Market Overview

Clean Harbors Announces Strong Fourth-Quarter and Year-End 2018 Financial Results

Share:
  • Increased Q4 Revenues 15% to $858.2 Million; Full-Year Revenues Up
    12% to $3.3 Billion
  • Reported Q4 Net Income of $16.4 Million, or EPS of $0.29, with
    Adjusted EPS of $0.24; Full-Year Net Income of $65.6 Million, or EPS
    of $1.16, with Adjusted EPS of $1.26
  • Generated Q4 Adjusted EBITDA of $121.9 Million, up 20% on
    Higher-Margin Waste Streams, Improved Pricing and Strength Across
    Multiple Businesses; Increased Full-Year EBITDA by 15% to $491.0
    Million
  • Achieved Full-Year Net Cash from Operating Activities of $373.2
    Million and Record Adjusted Free Cash Flow of $195.3 Million
  • Provided 2019 Adjusted EBITDA Guidance of $500 Million to $540
    Million and Adjusted Free Cash Flow Guidance of $190 Million to $220
    Million

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 year
ended December 31, 2018.

"We concluded 2018 with a strong fourth quarter across all of our key
financial metrics, as both reporting segments delivered profitable
growth," said Alan S. McKim, Chairman, President and Chief Executive
Officer. "We improved our Adjusted EBITDA margins by 60 basis points
from the same period in 2017. Adjusted free cash flow of $92.7 million
in the fourth quarter contributed to a record $195.3 million for the
full year. The primary driver behind our better-than-expected
fourth-quarter performance was our Environmental Services segment that
achieved 35% Adjusted EBITDA growth as it benefited from a combination
of higher-margin waste streams, pricing gains and a solid contribution
from industrial services, which includes the Veolia U.S. Industrial
Services business we acquired in early 2018."

Fourth-quarter revenues increased 15% to $858.2 million, compared with
$747.4 million in the same period of 2017. Veolia accounted for $45.2
million of revenue in the fourth quarter of 2018. Income from operations
grew 49% to $41.5 million from $27.9 million in the fourth quarter of
2017.

Net income for the fourth quarter of 2018 was $16.4 million, or $0.29
per diluted share. This compared with net income for the same period in
2017 of $84.2 million, or $1.48 per diluted share. Adjusted for certain
items from both periods, adjusted net income for the fourth quarter of
2018 was $13.3 million, or $0.24 per diluted share, compared with an
adjusted net loss of $3.4 million, or $0.06 per share, in the same
period in 2017. (See reconciliation table below)

Adjusted EBITDA (see description below) in the fourth quarter of 2018
increased 20% to $121.9 million, compared with $101.8 million in the
same period of 2017.

"Environmental Services delivered fourth-quarter revenue growth of 20%
driven by our disposal facilities and growth in our industrial, energy
and field service businesses," McKim said. "During the quarter, we
generated higher profitability in our disposal network year-over-year
led by record drum volumes and an increase in high-value waste from our
key industry verticals such as chemical and manufacturing. Incineration
utilization was 86% while our average price per pound grew 17%,
primarily due to the improvement in mix.

"Within Safety-Kleen, we continued to drive better pricing in our core
lines of business and carefully manage the spread in our re-refining
business during the seasonal winter slowdown," McKim said. "Despite
lower base oil pricing during the quarter, the Safety-Kleen segment
delivered its 10th consecutive quarter of year-over-year
Adjusted EBITDA growth. Waste oil volumes remained strong in the
quarter, and we maximized collections at an optimal cost per gallon.
Though the percentage of blended products was low at 22% of total
gallons sold, direct lubricant sales accounted for 6% of our total
volumes, up 50% from last year's fourth quarter."

2018 Financial Results

Clean Harbors revenues for 2018 increased 12% to $3.30 billion, compared
with $2.94 billion in 2017.

Net income for 2018 was $65.6 million, or $1.16 per diluted share,
compared with net income for 2017 of $100.7 million, or $1.76 per
diluted share. Adjusted for certain items from both periods, the Company
reported adjusted net income for 2018 of $70.8 million, or $1.26 per
diluted share, compared with adjusted net income of $11.6 million, or
$0.20 per diluted share, in 2017. (See reconciliation table below)

Adjusted EBITDA (see description below) for 2018 increased 15% to $491.0
million from $425.7 million in 2017.

"2018 was an outstanding year for Clean Harbors both in terms of our
financial performance and achievements," said McKim. "Most importantly
we achieved the best safety performance in our history with our incident
rate and other key metrics at record low levels. This demonstrates our
team's commitment to service excellence and the safety of not only our
workforce, but of our customers and the communities where we operate.

"Financially, we leveraged our network of assets to grow our Adjusted
EBITDA more rapidly than our top-line. Our revenue increase was driven
by a combination of organic growth and acquisitions. Veolia's U.S.
Industrial Services business exceeded our Adjusted EBITDA expectations
in our first year of ownership. Another important contributor in 2018
was our El Dorado incinerator, which ran extremely well in its second
year with that site achieving 95% utilization. Within Safety-Kleen, the
team effectively managed the spread between used oil and base oil during
the year while growing volumes of our direct lube sales by 70%.

"Since acquiring Safety-Kleen, we have grown our Adjusted EBITDA in that
business by a total of 66%, while increasing our Adjusted EBITDA margin
from 15.3% in its first year to 24.3% in 2018," McKim continued. "Our
Safety-Kleen and Environmental Services segments are more integrated
than ever before. In 2018, Safety-Kleen gathered a record volume of
drums that were sent to the Company's disposal facilities. We have now
co-located 35 legacy Clean Harbors' branches within Safety-Kleen
locations. The alignment between our two segments continues to
strengthen and our results demonstrate the financial benefits we can
achieve together."

Business Outlook and Financial Guidance

"We enter 2019 on an upward trajectory that will support our planned
profitable growth," McKim said. "The external economic environment
remains positive for us. Ongoing growth of the U.S. chemical and
manufacturing sectors is among the favorable trends that should support
a rise in high-value waste streams into our disposal facilities. We
continue to see a robust pipeline of remediation and waste project
opportunities. Within industrial services, we will benefit from our
second year owning Veolia's U.S. Industrial Services business. We expect
Safety-Kleen to grow in 2019 through its core branch offerings,
re-refinery network and direct lube sales program. In our blended
lubricants business, we are targeting more than 50 million gallons of
total blended sales through growth in both direct lube sales and our
distributor business.

"We expect first-quarter 2019 Adjusted EBITDA growth of about 10%
year-over-year. Overall, we are seeing continued momentum in both
segments, and we have numerous opportunities to capture profitable
growth and further improve margins through better pricing and mix,
cross-selling, higher utilization and cost controls," McKim concluded.

Based on its 2018 financial performance and current market conditions,
Clean Harbors expects full-year 2019 Adjusted EBITDA in the range of
$500 million to $540 million. On a GAAP basis, the Company's guidance is
based on anticipated 2019 net income in the range of $70 million to $110
million. For 2019, Clean Harbors expects to generate adjusted free cash
flow in the range of $190 million to $220 million, which is based on
anticipated 2019 net cash from operating activities in the range of $380
million to $430 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, 2018 and 2017 (in thousands):

     

For the Three Months Ended:

For the Twelve Months Ended:

December 31, 2018

 

December 31, 2017

December 31, 2018

 

December 31, 2017

 
Net income $16,431 $84,194 $65,636 $100,739
Accretion of environmental liabilities 2,478 2,407 9,806 9,460
Depreciation and amortization 77,939 71,490 298,625 288,422
Other expense, net 4,061 3,305 4,510 6,119
Loss on early extinguishment of debt 19 2,488 7,891
Loss (gain) on sale of business 913 (30,732)
Interest expense, net 20,139 20,065 81,094 85,808
Provision (benefit) for income taxes 835 (80,542) 28,846 (42,050)
Adjusted EBITDA $121,902 $101,832 $491,005 $425,657
Adjusted EBITDA Margin 14.2% 13.6% 14.9% 14.5%

This press release includes a discussion of net income and earnings per
share adjusted for the loss on early extinguishment of debt, the loss
(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
(loss), and earnings per share to adjusted earnings (loss) per share for
the three and twelve months ended December 31, 2018 and 2017 (in
thousands, except per share amounts):

     

For the Three Months Ended:

For the Twelve Months Ended:

December 31, 2018

 

December 31, 2017

December 31, 2018

 

December 31, 2017

Adjusted net income (loss)
Net income $16,431
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