Clean Harbors' Q3 2025 Earnings Call: Contradictions on Economic Headwinds, Turnaround Expectations, Healthcare Costs, Weather Impacts, and M&A Strategy

Date of Call: October 29, 2025

Financials Results

• Revenue: $1.55B, increased year-on-year (amount not specified)
• EPS: $2.21 per diluted share, net income grew modestly year-over-year
• Gross Margin: 20.7% adjusted EBITDA margin, up ~100 basis points year-over-year
• Operating Margin: Income from operations $193M, flat versus prior year

Guidance:

• Revised 2025 adjusted EBITDA guidance to $1.155B–$1.175B (midpoint $1.165B).
• Environmental Services expected to increase >5% in 2025 at the guidance midpoint.
• SKSS expected to deliver ~$140M adjusted EBITDA at the guidance midpoint for 2025.
• Corporate negative adjusted EBITDA expected to be up 3%–5% vs 2024 at midpoint.
• Raised full-year adjusted free cash flow midpoint to $475M (>30% growth YoY).
• 2025 net CapEx (ex SDA & Phoenix) expected $340M–$370M; SDA total spend $210M–$220M (commercial 2028).

Business Commentary:

* Financial Performance and Margin Expansion: - Clean Harbors reported Q3 revenue of $1.55 billion, with Environmental Services revenue increasing by 3% and adjusted EBITDA by 7%. - The consolidated adjusted EBITDA margin expanded to 20.7%, reflecting the effectiveness of pricing strategies, leverage in network facilities, and cost-saving actions. - Growth was supported by strength in Technical Services and SK branches, but some performance shortfalls were noted in Industrial and Field Services.

• Incineration Demand and PFAS Opportunities:
• The company's incineration capacity utilization was high at 92%, reflecting strong demand, supported by PFAS remediation projects.
• PFAS-related sales are expected to generate $100 million to $120 million in revenue this year, up 20% to 25% year-on-year.

• These opportunities are driven by demand for solutions in PFAS remediation and ongoing projects, with recent milestones like the EPA study enhancing credibility.

• Challenges in Industrial and Field Services:

• The Industrial Services segment experienced a 4% decline in revenue, and Field Services had a 11% drop, mainly due to deferred maintenance and project deferrals.
• These challenges were exacerbated by higher-than-expected employee health care costs, impacting overall performance.

• The company anticipates improvement as economic conditions stabilize and maintenance deferrals ease.

• Capital Allocation and Organic Growth:

• Clean Harbors plans to invest potentially $500 million in internal projects, including hub locations, fleet expansions, and additional incineration capacity.
• They announced a strategic partnership to construct a Solvent De-Asphalting (SDA) processing plant, expected to generate annual EBITDA of $30 million to $40 million once operational.
• The company remains active in evaluating M&A opportunities while maintaining disciplined capital allocation, with a focus on share repurchases and strategic investments.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted margin expansion (consolidated adjusted EBITDA margin to 20.7%, +100 bps YoY), raised full-year adjusted free cash flow midpoint to $475M (>30% YoY), reiterated confidence in PFAS pipeline and SKSS stabilization, and described disciplined capital allocation including $50M buybacks and a $210M–$220M SDA project with projected $30M–$40M EBITDA.

Q&A:

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): Eric Dugas, you lowered the midpoint by about $15M—was that mainly Field and Industrial shortfalls and how big was the health care issue; one-time or go-forward?
  Response: CFO: The ~$15M reduction stems mainly from Industrial (~$7M) and Field (~$4M) shortfalls, plus higher healthcare (~$6M company-wide); healthcare increases are partly episodic but increases are built into Q4 guidance and mitigation actions are underway.

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): Conceptually, should we expect consolidated EBITDA to flatten into early 2026 or are there internal levers to drive growth even without an industrial pickup?
  Response: Co-CEO: We are targeting ~5% EBITDA growth next year driven primarily by waste collection/disposal businesses, pricing and cost initiatives, while not expecting a material industrial turnaround pickup until spring.

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): On capital allocation—M&A pipeline: bigger deals, smaller deals, any deal timing this year or more into '26?
  Response: Co-CEO: Actively pursuing both bolt-on and larger M&A opportunistically but remaining patient and disciplined; buybacks continue when opportunistic (>$115M YTD).

• Question from Noah Kaye (Oppenheimer & Co. Inc., Research Division): Can you give guardrails for free cash flow to EBITDA conversion over the next couple years and how to think about extraordinary investments?
  Response: CFO: Target roughly 40% free cash flow conversion of EBITDA as a baseline and explicitly exclude large, accretive growth projects (like SDA) from that metric.

• Question from Noah Kaye (Oppenheimer & Co. Inc., Research Division): You intend to formally adjust the SDA investment out of free cash flow like you said?
  Response: CFO: Yes — we will exclude the SDA growth investment from the reported free cash flow conversion metric.

• Question from Noah Kaye (Oppenheimer & Co. Inc., Research Division): Help us understand the key underwriting assumptions for the SDA unit and dependency on commodity/base-oil prices to hit 6–7 year payback assumptions.
  Response: Co-CEO: SDA is a bolt-on at East Chicago converting ~30M gallons of VTAE into 600N with projected $30M–$40M annual EBITDA and a conservative model assuming some price pressure; 600N is used in more stable industrial markets so commodity sensitivity is lower than typical base oils.

• Question from Noah Kaye (Oppenheimer & Co. Inc., Research Division): On Industrial Services seasonality—were deferrals late in the quarter the cause and will seasonality differ going forward?
  Response: Co-CEO: The shortfall came from reduced scope on turnarounds (customers narrowing scopes), not lost work; we expect recovery into 2026 and have improved labor and cost structures that position us well when activity returns.

• Question from James Schumm (TD Cowen, Research Division): Can you explain the 600N base oil market — pricing, demand, end markets and why you believe demand/growth supports this investment?
  Response: Co-CEO: 600N serves resilient industrial end markets (gear, heavy-duty hydraulic/diesel), commands a premium to Group II, is largely import-dependent, and our model uses conservative price assumptions with upside opportunities to source additional VTAE.

• Question from James Schumm (TD Cowen, Research Division): For SKSS, what is the range and confidence level on the ~$140M EBITDA midpoint?
  Response: Co-CEO: Very confident in the ~$140M SKSS midpoint today; performance drivers (CFO program, cost actions, higher-margin direct lubricant sales) give high conviction.

• Question from David Manthey (Robert W. Baird & Co., Research Division): What was incineration pricing and can you quantify growth rates for Industrial Services, Field Services, SKE and Technical Services?
  Response: Co-CEO: Incineration pricing up mid-single digits overall; Technical Services revenue grew double-digits (~12%), Safety-Kleen branch ~+8%, Field Services down ~9–11%, Industrial Services down ~3–4%.

• Question from David Manthey (Robert W. Baird & Co., Research Division): Does the SDA investment change your M&A appetite or say anything about Vision 2027 progress?
  Response: Co-CEO: SDA is a separately planned organic project and does not reduce M&A appetite; Vision 2027 remains a guiding framework and M&A prioritization is unchanged—we remain active and disciplined.

• Question from Lawrence Solow (CJS Securities, Inc.): Given the Q3 miss, what gives you confidence Q4 will bounce back — were you assuming a better Q3 in prior plans?
  Response: CFO: Confidence in Q4 is driven by continued strength in Technical Services, waste volumes and margin expansion across ES, which we expect to offset episodic weaknesses in services.

• Question from Lawrence Solow (CJS Securities, Inc.): On PFAS — pipeline growth seems faster than revenue; do you need legislation to accelerate conversion, and any update given government timing?
  Response: Co-CEO: EPA-published incineration study materially strengthened demand and the PFAS pipeline is accelerating without needing new regulation, though DoD moratorium relief would be an additional catalyst.

• Question from James Ricchiuti (Needham & Company, LLC, Research Division): Outside of chemical and refinery, any signs of weakness in other end markets you serve?
  Response: Co-CEO: No broad weakness—waste volumes and pricing across other verticals remain strong and resilient, supporting network throughput.

• Question from James Ricchiuti (Needham & Company, LLC, Research Division): How is the Kimball ramp-up progressing and what network benefits to expect into 2026?
  Response: Co-CEO: Kimball ramp is on plan (Train 2 processed >10k tons in Q3), contributing roughly the targeted incremental ~28k tons and delivering routing/transportation efficiencies that should continue into 2026.

• Question from James Ricchiuti (Needham & Company, LLC, Research Division): On larger M&A, are elevated valuations the main challenge for closing bigger deals?
  Response: Co-CEO: Valuations have risen, but we focus on deals with clear post-synergy economics and remain disciplined—price and synergy capture drive our decision-making.

• Question from Tobey Sommer (Truist Securities, Inc., Research Division): Compared with the Investor Day 2.5 years ago, how has the capital allocation mix (M&A vs. internal vs. buybacks) changed?
  Response: Co-CEO: Mix is consistent—continued focus on internal high-return projects, opportunistic buybacks, disciplined M&A and maintaining conservative leverage; timing of M&A is lumpy by nature.

• Question from Tobey Sommer (Truist Securities, Inc., Research Division): Do you expect health care expense growth to accelerate again next year?
  Response: Co-CEO: Health care costs likely to continue rising generally, but Q3 spike was driven by unusually high-cost claims and mitigation steps are expected to moderate future impacts.

Contradiction Point 1

Economic Challenges and Market Share

It involves differing views on the impact of macroeconomic conditions on market share and growth strategies, which are crucial for investor confidence and business planning.

Can you categorize the factors contributing to the revenue shortfall? - Patrick Brown (Raymond James & Associates)

2025Q3: We are facing some macro and specific execution challenges in Q3 that have led us to lower our full-year EPS guidance. - Eric Dugas(CFO)

What is the current macroeconomic outlook, and is Clean Harbors gaining market share amid a slowing industrial sector? - Patrick Tyler Brown (Raymond James & Associates)

2025Q2: Our sales strategy is growing new customer relationships and emergency response capabilities. Michael L. Battles: Diverse end markets help us offset slowdowns in certain areas, and we are seeing strong sales pipelines. - Eric W. Gerstenberg(CEO), Michael L. Battles(CEO)

Contradiction Point 2

Turnaround Activity Expectations

It involves differing expectations on the impact of turnaround activity on financial performance, which is essential for financial forecasting.

Will EBITDA on a consolidated basis flatten year-over-year by early 2026? - Patrick Brown (Raymond James & Associates)

2025Q3: The back-half Industrial Services guidance of $7 million is included in the $15 million reduction and reflects our expectation for limited turnarounds in Q4. - Eric Dugas(CFO)

What is the outlook for turnaround activity in the back half, expected to accelerate? - David John Manthey (Baird)

2025Q2: Our guidance does not depend on significant IS turnaround acceleration. We are cautiously optimistic about a better back half, but any upside would be beyond our current guidance. - Eric J. Dugas(CFO)

Contradiction Point 3

Healthcare Costs and Impact on Revenue

It affects the company's financial performance and risk management, with varying explanations regarding the impact of healthcare costs on revenue expectations.

What were the primary causes of the revenue shortfall, particularly in field and industrial segments, and what was the impact of the healthcare issue? - Patrick Brown (Raymond James & Associates, Inc., Research Division)

2025Q3: The $15 million guidance midpoint reduction reflects issues in Industrial Services (estimated $7 million), Field Services (about $4 million), and health care costs ($6 million overall, including $4 million in Environmental Services). - Eric Dugas(CFO)

What is driving the mid-single-digit growth in environmental services: pricing or volume? - Larry Solow (CJS Securities, Inc.)

2025Q1: We continue to benefit from a more favorable claims experience, which enabled us to see a slight decline in the total health care cost per average employee year-over-year. - Eric Dugas(CFO)

Contradiction Point 4

Impact of Weather on Operations

It highlights differing perspectives on the impact of weather, which could influence operational performance and revenue forecasts.

Will consolidated EBITDA growth flatten year-over-year through early 2026? Can internal initiatives drive growth without external economic support? - Patrick Brown (Raymond James & Associates, Inc., Research Division)

2025Q3: We are experiencing a series of revenue headwinds in the third quarter, most notably in our industrial services segment, with Industrial Services business down about 10% versus our expectations. - Eric Gerstenberg(CEO)

What was the impact of weather on Q1 performance, and are lost volumes recoverable? - Tyler Brown (Raymond James)

2025Q1: Weather was challenging in January, impacting operations. Approximately $10-12 million in EBITDA was lost due to weather. - Eric Dugas(CFO)

Contradiction Point 5

M&A Strategy and Market Conditions

It indicates a change in the company's approach to M&A and the impact of market conditions on opportunities, which could affect growth and capital allocation strategies.

Can you clarify the company's capital allocation strategy and M&A plans? - Patrick Brown (Raymond James & Associates, Inc., Research Division)

2025Q3: The company remains active in exploring both smaller and larger deals, with a focus on disciplined and patient M&A. - Michael Battles(CEO)

How has the M&A pipeline been affected by the current environment? - James Ricchiuti (Needham & Company, LLC, Research Division)

2025Q1: Valuations remain high for assets. Strong balance sheet and network allow opportunistic M&A. While valuations are high, strategic acquisitions remain a priority for growth. - Michael Battles(CEO)