Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Clean Harbors Inc (CLH, Financial) delivered exceptional Q2 performance, surpassing guidance with record volumes of containerized waste and sustained pricing momentum.
- Revenue and adjusted EBITDA were the highest in the company's history, with adjusted EBITDA margin improving by 50 basis points year over year.
- Environmental Services segment enjoyed a 12% revenue increase, driven by robust demand and the first full quarter of Hypercom acquisition.
- SKSS segment posted a substantial sequential increase from Q1, fueled by the start of the summer driving season and improved lubricant prices.
- The company is on track to open a new state-of-the-art incinerator in Kimball, Nebraska, in Q4, which will add significant capacity.
Negative Points
- Corporate costs were higher in the quarter due to incremental headcount from acquisitions, greater incentive compensation, and discrete expenses related to legal and environmental liability matters.
- Industrial Services revenue declined by 10% due to reduced turnaround activity compared to last year.
- The market did not fully incorporate announced base oil price increases, leading to a weaker spot market for non-contracted volumes.
- SG&A expense as a percentage of revenue was 12.7% in Q2, higher than the prior year period due to increased costs from acquired businesses and nonrecurring expenses.
- Depreciation and amortization in Q2 were up from a year ago, primarily due to acquisitions, impacting overall profitability.
Q & A Highlights
Q: So obviously, this quarter was great, very solid growth along with record backlogs. But as we watch the industrial production, the story in the industrial economy doesn't seem all together that great. So I was hoping you guys could kind of bridge that gap. Is it just that there is a lot of tightness in the hazardous waste markets, maybe back in '21, '22, you're still feeling some of the reverberations of that. Has there been a steady stream of deferred cleanup work that you guys just winning market share. Just what do you think is driving the solid momentum? Is there really any reason to believe that that enrollment momentum can continue into '25?
A: Yes, Tyler, this is Eric, I'll begin here so long. I think you made a lot of great points right there, and they're all in line with how our business has been doing. There continues to be tightness across the whole hazardous waste industry tightness incineration. Our team though, has just done an awesome job on executing on many different strategies, though, that we've had to grow all of our lines of business with our customers get more penetrated into those customers. So when you think about our truck growth, as an example, we've seen drum growth and growing our market share in the environmental business, the technical service area, the Safety-Kleen Environmental. We've also seen strong project growth across the board. We continue to see all of our facilities really handle a tremendous amount of volumes through them from incineration to wastewater treatment to landfill to our TSDFs. They've all done a great job handling this volume. So all in all, yes, all of those factors that you just mentioned have played into how we've done as a company and really growing our volumes and leveraging our facilities network that is really unparalleled. So great job to the team.
Q: And you know, but Eric so I know that the segments have moved around a bit over the years, but is it 27.5 of record margin in the ES. And I get that Q2 is typically your seasonally strongest margin quarter. But if you look at margins, they're up over 300 basis points on a three year stack. I know that 30% is an aspirational goal in the US, but maybe how aspirational really is it at this point? Is it something that could be achievable by '27, particularly is as Campbell ramps up?
A: Yes, we certainly think that's achievable, Tyler. It's -- you look at that growth, it is to your point a record Q2 for margin, even with the Industrial Services having less turnarounds year over year, team did a great, great job of leveraging the network and leveraging our fixed costs and taking out and managing efficiencies throughout the network. So a lot of great work that we put into getting to where we are today. And yes, we do believe that we will continue to be able to have margin expansion in the environmental business and to for that 30% goal to that 2027.
Q: Just a little bit more color on the $24 million of large-scale ER on what exactly was that and does that revenue linger into the second half?
A: Yes, I would say there was a couple of large events that we had one in the Midwest and one in the Pacific Northwest we had a couple of other sizable events as well that all went into that $24 million that we point out. Some of that's going to continue to carry over into Q3. But for the most part, they're starting to wind down.
Q: I think incinerator pricing was 3% in the quarter. Just wondering how that breaks down between core price and mix and then can you talk to us about your pipeline for your hazardous waste landfill and incinerator business? How do you expect product mix to trend in the back half of the year? Versus last year? Thanks.
A: Yes, Jerry, on so for the second quarter, as we've talked about before, we had a really large shutdown in our Deer Park incinerator. That unit is one of the largest consumers of our direct burn bulk waste streams. So that certainly had an effect in the mix of that overall incineration pricing. Year to date, we're on a 5% to 6%, a little bit down last year, but as things change a little bit, but some overall just again, continued strong and performance will continue to outpace inflation on the incineration pricing size. And we are we have always to continue to work on that. On the landfill and incineration pipeline area. They're strong as we showed data from our second quarter performance and year to date open projects and base business and drum volumes into our landfill. All those pipelines are up into those units and a great job to on some of the fairly large projects that we've been able to leverage into those sites. On the incineration side, when we just met recently on our quarterly operating review, not just in incineration, but across the business. All the pipelines were really growing. And we look at how we segment our business, look at lines of business, the different business units, real solid pipeline growth quarter-over-quarter, and year over year and second quarter. So they're solid. And you can see also from our deferred revenue or deferred revenue ticked up to $108 million. So up we're really excited to really leverage that Kimbell incinerator that we're bringing online in Q4. So some solid momentum there.
Q: Was wondering if you could just talk about how you see the recent Chevron rolling affecting the PFAS opportunity, if at all, and more broadly hazardous waste regulations set by the EPA?
A: Yes, our interpretation, Adam of Chevron is that it is not going to have really any effect on the on the regulatory environment for us and for to and particularly plus the regulations that are in play today. When you think about record waste codes around how we still manage to the right disposal option. Those aren't going to be changed. They've been in place for a long time. They're very, very rigid Foundation record regulations. We don't think Chevron at all affects that. And on a PFAS side, there's so much data, so much analytical over the years have helped keep us has really affected the environment, hard to everything that a Chevron rolling is going to affect how those regulations are going to continue to play out for the industry.
Q: First question on the symbol. So it adds, I think, approximately 18% to your incineration capacity. And assuming you can take on and the higher value waste streams, it could be even more than that as it relates to the dollars. But I'm trying to circle in here on the tech services subsegment, revenue contribution from Kimbell. And I think in the past back in many years ago, you gave us a breakdown of tech services between incineration, skilled labor, transportation, landfills, wastewater, TSDFs, all kinds
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
