Clean Harbors, Inc. — Fiscal 2021 Form 10-K Summary
Business context and reporting period
Clean Harbors provides environmental, hazardous-waste, industrial, emergency-response and used-oil recycling services across North America. The filing covers the fiscal year ended December 31, 2021; it is an annual filing rather than a standalone fourth-quarter report. Beginning in 2021, the Company reported two segments: Environmental Services and Safety-Kleen Sustainability Solutions.
On October 8, 2021, Clean Harbors acquired HydroChemPSC for approximately $1.23 billion. The acquisition expanded industrial cleaning and specialty-maintenance capabilities and contributed $166.1 million of 2021 revenue after closing.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $3.806 billion | $3.144 billion | Up 21.0% |
| Income from operations | $347.9 million | $251.3 million | Up $96.6 million |
| Net income | $203.2 million | $134.8 million | Up 50.7% |
| Diluted EPS | $3.71 | $2.42 | Up 53.3% |
| Adjusted EBITDA | $676.6 million | $573.8 million | Up 17.9% |
| Adjusted EBITDA margin | 17.8% | 18.3% | Down 0.5 percentage points |
| Net cash from operations | $546.0 million | $430.6 million | Up $115.4 million |
| Adjusted free cash flow | $326.3 million | $265.0 million | Up $61.3 million |
Service revenue was $3.048 billion and product revenue was $757.5 million. The Environmental Services segment generated $3.032 billion of direct revenue and $659.7 million of Adjusted EBITDA. Safety-Kleen Sustainability Solutions generated $772.8 million of direct revenue and $227.4 million of Adjusted EBITDA.
Environmental Services revenue increased 15.0%, including $166.1 million from HydroChemPSC, higher demand, favorable pricing and waste mix, and improved industrial activity. Safety-Kleen revenue increased 52.2%, primarily from higher prices and volumes of base and blended oil products. Its Adjusted EBITDA increased 173.2%, reflecting improved product pricing, re-refinery utilization and spread management.
Cash and cash equivalents plus marketable securities totaled $534.3 million at year-end, compared with $571.0 million in 2020. The Company had $452.6 million of cash and cash equivalents, $81.7 million of short-term marketable securities and approximately $261.4 million available under its revolving credit facility.
Long-term debt at par was approximately $2.565 billion, consisting primarily of $1.720 billion of senior secured term loans and $845.0 million of senior unsecured notes. Letters of credit outstanding totaled $138.6 million. No revolving loans were outstanding at year-end. The Company reported compliance with all debt covenants.
Material changes versus the prior comparable period
- Revenue and profitability rebounded from COVID-19-affected 2020 levels, although 2021 included lower COVID-19 decontamination revenue.
- HydroChemPSC added $166.1 million of revenue and $166.4 million of expense in 2021, including $12.3 million of incremental depreciation and amortization and $6.0 million of severance and integration costs.
- The acquisition was funded with $1.0 billion of new senior secured term loans and existing cash, increasing debt and future interest and principal obligations.
- Environmental Services Adjusted EBITDA declined 0.9% despite revenue growth, and its margin fell to 21.8% from 25.3%, primarily due to mix, inflation and lower COVID-related work.
- Safety-Kleen Sustainability Solutions margin improved to 29.4% from 16.4% as product pricing outpaced input costs and re-refinery utilization improved.
- Government-program benefits declined to $12.0 million from $42.3 million in 2020. The Company also repaid half of payroll taxes deferred in 2020; the remaining amount was due by the end of 2022.
- Capital expenditures, net of disposals, were $219.7 million, compared with $186.6 million in 2020. The Company repurchased approximately $54.4 million of common stock during 2021.
Guidance, outlook, management commentary and unusual items
- Management expected $310 million to $330 million of 2022 capital spending, funded from operating cash flow.
- The planned Kimball, Nebraska incinerator is expected to add approximately 70,000 tons of annual practical capacity, cost approximately $180 million in total, and be completed in early 2025. Expected 2022 spending was $40 million to $45 million.
- Management expected 2022 depreciation and amortization of $330 million to $340 million, primarily because of HydroChemPSC assets.
- Management targeted $40 million of annual net HydroChemPSC synergies by the end of 2022 and stated that integration was proceeding according to plan at year-end.
- Expected 2022 principal payments were $17.5 million and interest payments were approximately $90 million, incorporating interest-rate swaps entered into in early 2022.
- In January 2022, the Company and Vertex Energy terminated a planned used-oil acquisition; Clean Harbors received a $3.0 million breakup fee.
- Total environmental liabilities were $211.0 million at year-end, including $99.1 million of closure and post-closure liabilities and $111.9 million of remedial liabilities. Management estimated reasonably possible additional remedial liabilities of up to $21.1 million.
- The Company identified 131 Superfund-related sites and approximately 61 parts-cleaning product-liability proceedings. Management stated that recorded legal reserves and reasonably possible additional liabilities were not expected to have a material aggregate effect, but outcomes remain uncertain.
- Key risks include hazardous-material releases, safety incidents, cyberattacks, permitting and regulatory changes, environmental remediation costs, commodity and used-oil pricing, inflation, labor availability, seasonality, interest-rate exposure and successful integration of HydroChemPSC.
Most important facts for an investor to verify
- Whether HydroChemPSC achieves the targeted $40 million of annual net synergies and improves Environmental Services margins.
- The effect of higher debt, variable-rate exposure and future refinancing or covenant requirements on cash flow.
- Whether 2022 capital spending remains within the $310 million to $330 million range and whether the Kimball incinerator remains on schedule and budget.
- The sustainability of Safety-Kleen’s favorable base-oil pricing, used-oil collection spread and re-refinery utilization.
- Changes in environmental, closure, remedial and legal liabilities, including the reasonably possible additional remedial exposure.
- The impact of inflation, labor and transportation costs, regulatory developments, severe weather, COVID-19 effects and demand from cyclical industrial and automotive customers.
- The filing’s non-GAAP measures, particularly Adjusted EBITDA and adjusted free cash flow, should be reconciled to GAAP results because definitions may differ from those used by other companies.
- Internal-control coverage: management and the auditor concluded controls were effective, but HydroChemPSC was excluded from the year-end internal-control assessment.