Participants

Jim Buckley; SVP Investor Relations and Corporate Communications; Clean Harbors Inc

Eric Gerstenberg; Co-President, Co-Chief Executive Officer; Clean Harbors Inc

Michael Battles; Co-President, Co-Chief Executive Officer; Clean Harbors Inc

Eric Dugas; Chief Financial Officer, Executive Vice President, Chief Accounting Officer; Clean Harbors Inc

Tyler Brown; Analyst; Raymond James

Noah Kaye; Analyst; Oppenheimer & Co

Larry Solow; Analyst; CJS Securities

David Manthey; Analyst; Robert W Baird

James Ricchiuti; Analyst; Needham & Co

James Shyam; Analyst; TD Cowen

Adam Bubes; Analyst; Goldman Sachs

Tobey Sommer; Analyst; Truist Securities

Presentation

Operator

Greetings and welcome to the Clean Harbors first-quarter 2025 financial results conference call. (Operator instructions) As a reminder, this conference is being recorded.
 It's now my pleasure to introduce your host, Jim Buckley, Senior Vice President of Investor Relations for Clean Harbors. Mr. Buckley, please go ahead.

Jim Buckley

Thank you, Melissa, and good morning everyone. With me on today's call are our Co-Chief Executive Officers, Eric Gersenberg and Mike Battles; and our EVP and Chief Financial Officer, Eric Dugas.
 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.
 Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, April 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 to filings made concerning this reporting period.
 Today's discussion includes references to non-GAAP measures, Lean Harpers believes 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. Eric?

Eric Gerstenberg

Thanks, Jim. Good morning, everyone, and thank you for joining us. To start, I want to highlight our safety results for Q1. They are not a financial metric, but as we often say, they are our most important metric. Our total recordable incident rate, or TRIR was an outstanding 0.46 in the quarter. That represents not just our best Q1, but the best quarter in the company's history. Hats off to our entire team for the energy and effort they put into having our safety programs for fostering a strong safety culture and for protecting themselves and each other.
 Turning to our financial performance on slide 3. Our overall Q1 results finished ahead of expectations. RES segment began the year with an encouraging first quarter that included a strong contribution in March after a period of unfavorable weather in January.
 Our SKSS segment outperformed our guidance due to better pricing of our used oil collection services that Mike will discuss. Overall, company revenue was up 4% Q1. Demand trends for our disposal, and recycling assets were positive. We exited the quarter with momentum in most of our ES segment businesses and are optimistic about SKSS's ability to achieve its annual target.
 Our adjusted free cash flow and corporate segment results were also in line with expectations we provided in February. All in all, a solid start to 2025 for the company.
 Turning to our segment review beginning on slide 4 with ES. Adjusted EBITDA increased 4% with a 3% increase in revenue, resulting in a 10 basis point margin improvement. Our top line growth increased due to the 2024 acquisition of HEPACO, as well as growth from pricing and higher incineration utilization, which offset a year-over-year decline in industrial services driven by the refinery sector.
 Looking at our revenue by segment components, field services grew 32%, driven mostly by HEPACO, supported by organic growth in our legacy business. In total, we responded to more than 5,000 emergency response events in Q1, in line with recent quarters.
 In technical services, higher incineration volumes and pricing drove a 5% revenue increase. Incineration price rose more than 5% in Q1 on a mixed adjusted basis. Incineration utilization was an impressive 88% for 79% in Q124. For comparison purposes, this quarter's utilization number excludes the new and Kimbali as we ramp up.
 As we have stated publicly, our goal for the (inaudible) this year is to process 28,000 more tons or more with growth in 2026 as we complete our shakedown process. In Q1, the new incinerator processed 5,000 tons, running well despite challenging weather conditions in January.
 Overall incineration demand was high all quarter long and shows no signs of slowing as reshoring and other market dynamics play out. We are continuing to realize the benefits of investments we have made in our disposal and recycling network to enable more efficient processing and movement of waste.
 Safety Clean Environmental Services continued its consistent and steady performance, notching another quarter of profitable growth by increasing revenues by 5% from a year ago. We performed 245,000 parts wash services in the quarter, down slightly from a year ago, reflecting the service interruptions from bad weather. Our pricing initiatives, record containerized waste services, and new products, including some innovative aqueous parts washers, drove the growth in this business.
 We face some challenges in Q1 with our industrial services business, where revenue was down 10% from a year ago as we continue to see some refinery customers delay spending and defer maintenance in the current environment.
 Lastly, I'm sure someone will ask questions about tariffs. While we suspect that tariff and trade absurdity may be behind some of the industrial services weakness this quarter, refinery customers have been under pressure for some time due to local crack spreads. We haven't seen a material impact from tariff uncertainty on our waste volumes in TS or SK branch or on the number of ERs we've conducted in field services. The stated goal of the current administration is to generate more US manufacturing and industrial production, which should ultimately benefit clean harbors.
 We do not expect any of the core environmental regulations that have been the foundation of our business and have protected human health and the environment across the US for decades to change under the current administration.
 As it relates to tariff, tariffs in our supply chain, most of our purchasing is domestically sourced. So we don't anticipate any disruptions to our growth plans. That said, we have recently enacted a nominal price increase to offset the higher costs we expect for our vehicle fleet, the chemicals we use, and other supplies. To protect our margins, we remain committed to further adjusting our pricing and reducing our cost structure to offset any additional inflation that may come as a result of tariffs.
 With that, let me turn things over to Mike to discuss SKSS in capital allocation. Mike.

Story Continues

Michael Battles

Thank you, Eric, and good morning, everyone. Turning to our SKSS segment results on slide 5. Revenue increased year-over-year, reflecting greater volumes, including the addition of Noble, as well as a shift to a sustainably higher charge for oil, or CFO. Those items more than offset the continued lower pricing we saw for base oil caused by a weak demand in brand. While our Q1 adjusted EBITDA decreased slightly from a year ago, the $28 million we achieved exceeded our guidance we provided in February.
 Adjusted EBITDA margin was down year-over-year due to base oil pricing, but again, ahead of our initial expectations. This performance is a direct result of the team's hard work in responding to the ongoing challenges in the base oil and lubricants market.
 We announced in mid-November that we are shifting to a charge-for-oil position for all customers. And in fact, since year-end, we have successfully doubled the average price per gallon we are charging for the collection of used oil while also maintaining the volumes needed to meet our production goals. In the quarter, we gathered 58 million gallons of waste oil to feed our plants, compared with 55 million gallons a year ago.
 As we highlighted in our last call, we have idled our California re-refinery, not just to pause our highest cost location, but to support our CFO initiative by requiring fewer overall gallons to feed our network. We believe these actions, including executing a range of cost-cutting initiatives, enabled us to exceed our profitability expectations in Q1. We remain committed to earning a fair price on our used motor oil collection services in order to drive consistent profitability in this segment.
 We advanced two other important programs in the quarter. We are working closely with BP Castrol to support our partnership around Castrol's more circular offering, which enables corporate fleets to lower their carbon footprint without sacrificing quality in their lubricants. We believe they are generating strong interest in the marketplace and building a healthy pipeline of potential customers, with two large fleets signed up and more to come.
 Another initiative we should -- that should support greater stability and profitability in this segment is our Group III program, which we've outlined on prior calls. We expect to produce 2 million to 3 million additional gallons of Group III this year versus 2024.
 Turning to capital allocation on slide 6. We continue to look for internal and external opportunities to generate the best returns on our shareholders' capital. And importantly, we ended the quarter with a large cash balance and low leverage to execute both those facets of our growth strategy. On the M&A front, we have been actively reviewing multiple deals and being selective about what we move forward. We continue to look at deals of varying sizes, with an emphasis on where we can capture synergies and cost and cross-selling while capitalizing on our expansive network of assets.
 Internally, we see opportunity to invest across several areas. Kimball is now open and running well. Our Baltimore expansion continues. In April, we closed on our new site in Phoenix, where we'll replicate that hub concept again. Within ES, we opened 10 additional field service branches in Q1 while adding more processing and recycling capabilities to current locations as we capitalize on market opportunities. We're also evaluating potential methods to further process some of our byproducts we produce in our re-refining business, as we believe there is value to be harvested here.
 Eric Dugas will cover our buyback activity in Q1, but we intend to be opportunistic with large purchases when conditions warrant. We are optimistic about our prospects for 2025. We ended Q1 slightly ahead of plan overall, with SKSS outperforming expectations. Furthermore, we believe that there are many tailwinds supporting our business to achieve our guidance despite the potential impact of tariffs.
 Demand for our services remains strong, particularly at the disposal side from PS and SKD customers. Kimball is ramping up as expected. Interest in our total PFAS solution and its offerings remain high. We expect our EPA and DoD-supported incineration study to be published in the coming months. Reshoring and expansion of customer sites is ongoing.
 We see a robust pipeline of remediation and waste projects. The potential for captive closures in the coming year is real, as we continue to have healthy discussions with some of those operators. And our growth network -- growth outlook for Field Service is strong with the addition of HEPACO and its national call center.
 While the recovery in Industrial Services we anticipate this year may be somewhat muted, we still like the long-term process of this business given the necessity of the services we provide. And SK is doing well, excluding within the areas it can control, especially collection costs. In short, there's a lot of positive factors to support our planned growth as we celebrate our 45th anniversary in 2025.
 With that, let me turn the call over to our CFO, Eric Dugas

Eric Dugas

Thank you, Mike, and good morning, everyone. Turning to the income statement on slide 8. Our Q1 results tops the guidance we provided on our Q4 earnings call. The solid results were achieved with continued year-over-year growth in profitability in our ES segment and better than expected results in SKSS.
 Overall, we grew total company revenues in the quarter by $55 million, or 4%, with the ES segment accounting for two-thirds of that growth. Q1 adjusted EBITDA of $235 million was driven by higher earnings in our ES segment, which offset a slight decline in SKSS and slightly higher corporate costs as compared to Q1 of last year.
 Our adjusted EBITDA margin of 16.4% in Q1 was down year-over-year, but in line with our expectations. Even with a tough start to the quarter due to extreme weather, the team achieved expected margin performance in Q1 by delivering a good mix of high margin work and controlling spending.
 SG&A expense as a percentage of revenue was 12.8% in Q1. For the full year 2025, we continue to anticipate SG&A expense as a percentage of revenue will be in the mid-12% range. Depreciation and amortization in Q1 came in as expected at $112 million, up due to acquisitions and our first full quarter of Kimball.
 For 2025, we continue to expect depreciation and amortization in the range of $440 million to $450 million. Income from operations in Q1 was $111.6 million, down from the same period a year ago, when we had less depreciation and amortization. Q1 net income was also down as expected versus the same period a year ago as we delivered earnings per share of $1.09.
 Turning to slide 9 and the balance sheet. Cash and short-term marketable securities at quarter end approached $600 million. Given that high cash balance, we continue to view our balance sheet as a competitive advantage, particularly given the uncertainty in the credit markets. Our net debt-to-EBITDA ratio at quarter end remained at approximately 2.1 times, with no material debt amounts due until 2027.
 Our overall interest rate at quarter end was 5.3%. During the quarter, we received a credit rating upgrade by Moody's based upon our recent financial performance, overall growth and our strong capital policies. This upgrade puts our overall debt rating just one notch below investment-grade and our secured debt at an investment-grade rating.
 Turning to our cash flows on slide 10. Net cash from operating activities in Q1 was $1.6 million, which was as expected. CapEx, net of disposals was just over $117 million, down from the prior year as we have completed our Kimball CapEx spend. We expect the majority of the $15 million associated with our Phoenix project that we called out on our Q4 call to occur here in Q2, as the site was purchased in early April. For the quarter, adjusted free cash flow was a negative $116 million and consistent with Q1 a year ago.
 In addition to CapEx spend, the negative free cash flow in both periods reflects the timing of incentive comp payments, interest payments and seasonal working capital increases. 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 Q1, we bought back nearly 260,000 shares of stock at a total spend of $55 million. We currently have more than $430 million remaining under our repurchase program authorization, and we continue to view our shares, particularly in light of the recent pullback, as undervalued.
 Moving to guidance on slide 11. Based on our Q1 results, along with current market conditions for both of our operating segments, we are reiterating our 2025 adjusted EBITDA guidance range of $1.15 billion to $1.21 billion, or a midpoint of $1.18 billion, which represents 6% annual growth.
 Looking at our annual guidance from a quarterly perspective, we currently expect adjusted EBITDA for Q2 to grow 1% to 3% compared with the prior year, with 3% to 5% growth in the ES segment and lower expense in the Corporate segment, which will more than offset an expected year-over-year decline in SKSS. As a reminder, we also had a number of good size (inaudible) in Q2 a year ago in the ES segment.
 For full year 2025, adjusted EBITDA guidance will translate to our reporting segments as follows. In Environmental Services, we continue to expect adjusted EBITDA in 2025 at the midpoint of our guidance to increase 5% to 8% from 2024.
 Demand for disposal, recycling, remediation work and SK branch offerings have all continued year-to-date. The only exception, as previously noted is Industrial Services, where customers can defer maintenance or slow spending during times of economic uncertainty.
 Our Kimball facility will continue its ramp towards full production as planned. Given the momentum from reshoring projects and PFAS, as well as support from our sales team, we expect our facilities network to process record volumes this year. We also expect to see continued expansion in the SK branch and Field Services business.
 For SKSS, we continue to expect full year 2025 adjusted EBITDA at the midpoint of our guidance to be $140 million. While we exceeded our expectations for Q1, given the outstanding work by the team in improving our collection rates, we remain cautious in our assumptions for this segment given its commodity exposure.
 Within Corporate, at the midpoint of our guide, we continue to expect negative adjusted EBITDA to be up 3% to 7% compared to 2024. The year-over-year increase primarily relates to the company's expected revenue growth, wages and benefits and insurance, partly offset by our cost savings initiatives. For adjusted free cash flow, our 2025 guidance remains in the range of $430 million to $490 million, or a midpoint of $460 million, which represents a nearly 30% increase from 2024.
 As we highlighted last quarter, this range excludes our $15 million growth investment to create a new hub location in Phoenix. We believe the exclusion of long-term growth projects creates a more accurate picture of our free cash flow generation as a company.
 In summary, Q1 was a good start to 2025. We continue to expect the demand environment and our pricing initiatives to support our anticipated profitable growth this year. The ES segment has a strong backlog of waste, a robust pipeline of project opportunities, including PFAS, and most of our services businesses have good momentum. Within SKSS, we believe we should stabilize this business this year as we focus our energy and strategies to maximize the value of these assets while minimizing any downside potential.
 Overall, we are encouraged by the trajectory of the company and look forward to the remainder of this year as we continue to execute against our longer-term goals.
 With that, Melissa, please open the call for questions.

Question and Answer Session

Operator

(Operator instructions)
 Tyler Brown, Raymond James.

Tyler Brown

Hey, good morning, guys.

Eric Gerstenberg

Hey.

Tyler Brown

Hey morning. Just -- you guys mentioned, I think, that ES was up 4% in the quarter. It did sound like weather had an impact. I mean, I think it snowed in Houston, for example. But any way you could quantify what that drag was? And will those volumes effectively be made up or are they kind of lost?

Eric Dugas

Hey Tyler, Eric Dugas here. I'll start off with that. Yes, you're absolutely right. Weather was very difficult in January, and we had incorporated much of that into our guidance that we gave in February. But it's difficult to perfectly quantify it, but we had talked about maybe $10 million to $12 million of lost EBITDA due to weather.
 I think as we move through the quarter, what we saw is when weather improved, the strong March that Eric mentioned, we were really excited about what we saw there helped to make up for some of the drag on weather, but really gives us kind of good positive momentum as we go into Q2. And so far, what we've seen in early April is consistent with what we saw in March. So excited about ES and the continued strong demand there as we move into Q2.

Tyler Brown

Okay. That sounds good. And then just to be clear on the Q2 guide. So one, last year, I think HEPACO had some large-scale ER work. I think you mentioned it. So just to be clear, the 3% to 5% incorporates lapping that work? It does not include any outsized work?
 And two, what are the expectations for refinery turnarounds in Industrial Services? Is that expected to start ramping in Q2? Or is that more of a back half thing? Or is that really just upside, the guidance altogether?

Eric Gerstenberg

Yes, Tyler, this is the other Eric answering. First, I'd say that yes, our Q2 guide does not include any expected large-scale emergency response events. So we're being a little bit conservative there. As far as the industrial network, we'd say that our turnaround strength of what we have booked at this point is still very strong. In fact, over 150 turnarounds we still have planned, which is up pretty substantial from a year ago at this time.
 So we're expecting a better second half. Obviously, those refineries are continuing to try to watch their costs as they go into this year. But we all know that at some point, those refineries need to be taken down and maintenance needs to be done. Might be a little bit more conservative on some of the investment minimum capital projects and so forth.
 But overall, we have a real solid pipeline in the US and Canada around turnarounds for the second half of this year. And not much changed over the past 90 days that we've seen since last time we talked about it.

Tyler Brown

Okay. Perfect. And just my last one, Eric. Just I continue to get a lot of questions just from investors around the cycle, the cyclicality of your business. So obviously, you guys have bucked the industrial production trend over the last couple of years.
 You offer a very high necessity, nondeferrable service. And Mike, I think, frankly, you laid out a number of idiosyncratic drivers. But can you just at a very high level, just talk about the cyclicality, specifically of the ES segment? And maybe just how cyclical the various lines of business are, again in ES? Just any color there, I think, would be helpful. Appreciate it giys.

Eric Gerstenberg

Yes. I think we'd say, Tyler, that our business on the environmental side is really recession-resistant. We really see a continued strong growth in the second and third quarters around our GS, our SKE business, our FS business continues to be strong. IS, as we mentioned, a little bit -- that's going to flow up and down year-to-year based on the size and scope of the turnarounds. And we all know that maintenance work needs to be done.
 But really, our -- the cyclicality, we don't -- we're not really seeing any early recession trends or any recession trends at all in any of our businesses. As Eric just talked to, our pipeline across the board in our businesses, waste projects, our drum count and how we look at that coming out of March and into the second quarter already really, really strong. So we see some real positive momentum here.

Michael Battles

Yes, Tyler, I would say -- to add on what Eric said, is that you see in a majority of the ES business, you see continued -- this is year three of kind of year-over-year margin expansion in light of the cyclicality in industrial that we saw, as Eric said in his prepared remarks, late last year and now, we see it again in Q1.
 But if you remember, Tyler, when the refineries were making all of their gasoline and with the inflation -- and this is back to 2022. And then we had a great 2023 because there, you said you can't delay these things forever. And so we're hopeful that that comes -- we're not a -- and we have a good pipeline.
 We don't have an extraordinary pipeline, but we're hopeful that those things come to be and so the industrial business kind of recovers. And in the interim, we take out costs, we're managing the P&L very tightly and imagine that business as well, it still provides a fair margin for it. It is down year-over-year and in Q1, like it was in the back half of 2024.

Tyler Brown

Perfect, thank you, guys.

Eric Gerstenberg

Thanks.

Operator

(Operator instructions)
 Noah Kaye, Oppenheimer & Company.

Noah Kaye

Hey, morning, folks. Thanks for taking the questions. Maybe we start with PFAS. Just give us an update, if you can, on the pipeline, what you're thinking for PFAS revenue growth this year? And maybe get your view on the plan of attack the administration announced on Monday. It looks like more frequent updates to destruction and disposal guidance could be positive, but just your thoughts there?

Eric Gerstenberg

Yes. Noah, great question. So we continue to see a very strong robust pipeline growing quarter-to-quarter across our business. Team has done a great job reaching out to all those potential customers and servicing our existing.
 Yes, you mentioned on April 28, the EPA and Lee Zeldin put a great announcement out that really designated creating a PFAS lead, more frequent updates on destruction and disposal, using record authorities to address releases.
 So we're continuing to see momentum there on strengthening regulatory framework that will drive PFAS collection disposal, our total PFAS solution as we've talked about it in a number of ways. And all that momentum is real positive for what we've been talking about for a long time.
 The -- just an update on the study. We talked about that in the past, that we did our incineration secondary sampling and burn testing. We expect the results of those to be published in Q2. Really bullish about how that has demonstrated that high temperature, reference incineration is just the really sound way to manage, remediation and cleanup of all those nasty materials. So good stuff there.

Noah Kaye

Thanks. And just to put a finer point on this, is this fair to think about kind of a 15% to 20% revenue growth for the year is still the right range, kind of your view towards that?

Eric Gerstenberg

Yes. We believe that's the continued path that we're seeing.

Michael Battles

But no -- regulated the team to talk about kind of ways to go faster on that. How do we -- and do we have the right resources? Do we have enough resources? Where do we go from there? So that's what we're committing to today. But make no mistake, we see this as a great opportunity for long-term growth for the company

Noah Kaye

Nice. I want to ask about incineration. You get the mix-adjusted incineration ASP up over 5%. At the same time, you're ramping Kimball. And I think that maybe goes to a question that investors have had around the ability of this new capacity to see sufficient demand.
 Certainly seems like pricing off to a good start for the year. Is mid-single-digit kind of the right growth rate to think about for pricing for the balance of the year? And maybe you can comment on how Kimball might have affected the discussions that you've had with some of your customers as you think about offtake for the rest of the year?

Eric Gerstenberg

Yes. Noah, we certainly believe that the mid-single digits is a good point to really continue to think about our incineration pricing. Kimball did have an effect overall as we started up that plant. We said in our script that we processed over 5,000 tons. And our goal this year is to process over 28,000 tons.
 We very much see that in reach. The team has done a great job working through some difficult weather events in January as we ramped up the momentum coming through March and into April is very strong. Our network of drums is very strong. So the ramp-up, we have a real solid outlook at being able to potentially exceed some of our early look at what we laid out for a plan there.

Michael Battles

Some of the concerns you had -- the investment community had around overcapacity is clearly not the case. I mean, we see that the plant is running well. It's got plenty of waste in the network. And as Eric said, March was a great month, and April beat that, April so far. And so we're really excited about the prospects of that plant and incineration pricing in general.

Noah Kaye

Thanks. I'll turn it over.
 Thanks, Noah.
 Larry Solow, CJS Securities.

Larry Solow

Great. Good morning, folks. I guess just following up on the guidance and the outlook. So it feels like the -- you haven't really changed guidance much, tweaks here and there. But a little bit industrial, a little bit slower and then obviously a little bit of direct tariff expenses. So -- but not building in, I guess my concern, is there any concern as the year goes on? Obviously, most of your work is domestic, but a lot of your customers are international.
 So do you fear that a recession or a considerable slowdown in the economy or further slowdown could impact the outlook as the quarters progress? I guess, waste volumes are a little bit of a laggard, right? So just any thoughts on that as we head out?

Eric Gerstenberg

Yes, Larry, I'll take a first shot at that one. So we -- what we're trying to do right now and when some of our customers are talking about tariffs and what the impacts could have on the business is, we're trying to get closer to our key customers and expand our overall wallet with them and grow within those key customers to drive Industrial Services, Field Services.
 So we think there is great opportunity for the company to continue to grow with large customers and continue to work through that. Based on our presence, our capabilities, our network, our redundancy of our disposal network, all those are positive things of how we can continue to grow with those customers.

Michael Battles

Larry, one thing that we talked about quite a bit -- this is Mike. One thing we talked about quite a bit is reshoring, and reshoring is happening. And so I think that is -- if there are concerns around tariffs and other things like that, that's a winner for us. We certainly see that kind of in our pipeline and in our network. And as we see -- talk to these larger customers, as Eric said.
 Also, is there a pressure on maybe there's vendor consolidation, and we're the large player in all the end markets that we operate in. So I think that's a great opportunity for us, as Eric said, to get more share of wallet.
 The last thing I'd say around is that when you look at recessions. And if there's a recession, I don't think there is one coming, but if there is one coming. When you look at the stock performance of the company over any recession, one of our sell-side analysts had a really interesting analysis around going back for years looking at performance of the stock in these recessionary times. They all did -- we all did great, came out. We came -- us and the industry came out the other side terrific.
 And so that's really just a testament to the fact that we are a fit earlier, recession resistant. And so I feel -- I really believe that. And I think that we're very nimble, and we're very aggressive in cost control and others if we need to get them go down that path.

Larry Solow

Right. No, that's all fair. And I appreciate all that color. And just on environmental, just I know you don't break exact price volume down in guidance. But incinerated pricing sounds like it's going up mid-single. Is it fair to say sort of the mid-single digit overall growth in environmental is maybe a little bit more favorite pricing and a little bit of volume growth? Is that kind of a good way to break that out on an overall basis?

Eric Dugas

Yes, Larry, it's Eric Dugas here. I think that's fair. Certainly, in Q1, because of some of the tough weather at the beginning of the quarter, certainly price is playing a little bit greater piece in that [log] rhythm. But I think as we move throughout the year, kind of built into our guidance almost kind of a 50, 50 mix between those two.

Larry Solow

And if I could just squeeze one more, Kimball ramping, It sounds like pretty much in line. Fair to say that was probably a little bit dilutive or maybe just modestly positive on the earnings side? And anything you're learning from the ramp of Kimball versus El Dorado from a few years ago? Thanks.

Eric Dugas

I mean I'll address the first part of that, Larry, in terms of its contribution in the first quarter, and it did pretty much exactly as we thought. I think we had foreshadowed that it would -- probably would contribute much in earnings in Q1 and then ramp up throughout the year. And that's exactly how it's played out. I'll let you guys comment on kind of lessons learned, I think.

Eric Gerstenberg

Yes, Larry, I'll talk to the ramp-up compared to El Dorado. This team has done an awesome job at bringing this plant online. And we continue to ramp up faster than what we did with El Dorado when that unit came online. The design has been proven. We worked through a lot of shakedown issues despite the weather and can't talk enough about how great the team did, and we are really excited about how it's run coming out of the gates here for us.

Larry Solow

Great. Thank you. I appreciate it all.

Michael Battles

Thanks, Larry.

Operator

David Manthey, Baird.

David Manthey

Thank you. Good morning, guys. In your comment about weather impacting multiple areas of your business, I'm wondering if you could just talk about the key areas of variability? And then related to that, do those revenues catch up in subsequent periods? Or are they just gone forever?

Michael Battles

I would start, David, by saying that whether -- it's cold every winter, we kind of get that. But January and February were really great forward and us and other people in similar industries have said that kind of publicly. Some parts of our business, we can't recover. But when our customers are shut down, well, we're shut down. They're not producing waste, then there's nothing to go pick up. And so those are kind of lost forever.
 So -- but I hope to view that March, heavier than in April -- that in January, excuse me, March is better than -- February and April is going to be better than March. And so I really feel like it was isolated to weather issues. I think that us and others in the industry thought that perhaps this was a concern, but it really was related to weather, and we talked about snow in New Orleans and all kinds of things like that. But I do believe that, that was a very temporary thing. And as you look at the back half of the year, we're going to get some of that back, but lost it.

Eric Gerstenberg

Yes, David, I'd just add a couple of comments to that. Quarter-over-quarter, our deferred inventory increased. So we built a little bit of backlog of inventory. What's great about our network was starting Kimball up today and how we're running logistics and transportation. So we have the opportunity now to improve and get those services back as we get into the second quarter here and into the third quarter. So the network is moving better than ever to be able to deal with those unforeseen weather events, that was extreme weather events that Mike spoke about that we all saw in January and into February.

David Manthey

Okay. I'm hearing you say that some of it's related to production, some of it might be related to inefficiencies in transportation because of weather. It sounds like that's what you're saying?

Eric Gerstenberg

Yes, the impact of being able to service the customers due to those extreme weather events, but all that waste needs to be moved and has time frame set against it, and we'll get caught up.

David Manthey

Got it. Okay. And then a quick one on PFAS allowable contaminant levels. If the number goes from four parts per trillion to something higher, even parts per billion, that wouldn't be a significant change in your prospects relative to PFAS, would it?

Eric Gerstenberg

No, we don't think so at all. In fact, what we've really said all along here is that we are seeing customers not really react around a contaminant level, but knowing any contamination of PFAS that they're acting. They're beginning to work with us as our pipeline has been growing on making sure that they remediate PFAS or deal with treatment of PFAS and drinking water and industrial water. So the -- yes, that really is relatively -- we don't see that as an impact at all to how we would service our customers.

Michael Battles

Dave, we like the news at came out by the EPA talking about updated in guidance every year. I mean that's been a gate to our -- gate to some acceleration of growth and the fact that Zeldin and the administration is very supportive of PFAS remediation. And as Eric said, it's going to put a leader of PFAS waking up every day, think about how to remediate PFAS is really kind of music to our ears.

David Manthey

Yes, definitely sounds positive. Alright, guys. Thank you.

Eric Dugas

Thanks David.

Operator

James Ricchiuti, Needham & Co.

James Ricchiuti

Hi, thanks. Good morning. So I know from the standpoint of the economy, you guys still feel things are pretty firm. But I'm just wondering, if we are going into a slower patch, what does that do to the M&A pipeline? And maybe if you could just talk to what you're seeing out there, just in the current environment?

Michael Battles

Hey, Jim, this is Mike. I'll start, and Eric certainly can chime in. The way I see it is that valuations are still pretty hot for these valuable assets, the permanent related facilities, the valuations per assets are still high. As Eric Dugas said in his prepared remarks, we have a very strong balance sheet, and we have a network of assets and that we can leverage those assets to drive synergies, both from a cost standpoint and a cross-sell initiative to drive value and to make these deals work. And so we're excited about the pipeline of deals.
 We haven't seen the deals slow up or speed up. It's still the same store, a lot of assets to look at. We've been very busy in that area. We want to be very selective. We want to be -- have to make financial sense, it has to make strategic sense. It has to make comfortable sense. It all has to work.
 But if we get to those points -- and we look at a lot of assets -- we'll be aggressive in the marketplace. And we do feel like -- as you know, you've followed us for many years. When things are tough, that's a great opportunity for us to find that. And we've been able to capitalize on that and be a little contrarian, and that has been the basis of the company.

James Ricchiuti

Got it. And just moving another follow-up question as it relates to Kimball. It sounds like you're satisfied with how it's progressing, notwithstanding some weather. What can you say -- you guys have talked in the past about the opportunity with captives as it relates to Kimball. What are you seeing there? Any new developments to talk about?

Eric Gerstenberg

Yes. We have continued active discussions with multiple captives and helping to evaluate their cost structure. As we've said multiple times in the past, every captive -- every company that owns captive out there is part of our customer base. We service them during shutdowns and other waste streams that their incinerator can handle. We also do see today, a continued opportunity that people are evaluating their cost structure.
 And knowing that we have such a great network of service branches to be able to make sure that their waste volumes are moved on time, should they contemplate a captive. We can provide that as a company, and that's unique to us and the industry. So it's continues to be a great opportunity. And yes, the pipeline and opportunities look strong for us.

James Ricchiuti

How important is that opportunity in relation to how you see Kimball scaling next year?

Eric Gerstenberg

It's not -- we did not base our ramp up, the growth of the company at all on additional captive closures. So as we've talked about, how we'll go from 28,000 tons to ramp up over the next couple, three years, captive closures was not contemplated at all in that volume that we're going to take in and manage as a company.

Michael Battles

Yes, as we talked about it in our investor presentation, it's all upside to any models.

James Ricchiuti

Good. Thank you.

Eric Gerstenberg

Thank you.

Michael Battles

Thank you.

Operator

James Schumm, TD Cowen.

James Shyam

Hey, good morning, guys. Congrats on reiterating guidance in a tough environment. Can you talk a little bit about base oil pricing over the past month or so, given the weakness in oil prices?

Michael Battles

Yes. James, this is Mike. I'll take a shot at this. The base oil pricing has been under pressure, lower than our expectations. And so -- but what really happened was that the team, as I said in my remarks, they did an excellent job of driving kind of the UMO collection costs and a charge for oil versus a pay for oil, where we were earlier this -- earlier in 2024.
 And so that really -- that changed. And I said in my remarks, double the price that we were charging from where we ended in December to where we ended in March is just a terrific offset to lower base oil pricing. I think we were very aggressive. We talked, we issued a press release back in November, if you recall, and really drove that pricing.
 And really, as I said in my remarks, we closed one of our re-refineries, not just to close a high-cost plant, which it was. But we also to limit the need for the collection of used motor oil to drive our teams to make sure that we're getting the price that we need to hit our targets. And so base oil pricing go up, they go down, but we are assuming that oil prices deteriorated a bit in the guide.

James Shyam

Okay. So the guidance contemplated some of that. Okay. I'm just -- because I know that there's a lag from when you collect to when you refine it and sell it. And so I was thinking that maybe you'd have a hard time not lowering guidance in this environment. But -- maybe could you talk about the SKSS inventories? Where were they last quarter? Where are they now? How is that looking?

Eric Dugas

Yes, Jim, Eric Dugas here. So when you think about kind of the inventory values, your comment a moment ago around the lag, there is probably a quarter, 1.5 quarters of lag between when we're talking about we used to pay for oil, and now we're charging for oil. What that creates is as we close out Q1 here, our inventory costs are lower than they've been in historical periods.
 And that's what gives us a good feeling about Q2. In our guide, we do have profitability in the business increasing a bit in Q2, and some of that is because of the lower cost of our base oil inventories. So that's sort of where you see that lag come through kind of on the cost side.

Eric Gerstenberg

Yes. Jim, just reiterate to you that we all feel pretty comfortable about continuing to focus on that 140 as our guide this year. Team has done an awesome job of turning around our used motor oil collections to a high CFO rate, as Michael talked about.
 So we feel pretty good about where we -- what we've done, how we're operating, how we've managed costs in the business even with some continued anticipated fluctuations in base oil pricing. So we're in a good spot, we think.

Michael Battles

And we think we've turned the corner, to be fair.

James Shyam

Okay. That's great. And then just lastly for me because I get this question a lot. But I know in the past, you were never interested in selling this business because there would be some dissynergies, if that's a word. But I'm curious if your thinking there has changed at all or what would have to occur for that to happen? Or is that even possible?

Michael Battles

Yes. So obviously, we always think about all these types of things and what the best interest of our shareholders are. So we're always thinking about kind of what we do with all our assets and whatever business. So we do that from time to time related to the SKSS business.
 The challenge in that business is that, as I've said publicly, is that it's just many of the locations, they're shared locations. With our SK branch business, which, as Eric said in his remarks, was having continued to have a terrific few years as far as an industry leader. So our concern is even when we get through the exercise of separating the business, from (inaudible) to try to sell it or do something with it, it would -- there's a risk there that the buyer of that business would want to create a competitor to our SK branch business.
 And we wouldn't be able to offer a bundled offering that we do today like some of our competitors do. So not only is the competitive disadvantage of the SK branch business, but perhaps we could create a competitor to our SK branch business because obviously, those -- whoever buys that business would have to go and service our customers just like we do and perhaps they want to sell and similar types of services.
 So there's a lot of reasons behind that. We think it would be very difficult to separate the permits. We think it would be very difficult to separate the locations. But even we get through all of that, I think we create not only a competitor, but then also perhaps hurt what we think is a very profitable and growing business in our SK branch business.

James Shyam

Right. That makes a lot of sense. Okay. Thanks, Mike, and thanks, guys for all the color. Appreciate it.

Eric Gerstenberg

Thank you.

Operator

Jerry Revich, Goldman Sachs.

Adam Bubes

Hi, this is Adam Bubes on for Jerry Revich today. In Safety-Kleen -- hi, good morning. I'm wondering, in Safety-Kleen, it's pretty impressive because the 1Q results are very similar to last year in a much worse base oil pricing environment. How does the charge for oil that you're flowing through right now compare to past cycles and similar base oil pricing environment? Are you seeing any changes in the competitive landscape there? And is that having an impact?

Michael Battles

Adam, this is Mike. And first of all, thank you for pointing that out. We appreciate the recognition. We've had our challenges with that business, so I appreciate you acknowledging that has done well. What I would say is that we changed tactics and we're very aggressive on CFO pricing, and we did that with a public announcement, and we were aggressive in Q4, we stayed aggressive in Q1, and we're going to continue to stay aggressive.
 I think the industry has followed. That's your question. We do think that there's been -- that there's -- since we're the national player, we're the largest collector of used motor oil in the country, I think that other people recognize the fact that they're under pressure to try to manage the spread as well. So they're having to do the same thing.
 So I don't -- I see this as -- we were assuming we lose more gallons. And that's really what surprised us for the quarter, that the collection gallons are actually up year-over-year. And there's an M&A in there that clouds that a little bit. But the level of collection gallons will still be very high kind of year-over-year, which is a testament to the fact that we believe that the industry is kind of full of used motor oil. Pricing is there.
 We're going to -- we are aggressive, we're going to remain aggressive. And I'm really excited about -- as Eric said, we feel good about the 140 we kind of committed to today. And nothing changes that. As a matter of fact, I feel better than I did 90 days ago.

Adam Bubes

Great. And then in Environmental Services, guidance embeds an acceleration in organic growth in Q2 and then another acceleration in the back half of the year. Obviously, you have Kimball ramping, weather presumably won't be a headwind. But you also have some Field Services projects that were a good guy in 2Q last year. So just wondering if you can parse out the puts and takes on the organic growth cadence in the balance of the year? And any other moving pieces we should be thinking of?

Eric Dugas

Sure, Adam, Eric here. So you're exactly right. As we move into kind of Q2 and Q3, the organic growth does increase from Q1 here, which -- as we tried to call out, it was greatly impacted by weather. But as we move into Q2, obviously, the pricing strategies, the great volume momentum we're seeing -- we do have a headwind with those ERs in Q2. I think last year, when we spoke to the Street in July around Q2, we talked about roughly $24 million of larger types of ERs.
 So that is a headwind, but making up for some of that will be just overall growth in Field Services. So we opened 10 new Field Services branches this quarter, so there will be some organic growth there to help offset.
 And then as you move into Q3, again, same kind of pricing strategies, good volume. And as Eric Gerstenberg mentioned a moment ago, that's where we're hoping to see some stronger turnarounds in the Industrial Services business that will go up against that Q3 comp last year.
 And then Q4, probably a little bit smaller just sequentially from an organic growth, but again, growth over last year. So those are the largest puts and takes, but the underpinning of all that is all the great things we're doing in the businesses in Environmental Services. The Kimball ramp up, pricing strategies, cost-cutting initiatives, all those things, introduction of some new technologies, those are all driving the organic growth.

Adam Bubes

Great. Thanks so much.

Operator

Tobey Sommer, Truist Securities.

Tobey Sommer

Yeah, good morning. I wanted to ask on the labor expense side. If we do get a pickup in inflation, how do you think the company is positioned to be able to adjust pricing midyear and respond to that to keep the margins and return profile that you're targeting?

Eric Gerstenberg

Yes, Tobey, Eric here. We will continue to outpace through pricing initiatives, our increased costs due to labor. Would say that on the labor side that team has done a great job of continuing to reduce our turnover in a difficult environment. Strong employee base, but we will no doubt work through increases in labor by price adjustments in the market.

Michael Battles

Yes. Just to follow on what Eric just said, our voluntary turnover for our direct labor, our cost of goods sold labor is the lowest it's been in over three years. And it really is a testament to the -- all the things and all the investments we've been making in our organization and our people. And that allows us to be aggressive in how we price and our customer service, and it really has a virtuous cycle that we're in right now.

Operator

(Operator instructions)
 Davis Banton, BMO Capital Markets.

Hi, good morning. This is Davis on for Devin Dodge. Just a quick question for me. I'm just wondering if there's an update or any commentary you can give on how the ramp-up of Group III oil processing is going?

Michael Battles

Yes, Davis, I can answer that question. It's growing. It's going to grow up two to three more gallons this year than last year. It's a slow ramp. I mean, we want to make sure our plant works well, and collection logistics is always a challenge. We sure we're getting all the Group III that we need to build the plant and move forward. But that goes along kind of unabated here in 2025.

Eric Gerstenberg

And Davis, probably just to add to that, our Castrol partnership, they've really expressed a lot of interest in helping to grow and manage the Group III that we're producing under the Castrol brand. So there's good, solid opportunities there.

Okay, great. Thanks I'll turn it over.

Eric Gerstenberg

Thank you.

Operator

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Gerstenberg for any final comments.

Eric Gerstenberg

Thank you, and thank everyone for joining us today. Next week, management will be at the Waste Expo in Las Vegas and participating in Stifel's Investor Summit Deck, as well as the virtual Oppenheimer Industrial Growth Conference later in the week. We also have several conferences lined up in Boston and in New York in early June. Based on that active calendar, we look forward to seeing some of you at those events. Have a great rest of your week, and please stay safe.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

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