gallons and twenty-four but how how big do you think that could be over the next few years. It seems like a dollar to uplift is a pretty big deal and what's that contemplated in that vision 2027.

Eric Dugas: During Q3, we bought back one of the 58,000 shares of stock at a total cost of $10 million. Approximately 85 million remains that are existing by-back program.

Tyler So yeah, we did we did envision having some rooftree.

Three base oil individually 2027 is kind of how we get you know backs of 2022 levels. How we get back to 300 million plus you know group three baseball was certainly aren't that can we think that gets up to you know depending on how we do it and how many places you can roll out too. It was a very successful pilot it could be 25 million.

Eric Dugas: Moving to slide 12, based on our Q3 results in current market conditions for both our operating segments, we are revising our 2023 adjusted EBITDA guidance to a range of 1.005 billion to 1.025 billion, with a point of 1.015 billion. Looking at our annual guidance from a quarterly perspective, we expect Q4 adjusted EBITDA to be approximately 15% above Q4 of 2022 as we expect growth in both of our operating segments. For full year 2023, adjusted EBITDA guidance will translate to our operating segments as follows.

Gallagher grader and so I I must have you over the next couple of three years that that becomes part of our process and and we're really excited about that pilot and we're gonna make you know we're gonna make a lot of that baseball in 2024 and could probably use it more totally to make blended while ourselves, but definitely something to sell in the marketplace and and we're excited about that.

Okay. Good and my my last one here I know there will probably be some talk about demand it sounds like the man's pretty good but did the auto industry disruptions impact you at all.

Two three.

Eric Dugas: In environmental services, we now expect adjusted EBITDA at the midpoint of our guidance to increase nearly 15% in the full year of 2022. With the Q3 plant challenges behind us, we expect higher production levels in Q4 as demand for our services continues to be robust. For SKSS, we now expect fully year 2023 adjusted EBITDA at the midpoint of our guidance to decrease in the 40% range due to lower base oil pricing this year versus last.

Yep, Tyler Eric answering here, we did have some effective the auto auto strike spokesman ER industrial services business and some of the waste streams that some of those orders suppliers to the auto industry have they they were they were off to three.

Oh, we see that coming back as we get into a queue for here.

Okay. We're just curious there okay I'll turn it over thank you.

Okay got it.

Our next question comes from the line of Michael Hoffman.

Please proceed with your question Hi, good morning.

Eric Dugas: With the recent uplift, with the recent uplift and base oil pricing that might reference, we expect to see a sequential increase in Q4 from Q3 that shall allow us to close out the year strong. Our corporate segment at the midpoint of our guide, we now expect negative adjusted EBITDA to be up approximately 9% this year from 2022. This reflects areas such as increasing insurance costs and salaries and benefits as well as the impacts of the Thomson acquisition.

Your your date reminds me of an old John Wayne movie when they got <expletive> off day or day off [laughter].

I'm wondering Michael what is my current.

So when I look at just to get the numbers right. I mean, the simple math is your land on E. S. At around 1 billion 89 billion 90.

S K S S.

185 million, you've got 259 of corporate overhead. There's your mid point your guidance that that's the neighborhood, we should be and I mean it.

Eric Dugas: The light of the reduction in adjusted EBITDA, we are also reviving on adjusted free cash flow expectation for 2023. We now expect free cash flow to be within the range of 300 to 330 million for a midpoint of 350 million. Let me remind everyone that this year's free cash flow guidance includes approximately 85 million dollars for the Kim Bowen Senator Project. If you add that spend back, the midpoint of our adjusted free cash flow guidance would be about 400 million dollars for approximately 40 percent of our current adjusted EBITDA midpoint expectation.

Yeah, Yeah, maybe a little later in an S. K S S and maybe a little higher in E S. But I think directionally, you're you're right. Okay. So that puts us if I'm a little lighter I'm in Ah 50, 657 million kind of quarter pace.

Can't annualize that because one kids a little weaker.

If I did sort of three times that plus the one kid that puts us in the low two hundreds for next year.

And I know, you're not doing guidance, but we all have the model.

And it would be silly for us to be sent out there with something stupid [laughter].

[noise], Yeah, My I I think as I said in my remarks, we we can't kids kind of full year guidance, but.

Eric Dugas: In conclusion, I want to echo some of the thoughts that both Mike and Eric shared while we reported results below our expectations, nothing that has occurred in the quarter has changed our view of Clean Harbors multi-year growth prospects. Despite the planned challenges in the quarter, our ES segment delivered top line growth and leveraged that to achieve meaningful margin expansion and increased EBITDA. In our SKSS segment, our re-refineries are all back running well again and our California re-refineries back online. We expect a good Q4 enabling us to exit 23 with positive momentum. Looking ahead, we remain enthusiastic about our growth prospects in both segments. Our sales and project pipelines remain healthy.

I think you're kind of within the area code of what we're thinking there.

And and then back to if you know if you have just normal plant activity utilization rates normal maintenance cycles.

You know again, we're sitting here looking at you know something that's like seven 8%.

Segment, EBITDA growth and the yes business, that's not an unrealistic way to think about it as well.

Yeah, no that makes sense to us Ah it and just just just a ground people in that you know for them for the year. If we get the mid point for eat for environmental services. We hit the mid point of our guide we gave this morning.

You know for the year for 20 twenty-three it'll be 9% revenue growth 50.

15% give it a growth and 150 basis points with a margin expansion in 2022.

Eric Dugas: And finally, while I appreciate the fact that analysts and investors want to ask about our expectations for 2024, consistent with our historical practices, we are not providing guidance at this time as we have a budgeting process that we need to complete first. I will say that there is nothing in our 2023 performance or in the market today that leads us to meaningfully deviate from the 2024 expectations that we assumed in our Vision 2027 organic growth model that we introduced back in March. And as Mike mentioned, we also intend to remain opportunistic on the acquisition front to complement our organic growth.

So to think for a moment that you know you know six 7% or whatever number you were talking about Michael about every cross into 2023.

It's only 44 excuse me it doesn't seem that doesn't seem you know crazy for me, Okay. Just to reiterate one other final point each each quarter. This year cause you know Michael outperformance in the segment.

Has outpaced our expectations and we continue to have margin expansion throughout the course of the year. So back up over Spike was saying so very strong outlook in E. S continues.

One of the things and I'm on Oversimplify, this and that and it's not that clean harbors once never doing pricing, but I I think that the industrial waste industry.

Operator: That Christine, please open up the call for questions. Thank you. We will now be conducting a question and answer session. In order to ask a question today, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants who do speak or equipment, you may need to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you.

Stopped at a pricing monitoring coming out of hyperinflation that is different than history.

What what comfort can you give us all that that discipline can.

It didn't get.

Tarnished and three Q are going into for queuing is sustainable you can manage an overall price cause spread and therefore, it's a component of organic growth.

And operating leverage going into 24.

Tyler Brown: Our first question comes from a line of Tyler Brown with Raymond James. Please receive your question. Hey, good morning. Hey, so I just want to kind of make sure I have it. So I know that you didn't give specific queue 3 guidance, but you obviously had a number implied in your prior midpoint. So can you just kind of walk us through the delta of call it this 255 versus maybe the two?

Yeah, Michael is Erick do this I'll take this one and then allow air can like that kinda chime in but you know pricing continues to be a strategic condition of ours in Q3 year Ah for the reasons. We've discussed you know we did have the plenty of challenges. We did have a small Ah next change for some of the streams obedience he come through they're coming back.

Through in October here, but you know I would I would think going forward pricing will continue to remain quite strong and and just to kind of provide a little color in more recent times, you know, where we're seeing kind of early returns on October here, where the volumes are extremely strong Ah. The drug volumes are are kind of an annual high here and really that just gives us.

Tyler Brown: I'm going to say 285-ish. There was likely in that prior guidance. So basically, how does that $30 million breakdown? Was it $89 million from Arkansas, $3 million from some other incinerators, and then the rest was SKSS? Yeah, sure, Tyler. This is Mike, and I'll answer the question. So the way I broke down from what we said, you know, 90 days ago was about 12 million of the myths was in the environmental services segment.

Some good evidence that going forward momentum remains.

And then we got Michael just ER sorry.

[laughter]. Thanks, Micheal just add we're we're gonna successfully hit our targets this year.

Over $200 million, a price increases really Kirk what's been happening with inflation across the business and expand our margins as we go into next year. We we fully anticipate that we'll get a goal north of 150 million and you know that's gotta be tempered a little based on inflation coming down a little bit, but we have.

Tyler Brown: As Eric mentioned, prepared remarks, sent it around, pulling to turn around forward around along with some other challenges, some preemptive things we get at other other plans. About 13 million of the myths is in the SKSS segment. And that has a double impact of a plant going down late to quarter, as well as, so that's, you know, a different cost to get it back online, as well as a lost revenue from, from not being able to sell that much oil in Q4.

We continue to be very regimented on our approach, making sure a price improvement helps us to expand that margins, but also continues to accelerate past our increase of course [noise].

Tyler Brown: As I said in my remarks, we were down 4 million gallons in the month of September, which was a surprise to us. The last piece was, you know, corporate costs, last week's time it was corporate costs of about 5 million. There was some one-off projects we did that cost more than we expected in the quarter, as well as insurance costs. And then on SKSS, what exactly happened? Was it a mechanical issue?

Yeah, Michael and one last point that both of those points are really sound for American Eric but b.

It allows us to get that price is that the sales pipeline remains very strong and I Wanna make sure that people on the call understand that that our sales pipeline has to go into two three it was actually higher than Q2 and higher than all year. So when you think about and pipelines or just bad for their say it looks like they they don't.

Tyler Brown: Was it a chemistry problem? Is this curious? Yes, silos. They're just to clarify that within SKSS, we were starting up. We didn't have an accelerated turnaround, come forward from Q4 in the Q3. In SKSS, what we were doing is we were restarting our California based plant, coming online for Basel. We started that plant up earlier in the year, we were making VGO, and as we progressed through Q3, as we progressed into Q3, we anticipated being online for Basel oil and generating Basel oil and selling that volume.

Sometimes they don't materialize, but make no mistake that we feel good about going allowing us to get that price is the pipeline that allows us to kind of confusion drive that price.

Okay and then this is a nuanced questionnaire took us in the revised EBITDA build up.

Tyler Brown: Actually, we brought it online delayed in the quarter at the tail end of Q3, which was the effect there. Along with some other minor production issues that some of the other plants, the core issue in our SKSS statement was bringing on the Q3, the California refinery later than we expected generating Basel oil.

Yeah, we have about a $16 million dip at the midpoint in net income, but you only have a $10 million in cash flow from operations. So is there a working capital savings that's been captured.

Tyler Brown: Okay, that's very helpful.

Help keep the free cash at the mid point at 315.

Yeah, I think that's that's right Michael we are seeing some some good improvement here and working capital side, and and just looking at kind of trends and how it plays out into the queue for yeah. That's exactly how we were thinking about it and he.

You'll keep you'll be able to hold onto that go into next year. This isn't a timing issue. This is structural.

Correct, Okay free Cashflow next year continues to to look pretty strong.

Thank you for the questions.

Thank you Michael Michael.

Our next question comes from the line of David Mann.

With your question.

Tyler Brown: On the group 3 pilot program, I think Mike, you said it would be a few million gallons in 24, but how big do you think that could be over the next few years? It seems like a dollar to uplift is a pretty big deal, and was that contemplated in that vision 2027? Tyler, so, yeah, we did envision having some Q3 Basel oil in the vision 2027. It's kind of how we get back to 2022 levels, how we get back to 300 million plus, you know, Q3 Basel oil was certainly part of that.

Yeah, good morning, everyone.

I did a question.

Should we read anything into the fact that deferred revenues took down a bit sequentially. Despite the lower than expected utilization and then if you could talk about the price mix in the backlog I think he might've mentioned it but it.

The value sitting there higher than what you're incinerated.

This border.

Yeah. David This is Eric I'll take that yeah, we did have a slight tick down in the deferred inventory. However, based on that pull forward of our turnaround are incineration drum preferred inventory actually went up throughout the quarter. So we are continuing to have significant drum up inventory to work off as we proceed through.

Tyler Brown: You know, we think that gets up to, you know, depending on how we do it and how many plants we can roll it out to, it was a very successful pilot. It could be 25 million gallons or greater, and so I'm of the view over the next couple of three years. That becomes part of our process, and we're really excited about that pilot. And we're going to make, you know, we're going to make a lot of that Basel oil in 2024.

The fourth quarter run into 2024, so that's really makes up the the substantial part of the difference there.

And Dave I'm not sure if you're asking about price I should mix, yeah, it'll pricing and it's in incineration was you know kind of low low single digits. Three I think it was the number but really that's that's your pricing up you know eight or nine and mixed kinda bring it back down to three and so that's really what's happening here so the pricing.

Tyler Brown: We're going to probably use it more internally to make blended oil ourselves, but that would be something to sell in the marketplace, and we're excited about that. Okay, good. My last one here. I know there will probably some talk about demand. It sounds like demand is pretty good, but did the auto industry disruptions impact you at all? Notice when Q3. Yeah, Tyler Eric answering here, we did have some effect of the audit out of strikes both in our industrial services business and some of the waste streams that some of the orders suppliers to the auto industry have they were they were off. But we see that coming back as we get into Q4 here. Yeah, okay, just just curious there.

Tyler Brown: Okay, I'll turn it over.

Operator: Thank you.

[noise] pricing that'd be comfortable with Michael and other other investors that remains very strong going into 2024.

Got it and then a second.

Mid eighties incinerator utilization, you've been recording lately at times in the past that used to be consistently 90 per cent plus is.

It is utilization wouldn't be lower on a secular basis today for some reason or is that extra say five per cent of future opportunity.

Yeah, I'll take that but this is Eric R. Incineration utilization each quarter of this year approved or low point was the first quarter, where we were dealing with some of those freeze issues.

Michael Hoffman: Okay, Danny. Our next question comes from a line of Michael Hoffman with CIFL. Please receive your questions.

Michael Hoffman: Hey, good morning. Um, your your day reminds me of an old John Wayne movie when he got asked off day or day off. Um, good morning, Michael. What is my partner? Um, so when I look at just to get the numbers right. Um, I mean, the simple math is you land on ES at around a billion, 89 billion. 80 SKSS at a billion or 185 million. You got 259 of corporate overhead.

Are expected annual utilization would be in the high eighties on an annual basis. This year will come in that that 80 580, 687% on an annual basis.

The reason that incineration utilization runs in that area and it's because of our focus on really managing significant amount of drums in high values direct burn waste stream, which puts it in the mid point as we look at project business other things that would add onto the utilization such as the things that are out there Ah P fast.

Michael Hoffman: There's your midpoint. Your guidance that that's the neighborhood we should be in, right? I mean, at this, yeah, maybe a little lighter in, uh, in SKSS, maybe a little higher in ES, but I think directly you're, you're right. Okay, so that puts us if I'm a little lighter, I'm in a 56, 57 million kind of quarter pace. You can't analyze it because one Q is a little weaker. But if I did a sort of a three times that plus the one Q, that puts us in the low 200s for next year.

Fraternities or up or the project business coming from Superfund sites, that's where we would leverage that you know rescue incinerator utilization into those.

Very high eighties and into the low nineties area.

Just to clarify for some investors that you know, we we have a 70000 ton incinerator in El Dorado, Arkansas.

Michael Hoffman: I mean, I'm, and I know you're not doing guidance, but we all have the model. And it would be silly for us to be sent out there with something stupid. Yeah, my guy, I think, as I said in my remarks, we can't give kind of full year guidance, but I think you're kind of in the area of code of what we're thinking there. And, and then back to if, you know, if you have just normal plant activity, utilization rates, normal maintenance cycles.

Down day is lost production, we don't we don't assume any any any days in that calculation. So that when we say kinda high eighties. That's that's assuming that's a normal amount of down days and so that's really that I wanted to make sure people understand it will never get to 100 per cent because there will be you know.

We take those planes down twice, a year and for for maintenance and and so those are part of the calculation of utilization.

Michael Hoffman: You know, again, we're sitting here looking at, you know, something that's like seven, eight percent segment, EBITDA growth in the ESPIS, that's not an unrealistic way to think about it as well. Yeah, now that makes sense to us. And just, just the ground people in, you know, for the year, if we hit the midpoint for, for environmental services, if we hit the midpoint of our guide we gave this morning. You know, for the year for 2023, it'll be 9% revenue growth, 15% EBITDA growth and 150 basis points of margin expansion in 2022.

Yep, Thanks, very much guys.

Hi, Thanks, Dave.

Our next question comes from the Kerry ravaged Goldman Sachs. Please proceed with your question.

Yes, hi, good morning, everyone and Oh my goodness.

[noise] streak here starting today [laughter].

[laughter], Yeah, I was wondering who is gonna be.

[laughter].

Okay can I ask on Kimball nice to hear that the appointment was coming on line.

Nice Sweet can you update us on how quickly you would expect to ramp up the earnings power of the plan you know.

Michael Hoffman: So to think for a moment that, you know, you know, six, seven percent or whatever number you were talking about, Michael, about EBITDA growth into 2023. That, 2024, excuse me, that doesn't seem, that doesn't seem, you know, crazy for me. Okay. Yeah, just to reiterate one other final point, each, each quarter this year, as you know, Michael, our performance in the ESPIS has outpaced our expectations. And we continue to have margin expansion throughout the course of the year to back up what was Michael saying.

What time horizon.

Type of numbers, we're talking about.

No, but we're coming closer to that.

Yeah Jere, Eric here as we go into the tail end of 2024 will begin to bring online and processed through many of the backlog of drums. As we go into a 2025, we would expect that we'd be in that 20 to 40000 ton range.

Michael Hoffman: So very strong outlook in ESContinuous. So one of the things, and I'm going to oversimplify this, and it's not that clean arbor was never doing pricing, but I, I think that the industrial waste industry... History, has adopted a pricing mantra coming out of hyperinflation that is different than History. What comfort can you give us all that discipline didn't get tarnished in 3Q or going into 4Q in case sustainable. You can manage an overall price cost spread and therefore it's a component of organic growth and operating leverage going into 24.

Ah, beating through that unit as we go forward and and wrap up from there.

Are are expected overall operational utilization should be in a 50 55000 tons.

Over the course of two to three years.

Oh, that's that's great.

Right.

Then in in terms of.

Just to expand on the group three economics.

Can you just say more if you don't mind do you, what's the capex per gallon.

Just to expand on.

I met opportunities and I don't I don't know if you're willing to venture.

Michael Hoffman: Yeah, Michael with Eric Dugas, I'll take this one and then allow Eric and Mike to chime in but pricing continues to be a strategic initiative ours in Q3 here for the reasons we've discussed. We did have the plan challenges, we did have a small mix change for some of the streams that we didn't see come through that are coming back through in October here but I would think going forward pricing will continue to remain quite strong.

Venture an estimate on you know looking across your footprint.

Where do you think the facilities.

Space capability to roll out if you do decide to roll it out across the portfolio and that scares us.

Yeah, Jerry So I'll start on this is Mike so like I'd say that you know the the Capex required is not in front of Capex to kind of dry food, it's really getting in a high quality base, well I, probably used motor oil to write to derive that group three quality. So that's the challenge right. So you Wanna you Wanna try.

Michael Hoffman: And just to kind of provide a little color in more recent times, you know, we're seeing kind of early returns in October here where the volumes are extremely strong. The drone volumes are at kind of an annual eye here and really that just gives us some good evidence that going forward price momentum remains. All right. Yeah, Michael just go ahead Eric. Sorry. Thanks Michael just to add we're we're going to successfully hit our target this year of over $200 million of pricing increases to really curb what's been happening with inflation across the business and expand our margins.

Make sure you're you're pasturing high quality group, three oil and getting into our plants and allowing it to run an uninterrupted. So like you you get mixed group to do three it gets it gets contaminated so you've gotta be very careful in that so it's really a lot of processed change like maybe some some other things like that I'm not sure it's going to be a huge capex item I don't know.

If you want to add anything to that Oh, I think that's fair amount cause I think we have.

We have some minor changes to do we have the capacity that we've set aside a few of our smaller plants to be able to properly aggregate and run those units dedicated to making a group three and we'll be rolling that out as we go through a 2024 and it's a 2025.

Michael Hoffman: As we go in the next year we we fully anticipate that we'll hit a goal north of 150 million and you know that's going to be tempered a little based on inflation coming down a little bit but we have we continue to be very regimented on our approach of making sure our price improvement helps us to expand in margins but also continues to accelerate past our increases costs. Yeah Michael and one last point that both those points are really found from American Eric but the what allows us to get that price is that the sales pipeline remains very strong.

So so Jerry I don't I don't think it's going to be a huge cost item to get to that answer, but I do think it's gonna be a great a great bridge as he tried to bridge that cause the 300 million I think that's gonna be a great bridge to kind of get us there.

Michael Hoffman: And I want to make sure that people on the call understand that that our sales pipeline has been going to two three who's actually higher than Q2 and the higher has been all year. So when you think about if pipelines are just that they're sales pipeline they don't sometimes don't materialize but make make no mistake that we feel good about going allowing us to get that price is the pipeline that allows us to kind of continue to drive that price.

And can I ask the the Blue Sky scenario, you know how many gallons can we produce.

What what is what's her best friends.

Yeah, we sat on that we got asked that really is 25 million gallons. He thought would be a good goal I'm trying to get to that answer that that could take some work, but that's really that's very reasonable.

Okay. Thank you.

Michael Hoffman: Okay and then this is a nuanced questionnaire to us in the revised EBITDA build up you know you have about a $16 million dip at the midpoint and net income but you only have a 10 million cash flow from operations so is there a working capital savings that's been captured to help keep the free cash at that midpoint at 315. Yeah I think that's right Michael we are seeing some some good improvement here and working capital side and and just looking at kind of trends and how it plays out into Q4 yeah that's exactly kind of how we're thinking about it. And you'll keep you'll be able to hold on to that going to next year this isn't a timing issue this is structural. Correct. Okay free cash flow next year continues to look pretty strong.

Hi, Jerry.

Our next question comes from the line in Delhi.

Please proceed with your questions [laughter], more and more and more [noise].

[noise] Mister K U need to disconnect. The other line you will be getting an echo.

Alright, and we're all sort of life.

11, 11, 11, 11, 11, 11, 11, 11, 11, 11, 11, 11, 11, 11, 11 11 11.

You need to just kinda why don't we move on why are we will proceed and we will will come back to know what okay.

Our next question comes from the line of games or.

Please proceed with your question.

Oh yeah.

Apologies joined the call a little bit late you may have covered this did you say, what what Thompson added and whether you're on track with your expectations for four year, just <unk> 23 for this business.

Michael Hoffman: Okay thank you for the questions.

Michael Hoffman: Thank you Michael.

David Manthey: Our next question comes from a line of David Manthey with Baird. Please proceed with your questions. Hi, good morning, everyone. I have a question. Should we read anything into the fact that the firm revenues took down a bit sequentially despite the lower than expected utilization. And then if you can talk about the price mix in the backlog, I think you might have mentioned it, but if the value sitting there higher than what you incinerated.

Yeah. We were this is Eric dubious Ah speaking, we were on track for to add an incremental about $12 million was the budget, we had a target for Thompson in total and and.

That's kind of what we're trying to us in a year.

Got it and.

David Manthey: This order. Yeah, David, this is Eric. I'll take that. Yeah, we did have a slight take down in the deferred inventory. However, based on that poll forward of our turnaround, our incineration drum deferred inventory actually went up throughout the quarter. So we continue to have significant from that inventory to work off as we proceed through the fourth quarter and into 2024. So that's really makes up the some bench part of the difference there.

Follow up question for me is just I Wonder if you could give us an update on some of the issues you have with respect to Pizza House.

[noise] Yeah. James This is Eric I'll take that we continue to really focus on our total solutions portfolio for P bus.

We've implemented successfully with our field crews being able to perform sandpoint.

We perform analysis within our our lab network for bringing that online.

David Manthey: And David, I'm not sure if you're asking about price, price and mix. So pricing and incineration was kind of low single digits, three, I think was the number. But really that's pricing up eight or nine and mix kind of bringing it back down to three. And so that's really what's happening here. So the pricing that we talked about with Michael and other investors that remain very strong going into 2024.

Help our customers get a baseline understanding of their P fought contrasting contamination levels.

We've seen our pipeline continue to grow around not only drinking water industrial waters as well as remediation events.

And Ah through our network. We we continue to believe along with our incineration testing that we've accomplished that we've shown that incineration destruction high temperature Rockwell normal temperature Ah incineration through our units.

David Manthey: Got it. And then second, and a mid 80s incinerator utilization you've been reporting lately, at times in the past, they used to be consistently 90% plus is is utilization going to be lower on a secular basis today for some reason or is that extra say 5% of future opportunity. Yeah, Dave, I'll take that. This is Eric. Our incineration utilization each quarter of this year improved. Our low point was the first quarter where we were dealing with some of those freeze issues.

Really the preferred method.

And we've communicated that throughout our customer network.

And so our total solutions of a sampling analysis drinking water industrial water remediation transportation disposable leveraging our incineration network, our landfills and our water treatment plants continues to be.

David Manthey: Our expected annual utilization would be in the high 80s on an annual basis this year will come in at that 85, 86, 87% on an annual basis. The reason that incineration utilization runs in that area is because of our focus on really managing significant amount of drums and high value direct burn waste stream, which puts it in that mid point. As we look at project business, other things that would add on to the utilization such as the things are out there as PFAS opportunities are up for the project business coming from super fun sites.

A real successful outlook for us as our pipeline gross.

Is there any change in your expectations with respect to this would you look out over the next year and again I know you're not getting guidance from 24, but just small part of your business I'm. Just wondering if this is moving perhaps more swollen you work you know.

Seeing the attraction with with your customers.

Right.

Yeah, I would say James you know, there's still a much to come with the regulatory parameters to be laid out but I would tell you that our pipeline has grown in that we continue to be optimistic as we go into 2024 above hotel leveraging our total solutions for all of our cut.

David Manthey: That's where we would leverage that incinerator utilization into those very high 80s and into the low 90s area. And just to clarify for some investors that we have a 70,000 ton incinerator in El Dorado, Arkansas, a down day is a lot of production. We don't assume any days in that calculation so that when we say high 80s, that's assuming a normal amount of down days. And so that's really that I want to make sure people understand that we'll never get to 100% because we take those plants down twice a year for maintenance. And so those are part of the calculation of utilization.

David Manthey: Thank you very much, guys.

[noise] summer base, which is quite diverse as you know well well really yields the rewards for us across the network.

Got it thank you.

Hey, Jim just to activate you just Ah Interjecting and make sure I was clear with the answer on on Thompson.

The $12 million incrementally without that's what we were kind of forecasting and the E. S services segment.

Obviously also some incremental kind of corporate related Cos Ah $2 million to $3 million. There. So you're looking at you know a 90 million dollar kind of all the number from Thompson this year.

Got it. Thank you thanks for clarifying that appreciate it and and the constant team and I know, they're listening on the call if they're actually doing a great job denervation, it's going very well how it really.

Jerry Revich: Our next question comes from a line of Jerry Revich, Goldman Sachs. Please Can I ask on Kimmel, nice to hear that the plant is coming online nicely. Can you update us on how quickly you expect to ramp up the earnings power of that plant, you know, over what time horizon, can you hit the type of numbers we're talking about at the analyst day now that we're coming closer to that day? Yeah, Jerry, Eric here as we go into the tail end of 2024, we'll begin to bring online and process through many of the backlog of drums as we go into 2025.

He used with the early days in the Thompson acquisition, So I'm really excited about it.

Our next question comes from the line of Larry solo at T. J.

With your question.

Oh, great. The morning golf, Thanks for taking the questions most of mine.

I.

I do have a couple of hey, Mike I'm looking forward to the New School Boy gone up and they all have to just like it's just a follow up on the Pizza you mentioned sort of you know waiting for some regulatory stuff to come down what what you know can you give us sort of a high level from where we stand today, what can we look for I guess, it would probably be more towards the English or a movie.

24 on the regulatory front in terms of milestones to kind of look for.

Really standards were looking for Larry around remediation, and what contamination and industrial and particularly contaminated soils that would set a baseline to get activity to begin to remediate down to those standards. That's what we're looking for.

Jerry Revich: We expect that we'd be in that 20 to 40,000 ton range beating through that unit as we go forward and ramp up from there. Our expected overall operational utilization should be in that 50 to 55,000 tons over the course of two to three years.

And timeline and that that that.

2024.

Yeah, we would hope that in 2024, we would see some strong movement towards those standards being set so it shows that the regulatory Ah Ah E. P. A said December but they said August thriller. So it's been moved in with your complaint probably you wouldn't want if we wouldn't want to draw lines is fine, but what we've heard is.

Jerry Revich: That's quick start, okay, great.

Jerry Revich: And then in terms of just expand on the group, three economics, can you just say more if you don't mind what's the capex per gallon, just to expand on that opportunity set. And I don't know if you're willing to venture an estimate on, you know, looking across your footprint. And you know, where do you think the facilities have enough space and capability set to roll out if you do decide to roll it out across the portfolio in SKSS?

What kind of mid December, but I heard mid August you know a few months.

Right I think I've heard of late December two and lastly, so I thought maybe that might push into twenty-four but even so hopefully within the next six months or something we'd get something right more yes, some more clarity on it.

Okay.

I'll just on on you know an incinerator.

Consider it a business and you know obviously, you mentioned was still kind of running into a capacity constraints environment.

Jerry Revich: Yeah, Jerry, so I'll start on this as Mike, so I'd say that, you know, the capex required is not a ton of capex to kind of drive through three is really getting a high quality base oil. High quality used motor oil to drive that group three quality, so that's the challenge, right? So you want to try to make sure you're capturing high quality group three oil and getting it into our plants and allowing it to run and uninterrupt it.

You just kind of give us sort of at the state of the Union. There. What you know I know I think the only yeah, but add a little more capacity. This year I dunno, if at all they're small dogs are putting some throughput improvements, but you know kind of where we stand there and it sounds like you guys are confident that you'll have to check.

Your increased volume is.

Still pretty quickly just kind of get what gives us that confidence and I think you mentioned some essentially we're closing captains you can give us an update on that that'd be great.

Jerry Revich: So you get mixed group two and group three, it gets contaminated, so you've got to be very careful on that. So it's really a lot of process change and a lot of maybe some other things like that. I'm not sure it's going to be a huge capex item. I don't care if you want anything to that. Oh, I think that's very much. I think we have, we have some minor changes to do.

Yeah, Larry a few items there first I'd I'd like to clear up the the only it has not been able to bring on an earlier to capacity. This year. So that they're of the same timeline. We are in fact that might be a little bit longer.

What what we're anticipating Ah our pipeline working with our captors continues to be strong be.

Jerry Revich: We have capacity that we've set aside a few of our smaller plants to be able to properly aggregate and run those units dedicated to making a group three and we'll be rolling that out as we go through 2024 and into 2025. So Jerry, I don't think it's going to be a huge capex item to get to that answer, but I do think it's going to be a great bridge. As we try to bridge back to the 300 million, I think that's going to be a great bridge to kind of get it.

Overall, the industry capacity continues to be very challenged as this is why we're investing in Kimball why we've only isn't the best thing, we think that capacity, even with the coming on of both the plant's capacity will be tied will continue to be tied in the years to come.

[noise] captive relationships that we have our outstanding they are Ah east everybody, who has a captive is also a customer of ours and we continue to work closely with them as they changed their waste stream mixed to be able to make sure that we are making adjustments with our plans to be able to support whatever captive.

Jerry Revich: And can I ask the blue sky scenario, you know, how many gallons can we produce, what is what's our best sense? Yeah, we said on that we got asked that earlier 25 million gallons we thought would be a good goal, try to get to that answer. That's going to take some work, but that's really that's a very reasonable goal.

Closures makeup.

Okay, great. Thank you again.

I appreciate the call excellent.

Our next question comes from I Am Toby.

True. It's please proceed with your question.

Thanks, I wanted to start out maybe you could dig into and speak to what the right level of sort of ongoing.

Noah Kaye: And then comes the line of Noah Kaye with Oppenheimer, please proceed with your questions. Mr. Kaye, you need to disconnect the other line, you were getting an echo. [inaudible] all right, all right, all right, all right, all right all right, all right, all right, all right, all right[inaudible] Any change in your expectations with respect to this as you look out over the next year, and again, I know you're not getting guidance for 24, but just small part of your business just wondering if this is moving perhaps more slowly with your, you know, if you change the traction with your customers with respect.

Corporate cost growth there should be Ah you mentioned insurance a couple of times, maybe you could disaggregate some of the influences in their reported quarter year over year, and then Ah help us understanding expectation for a trajectory overtime going forward.

[noise], Yeah sure Toby it's Eric I'll I'll take that one so when you think about kind of kind of a year over year growth that we saw obviously still seeing inflationary pressures on wages and.

And things are obviously I think all companies are seeing that and we're seeing as well. So you see some increases there you also see some increases rubbing investments that we're making in several of our technology platforms. So those are probably the two largest a year over year going back to salary and wages I think the team is not a great job kind of keeping corporate head count.

Very flattish throughout the year absence D. Thompson acquisition. So that's how I would kind of bridge the year over year I think as you go forward. We're certainly trying to keep corporate costs, you know as a flat percentage of of overall revenue I think kind of below that five per cent range.

And then here over a year you know every year, we target you know $100 million worth of cost savings initiatives. Many of those are in the in the corporate area will continue to target those Ah, but you know we we usually target you know a 3% to 4% year over year growth rate on the house.

And just to be fair told me, we continue to make investments in our people. He continued to drive you to absorb health care costs of our employees, which has helped drive turnover down almost 40 per cent down from the 2000 Volunteer Turner were down 35 40 per cent down from 2022 hives and that's really is a testament to us continuing to me.

[noise] investments in our people not just through better wages and benefits better opportunities than a career opportunities and I really think we've seen the benefit of that and they were talking about the safety stats. They talked about how proud we have those have been added.

Direct relationship to watch lowering voluntary turnover because we know in the first six months first year a person's appointment that's when injuries happen. So we're really proud of that it's not free to add these additional costs to our employees are really proud of what we're doing there.

[noise]. Thanks, So we're I don't know.

Plus or minus seven months post.

Get together for Investor day in Chicago area.

What do you feel more comfortable about at this point or over the time period, you outlined does it the organic revenue growth or the margin expansion.

So Toby.

So when we started the year just to get it the level set people you know we had environmental services Guy who did the midpoint of our Guy who he said back in March we said it'd be you know a little over a billion dollars in where we ended if you'd take the midpoint of our guide is is opening almost $1.1 billion. So that's up 80 90 million dollar.

Depending on what Matthews Euro from where we started a year or two and the end of the year.

That really bodes well for 2024 that is you know that's formulating up to 5 million comes from the E. S. So that that type of you know give it a growth you know we're hopeless margin expansion of 150 basis point I mentioned earlier, if somebody were really really excited about.

Noah Kaye: Yeah, I would say James, you know, there's still much to come with the regulatory parameters to be laid out, but I would tell you that our pipeline has grown and that we continue to be optimistic as we go into 2024 about how leveraging our total solutions for all of our customer base, which is quite diverse as you know, will really yield the rewards for us across the network.

Because they think that they're saying that his remarks, you know trying to get to 30 per cent is a good golfer us respect and E. S and you say well we're at 20, well every year at the you know 24 25 per cent and is it really possible to get the get the 30 from that Ah and the answer is if you look at for the last five years, we did it improve almost exactly 500 basis points from two.

18 to the to the mid point of our guide in 2023, so that 500 basis points seems very reasonable, including buying you know business is like H P C and Thompson, which had lower margins going into it and we're really proud about how we'd be able to approve those migrants. There. So when you think about kind of you know that no investor day presentation, we did back in.

Noah Kaye: Thank you. Hey Jim, just to make sure I was clear with the answer on Thompson, the $12 million incrementally, but that's what we're kind of forecasting in the ES services segment. There's obviously also some incremental kind of corporate related costs of two to three million dollars there, so you're looking at, you know, a $90 million kind of all in number from Thompson this year.

Late March you know I'm really much more excited about the growth in the environmental services business does it go into 2024, given all the fact that I just mentioned the good margin expansion because evidence growth and the backlog at the end of the year of a failed pipeline, that's even better than when we started the earth.

Noah Kaye: So thank you. Thanks for clarifying that. Appreciate it. And in the Thompson team, but I know they're listening on the call. They're actually doing a great job. The innovation is going very well. I'm really pleased with that early days in the Thompson acquisition. So we're really excited about it.

Yeah, Toby just to just to build on that a little bit more as Mike articulated R.

Larry Solow: Our next question comes from a line of Larry solo with CJS securities. Please proceed with your questions. Great.

Ah revenue and EBITDA margin expansion in R. E F business throughout the course of the year since our Investor day as Ah has really exceeded our expectations and we continued to see.

Larry Solow: Good morning, guys. Thanks for taking the questions. Most of mine, I do have a couple. Hey, Mike. I am looking forward to the new school boy gone up in the office, too. Just a couple. I guess just a follow up on the piece as you mentioned, sort of, you know, waiting for some, you know, regulatory stuff to come down. What, you know, can you give us sort of a high level from where we stand today?

Growth there, we our pipeline as mentioned earlier by Mike Our pipeline continues to be growing in all areas of our yes business I'd also say, though that when we started the year on the Investor day.

Larry Solow: What can we look for? I guess it would probably be more towards them this year, maybe in 24 on the regulatory front in terms of milestones to kind of look for. Really, standards were looking for Larry around remediation and what contamination and industrial and particularly contaminated soils that would set a baseline to get activity to begin to remediate down to those standards. That's what we're looking for. And timeline, is that the 2024 event?

S. K S. S business, we've been always really looking at that business. It's a it's a strong business. It produces a great Oh I see it's been a challenging year there as we've gotten through the years, we'd go into fourth quarter, where our team has done an outstanding job of switching from a they pay.

For oil scenario to a charge for oil as we exit two three we anticipate a strong fourth quarter and that's suppose well as we go into Ah. The 2024 in years to come to meet and exceed R. S. K S. S and the tidbits, though that we talked about about groups right, where I had it.

Larry Solow: Yeah, we would hope that in 2024, we would see some strong movement towards those standards being set. So the regulatory EPA said December, but they said August early, so it's been moved. Right. You wouldn't want to draw lines of sand, but what we've heard is, you know, kind of mid-December. But I heard mid-August now a few months ago. Right. I think I heard late December 2 and last. So I thought maybe that might push into 24, but even so, hopefully within the next six months or something, we get something at least, right. More, some more clarity. Right. Okay.

Scheduled producing group three or doing that pilot program than where we expect it to be back in the Investor day. So there is and we have some cost opportunities and some plants expansions there as well so wherever more bullish about that business as well, it's it's a nice bar margin business stabilizing up we're actually exiting this year.

<unk>, and where where we feel strong about how old form of 2024.

Thank you.

Larry Solow: And then just, I thought just on the, you know, on incinerated business. And, you know, obviously you mentioned, we're still kind of running a capacity constraint environment. Can you just kind of give us sort of the state of the union there? What, you know, I know I think the only way to add a little more capacity this year. I don't know if all the small guys are putting through some throughput improvements, but, you know, kind of where we stand there.

Thanks to all be pregnant.

Next question comes from John Wyndham with you B S. Please proceed with your question.

Hey, Thanks for taking my questions.

Quick point of clarification.

Did you say the safety clean plants or back to normal operations as of October 1st at some point in the fourth quarter.

Larry Solow: It sounds like you guys are confident that your increased volumes will be filled pretty quickly. Just kind of get what gives us that confidence. And I think you mentioned some potentially more closing captures there. You can give us some of your options up there on that front. Great.

October 1st where where where we've been rocking and rolling we're gonna have we're gonna have a really good October.

I've got that all.

Alright, great. Thank you. Thank you for that and and maybe just the other question I'd be really interested to hear how you're thinking about the higher interest rate environment I would think there's a bit of the asymmetric pain in the market less on you and more on some of your potential M&A targets and if you think that's an opportunity to get that evaluations maybe the next few in some sense you remember that.

Larry Solow: Yeah, Larry, a few items there. First, I'd like to clear out that the only it has not been able to bring on an earlier capacity this year. So that they're the same timeline. We are, in fact, might be a little bit longer than what we're anticipating. Our pipeline, working with our captives continues to be strong. The overall industry capacity continues to be very challenged, as this is why we're investing in Kimbo.

Yeah, John we we think that the increase in interest rates is positive opportunity for us as we look at acquisitions and opportunities Ah. We we think he can bode well, we've as Mike mentioned in his script, we'd have a strong M&A pipeline. We're gonna continue to be opportunistic for both sides of the business.

Larry Solow: We think that capacity, even with the coming on of both the plants, capacity will be tight. We'll continue to be tight in the years to come. The captive relationships that we have are outstanding. They are, everybody who has a captive is also a customer of ours. And we continue to work closely with them as they change their waste-free mix to be able to make sure that we are making adjustments with our plants to be able to support. Whatever captive closures may come.

And we think it bodes well for us cause that's us with more opportunity.

And then John just Eric trying it Ain't here I think I'd be remiss, if I didn't mention you know our balance sheet right now. It's it's very strong I mentioned my prepared remarks kind of art.

That to keep it out of leverage ratio at about two times, it's actually it's gonna end up if we if Q4 plays out like you think it will you know the strongest that's been in a decade. So not only do we think you know we have a great debt portfolio, maybe we're out a little bit of an advantage as you mentioned towards competitors, but we really think we're in a good spot to be able to it'll be aggressive if we need to be.

Larry Solow: Okay, got off great. Thank you again. We should call.

Tobey Sommer: Thanks, Larry. Our next question comes from line of Toby Solmer with with trueist. Please proceed with your question. Thanks. I wanted to start out and maybe could dig into and speak to what the right level of sort of ongoing. Corporate cost growth there should be. You mentioned insurance a couple times. Maybe you could disaggregate some of the influences in the reported quarter year over year and then help us understand an expectation for a trajectory over time going forward.

Great. Thanks.

Every time.

Our next question comes from the line of Noah.

Please proceed with your question.

I'm crossing my fingers here can you hear me clearly Oh first time on the call or not but you know you know it feels like it thanks and thanks for taking my questions.

There was a very basic one so the the turnaround it although that was pulled from four Q into three Q right and so if that was an eight to 9 million hit basic question why doesn't that just rollover to four Q why does it actually impact of for your outlook.

Tobey Sommer: Yeah, sure, Toby. It's Eric. I'll take that one. So when you think about kind of the year over year growth that we saw obviously still seeing inflationary pressures on wages. And things, obviously I think all companies are seeing that and we're seeing as well. So you see some increases there. You also see some increases from investments that we're making in several of our technology platforms. So those are probably the two largest year over year going back to salary and wages.

Yeah, we do we do see improvement there as we go into the queue for some of it will come back but some of it also know what quite frankly, it's kind of like an airline seat you don't get it back as readily as he would like.

Yeah. So so some of that was just kicked out is that a fair assessment. Some of the ways that you hope to internalize was kicked out of the network or is it yet and I think that relates to the deferred revenue question.

Tobey Sommer: I think the team has done a great job kind of keeping corporate head count very flat throughout the year absent the top and acquisition. So that's how it would kind of bridge the year over year. I think as you go forward, we're certainly trying to keep corporate costs, you know, as a flat percentage of overall revenue, I think kind of below that five percent range. And then year over year, you know, every year we target, you know, $100 million worth of cost savings initiatives.

Right Yeah, if somebody that was some of that I guess, you would look at it that will there's gonna continue to be pent up demand more out our customer sites. So within our network as I said earlier, our incineration drum count are deferred inventory of incineration drums went up so it will take us some time to work that down.

As we go through fourth quarter and into 2024 US building a new plant, but we did there is a backlog that it continues to exist probably grow a little at customer sites. So that that we failed to be able to services much as we would've liked in Q3, so there's some additional.

Tobey Sommer: Many of those are in the corporate area. We'll continue to target those. But, you know, we usually target, you know, a three to four percent year over year growth rate on house. And just to be fair, so we continue to make investments in our people, we continue to drive, you know, sort of healthcare costs of our employees, which has helped drive turnover down almost 40% down from the 2000 voluntary turnover down, you know, 35, 40% down in the 2022 highs.

That's up demand there that way, we'll work through it with them.

And we also wanted to make sure that we you know meet Q4 expectations I would say that there's probably a little bit of services Bacon to that number you know you you you come to the food you just flip flopping, what why do you change the number of the answers.

Tobey Sommer: And that's really is a testament to us continuing to make investments in our people not just through better base wages, better benefits, better opportunities, better career opportunities. And I really think we're seeing the benefit of that. As Eric talks about the safety stats, they talk about how proud we are of those. And then as a direct relationship to us lowering voluntary turnover, because we know in the first six months, first year, a person's employment, that's what injuries happen. So we're really proud of that. If not free to add these additional cost to our employees, we're really proud of what we're doing. Thanks.

Starting to streak.

[laughter] I appreciate that and then you know Mike you would put out some good data points around the improving labor situation.

Is that going on an industry wide are industry wide labor constraints at all easing is there sort of a freeing up capacity to serve because certainly that has been a boon to pricing in the space and I just wanted to make sure that.

Tobey Sommer: So we're on a plus or minus seven months post get together for investor day in Chicago area. What do you feel more comfortable about at this point over the time period outline? Is it the organic revenue growth or the margin expansion? So Toby, it's attempting. So when we started the year, just to get the level set people, you know, we had environmental services guided to the midpoint of our guy, but we said back in March, we said to be, you know, a little over a billion dollars.

As we think about the setup for industrial services and field services in particular into next year.

Those sort of favourable constraints to your pricing and market share earn a bathing.

Yeah, No I I'd love to say, it's all us all of US we did it ourselves.

Tobey Sommer: And where we ended if you take the midpoint of our guide is is, you know, almost 1.1 billion dollars. So that's up 80, 90 million dollars, depending on what Matthew's year over, you know, from where we started the year to when the end of the year, that really goes well for 2024. That is, you know, that's 4 billion of the 5 billion comes from the ES businesses. So that that type of you know, even a growth, you know, we're hopeful and margin expansion, 150 basic points I mentioned earlier is something we're really, really excited about because I think that as Eric said in his remarks, you know, trying to get to 30% is a good goal for us in the ES.

I sent that trending why people are definitely definitely definitely coming down.

Still you know scared as an asset making a mistake. We're we're we're replacing you know kind of temporary labor and things like that which has helped our emergency nearby and an industrial services and so I think that I think that that voluntarily turned over coming down with a really proud of that we've made a lot of investment and that I think the industry is coming down a little bit but make no mistake, we're using our people to as an offer.

For temporary labor and that and that's being able to drive margin improvement and everything like that.

Do you think of that yeah, I definitely think no across the board, where we're ahead of our peers and ER, reducing our level of turnover strengthening our employee base the quality of our employees, how we've been firing how we've been attracting retaining them. It's it's the team has just done a nice job across the business and.

Tobey Sommer: And you say, well, we're at 21 year, 24 or 25% and it's really possible to get the 30 from that. And the answer is, if you look at for the last five years, we did improve almost exactly 500 basis points from 2018. To the midpoint of our guide in 2023. So that 500 basis point seems very reasonable, including buying, you know, businesses like HPC and Thompson, which had lower evident margins going into it.

And reducing turnover number of there are so many initiatives that we've been deploying across our employee base to reduce those and I think we're we're we're ahead. Our efforts are ahead of what how the industry I think his performance based on our efforts and it shows up of how we've been able to better service or.

Customers and not have as much backlog in a number of different areas like we've heard that from our customers. So that's good.

Tobey Sommer: And we're really proud about how we've been able to improve those margins there. So when you think about kind of the, you know, the investor day presentation, we did back in late March. You know, I'm really much more excited about the growth in the environmental services business of the going to 2024. Given all the factors I just mentioned, the good margin expansion, the good dividend growth and the backlog at the end of the year of a failed pipeline that's even better than when we started the year.

Mmm and it gets just to close the circle that should give you runway for continued margin expansion in those lines of business right I mean.

Whatever the macro you know does right now you know, it's going to affect that but even if it's sort of a low growth you know industrial production environment you got some internal lovler's here that are gonna continue the carryover.

Tobey Sommer: Yeah, so we just, just to build on that a little bit more, as Mike articulated, our revenue and EBITDA and margin expansion in our EF business throughout the course of the year since our investor day has really exceeded our expectations. And we continue to see growth there. We are pipeline has mentioned earlier by Mike. Our pipeline continues to be growing in all areas of our EF business. I also say though that when we started the year and the investor day, the SKSS business, we've been always really looking at that business.

Yeah, I had a fight an example of that in a row and some of our field services businesses. We had some sub contracting that we were doing to help us with some projects. We've really had a concerted effort to eliminate that sub contracting reduce it with our own employees and that.

Comes with margin improvement and better service to our customers, so and better JC and a lot of other things too.

Alright, thanks very much.

No.

My final question is it.

It's from Michael Hoffman with people. Please proceed with your question.

Tobey Sommer: It's a strong business that produces a great ROIC. We've been a challenging year there as we've gotten through the years. We go in the fourth quarter where our team has done an outstanding job of switching from a pay for oil scenario to a charge for oil as we exit Q3. We anticipate a strong fourth quarter, and that boasts well as we go into the 2024 years to come to meet and exceed our SKSS.

For the follow up.

[noise] protect got an 800 million dollar award to do some he password because there are and that's all engineering related so is there a possibility you've got a role in that.

And then.

On the P class issue, we need to drinking water final rule in December, but we still need the circle of ruling in February as well.

To get those two things behind us before we really break the damn open here isn't on the people outside.

Fair to say, Michael first commenting on the test track that was multiple awards I went out and to really change out the a triple left to another non pufahl related material.

Tobey Sommer: And the tip that we talked about about Group 3, we're going to have a schedule producing Group 3 or doing that pilot program and then where we expected to be back in the investor day. And we have some cost opportunities and some plant expansions there as well. So we're bullish about that business as well. It's a nice bar and margin business, it's stabilizing as we're actually exiting this year. And we feel strong about how it will form in 2024. Thanks, Joey.

We we certainly our team was well ahead of that announcement aligning ourselves with those awardees to be able to work with them directly to provide solutions for the proper disposal without a triple up so nice opportunity to for us to continue to improve.

Ah prove out and also on the circle, Yeah, we did that really happen for us as mentioned earlier it kept us definition Ah completed here hopefully with what's going on in Washington, and some of the turbulence that doesn't get delayed again, but we we really need those standards out there in the marketplace.

John Windham: Our next question comes from a line of John Windham with UBS. Please proceed with your question. Great. Thanks for taking the questions. Just a quick point of clarification.

John Windham: Did you say that the safety clean plants were back to normal operations as of October 1st, or at some point in the fourth quarter? Cover first. We're going to have a really good cover by John. All right. Great. Thank you. Thank you for that.

And then mcdonalds when the blending when you say 25 million gallons, that's taking the direct from 8%, which would be something like 12 million. So doubling the blending of the direct number when you're different it's a different it's.

It's kind of a different answer when I talk about group three you know we're gonna use some of that in our own production next year, but ultimately C. A group three being sold at the age of oil to to third parties and we talked about that growth.

John Windham: And maybe just the other question. I'd be really interested to hear how you're thinking about the higher interest rate environment. I would think there's a bit of asymmetric pain in the market less on you and more on some of your potential M and A targets, and if you think that's an opportunity to get that evaluations over the next year on some potential M and A. Yeah, John, we think that the increase in interest rates is positive opportunity for us as we look at acquisitions and opportunities.

To a much higher number that's that's that's that's the the the 2024 items as more of a car seat for us instead of buying third party you know group three oil to supplement our our baseball to make to make blended lubricants, we're gonna use their own stuff, which is a cost saver in in probably the first half of 2024 and has a grant that up in the back half I think.

John Windham: We, we think it can both well. We, as Mike mentioned in the script, we have a strong M and A pipeline. We're going to continue to be offered to nested for both sides of the business. We think it both well for us presents us with more opportunity.

There's gonna be something to sell.

Yeah, Michael just just to add on that that is when you think about that 25 million gallon number of groups three that will be making an and looking to achieve that goal that Michael articulated that's selling material that we're currently selling at a group to rate and converting it to a group three.

John Windham: And John, just trying to get me to be remiss if I didn't mention our balance sheet right now. It's very strong. I mentioned my prepared remarks kind of our debt to keep it out of leverage ratio about two times. It's actually going to end up if Q4 plays out like we think it will. The strongest has been in a decade. So not only do we think we have a great debt portfolio. Maybe we're a little bit of a advantage as you mentioned towards competitors, but we really think we're in a good spot to be able to be aggressive. Great. Thanks. Thanks, John.

25 million gallons left side of the goal of group two sales, what's selling that as a group three product. That's how you should think of that got it all right. So I can play the two different topics then what's the possible what how much higher can the percent of direct blending go.

It's eight per cent today can it be 20.

Yeah. This has been a challenge for us.

This has been a challenge for a number of years, we continue to work with some large fleets to drive more blended gallons to direct to the closed loop model you know.

Noah Kaye: Our next question comes from a line of NOAAK with Oppenheimer. Please proceed with your question. Okay, I'm crossing my fingers here. Can you hear me clearly? Oh, I forgot about the call. No one. You know, you know, feels like it. Thanks for taking the questions.

I I hate to say that we're closed on some but we always you can work through that and drive that type of growth.

Our our performance over the last couple of months has been improving.

Noah Kaye: And I want to start with a very basic one. So the turn around at Aldo, that was pulled from 4Q into 3Q, right? And so if that was an 8 to 9 million hit, I mean, basic question. Why doesn't that just roll over to 4Q? Why does it actually impact the full year outlook? Yeah, we do. We do. We do see improvement there as we go into Q4. Some of it will come back, but some of it also NOAAK quite frankly is kind of like an airline seat.

As we've shown in consecutive quarters are direct blended oil sales has improved quarter over quarter and there's the teams really done a nice job of continuing to ramp that up and.

Success seems better as we go through each month of the year.

Okay, and then on Kimble, you all had given us a how to lay around the capital spending. So we did 45 and 22 originally we're going to be 90. This year. So are 85, but you're pulling for the opening day. So should we use a 55 for next year.

Noah Kaye: You don't get it back as readily as you would like. Yeah, so some of that was just kicked out. Is that a fair assessment? Some of the ways that you hope to internalize was kicked out of the network? Or is it? Yeah, and I think that relates to the deferred revenue question, right? Yeah, some of that was some of that I guess you would look at it that will there's going to continue to be pens up demand more at our customer sites than within our network.

I I think it's closer to a 45, Michael 45, Okay and then the last question on corporate overhead I mean in some other way to think about is that somewhere between 4.8 and five per cent of revenues and sort of where your corporate ever had it's gonna land on Ah yeah.

Yeah, Okay, Yeah I'd.

Noah Kaye: As I said earlier, our incineration drum count, our deferred inventory of incineration drums went up. So it'll take us some time to work that down as we go through 4Q and into 2024 thus building a new plant. But there is a backlog that continues to exist probably grew a little at customer sites so that we failed to be able to service as much as we would have liked in Q3. So there's some additional pens up demand there that we will work through with them.

Going to be below five are gonna be below five that's the kinda and we're trying to work with that answer okay. Great. Thanks for taking the extra questions.

Right right.

We've reached the end of the question and answer session. Mr. Grisham broke I would now like.

Turn the floor back over kill some closing comments.

Thanks, all of you for joining us today management will be participating in several Y R. A memphis quarter, starting with a pair of industrial conference next week in Chicago.

And we very much look forward to seeing somebody you with those events.

Noah Kaye: And we also want to make sure Noah that we meet Q4 expectations. I would say that there's probably a little bit of a conservative debate into that number. You come to the blue, you just flip-flop it and why you change the number of the answers we want to start an industry. The labor constraints at all easing is they're sort of a freeing up of capacity to serve because certainly that has been a boon to pricing in the space.

Thank you ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines. This time. Thank you for your participation and have a wonderful day.

Noah Kaye: And I just want to make sure that as we think about the setup for industrial services and field services in particular into next year, that those sort of favorable constraints to your pricing and market share are innovating. You know, I'd love to say it's all us. It's all us. We did it ourselves. But I said that trending-wise, people are definitely, definitely coming down. But people are still, you know, scarce assets making them think we're replacing, you know, kind of temporary labor and things like that which has helped our margins in industrial services.

Noah Kaye: And so I think that that voluntary turnover coming down, we're really proud of that. We've made a lot of investments in that. I think the industry is coming down a little bit but making almost big. We're using our people as an asset for temporary labor and that's being able to drive margin improvement. I don't know if you want to add anything to that. Yeah, I definitely think Noah across the board, we're ahead of our peers and reducing our level of turnover, strengthening our employee base, the quality of our employees, how we've been hiring, how we've been attracting, retaining them.

Noah Kaye: The team has just done a nice job across the business and reducing turnover. There's so many initiatives that we've been deploying across our employee base to reduce those. And I think we're ahead, our efforts are ahead of what, how the industry I think is performing based on our efforts. And it shows up of how we've been able to better service our customers and not have as much backlog in a number of different areas.

Noah Kaye: And we've heard that from our customers. So that's good. And I guess just to close the circle, that should give you runway for continued margin expansion in those lines of business. I mean, whatever the macro does right now, it's going to affect that. But even if it's a low growth industrial production environment, you've got some internal levels here that are going to continue to carry over. Yeah, I'd cite an example of that in some of our field services businesses.

Noah Kaye: We had some some some contracting that we were doing to help us with some projects. We really had a concerted effort to eliminate that subcontracting, reduce it with our own employees. And that comes with margin improvement and better service to our customers. And better J.D, and a lot of other things too.

Noah Kaye: All right. Thanks very much. Thank you. Thanks, no.

Michael Hoffman: Our final question is from Michael Hoffman with People. Please proceed with your question. Thanks for the follow-up. Patrick Tech got an $800 million award to do some PFAS work. Is there a MFL engineering related? So is there a possibility you've got a role in that?

Michael Hoffman: And then on the PFAS issue, we need to drinking water, final role in December, but we still need to circle our ruling in February as well to get those two things behind us before we really break the dam open here on the PFAS side. First of all, Michael first commenting on the Tetra Tech. There was multiple awards that went out and to really change out the HRPLEP to another non-PFAS related material.

Michael Hoffman: We certainly, our team was well ahead of that announcement, aligning ourselves with those awardees to be able to work with them directly to provide solutions for the proper disposal of that HRPLEP. So nice opportunity for us to continue to prove out. And also on the circle, yeah, we need that to really happen for us mentioned earlier. If you get that definition completed here, hopefully with what's going on in Washington and some of the turbulence that doesn't get delayed again, but we really need those standards out there in the marketplace.

Michael Hoffman: Okay. And then Mike Battles on the blending, when you say 25 million gallons, that's taking the direct from 8%, which would be something like 12 million, so doubling the blending or the direct number when you say 25. It's a different, it's kind of a different answer. When I talk about Group 3, we're going to use some of that in our own production next year, but also when we see Group 3 being sold as a base oil to two third parties.

Michael Hoffman: When we talk about that role to a much higher number, that's that's the 2024 item is more of a cost save for us instead of buying third party Group 3 oil to supplement our base oil to make blended lubricants. We're going to use our own stuff, which is a cost saver in probably the first half of 2024. And as you ramp that up in the back app, I think there's going to be something to sell.

Michael Hoffman: Yeah, Michael just to add on that, when you think about that 25 million gallon number of Group 3 that we'll be making and looking to achieve as the goal that Michael articulated, that's selling material that we're currently selling at a Group 2 rate and converting it to a Group 3. So 25 million gallons less as a goal of Group 2 sales, what's selling that as a Group 3 product? That's how you should think of that.

Michael Hoffman: Got it. All right, so I conflated two different topics then. What's the possible, how much higher can the percent of direct blending go? If it's 8% today, can it be 20? Yeah, this one's been a challenge for us. My goal is to have been a challenge for a number of years. We continue to work with some large fleets to drive more blended gallons through direct to the closed loop model. You know, I hate to say that we're close on some, but we always continue to work through that and drive that type of growth.

Michael Hoffman: Our performance over the last couple of months has been improving. As we've shown in consecutive quarters, our direct blended oil sales has improved quarter over quarter. And there's the teams really done a nice job of continuing to ramp that up and the success seems better as we go through each month of the year. Okay, and then on Kimball, you all had given us how to layer in the capital spending. So we did 45 and 22.

Michael Hoffman: Originally, we're going to do 90 this year. So we're 85, but you're pulling for the opening date. So should we use a 55 for next year? I think it's close to a 45, Michael 45. Okay. And then the last question on corporate overhead. I mean, is there other way to think about it as a somewhere between 4.8 and 5% of revenues is sort of where your corporate overhead is going to land on a sort of recurrent basis.

Michael Hoffman: Yeah. Okay. Yeah. Our goal is to be below five. Our goal is to be below five as the kind of and we're trying to work today. I'm sure. Okay. Great. Thanks for taking the extra questions. Thank you.

Operator: We've reached the end of the question and answer session.

Eric Gerstenberg: Mr. Gerstenberg, I would now like to turn the floor back over to you from closing comments. Thanks, all of you for joining us today. Management will be participating in several YR events this quarter, starting with the fair industrial conference next week in Chicago. And we very much look forward to seeing some of you with those events. Thank you.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You made disconnect your lines this time. Thank you for your participation and have a wonderful.