Clean Harbors reports Q3 earnings

Clean Harbors Inc., Norwell, Massachusetts, announced financial results for the third quarter on Nov. 4.

Highlights from Q3 earnings include:

• The company reported Q3 revenues of $779.3 million
• The company had a net income of $54.9 million, earnings per share (EPS) of 99 cents and adjusted EPS of 90 cents in Q3
• The company had an adjusted EBITDA of $161.2 million, including $13.3 million from government assistance programs in Q3
• The company generated $29 million in decontamination emergency response revenue in Q3
• The company delivered record quarterly adjusted free cash flow of $123.5 million

“We delivered strong third quarter results that came in ahead of our expectations,” Clean Harbors President and CEO Alan McKim says. “Our performance reflects the resiliency of our business model, as well as the dedication of our people. We have now improved our adjusted EBITDA margins for 11 consecutive quarters. In response to the pandemic and the dynamic market conditions it created, we established a leadership position in providing advanced decontamination and disposal services for customers affected by COVID-19. We also substantially improved our operational efficiencies and lowered our overall cost structure, which is reflected in our third quarter margin performance. During the quarter, we saw a steady sequential pick-up from the second quarter across several of our core lines of business, particularly within Safety-Kleen.”

Q3 results breakdown

Revenues were $779.3 million in Q3 compared with $891.7 million in the same period of 2019. Income from operations was $83.9 million compared with $80.4 million in the third quarter of 2019.

Net income was $54.9 million, or 99 cents per diluted share during the quarter. This compares with net income of $36.4 million, or 65 cents per diluted share, for the same period in 2019. Adjusted for certain items in both periods, adjusted net income was $49.9 million, or 90 cents per diluted share for the third quarter, compared with adjusted net income of $40.7 million, or 72 cents per diluted share, in the same period of 2019.

Adjusted EBITDA was $161.2 million, including $13.3 million of benefit from U.S. and Canadian government assistance programs, compared with $156.6 million in the same period of 2019.

“Environmental Services delivered strong profitability through a combination of cost reductions, productivity improvements, a healthy mix of higher-margin work and government incentives,” McKim says. “We experienced a lower utilization rate of 80 percent at our incinerators in the quarter due to the timing of turnarounds and a production lag from some customers, but we continued to execute on our strategy to capture higher-value waste streams across our network. This resulted in an average price per pound increase of 5 percent from the prior year. Landfill volumes declined nominally, as stronger base business largely offset the lack of remediation and waste projects caused by the pandemic. While still below historical averages, activity in other service areas of the segment, including Technical Services and Industrial Services, saw steady increases in demand at key customers during the quarter.

“Revenue from COVID-19 decontamination work totaled $29 million in the quarter, which helped drive a 20 percent top-line increase in Field Services. Our team has now completed more than 9,000 COVID-19 responses, reinforcing our leadership position. We are extremely proud of the decontamination work being done by our people out on the front lines as they limit the spread of this virus, protect our customers and make our communities and workplaces safe again.

“Safety-Kleen rebounded from the shelter-in-place restrictions that had severely disrupted customer demand in the second quarter of 2020. In fact, on a year-over-year basis, revenue in our branch business was only off 6 percent in Q3—much better than we anticipated. The lifting of local restrictions across much of North America led to an increase in vehicle miles driven, generating improved lubricant demand. Based on the strength of the recovery in near-term demand for base oil and finished lube products, we restarted three re-refineries that were taken offline at the outset of the pandemic. Given the declining market value of waste oil, we maintained high charge-for-oil (CFO) rates for used motor oil (UMO) and increased our collection volumes to 50 million gallons, 16 percent ahead of second quarter levels.”

Business outlook and financial guidance

“We enter the final quarter of 2020 positioned for continued success in the current environment,” McKim says. “Our market leadership and renowned emergency response capabilities have enabled us to capitalize on opportunities and safely navigate the challenges presented by the pandemic. Over the past two quarters, prudent cost actions and reduced capital spending have helped us drive record adjusted EBITDA margins and adjusted free cash flow. We believe that our COVID-19 decontamination business can continue to help hedge against potential slowdowns in revenue and profitability in other parts of the company.

“Within Environmental Services, we anticipate a sequential uptick in incineration utilization in the fourth quarter as we saw steady increases in production and waste volumes at our key customers during the third quarter. Because virus-related project delays remain, we do not expect landfills to fully recover until sometime in 2021, when we believe PFAS and other larger opportunities start to come to market. For Industrial Services and Technical Services, we anticipate our core service offerings to close out the year on an upward trajectory. Field Services remains on track for a great year, with anticipated COVID-related revenue exceeding $100 million.

“Our Safety-Kleen branch business remains below historical levels, but demand has improved markedly from the lows of April and May. With the ongoing spike in COVID-19 cases, we are sensitive to the possibility of new shelter-in-place mandates that could disrupt the recovery of this business. For Safety-Kleen Oil, our primary re-refineries are all back online and base oil pricing is stable. We continue to actively manage our CFO rates with the goal of growing collection volumes to supply our re-refinery network.”

Based on its year-to-date financial performance and current market conditions, Clean Harbors raised its adjusted EBITDA and adjusted free cash flow guidance ranges and currently expects:

Adjusted EBITDA in the range of $530 million to $550 million based on anticipated 2020 GAAP net income in the range of $104 million to $130 million; and

Adjusted free cash flow in the range of $250 million to $270 million based on anticipated 2020 net cash from operating activities in the range of $405 million to $445 million.