Clean Harbors(CLH) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q1 increased 12% to $1.31 billion, driven by strong organic growth in the Environmental Services (ES) segment [55] - Adjusted EBITDA grew 19$215.1 million, with a margin of 16.5%, reflecting a 110 basis point increase from Q1 2022 [55] - Gross margin improved by 80 basis points to 28.7%, driven by price increases, productivity gains, and operational efficiencies [11] - SG&A expense as a percentage of revenue improved to 12.8% in Q1, with expectations to remain in the low 12% range for 2023 [11] - Net income for the quarter was $72.4 million, up 60$1.33 per share [56] Business Line Performance - Environmental Services (ES) segment revenue grew 13%, with all four business units showing growth [15] - Industrial Services revenue increased 9%, benefiting from the HPC acquisition and unified branding [15] - Safety-Kleen Environmental revenue grew 18%, led by core offerings like parts wash services, which increased by 7% to $250,000 [15] - Field Services revenue was up 12$110 million, expanding its presence in the Southeast U.S. and broadening its verticals [17] - The company is investing in a new state-of-the-art incinerator in Kimball, Nebraska, with 70,000 tons of annual capacity, expected to open in early 2025 [20] Management Commentary on Operating Environment and Future Outlook - Management highlighted the resilience of the diversified business model and strong demand across the ES segment [10] - The company expects Q2 adjusted EBITDA to be 7% to 9% lower than Q2 2022 due to challenging year-over-year comparisons in the SKSS segment [43] - Full-year 2023 adjusted EBITDA guidance is revised to $1.02 billion to$1.06 billion, reflecting current market conditions and the addition of Thompson Industrial [43] - Management remains optimistic about the ES segment's ability to offset the slowdown in SKSS, with strong demand and a robust backlog of waste [71] Other Important Information - The company achieved a first-quarter best TRIR (Total Recordable Incident Rate) of 0.61, well below the goal of 0.70 [12] - Cash provided from operations in Q1 was $28 million, compared to a use of cash of$39 million a year ago [22] - The company repurchased 22,000 shares of stock at a total cost of $3 million, with over$100 million remaining under the buyback program [58] Q&A Session Summary Question: Why does the company guide to adjusted EBITDA instead of revenues? - The company focuses on adjusted EBITDA because it has more control over costs and profitability, especially in the oil business where it is a price taker [109] Question: Impact of weather-related disruptions on Q1 results - Weather-related challenges, including flooding in California, caused lower utilization at incinerators and landfill volumes, impacting Q1 results by approximately $8 million to$10 million [129] Question: Pricing trends in the ES segment - Approximately 75% of ES growth in Q1 was driven by pricing, with the remaining 25% from mix and volume improvements [91] Question: Employee retention and hiring trends - Employee turnover has improved, nearing pre-pandemic levels, which has helped moderate wage increases despite inflation [78] Question: M&A strategy and synergies - The company continues to see a strong pipeline of M&A opportunities, particularly in Industrial Services and Environmental Services, with recent acquisitions like HPC and Thompson Industrial showing promising early returns [69][123] Question: Outlook for blended product sales in SKSS - Blended product sales accounted for 15% of total output in Q1, with expectations for improvement as the year progresses [39]