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 $84,194 $65,636 $100,739
Loss on early extinguishment of debt, net of tax 157 1,892 4,735
Loss (gain) on sale of business, net of tax 548 (17,919)
Adjustments related to tax law changes (288) (93,009) (288) (93,009)
Tax-related valuation allowances and other* (3,025) 4,905 3,568 17,050
Adjusted net income (loss) $13,275 ($3,362) $70,808 $11,596
 

Adjusted earnings (loss) per share

 

Earnings per share

$0.29

$1.48

$1.16

$1.76

Loss on early extinguishment of debt, net of tax

0.03

0.08

Loss (gain) on sale of business, net of tax

0.01

(0.31)

Adjustments related to tax law changes

(1.63)

(1.63)

Tax-related valuation allowances and other*

(0.05)

0.08

0.07

0.30

Adjusted earnings (loss) per share

$0.24

($0.06)

$1.26

$0.20

* For the three and twelve months ended December 31, 2018 and 2017,
other amounts include a $7.1 million benefit, or $0.13 per share, and a
$2.6 million charge, or $0.04 per share, respectively, related to tax
benefits from impacts of prior period tax filing amendments and charges
associated with prior year tax positions taken by the Company.

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 our 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
our measurements 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, 2018   December 31, 2017 December 31, 2018   December 31, 2017
Adjusted free cash flow
Net cash from operating activities $125,995 $64,229 $373,210 $285,698
Additions to property, plant and equipment (42,622) (39,271) (193,344) (167,007)
Proceeds from sale and disposal of fixed assets 9,334 1,749 15,445 7,124
Tax liability on sale of business 14,423 14,423
Adjusted free cash flow $92,707 $41,130 $195,311 $140,238

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, 2019
Projected GAAP net income $70 to $110
Adjustments:
Accretion of environmental liabilities 10 to 10
Depreciation and amortization 295 to 285
Interest expense, net 82 to 80
Provision for income taxes 43 to 55
Projected Adjusted EBITDA $500 to $540

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, 2019
Projected net cash from operating activities $380 to $430
Additions to property, plant and equipment (200) to (220)
Proceeds from sale and disposal of fixed assets 10 to 10
Projected adjusted free cash flow $190 to $220

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 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,
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 OPERATIONS

(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
 
Revenues $858,204 $747,403 $3,300,303 $2,944,978
Cost of revenues (exclusive of items shown separately below) 594,857 526,690 2,305,551 2,062,673
Selling, general and administrative expenses 141,445 118,881 503,747 456,648
Accretion of environmental liabilities 2,478 2,407 9,806 9,460
Depreciation and amortization 77,939 71,490 298,625 288,422
Income from operations 41,485 27,935 182,574 127,775
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)
Income before provision (benefit) for income taxes 17,266 3,652 94,482 58,689
Provision (benefit) for income taxes 835 (80,542) 28,846 (42,050)
Net income $16,431 $84,194 $65,636 $100,739
Earnings per share:
Basic $0.29 $1.48 $1.17 $1.77
Diluted $0.29 $1.48 $1.16 $1.76
 
Shares used to compute earnings per share — Basic 55,927 56,810 56,148 57,072
Shares used to compute earnings per share — Diluted 56,207 56,955 56,340 57,200
     

CLEAN HARBORS, INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 
December 31, 2018 December 31, 2017
Current assets:
Cash and cash equivalents $226,507 $319,399
Short-term marketable securities 52,856 38,179
Accounts receivable, net 606,952 528,924
Unbilled accounts receivable 54,794 35,922
Deferred costs 18,770 20,445
Inventories and supplies 199,479 176,012
Prepaid expenses and other current assets 42,800 35,175
Total current assets 1,202,158 1,154,056
Property, plant and equipment, net 1,561,978 1,587,365
Other assets:
Goodwill 514,189 478,523
Permits and other intangibles, net 441,875 469,128
Other 18,121 17,498
Total other assets 974,185 965,149
Total assets $3,738,321 $3,706,570
Current liabilities:
Current portion of long-term obligations $7,535 $4,000
Accounts payable 276,461 224,231
Deferred revenue 61,843 67,822
Accrued expenses 233,405 187,982
Current portion of closure, post-closure and remedial liabilities 23,034 19,782
Total current liabilities 602,278 503,817
Other liabilities:
Closure and post-closure liabilities, less current portion 60,339 54,593
Remedial liabilities, less current portion 107,575 111,130
Long-term obligations, less current portion 1,565,021 1,625,537
Deferred taxes, unrecognized tax benefits and other long-term
liabilities
233,352 223,291
Total other liabilities 1,966,287 2,014,551
Total stockholders' equity, net 1,169,756 1,188,202
Total liabilities and stockholders' equity $3,738,321 $3,706,570
     

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
For the Year Ended:

December 31, 2018

December 31, 2017

Cash flows from operating activities:
Net income $65,636 $100,739
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization 298,625 288,422
Allowance for doubtful accounts 15,817 7,901
Amortization of deferred financing costs and debt discount 3,846 3,482
Accretion of environmental liabilities 9,806 9,460
Changes in environmental liability estimates 2,147 (195)
Deferred income taxes 19,089 (83,335)
Stock-based compensation 16,792 13,146
Other expense, net 4,510 6,119
Gain on sale of business (30,732)
Loss on early extinguishment of debt 2,488 7,891
Environmental expenditures (10,115) (12,965)
Changes in assets and liabilities, net of acquisitions
Accounts receivable and unbilled accounts receivable (79,563) (33,764)
Inventories and supplies (26,958) (5,002)
Other current assets (7,946) 16,720
Accounts payable 46,915 (10,684)
Other current and long-term liabilities 12,121 8,495
Net cash from operating activities 373,210 285,698
Cash flows used in investing activities:
Additions to property, plant and equipment (193,344) (167,007)
Proceeds from sale and disposal of fixed assets 15,445 7,124
Acquisitions, net of cash acquired (151,023) (49,227)
Proceeds from sale of businesses, net of transactional costs 45,426
Additions to intangible assets, including costs to obtain or renew
permits
(4,688) (1,617)
Proceeds from sale of available-for-sale securities 28,723 376
Purchases of available-for-sale securities (44,772) (38,342)
Net cash used in investing activities (349,659) (203,267)
Cash flows used in financing activities:
Change in uncashed checks 132 (5,940)
Proceeds from exercise of stock options 46
Tax payments related to withholdings on vested restricted stock (3,266) (3,149)
Repurchases of common stock (45,080) (48,971)
Deferred financing costs paid (4,027) (5,718)
Premiums paid on early extinguishment of debt (1,238) (6,028)
Principal payments on debt (405,768) (402,000)
Issuance of senior secured notes, net of discount 348,250 399,000
Borrowing from revolving credit facility 50,000
Payment on revolving credit facility (50,000)
Net cash used in financing activities (110,997) (72,760)
Effect of exchange rate change on cash (5,446) 2,731
(Decrease) increase in cash and cash equivalents (92,892) 12,402
Cash and cash equivalents, beginning of year 319,399 306,997
Cash and cash equivalents, end of year $226,507 $319,399
     
Supplemental information:
Cash payments for interest and income taxes:
Interest paid $89,171   $93,174
Income taxes paid 20,036 18,682
Non-cash investing activities:
Property, plant and equipment accrued 15,657 16,109
Transfer of inventory to property, plant and equipment 12,641
Payable estimated for purchase price adjustment 4,032

Supplemental Segment Data (in thousands)

   
For the Three Months Ended:
Revenue December 31, 2018     December 31, 2017

Third Party
Revenues

 

Intersegment
Revenues
(Expense),
net

 

Direct
Revenues

Third Party
Revenues

 

Intersegment
Revenues
(Expense),
net

 

Direct
Revenues

Environmental Services $535,426   $35,527   $570,953 $442,999   $31,308   $474,307
Safety-Kleen 322,821 (34,823) 287,998 302,818 (30,356) 272,462
Corporate Items (43)   (704)   (747) 1,586   (952)   634
Total $858,204   $—   $858,204 $747,403   $—   $747,403
       
For the Twelve Months Ended:
Revenue December 31, 2018     December 31, 2017

Third Party
Revenues

 

Intersegment
Revenues
(Expense),
net

 

Direct
Revenues

Third Party
Revenues

 

Intersegment
Revenues
(Expense),
net

 

Direct
Revenues

Environmental Services $2,003,843   $137,351 $2,141,194 $1,728,700   $128,774 $1,857,474
Safety-Kleen 1,295,355 (134,073) 1,161,282 1,213,703 (125,817) 1,087,886
Corporate Items 1,105   (3,278)   (2,173) 2,575   (2,957)   (382)
Total $3,300,303   $—

 

$3,300,303

$2,944,978   $—

 

$2,944,978

    For the Three Months Ended:     For the Twelve Months Ended:
Adjusted EBITDA December 31, 2018   December 31, 2017 December 31, 2018   December 31, 2017
 
Environmental Services $107,821 $79,783 $380,856 $321,310
Safety-Kleen 67,574 66,857 282,029 249,811
Corporate Items (53,493) (44,808) (171,880) (145,464)
Total $121,902 $101,832 $491,005 $425,657

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