Clean Harbors Announces First-Quarter 2020 Financial Results

  • Reports Q1 Revenues up 10% to $858.6 Million
  • Increases Q1 Net Income to $11.6 Million, or EPS of $0.21, with Adjusted EPS of $0.28
  • Achieves 21% Growth in Q1 Adjusted EBITDA to $122.6 Million
  • Improves Q1 Adjusted EBITDA Margin by 130 Basis Points to 14.3%
  • Takes Wide Range of Actions in Response to COVID-19
  • Withdraws 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 first quarter ended March 31, 2020.

We delivered record Adjusted EBITDA in Q1 with strong growth in both operating segments,” said Alan S. McKim, Chairman, President and Chief Executive Officer. “We drove substantial volumes of high-value waste streams into our disposal and recycling network, benefitting from consistent base business, multiple projects and favorable weather. These factors contributed to a 21% increase in Adjusted EBITDA over the first quarter of 2019 and a 130 basis-point improvement in Adjusted EBITDA margin.”

First-Quarter 2020 Results

Revenues increased 10% to $858.6 million from $780.8 million in the same period of 2019. Income from operations grew 92% to $45.5 million from $23.7 million.

Net income was $11.6 million, or $0.21 per diluted share. This compares with net income of $1.0 million, or $0.02 per diluted share, for the same period in 2019. Adjusted for certain items in both periods, adjusted net income was $15.6 million, or $0.28 per diluted share, for the first quarter of 2020, compared with adjusted net income of $5.1 million, or $0.09 per diluted share, in the same period of 2019. (See reconciliation table below)

Adjusted EBITDA (see description below) increased 21% to $122.6 million from $101.7 million in the same period of 2019.

Q1 2020 Review

Profitability in our Environmental Services segment increased 22% for the quarter on top-line growth of 11%, driven by our disposal facilities,” McKim said. “Incineration utilization climbed to 86% and we captured more high-value waste streams across our network. Our landfills benefitted from steady base business and several projects that helped generate a 39% increase in volumes. Field Services revenue grew nearly 50% largely due to cleanup of a chemical plant fire and COVID-19 decontamination work.

Our Safety-Kleen segment also grew profitably, with a 12% increase in Adjusted EBITDA on 8% higher revenue,” McKim said. “Core offerings such as containerized waste services and vacuum services contributed to steady growth in our branch network. Waste oil collection was stable at 55 million gallons, and we gradually increased our charge-for-oil (CFO) rates during the quarter. Within Safety-Kleen Oil, we generated greater production volumes and our transportation costs improved from a year ago, when flooding and frozen rivers disrupted barge traffic.”

Response to the Coronavirus Pandemic

Although the impact of COVID-19 on our Q1 results was limited, it progressively worsened toward quarter end as shelter in place orders took hold in the United States and Canada,” McKim said. “In anticipation of the economic downturn and softer demand, particularly for Safety-Kleen, we took decisive actions to align our cost structure with the current environment and protect our balance sheet.”

The Company’s actions included:

  • Downsizing its workforce through furloughs and other actions
  • Implementing a non-billable hiring freeze, travel restrictions and wage freeze
  • Shuttering nearly half of its re-refinery production due to supply constraints and market demand
  • Drawing down $150 million on its revolving credit facility
  • Lowering its expected 2020 net capex spend by more than $50 million
  • Withdrawing 2020 annual guidance until market conditions stabilize

Business Outlook

Our prudent cost actions position us well for the anticipated reopening of the U.S. and Canadian economies in the second half of 2020,” McKim said. “Although we have seen some cancellations and project delays due to COVID-19, we expect Environmental Services to weather the current downturn well. We exited Q1 with a healthy backlog of waste streams in our disposal network and have not seen a meaningful decline from most of our large quantity generators. In addition, we are continuing to perform COVID-19 decontamination work and handling growing volumes of infectious waste for a variety of customers.

With stay-at-home orders greatly reducing vehicle travel across North America, the pandemic is limiting near-term demand for our core Safety-Kleen offerings, including used motor oil (UMO) collection. We expect our branch business to rebound when shelter-in-place mandates are lifted and low gasoline prices and a reduction in air travel encourage a steady increase in driving. In our SK Oil business, our re-refining spread has contracted with the drop in crude prices. Despite our aggressive increase in charge-for-oil pricing, near-term demand for base oil has dropped precipitously, prompting us to shutter some re-refining capacity until the markets improve.

Our first-quarter results further demonstrated the strength of our business model, the value of our irreplaceable portfolio of disposal assets and our front-line role in emergency response,” McKim concluded. “Our market leadership, financial liquidity and positive free cash flow will enable us to navigate this global crisis.”

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 months ended March 31, 2020 and 2019 (in thousands):

For the Three Months Ended:

March 31, 2020

 

March 31, 2019

 

 

 

 

Net income

$11,572

 

$976

Accretion of environmental liabilities

2,561

 

2,574

Depreciation and amortization

74,533

 

75,355

Other expense (income), net

2,365

 

(2,983)

Loss on sale of businesses

3,074

 

Interest expense, net

18,787

 

19,764

Provision for income taxes

9,698

 

5,977

Adjusted EBITDA

$122,590

 

$101,663

Adjusted EBITDA Margin

14.3%

 

13.0%

This press release includes a discussion of net income and earnings per share adjusted for the loss on sale of businesses, net of tax and the impacts of tax-related valuation allowances 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 to adjusted net income, and earnings per share to adjusted earnings per share for the three months ended March 31, 2020 and 2019 (in thousands, except per share amounts):

 

For the Three Months Ended:

March 31, 2020

March 31, 2019

Adjusted net income

Net income

$11,572

$976

Loss on sale of businesses, net of tax

 

3,074

 

Tax-related valuation allowances

 

931

 

4,106

Adjusted net income

$15,577

$5,082

 

Adjusted earnings per share

Earnings per share

$0.21

$0.02

Loss on sale of businesses, net of tax

 

0.05

 

Tax-related valuation allowances

 

0.02

 

0.07

Adjusted earnings per share

$0.28

$0.09

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 (in thousands):

For the Three Months Ended:

March 31, 2020

March 31, 2019

Adjusted free cash flow

 

 

 

Net cash from operating activities

$33,681

 

$29,740

Additions to property, plant and equipment

(82,767)

 

(58,947)

Purchase and capital improvements of corporate headquarters

20,735

 

Proceeds from sale and disposal of fixed assets

2,150

 

4,321

Adjusted free cash flow

$(26,201)

 

$(24,886)

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:

 

March 31, 2020

 

March 31, 2019

 

 

 

 

 

Revenues

 

$858,563

 

$780,839

Cost of revenues (exclusive of items shown separately below)

606,666

 

564,364

Selling, general and administrative expenses

 

129,307

 

114,812

Accretion of environmental liabilities

 

2,561

 

2,574

Depreciation and amortization

 

74,533

 

75,355

Income from operations

 

45,496

 

23,734

Other (expense) income, net

 

(2,365)

 

2,983

Loss on sale of businesses

 

(3,074)

 

Interest expense, net

 

(18,787)

 

(19,764)

Income before provision for income taxes

 

21,270

 

6,953

Provision for income taxes

 

9,698

 

5,977

Net income

 

$11,572

 

$976

Earnings per share:

 

 

 

 

Basic

 

$0.21

 

$0.02

Diluted

 

$0.21

 

$0.02

 

 

 

 

 

Shares used to compute earnings per share — Basic

 

55,757

 

55,848

Shares used to compute earnings per share — Diluted

 

56,055

 

56,082

 

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

 

 

March 31, 2020

 

December 31, 2019

Current assets:

 

 

 

Cash and cash equivalents

$432,205

 

$371,991

Short-term marketable securities

62,143

 

42,421

Accounts receivable, net

658,482

 

644,738

Unbilled accounts receivable

51,215

 

56,326

Deferred costs

21,270

 

21,746

Inventories and supplies

216,532

 

214,744

Prepaid expenses and other current assets

44,629

 

48,942

Total current assets

1,486,476

 

1,400,908

Property, plant and equipment, net

1,547,119

 

1,588,151

 

 

 

 

Other assets:

 

 

 

Operating lease right-of-use assets

160,526

 

162,206

Goodwill

519,627

 

525,013

Permits and other intangibles, net

406,881

 

419,066

Other

11,392

 

13,560

Total other assets

1,098,426

 

1,119,845

Total assets

$4,132,021

 

$4,108,904

Current liabilities:

 

 

 

Current portion of long-term obligations

$7,535

 

$7,535

Accounts payable

267,892

 

298,375

Deferred revenue

71,243

 

73,370

Accrued expenses

255,513

 

276,540

Current portion of closure, post-closure and remedial liabilities

16,231

 

23,301

Current portion of operating lease liabilities

39,998

 

40,979

Total current liabilities

658,412

 

720,100

Other liabilities:

 

 

 

Closure and post-closure liabilities, less current portion

76,106

 

68,368

Remedial liabilities, less current portion

98,966

 

98,155

Long-term obligations, less current portion

1,702,992

 

1,554,116

Operating lease liabilities, less current portion

120,649

 

121,020

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

269,091

 

277,332

Total other liabilities

2,267,804

 

2,118,991

Total stockholders’ equity, net

1,205,805

 

1,269,813

Total liabilities and stockholders’ equity

$4,132,021

 

$4,108,904

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

For the Three Months Ended:

 

March 31, 2020

March 31, 2019

Cash flows from operating activities:

 

 

Net income

$11,572

$976

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

 

 

Depreciation and amortization

74,533

75,355

Allowance for doubtful accounts

4,700

(3,425)

Amortization of deferred financing costs and debt discount

891

1,000

Accretion of environmental liabilities

2,561

2,574

Changes in environmental liability estimates

3,470

(774)

Other expense (income), net

2,365

(2,983)

Stock-based compensation

3,291

5,809

Loss on sale of businesses

3,074

Environmental expenditures

(3,435)

(3,264)

Changes in assets and liabilities, net of acquisitions:

 

 

Accounts receivable and unbilled accounts receivable

(24,960)

12,086

Inventories and supplies

(7,024)

(832)

Other current and non-current assets

8,714

(11,738)

Accounts payable

(5,169)

(27,956)

Other current and long-term liabilities

(40,902)

(17,088)

Net cash from operating activities

33,681

29,740

Cash flows used in investing activities:

 

 

Additions to property, plant and equipment

(82,767)

(58,947)

Proceeds from sale and disposal of fixed assets

2,150

4,321

Acquisitions, net of cash acquired

(14,870)

Proceeds from sale of businesses, net of transactional costs

7,856

Additions to intangible assets including costs to obtain or renew permits

(448)

(1,132)

Proceeds from sale of available-for-sale securities

12,180

8,600

Purchases of available-for-sale securities

(32,058)

(12,941)

Net cash used in investing activities

(93,087)

(74,969)

Cash flows from (used in) financing activities:

 

 

Change in uncashed checks

(1,775)

(4,769)

Tax payments related to withholdings on vested restricted stock

(2,224)

(2,276)

Repurchases of common stock

(17,341)

(6,324)

Payments on finance leases

(329)

(115)

Principal payments on debt

(1,884)

(1,884)

Borrowing from revolving credit facility

150,000

Net cash from (used in) financing activities

126,447

(15,368)

Effect of exchange rate change on cash

(6,827)

1,461

Increase (decrease) in cash and cash equivalents

60,214

(59,136)

Cash and cash equivalents, beginning of period

371,991

226,507

Cash and cash equivalents, end of period

$432,205

$167,371

 

Supplemental information:

 

 

Cash payments for interest and income taxes:

 

 

Interest paid

$30,648

$8,712

Income taxes paid

971

967

Non-cash investing activities:

 

 

Property, plant and equipment accrued

12,173

13,002

ROU assets obtained in exchange for operating lease liabilities

12,410

(3,896)

ROU assets obtained in exchange for finance lease liabilities

(856)

23,027

Supplemental Segment Data (in thousands)

 

For the Three Months Ended:

Revenue

March 31, 2020

 

March 31, 2019

 

Third Party

Revenues

Intersegment

Revenues

(Expense), net

Direct

Revenues

 

Third Party

Revenues

Intersegment

Revenues

(Expense), net

Direct

Revenues

Environmental Services

$528,104

$38,258

$566,362

 

$473,698

$35,324

$509,022

Safety-Kleen

330,369

(37,157)

293,212

 

306,547

(34,070)

272,477

Corporate Items

90

(1,101)

(1,011)

 

594

(1,254)

(660)

Total

$858,563

$ —

$858,563

 

$780,830

$ —

$780,839

 

 

For the Three Months Ended:

Adjusted EBITDA

 

March 31, 2020

 

March 31, 2019

 

 

 

 

 

Environmental Services

 

$108,914

 

$89,510

Safety-Kleen

 

61,148

 

54,793

Corporate Items

 

(47,472)

 

(42,640)

Total

 

$122,590

 

$101,663

 

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