Q3 2025 Clean Harbors Inc Earnings Call
Formal presentation.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Michael Mcdonald General Counsel for clean harbors. Thank you Sir you may begin.
Thank you Christina and good morning, everyone with me on today's call are our co chief Executive officers, Eric Hirshberg, and Mike battles, our EVP and Chief Financial Officer, Eric Dugas, and our SVP of Investor Relations, Jim Buckley slides for today's call are posted on our Investor Relations website, and we invite you to follow along.
We are discussing today that are not historical facts are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today October 29, 2025 info.
Information on potential factors and risks that could affect our results is included in our SEC filings the company undertakes.
It takes no obligation to revise or publicly release the results of any revision to the statements made today other than through filings made concerning this reporting period.
Speaker #3: Greetings and welcome to the Clean Harbors . Third quarter 2020 financial results conference call . At this time , all participants are in a listen only mode .
Operator: Greetings, and welcome to the Clean Harbors third quarter 2025 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors. Thank you, sir. You may begin.
Today's discussion includes references to non-GAAP measures clean harbors believes that such information provides an additional measurement and consistent historical comparison of the performance reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release on our IR website and in the appendix of today's presentation.
Speaker #3: brief question and answer session will follow the formal presentation . As a reminder , this conference is being recorded . It is now my pleasure to introduce your host , Michael McDonald , General Counsel for Clean Harbors .
Let me turn the call over to Eric Hirshberg to stop Eric.
Michael McDonald: Thank you, Christine, and good morning, everyone. With me on today's call are our Co-Chief Executive Officers, Eric Dugas and Michael Battles, our EVP and Chief Financial Officer, Eric Dugas, and our SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our Investor 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 meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, October 29, 2025. Information on potential factors and risks that could affect our results is included in our SEC filings. 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 this reporting period.
Thanks, Michael Good morning, everyone and thank you for joining us.
As always let me start with our safety results through September 30, we were at a tier I or 0.49, putting us on a track record for another record year. We are extremely proud of that performance. The only way you achieve this level of excellence is with constant operational focus from the whole team.
Speaker #4: discussing today that are not historical , facts are considered forward looking statements within the meaning of the
To protect themselves and each other safe.
Safety performance delivers measurable benefits across multiple dimensions from enhanced operational efficiency and productivity to stronger employee retention and company reputation.
For any team members listening congratulations on these great safety results and let's finish strong in Q4.
Turning to a summary of results on slide three our Q3 performance reflected year on year growth from an increase in overall waste volumes into our network pricing gains and increased productivity, even in an environment, where softer conditions, resulting from macroeconomic factors have impacted some customers.
Michael McDonald: Today's discussion includes references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of the performance. Reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release, on our IR website, and in the appendix of today's presentation. Let me turn the call over to Eric Dugas to start. Eric?
Our U S segment grew on strength in technical services and SK branch, our safety Kleen sustainable solution segment performed in line with expectations, mainly due to our charge for oil program and product mix.
Eric Gerstenberg: Thanks, Michael. Good morning, everyone, and thank you for joining us. As always, let me start with our safety results. Through September 30, we were at a TRIR of 0.49, putting us on a track record for another record year. We are extremely proud of that performance. The only way you achieve this level of excellence is with constant operational focus from the whole team to protect themselves and each other. Safety performance delivers measurable benefits across multiple dimensions, from enhanced operational efficiency and productivity to stronger employee retention and company reputation. For any team members listening, congratulations on these great safety results, and let's finish strong in Q4.
Driving margin growth continued to be a focus for us is where we are we were pleased to see our consolidated adjusted EBITDA margin increased by 100 basis points from a year ago to 27%.
Demonstrating the effectiveness of our pricing the leverage in our network of permanent facilities and cost saving strategies.
Within all of the underlying E. S businesses, we drove pricing gains and improve productivity, while lowering costs driving better margin contributions.
Corporate segment costs were up from a year ago, primarily due to higher insurance expenses that health care increases offsetting partially by cost cutting actions.
Overall Q3 results fell slightly short of our expectations due primarily to slowness in field services and industrial services combined with some higher than anticipated employee health care costs.
Eric Gerstenberg: Turning to a summary of results on slide three, our Q3 performance reflected year-on-year growth from an increase in overall waste volumes into our network, pricing gains, and increased productivity, even in an environment where softer conditions resulting from macro-economic headwinds have impacted some customers. Our Environmental Services segment grew on strength in technical services and SK branch. Our Safety-Kleen Sustainability Solutions segment performed in line with expectations, mainly due to our charge for oil program and product mix. Driving margin growth continued to be a focus for us as we were pleased to see our consolidated adjusted EBITDA margin increase by 100 basis points from a year ago to 20.7%, demonstrating the effectiveness of our pricing, the leverage in our network of permitted facilities, and cost-saving strategies. Within all of the underlying Environmental Services businesses, we drove pricing gains and improved productivity while lowering costs, driving better margin contributions.
We remain optimistic with the continued growth and momentum in our waste collection and disposal assets.
We believe that the productivity and margin enhancement initiatives undertaken throughout 2025 and across our businesses put us in a position to benefit as some macroeconomic conditions improve.
Turning to our segments beginning with Es on slide four segment adjusted EBITDA margin grew year over year for the 14th consecutive quarter with revenue up 3% and adjusted EBITDA up 7% our.
Our waste volumes P fast work remediation projects and pricing drove our revenue increase.
That will offset the slowdown in industrial and field services.
Looking at revenue by segment components Technical services led this quarter with 12% growth.
As demand was steady incineration utilization remained high and our landfill volumes were up 40% from a year ago.
Eric Gerstenberg: Corporate segment costs were up from a year ago, primarily due to higher insurance expenses and healthcare increases, offsetting partially by cost-cutting actions. Overall, Q3 results fell slightly short of our expectations, due primarily to slowness in field services and industrial services, combined with some higher than anticipated employee healthcare costs. We remain optimistic with the continued growth in momentum in our waste collection and disposal assets. We believe that the productivity and margin enhancement initiatives undertaken throughout 2023 and across our businesses put us in a position to benefit as some macro-economic conditions improve. Turning to our segments, beginning with ES on slide four, segment adjusted EBITDA margin grew year over year for the 14th consecutive quarter, with revenue up 3% and adjusted EBITDA up 7%.
Incineration utilization was 92% versus 89% in the same period of 2024.
For comparison purposes, our utilization and excludes the new unit and Kimball as we continue to ramp up with.
With chemo included our utilization rates were still high at 88%.
As we've seen in the past several quarters incineration demand has remained high due to the diversity of our end markets as well as projects underpinning our growth our sales teams have done an excellent job winning volumes in an environment, where some of our customers have been impacted by current economic conditions.
That sales effort includes our SK branches.
Consistently driven significant containerized waste volumes into our network.
In Q3 safety Kleen environmental services rose, 8% through a combination of pricing gains and growth in our core service offerings. The number of parts washer services was 249000 in the quarter with a larger average service ticket per stop.
Eric Gerstenberg: Our waste volumes, PFAS work, remediation projects, and pricing drove our revenue increase, as that more than offset the slowdown in industrial and field services. Looking at revenue by the segment components, technical services led this quarter with 12% growth, as demand was steady. Incineration utilization remained high, and our landfill volumes were up 40% from a year ago. Incineration utilization was set at 92% versus 89% in the same period of 2023. For comparison purposes, our utilization excludes the new unit in Kimbell as we continue to ramp up. With Kimbell included, our utilization rate was still high at 88%. As we've seen in the past several quarters, incineration demand has remained high due to the diversity of our end markets, as well as projects underpinning our growth.
The consistency of that business has been a key element to our profitable growth over the past five years.
Field services revenue declined 11% from a year ago more than we anticipated in our guidance. The shortfall reflects the absence of medium to large response projects. While we responded to more than 5900, ER beds, demonstrating consistent baseline demand the revenue impact came from having no substantial projects.
Within industrial services, we continue to see customers in both the chemical and refining verticals limit their spending on turnarounds as they remain under significant cost pressure.
As a result revenue was down 4% from a year ago in light of these market conditions, we focused on cost management, including workforce and equipment utilization.
Eric Gerstenberg: Our sales teams have done an excellent job winning volumes in an environment where some of our customers have been impacted by current economic conditions. That sales effort includes our SK branches, who have consistently driven significant containerized waste volumes into our network. In Q3, Safety-Kleen Environmental Services rose 8% through a combination of pricing gains and growth in our core service offerings. The number of parts washer services was 249,000 in the quarter, with a larger average service ticket per stop. The consistency of that business has been a key element to our profitable growth over the past five years. Field services revenue declined 11% from a year ago, more than we anticipated in our guidance. This shortfall reflects the absence of medium to large response projects. While we responded to more than 5,900 events, demonstrating consistent baseline demand, the revenue impact came from having no substantial projects.
While we are hopeful that maintenance deferrals from highest customers. We've seen for the past few years improves we do not expect any meaningful recovery in revenue opportunities for chemical and refining customers before the spring turnaround season.
Based on our service platform and extensive lines of business. We provide we are focused on growing our wallet share with these customers.
Turning to slide five we want to highlight our recent successful Pete Foster incineration study.
Done in partnership with the EPA as well as the D. O D. This study, which we completed in late 'twenty four and our Utah facility was a milestone achievement for the company. The study published by the EPA in September provided that type of scientific data supplied by customers or regulators. The study was conducted using the epa's most raw.
And rigorous emission standards.
<unk> confirmed what we already know are rare.
Permitted high temperature incinerators cannot only safely destroy these forever chemicals in various forms but can do so at a cost effective commercial scale.
Eric Gerstenberg: Within industrial services, we continue to see customers in both the chemical and refining verticals limit their spending on turnarounds as they remain under significant cost pressure. As a result, revenue was down 4% from a year ago. In light of these market conditions, we focused on cost management, including workforce and equipment utilization. While we are hopeful that maintenance deferrals from IS customers we've seen for the past few years improve, we do not expect any meaningful recovery in revenue opportunities for chemical and refining customers before the spring turnaround season. Based on our service platform and extensive lines of business we provide, we are focused on growing our wallet share with these customers. Turning to slide five, we want to highlight our recent successful PFAS incineration study done in partnership with the EPA as well as the Department of Defense.
In addition, our total pizza box solution has continued to gain traction in the marketplace with offerings ranging from lab analytics to water filtration to site remediation disposal. We are in active discussions with customers on projects across many of these fronts and expect P foster generate $100 million to $120 million a rep.
And this year up 20% to 25% from a year ago. Moreover, based on our pipeline and our momentum in the marketplace. We expect P. Foster related sales to further accelerate in the years ahead with that let me turn things over to Mike to discuss S. K S. S in capital allocation Mike.
Thank you, Eric and good morning, everyone.
Eric Gerstenberg: This study, which we completed in late 2024 in our Utah facility, was a milestone achievement for the company. The study, published by the EPA in September, provided the type of scientific data sought by customers and regulators. The study was conducted using the EPA's most recent and rigorous emission standards. The study confirmed what we already know: our record-permitted high-temperature incinerators can not only safely destroy these forever chemicals in various forms, but can do so at a cost-effective commercial scale. In addition, our total PFAS solution has continued to gain traction in the marketplace, with offerings ranging from lab analytics to water filtration to site remediation to disposal. We are in active discussions with customers on projects across many of these fronts and expect PFAS to generate $100 million to $120 million in revenue this year, up 20% to 25% from a year ago.
Turning to S. K S. S. On slide six this segment delivered results in the third quarter that were in line with our expectations.
Despite pricing headwinds in the base oil market all year, we effectively manage our refining spread and drove value from other initiatives during the quarter, we dramatically lowered our waste oil collection costs versus a year ago as we advance our CFO program.
It is clear that our used oil customers understand that we are collecting a waste from them and providing value and reliable services.
The team continued to manage costs, while still collecting the volumes, we need to run our plants.
In Q3, we gathered 64 million gallons of waste oil, which is consistent with the second quarter.
On the topline revenue decreased as expected in terms of profitability, our adjusted EBITDA was essentially unchanged.
The result was 100 basis point margin improvement largely stemming from the CFO increase cost reduction initiatives and efficiency gains.
We also increased our direct lubricant sales, which are among our highest margin guy in gallons for 9% of our total book volumes, which also contributed to that margin improvement.
Eric Gerstenberg: Moreover, based on our pipeline and our momentum in the marketplace, we expect PFAS-related sales to further accelerate in the years ahead. With that, let me turn things over to Mike to discuss Safety-Kleen Sustainability Solutions and capital allocation. Mike?
During the quarter, we continued our partnership with BP gastro to support out there more circular offering for corporate fleet.
Michael Battles: Thank you, Eric, and good morning, everyone. Turning to SKSS on slide six, this segment delivered results in the third quarter that were in line with our expectations. Despite pricing headwinds in the base oil market all year, we effectively managed our re-refining spread and drove value from other initiatives. During the quarter, we dramatically lowered our waste oil collection costs versus a year ago as we advanced our CFO program. It is clear that our used oil customers understand that we are collecting a waste from them and providing value and reliable services. The team continues to manage costs while still collecting the volumes we need to run our plants. In Q3, we gathered 64 million gallons of waste oil, which is consistent with the second quarter. On the top line, our revenue decreased as expected. In terms of profitability, our adjusted EBITDA was essentially unchanged.
Additionally, we are growing our group three production and those gallons carry a premium to our traditional group to volumes and we remain on track to add several million gallons of group three this year.
Turning to slide seven today.
Today, we announced plans to construct a state of the art processing plant that we referred to internally as the F D. A.
I'm using an industry proven solid solid D asphaltene process and combining it with our existing hydro treating capabilities, we can unlock incremental value from an everyday product V. Ta generated today in our remarks.
This new plant upgrades B T H E into a high volume of 600 and base oil.
So net neutral as a high purity base oil. They are typically used in heavy duty industrial applications due to its durability and high performance characteristics.
Total spend on the at the SDA unit is expected to be 210 to 220 million with commercial launch anticipated in 2028.
Michael Battles: The result was a 100 basis point margin improvement, largely stemming from the CFO increase, cost reduction initiatives, and efficiency gains. We also increased our direct lubricant sales, which are among our highest margin gallons, to 9% of our total volumes, which also contributed to that margin improvement. During the quarter, we continued our partnership with BP Castrol to support their more circular offering for corporate fleets. Additionally, we are growing our Group 3 production as those gallons carry a premium to our traditional Group 2 volumes, and we remain on track to add several million gallons of Group 3 this year. Turning to slide seven, today we announced plans to construct a state-of-the-art processing plant that we refer to internally as the FDA unit.
We spent approximately $12 million on this project to date with a total of approximately $30 million expected in 2025.
As a result of the project, we expect to generate annual EBITDA in the range of $30 million to $40 million six or seven year payback on the investments once completed.
Such a return will rival what we've seen from similar size incineration projects and represents an additional growth opportunity for S. K S. S.
Turning to capital allocation on slide eight we remain active in seeking opportunities to generate strong returns for shareholders.
We also remain well positioned to execute our strategy with record cash flows in Q3, low leverage and a terrific balance sheet.
Michael Battles: By using an industry-proven solvent de-asphalting process and combining it with our existing hybrid treating capabilities, we can unlock incremental value from an everyday product, VTAE, generated today in our re-refineries. This new plant will upgrade VTAE into a high-volume 600N base oil. 600N neutral is a high-purity base oil that is typically used in heavy-duty industrial applications due to its durability and high-performance characteristics. Total spend on the FDA unit is expected to be $210 million to $220 million, with commercial launch anticipated in 2028. We spent approximately $12 million on this project year to date, with a total of approximately $30 million expected in 2025. As a result of the project, we expect to generate annual EBITDA in the range of $30 million to $40 million, a six or seven-year payback on the investment once completed.
On the M&A front, we're evaluating both bolt on transactions and larger acquisitions that would provide electrical levered real assets with high synergy potential and support our market position in a particular business or geography.
We believe that in our space that can be patient and prudent in pursuing the right transactions.
We've also been evaluating a series of internal investments, including today's announcement of the FDA Division.
Including that facility, we currently see a path to potentially investing over 500 million and internal project over the next several years.
Raising from greater processing capabilities within our network additional hub locations fleet expansion and additional consideration because that capacity.
We look forward to sharing more of these plant plans with you in the coming quarters and plans for individual projects get finalized.
We also view, we also view share repurchases as an attractive capital allocation opportunity. You gave me a strong shareholder returns as demonstrated by a $50 million in repurchases in Q3.
Michael Battles: Such a return will rival what we've seen from similar size incineration projects and represent an additional growth opportunity for SKSS. Turning to capital allocation on slide eight, we remain active in seeking opportunities to generate strong returns for shareholders. We also remain well-positioned to execute our strategy with record cash flows in Q3, low leverage, and a terrific balance sheet. On the M&A front, we're evaluating both bolt-on transactions and larger acquisitions that would provide leverageable assets with high synergy potential that support our market position in a particular business or geography. We believe that in our space, it's best to be patient and prudent in pursuing the right transactions. We've also been evaluating a series of internal investments, including today's announcement of the FDA unit.
Looking ahead, while we believe that the challenge that we faced in Q3 of temporary market driven with year over year growth illustrating the resiliency, we expect our two management strong through year end and waste projects continue to beat our entire disposal recycling network.
Apparently the uncertainty and other macro factors in North American economy have ripple effects through some of our customers over the past two quarters, but we believe the overall economic outlook remains promising.
Based on conversations with customers, we anticipate incentives to reassure that the recent U S tax Bill will drive meaningful lift in American manufacturing and continuing to support remediation in waste projects.
We expect that spending constraints related to industrial services and field services in our key verticals, including chemicals and refineries will loosened in the coming quarters and economic conditions improve.
Michael Battles: Including that facility, we currently see a path to potentially investing over $500 million in internal projects over the next several years, ranging from greater processing capabilities within our network, additional hub locations, fleet expansion, and additional incineration capacity. We look forward to sharing more of these plans with you in the coming quarters as plans for individual projects get finalized. We also view share repurchases as an attractive capital allocation opportunity to generate strong shareholder returns as demonstrated by our $50 million in repurchases in Q3. Looking ahead, while we believe that the challenges we face in Q3 are temporary and market-driven, with year-over-year growth illustrating our resiliency, we expect our incinerators to run strong through year-end and waste projects to continue to feed our entire disposal and recycling network.
Overall, our project pipeline remains substantial with growing P bass opportunity is expected to contribute meaningfully in future a future activity.
We also remain excited about the steady ramp up in production and mixing our new Kimball incinerator and work toward full capacity breast.
Breast cancer, we believe we've stabilized the business with our efforts around CFO partnership a good three production and I'm looking forward to the new F D. A.
We expect to achieve our profitability targets for this business in 2025.
That let me turn it over to our CFO have a pair of shoes.
Thank you, Mike and good morning, everyone.
Turning to our Q3 results and income statement on slide.
While our quarterly performance came in below our expectations due to the factors Eric outlined primarily a shortfall in industrial and field services plus elevated health care costs.
Michael Battles: Term-related uncertainty and other macro factors in the North American economy have ripple effects through some of our customers over the past two quarters, but we believe the overall economic outlook remains promising. Based on conversations with customers, we anticipate incentives to reshore and the benefits of the recent U.S. tax bill will drive a meaningful lift in American manufacturing and continue to support remediation and waste projects. We expect that spending constraints related to industrial services and field services in our key verticals, including chemicals and refineries, will loosen in the coming quarters as economic conditions improve. Overall, our project pipeline remains substantial, with growing PFAS opportunities expected to contribute meaningfully to future activity.
I wanted to highlight the underlying strength in our business.
Total revenue increased to 155 billion in the quarter.
Environmental services growth stemming from a wide range of service offerings and diversified customer base.
Adjusted EBITDA increased 6% to $320 million.
Straining our ability to drive profitable growth through our steadfast commitment to margin expansion.
Our consolidated Q3, adjusted EBITDA margin expanded to 27% led.
Michael Battles: We also remain excited about the steady ramp-up in production and mix in our new Kimbell incinerator as it works toward full capacity. For Safety-Kleen Sustainability Solutions, we believe we've stabilized this business with our efforts around CFO, partnerships, and Group 3 production, and are looking forward to the new FDA unit. We expect to achieve our profitability targets for this business in 2025. Let me turn it over to our CFO, Eric Dugas.
Led by a 120 basis point improvement in environmental services.
This margin expansion reflects our strategic focus on pricing initiatives.
Cost reduction efforts and productivity gains as we see evidence of margin improvement across each of our business units within the Es segment.
Within environmental services.
Eric Dugas: Thank you, Mike, and good morning, everyone. Turning to our Q3 results and income statement on slide 10, while our quarterly performance came in below our expectations due to the factors Eric outlined, primarily a shortfall in industrial and field services, plus elevated healthcare costs, I want to highlight the underlying strength in our business. Total revenue increased to $1.55 billion in the quarter, with Environmental Services growth stemming from our wide range of service offerings and diversified customer base. Adjusted EBITDA increased 6% to $320 million, demonstrating our ability to drive profitable growth through a steadfast commitment to margin expansion. Our consolidated Q3 adjusted EBITDA margin expanded to 20.7%, led by a 120 basis point improvement in Environmental Services.
Demand in our disposal network and collection businesses remain solid drive.
Driving revenue growth, despite macro headwinds and some verticals like chemical.
S. K S S delivered more than $40 million EBITDA.
Its strongest quarter in a year.
Demonstrating operational resilience and a soft base oil market.
SG&A expense as a percentage of revenue increased from a year ago, just 12, 2%, reflecting higher health care costs professional fees and compensation.
We are maintaining our full year SG&A guidance as a percentage of revenue in the low to mid 12% range.
Depreciation and amortization was approximately $115 million.
Reflecting our continued capital deployment, including Kimball operations and increased landfill amortization related to greater disposal volumes.
Eric Dugas: This margin expansion reflects our strategic focus on pricing initiatives, cost reduction efforts, and productivity gains, as we see evidence of margin improvement across each of our business units within the ES segment. Within Environmental Services, demand in our disposal network and collection businesses remains solid, driving revenue growth despite macro-economic headwinds in some verticals like chemical. Safety-Kleen Sustainability Solutions delivered more than $40 million in EBITDA, its strongest quarter in a year, demonstrating operational resilience in a soft base oil market. SG&A expense as a percentage of revenue increased from a year ago to 12.2%, reflecting higher healthcare costs, professional fees, and compensation. We are maintaining our full-year SG&A guidance as a percentage of revenue in the low to mid-12% range. Depreciation and amortization was approximately $115 million, reflecting our continued capital deployment, including Kimbell operations, and increased landfill amortization related to greater disposal volumes.
We've raised our full year, depreciation and amortization guidance to $445 million to $455 million.
Primarily due to the strong landfill performance.
Income from operations in Q3 was $193 million.
Flat versus the prior year as our 6% adjusted EBITDA growth was offset by higher depreciation and amortization as I just mentioned.
Net income grew modestly year over year delivering earnings per share of $2.21.
Turning to the balance sheet on slide 11.
The continued focus our cash flow generation and a record level of free cash flows in the quarter.
We ended Q3 with cash and short term marketable securities of $850 million.
Riding substantial flexibility for our capital allocation strategy that Mike just outlined.
Our recent refinancing was executed at favorable terms as we replaced our 2027 senior notes with 2033 senior notes and.
And replaced our term loan at a more favorable rate of sulfur plus 150 basis points.
This refinancing provides us with more surety.
Eric Dugas: We've raised our full-year depreciation and amortization guidance to $445 to $455 million, primarily due to the strong landfill performance. Income from operations in Q3 was $193 million, flat versus the prior year, as our 6% adjusted EBITDA growth was offset by higher depreciation and amortization, as I just mentioned. Net income grew modestly year over year, delivering earnings per share of $2.21. Turning to the balance sheet on slide 11, with continued focus on cash flow generation and a record level of free cash flows in the quarter, we ended Q3 with cash and short-term marketable securities of $850 million, providing substantial flexibility for our capital allocation strategy that Mike just outlined. Our recent refinancing was executed at favorable terms as we replaced our 2027 senior notes with 2033 senior notes and replaced our term loan at a more favorable rate of SOFR plus 150 basis points.
And the maturity of the debt.
Increases, our flexibility and demonstrates market confidence and our credit profile.
With net debt to EBITDA below two times and a blended interest rate of five 3%, we maintain a conservative capital structure.
Our credit profile remains strong just one notch below investment grade in our overall debt rating.
All of our secured debt carries an investment grade rating.
Reflecting the quality of our asset base.
Cash flow stability and overall capital policies.
Turning to cash flows on slide 12.
Our Q3 cash flow performance was exceptional.
Operating cash flow of $302 million.
In a Q3 record adjusted free cash flow of $231 million, which was up $86 million year on year.
Underscores the generative nature of our business the cash generative nature of our business model.
Capex net of disposals of 83 million was down from the prior year.
Collecting disciplined capital allocation.
As previously highlighted we began construction of our high return re refinery project investing more than $10 million in Q3 to watch this exciting initiative that we expect to deliver excellent shareholder value.
Eric Dugas: This refinancing provides us with more surety, extends the maturity of the debt, increases our flexibility, and demonstrates market confidence in our credit profile. With net debt to EBITDA below two times and a blended interest rate of 5.3%, we maintain a conservative capital structure. Our credit profile remains strong, just one notch below investment grade on our overall debt rating, while our secured debt carries an investment grade rating, reflecting the quality of our asset base, cash flow stability, and overall capital policies. Turning to cash flows on slide 12, our Q3 cash flow performance was exceptional. Operating cash flow of $302 million and a Q3 record adjusted free cash flow of $231 million, which was up $86 million year on year, underscores the generative nature of our business model. CapEx, net of disposals of $83 million, was down from the prior year, reflecting disciplined capital allocation.
We also continue to advancing our strategic hub facility in Phoenix.
Further strengthening our network capabilities.
For 2025, excluding the S D. It hanging it.
In Phoenix hub project.
We now expect our net capex to be in the range of $340 million to $370 million.
This is slightly down from our previous range as we expect asset sales to be closer to $15 million. This year instead of the 10 million previously thought.
We bought back more than 208000 shares of stock for a total spend of $50 million in Q3.
We currently have roughly $380 million remaining under our authorization.
We continue to view our shares as attractively valued at current levels.
Turning to our guidance on slide 13.
Based on Q3 results and current market conditions for both of our operating segments.
We are revising our 2025 adjusted EBITDA guidance to a range of 1.155 billion to $1 175 billion or a midpoint of $1 165 billion.
Eric Dugas: As previously highlighted, we began construction of our high-return re-refinery project, investing more than $10 million in Q3 to launch this exciting initiative that we expect to deliver excellent shareholder value. We also continued advancing our strategic hub facility in Phoenix, further strengthening our network capabilities. For 2025, excluding the solvent de-asphalting unit and Phoenix hub project, we now expect our net CapEx to be in the range of $340 million to $370 million. This is slightly down from our previous range, as we expect asset sales to be closer to $15 million this year instead of the $10 million previously thought. We bought back more than 208,000 shares of stock for a total spend of $50 million in Q3. We currently have roughly $380 million remaining under our authorization. We continue to view our shares as attractively valued at current levels.
This adjustment reflects the Q3 EBITDA results factored into our annual guide.
Importantly, we anticipate any Q4 carryover effects and the field services or industrial services.
Will be offset by our facility's performance.
<unk> pipeline and P faas opportunities.
Our long term trends of P fast remediation and reassuring creates substantial upside potential with recent developments like R. E. T E. Incineration study further validating our strategic positioning.
For the full year 2025, our revised adjusted EBITDA guidance will translate to our reporting segments as follows.
At our guidance midpoint, and now expect 2025, adjusted EBITDA and environmental services to increase by more than 5% from 2024.
Eric Dugas: Turning to our guidance on slide 13, based on Q3 results and current market conditions for both of our operating segments, we are revising our 2025 adjusted EBITDA guidance to a range of $1.155 billion to $1.175 billion, or a midpoint of $1.165 billion. This adjustment reflects the Q3 EBITDA results factored into our annual guide. Importantly, we anticipate any Q4 carryover effects in the field services or industrial services will be offset by our facilities performance, project pipeline, and PFAS opportunities. A long-term trend of PFAS remediation and reshoring creates substantial upside potential, with recent developments like our EPA incineration study further validating our strategic positioning. For the full year 2025, our revised adjusted EBITDA guidance will translate to our reporting segments as follows. At our guidance midpoint, we now expect 2025 adjusted EBITDA in Environmental Services to increase by more than 5% from 2024.
While recent economic turbulence has impacted some aspects of our business, we're optimistic about our future and ability to navigate the current landscape.
S K S absent stabilizing effectively.
We continue to expect full year 2025, adjusted EBITDA at the midpoint of our guidance to be $140 million.
The combination of our operational improvements CFO strategy.
And initiatives that Mike outlined to have established a stable foundation for this business.
Within corporate.
At the midpoint of our guide we expect negative adjusted EBITDA to now be up 3% to 5% compared to 2024 driven.
Driven by growth related expenses, higher wages and benefits and rising insurance costs.
We continue implementing multiple cost savings initiatives to partially offset these increases.
We are raising our full year adjusted free cash flow guidance to a midpoint of $475 million.
Based on year to date performance and favorable provisions passed in the U S Tax Act this summer.
This represents more than 30% growth from 2024.
Underscoring, our focus and ability to convert earnings into substantial free cash flow returns.
Eric Dugas: While recent economic turbulence has impacted some aspects of our business, we're optimistic about our future and ability to navigate the current landscape. Safety-Kleen Sustainability Solutions is stabilizing effectively. We continue to expect full year 2025 adjusted EBITDA at the midpoint of our guidance to be $140 million. The combination of our operational improvements, CFO strategy, and initiatives that Mike outlined have established a stable foundation for this business. Within corporate, at the midpoint of our guide, we expect negative adjusted EBITDA to now be up 3% to 5% compared to 2024, driven by growth-related expenses, higher wages and benefits, and rising insurance costs. We continue implementing multiple cost-savings initiatives to partially offset these increases. We are raising our full-year adjusted free cash flow guidance to a midpoint of $475 million, based on year-to-date performance and favorable provisions passed in the U.S. Tax Act this summer.
Well Q3 presented near term challenges, our highest margin businesses continue to grow and demonstrate competitive strength.
Our incinerators landfills and other permanent locations drove our profitable growth and supported our margin improvement.
The slowdown in industrial services reflects the FERC maintenance and projects that will return to market positioning us well for recovery.
Within field services.
Main confident in our prospects despite the absence of medium and large event work in the third quarter.
S. K S. S appears to have a level off and we expect this segment to deliver greater consistency moving forward.
We look to finish the year strong and carry that momentum into 2026 and are excited about the many growth and margin increasing initiatives undertaken this year, which places us in a solid position for profitable growth as macro conditions improve and we execute on longer term goals.
Eric Dugas: This represents more than 30% growth from 2024, underscoring our focus and ability to convert earnings into substantial free cash flow returns. While Q3 presented near-term challenges, our highest margin businesses continue to grow and demonstrate competitive strength. Our incinerators, landfills, and other permitted locations drove our profitable growth and supported our margin improvement. The slowdown in industrial services reflects deferred maintenance and projects that will return to market, positioning us well for recovery. Within field services, we remain confident in our prospects despite the absence of medium and large event work in the third quarter. SKSS appears to have leveled off, and we expect this segment to deliver greater consistency moving forward.
With that Christine Please open the call for questions.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you. Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Hey, good morning, guys.
Hey, good morning.
Hey, So you know it feels like Theres a lot of puts and takes out there the industrial malaise I guess continues to March on a bit but Eric Dube. It's just.
It looks like you brought the midpoint down call it $15 million, but if you had the bucket. The culprits would you say it was really the field and industrial shortfall and then how big was the health care issue you brought it up a few times was that one time or is that a go forward step up in cost.
Eric Dugas: We look to finish the year strong and carry that momentum into 2026, and are excited about the many growth and margin increasing initiatives undertaken this year, which place us in a solid position for profitable growth as macro conditions improve and we execute on longer-term goals. With that, Christine, please open the call for questions.
Sure Tyler So you know in terms of the total take down the $15 million a lot of that is reflected in our Q3 results are industrial services being the most predominant piece of that you know we estimated $87 million a field services are really just the lack of those.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Medium and large projects that we have you seen a good chunk of them in earlier quarters, probably about $4 million and then the health care and the environmental services segment is about $4 million and probably about 6 million for all to the entire company. So I think you're absolutely right in terms of a lot of puts and takes are we still see really strong momentum in <unk>.
Good volumes in a more of a waste disposal related businesses. The tech services and S. T E. I think those will perform.
[Analyst]: Hey, good morning, guys.
[Analyst]: Hey, guys.
Eric Gerstenberg: Good morning, Tyler.
A quite strong kind of hearing into Q4 90 to 2026 I guess the last point on healthcare Tyler you know it is a it is a trend I think a lot of companies are combating we have built in increases into our Q4 guidance.
[Analyst]: Hey, you know it feels like there's a lot of puts and takes out there. The industrial malaise, I guess, continues to march on a bit. Eric Dugas, it looks like you brought the midpoint down, call it $15 million. If you had to bucket the culprits, would you say it was really the field and industrial shortfall? How big was the healthcare issue? You brought it up a few times. Was that one time, or is that a go-forward step up in cost?
And we're in the process of doing some things to make sure that our weekend, we can offset some of the increases we're seeing there, but probably not entirely unusual but.
Certainly a higher cost than we would've liked here in Q3, Hey, Tom It just sounds like the one thing and.
Eric Dugas: Sure, Tyler. In terms of the total takedown, the $15 million, a lot of that is reflected in our Q3 results. Industrial services being the most predominant piece of that. We estimate maybe $7 million. Field services, really just the lack of those medium and large projects that we've seen a good chunk of in earlier quarters, probably about $4 million. The healthcare and the Environmental Services segment is about $4 million and probably about $6 million overall to the entire company. I think you're absolutely right in terms of a lot of puts and takes. We still see really strong momentum and good volumes in more of our waste disposal-related businesses of technical services and SKSS, and think those will perform quite strong here into Q4, not into 2026. The last point on healthcare, Tyler, it is a trend I think a lot of companies are combating.
One thing I'd add to what Erik said, we did have a fair amount of high cost claims alright, that's much higher than let's say averages for the past two or three years hard for me to say if that's the new normal it doesn't feel that way, but it's but as Eric said, we're trying to make sure. We're changing some of our plans to make sure we cover all of that in 2026.
Okay. Okay. That's helpful. And then I appreciate that you guys arent, giving 26 guidance, but conceptually speaking I mean should we think about EBITDAR on a more consolidated basis kind of flattening out year over year just into maybe the first part of 'twenty six it sounds like maybe air Gerstenberger Youre not looking.
For an industrial pickup really until the spring turnaround season or are there enough internal levers to kind of drive EBITDA growth even in the first half without a whole lot of economic health.
Yeah, Tyler I'll start and they certainly not expecting a real rebound oven industrial turnarounds until the until the spring.
Eric Dugas: We have built-in increases into our Q4 guidance, and we're in the process of doing some things to make sure that we can offset some of the increases we're seeing there. Probably not entirely unusual, but certainly higher cost than we would have liked here in Q3.
However, you know we're going to continue to grow our EBITDA cross sell our waste collection businesses and our service businesses as well. So we were looking at next year preliminarily, we're still of a budget process to go through but 5% EBITDA growth I mean, we're really still targeting that we think we can do that based on the demonstration.
Michael Battles: Hey, Tyler, this is Mike. The one thing I'd add to what Eric said, we did have a fair amount of high-cost claims. Now, that's much higher than, let's say, averages for the past two or three years. Hard for me to say if that's the new normal. It doesn't feel that way, but as Eric said, we're trying to make sure we're changing some of our plans to make sure we cover off on that in 2026.
The cost cutting initiatives and volume and pricing growth and those waste businesses.
Okay. That's extremely helpful. And then I do just want to come back to capital allocation and Mike and Eric just.
[Analyst]: Okay, that's helpful. I appreciate that you guys aren't giving 2026 guidance, but conceptually speaking, should we think about EBITDA on a more consolidated basis, kind of flattening out year over year just into maybe the first part of 2026? It sounds like maybe, Eric Gerstenberg, you're not looking for an industrial pickup really until the spring turnaround season, or are there enough internal levers to kind of drive EBITDA growth even in the first half without a whole lot of economic help?
Obviously, you guys announced the very sizable organic growth project I'm sure someone will go over all of that there was another decent buyback in the quarter, but just realistically what should we be expecting on the M&A front I mean, how does that pipeline look are you looking at bigger deals you're looking at smaller deals do you think you can do.
Something across the line this year or is that something maybe more into 'twenty six.
You know kind of answer that question is yes. So we are looking at larger deals. We're looking at smaller deals you know I I think that we obviously were talking about the FDA going to happy to go into that and maybe other projects, where we're thinking about but in the interim we want to remain prudent and want to remain disciplined like we have for the company's history frankly.
Eric Gerstenberg: Yeah, Tyler, I'll start. They certainly are not expecting a real rebound of industrial turnarounds until the spring. However, you know we're going to continue to grow our EBITDA across our waste collection businesses and our service businesses as well. We're looking at next year preliminary. We still have a budget process to go through, but 5% EBITDA growth, I mean, we're really still targeting that. We think we can do that based on a demonstration of cost-cutting initiatives and volume and pricing growth in those waste businesses.
Certainly in the past couple of years, we certainly try to be very thoughtful about it and make sure. We're getting a good return on our shareholders investment in and and I think there's plenty of plenty of things out there both large sizes.
Publicly available and smaller things that are out there. So we remain very active in the interim we did buy back some shares I don't think that I don't think that's changing trends that's more like we saw an opportunity there to take advantage of some market dislocation and we took advantage of that when we bought back over $115 million worth this year. So I think that that's a good return on our shareholders investment.
[Analyst]: Okay, that's extremely helpful. I do just want to come back to capital allocation, Mike and Eric. Obviously, you guys announced a very sizable organic growth project. I'm sure someone will go over all of that. There was another decent buyback in the quarter. Realistically, what should we be expecting on the M&A front? I mean, how does that pipeline look? Are you looking at bigger deals? Are you looking at smaller deals? Do you think you can get something across the line this year, or is that something maybe more into 2026?
So we'll continue down that path I don't think that's a change in strategy, but we see ourselves as a growth company. We see ourselves is M&A and M&A company and we'll continue to do things like that.
Okay perfect. Thanks, guys.
Okay.
What one follow a few times when you think about you know the 5% that Eric mentioned, yes, obviously budget processes, but it is in that area code and it's probably you know most of that is going to be any S with a little bit in a little bit and S. K and a little bad Guy in and corporate I think as I think about the piece parts of that.
Michael Battles: Yeah, Tyler, the answer to that question is yes. We are looking at larger deals. We're looking at smaller deals. I think that we obviously will talk about the FDA unit, happy to go into that and maybe other projects we're thinking about. In the interim, we want to remain prudent. We want to remain disciplined, like we have for the company's history, frankly. Certainly, in the past couple of years, we certainly tried to be very thoughtful about it and make sure we're getting a good return on our shareholder investment. I think there's plenty of things out there, both large sizes publicly available and smaller things that are out there. We remain very active. In the interim, we did buy back some shares. I don't think that's a change in trends.
Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Thanks.
We continue along the capital allocation theme.
Made some really nice progress this year on free cash flow conversion and free cash flow generation as we've talked about Eric.
With Kimball rolling off.
And the underlying growth.
Mike when you talked about potentially up to 500 million of organic investment and obviously.
Michael Battles: That's more like we saw opportunities there to take advantage of some market dislocation, and we took advantage of that. We bought back over $115 million worth this year. I think that was a good return on our shareholders' investment. We'll continue down that path. I don't think that's a change in strategy, but we see ourselves as a growth company. We see ourselves as an M&A company, and we'll continue to do things like that.
Okay.
Right.
Part of that.
Can you give us some guardrails around.
Where you want to.
It converts to free cash flow to EBITDA within the business broadly over the next couple of years.
Baseline, we should think about and I know, it's a little bit dependent on what kind of M&A you do.
[Analyst]: Okay, perfect. Thanks, guys.
But just kind of trying to give us a baseline level that we should be underwriting here.
Michael Battles: One follow-up too, Tyler, when you think about the 5% that Eric mentioned, obviously, budget processes, it's in that area code, and it's probably most of that's going to be in ES, with a little bit in SK and a little bad guy in corporate, I think, as I think about the piece parts of that.
Sure. So this is Eric dugas.
I think you're absolutely right the free cash flow generation has been a fabulous this year a lot of initiatives on that front you know as we look out into the future I think we're going to continue to target kind of that 40%.
Operator: Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Free cash flow generation, and 40% of EBITDA, I think there'll be pluses and minuses to that along the way for the minuses would be these accretive.
Noah Kaye: Thanks. Let's kind of continue along the capital allocation theme. Made some really nice progress this year on free cash flow conversion and free cash flow generation, as we've talked about, Eric, you know, with Kimbell rolling off and the underlying growth. Mike, when you talked about potentially up to $500 million of organic investments, and obviously, this SDA investment might be part of that, can you give us some guardrails around where you want to convert free cash flow out to EBITDA within the business broadly over the next couple of years? Is there a baseline we should think about? I know it's a little bit past dependent on what kind of M&A you do, but just kind of try to give us a baseline level that we should be underwriting here.
Capital investments that we mentioned that'll be adjusted out of that and then we'll call that out and explain those clearly.
But those are really growth projects that we see and that'll be a detriment to the 40%, but normal baseline guardrails, I'd say, 40% conversion and each you're trying to grow up from that.
I think Pete I think the team under Eric's leadership has done a great job with cash collection. The organization did a great job of cash collections, managing managing managing our spend and you really see it in the margin improvement and that's really been helpful trying to get to that point and hopefully beat that over the next few years.
Okay. Thanks, and just so we're clear you do intend to formally adjust.
This investment out of free cash flow because that was not the case with Kimball right. So there's that.
Eric Dugas: Sure, Noah. This is Eric Dugas, and I think you're absolutely right. The free cash flow generation has been fabulous this year. A lot of initiatives on that front. As we look out into the future, I think we're going to continue to target kind of that 40% free cash flow generation, 40% of EBITDA. I think there'll be pluses and minuses to that along the way. The minuses would be these accretive capital investments that we mentioned that'll be adjusted out of that, and we'll call that out and explain those clearly. Those are really growth projects that we see, and that'll be a detriment to the 40%. Normal baseline guardrails, I'd say 40% conversion and each year trying to grow up from that.
Does that kind of the practice going forward.
Yeah, it's an area of organic investments can be excluded.
Yes, you got it all.
Okay.
And then I guess.
Double click on this specific investment.
Just help us understand.
Some of the key assumptions you made in underwriting. This I mean, you talked about the six to seven year payback, obviously, we've seen the value.
Base oil fluctuate a lot over the company's history.
What is it sort of dependent on to hit those target returns you know from a commodity value.
If at all.
Yeah, I know Oh this is Eric I'll start.
Michael Battles: I think the team under Eric's leadership has done a great job with cash collections. The organization's done a great job with cash collections, managing our spend, and you really see it in the margin improvement. That has really been helpful trying to get to that 40% and hopefully beat that over the next few years.
You know, it's really a great investment for us it's a it's a bolt on technology out at our East Chicago refinery.
And it's upgrading our product that we already produce called P. T. A vacuum tower asphalt extender.
Noah Kaye: Okay. Thanks. Just so we're clear, you do intend to formally adjust this FDA investment out of free cash flow because that was not the case with Kimbell, right? Is that kind of the practice going forward, that these extraordinary organic investments would be excluded?
And it's moving it up the value chain.
Implementing this technology and taking over 30 million gallons of what we already generate itself and creating at them at a market value. There is some certainly some fluctuations in the price of that 600 in <unk>.
<unk>, it's not as it doesn't fluctuate as much as base oil, it's Houston heavy duty applications. So lets us more stable price look at at when we sell that product. So we're excited about that overall, though it's just a straight baseline upgrade of that 30 million gallons into our.
Eric Dugas: Yes, you got it, Noah.
Noah Kaye: Okay. To double-click on this specific investment, I think just help us understand some of the key assumptions you made in underwriting this. You talked about the six to seven-year payback. Obviously, we've seen the value of base oils fluctuate a lot over the company's history. What is it sort of dependent on to hit those target returns, from a commodity value, if at all?
<unk> into a new arena, bringing that up the value chain proven technology with a hydro treater back down in the backend and so we're excited about that incremental $30 million to $40 million of EBITDA. Once we start up in 2028.
No one thing I'd add to that is that it.
As Eric said, we're using kind of are the byproduct of the re refining process is EPA as Eric mentioned and using that in a in this in this process to make up a higher valued product, but there's also that we're not this won't Philadelphia that 30 million gallons won't fill the new product will have an opportunity to grow from there. We're not we're not assuming we get any.
Eric Gerstenberg: Yeah, Noah, this is Eric. I'll start. You know, it's really a great investment for us. It's a bolt-on technology out at our East Chicago refinery, and it's upgrading a product that we already produce called VTAE, a vacuum tower asphalt extender. It's moving it up the value chain by implementing this technology and taking over 30 million gallons of what we already generate and sell and creating it at a better market value. There are certainly some fluctuations in the price of that 600N product. It doesn't fluctuate as much as base oil. It's used in heavy-duty applications, so it's a more stable price look at when we sell that product. We're excited about that. Overall, though, it's just a straight baseline upgrade of that 30 million gallons into a new arena, bringing that up the value chain, proven technology with a hydro treater back down the back end.
They're BTA <unk> million or any other third parties, but that would be upside to the model I reason why I bring that up is just as an example is that I think that as we built this model up it came up with the $30 million $40 million that we spoke of and the like in the last call I think there's plenty of there's plenty of upside to that model I think that we I thought Aragon and went through the analysis with the team you know what.
Very reasonable in our assumptions as far as how we build it how we think about the pace of BJ, how we think about the price of 600 in how we think about the possibility of the plant. How we think about the timeline of building we thought through that we've had many many meetings on this oh without with each with the team and with the board to ensure that we were doing this in a thoughtful way that so we can.
Continue to do what we've done with every life project on time on budget hit the numbers, we say, we're going to hit simple as that.
Eric Gerstenberg: We're excited about that incremental $30 to $40 million of EBITDA once we start up in 2028.
If I could sneak one more in.
Michael Battles: Noah, one thing I'd add to that is that, as Eric said, we're using kind of the byproduct of the re-refining processes, VTAE, as Eric mentioned, and using that in this process to make a higher-value product. There's also that we're not, this won't fill the, you know, that 30 million gallons won't fill the new product. We'll have an opportunity to grow from there. We're not assuming we get any other VTAE from any other third parties, which would be upside to the model. The reason why I bring that up, just as an example, is that I think that as we built this model up, it came up with the $30 million, $30 to $40 million that we spoke of in the live call. I think there's plenty of upside to that model.
I think you were clear now on sort of the.
The Delta.
The expectations in industrial and field services.
I guess just from a forecasting perspective.
I know usual.
Since the gather steam into September and then October is kind of the big months. So.
Yeah.
With that particular line of business sort of just the case that these deferrals really started to manifest late in the quarter.
Okay.
<unk> through through October here, and Thats, what were seeing and is there some way to think about.
Michael Battles: I think that we, I thought Eric and I went through the analysis with the team. We're very reasonable in our assumptions as far as how we build it, how we think about the price of VTAE, how we think about the price of 600N, how we think about the cost of building the plant, how we think about the timeline of building the plant. We thought through that. We've had many, many meetings on this with the team and with the board to ensure that we're doing this in a thoughtful way so we continue to do what we've done with every large project: on time, on budget, hit the numbers we say we're going to hit. Simple as that.
Normal seasonality in the future, perhaps being different at all than what we've seen in the past.
Yeah, No I'll begin this is Eric Wen.
When you look at kind of what occurred in the in the quarter.
Our turnarounds have been the number of pounds of turnarounds, it's been pretty pretty stable, there's been some pushes but overall when we get into working for the turnarounds at our customer sites.
But the turnaround ends up being a little bit less less than what we originally quoted or scope with that customer. They really wanted to get the units cleaned them back online as quickly as possible.
Noah Kaye: If I could sneak one more in, I think you were clear now on sort of the delta versus expectations in industrial and field services. I guess just from a forecasting perspective, I know usually, you know, IS tends to gather steam into September, and then October is kind of the big month. With that particular line of business, was it just the case that these deferrals really started to manifest late in the quarter and kind of continued through October here, and that's what we're seeing? Is there some way to think about normal seasonality in the future crops being different at all than what we've seen in the past?
As we proceed into the fourth quarter, we took that.
Into our guidance for the fourth quarter, we're still haven't turnarounds here is as you mentioned as we flow into October here and and that's our that's solid but where we really didn't we pare it back a little bit of what we expected based on the third quarter results.
We truly expect as things continue to stabilize that as we get into 2026.
We're not losing turnarounds to any competition, we're performing all the turnarounds and we're gonna we expected to have a little bit better growth path.
As the as the economy recovers a little bit in them, particularly in the chemical and refinery sector.
Eric Gerstenberg: Yeah, Noah, I'll begin. This is Eric. When you look at kind of what occurred in the quarter, our turnarounds have been, the number of count of turnarounds has been pretty stable. There's been some pushes, but overall, when we get into working for the turnarounds at our customer sites, the scope of the turnaround ends up being a little bit less than what we originally quoted or scoped with that customer. They really wanted to get the units cleaned and back online as quickly as possible. As we proceed into the fourth quarter, we took that into our guidance for the fourth quarter. We're still having turnarounds here, as you mentioned, as we flow into October here, and that's solid. We really didn't, we pared back a little bit of what we expected based on the third quarter results.
I think just to add one thing to what Eric Eric said and one thing that we can see in our P&L in here around the business as the business is we're setting ourselves up really well for when when things loosen up and come back and when I look at even the industrial services P&L now what I can see much better labor management, So I can see our labor as a <unk>.
<unk> revenue in it that are spot I can see overtime are coming down as a percentage of revenue I can see us using less subcontractor to internalizing more work so.
Despite that our financial results here in Q3, and what we believe into Q4, which is really impacted by that by the cost pressures, particularly in chemical and refinery as we said that those customers are seeing we set ourselves up really well for when things change in the future because I do think those investments, particularly on the labor front in other areas.
The scope of the turnaround ends up being a little bit less than what we originally quoted or scoped with that customer. They really wanted to get the units cleaned and back online as quickly as possible.
You know, we we should reap the benefits of that you know hopefully hopefully next year, but definitely in coming years.
Eric Gerstenberg: We truly expect, as things continue to stabilize, that as we get into 2026, we're not losing turnarounds to any competition. We're performing all the turnarounds, and we're going to, we expect it to have a little bit better growth path as the economy recovers a little bit, particularly in the chemical and refinery sector.
Thank you very much.
Thanks, Sean.
Our next question comes from the line of Jim Schumm with Cowen. Please proceed with your question.
Hey, good morning, guys.
So I guess, maybe hey, how's it going so maybe.
Eric Dugas: Yeah, I think just to add one thing to what Eric said, one thing that we can see in our P&Ls and hear around the business is the business is we're setting ourselves up really well for when things loosen up and come back. When I look at even the industrial services P&L, Noah, I can see much better labor management. I can see, you know, labor as a percentage of revenue in a better spot. I can see overtime coming down as a percentage of revenue. I can see us using less subcontractors and internalizing more work.
As we proceed into the fourth quarter. We took that, uh, into our guidance for the fourth quarter, we're still having turnarounds here, as, as you mentioned, as we flow into October here. And, and that's, uh, that's solid. But we're, we really didn't. We parent back a little bit of what we expected, uh, based on the third quarter results. And we truly expect as things continue to stabilize that as we get into 2026. Uh, we're we're not losing turnarounds to any competition, we're performing all the turnarounds and we're going to, we expect it to have a little bit better growth path. As the, as the economy, recovers a little bit in the, particularly in the chemical and Refinery sector.
Just help me understand I'm sure other people don't know the 600 and base oil market very well can you just help us with like what is the market pricing right now what is like peak to trough pricing.
For this market.
You know, what's the total demand.
Just how should we think about this like what's the what's the total demand. This year what was it five years ago is demand expected to grow why you know what's the end market just help us understand is fairly big investment for you guys. So just want to understand that this market a little better.
Eric Dugas: Despite, you know, the financial results here in Q3 and what we believe into Q4, which is really impacted by the cost pressures, particularly in chemical and refinery, as we said, that those customers are seeing, we set ourselves up really well for when things change in the future because I do think those investments, particularly on the labor front and other areas, you know, we should reap benefits of that, you know, hopefully next year, but definitely in coming years.
Yeah. So we have an hour on the call we've not got taken out I'm trying to explain that 600 and based on market, but I will tell you I will tell you that it is a it is used primarily in industrial applications, which tend to be a little more resilient gear oils heavy duty diesel engines hydraulic oil. It's it's it's not as sensitive to electrification.
Yeah, I think just to add 1 thing to what Eric, Eric said, and 1 thing that, you know, we can see in our p&ls in here around the business is the business is we're setting ourselves up really well for when, when things loosen up and come back. And, and when I look at, even the Industrial Services p&l Noah, I can see much better Labor Management so I can see, uh, you know, labor as a percentage of Revenue in a better spot. I can see over time uh, coming down as a percentage of Revenue, I can see. Yes, using less subcontractors in internalizing more work. So, uh, despite, you know, the, uh, the financial results here in in Q3, and what we believe into Q4, which is really impacted by the, by the cost pressures. Uh, particularly in chemical and Refinery, as we said that those customers are seeing we set ourselves up really well for when things change in the future. Because I do think those Investments particularly on the labor front in other areas. Um, you know, but we we should reap benefits for that, you know, hopefully, hopefully next year. Uh, but definitely in coming years
[Analyst]: Okay, thank you very much.
Okay, thank you very much.
Eric Gerstenberg: Thanks, Noah.
Thanks so much.
Operator: Our next question comes from the line of Jim Buckley with TD Cowen. Please proceed with your question.
Passenger car engine allows would have you know that.
Our next question comes from the line of Jim Sham with TD Cowen. Please proceed with your question.
We've had a lot of customers express interest in this high value are behind this high 600, NOL and we've kind of worked out we gotta gives them samples provided and they seem like there is a very good receptivity in the marketplace with this base oil when you think about that in a market where.
[Analyst]: Hey, good morning, guys.
Eric Dugas: Hi, Jim.
Hey, good morning, guys.
[Analyst]: Hey, how's it going? Maybe just help me understand. I'm sure other people don't know the 600N base oil market very well. Can you just help us with what is the market pricing right now? What is peak to trough pricing for this market? What's the total demand? How should we think about this? What's the total demand this year? What was it five years ago? Is demand expected to grow? Why? What's the end market? Just help us understand. This is a fairly big investment for you guys, so just want to understand this market a little better.
We'd be very very small player in a very large market it tends to trend a little bit when we group to baseball, which has been down over the past couple of three years, but it's at a much higher premium and it's been a consistent you know dollars premium to what we're what we're thinking in the group two base oil.
So maybe. Hey, how's it going? Um, so maybe, um, just help me understand. I'm sure other people don't know the 600 and BASS oil market very well. Can you just help us with, like, what is the market pricing right now? What is like peak to trough pricing?
For this Market.
And most of the country have to import 600, and today, including from Korea and from other places and so and so you know it's hard to kind of put a finger on what's it going to be three years from now we're assuming that it use it the trend we see it's a decrease we were assuming as decreases over the modeling period.
We're not we're not expecting and planning to get turned on until 2028. So we do have some time, there, but I do think that we've put this way we've cut the seven different ways. So lets assume that faithful group of 600 and pricing is down I think there's other levers out there, including taking additional DTA from other customer to help offset that I think the model that we put forth I think it's very balanced.
Michael Battles: Yeah, Jim. We have an hour on the call, so we're not going to take an hour trying to explain that 600N base oil market. I will tell you that it is used primarily in industrial applications, which tend to be a little more resilient than gear oils, heavy-duty diesel engines, hydraulic oils. It's not as sensitive to electrification as passenger car engine oils would have. We've had a lot of customers express interest in this high value of buying this high 600N oil, and we've kind of worked out, we've kind of given them samples of what we provided, and they seem like there's a very good receptivity in the marketplace for this base oil. When you think about the market, we'd be a very, very small player in a very large market.
You know, what's the total demand? Um, you know, just how should we think about this? Like, what's the total demand this year? What was it five years ago? Is demand expected to grow? Why? You know, what's the end market? Just help us, you know, understand this is a fairly big investment for you guys. So, just want to understand this market a little better.
Model hard to predict what happens the batesville hard to pick what happened to 600 and oil, but we think we have enough levers in the model, but even at that comes out a little softer than we expect there's other levers we can pull to help offset that to kind of get to where we need to get to again, we've we've consistently consistently put together.
Large scale construction projects that are on time and on budget that hit or exceed that the EBITDA numbers that we are we have.
See, I did. So we have an hour on the calls that we are not going to take an hour and trying to explain that 600 in base Market. But I will tell you, I will tell you that it is a, it is used primarily in industrial applications, which tend to be a little more resilient and gear oils, heavy duty diesel engines hydraulic oils. It's it's, it's not as sensitive to electrification as passenger car engine oils would have, you know, that we've had a lot of customers expressed interest in this high value of buying this High 600 and oil and we've kind of worked out. We've got to give them samples and what we provided and and they seem like they, it's a very good receptivity in the marketplace, but this base oil
Michael Battles: It tends to trend a little bit with Group 2 base oil, which has been down over the past couple of three years, but it's at a much higher premium. It's been a consistent dollar premium to what we're thinking in the Group 2 base oil. Most of the country has to import 600N today, including from Korea and from other places. It's hard to kind of put a finger on what's it going to be three years from now. We're assuming that the trend we see is some decrease. We're assuming there's decreases over the modeling period. We're not expecting this plant to get turned on until 2028. We do have some time there, but I do think that we've cut this way, we've cut this seven different ways. Let's assume that the Group 600N pricing is down.
We have quoted I believe this is no different.
Mike Thanks for that I, just wanted to clarify it sounded like you said where are you seeing the consumption you're expecting the consumption to decrease over the next couple of years of this of this oil.
No no no. It is more well we are we are.
Assumed pricing goes down a little bit in the modeling.
Not not that not the demand not the demand per se. It is like the point I think that maybe I. Miss spoke is that when we produced 600 and oil where we still be a very small player in a very big 600 end market.
Okay, Okay, alright, thanks for that.
Maybe switching over to the S. K S S guidance I.
Michael Battles: I think there's other levers out there, including taking additional VTAE from other customers to help offset that. The model that we put forth, I think, is a very balanced model. Hard to predict what happens to base oil, hard to predict what happens to 600N oil, but we think we have enough levers in the actual model that even if that comes up a little softer than we expect, there's other levers we can pull to help offset that to kind of get to where we need to get to. We've consistently put together large-scale construction projects that are on time and on budget that hit or exceed the EBITDA numbers that we have quoted. I believe this is no different.
I kind of my recollection was just that it was sort of the 140 was was the number you guys just referenced our midpoint. What is just so everybody's clear like what is the range for S. K S. S. This year. So and then you know what's the confidence level in <unk>.
That $1 40 midpoint.
Jim Eric here, I'd, I'd say that as we sit here today, we're very confident in that $1 40, a mark.
To range bound that I hesitate to do so you might have to force me into a range, maybe it's a few million dollars on either side, but.
A group of 600 and pricing is down. I think there's other levers out there including taking additional btae from other customers to help offset that. I think the model that we put forth, I think is very balanced, model hard to predict what happens to base, oil hard to pick what happens to 600 and oil, but we think we have enough levers in in them as a model. But even that's, that comes up a little softer than we expect. There's other levers, we can pull to help offset that to kind of, get to where we need to get to again. We've we've consistently consistently, put together a a large scale, uh, construction project that are on time. And on budget that hit or exceed, the the evidence that we, we are. We we we, we, we have quoted. I, I believe this is no different.
[Analyst]: Mike, thanks for that. I just wanted to clarify. It sounded like you said, were you saying the consumption, you're expecting the consumption to decrease over the next couple of years of this oil?
The way the business is performing right now, particularly around our initiatives of CFO and our ability to continue to drive CFO pricing due to market conditions.
Michael Battles: No.
[Analyst]: Did I?
Michael Battles: It is more about we have assumed pricing goes down a little bit in the modeling period, not the demand, not the per se. The point I think that maybe I misspoke is that when we produce this 600N base oil, we'd still be a very small player in a very big 600N market, I guess is what I'm trying to say.
The catalyst for that is obviously the high level of service, we continue to provide and the fact that we don't haven't lost customers. I mean that really is the area that the team has done excellent on this year and that gives us the confidence that we'll be able to meet that uninformed millions of EBITDA. So hopefully that answers your question.
[Analyst]: Okay. All right. Thanks for that. Maybe switching over to the SKSS guidance, my recollection was just that it was sort of the $140 million was the number. You guys just referenced a midpoint. What is, just so everybody's clear, what is the range for SKSS this year? And then what's the confidence level in hitting that $140 million midpoint?
Range bound we haven't really looked at it that way but.
My confidence in that number right now we feel the 142, new low watermark, we grow from there.
Mike, thanks for that. I just want to clarify it. It sounded like you said, were you saying the consumption? You're Expecting the consumption to decrease over the next couple of years of this of this oil. Did I? No, no, no, no, no. It, it is more about. We, we have, we have assumed pricing goes down a little bit in the modeling period of of of not, not the, not the demand, not the demand per se. And, and the point I think that maybe I, I misspoke is that when we produce this 600 and oil, we'd still be a very small player in a very big 600n Market. I guess what? I'm trying to say, okay? Okay, all right, thanks for that. Um, maybe switching over to the the skss guidance. I I
Okay, great. Thanks, a lot guys I appreciate it.
Thank you.
Our next question comes from the line of David Manthey with Baird. Please proceed with your question.
Good morning, everyone.
My first question is on incinerator pricing I didn't see a number in the slide deck can you talk about what that was and then somewhat related I know you gave the data specifically in the 10-Q later today, but could you talk about specific growth rates for industrial services field services S. K E Tech service.
Eric Dugas: Jim, Eric here. I'd say that as we sit here today, we're very confident in that $140 million mark. To range-bound that, I hesitate to do so. You might have to force me into a range. Maybe it's a few million on either side. You know the way the business is performing right now, particularly around our initiatives of CFO and our ability to continue to drive CFO pricing due to market conditions, the catalyst of that is obviously the high-level service we continue to provide and the fact that we haven't lost customers. That really is the area that the team has done excellent on this year, and that gives us the confidence that we'll be able to meet that $140 million of adjusted EBITDA. Hopefully that answers your question. Range-bound, we haven't really looked at it that way, but high confidence in that number right now.
I kind of my recollection was just that it was sort of the 140 was was the number you guys just referenced a midpoint? What is uh just so everybody's clear like what is the range for skss this year. So um and then, you know, what's the confidence level in hitting that 140, midpoint?
Jim, uh, Eric
<unk>.
Yeah.
Sure David It's Eric I'll take that and I'm sure the guys will all add up.
And in terms of incineration pricing.
Theres pockets, but over the entire population you know we're looking at mid single digits again, I think pretty consistent with prior quarters.
In terms of you know the different.
Sub business lines or business units underneath yes, you know you'll find our tech services business, a really great revenue growth there are some nice volumes.
Good pricing, but some of our our as we alluded to in the prepared comments had a waste remediation projects those types of things really saw really strong quarter. So you're looking at you know double digit growth there our safety Kleen branch continues to do really well again, some some nice initiatives around our back services and pricing.
Michael Battles: We feel the $140 million is a new low watermark. We grow from there.
[Analyst]: Okay. Great. Thanks a lot, guys. Appreciate it.
Confident in that 140 uh Mark uh to range bound that. I I hesitate to to do so you might have uh, to force me into a range. Maybe it's a few million on on either side but you know, the way the business is performing right now, particularly around our initiatives of CFO, and our ability to continue to drive, CFO pricing due to market conditions. Uh, the Catalyst of that is obviously the high level of service. We can continue to provide in the fact that we don't haven't lost customers. I mean, that really is the area that the, the team has done excellent on this year and that gives us the confidence that we'll be able to to meet that 140 million of Eva. So, hopefully that answers your question. Um, you know, range bound. We haven't really looked at it that way, but high confidence in that number right now, we feel the 140 the new low water, mark, we grow from there.
Eric Gerstenberg: Thank you.
Okay great. Thanks a lot guys, appreciate it.
Thank you.
Operator: Our next question comes from the line of David Manthey with Baird. Please proceed with your question.
Our next question comes from the line of David Manthy with B. Please receive him with your question.
[Analyst]: Good morning, everyone. My first question is on incinerator pricing. I didn't see a number in the slide deck. Could you talk about what that was? Then, somewhat related, I know you give the data specifically in the 10-Q later today, but could you talk about specific growth rates for industrial services, field services, SKSS, and technical services?
Leading to about an 8% growth.
And then we mentioned field services, you know I'm not overly concerned here you'll you'll.
You'll see I believe about a 9% drop in revenue there, maybe a little bit higher 11, now and I'm thinking it through but really it's those projects that didn't come through kind of medium large scale projects. We're not overly concerned about that right. Now these things can be a little episodic, but when you look at that business over the longer term in the last few years.
Yeah, good morning everyone. Um, my first question is on incinerator pricing. I didn't see a, um, number in the slide deck. Could you talk about what that was and then, um, somewhat related, I know you give the data specifically in the 10q later today, but could you talk about specific growth rates for Industrial Services field, services ske, and tech services.
Eric Dugas: Sure. David, it's Eric. I'll take that, and I'm sure the guys will add on. In terms of incineration pricing, there's pockets, but over the entire population, we're looking at mid-single digits again. I think pretty consistent with prior quarters. In terms of the different sub-business lines or business units underneath ES, you'll find our technical services business, really great revenue growth there, some nice volumes, good pricing, but some of our, as we alluded to in the prepared comments, kind of waste remediation projects, those types of things really saw a really strong quarter. You're looking at double-digit growth there. Safety-Kleen branch continues to do really well. Again, some nice initiatives around our back services and pricing, mostly leading to about an 8% growth. We mentioned field services, not overly concerned here.
He's a nice organic growth there so I'm not concerned with that and then industrial services as Eric mentioned earlier.
About I think three or four per cent decline kind of kind of year on year, they're largely related to the to the turnaround services.
That's great. Thank you.
I know, we've talked a lot about capital allocation here this morning, but.
Does the investment you're making in this SBA units say anything about your M&A outlook and I was also wondering that.
Since you put out this vision 2027 goals were a little bit past half time here.
I think hydro Kim was already in the 2022, starting point and you've added Thompson Hepatoma basically but could you maybe talk about.
Sure. Uh, David Eric I'll, uh, take that and I'm sure the guys will will that on, uh, in terms of incineration pricing, um, you know, there there's Pockets, but over the entire population, you know, we're looking at Mid single digits again, I think pretty consistent with, with prior quarters, uh, in terms of, you know, the different, uh, sub business lines or or the business units underneath, yes, you know, uh, you'll find our tech services business, uh, really great Revenue growth there. Uh, some nice volumes, uh, good pricing, but some of our, our, as we alluded to, in the prepared comments, kind of waste remediation projects, those types of things, really saw a really strong quarter. So you're looking at, you know, double digit growth there. Uh, safety clean Branch continues to do really well, again, uh, some some nice initiatives around our back services and pricing.
How things have played out since that update and kind of how you're thinking about the market in general.
Mostly leading to in about an 8% growth.
Eric Dugas: You'll see, I believe, about a 9% drop in revenue there, maybe a little bit higher, maybe 11% now that I'm thinking it through. Really, it's those projects that didn't come through, kind of medium-large-scale projects. We're not overly concerned about that right now. These things can be a little episodic. When you look at that business over the longer term of the last few years, you're going to see some nice organic growth there. Not concerned with that. Industrial services, as Eric mentioned earlier, about a 3% or 4% decline kind of year on year there, largely related to the turnaround services. That's
Yes, Dave This is Mike and I'm sure, Eric and Eric I have some thoughts on this as well, but you know the SDA unit is has.
No reflection no reflection on our on our M&A appetite that was that's been an investment that we've talked about internally for a few you frankly and so this is this is more of like Hey, we got the board approval, we're starting to spend money on it we should talk about it it's material to material asset that we need to make sure that our investors understand it and we can be tracked against.
So that's that's really the driver of the.
<unk> the S D aided the other the other items that are out there. The 500 million those are other things, where we're thinking about how do we think about what where we go next with this we don't have things like like adding more and more hubs or making some investments in other incineration capacity. These are not new topics, we've talked about many times.
Operator: Great. Thank you. I know we've talked a lot about capital allocation here this morning, but does the investment you're making in this FDA unit say anything about your M&A outlook? I was also wondering, since you put out these Vision 2027 goals, we're a little bit past halftime here. I think HydroChem was already in that 2022 starting point, and you've added Thompson and HEPACO, basically. Could you maybe talk about how things have played out since that update and kind of how you're thinking about the market in general?
It was more like just trying to say hey look at that as another good use of capital that has great awesome betrothed as you saw from the math that we're doing on this so that's just a good use of capital you know, we're gonna have a billion dollars of cash, but we're going to generate and are you now.
High four hundreds.
Cash flows in 2026, I mean, though that we're going to have plenty of cash to do a variety of different things, including good M&A, you know and as Eric mentioned in his Eric Dugas spread in his remarks, you know the leverage market is very leveraged very well.
[Company Representative]: Yeah, Dave, this is Mike, and I'm sure Eric and Eric have some thoughts on this as well. The FDA unit has no reflection on our M&A appetite. That's been an investment that we've talked about internally for a few years, frankly. This is more like, "Hey, we got the board approval. We're starting to spend money on it. We should talk about it. It's material. It's a material asset that we need to make sure that our investors understand and we track against that." That's really the driver of the discussion of the FDA unit. The other items that are out there, the $500 million, those are other things we're thinking about as we think about where we go next with this. We look at things like adding more hubs or making some investments in other incineration capacity.
That's great. Thank you. Um, and I know we've talked a lot about Capital allocation here this morning, but does the investment you're making in this SDA unit? Say anything about your m&a, outlook. And I was also wondering that, you know, since you put out these Vision 2027 goals, we're a little bit past half time here. Um, I think hydrochem was already in that 2022, starting point and you've added Thompson and hepaco. Basically, but could you you maybe talk about, um, how things have played out, um, since that update? And, and kind of how you're thinking about the market in general?
Our appetite for debt a debt of gratitude is very strong it's been it was way over subscribed to get the rates are good the team did a great job of pushing that out for a number of years and it shows the appetite in the marketplace has for a high quality debt because of the high quality asset. So I doesn't change one little bit when thinking about vision 2027, and that was always that was always a big.
yeah, Dave, this is my
But it was it was a vision of where we want to take the company, but we wanted to be disappointed about capital and we've been thoughtful about M&A and we will continue to be thoughtful and there are opportunities out there that are big and small and well continue to capitalize on that so and so I'm up to view that nothing has really changed with that announcement with the FDA announcement I just want to make sure that you understand that this is this is more of kind of a tiny.
The issue that we've been talking about for a number of years and wanted to share with the investing public because it's going to be in June.
[Company Representative]: These are not new topics that we've talked about many times before. It's more like just trying to say, "Look, that's another good use of capital that has great, awesome returns, as you saw from the math that we're doing on this." That's just a good use of capital. We're going to have $1 billion in cash by the end of the year. We're going to generate another high $400 million of cash flows in 2026. We're going to have plenty of cash to do a variety of different things, including good M&A. As Eric mentioned in Eric Dugas's remarks, the leverage market is very, our leverage is very low. Our appetite for debt from our debt investors is very strong. It was way oversubscribed.
Eric and Eric have have some thoughts on this as well, but, you know, the, the FDA unit is has has has no reflection no reflection on our on our m&a. Appetite, that was that's been an investment that we've talked about internally for a few years frankly. And so, this is, this is more like, hey, we we, we got the board approval, we'll start to spend money on it. We should talk about it. It's material. It's a material asset that we need to make sure that our investors understand and and and, and we, and we track against that. So that's that's really, that's the driver of of the discussion of the SDA. And then the other the other items that are out there, the 500 million, those are other things. We're we're thinking about, as we think about what where we go next with this. We do at things like like adding more adding more hubs or or or or making some investments in other incineration capacities. These are not not new topics that we've talked about many times before.
Got it thank you.
Yeah.
Our next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question.
Great Thanks, and good morning, everybody.
Okay.
I just thought about the guidance again not to beat a dead horse, but the miss in the quarter and you guys clearly outlined that a little bit of industrial a little bit of field services.
But it sounds like you kind of bucket.
Bucket of that Miss out in the quarter, you called out for the year, but do we do we bounce back what are you assuming a little bit of a better Q3 than.
[Company Representative]: We got the rates, Eric and the team did a great job of pushing that debt out for a number of years, and it shows the appetite that the marketplace has for our high-quality debt because it's a high-quality asset. It doesn't change one little bit. When thinking about Vision 2027, that was always a vision, just what it was. It was a vision of where we want to take the company, but we want to be disciplined about capital, and we've been thoughtful about M&A, and we'll continue to be thoughtful. There are opportunities out there that are big and small, and we'll continue to capitalize on that. I'm of the view that nothing's really changed with that announcement, with the FDA announcement.
When you are going forward already I'm, just kind of curious if no turnaround seemed to be a little bit less even than.
The unexpected.
So do we.
So why what gives you the confidence that we kind of get back to where you thought we were going to be in Q4, not that kind of.
That's right yes.
But yeah, you get where I'm going with that question.
So it's more like just trying to say, look at that's that's another good use of capital that has great. Awesome returns as you saw from the math that we're doing on this. So that's just a good use of capital you know. We're going to have a billion dollars in cash but in the year we're going to generate another you know you know High 400s you know of cash flows in 20206. I mean those are we're going to have plenty of cash to do a variety of different things including good m&a. You know, as as as Eric mentioned, in his Eric Dugas bread and his remarks you know the leveraged Market is is very leveraged, very low. Uh, you know, our our appetite for for debt from our debt. Investors is very strong. It's been it was way over. Subscribe, we got the rates are are and the team did a great job of pushing that debt out for a number of years. And it shows the the appetite that the market player has for our high-quality debt because the high-quality assets. So I I definitely change 1 little bit when thinking about Vision 2027 and that was always that was always a vision. Just what it was it was a vision of where we want to take the company but if we want to be disciplined about capital and we've been thoughtful about m&a and we'll continue to be thoughtful. And and and there are opportunities out there that are big answer.
Certainly certainly Larry and as we digested kind of our Q3 results and then projected are our thoughts on kind of Q4 in the guide there.
[Company Representative]: I just want to make sure that you understand that this is more of a timing issue that we've been talking about for a number of years that we wanted to share with the investing public because it was getting to be a material number.
One thing that gives us a makes it allows us to feel really good about Q4 is I mentioned, a moment ago I think in response to Dave's question kind of the growth that we're seeing in technical services.
Small and we'll change the capitalize on that. So and so I'm up to you that nothing's going to change with that announcement with the FDA announcement. I just want to make sure that you understand that this is this is more of kind of a a timing issue that we've been talking about for a number of years and we wanted to share it with the investing public because it was going to be a serial number.
Operator: Got it. Thank you.
Got it. Thank you.
Tyler Brown: Our next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question.
You know that 12% revenue growth more projects coming our way a continued good waste volumes. So we're continuing to see because of our diverse customer base, although there's softness in certain verticals that he mentioned around chemical and refinery, we continue to increase volumes by collecting from other customers and bringing into the <unk>.
Our next question comes from the line of Larry Solo with CJs Securities. Please proceed with your question.
Michael McDonald: Great. Thanks. Good morning, everybody. First question, just on the guidance again, not to beat a dead horse, but the MIFs in the quarter, you guys clearly outlined that, a little bit of industrial, a little bit of field services. It sounds like you've kind of bucketed that MIFs out in the quarter, and it's Q cards out for the year. Do we bounce back? Were you assuming a little bit of a better Q3 than you are going forward already? I'm just kind of curious if turnarounds seem to be a little bit less even than expected. Why do we, what gives you the confidence that we kind of get back to where you thought we were going to be in Q4? Not to get into the nitpick of the details, but yeah, if you get where I'm going with that question.
Great. Uh, thanks and uh, good morning everybody.
So that part of the business, we see a lot of strength I think the other thing that pleasantly that we saw in Q3 here that I mentioned, a moment ago is our margin expansion right. I mean, I think that as I mentioned in my remarks, the steadfast commitment to continuing to drive margins and generate free cash flows that gives us comfort quite frankly as we.
We move into Q4, and some of those more waste disposal type businesses are certainly the services business as Eric alluded to industrial services, where we're not we're not forecasting any large pickups, there and field services and light industrial services a lot of good margin accretion there that we're seeing but that can be episodic so those medium and.
[Company Representative]: Certainly, Larry. As we digested our Q3 results and then projected our thoughts on Q4 and the guide there, I think one thing that gives us, makes it, allows us to feel really good about Q4 is, I mentioned a moment ago, and I think in response to Dave's question, the growth that we're seeing in technical services, that 12% revenue growth, more projects coming our way, continued good waste volumes. We're continuing to see, because of our diverse customer base, although there's softness in certain verticals that we mentioned around chemical and refinery, we continue to increase volumes by collecting from other customers and bringing into the network. That part of the business, we see a lot of strength. I think the other thing that, pleasantly, we saw in Q3 here that I mentioned a moment ago is our margin expansion, right?
I'm at the guidance again, not not to be a dead horse, but so, the myths in the quarter, you guys clearly outlined that, um, a little bit of industrial a little bit of field services, but it sounds like you, you kind of, you know, you you've bucketed that myth out and the quarter and its cue card that after the year, but do we. So, we bounce back, were you assuming a little bit of a better Q3, you know than you are going forward already. I'm, I'm just kind of curious. If, you know, turn around seem to be a little bit less seasoned, um, than expected, you know. So do we, you know, so why we what is the gives you the confidence that we kind of get back to where you thought we were going to be in Q4, you know, not not to kind of get into the nitpick of the details. But yeah, if you get where I'm going with that question,
Large jobs will come back it's just a question of when and where quite frankly.
Yes.
Okay. So I guess, I mean, I guess, what I'm, saying.
I would say 1111 thing Larry did that and I would say that you know kind of all of us at all all of our lease all of this and they've got to escape that makeup environmental services had had good margin accretion year over year and when you think about from a from where we were a year ago, where we were concerned about S. Cashless, while we stabilize that business. We were concerned about the free cash flow conversion well, yeah, we're going to have.
Certainly certainly Larry. And and as we, you know, digested kind of our Q3 results and then projected our our thoughts on kind of Q4, and the guide there, you know, I think 1 thing that gives us, uh, uh, makes it allows us to feel really good about Q4 is I mentioned a moment ago and I think in response to today's question kind of the the growth that we're seeing in Technical Services.
Great free cash conversion this year for them to continue to grow when you think about when you think about EBITDA margins in our March 30% margins. I mean, that's yes that continues on unabated 14 straight quarters of year over year margin growth. So I mean, I I feel like I feel like we're kind of hitting our stride is a miss I get that I get the point, but really it really is and I think very very temporary as I said it.
[Company Representative]: I mean, as I mentioned in my marks, the steadfast commitment to continuing to drive margins and generate free cash flows, that gives us comfort, quite frankly, as we move into Q4 and some of those more waste disposal type businesses. Certainly, the services business, as Eric alluded to, industrial services, we're not forecasting any large pickups there. Field services, again, like industrial services, a lot of good margin accretion there that we're seeing, but that can be episodic. Both medium and large jobs will come back. It's just a question of when and where, quite frankly. Mm-hmm.
Absolutely absolutely I appreciate that and I'm kind of looking at how this miss.
How do you put this thing.
On a go forward basis as opposed to just a mess.
I just want to make sure that going forward.
Asleep, it's only one quarter, but throughout we appreciate it's a little bit of color for next year that 5% number which I'm sure can now can move around and I was just kind of a baseline we'd get all that but I just wanted to make sure that you're not it doesn't sound like Europe.
Building, a rapid improvement of industrial or field service, so just kind of trying to save them.
If you Werent building that in this quarter than what we have done this but I get that you have to call. It really does help.
Waste disposal type businesses. Uh certainly the services business as Eric alluded to Industrial Services. We're we're not we're not forecasting. Any large pickups there and field services again like Industrial Services. A lot of good margin accretion there that we're seeing uh but there that can be episodic. So both medium and large jobs will come back. It's just a question of when and where quite frankly
Operator: Okay. I would say one more thing, Larry, to that end. I'd say that all our LOBs, all the businesses that make up SK, that make up Environmental Services, had good margin accretion year over year. When you think about from where we were a year ago, where we were concerned about SK assets, we stabilized that business. We were concerned about free cash flow conversion. We're going to have great free cash flow conversion this year if we continue to grow. When you think about EBITDA margins and our marked 30% margins, I mean, that on ES, that continues on unabated. It's 14 straight quarters of year-over-year margin growth. I feel like we're kind of hitting all our strides. Look, it's a miss. I get that. I get the point. It really is, I think, very, very temporary, as I said in my prepared remarks.
Shifting gears real fast not just on PFS I'm it sounds like things are continuing to.
To go well internally.
To get a real acceleration.
21% growth is great, but I think your Q is growing a lot faster than that.
Translate that into actual sales right.
Need some governmental.
Some kind of legislation or something I guess, right or maybe even that out.
Okay. So I guess, I guess I would say I would say 1 more 1, more thing Larry to that end, I'd say that, you know, all our all our LS. All the businesses that make up SK that make up Environmental Services, had had good margin accretion year over year and and when you think about from a, from where we were a year ago, where we were concerned about SK assets, but we've stabilized that business, we're concerned about, you know, free cash flow conversion while we had we're going to have great free cash conversion this year, current continue to grow. When you think about, when you think about IBM margins and our margin of 30% margins, I mean that
She'll Defense authorization act or something and I guess, we're just in a holding period on that.
Obviously government shut down doesn't help but any any further any color on that.
Yeah, Larry this is erica so.
Michael McDonald: Absolutely. No, absolutely. I appreciate it. I'm kind of looking at how this MIF, how you put this in as on a go-forward basis as opposed to just the MIF. I just want to make sure that going forward, obviously, it's only one quarter, but you threw out a, we appreciate a little bit of color for next year in that 5% number, which I'm sure could move around. That's just kind of a baseline. We get all that. I just wanted to make sure that you're not, it doesn't sound like you're building in a rapid improvement in industrial or field services. I was kind of trying to say, if you weren't building that in in this quarter, then why do we have the MIF? I get the extra color really does help.
So you're getting a are the results of our tests that we did on our thermal units out and exposed and published by the EPA was a great milestone for us the activity in the market has been extremely strong and became even stronger when that published results came out.
The level of activity of of what we've seen how our pipeline has been growing we've continuously talked about how our pipeline has been growing 15% 20%.
Yes, that continues on unabated, it's 14, straight quarters of year-over-year, margin growth. So I mean, I, I feel like, I feel like we're kind of hitting all our strides look at. It's a Miss. I get that I get the point but really it really is, I think very, very temporary. As I said, in my prepared remarks uh absolutely. Absolutely. And I appreciate it and and I'm kind of looking at go. You know how this mis, you know, how you, you know, put this in as on a go forward basis as opposed to just a myth but you know uh I just want to make sure that going forward. Obviously it's only 1 quarter but you know, you threw out of we appreciate that. A little bit of caller for next year and that 5% number which I'm sure you know, could move around. That's just kind of what they fun. We get all that.
But I just wanted to make sure that you're not.
You're building in a rapid improvement, industrial, or field service. So it just is kind of trying to say then.
Quarter over quarter. It continues to do that it feels like we even got more of a bump. So we're not we're not really thinking that any major change in regulation has to happen to continue to drive that growth and even accelerated where we're pretty bullish on how are our prospects are panning out in the opportunities.
Michael McDonald: Just shifting gears real fast, just on PFAS, it sounds like things continue to go well internally. To get a real acceleration, obviously, 20-25% growth is great, but I think your Q is growing a lot faster than that. To translate that into actual sales, right? We'll need some governmental, some kind of legislation or something, I guess, right? Or maybe even the National Defense Authorization Act or something. I guess we're just in a holding period on that. Obviously, government shutdown doesn't help, but any further, any color on that?
In front of us so we feel pretty good about it we think it's just going to accelerate in it and as far as the department of defense lifting their monitory them. That's just and that will be just another accelerator for us and we're optimistic about that as well.
Alright, I appreciate that thanks.
If you weren't building that in in this core, then why do we have them Miss? But I, I get the the extra call, I really does help. Um, just shifting, gears, real fast, not just on Pas. Um, it sounds like things are, are continue to to go, well, internally, um, to to get a real acceleration. Obviously, 20 25% growth is great, but I think your queue is probably a lot faster than that to, to translate that into actual sales. Right. We'll we'll, we'll need some governmental, um, some kind of legislation or something, I guess, right? Or maybe even the National Defense, authorization act or something, and I guess we're just in a holding period on that.
Sure.
Our next question comes from the line of games or acuity with Needham <unk> Company. Please proceed with your question.
Eric Gerstenberg: Yeah, Larry, this is Eric. Obviously, getting the results of our test that we did on our thermal units out and exposed and published by the EPA was a great milestone for us. The activity in the market has been extremely strong and became even stronger when that published results came out. The level of activity of what we've seen, how our pipeline has been growing, we've continuously talked about how our pipeline has been growing 15% to 20% quarter over quarter. It continues to do that. It feels like we even got more of a bump. We're not really thinking that any major change in regulation has to happen to continue to drive that growth and even accelerate it. We're pretty bullish on how our prospects are panning out and the opportunities in front of us. We feel pretty good about it. We think it's just going to accelerate.
Obviously, a government shutdown doesn't help. But, any further color on that?
Hey, good morning, so I'll try to chemical.
The refinery markets.
Are you seeing any choppiness any other signs of weakness in some of the broad in markets that you guys surface.
James Eric This isn't all begin no we havent, we really as evidenced by our results in Q3.
Volumes have been growing across our our waste businesses. It really strong through Q3, we're beginning.
Yeah. Larry this is Erica. So, you know, obviously getting uh our the results of our tests that we did on our our thermal units out and exposed and published by the EPA was a great milestone for us. The activity in the market has been extremely strong and became even stronger. When that published results came out, uh, the the level of activity of of what we've seen how our pipeline has been growing. We've continuously talked about how our pipeline has been growing 15 to 20%.
Q4, very strong so where theres been this.
This pullback a little around spending around <unk>.
Turnarounds and chemical spending around turnarounds on the waste side of the business that's been strong volumes price.
Into the network and project growth with our.
Eric Gerstenberg: As far as the Department of Defense lifting their moratorium, that will be just another accelerator for us. We're optimistic about that as well.
G fast, but other projects hammer happening across the board. So we feel pretty good about what we've seen from manufacturing from retail from all.
Michael McDonald: Great. I appreciate it, Eric. Thanks.
Quarter over quarter, it continues to do that. It feels like we even got more of a bump so we're not, we're not really thinking that any major change in regulation has to happen to continue to drive that growth. And even accelerate it we're we're pretty bullish on how our our prospects are panning out and the opportunities in front of us. So we feel pretty good about it. We think it's just going to accelerate and it and as far as the Department of Defense lifting their monitoring that's just an that will be just another accelerator for us and we're we're optimistic about that as well.
The whole list of other verticals that we service and that's that's really you know very resilient and our waste collection business because of all the diverse verticals that we serve it's everybody's generating hazardous waste and what they're making out there these days.
Eric Gerstenberg: Sure.
All right, I appreciate it. Thanks.
Sure.
Tyler Brown: Our next question comes from a line of James Ricciardi with Needham & Company. Please proceed with your question.
Michael Battles: Thanks. Good morning. Outside of chemical, the refinery markets, are you seeing any choppiness, any other signs of weakness in some of the broad end markets that you guys service?
Our next question comes from the line of James Rudy with Any & Company. Please proceed with your question.
And we're certainly a beneficiary of driving those volumes into our network, which we continue to see that.
Thanks. Good morning. So, outside of the chemical re... the refinery markets.
Projects that were left.
Okay.
Maybe just turning to Kimball and I know you touched on a little bit, but how how should we be thinking about how the scale up of Kimball is goings.
Are you seeing any choppiness? Any other signs of weakness in some of the the broad in markets that you've got service?
Eric Gerstenberg: James, Eric, this is I'll begin. No, we haven't. We really, as evidenced by our results in Q3, our volumes have been growing across our waste businesses. It's really strong through Q3. We're beginning Q4 very strong. Where there's been this pullback a little around IS spending, around turnarounds and chemical spending, on around turnarounds on the waste side of the business, it's been strong. Volumes, price, into the network and project growth with PFAS, but other projects happening across the board. We feel pretty good about what we've seen from manufacturing, from retail, from all the whole list of other verticals that we service. That's really, you know, very resilient in our waste collection business because of all the diverse verticals that we service. Everybody's generating hazardous waste and what they're making out there these days.
The discussions youre, having with customers and yes, you've talked in the past about a.
Better network efficiencies that come as a result of this essentially some lift to margins just talk to us about maybe how kimball plays out in 2026.
Yeah. So in the third quarter. This year, we are the new Kimball incinerator train two unit.
Processed over 10000 tons. When we came into the year are our plan was to burn an incremental 28000 tons in our network and we're doing that with the Kimball expansion. It's been great. The ramp up has been solid.
Typical startup type things, we expect that to that tonnage to continue to grow as we've laid out nothing Ah that everything that we see continues to see a path to hit our ramp up objectives of that new unit going into 2026.
Eric Gerstenberg: We're certainly a beneficiary of driving those volumes into our network, which we continue to see. Projects are a lift.
The network efficiencies are are alive, and well the routing of our how we manage our customers' waste into our units transportation efficiencies those are showing up. So we're really we're really bullish about how Kimball has helped the network in so many ways as far as speed.
A little around is spending around turnarounds and chemical spending, uh, down around turnarounds on the way side of the business. It's been strong volumes price, uh, into the network and project growth with, uh, with P Pas, but other projects haven't happening across the board. So we feel pretty good about what we've seen from manufacturing from, uh, retail from all the whole list of other verticals that we service. And that's, that's really, um, you know, very resilient in our waste collection business because of all the diverse verticals that we service everybody's generating hazardous waste and what they're making out there these days. And and we're certainly a beneficiary of driving those volumes into our Network which we continue to see and projects are left.
Michael Battles: Okay. Maybe just turning to Kimbell, and I know you touched on it a little bit, but how should we be thinking about how the scale-up of Kimbell is going, maybe the discussions you're having with customers? You've talked in the past about better network efficiencies that come as a result of this and potentially some lift to margins. Just talk to us about maybe how Kimbell plays out in 2026.
With our customers you know the trend continues on how our network provides them.
Really our security.
And being able to have multiple units service their needs and well positioned geographically with transportation efficiencies built on and when we even think about what's going on with captives. We talked a lot about that where are the interest of what we have now.
Okay. Uh, maybe just turning into Kimball. Um, and I I know you you touched on it a little bit, but yeah. How, how should we be thinking about how the scale up of Kimball is going? Uh, maybe discussions, you're having with customers and yeah, you've talked in the past about, uh, you know, better Network efficiencies that come as a result of this and and potentially some lift to margins and just
Talk to us about how Kimball plays out in 2026.
Eric Gerstenberg: Yeah. In the third quarter of this year, the new Kimbell incinerator train two unit processed over 10,000 tons. When we came into the year, our plan was to burn an incremental 28,000 tons in our network, and we're doing that with the Kimbell expansion. It's been great. The ramp-up has been solid, typical startup type things. We expect that tonnage to continue to grow as we've laid out. Everything that we see continues to see a path to hit our ramp-up objectives of that new unit going into 2026. The network efficiencies are alive and well. The routing of how we manage our customers' waste into our units, the transportation efficiencies, those are showing up. We're really bullish about how Kimbell has helped the network in so many ways.
Yeah, so in the third quarter this year, we...
We are trained to unit.
It continues to be strong those captives are our customers as we've mentioned our relationships with them are strong as they continue to evaluate their cost positions. We have active discussions. So we're we're just adding kimble to where our network continues to <unk>.
Route to them in those large generators of hazardous waste that we have the network and the capabilities to supply their needs.
Got it last question just on M&A.
Processed over 10,000 tons. When we came into the year, uh, our our plan was to burn an incremental, 28,000 tons in our Network. And we're doing that with the Kimbell expansion. It's been great. The ramp up has been solid, uh, typical startup type things. We expect that to that tonnage to continue to grow as we've laid out. Nothing, uh, that everything that we see continues to see a path to hit our ramp up objectives of that new unit going into 2026.
You touched on this but it's.
Valuations are is that the main challenge with respect to.
The potential for larger opportunities that might be out there.
Just wondering how we might think about the.
Eric Gerstenberg: As far as speaking with our customers, the trend continues on how our network provides them security in being able to have multiple units service their needs and well-positioned geographically with transportation efficiencies built on. When we even think about what's going on with captives, we talk a lot about that, where the interest of what we have now, it continues to be strong. Those captives are our customers, as we've mentioned. Our relationships with them are strong as they continue to evaluate their cost positions. We have active discussions. Adding Kimbell to our network continues to prove to them and those large generators of hazardous waste that we have the network and the capabilities to supply their needs.
The pipeline for larger deals.
What do you think about larger deals. Jeff. This is Mike are you know certainly valuations have gone up from where they were in the whole industry, including us, including our topic as it has experienced.
So valuation appreciation, which is well deserved probably could go further.
But but I think that we have.
Best opportunity for the larger deal to provide the most amount of synergies that are out there that would provide me when you look at it kind of post synergy basis on multiple levels that are very reasonable and very.
The network efficiencies are are alive and well, the routing of our, how we manage our customers, waste into our units, the transportation efficiencies, those are showing up. So we're really uh we're really bullish about how Kimball has helped the network in so many ways as far as speaking with our customers. You know the trend continues on how our Network provides them. A, a really, uh, Security in being able to have multiple units service, their needs and the well positioned geographically with Transportation efficiencies built on. And uh when we even think about what's going on with captives, we talk a lot about that. Um where the interest
Value accretive to our shareholders. So.
He answered the answer your question.
I understand you're suddenly.
Look at deals all the time prices certainly part of the discussion no doubt about it we're trying to be thoughtful and make sure we get a good return, but I think on the on some of the gives a look at synergy synergy component a big part of it I think we can provide a fair amount larger.
Larger deals we're looking at.
Thanks.
Of what we have now, it continues to be strong. Those captives are our customers. As we've mentioned, our relationships with them are strong as they continue to evaluate their cost positions. We have active discussions. So we're just adding Kimball to our network, which continues to prove to them that we have the network and the capabilities to supply the needs of those large generators of hazardous waste.
Michael Battles: Got it. Last question, just on M&A, and again, you touched on this, but is valuations, or is that the main challenge with respect to, you know, the potential for larger opportunities that might be out there? Just wondering how we might think about the pipeline for larger deals.
Our next question comes from the line of Tobey Sommer with true. It's please proceed with your question.
Thanks, I'm going to ask another capital allocation question, but maybe from a broader perspective over the next.
Two years, plus if you look back at your Investor Day, you know.
But two and a half years ago, you had about $3 4 billion you saw it at the time, Inc.
[Company Representative]: When you think about larger deals, Jim, this is Mike. Certainly, valuations have gone up from where they were. The whole industry, including our stock, has experienced some valuation appreciation, which is well-deserved. It probably could go further. I think that we have the best opportunity for the larger deal to provide the most amount of synergies that are out there. That would provide, when you look at it, kind of post-synergy basis on multiple levels that are very reasonable and very value-accretive to our shareholders. The answer to your question is that we're trying to stay in our swim lane. We look at deals all the time. Price is certainly part of the discussion, no doubt about it. We're trying to be thoughtful and make sure we get a good return. I think on some of the deals we look at, synergy component is a big part of it.
Got it last question, just on on m&a. And again, you you touched on this but um, it's valuations are, is that the main challenge with respect to, you know, the potential for larger opportunities that might be out there. Um, just wondering how we might think about, um, the pipeline for larger deals.
Incremental you'd be able to deploy on acquisitions now you got 500 million internal investments that you cited and who knows maybe there was even more.
Oh the.
When you think about larger deals Jim, this is Mike. Uh, you know, certainly most, you know, valuations have gone up from where they were, you know, the whole industry including our including our stock is is has experienced, you know, kind of
If you could compare and contrast sort of.
Today's capital allocation profile between acquisitions share repurchase and internal investments versus what you thought two and a half years ago, what are the differences in the mix of spend.
Some valuation appreciation, which is well deserved, could probably go further.
Yeah.
Tobey This is Mike I'll start and Eric can chime in yeah, I think that Theres been really no change in our deployment of capital. When you think about internal investments or buybacks I think those two when you think about the four legs of the still the fourth being debt repayments you.
[Company Representative]: I think we can provide a fair amount of synergies for the larger deals we're looking at.
No I think that Ah I did that we had gained consistent posture on on on both.
But but I think that we have the best opportunity for the larger deal to provide the most amount of synergies that are out there. And that would provide, if when you, when you look at it kind of post, Synergy basis on multiple levels that are very reasonable and, and, and very value accretive to our show. So the answer, the answer, your question is that we we try to stand there some Lane we, we look at deals all the time prices certainly part of the discussion, no doubt about it. We're trying to be thoughtful and make sure we get a good return, but I think on the on some of the other look at synergy, synergy components that big part of it and I think we can provide a fair amount of service to them a larger deal, but look at that.
Michael Battles: Thanks.
Thanks.
Capital out kind of internal growth projects like the chemical et cetera, now like the SDA unit or or buyback, but it can be a steady steady growth of our buybacks. This evening, but a little higher than normal, but you know we buy back a floor plus depending on the market. That's out there we still have $350 million.
Tyler Brown: Our next question comes from a line of Toby Sommer with Truist. Please proceed with your question.
Our next question comes from the line of Toby Sr with truist. Please receive with your question.
Michael Battles: Thanks. I'm going to ask another capital allocation question, but maybe from a broader perspective over the next, you know, two years plus. If you look back at your investor day, you know, two and a half years ago, you have about $3.4 billion you thought at the time you'd incrementally be able to deploy on acquisitions. Now we've got $500 million internal investments that you cited, and who knows, maybe there's even more. How does the, if you could compare and contrast sort of today's capital allocation profile between acquisitions, share repurchase, and internal investments versus what you thought two and a half years ago, what are the differences in that mix of spend?
Availability under our current authorization.
About M&A I mean, M&A is lumpy. It takes two it takes two to tango and and we got to make sure that we're getting a good return on our investments. We never said it was gonna be a straight line to get to to get to that level of growth. We always said that it's gonna be it you know this is kind of we want a message to the street that this was our Eric and my intent to go do M&A, but it's got to make financial sense and.
And as such there have been deals that we got to a point, where we stop or deals that didnt fit very well that we talked to the board about a couple three times it didn't fit well that we decided not to go forward. So these are all the process of being very cost disciplined getting trying to make sure we get a good return.
Ago, you have about 3.4 billion. You saw it at the time. You'd uh incrementally, you'd be able to deploy on Acquisitions. Now we've got 500 million, internal Investments That You cited. And who knows, maybe there's even more. How does the if you could compare and contrast sort of today's Capital, allocation profile between acquisition share, repurchase and internal Investments versus what you thought, 2 and a half years ago? What are the the differences in that mix of spend?
[Company Representative]: Toby, this is Mike. I'll start, and Eric can certainly chime in. I think that there's been really no change in our deployment of capital when you think about internal investments or buybacks. I think those two, when you think about the four legs of the stool, the fourth being debt repayments, I think that we have maintained a consistent posture on both capital out, capital internal growth projects like the Kimbell incinerator, now like the FDA unit, or buybacks. We can be a steady growth of buybacks this year, maybe a little higher than normal, but we buy back the flow plus depending on the market that's out there. We still have $350-plus million of availability under our current authorization. When I think about M&A, I mean, M&A is lumpy.
I think our long term shareholders are happy about it.
So, this is Mike.
And if I could ask another question about health care expense.
Do you anticipate health care expense.
Gross increasing or accelerating again next year.
Yeah, I think that there's been really no change, uh, in our deployment of capital when you think about internal investments or by Max. I think those two, when you think about, you know, the four legs of the store, the fourth being debt repayments.
The the surveys out of the Big Health care consulting firms suggest that next year, it's going to be.
You know, I think that the, I think that we have maintained a consistent posture on on, on on
Even tougher.
Yeah Tobey its at its Eric here I think difficult to project kind of read the same news you do I think at a at a gross level.
Certainly I don't think one could say that health care costs in general won't increase however, I think some of the reasons for our increase this year that Mike mentioned around you know the preponderance of high cost claims the frequency of those this year, just seems to be higher than normal and I don't necessarily see.
Both you know, capital out of cap internal growth projects like the Kimbell incinerator. Now, like the SDA unit, you know, or bypass would be. I steady a steady growth of buybacks this year, maybe a little higher than normal, but you know we buy back the flow plus depending on the market that's out there. We still have $350 million plus of availability under our current authorization.
[Company Representative]: It takes two to tango, and we got to make sure that we're getting a good return on our investments. We never said it was going to be a straight line to get to that level of growth. We always said that it was going to be, you know, this is kind of we wanted to message into the street that this was our, Eric and my, intent to go do M&A, but it's got to make financial sense. As such, there have been deals that we got to a point where we stopped or deals that didn't fit very well that we talked to the board about a couple, three times that didn't fit well, that we decided not to go forward on. These are all the process of being very cash disciplined, trying to make sure we get a good return.
That impact continuing it could but I think the the law of kind of long term averages would get that back down to a normal level. So I think in short, yes, they'll continue to increase I don't think it will increase at the same level that we saw this year at a gross AR at the gross level. However, as I mentioned earlier, we are doing.
[Company Representative]: I think that our long-term shareholders are happy about it.
Some things internally.
To try to mitigate the increase and I think it will mitigate the increase in health care costs going forward.
What I think about m&a, I mean m&a is Lumpy takes 2 takes 2 to tango and and and we got to make sure that we're getting a good return on our investments. We never said it was going to be a straight line to get to, to get to that level of growth. We always said that it's going to be, you know, this is kind of we want to message to the street that this was our Eric and my intent to go do m&a, but it's got to make Financial sense. And and, and as such there have been deals that that we've got to a point where we stopped or deals that didn't fit very well, that we talked to the board about a couple 3 times. It didn't fit well, that that we decided not to go forward. Um, so these are all the process of being very cash disciplined. Getting trying to make sure we get a good return. And I think that, I think that our long-term shareholders are happy about right.
Michael Battles: If I could ask another question about healthcare expense, do you anticipate healthcare expense growth increasing or accelerating again next year? Some of the surveys out of the big healthcare consulting firms suggest that next year is going to be even tougher.
Thank you.
Mr. Grasberg, we have no further questions at this time I'd like to turn the floor back over to you for closing comments.
And if I could ask another question about health care expense. Um, do you anticipate Healthcare expense?
Thanks, Christine and thanks, everyone for joining us today, our next investor event will be at the Baird Industrial conference in Chicago in a few weeks followed by a Stephens event that Jim will be presenting at Nashville.
Growth, increasing or accelerating again next year. Some of the, the surveys out of the big Health Care consulting, firm suggests that next year is going to be, uh, even tougher.
[Company Representative]: Yeah, Toby, it's Eric here. I think it's difficult to project, kind of read the same news you do. I think at a gross level, you know, certainly, I don't think one could say that healthcare costs in general won't increase. However, I think some of the reasons for our increase this year that Mike mentioned around, you know, the preponderance of high-cost claims, the frequency of those this year just seems to be higher than normal. I don't necessarily see that impact continuing. It could, but I think the law of kind of long-term averages would get that back down to a normal level. In short, yes, they'll continue to increase. I don't think they'll increase at the same level that we saw this year at the gross level. However, as I mentioned earlier, we are doing some things internally to try to mitigate the increase.
Also I have a great day to day and keep it safe and enjoy the upcoming holiday season.
<unk>.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Yeah.
Difficult to project. Kind of read the same news you do. I think at a, at a gross level, um, you know, certainly I I don't think 1 could say that healthcare costs, in general, won't increase. However I think some of the uh reasons for our increase this year, that Mike mentioned around, you know, the preponderance of high cost claims uh the frequency of those this year.
[Company Representative]: I think it will mitigate the increase in healthcare costs going forward.
Just seems to be higher than normal and I and I don't necessarily see that impact continuing it. It could, uh, but I think the, the law of kind of long-term averages would get that back down to a normal level. So I, I think in short, yes, they'll continue to increase. I don't think they'll increase at the same level, uh, that we saw this year at at a gross, uh, at the gross level. However, as I mentioned earlier, we are doing some things internally uh, to to try to mitigate the increase and I think it will mitigate uh the increase in healthcare costs going forward.
Michael Battles: Thank you.
Thank you.
Tyler Brown: We have no further questions at this time. I'd like to turn the floor back over to you for closing comments.
Eric Gerstenberg: Thanks, Christine, and thanks, everyone, for joining us today. Our next investor event will be at the Baird Industrial Conference in Chicago in a few weeks, followed by a Stevens event that Jim will be presenting at in Nashville. Also, have a great day today. Keep it safe and enjoy the upcoming holiday season. Thank you.
Mr. Grossenburg we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.
Thanks Christine.
And thanks everyone.
Industrial conference in Chicago, in a few weeks.
Followed by a Stevens event that Jim will be presenting at in Nashville.
Also uh have a great day today. Keep it safe and enjoy the upcoming holiday season. Thank you.
Tyler Brown: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.