Clean Harbors Announces Third-Quarter 2020 Financial Results

  • Reports Q3 Revenues of $779.3 Million
  • Posts Q3 Net Income of $54.9 Million; EPS of $0.99; Adjusted EPS of $0.90
  • Achieves Adjusted EBITDA of $161.2 Million, Including $13.3 Million From Government Assistance Programs
  • Generates $29 Million in Q3 Decontamination Emergency Response Revenue
  • Delivers Record Quarterly Adjusted Free Cash Flow of $123.5 Million
  • Raises 2020 Adjusted EBITDA and Adjusted Free Cash Flow Guidance

NORWELL, Mass.--()--Clean Harbors, Inc. (“Clean Harbors”) (NYSE: CLH), the leading provider of environmental and industrial services throughout North America, today announced financial results for the third quarter ended September 30, 2020.

We delivered strong third-quarter results that came in ahead of our expectations,” said Alan S. McKim, Chairman, President and Chief Executive Officer. “Our performance reflects the resiliency of our business model, as well as the dedication of our people. We have now improved our Adjusted EBITDA margins for 11 consecutive quarters. In response to the pandemic and the dynamic market conditions it created, we established a leadership position in providing advanced decontamination and disposal services for customers affected by COVID-19. We also substantially improved our operational efficiencies and lowered our overall cost structure, which is reflected in our third-quarter margin performance. During the quarter, we saw a steady sequential pick up from the second quarter across several of our core lines of business, particularly within Safety-Kleen.”

Third-Quarter 2020 Results

Revenues were $779.3 million compared with $891.7 million in the same period of 2019. Income from operations was $83.9 million compared with $80.4 million in the third quarter of 2019.

Net income was $54.9 million, or $0.99 per diluted share. This compares with net income of $36.4 million, or $0.65 per diluted share, for the same period in 2019. Adjusted for certain items in both periods, adjusted net income was $49.9 million, or $0.90 per diluted share, for the third quarter of 2020, compared with adjusted net income of $40.7 million, or $0.72 per diluted share, in the same period of 2019. (See reconciliation table below)

Adjusted EBITDA (see description below) was $161.2 million, including $13.3 million of benefit from U.S. and Canadian government assistance programs, compared with $156.6 million in the same period of 2019.

Q3 2020 Review

Environmental Services delivered strong profitability through a combination of cost reductions, productivity improvements, a healthy mix of higher margin work and government incentives,” McKim said. “We experienced a lower utilization rate of 80% at our incinerators in the quarter due to the timing of turnarounds and a production lag from some customers, but we continued to execute on our strategy to capture higher-value waste streams across our network. This resulted in an average price per pound increase of 5% from the prior year. Landfill volumes declined nominally, as stronger base business largely offset the lack of remediation and waste projects caused by the pandemic. While still below historical averages, activity in other service areas of the segment, including Technical Services and Industrial Services, saw steady increases in demand at key customers during the quarter.

Revenue from COVID-19 decontamination work totaled $29 million in the quarter, which helped drive a 20% top-line increase in Field Services,” McKim said. “Our team has now completed more than 9,000 COVID-19 responses, reinforcing our leadership position. We are extremely proud of the decontamination work being done by our people out on the front lines as they limit the spread of this virus, protect our customers and make our communities and workplaces safe again.

Safety-Kleen rebounded from the shelter-in-place restrictions that had severely disrupted customer demand in the second quarter of 2020,” McKim said. “In fact, on a year-over-year basis, revenue in our branch business was only off 6% in Q3 – much better than we anticipated. The lifting of local restrictions across much of North America led to an increase in vehicle miles driven generating improved lubricant demand. Based on the strength of the recovery in near-term demand for base oil and finished lube products, we restarted three re-refineries that were taken offline at the outset of the pandemic. Given the declining market value of waste oil, we maintained high charge-for-oil (CFO) rates for used motor oil (UMO) and increased our collection volumes to 50 million gallons, 16% ahead of second-quarter levels.”

Business Outlook and Financial Guidance

We enter the final quarter of 2020 positioned for continued success in the current environment,” McKim said. “Our market leadership and renowned emergency response capabilities have enabled us to capitalize on opportunities and safely navigate the challenges presented by the pandemic. Over the past two quarters, prudent cost actions and reduced capital spending have helped us drive record Adjusted EBITDA margins and adjusted free cash flow. We believe that our COVID-19 decontamination business can continue to help hedge against potential slowdowns in revenue and profitability in other parts of the Company.

Within Environmental Services, we anticipate a sequential uptick in incineration utilization in the fourth quarter as we saw steady increases in production and waste volumes at our key customers during the third quarter. Because virus-related project delays remain, we do not expect landfills to fully recover until sometime in 2021 when we believe PFAS and other larger opportunities start to come to market. For Industrial Services and Technical Services, we anticipate our core service offerings to close out the year on an upward trajectory. Field Services remains on track for a great year, with anticipated COVID-related revenue exceeding $100 million.

Our Safety-Kleen branch business remains below historical levels, but demand has improved markedly from the lows of April and May. With the ongoing spike in COVID-19 cases, we are sensitive to the possibility of new shelter-in-place mandates that could disrupt the recovery of this business. For Safety-Kleen Oil, our primary re-refineries are all back online and base oil pricing is stable. We continue to actively manage our CFO rates with the goal of growing collection volumes to supply our re-refinery network,” McKim concluded.

Based on its year-to-date financial performance and current market conditions, Clean Harbors raised its Adjusted EBITDA and Adjusted free cash flow guidance ranges and currently expects:

  • Adjusted EBITDA in the range of $530 million to $550 million, based on anticipated 2020 GAAP net income in the range of $104 million to $130 million; and
  • Adjusted free cash flow in the range of $250 million to $270 million, based on anticipated 2020 net cash from operating activities in the range of $405 million to $445 million.

Non-GAAP Results

Clean Harbors reports Adjusted EBITDA, which is a non-GAAP financial measure and should not be considered an alternative to net income or other measurements under generally accepted accounting principles (GAAP), but viewed only as a supplement to those measurements. Adjusted EBITDA is not calculated identically by all companies, and therefore the Company’s measurement of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Clean Harbors believes that Adjusted EBITDA provides additional useful information to investors since the Company’s loan covenants are based upon levels of Adjusted EBITDA achieved and management routinely evaluates the performance of its businesses based upon levels of Adjusted EBITDA. The Company defines Adjusted EBITDA in accordance with its existing revolving credit agreement, as described in the following reconciliation showing the differences between reported net income and Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019 (in thousands):

 

For the Three Months Ended:

 

For the Nine Months Ended:

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

 

 

 

 

 

 

 

Net income

$54,910

 

$36,369

 

$95,505

 

$73,589

Accretion of environmental liabilities

2,822

 

2,490

 

8,149

 

7,624

Depreciation and amortization

74,470

 

73,756

 

221,497

 

223,328

Other (income) expense, net

(2,268)

 

427

 

597

 

(1,992)

Loss on sale of businesses

118

 

 

3,376

 

Loss on early extinguishment of debt

 

6,119

 

 

6,119

Interest expense, net

17,407

 

19,702

 

54,848

 

59,681

Provision for income taxes

13,712

 

17,750

 

35,269

 

39,752

Adjusted EBITDA

$161,171

 

$156,613

 

$419,241

 

$408,101

Adjusted EBITDA Margin

20.7%

 

17.6%

 

17.9%

 

16.1%

This press release includes a discussion of net income and earnings per share adjusted for the loss on early extinguishment of debt, net of tax of $1.8 million, the loss on sale of businesses and the impacts of tax-related valuation allowances and other as identified in the reconciliations provided below. The Company believes that discussion of these additional non-GAAP measures provides investors with meaningful comparisons of current results to prior periods’ results by excluding items that the Company does not believe reflect its fundamental business performance. The following shows the difference between net income and adjusted net income, and the difference between earnings per share and adjusted earnings per share for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts):

For the Three Months Ended:

 

For the Nine Months Ended:

September 30,
2020

 

September 30,
2019

 

September 30,
2020

September 30,
2019

Adjusted net income

 

 

 

Net income

$54,910

 

$36,369

$95,505

$73,589

Loss on early extinguishment of debt, net of tax of $1.8m

 

4,284

 

 

4,284

Loss on sale of businesses

118

 

 

3,376

 

Tax-related valuation allowances and other*

(5,128)

 

 

(4,502)

 

4,762

Adjusted net income

$49,900

 

$40,653

$94,379

$82,635

 

Adjusted earnings per share

Earnings per share

$0.99

 

$0.65

$1.71

$1.31

Loss on early extinguishment of debt, net of tax of $1.8m

 

0.07

 

 

0.08

Loss on sale of businesses

 

 

0.06

 

Tax-related valuation allowances and other*

(0.09)

 

 

(0.08)

 

0.08

Adjusted earnings per share

$0.90

 

$0.72

$1.69

$1.47

 

* For the three and nine months ended September 30, 2020, other amounts include a $1.6 million benefit, or $0.03 per share, related to tax benefits from impacts of prior period tax filing amendments.

Adjusted Free Cash Flow Reconciliation

Clean Harbors reports adjusted free cash flow, which it considers to be a measurement of liquidity that provides useful information to investors about its ability to generate cash. The Company defines adjusted free cash flow as net cash from operating activities excluding cash impacts of items derived from non-operating activities, less additions to property, plant and equipment plus proceeds from sale and disposal of fixed assets. The Company excludes cash impacts of items derived from non-operating activities such as taxes paid in connection with divestitures and in the current period have also excluded cash paid in connection with the purchase of its corporate headquarters and certain capital improvements to the site as these expenditures are considered one-time in nature. Adjusted free cash flow should not be considered an alternative to net cash from operating activities or other measurements under GAAP. Adjusted free cash flow is not calculated identically by all companies, and therefore the Company’s measurement of adjusted free cash flow may not be comparable to similarly titled measures reported by other companies.

An itemized reconciliation between net cash from operating activities and adjusted free cash flow is as follows for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the Three Months Ended:

 

For the Nine Months Ended:

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

Adjusted free cash flow

 

 

 

Net cash from operating activities

$143,946

 

$146,205

 

$317,432

 

$284,675

Additions to property, plant and equipment

(24,636)

 

(56,161)

 

(150,357)

 

(174,533)

Purchase and capital improvements of corporate HQ

 

 

21,080

 

Proceeds from sale and disposal of fixed assets

4,206

 

1,559

 

7,307

 

8,948

Adjusted free cash flow

$123,516

 

$91,603

$195,462

$119,090

Adjusted EBITDA Guidance Reconciliation

An itemized reconciliation between projected GAAP net income and projected Adjusted EBITDA is as follows (in millions):

 

 

 

For the Year Ending
December 31, 2020

Projected GAAP net income

 

 

$104

to

$130

Adjustments:

 

 

 

 

 

Accretion of environmental liabilities

 

 

11

to

10

Depreciation and amortization

 

 

295

to

285

Other expense, net

 

 

1

to

1

Loss on sale of businesses

 

 

3

to

3

Interest expense, net

 

 

74

to

73

Provision for income taxes

 

 

42

to

48

Projected Adjusted EBITDA

 

 

$530

to

$550

Adjusted Free Cash Flow Guidance Reconciliation

An itemized reconciliation between projected net cash from operating activities and projected adjusted free cash flow is as follows (in millions):

 

 

 

For the Year Ending
December 31, 2020

Projected net cash from operating activities

 

 

$405

to

$445

Additions to property, plant and equipment

 

 

(186)

to

(206)

Purchase and capital improvements of corporate headquarters

 

 

21

to

21

Proceeds from sale and disposal of fixed assets

 

 

10

to

10

Projected adjusted free cash flow

 

 

$250

to

$270

Conference Call Information

Clean Harbors will conduct a conference call for investors today at 9:00 a.m. (ET) to discuss the information contained in this press release. During the call, management will discuss Clean Harbors’ financial results, business outlook and growth strategy. Investors who wish to listen to the webcast and view the accompanying slides should visit the Investor Relations section of the Company’s website at www.cleanharbors.com. The live call also can be accessed by dialing 201.689.8881 or 877.709.8155 prior to the start time. If you are unable to listen to the live conference call, the webcast will be archived on the Company’s website.

About Clean Harbors

Clean Harbors (NYSE: CLH) is North America’s leading provider of environmental and industrial services. The Company serves a diverse customer base, including a majority of Fortune 500 companies. Its customer base spans a number of industries, including chemical, energy and manufacturing, as well as numerous government agencies. These customers rely on Clean Harbors to deliver a broad range of services such as end-to-end hazardous waste management, emergency spill response, industrial cleaning and maintenance, and recycling services. Through its Safety-Kleen subsidiary, Clean Harbors also is North America’s largest re-refiner and recycler of used oil and a leading provider of parts washers and environmental services to commercial, industrial and automotive customers. Founded in 1980 and based in Massachusetts, Clean Harbors operates in the United States, Canada, Mexico, Puerto Rico and India. For more information, visit www.cleanharbors.com.

Safe Harbor Statement

Any statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “seeks,” “should,” “estimates,” “projects,” “may,” “likely,” or similar expressions. Such statements may include, but are not limited to, statements about future financial and operating results, and other statements that are not historical facts. Such statements are based upon the beliefs and expectations of Clean Harbors’ management as of this date only and are subject to certain risks and uncertainties that could cause actual results to differ materially, including, without limitation, the risks and uncertainties surrounding COVID-19 and the related impact on the Company’s business, and those items identified as “Risk Factors” in Clean Harbors’ most recently filed Form 10-K and Form 10-Q. Forward-looking statements are neither historical facts nor assurances of future performance. Therefore, readers are cautioned not to place undue reliance on these forward-looking statements. Clean Harbors undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements other than through its filings with the Securities and Exchange Commission, which may be viewed in the “Investors” section of Clean Harbors’ website at www.cleanharbors.com.

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

 

For the Three Months Ended:

For the Nine Months Ended:

September 30,
2020

 

September 30,
2019

September 30,
2020

 

September 30,
2019

 

 

 

 

 

 

 

Revenues

$779,344

 

$891,668

 

$2,347,907

 

$2,541,185

Cost of revenues (exclusive of items shown separately below)

511,629

 

612,754

 

1,588,976

 

1,772,051

Selling, general and administrative expenses

106,544

 

122,301

 

339,690

 

361,033

Accretion of environmental liabilities

2,822

 

2,490

 

8,149

 

7,624

Depreciation and amortization

74,470

 

73,756

 

221,497

 

223,328

Income from operations

83,879

 

80,367

 

189,595

 

177,149

Other income (expense), net

2,268

 

(427)

 

(597)

 

1,992

Loss on sale of businesses

(118)

 

 

(3,376)

 

Loss on early extinguishment of debt

 

(6,119)

 

 

(6,119)

Interest expense, net

(17,407)

 

(19,702)

 

(54,848)

 

(59,681)

Income before provision for income taxes

68,622

 

54,119

 

130,774

 

113,341

Provision for income taxes

13,712

 

17,750

 

35,269

 

39,752

Net income

$54,910

 

$36,369

 

$95,505

 

$73,589

Earnings per share:

 

 

 

 

 

 

 

Basic

$0.99

 

$0.65

 

$1.72

 

$1.32

Diluted

$0.99

 

$0.65

 

$1.71

 

$1.31

 

 

 

 

 

 

 

 

Shares used to compute earnings per share — Basic

55,592

 

55,850

 

55,646

 

55,858

Shares used to compute earnings per share — Diluted

55,738

 

56,165

 

55,832

 

56,109

 

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

 

 

September 30, 2020

 

December 31, 2019

Current assets:

 

 

 

Cash and cash equivalents

$475,706

 

$371,991

Short-term marketable securities

56,639

 

42,421

Accounts receivable, net

602,069

 

644,738

Unbilled accounts receivable

59,438

 

56,326

Deferred costs

20,212

 

21,746

Inventories and supplies

220,884

 

214,744

Prepaid expenses and other current assets

58,711

 

48,942

Total current assets

1,493,659

 

1,400,908

Property, plant and equipment, net

1,539,333

 

1,588,151

Other assets:

 

 

 

Operating lease right-of-use assets

146,454

 

162,206

Goodwill

524,261

 

525,013

Permits and other intangibles, net

392,401

 

419,066

Other

10,079

 

13,560

Total other assets

1,073,195

 

1,119,845

Total assets

$4,106,187

 

$4,108,904

Current liabilities:

 

 

 

Current portion of long-term obligations

$7,535

 

$7,535

Accounts payable

213,776

 

298,375

Deferred revenue

67,412

 

73,370

Accrued expenses

293,200

 

276,540

Current portion of closure, post-closure and remedial liabilities

22,324

 

23,301

Current portion of operating lease liabilities

36,814

 

40,979

Total current liabilities

641,061

 

720,100

Other liabilities:

 

 

 

Closure and post-closure liabilities, less current portion

77,070

 

68,368

Remedial liabilities, less current portion

100,389

 

98,155

Long-term obligations, less current portion

1,550,756

 

1,554,116

Operating lease liabilities, less current portion

110,097

 

121,020

Deferred taxes, unrecognized tax benefits and other long-term liabilities

322,099

 

277,332

Total other liabilities

2,160,411

 

2,118,991

Total stockholders’ equity, net

1,304,715

 

1,269,813

Total liabilities and stockholders’ equity

$4,106,187

 

$4,108,904

 

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

For the Nine Months Ended:

 

September 30,
2020

 

September 30,
2019

Cash flows from operating activities:

 

 

Net income

$95,505

 

$73,589

Adjustments to reconcile net income to net cash from operating activities:

 

 

Depreciation and amortization

221,497

 

223,328

Allowance for doubtful accounts

10,441

 

(745)

Amortization of deferred financing costs and debt discount

2,688

 

2,908

Accretion of environmental liabilities

8,149

 

7,624

Changes in environmental liability estimates

9,050

 

(585)

Deferred income taxes

 

(973)

Other expense (income), net

597

 

(1,992)

Stock-based compensation

12,739

 

14,664

Loss on sale of businesses

3,376

 

Loss on early extinguishment of debt

 

6,119

Environmental expenditures

(8,816)

 

(12,804)

Changes in assets and liabilities, net of acquisitions:

 

 

Accounts receivable and unbilled accounts receivable

23,969

 

(31,408)

Inventories and supplies

(9,554)

 

(11,982)

Other current and non-current assets

(19,320)

 

(5,425)

Accounts payable

(63,898)

 

3,035

Other current and long-term liabilities

31,009

 

19,322

Net cash from operating activities

317,432

 

284,675

Cash flows used in investing activities:

 

 

Additions to property, plant and equipment

(150,357)

 

(174,533)

Proceeds from sale and disposal of fixed assets

7,307

 

8,948

Acquisitions, net of cash acquired

(8,839)

 

(29,479)

Proceeds from sale of businesses, net of transactional costs

7,712

 

Additions to intangible assets including costs to obtain or renew permits

(1,863)

 

(2,896)

Proceeds from sale of available-for-sale securities

39,141

 

41,612

Purchases of available-for-sale securities

(53,397)

 

(30,761)

Net cash used in investing activities

(160,296)

 

(187,109)

Cash flows used in financing activities:

 

 

Change in uncashed checks

381

 

(3,516)

Tax payments related to withholdings on vested restricted stock

(4,407)

 

(5,505)

Repurchases of common stock

(39,542)

 

(16,390)

Deferred financing costs paid

 

(10,053)

Premiums paid on early extinguishment of debt

 

(2,689)

Payments on finance leases

(2,755)

 

(327)

Principal payments on debt

(5,652)

 

(850,652)

Issuance of unsecured senior notes

 

845,000

Borrowing from revolving credit facility

150,000

 

Payment on revolving credit facility

(150,000)

 

Net cash used in financing activities

(51,975)

 

(44,132)

Effect of exchange rate change on cash

(1,446)

 

2,292

Increase in cash and cash equivalents

103,715

 

55,726

Cash and cash equivalents, beginning of period

371,991

 

226,507

Cash and cash equivalents, end of period

$475,706

 

$282,233

 

Supplemental information:

Cash payments for interest and income taxes:

Interest paid

$66,000

$52,440

Income taxes paid, net of refunds

14,195

23,797

Non-cash investing activities:

Property, plant and equipment accrued

11,732

14,875

ROU assets obtained in exchange for operating lease liabilities

19,993

8,008

ROU assets obtained in exchange for finance lease liabilities

28,333

31,011

Supplemental Segment Data (in thousands)

 

For the Three Months Ended:

Revenue

September 30, 2020

 

September 30, 2019

 

Third Party
Revenues

Intersegment
Revenues
(Expense),
net

Direct
Revenues

 

Third
Party
Revenues

Intersegment
Revenues
(Expense),
net

Direct
Revenues

Environmental Services

$498,183

$29,787

$527,970

 

$550,122

$36,750

$586,872

Safety-Kleen

281,089

(29,449)

251,640

 

341,417

(35,272)

306,145

Corporate Items

72

(338)

(266)

 

129

(1,478)

(1,349)

Total

$779,344

$—

$779,344

 

$891,668

$—

$891,668

 

 

For the Nine Months Ended:

Revenue

September 30, 2020

 

September 30, 2019

 

Third Party
Revenues

Intersegment
Revenues
(Expense),
net

Direct
Revenues

 

Third
Party
Revenues

Intersegment
Revenues
(Expense),
net

Direct
Revenues

Environmental Services

$1,490,641

$100,605

$1,591,246

 

$1,550,114

$108,856

$1,658,970

Safety-Kleen

857,048

(97,640)

759,408

 

990,146

(105,540)

884,606

Corporate Items

218

(2,965)

(2,747)

 

925

(3,316)

(2,391)

Total

$2,347,907

$—

$2,347,907

 

$2,541,185

$—

$2,541,185

 

For the Three Months Ended:

 

For the Nine Months Ended:

Adjusted EBITDA

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

 

 

 

 

 

 

 

Environmental Services

$140,854

 

$121,658

 

$387,851

 

$329,036

Safety-Kleen

68,761

 

81,326

 

176,498

 

215,578

Corporate Items

(48,444)

 

(46,371)

 

(145,108)

 

(136,513)

Total

$161,171

 

$156,613

 

$419,241

 

$408,101

 

Contacts

Michael L. Battles
EVP and Chief Financial Officer
Clean Harbors, Inc.
781.792.5100
InvestorRelations@cleanharbors.com

Jim Buckley
SVP Investor Relations
Clean Harbors, Inc.
781.792.5100
Buckley.James@cleanharbors.com

Contacts

Michael L. Battles
EVP and Chief Financial Officer
Clean Harbors, Inc.
781.792.5100
InvestorRelations@cleanharbors.com

Jim Buckley
SVP Investor Relations
Clean Harbors, Inc.
781.792.5100
Buckley.James@cleanharbors.com