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Text: slides for today's call are posted on our website, and we invite you to follow along.
Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, February 24, 2021.
Information on potential factors and risks that could affect our actual results of operations is included in our SEC filings.
The company undertakes no obligation to revise or publicly release the results of any revision to the statements made in today's call other than through filings made concerning this reporting period.
In addition, today's discussion will include references to non-GAAP measures.
Clean Harbors beliefs that such information provides an additional measurement and consistent historical comparison of its performance.
Starting on slide three.
We concluded 2020 with a strong fourth quarter.
Our Environmental Services segment outperformed our expectations, driven by a combination of factors, including the level of high-value waste in our disposal network, greater-than-expected COVID decontamination work and ongoing cost controls.
Total fourth quarter revenues were in line with expectations as our Safety-Kleen business remained constrained by the effects of the pandemic.
Adjusted EBITDA in Q4 increased to $136.1 million, which included $5.6 million in benefits from government programs, primarily from Canada.
For the full year, adjusted EBITDA grew by 3% to $555.3 million, with annual margins growing to 17.7%.
We generated record adjusted free cash flow of $265 million, a noteworthy accomplishment considering the economic disruption caused by the pandemic.
Without question, the success we achieved in 2020 is a direct result of the dedication, flexibility and perseverance of our exceptional team.
2020 was a challenging year on many levels.
Turning to our segment results, beginning with Environmental Services on slide four.
Revenue, while down year-over-year due to a market -- due to market conditions, was up on a sequential basis.
Typically, Q4 is a seasonally weaker quarter for us, but the $18 million increase from Q3 is evidence that many of our markets are on the road to recovery.
We also saw strong disposal and recycling volumes to close out the year.
Adjusted EBITDA grew by 13% from a year ago, with margins up nearly 400 basis points.
This was driven by a combination of business mix, cost savings and $3.9 million in benefits from government assistance programs in Q4.
Revenue from our COVID-19 decon work totaled $31 million in Q4.
For the full year, our team completed nearly 14,000 responses and was an essential resourcing and protecting our customers' people and facilities.
In Q4, we benefited from a record level of drums collected as well as some high-value complex waste streams we received into our network.
This resulted in an average price per pound increase of 16% from the year earlier period when we saw more bulk streams.
Incineration utilization in the quarter was 84% due to a higher-than-expected number of maintenance days.
Landfill volumes were down 37% in the quarter as the lack of remediation and waste projects opportunities intensified with the resurgence of the pandemic.
However, our strong base landfill business largely offset that decline with a 42% increase in our average price per ton.
Moving to slide five.
Safety-Kleen revenue was down 15% from a year ago, but was flat sequentially as the ongoing recovery offset normal year-end seasonality.
Vehicles miles driven had been on a nice upward trajectory throughout the summer, but plateaued a bit in Q4, with the COVID-19 surge resulting in some new local restrictions in areas such as California, and all across Canada.
Most of our core services in the SK branch business were down year-over-year as a result, but flat from Q3.
Safety-Kleen's adjusted EBITDA declined 21%, mostly due to the lower revenue and business mix.
This decline was partly offset by our cost reductions initiatives as well as the government assistance programs that provided $1.4 million of benefits in Q4.
Waste oil collections were 49 -- no, excuse me, were 49 million gallons in Q4 with a healthy average charge for oil, given the lack of available outlets for generators.
On the SK oil side, we saw typical seasonal softening of the demand for base oil and lube products.
However, due to lower production levels in the traditional refinery space, available base oil and lubricant supply shrank in the quarter, resulting in a rising price environment that should benefit us here in 2021.
Percentages of blended products and direct volumes came as expected and consistent with prior year.
Turning to slide six.
Looking back at 2020 from a capital allocation standpoint, our strategy due to the pandemic was focused on capital preservation, which served us well.
capex in Q4 was slightly higher than the prior year, but our full year spend was down from 2019.
Moving forward, we expect to focus on internal growth capital on our plants and other assets that we believe generate the best returns.
From an M&A standpoint, our opportunity pipeline is healthy, as businesses emerge from the pandemic, and we gain a clear light -- line of sight on our end markets.
We prudently increased our level of share repurchases in Q4 and had an active repurchase program for the year, and Mike will provide the detail on our buyback shortly.
Looking ahead, we're beginning 2021 in excellent shape, both operationally and financially.
The markets we serve are on an upward trajectory.
For our lines of business that have been held back by the pandemic, such as waste projects and remediation, we expect a measurable recovery this year.
In 2021, we expect to pursue growth opportunities through our core suite of offerings and by capitalizing on market conditions.
And Mike is going to talk about our new sustainability report in a moment.
But let me say that we expect to take full advantage of the growing market acceptance of our sustainable offerings in 2021 and beyond.
We provide a broad array of green solutions that go well beyond our role as the largest collector and recycler of waste oil.
Within Environmental Services, we entered the year with higher deferred revenue and given the availability of waste in the marketplace, expect strong incineration performance in 2021.
We anticipate our offerings within Industrial Services and Tech services to grow from last year.
We expect Field Services to generate $25 million to $35 million of COVID-related revenues in 2021.
Within Safety-Kleen, we remain below normal demand levels as we kick off 2021.
However, later this year, we anticipate a steady recovery in the SK branch business.
For Safety-Kleen Oil, our rerefineries are producing well.
And as I mentioned, pricing for both base oil and blended products is favorable to start the year.
We will continue to actively manage our charge for oil rates, while focusing on growing collection volumes to supply our rerefinery network and take advantage of market conditions for recycled fuel oil.
As I look at 2021, the underlying dynamics in both our operating segments remain positive, and we expect a strong sales growth year with healthy free cash flow as a result.
I anticipate another great year for the company in 2021.
Before I take you through the financials, let me comment briefly on our first ever sustainability report, which is available on the IR section of our website.
We're proud of this document, which we created based on the Sustainability Accounting Standards Board framework.
The document highlights the integral role that sustainability plays in our business decisions as well as our environmental, social and government goals and benchmarks for 2030.
The At a Glance page of the report shown on slide eight is an overview of some of the -- of our ESG benchmarks.
I want to reiterate the point that Alan made about ESG and sustainability as foundational to our business.
For many customers, we are their sustainability solution.
When companies generate potentially harmful byproducts, they call Clean Harbors to safely remove and dispose of them.
When they accidentally release chemicals into the environment, they call Clean Harbors to help clean it up.
When they have waste oil, solvents, precious metals or paint, they call Clean Harbors to recycle.
The new report also highlights the vital role our employees play in our performance.
We strive to create a diverse and inclusive culture, one that values the unique backgrounds, perspectives and experiences of our people.
We are committed to building a sustainable culture through training programs that enable our employees to have -- to enjoy long and successful careers at Clean Harbors.
I encourage everyone to take a look through the report.
It provides the detailed picture of how closely intertwined sustainability is with our entire organization, culture and business model.
We ended 2020 on a high note with another strong financial performance.
If you asked me back in April, when the pandemic began, what level of revenue, adjusted EBITDA and adjusted free cash flow we would have delivered this year, these would have not been the numbers.
Our Q4 adjusted EBITDA results exceeded the guidance we provided in November.
Revenue declined 9% year-over-year, but was up in the third quarter despite Q4 typically being a sequentially lower quarter due to seasonality.
Our efforts to control costs and grow our highest margin businesses, combined with some further government program assistance, resulted in 180 basis point improvement in gross margin.
Adjusted EBITDA grew 3% to $136.1 million.
Our Q4 adjusted EBITDA margin rising 190 basis points from last year speaks to the effectiveness of the actions we have taken this year.
We have improved our adjusted EBITDA margins on a year-over-year basis for 12 consecutive quarters.
For the full year, our adjusted EBITDA margins grew 17.7% -- grew to 17.7%.
If you excluded the $42.3 million of government assistance, those margins would have been 16.3% or a 50 basis point improvement from 2019.
SG&A total costs were down in the quarter based on our lower revenue and cost controls.
But on a margin basis, we're essentially flat.
For the full year, SG&A as a percentage of revenue was 14.3%, which beat our target of 14.5%.
For 2021, using the midpoint of our guidance range, we would expect SG&A to be up in absolute dollars from the prior year and essentially flat on a percentage basis.
Depreciation and amortization in Q4 was down to $71.4 million.
For the full year, our depreciation and amortization was $292.9 million, which was within our expected range.
For 2021, we expect depreciation and amortization in the range of $280 million to $290 million.
Income from operations in Q4 increased by 18%, reflecting a higher gross profit, cost controls and mix of revenue.
For the full year, our income from operations rose 10% to $251.3 million.
Turning to slide 10.
We conclude the year with our balance sheet in terrific shape.
Cash and short-term marketable securities at December 31 were $571 million, up nearly $40 million from the end of Q3.
Our debt was at $1.56 billion at year-end, with leverage on a net debt basis at 1.8 times, our lowest level in a decade.
Our weighted average cost of debt is 4.2%, with a healthy mix -- healthy blend of fixed and variable debt.
With the recent revolver we put in place, we have no debt maturities until 2024.
Turning to cash flows on slide 11.
Cash from operations in Q4 was $113.2 million.
capex, net of disposals, was up slightly to $43.6 million.
That combination resulted in adjusted free cash flow in Q4 of $69.6 million.
For the year, we hit our net capex target, excluding the purchase of our headquarters, with $165.6 million of spend.
That helped us deliver record annual adjusted free cash flow of $265 million, which is toward the high end of our guidance range.
For 2021, we expect net capex in the range of $185 million to $205 million, which is higher than prior year.
Our net capex as a percentage of revenue ranks as one of the lowest among our specialty waste peers.
During the quarter, we increased the level of our share repurchases as we bought back 500,000 shares at an average price just under $71 for a total buyback of $35 million.
In 2020, we repurchased slightly over 1.2 million shares of our authorized $600 million share repurchase program, we have just under $210 million remaining.
Moving to guidance on slide 12.
Based on our 2020 results and current market conditions, we expect 2021 adjusted EBITDA in the range of $545 million to $585 million.
That amount in 2021 should be about $16 million to $18 million compared with $18.5 million in 2020.
Looking at our guidance from a quarterly perspective, we expect Q1 adjusted EBITDA using our revised definition to be 5% to 10% below prior year levels given the record Q1 results we posted in 2020 prior to the pandemic taking hold and the deep freeze we are experiencing in the Midwest and the Gulf here in February.
Here is how our full year 2021 guidance translates from a segment perspective.
In Environmental Services, we expect adjusted EBITDA to decline in the mid-single digits on a percentage basis from 2020.
We expect to benefit from growth and profitability within incineration, a rebound in the majority of our service businesses, along with our comprehensive cost measures, but not enough to fully offset the decline in high-margin decontamination work as well as the large contribution from government assistance programs in 2020 that totaled $27.1 million in this segment.
For Safety-Kleen, we anticipate adjusted EBITDA to increase in the mid- to high single digits on a percentage basis from 2020.
Despite the fact this segment received $12.2 million in government assistance last year.
We expect a mild rebound in the branch business weighted toward the second half of the year post vaccination.
At the same time, we expect SK Oil to deliver a vastly improved performance in 2020, given the current base oil industry supply dynamics as well as our ability to aggressively manage our rerefining spread and collect more gallons of waste oil.
In our Corporate segment, we expect negative adjusted EBITDA to be flat with 2020, which includes $3 million of governance assistance.
For 2021, our EBITDA guidance assumes receiving $2 million to $3 million of Canadian government assistance.
We are not assuming any additional CARES money in 2021 at this time, but we are reviewing the new program.
Based on our EBITDA guidance and working capital assumptions, we now expect 2021 adjusted free cash flow in the range of $215 million to $255 million.
We believe this puts us in a great position to execute on our capital allocation strategy.
In summary, although the pandemic is still with us, we entered the new year with strong momentum in multiple service businesses and most importantly, across our facilities network.
Industrial production in the U.S. is back on the rise by all indications, particularly in the chemical space.
The Chemical Activity Barometer, published by the American Chemistry Council, show that industry levels have been climbing sequentially from May to January, and January was the first time in 10 months that the activity levels were above the prior year, which is a great sign for us.
In addition, our rerefinery business is off to a great start, given the current market conditions.
We expect some of the project and turnaround work that was pushed out in 2020 to benefit us this year and the overall sales pipeline remains strong.
While we are seeing COVID cases decline sharply in recent weeks, we anticipate continued opportunities for near-term decontamination work and disposal of vaccination waste volumes.
Overall, the number of favorable industry and regulatory trends should support our business moving forward.
And while we don't give specific revenue guidance, we certainly expect aline growth in 2021.

user
sees 2021 adjusted ebitda in range of $545 million to $585 million, based on anticipated gaap net income in range of $105 million to $146 million.
performance in quarter was again led by our environmental services segment, where we achieved better-than-expected results.

assistant