Clean Harbors, Inc. ("Clean Harbors") (NYSE: CLH), the leading provider of environmental, energy and industrial services throughout North America, today announced financial results for the third quarter and nine months ended September 30, 2014.

Revenues for the third quarter were $851.5 million, compared with $907.5 million in the same period of 2013. The Company reported a loss from operations for the third quarter of 2014 of $42.7 million, compared with income from operations of $73.6 million in the third quarter of 2013. The third-quarter loss from operations includes a non-cash, pre-tax goodwill impairment charge of $123.4 million related to its Oil Re-refining and Recycling segment. Clean Harbors is recognizing the impairment charge based on the continued challenging environment in that business brought on by the recent, significantly lower base and blended oil prices. Excluding the impairment charge, the Company reported adjusted income from operations for the third quarter of 2014 of $80.7 million.

Third-quarter 2014 net loss was $93.3 million, or $1.55 per share, compared with net income of $35.4 million, or $0.58 per diluted share, in the same period of 2013. The third-quarter 2014 net loss includes the $123.4 million non-cash, pre-tax impairment charge, as well as $1.8 million of pre-tax integration and severance costs. Third-quarter 2013 net income included pre-tax integration and severance costs of $2.7 million. Excluding the impairment charge, the Company reported adjusted net income for the third quarter of 2014 of $27.4 million, or $0.45 per share.

Adjusted EBITDA (see description below) in the third quarter of 2014 increased 5% to $153.4 million, compared with $146.0 million in the same period of 2013. The Company purchased $37.6 million of Clean Harbors stock as part of its share repurchase program during the quarter.

Comments on the Third Quarter

"We delivered strong third-quarter Adjusted EBITDA and operating margins despite falling short of our revenue target," said Alan S. McKim, Chairman and Chief Executive Officer. "Revenue was below our guidance range based on several factors. Project activity in the Oil Sands further slowed during the quarter, leading to softness in our Industrial and Field Services and Lodging Services segments. Oil and Gas Field Services underperformed due to commodity pressures and competition. Despite these headwinds, our focus on reducing costs and channeling resources to our most profitable businesses enabled us to achieve an Adjusted EBITDA margin of 18%, up nearly 200 basis points from a year ago."

"Technical Services recorded another solid quarter with 10% Adjusted EBITDA growth on a 2% increase in revenue," McKim said. "Incineration utilization was 90% as scheduled maintenance shutdowns at our two largest facilities initially planned for the fourth quarter were completed this quarter. Both Safety-Kleen segments delivered double-digit growth in profitability on small increases in revenue. The Industrial and Field Services, Oil and Gas Field Services, and Lodging Services segments were affected by the impact of currency translation on our Canadian operations, the ongoing slowdown in Western Canada, and lower project activity. As a result, all three business segments reported declines in both revenue and Adjusted EBITDA from a year ago."

"One of the driving forces behind our strong margin performance this quarter, including a 90-basis-point improvement in SG&A percentage, was our ability to further reduce our cost structure. We have a broad array of cost reduction and margin improvement initiatives underway. These initiatives are proving successful, and we remain on track to achieve our previously stated goal of eliminating $75 million in annual expenses," McKim said.

Business Outlook and Financial Guidance

"As we enter the final quarter of 2014, we see ongoing strength within our environmental-related businesses but expect continued headwinds across several segments," McKim said. "Our Technical Services segment has built a large backlog entering the quarter as we continue to drive considerable volumes from Safety-Kleen and project-related work. Within SK Environmental Services, we are expanding through new branch locations and cross-selling. Within Oil Re-refining and Recycling, we are focused on lowering PFO costs, capturing greater transportation efficiencies and pursuing product differentiation and blended opportunities to help offset the recent declines in base oil pricing. Activity in the Oil Sands region remains weaker-than-expected, which is limiting opportunities for Industrial Services and Lodging Services. While our Oil and Gas Field Services segment is entering its stronger operating period as the winter drilling season approaches, overall conditions are not favorable near-term as our seismic business continues to underperform and energy markets remain under commodity pressure."

Based on its year-to-date performance and current market conditions, Clean Harbors is adjusting its previously announced 2014 annual revenue and Adjusted EBITDA guidance. The Company now expects revenues in the range of $3.40 billion to $3.42 billion, compared with its previously announced range of $3.5 billion to $3.6 billion. The Company now expects Adjusted EBITDA in the range of $510 million to $520 million, compared with its previously announced range of $535 million to $555 million.

Non-GAAP Results

Clean Harbors reports Adjusted EBITDA results, which is a non-GAAP financial measure, as a complement to results provided in accordance with accounting principles generally accepted in the United States (GAAP). The Company believes that Adjusted EBITDA provides additional useful information to investors since the Company's loan covenants are based upon levels of Adjusted EBITDA achieved. The Company defines Adjusted EBITDA in accordance with its existing credit agreement, as described in the following reconciliation showing the differences between reported net income and Adjusted EBITDA for the third quarter and first nine months of 2014 and 2013 (in thousands):
         
For the Three Months Ended: For the Nine Months Ended:

September 30,2014
   

September 30,2013

September 30,2014
   

September 30,2013
 
Net (loss) income $ (93,337 ) $ 35,361 $ (55,705 ) $ 68,765
Accretion of environmental liabilities 2,642 2,914 7,975 8,628
Depreciation and amortization 70,049 69,430 205,480 196,904
Goodwill impairment charge 123,414 123,414
Other (income) expense (613 ) 150 (4,136 ) (2,030 )
Interest expense, net 19,494 19,326 58,430 58,784
Pre-tax, non-cash acquisition accounting inventory adjustment 13,559
Provision for income taxes   31,708     18,771   55,684     36,160  
Adjusted EBITDA $ 153,357   $ 145,952 $ 391,142   $ 380,770  
 

This press release includes a discussion of income from operations, net income and earnings per share amounts adjusted for the goodwill impairment charge identified in the reconciliations provided below. The Company believes that discussion of these additional non-GAAP measures provide investors with meaningful comparisons of current results to prior periods' results by excluding items that the Company does not believe reflect its fundamental business performance. The following shows the difference between (loss) income from operations to adjusted income from operations, net (loss) income to adjusted net income and (loss) earnings per share to adjusted earnings per share for the three and nine months ended September 30, 2014 and 2013 (in thousands):
         
For the Three Months Ended: For the Nine Months Ended:

Adjusted income from operations

September 30,2014
   

September 30,2013

September 30,2014
   

September 30,2013
 
(Loss) income from operations $ (42,748) $73,608 $ 54,273 $161,679
Goodwill impairment charge 123,414 123,414
Adjusted income from operations $ 80,666 $73,608 $177,687 $161,679
 

Adjusted net income
 
Net (loss) income $(93,337) $35,361 $(55,705) $68,765
Goodwill impairment charge, net of tax 120,750 120,750
Adjusted net income $ 27,413 $35,361 $ 65,045 $68,765
 

Adjusted earnings per share
 
(Loss) earnings per share $(1.55) $ 0.58 $(0.92) $1.13
Goodwill impairment charge, net of tax 2.00 1.99
Adjusted earnings per share $ 0.45 $ 0.58 $ 1.07 $1.13
 

Adjusted EBITDA Guidance Reconciliation

An itemized reconciliation between projected net income and projected Adjusted EBITDA is as follows:
       
For the Year Ending December 31, 2014
Amount     Margin % (1)
(In millions)    
Projected GAAP net loss $ (42 )   to   $ (32 ) (1.2 )% to (0.9 )%
Adjustments:
Accretion of environmental liabilities 11 to 10 0.4 % to 0.3 %
Depreciation and amortization 278 to 274 8.2 % to 8.0 %
Goodwill impairment charge 123 to 123 3.6 % to 3.6 %
Other income (4 ) to (4 ) (0.1 )% to (0.1 )%
Interest expense, net 79 to 78 2.3 % to 2.3 %
Provision for income taxes   65     to     71   1.8 %   to   2.0 %
Projected Adjusted EBITDA $ 510     to   $ 520   15.0 %   to   15.2 %
 
Revenues (In millions) $ 3,400 to $ 3,420
 

(1) The Margin % indicates the percentage that the line-item represents to total revenues for the respective reporting period, calculated by dividing the dollar amount for the line-item by total revenues for the reporting period.

Conference Call Information

Clean Harbors will conduct a conference call for investors today at 9:00 a.m. (ET) to discuss the information contained in this press release. On the call, management will discuss Clean Harbors' financial results, business outlook and growth strategy.

Investors who wish to listen to the webcast and view the accompanying slides should visit the Investors section of the Company's website at www.cleanharbors.com. The live call also can be accessed by dialing 201.689.8881 or 877.709.8155 prior to the start of the call. If you are unable to listen to the live call, the webcast will be archived on the Company's website.

About Clean Harbors

Clean Harbors (NYSE: CLH) is North America's leading provider of environmental, energy and industrial services. The Company serves a diverse customer base, including a majority of the Fortune 500, across the chemical, energy, manufacturing and additional markets, as well as numerous government agencies. These customers rely on Clean Harbors to deliver a broad range of services such as end-to-end hazardous waste management, emergency spill response, industrial cleaning and maintenance, and recycling services. Through its Safety-Kleen subsidiary, Clean Harbors also is North America's largest re-refiner and recycler of used oil and a leading provider of parts washers and environmental services to commercial, industrial and automotive customers. Founded in 1980 and based in Massachusetts, Clean Harbors operates throughout the United States, Canada, Mexico and Puerto Rico. For more information, visit www.cleanharbors.com.

Safe Harbor Statement

Any statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identifiable by use of the words "believes," "expects," "intends," "anticipates," "plans to," "estimates," "projects," or similar expressions. Such statements may include, but are not limited to, statements about future financial and operating results, and other statements that are not historical facts. Such statements are based upon the beliefs and expectations of Clean 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 Clean Harbors' most recently filed Form 10-K and Form 10-Q. Therefore, readers are cautioned not to place undue reliance on these 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 the Securities and Exchange Commission, which may be viewed in the "Investors" section of Clean Harbors' website at www.cleanharbors.com.
 
CLEAN HARBORS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
 
        For the Three Months Ended:       For the Nine Months Ended:

September 30,2014
     

September 30,2013

September 30,2014
     

September 30,2013
 
Revenues $ 851,465 $ 907,535 $ 2,556,612 $ 2,630,226
Cost of revenues (exclusive of items shown separately below) 598,407 647,119 1,831,076 1,897,469
Selling, general and administrative expenses 99,701 114,464 334,394 365,546
Accretion of environmental liabilities 2,642 2,914 7,975 8,628
Depreciation and amortization 70,049 69,430 205,480 196,904
Goodwill impairment charge   123,414         123,414      
(Loss) income from operations (42,748 ) 73,608 54,273 161,679
Other income (expense) 613 (150 ) 4,136 2,030
Interest expense, net   (19,494 )   (19,326 )   (58,430 )   (58,784 )
(Loss) income before provision for income taxes (61,629 ) 54,132 (21 ) 104,925
Provision for income taxes   31,708     18,771     55,684     36,160  
Net (loss) income $ (93,337 ) $ 35,361   $ (55,705 ) $ 68,765  
(Loss) earnings per share:
Basic $ (1.55 ) $ 0.58   $ (0.92 ) $ 1.14  
Diluted $ (1.55 ) $ 0.58   $ (0.92 ) $ 1.13  
 
Shares used to compute (loss) earnings per share — Basic   60,369     60,610     60,585     60,542  
Shares used to compute (loss) earnings per share — Diluted   60,369     60,760     60,585     60,692  
 
 

CLEAN HARBORS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
             
September 30, 2014 December 31, 2013
Current assets:
Cash and cash equivalents $ 258,021 $ 310,073
Marketable securities 12,435
Accounts receivable, net 575,575 579,394
Unbilled accounts receivable 50,050 26,568
Deferred costs 18,676 16,134
Inventories and supplies 170,934 152,096
Prepaid expenses and other current assets 48,540 41,962
Deferred tax assets   32,141   32,517
Total current assets   1,153,937   1,171,179
Property, plant and equipment, net   1,579,701   1,602,170
Other assets:
Deferred financing costs 18,403 20,860
Goodwill 449,577 570,960
Permits and other intangibles, net 541,874 569,973
Other   17,725   18,536
Total other assets 1,027,579 1,180,329
Total assets $ 3,761,217 $ 3,953,678
Current liabilities:
Current portion of capital lease obligations $ 264 $ 1,329
Accounts payable 251,832 316,462
Deferred revenue 63,909 55,454
Accrued expenses 260,123 236,829
Current portion of closure, post-closure and remedial liabilities   32,742   29,471
Total current liabilities 608,870 639,545
Other liabilities:
Closure and post-closure liabilities, less current portion 46,287 41,201
Remedial liabilities, less current portion 133,972 148,911
Long-term obligations 1,395,000 1,400,000
Capital lease obligations, less current portion 733 1,435
Deferred taxes, unrecognized tax benefits and other long-term liabilities   255,804   246,947
Total other liabilities 1,831,796 1,838,494
Total stockholders' equity, net   1,320,551   1,475,639
Total liabilities and stockholders' equity $ 3,761,217 $ 3,953,678
 
 

Supplemental Segment Data (in thousands)
 
        For the Three Months Ended:
Revenue September 30, 2014       September 30, 2013

Third PartyRevenues
   

IntersegmentRevenues(Expense), net
   

DirectRevenues

Third PartyRevenues
   

IntersegmentRevenues(Expense), net
   

DirectRevenues
Technical Services $ 272,478     $ 40,924     $ 313,402 $ 269,465     $ 36,370     $ 305,835
Industrial and Field Services 163,582 (9,205 ) 154,377 174,829 (8,181 ) 166,648
Oil Re-refining and Recycling 140,345 (52,606 ) 87,739 131,934 (45,566 ) 86,368
SK Environmental Services 170,980 21,212 192,192 170,166 17,164 187,330
Lodging Services 36,582 723 37,305 55,571 957 56,528
Oil and Gas Field Services 67,370 639 68,009 104,981 179 105,160
Corporate Items   128       (1,687 )       (1,559 )   589       (923 )       (334 )
Total $ 851,465     $       $ 851,465   $ 907,535     $       $ 907,535  
 
        For the Nine Months Ended:
Revenue September 30, 2014       September 30, 2013

Third PartyRevenues
   

IntersegmentRevenues(Expense), net
   

DirectRevenues

Third PartyRevenues
   

IntersegmentRevenues(Expense), net
   

DirectRevenues
Technical Services $ 766,057     $ 119,617     $ 885,674 $ 759,666     $ 88,769     $ 848,435
Industrial and Field Services 510,696 (31,819 ) 478,877 543,675 (34,727 ) 508,948
Oil Re-refining and Recycling 413,282 (155,588 ) 257,694 395,026 (143,853 ) 251,173
SK Environmental Services 503,692 64,418 568,110 496,491 84,325 580,816
Lodging Services 136,148 2,043 138,191 155,586 2,983 158,569
Oil and Gas Field Services 226,319 4,337 230,656 288,588 5,612 294,200
Corporate Items (1)   418       (3,008 )       (2,590 )   (8,806 )       (3,109 )       (11,915 )
Total $ 2,556,612     $       $ 2,556,612   $ 2,630,226       $       $ 2,630,226  
 

(1) Corporate Items revenue for the nine months ended September 30, 2013 includes one-time, non-cash reductions of approximately $10.2 million due to the impact of fair value acquisition accounting adjustments on Safety-Kleen's historical deferred revenue at December 28, 2012. Revenue for the six reportable segments for the nine months ended September 30, 2013 excludes such adjustments to maintain comparability with future operating results and reflect how the Company manages the business.

Non-GAAP Segment Results

Clean Harbors reports Adjusted EBITDA results, which is a non-GAAP financial measure, as a complement to results provided in accordance with accounting principles generally accepted in the United States (GAAP) and believes that such information provides additional useful information to investors since the Company's loan covenants are based upon levels of Adjusted EBITDA achieved. The Company defines Adjusted EBITDA in accordance with its existing credit agreement. See "Non-GAAP Results" for a reconciliation of the Company's total Adjusted EBITDA to GAAP net income.
             
For the Three Months Ended: For the Nine Months Ended:
Adjusted EBITDA

September 30,2014
     

September 30,2013

September 30,2014
     

September 30,2013
 
Technical Services $ 86,928 $ 78,849 $ 233,402 $ 208,284
Industrial and Field Services 20,303 26,709 67,391 75,281
Oil Re-refining and Recycling 21,473 18,652 49,252 46,750
SK Environmental Services 30,853 23,192 84,985 84,274
Lodging Services 15,972 21,710 49,196 63,270
Oil and Gas Field Services 9,545 20,530 27,688 52,458
Corporate Items   (31,717 )   (43,690 )   (120,772 )   (149,547 )
Total $ 153,357   $ 145,952   $ 391,142   $ 380,770  
 

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