Eric Dugas: Hey, Dave, it’s Eric Dugas. I think you’re reading it into it the right way. Being early in the year, the guide is — the rate is coming to new acquisitions, as we talked about and laid out in the prepared remarks, and then kind of the success we saw, and then maybe a little bit of uptick throughout the whole year. But given Q1, given our history of [indiscernible], we set up some guidance that we feel very comfortable with being to year going forward. But you’re reading into it that at exact right way.
David Manthey: Okay. And on the first quarter turnarounds, were any of those unplanned and therefore, offsetting expected work for later in this year. I think that you have sort of a once and every five year kind of turnaround at Deer Park coming up in the second quarter. And as it relates to that, just wondering if we should factor that into utilization or ES growth profitability in the second quarter specifically?
Eric Gerstenberg: Yes, David, a couple of things there. We did have a little bit — a small amount of weather-related activities that were associated with that deep freeze that occurred in January, but it was pretty small. Last year, when we ran into those issues, we spent some nice capital on upgrading the weather protection across our El Dorado facility, so that prevented one of our trains from having to come down in those deep freeze. So we really saw the results of being able to stay online for the most part through that deep freeze. There is a little on one of the train. In addition to that, we have planned turnarounds. We had a major outage that we did up at our Canadian incinerator [indiscernible] that that really drove most of the incremental down days that we had year-over-year in Q1.
So that was planned activities. So by and large, to answer your question, planned activities. We do a little large shutdown that we’re working through at our Deer Park plant. As you mentioned, that’s a seven, eight year event that we’re doing to retool some of the wastewater treatment activities down there that are on the back end of that plant, that is proceeding extremely well. The team is doing a good job. So we expected the 79% and 80% in that area, and we still fully anticipate with the activities that we have underway that will be into that mid-to-high upper 80s for 2024.
Michael Battles: The only thing I’d add to that, Dave, is that to that point in 2Q, the margins in ES, there won’t be — there’ll be a good margin growth and there’ll be material margin growth, but it won’t be as substantive as what we see in Q1.
David Manthey: Right. And just to follow-on that train of thought here. The — my understanding is that the kiln right now in Deer Park isn’t able to take certain materials, because of the state of the kiln today. And I’m wondering, going forward, could we see an uptick in value there just given that your — you have that refreshed and ready to go?
Eric Gerstenberg: David, the Deer Park consideration units have very robust capabilities. They take a very diverse suite. That site along with our El Dorado site can take everything. So the — it’s not that we’re adding additional capabilities. The capabilities there are as robust as any plants in our network and any plants in the industry for that matter. So we do — we handle a significant amount of the direct burn streams from that Gulf market on there, but by and large, very robust capabilities and that will continue.
David Manthey: Got you. Thank you.
Michael Battles: Thanks, Dave.
Operator: Our next question comes from the line of Timna Tanners with Wolfe Research. Please proceed with your question.
Timna Tanners: Yes, hey. Good morning everyone. Hope you doing well.
Michael Battles: Good morning.
Eric Gerstenberg: Good morning.
Timna Tanners: I wanted to ask about the base oil outlook, what you’re budgeting in your guidance, given the comments about the uptick. It’s so great to see some of the measures you’re taking. We’re hopeful to see the negative comparisons behind. But just wanted a little bit more color on how you’re thinking about the trajectory in your estimates forecast?
Michael Battles: Yes. This is Mike. Thanks for the question. We are going to have — it’s a pretty modest uptick. We try to be thoughtful as we’ve given guidance. We’ve been burned a little bit in the past buyers as we were. Although the base oil prices goes with pricing has gone up quite a bit over the last month or so, we’ve been pretty cautious in a pretty modest increase in the pricing environment. We’re hopeful we’ll come back to [indiscernible] now and report a nice beat to that number. And to your point, put the negative as kind of behind us.
Timna Tanners: Okay. Fair. That’s helpful. And then regarding capital allocation, what drives the pace of buybacks quarter-to-quarter? How do you think about that? How do you balance the pipeline for M&A with buybacks and any debt paydown, which you don’t have to do it sounds like, but could do? Just any thoughts there.
Eric Gerstenberg: Yes, Tim, Eric here. When we think about buybacks, we’re really opportunistic under that program. I think we utilize it when we think the share price is extremely undervalued, and we also utilize it. So it’s not to dilute our current shareholders as new shares come into the market. So that’s really the way we handled that program in the last couple of years. When each of the last two years, we’ve bought back about $50 million, and that’s accomplished those goals. So I would anticipate that we’ll continue to use the program in that manner. When I think about overall capital allocation, as evidenced by what we did this quarter with the two acquisitions, acquisitions and accretive internal growth projects like Kimball and like the Baltimore project, those are where we’ll put most of our capital, and we’ll continue that going forward.
And in fact that’s always an option. We certainly like our debt portfolio from the perspective of we do have some debt where we can pay down if that’s an attractive option for us. But certainly, I think acquisitions has and will continue to be the heavy hammer there when it comes to capital allocation.
Timna Tanners: Okay. Helpful very much. Thank you.
Eric Gerstenberg: Thank you.
Michael Battles: Thank you.
Operator: Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Noah Kaye: Hey, good morning. Thanks for taking the questions. First, you discussed it previously, just covering a little bit more granular on the free cash flow guide walk raising EBITDA of $50 million, operating cash flow look like about a $10 million or so. So it doesn’t sound like there was interest expense maybe some CapEx related to HEPACO. But just help us maybe think about the bridge there?
Eric Gerstenberg: Yes. I mean, no, it’s Eric. I think you start with the uptick in EBITDA from the acquisitions and the good Q1 growth. And then I think as they reconcile from kind of EBITDA to free cash flow and the rationale for keeping free cash flow guide flat to what we said last quarter, is really the incremental debt. So you’ve got based upon today’s rates, about $25 million of incremental interest payments on the debt. And then as we know, when we buy these acquisitions, there’s always some incremental CapEx. So there’s probably another — as you saw, we increased our capital expenditures this year by $10 million. So you’ve kind of got $35 million there in our free cash flow guide. That’s incremental to last quarter.
But keep in mind, I think when we look at the — certainly, the two acquisitions, we have a little bit of synergies kind of built into the forecast not much as we continue to integrate this business throughout the year. But as those synergies come, and particularly with HEPACO, we feel really, really good about the synergies, having owned them for about a month now. Certainly, from a free cash flow perspective, those things will become more accretive towards the end of the year and certainly into 2025.
Noah Kaye: Yes. Thanks for anticipating the synergies question. I think you had targeted $20 million after year one and if you’re not putting in much this year, obviously, that could be upside. Okay. How do we think about Kimball ramping capacity and how we think about mix? Maybe we can sort of start with 4Q and then think about the plan for, call it the first half of next year?
Eric Gerstenberg: Yes, Noah, Eric here. So we’re excited to be on schedule to open Kimball in Q3 and into Q4 of this year, coming online. Our focus will begin really around the drum volumes that are throughout our network that we’ve seen really substantial drum volumes increase year-over-year. So we’ll have really a ramp up in Q4, and then into 2025, we would anticipate doing 20,000, 25,000 to 30,000 tons through that unit to 2025 around that sweet spot of drums and also direct burns and lean water streams as we ramp up throughout the course of the year.
Noah Kaye: Okay. Terrific. And just to circle back on PFAS, Michael asked the questions around that opportunity. I guess just to simplify it for me, what impacts has the team seen as a result of some of these regulations. And I know there was some visibility to those coming, so not necessarily suggesting a speak [ph] was open, but just talk about the impacts on the pipeline that you’ve seen now that we have some official regulations and the circular destination?
Eric Gerstenberg: Yes. Noah. We’ve — as we’ve said previously, we’re doing about $50 million to $70 million of PFAS related work through our network from all the different opportunities we see on our total PFAS solutions. Our total pipeline seems to be growing at about 15% to 20% each quarter as we go into 2025. So real strong pipeline growth. And I would say the pipeline growth is pretty diverse. It’s looking at industrial water opportunities, drinking water opportunities, sampling and background analysis, but also remedial events. We do see activity where already customers are saying, “Hey, we want to plan a remediation because we have a construction event that we want to use that site for.” We also see some opportunities across with AFFF changeouts throughout different districts where regulations and the heightened awareness of all PFAS related is causing fire departments to want to have a plant where they — or I’m sorry, different customers that they need to have a plan to change out their AFFF in their lines, that need to be drained and recharge.
So that disposal of existing AFFF is some of the opportunities that we see as well and how we might service that on a broad basis knowing that there are many areas that need that before they have an event. They need to make sure they put non-PFAS related AFFF in their line. So that’s — it’s really across the board where we’re seeing opportunities.
Michael Battles: So, Noah, I’ll just to go back to Michael’s question and your question. Obviously, new regulation, very important. How clean is clean, we’ve said that many, many times. But I don’t think we’re stopping or our customers stopping in areas like AFFF and other areas where we know there’s a high concentration of PFAS. We’re doing — we rolled out the total PFAS solution. We talked about that last quarter. We’re doing a lot of training, a lot of marketing around that. And we’re getting kind of all our sales organization and educated on the benefits because it affects all of our businesses. As Eric said, AFFF firefighting foam, whether it be soils, whether it be even field service cleanout work, it’s going to affect all different lines of our business as we continue to grow.
