Clean Harbors releases 2020 earnings

Clean Harbors Inc., Norwell, Massachusetts, released its results for the fourth quarter of 2020 as well as the full-year period.

“We concluded an outstanding 2020 with a strong fourth quarter,” Alan McKim, chairman, president and CEO of Clean Harbors, says. “While Q4 is typically a seasonally weaker period for Clean Harbors, our revenue grew nearly $17 million sequentially from the third quarter as some of our end markets continued their recovery from the pandemic. Our performance in the quarter was again led by our Environmental Services segment, where we achieved better-than-expected results due to a combination of high-value waste streams in our disposal network, strength in COVID-19 decontamination work and ongoing cost controls. We saw a significant increase in year-over-year margins in the quarter, marking our 12^th consecutive quarter of higher adjusted EBITDA margins.”

Q4 results

Revenues in Q4 2020 were $796.2 million compared with $871 million in the same period of 2019. Income from operations increased 18 percent to $61.7 million from $52.3 million in the fourth quarter of 2019.

Net income was $39.3 million, or $0.71 per diluted share. This compares with net income of $24.2 million, or $0.43 per diluted share, for the same period in 2019. Adjusted for certain items in both periods, adjusted net income was $35 million, or $0.63 per diluted share, for the fourth quarter of 2020, compared with adjusted net income of $23.3 million, or $0.42 per diluted share, in the same period of 2019.

Adjusted EBITDA was $136.1 million, which included $5.6 million of benefits from U.S. and Canadian government assistance programs, compared with adjusted EBITDA of $132.2 million in the fourth quarter of 2019.

Q4 2020 review

“Within Environmental Services, we drove increased volumes of high-value waste into our disposal and recycling network to close out the year,” McKim says. “We collected a record number of drums during the quarter, and we received high-value, complex waste streams into our network. These factors helped increase our average price per pound in the quarter by 16 percent from the comparable period in 2019, when bulk waste streams made up a higher percentage of our volumes. Our incineration utilization rate of 84 percent was lower than last year due to a higher-than-expected number of maintenance days in the quarter. Given the limited availability of project work, landfill volumes were down 37 percent, but that was largely offset by stronger base business driving a 42 percent increase in our average landfill pricing. Activity in certain areas within Technical Services and Industrial Services continued to improve sequentially.

“Revenue from COVID-19 decontamination work totaled $31 million in the quarter, reflecting the late-year surge from the pandemic,” McKim says. “Our team completed nearly 14,000 COVID-19 responses in 2020 and firmly established our leadership position as the go-to provider for these services. We continue to be an essential resource for protecting our customers’ facilities and helping to keep their employees safe from widespread COVID impacts.

“Within Safety-Kleen, market conditions were comparable with the third quarter, with revenue essentially flat on a sequential basis,” McKim says. “While certain geographies improved, new shelter-in-place restrictions in areas, such as California and across Canada, limited the ability of our branch business to continue its recovery to pre-pandemic levels. Within SK Oil, while lower vehicle miles driven continued to dampen market demand for lubricants, available base oil and lubricant supply from traditional refiners remained severely constrained, leading to price increases across the industry toward year-end. With fewer waste oil outlets available, market rates charged for used motor oil (UMO) remained high and collection volumes were relatively strong at 49 million gallons.”

2020 financial results

Clean Harbors' revenues were $3.14 billion in 2020 compared with $3.41 billion in 2019. Income from operations increased 10 percent to $251.3 million from $229.5 million in 2019.

Net income was $134.8 million, or $2.42 per diluted share, compared with net income of $97.7 million, or $1.74 per diluted share for 2019. Adjusted for certain items in both periods, the company reported adjusted net income for 2020 of $129.4 million, or $2.32 per diluted share, compared with adjusted net income of $105.9 million, or $1.89 per diluted share, in 2019.

Adjusted EBITDA increased to $555.3 million, which included $42.3 million of benefits from U.S. and Canadian government assistance programs, compared with adjusted EBITDA of $540.3 million in 2019.

“Considering the challenges of COVID-19, we delivered strong results in 2020 that could not have been achieved without the remarkable contributions of our industry-leading team,” McKim says. “For the full year, we delivered record adjusted EBITDA and adjusted free cash flow. Our results demonstrate the resiliency of our business model, the strength of our organization and the critical role we continue to play for our customers. During the year, we took comprehensive steps to help prepare the company for a return to growth and additional cross-selling post-pandemic by enhancing our regional structure with the addition of the SK branch business. We also effectively scaled down our cost structure in response to the pandemic and improved our efficiency through better workforce and asset utilization, greater use of data analytics and continued technology development.”

Business outlook

“We enter 2021 with positive momentum on many fronts—financially, operationally and within the markets we serve,” McKim says. “While the pandemic continues to weigh on some of our lines of business, we expect to experience a measurable recovery as the year progresses. In the interim, our COVID-19 decontamination business continues to serve as a natural hedge against continued slowdowns in other parts of the company. At the same time, we start the year with a healthy backlog of waste in our disposal facilities. We see opportunities to drive additional streams into our network, including the ongoing rebound in the U.S. chemical and manufacturing industries. Our pipeline of remediation and waste projects is sizeable today, and we expect that to grow over the course of 2021. In addition, we see our customers’ ongoing shift toward greater environmental responsibility aligning even more closely with the sustainability solutions we offer.

“Within Safety-Kleen, the growing demand for sustainable solutions has only increased the opportunities for our parts washers, base oil and blended lubricant products. For our Safety-Kleen branch business, we anticipate a steady recovery as vehicle miles driven increase with the rollout of vaccines across North America. For SK Oil, our re-refineries are running well and pricing conditions in the marketplace are favorable. We anticipate continuing to carefully manage our re-refining spread going forward while more aggressively seeking to grow our collection volumes given the market dislocations created by IMO 2020 and other factors,” McKim concluded.

Beginning with the first quarter of 2021, Clean Harbors will revise its calculation of reported adjusted EBITDA to add stock-based compensation costs, a non-cash item, to other charges that are added back to GAAP net income for purposes of calculating adjusted EBITDA. This change aligns the company’s definition of adjusted EBITDA to be consistent with all of the company’s loan agreements, facilitates comparison with industry peers and as revised will be the primary metric by which management will evaluate the performance of its businesses going forward. Using that approach, for full-year 2021, Clean Harbors expects:

• Adjusted EBITDA in the range of $545 million to $585 million, based on anticipated GAAP net income in the range of $105 million to $146 million; applying the company’s revised definition, adjusted EBITDA for 2020 would have been $573.8 million.
• Adjusted free cash flow in the range of $215 million to $255 million, based on anticipated 2021 net cash from operating activities in the range of $400 million to $460 million.
• For the first quarter of 2021, Clean Harbors expects adjusted EBITDA, using the new definition for both periods, to be approximately 5-10 percent below what the company delivered in the first quarter of 2020 when adjusted EBITDA under the revised definition would have been $125.9 million. This expected decline is based on the record results that the company delivered in the prior-year period before the onset of the pandemic.