July 25, 2018 - 5:00 PM EDT
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Heritage-Crystal Clean, Inc. Announces 2018 Second Quarter Financial Results

Highlights:

  • Revenue for the second quarter was $100.3 million which represents a record high for a 12-week quarter and an increase of 16.1%, or $13.9 million, compared to the same quarter of 2017.
     
  • Environmental Services segment second quarter revenue of $64.4 million represents growth of 17.0% compared to the second quarter of 2017 and is a record high for a 12-week quarter.
     
  • Oil Business segment operating margin was a record high of $4.7 million, or 13.0%, on revenue of $35.9 million in the second quarter.
     
  • EBITDA for the second quarter was $12.2 million.
     
  • Adjusted EBITDA of $13.7 million represents a record for a 12-week quarter.
     
  • Diluted earnings per share for the second quarter was $0.26, and adjusted diluted earnings per share of $0.27 is a record for a 12-week quarter.

ELGIN, Ill., July 25, 2018 (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 second quarter which ended June 16, 2018.

Second Quarter Review

Revenues for the second quarter of 2018 were $100.3 million compared to $86.4 million for the same quarter of 2017, an increase of 16.1%.

Operating margin decreased to 21.1% compared to 22.9% in the second quarter of 2017 mainly driven by higher costs in our Environmental Services segment. Our second quarter SG&A expense as a percentage of revenue decreased to 12.3% compared to 13.2% for the second quarter of 2017 mainly driven by higher revenue, partially offset by higher severance and share-based compensation expense.

Net income attributable to common shareholders for the second quarter was $6.0 million compared to net income attributable to common shareholders of $6.9 million in the year earlier quarter. Basic earnings per share was $0.26 in the second quarter of fiscal 2018 compared to basic earnings per share of $0.31 in the second quarter of fiscal 2017. Earnings during the second quarter of 2017 were favorably impacted by a settlement with the sellers of FCC Environmental of $3.6 million on a pre-tax basis and $0.11 per diluted share on an after tax basis.

Segments

Our Environmental Services segment includes parts cleaning, containerized waste, vacuum services, antifreeze recycling, and field services. Environmental Services revenue was $64.4 million during the quarter compared to $55.1 million during the second quarter of fiscal 2017. The increase in revenue was driven by growth in all of our service lines with the strongest growth in field services. Environmental Services operating margin was 25.6% compared to 30.3% in 2017, but increased from 23.1% in the first quarter of 2018. As outlined in our first quarter 2018 earnings conference call, the decline in operating margin was primarily due to higher disposal and labor costs during the quarter.

President and CEO Brian Recatto commented, "We are very excited about the record revenue our branch sales and service team produced during the second quarter. As anticipated, we improved our operating margin in the Environmental Services segment compared to the first quarter of 2018. We continue to work toward our goal of bringing operating margins back to the level experienced during the second half of 2017."

Our Oil Business segment includes used oil collection activities, sales of recycled fuel oil, and re-refining activities. During the second quarter of fiscal 2018, Oil Business revenues increased 14.6% to $35.9 million compared to $31.3 million in the second quarter of fiscal 2017. The increase in revenue was due to stronger base oil pricing and higher volumes of base oil gallons sold. Oil Business segment operating margin was 13.0% in the second quarter of 2018 compared to 9.9% in the second quarter of fiscal 2017. Higher operating margin was due to improved catalyst utilization, and better leveraging of labor and maintenance costs as a result of record base oil production at our re-refinery.

Recatto commented, "During the second quarter, record breaking production at our re-refinery allowed us to generate the highest Oil Business segment operating margin since we began producing base oil at the re-refinery."

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 that 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 1, 2018 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 89 branches serving over 90,000 customer locations.

Conference Call

The Company will host a conference call on Thursday, July 26, 2018 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)

  June 16,
 2018
 December 30,
 2017
ASSETS    
Current Assets:    
Cash and cash equivalents $41,831  $41,889 
Accounts receivable - net 53,907  45,491 
Inventory - net 26,931  21,639 
Other current assets 5,040  5,895 
Total Current Assets 127,709  114,914 
Property, plant and equipment - net 131,555  128,119 
Equipment at customers - net 23,851  23,312 
Software and intangible assets - net 15,905  16,732 
Goodwill 34,125  31,580 
Total Assets $333,145  $314,657 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current Liabilities:    
Accounts payable $35,166  $25,568 
Contract liabilities - net 208   
Accrued salaries, wages, and benefits 4,181  6,386 
Taxes payable 6,475  5,787 
Other current liabilities 4,521  2,690 
Total Current Liabilities 50,551  40,431 
Long-term debt 28,884  28,744 
Deferred income taxes 11,260  9,556 
Total Liabilities $90,695  $78,731 
     
STOCKHOLDERS' EQUITY:    
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,042,972 and 22,891,674 shares issued and outstanding at June 16, 2018 and December 30, 2017, respectively $230  $229 
Additional paid-in capital 194,774  193,640 
Retained earnings 46,970  41,359 
Total Heritage-Crystal Clean, Inc. Stockholders' Equity 241,974  235,228 
Noncontrolling interest 476  698 
Total Equity $242,450  $235,926 
Total Liabilities and Stockholders' Equity $333,145  $314,657 
 

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

   Second Quarter Ended, First Half Ended,
   June 16,
 2018
 June 17,
 2017
 June 16,
 2018
 June 17,
 2017
          
Revenues        
 Product revenues $40,289  $31,832  $69,299  $58,812 
 Service revenues 60,014  54,550  114,151  108,023 
Total revenues $100,303  $86,382  $183,450  $166,835 
          
Operating expenses        
 Operating costs $76,272  $63,270  $144,658  $124,560 
 Selling, general, and administrative expenses 11,522  10,575  22,544  22,916 
 Depreciation and amortization 3,659  4,184  7,302  8,316 
 Other expense (income) - net 341  (3,027) 729  (8,033)
Operating income 8,509  11,380  8,217  19,076 
Interest expense – net 240  412  486  499 
Income before income taxes 8,269  10,968  7,731  18,577 
Provision for income taxes 2,149  3,982  1,713  6,774 
Net income 6,120  6,986  6,018  11,803 
Income attributable to noncontrolling interest 121  52  139  105 
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders $5,999  $6,934  $5,879  $11,698 
         
Net income per share: basic $0.26  $0.31  $0.26  $0.52 
Net income per share: diluted $0.26  $0.30  $0.25  $0.51 
         
Number of weighted average shares outstanding: basic 23,029  22,506  22,995  22,430 
Number of weighted average shares outstanding: diluted 23,361  22,832  23,246  22,729 
 

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

Second Quarter Ended,
June 16, 2018
 
(thousands)  Environmental
Services
 Oil Business Corporate and
Eliminations
 Consolidated
Revenues        
 Product revenues $7,521  $32,768  $  $40,289 
 Service revenues 56,924
  3,090
     60,014
 
Total revenues $64,445  $35,858  $  $100,303 
Operating expenses                
 Operating costs 46,456
   29,816      76,272 
 Operating depreciation and amortization 1,502
   1,389     2,891
 
Profit before corporate selling, general, and administrative expenses $16,487  $4,653  $  $21,140 
Selling, general, and administrative expenses          11,522   11,522 
Depreciation and amortization from SG&A         768
  768
 
Total selling, general, and administrative expenses         $12,290  $12,290 
Other expense - net         341
   341 
Operating income              8,509 
Interest expense – net         240
  240
 
Income before income taxes             $8,269 


Second Quarter Ended,
June 17, 2017
 
(thousands)  Environmental
Services
 Oil Business Corporate and
Eliminations
 Consolidated
Revenues        
 Product revenues $5,868  $25,964  $  $31,832 
 Service revenues 49,225
  5,325
    54,550 
Total revenues $55,093  $31,289  $  $86,382 
Operating expenses            
 Operating costs  36,601   26,669    63,270 
 Operating depreciation and amortization 1,801
  1,535
    3,336 
Profit before corporate selling, general, and administrative expenses $16,691  $3,085  $  $19,776 
Selling, general, and administrative expenses     10,575  10,575 
Depreciation and amortization from SG&A     848  848 
Total selling, general, and administrative expenses     $11,423  $11,423 
Other (income) - net     (3,027) (3,027)
Operating income       11,380 
Interest expense – net     412  412 
Income before income taxes       $10,968 


First Half Ended,
June 16, 2018
 
(thousands) Environmental
Services
 Oil Business Corporate and
Eliminations
 Consolidated
          
Revenues        
 Product revenues $13,964  $55,335  $  $69,299 
 Service revenues 107,956
  6,195
     114,151
 
Total revenues $121,920  $61,530  $  $183,450 
Operating expenses                
 Operating costs  89,181   55,477      144,658 
 Operating depreciation and amortization 2,992
  2,777
  
  5,769
 
Profit before corporate selling, general, and administrative expenses $29,747  $3,276  $  $33,023 
Selling, general, and administrative expenses          22,544   22,544 
Depreciation and amortization from SG&A         1,533
   1,533 
Total selling, general, and administrative expenses         $24,077  $24,077 
Other expense - net         729
  729
 
Operating income              8,217 
Interest expense – net         486
  486
 
Income before income taxes             $7,731 


First Half Ended,
June 17, 2017
(thousands)  

Environmental
Services
 Oil Business Corporate and
Eliminations
 Consolidated
          
Revenues        
 Product revenues $11,592  $47,220  $  $58,812 
 Service revenues 96,716  11,307    108,023 
Total revenues $108,308  $58,527  $  $166,835 
Operating expenses            
 Operating costs 73,121  51,439    124,560 
 Operating depreciation and amortization 3,547  3,070    6,617 
Profit before corporate selling, general, and administrative expenses $31,640  $4,018  $  $35,658 
Selling, general, and administrative expenses     22,916  22,916 
Depreciation and amortization from SG&A     1,699  1,699 
Total selling, general, and administrative expenses     $24,615  $24,615 
Other (income) - net     (8,033) (8,033)
Operating income       19,076 
Interest expense – net     499  499 
Income before income taxes       $18,577 


 
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)
           
    Second Quarter Ended, First Half Ended,
           
(thousands) June 16, 2018 June 17, 2017 June 16, 2018 June 17, 2017
Net income  $6,120  $6,986  $6,018  $11,803 
           
Interest expense - net 240  412  486  499 
           
Provision for income taxes 2,149  3,982  1,713  6,774 
           
Depreciation and amortization 3,659  4,184  7,302  8,316 
           
EBITDA (a)  $12,168  $15,564  $15,519  $27,392 
           
Non-cash compensation (b) 1,042  679  1,869  1,346 
           
Gain from Arbitration award (c)       (5,136)
          
Gain from settlement with sellers of FCCE (d)   (3,600)   (3,600)
         
Severance (e) 532  186  659  181 
         
Adjusted EBITDA (f) $13,742  $12,829  $18,047  $20,183 
           
(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)Non-cash compensation expenses which are recorded in SG&A.
  
(c)Gain from partial award for claims made in our arbitration related to our acquisition of FCC Environmental and International Petroleum Corp. in 2014.
  
(d)Settlement of disputes related to the acquisition of FCC Environmental and International Petroleum Corp. of Delaware.
  
(e)Severance charges related to employee separations.
  
(f)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 
    
Adjusted net earnings (loss) and adjusted net earnings (loss) 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 earnings and adjusted net earnings per share provide investors and management useful information about the earnings impact of the settlement received in the second fiscal quarter of 2018 and 2017. 
 
       
Reconciliation of our Net Earnings and Net Earnings Per Share Determined in Accordance with U.S. GAAP to our Non-GAAP Adjusted Net Earnings and Non-GAAP Adjusted Net Earnings Per Share 
(In thousands, except per share amounts) 
  
   Second Quarter Ended, 
       
   June 16, 2018 June 17, 2017 
       
GAAP net earnings  $6,120  $6,986  
       
Severance (a)  532  186  
       
Net tax effect on severance (138) (68) 
       
Gain from settlement with sellers of FCCE (b)  (3,600) 
       
Net tax effect of Gain from settlement with sellers of FCCE  1,172  
       
Adjusted net earnings  $6,514  $4,676  
       
GAAP diluted earnings per share $0.26  $0.30  
       
Severance per share 0.02  0.01  
       
Net tax effect per share of severance (0.01)   
     
Gain from settlement with sellers of FCCE  (0.16) 
      
Net tax effect per share on Gain from settlement with sellers of FCCE  0.05  
       
Adjusted diluted earnings per share $0.27  $0.20  
       
(a) Severance charges related to employee separations. 
       
(b) Settlement from the acquisition of FCC Environmental and International Petroleum Corp. of Delaware. 

 

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Source: GlobeNewswire (July 25, 2018 - 5:00 PM EDT)

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