Earnings Call Transcript - CLH Q2 2025

Michael R. McDonald, General Counsel

Thank you, Christine, and good morning, everyone. With me on today's call are our Co-Chief Executive Officer, Eric Gerstenberg; and Mike Battles, our EVP and Chief Financial Officer, Eric Dugas, and our 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 only as of today, July 30, 2025. 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. Reconciliation of these measures to the most directly comparable GAAP measures are available in today's news release, on our IR website and in the appendix of today's presentation. Let me turn the call over to Eric Gerstenberg to start.

Eric W. Gerstenberg, Co-Chief Executive Officer

Thanks, Michael. Good morning, everyone, and thank you for joining us. As always, let me start with our safety results. We achieved our lowest ever quarterly TRIR of 0.40 in Q2, setting a new company benchmark for safety performance. Year-to-date, our TRIR stands at 0.45 reflecting our ongoing commitment to operational excellence and a culture of continuous improvement. This approach delivers significant benefits, including measurable advantages to costs and fewer lost workdays. There are also intangibles like a stronger reputation with our customers, the ability to attract the best people, and most importantly, making sure everyone knows they're protected and valued at work. Turning to our financial performance on Slide 3. Our results in Q2 highlighted the sustained profitable growth of Environmental Services and the stabilization of Safety-Kleen Sustainability Solutions as both segments came in ahead of our expectations. Consolidated adjusted EBITDA margin increased by 60 basis points to 21.7%, driven by strong demand for our disposal and recycling assets and lower SG&A costs. Mike will cover SKSS shortly, but it's clear our waste oil collection strategies in that segment are delivering results. Corporate segment costs were lower year-over-year due to cost-cutting actions and nonrecurring items that were included in Q2 of 2024, partly offset by higher insurance, severance costs, and technology investments. Overall, our results reflect continued business momentum from late Q1. Turning to our segment reviews, beginning with ES on Slide 4. Segment adjusted EBITDA margin grew year-over-year for the 13th consecutive quarter. The primary drivers were increased volumes combined with pricing and efficiency gains. Segment top-line growth was all organic as increases in disposal revenue, waste projects, and pricing programs more than offset the fewer large emergency response events in Q2 this year. Looking at revenues by segment components, Safety-Kleen Environmental led the growth at 9%, driven by pricing gains and growth in core service offerings. The number of parts wash services was down slightly from a year ago due to actions we are taking on the waste oil collection side as well as the more advanced parts wash models we are introducing that generate higher revenue per stop. In addition, the SK branches continue to drive substantial volumes of containerized waste into our permitted facilities. In Technical Services, higher incineration and landfill volumes supported by pricing programs drove a 4% revenue increase. Incineration price rose 7% on a mix-adjusted basis. Incineration utilization was 89% versus 88% a year ago. For comparison purposes, this quarter's utilization number excludes the new Kimball as we ramp up. With the inclusion of Kimball, our utilization rate would still be strong at 86%. We are successfully completing our shakedown process of the new unit, which processed more than 10,000 tons in the quarter. We are also seeing more network efficiency in terms of waste and transportation as Kimball processes greater volumes and waste types. Even with the tariff uncertainty hitting some of our customers in early April, incineration demand remained high throughout Q2 and continues to show no signs of slowdown with reshoring and manufacturing expansion top of mind for many of our key customers across multiple verticals. At the same time, we still see the potential for captive closures as we continue to have good discussions with several operators. We are looking to cut costs by partnering with a vendor that has the capacity and network redundancy to safely handle and dispose of their incineration waste streams. Field Services revenue was down from a year ago due to fewer large events. However, the team performed very well in Q2, generating strong margins on its base business. Within Industrial Services, revenue was up slightly year-over-year, reflecting a larger number of turnarounds that carried a lower average spend. Due to these market conditions, we have been enhancing workforce and equipment utilization while taking out costs. We are seeing the benefits of those efforts as margins improved from a year ago, despite what has been a challenging environment for customer spending. We remain cautiously optimistic that the worst of the maintenance deferrals from IS customers is now behind us. Lastly, I wanted to touch on PFAS given investor interest in this topic. The threat of litigation is creating a sense of urgency at the local, state and federal levels to address contamination, either in water supplies or at site locations. Based on our discussions with the federal EPA and supported by their public statements, this administration remains committed to addressing the public health threat from PFAS. In addition, many states are attempting to mitigate the threat of forever chemicals as more than 350 PFAS-related legislative bills have been introduced across 39 states. PFAS remediation is rapidly becoming a national priority, and we are the only company positioned to offer an end-to-end solution that includes permanent scalable destruction. With new EPA guidance pending and state-level action accelerating, we are prepared to lead in what many expect to be a multibillion-dollar opportunity. We believe that our RCRA-permitted high-temperature incinerators with rigorous pollution controls remain the most viable and commercially scalable option for customers. The data from our last PFAS incineration site, which was performed in conjunction with the EPA, demonstrated that our incinerator achieved 6-9s of destruction of the key PFAS compounds and with emissions 8 to 10 times lower than the most restrictive state or federal standards. Very compelling data for any customers or government entities that may have been unsure about the safety or effectiveness of PFAS incineration. At the same time, our PFAS total solution offering continues to gain traction in the marketplace. With that, let me turn things over to Mike to discuss SKSS and capital allocation.

Michael L. Battles, EVP and Chief Financial Officer

Thank you, Eric, and good morning. Turning to our SKSS results on Slide 5. The team has successfully transitioned our customers to higher charges for oil in the past few quarters, contributing to our better-than-expected results in this segment. As anticipated, our revenue decreased year-over-year due to lower market pricing and reduced volumes. The $38 million we reported in Q2 surpassed our expectations and highlights the significant progress made across various initiatives. We are proactively managing our re-refining spread while decreasing our costs and enhancing operational efficiency. The transition to a CFO position, which started in November, continued into Q2. During this quarter, we collected 64 million gallons of waste oil, reflecting an 11% sequential increase. We are finding a good balance between appropriately charging for our used oil collection services and the market value of waste oil, ensuring we have enough to run our plants effectively. We saw progress on several key initiatives in Q2. We slightly increased our direct blended sales this quarter, which bring more stability to our business, as pricing tends to be less volatile and they deliver our highest margins. We also moved forward with our partnership with BP Castrol, as we support their circular offering for corporate fleets. This lower carbon footprint solution is attracting interest, with several fleets already signed up and more evaluating it. We continue to grow our Group III gallons and are on track to add several million gallons this year compared to last, which should further stabilize this segment. Turning to Slide 6, we are assessing opportunities related to our capital allocation strategy aimed at generating optimal long-term returns. In Q2, strong cash flow has resulted in increased cash balances, and our leverage has improved. Consequently, our solid balance sheet has strengthened, placing us in an excellent position for both internal and external growth. In terms of M&A, we are actively evaluating both smaller acquisitions and larger deals that could provide us with long-term facilities and valuable assets with high synergy potential. Given our extensive asset network, we believe that the right acquisitions can unlock significant long-term value, though we remain selective. Internally, we are considering additional organic investments to enhance shareholder returns. With Kimball on a successful path, we're exploring ways to increase incineration throughput at other locations in the coming years. In Q2, we acquired our new Phoenix site, where we will replicate the hub concept we are implementing in Baltimore. We also plan to apply this strategy in other regions and add processing or recycling capabilities, like e-waste, at additional locations. Furthermore, we are looking into enhancing the processing of our re-refining byproducts as we believe there’s potential value there. With $700 million in cash, low leverage, strong free cash flow, and expected free cash flow in the latter half of 2025, we are poised to accelerate growth through both organic investments and strategic M&A. Our pipeline is strong, and we anticipate deploying significant capital in the upcoming quarters to foster growth and enhance long-term margins. As we approach the second half of 2025 with strong momentum and confidence in delivering excellent results, we are optimistic about the ongoing reshoring trend and substantial planned industrial investments in the U.S. Reshoring is moving from being a headline to becoming a funded reality. Our customers are starting new projects, increasing production, and creating more demand for our services. Despite some near-term trade challenges, we expect the benefits from the recent tax bill and incentives for investing in American manufacturing to fuel greater customer activity. We see no signs that the demand for our services will diminish shortly. Several customers plan to proceed with remediation projects in the coming quarters, further enhancing our recycling disposal assets, including Kimball. In SKSS, we remain committed to increasing returns across its value chain through disciplined collection pricing, optimized re-refining operations, and expanding programs like our blended direct sales and the partnership with Castrol. Our favorable outlook is supported by a robust combination of macroeconomic factors and company-specific catalysts. We will continue to focus on executing our pricing strategies, cost management efforts, and operational efficiencies to drive further margin improvements. We anticipate leveraging the strengths of both our operating segments to achieve record results in 2025. With that, let me turn it over to our CFO, Eric Dugas.

Eric J. Dugas, CFO

Thank you, Mike. Good morning, everyone. Turning to the income statement on Slide 8. Our Q2 results came in slightly ahead of the guidance we provided on our Q1 earnings call. Within Environmental Services, we grew revenue and expanded EBITDA margins in that segment despite a challenging comp with the prior year, and SKSS performed better than we expected. Total company revenue was essentially flat with Q2 of 2024 as the growth in ES offset the decline in SKSS. Q2 adjusted EBITDA of $336 million was driven by higher earnings in our ES segment and improvement in corporate costs versus prior year, which more than offset the lower SKSS EBITDA contribution. As Eric mentioned, one of the areas we are especially proud of is our margin performance. Our Q2 adjusted EBITDA margin of 21.7% was up an impressive 60 basis points from a year ago. The team delivered a better-than-expected margin in Q2 through pricing, greater overall volumes within our disposal and recycling assets, strong labor management, and disciplined SG&A cost reductions. SG&A expense as a percentage of revenue decreased 70 basis points from a year ago to 12%. For the full year 2025, we anticipate SG&A expense as a percentage of revenue will be in the low to mid-12% range. Depreciation and amortization in Q2 came in as expected at $116 million, up primarily due to Kimball and increased landfill amortization due to higher landfill volumes. For 2025, we continue to expect depreciation and amortization in the range of $440 million to $450 million. Income from operations in Q2 was $210.3 million, down slightly from the same period last year primarily due to higher depreciation and amortization that I just mentioned. As expected, Q2 net income also declined modestly year-over-year with earnings per share of $2.36. Turning to the balance sheet on Slide 9. Cash and short-term marketable securities at quarter end was nearly $700 million. Our strong balance sheet remains a competitive advantage for us and gives us the flexibility to execute the capital allocation strategy that Mike covered. Our net debt-to-EBITDA ratio at quarter end was down to approximately 2x with no material debt amounts due until 2027. Our overall interest rate at quarter end remained at 5.3%. As I highlighted on our Q1 call, following a Moody's upgrade earlier this year, our overall debt rating is just one notch below investment grade and our secured debt is at an investment-grade rating. Turning to cash flows on Slide 10. Net cash from operating activities in Q2 was $208 million. Adjusted free cash flow was a Q2 record of $133 million, up nearly $50 million, which is approximately 60% greater than the prior year. CapEx, net of disposals, was $87 million, down substantially from the prior year when our Kimball construction was still in full swing. In Q2 of this year, we purchased the Phoenix property and spent the bulk of the $15 million that we allocated for that project this year. We will be renovating and building out this location to create our next strategic hub facility. For 2025, we continue to expect our net CapEx, excluding the Phoenix growth project, to be in the range of $345 million to $375 million. During Q2, we bought back approximately 62,000 shares of stock for a total spend of $12 million. We currently have $430 million remaining under our share repurchase program authorization. Turning to our guidance on Slide 11. Based on our year-to-date results, along with current market conditions for both of our operating segments, we are reiterating the midpoint of our 2025 adjusted EBITDA guidance of $1.18 billion, based on a range of $1.16 billion to $1.2 billion. That midpoint represents year-over-year growth of 6% in adjusted EBITDA. Looking at our annual guidance from a quarterly perspective, we currently expect adjusted EBITDA for Q3 to grow 9% to 12% compared with the prior year, led by a 10% to 14% growth in the ES segment. For the full year 2025, adjusted EBITDA guidance will translate to our reporting segments as follows: In Environmental Services, we expect adjusted EBITDA in 2025 at the midpoint of our guidance to increase 6% to 8% from 2024. As highlighted earlier, overall project pipeline is encouraging and should see good volumes into our facilities network. PFAS and restoring continue to represent good upside potential for us in the back half of the year and certainly over the longer term. For SKSS, we continue to expect full year 2025 adjusted EBITDA at the midpoint of our guidance to be $140 million. We exceeded our expectations in each of the first two quarters due to the terrific work by the SKSS team in improving our collection rates while controlling costs. We anticipate growth and profitability in this segment in both the third and fourth quarters. Within corporate, at the midpoint of our guide, we expect negative adjusted EBITDA to now be up 5% to 7% compared to 2024. The year-over-year increase relates to the company's expected growth, higher wages and benefits, technology investments, and rising insurance costs, partly offset by our many cost savings initiatives. For adjusted free cash flow, full year guidance remains in the range of $430 million to $490 million or a midpoint of $460 million, which represents nearly a 30% increase from 2024. In summary, our growth in Q2 was a continuation of the momentum we experienced in late Q1. The demand environment has held up well for us, even in the face of tariff uncertainty that has impacted some of our customers. I share the enthusiasm of our entire executive team about our growth prospects for the second half of 2025 and beyond. One of the hallmarks of Clean Harbors is our consistency and resiliency as evidenced by our financial performance. We see no material changes in our markets today that would prevent us from continuing on our current path of profitable growth. We look forward to the remainder of this year as we execute against our longer-term goals.

Patrick Tyler Brown, Analyst

I just wanted to get your broad view on the macro. It sounded like yesterday, a competitor was maybe a touch more downbeat on their call. But you guys seem pretty optimistic. I think you used the word enthusiasm. You noted healthy demand, you've got a good pipeline, maybe some reshoring activity. But just any thoughts broadly? Do you feel like you're taking share? Or maybe you can help us just appreciate how your diverse portfolio really positions you to win despite what looks like a pretty slow industrial macro?

Eric W. Gerstenberg, Co-Chief Executive Officer

Yes, this is Eric. I'll start, and I'm certain my colleagues will add their insights. First, our volumes entering our network remain at record levels. Our drum receipts at processing plants, incinerators, and TSDF are very strong. Overall, our sales pipeline across all regions has increased year-over-year. The waste from the verticals we service is robust, along with our project demand. Looking ahead to Q3, the project pipeline is solid, driving volumes into landfills, incinerators, and some into wastewater treatment plants. All indicators for our disposal and recycling assets have been excellent and continue to show positive trends. Regarding market share, we believe we are gaining some. Our footprint allows us to build better relationships with customers, servicing their national needs, which has contributed to significant growth. We have successfully attracted new customers and implemented various strategies, including sales roles focused on generating new business. On the service side, we have opened 13 additional field service branches this year, allowing us to handle more emergency response situations. Our goal is to be the first choice for all emergency events. Despite some challenges in the refinery sector, our industrial team has effectively worked to widen our service base with top-tier accounts. Overall, we are performing strongly in various areas as we move into Q3, with no signs of slowing down.

Michael L. Battles, EVP and Chief Financial Officer

I would like to add that our sales pipeline is very strong across various regions and verticals. One of the key factors that sets us apart is that we are not reliant on any single end market. Our range of verticals is extensive, and if there have been declines in certain areas of our business, we have been able to compensate with growth in other areas due to our diverse end market strategy. This has provided us with a competitive edge.

Patrick Tyler Brown, Analyst

Yes. Excellent. That is excellent color. So I do want to come back, though, because I get this question a lot from investors around the refinery turnarounds. So it sounds like that's maybe showing some signs of life, but how much of the back half ES guidance is really predicated on a ramp in those refinery turnarounds? And how much of a risk is that if it doesn't materialize?

Eric W. Gerstenberg, Co-Chief Executive Officer

Yes. Tyler, just to begin, the back half doesn't have a significant ramp at all, isn't dependent on IS turnaround. So overall, for the year, continue to say that the count of turnarounds we're servicing is up 15% year-over-year. But our back-end guidance really is not dependent on a significant ramp of IS turnarounds. What we're really focusing on IS is making sure we're servicing the best customers with the best margins and efficiently managing our labor and how we service those turnarounds in just the base industrial holistically. We've been making sure that we implement a new service platform for that, which really enhances our margin improvement. But just to come back around to your full question, we don't anticipate a major ramp up. Our back half guidance is not dependent on a significant IS ramp-up.

Patrick Tyler Brown, Analyst

Okay. That's extremely helpful. My last one, Eric Dugas, can you shape the benefit from bonus depreciation here in '25? And this is maybe just big picture, but do those changes possibly make some other, let's say, larger investments organically more attractive in the coming years?

Eric J. Dugas, CFO

Yes, Tyler, great question. When you look at the enactment of the most recent act there, we do believe that here in 2025, we'll see some incremental cash tax savings from that. We've estimated that at somewhere between $10 million and $15 million of incremental cash this year and some more in 2026, still refining those estimates, but that's what we're looking at it. But I think you touched on something that's probably even more important and we're more excited about it as it relates to the actives. I think it's just another step to drive companies and further investment in the U.S., which is certainly a good thing for Clean Harbors on balance. So I think we're even starting to see with some of the discussion we're seeing with customers today around some movement and some activity and incremental investment in build-out, which has come from a lot of different factors, but I think the recent tax law changes are driving that as well. So we're really excited about manufacturing in the U.S., and we think it's a continued tailwind for us. But Tyler, to your point, though, I don't think that, that changes our view on capital deployment. We have been very aggressive in capital deployment for CapEx, and we will continue to do that. We do it based on return on invested capital and the cash flows on that change doesn't really impact that as much.

David John Manthey, Analyst

First off, you've reported just under half of your full-year guidance in SKSS through the first half of the year. And given that the fourth quarter sometimes has negative seasonality, what gives you confidence in seeing an uptick in the third quarter from the second quarter in SKSS EBITDA? And then related, you made a comment about improvement in the third and fourth quarter. Could you clarify and say, did you mean that EBITDA margin or EBITDA dollars would be better in 3Q and 4Q in SKSS?

Michael L. Battles, EVP and Chief Financial Officer

Yes, this is Mike. I'll address that. When we consider SKSS, we encountered a challenging comparison last year due to a difficult Q3. This makes the comparisons much more favorable for Q3 2025. We are forecasting positive EBITDA growth year-on-year for Q3 compared to last year. The oil business typically experiences its busiest quarters in Q2 and Q3, and we are observing good momentum in that sector. The positive shift results from our transition made in Q3 last year and early Q4, where we moved from a pay-for-oil model to charging for oil, focusing on pricing to acquire oil instead of supplying our plants. As you know, we closed the plant in Q3 and Q4 last year, and those costs are still relevant, which should enhance profit margins year-on-year. This approach is what will help us reach the $140 million target in the first half of the year. We feel very confident, more than ever, about our ability to charge for used motor oil and leverage that in the market, which will drive profitability as opposed to supplying our plants.

David John Manthey, Analyst

Okay. And I'm also interested in your outlook for turnaround activity and major projects in the back half. You said that turnarounds are up 15% in the second quarter. And you also said that you have confidence that the maintenance deferrals are behind us. If I put those two together, even though that's not in your guidance, if that level of activity continued, would it represent an acceleration in the back half of the year? Or is that potential upside? I'm not trying to bake it in, but it sounds like if I put those two things together, the outlook is pretty good and you're saying it's not in your current outlook.

Eric J. Dugas, CFO

Dave, Eric Dugas here. I think you got it right. As Eric said, when we look at the back half for Industrial Services, our guidance does not necessarily depend upon a great comeback there. We are cautiously optimistic that we'll see a better back half with the turnaround schedule we have here and we do feel like we're starting to come out of the maintenance deferrals. So I think any kind of significant upside in the back half would be upside to our current guidance as well.

Eric W. Gerstenberg, Co-Chief Executive Officer

Dave, to clarify a key point, the overall number of turnarounds we will service in 2025 is projected to be about 15% higher than in 2024, while the average revenue from these turnarounds is expected to decrease by roughly 10 to 15%. This indicates that the turnarounds have indeed been somewhat affected, as there is less emphasis on specialty services. However, we believe we are making progress, as previously mentioned. While we don't have extensive guidance on this aspect, the team is performing exceptionally well in managing the upcoming turnarounds.

Lawrence Scott Solow, Analyst

I guess just in that same vein, you talked about the tariff uncertainty starting probably in April. Has that persisted? Has that changed at all? And is that kind of tied into some of these delays on the remediation projects you spoke about? I guess that's a separate kind of subject from the industrial turnarounds, right?

Eric W. Gerstenberg, Co-Chief Executive Officer

Yes, Larry, I don't think our growth in projects and remediation is related to anything regarding tariffs. We've been effectively servicing our customers and staying proactive with remedial projects. The spending is evident, and the pipeline is strong. Some projects have already started in Q3. There's a lot of activity happening, and we've been good at anticipating these projects and events. Now, we see them starting to take shape, leading to a solid project pipeline.

Michael L. Battles, EVP and Chief Financial Officer

Yes. When you look at the project work that's feeding our landfills, this is work that has started. It's there. Some of it, as Eric mentioned, is part of a very strong pipeline. We feel optimistic about the second half of the year, but this work is either signed, delivered, or already started.

Eric W. Gerstenberg, Co-Chief Executive Officer

Larry, we have completed our PFAS study at our incinerator in Utah and the results were outstanding. This demonstrates that high-temperature thermal incineration is the best method for destroying PFAS compounds. The EPA has been actively involved with us, and we've been collaborating on getting their announcement out, although there have been some delays due to ongoing circumstances with the EPA. We are hopeful for this to happen in the third quarter. The evidence supporting our findings is clear. Additionally, the market is behaving as if regulations are already in place, reflected in the growth of our pipeline and the projects we are undertaking, showing an increase in business related to PFAS within our network. It is widely recognized that PFAS is harmful to human health and the environment. Even without regulatory changes, the administration has expressed a commitment to address the issue, and we are observing a responsible approach from our customers.

James Andrew Ricchiuti, Analyst

I have a couple of questions. In earlier quarters, you discussed your expectations for Kimball, and I believe you provided some broad guidance during the call this morning, although I might have missed it. I'm curious about how to view the scale-up in the second half of the year and what to anticipate for next year regarding the EBITDA contribution.

Eric W. Gerstenberg, Co-Chief Executive Officer

Yes, James, I'll start and then Eric will provide details on the tonnage scale-up. We're ahead of schedule on our target of processing 28,000 tons through that unit by 2025, and we are on track to meet that goal. Additionally, we're seeing positive impacts on our overall network from an EBITDA perspective. We previously mentioned a $10 million target, and we are continuing to see increased volume. We anticipate strong growth over the next 3 to 4 years as we move towards higher production levels.

Eric J. Dugas, CFO

Yes. The only thing I would add to that, Jim, as well, as Eric said, still confident around the incremental EBITDA from bringing this unit online across the network. But also point in mind kind of as we move throughout the year with more production and more EBITDA coming through that unit, right now, it is a little bit of a drag to our margins. So the incremental margin that we produced in, yes, this quarter, there was a little drag from the start-up. You have a full allocation of costs, but not a plant running at its full capacity yet. So that is kind of some upside that we'll continue to see, as Eric mentioned, going forward over the coming quarters and years as the plant rolls up. But I think to reiterate Eric's point, really happy with production so far and the volumes that we're getting through there.

Michael L. Battles, EVP and Chief Financial Officer

Yes, nothing has changed, Jim, in our view of the long-term view of Kimball.

James Andrew Ricchiuti, Analyst

The follow-up question I have is a little bit more longer term. And I'm just going back to the analyst event that you guys held back in March, I guess, 2023. And obviously, there's been a lot of changes certainly in the political environment. But I'm wondering if your view of the M&A opportunities out there has changed. I almost get the sense that you're looking at more organic investment opportunities. So maybe you could talk a little bit about the way you're thinking about the business longer term.

Michael L. Battles, EVP and Chief Financial Officer

Jim, this is Mike. I appreciate the question. When we consider mergers and acquisitions, we have a robust pipeline of opportunities, ranging from small to medium deals. Our focus is on ensuring we deliver strong returns for our shareholders, and we approach this with a disciplined mindset. Each opportunity must fit culturally and financially. We need to identify a clear route to synergy and value. We're aiming to enhance our return on invested capital and ensure that the business contributes at a level we deem important. Additionally, there are numerous internal investments on our radar, such as the Phoenix and Baltimore hubs and our investment in Kimball, among others. These investments are valuable, although they may take longer to execute and do not involve substantial goodwill. We evaluate all these opportunities carefully, as they represent excellent uses of our capital. Our assessments are based on potential returns, whether in M&A or capital projects that foster long-term value. As demonstrated by our balance sheet and cash flow generation, we anticipate ample opportunities to pursue both avenues in the future.

Noah Duke Kaye, Analyst

Can we talk about Environmental Services margins? Because you entered the quarter with a very tough comp from last year. You didn't have as much ER revenue. You had the drag from Kimball and you still expanded 30 bps year-over-year. So can we first unpack the puts and takes of getting that expansion? And then can you share with us quantitatively, if possible, how we should think about margin trends in ES for the balance of the year.

Eric W. Gerstenberg, Co-Chief Executive Officer

Yes. So Noah, just to begin, as we've talked about before, our goal is to get the overall Environmental Services business to close to those 30% EBITDA margins. And as you know, over the past few years, we've really been executing on that plan. In the second quarter, we saw strong margin improvement from all the service businesses. Our Safety-Kleen Environmental branch business, very strong margin improvement on the lines of business that drive waste into our plants, but also parts washers, vac material as well, driving that into our facilities. We saw margin expansion. On the field services side, as pointed out, yes, we were down on large emergency response events. Last year, we did about $24 million. This year, up $10 million. But our base business and how we've driven efficiencies in the business, the number of overall ERs, we've had a lot of base business ERs and base business from our customers, and our team has done a great job managing labor and efficiencies and how we dispatch our crews. So there was margin improvement in field services, which is great to see. Industrial Services as well. We talked about that our Industrial Services margins. We saw an improvement even with the flat line we've seen in overall revenue or just slightly ahead of last year. We've driven margin improvement through managing labor tightly of our crews on how we respond to base business customers. And then, of course, our technical services price growth, volume growth driving that material more volume of waste into our facilities, we saw margin growth. So really pleased overall with how each of the different business units have driven cost efficiencies in our business, how we've been driving price, how we've been driving volume, managing our labor properly. All those things really came to fruition here in the second quarter as we continue down that path of driving towards that 30%. So good stuff.

Michael L. Battles, EVP and Chief Financial Officer

Yes, I believe all the progress Eric just outlined regarding pricing, labor management, cost efficiencies, and transportation is continuing. The comparison in Q3 will be easier since there isn't the large event work Eric mentioned earlier. I anticipate that the margin improvement we expect to see in Q3 and Q4 will build on our 13 consecutive quarters of growth. Our internal models support this view. I am optimistic that this trend will persist, particularly with everything we are discussing about our sales pipeline and our ability to execute effectively. I am very positive about the potential for margin expansion in Environmental Services in the latter half of the year and looking ahead to 2026. I believe these are not just one-time events; they represent significant long-term structural changes we are implementing to foster profitable growth.

Noah Duke Kaye, Analyst

Right. I think the comps do get easier in the back half as well. So it's fair to think about expansion probably at a higher rate, right, in the back half? I mean that seems to be implied.

Michael L. Battles, EVP and Chief Financial Officer

Very much so. Very much so. But you're right, we came into the quarter with a view that perhaps Q2 would be a margin contraction given all the event work we had last year. But as Eric said, every one of our businesses did very well from a margin expansion standpoint. It's challenging to be specific about our targets because we prioritize discipline and often reach late stages in the process without making further commitments. Therefore, it's tough to predict what will close and when. We frequently receive inquiries about our outlook for the next 12 to 18 months, and it's hard to provide a definitive answer. I prefer to discuss our disciplined and robust process instead. Our team has successfully completed over 75 acquisitions throughout our history, and we have an exceptionally talented group capable of executing both due diligence and the capture of integration synergies. For instance, our acquisition of HEPACO last year has yielded great returns, and as Eric highlighted regarding field service margins, internalizing emergency response call-outs has been a significant advantage for us. Our operational engine remains strong, and we have a solid pipeline of opportunities to explore, including large, medium, and small prospects. We intend to remain very active with our strong balance sheet.

Tobey O'Brien Sommer, Analyst

I wanted to start out and see if you could provide us some additional color on the strategic and financial advantages of the hub concept that you talked about in your prepared remarks that you're sort of proliferating throughout the system?

Eric W. Gerstenberg, Co-Chief Executive Officer

Yes, Tobey, I'll start by discussing our major hubs like Phoenix and Baltimore, as well as Chicago. These locations allow us to leverage resources across different business units. We have various types of businesses operating in one place, allowing us to serve the same customers, cross-sell, and share personnel and resources. The costs associated with supplies and transportation are also optimized across our network, contributing to greater efficiencies. This hub concept encourages collaboration among teams to better meet customer needs across all businesses. Additionally, from a distribution perspective, we're selling a significant amount of products, including oil and materials. Utilizing our transportation network and backhauls effectively through these hubs is crucial for us. We see this as a valuable opportunity to consolidate real estate costs as well, by moving away from smaller branches and consolidating into larger locations, enabling us to gain further efficiencies.

Michael L. Battles, EVP and Chief Financial Officer

Yes. The dollar savings Eric mentioned regarding cross-selling, logistics, and maintenance in these larger hubs is significant. Equally important is the opportunity it offers our employees for development and growth without relocating. In a larger hub, a capable young employee can explore various roles within the site, whether in distribution, maintenance, or oil re-refining. The range of services we provide in these hubs allows individuals to advance their careers without leaving the company. As a result, we've managed to retain valuable talent, contributing to our very low turnover rate. Employees can grow and develop within the larger site, which enhances retention.

Eric W. Gerstenberg, Co-Chief Executive Officer

Tobey, I would say now more than ever, there are very disciplined competitors in our space, and this has improved significantly over the past couple of years. For the most part, when we achieve margin improvements, we are not only driving price but also enhancing efficiencies across the board. The environment is disciplined now. Given the nature of what we do and the waste streams we manage, it’s challenging, and we should be compensated accordingly for those services. The investments made by various companies in the ES space reflect this discipline, and higher multiples are being offered. Therefore, there needs to be price discipline in place. Thanks, Christine, and thanks, everyone, for joining us today. Our next investor event will be at the Raymond James Virtual Industrial Showcase in mid-August, followed by more IR activity in the September timeframe. Have a great safe day and enjoy the rest of your summer.

Operator, Operator

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.