Heritage-Crystal Clean, Inc. Announces 2019 Fourth Quarter and Full Year Financial Results

March 2, 2020 5:01 PM EST

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Fourth Quarter Highlights:

  • Total Company revenue for the fourth quarter of 2019 was a record $138.8 million, a 9.3% increase from the prior year quarter
  • Environmental Services segment revenue was a record $96.9 million, a 12.8% increase compared to the prior year quarter
  • Oil Business Segment revenue for the fourth quarter of 2019 was a record $42.0 million

Full Year Highlights:

  • Total Company revenue for fiscal 2019 was a record $444.4 million, an 8.3% increase over 2018
  • Environmental Services segment 2019 revenue was a record $302.5 million, an increase of 11.6% compared to the prior year
  • Environmental Services segment profit before SG&A was a record $75.7 million, an increase of $6.3 million compared to the prior year
  • Oil Business Segment 2019 revenue was a record $141.9 million

ELGIN, Ill., March 02, 2020 (GLOBE NEWSWIRE) -- Heritage-Crystal Clean, Inc. (Nasdaq: HCCI), a leading provider of parts cleaning, hazardous and non-hazardous waste services, used oil re-refining, antifreeze recycling and field services primarily focused on small and mid-sized customers, today announced results for the fourth quarter of fiscal 2019 and for the full fiscal year, which ended December 28, 2019.

Fourth Quarter Review

Revenue for the fourth quarter of 2019 was $138.8 million compared to $127.1 million for the same quarter of 2018, an increase of 9.3%.

Operating margin increased to 18.6% from 16.1% in the fourth quarter of 2018 mainly due to higher revenue along with lower shutdown maintenance and catalyst costs at our re-refinery, partially offset by higher disposal, healthcare and fleet repair costs compared to the year-ago quarter. Our SG&A expense as a percentage of revenue dropped to 12.1% from 12.2% of revenue in the fourth quarter of 2018 mainly due to higher revenue, lower professional services fees, and lower share based compensation expense.

During the fourth quarter of 2019, the Company entered into a settlement to resolve claims made against us in a class action litigation pertaining to fuel surcharges. This brings to a close litigation which began almost five years ago. In conjunction with the settlement the Company took a charge of $11.0 million which negatively impacted diluted earnings per share by $0.35.

Net loss attributable to common shareholders was $(2.2) million, or $(0.09) per diluted share, for the fourth quarter of 2019. This compares to net income attributable to common shareholders of $2.5 million, or $0.11 per diluted share in the year earlier quarter. Excluding the settlement charge discussed above, net income attributable to common shareholders was $6.1 million or $0.26 per diluted share. See our reconciliations of Net (loss) income and Net (loss) income per share below.

Fiscal 2019 Review

In 2019, we generated $444.4 million of revenue compared to prior year revenue of $410.2 million, an increase of $34.2 million, or 8.3%, driven by strong growth in all of our Environmental Services segment businesses.

Operating margin of 18.1% remained flat compared to 2018 as higher revenue was partially offset by higher healthcare, fleet repair and disposal costs. SG&A expense for fiscal 2019 was 12.2% of revenue, down slightly from 12.4% in fiscal 2018.

Net income attributable to common shareholders for fiscal 2019 was $8.4 million, or $0.36 per diluted share compared to net income of $14.7 million, or $0.63 per diluted share for fiscal 2018. Excluding the charge resulting from the aforementioned settlement, net income attributable to common shareholders for the year was $16.8 million, or $0.72 per diluted share.

Segments

Our Environmental Services segment includes parts cleaning, containerized waste, vacuum services, antifreeze recycling, and field services. The Environmental Services segment reported record revenue of $96.9 million, an increase of $11.0 million, or 12.8%, during the quarter compared to the fourth quarter of fiscal 2018. The increase in revenue was driven mainly by strong growth in our field services, containerized waste, and antifreeze recycling businesses. Our profit before SG&A expense as a percentage of revenue was 25.1% compared to 27.3% in the year ago quarter. Higher healthcare, fleet repair and disposal costs all contributed to the decline in operating margin. During fiscal 2019, Environmental Services segment revenue increased $31.4 million, or 11.6%, compared to fiscal 2018, while our profit before SG&A increased $6.3 million or 9.1%.

President and CEO Brian Recatto commented, "We are very pleased to deliver another quarter of double-digit year-over-year revenue growth in this segment which underscores the execution of our sales growth initiatives. We expect to continue this momentum in 2020."

Our Oil Business segment includes used oil collection activities, sales of recycled fuel oil, and re-refining activities. During the fourth quarter of fiscal 2019, Oil Business revenues increased 1.9% to $42.0 million compared to the fourth quarter of fiscal 2018. Oil Business segment operating margin improved 10.6 percentage points to 3.5% in the fourth quarter of 2019 compared to (7.1%) during the same period of 2018. The increase in margin was mainly due to less re-refinery downtime which led to lower shut-down expenses as well as lower catalyst costs compared to the year-ago quarter. Full year 2019 revenue was up $2.8 million compared to fiscal 2018, while operating margin of 3.3% was slightly below that of fiscal 2018.

Recatto commented, "We were able to deliver significant improvement in operating margin during the quarter compared to the fourth quarter of 2018 due to record base oil production which helped offset lower base oil prices. With consistent operation of our re-refinery, we have the opportunity to generate improved operating margin in the Oil Business segment during 2020."

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, including a drop in the price of crude oil, the selling price of lubricating base oil, solvent, fuel, energy, and commodity costs; 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 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; the impact of legal proceedings and class action litigation on us and our ability to estimate the cash payments we will make under litigation settlements; our ability to effectively manage our network of branch locations; the control of The Heritage Group over the Company; and the risks identified in the Company's Annual Report on Form 10-K filed with the SEC on March 6, 2019. 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 to small and mid-sized customers in both the manufacturing and vehicle service sectors. Our service programs include parts cleaning, containerized waste management, used oil collection and re-refining, vacuum truck services and waste antifreeze collection and recycling. 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 manufacturers, such as metal product fabricators and printers. 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. 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 Tuesday, March 3, 2020 at 9:30 AM Central Time, during which management will make 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 available information 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)
(Unaudited)

 December 28,
2019
 December 29,
2018
ASSETS   
Current Assets:   
Cash and cash equivalents$60,694  $43,579 
Accounts receivable - net55,586  51,744 
Inventory - net29,373  33,059 
Other current assets7,104  6,835 
Total current assets152,757  135,217 
Property, plant and equipment - net154,911  139,987 
Right of use assets89,525   
Equipment at customers - net24,232  23,814 
Software and intangible assets - net16,892  14,681 
Goodwill32,997  34,123 
Total assets$471,314  $347,822 
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current Liabilities:   
Accounts payable$38,058  $32,630 
Current portion of lease liabilities20,407   
Contract liabilities - net2,252  166 
Accrued salaries, wages, and benefits6,771  6,024 
Taxes payable6,538  6,120 
Other current liabilities16,418  5,089 
Total current liabilities90,444  50,029 
Lease liabilities, net of current portion68,734   
Long-term debt, less current maturities29,348  29,046 
Deferred income taxes17,157  14,516 
Total liabilities$205,683  $93,591 
    
STOCKHOLDERS' EQUITY:   
Common stock - 26,000,000 shares authorized at $0.01 par value, 23,191,498 and 23,058,584 shares issued and outstanding at December 28, 2019 and December 29, 2018, respectively$232  $231 
Additional paid-in capital200,583  197,533 
Retained earnings64,182  55,819 
Total Heritage-Crystal Clean, Inc. stockholders' equity264,997  253,583 
Noncontrolling interest634  648 
Total equity265,631  254,231 
Total liabilities and stockholders' equity$471,314  $347,822 
    

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

   For the Fourth Quarters Ended, For the Fiscal Years Ended,
   December 28,
2019
 December 29,
2018
 December 28,
2019
 December 29,
2018
          
Revenues        
 Service revenues $78,969  $78,057  $250,491  $250,262 
 Product revenues 52,149  49,002  171,273  159,921 
 Rental income 7,696    22,663   
Total revenues $138,814  $127,059  $444,427  $410,183 
          
Operating expenses        
 Operating costs $108,154  $102,462  $349,603  $323,165 
 Selling, general, and administrative expenses 15,545  14,529  50,224  47,714 
 Depreciation and amortization 6,072  5,079  18,249  16,157 
 Other expense - net 11,013  623  13,490  1,606 
Operating (loss) income (1,970) 4,366  12,861  21,541 
Interest expense – net 240  310  869  1,052 
(Loss) income before income taxes (2,210) 4,056  11,992  20,489 
(Benefit of) provision for income taxes (168) 1,455  3,243  5,451 
Net (loss) income $(2,042) $2,601  $8,749  $15,038 
Income attributable to noncontrolling interest 108  97  386  310 
(Loss) income attributable to Heritage-Crystal Clean, Inc. common stockholders $(2,150) $2,504  $8,363  $14,728 
         
Net (loss) income per share: basic $(0.09) $0.11  $0.36  $0.64 
Net (loss) income per share: diluted $(0.09) $0.11  $0.36  $0.63 
         
Number of weighted average shares outstanding: basic 23,190  23,056  23,160  23,026 
Number of weighted average shares outstanding: diluted 23,190  23,411  23,398  23,334 
             

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

For the Fourth Quarters Ended,
 
December 28, 2019
   Environmental
Services
 Oil Business Corporate
and

Eliminations
 Consolidated
          
Revenues        
 Service revenues $75,257  $3,712  $  $78,969 
 Product revenues 13,984  38,165    52,149 
 Rental income 7,617  79    7,696 
Total revenues $96,858  $41,956  $  $138,814 
Operating expenses        
 Operating costs 70,016  38,138    108,154 
 Operating depreciation and amortization 2,515  2,349    4,864 
Profit before corporate selling, general, and administrative expenses $24,327  $1,469  $  $25,796 
Selling, general, and administrative expenses     15,545  15,545 
Depreciation and amortization from SG&A     1,208  1,208 
Total selling, general, and administrative expenses     $16,753  $16,753 
Other expense - net     11,013  11,013 
Operating loss       (1,970)
Interest expense - net     240  240 
Loss before income taxes       $(2,210)
          
December 29, 2018
   Environmental
Services
 Oil Business Corporate
and

Eliminations
 Consolidated
          
Revenues        
 Service revenues $74,377  $3,680  $  $78,057 
 Product revenues 11,526  37,476    49,002 
Total revenues $85,903  $41,156  $  $127,059 
Operating expenses        
 Operating costs 60,318  42,144    102,462 
 Operating depreciation and amortization 2,175  1,954    4,129 
Profit (loss) before corporate selling, general, and administrative expenses $23,410  $(2,942) $  $20,468 
Selling, general, and administrative expenses     14,529  14,529 
Depreciation and amortization from SG&A     950  950 
Total selling, general, and administrative expenses     $15,479  $15,479 
Other expense - net     623  623 
Operating income       4,366 
Interest expense - net     310  310 
Income before income taxes       $4,056 


For the Fiscal Years Ended,
 
December 28, 2019
   Environmental
Services
 Oil Business Corporate
and

Eliminations
 Consolidated
          
Revenues        
 Service revenues $236,530  $13,961  $  $250,491 
 Product revenues 43,605  127,668    171,273 
 Rental income 22,408  255    22,663 
Total revenues $302,543  $141,884  $  $444,427 
Operating expenses        
 Operating costs 219,040  130,563    349,603 
 Operating depreciation and amortization 7,768  6,656    14,424 
Profit before corporate selling, general, and administrative expenses $75,735  $4,665  $  $80,400 
Selling, general, and administrative expenses     50,224  50,224 
Depreciation and amortization from SG&A     3,825  3,825 
Total selling, general, and administrative expenses     $54,049  $54,049 
Other expense - net     13,490  13,490 
Operating income       12,861 
Interest expense - net     869  869 
Income before income taxes       $11,992 


December 29, 2018
   Environmental
Services
 Oil Business Corporate
and

Eliminations
 Consolidated
          
Revenues        
 Service revenues $237,806  $12,456  $  $250,262 
 Product revenues 33,325  126,596    159,921 
Total revenues $271,131  $139,052  $  $410,183 
Operating expenses        
 Operating costs 194,959  128,206    323,165 
 Operating depreciation and amortization 6,766  6,141    12,907 
Profit before corporate selling, general, and administrative expenses $69,406  $4,705  $  $74,111 
Selling, general, and administrative expenses     47,714  47,714 
Depreciation and amortization from SG&A     3,250  3,250 
Total selling, general, and administrative expenses     $50,964  $50,964 
Other expense - net     1,606  1,606 
Operating income       21,541 
Interest expense - net     1,052  1,052 
Income before income taxes       $20,489 
           


Heritage-Crystal Clean, Inc. 
Reconciliation of our Net (Loss) Income Determined in Accordance with U.S. GAAP to Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) and Adjusted EBITDA 
(Unaudited) 
  
   For the Fourth Quarters Ended, For the Fiscal Years Ended, 
           
(thousands) December 28,
2019
 December 29,
2018
 December 28,
2019
 December 29,
2018
 
           
Net (loss) income $(2,042) $2,601  $8,749  $15,038  
          
Interest expense - net 240  310  869  1,052  
          
(Benefit of) provision for income taxes (168) 1,455  3,243  5,451  
          
Depreciation and amortization 6,072  5,079  18,249  16,157  
          
EBITDA(a) $4,102  $9,445  $31,110  $37,698  
          
Class action settlement and associated legal fees(b) 11,093  144  11,327  962  
           
Non-cash compensation (c) 1,232  1,321  3,976  4,381  
Cost and asset write-offs associated with site closures (d) 195  271  2,726  966  
           
Retirement costs and severance (e) 79  67  825  706  
           
Adoption of ASC 842 lease accounting standard (f)     2,202    
           
Implementation cost of 842 (g)     355    
Adjusted EBITDA (h) $16,701  $11,248  $52,521  $44,713  
           
(a)EBITDA represents net (loss) 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 (loss) 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)Class action settlement and associated legal fees incurred. Amounts in fiscal 2018 only represent legal fees. 
   
(c)Non-Cash compensation expenses which are recorded in SG&A. 
   
(d)Cost and asset write-offs mainly associated with the closure of the Company’s facility located in Wilmington, Delaware. 
   
(e)Costs associated with the retirement of our former SVP Sales and other employee separations. 
           
(f)Revenue deferred during the first quarter of 2019 from the adoption of ASC 842 lease accounting standard. 
           
(g)One-time cost associated with the implementation of ASC 842. 
   
(h)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 (loss) 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 (loss) earnings and adjusted net (loss) earnings 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 (loss) earnings and adjusted net (loss) earnings per share provide investors and management useful information about the earnings impact of the class action settlement during the fourth quarter of 2019. 
 
           
Reconciliation of our Net (Loss) Earnings and Net (Loss) 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 data) 
(Unaudited) 
           
   For the Fourth Quarters Ended, For the Fiscal Years Ended, 
           
   December 28,
2019
 December 29,
2018
 December 28,
2019
 December 29,
2018
 
           
GAAP net (loss) earnings $(2,150)  $2,504   $8,363   $14,728   
           
Class action settlement and associated legal fees (a)  11,093   144   11,327   962   
Tax effect on settlement and associated legal fees  (2,812)  (52)  (2,867)  (256)  
           
Cost and asset write-offs associated with site closures (b)  195   271   2,726   966   
Tax effect on cost and asset write-offs associated with site closures (49)  (71)  (689)  (247)  
           
Retirement costs and severance (c)  79   67   825   706   
Tax effect on retirement costs and severance  (20)     (215)  (180)  
           
Adoption of ASC 842 lease accounting standard(d)        2,202      
Tax effect on adoption of ASC 842        (553)     
           
Implementation cost of 842(e)        355      
Tax effect on implementation of ASC 842        (92)     
           
Adjusted net earnings  $6,336   $2,863   $21,382   $16,679   
           
GAAP diluted (loss) earnings per share $(0.09)  $0.11   $0.36   $0.63   
           
Class action settlement cost and associated legal fees per share 0.47   0.01   0.48   0.04   
Tax effect on class action settlement costs and associated legal fees per share (0.12)     (0.12)  (0.01)  
           
Cost and asset write-offs associated with site closures per share 0.01   0.01   0.12   0.04   
Tax effect on cost and asset write-offs associated with site closures per share       (0.03)  (0.01)  
           
Retirement costs and severance per share        0.04   0.03   
Tax effect on retirement and severance per share        (0.01)  (0.01)  
           
Adoption of ASC 842 lease accounting standard per share       0.09      
Tax effect on adoption of ASC 842 per share        (0.03)     
           
Implementation cost of 842 per share        0.02      
Tax effect on implementation of ASC 842 per share              
           
Adjusted diluted earnings per share $0.27   $0.13   $0.92   $0.71   
           
(a) Class action settlement and associated legal fees incurred. Amounts in fiscal 2018 only represent legal fees.     
           
(b) Cost and asset write-offs mainly associated with the closure of the Company’s facility located in Wilmington, Delaware. 
           
(c) Costs associated with the retirement of our former SVP Sales and other employee separations.     
      
(d) Revenue deferred during the first quarter of 2019 from the adoption of ASC 842 lease accounting standard.  
           
(e) One-time cost associated with the implementation of ASC 842.  

 



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