CLEAN HARBORS, INC. Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements, which 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, the Company's plans, objectives, expectations and intentions and other statements that are not historical facts. Forward-looking statements are neither historical facts nor assurances of future performance. Such statements are based upon the beliefs and expectations ofClean 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, those items identified as "Risk Factors," in this report under Item 1A and in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onFebruary 23, 2022 , and in other documents we file from time to time with theSEC . Therefore, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. Our actual results and financial condition may differ materially from those indicated in the 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 theSEC , which may be viewed in the "Investors" section of theClean Harbors website.
Overview
We areNorth America's leading provider of environmental and industrial services supporting our customers in finding environmentally responsible solutions to further their sustainability goals in today's world. Everywhere industry meets the environment, we strive to provide eco-friendly products and services that protect and restoreNorth America's natural environment. We believe we operate, in the aggregate, the largest number of hazardous waste incinerators, landfills and treatment, storage and disposal facilities ("TSDFs") inNorth America . We serve over 300,000 customers, including the majority of Fortune 500 companies. This diverse customer base includes the chemical, energy, manufacturing and additional markets, as well as numerous government agencies. These customers rely on us to deliver a broad range of services including but not limited to end-to-end hazardous waste management, emergency response, industrial cleaning and maintenance and recycling services. We are the largest re-refiner and recycler of used oil inNorth America and the largest provider of parts washer and related environmental services to commercial, industrial and automotive customers inNorth America . Performance of our segments is evaluated on several factors of which the primary financial measure is Adjusted EBITDA, as reconciled to our net income and described more fully below. The following is a discussion of how management evaluates its segments in regards to other factors including key performance indicators that management uses to assess the segments' results, as well as certain macroeconomic trends and influences that impact each reportable segment: •Environmental Services - Environmental Services segment results are predicated upon customer demand for waste services, waste volumes generated by such services and project work for which waste handling and/or disposal is required. Environmental Services results are also impacted by the demand for planned and unplanned industrial related cleaning and maintenance services at customer sites and environmental cleanup services on a scheduled or emergency basis, including response to national events such as major chemical spills, natural disasters, or other events where immediate and specialized services are required, including our contagion disinfection, decontamination and disposal services. With the addition of the Safety-Kleen core service offerings, (e.g. containerized waste disposal, parts washer and vacuum services), the Environmental Services results are further impacted by the volumes of waste collected from these customers, the overall number of parts washers placed at customer sites and the demand for and frequency of other offered services. In managing the business and evaluating performance, management tracks the volumes and mix of waste handled and disposed of or recycled, generally through our incinerators, TSDFs and landfills, the utilization rates of our incinerators, equipment and workforce, including billable hours, and number of parts washer services performed, among other key metrics. Levels of activity and ultimate performance associated with this segment can be impacted by several factors including overallU.S. GDP,U.S. industrial production, economic conditions in the automotive, manufacturing and other industrial markets, weather conditions, efficiency of our operations, technology, changing regulations, competition, market pricing of our services, costs incurred to deliver our services and the management of our related operating costs. •Safety-Kleen Sustainability Solutions - Safety-Kleen Sustainability Solutions segment results are impacted by our customers' demand for high-quality, environmentally responsible recycled oil products and their demand for our related service offerings and products. Safety-Kleen Sustainability Solutions offers high quality recycled KLEEN+ base oils and various blended oil products to end users including fleet customers, distributors and manufacturers of oil products. 24 -------------------------------------------------------------------------------- Table of Contents Segment results are impacted by overall demand as well as product mix as it relates to these oil products. Segment results are also predicated on the demand for the Safety-Kleen Sustainability Solutions other product and service offerings including collection services for used oil, used oil filters and other automotive fluids. These fluid collections are used as feedstock in our oil re-refining to make our base and blended oil products and our recycled automotive related fluid products or are integrated into theClean Harbors' recycling and disposal network. In operating the business and evaluating performance, management tracks the volumes and relative percentages of base and blended oil sales along with various pricing metrics associated with the commodity driven margin. Management also tracks the volumes and pricing of used oil and automotive fluid collections. Levels of activity and ultimate performance associated with this segment can be impacted by economic conditions in the automotive services and manufacturing markets, efficiency of our operations, technology, weather conditions, changing regulations, competition, the management of our related operating costs and the availability of raw materials including used oil and additives. Costs incurred in connection with the collection of used oil and other raw materials associated with the segment's oil related products can also be volatile. The overall market price of oil and regulations that change the possible usage of used oil, including theInternational Maritime Organization's 2020 regulation ("IMO 2020") and other regulations related to the burning of used motor oil as a fuel, both impact the premium the segment can charge for used oil collections.
Highlights
Total revenues for the three and nine months endedSeptember 30, 2022 were$1,363.1 million and$3,888.5 million , compared with$951.5 million and$2,686.1 million for the three and nine months endedSeptember 30, 2021 . Our Environmental Services segment direct revenues increased$340.9 million and$1,000.3 million or 45.7% and 47.1% from the comparable periods in 2021. Our acquisition of HydroChemPSC onOctober 8, 2021 , contributed to increases in both our industrial services and field and emergency response service offerings within the Environmental Services segment for the three and nine months endedSeptember 30, 2022 . Continued demand for our disposal network and pricing initiatives across the business also contributed meaningfully to the overall growth in this segment. Specifically, approximately one-third of the total revenue growth in the segment was driven by growth within our technical services and Safety-Kleen environmental services revenue streams, neither of which were impacted by the acquisition of HydroChemPSC. In the three and nine months endedSeptember 30, 2022 , our Safety-Kleen Sustainability Solutions segment direct revenues increased$70.5 million and$201.9 million or 34.3% and 35.9% from the comparable periods in 2021 predominately due to higher pricing of our base and blended oil products. Foreign currency translation of our Canadian operations negatively impacted our consolidated direct revenues by$6.5 million and$13.7 million in the three and nine months endedSeptember 30, 2022 . In the three and nine months endedSeptember 30, 2022 , costs have increased in both the Environmental Services and Safety-Kleen Sustainability Solutions segments when comparing to the prior year given the increase in business levels, revenue mix, inflationary pressures seen across several cost categories and supply chain constraints. Our business began seeing the impact of macroeconomic factors including inflationary pressures and supply chain constraints in 2021 and these factors continue to impact the business operations. Supply chain challenges for additives and other materials used in the oil re-refining process have delayed production, added costs and shifted the product mix within our Safety-Kleen Sustainability Solutions segment. Similarly within the Environmental Services segment, supply chain challenges have delayed fleet and equipment delivery, increasing rental and external transportation costs. Strategic decisions made in connection with these challenges drove increased investment in and levels of certain supplies related inventory which have increased overall working capital of the Company. We believe that this investment will also mitigate future potential supply chain constraints. In combating inflationary pressures across both segments and our Corporate operations, in recent quarters we have executed upon cost control initiatives, to the greatest extent possible, as well as strategic pricing initiatives with customers. As a result of these focused efforts, our quarterly operating margins have improved in 2022 as compared to quarters prior to the implementation of these initiatives. We reported income from operations for the three and nine months endedSeptember 30, 2022 of$209.1 million and$507.4 million , compared with$104.8 million and$265.7 million in the three and nine months endedSeptember 30, 2021 , representing increases of 99.4% and 91.0%, respectively. Net income for the three and nine months endedSeptember 30, 2022 was$135.8 million and$329.3 million , compared with net income of$65.4 million and$154.3 million in the three and nine months endedSeptember 30, 2021 , representing increases of 107.5% and 113.5%, respectively. Adjusted EBITDA, which is the primary financial measure by which our segments are evaluated, increased 66.7% to$308.6 million in the three months endedSeptember 30, 2022 from$185.1 million in the three months endedSeptember 30, 2021 and increased 58.8% to$797.9 million in the nine months endedSeptember 30, 2022 from$502.3 million in the nine months endedSeptember 30, 2021 . This improved performance was driven by the increased revenue levels in both segments noted above, including the acquisition of HydroChemPSC, focused pricing initiatives in the Environmental Services segment, strong spread management as 25 -------------------------------------------------------------------------------- Table of Contents it relates to the pricing of base oil products and used motor oil collection services in the Safety-Kleen Sustainability Solutions segment and cost control initiatives across the entire business. Additional information, including a reconciliation of Adjusted EBITDA to net income, appears below under "Adjusted EBITDA." Net cash from operating activities for the nine months endedSeptember 30, 2022 was$357.5 million , as compared to net cash from operating activities of$368.2 million in the comparable period of 2021. Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was$118.1 million in the nine months endedSeptember 30, 2022 as compared to$238.0 million in the comparable period of 2021. These expected decreases in our cash flows were the result of an increase in working capital arising from our significant growth in the business and strategic inventory management decisions, comparatively higher incentive compensation and interest payments and higher levels of cash spending on the acquisition of property, plant and equipment, partially offset by higher operating income. Additional information, including a reconciliation of adjusted free cash flow to net cash from operating activities, appears below under "Adjusted Free Cash Flow." 26
--------------------------------------------------------------------------------
Table of Contents
Segment Performance
The primary financial measure by which we evaluate the performance of our segments is Adjusted EBITDA, as described below under "Adjusted EBITDA". The following table sets forth certain financial information associated with our results of operations for the three and nine months endedSeptember 30, 2022 andSeptember 30, 2021 (in thousands, except percentages): Summary of Operations For the Three Months Ended For the Nine Months Ended September 30, %September 30, 2022 2021 Change ChangeSeptember 30, 2022 September 30, 2021 Change % Change Direct Revenues (1): Environmental Services$ 1,086,484 $ 745,633 $ 340,851 45.7%$ 3,124,672 $ 2,124,332 $ 1,000,340 47.1% Safety-Kleen Sustainability Solutions 276,319 205,787 70,532 34.3 763,401 561,536 201,865 35.9 Corporate Items 283 59 224 N/M 434 217 217 N/M Total 1,363,086 951,479 411,607 43.3 3,888,507 2,686,085 1,202,422 44.8 Cost of Revenues (2): Environmental Services 746,869 516,340 230,529 44.6 2,175,864 1,454,852 721,012 49.6 Safety-Kleen Sustainability Solutions 154,753 119,332 35,421 29.7 457,790 350,733 107,057 30.5 Corporate Items 9,026 3,560 5,466 N/M 18,852 12,069 6,783 N/M Total 910,648 639,232 271,416 42.5 2,652,506 1,817,654 834,852 45.9 Selling, General & Administrative Expenses: Environmental Services 78,928 62,822 16,106 25.6 235,178 186,714 48,464 26.0 Safety-Kleen Sustainability Solutions 18,410 15,645 2,765 17.7 53,568 45,047 8,521 18.9 Corporate Items 54,373 54,697 (324) (0.6) 169,746 147,150 22,596 15.4 Total 151,711 133,164 18,547 13.9 458,492 378,911 79,581 21.0 Adjusted EBITDA: Environmental Services 260,687 166,471 94,216 56.6 713,630 482,766 230,864 47.8 Safety-Kleen Sustainability Solutions 103,156 70,810 32,346 45.7 252,043 165,756 86,287 52.1 Corporate Items (55,288) (52,197) (3,091) (5.9) (167,789) (146,216) (21,573) (14.8) Total $ 308,555$ 185,084 $ 123,471 66.7% $ 797,884 $ 502,306$ 295,578 58.8% Adjusted EBITDA as a % of Direct Revenues: Environmental Services 24.0 % 22.3 % 1.7 % 22.8 % 22.7 % 0.1 % Safety-Kleen Sustainability Solutions 37.3 % 34.4 % 2.9 % 33.0 % 29.5 % 3.5 % Corporate Items N/M N/M N/M N/M N/M N/M Total 22.6 % 19.5 % 3.1 % 20.5 % 18.7 % 1.8 % _____________________ N/M = not meaningful (1)Direct revenue is revenue allocated to the segment performing the provided service. (2)Cost of revenue is shown exclusive of items presented separately on the consolidated statements of operations which consist of (i) accretion of environmental liabilities and (ii) depreciation and amortization. 27
--------------------------------------------------------------------------------
Table of Contents
Direct Revenues
There are many factors which have impacted and continue to impact our revenues including, but not limited to: overall levels of industrial activity and economic growth inNorth America , existence or non-existence of large scale environmental waste and remediation projects, competitive industry pricing, miles driven and related lubricant demand, impacts of acquisitions and divestitures, the level of emergency response services, captive incinerator closures, government infrastructure investment, weather related events, base and blended oil pricing, market changes relative to the collection of used oil, our ability to manage the spread between oil product prices and prices for the collection of used oil, the number of parts washers placed at customer sites and foreign currency translation. In addition, customer efforts to minimize hazardous waste and changes in regulation can also impact our revenues. Environmental Services For the Three Months Ended For the Nine Months Ended September 30, 2022 over 2021 September 30, 2022 over 2021 (in thousands, except % percentages) 2022 2021 Change Change 2022 2021 Change % Change Direct revenues$ 1,086,484 $ 745,633 $ 340,851 45.7 %$ 3,124,672 $ 2,124,332 $ 1,000,340 47.1 % Environmental Services direct revenues for the three months endedSeptember 30, 2022 increased$340.9 million from the comparable period in 2021. With the acquisition of HydroChemPSC, our industrial services and field and emergency response services direct revenues grew. In addition, our technical services and Safety-Kleen environmental revenue streams, which were not impacted by the acquisition of HydroChemPSC, grew 29.4% and 21.5% respectively. More specifically, direct revenues of our industrial service offerings increased$179.1 million most notably focused in revenue streams associated with the HydroChemPSC operations including vacuum services, hydroblasting and industrial cleaning. Technical services revenues increased$89.1 million largely due to higher collection and throughput of waste streams at our facilities including higher value waste streams at our incinerators coupled with pricing initiatives across the business. Higher volumes, throughput efficiencies and fewer down days at our incinerators drove an increase in utilization from 82% in the third quarter of 2021 to 86% in the third quarter of 2022. We also saw an increase in landfill volumes in the third quarter of 2022 as compared to the third quarter of 2021. Field and emergency response services revenues increased approximately$36.8 million largely due to contributions from the HydroChemPSC operations, despite a$5.2 million decrease in COVID-19 decontamination service revenues. Direct revenues for the Safety-Kleen core service offerings increased$35.9 million from the comparable period in 2021 due to improved pricing and greater demand for these containerized waste, parts washer and vacuum services. The Canadian operations of the Environmental Services segment were negatively impacted by$4.7 million due to foreign currency translation. Environmental Services direct revenues for the nine months endedSeptember 30, 2022 increased$1,000.3 million from the comparable period in 2021. Consistent with the discussion above, revenues associated with HydroChemPSC operations within industrial services and field and emergency response services drove much of this increase, however, Technical services and Safety-Kleen environmental services offerings grew organically by 25.1% and 18.4%, respectively. Direct revenues of our industrial service offerings increased$567.3 million which was due to increases in revenue streams associated with the HydroChemPSC operations. Technical services revenues increased$244.5 million largely due to higher throughput at our facilities and higher value waste streams at our incinerators coupled with pricing initiatives. Utilization at our incinerators increased from 83% in the nine months endedSeptember 30, 2021 to 87% in the nine months endedSeptember 30, 2022 largely driven by increased volumes, throughput efficiencies and fewer down days. We also saw an increase in landfill volumes in the nine months of 2022 as compared to the first nine months of 2021. Field and emergency response services revenues increased approximately$104.2 million , mainly due to contributions from the HydroChemPSC business, despite a$30.9 million decrease in COVID-19 decontamination service revenues. Direct revenues for the Safety-Kleen core service offerings increased$83.9 million from the comparable period in 2021 due to improved pricing and greater demand for our containerized waste, vacuum services and parts washer services. The Canadian operations of the Environmental Services segment were negatively impacted by$10.5 million due to foreign currency translation. 28
--------------------------------------------------------------------------------
Table of Contents
Safety-Kleen Sustainability Solutions
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
(in thousands, except %
percentages) 2022 2021 Change Change 2022 2021 Change % Change
Direct revenues $ 276,319 $ 205,787 $ 70,532 34.3 % $ 763,401 $ 561,536 $ 201,865 35.9 %
Safety-Kleen Sustainability Solutions direct revenues for the three months
ended September 30, 2022 increased $70.5 million from the comparable period in
2021 predominately due to higher pricing of our base and blended oil products.
For the three months ended September 30, 2022 , base oil sales revenues increased
$48.2 million from the comparable period in 2021 mainly due to pricing increases
and, to a lesser extent, an increase in volumes sold. Pricing also drove an
increase in revenues from recycled fuel oil and refinery byproducts of $20.6
million and an increase in blended oil sales of $6.5 million . In the three
months ended September 30, 2022 , the Canadian operations of the Safety-Kleen
Sustainability Solutions segment were negatively impacted by $1.8 million due to
foreign currency translation.
In the nine months ended September 30, 2022 , the overall direct revenue increase
of $201.9 million was largely due to a $146.4 million increase in base oil sales
driven by higher pricing across a relatively consistent volume sold. Revenues
from recycled fuel oil and refinery byproducts increased $35.1 million in the
nine months ended September 30, 2022 when compared to 2021 and revenues from
blended oil sales increased $33.6 million due to higher pricing which more than
offset lower volumes sold. The volume of used oil collected increased, however,
revenue from the collection of used motor oil decreased $8.8 million . This
decrease is in line with expectations given the inverse correlation between
movements in base oil pricing and the market prices associated with our used oil
collection services. The Canadian operations of the Safety-Kleen Sustainability
Solutions segment were negatively impacted by $3.2 million in the nine months
ended September 30, 2022 due to foreign currency translation.
Cost of Revenues
We believe that management of operating costs is vital to our ability to remain
price competitive. We continue to experience the current macroeconomic
inflationary pressures across several cost categories, but most notably related
to internal and external labor, transportation, general supplies and energy
related costs. We aim to manage these increases through constant cost monitoring
as well as our overall customer pricing strategies designed to offset the
negative inflationary impacts on our margins.
We continue to upgrade the quality and efficiency of our services through the
development of new technology and continued modifications and expansion at our
facilities, invest in new business opportunities and aggressively implement
strategic sourcing and logistics solutions in the face of these inflationary
pressures, while also continuing to optimize our management and operating
structure in an effort to manage our operating margins.
Environmental Services
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
(in thousands, except %
percentages) 2022 2021 Change Change 2022 2021 Change % Change
Cost of revenues $ 746,869 $ 516,340 $ 230,529 44.6 % $ 2,175,864 $ 1,454,852 $ 721,012 49.6 %
As a % of Direct revenues 68.7 % 69.2 % (0.5) % 69.6 % 68.5 % 1.1 %
Environmental Services cost of revenues for the three months ended September 30,
2022 increased $230.5 million from the comparable period in 2021, primarily due
to the increase in direct revenues noted above, including additional costs from
the HydroChemPSC operations. Cost of revenues as a percentage of direct revenues
for the three months ended September 30, 2022 remained relatively consistent
with the three months ended September 30, 2021 despite lower COVID-19
decontamination services and the growth of our industrial services offerings
which typically operate at a lower margin than our waste disposal focused
offerings. Overall, labor and benefit related costs increased $122.4 million ,
equipment and supply costs increased $45.7 million and external transportation,
vehicle and fuel costs increased $38.5 million . These increases were driven by a
combination of increased business, including the addition of HydroChemPSC, and
inflationary pressures.
Environmental Services cost of revenues for the nine months ended September 30,
2022 increased $721.0 million from the comparable period in 2021, primarily due
to the increase in direct revenues noted above, including additional costs from
the HydroChemPSC operations and inflationary pressures. Cost of revenues as a
percentage of direct revenues increased 1.1% from the comparable period in the
prior year mainly due to the mix of services, most notably lower COVID-19
decontamination services and
29--------------------------------------------------------------------------------
Table of Contents
the growth of our industrial service offerings. Inflationary pressures across several cost categories including labor, transportation, equipment and supply costs have also contributed to the increase of these costs as a percentage of revenues. Overall, labor and benefit related costs increased$357.2 million , equipment and supply costs increased$176.5 million and external transportation, vehicle and fuel related costs increased$120.7 million .
Safety-Kleen Sustainability Solutions
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
(in thousands, except %
percentages) 2022 2021 Change Change 2022 2021 Change % Change
Cost of revenues $ 154,753 $ 119,332 $ 35,421 29.7 % $ 457,790 $ 350,733 $ 107,057 30.5 %
As a % of Direct revenues 56.0 % 58.0 % (2.0) % 60.0 % 62.5 % (2.5) %
Safety-Kleen Sustainability Solutions cost of revenues for the three months
ended September 30, 2022 increased $35.4 million from the comparable period in
2021. The cost of raw materials used in production of our oil products increased
$17.4 million , driven mainly by increased costs to obtain used oil through our
used oil collection services. The increase in base oil pricing in the third
quarter of 2022 as compared to the same period in 2021 has resulted in a
correlating increase in the cost we now pay for used oil feedstock. Increased
external transportation, vehicle and fuel costs of $8.3 million , labor and
benefit related costs of $3.6 million and equipment and supply costs of $1.8
million also contributed to the overall increase in cost of revenues. The
remaining increase was spread across various cost categories.
Safety-Kleen Sustainability Solutions cost of revenues for the nine months ended
September 30, 2022 increased $107.1 million from the comparable period in 2021.
The cost of raw materials used in production of our oil products increased $66.9
million , more than half of which was due to increased costs to obtain used oil
through our used oil collection services. As noted above, the increase in base
oil pricing has resulted in a correlating increase in the cost we now pay for
used oil feedstock. Other costs that contributed to the overall increase include
external transportation, vehicle and fuel costs which increased $18.6 million ,
labor and benefit related costs which increased $6.4 million and equipment and
supply costs of which increased $1.8 million . The remaining increase was spread
across various cost categories.
As a percentage of revenues, Safety-Kleen Sustainability Solutions costs of
revenues improved by 2.0% and 2.5% in the three and nine months ended
September 30, 2022 as compared to the comparable periods in 2021. This margin
improvement was largely driven by the increased pricing of our products which
outpaced the increase in cost of revenues as the business continued to
capitalize on the favorable market conditions and efficient management of the
spread between the pricing of products and the rising costs to obtain oil
feedstock.
Selling, General and Administrative Expenses
We strive to manage our selling, general and administrative ("SG&A") expenses
commensurate with the overall performance of our segments and corresponding
revenue levels. We believe our ability to properly align these costs with
business performance is reflective of our strong management of the businesses
and further promotes our ability to remain competitive in the marketplace.
Environmental Services
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
(in thousands, except %
percentages) 2022 2021 Change Change 2022 2021
Change % Change
SG&A expenses $ 78,928 $ 62,822 $ 16,106 25.6 % $ 235,178 $ 186,714 $ 48,464 26.0 %
As a % of Direct
revenues 7.3 % 8.4 % (1.1) % 7.5 % 8.8 % (1.3) %
Environmental Services SG&A expenses for the three months and nine months ended
September 30, 2022 increased $16.1 million and $48.5 million from the comparable
periods in 2021. These cost increases were primarily driven by increased labor
and benefits related costs of $13.7 million and $37.7 million in the three and
nine month periods respectively, predominately due to the addition of the
HydroChemPSC business operations, investments in our employees and higher
incentive compensation. Professional fees also increased $2.0 million in the
nine months ended September 30, 2022 as compared to the same period in the prior
year. The remaining increases were spread across various other cost categories.
As a percentage of revenue, the Environmental Services SG&A expense improved by
1.1% and 1.3% in both the three and nine months ended September 30, 2022 , driven
both by the HydroChemPSC business operations which have lower associated SG&A
expenses when compared to the business's related revenues
30--------------------------------------------------------------------------------
Table of Contents
and overall improved leverage of SG&A in the legacy Environmental Services business.
Safety-Kleen Sustainability Solutions
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
(in thousands, except %
percentages) 2022 2021 Change Change 2022 2021 Change % Change
SG&A expenses $ 18,410 $ 15,645 $ 2,765 17.7 % $ 53,568 $ 45,047 $ 8,521 18.9 %
As a % of Direct
revenues 6.7 % 7.6 % (0.9) % 7.0 % 8.0 % (1.0) %
Safety-Kleen Sustainability Solutions SG&A expenses for the three and nine
months ended September 30, 2022 increased $2.8 million and $8.5 million from the
comparable periods in 2021 primarily due to a $1.2 million and $5.8 million
increase in labor and benefit costs as we expanded our sales team for the
segment. As a percentage of revenue, these costs improved in both the three and
nine months ended September 30, 2022 when compared to the same periods in the
prior year.
Corporate Items
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
(in thousands, except %
percentages) 2022 2021 Change Change 2022 2021 Change % Change
SG&A expenses $ 54,373 $ 54,697 $ (324) (0.6) % $ 169,746 $ 147,150 $ 22,596 15.4 %
As a % of Total Clean
Harbors' Direct revenues 4.0 % 5.7 % (1.7) % 4.4 % 5.5 % (1.1) %
We manage our Corporate Items SG&A expenses commensurate with the overall total
company performance and direct revenue levels. Generally, as revenues increase,
we would expect some increase in these costs; however, Corporate Items SG&A
expenses for the three and nine months ended September 30, 2022 decreased as a
percentage of total Clean Harbors' direct revenues when compared to the same
period in the prior year which has also contributed to Clean Harbors' overall
profitability.
For the three months ended September 30, 2022 , the overall costs remained
relatively consistent with the prior year while improving as a percentage of
total Clean Harbors' direct revenues with lower bad debt expense and
professional fees more than offsetting increases in labor and benefit related
costs.
For the nine months ended September 30, 2022 , the overall increase of $22.6
million included a $17.6 million increase in labor and benefits related costs
and a $7.6 million increase from higher stock-based compensation costs. This
increase in stock-based compensation is mainly due to the timing of grants in
2022. We expect the overall grants for 2022 to be relatively consistent with
2021. Information technology/cyber-security related technology costs also
increased $5.4 million . These increases were partially offset by the $3.0
million breakup fee received related to the termination of the proposed asset
acquisition from Vertex Energy, Inc. and $2.7 million reduction in professional
fees in the nine months ended September 30, 2022 .
Adjusted EBITDA
Management considers Adjusted EBITDA to be a measurement of performance which
provides useful information to both management and investors. Adjusted EBITDA
should not be considered an alternative to net income or other GAAP metrics.
Adjusted EBITDA is not calculated identically by all companies and therefore our
measurements of Adjusted EBITDA, while defined consistently and in accordance
with our existing credit agreement, may not be comparable to similarly titled
measures reported by other companies.
31--------------------------------------------------------------------------------
Table of Contents
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
%
(in thousands, except percentages) 2022 2021 Change Change 2022 2021 Change % Change
Adjusted EBITDA:
Environmental Services $ 260,687 $ 166,471 $ 94,216 56.6 % $ 713,630 $ 482,766 $ 230,864 47.8 %
Safety-Kleen Sustainability
Solutions 103,156 70,810 32,346 45.7 252,043 165,756 86,287 52.1
Corporate Items (55,288) (52,197) (3,091) (5.9) (167,789) (146,216) (21,573) (14.8)
Total $ 308,555 $ 185,084 $ 123,471 66.7 % $ 797,884 $ 502,306 $ 295,578 58.8 %
We use Adjusted EBITDA to enhance our understanding of our operating
performance, which represents our views concerning our performance in the
ordinary, ongoing and customary course of our operations. We historically have
found it helpful, and believe that investors have found it helpful, to consider
an operating measure that excludes certain expenses relating to transactions not
reflective of our core operations.
The information about our operating performance provided by this financial
measure is used by our management for a variety of purposes. We regularly
communicate Adjusted EBITDA results to our lenders since our loan covenants are
based upon levels of Adjusted EBITDA achieved and to our board of directors, and
we discuss our interpretation of such results with the board. We also compare
our Adjusted EBITDA performance against internal targets as a key factor in
determining cash and stock bonus compensation for executives and other
employees, largely because we believe that this measure is indicative of how the
fundamental business is performing and is being managed.
We also provide information relating to our Adjusted EBITDA so that analysts,
investors and other interested persons have the same data that we use to assess
our core operating performance. We believe that Adjusted EBITDA should be viewed
only as a supplement to the GAAP financial information. We also believe,
however, that providing this information in addition to, and together with, GAAP
financial information permits the users of our financial statements to obtain a
better understanding of our core operating performance and to evaluate the
efficacy of the methodology and information used by management to evaluate and
measure such performance on a standalone and a comparative basis.
The following is a reconciliation of net income to Adjusted EBITDA for the following periods (in thousands, except percentages):
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Net income $ 135,799 $ 65,443 $ 329,270 $ 154,254
Accretion of environmental liabilities 3,246 2,799 9,599 8,625
Stock-based compensation 7,828 6,001 20,375 12,786
Depreciation and amortization 88,394 71,451 260,560 215,206
Other (income) expense, net (104) (199) (2,073) 2,509
Gain on sale of business - - (8,864) -
Interest expense, net of interest income 28,081 17,984 79,354 53,953
Provision for income taxes 45,311 21,605 109,663 54,973
Adjusted EBITDA $ 308,555 $ 185,084 $ 797,884 $ 502,306
As a % of Direct revenues 22.6 % 19.5 % 20.5 % 18.7 %
32--------------------------------------------------------------------------------
Table of Contents
Depreciation and Amortization
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
(in thousands, except %
percentages) 2022 2021 Change Change 2022 2021 Change % Change
Depreciation of fixed
assets and amortization
of landfills and finance
leases $ 75,327 $ 63,875 $ 11,452 17.9 % $ 223,001 $ 192,277 $ 30,724 16.0 %
Permits and other
intangibles amortization 13,067 7,576 5,491 72.5 37,559 22,929 14,630 63.8
Total depreciation and
amortization $ 88,394 $ 71,451 $ 16,943 23.7 % $ 260,560 $ 215,206 $ 45,354 21.1 %
Depreciation and amortization for the three and nine months ended September 30,
2022 increased by $16.9 million and $45.4 million from the comparable periods in
2021 due to the depreciation and amortization of the HydroChemPSC tangible and
intangible assets which were acquired in in the fourth quarter of 2021.
Gain on Sale of Business
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
(in thousands, except % %
percentages) 2022 2021 Change Change 2022 2021 Change Change
Gain on sale of business $ - $ - $ - - % $ 8,864 $ - $ 8,864 100.0 %
During the nine months ended September 30, 2022 , we recorded a $8.9 million gain
on the sale of a non-core line of business within our Environmental Services
segment. For additional information regarding this gain on sale of business, see
Note 5, "Disposition of Business," to the accompanying financial statements.
Provision for Income Taxes
For the Three Months Ended For the Nine Months Ended
September 30, 2022 over 2021 September 30, 2022 over 2021
(in thousands, except % %
percentages) 2022 2021 Change Change 2022 2021 Change Change
Provision for income
taxes $ 45,311 $ 21,605 $ 23,706 109.7 % $ 109,663 $ 54,973 $ 54,690 99.5 %
Effective tax rate 25.0 % 24.8 % 0.2 % 25.0 % 26.3 % (1.3) %
The provision for income taxes for the three and nine months ended September 30,
2022 increased $23.7 million and $54.7 million from the comparable periods in
2021 due to an increase in income before provision for income taxes. Our
effective tax rate for the three months ended September 30, 2022 was relatively
consistent to the prior year while the rate for the nine months ended September
30, 2022 decreased 1.3%. The decrease in our effective tax rate is largely due
to the utilization of previous unbenefited losses in certain of our Canadian
entities.
In recent periods, certain Canadian entities which have historically generated
net operating losses and for which we have recognized valuation allowances, have
been operating at a profit. This recent profitability and associated utilization
of previous unbenefited losses is due to operational improvements and tax
strategies as well as government subsidies and the gain on sale of business. As
of September 30, 2022 , we do not yet believe that sufficient positive evidence
exists to support that the profitability of these certain Canadian entities will
continue for a sustained period. We will continue to evaluate this on an ongoing
basis to determine when, if at all, to release some or all of the associated
remaining valuation allowances. The related valuation allowances, should they be
released, would not have a significant impact on the Company's results of
operations.
33--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our primary ongoing cash requirements will be to fund operations, capital expenditures, interest payments and investments in line with our business strategy. We believe our future operating cash flows will be sufficient to meet our future operating and internal investing cash needs. We monitor our actual needs and forecasted cash flows, our liquidity and our capital resources, enabling us to plan our present needs and fund items that may arise during the year as a result of changing business conditions or opportunities. Furthermore, our existing cash balance and the availability of additional borrowings under our revolving credit facility provide additional potential sources of liquidity should they be required.
© Edgar Online, source
