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Clean Harbors Announces First-Quarter 2023 Financial Results

  • Achieves Q1 Revenue Growth of 12% to $1.31 Billion on Strength of ES Segment
  • Generates Q1 Net Income of $72.4 Million, or EPS of $1.33, with Adjusted EPS of $1.36
  • Delivers Q1 Adjusted EBITDA Growth of 19% to $215.1 Million
  • Raises Full-Year 2023 Adjusted EBITDA Guidance to Reflect Acquisition of Thompson Industrial Services

Clean Harbors, Inc. (“Clean Harbors”) (NYSE: CLH), the leading provider of environmental and industrial services throughout North America, today announced financial results for the first quarter ended March 31, 2023.

“We opened 2023 with a strong first-quarter performance led by our Environmental Services segment,” said Mike Battles and Eric Gerstenberg, Co-Chief Executive Officers. “We delivered 12% top-line growth that translated to a 19% increase in Adjusted EBITDA. As a result, our Adjusted EBITDA margin grew by 110 basis points from the same period in 2022. The quarter’s profitable growth in the Environmental Services segment more than offset a decrease in the profitability of our Safety-Kleen Sustainability Solutions segment. In addition, we posted the best first-quarter safety results in our history, registering a Total Recordable Incident Rate (TRIR) of 0.61. Our team members did a phenomenal job embracing the ‘Safety Starts with Me’ mindset on the job every day.”

First-Quarter Results

Revenues increased 12% to $1.31 billion from $1.17 billion in the same period of 2022. Income from operations grew 39% to $121.0 million from $87.1 million in the first quarter of 2022.

Net income was $72.4 million, or $1.33 per diluted share. This compared with net income of $45.3 million, or $0.83 per diluted share, for the same period in 2022. Adjusted for certain items in both periods, adjusted net income was $74.1 million, or $1.36 per diluted share, for the first quarter of 2023, compared with adjusted net income of $45.4 million, or $0.83 per diluted share, for the same period of 2022. (See reconciliation tables below).

Adjusted EBITDA (see description below) increased 19% to $215.1 million from $180.3 million in the same period of 2022.

Q1 2023 Segment Review

Environmental Services (ES) revenues increased 13% year-over-year, and segment Adjusted EBITDA rose 24%. This resulted in a 21.3% margin and represents a 190-basis-point improvement over last year’s first quarter,” said Gerstenberg. “Favorable market dynamics continue to drive record levels of demand across nearly every business line in our ES segment. Industrial Services revenue grew 9% as we continue to cross sell our services by leveraging our customer relationships. Revenue from Safety-Kleen Environmental Services grew an impressive 18%, while Field Services revenue was up 12% driven by pricing and branch growth initiatives. Our Technical Services business posted revenue growth of 13% despite utilization at our incinerators in the quarter being lower than expected at 80% due to several unplanned outages and landfill volumes being down 8% due to severe flooding at our California site. Pricing has stayed strong, with average incineration price up 15%, as we continued our focus on higher-value waste streams and remaining price competitive while offsetting rising costs. Landfill pricing per ton was up 17% reflecting strength in the base business, along with a healthy mix of waste projects.”

Safety-Kleen Sustainability Solutions (SKSS) revenues grew 7% in the first quarter, while Adjusted EBITDA decreased 20% from a year ago,” said Battles. “Revenues were up based on the re-refinery acquisition completed in mid-2022, higher base oil volumes and sales of ancillary services. However, our re-refinery spread was compressed in the quarter as the normal seasonal demand pickup has been slow to develop this year. As a result of that environment, base oil pricing has been under pressure compared with a year ago, when we experienced three first-quarter 2022 price increases. On the front end of the spread, waste oil collections in the quarter were strong at 59 million gallons, up 11% from a year ago. We rapidly lowered our pay-for-oil (PFO) pricing in the quarter in response to the market and expect that strategy to positively impact us in the coming months.”

Business Outlook and Financial Guidance

“Based on our positive market outlook, we remain excited about Clean Harbors prospects for 2023,” said Gerstenberg. “We see tangible momentum and strong demand across all of our key ES businesses. In particular, within Industrial Services, we completed the acquisition of Thompson Industrial on March 31. We’re moving quickly to integrate that business, and we expect it to add approximately $80 million of revenue and $9 million of Adjusted EBITDA during the final three quarters of 2023. In our disposal network, our backlog of waste grew again in the first quarter to a record level. Our project pipeline in ES is as strong as ever. With reshoring and government programs in full swing, we continue to expect a record year in our ES segment.”

“Within SKSS, we are expecting the market to stabilize following a difficult start to the year. We are actively managing our waste oil collection to drive our costs down considerably while still gathering the gallons necessary to supply our plants. Base oil and blended pricing is more challenging than we anticipated, including an unexpected price decline in April. We are going to continue to drive additional SKSS profitability to offset the spread compression through greater base oil production from a year ago, cost reduction initiatives, accelerating blended sales and cultivating interest in our environmentally friendly solutions. While we are lowering our expectations for the SKSS segment in 2023, we anticipate that this reduction will be more than offset by continued growth within the ES segment,” Battles concluded.

For the second quarter of 2023, Clean Harbors expects Adjusted EBITDA to decrease 7% to 9% from the prior year.

For full-year 2023, Clean Harbors expects:

  • Adjusted EBITDA in the range of $1.02 billion to $1.06 billion or a midpoint of $1.04 billion, which reflects the addition of an expected $9 million contribution from the Thompson Industrial acquisition. This range is based on anticipated GAAP net income in the range of $364 million to $400 million; and
  • Adjusted free cash flow in the range of $305 million to $345 million, or a midpoint of $325 million, which includes $90 million of spend related to the Kimball incinerator. This range is based on anticipated net cash from operating activities in the range of $705 million to $765 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 months ended March 31, 2023 and 2022 (in thousands, except percentages):

 

For the Three Months Ended

 

March 31, 2023

 

March 31, 2022

Net income

$

72,401

 

 

$

45,314

 

Accretion of environmental liabilities

 

3,407

 

 

 

3,156

 

Stock-based compensation

 

6,018

 

 

 

5,712

 

Depreciation and amortization

 

84,758

 

 

 

84,298

 

Other income, net

 

(116

)

 

 

(704

)

Loss on early extinguishment of debt

 

2,362

 

 

 

 

Interest expense, net of interest income

 

20,632

 

 

 

25,017

 

Provision for income taxes

 

25,676

 

 

 

17,466

 

Adjusted EBITDA

$

215,138

 

 

$

180,259

 

Adjusted EBITDA Margin

 

16.5

%

 

 

15.4

%

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 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 months ended March 31, 2023 and 2022 (in thousands, except per share amounts):

 

For the Three Months Ended

 

March 31, 2023

 

March 31, 2022

Adjusted net income

 

 

 

Net income

$

72,401

 

 

$

45,314

Loss on early extinguishment of debt

 

2,362

 

 

 

Tax-related valuation allowances and other*

 

(653

)

 

 

114

Adjusted net income

$

74,110

 

 

$

45,428

 

 

 

 

Adjusted earnings per share

 

 

 

Earnings per share

$

1.33

 

 

$

0.83

Loss on early extinguishment of debt

 

0.04

 

 

 

Tax-related valuation allowances and other*

 

(0.01

)

 

 

Adjusted earnings per share

$

1.36

 

 

$

0.83

 

* Other amounts include ($0.7) million or ($0.01) per share of tax impacts from the loss on early extinguishment of debt for the three months ended March 31, 2023.

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. 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 (used in) operating activities and adjusted free cash flow is as follows for the three months ended March 31, 2023 and 2022 (in thousands):

 

For the Three Months Ended

 

March 31, 2023

 

March 31, 2022

Adjusted free cash flow

 

 

 

Net cash from (used in) operating activities

$

28,008

 

 

$

(38,629

)

Additions to property, plant and equipment

 

(81,686

)

 

 

(70,308

)

Proceeds from sale and disposal of fixed assets

 

1,855

 

 

 

1,320

 

Adjusted free cash flow

$

(51,823

)

 

$

(107,617

)

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, 2023

Projected GAAP net income

$364

 

to

$400

Adjustments:

 

 

 

Accretion of environmental liabilities

14

 

to

13

Stock-based compensation

26

 

to

29

Depreciation and amortization

360

 

to

350

Loss on early extinguishment of debt

2

 

to

2

Interest expense, net

120

 

to

115

Provision for income taxes

134

 

to

151

Projected Adjusted EBITDA

$1,020

 

to

$1,060

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, 2023

Projected net cash from operating activities

$705

to

$765

Additions to property, plant and equipment

(410)

to

(430)

Proceeds from sale and disposal of fixed assets

10

to

10

Projected adjusted free cash flow

$305

to

$345

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 866.682.6100 or 862.298.0702 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.

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,” “seeks,” “should,” “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. Forward-looking statements are neither historical facts nor assurances of future performance. 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

 

March 31, 2023

 

March 31, 2022

Revenues

$

1,307,387

 

 

$

1,169,109

 

Cost of revenues: (exclusive of items shown separately below)

 

931,514

 

 

 

843,389

 

Selling, general and administrative expenses

 

166,753

 

 

 

151,173

 

Accretion of environmental liabilities

 

3,407

 

 

 

3,156

 

Depreciation and amortization

 

84,758

 

 

 

84,298

 

Income from operations

 

120,955

 

 

 

87,093

 

Other income, net

 

116

 

 

 

704

 

Loss on early extinguishment of debt

 

(2,362

)

 

 

 

Interest expense, net

 

(20,632

)

 

 

(25,017

)

Income before provision for income taxes

 

98,077

 

 

 

62,780

 

Provision for income taxes

 

25,676

 

 

 

17,466

 

Net income

$

72,401

 

 

$

45,314

 

Earnings per share:

 

 

 

Basic

$

1.34

 

 

$

0.83

 

Diluted

$

1.33

 

 

$

0.83

 

Shares used to compute earnings per share - Basic

 

54,076

 

 

 

54,408

 

Shares used to compute earnings per share - Diluted

 

54,404

 

 

 

54,672

 

 

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

March 31, 2023

 

December 31, 2022

Current assets:

 

 

 

Cash and cash equivalents

$

304,307

 

$

492,603

Short-term marketable securities

 

71,818

 

 

62,033

Accounts receivable, net

 

963,659

 

 

964,603

Unbilled accounts receivable

 

137,507

 

 

107,010

Inventories and supplies

 

322,386

 

 

324,994

Prepaid expenses and other current assets

 

103,370

 

 

82,518

Total current assets

 

1,903,047

 

 

2,033,761

Property, plant and equipment, net

 

2,027,513

 

 

1,980,302

Other assets:

 

 

 

Operating lease right-of-use assets

 

167,144

 

 

166,181

Goodwill

 

1,287,416

 

 

1,246,878

Permits and other intangibles, net

 

636,523

 

 

620,782

Other

 

62,365

 

 

81,803

Total other assets

 

2,153,448

 

 

2,115,644

Total assets

$

6,084,008

 

$

6,129,707

 

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

10,000

 

$

10,000

Accounts payable

 

427,480

 

 

446,629

Deferred revenue

 

101,336

 

 

94,094

Accrued expenses and other current liabilities

 

313,916

 

 

396,716

Current portion of closure, post-closure and remedial liabilities

 

22,780

 

 

23,123

Current portion of operating lease liabilities

 

51,325

 

 

49,532

Total current liabilities

 

926,837

 

 

1,020,094

Other liabilities:

 

 

 

Closure and post-closure liabilities, less current portion

 

109,372

 

 

105,596

Remedial liabilities, less current portion

 

103,800

 

 

106,372

Long-term debt, less current portion

 

2,409,654

 

 

2,414,828

Operating lease liabilities, less current portion

 

118,074

 

 

119,259

Deferred tax liabilities

 

344,333

 

 

350,389

Other long-term liabilities

 

91,894

 

 

90,847

Total other liabilities

 

3,177,127

 

 

3,187,291

Total stockholders’ equity, net

 

1,980,044

 

 

1,922,322

Total liabilities and stockholders’ equity

$

6,084,008

 

$

6,129,707

 

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

For the Three Months Ended

 

March 31, 2023

 

March 31, 2022

Cash flows from (used in) operating activities:

 

 

 

Net income

$

72,401

 

 

$

45,314

 

Adjustments to reconcile net income to net cash from (used in) operating activities:

 

 

 

Depreciation and amortization

 

84,758

 

 

 

84,298

 

Allowance for doubtful accounts

 

1,398

 

 

 

3,619

 

Amortization of deferred financing costs and debt discount

 

1,354

 

 

 

1,561

 

Accretion of environmental liabilities

 

3,407

 

 

 

3,156

 

Changes in environmental liability estimates

 

683

 

 

 

312

 

Deferred income taxes

 

(363

)

 

 

2,226

 

Other income, net

 

(116

)

 

 

(704

)

Stock-based compensation

 

6,018

 

 

 

5,712

 

Loss on early extinguishment of debt

 

2,362

 

 

 

 

Environmental expenditures

 

(8,348

)

 

 

(3,615

)

Changes in assets and liabilities, net of acquisitions:

 

 

 

Accounts receivable and unbilled accounts receivable

 

(5,030

)

 

 

(138,690

)

Inventories and supplies

 

2,758

 

 

 

(13,610

)

Other current and non-current assets

 

(17,328

)

 

 

(32,924

)

Accounts payable

 

(21,801

)

 

 

43,001

 

Other current and long-term liabilities

 

(94,145

)

 

 

(38,285

)

Net cash from (used in) operating activities

 

28,008

 

 

 

(38,629

)

Cash flows used in investing activities:

 

 

 

Additions to property, plant and equipment

 

(81,686

)

 

 

(70,308

)

Proceeds from sale and disposal of fixed assets

 

1,855

 

 

 

1,320

 

Acquisitions, net of cash acquired

 

(108,533

)

 

 

5,000

 

Additions to intangible assets including costs to obtain or renew permits

 

(333

)

 

 

(321

)

Purchases of available-for-sale securities

 

(39,037

)

 

 

(5,002

)

Proceeds from sale of available-for-sale securities

 

29,800

 

 

 

10,450

 

Net cash used in investing activities

 

(197,934

)

 

 

(58,861

)

Cash flows used in financing activities:

 

 

 

Change in uncashed checks

 

164

 

 

 

(2,295

)

Tax payments related to withholdings on vested restricted stock

 

(3,351

)

 

 

(1,831

)

Repurchases of common stock

 

(3,000

)

 

 

(3,694

)

Deferred financing costs paid

 

(6,094

)

 

 

(291

)

Payments on finance leases

 

(3,689

)

 

 

(3,585

)

Principal payments on debt

 

(616,475

)

 

 

(4,384

)

Proceeds from issuance of debt

 

500,000

 

 

 

 

Borrowing from revolving credit facility

 

114,000

 

 

 

 

Net cash used in financing activities

 

(18,445

)

 

 

(16,080

)

Effect of exchange rate change on cash

 

75

 

 

 

579

 

Decrease in cash and cash equivalents

 

(188,296

)

 

 

(112,991

)

Cash and cash equivalents, beginning of period

 

492,603

 

 

 

452,575

 

Cash and cash equivalents, end of period

$

304,307

 

 

$

339,584

 

Supplemental information:

 

 

 

Cash payments for interest and income taxes:

 

 

 

Interest paid

$

34,878

 

$

33,697

Income taxes paid, net of refunds

 

37,141

 

 

3,121

Non-cash investing activities:

 

 

 

Property, plant and equipment accrued

 

27,533

 

 

11,397

Remedial liability assumed in acquisition of property, plant and equipment

 

 

 

13,073

ROU assets obtained in exchange for operating lease liabilities

 

10,203

 

 

7,342

ROU assets obtained in exchange for finance lease liabilities

 

5,153

 

 

4,679

Supplemental Segment Data (in thousands)

 

For the Three Months Ended

Revenue

March 31, 2023

 

March 31, 2022

 

Third-Party Revenues

 

Intersegment Revenues (Expenses), net

 

Direct Revenues

 

Third-Party Revenues

 

Intersegment Revenues (Expenses), net

 

Direct Revenues

Environmental Services

$

1,060,982

 

$

9,759

 

 

$

1,070,741

 

$

940,798

 

$

6,647

 

 

$

947,445

Safety-Kleen Sustainability Solutions

 

246,298

 

 

(9,759

)

 

 

236,539

 

 

228,239

 

 

(6,647

)

 

 

221,592

Corporate Items

 

107

 

 

 

 

 

107

 

 

72

 

 

 

 

 

72

Total

$

1,307,387

 

$

 

 

$

1,307,387

 

$

1,169,109

 

$

 

 

$

1,169,109

 

For the Three Months Ended

Adjusted EBITDA

March 31, 2023

 

March 31, 2022

Environmental Services

$

228,345

 

 

$

183,602

 

Safety-Kleen Sustainability Solutions

 

41,463

 

 

 

51,877

 

Corporate Items

 

(54,670

)

 

 

(55,220

)

Total

$

215,138

 

 

$

180,259

 

 

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