Q3 2024 Clean Harbors Inc Earnings Call
Greetings and welcome to the clean harbors third quarter 2024 earnings conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: Brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to turn the floor over to your host Michael Mcdonald General Counsel for clean harbors, Sir the floor is yours.
Michael Mcdonald: Thank you Christina and good morning.
Michael Mcdonald: With me on today's call are our co chief Executive officers, Eric Hirshberg our.
Speaker Change: Our financial performance reflected solid year over year growth in both segments, but overall, it's not quite as strong as we had expected largely result of less favorable pricing environment that affected S. K S. S D.
Speaker Change: D. S segment saw healthy demand for both disposal and recycling services as we again experienced record volumes of containerized waste in the quarter and continued positive pricing momentum.
Speaker Change: Our field service business showed significant topline growth for the second consecutive quarter energized by our March acquisition of Pepsico and.
Speaker Change: In industrial services, the scope and extent of our turnarounds as far this fall was less than what you originally anticipated, resulting in a weaker quarter for that part of our business.
Speaker Change: Within S. K S. S revenue and profits were up from a year ago, but included softer than expected Q3 demand and pricing with more meaningful decline in September.
Speaker Change: We will discuss this in more detail and highlight the steps we are taking in this business.
Speaker Change: As expected corporate costs were higher in the quarter as a result of acquisitions insurance cost and health care expense, partly offset by cost reduction efforts and lower incentive compensation.
Speaker Change: Turning to slide four adjusted EBITDA in the Es segment increased by 15% on a 13% increase in revenue translating to a 40 basis point margin improvement Pepsico accounted for half of the segments hundred and $50 million revenue increase with the remainder from organic growth driven by higher volume and pricing.
Speaker Change: Our services.
Speaker Change: Q3 marked the 10th consecutive quarter of year over year improvement in this segment's adjusted EBITDA margin and its 12th consecutive quarter of year over year growth in adjusted EBITDA.
Speaker Change: <unk> services grew 68% on the top line, primarily reflecting the half ago acquisition.
Speaker Change: Network volumes and pricing drove an 8% increase in technical services revenue.
Speaker Change: Generation utilization increased to 89% from 86% underscoring the robust demand and strong backlog in our network.
Speaker Change: Average pricing and the incinerators rose, 6% as we push through more volume.
Speaker Change: Safety Kleen environmental services has grown steadily grown steadily in 2024 with revenue in this segment up 8% in Q3 parts washer placements were up and services reached a quarter of a million Mark with other core branch offerings also performing very well.
Speaker Change: Turning to slide five our new state of the art incinerate them Kibble, Nebraska is on track to begin accepting hazardous waste in November as we complete final inspections.
Speaker Change: Pleasure of visiting with our team at the facility last week.
Speaker Change: Building, a 70000 ton incinerator is a complex project and the team has done an outstanding job completing the largest construction projects in clean harbors history on time Kimball.
Kimball mirrors, the highly successful incinerator, we opened in Arkansas, and 2017 and will facilitate a smoother flow through our network, while addressing the market's need for more outlets for complex waste streams.
Speaker Change: At an industry level, the recovery of economy post COVID-19 reassuring trends and the closure of captive incinerators, such as three M spotlighted the need for the increased capacity.
Speaker Change: The commercial launch Kimball will help to address the glaring need for capacity in North America as it scales up over the next 12 to 18 months.
Speaker Change: We are confident that our incinerators and our entire disposal network will benefit from today's favorable market dynamics and future outlook, whether that is additional re shoring government spending on programs, including the infrastructure Bill The chips Act and the inflation reduction act or upcoming regulations in areas like PS plus.
Regarding pizza bus customers are seeking permanent solutions and assured destruction of these forever chemicals, whether any concentration form like a triple S firefighting foam or mixed in with contaminated soil sluggish or water.
Speaker Change: Clean harbors offers commercially scalable options today that can provide a full solution for this emerging multibillion dollar marketplace from testing remediation to filtration and disposable disposal, whether incineration or through landfill sequestration.
Speaker Change: In November we will advance our next round of testing to meet the Epa's more stringent emission standards for Pete bus incineration.
Speaker Change: The EPA and the D O D have committed to onsite participation that our incinerator during our scheduled testing we are confident in the outcome of that testing. We believe the data will continue to support our previous testing results that clearly demonstrated that P. Fast can be safely eliminated in our incinerators up to six nine some destruction of efficiency.
Speaker Change: We are hopeful that our testing will help shape. The regulatory framework is expected to be issued next year by government agencies.
Speaker Change: With that let me turn things over to Mike Mike.
Mike Mike: Thank you, Eric and good morning, everyone.
Mike Mike: Turning to slide six the S casting segments not revenues increased 6% inhibitor increased 32%. However, as Eric mentioned the typical seasonal momentum we see in the summer months did not translate into improved demand and better oil better base oil pricing in Q3.
Mike Mike: In particular, we saw softening demand in the market in September pricing significantly deteriorated as we closed out the quarter and that has carried over into Q4.
Mike Mike: With this market backdrop, we ultimately missed their expectations in this segment this quarter by about $11 million.
Mike Mike: The acquisition of noble will help drive wait till collections up 17% to 69 million gallons.
Average collection cost was that a small paper will level in the corner.
Mike Mike: We are balancing our feedstock without re refinery neat I re refineries need with collecting oil at the best possible price.
Mike Mike: Our strategy breath case that has been to minimize volatility based initiatives, including selling more base more blended gallons producing more group three and capitalizing on our capital partnership and opportunity to really differentiate our low carbon footprint products.
In Q3 blended volumes were 21% of our total volumes up sequentially from 19% of the total group too.
It gets you to a group III program is moving forward and we have slipped their next we refinery for full time, who preproduction.
Mike Mike: As it relates to our multi year closed loop partnership we're excited to support BP Castrol and this program.
Mike Mike: We are confident that our sales and market their sales and marketing prowess will.
Mike Mike: Man standing up more sustainable oil and large fleets, we remain optimistic about the potential of this partnership.
Speaker Change: Turning to capital allocation on slide seven our strategy for the growth of the business remains driven by ROIC C and we are well positioned to execute it.
Speaker Change: Given our cash balance low leverage and strong cash flow expected in Q4.
Speaker Change: We continue to look for areas to invest in this business directly with the Kimball incinerator being the best example of that.
But we also see smaller expansion opportunities like.
Speaker Change: What we're doing in the Baltimore site, which we believe we can replicate in other locations in the coming years.
Speaker Change: On the M&A front, we were happy with the early returns that they have to go with noble deal will be completed this year.
Speaker Change: Our pipeline of acquisition candidates is robust as we continue to evaluate numerous opportunities both large and small.
Speaker Change: We are seeking acquisitions that bring permanent facilities are unique assets drive margin improvement through economies of scale and synergies and can increase cash flow conversion and ultimately generate the best shareholder returns.
Speaker Change: We also intend to pursue a buyback plan as we effectively have for the past decade.
Speaker Change: And during the final quarter of Q4 was an overall healthy demand environment in North America, and a positive outlook for a second.
Speaker Change: Customers have come to rely on co Packers for their environmental industrial needs and opportunities to continue to grow through memorable price dynamics, including restoring infrastructure spending piece of that and potential capture pet captive closures.
Speaker Change: On the services side, we remain enthusiastic about the potential for the fields for field service growth through the addition of ethical and its emergency response capabilities.
Speaker Change: We expect technical services and SK environmental businesses to continue to steadily grow and feed volumes into our network.
Speaker Change: Within industrial services, we're taking actions in response to a weak fall turnaround season, and expect to return to revenue growth in that business in 2025.
Speaker Change: With an S case, absolutely will continue to focus on stabilizing this business given the current demand and demand environment for base oil and blended products.
Speaker Change: We're also taking steps to reduce our cost structure, including idling, our California refinery here in Q4.
Speaker Change: We also plan to aggressively bring our collection costs down as we manage our re refining spread.
Certain pricing environment.
Speaker Change: Despite some market challenges related to base oil and refining customers. We expect to end 2024 with strong momentum across our network of disposal facilities and service offerings, giving us a positive trajectory for profitable growth in 2025.
Speaker Change: With that let me turn it over to our CFO Eric Dugas.
Eric Dugas: Thank you, Mike and good morning, everyone.
Eric Dugas: Turning to the income statement on slide nine we.
Eric Dugas: We delivered strong year over year results this quarter, achieving healthy revenue and adjusted EBITDA growth.
Eric Dugas: Along with continued margin expansion.
Mike Mike: As Eric mentioned, we had some challenges in our industrial services business, but overall demand trends for our core business lines continue to be strong.
Mike Mike: But then as handsets we were disappointed that the promising Q2, we delivered did not carry over into Q3.
Mike Mike: The man begin began to wane and the typical seasonal strength in summer pricing deteriorated, particularly late in the quarter.
Mike Mike: On the top line similar to Q2, we achieved a good mix of organic and acquisition related growth.
Mike Mike: As we grew total revenues by 12%.
Mike Mike: More than 160 million year over year.
Mike Mike: Adjusted EBITDA of $302 million was up nearly $47 million from a year ago.
Mike Mike: Our adjusted EBITDA margin in the quarter was 19, 7%.
Mike Mike: 100 basis points year over year as margin improved in both operating segments.
Mike Mike: The continued margin expansion reflects the leverage in the business given the higher revenues generated from our disposal network and SK branch as.
Mike Mike: As we again received a record level of drum waste into our facilities as.
Mike Mike: As well as the sizeable growth in field services that Eric noted.
Mike Mike: SG&A expense as a percentage of revenue was 11, 6% in Q3.
Which is 90 basis points better than the year ago period.
Mike Mike: Combined with our revenue growth the primary factors behind this improvement on a percentage basis, where synergies from acquired businesses and lower incentive compensation.
Mike Mike: For full year 2024, we continue to anticipate our SG&A expense as a percentage of revenue to be in the mid 12% range.
Mike Mike: Depreciation and amortization in Q3 came in as expected at 100 million.
Mike Mike: From a year ago due to acquisitions.
Mike Mike: For 2024, we continue to expect depreciation and amortization in the range of $395 million to $405 million.
Mike Mike: Income from operations in Q3 was $192 3 million.
Mike Mike: Up 25% from the prior year.
Mike Mike: Q3, net income increased 26% versus the prior year to $115 2 million.
Mike Mike: Resulting in an earnings per share of $2.12.
Mike Mike: Turning to slide 10, and the balance sheet.
Mike Mike: Cash short term marketable securities at quarter end were $595 million.
Mike Mike: 100 million for the end of Q2, and 44 million since the year began.
Mike Mike: Our receivables increased by $28 million in Q3 sequentially from Q2.
Mike Mike: And after growing 186 million in the first half of the year largely due to the acquisitions.
We had expected to cut into that balance in Q3, rather than increasing it.
Mike Mike: But the delayed transition of hepa coal onto our billing system.
Mike Mike: Added to our receivables balance.
Mike Mike: They have to go integration onto our billing platform is now complete.
Mike Mike: However, the transition and associated billing delays will impact the timing and extent of cash flows.
Mike Mike: 2024.
Mike Mike: Another item on our balance sheet I wanted to speak to is there a buildup in inventories, particularly as it relates to S. K S F.
Mike Mike: Since the start of the year overall S. K S. S oil inventories have increased $31 million.
Mike Mike: With 10 million of the increase occurring in Q3.
Mike Mike: As demand has softened.
Mike Mike: Volume sold are less than what was expected.
Given this inventory growth and expectations looking forward.
Mike Mike: We made the decision to idle production at our California refinery as Mike referenced.
Mike Mike: We expect our inventory balance in this business to be reduced in the quarters ahead as we work off excess levels currently on hand.
Mike Mike: Yes.
Mike Mike: We ended Q3 with just under $2 79 billion in debt.
Mike Mike: The increase you see on the slide since the beginning of the year reflects the 500 million and incremental term loan we issued to finance hepa co and noble acquisition earlier this year.
Mike Mike: Our balance sheet remains very healthy.
Mike Mike: Our net debt to EBITDA ratio was two one times at quarter end.
Mike Mike: With no material debt amounts coming due until 2027.
Mike Mike: We also announced in mid October that we repriced our term loan, which will result in approximately $2 million in annual interest savings going forward.
Mike Mike: Our overall interest rate at quarter end was five or six 5%.
Mike Mike: Turning to cash flows on slide 11.
Net cash from operating activities in Q3 was $239 million up.
Mike Mike: Up 9% from prior year.
Mike Mike: Capex net of disposals was $94 7 million.
Mike Mike: Down from prior year and in line with our expectations.
Mike Mike: That number includes $20 million in Q3 spend on the new Kimball incinerator to complete its construction for commercial watch.
Mike Mike: Total year to date spend now sits at just over 60 million for example.
Mike Mike: For the quarter.
Mike Mike: <unk> free cash flow was $144 5 million, which was $30 million ahead of prior year.
Mike Mike: Fell short of our expectations.
Mike Mike: Due to working capital impacts related to the Unbilled, a R and increased inventory levels and S. K S. S that I mentioned a moment ago.
Mike Mike: For 'twenty 'twenty four we continue to expect our net capex to be in the range of $400 million to $430 million.
Mike Mike: This range includes the spend related to Kimball and $20 million for the purchase and expansion of the Baltimore facility.
Mike Mike: During Q3, we bought back 85000 shares of stock at an average price of $236 a share for a total of $20 million range.
Mike Mike: Bringing our year to date total to $30 million.
Mike Mike: Moving to slide 12.
Mike Mike: Based on our Q3 results and market conditions, we are revising our 2024 adjusted EBITDA guidance to a midpoint of $1 one 1 billion.
Mike Mike: Which represents a 10% increase from 2023.
Mike Mike: This guidance assumes approximately $40 million in contributions from Pepsico and approximately $5 million from noble oil.
Mike Mike: We now expect our full year 2024, adjusted EBITDA guidance to translate to our segments as follows.
Mike Mike: In environmental services, we now expect adjusted EBITDA in 2024 at the midpoint of our guidance to increase 13% to 15% from 2023.
Mike Mike: Most of our court yet businesses will close out the year strong with healthy volume growth.
Mike Mike: Our F gas S based on the current market conditions around lubricant and base oil demand corresponding pricing there.
Mike Mike: We are now guiding full year 2024, adjusted EBITDA to decrease 12% to 14% from 2023 at the midpoint of our guidance.
Mike Mike: Oh, we have some promising initiatives underway.
Mike Mike: We are taking the actions that Mike highlighted we expect a softer demand and pricing pressures, we experienced in Q3 to continue into the seasonally weaker fourth quarter.
Mike Mike: Within corporate at the midpoint of our guide.
Mike Mike: We expect negative adjusted EBITDA to be up 12% to 13% compared to 2023.
The year over year increase in corporate primarily relates to costs related to the acquisitions.
Mike Mike: In insurance costs.
Mike Mike: 'twenty 'twenty four we are lowering our adjusted free cash flow expectations for the year.
Based primarily on two factors.
Mike Mike: The higher inventories, we are carrying in our F gas that's business.
Mike Mike: And delayed timing of our cash generation stemming from the integration into our billing systems.
Mike Mike: In both instances we are confident that these impacts are temporary and just a matter of timing.
Mike Mike: We estimate the impact of these issues in this year's cash flows to be worth approximately $70 million in.
And as a result, we are lowering our 2024 of free cash flow range.
Mike Mike: 280 million to $320 million or a midpoint of $300 million.
Mike Mike: In closing the Es segment continues to experience positive market dynamics that drive waste into our network and we are on the cusp of Kimball coming online.
Mike Mike: Our SK branch business is performing well as is our field services business with the addition of <unk>.
Mike Mike: While the fall turnaround season is limiting the growth in industrial services to close out this year.
Mike Mike: We believe we are well positioned in that business as the industry leader.
Mike Mike: For S. K S. S. We remain focused on stabilizing that business after another challenging year.
Mike Mike: And having the right long term strategy in place.
Mike Mike: Overall, 2024 will be a year of strong profitable growth and we are optimistic about our prospects for continued growth into 2025.
Mike Mike: And with that Christine Please open the call up for questions.
Christine: Thank you we will now be conducting a question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Information tone will indicate your line of my question queue.
Speaker Change: You May press star two if he would like to remove yourself from the queue.
Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Yeah.
Speaker Change: Thank you. Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Speaker Change: Hey, good morning, guys.
Speaker Change: I think I'm wondering out of.
Tyler Brown: Hey, So can we first just talk about Q3, the implied Q4 guide I mean boats.
Speaker Change: Well, it seemed weak or but it feels to me that the culprit here is really that's candy and snacks I mean, it seems that the core business is actually tracking.
Speaker Change: Almost dead on with your expectations.
Speaker Change: Since as weaker weakness in base oil markets. I mean is that a basic fair characterization is the entire kind of guide if you will just basically honest, yes, yes.
Speaker Change: Yeah, Tyler I'll start this is Eric I'm, absolutely. What you just said is consistent with the way we looked at the quarter. The Es business across the board was was very strong volumes into our network of containers the needs from those customers to S K environment.
Speaker Change: It'll business.
Speaker Change: <unk> to really meet our expectations and growth both from a margin and a volume standpoint.
Speaker Change: Our facilities network really did an awesome job of handling record volumes of containerized waste once again in our in our quarter. So.
That core business is really strong field services, just a another great quarter that they've put together with the addition of Hep a co working with our legacy field service branches.
Speaker Change: It's just outstanding and we we manage contingent of Madison good projects, so that was great.
Speaker Change: Oh, yes, it was a little challenged as we talked about when you look at the industrial services group for the quarter really what happened is the turnarounds. We have the same number of turnarounds that we expected for the quarter and expect for the poll.
Speaker Change: Second half of the year, however, the scope and size of those turnarounds world, where less but that the refinery market as challenged the crack spreads are down they're cutting back in and they really only wanted to do the work that they needed to do to continue to run and close out the year.
Speaker Change: On the S. K S outside as a as we all talked about in the script that was really challenged by how base oil decline and so we took some aggressive actions there on reducing the throughput of our refinery, but network by by closing and reducing the.
Speaker Change: The throughput of Newark to make sure that we manage down our inventory, but also correct the pricing environment and the team is engaged rapidly changing our P. F O CFO to adjust to that so where we're really confident we're at the low there the breadth of the.
Items that we're implementing across the board to manage the cost of that network.
Speaker Change: And and go forward.
Speaker Change: There were all engaged in doing that.
Speaker Change: Yeah. The only thing I'd add tied or is that is that you know you got it right from where we were in July nothing really changed I mean, as Eric said, you know some parts of the business did better sometimes get a little worse, but the guy who is the guy who wouldn't have changed it that was just the answer it really is it really is isolated to S. K. If that's okay too so I'll ask a bigger.
Speaker Change: Your question about SK.
Speaker Change: Do you really need to collect 69 million gowns, I guess wouldn't it just makes sense to push harder to CFO position scared some volumes away because right now you're effectively oversupply in your own needs and probably having to sell those into the ortho market and then just big picture, though do you think that the actions you're taking you'll be.
Speaker Change: Trending back towards that 200 million in 'twenty, five and asking that says it's not a good way to think about it about it or will it take longer than that.
Speaker Change: Yeah first on the collected gallons Youre dead on Tyler are the actions that were taken is to aggressively push on our P. F O CFO model.
Speaker Change: And that will be at the risk of some of those gallons and we understand that and obviously by the.
Speaker Change: By the reduced production through our Newark refinery that helps to readjust our network. Accordingly, so we're taking that action.
As we go forward into 2025.
Speaker Change: Still in the early parts of establishing budgets.
Speaker Change: For our network.
The 200 million little little bit aggressive to think that we're gonna be back at that number, but we're certainly taking aggressive actions to restate analyze and grow our EBITDA from 2024 results into 2025, yeah, let's all remember that the pricing declines that we saw happen late in the quarter and so that's that's.
Speaker Change: Kind of where it is now I agree with Eric and with you your comments Tyler that we got to get after that but you know the pricing declines happened kind of late and it does take time to kind of adjust the pricing and we talked about that many times and we're doing that as we speak just has to work its way through the system.
Speaker Change: Okay. So there's a lot going on in Afghanistan, but people want to this story. So you know I know you guys talked a little bit about 25, I think you used the words positive trajectory into 'twenty profitable growth. If I go back to ear, Duke as I think but as we start to sketch out 25 can we talk about.
Speaker Change: High level some of the key drivers there it feels like we've got a decent backdrop and yes, you've got Kimball coming online you should stabilize.
Speaker Change: Maybe turnarounds are upbeat that as a tailwind so I threw out some things, but can you guys give us any shape at all around 25, just any broad comments would be super helpful. Thank you guys.
Speaker Change: Yeah. Scott This is Mike I'll start so yeah, obviously it is Eric I'm here to go through a formal kind of front end budget process, you know, but it and it was said in a couple of analyst reports, you know kind of prior to accordion nothing nothing and you read the reports nothing has changed in the back half of the year that changes our positive view of the business and its growth trajectory and assuming.
Speaker Change: Kind of no change in the macro environment, we expect to deliver you know mid single digit organic revenue growth in this business and adjusted EBITDA growth in the mid to high single digits, which is very consistent with what we've said in our Investor day presentations in other comments, we've made publicly right. So nothing nothing changed there.
Speaker Change: And when you think about the breakout between you know kind of E. S. S. K S S and Eric's trying to answer the question a minute ago, you know, yes, it will probably be higher than that and maybe S. K S. S. You know, we got a we got to get that stabilized and probably be lower than that and maybe corporate stays as a percentage of revenue flattish to kind of where we're at is where it is today and so all of those things you can.
Speaker Change: Mentioned, whether it be fast whether it be the rollover effect of some M&A, whether it be you know kind of the catalyst that we seen in this environment you know that that's all very real and very consistent with what we've said publicly many times nothing is changed there. It really is we really have to see it in the refining space are all of the companies are announcing now.
Speaker Change: Now the oils and <unk> pricing has been very very incredible under incredible pressure and that's putting us under pressure you know, we're a price taker in that environment, we have to be faster and that will be faster than that and adjust our input pricing or yamal yamal gallons to get the to get that profitability up.
Speaker Change: Okay, one last one real quick.
Speaker Change: Shouldn't cash flow in 'twenty side be a really good story Kimball drops off Baltimore drops off working capital gets better on a or an inventory work down.
Speaker Change: I couldn't agree more so you're going to have you're going to have some natural things happening you're gonna have kimball spend getting back down to normal levels right. So that that capex is going to go down we're going to obviously have to grow the business, which is also very positive. But then you know the things that Eric Dugas mentioned around some of the billing challenges in Unbilled and some of the inventory challenges there.
Speaker Change: It'll be a good catalyst when do we get them done in 'twenty Q4, 'twenty 'twenty before they roll into 'twenty 'twenty, five, but we're going to get those things working on it we meet regularly.
Regularly on working those numbers down and so that should also be a great talent into 2021 and so I'm really I'm really bullish about castle is I mean, it's hard to hard to budget, but that's even harder to bunch of caseloads that got to see where we land you in 'twenty 'twenty four before we get to that answer, but but again I feel I felt good about it and continue to feel good about our cash flows and they even a little better if there's a rollover of some of these working.
Speaker Change: GAAP, our challenges and you just mentioned.
Speaker Change: Okay. All right. Thank you so much.
Speaker Change: Actually I would expect so.
Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Speaker Change: And thanks for taking the questions.
Wanted to proceed in a similar spirit, the Tyler here and start with the fourth quarter.
Speaker Change:
Speaker Change: You know if we think about yes kind of continuing to have a generally positive outlook.
Speaker Change: It looks like you know we got we got about a 40 bps margin expansion here in <unk> any reason why you know margin shouldn't be up year over year for <unk> I mean, if if the mix is generally favorable little bit softness in I guess would think you would get you know some decent operating leverage.
Speaker Change: For Q1.
Speaker Change: We absolutely will we absolutely will know what I mean.
Speaker Change: Our year to date it was up 100 basis points of margin expansion. If you look at kind of E. S. In total so 40 is a bit of a misnomer because of this the I S.
Speaker Change: Challenges that we just talked about you know I would say, though that if you backed out some of the I S challenges that Dr. Berger mentioned a minute ago, you know the I S margins in Q3 would be up 100 basis points. So I think that's a that's kind of a good story and I think that kind of continues into Q4.
Speaker Change: Yeah, just one other point to add to that to know that as as we've talked about we're starting it up Kimball. This court. So without comes along some startup cost as you see from our deferred inventory, we still have a lot of inventory to work off but we do have that as we move forward through the fourth quarter.
Yeah.
Speaker Change: And I think you know that flips over to to rescue says that.
Speaker Change: There's just a challenge you got to work through here over the next quarter, plus and I'd love some comments around the timeframe to kind of work through this inventory it sounds like the inventory, it's just going to be a little bit higher priced versus the market. So you should take a hit on margins in <unk>, but just you know kind of in your base case planning now how long does it take to work.
Speaker Change: Through the excess inventory and kind of get margins in the segment right sized.
Speaker Change: Yeah I know what this is Eric do gets a good. Good question you know I think when you look at the inventory in this case that says are Gerstenberger mentioned and Mike mentioned as well we did make the decision to close down that California refinery and so that's going to help us right size. The inventory right. There, it's probably gonna take into 2025 to get it back down to the level.
Speaker Change: That we see demand at but you're right that is a that is are the unit costs at that plant is a bit higher than our overall network. So we'll see a little squeezed here in Q4, as we run that inventory through but that should improve next year. So a lot of different reasons, we did that move but all should be we should see benefits into 2025 there.
Speaker Change: Okay, Great I'll stop there and yield the floor.
Speaker Change: Thanks, No effect at all.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of David Manthey with Baird. Please proceed with your question.
David Manthey: Yeah, Hey, guys good morning.
David Manthey: First question in terms of our expectations.
David Manthey: Talk about that 200 million S. Cassez EBITDA, where did that come from you hit that in 'twenty, one and 'twenty two but the run rate you've only had two quarters. Since then and I think you made some comment about looking at your budgets and thinking about it is it is 200, just the wrong number for expectations in that.
David Manthey: Space, even though with the with the group three and some of the circular things Youre doing it seems like you're making headway there, but I'm just making sure that we're our expectations are right.
Speaker Change: David you're probably right in your in your observation.
Speaker Change: End of the year pick the midpoint of our guide we're about a 150 150 range a bit but not you know we're doing a lot of things as you noticed with group three with more blended gallons with the capital partnership we Gotta go harder on on Yamal gallons, we'd have to go we have to we have to really have to kind of look at our cost structure as well yeah, I think that's going to take time.
Speaker Change: To kind of get that profitability up where we're doing a lot of good things around trans costs in other areas, but you know inflation is a bad guy there.
Speaker Change: We are a price taker in the marketplace. So that's something we just got to continue to work our way work our way through I'm, assuming in 2025, we get modestly better I think that that's a that's a fair assumption, but modestly as the word out underlying there.
Speaker Change: Mhm Okay.
Speaker Change: And then on this the hepa co you you've mentioned the adjustment to the free cash flow guidance based on delayed a collection and I'm assuming that was unplanned given that it wasn't in your original guidance can you just.
Speaker Change: Walk us through that.
Speaker Change: Sure Gabe.
Speaker Change: Really it's a it's an issue of timing so the integration into our billing system kind of kicked off in the month of June obviously, theres, a learning curve attached to that and what we began to see kind of in.
In the August timeframe end of July early August was you know a lot of the billing that happened during the integration needed to be corrected we needed to bring in some resources from other areas of the business are to correct those and it's really just a delay in getting the bills out the door. In addition to that you know last quarter, we talked about some some very large.
Speaker Change: Our response jobs in the business that are also adds some complexity and probably add some timing into that but what I want to emphasize is so so to answer. Your question. Yes. It was kind of late to see we didn't we didn't see it there in the last week of July began to come about in August.
Speaker Change: But what I'm happy to say as you know we were able to get a team out of fairly quickly, we're making traction today as we're fully integrated we've kind of got some experts across other areas of the business, helping out the team get caught up and we totally expect you know to get this situation in the Unbilled levels correct as we move into <unk> into <unk>.
Speaker Change: 25, but it is going to delay that the cash generation associated with it so but it is timing.
Speaker Change: And I emphasize there's no kind of bad debt risk or anything like that that we see here.
Speaker Change: Okay and then just finally, a quick one by my calculations you still have over what $500 million on the share repurchase do you have an exact number for us there.
Speaker Change: I'm 25 25.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Thanks, Dave.
Speaker Change: Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Speaker Change: Hi, Good morning. This is Adam EBIT on for Gary Today can you just update us on how your internal inflation. It is tracking and how are you thinking about incinerator hazardous landfill pricing and what.
Speaker Change: What is a more normalized inflation environment.
Speaker Change: Hey, it's Eric do that so I'll take the inflation question and then I'll kick it over to Mike and Eric to talk about generally kind of pricing methodologies, but no I think on the inflation side, obviously, the biggest piece of our cost structure being labor. We're still continue to see probably three years to 4% are inflationary labor there a little.
So the more stubborn than what we'd like to see but that's what we're seeing and then across the rest of the P&L I think we continue to see inflationary pressures on things like maintenance.
Well, maybe there's some other areas, where it's softening. So no I think that wage inflation is probably a pretty good proxy of the entire P. You know.
Speaker Change: But yeah, it's probably three months to 4% is a good number to work with them and that's what we're kind of anticipating here for the next quarter.
Speaker Change: Turning to maybe for pricing, Yeah, and then Jerry just to talk about incineration or landfill.
Speaker Change: We continue to have a very regimented program to drive price improvement across the network as we just talked about on the incineration side, we were able to have 6% price increase across the board we're going to continue to grow with those same single the high digit race across both landfill.
Speaker Change: Incineration drunk pricing our disposal network continues to be robust as we've talked about so we fully expect our pricing to continue to hold.
Speaker Change: And then with that in mind, how are you thinking about the early puts puts and takes on 'twenty 'twenty fives environmental services margin expansion, you should have continuous improvement in contract terms and pricing, but but I think there's also some offsets from you know large discrete projects this year in M&A.
Speaker Change: Putting together get puts and takes can you help us think about that.
Speaker Change: Yeah, you know our long term goal continues to be to get that business to the 30% range and that's what we're going to drive towards we'll continue to see margin expansion throughout 2025, we both have pricing initiatives volume initiatives, but we also have cost initiatives startup of Kimball and what we're gonna be doing there will help us to.
Speaker Change: More efficient within our network as well so all of those will.
Speaker Change: Wow us to continue to expand on the EBITDA margin for our environmental services.
Speaker Change: There's no reason to think Adam that we won't continue to to drive kind of margin expansion in that in that business. You know, we're going to have a little bit of a rollover from Pepsico for the three months, we didnt own. It we're going to have the new incinerator, Eric spoke up we're gonna have we had a fair amount of EBITDA.
Speaker Change: Good growth in EBITDA. This year, that's based on good pricing and good and good leverage of our network and that's going to continue in 2025.
Speaker Change: One thing I would say is that when you were talking about containerized waste being record levels and that is really that provides a lot of leverage into this business, because adding kind of one more trump to our network really is at a very high margin. So that really is I see that as our secret to success here for the first you know first year, even just last couple of years and that continues.
The 'twenty 'twenty, four 'twenty, 'twenty that leverage and that ability to drive that incremental drum, it's really a different thing.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thanks, Adam.
Speaker Change: Our next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question.
Larry Solow: Great. Thank you very much and good morning, everybody.
Larry Solow: You follow ups on.
Larry Solow: On the on the Es segment, obviously, you discussed this a little bit of a just a little more clarification. So EBITDA margin was obviously up a little bit less than it's been in the front half of the year what was that specifically, mostly just to the the shortfall on the industrial piece.
Larry Solow: And it does feel like you're making most of all because I know you really haven't you basically just some guidance by 100 bps. So that's the high end in terms of growth.
Larry Solow: That's sort of my first questions.
Speaker Change: Yeah, Larry Eric here, Yeah, you're right that the I S in kind of a slowdown in and less scope turnarounds that definitely drove the margins and I have down as Mike alluded to I think a few moments ago. You know if you can kind of estimate what the margins would be if you kind of normalize I guess is there the rest of the business as close to triple digits or 100 basis points.
Speaker Change: Margin improvement, so certainly I ask what's the what's the major item there.
Speaker Change: Gotcha, and Kimball I think you mentioned a little bit of startup cost in Q4 could you just remind us sort of the ramp I think you had sort of.
Speaker Change: Actual guidance, but you've.
Speaker Change: You had sort of projected a $25 million $25 million to $30 million EBITDA contribution in 2025 is that kind of still in the ballpark and how does it look as you go out to 'twenty six would you get that.
Speaker Change: Thank you Tara.
Speaker Change: My space.
Speaker Change: Larry This is a this is Eric hirshberg.
Speaker Change: To clarify the number that you just referred to was our expected tonnage throughput of the unit we would plan to.
Speaker Change: To.
Speaker Change: Manish through that unit about 30000 tonnes next year, that's our target.
Speaker Change: And EBITDA contribution there probably in the $8 million to $12 million range.
Got it that's what the peak would be 25 to 30 million, that's a Pete remember I guess right.
That 70000 capacity.
Speaker Change: That's a minus.
Speaker Change: No there wouldn't be over and over.
Speaker Change: As we continue to start up the incinerator and continue to leverage the capabilities. There over the next three years, we will get to that production capacity of 45 50 to 55000 tonnes plus.
Speaker Change: Got it Okay, and then I'll hit because just outside of the integration on the billing platform. It feels like you know the.
Speaker Change: [noise] itself continues to run at or ahead of expectations.
Speaker Change: Any sort of change in the trajectory of integration on the synergy side I know you had kind of.
Speaker Change: Thrown out some numbers when you first made the acquisition is there any change there.
Speaker Change: Sure Larry It's Eric I'll take that one I have a cold in the.
Eric: I have to go acquisition. So far has gone great. We're ahead of schedule and synergies probably quicker to internalize. Some work as we've talked about in the last couple of quarters.
Speaker Change: So the business really is kind of ahead of schedule are.
Speaker Change: We've seen some larger jobs as we talked about in Q2 that that are kind of led into Q3 as well. So we've talked about the two businesses almost being hand in glove and we continue to see that they're working well together.
Speaker Change: And performance has been better it's the integration of the Unbilled, that's probably the one sore spot and as I said, a moment ago, we're getting after that and I totally expect that to be corrected, but other than that kind of five star so far.
Speaker Change: Got it and I'd like to start a couple of just housekeeping ones.
Speaker Change: Lower corporate.
Speaker Change: Due to just lower incentive comp I know you lowered that a little bit for the year in your guidance, but just the incentive compensation.
Speaker Change: That's correct there.
Speaker Change: Got it and lastly, just capex is the Kimball still about I think you said $60 million year to date, Eric because that's still in the 65 to 70 million run rate in Baltimore is around 20.
Speaker Change: That's about right Yep Yep Yep. So 60 65 of Kimball This year and then at 20 or for Baltimore.
Speaker Change: Oh, great. Thanks, very much guys I appreciate it.
Speaker Change: Thank you Larry.
Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question.
Jim Ricchiuti: Hi, Thanks, Good morning, So I just wanted to go back to some of the commentary on the D. I S portion of the business. So the difficulty there is it's mainly in the the refinery area or are you seeing some other pockets of any kind of softer.
Speaker Change: Demand.
Speaker Change: Market sectors and I Wonder if you could just elaborate on some of the actions.
Speaker Change: I bet you were taking in this part of the business.
Speaker Change: Yeah, Jim I'll start so on the I S. It it really was around the scope and extent of our refinery a vertical that we're servicing as I mentioned earlier the number of turnarounds continues to be the same that we expected going into the second half of the year and we still we still have turned out.
Speaker Change: So obviously, we've been working on through the start of Q4.
In addition to that some of those refineries just really held back on what the scope of the turnarounds the length the size things that they originally plan they held back on to manage their costs. So that's the real area. That's been affected our our strategy within industrial services is really to cross sell into.
Speaker Change: Our other environmental customers and really leverage the chemical vertical that we service customers such as three of them. That's a great example of a customer that we've got the embedded with us on the traditional T. N D side, but were getting embedded on the industrial side, So where we're really focused on being a little bit.
Speaker Change: Less dependent on that turnaround season about refineries and cross selling across our traditional environmental customers a lot of work being done there the team's on it some of the specialty services that we've developed applied to those more complex industries.
Speaker Change: Industries, such as chemical that we're really trying to diversify that portfolio and what do you when you think about that.
Speaker Change: You know kind of the actions, we're taking as Eric said cross sell is incredibly important leveraging or other verticals that we serve in industrial services. But then also getting after pricing is there do get mentioned you know the labor labor rates are up you know kind of 3% to 4% and so we need to kind of make sure that we are staying in front of that with our pricing structure and with our cost structure for industrial <unk>.
Speaker Change: And that certainly you know it's been heavily.
It heavily labor labor intensive business and so those types of wage inflation really put a lot of pressure on those margins. So getting after pricing in this business is critically important to our success.
Speaker Change: Thank you and.
Speaker Change: Sam do you guys sound.
Fairly positive about the opportunity as it relates to the piece that situation what kind of run rate is that right.
Speaker Change: Right now and you know is there any way to think about that business from where we sit today looking out to 'twenty five.
Speaker Change: Yeah, Jim Eric Carol I'll.
Speaker Change: Take the first answer on that are up our pipeline across the board as we've talked about continuously grows.
Speaker Change: Anywhere from 15% to 25% quarter to quarter.
We're continuing to see robust demand in and what's what's really good to see is that even though there is not yet really solid regulatory environment about P plus on the disposal side in particular in the levels, we still see an increasing demand so customers are reacting as if.
Speaker Change: There's already those regulatory parameters in place and that's why our pipeline is growing so in the last quarter of Q3, we've had some nice P foss opportunities projects into our incinerators or landfills or our media group on water treatment, it's really been across the board and we're seeing we're seeing.
Speaker Change: [laughter] samples now upfront for pizza sauce opportunities and getting embedded in that so really a good strong solid pipeline and customers are interacting with us as the regulations are in place to manage whatever they're going to do a proper way into the future. So we feel pretty solid about that.
Okay. Thanks, a lot.
Speaker Change: Thanks, Jim.
Speaker Change: Our next question comes from the line of Brian Butler with Stifel. Please proceed with your question.
Speaker Change: Hey, Brian.
Mr. Butler, perhaps you have your line on mute.
Speaker Change: Sorry user error in my bad.
Brian Butler: Thanks for taking the question.
Brian Butler: Am I right.
Brian Butler: Hello.
Speaker Change: First one on S. K I thought the stock.
Speaker Change: Was there a much larger discount that you were selling group two versus spot prices because when I look at the spot prices they were down but not not to the level that would warrant kind of the the impact that we saw in the third quarter and I'm just curious if you're selling at a discount and if that's kind of changed over the last couple of quarters.
Speaker Change: I would say I would say that Brian. This is Mike I would say that the that market.
Speaker Change: Market price versus the published price is completely disconnected.
Speaker Change: Is the market price spot price, where we are getting paid for that oil is completely disconnected from what do you see kind of published reports and Directionally, it's going the same way, but certainly not at the same level and so that's what we really saw as we got through into September and we really didnt kind of putting it together and you see you know large refineries coming out with their reserve.
Speaker Change: How much pressure there under and that's putting a lot of pressure in the marketplaces.
Speaker Change: Kind of an oversupply of base oil and so that's really that's really kind of putting pressure both on our in our spot customers in our contracted customers I've always kind of asking for discounts based on kind of the market price of fishing in the S. C. Today. So it makes it makes our job in your job much more difficult because it's not a good indicator to kind of point to but that's what's happening.
Speaker Change: Okay and then when you look at the cash on the group three opportunities.
Speaker Change: When does that become a material contributor or are having an impact is that really you know 'twenty 'twenty six and it's going to take that long to kind of ramp up or do we start to see something that we can actually measure sooner than that.
Speaker Change: So I would say on the group three we certainly see that benefit already today, we have one plant producing groups right now we're using it internally for our own blended gallons. So that's really been that's been a good coffee nothing homerun no way around that that's been a that's been positive for the business and opening up and how long we'll continue down that path. So so I'd say that that's kind of very real under our control and we're <unk>.
Speaker Change: Seeing that benefit today, not as much as we used to be because of pricing on group three just like it does not go through too, but certainly that's been a that's kind of a winter for us here in 'twenty 'twenty four and into 2025 on capital I think it's gonna take it takes time and as you know the sales cycle is long on these types of fleets changing over they have a very strong marketing team there.
Speaker Change: Very strong sales team that we meet with them quite often in their break and the casting very bullish about their ability to sell into this we had some small wins already but not nothing really to kind of move the needle yet, but that's certainly going to help us as you look into 2025 and 20 places I don't think it's gonna be a probably 'twenty six 'twenty seven thing I think when you see real pod momentum either in 2025 no doubt.
Speaker Change: Okay, and then maybe one last one just on P. Fast do you have a year to date kind of revenue number on where that is for 24, what would that look like again, I guess a year ago.
Speaker Change: Yeah, Ryan we're we're trending in probably around that 80 to 90 million dollar run rate this year.
Speaker Change: So run rate for the full year.
Run rate for the full year, that's correct. Yeah, I think I think we exited the year with 100 million Bucks I think that's kind of a fair fair as you look into 2025, that's probably a fair estimate it ramped during the course of the year with the progress we'd make any quarter over quarter year over year.
Speaker Change: Okay, great. Thanks for taking the questions.
Speaker Change: Thanks, Mike.
Speaker Change: Our next question comes from the line of Timna Tanners with Wolfe Research. Please proceed with your question.
Timna Tanners: Yeah, Hey, good morning, I just have two.
Timna Tanners: No lingering questions are related to baseball if I could so I wonder if you could please elaborate a little bit on the flip from pay for oil to charge for all I know you mentioned it doesn't flip on a dime, but how long does it take to do that and is there any way to kind of speed up that process in light of changing market conditions.
Speaker Change: No I appreciate your question didn't and we were actually discussing that quite a bit as far as kind of how fast can we change. The challenge you have is that is this pricing moves on that base oil pricing immediately if he gets announced then they cannot say negotiate pricing is there and that's the place we take on the on the on the on the charge for oil paper will you use motor oil process. It.
Even if we change that that day. It takes six to eight weeks to work its way through the system I go buy oil from Tinder is auto body shop, well I got a I got a I got a ship and I got a process it and all of them, we got to sell it. So there's a natural lag there and we're going faster lowering inventory helps and being better at being more thoughtful about transporting oil helps.
Speaker Change: But you know we need to be we need to be fair, what he'd be faster than that in that decision, making and moving you know you'll know pricing whether it be P. F O CFO quicker, but there is a natural lag there that's very difficult to get around just because oil is in a network as it works its way through it gets re refined and back into basal and ultimately sold there's a lag there that you cant.
Speaker Change: It around.
Speaker Change: Okay. That's helpful. Thanks, and then just the second part is on the California refinery.
Speaker Change: It makes sense to add on that one I imagine it might be a higher cost facility being in California, but could you talk a little bit more about how long it might be down further any exit costs or other implications of remediation you need to do there to keep in mind.
Speaker Change: No really no no.
Speaker Change #100: Additional costs, we really just idled the refinery from produce in the base oil. So no additional costs are actually gets the cost savings right throughout the fourth quarter as we move forward here.
Speaker Change #100: The and long term you know well that really depends on market conditions. So they continue to look but certainly for the next six months to a year. We plan to remain that to remain having that refinery to idle and timna. Just so you know from an environmental standpoint, we're still using that facility. We still use it as a distribution center, we have a kind of a wastewater discharge.
Timna Tanners: If you can still do and at the site. The site still remain doesn't say, it's just not going to be refining used more of them.
Speaker Change #101: Got it okay. Thanks again.
Speaker Change #102: Thank you.
Speaker Change #103: As a reminder, if you would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of Tobey Sommer with Suntrust. Please proceed with your question.
Tobey Sommer: Thanks, I'll start with our re refinery.
Tobey Sommer: Is this an industry wide overstocking problem and could you describe.
Tobey Sommer: Our other industry players are doing or are you alone and Ida.
Tobey Sommer: Some capacity or is oh other market participants kind of work in that direction as well.
Mike Mike: Yeah Tobey this is Mike and I'll start so I don't know if you saw the P 56 actually close the refineries the process of closing a refiner excuse me refinery in California, as well, so I think that the cost structure and not as good as I mentioned, it's actually the highest of our network and so so I think that you see that I'm only reacting to what you see in the C and the news.
Tobey Sommer: With a large refinery was taken kind of all time lows I saw P. B casual speaking of the company is at its all time low as far as profitability goes in the refining space. So that's actually the market dynamic that we're all ever kind of all patients no are there any other public company re refinery company. So it's hard for me to speak to that and I'm sure. They are feeling the same pain.
Tobey Sommer: With respect to Kimball and other new capacity coming into the market.
Speaker Change #105: What's the overall increase in North American capacity as we are.
Speaker Change #105: Looking into 2025.
Speaker Change #106: Directionally going into 2025, I'm going to use 2026 based on just the timing of the units coming online, but Kimball our what we've talked about 70000 tons of practical capacity will be and so look at that and then another unit coming online in Arkansas, probably in the 70%.
Speaker Change #106: <unk> 90000 ton a year range, so think about it in that context, what 41, 16, where we're gonna be asphalt.
Speaker Change #106: We're gonna be up 12%.
Speaker Change #106: And our capacity, but that's when it's fully when it's fully operational totally totally outrage.
Speaker Change #107: Okay I appreciate that.
Speaker Change #108: Last one for me what does a customer churn look like in <unk>.
Speaker Change #109: Yes, or customer retention, you could take me, there and what you like and how.
Speaker Change #109: Or would you describe price sensitivity as the company seeks to raise price in exchange for value you provide.
Speaker Change #110: Yeah, Tobey ever care, so customer churn is very low the demand for our services has been very high and we think we've done a great job of actually growing our market share across the board. The receptiveness to pricing is it sticking as you see from our financial results and we expect that to continue.
Speaker Change #110: Really robust demand in our I think the team out there our field has done a great job of of grabbing opportunities closing on them quickly.
Speaker Change #110: Great Service network, that's able to service customers.
Speaker Change #110: Really fast and get that to get that waste into our network.
Speaker Change #110: And because of though that our ability to service them in our network of our disposal facilities that allows us to give that great service, but continue to command price improvement across the board.
Speaker Change #111: Thank you.
Speaker Change #112: Thank you again furstenberg, we have no further questions at this time I would like to turn the floor back over to you for closing comments.
Speaker Change #113: So thanks for joining us today, everyone will be participating in several investor investment. So that's in the coming week, including the Stifel event in Baltimore and the Baird event in Chicago, We look forward to seeing some of you. There. Please enjoy the rest of the day and above all please gift safe out there.
Speaker Change #114: Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.
Speaker Change #113: Okay.
Speaker Change #113: Yeah.