Eric Gerstenberg : Sure, Jim. This is Eric. I’ll take that one again. So the — 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 firmly don’t 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, emergency response services for large rail companies. And 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 the disposal services. So 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.
Mike Battles: The thing I’d add to that, Jim, is that if you think of urgent response, it’s pretty lumpy, but it’s actually not lumpy. They do many, many small scale emergency responses every day. Just like we did, frankly. And so that is a pretty stable business. Obviously, I can’t tell when the next bill is going to happen, but I know there’s going to be a lot to happen. And so when we give out the guidance for 2024, we didn’t assume kind of a large-scale, a multimillion dollar type of project we never do. If those things happen, those are upside to the model historically. Whether that be the avian flu for us, whether that be the BP oil’s bill, those are kind of upside to any model. We don’t budget or guide assuming those types of large-scale responses. These are just normal run rate type of work to happen kind of every day at both the Clean Harbors business and the HEPACO business do. So although it sounds a little lumpy, it is not lumpy.
Operator: Our next question comes from the line of David Manthey with Baird.
David Manthey: First question is a general one on your end markets. So looking at the verticals over the past several years, [ tens ] and refining are up, manufacturing down. Maybe you could talk about current business conditions and what your expectations are for ’24? And then in that important Chems vertical is incrementally natural — incrementally lower natural gas better, like is $1.50 better than $2.50? Or is just low in general, low enough?
Eric Gerstenberg : Yes, Dave, I’ll start, and I’m sure the others will add in. But certainly, lower natural gas helps. It helps continue to facilitate more onshoring because the chemical manufacturing, manufacturing in general can help reduce their costs, and it makes it even better for them to continue to onshore. We’re across all the verticals that we manage, and it’s quite expensive, as you know. We have not seen any slowdown, even though we have a little bit of a trepid outlook to the industrial production slowing, the chemical vertical, the refinery business, the manufacturing that we’ve seen, the onshoring continues — pipeline continues to be growing in every one of our business units supported by all those different verticals.
So strength there across the board that we see. The chemical business as we mentioned in our script, we’ve added additional capital investment in Kimball. That’s really around that chemical industry and how that’s been growing and how it’s spurred off additional waste streams. Our relationships with our customers have continued to grow more solid. They want to make sure that for all of their growth that they have reliable disposal capabilities, disposal assets and secured capacity. So that’s all working together well with what our plan has been here.
David Manthey: Okay. Not to belabor this point, but I’m wondering in terms of the natural gas, like in the short term, is there some linearity? Or are you just talking in general like if it’s in a range of $1.50 to $3.50, that’s low enough to get people to change behaviors on a long-term basis. I’m just wondering with natural gas down here, does that give you a tailwind over the next 3 to 6 months? Or is it not that? Is it more of a secular long-term relationship?
Eric Gerstenberg : I think we view it, Dave, more as a long term.
David Manthey: And then the second question, I think it was Eric Dugas that noted you’ve got a couple of 1 to 5-year turnarounds coming up and in light of that and just in light of the coming year, is there any indication you can give us on what your planned downtime schedule might look like, obviously, subject to change every year. But if we were to think about when some of these chunkier projects are going to happen, when should we think about those?
A – Unidentified Company Representative: Yes, Dave, I’ll start, and then Eric Gerstenberg will probably have a little color as needed. But I did mention a couple of projects. Overall, I think year-over-year, when you look at our downtime right now, we’re forecasting a pretty flat downtime pattern. In terms of the large projects that I noted, I think right now, we’re looking at Q2 is when it’s scheduled kind of early on in Q2. Eric, I don’t know if you want to add to that, but?
Eric Gerstenberg : Yes, Dave, we have a pretty extensive project that we have to do down at our Houston incinerator and that project, it actually is going to be 8 years that we’re going to be doing it. It’s redoing our back-end wastewater treatment system, which supports both the incineration trains. So we look to do that. We’re going to be starting that project in early Q2. Team has done an awesome job of planning it out, and we have a good plan in place there. And so we’ll be executing on that in the second quarter and getting that behind us, along with some additional air pollution control and winterization projects.
Operator: Our next question comes from the line of Michael Hoffman with Stifel.
Michael Hoffman : 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 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?
Eric Gerstenberg : We actually think Michael or look at this year as a stronger industrial turnaround plan up in Canada. A lot of that 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 in the U.S. side. So overall, we would say that the turnaround season, our turnaround in 2024 seem to be incremental in our industrial business.
Michael Hoffman : 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 little 5, 10 grand type of cleanups and they happen year in and year out.
Eric Gerstenberg : 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. And so continued growth there as things get more and more turbulent with weather across the country.
Mike Battles: The only thing I’d add to that, Michael, is that HEPACO very similar. We met, as Eric mentioned, now with the team a couple of times now, and the business is very similar to kind of our business. They do have as Eric noted in his prepared remarks, a good focus on rail and transportation response services. That’s an area where we think we can really leverage and drive going forward. But I think that it is a — I think it’s very similar as far as the day-to-day small still side of the road, off we go.
Michael Hoffman : Switching gears, SKSS 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.
Mike Battles: We’re working through that. I think that we had — we’re guiding in Q1, as we got a question earlier about Q1 guide for SKSS that we’re in the middle of doing that kind of as we speak. And I think that gets back to normal as you look at kind of Q2 and the rest of the year.
Michael Hoffman : And then can you just — what’s the interest expense supposed to be in 2024?
Mike Battles: 120-ish? Give me 1 second to find that number exactly, Michael.
Michael Hoffman : While that’s happening, did I do my math correctly on the run here, midpoint of guidance, SKSS to be 185, segment EBITDA, ES would be 1170 and corporate overhead is about $275 million.
Mike Battles: 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 — Michael Edward Hoffman Stifel, Nicolaus & Company, Incorporated, Research Division – MD & Group Head of Diversified Industrials Research And then not to belabor this, but shouldn’t we think about SKSS more about dollars of profit versus a margin because it’s a spread business.
Mike Battles: Totally agree with that, Michael, I think that it’s just — we always — that strong all year, and I think that, that hardens still pretty good. That’s why we made the observation.
Michael Hoffman : I just want to make sure I’m not trying to chase revenues as much as I’m trying to chase the quality of the operating leverage.
Mike Battles: That’s right.
Operator: Our next question comes from the line of William Grippin with UBS.
William Grippin : 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?
Eric Dugas: Yes, sure. I’ll take that one. This is Eric Dugas. So in our guide, as we said, we expect to start the plant up in late Q4. In the guide, there’s really minimal kind of EBITDA given the expectations. One thing we did talk about in Mike’s prepared comments, is the fact that we will have some drag for start-up costs and things of that nature here in Q4, really depending upon the timing — excuse me, in 2024, depending on the timing of hiring folks and the ultimate kind of start-up of the plant. So we’ll talk about those going forward. Certainly don’t expect them to be more than $10 million, probably $10 million or less when we talk about those things. And like I said, we’ll talk about it going forward. As you roll out the new incinerator and you think about long term, we would expect, and I think we stated this before, the plant will be able to generate roughly $40 million of EBITDA when it’s fully turned on based upon today’s rates.
Again, this year, kind of minimal. Next year, we expect to ramp up, Eric, maybe 25, 000 to 30,000 tonnes, so probably halfway there and then have the thing be at full capacity kind of in 2025 at that run rate I just mentioned.
A – Unidentified Company Representative: Still in the 2025, 2026 — capacity of 50,000 to 60,000 tons.
William Grippin : Got it. So that $40 million still holds just even with the additional investments you discussed?
A – Unidentified Company Representative: Yes. It all proves it all planned.
William Grippin : 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.
Mike Battles: Yes, William, I’ll answer that. The Group III is – it doesn’t take a lot additional effort to collect higher quality UMO. The plant runs as it always does. There’s no incremental investment needed. It’s really more of a technology and ensuring that we get the right UMO gallons just to fill our plan. There is some competition for that. There’s always competition for high quality UMO. I don’t think that’s going to be a gate to our growth. We do think that, that Group III does provide anywhere from $1 to $2 of incremental profit as we look at this business going out. How this ramp is really kind of up to us and getting kind of some self-help using a sell-side terminology effort before that is trying to get those plans kind of segregated [indiscernible] once you start a plant in Group III, you really can’t start going back and forth.
It takes a huge amount of cleanup work to kind of get that plant kind of up and running to run Group III. And once you start Group III, you really can’t stop it. So we want to make sure that our systems and processes work well before we start expanding that. So that’s going to take some time. That’s going to take some time. But the gallons are there. We certainly have the plans that can do it. We know how to do it. We’ve done some pilots, as we talked about back in the Q3 call. They worked well. We just got to systematize it better because we just can’t – we just can’t do it in a pilot forever. So that’s going to be 2023’s exercises, 2024’s exercise, excuse me, it’s going to be to really systematize this so that we can make sure we’re consistently picking the right talent, keep the plants running to keep the plant in Hampshire as we go forward to other plants to produce Group III.
Eric Gerstenberg : 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 collection – our current collections that can be segregated, properly managed properly through the right re-refinery material and produce at Group III.
Operator: Our final question comes from the line of John Mazzoni with Wells Fargo.
John Mazzoni : I’ll say for a really quick one. Just in terms of the kind of AI analytics and the technology. Could you talk about what really — what inning we’re in and kind of opposed from this proprietary, say, wind systems or other types of like monitoring. Is there a longer term Internet of Things opportunity? And again, if this is kind of early days, it would be just helpful just to frame kind of what you’re looking at and what the kind of evolving landscape could be?
Mike Battles: Yes, John, I’ll start. This is Mike. I’m glad you asked the question. I think that AI — we’ve done a lot over the past few years, we’ve done a fair amount of robotic process automation, whether that be invoices, whether that be billing, whether that be vendor management. And now we’re using it around profiling, around programming. I mean I do see it internet of things coming, but I think we’re getting a lot of bet already today around RPA and then ultimately in AI. Have we done generative AI and done all that. I think we’re still working on that. But I do think that the organization is in front of the curve, not behind the curve around our adoption of RPA and AI. And I’m really excited given the size of the company and the scale of the company and the need to kind of get there, we have to stay in front of that. And we continue to make substantive investments in IT and AI to drive that type of growth going forward.
Operator: Mr. Gerstenberg, I would now like to turn the floor back over to you for closing comments.
Eric Gerstenberg : 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.
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.
