Clean Harbors, Inc. (CLH) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance, particularly in Environmental Services and SKSS segments, alongside a record free cash flow. Despite some revenue declines, the company maintains a positive outlook, with robust EBITDA growth and strategic investments. Share buybacks and optimistic guidance for PFAS projects further support a positive sentiment. However, the reduction in guidance and lack of clarity on some aspects temper the overall positive outlook. Therefore, a positive stock price movement of 2% to 8% is anticipated.
Key Financial Performance
Total Revenue $1.55 billion in Q3, with Environmental Services growth stemming from a wide range of service offerings and diversified customer base.
Adjusted EBITDA Increased 6% to $320 million, demonstrating profitable growth through margin expansion.
Adjusted EBITDA Margin Expanded to 20.7%, led by a 120 basis point improvement in Environmental Services, reflecting pricing initiatives, cost reduction efforts, and productivity gains.
Net Income Grew modestly year-over-year, delivering earnings per share of $2.21.
Environmental Services Segment Revenue Up 3% year-over-year, driven by waste volumes, PFAS work, remediation projects, and pricing gains.
Environmental Services Segment Adjusted EBITDA Up 7% year-over-year, marking the 14th consecutive quarter of margin growth.
Incineration Utilization 92% versus 89% in the same period of 2024, excluding the new unit in Kimball. Including Kimball, utilization was 88%.
Landfill Volumes Up 40% year-over-year.
Safety-Kleen Environmental Services Revenue Rose 8% year-over-year due to pricing gains and growth in core service offerings.
Field Services Revenue Declined 11% year-over-year due to the absence of medium to large response projects.
Industrial Services Revenue Down 4% year-over-year as customers in chemical and refining verticals limited spending on turnarounds.
PFAS-Related Revenue Expected to generate $100 million to $120 million in 2025, up 20% to 25% from a year ago.
SKSS Adjusted EBITDA More than $40 million in Q3, its strongest quarter of the year, with a 100 basis point margin improvement.
Waste Oil Collection 64 million gallons in Q3, consistent with the second quarter.
Free Cash Flow Record adjusted free cash flow of $231 million in Q3, up $86 million year-over-year.
SG&A Expense Increased to 12.2% of revenue, reflecting higher health care costs, professional fees, and compensation.
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Operating Highlights
PFAS incineration study: Completed a successful PFAS incineration study in partnership with the EPA and DoD, confirming the ability to safely destroy PFAS chemicals at a commercial scale. PFAS-related revenue is expected to reach $100-$120 million in 2025, up 20%-25% from 2024.
SDA Unit: Announced plans to construct a state-of-the-art Solvent De-Asphalting (SDA) Unit with a total spend of $210-$220 million, expected to generate $30-$40 million in annual EBITDA upon completion in 2028.
Waste volumes and pricing gains: Growth in waste volumes and pricing gains contributed to revenue increases in Environmental Services, with Technical Services leading with 12% growth.
PFAS opportunities: PFAS-related projects are gaining traction, with a growing pipeline expected to contribute meaningfully to future activity.
Safety performance: Achieved a TRIR of 0.49 through September 30, reflecting strong safety measures and operational focus.
Cost management: Implemented cost-saving strategies, including workforce and equipment utilization, to offset revenue declines in Industrial and Field Services.
Capital allocation: Invested in high-return projects like the SDA Unit and Phoenix Hub, with plans to invest over $500 million in internal projects over the next several years.
Share repurchases: Repurchased $50 million in shares during Q3, with $380 million remaining under authorization.
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Risk or Challenges
Macroeconomic Factors: Softer conditions resulting from macroeconomic factors have impacted some customers, leading to slowness in field services and industrial services.
Field Services Revenue Decline: Field Services revenue declined 11% year-over-year due to the absence of medium to large response projects, impacting overall revenue.
Industrial Services Revenue Decline: Revenue in Industrial Services was down 4% year-over-year as customers in chemical and refining verticals limited spending on turnarounds due to cost pressures.
Employee Health Care Costs: Higher-than-anticipated employee health care costs increased corporate segment expenses, partially offsetting cost-cutting actions.
Base Oil Market Pricing Headwinds: Pricing headwinds in the base oil market have persisted, impacting the Safety-Kleen Sustainable Solutions segment.
Deferred Maintenance in Industrial Services: Deferred maintenance and projects in Industrial Services reflect spending constraints in key verticals like chemicals and refineries, with no meaningful recovery expected before the spring turnaround season.
Tariff-Related Uncertainty: Tariff-related uncertainty and other macroeconomic factors in the North American economy have created ripple effects, impacting some customers over the past two quarters.
Insurance Costs: Higher insurance expenses have contributed to increased corporate segment costs.
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Guidance & Outlook
PFAS-related sales: Expected to generate $100 million to $120 million of revenue this year, up 20% to 25% from a year ago. Anticipated to further accelerate in the years ahead based on pipeline and market momentum.
SDA Unit Construction: Plans to construct a state-of-the-art processing plant with a total spend of $210 million to $220 million. Commercial launch anticipated in 2028, expected to generate annual EBITDA of $30 million to $40 million.
Capital Allocation: Potential investment of over $500 million in internal projects over the next several years, including processing capabilities, hub locations, fleet expansions, and incineration capacity.
Economic Outlook: Anticipates incentives to reshore and benefits from the recent U.S. tax bill to drive growth in American manufacturing, supporting remediation and waste projects.
Industrial and Field Services: Spending constraints in key verticals like chemicals and refineries expected to loosen in the coming quarters as economic conditions improve.
Kimball Incinerator: Steady ramp-up in production and mix, working towards full capacity.
2025 Adjusted EBITDA Guidance: Revised to a range of $1.155 billion to $1.175 billion, reflecting Q3 results and current market conditions.
Environmental Services Adjusted EBITDA: Expected to increase by more than 5% from 2024.
SKSS Adjusted EBITDA: Expected to stabilize at $140 million for the full year 2025.
Adjusted Free Cash Flow Guidance: Raised to a midpoint of $475 million for 2025, representing more than 30% growth from 2024.
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Shareholder Return Plan
Share Repurchase: 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. 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.
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Key Q&A
Q:What were the main factors contributing to the $15 million midpoint reduction in guidance?
A:The $15 million reduction was primarily due to a $7 million shortfall in Industrial Services, $4 million in Field Services due to a lack of medium and large projects, and $4 million in healthcare costs within the Environmental Services segment. Healthcare costs were higher than expected in Q3, and the company is taking steps to offset these increases.
Q:What is the outlook for EBITDA growth in 2026?
A:The company is targeting 5% EBITDA growth in 2026, driven by cost-cutting initiatives, volume, and pricing growth in waste collection and service businesses. However, a rebound in industrial turnarounds is not expected until the spring.
Q:What is the company's approach to capital allocation, including M&A and share buybacks?
A:The company is actively pursuing both larger and smaller M&A deals while remaining disciplined and focused on shareholder returns. They have also conducted share buybacks worth over $115 million this year, taking advantage of market dislocation. The company views itself as a growth and M&A-focused organization.
Q:What are the company's free cash flow conversion targets?
A:The company is targeting a 40% free cash flow conversion of EBITDA, with potential adjustments for accretive capital investments. They aim to grow this baseline over time.
Q:What are the key assumptions behind the SDA investment?
A:The SDA investment involves upgrading 30 million gallons of VTAE into a higher-value 600N product, with an expected $30-$40 million EBITDA contribution starting in 2028. The company has modeled conservative assumptions for pricing and costs, and there is potential upside from additional VTAE sourcing.
Q:What caused the decline in Industrial and Field Services revenue?
A:Industrial Services revenue declined by 3-4% due to reduced turnaround scope and customer cost pressures. Field Services revenue dropped by 9-11% due to a lack of medium and large projects, which are episodic in nature.
Q:What is the company's outlook for PFAS-related projects?
A:The company is optimistic about PFAS-related projects, with a growing pipeline and strong market activity. They do not see a need for major regulatory changes to drive growth and expect acceleration in this area.
Q:What is the status of the Kimball incinerator expansion?
A:The Kimball incinerator expansion is on track, with over 10,000 tons processed in Q3. The company plans to burn an incremental 28,000 tons in 2026, achieving network efficiencies and meeting ramp-up objectives.
Q:What is the company's perspective on the 600N base oil market?
A:The 600N base oil market is used in industrial applications and is less sensitive to electrification trends. The company expects stable demand and has modeled conservative pricing assumptions. They will be a small player in a large market, with potential upside from additional VTAE sourcing.
Q:What is the company's confidence level in meeting SKSS guidance?
A:The company is confident in meeting the $140 million SKSS guidance, with strong performance in CFO pricing and service levels. They view $140 million as the new low watermark for growth.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the range for SKSS guidance, only stating confidence in the $140 million figure. Additionally, they did not provide clear data on the 600N base oil market's total demand or pricing trends, citing the complexity of the market. They also avoided giving a detailed range for Industrial and Field Services revenue declines, only offering approximate percentages.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Dugas
Field Services
III production
Incineration utilization
Industrial Services
Kimball
SDA Unit
SK branch
SKSS capital
Safety Kleen
Slide
Technical Services
VTAE
asset
base oil
chemical refining
efficiency
employee
environment condition
focus
gain productivity
health care
increase cost
investment
line expectation
processing
productivity margin
quarter
repurchase
safety result
study EPA
track
transaction
vertical
waste volume
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