Clean harbors announces third-quarter 2022 financial results
Norwell, mass.--(business wire)--clean harbors, inc. (“clean harbors”) (nyse: clh), the leading provider of environmental and industrial services throughout north america, today announced financial results for the third quarter ended september 30, 2022. “in the third quarter, favorable market dynamics combined with the quality of our offerings drove continued broad-based demand for our comprehensive suite of environmental services and sustainable products,” said alan s. mckim, chairman, president and chief executive officer. “we extended our strong 2022 performance with a revenue increase of 43%, growth in adjusted ebitda of 67% and a corresponding improvement in adjusted ebitda margins of 310 basis points to 22.6%. our positive results were driven by profitable growth contributions from both of our operating segments. most importantly, our safety performance in the quarter and year to date was the best in our history with a total recordable incident rate (trir) of just 0.74 through nine months – far below our annual goal of less than 1.0.” third-quarter results revenues increased 43% to $1.36 billion from $951.5 million in the same period of 2021. income from operations nearly doubled to $209.1 million from $104.8 million in the third quarter of 2021. net income was $135.8 million, or $2.50 per diluted share. this compared with net income of $65.4 million, or $1.20 per diluted share, for the same period in 2021. adjusted for certain items in both periods, adjusted net income was $132.4 million, or $2.43 per diluted share, for the third quarter of 2022, compared with adjusted net income of $62.2 million, or $1.14 per diluted share, for the same period of 2021. (see reconciliation tables below). adjusted ebitda (see description below) increased 67% to $308.6 million from $185.1 million in the same period of 2021. q3 2022 segment review “environmental services (es) revenues increased 46% year-over-year, and adjusted ebitda in the segment rose 57%. our profitable growth was driven by the october 2021 acquisition of hydrochempsc (hpc), robust volumes of high-value waste streams, pricing initiatives to combat inflation and strong utilization of people and equipment across all our service businesses,” mckim said. “utilization of our incinerator network was a healthy 86% in the quarter, up from 82% a year ago. average incineration pricing rose 10% from a year ago, reflecting price increases and the impact of higher-value waste streams. landfill volumes increased 38% as we continued to capture more remediation and waste projects. on the strength of sizeable summer activity, our industrial services business performed well in the quarter. safety-kleen environmental revenue grew 23% as its core service offerings remained in demand, particularly in the automotive service vertical. field services delivered a 29% increase in revenue through the addition of hpc’s utilities business and a variety of local emergency response projects throughout our network. in addition to higher revenue, es also benefitted from cost-control initiatives and operational efficiencies, resulting in segment ebitda margin improving 170 basis points from a year ago. “safety-kleen sustainability solutions (skss) delivered record quarterly results as revenues grew 34% in the third quarter, and adjusted ebitda climbed 46% from a year ago,” mckim said. “demand for our base oil was high in q3 and our network of re-refineries ran well, including the new georgia plant we acquired in june. we also achieved growth across all of our recycling services offered in this segment including oil filter collection and antifreeze recycling. waste oil collections remained strong at 62 million gallons. since its formation less than two years ago, our skss team has proven adept at actively managing the front end of our re-refining spread to maximize profitability. the skss segment achieved its record performance in the quarter despite the fact that our blended volumes were severely limited by supply chain disruptions resulting from an industrywide additive shortage. the additive industry is beginning to recover, and we expect our blended volumes to increase in 2023 as that remains part of our long-term growth strategy for this segment.” business outlook and financial guidance “looking ahead, we expect to close out 2022 with a strong fourth-quarter performance,” mckim said. “within environmental services, we continue to see a record backlog of waste and healthy demand for our network of disposal and recycling assets. we anticipate a solid finish to the year through a combination of base business and project work. our service businesses are all entering the final quarter of the year with good momentum. we are continuing to hire as rapidly as possible across our environmental services segment to facilitate additional growth while also reducing our third-party spend. “within skss, the record results we are achieving this year demonstrate how well we are managing both ends of our re-refining spread,” mckim said. “we are seeing growing interest in our sustainable products, including our recently launched kleen+ brand, as customers seek esg friendly solutions. we are confident that the inherent value of our base oil will increase in the years ahead. on the front end of our re-refining spread, we are continuing to collect the volumes needed for our plants at better rates due to the long-term market impact of imo 2020, the internal changes we made to the organization, and continuous improvements in our systems and transportation. “given our year-to-date performance, we are raising our annual adjusted ebitda guidance to more than $1 billion, which reflects the acceleration of demand for our environmentally focused services and products. our revenue is growing more rapidly than we had expected, which is driving higher than anticipated working capital needs. in addition, we are carrying a higher level of critical inventories to ensure we stay ahead of global supply chain shortages. therefore, we are reducing our adjusted free cash flow guidance to reflect the timing of working capital from those two factors. with the ongoing backdrop of high inflation and interest rate hikes, we are continuing to execute on our strategies for pricing, cost mitigation and operational efficiencies to drive further margin improvement. we anticipate leveraging the strengths of both operating segments to achieve record top- and bottom-line results in 2022,” mckim concluded. based on its year-to-date performance and current market conditions, clean harbors is revising its 2022 adjusted ebitda and adjusted free cash flow guidance. for the year, the company now expects: adjusted ebitda in the range of $1.010 billion to $1.030 billion, or a midpoint of $1.020 billion. this range is based on anticipated gaap net income in the range of $387 million to $410 million; and adjusted free cash flow in the range of $260 million to $290 million, or a midpoint of $275 million. this range is based on anticipated net cash from operating activities in the range of $585 million to $635 million. non-gaap results clean harbors reports adjusted ebitda, which is a non-gaap financial measure and should not be considered as an alternative to net income 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 measurement 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 revolving 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, 2022 and 2021 (in thousands, except percentages): for the three months ended for the nine months ended september 30, 2022 september 30, 2021 september 30, 2022 september 30, 2021 net income $ 135,799 $ 65,443 $ 329,270 $ 154,254 accretion of environmental liabilities 3,246 2,799 9,599 8,625 stock-based compensation 7,828 6,001 20,375 12,786 depreciation and amortization 88,394 71,451 260,560 215,206 other (income) expense, net (104 ) (199 ) (2,073 ) 2,509 gain on sale of business — — (8,864 ) — interest expense, net of interest income 28,081 17,984 79,354 53,953 provision for income taxes 45,311 21,605 109,663 54,973 adjusted ebitda $ 308,555 $ 185,084 $ 797,884 $ 502,306 adjusted ebitda margin 22.6 % 19.5 % 20.5 % 18.7 % this press release includes a discussion of net income and earnings per share adjusted for the impacts of tax-related valuation allowances and other items 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 and adjusted net income, and the difference between earnings per share and adjusted earnings per share, for the three and nine months ended september 30, 2022 and 2021 (in thousands, except per share amounts): for the three months ended for the nine months ended september 30, 2022 september 30, 2021 september 30, 2022 september 30, 2021 adjusted net income net income $ 135,799 $ 65,443 $ 329,270 $ 154,254 gain on sale of business — — (8,864 ) — tax-related valuation allowances and other (3,399 ) (3,228 ) (9,494 ) (3,221 ) adjusted net income $ 132,400 $ 62,215 $ 310,912 $ 151,033 adjusted earnings per share earnings per share $ 2.50 $ 1.20 $ 6.04 $ 2.81 gain on sale of business — — (0.16 ) — tax-related valuation allowances and other (0.07 ) (0.06 ) (0.18 ) (0.06 ) adjusted earnings per share $ 2.43 $ 1.14 $ 5.70 $ 2.75 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 its 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, less additions to property, plant and equipment plus proceeds from sale and disposal of fixed assets. the company excludes cash impacts of items derived from non-operating activities such as taxes paid in connection with divestitures. 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 the company’s measurement 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 for the three and nine months ended september 30, 2022 and 2021 (in thousands): for the three months ended for the nine months ended september 30, 2022 september 30, 2021 september 30, 2022 september 30, 2021 adjusted free cash flow net cash from operating activities $ 225,572 $ 102,794 $ 357,542 $ 368,226 additions to property, plant and equipment (96,505 ) (54,666 ) (244,547 ) (146,654 ) proceeds from sale and disposal of fixed assets 2,095 12,945 5,118 16,424 adjusted free cash flow $ 131,162 $ 61,073 $ 118,113 $ 237,996 adjusted ebitda guidance reconciliation an itemized reconciliation between projected gaap net income and projected adjusted ebitda is as follows (in millions): for the year ending december 31, 2022 projected gaap net income $387 to $410 adjustments: accretion of environmental liabilities 13 to 12 stock-based compensation 26 to 29 depreciation and amortization 345 to 335 gain on sale of business (9) to (9) interest expense, net 115 to 113 provision for income taxes 133 to 140 projected adjusted ebitda $1,010 to $1,030 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, 2022 projected net cash from operating activities $ 585 to $ 635 additions to property, plant and equipment (330 ) to (350 ) proceeds from sale and disposal of fixed assets 5 to 5 projected adjusted free cash flow $ 260 to $ 290 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 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 in the united states, canada, mexico, puerto rico and india. 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,” “seeks,” “should,” “estimates,” “projects,” “may,” “likely,” 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. forward-looking statements are neither historical facts nor assurances of future performance. 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, 2022 september 30, 2021 september 30, 2022 september 30, 2021 revenues $ 1,363,086 $ 951,479 $ 3,888,507 $ 2,686,085 cost of revenues: (exclusive of items shown separately below) 910,648 639,232 2,652,506 1,817,654 selling, general and administrative expenses 151,711 133,164 458,492 378,911 accretion of environmental liabilities 3,246 2,799 9,599 8,625 depreciation and amortization 88,394 71,451 260,560 215,206 income from operations 209,087 104,833 507,350 265,689 other income (expense), net 104 199 2,073 (2,509 ) gain on sale of business — — 8,864 — interest expense, net (28,081 ) (17,984 ) (79,354 ) (53,953 ) income before provision for income taxes 181,110 87,048 438,933 209,227 provision for income taxes 45,311 21,605 109,663 54,973 net income $ 135,799 $ 65,443 $ 329,270 $ 154,254 earnings per share: basic $ 2.51 $ 1.20 $ 6.07 $ 2.83 diluted $ 2.50 $ 1.20 $ 6.04 $ 2.81 shares used to compute earnings per share - basic 54,111 54,411 54,278 54,553 shares used to compute earnings per share - diluted 54,381 54,707 54,542 54,862 clean harbors, inc. and subsidiaries unaudited condensed consolidated balance sheets (in thousands) september 30, 2022 december 31, 2021 current assets: cash and cash equivalents $ 449,023 $ 452,575 short-term marketable securities 65,034 81,724 accounts receivable, net 1,026,226 792,734 unbilled accounts receivable 134,742 94,963 inventories and supplies 294,220 250,692 prepaid expenses and other current assets 71,846 68,483 total current assets 2,041,091 1,741,171 property, plant and equipment, net 1,923,675 1,863,175 other assets: operating lease right-of-use assets 161,668 161,797 goodwill 1,246,327 1,227,042 permits and other intangibles, net 621,834 644,912 other 78,032 15,602 total other assets 2,107,861 2,049,353 total assets $ 6,072,627 $ 5,653,699 current liabilities: current portion of long-term debt $ 17,535 $ 17,535 accounts payable 416,913 359,866 deferred revenue 93,425 83,749 accrued expenses and other current liabilities 405,257 391,414 current portion of closure, post-closure and remedial liabilities 36,904 25,136 current portion of operating lease liabilities 47,879 47,614 total current liabilities 1,017,913 925,314 other liabilities: closure and post-closure liabilities, less current portion 89,399 87,088 remedial liabilities, less current portion 97,737 98,752 long-term debt, less current portion 2,507,946 2,517,024 operating lease liabilities, less current portion 116,607 117,991 deferred tax liabilities 326,842 314,853 other long-term liabilities 78,602 78,790 total other liabilities 3,217,133 3,214,498 total stockholders’ equity, net 1,837,581 1,513,887 total liabilities and stockholders’ equity $ 6,072,627 $ 5,653,699 clean harbors, inc. and subsidiaries unaudited consolidated statements of cash flows (in thousands) for the nine months ended september 30, 2022 september 30, 2021 cash flows from operating activities: net income $ 329,270 $ 154,254 adjustments to reconcile net income to net cash from operating activities: depreciation and amortization 260,560 215,206 allowance for doubtful accounts 6,684 7,186 amortization of deferred financing costs and debt discount 4,734 2,718 accretion of environmental liabilities 9,599 8,625 changes in environmental liability estimates 2,105 341 deferred income taxes 2,226 5,202 other (income) expense, net (2,073 ) 2,509 stock-based compensation 20,375 12,786 gain on sale of business (8,864 ) — environmental expenditures (9,720 ) (12,223 ) changes in assets and liabilities, net of acquisitions: accounts receivable and unbilled accounts receivable (293,562 ) (113,601 ) inventories and supplies (44,324 ) (12,882 ) other current and non-current assets (12,600 ) (10,785 ) accounts payable 52,979 86,974 other current and long-term liabilities 40,153 21,916 net cash from operating activities 357,542 368,226 cash flows used in investing activities: additions to property, plant and equipment (244,547 ) (146,654 ) proceeds from sale and disposal of fixed assets 5,118 16,424 acquisitions, net of cash acquired (73,568 ) (22,819 ) proceeds from sale of business, net of transaction costs 16,811 — additions to intangible assets including costs to obtain or renew permits (1,094 ) (2,659 ) proceeds from sale of available-for-sale securities 51,736 83,226 purchases of available-for-sale securities (36,418 ) (96,785 ) net cash used in investing activities (281,962 ) (169,267 ) cash flows used in financing activities: change in uncashed checks 887 (4,323 ) tax payments related to withholdings on vested restricted stock (6,214 ) (7,383 ) repurchases of common stock (44,182 ) (48,409 ) deferred financing costs paid (410 ) (150 ) payments on finance leases (9,538 ) (5,845 ) principal payments on debt (13,152 ) (5,652 ) net cash used in financing activities (72,609 ) (71,762 ) effect of exchange rate change on cash (6,523 ) 365 (decrease) increase in cash and cash equivalents (3,552 ) 127,562 cash and cash equivalents, beginning of period 452,575 519,101 cash and cash equivalents, end of period $ 449,023 $ 646,663 supplemental information: cash payments for interest and income taxes: interest paid $ 86,407 $ 61,807 income taxes paid, net of refunds 53,183 48,202 non-cash investing activities: property, plant and equipment accrued 23,726 11,561 remedial liability assumed in acquisition of property, plant and equipment 8,092 — rou assets obtained in exchange for operating lease liabilities 39,899 18,528 rou assets obtained in exchange for finance lease liabilities 11,263 18,704 supplemental segment data (in thousands) for the three months ended revenue september 30, 2022 september 30, 2021 third-party revenues intersegment revenues, net direct revenues third-party revenues intersegment revenues, net direct revenues environmental services $ 1,080,032 $ 6,452 $ 1,086,484 $ 743,831 $ 1,802 $ 745,633 safety-kleen sustainability solutions 282,771 (6,452 ) 276,319 207,589 (1,802 ) 205,787 corporate items 283 — 283 59 — 59 total $ 1,363,086 $ — $ 1,363,086 $ 951,479 $ — $ 951,479 for the nine months ended revenue september 30, 2022 september 30, 2021 third-party revenues intersegment revenues, net direct revenues third-party revenues intersegment revenues, net direct revenues environmental services $ 3,105,336 $ 19,336 $ 3,124,672 $ 2,119,856 $ 4,476 $ 2,124,332 safety-kleen sustainability solutions 782,737 (19,336 ) 763,401 566,012 (4,476 ) 561,536 corporate items 434 — 434 217 — 217 total $ 3,888,507 $ — $ 3,888,507 $ 2,686,085 $ — $ 2,686,085 for the three months ended for the nine months ended adjusted ebitda september 30, 2022 september 30, 2021 september 30, 2022 september 30, 2021 environmental services $ 260,687 $ 166,471 $ 713,630 $ 482,766 safety-kleen sustainability solutions 103,156 70,810 252,043 165,756 corporate items (55,288 ) (52,197 ) (167,789 ) (146,216 ) total $ 308,555 $ 185,084 $ 797,884 $ 502,306
