July 24, 2019 - 4:30 PM EDT
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Heritage-Crystal Clean, Inc. Announces Record Second Quarter 2019 Financial Results

Second Quarter Highlights Include:

  • Revenue of $105.0 million, a second quarter record, was 4.7% higher than our second quarter of 2018.
     
  • Environmental Services segment revenue was also a second quarter record at $70.2 million, an increase of 8.9% compared to the second quarter of 2018.
     
  • Environmental Services segment profit before corporate selling, general, and administrative expenses was a 12-week quarter high of $19.0 million, compared to $16.5 million in the second quarter of 2018.
     
  • Net income of $7.1 million during the second quarter was a record high for a 12-week quarter.
     
  • Diluted earnings per share for the second quarter was $0.30 compared to $0.26 in the year-ago quarter.
     
  • EBITDA during the second quarter was $13.6 million.
     
  • Adjusted diluted income per share for the second quarter was $0.35, which represents a record high for a 12-week quarter.
     
  • Adjusted EBITDA was a record $15.9 million for the quarter compared to $13.9 million in the second quarter of 2018.

ELGIN, Ill., July 24, 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 second quarter which ended June 15, 2019.

Second Quarter Review

Revenue for the second quarter of 2019 was $105.0 million compared to $100.3 million for the same quarter of 2018, an increase of 4.7%.

Operating margin increased to 21.8% compared to 21.1% in the second quarter of 2018 primarily as a result of improved operating results in our Environmental Services segment. Our second quarter SG&A expense was 11.2% of revenue which is approximately 100 basis points lower than the same period in 2018 mainly driven by higher revenue and lower severance costs, partially offset by higher bad debt expense.

Net income attributable to common shareholders for the second quarter was $7.1 million compared to net income attributable to common shareholders of $6.0 million in the year earlier quarter. Diluted earnings per share was  $0.30 compared to diluted earnings per share of $0.26 in the year-ago quarter. Excluding the impact of site closure costs incurred during the quarter, second quarter adjusted diluted earnings per share was $0.35.

Segments

Our Environmental Services segment includes parts cleaning, containerized waste, vacuum services, antifreeze recycling, and field services. Environmental Services revenue was $70.2 million during the quarter compared to $64.4 million during the second quarter of fiscal 2018. The 8.9% increase in revenue was driven by growth in most of our product and service lines with the antifreeze, vacuum, and containerized waste businesses being the largest contributors to growth. Excluding the impact of a large field services project from our second quarter 2018 results, our organic revenue growth in the segment during the second quarter 2019 was 11.3%. Environmental Services profit before corporate selling, general, and administrative expenses was $19.0 million, or 27.0% of revenue, compared to $16.5 million, or 25.6% of revenue, in the year-ago quarter. The $2.5 million increase was mainly driven by higher revenue along with lower disposal costs, partially offset by higher labor costs.

President and CEO Brian Recatto commented, "The second quarter represents the sixth-straight quarter of high single or double-digit revenue growth in our Environmental Services segment. This continued strong growth and improved cost management resulted in record operating profit for a 12-week quarter."

Our Oil Business segment includes used oil collection activities, re-refining activities, and sales of recycled fuel oil. During the second quarter of fiscal 2019, Oil Business revenues decreased (2.9)% to $34.8 million compared to $35.9 million in the second 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 11.2% in the second quarter of 2019 compared to 13.0% in the second quarter of fiscal 2018. The lower operating margin compared to the second 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 encouraged by the vast improvement in oil business profitability compared to the first quarter and the overall double-digit operating margin percentage. This strong performance was mainly due to higher base oil selling prices compared to the first quarter, and record production at our re-refinery during the second quarter."

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 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 91 branches serving over 95,000 customer locations.

Conference Call

The Company will host a conference call on Thursday, July 25, 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)

  June 15,
2019
 December 29,
2018
     
ASSETS    
Current assets:    
Cash and cash equivalents $52,168  $43,579 
Accounts receivable - net 54,976  51,744 
Inventory - net 29,052  33,059 
Other current assets 7,422  6,835 
Total current assets 143,618  135,217 
Property, plant and equipment - net 145,599  139,987 
Right of use assets 70,160   
Equipment at customers - net 23,866  23,814 
Software and intangible assets - net 16,756  14,681 
Goodwill 32,742  34,123 
Total assets $432,741  $347,822 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable $38,323  $32,630 
Current portion of lease liabilities 20,708   
Contract liabilities - net 2,371  166 
Accrued salaries, wages, and benefits 4,890  6,024 
Taxes payable 6,924  6,120 
Other current liabilities 5,670  5,089 
Total current liabilities 78,886  50,029 
Lease liabilities, net of current portion 49,894   
Long-term debt 29,186  29,046 
Deferred income taxes 15,666  14,516 
Total liabilities $173,632  $93,591 
     
STOCKHOLDERS' EQUITY:    
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,180,012 shares and 23,058,584 shares issued and outstanding at June 15, 2019 and December 29, 2018, respectively $232  $231 
Additional paid-in capital 198,074  197,533 
Retained earnings 60,363  55,819 
Total Heritage-Crystal Clean, Inc. stockholders' equity 258,669  253,583 
Noncontrolling interest 440  648 
Total equity 259,109  254,231 
Total liabilities and stockholders' equity $432,741  $347,822 
         

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

   Second Quarter Ended, First Half Ended,
   June 15,
2019
 June 16,
2018
 June 15,
2019
 June 16,
2018
          
Revenues        
 Service revenues $57,936  $60,014  $114,309  $114,151 
 Product revenues 41,302  40,289  77,160  69,299 
 Rental income 5,762    9,304   
Total revenues $105,000  $100,303  $200,773  $183,450 
          
Operating expenses        
 Operating costs $78,849  $76,272  $161,332  $144,658 
 Selling, general, and administrative expenses 11,042  11,522  23,438  22,544 
 Depreciation and amortization 4,061  3,659  8,196  7,302 
 Other expense - net 1,514  341  1,457  729 
Operating income 9,534  8,509  6,350  8,217 
Interest expense – net 219  240  449  486 
Income before income taxes 9,315  8,269  5,901  7,731 
Provision for income taxes 2,151  2,149  1,165  1,713 
Net income 7,164  6,120  4,736  6,018 
Income attributable to noncontrolling interest 108  121  192  139 
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders $7,056  $5,999  $4,544  $5,879 
         
Net income per share: basic $0.30  $0.26  $0.20  $0.26 
Net income per share: diluted $0.30  $0.26  $0.19  $0.25 
         
Number of weighted average shares outstanding: basic 23,137  23,029  23,127  22,995 
Number of weighted average shares outstanding: diluted 23,368  23,361  23,366  23,246 
             

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

Second Quarter Ended,
June 15, 2019
(thousands) Environmental
Services
 Oil Business Corporate and
Eliminations
 Consolidated
Revenues        
 Service revenues $54,332  $3,604  $  $57,936 
 Product revenues 10,178  31,124    41,302 
 Rental income 5,686  76    5,762 
Total revenues $70,196  $34,804  $  $105,000 
Operating expenses          
 Operating costs 49,374  29,475    78,849 
 Operating depreciation and amortization 1,872  1,436    3,308 
Profit before corporate selling, general, and administrative expenses $18,950  $3,893  $  $22,843 
Selling, general, and administrative expenses         11,042  11,042 
Depreciation and amortization from SG&A         753  753 
Total selling, general, and administrative expenses         $11,795  $11,795 
Other expense - net         1,514  1,514 
Operating income             9,534 
Interest expense – net         219  219 
Income before income taxes       $9,315 
           


Second Quarter Ended,
June 16, 2018
(thousands) 

Environmental
Services
 Oil Business Corporate and
Eliminations
 Consolidated
Revenues        
 Service revenues $56,924  $3,090  $  $60,014 
 Product revenues 7,521  32,768    40,289 
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 
           


          
First Half Ended,
June 15, 2019
 (thousands) 

Environmental
Services
 Oil Business Corporate and
Eliminations
 Consolidated
          
Revenues        
 Service revenues $107,207  $7,102  $  $114,309 
 Product revenues 20,315  56,845    77,160 
 Rental income 9,171  133    9,304 
Total revenues $136,693  $64,080  $  $200,773 
Operating expenses        
 Operating costs 99,538  61,794    161,332 
 Operating depreciation and amortization 3,508  2,868    6,376 
Profit (loss) before corporate selling, general, and administrative expenses $33,647  $(582) $  $33,065 
Selling, general, and administrative expenses     23,438  23,438 
Depreciation and amortization from SG&A     1,820  1,820 
Total selling, general, and administrative expenses     $25,258  $25,258 
Other expense - net     1,457  1,457 
Operating income         6,350 
Interest expense – net     449  449 
Income before income taxes       $5,901 
           


          
First Half Ended,
June 16, 2018
 (thousands) 

Environmental
Services
 Oil Business Corporate and
Eliminations
 Consolidated
          
Revenues        
 Service revenues $107,956  $6,195  $  $114,151 
 Product revenues 13,964  55,335    69,299 
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 
           


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 15,
2019
 June 16,
2018
 June 15,
2019
 June 16,
2018
 
Net income  $7,164  $6,120  $4,736  $6,018  
            
Interest expense – net 219  240  449  486  
            
Provision for income taxes 2,151  2,149  1,165  1,713  
            
Depreciation and amortization 4,061  3,659  8,196  7,302  
            
EBITDA (a)  $13,595  $12,168  $14,546  $15,519  
            
Adoption of ASC 842 lease accounting standard(b)

     2,202    
            
Non-cash compensation (c) 833  1,042  1,721  1,869  
           
Retirement costs and severance (d)   532  656  659  
          
Site closure costs (e) 1,510  184  1,510  509  
          
Implementation costs of ASC 842(f)     355    
          
Adjusted EBITDA (g) $15,938  $13,926  $20,990  $18,556  
            
(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) Cost associated with retirement of our former SVP Sales and other employee separations. 
   
(e) Costs 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 
    
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 site closure costs adjustment for the second quarter of 2019 compared to the second fiscal quarter of 2018. 
           
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 
(In thousands, except per share amounts) 
  
   Second Quarter Ended, 
       
   June 15, 2019 June 16, 2018 
       
GAAP net income  $7,164  $6,120  
       
Site Closure costs1,510  184  
       
Net tax effect of items above (355) (48) 
       
Adjusted net income  $8,319  $6,256  
       
GAAP diluted income per share $0.30  $0.26  
       
Site closure costs per share0.07  0.01  
       
Net tax effect per share of items above(0.02)   
       
Adjusted diluted net income per share $0.35  $0.27  
       

 

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Source: GlobeNewswire (July 24, 2019 - 4:30 PM EDT)

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