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Greetings. And welcome to the Clean Harbors’ First Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Buckley, Senior Vice President of Investor Relations for Clean Harbors. Mr. Buckley, please go ahead.

Thank you, Melisa, 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. 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. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, April 30, 2025. Information on potential factors and risks that could take affect our results is included in our SEC filings. The Company undertakes no obligation to revise or publicly release the results of any revision of the statements made today other than through filings made concerning this reporting period. Today's discussion includes references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release on our IR website and in the appendix of today's presentation. Let me turn the call over to Eric Gerstenberg to start. Eric?

Thanks Jim. Good morning, everyone, and thank you for joining us. To start, I want to highlight our safety results for Q1. They are not a financial metric, but as we often say, they are our most important metric. Our Total Recordable Incident Rate, or TRIR, was an outstanding 0.46 in the quarter. That represents not just our best Q1, but the best quarter in the company's history. Hats off to our entire team for the energy and effort they put into having our safety programs, for fostering a strong safety culture, and for protecting themselves and each other. Turning to our financial performance on slide 3, our overall Q1 results finished ahead of expectations. Our ES segment began the year with an encouraging first quarter that included a strong contribution in March after a period of unfavorable weather in January. Our SKSS segment outperformed our guidance due to better pricing of our used oil collection services that Mike will discuss. Overall, company revenue was up 4% in Q1. Demand trends for our disposal and recycling assets were positive. We exited the quarter with momentum in most of our ES segment businesses and are optimistic about SKSS' ability to achieve its annual target. Our adjusted free cash flow and corporate segment results were also in line with expectations we provided in February. All-in-all, a solid start to 2025 for the company. Turning to our segment review, beginning on slide 4 with ES, adjusted EBITDA increased 4% with a 3% increase in revenue, resulting in a 10 basis point margin improvement. Our top line growth increased due to the 2024 acquisition of HEPACO, as well as growth from pricing and higher incineration utilization, which offset a year-over-year decline in industrial services driven by the refinery sector. Looking at our revenue by segment components, field services grew 32%, driven mostly by HEPACO, supported by organic growth in our legacy business. In total, we responded to more than 5,000 emergency response events in Q1, in line with recent quarters. In Technical Services, higher incineration volumes and pricing drove a 5% revenue increase. Incineration price rose more than 5% in Q1 on a mixed adjusted basis. Incineration utilization was an impressive 88% vs 79% in Q1, ‘24. For comparison purposes, this quarter's utilization number excludes the new Kimball as we ramp up. As we have stated publicly, our goal for the new kiln this year is to process 28,000 more tons or more, with growth in 2026 as we complete our shakedown process. In Q1, the new incinerator processed 5,000 tons, running well despite challenging weather conditions in January. Overall incineration demand was high all quarter long and shows no signs of slowing as reshoring and other market dynamics play out. We are continuing to realize the benefits of investments we have made in our disposal and recycling network to enable more efficient processing and movement of waste. Safety-Kleen Environmental Services continued its consistent and steady performance, notching another quarter of profitable growth by increasing revenues by 5% from a year ago. We performed 245,000 parts washer services in the quarter, down slightly from a year ago, reflecting the service interruptions from bad weather. Our pricing initiatives, record containerized waste services, and new products, including some innovative aqueous parts washers, drove the growth in this business. We faced some challenges in Q1 with our industrial services business, where revenue was down 10% from a year ago, as we continue to see some refinery customers delay spending and defer maintenance amid the current environment. Lastly, I'm sure some of you will ask questions about tariffs. While we suspect that a tariff and trade uncertainty may be behind some of the industrial services weakness this quarter, refinery customers have been under pressure for some time due to local crack spreads. We haven't seen a material impact from tariff uncertainty on our waste volumes in TS or an SK branch, or on the number of ERs we have conducted in field services. A stated goal of the current administration is to generate more U.S. manufacturing and industrial production, which should ultimately benefit Clean Harbors. We do not expect any of the core environmental regulations that have been the foundation of our business and have protected human health and the environment across the U.S. for decades to change under the current administration. As it relates to tariffs and our supply chain, most of our purchasing is domestically sourced, so we don't anticipate any disruptions to our growth plans. That said, we have recently enacted a nominal price increase to offset the higher costs we expect for our vehicle fleet, the chemicals we use, and other supplies. To protect our margins, we remain committed to further adjusting our pricing and reducing our cost structure to offset any additional inflation that may come as a result of tariffs. With that, let me turn things over to Mike to discuss SKSS and capital allocation. Mike?

Thank you, Eric, and good morning, everyone. Turning to our SKSS segment results on slide 5, revenue increased year-over-year, reflecting greater volumes, including the addition of Noble, as well as a shift to a sustainably higher charge for oil, or CFO. Those items more than offset the continued lower pricing we saw for base oil caused by a weak demand environment. While our Q1 adjusted dividend decreased slightly from a year ago, the $28 million we achieved exceeded our guidance we provided in February. Adjusted EBITDA margin was down year-over-year due to base oil pricing, but again, ahead of our initial expectations. This performance is a direct result of the team's hard work in responding to the ongoing challenges in the base oil and lubricants market. We announced in mid-November that we were shifting to a charge for oil position for all customers, and in fact, since year end, we have successfully doubled the average price per gallon we are charging for the collection of used oil, while also maintaining the volumes needed to meet our production goals. In the quarter, we gathered 58 million gallons of waste oil to feed our plants, compared with 55 million gallons a year ago. As we highlighted in our last call, we have idled our California re-refinery, not just to pause our highest cost location, but to support our CFO initiative by requiring fewer overall gallons to feed our network. We believe these actions, including executing a range of cost-cutting initiatives, enable us to exceed our profitability expectations in Q1. We remain committed to earning a fair price on our used motor oil collection services in order to drive consistent profitability in this segment. We advanced two other important programs in the quarter. We are working closely with BP Castrol to support our partnership around Castrol's more circular offering, which enables corporate fleets to lower their carbon footprint without sacrificing quality in their lubricants. We believe they are generating strong interest in the marketplace and building a healthy pipeline of potential customers with two large fleets signed up and more to come. Another initiative that should support greater stability and profitability in this segment is our Group III program, which we've outlined on prior calls. We expect to produce 2 to 3 million additional gallons of Group II this year versus 2024. Turning to capital allocation on slide 6. We continue to look for internal and external opportunities to generate the best returns on our shareholders' capital. And importantly, we ended the quarter with a large cash balance and low leverage to execute both of those facets of our growth strategy. On the M&A front, we have been actively reviewing multiple deals and being selective about what we move forward on. We continue to look at deals of varying sizes with an emphasis on where we can capture synergies in cost and cross-selling while capitalizing on our expansive network of assets. Internally, we see opportunities to invest across several areas. Kimball is now open and running well. Our Baltimore expansion continues. In April, we closed on our new site in Phoenix where we will replicate that hub concept again. Within ES, we opened 10 additional field service branches in Q1 wiring more processing and recycling capabilities to current locations as we capitalize on market opportunities. We're also evaluating potential methods to further process some of our byproducts we produce in our re-refining business as we believe there is value to be harvested here. Eric Dugas will cover our buyback activity in Q1, but we intend to be opportunistic with large purchases when conditions warrant. We are optimistic about our prospects in 2025. We ended Q1 slightly ahead of plan overall with SKSS outperforming our expectations. Furthermore, we believe that there are many tailwinds supporting our business to achieve our guidance despite the potential impact of tariffs. Demand for our services remains strong, particularly on the disposal side from GS and SKD customers. Kimball is ramping up as expected. Interest in our total PFAS solution and its offerings remain high. We expect our EPA and DOD-supported incineration study to be published in the coming months. Reshoring and expansion of customer sites is ongoing. We see a robust pipeline of remediation and waste projects. The potential for captive closures in the coming year is real as we continue to have healthy discussions with some of those operators. And our growth network, growth outlook for field service is strong with the addition of HEPACO and its national call center. While the recovery in industrial services we anticipate this year may be somewhat muted, we still like the long-term prospects of this business given the necessity of the services we provide. And SK is doing well executing within the areas it can control, especially collection costs. In short, there's a lot of positive factors to support our planned growth as we celebrate our 45th anniversary in 2025. With that, let me turn the call over to our CFO, Eric Dukas.

Thank you, Mike, and good morning, everyone. Turning to the income statement on slide 8, our Q1 results topped the guidance we provided on our Q4 earnings call. The solid results were achieved with continued year-over-year growth and profitability in our ES segment and better than expected results in SKSS. Overall, we grew total company revenues in the quarter by $55 million, or 4%, with the ES segment accounting for two-thirds of that growth. Q1 adjusted EBITDA of $235 million was driven by higher earnings in our ES segment, which offset a slight decline in SKSS and slightly higher corporate costs as compared to Q1 of last year. Our adjusted EBITDA margin of 16.4% in Q1 was down year-over-year, but in line with our expectations. Even with a tough start to the quarter due to extreme weather, the team achieved expected margin performance in Q1 by delivering a good mix of high-margin work and controlling spending. SG&A expense as a percentage of revenue was 12.8% in Q1. For the full year of 2025, we continue to anticipate SG&A expense as a percentage of revenue will be in the mid-12% range. Depreciation and amortization in Q1 came in as expected at $112 million, top due to acquisitions and our first full quarter of Kimball. For 2025, we continue to expect depreciation and amortization in the range of $440 million to $450 million. Income from operations in Q1 was $111.6 million, down from the same period a year ago when we had less depreciation and amortization. Q1 net income was also down as expected versus the same period a year ago as we delivered earnings per share of $1.09. Turning to slide 9, the balance sheet, cash and short-term marketable securities at quarter end approached $600 million. Given that high cash balance, we continue to view our balance sheet as a competitive advantage, particularly given the uncertainty in the credit markets. Our net debt-to- EBITDA ratio at quarter end remained at approximately 2.1x, with no material debt amounts due until 2027. Our overall interest rate at quarter end was 5.3%. During the quarter, we received a credit rating upgrade by Moody's based upon our recent financial performance, overall growth, and our strong capital policies. This upgrade puts our overall debt rating just one notch below investment grade and our secured debt at an investment grade rating. Turning to our cash flows on slide 10, net cash from operating activities in Q1 was $1.6 million, which was as expected. CapEx net of disposals was just over $117 million, down from the prior year as we have completed our Kimball CapEx spent. We expect the majority of the $15 million associated with our Phoenix project that we called out on our Q4 call to occur here in Q2 as the site was purchased in early April. For the quarter, adjusted free cash flow was a negative $116 million and consistent with Q1 a year ago. In addition to CapEx spend, the negative free cash flow in both periods reflects the timing of incentive comp payments, interest payments, and seasonal working capital increases. For 2025, we continue to expect our net CapEx, excluding the Phoenix growth project, to be in the range of $345 million to $375 million. During Q1, we bought back nearly 260,000 shares of stock, with a total spend of $55 million. We currently have more than $430 million remaining under our repurchase program authorization, and we continue to view our shares, particularly in light of the recent pullback, as undervalued. Moving to guidance on slide 11, based on our Q1 results, along with current market conditions for both of our operating segments, we are reiterating our 2025 adjusted EBITDA guidance range of $1.15 billion to $1.21 billion, or a midpoint of $1.18 billion, which represents 6% annual growth. Looking at our annual guidance from a quarterly perspective, we currently expect adjusted EBITDA for Q2 to grow 1% to 3% compared with the prior year, with 3% to 5% growth in the ES segment and lower expense in the corporate segment, which will more than offset an expected year-over-year decline in SKSS. As a reminder, we also had a number of good-sized ERs in Q2 a year ago in the ES segment. For full year 2025, adjusted EBITDA guidance will translate to our reporting segments as follows. In Environmental Services, we continue to expect adjusted EBITDA in 2025 at the midpoint of our to increase 5% to 8% in 2024. Demands for disposal, recycling, remediation work, and SK branch offerings have all continued year-to-date. The only exception, as previously noted, is industrial services, where customers can defer maintenance or slow spending during times of economic uncertainty. Our Kimball facility will continue its ramp toward full production as planned. Given the momentum from reshoring projects and PFAS, as well as support from our sales team, we expect our facilities network to process record volumes this year. We also expect to see continued expansion in the SK branch and field services businesses. For SKSS, we continue to expect full year 2025 adjusted EBITDA at the midpoint of our guidance to be $140 million. While we exceeded our expectations for Q1, given the outstanding work by the team in improving our collection rates, we remain cautious in our assumptions for this segment, given its commodity exposure. Within corporate at the midpoint of our guide, we continue to expect negative adjusted EBITDA to be up 3% to 7% compared to 2024. The year-over-year increase primarily relates to the company's expected revenue growth, wages and benefits, and insurance, partly offset by our cost savings initiatives. For adjusted free cash flow, our 2025 guidance remains in the range of $430 million to $490 million or a midpoint of 460 million, which represents a nearly 30% increase from 2024. As we highlighted last quarter, this range excludes our $15 million growth investment to create a new hub location in Phoenix. We believe the exclusion of long-term growth projects creates a more accurate picture of our free cash flow generation as a company. In summary, Q1 was a good start to 2025. We continue to expect the demand environment and our pricing initiatives to support our anticipated profitable growth this year. The ES segment has a strong backlog of waste, a robust pipeline of project opportunities, including PFAS, and most of our services businesses have good momentum. Within SKSS, we believe we should stabilize this business this year as we focus our energy on strategies to maximize the value of these assets while minimizing any downside potential. Overall, we are encouraged by the trajectory of the company and look forward to the remainder of this year as we continue to execute against our longer-term goals. With that, Melissa, please open the call for questions.

[Operator Instructions] Our first question comes from the line of Tyler Brown with Raymond James.

Hey, good morning, guys. Just you guys mentioned, I think, that ES was up 4% in the quarter. It did sound like weather had an impact. I mean, I think it snowed in Houston, for example, but any way you could quantify what that drag was and will those volumes effectively be made up or are they kind of lost?

Hey, Tyler. Eric Dugas here. I'll start off with that. Yes, you're absolutely right. Weather was very difficult in January, and we had incorporated much of that into our guidance that we gave in February. It's difficult to perfectly quantify it, but we had talked about maybe $10 million to $12 million of lost EBITDA due to weather. I think as we moved through the quarter, what we saw is when weather improved, the strong March that Eric mentioned, we were really excited about what we saw there. It helped to make up for some of the drag on weather, but really gives us kind of good positive momentum as we go into Q2. And so far, what we've seen in early April is consistent with what we saw in March, so excited about ES and continued strong demand there as we move into Q2.

Okay, that sounds good. And then just to be clear on the Q2 guide, so one, last year, I think HEPACO had some large-scale ER work. I think you mentioned it. So just to be clear, the 3% to 5% incorporates lapping that work. It does not include any outsized work. And two, what are the expectations for refinery turnarounds in industrial services? Is that expected to start ramping in Q2, or is that more of a back half thing, or is that really just upside the guidance altogether?

Yes, Tyler, this is the other Eric answering. First, I'd say that yes, our Q2 guide does not include any expected large-scale emergency response events, so we're being a little bit conservative there. As far as the industrial network, we'd say that our turnaround strength of what we have booked at this point is still very strong. In fact, over 150 turnarounds we still have planned, which is pretty substantial from a year ago at this time, so we're expecting a better second half. Obviously, those refineries are continuing to try to watch their costs as they go into this year, but we all know that at some point those refineries need to be taken down and maintenance needs to be done. It might be a little bit more conservative on some of the investment minimum capital projects and so forth, but overall, we have a real solid pipeline in the U.S. and Canada around turnarounds for the second half of this year. Not much has changed over the past 90 days that we've seen since last time we talked about it.

Okay, perfect. And just my last one, Eric, just I continue to get a lot of questions just from investors around the cycle, the cyclicality of your business. So obviously you guys have bucked the industrial production trend over the last couple of years. You offer a very high necessity, non-deferrable service. And Mike, I think frankly, you laid out a number of idiosyncratic drivers, but can you just at a very high level just talk about the cyclicality specifically of the ES segment and maybe just how cyclical the various lines of business are, again in ES. Just any color there I think would be helpful. Appreciate it, guys.

Yes, I think we'd say, Tyler, that our business on the environmental side is really recession resistant. We really see a continued strong growth in the second and third quarters around our TS, our SKE business, our FS business continues to be strong. IS, as you mentioned a little bit, that's going to flow up and down year to year based on the size and scope of the turnarounds. And we all know that maintenance work needs to be done. But really, the cyclicality, we're not really seeing any early recession trends or any recession trends at all in any of our businesses. As Eric just talked to, our pipeline across the board in our businesses, waste projects, our drum count, and how we look at that coming out of March and into the second quarter already, really, really strong. So we see some real positive momentum here.

Yes, Tyler, I would say, this is add on what Eric said is that you see in a majority of the ES business, you see a continued, this is year three of kind of year-over-year monitoring expansion in light of the cyclicality and industrial that we saw, as Eric said in his prepared remarks late last year and now, we see it again in Q1. But if you remember, Tyler, when the refineries were making all their gasoline and with the inflation, this is back in 2022, and then we had a great 2023 because as Eric just said, you can't delay these things forever. And so we're hopeful that that comes, we're not planning it, and we have a good pipeline, we don't have an extraordinary pipeline, but we're hopeful that those things come to be and so the industrial business kind of recovers. And in the interim, we can take out costs, we're managing the P&Ls very tightly, and we're managing that business well to still provide a fair margin for it. It is down year-over-year and in Q1 like it was in the back half of 2024.

Our next question comes from the line of Noah Kaye with Oppenheimer.

Hey, morning, folks. Thanks for taking the questions. Maybe we start with PFAS. Just give us an update if you can on the pipeline, what you're thinking for PFAS revenue growth this year, and maybe get your view on the plan of attack the administration announced on Monday. Looks like more frequent updates to destruction disposal guidance could be a positive, but just your thoughts there.

Yes, Noah, great question. So we continue to see a very strong, robust pipeline growing quarter to quarter across our business. Team has done a great job reaching out to all those potential customers and servicing our existing. Yes, you mentioned on April 28th, the EPA and Lee

Thanks. And just to put a final point on this, is it fair to think about kind of a 15% to 20% revenue growth for the year is still the right range? Kind of your view towards that?

Yes, we believe that's a continued path that we're seeing.

But no, we meet regularly as a team to talk about kind of ways to go faster on that. And do we have the right resources? Do we have enough resources? Where do we go from there? So that's what we're committing to today, but make no mistake, we see this as a great opportunity for long-term growth of the company.

Nice. I want to ask about incineration. You get the mix-adjusted incineration ASP up over 5%. At the same time, you're ramping Kimball. And I think that this maybe goes to a question that investors have had around the ability of this new capacity to see sufficient demand. It certainly seems like pricing off to a good start for the year. Is mid-single just kind of the right growth rate to think about for pricing for the balance of the year? And maybe you can comment on how Kimball might have affected the discussions that you've had with some of your customers as you think about offtake for the rest of the year.

Yes, no, we certainly believe that the mid-single digits is a good point to really continue to think about our incineration pricing. Kimball did have an effect overall as we started up that plant. We said in our script that we processed over 5,000 tons. And our goal this year is to process over 28,000 tons. We very much see that in reach. The team's done a great job working through some difficult weather events in January as we ramped up. The momentum coming through March and into April is very strong. Our network of drums is very strong. So the ramp up, we have a real solid outlook at being able to potentially exceed some of our early looks at what we laid out for a plan there.

Some of the concerns you had, the investment community had around overcapacity is clearly not the case. I mean, we see that the plant's running well. It's got plenty of ways to network. And as Eric said March was a great drum month and April beat that. April is so far. And so we're really excited about the prospects of that plant and incineration pricing in general.

Our next question comes from the line of Larry Solow with CJS Securities.

Great. Good morning, folks. Just following up on the guidance and the outlook. So it feels like you haven't really changed guidance much, tweaks here and there, but a little bit industrial, a little bit slower, and then obviously a little bit of direct tariff expenses. But not building in, I guess my concern is, is there any concern as the year goes on? Obviously, most of your work is domestic, but a lot of your customers are international. So do you fear that our recession or a considerable slowdown in the economy or further slowdown could impact the outlook as we -- as the quarters progress? I guess waste volumes are a little bit of a laggard, right? So just any thoughts on that as we head out?

Yes, Larry, I'll take a first shot at that one. So what we're trying to do right now and when some of our customers are talking about tariffs and what the impacts could have on their businesses is we're trying to get closer to our key customers and expand our overall wallet with them and grow within those key customers to drive industrial services, field services. So we think there is great opportunity for the company to continue to grow with large customers and continue to work through that based on our presence, our capabilities, our network, our redundancy of our disposal network. All those are positive things of how we can continue to grow with those customers.

Hey, Larry one thing that we've talked about quite a bit, this is Mike, one thing we've talked about quite a bit is reshoring and reshoring is happening. So I think that is, if there's concerns around tariffs and other things like that, that's a winner for us. We certainly see that kind of in our pipeline, in our network, and as we see, talk to these larger customers, as Eric said. Also, if there's pressure on, maybe there's vendor consolidation. We're the largest player in all the end markets that we operate in. So I think that's a great opportunity for us to, as Eric said, get more share of wallet. The last thing I'd say around it is that when you look at recessions, and if there is a recession, I don't think there is one coming, but if there is one coming, and you look at the stock performance of the company over any recession, and one of our sell-side analysts did a really interesting analysis around this going back 20 years, looking at performance of the stock in these recessionary times. They all did, we all did great. It came out, we came, us and the industry came out the other side terrific. And so that's really just a testament to the fact that we are, as Eric said earlier, recession resistant. And so I really believe that, and I think that we're very nimble, and we're very aggressive in cost control, and others, if we need to get down, go down that path.

Right, no, that's all fair. And I appreciate all that color. And just on environmental, just, I know you don't break exact price volume down in guidance, but incinerator pricing sounds like it's going up mid-single. Is it fair to say sort of the mid-single digital overall growth in environmental is maybe a little bit more favored pricing and a little bit of volume growth? Is that a kind of good way to break that out? On an overall basis?

Yes, Larry, it's Eric Dugas here. I think that's fair. Certainly in Q1, because of some of the tough weather at the beginning of the quarter, certainly price is playing a little bit greater piece in that logarithm. But I think as we move throughout the year, it kind of built into our guide is almost kind of a 50-50 mix between those two.

And if I could just squeeze one more, Kimball ramping sounds like pretty much in line. And fair to say that was probably a little bit dilutive or maybe just modestly positive on the earning side. And anything you're learning from the ramp, Kimball versus El Dorado from a few years ago? Thanks.

I mean, I'll address the first part of that, Larry, in terms of its contribution in the first quarter. And it did pretty much exactly as we thought. I think we had foreshadowed that it would probably wouldn't contribute much in earnings in Q1 and then ramp up throughout the year. And that's exactly how it's played out. I'll let you guys comment on kind of lessons learned, I think.

Yes, Larry, I'll talk to the ramp up compared to El Dorado. This team has done an awesome job at bringing this plant online. And we continue to ramp up faster than what we did with El Dorado when that unit came online. The design has been proven. We worked through a lot of shakedown issues despite the weather and can't talk enough about how great the team did. And we are really excited about how it's run coming out of the gates here for us.

Our next question comes from the line of David Manthey with Baird.

Thank you. Good morning, guys. In your comment about weather impacting multiple areas of your business, I'm wondering if you could just talk about the key areas of variability and then related to that, do those revenues catch up in subsequent periods or are they just gone forever?

I would start, David, by saying that weather, it's cold every winter. We kind of get that. But January and February were really great for it. And us and other people in similar industries have said that kind of publicly. Some parts of our business, we can recover, but when our customers are shut down, well, we're shut down. They're not producing waste. Then there's nothing to go pick up. And so those are kind of lost forever. So, but I'm of the view that March, February is better than April, better than January, excuse me. March is better than February. April is going to be better than March. And so I really feel like it was isolated to weather issues. I think that us and others in the industry thought that perhaps this was a concern, but it really was related to weather. We talked about snow in New Orleans and all kinds of interesting things like that. But I do believe that was a very temporary thing. And as you look at the back half of the year, we're going to get some of that back, but a lost day's a lost day.

Yes, Dave, I'd just add a couple of comments to that. Our quarter-over-quarter, our deferred inventory increased. So we built a little bit of backlog of inventory. What's great about our network was starting Kimball up today and how we're running logistics and transportation. So we have the opportunity now to improve and get those services back as we get into the second quarter here and into the third quarter. So the network is moving better than ever to be able to deal with those unforeseen weather events, those extreme weather events that Mike spoke about that we all saw in January and into February.

Okay, I'm hearing you say that some of it's related to production. Some of it might be related to inefficiencies in transportation because of weather. It sounds like that's what you're saying.

Yes, the impacts of being able to service the customers due to those extreme weather events, but all that waste needs to be moved and has timeframes set against it, and we'll get it caught up.

Got it. Okay. And then a quick one on PFAS allowable contaminant levels. If the number goes from four parts per trillion to something higher, even parts per billion, that wouldn't be a significant change in your prospects relative to PFAS, would it?

No, we don't think so at all. In fact, what we've really said all along here is that we are seeing customers not really react around a contaminant level, but knowing any contamination of PFAS that they're acting and they're beginning to work with us as our pipeline has been growing on making sure that they remediate PFAS or deal with treatment of PFAS and drinking water and industrial water. So that really is relatively, we don't see that as an impact at all to how we would service our customers.

Dave, we like the news release that came out by the EPA talking about updated in guidance every year. I mean, that's been a gate to some acceleration of growth and the fact that

Our next question comes from line of James Ricchiuti with Needham & Company.

Hi, thanks. Good morning. So I know from the standpoint of the economy, you guys still feel things are pretty firm, but I'm just wondering if we are going into a slower patch. What does that do to the M&A pipeline? And maybe if you could just talk to what you're seeing out there, just in the current environment.

Hey, Jim, this is Mike. I'll start and Eric surely can chime in. The way I see it is that valuations are still pretty high for these valuable assets, these permanent related facilities, the valuations for assets are still high. As Eric Dugas said in his prepared remarks, we have a very strong balance sheet and we have a network of assets, and then we can leverage those assets to drive synergies, both from a cost standpoint and a cross-sell initiative to drive value to make these deals work. So we're excited about the pipeline of deals. We haven't seen the deals slow up or speed up. It's still the same, still a lot of assets to look at. We've been very busy in that area. We want to be very selective. We want to be, have to make financial sense, have to make strategic sense, have to make cultural sense. It all has to work. But if we get to those points and we look at a lot of assets we'll be aggressive in the marketplace because we do feel like as you know, Jim, you've followed us for many years when things are tough, that's a great opportunity for us to find value. And we've been able to capitalize on that and be a little contrarian. And that's been the basis of the company.

Got it. And just moving, another follow-up question as it relates to Kimball, sounds like you're satisfied with how it's progressing, notwithstanding some weather. What can you say, you guys have talked in the past about the opportunity with captives as it relates to Kimball. What are you seeing there? Any new developments to talk about?

Yes, we have continued active discussions with multiple captives and helping to evaluate their cost structure. As we've said multiple times in the past, every company that owns a captive out there is part of our customer base. We service them during shutdowns and other waste streams that their incinerator can't handle. We also do see today a continued opportunity that people are evaluating their cost structure. And knowing that we have such a great network of service branches to be able to make sure that their waste volumes are moved on time should they contemplate a captive, we can provide that as a company. And that's unique to us in the industry. So it continues to be a great opportunity. And yes, the pipeline and opportunities look strong for us.

How important is that opportunity in a relation to how you see Kimball scaling next year?

We did not base our ramp up, the growth of the company at all on additional captive closures. So as we've talked about how we'll go from 28,000 tons to ramp up over the next couple, three years, captive closures were not contemplated at all in that volume that we're going to take in and manage as a company.

Yes, as you talked about in our investor presentation, it's all upside to any models.

Our next question comes from the line of James Schumm with TD Cowen.

Hey, good morning, guys. Congrats on reiterating guidance in a tough environment. Can you talk a little bit about base oil pricing over the past month or so, given the weakness in oil prices?

Yes. Jay, this is Mike. I'll take a shot at this. The base oil pricing has been under pressure, lower than our expectations. But what really happened was that the team, as I said in my remarks, the team did an excellent job of driving kind of the UMO collection costs and a charge for oil versus a pay for oil, where we were earlier in 2024. And so that changed. And as I said in my remarks, we doubled the price that we were charging from where we ended in December to where we ended in March. It's just a terrific offset to lower base oil pricing. I think we were very aggressive. We thought we had issued press release back in November, if you recall, and really drove that pricing. And really, as I said in my remarks, we closed one of our re-refineries, not just to close a high-cost plant, which it was, but we also had to limit the need for the collection of used motor oil to drive our teams to make sure that we're getting the price that we need to hit our targets. And so base oil prices can go up, they can go down, but we are assuming that oil prices should deteriorate a bit in the guide.

Okay. So the guidance contemplated some of that. Okay. Because I know that there's a lag from when you collect to when you refine it and sell it. And so I was thinking that maybe you'd have a hard time not lowering guidance in this environment. But maybe could you talk about the SKSS inventories? Where were they last quarter? Where are they now? How is that looking?

Yes, Jim, Eric Dugas here. So when you think about the inventory values, your comment a moment ago around the lag, there is probably a quarter, quarter and a half of lag between when we're talking about what we used to pay for oil, and now we're charging for oil. What that creates is as we close out Q1 here, our inventory costs are lower than they've been in historical periods. And that's what gives us a good feeling about Q2. In our guide, we do have profitability in the business increasing a bit in Q2, and some of that is because of the lower cost of our base oil inventories. So that's really where you see that lag come through, kind of on the cost side.

Yes, Jim, I just reiterate to you that we all feel pretty comfortable about continuing to focus on that 140 as our guide this year. The team has done an awesome job at turning around our used motor oil collections to a high CFO rate, as Michael talked about. So we feel pretty good about what we've done, how we're operating, how we've managed costs in the business, even with some continued anticipated fluctuations in base oil pricing. So we're in a good spot, we think.

Yes, we think we've turned the corner, to be fair.

Okay, that's great. And then just lastly for me, because I get this question a lot, but I know in the past, you were never interested in selling this business because there'd be some dissynergies, if that's a word. But I'm curious, if your thinking there has changed at all, or what would have to occur for that to happen? Or is that even possible?

Yes, so obviously, we always think about all these types of things and what the best interests of our shareholders are. So we're always thinking about kind of what we do with all our assets, whatever business it is. So we do that from time to time related to the SKSS business. The challenge of that business, as I've said publicly, is that many of the locations are shared locations with our SK branch business, which, as Eric said in his remarks, was having continued to have a terrific few years as far as an industry leader. So our concern is always that even if we get through the exercise of separating the business from Harbors and try to sell it or do something with it, it would, there's a risk there that the buyer of that business would want to create a competitor to our SK branch business, and we wouldn't be able to offer a bundled offering that we do today like some of our competitors do. So not only it is a competitive disadvantage to the SK branch business, but perhaps we could create a competitor to our SK branch business, because obviously those, whoever buys that business would have to go and service our customers just like we do, and perhaps they'd want to sell similar types of services. So there's a lot of reasons behind that. We think it'd be very difficult to separate the permits, we think it'd be very difficult to separate the locations, but even if we get through all that, I think we create not only a competitor, but then also perhaps hurt what we think is a very profitable and growing business in our SK branch business.

Our next question comes from the line of Jerry Revich with Goldman Sachs.

Hi, this is Adam Bubes on for Jerry Ravich today. Good morning. I'm wondering, in Safety-Kleen, it's pretty impressive, because the 1Q results are very similar to last year, in a much worse base oil pricing environment. How does the charge for oil that you're flowing through right now compare to past cycles in similar base oil pricing environments? Are you seeing any changes in the competitive landscape there? And is that having an impact?

Adam, this is Mike. And first of all, thank you for pointing that out. We appreciate your recognition. We've had our challenges with that business, so we appreciate you acknowledging that it's done well. What I would say is that we changed tactics and were very aggressive on CFO pricing. And we did that with a public announcement, and we were aggressive in Q4, and we stayed aggressive in Q1, and we're going to continue to stay aggressive. I think the industry has followed, if that's your question. We do think that there's been, that there's, since we're the national player, we're the largest collector of used motor oil in the country I think that other people have recognized the fact that they're under pressure to try to manage the spread as well. So they're having to do the same thing. So I don't, I see this as we were assuming we'd lose more gallons. And that's really what the surprise is for the quarter, that the collection gallons are actually up year-over-year. And there's some M&A in there that clouds a little bit, but the level of collection gallons still be very high kind of year-over-year, which is a testament to the fact that we believe that the industry is kind of full of used motor oil. Pricing is there. We're going to, we are aggressive. We're going to remain aggressive. And I'm really excited about, as Eric said, we feel good about the 140 we kind of committed to today. And nothing changes that. As a matter of fact, I feel better than I did 90 days ago.

Great. And then in environmental services, guidance embeds an acceleration in organic growth in Q2, and then another acceleration in the back half of the year. Obviously, you have Kimball ramping, weather presumably won't be a headwind, but you also have some field services projects that were a good guy in 2Q last year. So just wondering if you can parse out the puts and takes on the organic growth cadence in the balance of the year and any other moving pieces we should be thinking of.

Sure. Adam, Eric here. So you're exactly right. As we move into kind of Q2 and Q3, the organic growth does increase from Q1 year, which as we tried to call out was greatly impacted by weather. But as we move into Q2, obviously the pricing strategies, the great volume momentum we're seeing, we do have a headwind with those ERs in Q2. I think last year when we spoke to the street in July around Q2, we talked about roughly $24 million of larger types of ERs. So that is a headwind, but making up for some of that will be just overall growth in field services. So we opened 10 new field services branches this quarter. So there will be some organic growth there to help offset. And then as you move into Q3 again, same kind of pricing strategies, good volume. And as Eric Gerstenberg mentioned a moment ago, that's where we're hoping to see some stronger turnarounds in the industrial services business that'll go up against that Q3 comp last year. And then Q4, probably a little bit smaller, just sequentially from an organic growth, but again, growth over last year. So those are the largest puts and takes. But the underpinning of all that is all the great things we're doing in the businesses and environmental services, the Kimball ramp up, pricing strategies, cost cutting initiatives, all those things, introduction of some new technologies. Those are all driving the organic growth.

Our next question comes from the line of Tobey Sommer with Truist Securities.

Yes, good morning. I want to ask on the labor expense side, if we do get a pickup in inflation, how do you think the company is positioned to be able to adjust pricing midyear and respond to that to keep the margins and return profile that you're targeting?

Yes, Tobey, Eric here, we will continue to outpace through pricing initiatives, our increased costs due to labor. I would say that on the labor side that team's done a great job at continuing to reduce our turnover and in a difficult environment, strong employee base, but we will no doubt work through increases in labor by price adjustments in the market.

Yes, just to follow on what Eric just said, our voluntary turnover for our direct labor, our cost of goods sold labor is the lowest it's been over three years. And it really is a testament to that all the things, all the investments we're making in our organization and our people. And that allows us to be aggressive in how we price and our customer service. And it's really has a virtuous cycle that we're in right now.

Our next question comes from the line of Davis Banton with BMO Capital Markets.

Hi, good morning. This is Davis on for Devin Dodge. Just a quick question for me. I'm just wondering if there's an update or any commentary you can give on how the ramp up of Group III oil processing is going.

Yes. Davis, I can answer that question is it's growing. It's going to grow up in 2 million to 3 million more gallons this year than last year. And it's a slow ramp. I mean, we want to make sure our plant works well and collection logistics is always a challenge. Make sure we're getting all the Group III that we need to fill the plant and move forward. But that goes along kind of unabated here in 2025.

Davis, probably just to add to that, our Castrol partnership, they've really expressed a lot of interest in helping to grow and manage the Group III that we're producing under the Castrol brand. So there's good solid opportunity there.

Thank you. Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Gerstenberg for any final comments.

Thank you. And thank everyone for joining us today. Next week, management will be at the Waste Expo in Las Vegas and participating in Stifel's Investor Summit there, as well as the Virtual Oppenheimer Industrial Growth Conference later in the week. We also have several conferences lined up in Boston and in New York in early June. Based on that active calendar, we look forward to seeing some of you at those events. Have a great rest of your week and please stay safe.