Clean Harbors, Inc. — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
Clean Harbors provides environmental, hazardous-waste, industrial, emergency-response, recycling and used-oil re-refining services across North America. This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020.
During the quarter, the Company reorganized its operating structure. The reportable segments are now Environmental Services and Safety-Kleen Sustainability Solutions; prior-period segment information was recast accordingly.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $808.1 million | $858.6 million | Down 5.9% |
| Income from operations | $50.9 million | $45.5 million | Up 11.8% |
| Operating margin | 6.3% | 5.3% | Up approximately 100 bps |
| Net income | $21.7 million | $11.6 million | Up 87.9% |
| Diluted EPS | $0.39 | $0.21 | Up $0.18 |
| Adjusted EBITDA | $129.5 million | $125.9 million | Up 2.8% |
| Adjusted EBITDA margin | 16.0% | 14.7% | Up approximately 130 bps |
| Net cash from operating activities | $103.0 million | $33.7 million | Up $69.3 million |
| Adjusted free cash flow | $62.3 million | $(26.2) million | Improved by $88.5 million |
Cash and cash equivalents were $496.4 million at March 31, 2021. Including short-term marketable securities, liquidity totaled $570.7 million. Total debt at carrying value was approximately $1.56 billion, consisting primarily of secured term loans and unsecured notes. The Company had no revolver borrowings, $270.2 million of revolver availability and $121.3 million of outstanding letters of credit.
Total assets were $4.15 billion and stockholders’ equity was $1.35 billion at March 31, 2021. Environmental liabilities totaled $205.4 million, comprising closure and post-closure liabilities of $91.1 million and remedial liabilities of $114.2 million.
Material Changes Versus the Prior Comparable Period
- Environmental Services direct revenue declined 7.2% to $654.6 million, primarily because COVID-19-related economic disruption, severe weather and lower industrial activity reduced demand for industrial, field and Safety-Kleen core services.
- Safety-Kleen Sustainability Solutions direct revenue was essentially unchanged at $153.5 million. Higher base-oil pricing and used-oil collection revenue offset lower blended-oil, automotive-fluid and recycled-fuel-oil revenue.
- Environmental Services Adjusted EBITDA declined 3.8% to $140.3 million, while Safety-Kleen Sustainability Solutions Adjusted EBITDA increased 30.7% to $31.6 million.
- Profitability improved despite lower revenue because of favorable revenue mix, cost management, lower SG&A, lower depreciation and amortization, the absence of the $3.1 million 2020 loss on sale of businesses, and a lower effective tax rate.
- The effective tax rate decreased to 31.5% from 45.6%, principally because of changes in unbenefited Canadian tax losses and the related mix of taxable income.
- Capital expenditures fell to $41.9 million from $82.8 million, partly because Q1 2020 included the nonrecurring purchase of the corporate headquarters.
- The Company acquired a privately held business on March 27, 2021 for $22.9 million in cash and recorded preliminary goodwill of $15.9 million.
- The Company repurchased approximately 0.3 million shares for $26.5 million during the quarter. Approximately $183.3 million remained available under the $600 million repurchase authorization.
Guidance, Outlook, Risks and Unusual Items
Management expects 2021 capital spending, net of disposals, to be approximately $185 million to $205 million. The filing does not provide clear quantitative revenue or earnings guidance.
Management reported incremental improvement in demand as restrictions eased and vaccination efforts continued, but expects COVID-19 emergency-response demand to slow as vaccination levels increase. The Company completed more than 3,000 COVID-19-related projects generating $28.2 million of direct revenue in Q1 2021.
The Company recognized $5.4 million of benefits from Canadian and U.S. COVID-19 government programs during the quarter. These benefits reduced cost of revenues and SG&A expenses.
Key risks include continuing COVID-19 effects, industrial and automotive demand, weather, commodity and oil-price volatility, regulatory changes, environmental remediation obligations, competition, operating efficiency, interest-rate exposure and potential litigation. The Company had reserves of $30.2 million for legal and administrative proceedings. It identified 130 Superfund-related sites involving actual or potential responsibility; management stated that liabilities beyond recorded amounts are not reasonably expected to be material, although estimates remain uncertain.
Management stated that the Company was in compliance with all debt covenants and believes available cash, operating cash flow and revolver capacity are adequate for current liquidity needs. The filing also states that disclosure controls were effective as of March 31, 2021 and that there were no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm whether the recovery in Environmental Services demand offsets the expected decline in COVID-19-related emergency-response revenue.
- Monitor Safety-Kleen Sustainability Solutions’ oil spreads, used-oil collection volumes, product pricing and commodity exposure.
- Reconcile Adjusted EBITDA comparisons carefully because the Company began adding stock-based compensation back to the metric in Q1 2021, with prior periods recast.
- Assess leverage and refinancing risk relative to approximately $1.56 billion of debt, available revolver capacity and scheduled maturities.
- Track capital expenditures against the $185 million–$205 million 2021 outlook and the effect on adjusted free cash flow.
- Review the acquired business’s contribution and the final purchase-price allocation, including the preliminary $15.9 million goodwill balance.
- Evaluate environmental liabilities, Superfund exposure, product-liability litigation and the potential impact of changes in environmental regulations.