Clean Harbors Reports Third-Quarter 2013 Financial Results

NORWELL, Mass.--(BUSINESS WIRE)--

Clean Harbors, Inc. (“Clean Harbors”) CLH, the leading provider of environmental, energy and industrial services throughout North America, today announced financial results for the third quarter ended September 30, 2013.

Results for 2013 reflect the December 2012 acquisition of Safety-Kleen. Revenues for the third quarter of 2013 increased 70% to $907.5 million, compared with $533.8 million in the same period in 2012. Income from operations in the third quarter of 2013 increased 30% to $73.6 million from $56.7 million in the same period of 2012, which includes a 68% increase in depreciation and amortization expense.

Third-quarter 2013 net income was $35.4 million, or $0.58 per diluted share, compared with $12.4 million, or $0.23 per diluted share, in the third quarter of 2012. The Company's third-quarter 2013 net income includes approximately $2.7 million in pre-tax integration and severance costs. The third quarter of 2012 included a $26.4 million pre-tax charge related to senior debt refinancing. The effective tax rate in the third quarter of 2013 was 34.7%, compared with 33.8% in the same period of last year.

Adjusted EBITDA (see description below) in the third quarter of 2013 increased 45% to $146.0 million, compared with $100.5 million in the same period of 2012. Third-quarter 2013 Adjusted EBITDA includes the $2.7 million in pre-tax integration and severance costs.

Comments on the Third Quarter

“In the third quarter, we exceeded $900 million in quarterly revenue for the first time in our history,” said Alan S. McKim, Chairman and Chief Executive Officer. “The 70% year-over-year growth was not only driven by the addition of Safety-Kleen but by a solid performance in our legacy business. Our Technical Services and Industrial and Field Services segments each achieved double-digit growth compared with a year ago. At the same time, our Oil and Gas Field Services segment had a strong quarter, growing 27% over the same period in 2012. Within Safety-Kleen, our Oil Re-refining and Recycling segment rebounded from a soft second quarter with higher total volume of base oil and blended oil sales, improved pricing and increased sales of byproducts.”

“From a margin perspective, we delivered third-quarter Adjusted EBITDA of just over 16% in the third quarter. This is down from the 18.8% we achieved in the third quarter a year ago as Safety-Kleen continues to weigh on our margins in the near-term. However, we continued to deliver significant sequential margin improvement compared with the 11.3% we reported in the first quarter and 14.4% in the second quarter. This quarter's solid performances in Technical Services and Oil and Gas Field Services were partly offset by some margin weakness in SK Environmental Services. Within Technical Services, incineration utilization surpassed 93% in the quarter and we generated an increase in landfill activity due to a rise in large-scale project volumes. Within Oil and Gas Field Services, Adjusted EBITDA increased by nearly 50% from a year ago, reflecting an increase in our seismic business in Western Canada, as well as flood and oil-spill cleanup work in the region.”

“For Safety-Kleen, we achieved more than $25 million in cost synergies in the third quarter, bringing our year-to-date total to more than $47 million. We remain on track to achieve our targeted range of 2013 cost synergies of $70 million to $75 million, which will translate into $100 million in annualized cost synergies in 2014.”

Business Outlook and Financial Guidance

“Looking ahead, we anticipate a solid finish to 2013 and continued growth momentum entering 2014. Our Technical Services segment has been consistently achieving high utilization levels and steady volumes, with strong contributions resulting from our acquisition of Safety-Kleen. Within the Industrial and Field Services segment, we continue to play a key role in Western Canada, particularly in the Oil Sands region, where we will benefit from the recent opening of our Ruth Lake lodge, which had been previously delayed by flooding and adverse weather. Our Oil and Gas Field Services segment is heading into the Canadian winter drilling season with a steady pipeline of potential projects and good prospects for expansion in the U.S. Within the Oil Re-refining and Recycling segment, the acquisition of Evergreen Oil in California – along with recent increases in our base oil and blended products – positions us for profitable growth. The outlook for our SK Environmental Services segment is positive as we intend to reinvigorate profitable growth in that business through cross-selling initiatives and capturing additional efficiencies,” McKim concluded.

Based on its year-to-date performance and current market conditions, Clean Harbors is maintaining its previously announced 2013 annual revenue guidance and revising its previously announced Adjusted EBITDA range. The Company continues to expect 2013 revenues in the range of $3.50 billion to $3.55 billion. The Company currently expects Adjusted EBITDA in the range of $523 million to $528 million, compared with its previous guidance of $535 million to $545 million, primarily as a result of the delayed opening of the Ruth Lake lodge and lower-than-expected Adjusted EBITDA contributions from the Oil Sands region in the second half.

Based upon preliminary estimates of the markets it serves, the Company currently expects 2014 revenues in the range of $3.7 billion to $3.8 billion. With this level of growth, the Company expects its 2014 Adjusted EBITDA to be in a range of $610 million to $640 million. This guidance is exclusive of any potential future acquisitions. A reconciliation of the Company's Adjusted EBITDA guidance to net income guidance for 2013 and 2014 is included below.

Non-GAAP Results

Clean Harbors reports Adjusted EBITDA results, which is a non-GAAP financial measure, as a complement to results provided in accordance with accounting principles generally accepted in the United States (GAAP). The Company believes that Adjusted EBITDA provides additional useful information to investors since the Company's loan covenants are based upon levels of Adjusted EBITDA achieved. 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 third quarter and first nine months of 2013 and 2012 (in thousands):

							For the Three Months Ended:				For the Nine Months Ended:
							September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
		Net income					$35,361		$12,359		$68,765		$67,800
		Accretion of environmental liabilities					2,914		2,488		8,628		7,409
		Depreciation and amortization					69,430		41,300		196,904		116,794
		Other expense (income)					150		91		(2,030)		465
		Loss on early extinguishment of debt					—		26,385		—		26,385
		Interest expense, net					19,326		11,596		58,784		33,836
		Pre-tax, non-cash acquisition accounting adjustments					—		—		13,559		—
		Provision for income taxes					18,771		6,308		36,160		37,487
		Adjusted EBITDA					$145,952		$100,527		$380,770		$290,176

Adjusted EBITDA Guidance Reconciliation

An itemized reconciliation between projected net income and projected Adjusted EBITDA is as follows:

									For the Year Ending December 31, 2013
									Amount								Margin % (1)
									(In millions)
				Projected GAAP net income					$	97		to		$	110		2.8%		to		3.1%
				Adjustments:
				Pre-tax, non-cash acquisition accounting adjustments						14		to			14		0.4%		to		0.4%
				Accretion of environmental liabilities						13		to			11		0.4%		to		0.3%
				Depreciation and amortization						265		to			255		7.5%		to		7.2%
				Interest expense, net						79		to			78		2.3%		to		2.2%
				Provision for income taxes						55		to			60		1.6%		to		1.7%
				Projected Adjusted EBITDA					$	523		to		$	528		15.0%		to		14.9%
				Revenues (In millions)					$	3,500		to		$	3,550

									For the Year Ending December 31, 2014
									Amount								Margin % (1)
									(In millions)
				Projected GAAP net income					$	151		to		$	181		4.1%		to		4.8%
				Adjustments:
				Accretion of environmental liabilities						13		to			11		0.4%		to		0.3%
				Depreciation and amortization						280		to			270		7.6%		to		7.1%
				Interest expense, net						79		to			78		2.1%		to		2.0%
				Provision for income taxes						87		to			100		2.3%		to		2.6%
				Projected Adjusted EBITDA					$	610		to		$	640		16.5%		to		16.8%
				Revenues (In millions)					$	3,700		to		$	3,800

(1) The Margin % indicates the percentage that the line-item represents to total revenues for the respective reporting period, calculated by dividing the dollar amount for the line-item by total revenues for the reporting period.

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. On the call, management will discuss Clean Harbors' financial results, business outlook and growth strategy.

Investors who wish to listen to the webcast 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 of the call. If you are unable to listen to the live call, the webcast will be archived on the Company's website.

About Clean Harbors

Clean Harbors CLH is North America's leading provider of environmental, energy and industrial services. The Company serves a diverse customer base, including a majority of the Fortune 500, across the chemical, energy, manufacturing and additional markets, 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 throughout the United States, Canada, Mexico and Puerto Rico. 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,” “estimates,” “projects,” or similar expressions. Such statements may include, but are not limited to, statements about future financial and operating results, the expected Safety-Kleen synergies 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. 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 INCOME (in thousands except per share amounts)
					For the Three Months Ended:				For the Nine Months Ended:
					September 30,		September 30,		September 30,		September 30,
					2013		2012		2013		2012
Revenues					$907,535		$533,806		$2,630,226		$1,628,946
Cost of revenues (exclusive of items shown separately below)					647,119		372,940		1,897,469		1,140,878
Selling, general and administrative expenses					114,464		60,339		365,546		197,892
Accretion of environmental liabilities					2,914		2,488		8,628		7,409
Depreciation and amortization					69,430		41,300		196,904		116,794
Income from operations					73,608		56,739		161,679		165,973
Other (expense) income					(150)		(91)		2,030		(465)
Loss on early extinguishment of debt					—		(26,385)		—		(26,385)
Interest (expense), net					(19,326)		(11,596)		(58,784)		(33,836)
Income before provision for income taxes					54,132		18,667		104,925		105,287
Provision for income taxes					18,771		6,308		36,160		37,487
Net income					$35,361		$12,359		$68,765		$67,800
Earnings per share:
Basic					$0.58		$0.23		$1.14		$1.27
Diluted					$0.58		$0.23		$1.13		$1.27
Weighted average common shares outstanding					60,610		53,374		60,542		53,303
Weighted average common shares outstanding plus potentially dilutive common shares					60,760		53,565		60,692		53,519

CLEAN HARBORS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (in thousands)
					September 30,			December 31,
					2013			2012
Current assets:
Cash and cash equivalents					$	248,635		$	229,836
Marketable securities						11,787			11,778
Accounts receivable, net						603,054			541,423
Unbilled accounts receivable						42,122			27,072
Deferred costs						17,097			6,888
Prepaid expenses and other current assets						41,880			75,778
Inventories and supplies						155,301			171,441
Deferred tax assets						21,898			22,577
Total current assets						1,141,774			1,086,793
Property, plant and equipment, net						1,615,427			1,531,763
Other assets:
Long-term investments						4,352			4,354
Deferred financing costs						21,565			21,657
Goodwill						590,152			593,771
Permits and other intangibles, net						567,776			572,817
Other						15,806			14,651
Total other assets						1,199,651			1,207,250
Total assets					$	3,956,852		$	3,825,806

CLEAN HARBORS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands)
					September 30,			December 31,
					2013			2012
Current liabilities:
Current portion of capital lease obligations					$	1,973		$	5,092
Accounts payable						321,097			256,468
Deferred revenue						61,912			50,942
Accrued expenses						256,813			232,429
Current portion of closure, post-closure and remedial liabilities						27,737			24,121
Total current liabilities						669,532			569,052
Other liabilities:
Closure and post-closure liabilities, less current portion						39,982			45,457
Remedial liabilities, less current portion						151,866			151,890
Long-term obligations						1,400,000			1,400,000
Capital lease obligations, less current portion						1,669			2,879
Deferred taxes, unrecognized tax benefits and other long-term liabilities						217,683			224,456
Total other liabilities						1,811,200			1,824,682
Total stockholders' equity, net						1,476,120			1,432,072
Total liabilities and stockholders' equity					$	3,956,852		$	3,825,806

Supplemental Segment Data (in thousands)
									For the Three Months Ended:
				Revenue					September 30, 2013						September 30, 2012
									Third Party Revenues		Intersegment Revenues, net		Direct Revenues		Third Party Revenues		Intersegment Revenues, net		Direct Revenues
				Technical Services					$269,465		$36,370		$305,835		$247,355		$7,616		$254,971
				Oil Re-refining and Recycling					151,565		(64,918)		86,647		--		--		--
				SK Environmental Services					150,535		36,516		187,051		--		--		--
				Industrial and Field Services					227,754		(7,249)		220,505		203,371		(8,777)		194,594
				Oil and Gas Field Services					107,627		204		107,831		82,812		1,828		84,640
				Corporate Items					589		(923)		(334)		268		(667)		(399)
				Total					$907,535		$--		$907,535		$533,806		$--		$533,806

									For the Nine Months Ended:
				Revenue					September 30, 2013						September 30, 2012
									Third Party Revenues		Intersegment Revenues, net		Direct Revenues		Third Party Revenues		Intersegment Revenues, net		Direct Revenues
				Technical Services					$759,666		$88,769		$848,435		$712,313		$26,040		$738,353
				Oil Re-refining and Recycling					438,191		(186,053)		252,138		--		--		--
				SK Environmental Services					453,325		126,525		579,850		--		--		--
				Industrial and Field Services					693,667		(32,132)		661,535		608,768		(31,198)		577,570
				Oil and Gas Field Services					294,183		6,000		300,183		306,566		6,620		313,186
				Corporate Items (1)					(8,806)		(3,109)		(11,915)		1,299		(1,462)		(163)
				Total					$2,630,226		$--		$2,630,226		$1,628,946		$--		$1,628,946

(1) Corporate Items revenue for the nine months ended September 30, 2013 includes one-time, non-cash reductions of approximately $10.2 million due to the impact of fair value acquisition accounting adjustments on Safety-Kleen's historical deferred revenue at December 31, 2012. Revenue for the five reportable segments for the nine months ended September 30, 2013 excludes such adjustments to maintain comparability with future operating results and reflect how the Company manages the business.

Non-GAAP Segment Results

Clean Harbors reports Adjusted EBITDA results, which is a non-GAAP financial measure, as a complement to results provided in accordance with accounting principles generally accepted in the United States (GAAP) and believes that such information provides additional useful information to investors since the Company's loan covenants are based upon levels of Adjusted EBITDA achieved. The Company defines Adjusted EBITDA in accordance with its existing credit agreement. See “Non-GAAP Results” for a reconciliation of the Company's total Adjusted EBITDA to GAAP net income.

									For the Three Months Ended:				For the Nine Months Ended:
				Adjusted EBITDA					September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
				Technical Services					$78,849		$68,241		$208,284		$188,673
				Oil Re-refining and Recycling					18,892		—		46,861		—
				SK Environmental Services					22,951		—		84,162		—
				Industrial and Field Services					48,096		43,278		138,638		117,914
				Oil and Gas Field Services					20,854		14,132		52,372		62,299
				Corporate Items					(43,690)		(25,124)		(149,547)		(78,710)
				Total					$145,952		$100,527		$380,770		$290,176