Clean Harbors(CLH) - 2023 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION Unaudited Financial Statements The unaudited consolidated financial statements for the period ended September 30, 2023, show total revenues of $4.07 billion for the nine months, a decrease in net income to $279.5 million compared to $329.3 million in the prior year period. Total assets increased to $6.25 billion from $6.13 billion at year-end 2022. The statements include details on operations, financial position, cash flows, and changes in stockholders' equity, along with comprehensive notes covering accounting policies, acquisitions, and segment performance Consolidated Balance Sheets Consolidated Balance Sheet Highlights (unaudited) | Account | Sep 30, 2023 ($ thousands) | Dec 31, 2022 ($ thousands) | | :--- | :--- | :--- | | Total Current Assets | 1,950,752 | 2,033,761 | | Total Assets | 6,248,179 | 6,129,707 | | Total Current Liabilities | 975,387 | 1,020,094 | | Long-Term Debt | 2,292,952 | 2,414,828 | | Total Liabilities | 4,062,385 | 4,207,385 | | Total Stockholders' Equity | 2,185,794 | 1,922,322 | - Total assets increased to $6.25 billion as of September 30, 2023, from $6.13 billion at the end of 2022, primarily driven by increases in Property, Plant, and Equipment and Goodwill[59] - Total liabilities decreased, mainly due to a reduction in long-term debt from $2.41 billion to $2.29 billion[59] Unaudited Consolidated Statements of Operations Consolidated Statements of Operations (unaudited, in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,365,696 | $1,363,086 | $4,070,983 | $3,888,507 | | Income from Operations | $154,368 | $209,087 | $465,146 | $507,350 | | Net Income | $91,340 | $135,799 | $279,507 | $329,270 | | Diluted EPS | $1.68 | $2.50 | $5.14 | $6.04 | - For the nine months ended September 30, 2023, total revenues increased to $4.07 billion from $3.89 billion year-over-year, but net income decreased to $279.5 million from $329.3 million, resulting in a lower diluted EPS of $5.14 compared to $6.04[40] Unaudited Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (unaudited, in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $455,692 | $357,542 | | Net cash used in investing activities | ($447,069) | ($281,962) | | Net cash used in financing activities | ($165,322) | ($72,609) | | Decrease in cash and cash equivalents | ($156,638) | ($3,552) | | Cash and cash equivalents, end of period | $335,965 | $449,023 | - Net cash from operating activities increased significantly to $455.7 million for the first nine months of 2023, compared to $357.5 million in the same period of 2022[64] - Cash used in investing activities increased, primarily due to higher additions to property, plant, and equipment ($311.9 million vs. $244.5 million) and acquisitions ($119.6 million vs. $73.6 million)[64] Notes to Unaudited Consolidated Financial Statements - Effective March 31, 2023, Michael L. Battles and Eric W. Gerstenberg were appointed Co-CEOs, forming a new Chief Operating Decision Maker (CODM) committee. The company will continue to report two operating segments: Environmental Services and Safety-Kleen Sustainability Solutions[70] - On March 31, 2023, the Company acquired Thompson Industrial Services, LLC for a net purchase price of $110.9 million, expanding the Environmental Services segment's operations in the southeastern U.S[81] - In January 2023, the company issued $500.0 million in 6.375% senior notes due 2031 and used the proceeds to repay the $614.0 million outstanding on its 2024 Term Loans, resulting in a $2.4 million loss on early extinguishment of debt[145] - As of September 30, 2023, the company was identified as a potentially responsible party (PRP) in connection with 131 Superfund sites, with potential monetary liability exceeding $1.0 million at three of these sites[163][259] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's discussion highlights a 4.7% increase in total direct revenues for the first nine months of 2023, driven by an 8.5% growth in the Environmental Services segment, which offset a 10.7% decline in the Safety-Kleen Sustainability Solutions segment due to lower base oil pricing. Adjusted EBITDA decreased by 5.0% to $757.7 million for the nine-month period. The company generated strong operating cash flow of $455.7 million and projects total 2023 capital spending of $400.0 million to $420.0 million, including significant investment in a new incinerator in Nebraska Results of Operations Segment Direct Revenue Performance (in thousands) | Segment | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Environmental Services | $3,389,140 | $3,124,672 | $264,468 | 8.5% | | Safety-Kleen Sustainability Solutions | $681,508 | $763,401 | ($81,893) | (10.7)% | | Total | $4,070,983 | $3,888,507 | $182,476 | 4.7% | Segment Adjusted EBITDA Performance (in thousands) | Segment | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Environmental Services | $822,949 | $713,630 | $109,319 | 15.3% | | Safety-Kleen Sustainability Solutions | $126,024 | $252,043 | ($126,019) | (50.0)% | | Total Adjusted EBITDA | $757,661 | $797,884 | ($40,223) | (5.0)% | - Environmental Services revenue growth was driven by increased demand and pricing for Safety-Kleen core services, contributions from the Thompson Industrial acquisition, and growth in technical services[177][203] - The decrease in Safety-Kleen Sustainability Solutions revenue and Adjusted EBITDA was primarily due to lower market-based pricing for base oil products, despite increased sales volumes[173][232][233] Liquidity and Capital Resources Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $455,692 | $357,542 | | Net cash used in investing activities | ($447,069) | ($281,962) | | Net cash used in financing activities | ($165,322) | ($72,609) | - Adjusted free cash flow for the nine months ended September 30, 2023, was $148.9 million, an increase from $118.1 million in the comparable period of 2022[174][289] - The company anticipates capital spending for 2023 to be between $400.0 million and $420.0 million, including about $85.0 million for the new incinerator construction in Kimball, Nebraska[255] - As of September 30, 2023, the company had $420.0 million in cash and marketable securities and $277.6 million available under its $400.0 million revolving credit facility[254][275] Critical Accounting Policies and Estimates - There were no material changes to the company's critical accounting policies and estimates during the first nine months of 2023, as disclosed in the 2022 Annual Report on Form 10-K[9] - The appointment of Co-CEOs effective March 31, 2023, created a new Chief Operating Decision Maker (CODM) committee, but this is not expected to change the company's management structure or its two operating segments[26] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in the first nine months of 2023 to the information regarding quantitative and qualitative disclosures about market risk that was provided in its Annual Report on Form 10-K for the year ended December 31, 2022 - There were no material changes during the first nine months of 2023 to the market risk disclosures provided in the Company's 2022 Annual Report on Form 10-K[27] Controls and Procedures Management, including the Co-CEOs and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023. Additionally, no changes in internal control over financial reporting occurred during the period that have materially affected, or are reasonably likely to materially affect, these controls - The Co-Chief Executive Officers and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[28] - There were no changes in the Company's internal control over financial reporting during the nine months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, such controls[30] PART II: OTHER INFORMATION Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 16, "Commitments and Contingencies," of the unaudited consolidated financial statements included in this report - Details on legal proceedings are provided in Note 16, "Commitments and Contingencies," to the financial statements[15] Risk Factors There have been no material changes to the risk factors from the information provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have occurred to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022[16] Unregistered Sales of Equity Securities and Use of Proceeds The company continued its common stock repurchase program, buying back approximately 58.3 thousand shares for $10.0 million in the third quarter of 2023. As of September 30, 2023, $87.3 million remained available for future repurchases under the board-authorized $600.0 million program Common Stock Repurchases (Q3 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased as Part of Program | Approx. Dollar Value Remaining ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Jul 2023 | 34,805 | $164.43 | — | 97,265 | | Aug 2023 | 60,529 | $171.24 | 58,341 | 87,265 | | Sep 2023 | 2,667 | $173.37 | — | 87,265 | | Total | 98,001 | $168.88 | 58,341 | 87,265 | - During the three months ended September 30, 2023, the Company repurchased approximately 58.3 thousand shares for a total of $10.0 million[3] - As of September 30, 2023, $87.3 million remained available for repurchase under the existing $600.0 million stock repurchase program[4] Other Information During the quarter ended September 30, 2023, no director or officer of Clean Harbors, Inc. adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the third quarter of 2023[19] Exhibits The report includes several exhibits filed herewith, including certifications from the Co-CEOs and CFO as required by Rule 13a-14(a)/15d-14(a), Section 1350 certifications, and Interactive Data Files (iXBRL) for the financial statements - Exhibits filed with the report include CEO and CFO certifications (31.1, 31.2, 31.3), Section 1350 certifications (32), and Interactive Data Files (101)[21] Signatures The report was duly signed on November 1, 2023, by Co-CEOs Michael L. Battles and Eric W. Gerstenberg, and Executive Vice President and CFO Eric J. Dugas, pursuant to the requirements of the Securities Exchange Act of 1934 - The Form 10-Q report was signed on November 1, 2023, by the company's Co-CEOs and CFO[12][13]