Market Overview

Clean Harbors Announces Third-Quarter 2019 Financial Results

Share:
  • Increases Q3 Revenues 6% to $891.7 Million
  • Reports Net Income of $36.4 Million, or $0.65 per Diluted Share; Adjusted EPS of $0.72
  • Achieves 11% Increase in Q3 Adjusted EBITDA to $156.6 Million on Strength in Incineration and Environmental Services
  • Improves Adjusted EBITDA Margin by 80 Basis Points to 17.6%
  • Increases Midpoint of 2019 Adjusted EBITDA Guidance Range to $540 Million; Reiterates Adjusted Free Cash Flow Guidance of $200 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 third quarter ended September 30, 2019.

"We generated strong results in the third quarter, as we drove high-value waste streams into our network and achieved growth across our environmental businesses," said Alan S. McKim, Chairman, President and Chief Executive Officer. "We extended our 2019 momentum with a top-line increase of 6% and corresponding growth in Adjusted EBITDA of 11%. As a result, our Adjusted EBITDA margin grew year-over-year by 80 basis points to 17.6%."

Third-quarter revenues increased to $891.7 million from $843.2 million in the same period of 2018. Income from operations grew 22% to $80.4 million from $65.7 million in the year-earlier quarter.

Net income for the third quarter of 2019 was $36.4 million, or $0.65 per diluted share. This compares with net income for the same period in 2018 of $31.1 million, or $0.55 per diluted share. Adjusted for certain items in both periods, adjusted net income was $40.7 million, or $0.72 per diluted share, for the third quarter of 2019 compared with adjusted net income of $33.3 million, or $0.59 per diluted share, in the same period of 2018. (See reconciliation table below)

Adjusted EBITDA (see description below) in the third quarter of 2019 increased 11% to $156.6 million from $141.3 million in the same period of 2018.

"In our Environmental Services segment, we achieved a healthy revenue increase of 8% with significant Adjusted EBITDA growth of 19% as we capitalized on the leverage in our network to deliver a 180-basis-point margin improvement from a year ago," McKim said. "Incineration utilization climbed to 92% from 84% a year ago, as we saw a consistent flow of volumes throughout the quarter and our facilities ran efficiently. In addition, our average price per pound rose approximately 12% year-over-year due to our ability to capture a range of higher-margin waste. At the same time, our landfill volumes increased 6% from the prior year as steady base business was supported by project wins. We also benefitted from strong contributions from our Field Services team this quarter, which included $8 million of large-scale emergency response projects.

"Within our Safety-Kleen segment, revenue increased 2% as growth in our core branch offerings and pricing initiatives offset slower-than-expected blended product sales in Safety-Kleen Oil," McKim said. "Profitability was a similar story, with 2% growth in Adjusted EBITDA and margins increasing 20 basis points from the third quarter of 2018. Waste oil collection remained strong at 63 million gallons, with a charge-for-oil rate that was slightly improved from last year's third quarter. This helped to partly offset a lower year-over-year price in base oil. Given the current volatility in the marketplace with IMO 2020 on the horizon, we continue to target markets where we can gather more waste oil at the best price."

Business Outlook and Financial Guidance

"We anticipate capping 2019 with a strong performance and achieving profitable growth in the fourth quarter," McKim said. "While we have seen small pockets of industry-specific weakness, the overall outlook for our markets remains positive. Within Environmental Services, we continue to have a healthy backlog of waste in our disposal network. We anticipate a strong finish to the year through a combination of base business and projects. Our businesses that provide industrial, field and energy-related services enter the final quarter with momentum as well.

"Safety-Kleen's branch business continues to perform well with growth across its core offerings," McKim said. "At the same time, Safety-Kleen Oil continues to effectively manage the spread in our re-refinery business while our plants should generate record production this year. We are seeking opportunities to capitalize on the potential positive impact of IMO 2020 in the coming quarters.

"Given our current market outlook, we expect Adjusted EBITDA in the fourth quarter to grow in the mid- to high-single digit range compared with a year ago. We remain on track to deliver a record level of annual Adjusted EBITDA and adjusted free cash flow in 2019," McKim concluded.

Based on its year-to-date financial performance and current market conditions, Clean Harbors raised the lower end of its Adjusted EBITDA guidance by $10 million, and now expects full-year 2019 Adjusted EBITDA in the range of $530 million to $550 million. On a GAAP basis, the Company's guidance is based on anticipated 2019 net income in the range of $85 million to $105 million. Clean Harbors also continues to expect its 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 nine months ended September 30, 2019 and 2018 (in thousands):

 

For the Three Months Ended:

 

For the Nine Months Ended:

 

September 30,

2019

 

September 30,

2018

 

September 30,

2019

 

September 30,

2018

 

 

 

 

 

 

 

 

Net income

$36,369

 

$31,089

 

$73,589

 

$49,205

Accretion of environmental liabilities

2,490

 

2,450

 

7,624

 

7,328

Depreciation and amortization

73,756

 

73,082

 

223,328

 

220,686

Other expense (income), net

427

 

996

 

(1,992)

 

449

Loss on early extinguishment of debt

6,119

 

2,469

 

6,119

 

2,469

Interest expense, net

19,702

 

19,916

 

59,681

 

60,955

Provision for income taxes

17,750

 

11,275

 

39,752

 

28,011

Adjusted EBITDA

$156,613

 

$141,277

 

$408,101

 

$369,103

Adjusted EBITDA Margin

17.6%

 

16.8%

 

16.1%

 

15.1%

This press release includes a discussion of net income and earnings per share adjusted for the loss on early extinguishment of debt and 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 nine months ended September 30, 2019 and 2018 (in thousands, except per share amounts):

For the Three Months Ended:

 

For the Nine Months Ended:

September 30,

2019

 

September 30,

2018

September 30,

2019

September 30,

2018

Adjusted net income

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