Market Overview

Clean Harbors Announces Second-Quarter 2019 Financial Results

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  • Increases Q2 Revenues 2% to $868.7 Million
  • Reports Net Income of $36.2 Million, or $0.65 per Diluted Share; Adjusted EPS of $0.66
  • Delivers 7% Increase in Q2 Adjusted EBITDA to $149.8 Million on Solid Increases in Environmental Services and Safety-Kleen Segments
  • Improves Adjusted EBITDA Margin by 80 Basis Points to 17.2%
  • Raises 2019 Adjusted EBITDA Guidance Range to $520 Million to $550 Million; Increases Midpoint of Adjusted Free Cash Flow Guidance to $210 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 second quarter ended June 30, 2019.

"We delivered a strong second-quarter performance and extended our positive momentum with our seventh consecutive quarter of profitable growth," said Alan S. McKim, Chairman, President and Chief Executive Officer. "We generated 2% top-line growth in the quarter with a corresponding 7% increase in Adjusted EBITDA. As a result, our Adjusted EBITDA (see description below) margin grew by 80 basis points from a year ago to 17.2%, which represents our highest margin in nearly three years. We experienced strong contributions to profitability from both our Environmental Services and Safety-Kleen segments."

Second-quarter revenues increased to $868.7 million from $849.1 million in the same period of 2018. Income from operations grew 14% to $73.0 million from $64.4 million in the year-earlier quarter.

Net income for the second quarter of 2019 was $36.2 million, or $0.65 per diluted share. This compares with net income for the same period in 2018 of $30.7 million, or $0.54 per diluted share. Adjusted for certain items in both periods, adjusted net income was $36.9 million, or $0.66 per diluted share, for the second quarter of 2019 compared with adjusted net income of $30.8 million, or $0.54 per diluted share, in the same period of 2018. (See reconciliation table below)

Adjusted EBITDA in the second quarter of 2019 increased 7% to $149.8 million from $139.6 million in the same period of 2018.

"In our Environmental Services segment, Adjusted EBITDA increased 8% on modest top-line growth, resulting in a 120-basis-point margin improvement," McKim said. "This sizable growth in margins reflected higher pricing in our disposal network along with a better mix of high-value waste streams. Incineration utilization was 82% for the quarter, down from a year ago, mostly due to a heavy schedule of turnaround days. More than offsetting that decline in utilization was a 15% increase in our average price per pound year-over-year, as we continued to focus on driving higher-margin volumes into our network. This segment also benefitted from cost-reduction initiatives and operational efficiencies.

"Within our Safety-Kleen segment, revenue increased 4% through growth in a majority of our core branch offerings, pricing initiatives and higher production levels at our re-refineries," McKim said. "On the strength of productivity gains and streamlining operations, we improved Q2 margins in Safety-Kleen to 26% with Adjusted EBITDA for the segment increasing 9%. Waste oil collection remained strong at 63 million gallons and we achieved an average charge-for-oil basis for those volumes."

Business Outlook and Financial Guidance

"We enter the second half of 2019 with continued confidence about our prospects for profitable growth for the full year," McKim said. "Our optimistic outlook is derived from a combination of positive industry trends, momentum in several of our key businesses and ongoing Company initiatives. Within Environmental Services, we have a strong backlog of waste in our collection network and anticipate a lower number of incineration down days in the back half of the year compared with the first six months. We continue to see opportunities for high-value waste streams due to activities within U.S. chemical and manufacturing sectors, and we have some large projects kicking off in the third quarter. Our industrial, field and energy-related service businesses are all contributing to the year-over-year performance improvement in that segment.

"Within Safety-Kleen, our branch network remains a reliable source of steady growth in its core offerings," McKim said. "In the second quarter, Safety-Kleen Oil rebounded from a challenging start to the year, and we expect that momentum to continue in the back half of 2019. Our re-refineries are running well and are on track to achieve our targeted base oil production of more than 150 million gallons this year. In light of the potential positive impact of IMO 2020, we plan to have our plants running at record output levels by year-end.

"Given the favorable near-term outlook for both our Environmental Services and Safety-Kleen segments, we expect Adjusted EBITDA in both the third and fourth quarters of 2019 to grow in the mid- to high-single digit range compared with prior-year periods. Overall, we continue to anticipate a strong year of profitable growth and margin expansion driven by pricing, mix, cross-selling and increased efficiencies," McKim concluded.

Based on its year-to-date financial performance and current market conditions, Clean Harbors raised its guidance range and currently expects full-year 2019 Adjusted EBITDA in the range of $520 million to $550 million. On a GAAP basis, the Company's guidance is based on anticipated 2019 net income in the range of $82 million to $115 million. Clean Harbors also raised the low end of its guidance range for adjusted free cash flow and currently expects adjusted free cash flow in the range of $200 million to $220 million, which is based on anticipated 2019 net cash from operating activities in the range of $390 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 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 and six months ended June 30, 2019 and 2018 (in thousands):

 

For the Three Months Ended:

 

For the Six Months Ended:

 

June 30, 2019

 

June 30, 2018

 

June 30, 2019

 

June 30, 2018

 

 

 

 

 

 

 

 

Net income

$36,244

 

$30,747

 

$37,220

 

$18,116

Accretion of environmental liabilities

2,560

 

2,448

 

5,134

 

4,878

Depreciation and amortization

74,217

 

72,760

 

149,572

 

147,604

Other expense (income), net

564

 

(846)

 

(2,419)

 

(547)

Interest expense, net

20,215

 

20,769

 

39,979

 

41,039

Provision for income taxes

16,025

 

13,683

 

22,002

 

16,736

Adjusted EBITDA

$149,825

 

$139,561

 

$251,488

 

$227,826

Adjusted EBITDA Margin

17.2%

 

16.4%

 

15.2%

 

14.2%

This press release includes a discussion of net income and earnings per share adjusted for 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 and six months ended June 30, 2019 and 2018 (in thousands, except per share amounts):

For the Three Months Ended:

 

For the Six Months Ended:

June 30, 2019

 

June 30, 2018

June 30, 2019

June 30, 2018

Adjusted net income

 

 

 

Net income

$36,244

 

$30,747

$37,220

$18,116

Tax-related valuation allowances and other

656

 

40

 

4,762

 

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