Clean Harbors, Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K rather than a standalone fourth-quarter filing; quarterly-specific results are not clearly provided in the filing text.
Business context
Clean Harbors provides environmental, industrial, hazardous-waste management, emergency-response, parts-cleaning, used-oil collection and re-refining services across North America. Operations are reported through two segments: Environmental Services and Safety-Kleen Sustainability Solutions (SKSS). The company operates nine commercial hazardous-waste incinerators, seven commercial landfills, 32 treatment, storage and disposal facilities, eight oil re-refineries and a fleet exceeding 20,000 vehicles.
- Environmental Services represented approximately $4.51 billion of direct revenue, up 8.1% year over year.
- SKSS generated approximately $897.3 million of direct revenue, down 9.8%, primarily because of lower base-oil pricing.
- Approximately 88.5% of 2023 direct revenue was generated in the United States and 11.5% in Canada.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $5.409 billion | $5.167 billion | Up 4.7% |
| Income from operations | $612.4 million | $634.7 million | Down 3.5% |
| Net income | $377.9 million | $411.7 million | Down 8.2% |
| Diluted EPS | $6.95 | $7.56 | Down 8.1% |
| Adjusted EBITDA | $1.013 billion | $1.022 billion | Down 0.9% |
| Adjusted EBITDA margin | 18.7% | 19.8% | Down 1.1 percentage points |
| Operating margin | 11.3% | 12.3% | Down approximately 1.0 point |
| Net margin | 7.0% | 8.0% | Down approximately 1.0 point |
| Net cash from operating activities | $734.6 million | $626.2 million | Up $108.3 million |
| Adjusted free cash flow | $321.9 million | $289.9 million | Up $32.0 million |
| Capital expenditures | $412.7 million | Not clearly provided as a comparable total in the filing text | Higher investment, principally in Kimball |
Environmental Services Adjusted EBITDA increased 15.6% to $1.102 billion, with margin improving to 24.4% from 22.8%. SKSS Adjusted EBITDA fell 43.6% to $172.9 million, and its margin declined to 19.3% from 30.8% due primarily to lower base-oil pricing and product mix.
- Cash, cash equivalents and marketable securities totaled $550.8 million at December 31, 2023.
- The $400.0 million revolving credit facility had no borrowings outstanding, $134.3 million of letters of credit outstanding and approximately $265.7 million available to borrow.
- Total debt at par was $2.315 billion, consisting of $980.0 million of secured term loans and $1.335 billion of unsecured senior notes. Carrying value of long-term debt, net of issuance costs and discount, was $2.292 billion.
- Effective interest rates increased, with the effective rate on long-term debt reported at 5.19% for FY2023 versus 4.05% in FY2022. Approximately $380.0 million of term loans remained exposed to variable interest rates at year-end.
- The company reported compliance with all debt covenants at December 31, 2023.
Material changes versus FY2022
- Revenue growth was led by Environmental Services, including higher demand and pricing in Safety-Kleen core services, industrial services, technical services, landfill services and field and emergency response services.
- Environmental Services benefited from the March 2023 acquisition of Thompson Industrial Services for approximately $110.9 million.
- SKSS revenue declined because base-oil sales revenue decreased $97.6 million as pricing fell, despite an 8% increase in base-oil volume sold. Blended-oil gallons sold increased 23%, and used-oil collection revenue increased $14.1 million.
- Total company profitability declined despite revenue growth. Higher depreciation and amortization, lower SKSS profitability, inflationary costs and the absence of the $8.9 million gain on sale of a business recognized in 2022 contributed to the decline.
- Operating cash flow improved substantially because of better working-capital performance, partly offset by higher income-tax, environmental and interest payments.
- Capital spending increased, including $82.6 million for the Kimball, Nebraska incinerator in 2023. Total project spending through year-end was $134.7 million.
- In January 2023, the company issued $500.0 million of 6.375% notes due 2031 and used the proceeds, together with borrowings and cash, to repay approximately $614.0 million of term loans due in 2024. The transaction generated a $2.9 million loss on early extinguishment of debt and an $8.3 million interest benefit from settling related swaps.
- The company repurchased approximately $51.2 million of common stock during 2023 and ended the year with $554.1 million available under its repurchase authorization. It has never paid cash dividends and does not expect to do so in the foreseeable future.
Guidance, outlook and unusual items
- Management expects 2024 capital spending, net of disposals, of approximately $395 million to $415 million, including about $65 million to complete the Kimball incinerator and $15 million to $20 million for a strategic Baltimore project. Management expects to fund capital spending with operating cash flow.
- The Kimball, Nebraska incinerator is expected to open in late 2024 and increase permitted capacity by approximately 70,000 tons.
- On February 2, 2024, the company agreed to acquire HEPACO for $400.0 million in cash, subject to customary adjustments and closing conditions. The transaction is expected to close in the first half of 2024 and is expected to be funded with cash and incremental term-loan borrowings.
- Management expects approximately $10.0 million of principal payments and approximately $120 million of interest payments in 2024, assuming variable rates remain consistent.
- Key operating exposures include commodity pricing and spreads in SKSS, industrial and automotive demand, inflation in labor and transportation, weather and emergency-response activity, foreign exchange, interest rates, permitting and environmental regulation.
- Recorded environmental liabilities totaled $229.8 million at year-end, including $118.6 million of closure and post-closure liabilities and $111.2 million of remedial liabilities. Management identified $21.8 million of reasonably possible additional remedial liabilities at the high end of its estimated ranges.
- The company was involved in approximately 70 Safety-Kleen product-liability proceedings and had been identified as a potentially responsible party or potential responsible party at 131 Superfund-related sites. Management stated that liabilities beyond recorded reserves are not reasonably expected to be material, but ultimate outcomes cannot be predicted with assurance.
- The company reported no cybersecurity incidents that materially affected operations or financial results, and management and the external auditor concluded that internal control over financial reporting was effective as of December 31, 2023.
Most important facts for investors to verify
- Whether Environmental Services growth and margin expansion can offset continued commodity-price and product-mix pressure in SKSS.
- The timing, final cost and operating performance of the Kimball incinerator project.
- The financing, integration and leverage impact of the planned $400 million HEPACO acquisition.
- Interest-rate sensitivity on the $380 million of unhedged variable-rate term loans and the availability of the revolving facility after acquisition financing.
- The adequacy and timing of the $229.8 million environmental-liability estimate, including potential additional remedial liabilities.
- Exposure to product-liability claims, Superfund matters, permit renewals, regulatory changes and insurance availability.
- The sustainability of adjusted free cash flow after capital expenditures, debt service, share repurchases and acquisition spending.
- The filing’s non-GAAP measures, including Adjusted EBITDA and adjusted free cash flow, should be reconciled to GAAP results and compared with similarly defined measures used by other companies.