Business Wire | Aug 5, 2020 07:30AM EDT

Clean Harbors Announces Second-Quarter 2020 Financial Results

Aug. 05, 2020

NORWELL, Mass.--(BUSINESS WIRE)--Aug. 05, 2020--Clean Harbors, Inc. ("Clean Harbors") (NYSE: CLH), the leading provider of environmental and industrial services throughout North America, today announced financial results for the second quarter ended June 30, 2020.

"Our second-quarter results demonstrate the resiliency of our business model and our organization's ability to effectively respond to a crisis," said Alan S. McKim, Chairman, President and Chief Executive Officer. "The COVID-19 pandemic forced shutdowns across North America, which began to impact many of our markets and customers. In response, we enacted a comprehensive series of actions, including developing safety protocols to protect our workforce, rapidly reducing costs, lowering our capital spending, partially shutting down work locations, temporarily closing nearly half our re-refinery capacity and launching a comprehensive COVID-19 emergency response service offering."

Second-Quarter 2020 Results

Revenues were $710.0 million compared with $868.7 million in the same period of 2019. Income from operations was $60.2 million compared with $73.0 million in the second quarter of 2019.

Net income was $29.0 million, or $0.52 per diluted share. This compares with net income of $36.2 million, or $0.65 per diluted share, for the same period in 2019. Adjusted for certain items in both periods, adjusted net income was $28.9 million, or $0.52 per diluted share, for the second quarter of 2020, compared with adjusted net income of $36.9 million, or $0.66 per diluted share, in the same period of 2019. (See reconciliation table below)

Adjusted EBITDA (see description below) was $135.5 million compared with $149.8 million in the same period of 2019.

Q2 2020 Review

"While overall profitability for the company was lower compared with a year ago, our Environmental Services segment achieved a 17% increase in Adjusted EBITDA, driven in part by our disposal facilities and decontamination work," McKim said. "Incineration utilization was a robust 87% as we continued to capture high-value waste streams across our network and capitalized on the strong backlog we had entering the quarter. Landfill volumes were down 24% due to the COVID-19 related deferral of some remediation and waste projects, but our base business remained stable. Field Services revenue grew nearly 50% from a year ago as we generated $50 million in pandemic-related work in the quarter. We have now completed more than 7,000 COVID-19 responses. Certain portions of our Environmental Services segment, including Industrial Services and other lines of business, such as household hazardous waste and lab pack, were negatively impacted as a result of the virus outbreak.

"The pandemic also adversely impacted our Safety-Kleen segment as shelter-in-place restrictions imposed early in the quarter substantially lowered vehicle miles driven across much of the U.S. This resulted in a reduction in near-term demand for core offerings in our Safety-Kleen branch network as well as for base oil and finished lubricants in our Safety-Kleen Oil business," McKim said. "Safety-Kleen revenue was down 30% from a year ago with Adjusted EBITDA declining 41%. Aggressive cost actions enabled us to partly offset lower revenue in this segment. We also significantly raised our charge-for-oil (CFO) rates for used motor oil (UMO) as crude oil prices crashed and demand for our re-refined lube oil products and other outlets for waste oil shuttered."

Business Outlook and Financial Guidance

"As we enter the second half of 2020, we believe we have positioned ourselves well for the current economic environment," McKim said. "Within multiple parts of our business, we have seen a measurable recovery from the lows we experienced in April as both the U.S. and Canadian economies reopened in subsequent months. While localized outbreaks have threatened to stall the progress in certain states or regions, we believe that the prudent cost actions we have taken should enable us to weather virus-related slowdowns. In addition, our emergency response business is partially offsetting lost revenue in other parts of our business. We will continue to pursue opportunities for disinfection, decontamination and disposal with impacted customers going forward.

"Within Environmental Services, our recycling and disposal network continues to see a steady flow of waste volumes, with no meaningful decline from most of our large-quantity generators. We are experiencing project delays due to the virus, and some Chemical customers have recently slowed production. While that may limit our high-margin volumes in the short-term, other parts of this segment, including Industrial Services and Technical Services, are expected to ramp up in the second half of this year. Field Services is on track for a strong 2020, with anticipated COVID-related revenue of approximately $100 million for the full year.

"Within Safety-Kleen, we began the third quarter on a positive trajectory, but still remain below prior year levels. The branch business continues to improve as summer-related driving increases demand for our services. We are monitoring the impact of new shelter-in-place mandates, but the recent rise in COVID cases so far has not derailed our recovery in the Safety-Kleen branch business. For Safety-Kleen Oil, we have seen base oil and lubricant demand rebound and we restarted production in July at two of the four re-refineries that we had temporarily closed. We will continue to actively manage our CFO rates to reflect the value of the waste oil and the collection services we are providing.

"Based on the visibility into our business and end markets, we are reestablishing annual guidance. Despite continued economic uncertainties, we are confident that we can achieve these new targets given our market leadership and the actions we have taken in response to the pandemic," McKim concluded.

Based on its year-to-date financial performance and current market conditions, for 2020 Clean Harbors expects:

* Adjusted EBITDA in the range of $470 million to $500 million, based on anticipated 2020 GAAP net income in the range of $53 million to $84 million; and * Adjusted free cash flow in the range of $200 million to $230 million, based on anticipated 2020 net cash from operating activities in the range of $355 million to $405 million.

Non-GAAP Results

Clean Harbors reports Adjusted EBITDA, which is a non-GAAP financial measure and should not be considered 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 six months ended June 30, 2020 and 2019 (in thousands):

For the Three Months For the Six Months Ended: Ended:

June 30, June 30, June 30, June 30, 2020 2019 2020 2019



Net income $29,023 $36,244 $40,595 $37,220

Accretion of environmental 2,766 2,560 5,327 5,134liabilities

Depreciation and amortization 72,494 74,217 147,027 149,572

Other expense (income), net 500 564 2,865 (2,419)

Loss on sale of businesses 184 - 3,258 -

Interest expense, net 18,654 20,215 37,441 39,979

Provision for income taxes 11,859 16,025 21,557 22,002

Adjusted EBITDA $135,480 $149,825 $258,070 $251,488

Adjusted EBITDA Margin 19.1% 17.2% 16.5% 15.2%

This press release includes a discussion of net income and earnings per share adjusted for the loss on sale of businesses, net of tax and the impacts of tax-related valuation allowances 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 to adjusted net income, and earnings per share to adjusted earnings per share for the three and six months ended June 30, 2020 and 2019 (in thousands, except per share amounts):

For the Three Months For the Six Months Ended: Ended:

June 30, June 30, June 30, June 30, 2020 2019 2020 2019

Adjusted net income

Net income $29,023 $36,244 $40,595 $37,220

Loss on sale of businesses 184 - 3,258 -

Tax-related valuation (305) 656 626 4,762allowances

Adjusted net income $28,902 $36,900 $44,479 $41,982

Adjusted earnings pershare

Earnings per share $0.52 $0.65 $0.73 $0.66

Loss on sale of businesses - - 0.06 -

Tax-related valuation - 0.01 0.01 0.09allowances

Adjusted earnings per $0.52 $0.66 $0.80 $0.75share

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 and in the current period have also excluded cash paid in connection with the purchase of its corporate headquarters and certain capital improvements to the site as these expenditures are considered one-time in nature. 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 six months ended June 30, 2020 and 2019 (in thousands):

For the Three Months For the Six Months Ended: Ended:

June 30, June 30, June 30, June 30, 2020 2019 2020 2019

Adjusted free cash flow

Net cash from operating $139,805 $108,730 $173,486 $138,470activities

Additions to property, plant and (42,954) (59,425) (125,721) (118,372)equipment

Purchase and capital improvements 345 - 21,080 -of corporate HQ

Proceeds from sale and disposal 951 3,068 3,101 7,389of fixed assets

Adjusted free cash flow $98,147 $52,373 $71,946 $27,487

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, 2020

Projected GAAP net income $53 to $84

Adjustments:

Accretion of environmental liabilities 11 to 10

Depreciation and amortization 295 to 285

Other expense, net 3 to 3

Loss on sale of businesses 3 to 3

Interest expense, net 74 to 73

Provision for income taxes 31 to 42

Projected Adjusted EBITDA $470 to $500

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, 2020

Projected net cash from operating activities $355 to $405

Additions to property, plant and equipment (186) to (206)

Purchase and capital improvements of corporate 21 to 21headquarters

Proceeds from sale and disposal of fixed assets 10 to 10

Projected adjusted free cash flow $200 to $230

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, the risks and uncertainties surrounding COVID-19 and the related impact on the Company's business, and 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 For the Six Months Ended: Ended:

June 30, June 30, June 30, June 30, 2020 2019 2020 2019

Revenues $710,000 $868,678 $1,568,563 $1,649,517

Cost of revenues (exclusiveof items shown separately 470,681 594,933 1,077,347 1,159,297below)

Selling, general and 103,839 123,920 233,146 238,732administrative expenses

Accretion of environmental 2,766 2,560 5,327 5,134liabilities

Depreciation and amortization 72,494 74,217 147,027 149,572

Income from operations 60,220 73,048 105,716 96,782

Other (expense) income, net (500) (564) (2,865) 2,419

Loss on sale of businesses (184) - (3,258) -

Interest expense, net (18,654) (20,215) (37,441) (39,979)

Income before provision for 40,882 52,269 62,152 59,222income taxes

Provision for income taxes 11,859 16,025 21,557 22,002

Net income $29,023 $36,244 $40,595 $37,220

Earnings per share:

Basic $0.52 $0.65 $0.73 $0.67

Diluted $0.52 $0.65 $0.73 $0.66



Shares used to compute 55,590 55,875 55,673 55,861earnings per share - Basic

Shares used to compute 55,748 56,066 55,882 56,001earnings per share - Diluted

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



June 30, December 31, 2020 2019

Current assets:

Cash and cash equivalents $447,366 $371,991

Short-term marketable securities 59,326 42,421

Accounts receivable, net 572,373 644,738

Unbilled accounts receivable 44,761 56,326

Deferred costs 18,715 21,746

Inventories and supplies 219,808 214,744

Prepaid expenses and other current assets 69,455 48,942

Total current assets 1,431,804 1,400,908

Property, plant and equipment, net 1,553,808 1,588,151



Other assets:

Operating lease right-of-use assets 153,522 162,206

Goodwill 523,154 525,013

Permits and other intangibles, net 400,448 419,066

Other 14,893 13,560

Total other assets 1,092,017 1,119,845

Total assets $4,077,629 $4,108,904

Current liabilities:

Current portion of long-term obligations $7,535 $7,535

Accounts payable 188,340 298,375

Deferred revenue 61,902 73,370

Accrued expenses 289,414 276,540

Current portion of closure, post-closure and 19,129 23,301remedial liabilities

Current portion of operating lease liabilities 38,620 40,979

Total current liabilities 604,940 720,100

Other liabilities:

Closure and post-closure liabilities, less current 76,933 68,368portion

Remedial liabilities, less current portion 99,062 98,155

Long-term obligations, less current portion 1,626,871 1,554,116

Operating lease liabilities, less current portion 115,089 121,020

Deferred taxes, unrecognized tax benefits and other 300,763 277,332long-term liabilities

Total other liabilities 2,218,718 2,118,991

Total stockholders' equity, net 1,253,971 1,269,813

Total liabilities and stockholders' equity $4,077,629 $4,108,904

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Six Months Ended:

June 30, June 30, 2020 2019

Cash flows from operating activities:

Net income $40,595 $37,220

Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization 147,027 149,572

Allowance for doubtful accounts 9,006 (2,233)

Amortization of deferred financing costs and debt 1,787 2,000discount

Accretion of environmental liabilities 5,327 5,134

Changes in environmental liability estimates 5,607 (748)

Deferred income taxes - (1,636)

Other expense (income), net 2,865 (2,419)

Stock-based compensation 6,077 9,643

Loss on sale of businesses 3,258 -

Environmental expenditures (6,104) (6,134)

Changes in assets and liabilities, net of acquisitions:

Accounts receivable and unbilled accounts receivable 67,540 (13,284)

Inventories and supplies (9,024) (4,129)

Other current assets and non-current assets (25,840) (10,706)

Accounts payable (82,134) (20,915)

Other current and long-term liabilities 7,499 (2,895)

Net cash from operating activities 173,486 138,470

Cash flows used in investing activities:

Additions to property, plant and equipment (125,721) (118,372)

Proceeds from sale and disposal of fixed assets 3,101 7,389

Acquisitions, net of cash acquired (8,877) (29,479)

Proceeds from sale of businesses, net of transactional 7,753 -costs

Additions to intangible assets, including costs to (1,242) (1,923)obtain or renew permits

Proceeds from sale of available-for-sale securities 28,851 26,518

Purchases of available-for-sale securities (45,550) (24,001)

Net cash used in investing activities (141,685) (139,868)

Cash flows from (used in) financing activities:

Change in uncashed checks (1,689) (3,514)

Tax payments related to withholdings on vested (3,395) (4,980)restricted stock

Repurchases of common stock (17,341) (11,272)

Payments on finance leases (1,790) (259)

Principal payments on debt (3,768) (3,768)

Borrowing from revolving credit facility 150,000 -

Payment on revolving credit facility (75,000) -

Net cash from (used in) financing activities 47,017 (23,793)

Effect of exchange rate change on cash (3,443) 3,139

Increase (decrease) in cash and cash equivalents 75,375 (22,052)

Cash and cash equivalents, beginning of year 371,991 226,507

Cash and cash equivalents, end of year $447,366 $204,455

Supplemental information:

Cash payments for interest and income taxes:

Interest paid $38,327 $39,369

Income taxes paid 1,478 12,697

Non-cash investing activities:

Property, plant and equipment accrued 7,421 14,103

ROU assets obtained in exchange for operating lease 16,216 5,575liabilities

ROU assets obtained in exchange for finance lease 16,452 23,027liabilities

Supplemental Segment Data (in thousands)

For the Three Months Ended:

Revenue June 30, 2020 June 30, 2019

Third Intersegment Third Intersegment Party Revenues Direct Party Revenues Direct Revenues (Expense), Revenues Revenues (Expense), Revenues net net

Environmental $464,354 $32,560 $496,914 $526,294 $36,782 $563,076Services

Safety-Kleen 245,590 (31,034) 214,556 342,182 (36,198) 305,984

Corporate 56 (1,526) (1,470) 202 (584) (382)Items

Total $710,000 $- $710,000 $868,678 $- $868,678

For the Six Months Ended:

Revenue June 30, 2020 June 30, 2019

Third Intersegment Third Intersegment Party Revenues Direct Party Revenues Direct Revenues (Expense), Revenues Revenues (Expense), Revenues net net

Environmental $992,458 $70,818 $1,063,276 $999,992 $72,106 $1,072,098Services

Safety-Kleen 575,959 (68,191) 507,768 648,729 (70,268) 578,461

Corporate 146 (2,627) (2,481) 796 (1,838) (1,042)Items

Total $1,568,563 $- $1,568,563 $1,649,517 $- $1,649,517

For the Three Months Ended: For the Six Months Ended:

Adjusted EBITDA June 30, June 30, June 30, June 30, 2020 2019 2020 2019



Environmental $138,083 $117,868 $246,997 $207,378Services

Safety-Kleen 46,589 79,459 107,737 134,252

Corporate Items (49,192) (47,502) (96,664) (90,142)

Total $135,480 $149,825 $258,070 $251,488

View source version on businesswire.com: https://www.businesswire.com/news/home/20200805005512/en/

CONTACT: Michael L. Battles EVP and Chief Financial Officer Clean Harbors, Inc. 781.792.5100 InvestorRelations@cleanharbors.com

CONTACT: Jim Buckley SVP Investor Relations Clean Harbors, Inc. 781.792.5100 Buckley.James@cleanharbors.com