Clean Harbors Announces Fourth-Quarter and Year-End 2019 Financial Results

Clean Harbors, Inc. (“Clean Harbors”) (NYSE: CLH), the leading provider of environmental, energy and industrial services throughout North America, today announced financial results for the fourth quarter and full year ended December 31, 2019.

“We concluded a strong 2019 with a solid fourth quarter, led by Environmental Services,” said Alan S. McKim, Chairman, President and Chief Executive Officer. “Overall, we leveraged our disposal network of incinerators and landfills, increased operating efficiencies and captured project volumes to drive an 8% increase in Adjusted EBITDA and grew Adjusted EBITDA margin by 100 basis points to 15.2%. Fourth-quarter adjusted free cash flow of $89.4 million contributed to a record $208.5 million of adjusted free cash flow for the full year.”

Fourth-quarter revenues increased to $871.0 million from $858.2 million in the same period of 2018. Income from operations grew 26% to $52.3 million.

Net income for the fourth quarter of 2019 was $24.2 million, or $0.43 per diluted share. This compares with net income for the same period in 2018 of $16.4 million, or $0.29 per diluted share. Adjusted for certain items in both periods, adjusted net income was $23.3 million, or $0.42 per diluted share, for the fourth quarter of 2019, compared with adjusted net income of $13.3 million, or $0.24 per diluted share, in the same period of 2018. (See reconciliation table below)

Adjusted EBITDA (see description below) in the fourth quarter of 2019 increased 8% to $132.2 million from $121.9 million in the same period of 2018.

Q4 2019 Review

“Within our Environmental Services segment, Adjusted EBITDA increased 9%, driving a margin improvement of 140 basis points,” McKim said. “Incineration utilization climbed to 89% from 86% a year ago, as our plants ran efficiently and we generated healthy volumes, fueled by a large project and supported by steady waste streams in our base business. Demonstrating the continued strong volumes we saw in the fourth quarter, our year-end deferred revenue balance was consistent with the end of the third quarter. Historically, during the fourth quarter we typically would see a decrease in our level of deferred revenue due to seasonal slowdowns from customers; this year we did not experience that slowdown. At the same time, landfill volumes increased 40% from the prior year, with healthy base business supported by several project wins. Field Services also had another strong quarter, with revenue growth of 7% that helped offset some weakness in industrial and energy-related businesses, particularly in Western Canada.

“Revenue in our Safety-Kleen segment increased 2%. Steady growth and pricing gains in the branch network offset a challenging environment for Safety-Kleen Oil, where base oil and blended pricing and the value of certain re-refining byproducts came under pressure,” McKim said. “Segment profitability was essentially flat, and margins were down due to these headwinds impacting the Safety-Kleen Oil portion of the business in the fourth quarter. Waste oil collection was stable at 55 million gallons, with a slightly improved charge-for-oil rate year-over-year and sequentially. Our direct lube program, while still below our internal targets, grew by approximately 30% in the quarter.”

2019 Financial Results

Clean Harbors revenues for 2019 increased 3% to $3.41 billion, compared with $3.30 billion in 2018.

Net income for 2019 increased to $97.7 million, or $1.74 per diluted share, compared with net income for 2018 of $65.6 million, or $1.16 per diluted share. Adjusted for certain items from both periods, the Company reported adjusted net income for 2019 of $105.9 million, or $1.89 per diluted share, compared with adjusted net income of $70.8 million, or $1.26 per diluted share, in 2018. (See reconciliation table below)

Adjusted EBITDA (see description below) for 2019 increased 10% to $540.3 million from $491.0 million in 2018. Over the past three-year period the Company’s Adjusted EBITDA has grown at an annual compounded rate of nearly 11%.

“For the full year we achieved steady top-line growth and delivered record Adjusted EBITDA and record adjusted free cash flow,” McKim said. “We exceeded our Adjusted EBITDA margin target with an improvement of 90 basis points. We also advanced our organizational infrastructure and internal systems – including more focus on business analytics and development of robotic process automation tools – to help prepare Clean Harbors for its next stage of growth. Most importantly, for the second consecutive year we achieved the best safety performance in our 40-year history with our incident rate and other key metrics at record low levels. These outstanding safety results and our relentless commitment to safety are not only critical to keeping our workforce safe, but also enhance our ability to win new business, protect the communities in which we operate, and attract and retain talented people.

Business Outlook and Financial Guidance

“Looking ahead, our outlook for profitable growth in 2020 is supported by underlying industry trends, including our customers’ shift toward sustainability and the alignment of our environmental solutions with their objectives,” McKim said. “We start the year with a healthy backlog of waste streams in our disposal facilities. We see ample opportunities to continue to drive high-value waste streams into our network and capitalize on the growth of the U.S. chemical and manufacturing sectors. Our robust pipeline of remediation and waste projects is only likely to increase as the market contemplates its strategy to address widespread PFAS contamination.

“We expect Safety-Kleen to continue to grow in 2020 through its core branch offerings, re-refinery network and direct lube sales program. We are still in the early days for IMO 2020. While we ultimately expect it to benefit us on both ends of our re-refining spread, its longer-lasting and full effects will likely not be known for a few more months. Consequently, our annual guidance assumes no incremental profitability from IMO 2020. We will make every effort to take advantage of market dislocations created by the regulation, but the guidance we’re providing today is based on ongoing strength and gains in our core businesses,” McKim concluded.

For the first quarter, Clean Harbors expects Adjusted EBITDA to increase in line with the full year 2020 due to stable top-line growth, pricing gains and operational efficiencies.

For full-year 2020, Clean Harbors expects:

  • Adjusted EBITDA in the range of $545 million to $585 million, based on anticipated GAAP net income in the range of $104 million to $147 million; and
  • Adjusted free cash flow in the range of $210 million to $240 million, based on anticipated 2020 net cash from operating activities in the range of $405 million to $455 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 (loss) 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 measurements 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 credit agreement, as described in the following reconciliation showing the differences between reported net income and Adjusted EBITDA for the three and twelve months ended December 31, 2019 and 2018 (in thousands):

For the Three Months Ended:

 

For the Twelve Months Ended:

 

December 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

 

 

 

 

 

 

 

 

Net income

$24,151

 

$16,431

 

$97,740

 

$65,636

Accretion of environmental liabilities

2,512

 

2,478

 

10,136

 

9,806

Depreciation and amortization

77,397

 

77,939

 

300,725

 

298,625

Other (income) expense, net

(905)

 

4,061

 

(2,897)

 

4,510

Loss on early extinguishment of debt

12

 

19

 

6,131

 

2,488

Gain on sale of business

(687)

 

 

(687)

 

Interest expense, net

18,989

 

20,139

 

78,670

 

81,094

Provision for income taxes

10,747

 

835

 

50,499

 

28,846

Adjusted EBITDA

$132,216

 

$121,902

 

$540,317

 

$491,005

Adjusted EBITDA Margin

15.2%

 

14.2%

 

15.8%

 

14.9%

This press release includes a discussion of net income and earnings per share adjusted for the loss on early extinguishment of debt, the gain on sale of business, the impact of U.S. tax law changes, the impacts of tax-related valuation allowances and other tax-related benefits and charges 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 and twelve months ended December 31, 2019 and 2018 (in thousands, except per share amounts):

For the Three Months Ended:

 

For the Twelve Months Ended:

December 31,
2019

December 31,
2018

December 31,
2019

December 31,
2018

Adjusted net income

Net income

$24,151

$16,431

$97,740

$65,636

Loss on early extinguishment of debt, net of tax

366

 

157

 

4,650

 

1,892

Gain on sale of business, net of tax

(687)

 

 

(687)

 

Adjustments related to tax law changes

 

(288)

 

 

(288)

Tax-related valuation allowances and other*

(536)

 

(3,025)

 

4,226

 

3,568

Adjusted net income

$23,294

$13,275

$105,929

$70,808

 

Adjusted earnings per share

Earnings per share

$0.43

$0.29

$1.74

$1.16

Loss on early extinguishment of debt, net of tax

0.01

 

 

0.08

 

0.03

Gain on sale of business

(0.01)

 

 

(0.01)

 

Adjustments related to tax law changes

 

 

 

Tax-related valuation allowances and other*

(0.01)

 

(0.05)

 

0.08

 

0.07

Adjusted earnings per share

$0.42

$0.24

$1.89

$1.26

* For the three and twelve months ended December 31, 2018, other amounts include a $7.1 million benefit, or $0.13 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, such as taxes paid in connection with divestitures, less additions to property, plant and equipment plus proceeds from sale and disposal of fixed assets. 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:

 

For the Twelve Months Ended:

December 31,
2019

December 31,
2018

December 31,
2019

December 31,
2018

Adjusted free cash flow

Net cash from operating activities

$128,517

 

$125,995

 

$413,192

 

$373,210

Additions to property, plant and equipment

(41,791)

 

(42,622)

 

(216,324)

 

(193,344)

Proceeds from sale and disposal of fixed assets

2,707

 

9,334

 

11,655

 

15,445

Adjusted free cash flow

$89,433

$92,707

$208,523

$195,311

 

Adjusted EBITDA Guidance Reconciliation

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

 

 

 

For the Year Ending
December 31, 2020

Projected GAAP net income

 

 

$104

to

$147

Adjustments:

 

 

 

 

 

Accretion of environmental liabilities

 

 

11

to

10

Depreciation and amortization

 

 

300

to

290

Interest expense, net

 

 

77

to

75

Provision for income taxes

 

 

53

to

63

Projected Adjusted EBITDA

 

 

$545

to

$585

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

$455

Additions to property, plant and equipment

 

 

(225)

to

(250)

Purchase and capital improvements of corporate headquarters

 

 

20

to

25

Proceeds from sale and disposal of fixed assets

 

 

10

to

10

Projected adjusted free cash flow

 

 

$210

to

$240

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, energy 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, 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 Twelve Months Ended:

December 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

 

 

 

 

 

 

 

 

Revenues

$871,005

 

$858,204

 

$3,412,190

 

$3,300,303

Cost of revenues (exclusive of items shown separately below)

615,768

 

594,857

 

2,387,819

 

2,305,551

Selling, general and administrative expenses

123,021

 

141,445

 

484,054

 

503,747

Accretion of environmental liabilities

2,512

 

2,478

 

10,136

 

9,806

Depreciation and amortization

77,397

 

77,939

 

300,725

 

298,625

Income from operations

52,307

 

41,485

 

229,456

 

182,574

Other income (expense), net

905

 

(4,061)

 

2,897

 

(4,510)

Loss on early extinguishment of debt

(12)

 

(19)

 

(6,131)

 

(2,488)

Gain on sale of business

687

 

 

687

 

Interest expense, net

(18,989)

 

(20,139)

 

(78,670)

 

(81,094)

Income before provision for income taxes

34,898

 

17,266

 

148,239

 

94,482

Provision for income taxes

10,747

 

835

 

50,499

 

28,846

Net income

$24,151

 

$16,431

 

$97,740

 

$65,636

Earnings per share:

 

 

 

 

 

 

 

Basic

$0.43

 

$0.29

 

$1.75

 

$1.17

Diluted

$0.43

 

$0.29

 

$1.74

 

$1.16

 

 

 

 

 

 

 

 

Shares used to compute earnings per share — Basic

55,806

 

55,927

 

55,845

 

56,148

Shares used to compute earnings per share — Diluted

56,124

 

56,207

 

56,129

 

56,340

CLEAN HARBORS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

 

 

 

 

 

December 31, 2019

 

December 31, 2018

Current assets:

 

 

 

Cash and cash equivalents

$371,991

 

$226,507

Short-term marketable securities

42,421

 

52,856

Accounts receivable, net

644,738

 

606,952

Unbilled accounts receivable

56,326

 

54,794

Deferred costs

21,746

 

18,770

Inventories and supplies

214,744

 

199,479

Prepaid expenses and other current assets

48,942

 

42,800

Total current assets

1,400,908

 

1,202,158

Property, plant and equipment, net

1,588,151

 

1,561,978

Other assets:

 

 

 

Operating lease right-of-use assets

162,206

 

Goodwill

525,013

 

514,189

Permits and other intangibles, net

419,066

 

441,875

Other

13,560

 

18,121

Total other assets

1,119,845

 

974,185

Total assets

$4,108,904

 

$3,738,321

Current liabilities:

 

 

 

Current portion of long-term obligations

$7,535

 

$7,535

Accounts payable

298,375

 

276,461

Deferred revenue

73,370

 

61,843

Accrued expenses

276,540

 

233,405

Current portion of closure, post-closure and remedial liabilities

23,301

 

23,034

Current portion of operating lease liabilities

40,979

 

Total current liabilities

720,100

 

602,278

Other liabilities:

 

 

 

Closure and post-closure liabilities, less current portion

68,368

 

60,339

Remedial liabilities, less current portion

98,155

 

107,575

Long-term obligations, less current portion

1,554,116

 

1,565,021

Operating lease liabilities, less current portion

121,020

 

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

277,332

 

233,352

Total other liabilities

2,118,991

 

1,966,287

Total stockholders’ equity, net

1,269,813

 

1,169,756

Total liabilities and stockholders’ equity

$4,108,904

 

$3,738,321

CLEAN HARBORS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 

For the Year Ended:

 

December 31,
2019

 

 

December 31,
2018

Cash flows from operating activities:

 

 

 

Net income

$97,740

 

 

$65,636

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

 

 

 

Depreciation and amortization

 

300,725

 

 

 

298,625

Allowance for doubtful accounts

 

2,408

 

 

 

15,817

Amortization of deferred financing costs and debt discount

 

3,809

 

 

 

3,846

Accretion of environmental liabilities

 

10,136

 

 

 

9,806

Changes in environmental liability estimates

 

(332)

 

 

 

2,147

Deferred income taxes

 

8,005

 

 

 

19,089

Other (income) expense, net

 

(2,897)

 

 

 

4,510

Stock-based compensation

 

17,816

 

 

 

16,792

Gain on sale of business

 

(687)

 

 

Loss on early extinguishment of debt

 

6,131

 

 

 

2,488

Environmental expenditures

 

(18,701)

 

 

 

(10,115)

Changes in assets and liabilities, net of acquisitions

 

 

 

Accounts receivable and unbilled accounts receivable

 

(33,271)

 

 

 

(79,563)

Inventories and supplies

 

(15,869)

 

 

 

(26,958)

Other current assets

 

(14,421)

 

 

 

(7,946)

Accounts payable

 

7,153

 

 

 

46,915

Other current and long-term liabilities

 

45,447

 

 

 

12,121

Net cash from operating activities

 

413,192

 

 

 

373,210

Cash flows used in investing activities:

 

 

 

Additions to property, plant and equipment

 

(216,324)

 

 

 

(193,344)

Proceeds from sale and disposal of fixed assets

 

11,655

 

 

 

15,445

Acquisitions, net of cash acquired

 

(29,363)

 

 

 

(151,023)

Additions to intangible assets, including costs to obtain or renew permits

 

(3,904)

 

 

 

(4,688)

Purchases of available-for-sale securities

 

(35,836)

 

 

 

(44,772)

Proceeds from sale of available-for-sale securities

 

51,202

 

 

 

28,723

Proceeds from sale of business, net of transactional costs

 

4,714

 

 

Net cash used in investing activities

 

(217,856)

 

 

 

(349,659)

Cash flows used in financing activities:

 

 

 

Change in uncashed checks

 

(3,705)

 

 

 

132

Tax payments related to withholdings on vested restricted stock

 

(7,429)

 

 

 

(3,266)

Repurchases of common stock

 

(21,390)

 

 

 

(45,080)

Deferred financing costs paid

 

(10,079)

 

 

 

(4,027)

Payments on finance leases

 

(586)

 

 

Premiums paid on early extinguishment of debt

 

(2,701)

 

 

 

(1,238)

Principal payments on debt

 

(852,535)

 

 

 

(405,768)

Proceeds from issuance of debt, net of discount

 

845,000

 

 

 

348,250

Borrowing from revolving credit facility

 

 

 

50,000

Payment on revolving credit facility

 

 

 

(50,000)

Net cash used in financing activities

 

(53,425)

 

 

 

(110,997)

Effect of exchange rate change on cash

 

3,573

 

 

 

(5,446)

Increase (decrease) in cash and cash equivalents

 

145,484

 

 

 

(92,892)

Cash and cash equivalents, beginning of year

 

226,507

 

 

 

319,399

Cash and cash equivalents, end of year

$371,991

 

 

$226,507

 

 

 

 

Supplemental information:

 

 

 

Cash payments for interest and income taxes:

 

 

 

Interest paid

$60,852

 

 

$89,171

Income taxes paid

 

27,035

 

 

 

20,036

Non-cash investing activities:

 

 

 

Property, plant and equipment accrued

 

30,964

 

 

 

15,657

Payable for estimated purchase price adjustment

 

 

 

4,032

Supplemental Segment Data (in thousands)

 

For the Three Months Ended:

Revenue

December 31, 2019

 

December 31, 2018

 

Third Party
Revenues

Intersegment
Revenues
(Expense),
net

Direct
Revenues

 

Third Party
Revenues

Intersegment
Revenues
(Expense),
net

Direct
Revenues

Environmental Services

$542,249

 

 

$35,849

 

 

$578,098

 

 

$535,426

 

 

$35,527

 

 

$570,953

Safety-Kleen

328,545

 

 

(35,022)

 

 

293,523

 

 

322,821

 

 

(34,823)

 

 

287,998

Corporate Items

211

 

 

(827)

 

 

(616)

 

 

(43)

 

 

(704)

 

 

(747)

Total

$871,005

 

 

$—

 

 

$871,005

 

 

$858,204

 

 

$—

 

 

$858,204

 

For the Twelve Months Ended:

Revenue

December 31, 2019

 

December 31, 2018

 

Third Party
Revenues

Intersegment
Revenues
(Expense),
net

Direct
Revenues

 

Third Party
Revenues

Intersegment
Revenues
(Expense),
net

Direct
Revenues

Environmental Services

$2,092,363

 

 

$144,705

 

 

$2,237,068

 

 

$2,003,843

 

 

$137,351

 

 

$2,141,194

Safety-Kleen

1,318,691

 

 

(140,562)

 

 

1,178,129

 

 

1,295,355

 

 

(134,073)

 

 

1,161,282

Corporate Items

1,136

 

 

(4,143)

 

 

(3,007)

 

 

1,105

 

 

(3,278)

 

 

(2,173)

Total

$3,412,190

 

 

$—

 

 

$3,412,190

 

 

$3,300,303

 

 

$—

 

 

$3,300,303

 

For the Three Months Ended:

 

For the Twelve Months Ended:

Adjusted EBITDA

December 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

 

 

 

 

 

 

 

 

Environmental Services

$117,248

 

$107,821

 

$446,284

 

$380,856

Safety-Kleen

66,800

 

67,574

 

282,378

 

282,029

Corporate Items

(51,832)

 

(53,493)

 

(188,345)

 

(171,880)

Total

$132,216

 

$121,902

 

$540,317

 

$491,005