Good day, ladies and gentlemen, and welcome to the Clean Harbors First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. .

It is now my pleasure to turn the floor over to your host, Michael McDonald, General Counsel for Clean Harbors. Sir, the floor is yours. .

Thank you, Christine, and good morning, everyone. With me on today's call are our Co-Chief Executive Officers, Eric Gerstenberg; and Mike Battles; and our EVP and Chief Financial Officer, Eric Dugas, and SVP of Investor Relations, Jim Buckley. ..

Slides for today's call are posted on our Investor Relations website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions all these of today, May 1, 2024. .

Information on potential factors and risks that could affect our results is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revision to the statements made today other than through filings made concerning this reporting period.

Today's discussion includes references to non-GAAP measures. Clean 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 website and in the appendix of today's presentation. .

Let me turn the call over to Eric Gerstenberg to start.

Eric?.

Thanks, Michael. Good morning, everyone, and thank you for joining us. Before we get into our prepared remarks, I want to take a moment to recognize our 23,000 strong Clean Harbors team for their efforts in Q1. Thank you for your focus and dedication to safely delivering on our commitments to customers and the communities we serve. .

I also wanted to welcome the HEPACO and Noble teams to Clean Harbors. We look forward to your leadership and insight as we continue to set the standard for our industry. I also wanted to highlight our safety results for Q1, not a financial metric, but in our view, the most important metric.

Our total recordable incident rate or TRIR was $0.69 for the quarter, which gets us off to a good start to the year. .

Starting on Slide 3. We opened the year with an even stronger than expected first quarter performance as we exceeded the guidance that we provided on our year-end earnings call. Our 5% top line growth drove a 7% increase in adjusted EBITDA with margins improving year-over-year. Robust demand continues across our Environmental Services segment.

All of our ES businesses, technical services, Safety-Kleen Environmental, Industrial Services and Field Services, delivered better-than-expected growth in the quarter. .

Volumes coming into our disposal and recycling network continue to increase. Our ES segment grew both organically and through strategic M&A from HEPACO. Within SKSS, which Mike will cover in more detail, lubricant pricing was soft until the very end of the quarter.

Our Corporate segment was up year-over-year due to compensation, acquisitions and professional fees. Turning to Environmental Services on Slide 4, segment revenue increased 10%, with 2/3 driven by organic growth from volumes and pricing and 1/3 from the acquisition of Thompson and HEPACO. .

Adjusted EBITDA increased 16%, resulting in margin expansion of 130 basis points from the first quarter of 2023. Q1 represented our tenth consecutive quarter of year-over-year adjusted EBITDA growth in this segment and the highest Q1 adjusted EBITDA margin for the ES and company's history.

Our Technical Services business was the primary contributor to ES top line growth, posting a revenue increase of 11%. A record level of Q1 drum volumes flow throughout our network, which also help drive the record deferred revenue you see on our balance sheet.

As a result of heavy Q1 maintenance schedule and weather disruptions in January, which we noted on our year-end call, incineration utilization was 79% in the quarter, in line with our expectations. Average incineration pricing increased 6% in the quarter, thanks to mix and pricing.

Despite all the turnaround time we've had in the early part of 2024, we still expect that our incinerator should deliver mid- to high 80s utilization for the full year. .

Although [indiscernible] down modestly year-over-year, healthy drum volumes and Base business drove a 16% increase in average price per tonne. As with our incinerators, landfills should deliver a very good quarter in 2024, given the market conditions we see today.

Those favorable conditions should also support the other 100-plus permanent hazardous waste management facilities we maintain in our network. Safety-Kleen Environmental Services generated another quarter of record -- revenue growth, climbing 9% largely on the strength of containerized waste and other core services. .

Field Service revenue was up 10% in Q1, driven by consistent base business, ER events and high employee utilization. The field service results included in the first week of contributions from HEPACO, which we acquired towards the end of March. Early returns on that acquisition have us very encouraged about its future potential.

Industrial Service revenue grew 7% in the quarter, largely from the addition of Thompson as that group continues to focus on higher margin work and cost controls. Overall, the ES produced an excellent start to 2024 in Q1. .

With that, let me turn things over to Mike.

Mike?.

Thanks, Eric, and good morning. Turning to SKSF on Slide 5. The year began with a challenging demand environment for both base oil and lubricants, which led to lower pricing, particularly for our noncontracted volumes sold in the spot market. High volumes produced and sold were similar to the prior year.

So it really was the pricing environment that impacted us, which you can see in the year-over-year adjusted EBITDA comparison. The weakness in pricing was partially offset by the shift we had completed to a charge oil collection model versus the pay-for-oil average we had a year ago in our waste oil collection services.

We added 55 million gallons of waste oil as we aggressively manage our spread to gather feedstock at the best price possible. Despite the difficult Q1, we're encouraged by more recent trends. .

Base oil demand has begun to recover, leading to a rising market prices as we head into the balance of the year. In Q1, we increased our blended sales volumes by 36% as we focus on more value-added products. Blended sales or pricing tends to be a less volatile than base oil, accounted for 21% of our total volumes sold up from 15% a year ago.

Another program, which will insist in both the stability and profitability of this segment is our Group III base oil project. We now have dedicated one of our smaller re-refineries to full-time Group III production. .

We are enthusiastic about the long-term potential for this initiative as we move to open more Group III production in the coming quarters. And lastly, we have been hard at work in recent years to find the ideal partner that recognizes the value of our KLEEN+, base oil and lower carbon footprint it carries.

We wanted to align with someone who had the brand recognition to meaningfully impact the lubricant market. Turning to Slide 6. We are partnering with Castrol on the nationwide launch of more Circular, a lower carbon footprint offering.

This is an exciting and innovative program, and we're thrilled to work alongside with the industry's leading brands to bring it to their customers. .

Under the terms of this multiyear agreement, Castrol will be responsible for selling this sustainable product offering by using a considerable marketing muscle to drive its success. Safety-Kleen will be responsible for the collection of waste oil from Castrol customers in the program.

We will also supply our baseload to Castrol to include in their more circular lubricants. We see this arrangement as a strong validation of our high-quality, sustainable base oil given the recognition of Castrol lubricants and brand.

This program evolved following a series of highly successful market trials and will be officially launched later this month at a key industry expo. We are thrilled to have Castrol endorsement by partnering with us on their close -- their own closed loop solution. .

We have said that as EV transition plays out -- we said that as EV transition plays out over the next several decades, we see our green base oil as an ideal bridge for this market. It offers an opportunity for companies, particularly those with large vehicle fleets to immediately lower their carbon footprint.

We look forward to updating you on this promising program in the quarters ahead. Turning to Slide 7. Eric and I, along with the entire executive team are laser-focused on our capital allocation strategy. .

We are now in the second year of Vision 2027, our 5-year growth plan that relies on a mix of organic growth and acquisitions.

As I outlined on our last call, and I believe it bears repeating, the foundation of the strategy is to drive margin improvement every year through pricing and productivity gains and by achieving economies of scale on not only a highly leveraged network of permanent facilities and unique assets, but also a highly-trained personnel to provide our customers with increased value from our services.

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This will continue to lead increase in cash flow generation and long-term shareholder value creation. The HEPACO acquisition with our headline M&A transaction in Q1, we also recently completed and attracted bolt-on deal with the acquisition of no Oil to support our collection footprint in the Mid-Atlantic market and add more re-refining capacity. .

We continue to evaluate other potential transactions and see a healthy pipeline of candidates. We expect to remain active with acquisitions as we execute against Vision 2027. In terms of growth CapEx, we continue to advance our Kimball Nebraska incinerator, which remains on track to open commercially in Q4.

If I could say, we are eager to bring this $200 million investment online as that capacity is much needed in the market based on many trends from reshoring to new regulations such PFAS to government infrastructure spending. .

Adding a permitted scarce asset will create another long-term competitive advantage for Clean Harbors. On our last call, we detailed the planned $20 million expansion of our Baltimore facility to create a regional hub with manufacturing capabilities.

We completed the purchase in Q1 and we'll be investing in and upgrading the site over the course of the year with material savings to be achieved in 2025. .

Let me conclude my remarks by emphasizing how bullish we are on our growth prospects in 2024. Favorable market dynamics and the current economy should support our continued momentum. We have a clear line of sight across multiple businesses that should enable us to achieve our profitable goal plans for this year.

Demand for our services continued to accelerate as evidenced by Eric's mentioned, of our record deferred revenue and strong pipeline of products. .

In addition, our conversations with customers about their future needs and the opening of the Kimball incinerator reinforces our confidence in the ES segment. For SKSS, with all the initiatives highlighted earlier, several of which have great multiyear potential, we expect to return that segment to more stable profitable growth in 2024.

Overall, we have much to be excited about in both our operating segments this year. .

With that, let me turn it over to our CFO, Eric Dugas.

Eric?.

Thank you, Mike, and good morning, everyone. Turning to the income statement on Slide 9. We started off the year on a strong note with another great performance by the ES segment.

The positive demand trends that have underpinned 3 straight years of healthy revenue growth in this segment continued in Q1 as revenues across all 4 businesses in [indiscernible] were up from the prior year. .

Adjusted EBITDA of $230 million was above the expectations we provided on our Q4 call and up $15 million from a year ago. Our adjusted EBITDA margin in the quarter was 16.7%, up 20 basis points year-on-year and driven by the ES segment. Gross margin in the quarter was 29.5%, an increase of 80 basis points from a year ago. .

Within gross margin, we are seeing the benefit of our continued focus on pricing, greater productivity and operational efficiencies. SG&A expense as a percentage of revenue was 13.2% in Q1, which is slightly higher than the prior year's quarter.

Some of that increase was acquisition-related as we absorbed some initial SG&A costs and incurred some incremental transaction-related severance costs as well as higher professional fees. .

We expect this percentage to improve in the upcoming quarters as we continue to manage SG&A headcount and further integrate the HEPACO and Noble Oil acquisition. For the full year 2024, we anticipate our SG&A expense as a percentage of revenue to be in the mid-12% range, which is consistent with prior year.

Depreciation and amortization in Q1 came in at $95 million, up from a year ago due to our acquisitions. For 2024, we now expect depreciation and amortization in the range of $390 million to $400 million. Income from operations in Q1 was approximately $125 million, up slightly from the prior year. .

Q1 net income was $69.8 million, resulting in an earnings per share of $1.29. Turning to the balance sheet highlights on Slide 10. Cash and short-term marketable securities at quarter end were $443 million. In connection with the HEPACO and Noble transactions, we added $500 million in incremental debt to our term loan to finance those deals.

Even with those additional borrowings, our balance sheet remains strong. We ended Q1 with total debt of $2.8 billion, a net debt-to-EBITDA ratio of 2.4x and continue to have no significant debt amounts coming due until 2027. .

Our weighted average pretax cost of debt at quarter end was 5.7%. Turning to cash flows on Slide 11. Cash provided from operations in Q1 was $19 million, reflecting our seasonally weakest quarter.

CapEx, net of disposals, was $137 million, up significantly from prior year due to investments in our facilities network, including approximately $20 million for our Kimball expansion and $15 million for our Baltimore facility. In the quarter, adjusted free cash flow was a negative $118 million which was in line with our expectations.

In addition to CapEx spend, this total reflects the timing of incentive comp payments, interest payments and working capital. .

For the full year 2024, we now expect our net CapEx to be in the range of $400 million to $430 million. This range includes the new additions of HEPACO and Noble Oil plus approximately $65 million to complete the construction of our Kimball incinerator and approximately $20 million for the purchase and expansion of the Baltimore facility.

During Q1, we bought back approximately 27,000 shares of stock at a total cost of $5 million or an average price of approximately $183 a share. .

At March 31, we had $549 million remaining in our repurchase program. Moving to Slide 12. Based on our Q1 results, current market conditions and our recent acquisitions. We are raising our 2024 adjusted EBITDA to a range of $1.10 billion to $1.15 billion with a midpoint of $1.125 billion.

This guidance assumes $30 million of contribution from HEPACO this year and approximately $5 million from Noble Oil. Looking at our annual guidance from a quarterly perspective, we are expecting Q2 adjusted EBITDA growth of 7% to 8% versus prior year. .

In Environmental Services, we expect adjusted EBITDA in 2024 at the midpoint of our guidance to increase 10% to 12% from 2023; leveraging our network of assets, volume growth in our core lines of business, pricing strategies; the addition of HEPACO and multiple cost mitigation initiatives will drive this result. .

For SKSS, we expect full year 2024 adjusted EBITDA at the midpoint of our guidance to increase 6% to 8% from 2023. Given current market conditions and where we are today, we expect pricing to improve here in Q2 and into the back half.

The promising initiatives that Mike outlined give us confidence that we can achieve this anticipated level of growth despite the slow start of the year. In our Corporate segment, at the midpoint of our guide, we expect negative adjusted EBITDA results to be 8% to 9% -- to be up 8% to 9% this year compared to 2023.

More than half of that increase is additional costs from the acquired companies and related severance and integration costs. .

Looking at it as a percentage of revenue, we expect Corporate segment results to be flat to slightly down from prior year. For adjusted free cash flow, we continue to expect a range of $340 million to $400 million for 2024 or a midpoint of $370 million.

If you take that midpoint and add that to Kimball and Baltimore spend, you arrive at adjusted free cash flow of $455 million, which is greater than 40% of our adjusted EBITDA expectations at the midpoint. .

In summary, Q1 was a great start to the year. We expect a favorable demand environment to support strong profitable growth throughout the remainder of this year. The ES segment has a healthy backlog of waste, a robust project pipeline, including PFAS opportunities and our services business all have good momentum.

And we expect our SKSS segment to begin posting year-over-year growth this year. .

Overall, we look forward to the remainder of this year and continue to execute against our longer-term Vision 2027 goals. .

And with that, Christine, please open the call for questions. .

[Operator Instructions] Our first question comes from the line of Michael Hoffman with Stifel. .

Well done, given this is normally a seasonal tough quarter. If we think about ES, you said in the comments, but I want to clarify, you absolutely had volume growth. Where last year, we were really looking at most of the growth was price driven and some M&A. There is a clear volume -- an improving volume trend.

And then on the price side, you're managing a positive price/cost spread. So you're driving operating leverage there as well.

Is that correct observation?.

Absolutely, Michael. This is Eric. Our volumes have been very strong to start 2024 here, particularly in the drum growth area across our network of TSDFs, incinerators. So real strong volume growth across the board.

Price efforts, as you know, we continue to have a very disciplined pricing approach across the board, and we see that continuing to outpace inflation, continue a lot of focus there. .

And then on the billable Hour segment, side and Field Services, can you talk about what your billable hour utilization look like?.

Yes, Michael, this is -- first of all, Michael, congratulations on your new role. We're all excited for you. We're going to miss it. [indiscernible] for you new role in the NWRA, so congratulations. The answer your question on utilization, we have been able to do a good job of utilizing people.

We've got some good data and out of the system to really drive utilization for both FS and IS. And I think that what's really been driving that productivity is also we've been doing a good job with voluntary turnover. .

Our turnover is down 400 basis points year-over-year and having more experienced people in those roles drive productivity, less training time, less startup time and that's really been helping us with utilization, which is, again, a key metric that we measure across the organization, especially in those high labor hours like in IS and FS. .

Just to add one other point, Michael, to that, is that we really have seen a great job by our teams cross-selling and driving utilization of people by sharing people and assets across branch types within our network. So that's a real positive trend for the team working together out there to service our customer needs. .

And just to tease that a little bit, given the performance, it feels like you ought to be in the mid- to upper 80s and billable hour utilization, which is a nice place to be in that type of business?.

Absolutely. That's where it is. .

That's where it is. .

Yes. Okay. And then with regards to PFAS, we all know, and I think we all believe that there's a great opportunity coming and you have an underlying base level of activity. But one of the things we still need just to manage everybody's expectation is a remediation MCL.

We've got a drinking water, but that's not really your niche, even though you are doing drinking water [ naval ] based Pearl, we really need a remediation MCL.

Is that correct in understanding what creates the real momentum eventually?.

Yes, no doubt about it, Michael. But I continue to reiterate that we really are in the drinking water. We're seeing a lot of opportunities there.

As you know from our total focus here across the board, we're really focused on sampling, analysis, baseline, whether it be a remediation event, whether it be drinking water, whether it be industrial, in giving our customers that baseline so that we can help them make strategic decisions on the way forward.

Certainly, we're -- we've mentioned many times that our pipeline continues to grow. .

And we're the total solutions provider with our network of incinerators and our landfills and our wastewater treatment plants and our team remediation that's out there [ treating and jerking ] in industrial water. So the pipeline, we see strong. Our team is out there.

We're also working with EPA directly on our aragonite incinerator, where we're doing updated testing. There's been more parameters that have been put in place on a new method for background incineration, throughput and efficiency.

And we've -- we're working with them to redo and upgrade that test to show that -- to continue to show that high-temperature [ retrothermal ] incineration is the preferred method. .

So your point is Teflon with remediation. We need that standard. However, we continue to see bullish opportunities and pipeline growing there in many different areas. .

And just to close the loop on your comment about the testing, you feel really good about being able to meet OTM 50, where you hit the ball out of the park on OTM 45. But there's nothing about OTM 50 that you say precludes you from proving to EPA Thermal is the right answer. .

Highly, highly confident. Not a problem. .

And would you use the same consulting group to help do that test since they've got experience?.

Yes, absolutely, absolutely. I think it's also important to note that we see more and more interest in cooperation with EPA. I'm helping to make sure that the test and the parameters and everything that we're doing there, they are supportive of. So good cooperation there. .

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

I wonder if I could just ask you to update us on your M&A pipeline today, obviously, pretty active couple of quarters for you folks.

Can you talk about what's the range of outcomes in terms of potential additional deal flow over the next 12 to 24 months based on your discussions?.

Yes, Jerry, this is Mike. I think that it's -- the pipeline remains really strong. And we closed 2 deals here, both the HEPACO transaction, which was pretty material, but also an acquisition in the oil space. And we look at a lot of deals in both parts of the business.

Two to 3 a week, at least, and we have discussions and a lot of them don't make the cut. So it's hard to kind of prove a negative on this call, but we do, do a lot. If you had to make strategic sense, they have to make financial sense. We kind of -- we've to measure that. But the pipeline remains strong on both businesses.

Obviously, we're excited about the HEPACO deal that I think that's going to turn out to be a home run. Noble also should be a really good deal. We're looking for acquisitions in that type of area. So pipeline is strong, very active. Our leverage is in pretty good shape. We generate a fair amount of interest in our term loan.

We did object for the HEPACO transaction. I think more to come, very active. As we try to go after Vision 2027, we're going to generate a fair amount of free cash flow in the back half of the year, and we want to put to work. . .

Super.

And then in terms of the marketing arrangement that you reach with Safety-Kleen, can you expand a little bit about that? Where is the pricing point versus virgin base oil? Are we starting to see premium open up? And what's the opportunity under the agreement for that premium to widen over time?.

Yes. I think that it's -- we don't give out financial details on our deal with Castrol. We're really excited about the opportunity. As I said in my prepared remarks, it kind of -- it validates the sustainability of our base. It immediately lowers our customers and their customers' carbon footprint.

There's a lot of good value, we were talking about going after large fleets for years and we partnered with Castrol and they have the marketing and the sales muscle to go and penetrate those markets. .

And I think that it really is going to be a great partnership. And I do think that overall, something more contracted oil is at a better price than the spot market. So -- but we're not going to give financial details on this call. .

And in terms of the Industrial Services business, at the Analyst Day, we discussed a pretty clean runway in terms of improving billable terms and driving higher contract billable hours.

Can you just update us on progress on that journey this year? How much of a contributor was that in the quarter? And where do we stand in terms of potential additional upside on continuing to improve those terms?.

Yes, Jerry, our industrial team continues to do a solid job of placing more of our employees at a billable rates within the sites that we work on day in, day out. Large chemical plants, large refineries, building out our insight programs, the tools that we can provide from them, the automated tools.

All that is in an effort to have more of our industrial teams day in, day out with high billable hours at our customer sites, and the team is really focused on doing that, and the results are showing that. .

So it was a meaningful driver in the quarter, Eric?.

It has. We've seen our utilization of our employees continue to improve year-over-year. That, along with some of the things that we've been doing on the pricing side, better price improvement on our billable labor on site has also been a key driver. The Thompson Industrial continues to work with our teams very well.

And these teams working together, Thompson and our HBC, on customer sites and growing our verticals has also shown up in our results. . .

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

This is Jasper Bibb on for Tobey. Following up on Environmental Services outperformance in the first quarter and the higher guide.

Would there be any way to, I guess, quantify the expected pricing outperformance relative to your initial assumptions?.

Yes. Across the board, I would say that about 50% to 60% is priced and about 40% volume. And we're really focused on making sure price is ahead of inflation in our cost structure, along with efficiencies, improvements that we're seeing. And volumes are robust, as we mentioned earlier on the call. Volumes very strong in the first quarter.

And we anticipate that continuing to grow as we go into the second half of the year when we look to get our new Kimball incinerator on board here. .

And so Jeff, this is Eric. Just adding to it. Just comment a little bit. I would say that in terms of pricing, I think it was in line with our expectations in terms of what we see in the marketplace and what we're able to do against our goals.

I think volume became a larger piece of the pie here in Q1 because of the significant growth that we're seeing on drum counts that Eric Gerstenberg mentioned earlier. .

So the 60-40 pricing, we probably came into the quarter thinking it would be a little bit higher on the pricing side of that equation, but volumes have just been really strong, not just with drums, but also you probably noticed the growth in field services as well as SK brands, those businesses both grew at about 10% this quarter.

So volume is certainly a key component in this quarter as well. .

Yes, that's helpful. And then you mentioned the improvement in base oil demand for the quarter.

I was just hoping you could maybe give a bit more color on what you're seeing in April so far from a pricing and spread perspective?.

Yes. This is Mike. The -- I think that we ended the quarter kind of on a good note. There were 2 posted price increases not all of which will get into Q2, but it could [indiscernible] well. And I think that we have a big -- we have some growth from Q1 into Q2, and that we see kind of the summer driving season, the normal seasonality returning.

And I think April, so far is actually going to be a pretty good month in the Oil business, and that gives us a good running start into the quarter. .

Makes sense. Last one for me.

Just any change to the interest expense assumptions for the '24 guide, with the incremental borrowings in the quarter?.

No, I think we're still in line kind of with what we guided -- we did guide, I think, as we came to the quarter for some incremental debt, but that incremental debt the $500 million today, it's roughly at 7%. So I'll let you kind of do the math there.

But when you think about overall cash flow for the year, some of the incremental cash that we'll see from acquisitions is being offset by the incremental interest as well as some capital investments that we always do with some of these things. And that's what's driving the flattish kind of free cash flow or flattish to where our guidance was in Q1.

So, but again as Mike said really strong balance sheet. We had some moving parts in our debt portfolio coming up here, and we'll continue to be very smart with how we how we manage that. .

Yes, I think the team has done a good job of managing interest rate risk. It's only at 5.7% here in Q1, and the team has done a good job of getting good returns on their cash. So that's 4% or 5%. So really, the arbitrage of the incremental debt hasn't been too bad from the P&L. .

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

Question on HEPACO. I know it's early, but I'm just wondering how we should be thinking about the revenue synergies. It seems like there's some real good opportunities here. .

Yes, James. So Eric here, I'll begin. One thing that HEPACO has really brought to the table is their penetration in the rail vertical. They've had some great relationships with some of the largest railroads and have got a great team that responds to not only events but ongoing services for the rail industry.

That we're going to plan on building on that nationwide so that we're a participant in all rail activities. So that's a great revenue synergy there. We also have seen some great work with our teams working together across the customer base and sharing assets already. .

Out of the 40 different branches that HEPACO has brought to the table, there's about 22 of those that are in new markets for us, so that we can grow with the customer base there. The other 18-ish are working in conjunction with our teams at existing field service branches, sharing assets and people to grow our revenue base.

So great opportunities there. They also brought to the table a wonderful national response call center that allows small spills in particular, and servicing large trucking companies to have our network respond and internalize those throughout North America. So great opportunities in all 3 of those areas. .

Yes. So far, Jim, it's really the hand in glove and you really see a great partnership. And even in a -- we owned it for a week in the month of March, and we're already crossed sharing resources across the network, even in the first week of August, so which are [indiscernible]. .

Got it.

By the way, did you size the acquisition related severance expense that impacted SG&A? Or maybe could you size that?.

Yes. They are about $4 million of severance and integration kind of running through corporate this quarter. .

Got it. And last question -- great. Last question I had is just in light of the announcement with cash flow, and by the way, congratulations on that.

I'm wondering, is that spurring discussions? Are you in discussions potentially that you could talk to with other lubricant suppliers? Or will you just see how this plays out and hopefully others come on board. .

Yes. No, we just announced the partnership with Castrol. We're going to work with Castrol. We have -- we did some trials, did some pilots. The great relationship. We're excited about working with Castrol. So we're going to drive that. They have this great brand, very well respected brand in the industry, and we're excited to work with them. .

And James, just to add to that, as Mike mentioned earlier, the great partnership there is really to help grow fleet sales. Castrol brand has been in a number of large fleets already and the circular offer of collections and then putting our refined base oil into those fleets under the Castrol brand is the real opportunity there. So great stuff. .

Congratulations. .

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

First question, big picture, should we assume that the guidance update here reflects the acquisitions being added and a little bit of 1Q outperformance and maybe some a little change in the corporate expense.

But the message here, if I'm reading it right, confidence is high, but there's no real underlying change in your EBITDA expectations just given that we're early in the year? Or is that how we should read this guidance update?.

Dave, it's Eric Dugas. I think you're reading it into it the right way. Being early in the year, the guide is -- the rate is coming to new acquisitions, as we talked about and laid out in the prepared remarks and then kind of the success we saw in Q1 and then maybe a little bit of uptick throughout the whole year.

But given Q1, given our history of quite of [indiscernible], we set up some guidance that we feel very comfortable [ beating here ] going forward. But you're reading into it that right way. .

Okay. And on the first quarter turnarounds, were any of those unplanned and therefore, offsetting expected work for later in this year. I think that you have sort of a once and every 5-year kind of turnaround at Deer Park coming up in the second quarter.

And as it relates to that, just wondering if we should factor that into utilization or ES growth profitability in the second quarter specifically?. .

Yes, David, a couple of things there. We did have a little bit -- a small amount of weather-related activities that were associated with that deep freeze that occurred in January, but it was pretty small.

Last year, when we ran into those issues, we spent some nice capital on upgrading the weather protection across our El Dorado facility, so that prevented one of our trains from having to come down in those deep freeze. So we really saw the results of being able to stay online for the most part through that deep freeze.

There is a little on one of the train. In addition to that, we have planned turnarounds. We had a major outage that we did up at our Canadian incinerator at [indiscernible] that really drove most of the incremental down days that we had year-over-year in Q1. So that was planned activities. So by and large, to answer your question, planned activities. .

We do a little large shutdown that we're working through at our Deer Park plant. As you mentioned, that's a 7-, 8-year event that we're doing to retool some of the wastewater treatment activities down there that are on the back end of that plant, that is proceeding extremely well. The team is doing a good job.

So we expected the 79% and 80% in that area, and we still fully anticipate with the activities that we have underway that will be into that mid- to high upper 80s for 2024. .

The only thing I'd add to that, David, is that to that point in Q2, the margins in ES, there won't be -- there'll be a good margin growth and there'll be material margin growth, but it won't be as substantive as what we see in Q1. .

Right. And just to follow on that train of thought here.

The -- my understanding is that the kiln right now and Deer Park isn't able to take certain materials because of the state of the kiln today and I'm wondering, going forward, could we see an uptick in value there just given that your -- you have that refreshed and ready to go?.

David, the Deer Park consideration units have very robust capabilities. They take a very diverse suite. That site along with our El Dorado site can take everything. So the -- it's not that we're adding additional capabilities. The capabilities there are as robust as any plants in our network and any plants in the industry for that matter.

So we do -- we handle a significant amount of the direct burn streams from that Gulf market on there, but by and large, very robust capabilities and that will continue. . .

Our next question comes from the line of Timna Tanners with Wolfe Research. .

I wanted to ask about the base oil outlook, what you're budgeting in your guidance, given the comments about the uptick. It's so great to see some of the measures you're taking. We're hopeful to see the negative comparisons behind, but just wanted a little bit more color on how you're thinking about the trajectory in your estimates forecast. .

Yes. This is Mike. Thanks for the question. We are going to have -- it's a pretty modest uptick. We try to be thoughtful as we've given guidance.

We've been burned a little bit in the past biased as we were -- although the base oil prices [indiscernible] pricing has gone up quite a bit over the last month or so, we've been pretty cautious in a pretty modest increase in the pricing environment. We're hopeful we'll come back [indiscernible] and now and report a nice beat to that number.

And to your point, put the negative [ bees ] kind of behind us. .

Okay. Fair. That's helpful. And then regarding capital allocation, what drives the pace of buybacks quarter-to-quarter? How do you think about that? How do you balance the pipeline for M&A with buybacks and any debt paydown, which you don't have to do it sounds like, but could do? Just any thoughts there. .

Yes, Timna, Eric here. When we think about buybacks, we're really opportunistic under that program. I think we utilize it when we think the share price extremely undervalued, and we also utilize it. So it's not to dilute our current shareholders as new shares come into the market.

So that's really the way we handled that program in the last couple of years. When each of the last 2 years, we've bought back about $50 million, and that's accomplished those goals. So I would anticipate that we'll continue to use the program in that manner.

When I think about overall capital allocation, as evidenced by what we did this quarter with the 2 acquisitions, acquisitions and accretive internal growth projects like Kimball and like the Baltimore project, those are where we'll put most of our capital, and we'll continue that going forward. ..

That's always an option. We certainly like our debt portfolio from the perspective of, we do have some debt where we can pay down if that's an attractive option for us. But certainly, I think acquisitions has and will continue to be the heavy hammer there when it comes to capital allocation. .

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

First, you discussed it previously, just covering a little bit more granular on the free cash flow guide walk raising EBITDA of $50 million, operating cash flow, liquidating about $10 million or so. So it doesn't sound like there was interest expense maybe some CapEx related to HEPACO. But just help us maybe think about the bridge there. . .

Yes. I mean, no, it's Eric. I think you start with the uptick in EBITDA from the acquisitions and the good Q1 growth. And then I think as they reconcile from kind of EBITDA to free cash flow and the rationale for keeping free cash flow guide flat to what we said last quarter, is really the incremental debt.

So you've got based upon today's rates, about $25 million of incremental interest payments on the debt. And then as we know, when we buy these acquisitions, there's always some incremental CapEx. So there's probably another -- as you saw, we increased our capital expenditures this year by $10 million. .

So you've kind of got $35 million there in our free cash flow guide. That's incremental to last quarter. But keep in mind, I think when we look at the -- certainly, the 2 acquisitions, we have a little bit of synergies kind of built into the forecast not much as we continue to treat this business throughout the year.

But as those synergies come, and particularly with HEPACO, we feel really, really good about the synergies, having owned them for about a month now. Certainly, from a free cash flow perspective, those things will become more accretive towards the end of the year and certainly into 2025. .

Yes. Thanks for anticipating the synergies question. I think you had targeted $20 million after year 1 and if you're not putting in much this year, obviously, that could be upside. Okay.

How do we think about Kimball ramping capacity and how we think about mix? Maybe we can sort of start with 4Q and then think about the plan for, call it, the first half of next year. .

Yes. No, Eric here. So we're excited to be on schedule to open Kimball in Q3 and into Q4 of this year, coming online. Our focus will begin really around the drum volumes that are throughout our network that we've seen really substantial drum volumes increase year-over-year.

So we'll have really a ramp up in Q4 and then into 2025, we would anticipate doing 20,000 -- 25,000 to 30,000 tonnes through that unit, to 2025 around that sweet spot of drums and also direct burns and lean water streams as we ramp up throughout the course of the year. .

Okay. Terrific. And just to circle back on PFAS, Michael asked the questions around that opportunity. I guess just to simplify it for me, what impact has the team seen as a result of some of these regulations.

And I know there was some visibility to those coming, so not necessarily suggesting a [ stay was open ] but just talk about the impacts on the pipeline that you've seen now that we have some official regulations and the Circular destination. .

Yes. No. We've -- as we've said previously, we're doing about $50 million to $70 million of PFAS related work through our network from all the different opportunities we see in our total PFAS solutions. Our total pipeline seems to be growing at about 15% to 20% each quarter as we go into 2025. So real strong pipeline growth.

And I would say the pipeline growth is pretty diverse. It's looking at industrial water opportunities, drinking water opportunities, sampling and background analysis, but also remedial events. ..

We do see activity where already customers are saying, "Hey, we want to plan a remediation because we have a construction event that we want to use that site for.

We also see some opportunities across with AFFF changeouts throughout different districts where regulations and the heightened awareness of all PFAS related is causing fire departments to want to have a plant where they -- or I'm sorry, different customers that they need to have a plan to change out their AFFF in their lives, that need to be drained and recharge.

So that disposal of existing AFFF is some of the opportunities that we see as well and how we might service that on a broad basis knowing that there are many areas that need that before they have an event. They need to make sure they put non-PFAS related AFFF on the line. So that's -- it's really across the board where we're seeing opportunities. .

So just to go back to Michael's question and your question. Obviously, new regulation, very important. How clean is clean, we've said that many, many times. But I don't think we're stopping or our customers stopping in areas like AFFF and other areas where we know there's a high concentration of PFAS.

We're doing -- we rolled out the total PFAS solution. We talked about that last quarter. We're doing a lot of training, a lot of marketing around that. And we're getting kind of all our sales organization and educated on the benefits because it affects all of our businesses. ..

As Eric said, AFFF firefighting foam, whether it be soils, whether it be even field service cleanout work, it's going to affect all different lines of our business as we continue to grow.

And I do think that this has got -- the fact that we've got the drinking water standards out there and they're getting more and more regulation around circular rules around this. We have that solution. We -- it's very, very important for us and our customers to have a total instruction solution, and we have that today. .

[Operator Instructions] Our next question comes from the line of Larry Solow with CJS Securities. .

Most of my questions have been answered. Now still my last couple there. I guess just coming back to the cadence on SKSS. It sounds like, obviously, you're building in a pretty nice ramp looks like you have to get to like an average of like $50 million a quarter to kind of get to the midpoint of the numbers.

So do we -- is it kind of an ease second quarter a little bit up, and then the back half of the year is really where you get the full impact of some of these projects to and some of the ramp of the base oils or the blended [ in it ]. .

Yes. Yes, you got it right. There's a pretty big jump from where we end in Q1 into Q2. I think that's better pricing that's better production in our plants and a few other good things that are happening for us including Group 3, and a roll out. A bit of a beat in Q2, obviously, a big beat Q3 because of where we are versus the view we had in Q3 and Q4. .

Right. Got you. Okay. And then just on Kimball on the CapEx. I think $65 million this year.

Does that -- is that basically complete the majority of the bulk of the spending and then going forward is just the incremental maintenance stuff?.

Yes, that's right, Larry. It will. The $65 million will get us to that 200 mark, and we'll have some related start-up additional capital, but that really gets us full spend. .

Got it. Okay. Great. And then just lastly, a HEPACO call. It sounds like you're reaffirming all the -- it sounds like things are going good. It's early on, obviously, early days. But the synergies, I guess, you're not building in much this year, it feels like, right? But maybe there is a little bit of upside there. But you're still kind of holding firm.

So within the first 12 months, you don't realize that $20 million, but beyond that 12 months, that $20 million should be realized, right? Is that kind of the way to look at it? You could do $60 million EBITDA next year maybe or -- is that fair?.

That's how we're thinking about it, Larry. I think a smaller amount of synergies this year, obviously, as we roll in, we'll have some offsetting severance integration costs we talked about. But certainly, that $20 million number -- 12 months from now, that's the run rate. And I think it's safe to say we feel really good about that. Strong possibility.

It's probably even a little bit better. So really love the acquisition, fits in nicely. And as Mike and Eric alluded to, we -- first week in March, really nice to see them fit in with Clean Harbor. .

Mr. Gerstenberg, we have no further questions at this time. I would like to turn the floor back over to you for closing comments. . .

Thanks for joining us today. Next week, management will be at the WasteExpo in Las Vegas in participating in Stifel Investor Summit there as well as the Oppenheimer Industrial Growth Conference later in the week. We also have several conferences lined up in Boston and New York in early June.

With that actual calendar, we look forward to seeing some of you at these and other events. Thank you. . .

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..