TOP CONTRIBUTORS

Patrick Cushing

vamsi krishna

CLH AT A GLANCE

P/E ► 33.8 AVG EV/EBITDA ► 14.9 AVG ROA ► 6.1% AVG ROE ► 10.8% AVG Debt to Equity ► 1.00 AVG Current Ratio ► 2.17 AVG Interest Coverage Ratio ► 8.02 AVG

 

 

 

 

 

 

Clean Harbors (NASDAQ:CLHB) disposes of hazardous waste -- meaning, any form of toxic chemical, organic, or nuclear substance. Clean harbors manages 65% of North America's hazardous incineration volume (in which hazardous waste is burned) and 23% of the continent's hazardous landfill volume.^[1]

In 2007, the company grew revenues 14.1% to $946.9 million; revenues have grown at double digit rates every year since 2005.^[2] This is partly due to Clean Harbors' aggressive acquisition strategy - the company has absorbed 4 acquisitions since 2006, including Teris LLC, Ensco Caribe, Romic Environmental, and the Chemical Services Division (CSD) assets of Safety-Kleen.^[3][4][5][6] The Teris acquisition and increased waste volumes accounted for 40%, each, of the 2007 revenue increase.^[7]

Clean Harbor operates in the highly regulated $2 billion hazardous waste services industry with an array of federal, state, and local government permits that must be obtained in order to enter the sector. As a result, there has not been a new, operating incinerator or landfill created in the U.S. for 10 years, which limits the number of competitors in this industry.^[8]

Company Overview

Clean Harbors, Inc., incorporated in 1980, through its subsidiaries, is a provider of environmental services and an operator of non-nuclear hazardous waste treatment facilities in North America. The company performs environmental services for a diversified industry base with over 45,000 customers, including more than 325 Fortune 500 companies, in the United States, Canada, Mexico and Puerto Rico.^[1] Clean Harbors, Inc. performs environmental services through a network of more than 100 service locations. The company operates six incineration facilities, nine commercial landfills, six wastewater treatment operations, and 20 transportation, storage and disposal facilities (TSDFs), as well as six polychlorinated biphenyls (PCB) management facilities and two oil and used oil products recycling facilities. Since 2006, the company has acquired Teris LLC, Ensco Caribe, Romic Environmental, and the Chemical Services Division (CSD) assets of Safety-Kleen.^[3][4][5][6]

Business and Financial Metrics

Total revenues increased 14.1% in 2007 to $946.9 million compared to $829.8 million in the previous year.^[2] The Technical services segment led revenue growth with an increase in volume and pricing that added $60.8 million in revenue.^[2] Over the same time, net income declined by 5.4% from $46.7 million in 2006 to $44.2 million in 2007.^[2] However, no one factor can be attributed to this decline. The company faced increased costs of operations in Canada due to currency fluctuations, increasing employee and labor related costs due to the addition of 200 employees to the company, and other costs due to their Teris and Romic Environmental acquisitions.^[9][4]

In 2007, the company derived 86.8% of their revenues from the U.S., 13.1% from Canada, and less than 1% from Mexico.^[10] No individual customer accounts for more than 5% of revenues.^[11]

Revenue, Net Income, and Profit Margin from 2003-2007

Business Segments

Revenue by Segment in 2007

Clean Harbors conducts business under two segments - Technical Services and Site Services. For transactions that cross between the segments, Clean Harbor attributes expenses and revenue as if the other segment were an outside company.

• Technical Services ($672.2 million in revenue, $157.8 Adjusted EBITDA^[7]) - The technical services segment collects wastes and transports them for disposal to one of the company's incinerators or landfills for commercial and industrial, healthcare, education, and other environmental organizations. This segment will also include other services such as wastewater treatment, explosives management, and any other necessary disposal service. Wastes are transported either with their fleet of specialty trucks or through third-party agreements for other transportation options, such as railroads. Technical services has grown from 67% of revenue in 2006 to 71% of revenue in 2007.^[7]

• Site Services ($275.8 million in revenue, $46.0 Adjusted EBITDA^[7]) - The site services segment provides customers with experts for on-site services such as field service crews that are dispatched for emergencies, specialty tank services, decontamination, demolotion, and other cleanup services. After a busy 2006 due to hurricane cleanup projects, revenue in 2007 showed flat growth. In 2006, revenue increased 13.3% to $271.1 million whereas 2007 revenue grew only 1.7% to $275.8 million.^[7]

Trends and Forces

Recurring and diversified customer base provides stable revenue

Clean Harbors top ten customers by revenue have an average relationship of 15 years with the company.^[12] Unlike other hazardous waste companies that rely on one or two large contracts for the bulk of their revenue, Clean Harbors has 45,000 customers including 325 of the Fortune 500 companies.^[12] No single company accounts for more than 5% of the company's revenue.^[11] This ensures more consistent revenue for the company, rather than being reliant on fluctuations in revenue due to a single client or project.

Regulations limit new entrants in the hazardous waste industry

There has not been a new, operating incinerator or landfill created in the U.S. for 10 years.^[8] There are both high regulatory costs and an extensive array of federal, state, and local permits required for new facilities. A few of the notable regulations are the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the Resource Conservation and Recovery Act (RCRA), the Superfund Act, and the Clean Air act.^[12] These regulations are constantly changing and vary state-to-state. For example, Massachusetts considers used oil a hazardous waste, whereas RCRA does not. The Clean Air act has just been revised to include the addition of MACT (Maximum Achievable Control Technology), and Ontario introduced a new prohibition of land disposal of untreated hazardous wastes.^[13][14]

Acquisitions expose CLHB to environmental liabilities

Clean Harbors has accrued $184.5 million in environmental liabilities as a result of two acquisitions -- Terris LLC (acquired in August, 2006) and the assets of CSD assets of Safety-Kleen (acquired in September 2002).^[15][16] Another recent acquisition is indicative of these risks, though not quite as large. On February 8, 2008, the company signed agreements to acquire two recycling facilities for $12.5 million. As part of the acquisition, Clean Harbors has to assume $3.0 million in environmental libilities -- just under 25% of the purchase price.^[17]

Competitors

The North American hazardous waste industry is estimated at $2 billion, and the number of companies operating in the segment has been shrinking since the 1990s.^[8] At the time, more than 20 companies operated in the hazardous waste disposal sector; however now, four major companies dominate the sector with smaller companies filling niche service requirements.^[8] There has not been a new, operating incinerator or landfill created in the U.S. for 10 years.^[8]

Clean Harbors, Inc. competes with:

• Veolia Environnement (VE) - Veolia Environnement is a global provider of environmental management services including waste management, waste water treatment, energy services, and transportation services. Their operations are broken up among four divisions -- Water, Energy Services, Environmental Services, and Transportation. The French company generated €32.6 billion in revenue in 2007. ^[18]
• WTI - WTI is a joint venture between Heritage Environmental Services and Von Roll America. WTI provides incineration services for hazardous and non-hazardous waste services.
• Ross Incinceration Services - Ross Incineration Services is a subsidary of Ross Environmental Services, a private hazardous waste management company in operation since 1949. Ross Incineration manages both hazardous and non-hazardous wastes.^[19]
• Waste Management (WMI) - Waste Management is North America's largest solid-waste provider with operations that cross garbage collection, landfills, and recycling. The company generated $13.3 billion in revenue in 2007.
• American Ecology (ECOL) - American Ecology provides hazardous waste treatment and disposal services for the Northwestern U.S. The company earned $165 million in revenue in 2007, largely from two major clients -- Honeywell International (HON) and the Army Corps of Engineers.^[20]
• Heritage Environmental Services - Heritage Environmental is a private environmental services firm that operates an array of landfills, incineration, chemical treatment, and recovery facilities to support their disposal and cleaning services.
• Envirosource - Envirosource is a private company that operates in two main segments -- IMS and Technologies. Their IMS team provides slag processing, metal recovery, materials handling, and other materials services. The Technologies segment provides hazardous waste treatment and disposal service for steel and governmental services.
• Philip Services Corporation - Philip Services Corporation manages a wide range of industrial and environmental cleanup projects in the U.S including scrap metal recycling, on-site waste disposal, waste transport, and emergency response services. The company has filed for bankruptcy protection twice.^[21]

References

1. ↑ ^{1.0 1.1} CLHB, 200, 10-K, page 1
2. ↑ ^{2.0 2.1 2.2 2.3} CLHB, 2007, 10-K, page 34
3. ↑ ^{3.0 3.1} CLHB, 2007, 10-K, page 71
4. ↑ ^{4.0 4.1 4.2} CLHB, 2007, 10-K, page 38
5. ↑ ^{5.0 5.1} CLHB, 2007, 10-K, page 39
6. ↑ ^{6.0 6.1} CLHB, 2007, 10-K, page 30
7. ↑ ^{7.0 7.1 7.2 7.3 7.4} CLHB, 2007, 10-K, page 44
8. ↑ ^{8.0 8.1 8.2 8.3 8.4} CLHB, 2007, 10-K, page 2
9. ↑ CLHB, 2007, 10-K, page 45
10. ↑ CLHB, 2007, 10-K, page 13
11. ↑ ^{11.0 11.1} CLHB, 2007, 10-K, page 74
12. ↑ ^{12.0 12.1 12.2} CLHB, 2007, 10-K, page 3
13. ↑ CLHB, 2007, 10-K, page 24
14. ↑ CLHB, 2007, 10-K, page 20
15. ↑ CLHB, 2007, 10-K, page 22
16. ↑ CLHB, 2007, 10-K, page 40
17. ↑ CLHB, 2007, 10-K, page 72
18. ↑ Veolia Environnement Google Finance page
19. ↑ Ross Environmental Services
20. ↑ American Ecology (ECOL)
21. ↑ Philip Services Corporation Google Finance Page