Greetings, and welcome to the Clean Harbors Fourth Quarter and Full Year 2023 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel. Thank you, sir. You may begin.

Thank you, Christine, and good morning, everyone. With me on today's call are our Chief Executive Officer, 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 as of today, February 21, 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 revisions 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. Our full year and fourth quarter 2023 performance underscore the role of our Environmental Services segment as the long-term growth engine for Clean Harbors. The strong core we have built through organic initiatives and strategic M&A continues to strengthen our sustainable business model with unique competitive advantages. These advantages include a portfolio of difficult-to-replicate assets, a diverse customer base, high-value services anchored by strong pricing, and an outstanding and highly skilled workforce. As our Environmental Services results were up in 2023, we demonstrated we continue to drive increased efficiencies in areas such as labor, transportation, and logistics, while capturing meaningful acquisition synergies as we advance our Vision 2027 strategy. Before discussing the quarter, I want to take a moment to recognize the valuable contributions and substantial efforts of our entire team in delivering a terrific 2023. To our employees, thank you for everything you do to make Clean Harbors successful. Turning to Q4 performance on Slide 3. Environmental Services capped a record year with an outstanding fourth quarter in its ninth consecutive quarter of year-over-year EBITDA growth. That concluded an exceptional 2023 for this segment, where we increased our annual adjusted EBITDA margin by 160 basis points. All of our Environmental Services businesses, Technical Services, Safety-Kleen Environmental, Industrial Services, and Field Services, delivered growth in Q4 as demand for our highly trained workforce and unique asset base continues to be strong. Safety-Kleen fell short of our expectations in Q4. The market pricing improvements we saw in October faded as the quarter progressed. Volumes sold was a positive metric and increased significantly from Q4 in 2022 as the team worked hard to continue to grow its sales pipeline, especially with our blended and value-added products to offset weaker pricing. Mike will provide more detail on Safety-Kleen in his remarks. As we often do, I want to highlight our remarkable safety results. The team delivered a Q4 TRIR of 0.51, which resulted in a full year 2023 rate of 0.63, the best safety performance in our history and far exceeding our annual goal. We can't say enough about the great work the organization continues to do around safety and how meaningful it is to all of our stakeholders. Turning to Environmental Services on Slide 4. Segment revenue increased 7% due to continued service growth, increased disposal volumes, solid pricing, and the addition of the Thompson Industrial acquisition, while EBITDA increased 16%, resulting in margin expansion of 190 basis points from the fourth quarter of 2022. In the quarter, as it has all year, our Safety-Kleen Environmental Services business led the way with 11% top-line growth. Containerized waste services continued its strong growth trajectory stemming from sales initiatives designed to drive more waste into our network. Technical Services revenue rose 5%, led by pricing and greater year-over-year volumes into our incinerators and landfills. Incineration utilization was 85% versus 84% a year ago. Average incineration pricing was up 7% in the quarter due to a favorable mix and pricing initiatives, and for the year, incineration pricing was up 9%. For 2023, utilization was 84% as we conducted substantial repair work, including winterization at our Southern plants due to the deep freezes of the past several years. We continue to see a consistent flow of remediation and waste projects in the quarter, which helped drive a 24% increase in Q4 landfill volumes with average pricing up 3%. For the year, landfill volumes and average price were both up 10%, reflecting the growth in larger project opportunities we captured in the market in 2023. In addition, we have seen the pipeline for our unique total PFAS continue to grow. We believe we are the only company that can provide a fully integrated end-to-end solution to the market, which includes commercially scalable destruction. Despite no large-scale emergency response events, field service revenue was up 3% in Q4 through better cross-selling and leverage of our organization. Industrial Services revenue grew 8% in the quarter as it benefited from a strong fall turnaround season and the addition of Thompson Industrial. As I mentioned a moment ago, overall ES segment EBITDA was up for an impressive 16% to Q4, more than double our revenue growth of 7% as we leverage our facilities, fixed assets, and workforce. For the full year, the ES margin rose 160 basis points to 24.4%. We enhanced our margins not only from pricing, but from our cost savings programs as well as our productivity and technology initiatives. In 2024, we will continue to seek innovative ways to apply AI analytics and greater automation to our business. For example, we are enhancing our proprietary wind system to minimize revenue leakage, eliminate our lower rental costs, apply more sophisticated pricing strategies, and pursue sales opportunities more rapidly. Before turning it over to Mike, please turn to Slide 5 for an overview of our recently announced HEPACO acquisition. We believe that HEPACO will be a terrific addition to the company and contribute to considerable shareholder value in the coming years. It is a $400 million all-cash transaction that we currently expect to close in the first half of this year. HEPACO operates across 40 locations in 17 states and, on an adjusted basis, generated about $270 million in revenue and approximately $36 million of adjusted EBITDA last year. It is an attractive deal that we expect will generate approximately $20 million in synergies after its whole year of operation, which would equate to a 7.1x multiple. The acquisition of HEPACO gives us access to additional markets and new customers, as well as enhanced capabilities around railway and transportation responses. We look forward to adding approximately 1,000 employees to the Clean Harbors family. We are confident that they will benefit from our deep knowledge of field service business, greater scale, and career opportunities. Mike, Eric, and I have visited with their team right after we announced the deal, and we see a very strong cultural fit that should lead to seamless integration. With that, let me turn things over to Mike to discuss Safety-Kleen and capital allocation.

Thanks, Eric, and good morning. Turning to Safety-Kleen on Slide 6, after a promising start in October, following the September price increase, base oil and blended pricing began to shift the other way and grew more challenging as we moved through the quarter. As a result, Safety-Kleen's revenue was 7% lower year-over-year in the quarter. The weakness in base oil and blended pricing was partially offset by greater volumes sold at both base and blended oil as well as a shift to charge for oil versus a pay-for-oil average a year ago for our waste oil collection services. Safety-Kleen's adjusted EBITDA declined 14% in Q4, entirely related to the narrower spread compared to last year and the pricing slowdown we experienced over the course of the quarter. Despite the lower year-over-year revenue, we maintained a healthy adjusted EBITDA margin of 21.7%. To feed our refineries, we collected 53 million gallons of waste oil in the quarter. The team worked diligently to secure gallons at the best possible price while ensuring our plants had the feedstock they needed. As we've highlighted previously, one of our strategies for reducing the volatility of this business is to grow our blended volumes. Not only does blended oil generate more imminent dollars in base oil, it tends to be more stable because we're selling branded products such as motor oil and hydraulic fluid. In Q4, blended volumes increased by more than 60%. We intend to continue to focus on opportunities to sell a larger percentage of branded products going forward. Blended product sales accounted for 23% of volumes sold in Q4, up from 17% a year ago. We recognize that this business has faced challenges in 2023 as the market continued to adjust after an extraordinary 2022 and after a series of price declines and destocking by customers throughout much of 2023. Going forward, our strategy for Safety-Kleen will continue to center on affecting those areas within our control, including the price we charge for the collection of used motor oil, labor and transportation costs, and re-refining production rates. We will continue to focus on the expansion of our blended products, such as motor oil and hydraulic fluids. In 2024, we intend to increase sales of our blended volumes through both direct and wholesale channels. We are also moving ahead with our promising Group III program we outlined on our last earnings call. We expect to launch this initiative in Q2. Turning to Slide 7 and our capital allocation strategy. At our Investor Day last March, we shared our 5-year strategy, Vision 2027, which outlines our plan to grow both organically and through acquisition. The foundation of that strategy is to drive margin improvement each year through economies of scale, a highly leverageable network of permanent facilities, unique assets, and trained personnel. We will continue to lead to increasing cash flow generation and value creation for our shareholders. On the M&A front, we evaluated several transactions during the quarter, culminating in the HEPACO agreement we announced earlier this month. We continue to see a healthy flow of potential candidates for both operating segments and will remain very active on the M&A front as we execute our Vision 2027. In terms of growth CapEx, the largest internal investment in our history is our new Kimball brake incinerator, which is on track to open commercially later this year. We expect the original design and build to cost $180 million to $185 million. Based on our ongoing conversations with customers about Kimball and in response to their future plans, we have elected to add several enhancements into the facility at an aggregate cost of approximately $15 million. These enhancements, driven by demand, will include more direct burn base and additional specialized lines designed to handle certain types of high-acid materials. These additions will enable that site to handle and process even more high-margin materials in containerized waste. We still anticipate that the new incinerator will commence operations late this year. To that end, we do expect to incur some nonrecurring startup costs related to Kimball this year. Since these costs are one-time in nature, we likely will adjust the amount of our reported EBITDA. It's difficult to estimate the exact amount today, and it partly depends on our official launch date, but we know it will be several million dollars. We will report on that as we are closer to our commercial launch. We are also planning a second sizable capital project this year. It relates to our Baltimore site. We recently purchased a large parcel of land next to our existing plant, and we intend to invest and upgrade that property with an eye towards consolidating our brand service offerings, adding more recycling capabilities for our network, and creating a production line for containerized manufacturing servicing our entire network. The total cost of the real estate and site upgrades we intend to make will total approximately $20 million. We expect to ramp up activities at that location over the course of this year. I'll let Eric speak to our debt structure and leverage, but I'd like to conclude by emphasizing that we continue to be bullish on our growth projects for our Environmental Services segment. We entered 2024 with considerable momentum in this segment. We expect the favorable market conditions, whether restoring infrastructure spend or regulatory trends, to continue to support our profitable growth plans for 2024. Our backlog and dialogue with customers give us confidence about demand this year. Our project pipeline is strong, our pricing strategies are working. Industrial Services, coming off a record year, and we expect that business to continue to grow, and field services will greatly benefit from the addition of HEPACO once that closes. After a challenging 2023, we see Safety-Kleen returning to growth and profitability in 2024, with market pricing appearing to have stabilized following a decline at the end of last year, as well as a host of growth projects I outlined earlier. We have much to be excited about in both Environmental Services and Safety-Kleen. And with that, let me turn the call over to our CFO, Eric Dugas. Eric?

Thanks, Mike, and good morning, everyone. Turning to the income statement on Slide 9. As Eric and Mike outlined, the Environmental Services segment posted strong Q4 results to finish off a record year. Revenues across our service lines in Environmental Services were up from the prior year and the demand picture for our environmental service offerings remains strong. The profitable growth in our Environmental Services segment this quarter more than offset the decline in Safety-Kleen and resulted in a 14% year-over-year EBITDA growth for the entire company. Adjusted EBITDA was in line with our expectations at $254.9 million and was up more than $30 million from Q4 a year ago. Our adjusted EBITDA margin in the quarter was 19%, up 150 basis points and driven by improvements in the Environmental Services margin that Eric Gerstenberg outlined earlier. Gross margin in the quarter was 31%, an increase of 70 basis points from a year ago. For the year, our gross margin was 30.7%. As we move into 2024, we are focused on executing several initiatives to drive greater productivity improvements and operational efficiencies, which we expect will continue to drive margin expansion. SG&A expense as a percentage of revenue was 12.4% in Q4, which is 80 basis points better than the prior year's quarter. For the full year, we also landed at 12.4% as we remain focused on managing SG&A headcount and offsetting wage and other inflationary pressures. For 2024, we anticipate our SG&A expense as a percentage of revenue to be at a similar or slightly lower level. Depreciation and amortization in Q4 came in at $98.3 million. For the full year, our depreciation and amortization was $365.8 million, up from 2022, which reflects the Thompson acquisition and incremental amortization resulting from increased landfill volumes in 2023. For 2024, we expect depreciation and amortization in the range of $300 million to $390 million. Income from operations in Q4 was $147.3 million, up 16% from the prior year. For the full year, income from operations was $612.4 million. Net income for the quarter was $98.3 million, resulting in earnings per share of $1.81. For full year 2023, our EPS was $6.95 per share. Turning to the balance sheet highlights on Slide 10. Cash and short-term marketable securities at quarter end were $551 million, up more than $130 million from September. Our balance sheet remains in great shape. We ended 2023 with total debt of $2.3 billion, a net debt-to-EBITDA ratio of 1.9x, and having no significant debt amounts coming due until 2027. Our overall weighted average pretax cost of debt at year-end was 5.3%. In December, we successfully completed an amendment to our term loan that lowered our borrowing rate by 25 basis points, representing annualized interest rate savings of nearly $2.5 million. In connection with the HEPACO transaction, we plan to add incremental borrowings to this term loan as part of our deal financing. Clean Harbors will continue to responsibly manage our leverage position and overall capital structure with an eye towards creating the highest overall return for shareholders over the long term and maintaining flexibility to ensure that we can respond when acquisition opportunities arise. Turning to cash flows on Slide 11. Cash provided from operations in Q4 was $278.9 million. CapEx net of disposals was $105.9 million, up from the prior year due to the investments in our incineration network, including Kimball, that accounted for $25.4 million of our Q4 CapEx. In the quarter, adjusted free cash flow was a record of $173 million. For the full year 2023, net CapEx totaled $412.7 million, in line with our expectations. The Kimball incinerator accounted for $82.6 million of the full year spend. For the year, adjusted free cash flow was $321.9 million, up 11% in 2023. If you add back the Kimball spend, we would have exceeded $400 million of adjusted free cash flow. For 2024, we expect our net CapEx to be in the range of $390 million to $420 million. This level of spend includes approximately $65 million to complete the Kimball construction, including the planned enhancements and approximately $20 million for the expansion of the Baltimore facility, which Mike discussed earlier. During Q4, we bought back approximately 211,000 shares of stock at a total cost of $33.2 million, or an average price of $157 a share. For the full year, we bought back approximately 328,000 shares for $51 million of Clean Harbors stock. In December, our Board authorized a $500 million expansion of our repurchase plan. We currently have $554 million of authorized and available repurchases under this program. Moving to Slide 12. Based on our Q4 and 2023 results, along with current market conditions for both of our operating segments, we expect 2024 adjusted EBITDA in the range of $1.05 billion to $1.11 billion, with a midpoint of $1.08 billion. This guidance assumes no contribution from HEPACO. Once we conclude the regulatory process and close on this transaction, we will update our guidance accordingly. Looking at our annual guidance from a quarterly perspective, we're expecting Q1 adjusted EBITDA growth of 2% to 3% with our Environmental Services segment performance offsetting current market conditions in Safety-Kleen and higher corporate costs. Similar to 2023, some severe weather in January this year impacted our disposal networks, some branch locations, and customers. Despite these challenges, we still expect to deliver a strong quarter of profitable growth in the Environmental Services segment in Q1. For full year 2024, our adjusted EBITDA guidance will translate to our reporting segments as follows: in Environmental Services, we expect adjusted EBITDA at the midpoint of our guidance to increase approximately 5% to 7% from full year 2023. Demand for all of our service businesses remains consistently strong. In addition, demand for our disposal and recycling facilities continues to enable us to execute on our pricing strategies, capitalize on more volumes, and drive a more favorable mix into our network. For Safety-Kleen, we expect full year 2024 adjusted EBITDA at the midpoint of our guide to increase 6% to 8% from 2023, considering a challenging year we had in 2023 and the continued uncertainty around global commodity markets. We are assuming some pricing pressures continue in our forecasting of this segment. Given some of the promising initiatives we have underway, such as our Group III project and increasing blended sales, we expect to see substantial progress in this segment and towards greater long-term stability. In our Corporate segment, at the midpoint of our guide, we expect negative adjusted EBITDA to be up 3% to 5% this year from 2023. This reflects a full year of Thompson Industrial costs, and rising expenses in areas such as insurance and wages and benefits, partly offset by our wide range of cost-saving initiatives. For adjusted free cash flow, our expectations for 2024 is for a range of $340 million to $400 million or a midpoint of $370 million. As mentioned earlier around CapEx plans, we have some internal growth investments we are planning this year, starting with the approximately $65 million to complete the Kimball construction as well as the $20 million for the Baltimore expansion. If you add back the Kimball and Baltimore spend, the midpoint of our adjusted free cash flow guidance would be more than $450 million or over 40% of our current adjusted EBITDA midpoint expectation. In conclusion, Q4 was a great finish to a record year in our Environmental Services segment. Trends coming into 2024 in this segment remain favorable. We continue to see substantial demand across our network, not just within our incinerators but with our TSDFs, landfills, and recycling operations as well. We ended the year with steady volumes and a healthy backlog. Our positive facilities outlook is further supported by an encouraging level of interest across all of our services businesses. Within Safety-Kleen, the market appears to be stabilizing as we approach the summer driving season. Overall, we expect to generate profitable growth in both operating segments in 2024 and continue to execute against our Vision 2027 goals. With that, operator, please open the call for questions.

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

Looking at Q1 '24 specifically, I would love to understand a little bit better the segment expectations. I know historically, the company doesn't guide. But given the comments around weather and of course, the swing that we saw in Safety-Kleen this past quarter, I would just love to understand a little bit more and put any finer point on what your expectations are for each of those segments?

I'll take that one. As we just communicated, we see Q1 growing 2% to 3% greater than last year. When you break that down by segment, obviously, kind of the momentum we're seeing in the Environmental Services segment, we continue to expect that in 2024. As I mentioned in my prepared comments, we did still have some weather challenges in the quarter as we did last year. But I think with our pricing initiatives and other things we still see in that quarter, particularly a high single-digit growth rate quarter-over-quarter, approaching that 10%. With Safety-Kleen, we entered 2023 last year still on the strong tailwinds of 2022. So Q1, as we look at Safety-Kleen for Q1 of 2024, it's down below last year, but it should pick up as we move throughout the year.

Yes. I'm leery of doing math on the call. Yes, that gets me to a pretty steep drop in Safety-Kleen year-over-year, as you're suggesting. And so the thought is that as we get into the balance of the year on Safety-Kleen, maybe you can talk through the Group III initiative, the blended ones, and kind of what the self-help looks like this year for Safety-Kleen, as I recall you also had some production issues in the third quarter and lapping those should support as well. But maybe just help us understand some of the drivers to get to that 6% to 8% EBITDA growth.

I'll start again, and Mike, please pick up on some of the prepared comments here. Yes. Obviously, a little bit of a steep decline in Q1, as I mentioned. As the year rolls out, as we said, the Group III project does come in kind of in the summer timeframe. When you look at the cadence for the full year, we kind of see Q2 on the Safety-Kleen business getting towards that flattish point on a year-over-year basis. And then as we move into Q3, Q3 last year in Safety-Kleen is really where we saw that big drop, so as we feel as we move into Q3, assuming prices remain where they are today, we should have a good year-over-year comparison there. The last point I'd make before I let Mike add on is just from a blended sales perspective, great momentum in Q4 from a blended sales perspective. We'll continue to drive those initiatives in 2024. I think that will really help as we move into the summer driving season in the latter half of that season. Mike, anything to add?

One thing I want to highlight is that we were surprised by the situation in Q4 and throughout the year. When we included this in our guidance, it reflected a discount compared to the Motiva pricing we posted for Group II. This discount isn't always present, but it appeared quite significant in Q4. As we approach 2024, we don't expect a quick recovery. For Q1, year-over-year comparisons show a decline in the high teens to low 20s, which puts us slightly behind in achieving growth for the year. Our target remains mid- to high single-digit growth, but Q1 will be a challenge. Recently, we've seen some improvement, which is encouraging, but we are facing headwinds as we start the year. On the positive side, Group III is performing well, and the plant operations are running smoothly. We anticipate that will contribute an additional $3 million to $4 million in 2024, although the impact will be modest for now. The plants have made significant recoveries, but January was still tough for them, as it has been for the incinerator, as mentioned in earlier remarks.

If I could sneak in one more question about the 80% of the business that's growing high single digits entering 1Q. You mentioned PFAS.

87%

Thank you for the precision. The commentary in the call mentioned PFAS. The total PFAS solution, and I think it was even in the release as well. Can you maybe just dimension for us what the PFAS-related revenues were in 2023? And what your thinking in 2024 could be? And how contingent that is on EPA action?

Noah, this is Eric Gerstenberg. I'll take that one. Our overall revenues in 2023 were in the range of $50 million to $70 million. And our pipeline continues to grow across our business with opportunities from customers trying to leverage everything that we can offer. As we've said in the past, offering our total PFAS solutions is really around how we can provide sampling services, analysis of PFAS in groundwater as well as contaminated soils. How we can leverage our remediation team, how we can do drinking water and industrial water, and then provide really that overall commercially offering disposal through our landfills and incinerators. The pipeline has grown probably about 20% to 25% year-over-year and continues to grow as we get our solutions out into the market and as discussions continue out there. So a lot of continued opportunity there for our network.

We've talked a lot about PFAS over the past few years, and obviously, people have been waiting for it, and we're actually starting to see it now. Eric's observation is about trying to provide a full PFAS solution, which is as far as end disposal, which is scalable and ready today. We're really excited about that. And as Eric said, that pipeline is very strong going into 2024. So more to come on that. I think there's a lot of good things we've been talking about for a number of years that are trying to materialize, clearly.

Our next question comes from the line of Tyler Brown with Raymond James.

First off, just congratulations on the TRIR numbers. I know those are very important to you and obviously your employees. And I get that a safer workplace is very important for a variety of reasons. But Eric, is there any financial implications of a more consistent, call it, safety record? Is there any kind of impact on go-forward accruals at all? Or is that not the case?

Certainly, as we continue to lower our TRIR and perform safely across the organization, reducing risk and our insurance costs are evident as well. We focus a lot as well on our transportation compliance and how we reduce incidents across our network. So overall, there is as time continues to progress, and we continue to drive our safety and transportation compliance across our network. There is financial improvement that comes along with that.

Tyler, the only thing I'd add to that, Eric, is absolutely right, but the challenge is those costs have gone up. So although we've had fewer incidents and injuries, the cost per incident is growing at a pretty healthy clip. And so that's been a cost kind of in our financial statements for the past few years, and it will be in 2024 as well.

We've observed significant inflation impacts on transportation, which we can discuss later. Eric, I have a quick question regarding the EBITDA projections for 2024. Can we review some of the factors influencing this? This ties back to Noah's earlier question. At the midpoint, you anticipate an increase of $65 million to $70 million, but won't the resolution of the Q3 incinerator and refinery issues account for around $25 million of that increase? Additionally, there's the Group III initiative to consider. I recognize that we faced severe weather in 2023 and there are similar challenges anticipated in 2024. Could you clarify the factors at play? It seems like there might be obstacles that I’m not fully aware of, or are you just adopting a cautious approach?

Thank you, Tyler. You made some good points regarding last year. As we present our guidance, I think there is a touch of conservatism included. We're experiencing strong demand and that trend is continuing, but we are aware of some uncertainty in the overall macroeconomic landscape, which is reflected in our guidance. Regarding Q3 specifically and the challenges we faced last year due to plant disruptions, I want to reassure you that the plants are now operating effectively. In the upcoming year, we plan to make additional investments, including winterization projects we implemented last year that are currently benefiting us. We also have other incremental projects that involve longer-term plans for the next year that we need to factor in. This will help counterbalance some of the increases you mentioned. Looking at the Environmental Solutions segment for next year, we anticipate maintaining strong organic growth, which is a significant component of our guidance moving forward. This growth will be supported by ongoing strong pricing initiatives and cost efficiencies that we've been implementing. Additionally, as we have more time with Thompson, we expect to see improvements across our incinerators and facilities. On the Environmental Solutions side, it’s noteworthy that we are seeing robust volumes of waste that do not necessarily require incineration. The Safety-Kleen branch, in particular, has shown impressive revenue growth this year, which you’ll see reflected in our financials. A substantial amount of that waste is manageable outside our incineration network through our TSDFs or other methods, so there’s plenty of potential for growth in that area. Those are some key points regarding Environmental Solutions. When it comes to Safety-Kleen, if you do the calculations, it suggests a relatively modest growth profile for next year, around 6% to 7%, primarily driven by increased blended volumes and improvements in some facilities, especially in the latter half of the year. Those are the two segments, along with corporate facing some inflationary pressures as the business expands. I hope this gives you more insight, Tyler.

That's very helpful. Lots of pieces there. Just my last one here on the HEPACO deal. Can you just talk a little more about the $20 million of synergies, I guess. Did they direct much waste into your technical assets? Or is that an opportunity? Again, just kind of any more color on the $20 million, how quickly that comes?

Sure, Tyler. This is Eric Gerstenberg, I'll help to answer that. One of the big opportunities that we see with HEPACO is that they provided a national emergency response call center that they leveraged their branches on the East Coast, but also provides us with an opportunity to leverage Clean Harbors branches on the West Coast of the U.S. So that is a large opportunity that we can penetrate our existing field service branches through the customers that they manage emergency responses for. So that's a big opportunity. There are also areas that we haven't had a lot of growth in, like rail, some of the rail customers that they have and transportation that they have. So large opportunities to grow our businesses there and be able to leverage our people and equipment and their people and equipment and branches that they have that are in locations, geographical locations that we are not. So really a great team there, just an excellent fit. Really excited about a few meetings that we've had with their team and really excited about the complement of synergies that they will have to our network.

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

This is Jasper Bibb on for Tobey. Looks like the incinerator and landfill price both accelerating year-over-year versus the third quarter. Is there anything that drove that beyond mix? And how are you thinking about the ability to hold disposal price in '24 as, I guess, inflation more broadly seems to be coming down?

I'll take that one, Jasper. Just in terms of the pricing that we saw kind of accelerating from Q3 into Q4, part of that was driven by some of the planned disruptions we had in Q3 and just the utilization much stronger utilization, probably a better mix in Q4 drove that year-over-year for quarter-to-quarter. I think when you look into 2024, as I mentioned earlier, on the pricing front, given the demand and the discussions we're having with customers, we will continue to price in a way that we can meet or even exceed a little bit of the inflation. I think last week, you saw some inflation figures come out. It's tending to be a little bit persistent and more persistent than perhaps we thought, and we'll continue to price accordingly along with cost cutting. Forgive me, I forget the second part of your question there.

No, you covered both of them. Just wanted to ask another one on HEPACO acquisition. It seems like a fairly large asset for the field services space. Could you characterize for us like how fragmented is that market today? And how you might be thinking about the potential for revenue synergies there with additional consolidation?

Tobey, this is Eric. I'll take that one. So when we look at the overlay of their branch network, as mentioned earlier, they have about 40 different branch locations, and about 25 of those branch locations are in geographies that we do not have field service branches. So a nice match there. Additionally, the one key market that they've been a big part of is providing support services, transfer services, and emergency response services for large rail companies. That's a great market for us to continue to build with the HEPACO team into our platform and provide large-scale emergency response field services as well as what we've already provided, which is disposal services. A nice network there. They also have done an excellent job of penetrating small emergency response work within transportation providers nationally. Even up into Canada, they've used a subcontractor network, particularly on the West Coast and up in Canada, which overlays perfectly with the branch opportunities we have. So a number of areas that really help our organization grow and work together.

And just to clarify, last one. Are some of the weather items that you talked about hitting the 1Q guide for Safety-Kleen? Or is that more of an Environmental Services impact?

Yes. I would say that's more Environmental Services related. The decrease that we had in January did impact some of our collections as well as our plant operations there. As we've talked about before, we did do a substantial investment in 2023 in winterizing one of our incineration trains down in El Dorado, Arkansas. We still have another one to do this year. So it’s largely Environmental Services.

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

In my reserves, I’m wondering if you could just expand on the margin outlook for this year and the margin expansion that you’re targeting. Can you just talk about what proportion of that is driven by improved contract terms versus underlying pricing and the other moving pieces, if you wouldn’t mind fleshing that out, please?

Jerry, this is Eric. I’ll start. Our margin expansion is really driven by a number of things. Obviously, we drove pricing to make sure that we’re offsetting inflation. We also have driven a number of efficiency programs, cost controls, externalizing transportation, and maintenance and rentals across that network. Really, in long-haul transportation, most of our long-haul transportation is all internalized currently. So that’s been a big impact to our margin improvements for routing, waste, and managing it through our network. When you look at the overall improvement in margins year-over-year, we continue to have a longer-term aspirational goal of getting to that 30% EBITDA margins in that business. We think that we continue to have a path to get there. That’s between cost efficiencies, routing, management of our facilities, and how to leverage our relationships with our customers even better to manage all of their collective waste streams. We think we can get there.

And then can I ask you on the Safety-Kleen business? Obviously, we had some softer pricing over the course of the quarter, but you still put up really attractive margins this year at the trough of the cycle. Can you just talk about taking a step back in addition to IMO 2020, just the competitive structure improvement that you’ve seen in this market that’s driving such attractive economics at a point in the cycle where obviously, base oil pricing is not terribly attractive?

This is Mike. I believe that a $1 billion business or a $900 million business with a 21% margin is quite strong. It generates significant cash flow and is beneficial for our overall operations. Even though we have experienced a slight decline from our expectations, I still find it very effective. I want to ensure the team recognizes the excellent job they have done in managing the variables they could influence. There was, as previously mentioned, a notable gap between the pricing of Group III base oil and the current spot market. I believe the team managed the aspects under their control well. We aggressively sourced oil, processed it in our refineries, and produced high-quality base and blended oils. Looking ahead to 2024, the blended oil segment has stabilized and continues to contribute positively. We have seen a small increase in blended oil from 17% to 24%, which, while modest, makes a significant impact on our profitability. As we move into 2024, we expect to continue expanding the blended oil business, which I consider a strong growth driver, along with the Group III segment I mentioned earlier, and also addressing the production challenges we faced in 2023.

And it sounds like the industry is acting appropriately in terms of charging for collections based on your prior comments. Is that right, Mike?

Yes, it’s always a struggle to compete for that business, but we believe we have successfully shifted from collecting oil to charging for it, which is no easy task. I think the team did well with this without significantly impacting our revenue and volume.

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

Mike, maybe just a follow-up on that last point. Do you have a target in mind that you'd like to see blended represent of the business looking out through '24?

Yes, I think that it's a good question, Jim. I think that we talked a long time ago about switching the business around. It’s going to be a grind. I don’t think in our guide, we had it improving modestly. We don’t have it going to 50-50; it's 24% in Q4. We have it growing modestly through the course of the year. I don’t have a set target in mind. I do think the two things we’re trying to do is get more blended oil and get more oil under contract versus spot pricing. Both of those things will help drive the stability of that business going forward because it doesn’t move as fast as base oil does. I don’t have a set goal over a time horizon, but certainly, growth in that will help stabilize that business and drive more profitability into Safety-Kleen.

How much conservatism is built in, do you think, on the Group III? I mean it sounds like you're assuming some modest contribution in '24. Presumably, that starts to scale going into '25.

Yes, I believe that's a reasonable figure. I previously mentioned a range of $3 million to $4 million, and I don't find that to be an unreasonable expectation. It will require significant routing and software dedication to optimize our operations, ensuring we are processing the correct volumes while controlling transportation costs. I consider that a fair goal for 2025, and I think it strikes a good balance without being too cautious or too ambitious.

And then just one follow-up just on HEPACO. I realize the acquisition hasn't closed yet, but I wonder when you talk about additional markets that this gets you into, deeper into customers that you don't get into as actively as the rest of the business? Or is it geographic and how predictable is this business?

Sure, Jim. I'll take that one again. When we examine their branch network, as mentioned earlier, they have approximately 40 different branch locations, with about 25 of those in areas where we do not have field service branches. This creates an excellent match. Moreover, one significant market they have been heavily involved in is offering support services, transfer services, and emergency response services for large rail companies. This market presents a great opportunity for us to collaborate with the HEPACO team on our platform to provide extensive emergency response field services alongside our existing disposal services. It's a solid network. They have also excelled at securing small emergency response jobs with transportation providers across the country, including Canada, leveraging a subcontractor network, especially on the West Coast and in Canada, which aligns perfectly with the branch opportunities we possess. There are several areas that truly facilitate our organization's growth and collaboration.

Our next question comes from the line of Michael Hoffman with Stifel.

Jim, you're somewhere there in the background. I know you are. The seasonal turnaround business, how do I compare that year-over-year? That $2.5 billion or $2 billion of revenues before HEPACO, sort of $1.4 billion of industrial maintenance services and cleaning and $600 million is field services. How do I think about that $1.4 billion? What's that activity look like?

We actually think, Michael, or look at this year as a stronger industrial turnaround plan up in Canada. A lot of their turnarounds didn't happen in 2023. So we have a really strong pipeline up in Canada. U.S. overall, pretty well flat although seeing some early momentum here as we go into March of the staffing that they need to support their turnarounds on the U.S. side. So overall, we would say that the turnaround season, our turnaround in 2024, seems to be incremental in our industrial business.

And then when I think about field services, correct me if I'm wrong, and about $100 million is remediation stuff. But the rest of it is response to lots of little things. How does the HEPACO business look like to like? Is that going to be response to lots of little things? That's sort of the same thing. It's just a lot of small 5, 10 grand type of cleanups, and they happen year in and year out.

Yes, Michael, that $600 million is independent of our remediation work that we do. Remediation is above and beyond that $600 million. It is a lot of continuous emergency response, small in scale. We didn't have a large-scale emergency response event, as you know, in 2023. So it's routine services. We support a wealth of utilities throughout the country. Utilities can be – the work there can be driven by weather events across the board. But it's happening; it's continuous. It's repeatable. So continued growth there as things get more and more turbulent with weather across the country.

I would add that HEPACO is quite comparable to our business. We've met with their team several times, and their operations mirror ours closely. They have a strong emphasis on rail and transportation response services, which we believe we can effectively leverage as we move forward. The nature of small-scale emergency responses occurs daily, much like what we've experienced. This creates a stable business environment. While I can't predict when the next major event will occur, we anticipate that a lot will happen. In our guidance for 2024, we did not factor in large-scale, multi-million dollar projects, as we typically don’t. Such events would be considered upside based on historical trends, similar to occurrences like the avian flu or the BP oil spill. We don't plan or provide guidance based on those types of large-scale responses; instead, we focus on the regular operations that occur daily at both Clean Harbors and HEPACO.

Switching gears, Safety-Kleen, where are you in recovering the spread? I get if base oil prices move sharp and quick, there's a lag to getting the spread corrected. But where are we in the recovering of the spread where you can adjust the front end? So now you've got the spread back in line.

We're currently addressing that situation. As mentioned earlier, we're providing guidance for Q1 regarding Safety-Kleen, and we're in the process of finalizing that right now. I believe things will return to normal as we move into Q2 and the remainder of the year.

What is the interest expense expected to be in 2024?

120-ish? Give me 1 second to find that number exactly, Michael.

While that's happening, did I do my math correctly on the run here, midpoint of guidance, Safety-Kleen to be 185, segment EBITDA, Environmental Services would be $1,170, and corporate overhead is about $275 million.

You're definitely in the ballpark of that. The midpoint is $115 million to $120 million on the interest expense there. Yes, really just kind of the rollover of some higher interest costs, higher interest rates.

And then not to belabor this, but shouldn't we think about Safety-Kleen more about dollars of profit versus a margin because it's a spread business?

I completely agree with you, Michael. We always aim for strong performance throughout the year, and I believe the situation remains quite solid. That’s why we made that observation.

Our final question comes from the line of William Grippin with UBS.

My first one, sorry if I missed it, but what are you assuming in the guide for 2024 for the new incinerator and then what do you think that could be at the full run rate, just given the enhancements you've discussed here?

Yes, I'll take that one. This is Eric Dugas. In our guidance, we expect to start the plant in late Q4. The projected EBITDA is minimal given our expectations. One point we mentioned in Mike's prepared comments is that we will experience some drag from startup costs in Q4 and into 2024, depending on the timing of hiring and the overall startup of the plant. We estimate these costs will not exceed $10 million. Moving forward, as we implement the new incinerator, we anticipate the plant will be capable of generating approximately $40 million of EBITDA when fully operational, based on current rates. This year we expect minimal output, but next year we anticipate ramping up to about 25,000 to 30,000 tonnes, reaching around half of the capacity, with full capacity expected in 2025 at that run rate.

Still in 2025 and 2026, capacity will be 50,000 to 60,000 tons.

Got it. So that $40 million still holds just even with the additional investments you discussed?

Yes, it all proves it all planned.

On the Group III initiative here, how are you thinking about that? Is it potential margin expansion opportunity? Or incremental EBITDA? And I know you talked about, I think, $3 million to $4 million here in 2024. But obviously, as that ramps, just curious what you see as the opportunity there? And then how are you seeing competition for the higher-quality UMO that you’ll need to feed that plant?

Yes, William, I’ll answer that. Group III doesn’t require significant additional effort to collect higher quality UMO. The plant operates as usual, and no extra investment is necessary. It’s primarily about technology and ensuring we obtain the right UMO gallons to meet our plans. There is competition for high-quality UMO, but I don’t see that as a barrier to our growth. We believe that Group III can contribute an additional profit of $1 to $2 as we assess this business moving forward. The pace of this ramp is up to us, and we need to focus on our efforts to organize our plans. Once a plant is initiated in Group III, we cannot switch back easily, as it requires substantial cleanup work to get it up and running. Once we start with Group III, there’s no turning back. Therefore, we want to ensure our systems and processes are effective before we expand. This will take some time, but the gallons are there. We have the plans and know how to execute. We’ve conducted successful pilot programs, as mentioned in the Q3 call. We need to improve our systemization since we can’t rely on pilots indefinitely. So, our goal for 2024 is to systematize this process to ensure we consistently select the right talent and keep our plants, including the one in Hampshire, operational as we expand to produce Group III.

I think just to add to that, William, just overall this year, we look to convert anywhere from 4 million to 6 million gallons to UMO to good quality Group III. Over the long term, we’ve really identified about 20 million to 25 million gallons of our current collections that can be segregated, properly managed properly through the right re-refinery material and produce at Group III.

Our final question comes from the line of John Mazzoni with Wells Fargo.

Could you discuss the current stage of AI analytics and technology in relation to proprietary wind systems and other monitoring methods? Is there a long-term opportunity within the Internet of Things? If this is still in the early stages, it would be helpful to understand what you're focusing on and how the landscape might evolve.

Yes, John, I'll start. This is Mike. I'm glad you asked the question. I think that AI is something we've made significant progress in over the past few years, particularly in robotic process automation related to invoices, billing, and vendor management. Now, we are also applying it to profiling and programming. I do see the internet of things emerging, but we are already making substantial investments in RPA and AI. Given the size and scale of our company, it's essential for us to stay ahead in this area. We continue to invest significantly in IT and AI to drive future growth.

Mr. Gerstenberg, I would now like to turn the floor back over to you for closing comments.

Thanks for joining us today. Management will be participating in several upcoming IR events this quarter, starting with the JP Morgan High Yield Conference next week and then the Raymond James conference the following week. We look forward to seeing some of you at these and some of the upcoming subsequent events after that. 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.