Christine: 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.
Michael McDonald: Thank you, Christine, and good morning, everyone. With me on today's call are our co-chief executive officers, Eric Gerstenberg 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. 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. Today's discussion includes references to non-GAAP measures. Clean Harvest believes that such information provides an additional measurement in consistent historical comparison performance. Reconciliations of these measures to the most directly comparable gap 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 Gerstenberg to start. Eric? Thanks, Michael. Good morning, everyone, and thank you for joining us. As always, let me start with our safety results. Through September 30th, 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 reputations. 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. Our ES segment grew on strength in technical services and SK branch. Our safety clean sustainable solution 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 ES businesses, we drove pricing gains and improved productivity while lowering costs, driving better margin contributions. 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 health care 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 2025 and across our businesses put us in a position to benefit as some 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 waste volumes, PFAS work, remediation projects, and pricing grew over 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 92% versus 89% in the same period of 2024. For comparison purposes, our utilization excludes the new unit in Kimball as we continue to ramp up. With Kimball 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. 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 clean environmental services rose 8% through a combination of pricing gains and growth in our core service offerings. The number of parts washed services was 249,000 in the quarter, with a larger average service ticket per stock. 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 median to large response projects. While we responded to more than 5,900 ER events, 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. While we are hopeful that maintenance deferrals from IS 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, In 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 DOD. 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 to disposal. We are in active discussions with customers on projects across many of these fronts and expect PFAS to generate 100 to 120 million in revenue this year, up 20 to 25 percent from a year ago. 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 SKSS and capital allocation. Mike?
Mike 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 dividend 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 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. Turn to slide seven. Today we announced plans to construct a state-of-the-art processing plant that we refer to internally as the SDA unit. By using an industry-proven solvent de-asphalting process and combining it with our existing hydro-treating capabilities, we can unlock incremental value from an everyday product, VTAE, generated today in our re-refinements. This new plant will upgrade BTAE 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 SDA unit is expected to be 210 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 to $40 million, a six- or seven-year payback on the investment, once completed. Such a return will rival what we've seen from similar-sized incineration projects and represent an additional growth opportunity for SKSS. Turning to capital allocation on slide 8, 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 non-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 transaction. We've also been evaluating a series of internal investments, including today's announcement of the FDA unit. 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 expansions, 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 $15 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. Tariff-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 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. We also remain excited about the steady ramp-up in production and mix in our new Kimball incinerator as it works toward full capacity. For SKSS, we believe we've stabilized this business with our efforts around CFO, partnerships, and Group 3 production, and are looking forward to the new SDA unit. We expect to achieve our profitability targets for this business in 2025. And with that, let me turn it over to our CFO, Eric Dukes.
Eric Dugas: Thank you, Mike, and good morning, everyone.
Eric Dugas: 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 health care 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. 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 remain solid driving revenue growth despite macro headwinds in some verticals like chemical. SKSF delivered more than $40 million in EBITDA, its strongest quarter in a year, demonstrating operational resilience in a soft-based oil market. SG&A expense as a percentage of revenue increased from a year ago to 12.2%, reflecting higher health care costs, professional fees, and compensations. 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. 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, we 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. 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 cash generative nature of our business model. CapEx net of disposals of $83 million was down from the prior year, reflecting disciplined capital allocation. 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 SD&A unit and Phoenix hub project, we now expect our net capex be in the range of 340 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. 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. to our annual guide. Importantly, we anticipate any Q4 carryover effects in the field services or industrial services will be offset by our facility's 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, optimistic about our future and ability to navigate the current landscape. As KSF 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 and 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. 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 permanent 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. 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.
Christine: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Tyler Brown: Hey, good morning guys.
Eric Dugas: Hey guys.
Tyler Brown: Hey, so, 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, but Eric, do this just, it looks like you brought the midpoint down, call it 15 million, but if you had to bucket the culprits, would you say it was really the field and industrial shortfall? And then 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?
Eric Dugas: Sure, Tyler. So, you know, 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, you know, we estimate maybe $7 million. Field services, you know, 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. And then the healthcare and the environmental services segment is about $4 million and probably about $6 million overall to the entire company. So 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 tech services and SKE, and think those will perform quite strong kind of here into Q4 and into 2026. I guess the last point on healthcare, Tyler, you know, it is a trend I think a lot of companies are combating. We have built in the increases into our Q4 guidance, and we're in the process of you know, doing some things to make sure that we can offset some of the increases we're seeing there. But probably not entirely unusual, but certainly a higher cost than we would have liked here in Q3.
Mike Battles: Hey, Tyler, this is Mike. 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.
Tyler Brown: Okay. Okay, that's helpful. And then I appreciate that you guys aren't giving 26 guidance, but conceptually speaking, I mean, should we think about EBITDA on a more consolidated basis kind of flattening out year over year just into maybe the first part of 26? 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?
Michael McDonald: Yeah, Tyler, I'll start. Certainly not expecting a real rebound of industrial turnarounds until the spring season. However, you know, we're going to continue to grow our EBITDA across our waste collection businesses and our service businesses as well. So 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 the demonstration of cost-cutting initiatives and volume and pricing growth in those waste businesses.
Tyler Brown: Okay, that's extremely helpful. And then I do just want to come back to capital allocation. Mike and Eric, just 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, 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? 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 26?
Mike Battles: You know, Tyler, the answer to that question is yes. So we are looking at larger deals. We're looking at smaller deals. You know, I think that we obviously would talk about the FDA and happy to go into that and maybe other projects we're thinking about. But in the interim, you know, we want to remain prudent. We want to remain disciplined like we have for the company's history, frankly. But certainly in the past couple years, we certainly tried to be very thoughtful about it and make sure we're getting a good return on our shareholder investment. And I think there's plenty of things out there, both large sizes, publicly available, and smaller things that are out there. So, you know, we remain very active. In the interim, we did buy back some shares. I don't think that's a change in trends. That's more like we saw opportunities there to take advantage of some market dislocation, and we took advantage of that. And we bought back, you know, over $115 million worth this year. And so... I think that's a good return on our shareholders' investment. 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 as M&A company, and we'll continue to do things like that.
Tyler Brown: Okay, perfect. Thanks, guys.
Mike Battles: And one follow-up, too, Tyler, when you think about the 5% that Eric mentioned, obviously budget processes is in that area code, and it's probably most of that's going to be in EFs. with a little bit in SK and a little bad guy in corporate, I think, as I think about the piece by today.
Operator: Our next question comes from the line of Noah Kay with Oppenheimer.
Christine: Please proceed with your question.
Noah Kay: Thanks. Let's 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 investments, and obviously this SDA investment might be part of that, Can you give us some guardrails around where you want, you know, to convert Free Cashflow Labs to Evita within the business broadly over the next couple of years? Is there a baseline we should think about? And I know it's a little bit path 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.
Eric Dugas: Sure, Noah. So this is Eric Dugas. And, you know, I think you're absolutely right. As we look out into the future, I think we're going to continue to target that 40% free cash flow generation, 40% 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. But 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.
Mike Battles: I think the team under Eric's leadership has done a great job with cash collections. The organization has done a great job with cash collections, managing our spend, and you really see it in the margin improvement, and that's really been helpful trying to get to that 40% and hopefully beat that over the next few years.
Noah Kay: Okay, thanks. And just so we're clear, you do intend to formally adjust this SDA investment out of free cash flow because that was not the case with Kimball, right? So is that kind of the practice going forward that these extraordinary organic investments can be excluded?
Eric Dugas: Yes, you got to know.
Noah Kay: Okay. And then I guess, you know, to double-click on this specific investment, yeah, I think just help us understand, you know, you know, 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 of base oils fluctuate a lot over the company's history. What is it dependent on to hit those target returns, you know, from a commodity value, if at all?
Michael McDonald: Yeah, no, this is Eric. I'll start first. It's really a great investment for us. It's a bolt-on technology out at our Chicago refinery. It's upgrading a product that we already produce called BTA, 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 is 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, so 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.
Mike Battles: And, Noah, one thing I'd add to that is that, you know, as Eric said, we're using kind of our – the byproduct of the re-refining process is VTAE, as Eric mentioned, and using that in this process to make a higher-value product. But there's also that – we're not – this won't fill the – you know, that 30 million gallons won't fill the new – we'll have an opportunity to grow from there. We're not assuming we get any other VTAE from any other third parties, which that would be upside to the model. Right? 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 thought Eric and I, when we went through the analysis with the team, were very reasonable in our assumptions as far as how we build it, how we think about the price of VKE, 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 it. And 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.
Eric Dugas: Simple as that.
Noah Kay: 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 IS tends to gather steam into September and then October is kind of the big month. So, you know, with that particular line of business, was it just the case that, you know, these deferrals really started to manifest late in the quarter and continued through October here and that's what we're seeing? And is there some way to think about, you know, normal seasonality in the future, perhaps being different at all than, than, you know, what we've seen in the past?
Michael McDonald: Yeah, no, I'll begin. This is Eric. When, when you look at kind of what occurred in the, in the quarter, our turnarounds have been, the number of count of turnarounds has been pretty, 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 as you mentioned, as we flow into October here, and that's solid. But we really didn't. We pared back a little bit of what we expected based on the third quarter results. And 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 expect it to have a little bit better growth path as the economy recovers a little bit, particularly in the chemical and refinery sector.
Eric Dugas: I think just to add one thing to what Eric said and one thing that we can see in our P&Ls and here around the businesses, the business is we're setting ourselves up really well for when things loosen up and come back. And when I look at even the industrial services P&L, NOAA, I can see much better labor management. So I can see 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. So 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, But we should reap benefits of that, you know, hopefully next year, but definitely in coming years.
Eric Dugas: Okay. Thank you very much. Thanks, Tom.
Christine: Our next question comes from the line of Jim Shum with TD Cowan. Please proceed with your question.
Jim Shum: Hey, good morning, guys. Hi, Jim. Hey, how's it going? So maybe... 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, um, 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 I just want to understand this market a little better.
Mike Battles: We have an hour on the call, so we're not going to take an hour trying to explain that 600N base market, but I will tell you, I will tell you that it is used primarily in industrial applications, but 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, buying this high 600N oil, and we've kind of worked out, we've kind of given them samples of what we've 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. It tends to trend a little bit with Group 2 base oil, which has been down over the past couple, 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. And so, you know, it's hard to kind of put a finger on what's it going to be three years from now. You know, we're assuming that the trend we see, we're assuming it decreases over the modeling period. You know, we're not expecting this plant to get turned down until 2028. So we do have some time there. But I do think that we've cut this way. We've cut this seven different ways. So let's assume that basal group 600N 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 it's 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. Again, we've consistently, consistently put together a large-scale construction project that are on time and on budget that hit or exceed the evident numbers that we have quoted. I believe this is no different.
Jim Shum: Mike, thanks for that. I just want to clarify, it sounded like, were you saying the consumption, you're expecting the consumption to decrease over the next couple of years of this oil? No, no, no, no.
Mike Battles: It is more about, we have assumed pricing goes down a little bit in the modeling period. not the demand per se. And the point I think that maybe I misspoke is that when we produce this 600N oil, we'd still be a very small player in a very big 600N market, is what I'm trying to say.
Jim Shum: Okay. Okay. All right. Thanks for that. Maybe switching over to the SKSS guidance, I kind of, My recollection was just that it was sort of the 140 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 midpoint?
Eric Dugas: Jim, Eric here. I'd say that as we sit here today, we're very confident in that 140 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. But 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. 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 $140 million of EBITDA. So hopefully that answers your question. 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 is a new low watermark. We grow from there.
Jim Shum: Okay, great. Thanks a lot, guys. Appreciate it.
Eric Dugas: Thank you.
Operator: Our next question comes from the line of David Manthe with Baird. Please proceed with your question.
David Manthe: 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? And then 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, Dave, it's Eric. I'll take that, and I'm sure the guys will go ahead 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 tech 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. So you're looking at, you know, double-digit growth there. Safety Clean Branch continues to do really well. Again, some nice initiatives around our back services and pricing, mostly leading to about an 8% growth. And then we mentioned field services, you know, Not overly concerned here. 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. 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 or the last few years, you're going to see some nice organic growth there. So not concerned with that. And then industrial services, as Eric mentioned earlier, you know, about I think a 3% or 4% decline kind of year on year there, largely related to the turnaround services.
David Manthe: That's great. Thank you. 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 halftime here. I think Hydrochem was already in that 2022 starting point, and you've added Thompson and HEPCO, basically. But 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?
Mike Battles: Yeah, Dave, this is Mike, and I'm sure Eric and Eric have some thoughts on this as well. But, you know, the SDA unit has no reflections. no reflection on our M&A appetite. That's been an investment that we've talked about internally for a few years, frankly. And so 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 a material asset that we need to make sure that our investors understand and we track against that. So that's really the driver of the discussion of the SDA. 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, things like adding more hubs or making some investments in other incineration capacity. These are not new topics that we've talked about many times before. So 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. So that's just a good use of capital. You know, we're going to have a billion dollars in cash by the end of the year. We're going to generate another, you know, high 400s of cash flows in 2026. I mean, we're going to have plenty of cash to do a variety of different things, including good M&A. You know, as Eric mentioned in his remarks, you know, the leverage market is leveraged very low. You know, our appetite for debt from our debt investors is very strong. It was way oversubscribed. 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. So 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 about And there are opportunities out there that are big and small, and we'll continue to capitalize on that. And so I'm of the view that nothing's really changed with that announcement, with the FDA announcement. I just want to make sure that you understand that this is more of kind of 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 getting to be a material number.
Eric Dugas: Got it. Thank you.
Operator: Our next question comes from the line of Larry Solo with CJS Securities.
Christine: Please proceed with your question.
Larry Solo: Great. Thanks, and good morning, everybody. First question, just on the guidance again, not to be a dead horse, but the myths in the quarter, you guys clearly outlined that, a little bit of industrial, a little bit of field services, but it sounds like you've bucketed that myth out in the quarter, and it's a few cards out for the year, but do we So 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. So what gives you the confidence that we kind of get back to where you thought we were going to be in Q4? Not to kind of get into the nitpick of the details, but if you get where I'm going with that question.
Eric Dugas: Certainly, Larry, and as we, you know, digested kind of our Q3 results and then projected our thoughts on kind of Q4 and the guide there, you know, I think one thing that gives us, allows us to feel really good about Q4 is, I mentioned a moment ago, and I think in response to Dave's question, kind of the growth that we're seeing in technical services, you know, that 12% revenue growth, more projects coming our way, continue good waste volumes. So 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. 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... 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 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. And field services, again, like industrial services, a lot of good margin accretion there that we're seeing, but that can be episodic. So Both medium and large jobs will come back. It's just a question of when and where, quite frankly. Okay.
Mike Battles: I guess I would say one more thing, Larry, to that end. I'd say that all our LOVs, all the businesses that make up SK, that make up environmental services, had good margin accretion year over year. And when you think about from where we were a year ago, where we were concerned about SK assets, well, we stabilized that business. We were concerned about free cash flow conversion. Well, we're going to have great free cash flow. conversion this year for a day to grow. When you think about dividend margins, a margin of 30% margin, I mean, yes, that continues on unabated. It's 14 straight quarters of year-over-year margin growth. So, I mean, I feel like we're kind of hitting all our strides. Look, 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 preparing remarks.
Larry Solo: Absolutely. Absolutely. And I appreciate it. And I'm kind of looking, you know, how this missed how you put this on a go-forward basis as opposed to just a miss. I just want to make sure that going forward, obviously it's only one quarter, but we appreciate a little bit of color for next year and that 5% number, which I'm sure could move around. That's just kind of a base on we get all that. But I just want to make sure that it doesn't sound like you're building a rapid improvement in industrial or field service. So I'm just kind of trying to say then, If you weren't building that in this quarter, then why would we have the miss? But I get the extra call. It really does help. 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. And I guess we're just in a holding period on that. Obviously, government shutdown doesn't help, but any further, any color on that?
Michael McDonald: Yeah, Larry, this is Eric. So, you know, obviously getting 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 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. So 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. So we feel pretty good about it. We think it's just going to accelerate. And as far as the Department of Defense lifting their monitorium, that will be just another accelerator for us, and we're optimistic about that as well.
Eric Dugas: Great. I appreciate that. Thanks. Sure.
Operator: Our next question comes from the line of James Rashudi with Needham & Company.
Christine: Please proceed with your question.
James Rashudi: Thanks. Good morning. So 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 serviced?
Michael McDonald: James, Eric, 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. So where there's been this pullback a little around IS spending, around been strong volumes, price into the network and project growth with PFAS, but other projects happening across the board. So we feel pretty good about what we've seen from manufacturing, from retail, from the whole list of other verticals that we service. And 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, and we're certainly a beneficiary of driving those volumes into our network, which we continue to see, and projects are a lift.
James Rashudi: Maybe just turning to Kimball, and I know you touched on it a little bit, but how should we be thinking about how the scale-up of Kimball is going, maybe discussions you're having with customers, And, yeah, you've talked in the past about, you know, better network efficiencies that come as a result of this and potentially some lift to margins. And just talk to us about maybe how Kimball plays out in 2026.
Michael McDonald: Yeah, so in the third quarter this year, the new Kimball incinerator train two unit processed over 10,000 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. So we're really bullish about how Kimball has helped the network in so many ways. As far as speaking with our customers, the trend continues on how our network provides them a really security environment in 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 talk a lot about that. We're at 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 capabilities cost positions, we have active discussions. So we're just adding Kimball 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.
James Rashudi: Got it. Last question, just on M&A, and again, you touched on this, but is valuations, 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.
Mike Battles: When you think about larger deals, Jim, this is Mike. You know, certainly most, you know, valuations have gone up from where they were in the whole industry, including our stock has experienced, you know, kind of some valuation appreciation, which is well-deserved, probably could go further. 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, when you look at it, kind of post-synergy basis on multiple levels that are very reasonable and very value-accretive to our shareholders. So 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. But I think on some of the deals we look at, Synergy component is a big part of it.
Eric Dugas: I think we can provide a fair amount of synergy for the larger deals we're looking at. Thanks.
Operator: Our next question comes from the line of Toby Somer with Truist. Please proceed with your question.
Toby Somer: 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, two and a half years ago, you have about $3.4 billion. You thought at the time, 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. If you could compare and contrast sort of today's capital allocation profile between acquisition, share repurchase, and internal investments versus what you thought two and a half years ago? What are the differences in that mix of spend?
Mike Battles: Toby, this is Mike. I'll start, and Eric 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 internal growth projects like the Kimball Incinerator, now like the SBA unit, or buybacks, 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. It takes two to tango, and we've 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 to the street that this was our Eric and mine's intent to go do M&A, but it's got to make financial sense. And 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. So these are all the process of being very cash disciplined, trying to make sure we get a good return. And I think that our long-term shareholders are happy about it, frankly.
Toby Somer: And 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.
Eric Dugas: Yeah, Toby, it's Eric here. I think difficult to project, kind of read the same news you do. I think at a gross level, certainly I don't think one could say that healthcare costs in general will increase. However, I think some of the reasons for our increase this year that Mike mentioned around 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 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. So I think 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, and I think it will mitigate the increase in health care costs going forward.
Operator: Thank you. Mr. Gerstenberg, we have no further questions at this time.
Christine: I'd like to turn the floor back over to you for closing comments.
Michael McDonald: 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.
Christine: 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.
