Market Overview

Clean Harbors Announces Second-Quarter 2019 Financial Results

Share:
  • 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

 

6,101

Adjusted net income

$36,900

 

$30,787

$41,982

$24,217

 

Adjusted earnings per share

Earnings per share

$0.65

 

$0.54

$0.66

$0.32

Tax-related valuation allowances and other

0.01

 

0.00

 

0.09

 

0.11

Adjusted earnings per share

$0.66

 

$0.54

$0.75

$0.43

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 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 Six Months Ended:

June 30, 2019

 

June 30, 2018

June 30, 2019

June 30, 2018

Adjusted free cash flow

 

 

 

Net cash from operating activities

$108,730

 

$77,767

 

$138,470

 

$129,670

Additions to property, plant and equipment

(59,425)

 

(49,897)

 

(118,372)

 

(94,139)

Proceeds from sale and disposal of fixed assets

3,068

 

1,843

 

7,389

 

2,641

Adjusted free cash flow

$52,373

 

$29,713

$27,487

$38,172

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

 

 

$82

to

$115

Adjustments:

 

 

 

 

 

Accretion of environmental liabilities

 

 

10

to

10

Depreciation and amortization

 

 

300

to

290

Interest expense, net

 

 

80

to

78

Provision for income taxes

 

 

48

to

57

Projected Adjusted EBITDA

 

 

$520

to

$550

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

 

 

$390

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

 

 

$200

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," "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. 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 Six Months Ended:

June 30, 2019

 

June 30, 2018

 

June 30, 2019

 

June 30, 2018

 

 

 

 

 

 

 

 

Revenues

$868,678

 

$849,140

 

$1,649,517

 

$1,598,918

Cost of revenues (exclusive of items shown separately below)

594,933

 

583,584

 

1,159,297

 

1,130,009

Selling, general and administrative expenses

123,920

 

125,995

 

238,732

 

241,083

Accretion of environmental liabilities

2,560

 

2,448

 

5,134

 

4,878

Depreciation and amortization

74,217

 

72,760

 

149,572

 

147,604

Income from operations

73,048

 

64,353

 

96,782

 

75,344

Other (expense) income, net

(564)

 

846

 

2,419

 

547

Interest expense, net

(20,215)

 

(20,769)

 

(39,979)

 

(41,039)

Income before provision for income taxes

52,269

 

44,430

 

59,222

 

34,852

Provision for income taxes

16,025

 

13,683

 

22,002

 

16,736

Net income

$36,244

 

$30,747

 

$37,220

 

$18,116

Earnings per share:

 

 

 

 

 

 

 

Basic

$0.65

 

$0.55

 

$0.67

 

$0.32

Diluted

$0.65

 

$0.54

 

$0.66

 

$0.32

 

 

 

 

 

 

 

 

Shares used to compute earnings per share — Basic

55,875

 

56,410

 

55,861

 

56,304

Shares used to compute earnings per share — Diluted

56,066

 

56,505

 

56,001

 

56,399

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

 

 

June 30, 2019

 

December 31, 2018

Current assets:

 

 

 

Cash and cash equivalents

$204,455

 

$226,507

Short-term marketable securities

55,198

 

52,856

Accounts receivable, net

632,888

 

606,952

Unbilled accounts receivable

52,174

 

54,794

Deferred costs

22,500

 

18,770

Inventories and supplies

203,331

 

199,479

Prepaid expenses and other current assets

42,640

 

42,800

Total current assets

1,213,186

 

1,202,158

Property, plant and equipment, net

1,596,917

 

1,561,978

 

 

 

 

Other assets:

 

 

 

Operating lease right-of-use asset

173,504

 

Goodwill

525,044

 

514,189

Permits and other intangibles, net

433,853

 

441,875

Other

12,817

 

18,121

Total other assets

1,145,218

 

974,185

Total assets

$3,955,321

 

$3,738,321

Current liabilities:

 

 

 

Current portion of long-term obligations

$7,535

 

$7,535

Accounts payable

253,177

 

276,461

Deferred revenue

75,170

 

61,843

Accrued expenses

224,497

 

233,405

Current portion of closure, post-closure and remedial liabilities

30,747

 

23,034

Current portion of operating lease liabilities

42,564

 

Total current liabilities

633,690

 

602,278

Other liabilities:

 

 

 

Closure and post-closure liabilities, less current portion

62,339

 

60,339

Remedial liabilities, less current portion

101,019

 

107,575

Long-term obligations, less current portion

1,562,989

 

1,565,021

Operating lease liabilities, less current portion

130,704

 

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

255,113

 

233,352

Total other liabilities

2,112,164

 

1,966,287

Total stockholders' equity, net

1,209,467

 

1,169,756

Total liabilities and stockholders' equity

$3,955,321

 

$3,738,321

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

For the Six Months Ended:

June 30, 2019

June 30, 2018

Cash flows from operating activities:

 

 

 

Net income

$37,220

$18,116

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

 

 

Depreciation and amortization

149,572

 

147,604

Allowance for doubtful accounts

(2,233)

 

7,389

Amortization of deferred financing costs and debt discount

2,000

 

1,881

Accretion of environmental liabilities

5,134

 

4,878

Changes in environmental liability estimates

(748)

 

(673)

Deferred income taxes

(1,636)

 

(10)

Other income, net

(2,419)

 

(547)

Stock-based compensation

9,643

 

6,639

Environmental expenditures

(6,134)

 

(4,585)

Changes in assets and liabilities, net of acquisitions

 

 

 

Accounts receivable and unbilled accounts receivable

(13,284)

 

(62,764)

Inventories and supplies

(4,129)

 

(18,625)

Other current and non-current assets

(10,706)

 

180

Accounts payable

(20,915)

 

23,605

Other current and long-term liabilities

(2,895)

 

6,582

Net cash from operating activities

138,470

 

129,670

Cash flows used in investing activities:

 

 

Additions to property, plant and equipment

(118,372)

(94,139)

Proceeds from sale and disposal of fixed assets

7,389

 

2,641

Acquisitions, net of cash acquired

(29,479)

 

(123,750)

Additions to intangible assets including costs to obtain or renew permits

(1,923)

 

(2,106)

Proceeds from sale of available-for-sale securities

26,518

 

11,214

Purchases of available-for-sale securities

(24,001)

 

(10,001)

Net cash used in investing activities

(139,868)

 

(216,141)

Cash flows used in financing activities:

 

 

 

Change in uncashed checks

(3,514)

 

(2,803)

Tax payments related to withholdings on vested restricted stock

(4,980)

 

(2,175)

Repurchases of common stock

(11,272)

 

(26,482)

Deferred financing costs paid

 

(468)

Payments on finance lease

(259)

 

Principal payments on debt

(3,768)

 

(2,000)

Net cash used in financing activities

(23,793)

 

(33,928)

Effect of exchange rate change on cash

3,139

 

(1,932)

Decrease in cash and cash equivalents

(22,052)

 

(122,331)

Cash and cash equivalents, beginning of period

226,507

 

319,399

Cash and cash equivalents, end of period

$204,455

 

$197,068

 

Supplemental information:

 

Cash payments for interest and income taxes:

 

 

Interest paid

$39,369

$40,745

Income taxes paid

12,697

14,118

Cash paid for amounts included in the measurement of lease liabilities:

 

 

Operating cash flows from operating leases

27,773

 —

Operating cash flows from finance lease

612

 —

Financing cash flows from finance lease

259

 —

Non-cash investing activities:

 

Property, plant and equipment accrued

14,103

 13,041

ROU assets obtained in exchange for new operating lease liabilities

5,575

 —

ROU asset obtained in exchange for new finance lease liability

23,027

 —

Supplemental Segment Data (in thousands)

 

 

For the Three Months Ended:

Revenue

June 30, 2019

 

June 30, 2018

 

Third Party

Revenues

Intersegment

Revenues

(Expense), net

Direct

Revenues

 

 

Third Party

Revenues

Intersegment

Revenues

(Expense), net

Direct

Revenues

 

Environmental Services

$526,294

$36,782

$563,076

 

 

$519,916

$34,898

$554,814

 

Safety-Kleen

342,182

(36,198)

305,984

 

 

328,715

(34,280)

294,435

 

Corporate Items

202

(584)

(382)

 

 

509

(618)

(109)

 

Total

$868,678

$—

$868,678

 

 

$849,140

$—

$849,140

 

 

 

For the Six Months Ended:

Revenue

June 30, 2019

 

June 30, 2018

 

Third Party

Revenues

Intersegment

Revenues

(Expense), net

Direct

Revenues

 

Third Party

Revenues

Intersegment

Revenues

(Expense), net

 

Direct

Revenues

Environmental Services

$999,992

$72,106

$1,072,098

 

$959,604

$67,657

$1,027,261

Safety-Kleen

648,729

(70,268)

578,461

 

638,633

(66,234)

572,399

Corporate Items

796

(1,838)

(1,042)

 

681

(1,423)

(742)

Total

$1,649,517

$—

 

$1,649,517

 

 

$1,598,918

$—

 

$1,598,918

 

For the Three Months Ended:

 

For the Six Months Ended:

Adjusted EBITDA

June 30, 2019

 

June 30, 2018

 

June 30, 2019

 

June 30, 2018

 

 

 

 

 

 

 

 

Environmental Services

$117,868

 

$109,199

 

$207,378

 

$170,616

Safety-Kleen

79,459

 

73,069

 

134,252

 

134,953

Corporate Items

(47,502)

 

(42,707)

 

(90,142)

 

(77,743)

Total

$149,825

 

$139,561

 

$251,488

 

$227,826

 

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