Clean Harbors Announces Third-Quarter 2018 Financial Results

• Achieves 12% Revenue Increase to $843.2 Million on Veolia Acquisition, Pricing Initiatives and Safety-Kleen Growth
• Reports Net Income of $31.1 Million, or $0.55 per Diluted Share; Adjusted EPS of $0.59 per Diluted Share
• Generates Q3 Adjusted EBITDA of $141.3 Million, up 15% on Higher-Margin Waste Streams, Better Pricing and Strength Across Multiple Businesses
• Increases Adjusted EBITDA Margin by 50 Basis Points
• Raises Midpoint of 2018 Adjusted EBITDA Guidance

NORWELL, Mass.--(BUSINESS WIRE)--Oct. 31, 2018-- 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, 2018.

“We reported our third consecutive quarter of profitable growth in 2018 and remain on track for a strong year,” said Alan S. McKim, Chairman, President and Chief Executive Officer. “We delivered revenue increases in each of our reporting segments by executing our growth strategy and capitalizing on favorable market trends. Within Environmental Services, we collected increased volumes of higher-margin waste for our disposal network and generated robust growth within our regional structure, particularly in the Gulf and Midwest regions. The favorable pricing environment for Safety-Kleen, particularly within our base oil and blended products business, continued in the quarter. Profitability outpaced revenues in the quarter, as we leveraged our extensive network of assets to increase Adjusted EBITDA margin by 50 basis points from a year ago.”

Third-quarter revenues increased 12% to $843.2 million, compared with $755.8 million in the same period a year ago. Income from operations grew 38% to $65.7 million from $47.7 million in the third quarter of 2017.

Net income for the third quarter of 2018 was $31.1 million, or $0.55 per diluted share, which included an after-tax loss on the early extinguishment of debt of $1.7 million and a non-cash charge from tax-related valuation allowances in Canada of $0.5 million. This compared with net income for the same period in 2017 of $12.1 million, or $0.21 per diluted share, which included an after-tax loss on the early extinguishment of debt of $1.1 million and a gain related to non-cash valuation allowances in Canada of $1.0 million. Excluding these items, adjusted net income for the third quarter of 2018 was $33.3 million, or $0.59 per diluted share, compared with $12.2 million, or $0.21 per diluted share, in the same period in 2017. Results for the third quarter of 2018 and 2017 both included pre-tax integration and severance costs of $1.5 million.

Adjusted EBITDA (see description below) in the third quarter of 2018 increased 15% to $141.3 million, compared with $123.0 million in the same period of 2017.

“Within our disposal network, we continued to significantly improve our mix of waste streams with record drum volumes and an increase in high-value waste from our key verticals,” McKim said. “Due to a high number of scheduled down days, incineration utilization was down to 84%, but we still achieved higher profitability year-over-year in our incineration network as a result of that improved mix of waste and pricing. Another important driver within Environmental Services was growth across industrial, energy and field services. Veolia’s U.S. Industrial Services business, which we acquired earlier this year, is performing on plan and remains an exciting addition for us.

“Within Safety-Kleen, we again achieved a double-digit percentage increase in profitability,” McKim said. “Based on the continued growth of the SK branch network and the effective management of the spread in our used motor oil business, Adjusted EBITDA margins increased 160 basis points to 26.4%. We topped more than 60 million gallons of waste oil collected in the quarter, with an average cost of zero. Our percentage of blended products was lower-than-expected at 25% of total gallons sold, however, our direct lubricant sales accounted for 6% of our total volumes, up from a year ago.”

Business Outlook and Financial Guidance

“We enter the final quarter of 2018 with momentum supported by an array of favorable market trends and internal initiatives that should benefit us in 2019 and beyond,” McKim said. “The chemical and manufacturing renaissance underway in the United States, which is being driven by the low cost of natural gas, should drive continued growth of high-value waste streams into our disposal network. A focus by customers, as well as the Environmental Protection Agency (EPA), in addressing long-term environmental liabilities should generate large-scale waste project opportunities for us in the coming years. Given the influence of the IMO 2020 Rule, we expect to see a ramp up in demand for our specialized industrial services, particularly within the refinery market. The addition of Veolia’s assets should amplify those growth prospects.

“We remain optimistic about our ability to continue to effectively manage the spread in our Safety-Kleen re-refinery business. In addition, we believe that the value proposition for our direct lubricant sales remains compelling. Overall, we continue to see a number of opportunities to drive profitable growth and enhance margins across our businesses through better pricing, cross-selling, higher utilization and cost controls. We look forward to a strong conclusion to the year,” McKim said.

Based on its recent financial performance and current market conditions, Clean Harbors revised its full-year 2018 Adjusted EBITDA guidance to a range of $470 million to $490 million, compared with its prior range of $460 million to $490 million. On a GAAP basis, the Company’s revised guidance is based on projected 2018 net income in the range of $46 million to $59 million. A reconciliation of the Company’s Adjusted EBITDA guidance to net income guidance is included below. Clean Harbors also narrowed its adjusted free cash flow guidance range to $140 million to $160 million, compared with its prior range of $135 million to $165 million, which is based on projected 2018 net cash from operating activities in the range of $310 million to $350 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 (loss) 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 measurements 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 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, 2018 and 2017 (in thousands):

			For the Three Months Ended:							For the Nine Months Ended:
			September 30, 2018			September 30, 2017				September 30, 2018			September 30, 2017
Net income			$31,089			$12,058				$49,205			$16,545
Accretion of environmental liabilities			2,450			2,347				7,328			7,053
Depreciation and amortization			73,082			72,989				220,686			216,932
Other expense, net			996			432				449			2,814
Loss on early extinguishment of debt			2,469			1,846				2,469			7,891
Loss (gain) on sale of business			—			77				—			(31,645)
Interest expense, net			19,916			20,675				60,955			65,743
Provision for income taxes			11,275			12,575				28,011			38,492
Adjusted EBITDA			$141,277			$122,999				$369,103			$323,825

This press release includes a discussion of net income and earnings per share adjusted for the loss on early extinguishment of debt, the loss (gain) on sale of business and the non-cash 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, 2018 and 2017 (in thousands, except per share amounts):

			For the Three Months Ended:							For the Nine Months Ended:
			September 30, 2018			September 30, 2017				September 30, 2018			September 30, 2017
Adjusted net income
Net income			$31,089			$12,058				$49,205			$16,545
Loss on early extinguishment of debt, net of tax			1,735			1,108				1,735			4,735
Loss (gain) on sale of business, net of tax			—			46				—			(18,467)
Tax-related valuation allowances			492			(1,011)				6,593			12,145
Adjusted net income			$33,316			$12,201				$57,533			$14,958
Adjusted earnings per share
Earnings per share			$0.55			$0.21				$0.87			$0.29
Loss on early extinguishment of debt, net of tax			0.03			0.02				0.03			0.08
Loss (gain) on sale of business, net of tax			—			—				—			(0.32)
Tax-related valuation allowances			0.01			(0.02)				0.12			0.21
Adjusted earnings per share			$0.59			$0.21				$1.02			$0.26

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 measurements 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 Nine Months Ended:
			September 30, 2018			September 30, 2017				September 30, 2018			September 30, 2017
Adjusted free cash flow
Net cash from operating activities			$117,545			$104,538				$247,215			$221,469
Additions to property, plant and equipment			(56,583)			(38,994)				(150,722)			(127,736)
Proceeds from sale and disposal of fixed assets			3,470			3,254				6,111			5,375
Adjusted free cash flow			$64,432			$68,798				$102,604			$99,108

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, 2018
Projected GAAP net income			$46		to			$59
Adjustments:
Accretion of environmental liabilities			10		to			10
Depreciation and amortization			300		to			295
Loss on early extinguishment of debt			2		to			2
Interest expense, net			82		to			81
Provision for income taxes			30		to			43
Projected Adjusted EBITDA			$470		to			$490

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, 2018
Projected net cash from operating activities			$310		to			$350
Additions to property, plant and equipment			(180)		to			(200)
Proceeds from sale and disposal of fixed assets			10		to			10
Projected adjusted free cash flow			$140		to			$160

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 thePrivate 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,” 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 Nine Months Ended:
				September 30, 2018			September 30, 2017				September 30, 2018			September 30, 2017
Revenues				$843,181			$755,846				$2,442,099			$2,197,575
Cost of revenues (exclusive of items shown separately below)				580,685			519,595				1,710,694			1,535,983
Selling, general and administrative expenses				121,219			113,252				362,302			337,767
Accretion of environmental liabilities				2,450			2,347				7,328			7,053
Depreciation and amortization				73,082			72,989				220,686			216,932
Income from operations				65,745			47,663				141,089			99,840
Other expense, net				(996)			(432)				(449)			(2,814)
Loss on early extinguishment of debt				(2,469)			(1,846)				(2,469)			(7,891)
(Loss) gain on sale of business				—			(77)				—			31,645
Interest expense, net				(19,916)			(20,675)				(60,955)			(65,743)
Income before provision for income taxes				42,364			24,633				77,216			55,037
Provision for income taxes				11,275			12,575				28,011			38,492
Net income				$31,089			$12,058				$49,205			$16,545
Earnings per share:
Basic				$0.55			$0.21				$0.88			$0.29
Diluted				$0.55			$0.21				$0.87			$0.29
Shares used to compute earnings per share — Basic				56,059			57,033				56,222			57,149
Shares used to compute earnings per share — Diluted				56,291			57,195				56,360			57,280

CLEAN HARBORS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
				September 30, 2018				December 31, 2017
Current assets:
Cash and cash equivalents				$215,497				$319,399
Short-term marketable securities				37,380				38,179
Accounts receivable, net				608,645				528,924
Unbilled accounts receivable				63,964				35,922
Deferred costs				19,849				20,445
Inventories and supplies				196,045				176,012
Prepaid expenses and other current assets				35,441				35,175
Total current assets				1,176,821				1,154,056
Property, plant and equipment, net				1,614,429				1,587,365
Other assets:
Goodwill				514,102				478,523
Permits and other intangibles, net				451,355				469,128
Other				17,622				17,498
Total other assets				983,079				965,149
Total assets				$3,774,329				$3,706,570
Current liabilities:
Current portion of long-term obligations				$7,535				$4,000
Accounts payable				248,405				224,231
Deferred revenue				65,172				67,822
Accrued expenses				229,932				187,982
Current portion of closure, post-closure and remedial liabilities				25,256				19,782
Total current liabilities				576,300				503,817
Other liabilities:
Closure and post-closure liabilities, less current portion				57,805				54,593
Remedial liabilities, less current portion				105,032				111,130
Long-term obligations, less current portion				1,616,156				1,625,537
Deferred taxes, unrecognized tax benefits and other long-term liabilities				221,712				223,291
Total other liabilities				2,000,705				2,014,551
Total stockholders’ equity, net				1,197,324				1,188,202
Total liabilities and stockholders’ equity				$3,774,329				$3,706,570

CLEAN HARBORS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
				For the Nine Months Ended:
				September 30, 2018				September 30, 2017
Cash flows from operating activities:
Net income				$49,205				$16,545
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization				220,686				216,932
Allowance for doubtful accounts				6,869				5,635
Amortization of deferred financing costs and debt discount				2,841				2,562
Accretion of environmental liabilities				7,328				7,053
Changes in environmental liability estimates				(301)				(312)
Deferred income taxes				61				184
Stock-based compensation				10,726				9,212
Other expense, net				449				2,814
Gain on sale of business				—				(31,645)
Loss on early extinguishment of debt				2,469				7,891
Environmental expenditures				(7,238)				(10,078)
Changes in assets and liabilities, net of acquisitions
Accounts receivable and unbilled accounts receivable				(76,249)				(38,122)
Inventories and supplies				(20,534)				(4,975)
Other current assets				(523)				18,305
Accounts payable				22,041				(7,085)
Other current and long-term liabilities				29,385				26,553
Net cash from operating activities				247,215				221,469
Cash flows used in investing activities:
Additions to property, plant and equipment				(150,722)				(127,736)_
Proceeds from sale and disposal of fixed assets				6,111				5,375
Acquisitions, net of cash acquired				(151,023)				(44,432)
Proceeds from sale of businesses, net of transactional costs				—				46,339
Additions to intangible assets, including costs to obtain or renew permits				(3,500)				(1,348)
Proceeds from sale of available-for-sale securities				20,123				376
Purchases of available-for-sale securities				(20,471)				—
Net cash used in investing activities				(299,482)				(121,426)
Cash flows used in financing activities:
Change in uncashed checks				(3,476)				(8,657)
Proceeds from exercise of stock options				—				46
Tax payments related to withholdings on vested restricted stock				(2,566)				(2,321)
Repurchases of common stock				(33,581)				(24,465)
Deferred financing costs paid				(3,938)				(5,746)
Premiums paid on early extinguishment of debt				(1,219)				(6,028)
Principal payment on debt				(403,884)				(401,000)
Issuance of senior secured notes, net of discount				348,250				399,000
Borrowing from revolving credit facility				50,000				—
Net cash used in financing activities				(50,414)				(49,171)
Effect of exchange rate change on cash				(1,221)				3,789
(Decrease) increase in cash and cash equivalents				(103,902)				54,661
Cash and cash equivalents, beginning of period				319,399				306,997
Cash and cash equivalents, end of period				$215,497				$361,658
Supplemental information:
Cash payments for interest and income taxes:
Interest paid				$58,312				$67,550
Income taxes paid				16,071				14,321
Non-cash investing activities:
Property, plant and equipment accrued				13,834				14,509
Transfer of inventory to property, plant and equipment				—				12,641

Supplemental Segment Data (in thousands)
				For the Three Months Ended:
Revenue				September 30, 2018										September 30, 2017
				Third Party Revenues			Intersegment Revenues (Expense), net			Direct Revenues				Third Party Revenues			Intersegment Revenues (Expense), net			Direct Revenues
Environmental Services				$508,813			$34,167			$542,980				$440,163			$32,518			$472,681
Safety-Kleen				333,901			(33,016)			300,885				315,028			(31,754)			283,274
Corporate Items				467			(1,151)			(684)				655			(764)			(109)
Total				$843,181			$—			$843,181				$755,846			$—			$755,846
				For the Nine Months Ended:
Revenue				September 30, 2018										September 30, 2017
				Third Party Revenues			Intersegment Revenues (Expense), net			Direct Revenues				Third Party Revenues			Intersegment Revenues (Expense), net			Direct Revenues
Environmental Services				$1,468,417			$101,824			$1,570,241				$1,285,701			$97,466			$1,383,167
Safety-Kleen				972,534			(99,250)			873,284				910,885			(95,461)			815,424
Corporate Items				1,148			(2,574)			(1,426)				989			(2,005)			(1,016)
Total				$2,442,099			$—			$2,442,099				$2,197,575			$—			$2,197,575

				For the Three Months Ended:							For the Nine Months Ended:
Adjusted EBITDA				September 30, 2018			September 30, 2017				September 30, 2018			September 30, 2017
Environmental Services				$102,419			$86,505				$273,035			$241,527
Safety-Kleen				79,502			70,305				214,455			182,954
Corporate Items				(40,644)			(33,811)				(118,387)			(100,656)
Total				$141,277			$122,999				$369,103			$323,825

View source version on businesswire.com: https://www.businesswire.com/news/home/20181031005392/en/

Source: Clean Harbors, Inc.

Clean Harbors, Inc.
Michael L. Battles, 781-792-5100
EVP and Chief Financial Officer
InvestorRelations@cleanharbors.com
or
Jim Buckley, 781-792-5100
SVP Investor Relations
Buckley.James@cleanharbors.com