Clean Harbors, Inc. — Form 10-K Summary
Business context and reporting period
This filing covers the fiscal year ended December 31, 2019; it is an annual report rather than a standalone fourth-quarter filing. Clean Harbors provides environmental, energy and industrial services across North America through two segments: Environmental Services and Safety-Kleen. Safety-Kleen is also a major used-oil recycler and parts-cleaning provider.
Operations are exposed to industrial activity, waste volumes, weather, emergency-response projects, environmental regulation, commodity prices and Canadian-dollar exchange rates. The company employed approximately 14,400 full-time employees and operated more than 480 service locations.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $3.412 billion | $3.300 billion | +3.4% |
| Income from operations | $229.5 million | $182.6 million | +25.7% |
| Net income | $97.7 million | $65.6 million | +48.9% |
| Diluted EPS | $1.74 | $1.16 | +50.0% |
| Adjusted EBITDA | $540.3 million | $491.0 million | +10.0% |
| Adjusted EBITDA margin | 15.8% | 14.9% | +0.9 percentage points |
| Net cash from operating activities | $413.2 million | $373.2 million | +$40.0 million |
| Adjusted free cash flow | $208.5 million | $195.3 million | +$13.2 million |
Service revenue was $2.843 billion, while product revenue was $569.3 million. The Environmental Services segment generated $2.237 billion of direct revenue and $446.3 million of Adjusted EBITDA. Safety-Kleen generated $1.178 billion of direct revenue and $282.4 million of Adjusted EBITDA. Corporate costs reduced consolidated Adjusted EBITDA by $188.3 million.
At year-end, cash and cash equivalents plus short-term marketable securities totaled $414.4 million, including $372.0 million of cash and cash equivalents. Total assets were $4.109 billion and stockholders’ equity was $1.270 billion.
Debt and liquidity
- Debt at par totaled approximately $1.580 billion, consisting of $734.7 million of senior secured term loans due 2024, $545.0 million of 4.875% senior notes due 2027 and $300.0 million of 5.125% senior notes due 2029.
- The company refinanced and repaid its $845.0 million of 2021 senior notes in 2019, recording a $6.1 million loss on early extinguishment of debt.
- No revolving-credit borrowings were outstanding at year-end. Approximately $229.2 million was available under the $400.0 million revolving facility.
- Letters of credit outstanding totaled $146.9 million, primarily supporting regulatory financial-assurance requirements.
- The company reported compliance with all debt covenants and stated that existing liquidity and expected operating cash flow should meet current needs.
Material changes versus the prior comparable period
- Revenue growth was led by Environmental Services, where direct revenue increased 4.5% due to higher branch activity, improved pricing and a more profitable incinerator waste mix. Incinerator utilization remained approximately 85% despite facility downtime following a neighboring-facility fire.
- Safety-Kleen direct revenue increased 1.5%. Core services and blended-oil volumes grew, but lower base-oil pricing and reduced base-oil and recycled-fuel-oil volumes limited growth.
- Environmental Services cost of revenue declined to 72.4% of direct revenue from 73.6%, while Safety-Kleen cost of revenue increased to 63.6% from 62.5% because of lower oil-product pricing and higher logistics costs.
- SG&A decreased 3.9% overall, including favorable effects from the recovery of previously reserved trade receivables, resolution of litigation and Safety-Kleen cost reductions.
- Operating cash flow increased, while investing cash use declined to $217.9 million from $349.7 million because 2019 acquisition spending was lower than in 2018.
- The company acquired two privately held businesses for a combined preliminary purchase price of $25.2 million. The acquisitions were not material to 2019 results.
- Environmental liabilities totaled $189.8 million at year-end, slightly below $190.9 million in 2018. The company spent $18.7 million on environmental liabilities during 2019.
Guidance, outlook, risks and unusual items
Management projected 2020 capital spending, net of disposals, of $215 million to $240 million, including $20 million to $25 million for the purchase and improvement of its Norwell headquarters. The filing does not provide formal revenue or earnings guidance.
- Key operating risks include economic downturns, cyclical industrial and oil-and-gas activity, weather disruption, emergency-project variability, competition, labor availability and foreign-currency movements.
- Safety-Kleen results are sensitive to Group II base-oil prices, used-oil collection costs, product mix and the spread between input costs and selling prices.
- Environmental liabilities, Superfund obligations, permit renewals, remediation estimates and changes in environmental regulation could require additional cash expenditures. Management identified remedial liabilities as the critical audit matter.
- The company reported approximately 130 Superfund sites involving current or former operations, including 125 third-party sites. Management stated that recorded reserves and reasonably possible additional liabilities require significant judgment.
- Safety-Kleen was involved in approximately 55 product-liability proceedings at year-end. Insurance covered settled or dismissed claims during 2019, but coverage may not apply to all future claims, including punitive damages.
- The company adopted lease accounting standard ASC 842 in 2019, recognizing approximately $185.5 million of right-of-use assets and $188.5 million of lease liabilities at adoption; the adoption did not materially affect earnings or cash flows.
- The filing discusses IMO 2020, which could affect marine-fuel demand, vacuum-gas-oil pricing and the availability and economics of used oil, but the ultimate effects were uncertain.
- No goodwill or long-lived-asset impairment was recorded in 2019. Future weakness, particularly in Canadian oil-and-gas-related operations, could create impairment risk.
Most important facts for investors to verify
- Whether Environmental Services’ pricing, waste mix and utilization improvements are sustainable and offset potential industrial-cycle weakness.
- Whether Safety-Kleen can preserve margins amid base-oil price volatility, lower product pricing and changing used-oil collection economics.
- Debt-service capacity, the $704.6 million term-loan maturity amount due in 2024, variable-rate exposure and availability under the revolving facility.
- The adequacy and timing of the $189.8 million recorded environmental liabilities, including the $22.1 million high-end estimate of reasonably possible additional remedial liabilities.
- Actual 2020 capital spending relative to the $215 million–$240 million projection and the effect of the headquarters purchase.
- Potential outcomes of Superfund, product-liability, regulatory and permit matters, including exposures not covered by insurance or indemnities.
- The filing’s non-GAAP measures, particularly Adjusted EBITDA and adjusted free cash flow, against GAAP income and operating cash flow.