Clean Harbors Reports Second-Quarter 2013 Financial Results

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, 2012

June 30, 2013

June 30, 2012

Net income

$22,902

$23,426

$33,404

$55,441

Accretion of environmental liabilities

2,879

2,505

5,714

4,921

Depreciation and amortization

67,468

38,663

127,474

75,494

Other (income) expense

(1,655)

75

(2,180)

374

Interest expense, net

19,585

10,968

39,458

22,240

Pre-tax, non-cash acquisition accounting adjustments

13,559

Provision for income taxes

12,411

13,064

17,389

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%

to

3.4%

Adjustments:

Pre-tax, non-cash acquisition accounting adjustments

14

to

14

0.4%

to

0.4%

Accretion of environmental liabilities

13

to

11

0.4%

to

0.3%

Depreciation and amortization

265

to

255

7.5%

to

7.2%

Interest expense, net

79

to

78

2.3%

to

2.2%

Provision for income taxes

59

to

66

1.7%

to

1.9%

Projected Adjusted EBITDA

$ 535

to

$ 545

15.3%

to

15.4%

Revenues (In millions)

$3,500

to

$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)

614,326

367,623

1,250,350

767,938

Selling, general and administrative expenses

122,612

66,794

251,082

137,553

Accretion of environmental liabilities

2,879

2,505

5,714

4,921

Depreciation and amortization

67,468

38,663

127,474

75,494

Income from operations

53,243

47,533

88,071

109,234

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 taxes

35,313

36,490

50,793

86,620

Provision for income taxes

12,411

13,064

17,389

31,179

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 outstanding

60,550

53,308

60,507

53,268

Weighted average common shares outstanding plus potentially dilutive common shares

60,687

53,505

60,658

53,497

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 securities

10,339

11,778

Accounts receivable, net

549,909

541,423

Unbilled accounts receivable

34,277

27,072

Deferred costs

17,255

6,888

Prepaid expenses and other current assets

53,471

75,778

Inventories and supplies

155,538

171,441

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

4,352

4,354

Deferred financing costs

22,410

21,657

Goodwill

575,275

593,771

Permits and other intangibles, net

555,422

572,817

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 revenue

63,374

50,942

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 portion

40,896

45,457

Remedial liabilities, less current portion

154,983

151,890

Long-term obligations

1,400,000

1,400,000

Capital lease obligations, less current portion

2,140

2,879

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:

Revenue

June 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 Recycling

139,695

(64,574)

75,121

--

--

--

SK Environmental Services

149,835

48,520

198,355

--

--

--

Industrial and Field Services

244,495

(11,665)

232,830

202,618

(11,212)

191,406

Oil and Gas Field Services

69,860

1,854

71,714

76,849

2,869

79,718