Clean Harbors Reports Second-Quarter 2014 Financial Results

• Company Posts Q2 Revenue of $858.5 Million and EPS of $0.47
• Achieves Adjusted EBITDA of $135.8 Million; Margin Increases to 15.8%
• $75 Million Cost Reduction Program Proceeding on Plan
• Technical Services Segment Grows 5% on Continued Safety-Kleen Contributions
• Company Raises Low End of 2014 Adjusted EBITDA Guidance Range Based on Cost Savings

NORWELL, Mass.--(BUSINESS WIRE)--Aug. 6, 2014-- 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 and six months ended June 30, 2014.

Revenues for the second quarter were $858.5 million, compared with $860.5 million in the same period in 2013. Income from operations in the second quarter of 2014 increased 26% to $67.1 million, compared with $53.2 million in the same period of 2013.

Second-quarter 2014 net income increased 25% to $28.7 million, or $0.47 per diluted share, compared with $22.9 million, or $0.38 per diluted share, in the second quarter of 2013. Second-quarter 2014 net income included $4.0 million of pre-tax integration and severance costs. Second-quarter 2013 net income included pre-tax integration and severance costs of approximately $6.8 million. The effective tax rate in the second quarter of 2014 was 39.1%, compared with 35.1% in the same period of last year.

Adjusted EBITDA (see description below) in the second quarter of 2014 increased to $135.8 million, compared with $123.6 million in the same period of 2013.

Comments on the Second Quarter

“We rebounded from a slow start to the year and moved into what is historically a seasonally stronger period for the Company,” said Alan S. McKim, Chairman and Chief Executive Officer. “Our top-line results were slightly below our guidance range, hampered by some project delays and reduced activity in the Oil Sands region as well as a larger-than-expected revenue decrease in Oil and Gas Field Services. Conversely, we delivered better-than-expected margins and exceeded our Adjusted EBITDA guidance for the quarter, benefiting from cost reduction initiatives, a focus on high-margin opportunities and strong contributions from Technical Services. Our Adjusted EBITDA margins increased to 15.8% – 140 basis points higher than a year ago.”

“Technical Services delivered an outstanding quarter with Adjusted EBITDA growth of more than 20% on 5% revenue growth,” McKim said. “Incineration utilization reached 95% in the quarter as we continued to drive incremental volumes from SK Environmental Services. Oil Re-refining and Recycling also was a strong performer, achieving double-digit growth in revenues and profitability. Industrial and Field Services continued to be affected by the negative impact of currency translation on our Canadian operations, as well as the ongoing project slowdown in Canada, particularly in the Oil Sands. Oil and Gas Field Services experienced continued softness in the seismic business due to market conditions, as well as the unfavorable currency translation effect.”

Based on organizational changes the Company recently made as part of its operational review, Lodging Services – previously reported as part of Industrial and Field Services – will now be reported as a separate segment. “As a result of the slowdown in Oil Sands projects and higher near-term maintenance costs, Lodging Services revenue and profitability were down year-over-year,” McKim said.

“Our previously announced cost reduction program proceeded on schedule in the second quarter and we remain on course to attain our full-year goal of $75 million. We completed our planned headcount reductions early in the quarter and moved forward with a broad range of initiatives aimed at lowering our cost structure and improving our returns. In addition to the cost reductions, we also launched an array of margin improvement initiatives, including our pay-for-oil (PFO) program. In Q2, we lowered our PFO costs by two cents per gallon from the first quarter and we continue to make progress in this area. In addition, we executed on our share repurchase program, purchasing $15 million worth of Clean Harbors stock in the quarter,” McKim said.

Business Outlook and Financial Guidance

“As we move into the second half of 2014, we are encouraged by trends within our Technical Services segment and the volumes we are continuing to drive into our network, particularly from Safety-Kleen,” McKim said. “Within Oil Re-refining and Recycling, we are continuing to sell more blended product, lower PFO costs and increase efficiencies. However, the Company is continuing to experience softness in certain markets such as the Oil Sands, which is affecting our outlook for both Industrial and Field Services and Lodging Services. Challenges also remain in Oil and Gas Field Services, which continues to underperform. As a result of these factors, we expect to conclude the year at the low end of our revenue guidance range to reflect current market conditions.”

“At the same time, we are increasing the low end of our Adjusted EBITDA guidance range,” McKim said. “This increase is driven by the success of our $75 million cost savings program and our margin enhancement initiatives. We also continue to allocate resources and capital toward growing our most profitable businesses.”

“Going forward, we will look to increase our organic growth while continuing to improve our margin performance. We believe that our recent reconfiguration of our sales organization will be a driving force in generating momentum in the areas of cross selling and new business development. Overall, our pipeline of pending business remains solid, particularly within Technical Services, as we continue to target large-scale projects that drive significant volumes to our disposal facilities,” McKim concluded.

Based on its first-half financial performance, current market conditions and the effect of its cost savings program, Clean Harbors is updating its 2014 guidance. The Company now expects to be at the low end of its previously announced revenue range of $3.5 billion to $3.6 billion. Based on its ongoing cost reduction program, the Company now expects 2014 Adjusted EBITDA in the range of $535 million to $555 million, compared with its previous guidance of $525 million to $555 million. A reconciliation of the Company’s Adjusted EBITDA guidance to net income guidance is included below.

For the third quarter of 2014, the Company expects revenue in the range of $890 million to $910 million. The Company expects to generate Adjusted EBITDA for the third quarter of 2014 in the range of $155 million to $160 million. A reconciliation of the Company’s Adjusted EBITDA guidance to net income guidance is included below.

Non-GAAP Results

Clean Harbors reports Adjusted EBITDA results, which is a non-GAAP financial measure, as a complement to results provided in accordance with accounting principles generally accepted in the United States (GAAP). The Company believes that Adjusted EBITDA provides additional useful information to investors since the Company’s loan covenants are based upon levels of Adjusted EBITDA achieved. 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 second quarter and first six months of 2014 and 2013 (in thousands):

					For the Three Months Ended:								For the Six Months Ended:
					June 30, 2014			June 30, 2013					June 30, 2014				June 30, 2013
Net income					$	28,672		$	22,902				$	37,632			$	33,404
Accretion of environmental liabilities						2,609			2,879					5,333				5,714
Depreciation and amortization						66,075			67,468					135,431				127,474
Other expense (income)						655			(1,655	)				(3,523	)			(2,180	)
Interest expense, net						19,382			19,585					38,936				39,458
Pre-tax, non-cash acquisition accounting inventory adjustment						—			—					—				13,559
Provision for income taxes						18,406			12,411					23,976				17,389
Adjusted EBITDA					$	135,799		$	123,590				$	237,785			$	234,818

Adjusted EBITDA Guidance Reconciliation

An itemized reconciliation between projected net income and projected Adjusted EBITDA is as follows:

					For the Quarter Ending September 30, 2014
					Amount									Margin % (1)
					(In millions)
Projected GAAP net income					$	38		to		$	43			4.3	%		to		4.7	%
Adjustments:
Accretion of environmental liabilities						3		to			3			0.4	%		to		0.3	%
Depreciation and amortization						70		to			68			7.9	%		to		7.5	%
Interest expense, net						20		to			20			2.2	%		to		2.2	%
Provision for income taxes						24		to			26			2.6	%		to		2.9	%
Projected Adjusted EBITDA					$	155		to		$	160			17.4	%		to		17.6	%
Revenues (In millions)					$	890		to		$	910

					For the Year Ending December 31, 2014
					Amount									Margin % (1)
					(In millions)
Projected GAAP net income					$	99		to		$	117			2.8	%		to		3.2	%
Adjustments:
Accretion of environmental liabilities						13		to			11			0.4	%		to		0.3	%
Depreciation and amortization						280		to			275			8.0	%		to		7.6	%
Interest expense, net						80		to			79			2.3	%		to		2.2	%
Provision for income taxes						63		to			73			1.8	%		to		2.1	%
Projected Adjusted EBITDA					$	535		to		$	555			15.3	%		to		15.4	%
Revenues (In millions)					$	3,500		to		$	3,600

(1) The Margin % indicates the percentage that the line-item represents to total revenues for the respective reporting period, calculated by dividing the dollar amount for the line-item by total revenues for the reporting period.

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. On 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 Investors 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 of the call. If you are unable to listen to the live 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 the Fortune 500, across the chemical, energy, manufacturing and additional markets, 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,” 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 INCOME (in thousands except per share amounts)
					For the Three Months Ended:									For the Six Months Ended:
					June 30, 2014				June 30, 2013					June 30, 2014				June 30, 2013
Revenues					$	858,480			$	860,528				$	1,705,147			$	1,722,691
Cost of revenues (exclusive of items shown separately below)						606,950				614,326					1,232,669				1,250,350
Selling, general and administrative expenses						115,731				122,612					234,693				251,082
Accretion of environmental liabilities						2,609				2,879					5,333				5,714
Depreciation and amortization						66,075				67,468					135,431				127,474
Income from operations						67,115				53,243					97,021				88,071
Other (expense) income						(655	)			1,655					3,523				2,180
Interest expense, net						(19,382	)			(19,585	)				(38,936	)			(39,458	)
Income before provision for income taxes						47,078				35,313					61,608				50,793
Provision for income taxes						18,406				12,411					23,976				17,389
Net income					$	28,672			$	22,902				$	37,632			$	33,404
Earnings per share:
Basic					$	0.47			$	0.38				$	0.62			$	0.55
Diluted					$	0.47			$	0.38				$	0.62			$	0.55
Shares used to compute earnings per share — Basic						60,665				60,550					60,695				60,507
Shares used to compute earnings per share — Diluted						60,778				60,687					60,822				60,658

CLEAN HARBORS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
					June 30, 2014				December 31, 2013
Current assets:
Cash and cash equivalents					$	278,644			$	310,073
Marketable securities						—				12,435
Accounts receivable, net						575,187				579,394
Unbilled accounts receivable						35,529				26,568
Deferred costs						17,909				16,134
Inventories and supplies						161,792				152,096
Prepaid expenses and other current assets						48,991				41,962
Deferred tax assets						32,239				32,517
Total current assets						1,150,291				1,171,179
Property, plant and equipment, net						1,611,298				1,602,170
Other assets:
Deferred financing costs						19,284				20,860
Goodwill						578,974				570,960
Permits and other intangibles, net						553,658				569,973
Other						18,938				18,536
Total other assets						1,170,854				1,180,329
Total assets					$	3,932,443			$	3,953,678
Current liabilities:
Current portion of capital lease obligations					$	709			$	1,329
Accounts payable						262,553				316,462
Deferred revenue						61,593				55,454
Accrued expenses						245,368				236,829
Current portion of closure, post-closure and remedial liabilities						36,043				29,471
Total current liabilities						606,266				639,545
Other liabilities:
Closure and post-closure liabilities, less current portion						43,630				41,201
Remedial liabilities, less current portion						138,036				148,911
Long-term obligations						1,395,000				1,400,000
Capital lease obligations, less current portion						827				1,435
Deferred taxes, unrecognized tax benefits and other long-term liabilities						249,968				246,947
Total other liabilities						1,827,461				1,838,494
Total stockholders’ equity, net						1,498,716				1,475,639
Total liabilities and stockholders’ equity					$	3,932,443			$	3,953,678

Supplemental Segment Data (in thousands)
					For the Three Months Ended:
Revenue					June 30, 2014												June 30, 2013
					Third Party Revenues			Intersegment Revenues (Expense), net				Direct Revenues					Third Party Revenues			Intersegment Revenues (Expense), net				Direct Revenues
Technical Services					$	256,798		$	40,860			$	297,658				$	256,262		$	27,128			$	283,390
Industrial and Field Services						185,154			(11,011	)			174,143					199,225			(12,808	)			186,417
Oil Re-refining and Recycling						144,016			(54,866	)			89,150					123,008			(48,261	)			74,747
SK Environmental Services						171,324			23,307				194,631					166,523			32,207				198,730
Lodging Services						42,872			925				43,797					46,685			1,308				47,993
Oil and Gas Field Services						58,177			1,597				59,774					68,444			1,689				70,133
Corporate Items						139			(812	)			(673	)				381			(1,263	)			(882	)
Total					$	858,480		$	—			$	858,480				$	860,528		$	—			$	860,528

					For the Six Months Ended:
Revenue					June 30, 2014												June 30, 2013
					Third Party Revenues			Intersegment Revenues (Expense), net				Direct Revenues					Third Party Revenues				Intersegment Revenues (Expense), net				Direct Revenues
Technical Services					$	493,579		$	78,693			$	572,272				$	490,201			$	52,399			$	542,600
Industrial and Field Services						347,114			(22,614	)			324,500					368,846				(26,546	)			342,300
Oil Re-refining and Recycling						272,937			(102,982	)			169,955					263,092				(98,287	)			164,805
SK Environmental Services						332,712			43,206				375,918					326,325				67,161				393,486
Lodging Services						99,566			1,320				100,886					100,015				2,026				102,041
Oil and Gas Field Services						158,949			3,698				162,647					183,607				5,433				189,040
Corporate Items (1)						290			(1,321	)			(1,031	)				(9,395	)			(2,186	)			(11,581	)
Total					$	1,705,147		$	—			$	1,705,147				$	1,722,691			$	—			$	1,722,691

(1) Corporate Items revenue for the six months ended June 30, 2013 includes one-time, non-cash reductions of approximately $10.2 million due to the impact of fair value acquisition accounting adjustments on Safety-Kleen’s historical deferred revenue at December 28, 2012. Revenue for the six reportable segments for the six months ended June 30, 2013 excludes such adjustments to maintain comparability with future operating results and reflect how the Company manages the business.

Non-GAAP Segment Results

Clean Harbors reports Adjusted EBITDA results, which is a non-GAAP financial measure, as a complement to results provided in accordance with accounting principles generally accepted in the United States (GAAP) and believes that such information provides additional useful information to investors since the Company’s loan covenants are based upon levels of Adjusted EBITDA achieved. The Company defines Adjusted EBITDA in accordance with its existing credit agreement. See “Non-GAAP Results” for a reconciliation of the Company’s total Adjusted EBITDA to GAAP net income.

		For the Three Months Ended:									For the Six Months Ended:
Adjusted EBITDA		June 30, 2014				June 30, 2013					June 30, 2014				June 30, 2013
Technical Services		$	84,297			$	69,390				$	146,474			$	129,435
Industrial and Field Services			30,716				34,760					47,088				48,572
Oil Re-refining and Recycling			15,196				12,752					27,779				28,098
SK Environmental Services			31,307				34,076					54,132				61,082
Lodging Services			15,487				19,259					33,224				41,560
Oil and Gas Field Services			1,812				4,144					18,143				31,928
Corporate Items			(43,016	)			(50,791	)				(89,055	)			(105,857	)
Total		$	135,799			$	123,590				$	237,785			$	234,818

Source: Clean Harbors, Inc.

Clean Harbors, Inc.
James M. Rutledge, 781-792-5100
Vice Chairman, President and CFO
InvestorRelations@cleanharbors.com
or
Jim Buckley, 781-792-5100
SVP Investor Relations and Corporate Communications
Buckley.James@cleanharbors.com