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Clean Harbors Announces Third-Quarter 2021 Financial Results

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NORWELL, Mass.-Clean Harbors, Inc. (“Clean Harbors”) (NYSE: CLH), the leading provider of environmental and industrial services throughout North America, today announced financial results for the third quarter ended September 30, 2021.

“In the quarter, we experienced a continuation of many of the favorable trends that have supported our business all year – substantial volumes of high-value waste streams for disposal, a wider than normal spread in the re-refining market and steadily growing demand for many of our service businesses,” said Alan S. McKim, Chairman, President and Chief Executive Officer. “These factors enabled us to exceed our guidance and deliver the highest quarterly revenue in Company history. In a market environment disrupted by supply chain bottlenecks, labor shortages and inflationary cost pressures, our financial results reflect the strong execution by our leadership team in managing through challenging conditions.”

Third-Quarter 2021 Results

Revenues increased 22% to $951.5 million from $779.3 million in the same period of 2020. Income from operations grew 25% to $104.8 million from $83.9 million in the third quarter of 2020.

Net income was $65.4 million, or $1.20 per diluted share. This compares with net income of $54.9 million, or $0.99 per diluted share, for the same period in 2020. Adjusted for certain items in both periods, adjusted net income was $62.2 million, or $1.14 per diluted share, for the third quarter of 2021, compared with adjusted net income of $49.9 million, or $0.90 per diluted share, in the same period of 2020. (See reconciliation tables below) Net income and adjusted net income results for the third quarter of 2021 included pre-tax integration and severance costs of $6.2 million, primarily related to the acquisition of HydroChemPSC. Comparable costs in the third quarter of 2020 were $1.8 million.

Adjusted EBITDA (see description below) increased 10% to $185.1 million from $167.8 million in the same period of 2020. Benefits from Canadian pandemic programs accounted for $1.1 million of contributions in the third quarter of 2021, compared with $13.3 million in benefits from both Canadian and U.S. government programs in the same period of 2020.

Q3 2021 Review

“Revenues in our Environmental Services segment increased 15%, reflecting strong demand for our disposal and recycling services, as well as growth in many of our service businesses,” McKim said. “Our incineration network produced utilization of 82%, compared with 80% in the prior year, driven by record drum volumes and direct burn streams. We raised prices to help offset cost increases and focused our available capacity on high-value waste streams, resulting in an 18% increase in the average price per pound from a year ago. Landfill volumes were down 5% due to lower project activity, but our average price per ton increased 17% due to the mix of waste. Our Safety-Kleen Environmental branches registered another solid quarter, with most core service offerings trending up. For the second consecutive quarter we saw a sizeable increase in our Industrial Services business, as customers continue to address the substantial backlog of deferred maintenance related to the pandemic.”

“With industry dynamics on the supply side remaining favorable, our Safety-Kleen Sustainability Solutions (SKSS) segment again delivered exceptional results. Revenues grew 60% from a year ago while Adjusted EBITDA more than doubled,” McKim said. “Demand for our base and blended oil was high throughout the quarter, leading to a healthy pricing environment. Market conditions, including the underlying impact of IMO 2020, enabled us to deliver the widest re-refinery spread in our history. Waste oil collections were strong at 60 million gallons, up from 50 million a year ago.”

Business Outlook and Financial Guidance

“The positive demand environment in North America that we have witnessed all year is showing no signs of slowing as we enter the final quarter of 2021,” McKim said. “Customers continue to rely on Clean Harbors for their environmental and industrial needs, and to be their sustainability partner. We expect to conclude the year with a strong finish in all our core lines of business. In early October, we completed the acquisition of HydroChemPSC (“HPC”), which we believe will accelerate our growth momentum as we take a leadership position in the U.S. Industrial Services market. Within our Environmental Services segment, we have a considerable backlog of waste volumes within our network and at our customers’ sites. Our Field Services business has transitioned well from COVID-19 decontamination work back to its core operations, and the addition of HPC’s utility group will expand our scale. The main challenge for this segment in the coming months will be navigating through the ongoing headwinds of cost inflation, supply chain disruption, labor availability and transportation-related limitations. We intend to accelerate the pricing initiatives we have underway to combat these cost and labor challenges.

“Within our SKSS segment, the wide spread between used oil to base oil pricing has continued into the back half of the year based on market conditions. The changes we have made in creating the SKSS business will also continue to benefit us going forward,” McKim concluded. “Overall, we continue to maintain a favorable outlook in both of our segments for the remainder of the year and into 2022.”

Based on its third-quarter financial performance, completion of the HPC acquisition and current market conditions, Clean Harbors is raising its 2021 guidance. For the year, the Company now expects:

  • Adjusted EBITDA in the range of $655 million to $675 million, including an approximately $15 million contribution from HPC. This range is based on anticipated GAAP net income in the range of $171 million to $196 million; and
  • Adjusted free cash flow in the range of $310 million to $330 million, based on anticipated net cash from operating activities in the range of $500 million to $540 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, 2021 and 2020 (in thousands, except percentages):

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

September 30, 2021

 

September 30, 2020

 

September 30, 2021

 

September 30, 2020

Net income

 

$

65,443

 

 

 

$

54,910

 

 

 

$

154,254

 

 

$

95,505

 

Accretion of environmental liabilities

 

2,799

 

 

 

2,822

 

 

 

8,625

 

 

8,149

 

Stock-based compensation

 

6,001

 

 

 

6,662

 

 

 

12,786

 

 

12,739

 

Depreciation and amortization

 

71,451

 

 

 

74,470

 

 

 

215,206

 

 

221,497

 

Other (income) expense, net

 

(199

)

 

 

(2,268

)

 

 

2,509

 

 

597

 

Loss on sale of businesses

 

 

 

 

118

 

 

 

 

 

3,376

 

Interest expense, net of interest income

 

17,984

 

 

 

17,407

 

 

 

53,953

 

 

54,848

 

Provision for income taxes

 

21,605

 

 

 

13,712

 

 

 

54,973

 

 

35,269

 

Adjusted EBITDA

 

$

185,084

 

 

 

$

167,833

 

 

 

$

502,306

 

 

$

431,980

 

Adjusted EBITDA Margin

 

19.5

 

%

 

21.5

 

%

 

18.7

%

 

18.4

%

 

 

 

 

 

 

 

 

 

This press release includes a discussion of net income and earnings per share adjusted for the loss on sale of businesses and the impacts of tax-related valuation allowances and other items 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 and adjusted net income, and the difference between earnings per share and adjusted earnings per share, for the three and nine months ended September 30, 2021 and 2020 (in thousands, except per share amounts):

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

September 30,

2021

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Adjusted net income

 

 

 

 

 

 

 

 

Net income

 

$

65,443

 

 

$

54,910

 

 

$

154,254

 

 

$

95,505

 

Loss on sale of businesses

 

 

 

118

 

 

 

 

3,376

 

Tax-related valuation allowances and other*

 

(3,228

)

 

(5,128

)

 

(3,221

)

 

(4,502

)

Adjusted net income

 

$

62,215

 

 

$

49,900

 

 

$

151,033

 

 

$

94,379

 

 

 

 

 

 

 

 

 

 

Adjusted earnings per share

 

 

 

 

 

 

 

 

Earnings per share

 

$

1.20

 

 

$

0.99

 

 

$

2.81

 

 

$

1.71

 

Loss on sale of businesses

 

 

 

 

 

 

 

0.06

 

Tax-related valuation allowances and other*

 

(0.06

)

 

(0.09

)

 

(0.06

)

 

(0.08

)

Adjusted earnings per share

 

$

1.14

 

 

$

0.90

 

 

$

2.75

 

 

$

1.69

 

* For the three and nine months ended September 30, 2020, other amounts include a $1.6 million benefit, or $0.03 per share, related to tax benefits from impacts of amendments to prior period tax filings.

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 its 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, less additions to property, plant and equipment plus proceeds from sale and disposal of fixed assets. The Company excludes cash impacts of items derived from non-operating activities such as taxes paid in connection with divestitures and in 2020 also excluded cash paid in connection with the purchase of its corporate headquarters and certain capital improvements to the site as these expenditures are considered one-time in nature. 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 the Company’s 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 for the three and nine months ended September 30, 2021 and 2020 (in thousands):

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

September 30,

2021

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Adjusted free cash flow

 

 

 

 

 

 

 

 

Net cash from operating activities

 

$

102,794

 

 

$

143,946

 

 

$

368,226

 

 

$

317,432

 

Additions to property, plant and equipment

 

(54,666

)

 

(24,636

)

 

(146,654

)

 

(150,357

)

Purchase and capital improvements of corporate HQ

 

 

 

 

 

 

 

21,080

 

Proceeds from sale and disposal of fixed assets

 

12,945

 

 

4,206

 

 

16,424

 

 

7,307

 

Adjusted free cash flow

 

$

61,073

 

 

$

123,516

 

 

$

237,996

 

 

$

195,462

 

Adjusted EBITDA Guidance Reconciliation

An itemized reconciliation between projected GAAP net income and projected Adjusted EBITDA is as follows (in millions):

 

 

For the Year Ending

December 31, 2021

Projected GAAP net income

 

$171

 

to

 

$196

Adjustments:

 

 

 

 

 

 

Accretion of environmental liabilities

 

12

 

to

 

11

Stock-based compensation

 

18

 

to

 

19

Depreciation and amortization

 

305

 

to

 

295

Other expense, net

 

3

 

to

 

3

Interest expense, net

 

78

 

to

 

77

Provision for income taxes

 

68

 

to

 

74

Projected Adjusted EBITDA

 

$655

 

to

 

$675

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, 2021

Projected net cash from operating activities

 

$500

 

 

to

 

$540

 

Additions to property, plant and equipment

 

(206

)

 

to

 

(226

)

Proceeds from sale and disposal of fixed assets

 

16

 

 

to

 

16

 

Projected adjusted free cash flow

 

$310

 

 

to

 

$330

 

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 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 in the United States, Canada, Mexico, Puerto Rico and India. For more information, visit www.cleanharbors.com.

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