Clean Harbors, Inc. (CLH) Q2 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the Clean Harbors Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Rodenberger, General Counsel for Clean Harbors. Mr. Rodenberger, you may begin.

Thank you, Christine, and good morning, everyone. With me on today's call are our Co-Chief Executive Officers, 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. 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 29, 2026. 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 of 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. Reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release on our IR website in the appendix of today's presentation. Let me turn the call over to Eric Gerstenberg to start. Eric?

Thanks, Tim. Good morning, everyone, and thank you for joining us. Turning to a summary of Q2 results on Slide 3. I'll start, as we always do, with safety, which remains at the core of our success. In Q2, our team continued to focus on protecting themselves and their colleagues, resulting in a year-to-date total recordable incident rate of 0.46. This performance keeps us on track to reach our 2026 goal while continuing to outperform industry benchmarks and peer results. Safety remains a meaningful competitive differentiator for us. We exceeded our guidance for the quarter on the strength of both of our operating segments. Strong performances in Environmental Services and Safety-Kleen Sustainability Solutions contributed to record revenue, adjusted EBITDA and adjusted EBITDA margin. While SKSS clearly exceeded Q2 expectations, what gives us conviction in our outlook is that Environmental Services continues to deliver strong utilization rates, expanding margins and a growing pipeline of long-term opportunities. Within ES, demand for our disposal assets and vast collection network remains strong, reflecting the scarcity of disposal capacity across the industry. Within our services business, growth was driven by another strong performance from SK Environmental Services and increased revenue in Field Services. The SKSS segment outperformed due to a variety of factors, including the environment created by global lubricant shortages. Turning to our segment performance, beginning with ES on Slide 4. Q2 revenue in this segment increased by more than $100 million. Technical Services revenue grew by 18% on strong demand for disposal and recycling services. We won both base business and sizable projects, including a large PFAS-related filtration project that directly resulted from previous emergency response work. That project accounted for more than $30 million of Q2 revenue. Safety-Kleen Environmental Services revenue increased 11% driven by pricing and growth in its core offerings, including containerized waste collection and vacuum services. Incineration utilization in Q2 was 91% versus 86% a year ago, with the new Kimball incinerator included in both periods. Landfill volumes were also up, rising 7% this quarter. Field Services revenue grew 3% despite a difficult comp with Q2 2025. Our Industrial Services revenue was comparable to Q2 a year ago as growth in specialty and other services offset the impact of North American refineries continuing to operate with very limited downtime and turnaround activity. Adjusted EBITDA was up 8% in the quarter, with ES segment margin up 10 basis points to 27.9%. We continue to demonstrate the earnings power of this segment, delivering our 17th consecutive quarter of year-over-year improvement in adjusted EBITDA margin and our 19th straight quarter of EBITDA growth. Overall, it was another outstanding quarter for ES as we continue to capitalize on favorable market trends that are showing no signs of slowing. We continue to successfully execute on our growth strategies as we head into the back half of the year. Turning to Slide 5. We announced today that we recently won a significant long-term disposal contract with a manufacturing customer that is expanding its U.S. operations. This 10-year agreement, which centers on incineration waste and complex wastewater volumes, carries an estimated value of $600 million with options to expand in scope and extend duration. The contract will commence in the fourth quarter and will likely generate about $10 million in revenue this year. Based on the customers' plans to open and ramp up multiple U.S. sites, it is expected to reach full capacity in 2030. This contract provides a decade-long growth run rate tied to the expansion of U.S. manufacturing. We believe it validates our substantial capabilities and versatility to safely process large volumes of variable waste streams at our multiple locations. We are proud that this customer selected Clean Harbors as a long-term partner to grow its U.S. operations. We know that the scale and redundancy of our recycling and disposal network in our service locations are key factors in winning this contract. There are 2 trends we are seeing in the market today. First, the expansion of U.S. manufacturing related to reshoring. And second, customers are seeking to utilize a common service provider for all of their regulated waste and recycling needs. Given the unique capabilities of our assets, we expect to pursue opportunities for new contracts, both large and small, while expanding our relationships with customers that are growing their North American presence. Turning to Slide 6. Data centers is a market that we have been eyeing for some time, and I know that some of you have been asking about. We are in the process of introducing an integrated data center solution as many of our services align with customer needs. Our solution consists of 8 separate lines of business that will address multiple phases of the data center market. Our initial focus is on the construction phase, where our industrial services, mechanical flushing, chemical passivation and water filtration services are in high demand. Our specialty services group has had some early successes in meeting with hyperscalers and data center owners. We've already won work on 10 sites to date, and are bidding on a dozen more. We see an opportunity to cross sell and grow, particularly as that market continues to evolve. In addition to shifting to a variety of data center cooling approaches that impact customer needs, the market is expecting to move from the current heavy construction phase to more of a maintenance phase. We see that as an attractive opportunity to introduce additional lines of business into our integrated offering, including fluid recovery and recycling, debris and waste removal, ER events and lubricant delivery. Our long-term plans for this market opportunity remain relatively modest as we are targeting growth to $200 million in annual revenue by the end of 2028. In order to hit that mark, we will be investing an additional $50 million in CapEx over the next 3 years to increase the specialty equipment, tankage and vehicles, we will need to service customers. The data center market is expected to grow at a CAGR of approximately 20% annually through 2030. With the services we provide, particularly within our specialty industrial services group, we estimate our TAM by 2030 could be as large as $8 billion to $10 billion. With that, let me turn things over to Mike to discuss our planned acquisition of ES&H, SKSS and our capital allocation strategy. Mike?

Thanks, Eric, and good morning, everyone. Turning to our latest acquisition on Slide 7. We announced today that we have entered into a definitive agreement to acquire ES&H, our regional leader in Field Services and Emergency Response services in the Gulf region for $305 million. The all-cash transaction is expected to close in the second half of 2026, subject to regulatory approval and other customary closing conditions. We expect to drive attractive shareholder returns from this transaction as ES&H has built an outstanding reputation with its customers over a 30-year history. They are a recognized leader in environmental ER throughout the Gulf Coast. In addition -- the addition of ES&H is expected to accelerate the growth and increase the coverage of our Field Services business. The company is known in the region as a great resource for on-water responses, and like Clean Harbors, the company carries the Coast Guard's highest Oil Spill Response Organization classification. Their talented employees, geographic footprint and equipment fleet will be a welcome addition to the company. ES&H is headquartered in Louisiana with a total of 13 service branches across that state and Texas. The majority of those are coastal locations that support its maritime service. In addition to its primary offerings, the company also sells a brand new service called Forefront that includes emergency response readiness plan development, training and management of customers across multiple industries. ES&H's revenue are expected to be approximately $90 million annually, which should generate adjusted EBITDA of approximately $30 million. We expect the acquisition to generate cost synergies of approximately $5 million after the first full year of operations, which equates to a post-synergy acquisition multiple of 8.7x. Moving on to SKSS on Slide 8. As Eric highlighted, this segment delivered spectacular results this quarter. The greater than 40% increase in its top line and remarkable 143% increase in adjusted EBITDA reflects the elevated market pricing during the quarter due to the scarcity of base and blended products. The business also continues to manage our oil collection services effectively, collecting needing volumes while delivering higher year-over-year charge for oil revenue. Strong demand for our re-refined products was a result of major global supply disruptions in the Middle East and Asia, which created domestic market scarcity and drove multiple price increases in the market during Q2. In the quarter, we also saw the benefit of ongoing strategic initiatives, including producing Group III gallons and selling more blended volumes. We increased our blended direct gallons sold in Q2, which accounted for 11% of total volumes sold. Our closed loop offering, where we collect customers' waste oil and deliver lubricants back is gaining more traction in this market. As mentioned, our collection team also did a great job actively managing the front end of our re-refining spread in terms of both collection volumes and costs. We gathered 61 million gallons of waste oil while continuing to increase revenue generated from our CFO program compared with a year ago. Overall, we were pleased to see the SKSS segment rebound so strongly after recent challenging years. We expect the supply constrained conditions to extend into Q3. And importantly, we believe that our strategic investment initiatives, like Group III, more blended and the SDA unit will position us when base oil and blended prices return to pre-war levels. Turning to capital allocation on Slide 9. We continue to look for the best opportunities, whether internal or external, to generate the highest and most durable returns on our shareholders' capital. The ES&H acquisition we expect to close in the remaining months fall into that category. Additionally, we recently closed a $30 million acquisition of the New England-based Field Services and waste oil collection business called Western Oil, that should deliver $4 million to $6 million of annual adjusted EBITDA. They are well known here in the Northeast and will help support the gallons we need for our New Hampshire re-refinery as well as provide more spill response capabilities. We are excited about other attractive acquisition candidates that we are engaged with or expect to come to market later this year. Internally, we continue to invest strategically to accelerate our growth and increase profitability, including our previously announced vacuum truck fleet expansion, SDA unit in Chicago and other strategic opportunities, such as the data center investment that Eric outlined. We have the balance sheet and low leverage to execute both facets of our growth strategy. We also continue to support share repurchases as an attractive way to return value to our shareholders. As we move into the back half of 2026, we will look to extend the momentum we generated in the first half. We have an industry leading team that executed well from both an operational and sales perspective. Demand trends are favorable as well. We believe ongoing reshoring is creating opportunities for us to add new customers and waste streams. Our PFAS pipeline continues to grow with no signs of slowing in the U.S. or Canada, including both private and government customers. For SKSS, the business continues to be well managed at both ends of our spread while operating in a robust pricing and demand environment. Overall, we expect to deliver record top line, bottom line margins and free cash flow this year, which will support our capital allocation strategy. And lastly, we wanted to take a moment to acknowledge our founder, Alan McKim. Alan built this company from the ground up over 46 years and created opportunities for thousands of employees. The culture, value and customer focus that defines Clean Harbors today are direct reflection of his leadership. We recently renamed our campus headquarters in his honor, a fitting tribute to the tremendous impact he's had in our company, our people and our industry. With that, let me turn the call over to Eric Dugas, our CFO, to discuss our financials.

Thank you, Mike, and good morning, everyone. Turning to our Q2 results on Slide 11. Our quarterly results came in well ahead of the expectations we outlined in May, driven by outperformance and strong execution from both segments. Total Q2 revenue increased 12% to $1.74 billion, reflecting a continuation of many of the trends we saw exiting Q1 and discussed on our previous earnings call. Q2 adjusted EBITDA increased 22% to $409 million. Our consolidated Q2 adjusted EBITDA margin was 23.6%, representing the highest quarterly margin in our company's history and a 190 basis point improvement from the prior year period. Market conditions in SKSS were clearly a factor. But our margin story in the quarter goes well beyond that as we leverage volume growth in our network, gained market share and added waste streams in several verticals, continue to drive strategies to offset inflation and higher fuel costs, controlled labor costs while continuing to minimize third-party costs, and improved utilization rates of our vehicle and equipment fleets. SG&A expense as a percentage of revenue in Q2 increased year-over-year to 12.4%, primarily due to higher incentive compensation, insurance and claim-related costs and some strategic investments in the current period to support future expansion efforts. For the full year, we continue to expect SG&A expense as a percentage of revenue to be in the mid- to high 12% range. Depreciation and amortization in Q2 was $122 million, up slightly from a year ago. For 2026, we now expect depreciation and amortization in the range of $475 million to $485 million. Second quarter income from operations was $269 million, up 28% from the prior year. Net income in Q2 increased 34% as we delivered EPS of $3.22 per share. Turning to the balance sheet on Slide 12. We ended the quarter with cash and short-term marketable securities of $517 million. These cash balances will help fund the M&A activity we discussed today as well as the other capital allocation priorities that Mike outlined. We closed the quarter with a net debt-to-EBITDA ratio of approximately 2x, while our debt carried a blended interest rate at quarter end of 5.2%. Turning to cash flows on Slide 13. Cash provided from operations in Q2 was $239 million, up 15% from a year ago. CapEx, net of disposals was $124 million, up nearly $40 million from the prior year. We advanced our strategic growth investments in Q2, including the SDA unit and our vacuum truck fleet expansion. Those accounted for more than half of that year-over-year increase with the remainder coming from investments in our base business. Adjusted free cash flow, which excludes spend from these strategic projects was $136 million in the quarter, up slightly from the prior year. For 2026, excluding expected $85 million of spend on the SDA unit, $25 million related to our fleet investment and $10 million related to our data center strategy that Eric highlighted, we now expect net CapEx to be in the range of $370 million to $430 million, with a midpoint of $400 million. This represents a $20 million increase versus the guidance we provided in May due to incremental capital investments related to some attractive growth opportunities in select markets as well as new customer wins and PFAS associated work. These opportunities and related CapEx investments are intended to accelerate growth in both the near and long term. During Q2, we bought back approximately 84,000 shares of stock at an average price of $298 a share. At June 30, we had just under $550 million remaining under our share repurchase authorization. Turning to our guidance on Slide 14. Based on first half performance, planned investments and current market conditions, we are now guiding to a 2026 adjusted EBITDA range of $1.35 billion to $1.41 billion, with a midpoint of $1.38 billion, and representing a $110 million increase from our prior guidance. We expect meaningful increases in both of our operating segments and are confident in our revised outlook. At the midpoint, this updated 2026 guidance now implies adjusted EBITDA growth of $210 million or approximately 18% versus 2025. Looking at our annual guidance from a quarterly perspective, we expect third quarter adjusted EBITDA to grow 24% to 28% year-over-year on a consolidated basis. Looking at how our annual guidance translates into our reported segments, at the midpoint of our guidance range, we now expect our 2026 adjusted EBITDA in Environmental Services to grow 6% to 9% for the year. We entered the back half with strong demand across all of our businesses. This range does include approximately $5 million in contributions from the Terra Nova acquisition. This guidance assumes no contribution from ES&H. Once we conclude the regulatory process and close on that transaction, we will update our guidance accordingly. This 2026 guidance midpoint now assumes that our SKSS segment delivers approximately $275 million of adjusted EBITDA, double the amount we delivered in 2025 and significantly higher than the $165 million we provided in May when we expected the sharp spike in base oil prices to be more temporary. There remains substantial uncertainty around the duration of current market conditions and how long they will impact petroleum-derived products such as base oil. While there is potential for more upside given the state of the market, we believe $275 million is an appropriate assumption at the current time. Within corporate, at the midpoint of our guidance, we now expect negative adjusted EBITDA to increase by approximately 8% to 10% compared to 2025. This growth from our prior guidance is driven by higher incentive compensation, insurance claim costs acquisition impacts and strategic investments we're making. Looking at it as a percentage of revenue, we still expect corporate segment results to remain flat in the prior year. For 2026, we now expect adjusted free cash flow in the range of $520 million to $580 million with a midpoint of $550 million. This represents a $30 million increase versus our prior guidance, reflecting the higher adjusted EBITDA we now anticipate this year and considering acquisition impacts, in the revised CapEx assumptions. In closing, I share Eric and Mike's enthusiasm about our growth prospects for 2026 and beyond, resiliency, broadening capabilities and profitable growth have long been hallmarks of Clean Harbors, all of which have been demonstrated over the past several years. Even when external market conditions were not entirely favorable, we have continued to grow by executing well, taking market share and expanding many of our service offerings. This year, we are starting to see some of those macro conditions turn in our favor, which is why our growth rates have been increasing. We remain a critical vendor and partner for our customers. And for many of them, we serve as their sustainability solution. We are bullish about our profitable growth for both of our operating segments in the back half of this year, and we remain focused on executing against our longer-term vision and goals. With that, operator, please open the call for questions.

[Operator Instructions] Our first question comes from the line of Tyler Brown with Raymond James.

First off, just congrats to Alan. Wishing him all the best. But Eric D., so there's quite a few moving pieces in the quarter. I think the guide is up maybe $110 million. It looks like most of that is from SK, but can we talk a little bit more about the ES guide? So again, there kind of seems to be a few things, and maybe you can parse it out. But on the good side, it looks like you have Terra Nova. It sounds like some stronger ER work in Q3, and you got the new contract, it's positive. But then maybe Industrial Services is slightly lower, would that be right? But can you just give us any help on kind of what's going on inside of the ES guide specifically?

Sure, Tyler. I think you hit on a couple of the big moving pieces there in total. We did raise the guide for the full year, about $30 million, $10 million of that is Terra Nova. The remaining pieces there, certainly, the good momentum we're seeing exiting June and into the second quarter has been strong, both on the volume and continued pricing side. The new contract that we talked about will kick in, in the fourth quarter. We've got some upside from that. But there's other opportunities that we're seeing as well that's providing the good momentum in Environmental Services. When I look at Industrial Services, I think similar to kind of the comments we had last quarter when we look at the back half for Industrial Services right now, kind of flattish to last year. If we see any type of escalation in, kind of, turnaround activities, that would be upside to our current guide. And on the Field Services side, that business has really performed well for the last year or 2, we're winning some big jobs, and we do have some nice things that we're working on currently to support the back half. So I think a lot of good momentum leading into the second half of the year in Environmental Services, and we should see some kind of sequential margin improvement here in Q3 and Q4 as well.

Okay. Perfect. And then just if we can kind of touch on Industrial Services a bit more. I kind of get it. The refineries are kind of running all out given crack spreads. But Eric G., there have been some higher profile, call it, accidents in the past few months. And I'm just curious how you're thinking about Industrial Services over the next couple of years. It just kind of feels to me that all this deferred maintenance is starting to really stack up. And maybe eventually some of these plants are just simply going to have to be turned around. Maybe something similar to what we saw post COVID. But I'm just curious, just any thoughts about Industrial Services over the next few years.

Yes, Tyler, thanks for the question. When we look at year-to-date and what's happening with the refinery demand, we all know that they're all running very hard to make products flat out. We've positioned ourselves very well with all those refineries that when they have downtime, for example, the couple of incidents that you spoke of, that we're going to be really well positioned to be able to help them. Our relationships with those refinery customers have continued to grow tighter. We're providing more services for them overall. So we're pretty bullish that when the turnaround happen for whatever reason, we're going to be strategically well positioned. So while the overall year-to-date looks that our turnaround count is down probably about 1/3 year-over-year, we're well positioned to capture on that. Additionally, the team has done an excellent job of making up for the refinery downtime in other specialty businesses. And our growth in our specialty lines of business within Industrial Services is up about 14% to 16% year-over-year. So we feel pretty good about that trend and we focused on putting more branches around our customers to grow our specialty business and the technology that we're deploying there, which is really just nice efforts by the team. Our base business also, when you think of our base business within Industrial Services, and the amount of personnel over 2,500 that we have working day in, day out of customer sites. That business is up about 2% to 4% from a revenue standpoint as well in the industrial world, so we feel good about that. And then lastly, I touched on -- continue to touch on what we talked about in our script is that we're bullish on the opportunity in data centers and how we can grow with data centers to offset -- more than offset any of the decline and what continues to happen in the refinery and the chemical world. So we're deploying capital. We're standing up additional branches. Those are services that we do well, and we're tailoring them to the data center world. And we're quite -- again, feel quite good that our growth prospects overall between specialty and data centers are strong. We've also been doing a lot in the IS world to make sure that we're capturing everything that we can capture through AI initiatives. And specialty industrial services platform that help us run that business and make sure we're charging accordingly for our services to expand our margins. So while overall, the refinery demand for turnaround is down, it's become a smaller percentage of our overall business. We're bullish on other areas that we're implementing hard throughout the organization to grow IS and grow the margins with that business.

The good thing, Tyler, is I agree with all the things that Eric just mentioned for long-term growth prospects. I'm really excited about it. The good news is we don't -- in the guide that we just spoke of, we don't put a lot of -- that's on the come. If that happened, that's upside. I think that we're actually pretty thoughtful and balanced in our view as we entered the back half of 2026.

Our next question comes from the line of Noah Kaye with Oppenheimer.

A lot of growth initiatives to talk about this quarter. So I'll just ask about two of them. First, data center. So this is really interesting. Liquid cooling is growing probably 35% to 40% CAGR over the next 5 years. There are some really stringent requirements for liquid cooling management around pH and turbidity in particular requirements. And we've seen some of the equipment vendors and EPCs add flushing and filtration services. Can you talk a little bit about your competitive differentiation and right to win when you're dealing with like highly sensitive materials? And can you help us understand what capabilities you're building up with that $50 million in CapEx?

Yes, great question, Noah. So I first start out by saying that our industrial team has been doing flushing of systems, I'll call it, at a broad scope for a long time. And we've had the people, the technology, the engineering staff to be able to support those types of jobs within chemical plants and refineries for a long time. And so what we're really doing is adapting those services, same thing, same technology into data centers and adding in the chemical passivation that we're doing. So connecting a system, flushing the data center after they built it, removing all the residuals and put protective coatings on to be able to make sure that those cooling systems meet the demand. So really investing in that flushing and passivation that we've done all along and building out our scale, building out more of a structured sales team around it that are aligned closely to those hyperscalers and general contractors. So we're pretty well prepared to leverage people and technology that we've already have within the business and operating in other large-scale plants and apply that to data centers. And it's working for us. There's high demand. We've got a good brand. We've got good people in our HPC and Clean Harbors industrial. And so we're pretty excited about our path ahead here.

The good news is, Noah, is we've been doing this for a long time, and we have an industry-leading safety record, an industry-leading compliance record. We have the national footprint and we add in, as Eric talked about in the prepared remarks, it's not -- it's going to be growing, but it's modest growth. It's modest growth over the next few years with obviously upside -- a much higher upside.

Yes. Helpful. And then on the large manufacturing contract customer. Congratulations on landing that. Maybe -- you mentioned they're in manufacturing. Maybe you can help us understand a little bit more, give us a little more color about what that's exposed to and what investments you need to make to support that contract ramping through 2030.

Yes. We would hate to go into the specific vertical. I'm sure that will come out at some time. However, it's predominantly leveraging our back-end disposal market, incineration as well as complex wastewater treatment. We've had a nice technology that's been deployed within the organization back to the early '90s called clean extraction system that utilizes supercritical carbon dioxide to remove organics and recycle the wastewater, which was a very compelling technology for this customer to complement incineration. So we're looking at their waste streams and how do we not only just provide incineration in capacity, but also recycling services and a total waste management concept with them, which all went to play for us in helping to assure that contract. When you look at the contract, it's going to ramp up over the next 4 to 5 years, about $15 million to $20 million of revenue per year and then get to an $80 million to $100 million run rate. When you think about what we have to add, we're taking some of our great insight people and putting them right on the customer sites. We're also adding additional trucking and driver capacity, all things that we can build on from our national fleet to be able to service this customer and provide them the redundancy and the recycling and the incineration services that we need. So perfect example similar to some other major customers we talked about in the past, but we're getting embedded providing the services they need, leveraging our unique capabilities and disposable assets for them.

What I think about it, Noah, is that it proves the reshoring theory, it's evidence of that. It's perfect evidence of that.

Yes. And it also proves you guys are not waiting around for the IS refinery turnaround. There are some real growth initiatives here to take that business higher. So nice job, guys. I'll turn it over.

Our next question comes from the line of James Schumm with TD Cowen.

Congrats on the great quarter. Let's just talk about SKSS for a minute, if we could. Just kind of curious if you can help with the expectation for 3Q and 4Q with the $275 million EBITDA guide for the year. What does that imply for the quarters? Is it -- are you assuming sort of flattish at the $93 million level for the third quarter and then $55 million in the fourth quarter? Or what should we expect there?

Jim, it's Eric. I'll start. And I think similar to last quarter, I'd like to kind of share some of the assumptions we have behind that. But I think pretty similar to what you just mentioned, when we move into Q3, assuming kind of pricing remains at an elevated point kind of similar to where we are today, and then begins to kind of trail back down kind of in Q4. So we see -- what I would tell you is kind of we see Q3 here maybe a little bit better than Q2, just on some differences around some turnaround timing that we had early in Q2, and then Q3 kind of trending down for the balance to arrive at that $275 million. And we'll continue to update assumptions next quarter, but that's how we see the business today.

Okay, Eric. And then just is there any refinery maintenance that we should be aware of in the third or fourth quarter that's significant or noteworthy?

Nothing more than already planned, typical shutdowns and downtime.

Okay. And then lastly for me. You guys mentioned market share gains. And I was wondering if you could elaborate on that. Was that in a specific segment or anything? Like what gives you confidence that you're gaining share? If you could just talk about that a little bit?

Yes, sure. So when we look at the second quarter this year and even as we've come out of the gates of this year, year-over-year, we've seen our volumes increasing in multiple different areas. When you look at waste volumes in particular, containerized waste volumes, our drum business has been growing in both our Clean Harbors business and our Safety-Kleen Environmental business. And we came out of a record June. When we look at some of the trends that we're seeing and how we're growing those volumes, we're certainly getting tighter with customers. We're expanding and taking over more traditional white space that other vendors may have had. And the way we're doing that is really continuing to get embedded with those customers through our insight programs and what we refer to as our total waste management program where our people are embedded in our tools and our systems to help them manage their waste needs. So by offering that type of service and that type of waste management, we're managing waste streams into our network. We're providing additional types of services and we're also providing traditional waste streams that we didn't typically manage, but managing those into third-party vendors. So really providing a full service with the customer. So all those things combined is really what we see that in larger RFPs that there's more that Clean Harbors, we have the footprint to be able to offer. And we think that's translating into market share gains with existing and future customers, and that's translating into our numbers.

Yes. The only thing I would add to that is that if you -- a lot of our competitors are private, it's hard to get a sense of what those are. But if we look at our pipeline, we look at our results, it's growing much faster than any market data I can see. And so we give confidence to that because the numbers would tell you that.

Our next question comes from the line of Adam Bubes with Goldman Sachs.

The Safety-Kleen Environmental Services business continues really robust growth performance, I think, 11% in the quarter. Can you just help us understand what's driving that? How would you break that out between pricing and volume? And is that -- is the volume side reflective of market share gains or favorable underlying demand? Just help us understand that performance.

Adam, Eric here. So you're absolutely right. We're thrilled with the performance that business continues to put forth. When I think about that 11% growth, typically, we see kind of price to volume ratio there about 50-50, maybe a little bit closer to 60-40 on the price side here as some of the fuel recovery charges kind of kick in to make that higher. But I think that's a business that we see evidence of taking market share in that business as well, going back to the last question that we had. And we can see it in the volumes as Mike alluded to. And it's also an area of business where we've done a really nice job of retaining our people. The drivers in that business are really the key to growth there. They get to know their customers, they get to know their regions and ZIP codes that they service, and we're seeing more and more kind of customers come to Clean Harbors in that business as well as well as growing with the customers there. But to answer your question directly, probably in this quarter, 60% pricing, 40% volume, but still very strong.

Just to build on that a little bit more. When you think about the lines of business that we offer under the Safety-Kleen Environmental footprint, and you break it down a little, an area that's been showing real high growth rates within it is our VAC services. Close behind that is our containerized waste services and even our parts washer revenue and our margins there, they're all contributing, every one of the lines of business within that business unit have been growing pretty well, and we're making investments when we talk about the VAC expansion and that $25 million over the next 2 years that we're spending in capital, that's all around supporting that business growth.

Yes. And what's interesting, Adam, is that 11% is obviously kind of eye-popping, and Eric and Eric gave a good job of explaining it. I mean that business has grown at this high single-digit rate for many years. It really is a great business model that deserves a high multiple and it deserves high valuation because this is -- it's higher, low double digits, it's obviously better. But if you look back -- go look back to the trends for the past 5, 6, 7, 8 years, even before COVID. I mean it was -- it's a high single-digit grower. It's been for many, many years, something we're really glad on.

Great. Appreciate the color there. And then on the SKSS side, thanks for the detail on the cadence and sort of the back half. But what are the assumptions embedded in guidance on base oil pricing and your re-refining spreads relative to 2Q levels?

I'll take this, Adam. I would say that we follow kind of industry guidance that we get. And as Q3 is strong, as Eric Dugas mentioned, it does -- we do have base oil pricing coming down in Q4, and that's leading to a lower guide. And we're just using -- who knows, but that's what we're using industry guidance to kind of give us some direction as to how we're thinking about base oil price. And we just use that as our model.

And Adam, just one other thing to add. When you think about the current market conditions year-to-date in the SKSS business, one thing that we're really seeing develop here is not only significant demand for Group III. So we're continuing to ramp up our efforts to make as much Group III product as we can. But we're also seeing really heavy traction in our closed loop offering that Mike talked about in his script. And what that means, obviously, is that not only are we collecting used motor oil, but they're buying our quality blended oil products from us on a customer-to-customer basis, and we've seen a tremendous uptick and pretty excited about where that can now go on the current market conditions. And the team has done a great job of deploying that closed loop, and we've had other players that work with us on that. So we're excited that those 2 are along with the SDA and others are contributors to really getting to that cadence that we all want around stabilization of the EBITDA across the SKSS business.

Our next question comes from the line of Jerry Revich with Wells Fargo.

I wanted to ask on the manufacturing side. We've gone from an environment over the prior 20 to 30 years of offshoring and now we get the benefit of reshoring. From a Clean Harbor standpoint, can you just talk about which pockets of manufacturing reshoring are really additive to your opportunity set? We're seeing obviously power and gas compression and semis and electronics. Can you just talk about what moves the needle for Clean Harbors as you look at the U.S. manufacturing plans? What are you folks excited about from an end market standpoint? And what's the magnitude of upside to Clean Harbors?

Yes. Clearly, at the tops of the list are around semiconductor, you mentioned that one when you think about that Phoenix area, the Texas area. We've been building out our platforms there to service those customers and see real activity and large-scale plans to continue to onshore there. Also in the pharma area, general manufacturing, we're seeing solid opportunities there that play themselves out in the coming years. That would be close to that as well. And in other smaller areas, too. When you think about programs like around aluminum manufacturing, that's another area we're seeing more start-ups again of making more aluminum as an example, more onshoring and other products like that.

What's interesting is that many different end markets and many different verticals generate hazardous waste. You'd be surprised about hazardous waste comes from all different facets of the U.S. economy. And so whether it be in health care or in retail, I mean we're seeing growth in those areas as well, areas that you wouldn't think that you get a lot of growth on it, but we've seen good growth in those areas as well.

Great color. And then can we shift gears in SKSS, obviously, really strong returns business for you folks through the cycle. Anything you can do to reduce the cyclicality at a time like this? Is it an option to enter into long-term contracts, maybe we shave the peak and maybe improve the trough price realization? Is that an option for you? Are you folks thinking about that at all given your really strong competitive position for re-refined product?

Yes, Jerry, one of the -- two of the big things obviously that we've talked about. Number one, to reduce the cyclicality is number one, around that Group III, producing more of that. And number two, utilizing that, our other Group II plus to drive a direct blended program that leads to that closed-loop relationship with key customers. And we're seeing that with many key customers. We're also seeing that the large refiners really love our product, too, to complement their suite of products. And probably about 70%, 80% plus of our Group II plus base oil, our Group III is working with those large providers.

I would say, Jerry, that if you look at the -- the cyclicality is we sell a commodity product, and that product moves up and down with -- based on a variety of different factors. But if you open up the aperture and look at the last 5 years and kind of where the guide is, kind of, as of the day, you do a simple average, it's in the mid-2s. And so we feel like it's going to be hard for us to say like, okay, what's next year, what's the year after? It's kind of based on what the price of base oil is. All the points that Eric just mentioned around more Group III, selling to new customers, working with large refiners, all that's very true. But ultimately, you got to look at longer-term horizons. We're obviously excited about the business this year. We've always been excited about the business. We've done a great job to see managing the spread. But you got to look at it over a long-term horizon because it's going to be cyclical.

Our next question comes from the line of Jim Ricchiuti with Needham.

To a couple of those growth drivers you identified. Just on the data center opportunity. Can you say what kind of revenues you're generating currently in this market and maybe help us with the growth rate you're anticipating this year?

Yes. To begin, when we look at our estimated revenue this year, we're going to be in that $15 million to $20 million range. And our growth plan is that by 2029, we'll be on an annual run rate of about $200 million plus. So our buildup plan is really around that. That business, what we've seen with it, with the expertise that we have is a nice margin business in that mid- to upper 20s area on that revenue. So we're -- we feel pretty good about that.

Total customers, can you say how many customers? And I think you alluded to 8 lines of business, but it sounds like initially tied more toward construction?

Exactly. The lines of business really, when you kind of break down the 8 lines of business that we referenced, they're really across all 3 different business units predominantly to start up to -- start up and continue to build is around our IS business. ES business, really providing debris and waste removal and battery recycling and emergency responses, we would expect there, too. And then on the SKE side, when you think about lubricants and fluid recovery and recycle, that business unit can benefit from what's going on with data centers as well.

I think you alluded to PFAS project in the quarter. I'm wondering if you can just give us any update on how the PFAS business is tracking this year just in terms of perhaps percentage of revenue, the growth? And whether your expectations have changed at all over the near term for this part of the business? It sounds like it's still going to be a good long-term driver.

Yes. I would say that our expectations have accelerated a little this year. I'm sure our team will too. When we talked in the past, we were looking at a pipeline and a revenue growth of about 20% per year. And when you look at the level of business that we have this year, it's really grown to be a 30%-plus increase year-over-year. The large project that we referenced. As many of you know, we did a large emergency response for a customer. That translated into -- after the emergency response was done into a PFAS treatment and remediation project from that event. And that's really what we were -- the team was executing on in the second quarter. So we also see continued momentum. We talked about last quarter where the DoD, the Department of War has officially lifted their moratorium around incineration. So our team has been out there pounding the pavement, meeting with 700-plus military installations, and some of those really need to make more progress sooner. And there's been a large push to do that. And the framework that we've laid out in the past about how to handle PFAS in its different shapes and forms has made traction. So we're -- we continue to be bullish and we think we're deploying the people and the assets and have the complete total solutions around PFAS. So we're feeling pretty good about it.

Yes, Jim, it was -- we had a great quarter on PFAS. And even if you take out the large event that Eric referenced, we're still -- we think that, that 30% plus growth rate is really getting to good traction, for all the reasons Eric mentioned, I think that we're really seeing really the benefits of that, not just in the U.S. and in Canada. We're starting to see some of that growth in Canada as well.

Our next question comes from the line of Shlomo Rosenbaum with Stifel.

It was good to see that incineration or incinerator utilization go up to 91%. But I thought maybe you could talk a little bit about where we are in pricing versus volume in the quarter and kind of how did it shake out for your incinerators, how did the mix shake out?

Sure. I'll take that, Shlomo. And incinerators, as you all know, are kind of grouped into that tech services line of business where we saw the 18% growth. If I had to parcel up that 18% in totality, I'd say it kind of breaks out in thirds. 1/3 of it is probably good project volumes that we saw throughout the quarter and inclusive of the job that Eric just mentioned related to PFAS. 1/3 -- the remaining 2/3 is probably equally split between pricing as well as increased volumes and mix. And so I'd say 1/3, 1/3, 1/3 there. But when you think about the categories in general, we're really excited about continuing to see significant volume increases really across all of our disposal outlets, not just incinerators, but landfills as well and then the other technologies we have. So that gave us a lot of confidence and has led into the increasing guide across the Environmental Services space.

Okay. Great. Maybe I could pivot a little. Where are you on the charge for oil? And just in terms of -- on a sequential basis, I know you talked about it year-over-year. But with the rise in oil prices, are you seeing more competition now, where people are willing to kind of just take it for free because they're able to start to refine it? What are you seeing over there?

Shlomo, that's really the great story in the quarter even though base oil pricing has been up quite a bit, kind of we've been able to continue to charge for oil kind of up year-over-year, which I think is just a real testament to the team and their ability to drive that. It's down a little bit sequentially, down a little bit as we guide into Q4. But I think what the amazing story is that although pricing is very, very high, which we all know, we're getting a really good -- continue to have good traction on the CFO program. And the reason why, we worked very hard to drive the business from a PFO to a CFO, we loathe to give that back. And I think we have all the resources, the assets and the people to hold the line there.

Okay. And when you're just talking about holding the line, can you give a little more detail? In other words, like you're just expecting even if we go back to pre-war levels, you'd still be able to kind of maintain it within 10%, 20%? Just what -- how should we think about that?

Our goal is to stay at CFO and no matter kind of what happens in the price. Never go back to PFO, that's the plan.

Okay. And then just one more pivot. Just with that acquisition of ES&H and just -- it sounds like it's more of like a maritime type of acquisition, and I was just wondering what makes you decide like at this point in time that, that's just a good place to expand into? And what are some of the capabilities that they bring in particular that you didn't have already? And is it really geographic expansion? Or is there something in particular that they do that's unusual?

Yes. It's not -- I wouldn't call it a maritime play at all. I think that the -- what we're looking at by acquiring that business is very, very similar to our traditional Field Service business. All along the coast, all along the waterways, we've always had boom and equipment and the resources and the capabilities. We've been in OSRO as well as we've talked about there. So those capabilities are part of the heart of what Clean Harbors has done every single day. And so it is a nice concentration of branches that complement our network in that Louisiana and Texas area. So expanding our footprint, which we've talked about over the years is we've been looking to open 15 to 20 Field Service branches within the organization, within North America on an annual basis. So this really hits the mark of creating a better presence, a bigger presence for us around that Louisiana and Texas market, where we were a little bit light on our Field Services revenue. So it's a great fit there. And then additionally, Mike had mentioned in his script, the capabilities of Forefront. And that business, that's a sub business of the ES&H footprint. That is really working with large companies that need emergency response plans and drills, have retainers associated with them. We've done that as Clean Harbors over the years, but the scale that ES&H has built there. And the market, looking at that Forefront capabilities and the people there is really helping us launch that as well. So a great fit overall complementing our Field Services presence, our business that we've been growing there. HEPACO, as you know, from the past, very similar Field Service acquisition that had a lot of benefits to the organization. So we see ES&H very similar to that.

Really excited about it. It helps us in an area that we don't have a huge presence in. And that Forefront technology, as previously mentioned, we're going to be able to leverage that pretty well across a nationwide rollout.

Our next question comes from the line of Larry Solow with CJS Securities.

Echo the best wishes to Alan, quarter of a century run for CJS and Clean Harbors, so thank you to him and best wishes. I guess just on the large contract you announced. So it sounds like a new customer are significantly incremental higher revenue. It feels like it's just a convergence of -- you mentioned people wanting -- companies wanting to use a common service provider. Your capabilities, obviously, probably are by far the best in the U.S. and then just more onshore manufacturing coming on board. So it feels like maybe we'll, even as we go forward, see more of these type of larger contracted business. Is that fair to say?

Yes. We feel pretty positive about that, Larry. It's -- as you mentioned that, when you think back to our large acquisition of a customer growing with 3M, which dates back a number of years, very similar type growth where that customer and this new customer, and we're seeing trends of other customers really want to have a service provider that have a national footprint with redundancy, with a real strong safety and transportation network and trans compliance network that can not only manage just our things like incineration and wastewater, but also have processing capabilities and recycling capabilities of solvents and wastewater treatment and landfill. We just have such a great large network to be able to leverage with large customers who need that redundancy and service capabilities nationally. So we feel that will, as more and more reshoring, onshoring happens, there seems to be that sense where we see the momentum out there in it. And we have great tools and great people to be able to grow with those large customers and provide them the surety that they need to properly manage and track their waste streams.

And just on the ES&H acquisition. So the margins on that, pretty good. It looks like mid-30s. Is that driven just by mix? Is the water cleanup, I know generally ER is higher margin work. Is that the primary driver of those good margins? And it sounds like this Forefront will probably have good margins as well, but maybe that's still a relatively modest business, too.

Yes, the Forefront has good margins, but the legacy business, too, very similar to what we've been doing when you think about ERs and base business. They were -- look, they are a little bit heavily more weighted towards ER, which is high margin as an overall percentage. When you compare their margins of ER and base business to ours, it's pretty close. So we're -- again, just a great complement.

Our next question comes from the line of Tobey Sommer with Truist Securities.

Single question for me. Could you discuss the return profile on acquisitions that you've announced this year and maybe compare and contrast them with the internal investments that you've articulated so far on the call in data center, new branches, et cetera?

Sure, Tobey. I'll take that. It's Mike. When you think about the M&A that we've done so far this year, the ones we've announced, and you do the analysis around what the multiple is that we pay on a synergized basis, they're all under 10. And I think that's a pretty good answer. And it really shows the discipline that we've had. If you look back a year ago, we didn't have a lot of acquisitions. But it wasn't because we weren't trying and looking at things. We're very active in the marketplace. If we did not land on anything this year, we've been able to land on it, but with the same level of discipline and thoughtfulness. When you think about the interim investments, those tend to be very good returns. And because there's more risk involved in some of these deals, it takes longer. We have a higher risk profile on these. But we think that the investments we're making in VAC trucks or in the SDA unit or in other things we're talking about, whether it be data centers have an incredible return over time because of the fact that it's self-help. It just takes longer.

Our next question comes from the line of David Manthey with Baird.

First, could you dissect the EBITDA guidance change here? So as I'm looking at it, it looks like 110 basis points or -- I'm sorry, $110 million at the midpoint for a delta. You picked up $110 million on SKSS going from $165 million to $275 million. My calculations are corporate is maybe a $15 million bad guy. And does that imply that ES in the new guidance is $15 million higher and $10 million of that organic. Does that all add up?

Yes, Dave, I think you're spot on there, kind of an increase of $15 million in ES kind of offset by corporate as you implied. I mean I'd also point out that for the full year, we're up $30 million where we thought we would be kind of back in February when we first entered this year. And it has to do with a lot of the good momentum that we've highlighted. So lots of good growth in ES is what I kind of want to highlight there.

Okay. And then as it relates to ES profitability, you touched on a few of these items. But you saw 8% growth, margin up just 10 basis points. Could you talk about the puts and takes within the year-to-year growth that affected the segment margin?

I think the 2 biggest things there, Dave, on the margin growth in Q2 for ES is really tough comps. On the Field Services side, we had a significant ER in Q2 of last year that had some particularly high margins. And then as Eric alluded to with some of the comments around Industrial Services, a little bit of a tough comp there in Q2 just given the nature and the mix of work that we're seeing in the current year. I think as the year continues to roll out, again, the full year forecast, kind of 30 to 40 basis points of incremental margin year-on-year. So still kind of on track with our expectations, and quite frankly, still on the march to a longer-term Environmental Services segment margin profile of 30% plus.

Our next question comes from the line of Nandita Nayar with Bank of America.

Just two quick ones from my side. So with regards to the incremental from Kimball this year, I believe we talked about an incremental of $10 million to $20 million of EBITDA. Could you just remind us what's kind of baked into the updated guide? And maybe how it's tracking so far this year?

Yes. Our Kimball ramp-up continues to go well, the number of the $10 million is hitting the mark. Our tonnage expectation this year, ramping up the plant is ahead of plan. So we're excited to continue to meet the expectations we had on bringing the Kimball incinerator online and really helping the network and helping our customers.

Great. And I also just wanted to directionally just touch on the free cash flow outlook into just '27, '28. And I'm not asking for exact guidance, Mike and Eric G., just would you say '26 is maybe likely the peak for your growth CapEx initiative? I noticed we did step it up by $10 million or so this year, and you did talk about the $50 million that's kind of spread across the coming 3 years. But just as you guys kind of progress towards your mid-40s free cash flow conversion target. I was hoping you could just give us some color on maybe the bridge that kind of gets us there? Do you kind of see these return initiatives growing faster than the CapEx spend? So maybe we could see an acceleration in maybe free cash flow growth over the coming years? Just any color there would be helpful.

Nandita, it's Eric Dugas. I'll take that and then I'm sure Mike and Eric can add any color I missed. But when we think about free cash flow and we think about free cash flow conversion, we're really targeting kind of that 40% on an adjusted basis. Obviously, on top of that, you alluded to some of the strategic incremental capital projects that are going on this year. A good chunk, but I think we're going to continue to see some investments there kind of going forward. But all of those investments we make they go through a screening process, and they provide really good higher-than-normal returns. And that's why we choose to do them. And what you're seeing there this year is some incremental projects, really the acceleration of some of the things we talked about in the past as well as with new business opportunities had some incremental CapEx there. But I would think about it as from an adjusted perspective, roughly 40% this year is how it works out. We're going to continue to drive that number up. I hesitate to put a long-term goal on it at this point, but just know that when we put out some long-range plans here internally, it's growing that 40% basis. And continuing to do high-return internal capital adjustments that can help us in the near term and long term.

The beautiful thing about it is that the CapEx is growing because the opportunities are growing. The pipeline is strong. And as Eric said, June was the best month in the company's history. When you think about quote volumes, quote volumes are also the best month in the company's history. So I really believe that the reason why we need to make these types of CapEx investments is because we see the long-term value creation over the next -- 2027 -- to your point, 2027, 2028, 2029, and we need to make the tech investments today to drive that type of long-term growth. And I'm excited about it. I mean, data centers is one more good example of ways we can capture kind of what we do well and leverage it.

This concludes our question-and-answer session. I would like to turn the floor back over to Mr. Gerstenberg for closing comments.

Thanks, Christine, and appreciate everyone joining us today. We hope everybody has a great summer, and we hope to see some of you at our investor events in the coming months. And most of all, please have a safe rest of your week and a safe summer.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.