Note: This is an earnings call transcript. Content may contain errors.

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DATE

Wednesday, Oct. 29, 2025, at 9 a.m. ET

Call participants

  • Chief Executive Officer — Eric Gerstenberg
  • Chief Financial Officer — Eric Dugas
  • Co-President — Michael Battles

Risks

  • Field services revenue declined 11% year-over-year due to the absence of medium to large response projects, resulting in a shortfall versus guidance.
  • Industrial services revenue decreased 4% as customers in chemical and refining verticals limited turnaround spending, with no meaningful recovery expected before the spring season.
  • Elevated employee healthcare costs increased SG&A as a percentage of revenue to 12.2% and contributed approximately $6 million to company-wide cost increases, which management described as above normal levels.
  • 2025 adjusted EBITDA guidance (non-GAAP) was revised downward, primarily due to industrial and field services shortfalls and higher healthcare expenses.

Takeaways

  • Total revenue -- $1.55 billion, with Environmental Services driving growth through increased waste volumes, pricing gains, and project work.
  • Adjusted EBITDA -- $320 million, up 6%, with consolidated adjusted EBITDA margin expanding 100 basis points to 20.7%.
  • Environmental Services segment -- Revenue increased 3% and adjusted EBITDA rose 7%, led by Technical Services (up 12%).
  • Incineration utilization -- 92%, compared to 89% in Q3 2024; including the Kimball facility, utilization was 88%.
  • Safety-Kleen Environmental Services -- Revenue rose 8%, attributed to pricing gains and higher core service volumes.
  • Safety-Kleen Sustainability Solutions (SKSS) segment -- EBITDA exceeded $40 million, its highest for the year, with margin improvement driven by cost reductions and increased lubricant sales (up to 9% of total volumes).
  • Waste oil collection -- 64 million gallons collected, consistent with the prior quarter.
  • PFAS revenue -- Projected at $100 million to $120 million for 2025; management highlighted continued pipeline momentum and regulatory validation from EPA results.
  • Share repurchases -- $50 million spent buying back 208,000 shares, with $380 million authorization remaining.
  • Adjusted free cash flow -- $231 million, a record for the company.
  • Net debt to EBITDA -- Below 2x, supported by refinancing 2027 senior notes to 2033 maturities and a new term loan at SOFR plus 150 basis points.
  • Capital expenditures -- Net CapEx of $83 million, down year-over-year; 2025 net CapEx expected in the $340 million-$370 million range, excluding the SDA unit and Phoenix Hub project.
  • FDA (solvent deasphalting unit) project -- Announced with a $210 million-$220 million spend (project spend expected; commercial launch anticipated in 2028) and an anticipated $30 million-$40 million annual EBITDA contribution (non-GAAP), targeting a six- to seven-year payback at commercial launch in 2028.
  • SKSS 2025 adjusted EBITDA guidance -- $140 million midpoint, described as a new low watermark for the segment.

Summary

Clean Harbors (CLH 1.98%) management reported that Environmental Services achieved its fourteenth consecutive quarter of year-over-year adjusted EBITDA margin gains, primarily driven by pricing, waste volumes, and steady demand for technical services. SKSS maintained volume levels and delivered stable adjusted EBITDA despite ongoing base oil market headwinds, benefiting from cost controls and a higher-margin product mix. The company announced an expanded PFAS remediation opportunity, supported by new EPA study data validating high-temperature incineration. A multi-year, large-scale internal project -- the FDA solvent deasphalting plant -- was introduced, with a detailed capital commitment and EBITDA outlook, indicating a significant organic growth pipeline beyond M&A. Free cash flow generation and cash deployment flexibility remain ongoing priorities, with revised adjusted EBITDA guidance reflecting both growth and margin ambitions for 2025 amid macro and customer-specific turbulence.

  • Management is targeting free cash flow generation at 40% of EBITDA as a baseline guardrail for future years, excluding extraordinary organic investments like the FDA unit.
  • The FDA project is expected to generate annual EBITDA (non-GAAP) in the range of $30 million to $40 million, with a six- to seven-year payback on the investment.
  • SKSS direct lubricant sales rose to 9% of total volumes, contributing to margin improvement in a challenging base oil pricing environment.
  • Full-year depreciation and amortization guidance was raised to $445 million-$455 million for 2025, primarily due to strong landfill performance.
  • Management expects deferred industrial and field service customer projects to return beginning with the spring turnaround season, with no large pickups anticipated in the near term.
  • All lines of business within SK and Environmental Services recorded year-over-year margin accretion, reflecting continued focus on profitability initiatives.
  • Recent refinancing activity extended debt maturities, supporting a conservative capital structure and investment-grade secured debt rating.

Industry glossary

  • PFAS: Per- and polyfluoroalkyl substances, a group of persistent chemicals targeted for remediation in waste management due to environmental and regulatory concerns.
  • Incineration utilization: Percentage measure indicating the extent to which permitted waste incinerator capacity is being used.
  • FDA (solvent deasphalting unit): A planned process facility utilizing solvent extraction and hydrotreating to upgrade VTAE (vacuum tower asphalt extender) into higher-value base oils.
  • SKSS: Safety-Kleen Sustainability Solutions, the company’s business segment focused on oily waste collection, re-refining, and related services.
  • Technical services: Specialized hazardous waste handling, including collection, identification, packaging, transportation, and compliant disposal.
  • Turnarounds: Scheduled shutdowns of refinery or chemical plant operations for maintenance and cleaning, often impacting demand for industrial services.
  • 600N base oil: A high-purity, heavy-duty industrial lubricant base stock produced from VTAE upgrading.
  • Group three production: Manufacture of high-performance synthetic base oils, which generally carry a pricing premium over traditional Group two base oils.
  • VTAE: Vacuum tower asphalt extender, a byproduct of oil refining that can be upgraded to more valuable products through processing.

Full Conference Call Transcript

Eric Gerstenberg: Thanks, Michael. Good morning, everyone. 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. 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 Solutions segment performed in line with expectations mainly due to our charge for oil program and product mix. Driving margin growth continues to be a focus for us, and we were pleased to see our consolidated adjusted EBITDA margin increased by 100 basis points from a year ago, 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, offset 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 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 fourteenth consecutive quarter, with revenue up 3% and adjusted EBITDA up 7%. 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 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 have 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 Kleen Environmental Services rose 8% through a combination of pricing gains and growth in our core service offerings.

The number of parts wash 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 ER events, demonstrating consistent baseline demand, revenue impact came from having no substantial projects. Within industrial services, we continue to see customers in both 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 have 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, 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, 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 RCRA permitted high-temperature incinerators cannot 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. 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 we expect PFAS to generate $100 million to $120 million of revenue this year, up 20% to 25% 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.

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 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. 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 Gastro to support their more circular offering for corporate fleets.

Additionally, we are growing our Group three production, and those gallons carry a premium to our traditional Group two volumes, and we remain on track to add several million gallons of Group three this year. Turning to Slide seven. Today, we announced plans to construct a state-of-the-art process plant that we refer to internally as the FDA. By using an industry-proven solvent deasphalting process and combining it with our existing hydrotreating capabilities, we can unlock incremental value from an everyday product, VTAE, generated today in our re-refined. 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 FTE SDA 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-year or seven-year payback on the investment. Once completed, such return will rival what we have seen from similar size incineration projects and represents 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 are 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 is best to be patient and prudent in pursuing the right transactions. We have 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 review 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, we believe that the challenges we faced in Q3 are temporary and market-driven, with year-over-year growth illustrating our resiliency.

We expect our itinerary 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 reassure and the benefits of The 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 service 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 in future activity. We also remain excited about the steady ramp-up in production of mix in our new Kimball incinerator, as it works toward full capacity. With our efforts around CFO, for SKSS, we believe we have stabilized this business partnership and Group three production and are looking forward to the new FDA 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 Dugas.

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.

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 businesses within the ES segment. Within Environmental Services, demand in our disposal network and collection businesses remained solid, driving revenue growth despite macro headwinds in some verticals like Chemical. SKSS delivered more than $40 million in EBITDA, its strongest quarter in the year, demonstrating operational resilience in a soft space 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 Kimball operations and increased landfill amortization related to greater disposal volumes. We have 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 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 2x 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 SDA 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. Turning to our guidance on Slide 13, based on Q3 results and current market conditions, 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.

Our long-term trends at PFAS remediation and reshoring create 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 remain optimistic about our future and ability to navigate the current landscape. SKSS is stabilizing effectively, and 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.

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 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.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 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 one moment, please, while we poll for questions.

Eric Dugas: Thank you.

Operator: 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. Good morning, Tyler. Hey. So, you know, it feels like there's a lot of puts and takes out there.

Eric Dugas: Just the industrial malaise, I guess, continues to march on a bit. But 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 in terms of the total takedown, the million dollars, 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, 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 in 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. Guess the last point on Healthcare, Tyler, 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 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 higher cost than we would have liked here in Q3.

Michael Battles: Hey Tyler, it's Mike. The one thing I'd add to what Eric said, we did have a fair amount of high-cost claims. 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 2026. 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 are giving '26 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 '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?

Eric Gerstenberg: Yes, Tyler, I'll start. And they certainly not expecting a real rebound of industrial turnarounds until the spring. However, 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 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, 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?

Michael Battles: Tyler, the answer to that question is yes. So we are looking at larger deals. We're looking at smaller deals. I think that the we obviously would talk about the FDA and then happy to go into that and maybe other projects we're thinking about. But in the interim, we want to remain prudent, 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. And I think there's plenty of things out there, both large sizes publicly available, and smaller things that are out there.

So again, we remain very active. In the interim, we did buy back some shares. I don't think that's something that's changed in trends. 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. 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 an M&A company. We'll continue to do things like that.

Tyler Brown: Okay. Perfect. Thanks, guys.

Michael Battles: Okay. And we one follow-up too, Tyler. If you think about, you know, the five that Eric mentioned, obviously budget processes in that area code. 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.

Operator: Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.

Noah Kaye: 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 talked about, Eric, you know, with Kimball rolling off and the underlying growth. Mike, when you talked about potentially up to $500 million of organic investments and obviously this FDA investment might be part of that. Can you give us some guardrails around where you want, you know, to convert cash flow at to EBITDA 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 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 will be pluses and minuses to that along the way. For the minuses would be these accretive capital investments that we mentioned. That will be adjusted out of that. And we'll call that out and explain those clearly. But those are really growth projects that we see that will be a detriment to the 40%.

But normal baseline guardrails, I'd say 40% conversion. And each year trying to grow up from that. I think the team under Eric's leadership has done a great job with cash collection. 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 Kaye: Okay. Thanks. And 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 Kimball. Right? So is that kind of the practice going forward that you Yes. Extraordinary organic investments to be excluded?

Eric Dugas: Yes. You got it now.

Noah Kaye: Okay. And then, I guess, you know, to double click on this specific investment, yeah, I think just help us understand, 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 sort of dependent on to hit those target returns from a commodity value if at all?

Eric Dugas: Yes. No, 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 Chicago refinery. And it's upgrading a product that we already produce called BTAE, the vacuum tower asphalt extender. And 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 $600 in product. It's not as 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. Proven technology, with a hydrotreater back down the back end. And so we're excited about that incremental $30 million to $40 million of EBITDA once we start up in 2028.

Michael Battles: And Noah, one thing I'd add to that is that, as Eric said, we're using kind of our the byproduct of the re-refining processes, 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 that 30 million gallons won't fill the new product. We'll have an opportunity to grow from there. We're assuming we get any other BTAE from any other third party, which that would be upside to the model.

Reason why I bring that up, just as an example, is that I think that as we built this model up came up with a $30 million to $40 million that spoke of in the live call. I think there's plenty of upside to that model. 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 VTE, how we think about the price of $600, how we think about the cost of building the plant, we think about the timeline of building the plant.

I mean, we thought through that we've had many, many meetings on this with our with the team and with the Board. To ensure that we're doing this in a thoughtful way that so we continue to do what we've done with every large project, on time, on budget, the numbers we say we're going to hit. Simple as that.

Noah Kaye: If I could sneak one more in, you know, think you are 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 sort of just the case that these deferrals really started to manifest late in the quarter? And kind of continued through October here. 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 you know, what we've seen in the past.

Eric Gerstenberg: No, 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.

But we really didn't we paired back a little bit of what we expected based on the third quarter results. And we truly expect as things continue to stabilize and as we get 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 and particularly in the chemical and refinery sector.

Michael Battles: Yeah, 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 business is the business is setting ourselves up really well for when things loosen up and come back. And when I look at even the industrial services P&L, Noah, 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 fewer subcontractors and internalizing more work.

So despite the financial results here in Q3 and what we believe in 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 we should reap benefits of that you know, hopefully next year, but definitely in coming years.

Noah Kaye: Okay. Thank you very much.

Eric Gerstenberg: Thanks, Allan.

Operator: Our next question comes from the line of Jim Schumm with TD Cowen. Please proceed with your question.

Jim Schumm: Hey, good morning, guys.

Michael Battles: Maybe hey. How's it going? So maybe just help me understand. I'm sure other people don't know the 600 n 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 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

Michael Battles: Yeah. I did. So we have an hour on the call, so we're not gonna take an hour trying to explain that 600 and base market. But I will tell you, I will tell you that 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 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 600 N 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. You think about that market, we'd be a very, very small player in a very large market. It tends to trend a little bit with Group two 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 two base oil. And most of the country has to import 600 N today, including from Korea and from other places.

And so 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 a decrease. We're assuming decreases over the modeling period. 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 of 600 end pricing is down. PTAE from other customers to help offset that. I think 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 600 end oil, but we think we have enough levers in the actual model that even as 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 put together a 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.

Jim Schumm: Mike, thanks for that. I just want 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 of this oil? No. Did I No. No. It is more of a Well, we have assumed pricing goes down a little bit. In the modeling period. Not demand per se. And the point I think that maybe I misspoke is that when we produce this 600 N oil, we'd still be a very small player in a very big 600 N market. I guess, what I'm trying to say.

Jim Schumm: Okay. Okay. Alright. Thanks for that. Maybe switching over to the SKSS guidance. I kind of my recollection was just that it was sort of the one forty was the number. You guys just referenced a midpoint. What is just so everybody's clear, like, what is the range for SKSS this year? So and then, you know, what's the confidence level in hitting that one forty midpoint?

Eric Dugas: Jim, Eric here. I'd say that as we sit here today, we're very confident in that one and forty 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, 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 of service we continue to provide and the fact that we haven't lost customers.

Mean that really is the area that the team has done excellent on this year and that gives 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.

Michael Battles: We feel the 140 is a new low watermark. We grow from there.

Jim Schumm: Okay. Great. Thanks a lot, guys. Appreciate it.

Michael Battles: Thank you.

Operator: Our next question comes from the line of David Manthey with Baird. Please proceed with your question.

David Manthey: 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 gave the data specifically in the 10 Q later today, but 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 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 know, 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 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. And then we mentioned field services. 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 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, about, I think, a 3% or 4% decline kind of year on year there. Largely related to the turnaround services.

David Manthey: 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 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 Tom and Hepco basically. But could you maybe talk about how things have played out since that update and kind of how you're about the market in general?

Michael Battles: Yes, Dave, this is Mike. And I'm sure Eric and Eric have thoughts on this as well. But, you know, the FDA unit has no reflection on our M&A appetite. That's 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 FDA. The other items that are out $500 million those are other things we're thinking about.

As we think about where we go next with this, know 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, another good use of capital that has great awesome returns that you saw from the math that we're doing on this. So that's just a good use of capital. We're going to have $1 billion cash by the end of the year. We're going to generate another 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.

As Eric mentioned in his Eric Dugasprit and his remarks, the leverage market is very our leverage is very low. Our appetite for debt from our debt investors is very strong. It's been way over-subscribed because 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 high-quality debt because of high-quality assets. So it doesn't change one 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 wanna take the company.

We wanna be disappointed about capital, and we've been thoughtful about M&A, and we'll continue to be thoughtful. And there are opportunities out there that are big and small, and we'll continue to capitalize on. So I'm of the view that 's really changed with that announcement, with the FDA announcement. I just want to make sure that you understand 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 with the investing public because going to be a material number.

David Manthey: Got it. Thank you.

Operator: Our next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question.

Larry Solow: Great. Thanks, and good morning, everybody. First question, just on the guidance again, not to be a dead horse, but the miss in the quarter you guys clearly outlined that, a little bit of industrial, a little bit of field services. But it sounds like you kind of you know, you've bucketed that miss out in the quarter, and it's cue 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 you know, turnaround seemed to be a little bit less even, than expected. You know? So do we you know?

So why we what gives you the confidence that we kind of get back to where you thought we were gonna be in Q4? Not to kind of get into the nitpick of the details, but yeah. You get where I'm going with that question.

Eric Dugas: Certainly. Certainly, Larry. And as we digested kind of our Q3 results and then projected our thoughts on kind of 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 kind of the growth that we're seeing in technical services. That 12% revenue growth, more projects coming our way, continued 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, 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 Q4 in 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.

So both medium and large jobs will come back. It's just a question of when and where. Quite frankly.

Michael Battles: Okay. So I would say one more thing, Larry, to that end. I'd say that all our LOBs all the businesses make up SK and then 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 SKSS, well, we stabilized at the we're concerned about free cash flow conversion. While we had we're going have great free cash conversion this year if we continue to grow. When you think about EBITDA margins and our margin to 30% margin, I mean, that's 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 prepared remarks.

Larry Solow: Absolutely. Absolutely. And I appreciate it. And I'm kind of looking how this miss you know, how you, you know, put this thing on a go-forward basis as opposed to just a miss. You know, I just wanna make sure that going forward, obviously, it's only one quarter, but, you know, you threw out 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 baseline. We get all that. But I just wanna make sure that you're not doesn't sound like you're building a rapid improvement in industrial or field service.

So I just kinda trying to say then, if you building that in this quarter, then why we have them missed? But I get the extra color really does help. Just shifting gears real fast. Just on PFAS, it sounds like things are continuing to go well internally. To get a real acceleration, obviously, 20, 25% growth is great, but I think your queue 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?

Eric Gerstenberg: Yeah, Larry, this is Eric. So, you know, getting, our the results of our tests that we did on our thermal units out 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 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. We feel pretty good about it. Think it's just going to accelerate. And as far as the Department of Defense listing their moratorium, that's just that will be just another accelerator for us. And we're optimistic about that as well.

Larry Solow: Right. I appreciate the effects.

Eric Gerstenberg: Sure.

Operator: Our next question comes from the line of James Ricchiuti with Needham and Company. Please proceed with your question.

James Ricchiuti: 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 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, grew Q3. We're beginning Q4 very strong. So where there's been this pullback a little around IES spending, around turnarounds and chemical spending, 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. 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 very resilient in our waste collection business because of all the diverse verticals that we service. Everybody is generating hazardous waste 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 Ricchiuti: Okay. Maybe just turning to Kimball. And I know you touched on it a little bit, but yeah, 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 then potentially some lift to margins. And just talk to us about maybe how Kimball plays out in 2026.

Eric Gerstenberg: Yes. So in the third quarter this year, we the new Kimball and 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 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 everything that we see continues to see a path to hit our ramp-up of objectives of that new unit going into 2026. The network efficiencies are live 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 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 in being able to have multiple units service their needs and well-positioned geographically. 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 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, continues to prove to them in those large generators of hazardous waste that we have the network and the capabilities to supply their needs.

James Ricchiuti: 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.

Michael Battles: You think about larger deals, Jim, this is Mike. You know, certainly, most you know, valuations have gone up from where they were. The whole industry, our stock, has experienced kind of some valuation appreciation, which is well deserved probably could go further. 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 be 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 trying to stay in a certain 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, the synergy component is a big part of I think we can provide a fair amount of synergy for the larger deals we're looking at.

James Ricchiuti: Thanks.

Operator: Our next question comes from the line of Tobey Sommer with Truist. Please proceed with your question.

Tobey Sommer: 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, two and a half years ago, you have about $3.4 billion. You saw it at the time. You'd 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 is 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?

Michael Battles: Tobey, this is Mike. I'll start and Eric and Eric can chime in. Yeah, I think that there's been really no change in our deployment of capital when you think about internal or buybacks. I think those two, when you think about four legs of the stool, the fourth being debt repayment, I think that we have maintained a consistent posture on both internal growth projects like the Kimball Center here, now like the FDA unit, or buybacks, which brings 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 availability under our current authorization.

When I think about M&A, I mean, and A is lumpy. It takes two to tango and we got to make sure that we're getting a good return to 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's going to be this is kind of we want a message to The Street that this is 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 deals that didn't fit very well that we talked to the Board about a couple, three times didn't fit well that we decided not to go forward. So these are all processes of being very cash disciplined, getting trying to make sure we get a good return. And I think that our long-term shareholders are happy about it.

Tobey Sommer: And if I could ask another question about health care expense, do you anticipate health care expense growth increasing or accelerating again next year? Some of the surveys out of the big health care consulting firms suggest that next year is going to be even tougher.

Eric Dugas: Yes, Tobey, 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 won't 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 a gross 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 healthcare costs going forward.

Tobey Sommer: Thank you.

Operator: Mr. Gerstenberg, 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 Stephens event that Jim will be presenting at in Nashville. Also, have a great day today and keep it safe. And enjoy the upcoming holiday season. Thank you.

Operator: 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.