Clean Harbors Reports Second-Quarter 2013 Financial Results

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Clean Harbors Reports Second-Quarter 2013 Financial Results

  • Flood Conditions in Canada and Multiple Headwinds Result in Lower-Than-Expected Revenue of $860.5 Million, EPS of $0.38 and Adjusted EBITDA of $123.6 Million
  • Weakness in Oil & Gas and Oil Re-refining Expected to Continue Near-term
  • Safety-Kleen Integration Remains on Track
  • Company Reduces 2013 Revenue and Adjusted EBITDA Guidance

NORWELL, Mass.--(BUSINESS WIRE)-- Clean Harbors, Inc. ("Clean Harbors") (NYS: CLH) , the leading provider of environmental, energy and industrial services throughout North America,today announced financial results for the second quarter ended June 30, 2013.

Results for 2013 reflect the December 2012 acquisition of Safety-Kleen. Revenues for the second quarter of 2013 increased 64% to $860.5 million, compared with $523.1 million in the same period in 2012. Income from operations in the second quarter of 2013 increased 12% to $53.2 million from $47.5 million in the same period of 2012, which includes a 75% increase in depreciation and amortization expense.


Second-quarter 2013 net income was $22.9 million, or $0.38 per diluted share, compared with $23.4 million, or $0.44 per diluted share, in the second quarter of 2012. The Company's second-quarter 2013 net income includes approximately $6.8 million in pre-tax integration and severance costs. The effective tax rate in the second quarter of 2013 was 35.1%, compared with 35.8% in the same period of last year.

Adjusted EBITDA (see description below) in the second quarter of 2013 increased 39% to $123.6 million, compared with $88.7 million in the same period of 2012. Second-quarter 2013 Adjusted EBITDA includes the $6.8 million in pre-tax integration and severance costs.

Comments on the Second Quarter

"We delivered disappointing results for the second quarter as we experienced challenging conditions and weakness within our Oil Re-refining and Recycling segment and Oil and Gas Field Services segment," said Alan S. McKim, Chairman and Chief Executive Officer. "Our second-quarter performance reflects a combination of factors that limited our revenue and Adjusted EBITDA including historic flooding in Western Canada, a lower percentage of blended lubricant sales within our re-refinery business, an unplanned three-week shutdown at our largest incinerator and delays in some customer plant turnarounds."

"The flooding in Canada affected both our Industrial and Field Services segment and Oil and Gas Field Services segment with activity limited at certain customer sites and a slowdown in near-term Western Canadian drilling activity. Within our Oil Re-refining and Recycling segment, we sold a lower percentage of blended products, which reduced the segment's Adjusted EBITDA contribution," McKim said. "The highlight of the quarter was our Technical Services segment, which continued to demonstrate the benefits of our Safety-Kleen acquisition. Our incineration facilities achieved utilization for the quarter of 92.3% - despite the lengthy shutdown at our Deer Park facility - and landfill volumes increased 17% as a result of large-scale project work."

"The Safety-Kleen integration proceeded largely on schedule in the second quarter," McKim said. "We remain confident that we can achieve our targeted range for cost synergies in 2013 of $70 million to $75 million, which would keep us on track to realize $100 million of annualized cost synergies in 2014."

Business Outlook and Financial Guidance

"We continue to anticipate a stronger second half of 2013," McKim said. "We are confident that our disposal facilities will continue to run at high levels of utilization as we enter the strongest operating season for Technical Services. We expect SK Environmental Services to extend its recent growth into the second half of the year. Within Oil Re-refining and Recycling, we are working to revive our growth in blended volumes while continuing to reduce our input costs going forward. Trends within our Industrial and Field Services segment are also positive with a strong pipeline of available projects, conditions normalizing in Canada, and our Ruth Lake lodge coming online later this month. In Western Canada, drilling activity is now increasing, and our Oil and Gas Field Services segment is achieving success in expanding its presence in U.S. shale plays."

"Despite these positive trends, our expected second-half results will not be enough to enable us to achieve our full-year revenue and Adjusted EBITDA targets. As a result, we are lowering our 2013 guidance to reflect our second-quarter results and the delays that we experienced in several areas due to weather and certain market conditions. On the margin side, we have taken a significant amount of costs out of our combined organization and are continuing our efforts to better leverage Safety-Kleen. Overall, we believe our Company will deliver a solid finish to the year and will be well-positioned for success entering 2014," McKim concluded.

Based on its second-quarter performance and current market conditions, Clean Harbors is lowering its previously announced 2013 annual revenue and Adjusted EBITDA guidance. The Company currently expects 2013 revenues in the range of $3.50 billion to $3.55 billion, compared with its previous revenue guidance of $3.62 billion to $3.67 billion. In addition, the Company currently expects Adjusted EBITDA in the range of $535 million to $545 million, compared with its previous guidance of $605 million to $620 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 2013 and 2012 (in thousands):

 For the Three Months Ended: For the Six Months Ended:
June 30, 2013 June 30, 2012June 30, 2013 June 30, 2012
  
Net income$22,902$23,426$33,404$55,441
Accretion of environmental liabilities2,8792,5055,7144,921
Depreciation and amortization67,46838,663127,47475,494
Other (income) expense(1,655)75(2,180)374
Interest expense, net19,58510,96839,45822,240
Pre-tax, non-cash acquisition accounting adjustments13,559
Provision for income taxes12,411 13,06417,389 31,179
Adjusted EBITDA$123,590 $88,701$234,818 $189,649
 

Adjusted EBITDA Guidance Reconciliation

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

 

For the Year Ending December 31, 2013

Amount Margin % (1)
(In millions)  
Projected GAAP net income

$ 105

 to $ 121

3.0%

to3.4%
Adjustments:
Pre-tax, non-cash acquisition accounting adjustments14to140.4%to0.4%
Accretion of environmental liabilities13to110.4%to0.3%
Depreciation and amortization265to2557.5%to7.2%
Interest expense, net79to782.3%to2.2%
Provision for income taxes

59

 to 66

1.7%

 to 1.9%
Projected Adjusted EBITDA$ 535 to $ 54515.3% to 15.4%
 
Revenues (In millions)$3,500to$3,550
 

(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 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 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 (NYS: CLH) is the leading provider of environmental, energy and industrial services throughout North America. The Company serves a diverse customer base, including a majority of the Fortune 500 companies, thousands of smaller private entities and numerous federal, state, provincial and local governmental agencies. Through its Safety-Kleen subsidiary, Clean Harbors also is a premier provider of used oil recycling and re-refining, parts washers and environmental services for the small quantity generator market.

Headquartered in Massachusetts, Clean Harbors has waste disposal facilities and service locations throughout the United States and Canada, as well as 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, the expected Safety-Kleen synergies 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, June 30,June 30, June 30,

2013

2012

2013

2012

 
Revenues$860,528$523,118$1,722,691$1,095,140
Cost of revenues (exclusive of items shown separately below)614,326367,6231,250,350767,938
Selling, general and administrative expenses122,61266,794251,082137,553
Accretion of environmental liabilities2,8792,5055,7144,921
Depreciation and amortization67,46838,663127,47475,494
Income from operations53,24347,53388,071109,234
Other income (expense)1,655(75)2,180(374)
Interest (expense), net(19,585)(10,968)(39,458)(22,240)
Income before provision for income taxes35,31336,49050,79386,620
Provision for income taxes12,41113,06417,38931,179
Net income$22,902$23,426$33,404$55,441
Earnings per share:
Basic$0.38$0.44$0.55$1.04
Diluted$0.38$0.44$0.55$1.04
 
Weighted average common shares outstanding60,55053,30860,50753,268

Weighted average common shares outstanding plus potentially dilutive common shares

60,68753,50560,65853,497
 
 

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

(in thousands)

  
June 30,December 31,

2013

2012

Current assets:
Cash and cash equivalents$263,478$229,836
Marketable securities10,33911,778
Accounts receivable, net549,909541,423
Unbilled accounts receivable34,27727,072
Deferred costs17,2556,888
Prepaid expenses and other current assets53,47175,778
Inventories and supplies155,538171,441
Deferred tax assets 20,924 22,577
Total current assets 1,105,191 1,086,793
 
Property, plant and equipment, net 1,554,972 1,531,763
 

Other assets:

Long-term investments

4,3524,354
Deferred financing costs22,41021,657
Goodwill575,275593,771
Permits and other intangibles, net555,422572,817
Other 14,491 14,651
Total other assets 1,171,950 1,207,250
Total assets$3,832,113$3,825,806
 
 

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

(in thousands)

  

June 30,

December 31,

2013

2012

Current liabilities:
Current portion of capital lease obligations$2,923$5,092
Accounts payable

273,058

256,468
Deferred revenue63,37450,942
Accrued expenses

242,362

232,429
Current portion of closure, post-closure and remedial liabilities 22,470 24,121
Total current liabilities 604,187 569,052
Other liabilities:
Closure and post-closure liabilities, less current portion40,89645,457
Remedial liabilities, less current portion154,983151,890
Long-term obligations1,400,0001,400,000
Capital lease obligations, less current portion2,1402,879
Deferred taxes, unrecognized tax benefits and other long-term
liabilities
 215,187 224,456
Total other liabilities 1,813,206 1,824,682
Total stockholders' equity, net 1,414,720 1,432,072
Total liabilities and stockholders' equity$3,832,113$3,825,806
 
 

Supplemental Segment Data (in thousands)

 
 For the Three Months Ended:
RevenueJune 30, 2013 June 30, 2012

Third Party
Revenues

 

Intersegment
Revenues, net

 

Direct
Revenues

Third Party
Revenues

 

Intersegment
Revenues, net

 

Direct
Revenues

Technical Services$256,262 $27,128 $283,390$243,321 $8,865 $252,186
Oil Re-refining and Recycling139,695(64,574)75,121------
SK Environmental Services149,83548,520198,355------
Industrial and Field Services244,495(11,665)232,830202,618(11,212)191,406
Oil and Gas Field Services69,8601,85471,71476,8492,86979,718
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