Q3 2026 Clean Harbors Earnings Conference Call - CLEAN HARBORS INC

Explicit Guidance:

• Full-Year 2026 Adjusted EBITDA: Raised to $1.44 billion – $1.48 billion (midpoint $1.46 billion), representing a $290 million (25%) increase over FY2025 and $80 million above previous July guidance.
• Q4 2026 Adjusted EBITDA: Expected to grow 23%–26% year-over-year on a consolidated basis.
• 2026 Segment EBITDA Outlook:
  • Environmental Services (ES): Expected growth of 9%–11% (midpoint), inclusive of ~$10 million contribution from ES&H and EnviroServe acquisitions.
  • SKSS: Guidance assumes ~$340 million adjusted EBITDA, with a conservative outlook acknowledging ambiguity on the duration of elevated base oil prices.
  • Corporate: Adjusted EBITDA expense expected to increase 14%–17% year-over-year (midpoint) driven by higher incentive comp, acquisition impacts, and strategic initiative costs.
• Full-Year 2026 Adjusted Free Cash Flow: Raised to $600 million – $660 million (midpoint $630 million), an $80 million increase from prior outlook.
• Full-Year 2026 Depreciation & Amortization: Revised to $490 million – $500 million (up from prior range).
• Full-Year 2026 Net CapEx: Expected range of $370 million – $430 million (midpoint $400 million), excluding ~$145 million in strategic growth investments.
• FY 2027 Guidance: No specific financial guidance provided; management plans to release 2027 guidance in February following the completion of the annual budgeting process.

Business-Segment Outlook:

• Environmental Services (ES):
  • Field Services: Anticipated continued growth driven by a robust pipeline; a large $120M emergency response event in Q3 is not assumed to repeat in Q4 or 2027, creating a difficult comparison.
  • PFAS: Revenue projected to grow 30% year-over-year, exceeding $150 million – $200 million for 2026, with continued strength in water filtration, remediation, and AFFF change-outs expected to persist into 2027.
  • Industrial Services: Expecting a rebound in core offerings (refinery turnarounds) as customers shift from "run-to-failure" to scheduled maintenance, offsetting current softness; data center engagements are showing initial traction.
  • Technical Services: Strong volumes and deferred revenue balance indicate continued demand; Q3 growth (3%) was impacted by a tough comp due to large projects in the prior year.
  • Incineration: Full-year 2026 utilization expected to end in the mid-to-high 80% range (Q4 healthy utilization expected).
  • M&A Integration: Full integration and synergy realization for ES&H and EnviroServe expected over the next 12–18 months; acquisition-related margin headwinds of ~30 basis points anticipated in 2027.
• SKSS (Clean Harbors Oil):
  • Market Dynamics: Tight global supply of base oil and lubricants expected to persist into 2027, though long-term normalization of pricing is anticipated.
  • Product Mix: Continued shift toward higher-margin products, specifically Group 3 base oil (production up 20% YoY) and blended direct gallons (12% of volume vs. 9% prior year).
  • Strategic Asset: Construction of the SDA unit is on track for completion at the tail end of 2028 to stabilize margins during future price declines.

Market and Competitive Outlook:

• Reshoring: Continued strong demand driven by U.S. manufacturing reshoring, underpinning volume growth and supporting a 10-year, $600 million contract commencing in Q4.
• Captive Incinerators: Onshoring trends are expected to reduce utilization of captive incinerators (due to changed waste streams), creating opportunities for Clean Harbors to absorb unique waste streams; management anticipates one or two additional captive units going offline over the next 2–3 years.
• Customer Consolidation: Increasing demand from customers for single-service providers for regulated waste and recycling; management expects to capture more RFPs for total waste management solutions.
• Data Centers: Pipeline of active projects growing (approx. 12 active projects); expected to expand lines of business to include coolant change-outs and analytical services; $15 million investment increased for 2026 (total dedicated capital target $70 million over two years).
• Competition: Higher interest rates may alter competitive dynamics in M&A, but Clean Harbors remains disciplined and sees a healthy pipeline of acquisition opportunities.

Macro / Industry Outlook:

• U.S. Economy: Management views the U.S. economy as strengthening on the manufacturing side, supporting tangible volume growth in the collection network.
• Commodity Prices: Acknowledges ambiguity regarding how long elevated base oil and lubricant prices will remain; expects eventual normalization which will pressure SKSS margins, necessitating the SDA unit and product mix shifts for long-term stability.
• Regulation: Anticipates continued catalysts from the NDAA and potential bipartisan PFAS funding (e.g., $10 billion water treatment bill), driving municipal and defense base remediation demand.
• Refinery Turnarounds: Refineries running near full utilization (92%) currently; expecting increased turnaround scope and frequency in 2027 as units reach failure points.

Strategic Initiatives:

• Leadership Transition: Effective January 1, 2027, Eric Gerstenberg will serve as sole CEO; Mike Battles will retire from the board and co-CEO role at year-end 2026.
• Capital Allocation:
  • LA Hub: $55 million property acquisition closed in Q3 to consolidate 6 legacy branches; expected annual lease savings of $5 million–$7 million and expanded wastewater/e-waste capabilities.
  • SDA Unit: Accelerating construction of the Solvent Deoiled Asphalt (SDA) unit, with total strategic investment of $50 million (part of broader organic plan); startup targeted for late 2028.
  • Data Centers: Increased 2026 capex from $10 million to $15 million; total dedicated capex target raised to $70 million over two years.
  • Specialized Fleet: $25 million investment allocated for fleet enhancements.
• M&A Activity: ES&H and EnviroServe integrations underway; management sees a healthy pipeline for future acquisitions fitting their "swim lanes."
• Share Repurchases: $25 million repurchased in Q3; ~$525 million remaining authorization; buybacks remain an attractive option given the outlook.

Risks and Headwinds to Outlook:

• Contingency Items: 2026 guidance assumes no repeat of the Q3 $120 million large-scale emergency response event; large ER events are considered upside, not baseline.
• Market Volatility: SKSS margins are exposed to potential base oil price declines; guidance remains conservative on this segment due to commodity price ambiguity.
• M&A Integration: Acquisition integration will create near-term margin headwinds (~30 bps in 2027 for ES) and increased corporate expenses (incentive comp, insurance, strategic initiative costs).
• Operational Timing: Incinerator utilization rates are sensitive to the timing of turnarounds (e.g., pulling a turnaround from Oct into Sept impacted Q3 utilization); annualized view is more indicative than quarterly.
• Industrial Services: Current outlook excludes anticipated rebound in refinery turnaround activity; flat growth expected if turnarounds remain delayed.

Management Tone on the Future:

• Confidence Level: Management expresses high confidence ("bullish," "enthusiastic," "certain"), citing strong execution, a robust backlog, and favorable market tailwinds.
• Strategic Focus: Emphasis on disciplined capital allocation, organic growth via hubs and data centers, and long-term margin expansion (targeting 25–50 bps annual base margin expansion, with 30% as an aspirational long-term goal).
• M&A Discipline: Reaffirmed commitment to discipline and patience in acquisitions; no rush to deploy capital if deal parameters are not met.
• Leadership Sentiment: Mike Battles expressed "utmost confidence" that "best days remain ahead," while Eric Gerstenberg highlighted the "second to none" team and "clear path" to 2027 growth.

Miscellaneous:

• Net Leverage: Expected to settle in the low two times range at year-end 2026 following the $600 million note offering used to fund acquisitions.
• Safety: YTD TRIR of 0.49 matches the best full-year rate in company history; target remains consistent.
• Debt: $600 million note offering closed October 1, 2026, with strong investor demand allowing for attractive terms.