Company Overview
Clean Harbors, Inc. (CLH) is the leading provider of environmental and industrial services throughout North America. With over four decades of expertise, the company has established itself as a trusted partner in the waste management, pollution control, and energy services industries.
Founded in 1980 and headquartered in Norwell, Massachusetts, Clean Harbors has grown to employ over 24,000 people across more than 900 locations. The company's diversified service offerings cater to a wide range of industries, including chemical, manufacturing, oil and gas, and government agencies.
Historical Background
Clean Harbors started as a small environmental services provider, specializing in hazardous waste disposal, emergency spill response, and industrial cleaning. In the 1980s and 1990s, the company expanded its service offerings and geographic reach through a series of strategic acquisitions, building out its network of hazardous waste incinerators, landfills, and treatment, storage and disposal facilities across the United States and Canada. During this time, Clean Harbors also established its Safety-Kleen business unit, which provides parts cleaning, used oil collection and re-refining services.
The early 2000s brought new challenges for Clean Harbors as the company navigated the fallout from the Enron scandal and the broader economic downturn. However, the company weathered these storms and continued to grow, expanding its industrial and field services capabilities to serve an increasingly diverse customer base across the manufacturing, chemical, and oil and gas industries. Over the past decade, Clean Harbors has solidified its position as the premier provider of environmental and industrial services in North America, investing in its facilities and service offerings to capitalize on increasing demand for its waste management, recycling and sustainability solutions.
Business Segments
Clean Harbors operates two primary business segments: Environmental Services (ES) and Safety-Kleen Sustainability Solutions (SKSS).
The Environmental Services segment is the larger of the two, generating $3.75 billion in direct revenues for the first nine months of 2024, an 11.5% increase from the same period in 2023. This segment provides a wide variety of services, including:
Technical Services: Revenues from this business line, which includes waste material management, disposal, and remediation services, grew 11% year-over-year to $1.29 billion in the first nine months of 2024. The segment benefits from strong demand for its hazardous and non-hazardous waste management solutions, including for PFAS-containing waste.
Industrial Services: This business, which provides cleaning, maintenance, and specialty services to industrial customers, saw revenues decline 2.9% year-over-year to $1.06 billion in the first nine months of 2024 due to lower turnaround activity.
Field and Emergency Response Services: Revenues from these services, which include spill cleanup, site decontamination, and other environmental remediation work, grew 47.8% year-over-year to $676.6 million, boosted by the acquisition of HEPACO.
Safety-Kleen Environmental Services: This business line, which includes the Safety-Kleen branches' core service offerings like containerized waste handling and parts washer services, saw revenues grow 9.9% year-over-year to $888 million in the first nine months of 2024.
The Environmental Services segment's Adjusted EBITDA margin was 25.3% in the first nine months of 2024, up from 24.3% in the same period of 2023, demonstrating the segment's operating leverage.
The Safety-Kleen Sustainability Solutions (SKSS) segment generated $712.3 million in direct revenues for the first nine months of 2024, a slight 0.3% decline from the prior year period. This segment's key offerings include:
Safety-Kleen Oil: This business, which sells re-refined and recycled oil products, saw revenues decline 0.1% year-over-year to $541.2 million in the first nine months of 2024 due to lower base oil pricing and volumes, partially offset by higher volumes of vacuum gas oil and other specialty products.
Other SKSS Products and Services: Revenues from the segment's other offerings, like used oil and automotive fluids collection, blended oil product sales, and contract packaging, decreased 6.4% year-over-year to $171.1 million.
The SKSS segment's Adjusted EBITDA margin was 18% in the first nine months of 2024, down slightly from 18.5% in the prior year period, as the impact of lower commodity-driven margins was partially offset by improved operating efficiency.
Financials
Financially, Clean Harbors has demonstrated consistent growth and profitability. In the most recent fiscal year (2023), the company reported revenue of $5.41 billion and net income of $377.86 million. Operating cash flow for 2023 was $734.55 million, with free cash flow of $309.60 million.
For the most recent quarter (Q3 2024), Clean Harbors reported revenue of $1.53 billion, representing a 12.0% increase year-over-year. This growth was driven by increases across most service lines, including a 13.2% increase in Environmental Services segment revenue and a 5.9% increase in Safety-Kleen Sustainability Solutions segment revenue. Net income for Q3 2024 was $115.21 million, a 26.1% increase from the same period last year, outpacing revenue growth due to margin expansion in the Environmental Services segment. This was partially offset by softer performance in the SKSS segment due to pricing pressures in the base oil market. Operating cash flow for Q3 2024 was $239.24 million, with free cash flow of $141.76 million.
In terms of geographic markets, Clean Harbors operates primarily in the United States and Canada. In Q3 2024, the United States accounted for $1.39 billion (90.8%) of total revenue, while Canada contributed $143.70 million (9.2%).
Liquidity
Clean Harbors maintains a strong financial position. As of September 30, 2024, the company reported:
- Cash and cash equivalents: $512.37 million - Debt-to-equity ratio: 1.10 - Current ratio: 2.10 - Quick ratio: 1.76
The company also maintains a $600 million revolving credit facility, of which $469.80 million was available as of September 30, 2024.
Strategic Initiatives
One of the key drivers of Clean Harbors' success has been its strategic focus on expanding its disposal network and increasing its incineration capacity. The company recently celebrated the opening of its state-of-the-art incinerator in Kimball, Nebraska, which will significantly bolster its ability to handle complex waste streams and address the growing demand for hazardous waste disposal.
Furthermore, Clean Harbors has been proactive in addressing the emerging challenges posed by per- and polyfluoroalkyl substances (PFAS) contamination. The company's incineration facilities have demonstrated the capability to safely destroy PFAS compounds, positioning it as a leader in this rapidly evolving market.
Challenges and Response
However, the company has not been without its challenges. In the third quarter of 2024, Clean Harbors reported mixed results, with the Environmental Services segment delivering strong performance, while the Safety-Kleen Sustainability Solutions segment faced headwinds due to softening demand and pricing pressures in the base oil market.
To address the SKSS challenges, the company has taken decisive actions, including idling its California re-refinery and implementing measures to reduce its cost structure and manage the volatility in the used oil collection and re-refining business. These strategic moves are aimed at stabilizing the SKSS segment and positioning it for improved profitability in the future.
Future Outlook and Guidance
Despite the short-term hurdles, Clean Harbors remains well-positioned for long-term growth. The company's diversified service offerings, focus on sustainability, and commitment to innovation continue to drive its competitive advantage in the environmental services industry.
For the full-year 2024, Clean Harbors has revised its adjusted EBITDA guidance to a midpoint of $1.11 billion, representing a 10% increase from 2023. This guidance assumes approximately $40 million in contributions from the HEPACO acquisition and $5 million from the Noble Oil acquisition.
In the Environmental Services segment, the company now expects adjusted EBITDA in 2024 to increase 13% to 15% from 2023 at the midpoint of the guidance. However, in the SKSS segment, Clean Harbors is guiding full-year 2024 adjusted EBITDA to decrease 12% to 14% from 2023 at the midpoint of the guidance, due to the softer demand and pricing pressures experienced in Q3.
Within Corporate, Clean Harbors expects negative adjusted EBITDA to be up 12% to 13% compared to 2023, primarily related to costs from the acquisitions and insurance costs.
The company has also lowered its 2024 adjusted free cash flow expectations to a range of $280 million to $320 million, or a midpoint of $300 million, primarily due to higher inventories in the SKSS business and delayed timing of AR cash generation from the HEPACO integration.
As the world becomes increasingly conscious of environmental stewardship, Clean Harbors is poised to capitalize on the growing demand for responsible waste management and recycling solutions. The company's investments in advanced technologies and its strong customer relationships provide a solid foundation for sustained growth and value creation.
The environmental and industrial services industry, in which Clean Harbors operates, is expected to see continued growth driven by factors such as increased demand for hazardous waste management, environmental remediation, and sustainability services. The compound annual growth rate (CAGR) for the overall industry is projected to be in the mid-single digits over the next few years.
Conclusion
In conclusion, Clean Harbors' proven track record, strategic initiatives, and commitment to environmental sustainability make it a compelling investment opportunity in the rapidly evolving waste management and industrial services landscape. While facing some near-term challenges, particularly in its SKSS segment, the company's strong performance in its core Environmental Services business and its proactive approach to addressing market headwinds position it well for future growth and success.