Mike Battles: So Tobey, it’s interesting. So when we started the year, just to get — just to level set people. We had Environmental Services guided at the midpoint of our guide, what we said back in March, we said it’d be a little over $1 billion. And where we ended, if you take the midpoint of our guide, is almost $1.1 billion. So that’s up $80 million, $90 million, depending on what Math use year-over — from where we started the year to end the end of the year, that really bodes well for 2024. That is $4 billion up to $5 billion comes from the ES businesses. So that type of EBITDA growth, we’re hopeful — and margin expansion, 150 basis points I mentioned earlier, is something that we’re really, really excited about. Because I think that, as Eric said in his remarks, I’m trying to get to 30% is a good goal for us in ES.
And you say, well, we’re at — we’ll end the year at 24%, 25%. And is it really possible to get the 30% from there. And the answer is, if you look at for the last 5 years, we did improve almost exactly 500 basis points from 2018 to the midpoint of our guide in 2023. So that 500-basis point seems very reasonable, including buying businesses like HPC and Thompson, which had lower EBITDA margins going into it, and we’re really proud about how we’ve been able to improve those are there. So when you think about kind of the Investor Day presentation we did back in late March, I’m really much more excited about the growth in the Environmental Services business as we go into 2024, given all the factors I just mentioned. The good margin expansion, the good EBITDA growth and the backlog at the end of the year of a sales pipeline that’s even better than when we started the year.
Eric Gerstenberg: Yes. Tobey, just to build on that a little bit more, as Mike articulated, our revenue and EBITDA and margin expansion in our ES business throughout the course of the year since our Investor Day has really exceeded our expectations. And we continue to see growth there. We – our pipeline, as mentioned earlier by Mike, our pipeline continues to be growing in all areas of our ES business. I’d also say, though, that when we started the year on the Investor Day, the SKSS business, we’ve been always really looking at that business. It’s a strong business. It produces a great ROIC. It’s been a challenging year there as we’ve gotten through the year as we go Into fourth quarter, where our team has done an outstanding job of switching from a pay-for-oil scenario to a charge for oil as we exit Q3.
We anticipate a strong fourth quarter and that bodes well as we go into the 2024 and years to come to meet and exceed our SKSS. And the tidbit that we talked about, about Group III. We’re ahead of schedule, producing Group III or doing that pilot program than where we expected to be back in the Investor Day. So there is – and we have some cost opportunities and some plant expansions there as well. So we’re bullish about that business as well. It’s a nice margin business. It’s stabilizing as we’re exiting this year. And we’re – we feel strong about how it will perform in 2024.
Operator: Our next question comes from the line of Jon Windham with UBS.
Jon Windham: Just a quick point of clarification. Did you say the Safety-Kleen plants were back to normal operations as of October 1 or at some point in the fourth quarter?
Mike Battles: October 1. We’ve been not enrolling. We’re going to have a really good October, Jon.
Jon Windham: All right. Great. And maybe just the other question, I’d be really interested to hear how you’re thinking about the higher interest rate environment. I would think there’s a bit of asymmetric pain in the market, less on you and more on some of your potential M&A targets. And if you think that’s an opportunity to get better valuations maybe over the next year on some potential M&A?
Eric Gerstenberg: Yes, Jon. We think that the increase in iterates is a positive opportunity for us as we look at acquisitions and opportunities. We think it can bode well. We — as Mike mentioned in his script, we have a strong M&A pipeline. We’re going to continue to be opportunistic for both sides of the business, and we think it bodes well for us. It presents us with more opportunity.
Eric Dugas: And Jon, just Eric chime in here. I think I’d be remiss if I didn’t mention our balance sheet right now is very strong. I mentioned in my prepared remarks, kind of our debt-to-EBITDA leverage ratio is about 2x. It’s actually – it’s going to end up as we – if Q4 plays out like we think it will, the strongest it’s been in a decade. So not only do we think we have a great debt portfolio, maybe we’re at a little bit of an advantage, as you mentioned, to our competitors, but we really think we’re in a good spot to be able to be aggressive if we need to be.
Operator: Our next question comes from the line of Noah Kaye with Oppenheimer.
Noah Kaye: Okay. I’m crossing my fingers here. Can you hear me clearly?
Eric Gerstenberg: No.
Mike Battles: First time on the call, Noah?
Noah Kaye: It feels like it. And I want to start with a very basic one. So the turnaround at El Do, that was pulled from 4Q into 3Q, right? And so if that was an $8 million to $9 million hit, I mean basic question, why doesn’t that just roll over to 4Q? Why does it actually impact the full year outlook?
Eric Gerstenberg: Yes. We do see improvement there as we go into Q4. Some of it will come back, but some of it also, Noah, quite frankly, is kind of like an airline seat, you don’t get it back as readily as you would like.
Noah Kaye: Yes. So some of that was just kicked out. Is that a fair assessment, some of the ways that you hope to internalize was kicked out of the network? Or is — and I think that relates to the deferred revenue question, right?
Eric Gerstenberg: Yes. So some of that, I guess, you would look at it, that will — there’s going to continue to be pent-up demand more at our customer sites that within our network. As I said earlier, our incineration drum count, our deferred inventory of incineration drums went up. So it will take us some time to work that down as we go through fourth quarter and into 2024, building a new plant. But we did — there is a backlog that continues to exist, probably grow a little at customer sites. So that we failed to be able to service as much as we would have liked in Q3. So there’s some additional pent-up demand there that will work through with them.
Mike Battles: And we also want to make sure, Noah, that we meet Q4 expectations. I would say that there’s probably a little bit of services baked into that number. You come to the conclusion, you just flip flop it why you change the number. The answer is we want to starting new street.
