Clean Harbors(CLH) - 2021 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION This section details the company's unaudited financial statements and management's analysis for Q1 2021 ITEM 1: Unaudited Financial Statements This section presents the unaudited consolidated financial statements for Clean Harbors, Inc. and its subsidiaries for the quarter ended March 31, 2021, including balance sheets, statements of operations, comprehensive income (loss), cash flows, and stockholders' equity, along with detailed notes explaining accounting policies, segment changes, revenue disaggregation, business combinations, and various financial liabilities and equity components Consolidated Balance Sheets Details the company's financial position, assets, liabilities, and equity as of March 31, 2021 Consolidated Balance Sheet Data | ASSETS (in thousands) | March 31, 2021 (unaudited) | December 31, 2020 | | :-------------------- | :------------------------- | :---------------- | | Cash and cash equivalents | $496,383 | $519,101 | | Total current assets | $1,542,351 | $1,525,722 | | Total assets | $4,152,539 | $4,131,520 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | March 31, 2021 (unaudited) | December 31, 2020 | | Total current liabilities | $650,553 | $636,145 | | Long-term debt, less current portion | $1,548,517 | $1,549,641 | | Total stockholders' equity | $1,348,450 | $1,341,551 | | Total liabilities and stockholders' equity | $4,152,539 | $4,131,520 | Unaudited Consolidated Statements of Operations Reports the company's revenues, expenses, and net income for the three months ended March 31, 2021 and 2020 Consolidated Statements of Operations Data | (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $808,148 | $858,563 | | Income from operations | $50,855 | $45,496 | | Net income | $21,736 | $11,572 | | Basic EPS | $0.40 | $0.21 | | Diluted EPS | $0.39 | $0.21 | - Total revenues decreased by $50.4 million (5.9%) year-over-year, from $858.6 million in Q1 2020 to $808.1 million in Q1 2021. Despite lower revenues, net income increased significantly from $11.6 million to $21.7 million, and diluted EPS rose from $0.21 to $0.39[12] Unaudited Consolidated Statements of Comprehensive Income (Loss) Details comprehensive income (loss), including net income and other comprehensive income (loss) components Consolidated Statements of Comprehensive Income (Loss) Data | (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------- | :-------------------------------- | :-------------------------------- | | Net income | $21,736 | $11,572 | | Other comprehensive income (loss), net of tax | $11,948 | $(59,306) | | Comprehensive income (loss) | $33,684 | $(47,734) | - The company reported a significant swing in comprehensive income (loss) from a loss of $47.7 million in Q1 2020 to an income of $33.7 million in Q1 2021, primarily driven by a positive change in foreign currency translation adjustments and unrealized gain on interest rate hedge[14] Unaudited Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Data | (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------- | :-------------------------------- | :-------------------------------- | | Net cash from operating activities | $103,000 | $33,681 | | Net cash used in investing activities | $(86,737) | $(93,087) | | Net cash (used in) from financing activities | $(40,620) | $126,447 | | (Decrease) increase in cash and cash equivalents | $(22,718) | $60,214 | | Cash and cash equivalents, end of period | $496,383 | $432,205 | - Net cash from operating activities significantly increased to $103.0 million in Q1 2021 from $33.7 million in Q1 2020. Net cash used in financing activities shifted from an inflow of $126.4 million in Q1 2020 to an outflow of $40.6 million in Q1 2021, largely due to a $150.0 million borrowing from the revolving credit facility in 2020 and increased common stock repurchases in 2021[16] Unaudited Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity, including common stock, capital, and accumulated earnings Consolidated Statements of Stockholders' Equity Data | (in thousands) | Balance at January 1, 2021 | Balance at March 31, 2021 | | :------------- | :------------------------- | :------------------------ | | Common Stock | $548 | $546 | | Additional Paid-in Capital | $582,749 | $555,966 | | Accumulated Other Comprehensive Loss | $(211,477) | $(199,529) | | Accumulated Earnings | $969,731 | $991,467 | | Total Stockholders' Equity | $1,341,551 | $1,348,450 | - Total stockholders' equity increased from $1,341.6 million at January 1, 2021, to $1,348.5 million at March 31, 2021, driven by net income and other comprehensive income, partially offset by common stock repurchases[19] Notes to Unaudited Consolidated Financial Statements Provides detailed explanations of accounting policies, segment changes, and financial statement components (1) BASIS OF PRESENTATION Explains the basis of preparing interim financial statements and management's estimates - The interim financial statements are unaudited, prepared according to SEC rules, and include all normal recurring adjustments. Management's estimates and assumptions may differ from actual results, and interim results are not indicative of full-year performance[22] (2) SIGNIFICANT ACCOUNTING POLICIES Details significant accounting policies, including recent changes in operating segments - No material changes to significant accounting policies were made, except for a reorganization of the Safety-Kleen business during Q1 2021[23] Changes in Operating Segments Describes the reorganization of Safety-Kleen business into new operating segments for enhanced growth - The Safety-Kleen business was reorganized in Q1 2021, combining waste oil collection and bulk blended oil sales with Safety-Kleen Oil to form Safety-Kleen Sustainability Solutions, aiming for growth in sustainable lubricant products[24] - Safety-Kleen's core offerings (containerized waste, parts washer, vacuum services) were consolidated into Clean Harbors Environmental Services to enhance cross-selling and market presence with small quantity hazardous waste generators[25] - As a result of the reorganization, the company's reportable segments are now Environmental Services and Safety-Kleen Sustainability Solutions, with historical data recast for comparability[26] (3) REVENUES Outlines revenue recognition policies and disaggregation of revenue by geographical markets and sources - The company generates revenue through two operating segments: Environmental Services (Technical Services, Field and Emergency Response Services, Industrial Services and Other, Safety-Kleen Environmental Services) and Safety-Kleen Sustainability Solutions (Safety-Kleen Environmental Services, Safety-Kleen Oil)[27][28][34][39] - Revenue recognition for services is generally over time using the input method (time and materials), while product revenue is recognized at a point in time upon transfer of control[31][32][33][35][39] Disaggregation of Revenue Presents detailed revenue breakdown by primary geographical markets and service/product sources Disaggregation of Revenue by Geography and Source | Primary Geographical Markets (in thousands) | Environmental Services (2021) | Safety-Kleen Sustainability Solutions (2021) | Corporate (2021) | Total (2021) | | :---------------------------------------- | :---------------------------- | :------------------------------------------- | :--------------- | :----------- | | United States | $575,508 | $138,990 | $79 | $714,577 | | Canada | $77,370 | $16,201 | — | $93,571 | | Total third-party revenues | $652,878 | $155,191 | $79 | $808,148 | | Sources of Revenue (in thousands) | Environmental Services (2021) | Safety-Kleen Sustainability Solutions (2021) | Corporate (2021) | Total (2021) | | :---------------------------------------- | :---------------------------- | :------------------------------------------- | :--------------- | :----------- | | Technical Services | $272,040 | — | — | $272,040 | | Field and Emergency Response Services | $105,168 | — | — | $105,168 | | Industrial Services and Other | $119,810 | — | $79 | $119,889 | | Safety-Kleen Environmental Services | $155,860 | $38,978 | — | $194,838 | | Safety-Kleen Oil | — | $116,213 | — | $116,213 | | Total third-party revenues | $652,878 | $155,191 | $79 | $808,148 | Disaggregation of Revenue by Geography and Source | Primary Geographical Markets (in thousands) | Environmental Services (2020) | Safety-Kleen Sustainability Solutions (2020) | Corporate (2020) | Total (2020) | | :---------------------------------------- | :---------------------------- | :------------------------------------------- | :--------------- | :----------- | | United States | $607,110 | $139,437 | $(302) | $746,245 | | Canada | $97,926 | $14,000 | $392 | $112,318 | | Total third-party revenues | $705,036 | $153,437 | $90 | $858,563 | | Sources of Revenue (in thousands) | Environmental Services (2020) | Safety-Kleen Sustainability Solutions (2020) | Corporate (2020) | Total (2020) | | :---------------------------------------- | :---------------------------- | :------------------------------------------- | :--------------- | :----------- | | Technical Services | $275,273 | — | — | $275,273 | | Field and Emergency Response Services | $105,912 | — | — | $105,912 | | Industrial Services and Other | $146,919 | — | $90 | $147,009 | | Safety-Kleen Environmental Services | $176,932 | $37,549 | — | $214,481 | | Safety-Kleen Oil | — | $115,888 | — | $115,888 | | Total third-party revenues | $705,036 | $153,437 | $90 | $858,563 | (4) BUSINESS COMBINATIONS Details recent acquisitions and their impact on the company's business segments and goodwill 2021 Acquisition Describes the acquisition of a privately-owned business to expand Safety-Kleen Sustainability Solutions - On March 27, 2021, the Company acquired a privately-owned business for $22.9 million cash, expanding the Safety-Kleen Sustainability Solutions segment's network in the south-central United States and recognizing $15.9 million in preliminary goodwill[44] 2020 Acquisition Details the acquisition of a business to expand Safety-Kleen Sustainability Solutions' oil re-refining - On April 17, 2020, the Company acquired a privately-owned business for $8.8 million cash, expanding Safety-Kleen Sustainability Solutions' oil re-refining operations to the northeast U.S. and recognizing $1.4 million in preliminary goodwill[45] (5) INVENTORIES AND SUPPLIES Provides a breakdown of inventories and supplies, including oil, supplies, and solvent products Inventories and Supplies | (in thousands) | March 31, 2021 | December 31, 2020 | | :------------- | :------------- | :---------------- | | Oil and oil related products | $76,106 | $76,209 | | Supplies | $120,814 | $120,007 | | Solvent and solutions | $9,145 | $8,812 | | Other | $13,434 | $15,470 | | Total inventories and supplies | $219,499 | $220,498 | - Total inventories and supplies slightly decreased from $220.5 million at December 31, 2020, to $219.5 million at March 31, 2021. Supplies primarily consist of critical spare parts for incinerator and re-refinery operations, PPE, and general operational supplies[46] (6) PROPERTY, PLANT AND EQUIPMENT Details property, plant, and equipment, including land, buildings, vehicles, and depreciation expense Property, Plant and Equipment, Net | (in thousands) | March 31, 2021 | December 31, 2020 | | :------------- | :------------- | :---------------- | | Land | $145,662 | $139,776 | | Buildings and improvements | $514,711 | $509,804 | | Vehicles | $855,842 | $844,026 | | Equipment | $1,812,858 | $1,807,235 | | Construction in progress | $39,943 | $24,378 | | Total property, plant and equipment, net | $1,527,944 | $1,525,298 | - Net property, plant and equipment increased slightly from $1,525.3 million at December 31, 2020, to $1,527.9 million at March 31, 2021. Depreciation expense, including landfill and finance lease amortization, was $64.6 million for Q1 2021, down from $65.4 million in Q1 2020[47][48] (7) GOODWILL AND OTHER INTANGIBLE ASSETS Details goodwill by segment and other intangible assets, including permits and customer relationships Goodwill by Segment | Goodwill by Segment (in thousands) | January 1, 2021 | March 31, 2021 | | :------------------------------- | :-------------- | :------------- | | Environmental Services | $401,918 | $402,438 | | Safety-Kleen Sustainability Solutions | $125,105 | $141,167 | | Totals | $527,023 | $543,605 | - Goodwill increased by $16.6 million to $543.6 million at March 31, 2021, primarily due to a $15.9 million increase from a current period acquisition within the Safety-Kleen Sustainability Solutions segment[50] Intangible Assets | Intangible Assets (in thousands) | Cost (March 31, 2021) | Net (March 31, 2021) | Cost (December 31, 2020) | Net (December 31, 2020) | | :------------------------------- | :-------------------- | :------------------- | :----------------------- | :---------------------- | | Permits | $184,675 | $87,614 | $183,766 | $88,733 | | Customer and supplier relationships | $372,860 | $164,931 | $382,083 | $170,188 | | Other intangible assets | $39,334 | $4,227 | $39,287 | $4,543 | | Trademarks and trade names | $123,281 | $123,281 | $123,156 | $123,156 | | Total permits and other intangible assets | $720,150 | $380,053 | $728,292 | $386,620 | - Total net permits and other intangible assets decreased from $386.6 million at December 31, 2020, to $380.1 million at March 31, 2021. Amortization expense for these assets was $7.6 million in Q1 2021, down from $9.2 million in Q1 2020[52] (8) ACCRUED EXPENSES Provides a breakdown of accrued expenses, including insurance, interest, and compensation liabilities Accrued Expenses | (in thousands) | March 31, 2021 | December 31, 2020 | | :------------- | :------------- | :---------------- | | Accrued insurance | $76,153 | $77,514 | | Accrued interest | $9,286 | $19,697 | | Accrued compensation and benefits | $78,928 | $81,437 | | Accrued income, real estate, sales and other taxes | $30,804 | $25,843 | | Interest rate swap liability | $28,074 | $33,630 | | Accrued other | $60,967 | $57,702 | | Total | $284,212 | $295,823 | - Total accrued expenses decreased from $295.8 million at December 31, 2020, to $284.2 million at March 31, 2021, primarily due to a reduction in accrued interest and interest rate swap liability[55] (9) CLOSURE AND POST-CLOSURE LIABILITIES Details liabilities for landfill and non-landfill site closure and post-closure obligations Closure and Post-Closure Liabilities | (in thousands) | January 1, 2021 | March 31, 2021 | | :------------- | :-------------- | :------------- | | Landfill Retirement Liability | $48,412 | $49,327 | | Non-Landfill Retirement Liability | $39,514 | $41,778 | | Total | $87,926 | $91,105 | - Closure and post-closure liabilities increased from $87.9 million at January 1, 2021, to $91.1 million at March 31, 2021, due to liabilities assumed in acquisitions, new obligations, and accretion[56] (10) REMEDIAL LIABILITIES Outlines remedial liabilities for landfill, inactive, and non-landfill operations, including Superfund sites Remedial Liabilities | (in thousands) | January 1, 2021 | March 31, 2021 | | :------------- | :-------------- | :------------- | | Remedial Liabilities for Landfill Sites | $1,865 | $1,892 | | Remedial Liabilities for Inactive Sites | $63,060 | $62,132 | | Remedial Liabilities (Including Superfund) for Non-Landfill Operations | $49,888 | $50,224 | | Total | $114,813 | $114,248 | - Total remedial liabilities slightly decreased from $114.8 million at January 1, 2021, to $114.2 million at March 31, 2021, influenced by expenditures and currency translation, partially offset by accretion[58] (11) FINANCING ARRANGEMENTS Describes the company's debt structure, revolving credit facility, and cash flow hedging activities Financing Activities Details current and long-term debt, including secured term loans and unsecured senior notes Debt Structure | (in thousands) | March 31, 2021 | December 31, 2020 | | :------------- | :------------- | :---------------- | | Current Debt: Secured senior term loans | $7,535 | $7,535 | | Long-Term Debt: Secured senior Term Loans | $717,742 | $719,626 | | Unsecured senior notes, at 4.875%, due July 15, 2027 | $545,000 | $545,000 | | Unsecured senior notes, at 5.125%, due July 15, 2029 | $300,000 | $300,000 | | Long-term debt, at carrying value | $1,548,517 | $1,549,641 | - The estimated fair value of outstanding long-term debt was $1.6 billion as of March 31, 2021, consistent with December 31, 2020[61] - The company had no outstanding loan balances under its $400.0 million revolving credit facility, with $270.2 million available to borrow[62] Cash Flow Hedges Explains the use of interest rate swap agreements to hedge against variable interest rate risks - The company uses interest rate swap agreements to hedge against variable interest rates on $350.0 million of Term Loans, effectively fixing the rate at 2.92% (4.67% effective annual rate) until 2024[63][64] - A derivative liability of $28.1 million was recorded for these cash flow hedges as of March 31, 2021, down from $33.6 million at December 31, 2020[66] (12) INCOME TAXES Reports the effective tax rate and liabilities for unrecognized tax benefits - The effective tax rate for Q1 2021 was 31.5%, a decrease from 45.6% in Q1 2020. The company recorded $5.0 million in liabilities for unrecognized tax benefits as of March 31, 2021[70] (13) EARNINGS PER SHARE Presents basic and diluted earnings per share calculations and related share amounts Earnings Per Share Data | (in thousands, except per share amounts) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $21,736 | $11,572 | | Basic shares outstanding | 54,723 | 55,757 | | Dilutive shares outstanding | 55,043 | 56,055 | | Basic earnings per share | $0.40 | $0.21 | | Diluted earnings per share | $0.39 | $0.21 | - Diluted EPS increased to $0.39 in Q1 2021 from $0.21 in Q1 2020, reflecting higher net income despite a slight decrease in dilutive shares outstanding[71] (14) ACCUMULATED OTHER COMPREHENSIVE LOSS Details components of accumulated other comprehensive loss, including foreign currency translation and hedges Accumulated Other Comprehensive Loss Components | (in thousands) | January 1, 2021 | March 31, 2021 | | :------------- | :-------------- | :------------- | | Foreign Currency Translation | $(176,234) | $(169,768) |\n| Unrealized (Losses) Gains on Available-For-Sale Securities | $135 | $61 | | Unrealized (Loss) Gain on Interest Rate Hedge | $(33,629) | $(28,073) | | Unrealized Loss on Unfunded Pension Liability | $(1,749) | $(1,749) | | Total | $(211,477) | $(199,529) | - Accumulated other comprehensive loss improved from $(211.5) million at January 1, 2021, to $(199.5) million at March 31, 2021, primarily due to positive foreign currency translation adjustments and unrealized gains on interest rate hedges[72] (15) STOCK-BASED COMPENSATION Outlines stock-based compensation plans, including restricted stock and performance stock awards - Total stock-based compensation cost charged to SG&A expenses was $3.5 million in Q1 2021, up from $3.3 million in Q1 2020[74] Restricted Stock Awards Details restricted stock awards, including shares granted, vested, forfeited, and unrecognized compensation Restricted Stock Awards Summary | Restricted Stock | Number of Shares | Weighted Average Grant-Date Fair Value | | :--------------- | :--------------- | :------------------------------------- | | Balance at January 1, 2021 | 493,879 | $59.74 | | Granted | 6,000 | $87.22 | | Vested | (49,578) | $56.29 | | Forfeited | (25,205) | $60.58 | | Balance at March 31, 2021 | 425,096 | $60.48 | - As of March 31, 2021, $16.6 million of unrecognized compensation cost from restricted stock awards is expected to be recognized over 2.7 years[75] Performance Stock Awards Describes performance stock awards, vesting criteria, and unrecognized compensation cost Performance Stock Awards Summary | Performance Stock | Number of Shares | Weighted Average Grant-Date Fair Value | | :---------------- | :--------------- | :------------------------------------- | | Balance at January 1, 2021 | 254,449 | $61.75 | | Vested | (71,815) | $62.27 | | Forfeited | (18,395) | $61.75 | | Balance at March 31, 2021 | 164,239 | $61.53 | - Performance stock awards vest based on criteria like revenue, Adjusted EBITDA Margin, Adjusted Free Cash Flow, and Total Recordable Incident Rate. As of March 31, 2021, $2.9 million of unrecognized compensation cost from unvested performance stock awards is deemed probable of vesting[76][77] (16) COMMITMENTS AND CONTINGENCIES Discusses legal, administrative, and environmental proceedings, including Superfund and product liability - The company is subject to various legal and administrative proceedings, including commercial, employment, and environmental claims, with recorded reserves of $30.2 million at March 31, 2021[79][80] Legal and Administrative Proceedings Details ongoing legal and administrative proceedings, including incinerator claims and product liability - The company is involved in legal proceedings related to its Ville Mercier hazardous waste incinerator, facing claims for damages and injunctive relief, with negotiations for resolution ongoing[81] - Safety-Kleen is a defendant in approximately 69 product liability lawsuits as of March 31, 2021, claiming personal injury from parts washer equipment or cleaning products, with insurance coverage generally maintained[82][84] Superfund Proceedings Outlines the company's involvement as a potentially responsible party at Superfund-related sites - The company has been identified as a potentially responsible party (PRP) at 130 Superfund-related sites, including 5 owned/leased facilities and 125 third-party sites[85] - Potential liability could exceed $1.0 million at three of these sites, with indemnification agreements in place for 17 third-party sites[86][88] - At the BR Facility, the EPA approved a remediation alternative in 2020, leading to a $3.3 million increase in estimated remedial liability for this inactive site[87] Federal, State and Provincial Enforcement Actions Reports on regulatory enforcement actions and associated fines, with no material sanctions expected - The company periodically pays fines in regulatory proceedings, but as of March 31, 2021, no proceedings were expected to result in sanctions exceeding $1.0 million[91] (17) SEGMENT REPORTING Explains changes in operating segments and the use of Adjusted EBITDA as a primary performance measure - In Q1 2021, the company changed its operating segments to Environmental Services and Safety-Kleen Sustainability Solutions, consolidating Safety-Kleen Environmental Services' core offerings into Environmental Services and creating the new Sustainability Solutions segment[92] - Adjusted EBITDA is the primary financial measure for evaluating segment performance, and its calculation was revised in Q1 2021 to include stock-based compensation as an add-back[93] Adjusted EBITDA by Segment | Adjusted EBITDA (in thousands) | March 31, 2021 | March 31, 2020 | | :----------------------------- | :------------- | :------------- | | Environmental Services | $140,254 | $145,858 | | Safety-Kleen Sustainability Solutions | $31,632 | $24,204 | | Corporate Items | $(42,435) | $(44,181) | | Total | $129,451 | $125,881 | ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and operational results for the quarter ended March 31, 2021. It covers an overview of the business, segment performance, the impact of COVID-19 and government programs, and a detailed analysis of revenues, costs, Adjusted EBITDA, liquidity, and capital resources Forward-Looking Statements Highlights forward-looking statements and associated risks, including those related to COVID-19 - The report contains forward-looking statements about future financial and operating results, plans, objectives, expectations, and intentions, which are subject to risks and uncertainties, including those related to COVID-19[98] Overview Provides an overview of Clean Harbors' business, services, and recent Safety-Kleen reorganization - Clean Harbors is North America's leading provider of environmental and industrial services, offering hazardous waste management, emergency response, industrial cleaning, and recycling, and is the largest re-refiner of used oil and provider of parts washer services[99] - The company reorganized its Safety-Kleen business in Q1 2021, forming Safety-Kleen Sustainability Solutions and integrating Safety-Kleen's core services into Environmental Services to drive growth and cross-selling opportunities[100][101][102] - Adjusted EBITDA, a key performance measure, was revised in Q1 2021 to include stock-based compensation as an add-back, with prior periods recast for comparability[103] Performance of our segments Describes key drivers and metrics for Environmental Services and Safety-Kleen Sustainability Solutions - Environmental Services performance is driven by demand for waste services, waste volumes, project work, and industrial cleaning/maintenance, with key metrics including waste volumes, incinerator utilization, and billable hours[105] - Safety-Kleen Sustainability Solutions performance is impacted by demand for recycled oil products and related services, used oil collection volumes and pricing, and commodity-driven margins, with management tracking oil sales, collection volumes, and pricing[106] Highlights Summarizes key financial performance metrics, including revenues, net income, and cash flow Key Financial Highlights | Financial Metric (in millions) | Q1 2021 | Q1 2020 | Change ($) | Change (%) | | :----------------------------- | :------ | :------ | :--------- | :--------- | | Total revenues | $808.1 | $858.6 | $(50.5) | (5.9)% | | Income from operations | $50.9 | $45.5 | $5.4 | 11.9% | | Net income | $21.7 | $11.6 | $10.1 | 87.1% | | Adjusted EBITDA | $129.5 | $125.9 | $3.6 | 2.8% | | Net cash from operating activities | $103.0 | $33.7 | $69.3 | 205.6% | | Adjusted free cash flow | $62.3 | $(26.2) | $88.5 | N/A | - Despite a 5.9% decrease in total revenues, the company achieved significant profit expansion in Q1 2021, with net income increasing by 87.1% and Adjusted EBITDA growing by 2.8%, driven by revenue mix and strong cost management[107][108][110] - Net cash from operating activities increased by $69.3 million, and adjusted free cash flow improved from an outflow of $26.2 million to an inflow of $62.3 million, due to lower capital expenditures and improved working capital management[110] Impact of COVID-19 Discusses the impact of COVID-19 on demand for services and decontamination project revenues - The company saw incremental improvements in demand for products and services in Q1 2021 as restrictions eased, alongside continued significant demand for COVID-19 related emergency response services[111] - In Q1 2021, the company completed over 3,000 COVID-19 decontamination projects, generating $28.2 million in direct revenues, though demand for these services is expected to slow as vaccination levels increase[111] Impact of Government Programs Details benefits recognized from government programs like CEWS and CARES Act on costs and expenses - In Q1 2021, the company recognized $5.4 million in benefits from government programs (CEWS and CARES Act), with $4.3 million impacting cost of revenues and $1.2 million impacting SG&A expenses[112][113] Summary of Operations Presents a summary of direct revenues, cost of revenues, SG&A expenses, and Adjusted EBITDA Summary of Operations | (in thousands) | March 31, 2021 | March 31, 2020 | $ Change | % Change | | :------------- | :------------- | :------------- | :------- | :------- | | Direct Revenues: Total | $808,148 | $858,563 | $(50,415) | (5.9)% | | Cost of Revenues: Total | $560,536 | $606,666 | $(46,130) | (7.6)% | | Selling, General & Administrative Expenses: Total | $121,641 | $129,307 | $(7,666) | (5.9)% | | Adjusted EBITDA: Total | $129,451 | $125,881 | $3,570 | 2.8% | Segment Performance Analyzes the financial performance of Environmental Services and Safety-Kleen Sustainability Solutions segments Direct Revenues Examines direct revenue trends and contributing factors for each operating segment - Overall direct revenues decreased by 5.9% year-over-year, impacted by industrial activity, project demand, competitive pricing, and COVID-19[120] Environmental Services Details revenue changes for Environmental Services, including impacts from industrial activity and COVID-19 Environmental Services Direct Revenues | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | Direct revenues | $654,602 | $705,192 | $(50,590) | (7.2)% | - Environmental Services direct revenues decreased by $50.6 million (7.2%) due to lower demand for industrial and base field services, Safety-Kleen core services, and incinerator utilization (80% vs. 86%)[121] - The segment generated $28.2 million from COVID-19 decontamination services in Q1 2021, an increase of $18.2 million year-over-year, partially offsetting other declines[121] Safety-Kleen Sustainability Solutions Analyzes revenue trends for Safety-Kleen Sustainability Solutions, including oil sales and collection services Safety-Kleen Sustainability Solutions Direct Revenues | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | Direct revenues | $153,467 | $153,281 | $186 | 0.1% | - Safety-Kleen Sustainability Solutions direct revenues remained relatively consistent, with increased base oil sales ($6.4 million) and used oil collection services ($4.7 million) due to improved pricing, offset by lower blended oil product sales ($5.2 million) and other fluid sales[122] Cost of Revenues Discusses cost of revenues and management initiatives to control operating costs for each segment - The company focuses on managing operating costs through technology, facility modifications, strategic sourcing, and cost reduction initiatives to maintain competitiveness and increase operating margins[123] Environmental Services Details cost of revenues changes for Environmental Services, including labor, equipment, and government benefits Environmental Services Cost of Revenues | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | Cost of revenues | $451,255 | $491,121 | $(39,866) | (8.1)% | | As a % of Direct revenues | 68.9% | 69.6% | (0.7)% | | - Environmental Services cost of revenues decreased by $39.9 million (8.1%), primarily due to reductions in labor and benefits ($21.1 million), equipment and supply costs ($16.0 million), and transportation costs ($3.2 million), partly aided by a $3.8 million benefit from Government Programs[125] Safety-Kleen Sustainability Solutions Analyzes cost of revenues for Safety-Kleen Sustainability Solutions, driven by oil additives and cost management Safety-Kleen Sustainability Solutions Cost of Revenues | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | Cost of revenues | $108,376 | $113,828 | $(5,452) | (4.8)% | | As a % of Direct revenues | 70.6% | 74.3% | (3.7)% | | - Safety-Kleen Sustainability Solutions cost of revenues decreased by $5.5 million (4.8%) and improved by 3.7% as a percentage of direct revenues, driven by lower spending on oil additives and ongoing cost management initiatives[126] Selling, General and Administrative Expenses Examines SG&A expenses for each segment and corporate items, focusing on alignment with performance - The company aims to align SG&A expenses with segment performance and revenue levels to maintain competitiveness[127] Environmental Services Details SG&A expense changes for Environmental Services, primarily due to labor and benefits reductions Environmental Services SG&A Expenses | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | SG&A expenses | $63,093 | $68,213 | $(5,120) | (7.5)% | | As a % of Direct revenues | 9.6% | 9.7% | (0.1)% | | - Environmental Services SG&A expenses decreased by $5.1 million (7.5%), primarily due to a $6.6 million reduction in labor and benefits-related costs, including a $0.7 million benefit from Government Programs[128] Safety-Kleen Sustainability Solutions Analyzes SG&A expenses for Safety-Kleen Sustainability Solutions, driven by reduced labor and government aid Safety-Kleen Sustainability Solutions SG&A Expenses | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | SG&A expenses | $13,459 | $15,249 | $(1,790) | (11.7)% | | As a % of Direct revenues | 8.8% | 9.9% | (1.1)% | | - Safety-Kleen Sustainability Solutions SG&A expenses decreased by $1.8 million (11.7%), mainly due to reduced labor and benefit costs, including a $0.3 million benefit from Government Programs[130] Corporate Items Discusses SG&A expenses for corporate items, including marketing, travel, severance, and bonus-related costs Corporate Items SG&A Expenses | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | SG&A expenses | $45,089 | $45,845 | $(756) | (1.6)% | - Corporate Items SG&A expenses remained relatively consistent, with a $4.7 million decrease in marketing and travel expenses offset by a $4.7 million increase in severance and bonus-related expenses[131] Adjusted EBITDA Presents Adjusted EBITDA by segment, highlighting its use as a key performance and management measure Adjusted EBITDA by Segment | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | Environmental Services | $140,254 | $145,858 | $(5,604) | (3.8)% | | Safety-Kleen Sustainability Solutions | $31,632 | $24,204 | $7,428 | 30.7% | | Corporate Items | $(42,435) | $(44,181) | $1,746 | 4.0% | | Total Adjusted EBITDA | $129,451 | $125,881 | $3,570 | 2.8% | | As a % of Direct revenues | 16.0% | 14.7% | | | - Total Adjusted EBITDA increased by 2.8% to $129.5 million in Q1 2021, with Safety-Kleen Sustainability Solutions showing a 30.7% increase, while Environmental Services decreased by 3.8%[133] - Adjusted EBITDA is a key performance measure used by management for evaluating operating performance, loan covenants, and incentive compensation, and its calculation was revised in Q1 2021 to include stock-based compensation[132][134][138] Depreciation and Amortization Details depreciation of fixed assets and amortization of landfills, finance leases, permits, and intangibles Depreciation and Amortization | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | Depreciation of fixed assets and amortization of landfills and finance leases | $64,574 | $65,366 | $(792) | (1.2)% | | Permits and other intangibles amortization | $7,589 | $9,167 | $(1,578) | (17.2)% | | Total depreciation and amortization | $72,163 | $74,533 | $(2,370) | (3.2)% | - Total depreciation and amortization decreased by $2.4 million (3.2%) in Q1 2021, primarily due to certain assets becoming fully depreciated[139] Provision for Income Taxes Reports the provision for income taxes and the effective tax rate, noting changes from prior periods Provision for Income Taxes | (in thousands) | March 31, 2021 | March 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :------------- | :--------- | :------- | | Provision for income taxes | $9,973 | $9,698 | $275 | 2.8% | | Effective tax rate | 31.5% | 45.6% | (14.1)% | | - The effective tax rate decreased significantly from 45.6% in Q1 2020 to 31.5% in Q1 2021, mainly due to the impact of unbenefited tax losses and related taxable income mix[140][141] Liquidity and Capital Resources Assesses the company's cash flows, capital resources, and ability to meet financial obligations Cash Flow Summary | (in thousands) | March 31, 2021 | March 31, 2020 | | :------------- | :------------- | :------------- | | Net cash from operating activities | $103,000 | $33,681 | | Net cash used in investing activities | $(86,737) | $(93,087) | | Net cash (used in) from financing activities | $(40,620) | $126,447 | Net cash from operating activities Analyzes the increase in net cash from operating activities, primarily due to improved working capital - Net cash from operating activities increased by $69.3 million to $103.0 million in Q1 2021, driven by improved working capital management[144] Net cash used in investing activities Examines changes in net cash used in investing activities, including capital expenditures and acquisitions - Net cash used in investing activities decreased by $6.4 million to $86.7 million in Q1 2021, primarily due to a $40.9 million reduction in capital expenditures, partially offset by a $22.9 million increase in cash paid for acquisitions and reduced proceeds from business sales[145] Net cash (used in) from financing activities Details the shift in net cash from financing activities, influenced by credit facility and stock repurchases - Net cash used in financing activities was $40.6 million in Q1 2021, a $167.1 million decrease from Q1 2020's inflow, mainly due to a $150.0 million revolving credit facility borrowing in 2020 and a $9.2 million increase in common stock repurchases in 2021[146] Adjusted Free Cash Flow Reports the significant improvement in adjusted free cash flow, driven by lower capital expenditures Adjusted Free Cash Flow | (in thousands) | March 31, 2021 | March 31, 2020 | | :------------- | :------------- | :------------- | | Net cash from operating activities | $103,000 | $33,681 | | Additions to property, plant and equipment | $(41,913) | $(82,767) | | Purchase and capital improvements of corporate headquarters | — | $20,735 | | Proceeds from sale and disposal of fixed assets | $1,204 | $2,150 | | Adjusted free cash flow | $62,291 | $(26,201) | - Adjusted free cash flow improved significantly to an inflow of $62.3 million in Q1 2021 from an outflow of $26.2 million in Q1 2020, reflecting lower capital expenditures and improved operating cash flow[149] Summary of Capital Resources including Financing Arrangements Summarizes available capital resources, including cash, marketable securities, and credit facility - As of March 31, 2021, cash and cash equivalents and marketable securities totaled $570.7 million, with $270.2 million available under the $400.0 million revolving credit facility[149] - The company believes its operations have adequate financial resources to meet current liquidity needs and future operating and internal investing cash needs, and was in compliance with all debt covenants[149][150][151] Common Stock Repurchases Pursuant to Publicly Announced Plan Details common stock repurchases under the publicly announced plan and remaining authorization - The company repurchased approximately 0.3 million shares of common stock for $26.5 million in Q1 2021, compared to $17.3 million in Q1 2020, under a $600.0 million board-approved plan[151] - As of March 31, 2021, $183.3 million remained available for repurchases under the program[152] Environmental Liabilities Presents total environmental liabilities, including closure, post-closure, and remedial obligations Environmental Liabilities | (in thousands) | March 31, 2021 | December 31, 2020 | Change ($) | % Change | | :------------- | :------------- | :---------------- | :--------- | :------- | | Closure and post-closure liabilities | $91,105 | $87,926 | $3,179 | 3.6% | | Remedial liabilities | $114,248 | $114,813 | $(565) | (0.5)% | | Total environmental liabilities | $205,353 | $202,739 | $2,614 | 1.3% | - Total environmental liabilities increased by $2.6 million to $205.4 million at March 31, 2021, primarily due to accretion, new liabilities from acquisitions, and changes in estimates, partially offset by expenditures[154] Capital Expenditures Reports capital expenditures for the period and projected spending for the full year - Capital expenditures were $41.9 million in Q1 2021, a decrease from $82.8 million in Q1 2020, mainly due to the nonrecurring purchase of corporate headquarters in 2020 and reduced capital spending[159] - Anticipated capital spending for 2021, net of disposals, is projected to be in the range of $185.0 million to $205.0 million[159] Critical Accounting Policies and Estimates Discusses critical accounting policies and estimates, particularly regarding goodwill impairment reporting units - No material changes to critical accounting policies and estimates occurred in Q1 2021, except for the re-evaluation of goodwill impairment reporting units due to organizational changes[160][162] Goodwill Explains the re-evaluation and allocation of goodwill to new reporting units for impairment testing - The company re-evaluated its reporting units for goodwill impairment as of March 31, 2021, resulting in three reporting units: Environmental Sales and Service, Environmental Facilities, and Safety-Kleen Sustainability Solutions[162] - Goodwill was allocated to the new reporting units using a relative fair value approach, and no impairment was identified before or after the reallocation[162] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK States no material changes to market risk disclosures from the prior annual report - There were no material changes to market risk disclosures in Q1 2021 compared to the Annual Report on Form 10-K for 2020[163] ITEM 4. CONTROLS AND PROCEDURES Covers disclosure controls and procedures and changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Confirms the effectiveness of disclosure controls and procedures as concluded by management - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, ensuring timely and accurate reporting[164] Changes in Internal Control over Financial Reporting Reports no material changes in internal control over financial reporting during the quarter - No changes in internal control over financial reporting were identified during Q1 2021 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[165][166] PART II: OTHER INFORMATION This section provides additional information not covered in Part I, including legal proceedings, risk factors, unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, and a list of exhibits ITEM 1: Legal Proceedings Refers to Note 16 for detailed information on legal and administrative proceedings - Legal proceedings information is incorporated by reference from Note 16, 'Commitments and Contingencies,' in the unaudited consolidated financial statements[170] ITEM 1A: Risk Factors States no material changes to risk factors from the prior annual report on Form 10-K - No material changes to risk factors were reported in Q1 2021 from those previously disclosed in the company's Annual Report on Form 10-K for 2020[171] ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchases under the publicly announced plan and remaining authorization Common Stock Repurchase Program Provides a table and details on common stock repurchases during the quarter Common Stock Repurchase Program Details | Period | Total Number of Shares Purchased (1) | Average Price Paid (2) Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) (in thousands) | | :----- | :----------------------------------- | :------------------------------- | :------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------------- | | January 1, 2021 through January 31, 2021 | 1,907 | 76.10 | — | 209,852 | | February 1, 2021 through February 28, 2021 | 11,642 | 79.38 | — | 209,852 | | March 1, 2021 through March 31, 2021 | 329,723 | 88.55 | 300,000 | 183,306 | | Total | 343,272 | 88.17 | 300,000 | | - The company repurchased 343,272 shares of common stock in Q1 2021 at an average price of $88.17 per share, with 300,000 shares purchased under a publicly announced plan. As of March 31, 2021, $183.3 million remained available for repurchases under the $600.0 million program[173] ITEM 3: Defaults Upon Senior Securities Reports no defaults upon senior securities during the period - There were no defaults upon senior securities reported[174] ITEM 4: Mine Safety Disclosures States that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[174] ITEM 5: Other Information Indicates no other information was reported in this section - No other information was reported in this section[174] ITEM 6: Exhibits Lists exhibits filed with the report, including certifications and interactive data files - This section lists exhibits filed with the report, including CEO and CFO certifications (Rule 13a-14a/15d-14(a) and Section 1350) and Interactive Data Files (iXBRL) for the financial statements[177] Signatures Confirms the report's official signing by key executives on May 5, 2021 - The report was duly signed on May 5, 2021, by Alan S. McKim, Chairman, President and Chief Executive Officer, and Michael L. Battles, Executive Vice President and Chief Financial Officer, pursuant to the Securities Exchange Act of 1934[181]