Heritage-Crystal Clean, Inc. Announces Third Quarter 2019 Financial Results

Published

Third Quarter Highlights Include:

  • Revenue of $104.8 million, a third quarter record, was 5.2% higher than the third quarter of 2018. 
  • Environmental Services segment reported record third quarter revenue of $69.0 million, an increase of 9.0% compared to the third quarter of 2018. 
  • Environmental Services segment profit before corporate selling, general, and administrative expenses increased 9.3% compared to the third quarter of 2018. 
  • Adjusted EBITDA was $14.6 million for the quarter compared to $14.1 million in the third quarter of 2018.

ELGIN, Ill., Oct. 16, 2019 (GLOBE NEWSWIRE) -- Heritage-Crystal Clean, Inc. (Nasdaq: HCCI), a leading provider of parts cleaning, used oil re-refining, and hazardous and non-hazardous waste services primarily focused on small and mid-sized customers, today announced results for the third quarter which ended September 7, 2019.

Third Quarter Review

Revenue for the third quarter of 2019 was $104.8 million compared to $99.7 million for the same quarter of 2018, an increase of 5.2%.

Operating margin decreased slightly to 20.5% compared to 20.7% in the third quarter of 2018. Our third quarter SG&A expense was $12.0 million, or 11.5% of revenues, compared to $11.4 million, or 11.4% of revenues, for the third quarter of 2018.

Net income attributable to common shareholders for the third quarter was $6.0 million compared to net income attributable to common shareholders of $6.3 million in the year earlier quarter. Diluted earnings per share was  $0.25 compared to diluted earnings per share of $0.27 in the year-ago quarter. Excluding the write-off of assets and other costs associated with idled sites incurred during the quarter, third quarter adjusted diluted earnings per share was $0.28 (see reconciliation below).

Segments

Our Environmental Services segment includes parts cleaning, containerized waste, vacuum services, antifreeze recycling, and field services. Environmental Services revenue was $69.0 million during the quarter compared to $63.3 million during the third quarter of fiscal 2018. The 9.0% increase in revenue was driven by growth in most of our product and service lines with the vacuum, containerized waste, parts cleaning and antifreeze businesses being the primary contributors to the growth. Excluding the impact of a large field services project from our third quarter 2018 results, our organic revenue growth in the segment during the third quarter 2019 was 10.5%. Environmental Services profit before corporate selling, general, and administrative expenses was $17.8 million compared to $16.2 million in the year-ago quarter. The approximate $1.5 million increase was mainly driven by higher revenue.

President and CEO Brian Recatto commented, "I am pleased to report that the third quarter represented our seventh consecutive quarter of high single or double-digit revenue growth in our Environmental Services segment.  Unfortunately, unusually high healthcare cost resulted in lower than expected segment operating margin during the quarter."

Our Oil Business segment includes used oil collection activities, re-refining activities, and sales of recycled fuel oil. During the third quarter of fiscal 2019, Oil Business revenues decreased 1.4% to $35.8 million compared to $36.4 million in the third quarter of fiscal 2018. The decline in revenue was mainly due to a decrease in our selling price of base oil, partially offset by an increase in the volume of base oil gallons sold. Oil Business segment operating margin fell to 10.5% in the third quarter of 2019 compared to 12.0% in the third quarter of fiscal 2018. The lower operating margin compared to the third quarter of 2018 was mainly due to a decrease in the spread between our selling price for base oil and our feedstock costs.

Recatto commented, "We are pleased with the results in the Oil Business segment given that base oil conditions during the third quarter were worse relative to last year."

Safe Harbor Statement

All references to the “Company,” “we,” “our,” and “us” refer to Heritage-Crystal Clean, Inc., and its subsidiaries.

This release contains forward-looking statements that are based upon current management expectations. Generally, the words "aim," "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "will be," "will continue," "will likely result," "would" and similar expressions identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, uncertainties and other important factors include, among others: general economic conditions and downturns in the business cycles of automotive repair shops, industrial manufacturing businesses and small businesses in general; increased solvent, fuel and energy costs and volatility in the price of crude oil, the selling price of lubricating base oil, solvent, fuel, energy, and commodity costs; our ability to successfully integrate businesses we acquire; our ability to enforce our rights under the FCC Environmental purchase agreement; our ability to pay our debt when due and comply with our debt covenants; our ability to successfully operate our used oil re-refinery and to cost effectively collect or purchase used oil or generate operating results; increased market supply or decreased demand for base oil; further consolidation and/or declines in the United States automotive repair and manufacturing industries; the impact of extensive environmental, health and safety and employment laws and regulations on our business; legislative or regulatory requirements or changes adversely affecting our business; competition in the industrial and hazardous waste services industries and from other used oil processing facilities including other re-refineries; claims and involuntary shutdowns relating to our handling of hazardous substances; the value of our used solvents and oil inventory, which may fluctuate significantly; our ability to expand our non-hazardous programs for parts cleaning; our dependency on key employees; our level of indebtedness, which could affect our ability to fulfill our obligations, impede the implementation of our strategy, and expose us to interest rate risk; our ability to effectively manage our extended network of branch locations; the control of The Heritage Group over the Company; and the risks identified in our Annual Report on Form 10-K filed with the SEC on March 6, 2019 and subsequent filings with the SEC. Given these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. We assume no obligation to update or revise them or provide reasons why actual results may differ. The information in this release should be read in light of such risks and in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this release.

About Heritage-Crystal Clean, Inc.

Heritage-Crystal Clean, Inc. provides parts cleaning, used oil re-refining, and hazardous and non-hazardous waste services primarily to small and mid-sized customers in the vehicle maintenance sector as well as manufacturers and other industrial businesses. Our service programs include parts cleaning, containerized waste management, used oil collection and re-refining, vacuum truck services, waste antifreeze collection, recycling and product sales, and field services. These services help our customers manage their used chemicals and liquid and solid wastes, while also helping to minimize their regulatory burdens.  Our customers include businesses involved in vehicle maintenance operations, such as car dealerships, automotive repair shops, and trucking firms, as well as small-to-medium sized manufacturers, such as metal product fabricators and printers, and other industrial businesses. Through our used oil re-refining program, we recycle used oil into high quality lubricating base oil, and we are a supplier to firms that produce and market finished lubricants. Through our antifreeze program we recycle spent antifreeze and produce a full line of virgin-quality antifreeze products. Heritage-Crystal Clean, Inc. is headquartered in Elgin, Illinois, and operates through 90 branches serving approximately 95,000 customer locations.

Conference Call

The Company will host a conference call on Thursday, October 17, 2019 at 9:30 AM Central Time, during which management will give a brief presentation focusing on the Company's operations and financial results. Interested parties can listen to the audio webcast available through our company website, http://crystal-clean.com/investor-relations/, and can participate in the call by dialing (720) 545-0014.

The Company uses its website to make information available to investors and the public at www.crystal-clean.com.

CONTACT

Mark DeVita, Chief Financial Officer, at (847) 836-5670

Heritage-Crystal Clean, Inc.Condensed Consolidated Balance Sheets(In Thousands, Except Share and Par Value Amounts)(Unaudited)

    September 7, 2019   December 29, 2018
         
ASSETS        
Current assets:        
Cash and cash equivalents   $ 58,951     $ 43,579  
Accounts receivable - net   55,653     51,744  
Inventory - net   28,259     33,059  
Other current assets   7,186     6,835  
Total current assets   150,049     135,217  
Property, plant and equipment - net   145,954     139,987  
Right of use assets   79,498      
Equipment at customers - net   24,159     23,814  
Software and intangible assets - net   16,149     14,681  
Goodwill   32,744     34,123  
Total assets   $ 448,553     $ 347,822  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable   $ 35,089     $ 32,630  
Current portion of lease liabilities   20,257      
Contract liabilities - net   2,332     166  
Accrued salaries, wages, and benefits   6,051     6,024  
Taxes payable   7,112     6,120  
Other current liabilities   4,989     5,089  
Total current liabilities   75,830     50,029  
  Lease liabilities, net of current portion   59,291      
  Long-term debt   29,255     29,046  
  Deferred income taxes   17,870     14,516  
Total liabilities   $ 182,246     $ 93,591  
         
STOCKHOLDERS' EQUITY:        
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,185,567 shares and 23,058,584 shares issued and outstanding at September 7, 2019 and December 29, 2018, respectively   $ 232     $ 231  
Additional paid-in capital   199,216     197,533  
Retained earnings   66,333     55,819  
Total Heritage-Crystal Clean, Inc. stockholders' equity   265,781     253,583  
Noncontrolling interest   526     648  
Total equity   266,307     254,231  
Total liabilities and stockholders' equity   $ 448,553     $ 347,822  

Heritage-Crystal Clean, Inc.Condensed Consolidated Statements of Income(In Thousands, Except per Share Amounts)(Unaudited)

      Third Quarter Ended,   First Three Quarters Ended,
      September 7, 2019   September 8, 2018   September 7, 2019   September 8, 2018
                   
Revenues                
  Service revenues   $ 57,208     $ 58,054     $ 171,522     $ 172,205  
  Product revenues   41,964     41,620     119,124     110,918  
  Rental income   5,668         14,967      
Total revenues   $ 104,840     $ 99,674     $ 305,613     $ 283,123  
                   
Operating expenses                
  Operating costs   $ 80,116     $ 76,045     $ 241,449     $ 220,702  
  Selling, general, and administrative expenses   11,241     10,641     34,679     33,185  
  Depreciation and amortization   3,980     3,776     12,176     11,078  
  Other expense - net   1,020     253     2,477     983  
Operating income   8,483     8,959     14,832     17,175  
Interest expense – net   181     256     629     742  
Income before income taxes   8,302     8,703     14,203     16,433  
Provision for income taxes   2,246     2,284     3,411     3,996  
Net income   6,056     6,419     10,792     12,437  
Income attributable to noncontrolling interest   86     74     278     213  
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders   $ 5,970     $ 6,345     $ 10,514     $ 12,224  
                 
Net income per share: basic   $ 0.26     $ 0.28     $ 0.45     $ 0.53  
Net income per share: diluted   $ 0.25     $ 0.27     $ 0.45     $ 0.52  
                 
Number of weighted average shares outstanding: basic   23,185     23,048     23,146     23,013  
Number of weighted average shares outstanding: diluted   23,421     23,404     23,384     23,299  

Heritage-Crystal Clean, Inc.Reconciliation of Operating Segment Information(Unaudited)

Third Quarter Ended,
September 7, 2019
(thousands)     EnvironmentalServices   Oil Business   Corporate and Eliminations   Consolidated
Revenues                
  Service revenues   $ 54,066     $ 3,142     $     $ 57,208  
  Product revenues     9,305       32,659           41,964  
  Rental income   5,620     48         5,668  
Total revenues   $ 68,991     $ 35,849     $     $ 104,840  
Operating expenses                
  Operating costs     49,486       30,630           80,116  
  Operating depreciation and amortization     1,743       1,441           3,184  
Profit before corporate selling, general, and administrative expenses   $ 17,762     $ 3,778     $     $ 21,540  
Selling, general, and administrative expenses             11,241       11,241  
Depreciation and amortization from SG&A             796       796  
Total selling, general, and administrative expenses           $ 12,037     $ 12,037  
Other expense - net           1,020       1,020  
Operating income                 8,483  
Interest expense – net             181       181  
Income before income taxes               $ 8,302  

Third Quarter Ended,
September 8, 2018
(thousands)     EnvironmentalServices   Oil Business   Corporate and Eliminations   Consolidated
Revenues                
  Service revenues   $ 55,473     $ 2,581     $     $ 58,054  
  Product revenues   7,834     33,786         41,620  
Total revenues   $ 63,307     $ 36,367     $     $ 99,674  
Operating expenses                
  Operating costs     45,460       30,585           76,045  
  Operating depreciation and amortization     1,599       1,410           3,009  
Profit before corporate selling, general, and administrative expenses   $ 16,248     $ 4,372     $     $ 20,620  
Selling, general, and administrative expenses             10,641       10,641  
Depreciation and amortization from SG&A             767       767  
Total selling, general, and administrative expenses           $ 11,408     $ 11,408  
Other expense - net             253       253  
Operating income                 8,959  
Interest expense – net             256       256  
Income before income taxes               $ 8,703  

                   
First Three Quarters Ended,
September 7, 2019
  (thousands)     EnvironmentalServices   Oil Business   Corporate and Eliminations   Consolidated
                   
Revenues                
  Service revenues   $ 161,273     $ 10,249     $     $ 171,522  
  Product revenues     29,620       89,504           119,124  
  Rental income   14,791     176         14,967  
Total revenues   $ 205,684     $ 99,929     $     $ 305,613  
Operating expenses                
  Operating costs     149,024       92,425           241,449  
  Operating depreciation and amortization     5,252       4,308           9,560  
Profit before corporate selling, general, and administrative expenses   $ 51,408     $ 3,196     $     $ 54,604  
Selling, general, and administrative expenses             34,679       34,679  
Depreciation and amortization from SG&A             2,616       2,616  
Total selling, general, and administrative expenses           $ 37,295     $ 37,295  
Other expense - net             2,477       2,477  
Operating income                     14,832  
Interest expense – net             629       629  
Income before income taxes               $ 14,203  

                   
First Three Quarters Ended,
September 8, 2018
  (thousands)     EnvironmentalServices   Oil Business   Corporate and Eliminations   Consolidated
                   
Revenues                
  Service revenues   $ 163,428     $ 8,777     $     $ 172,205  
  Product revenues   21,798     89,120         110,918  
Total revenues   $ 185,226     $ 97,897     $     $ 283,123  
Operating expenses                
  Operating costs     134,640       86,062           220,702  
  Operating depreciation and amortization     4,590       4,188           8,778  
Profit before corporate selling, general, and administrative expenses   $ 45,996     $ 7,647     $     $ 53,643  
Selling, general, and administrative expenses             33,185       33,185  
Depreciation and amortization from SG&A             2,300       2,300  
Total selling, general, and administrative expenses           $ 35,485     $ 35,485  
Other expense - net             983       983  
Operating income                 17,175  
Interest expense – net             742       742  
Income before income taxes               $ 16,433  

Heritage-Crystal Clean, Inc.  
Reconciliation of our Net Income Determined in Accordance with U.S. GAAP to Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) and to Adjusted EBITDA  
(Unaudited)  
                       
        Third Quarter Ended,   First Three Quarters Ended,  
                       
(thousands)     September 7, 2019   September 8, 2018   September 7, 2019   September 8, 2018  
Net income     $ 6,056     $ 6,419     $ 10,792     $ 12,437    
                       
Interest expense – net   181     256     629     742    
                       
Provision for income taxes   2,246     2,284     3,411     3,996    
                       
Depreciation and amortization   3,980     3,776     12,176     11,078    
                       
EBITDA (a)     $ 12,463     $ 12,735     $ 27,008     $ 28,253    
                       
Adoption of ASC 842 lease accounting standard(b)           2,202        
                       
Non-cash compensation (c)   1,022     1,190     2,744     3,060    
                     
Retirement costs and severance (d)   80         746     639    
                   
Costs and asset write-offs associated with site closures (e)   1,020     186     2,530     695    
                   
Implementation costs of ASC 842(f)           355        
                   
Adjusted EBITDA (g)   $ 14,585     $ 14,111     $ 35,585     $ 32,647    
                       
(a) EBITDA represents net income before provision for income taxes, interest income, interest expense, depreciation and amortization. We have presented EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by analysts, investors, our lenders, and other interested parties in the evaluation of companies in our industry. Management uses EBITDA as a measurement tool for evaluating our actual operating performance compared to budget and prior periods. Other companies in our industry may calculate EBITDA differently than we do. EBITDA is not a measure of performance under U.S. GAAP and should not be considered as a substitute for net income prepared in accordance with U.S. GAAP. EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:  
                     
EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;  
   
EBITDA does not reflect interest expense or the cash requirements necessary to service interest or principal payments on our debt;  
                     
EBITDA does not reflect tax expense or the cash requirements necessary to pay for tax obligations; and          
   
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements.  
   
We compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA only as a supplement.  
           
(b) Revenue deferred during the first quarter from the adoption of ASC 842 lease accounting standard.  
     
(c) Non-cash compensation expenses which are recorded in SG&A.  
     
(d) Costs associated with the retirement of our former SVP Sales and other employee separations.  
     
(e) Costs and asset write-offs mainly associated with the closure of the Company’s facility located in Wilmington, Delaware.  
     
(f) One-time cost associated with the implementation of ASC 842.  
     
(g) We have presented Adjusted EBITDA because we consider it an important supplemental measure of our performance and believe it may be used by analysts, investors, our lenders, and other interested parties in the evaluation of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do. Adjusted EBITDA is not a measure of performance under U.S. GAAP and should not be considered as a substitute for net income prepared in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP.  

USE OF NON-GAAP FINANCIAL MEASURES  
       
Reconciliation of our Net Income and Net Income Per Share Determined in Accordance with U.S. GAAP to our Non-GAAP Adjusted Net Income and Non-GAAP Adjusted Diluted Income Per Share  
       
Adjusted net income and adjusted net income per share are non-GAAP financial measures. Non-GAAP financial measures should be considered in addition to, but not as substitute for, financial measures prepared in accordance with GAAP. Management believes that adjusted net income and adjusted net income per share provides investors and management useful information about the income impact from the asset write-offs and other costs associated with site closures for the third quarter of 2019 compared to the third quarter of 2018.  
 
   
      Third Quarter Ended,  
             
(in thousands, except per share amounts)   September 7, 2019   September 8, 2018  
             
GAAP net income     $ 6,056     $ 6,419    
             
Costs and asset write-offs associated with site closures 1,020     185    
             
Net tax effect of items above   (263 )   (47 )  
             
Adjusted net income     $ 6,813     $ 6,557    
             
GAAP diluted income per share   $ 0.25     $ 0.27    
             
Costs and asset write-offs associated with site closuresper share 0.04     0.01    
             
Net tax effect per share of items above (0.01 )      
             
Adjusted diluted net income per share   $ 0.28     $ 0.28    
             

 

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