Clean Harbors Touts HydroChem PSC Acquisition in Q2 Results - Revenue Increases 46 Percent

Clean Harbors reported their Q2 2022 financials, reaching 46 percent revenue growth year over year (YOY) following the integration of HydroChemPSC (HPC) and positive results in all lines of its business.

Revenues increased to $1.36 billion from $926.5 million the year prior.

“The combination of robust demand, positive market dynamics and crisp execution of our growth strategy resulted in record quarterly financial results,” said Alan S. McKim, chairman, president and CEO.

McKim noted the increased demand for its "scarce disposable assets has never been higher" as manufacturing in the United States continues to prosper. He referred to the October 2021 acquisition of HPC Hydrochem which was purchased for $1.25 billion.

"We are processing more volumes of high valuation than ever before, largely due to partnerships with companies like 3M who closed their captive incinerator earlier this year," he commented, "And other chapters are also in the final stages of determining whether they will shut down and outsource. HydroChemPSC now branded as HPC Industrial which includes our legacy industrial services is moving to be a great acquisition. We feel elevated our industrial service offerings provided us with an impressive set of assets and talented employees and gave us a market leadership position."

Despite headwinds brought on by rising inflation and labor costs, income from operations 92 percent to $211.2 million from $110.0 million in 2021. Net income was $148.2 million, compared to $67 million YOY. Adjusted net income reached $133.1 million in Q2, up from $65.4 million in 2021. 

Adjusted EBITDA was up 65 percent over the previous year's quarter, driven by CFO Mike Battles said

"That equates to a margin of 22.8 percent on  a 250 basis point improvement year on year," he commented. "We deliver that record margin performance with improvement in our gross profit and strong controls over SGA costs."

Speaking more on SGA costs, Battles continued by saying that "despite inflationary pressures that remain pervasive, SGA on an absolute dollar basis was up only $31.5 million by approximately $430 million of additional revenue which is fantastic."

Clean Harbors estimated that SGA expense and federal revenues to be approximately 12 percent, below 2021 levels. 

In terms of mergers and acquisitions, the company is continuing to evaluate its capital allocation strategy. It mentioned an acquisition "late in the quarter" that will advance its gas and oil collection business in Southeast United States, mainly in Georgia and Florida.

In its environmental services line of business, revenues rose 51% year-over-year, and adjusted EBITDA in the segment rose 53%, primarily on the HPC acquisition and volume growth of high-value waste in Clean Harbors' disposal and recycling facilities, pricing initiatives and strong demand.

"Approximately 60% of that growth was generated by the addition of HPC while the remainder of the results have increased disposal, recycling and service demand." McKim said. "Incineration utilization was 90% and average incineration pricing increased by 18%."

A "noticeable" increase in remediation and waste projects led landfill volumes to grow 36 percent in Q2. 

The company's Safety-Kleen Sustainability Solutions (SKSS) segment rose 31 percent year over year, with adjusted EBITDA growing 53 percent from 2021.

"Demand for our base oil was extremely high throughout the quarter given industry dynamics and global supply disruptions," McKim said. "Two substantive base oil price increases occurred mid-quarter, helping drive greater revenue and profitability. Our collections team also did a remarkable job actively managing the front end of our re-refining spread in both collection volumes and costs. In addition, our creation of the SKSS segment and better strategic management of this business is enabling more success and a path to more consistent profitability.”

After favorable earnings results in Q2, Clean Harbors announced that it expects its Q3 adjusted EBITDA to be approximately 50 percent higher as the HPC acquisition completes a full year of realization as well as SKSS growth.

"We continue to maximize by carefully managing our collection costs on the front end, and capitalizing on pricing and market demand on the back end," McKim said.