• Heritage-Crystal Clean, Inc. Announces 2018 Fourth Quarter and Full Year Financial Results

    Source: Nasdaq GlobeNewswire / 05 Mar 2019 22:15:08   Europe/London

    Fourth Quarter Highlights:

    • Environmental Services segment revenue was a record $85.9 million, a 15.0% increase compared to the fourth quarter of 2017
    • Environmental Services segment profit before corporate selling, general, and administrative expenses increased $3.1 million, or 15.3%, compared to the fourth quarter of 2017

    Full Year Highlights:

    • Total Company revenue for fiscal 2018 was a record $410.2 million, a 12.1% increase over 2017
    • Environmental Services segment 2018 revenue was a record $271.1 million, an increase of 13.9% compared to 2017

    ELGIN, Ill., March 05, 2019 (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 2018 and for the full fiscal year, which ended December 29, 2018.

    Fourth Quarter Review

    Revenue for the fourth quarter of 2018 was $127.1 million compared to $115.8 million for the same quarter of 2017, an increase of 9.7%.

    Operating margin decreased to 16.1% from 20.4% in the fourth quarter of 2017 as higher revenue in our Environmental Services segment was more than offset by higher shutdown maintenance, higher transportation, and higher labor costs along with a decrease in base oil spread compared to the year-ago quarter. Our SG&A expense as a percentage of revenue was 12.2% for the fourth quarter, slightly lower than 12.7% of revenue in the fourth quarter of 2017 mainly due to higher revenue and lower incentive compensation, partially offset by a reduction in tax reserves in the fourth quarter of 2017.

    Net income attributable to common shareholders was $2.5 million, or $0.11 a diluted share, for the fourth quarter of 2018. This compares to net income attributable to common shareholders of $11.7 million, or $0.51 a diluted share in the year earlier quarter which included a tax reform benefit of $6.2 million, or $0.27 a diluted share.

    Fiscal 2018 Review

    In 2018, we generated $410.2 million of revenue compared to prior year revenue of $366.0 million, an increase of $44.2 million, or 12.1%, driven by strong growth in our Environmental Services segment.

    Operating margin decreased to 18.1% in fiscal 2018 compared to 20.6% in fiscal 2017. The decline in profitability is due to higher labor, transportation, and disposal costs, along with higher re-refinery shutdown and maintenance costs which outpaced our revenue growth compared to fiscal 2017. SG&A expense for fiscal 2018 was 11.6% of revenue, down from 13.0% in fiscal 2017, mainly due to higher revenue and lower legal expenses year over year.

    Net income attributable to common shareholders for fiscal 2018 was $14.7 million, or $0.63 a diluted share, compared to net income of $28.1 million, or $1.23 a diluted share, for fiscal 2017. On an adjusted basis, fiscal 2018 net income was flat compared to fiscal 2017 at $16.0 million, while earnings per share for fiscal 2018 was $0.68 a diluted share compared to $0.70 a diluted share for fiscal 2017.

    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 $85.9 million, an increase of $11.2 million, or 15.0%, during the quarter compared to the fourth quarter of fiscal 2017. The increase in revenue was driven mainly by double digit growth in our field services, antifreeze, containerized waste, vacuum services and aqueous parts cleaning businesses. During fiscal 2018, Environmental Services segment revenue increased $33.1 million, or 13.9%, compared to fiscal 2017.

    President and CEO Brian Recatto commented, "We're proud of our performance in the Environmental Services segment during the fourth quarter. We not only delivered double-digit year over year revenue growth without any significantly large field services projects, but we were also able to achieve an operating margin of 27.3%."

    Our Oil Business segment includes used oil collection activities, sales of recycled fuel oil, and re-refining activities. During the fourth quarter of fiscal 2018, Oil Business revenues were flat at $41.2 million compared to the fourth quarter of fiscal 2017 mainly due to a planned, extended shut-down at our re-finery and the resulting negative impact on production. Oil Business segment operating margin fell to (7.1%) in the fourth quarter of 2018 compared to 7.9% during the same period of 2017 mainly due to higher shut-down expenses which drove higher logistics costs, along with an increase in the cost of used oil feedstock which was only partially offset by higher selling prices for our Oil Business products. Full year 2018 revenue was up $11.2 million compared to fiscal 2017, while operating margin for the year was 3.4% compared to 6.8% for fiscal 2017.

    Recatto commented, "As expected, we experienced higher than normal maintenance costs and lower production due to our planned re-refinery shutdown at the beginning of the fourth quarter. On a positive note, we were able to complete equipment upgrades during the shutdown which should allow us to operate the re-refinery more effectively going forward. Unfortunately, during the second half of the fourth quarter, the market for base oil was in an oversupplied position which caused a decline in our base oil netback. We reacted by beginning to bring down the cost of our feedstock to try and offset the narrowing of our spread. While we still have work to do, we are currently back in a charge-for-oil position for used oil collection and we are confident in our ability to operate the re-refinery at higher levels during fiscal 2019."

    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; 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 1, 2018. 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 Wednesday, March 6, 2019 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 29,
     2018
     December 30,
     2017
    ASSETS   
    Current Assets:   
    Cash and cash equivalents$43,579  $41,889 
    Accounts receivable - net51,744  45,491 
    Inventory - net33,059  21,639 
    Other current assets6,835  5,895 
    Total Current Assets135,217  114,914 
    Property, plant and equipment - net139,987  128,119 
    Equipment at customers - net23,814  23,312 
    Software and intangible assets - net14,681  16,732 
    Goodwill34,123  31,580 
    Total Assets$347,822  $314,657 
        
    LIABILITIES AND STOCKHOLDERS' EQUITY   
    Current Liabilities:   
    Accounts payable$32,630  $25,568 
    Contract liabilities - net166   
    Accrued salaries, wages, and benefits6,024  6,386 
    Taxes payable6,120  5,787 
    Other current liabilities5,089  2,690 
    Total current liabilities50,029  40,431 
    Term loan, less current maturities - net29,046  28,744 
    Deferred income taxes14,516  9,556 
    Total liabilities$93,591  $78,731 
        
    STOCKHOLDERS' EQUITY:   
    Common stock - 26,000,000 shares authorized at $0.01 par value, 23,058,584 and 22,891,674 shares issued and outstanding at December 29, 2018 and December 30, 2017, respectively$231  $229 
    Additional paid-in capital197,533  193,640 
    Retained earnings55,819  41,359 
    Total Heritage-Crystal Clean, Inc. stockholders' equity253,583  235,228 
    Noncontrolling interest648  698 
    Total equity254,231  235,926 
    Total liabilities and stockholders' equity$347,822  $314,657 
            


    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 29,
     2018
     December 30,
     2017
     December 29,
     2018
     December 30,
     2017
             
    Revenues        
     Service revenues $78,057  $71,928  $250,262  $233,999 
     Product revenues 49,002  43,863  159,921  131,958 
    Total revenues $127,059  $115,791  $410,183  $365,957 
              
    Operating expenses        
     Operating costs $102,462  $87,892  $323,165  $276,102 
     Selling, general, and administrative expenses 14,529  13,530  47,714  47,401 
     Depreciation and amortization 5,079  5,465  16,157  17,967 
     Other expense (income) - net 623  172  1,606  (10,940)
    Operating income 4,366  8,732  21,541  35,427 
    Interest expense – net 310  320  1,052  1,094 
    Income before income taxes 4,056  8,412  20,489  34,333 
    Provision for (benefit of) income taxes 1,455  (3,438) 5,451  5,923 
    Net income $2,601  $11,850  $15,038  $28,410 
    Income attributable to noncontrolling interest 97  130  310  287 
    Income attributable to Heritage-Crystal Clean, Inc. common stockholders $2,504  $11,720  $14,728  $28,123 
             
    Net income per share: basic $0.11  $0.51  $0.64  $1.24 
    Net income per share: diluted $0.11  $0.51  $0.63  $1.23 
             
    Number of weighted average shares outstanding: basic 23,056  22,887  23,026  22,662 
    Number of weighted average shares outstanding: diluted 23,411  23,099  23,334  22,922 
                 


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

    For the Fourth Quarters Ended,
     
    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 
             
             
    December 30, 2017
     
       Environmental
    Services
     Oil Business Corporate and
    Eliminations
     Consolidated
             
             
    Revenues        
     Service revenues $66,748  $5,180  $  $71,928 
     Product revenues 7,957  35,906    43,863 
    Total revenues $
    74,705  $41,086  $  $115,791 
    Operating expenses        
     Operating costs 52,214  35,678    87,892 
     Operating depreciation and amortization 2,185  2,150    4,335 
    Profit before corporate selling, general, and administrative expenses $
    20,306  $3,258  $  $23,564 
    Selling, general, and administrative expenses     13,530  13,530 
    Depreciation and amortization from SG&A     1,130  1,130 
    Total selling, general, and administrative expenses     $14,660  $14,660 
    Other expense - net     172  172 
    Operating income       8,732 
    Interest expense - net     320  320 
    Income before income taxes       $8,412 


    For the Fiscal Years Ended,
     
    December 29, 2018
       Environmental
    Services
     Oil Business Corporate and
    Eliminations
     Consolidated
              
             
    Revenues        
     Service revenues $237,806  $12,456  $  $250,262 
     Product revenues 33,324  126,597    159,921 
    Total revenues $271,130  $139,053  $  $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 $69,405  $4,706  $  $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 


     
    December 30, 2017
     
       Environmental
    Services
     Oil Business Corporate and
    Eliminations
     Consolidated
              
             
    Revenues        
     Service revenues $212,883  $21,116  $  $233,999 
     Product revenues 25,172  106,786    131,958 
    Total revenues $238,055  $127,902  $  $365,957 
    Operating expenses        
     Operating costs 163,633  112,469    276,102 
     Operating depreciation and amortization 7,526  6,776    14,302 
    Profit before corporate selling, general, and administrative expenses $66,896  $8,657  $  $75,553 
    Selling, general, and administrative expenses     47,401  47,401 
    Depreciation and amortization from SG&A     3,665  3,665 
    Total selling, general, and administrative expenses     $51,066  $51,066 
    Other (income) - net     (10,940) (10,940)
    Operating income       35,427 
    Interest expense - net     1,094  1,094 
    Income before income taxes       $34,333 
               


    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 Adjusted EBITDA
    (Unaudited)
     
      For the Fourth Quarters Ended, For the Fiscal Years Ended,
             
    (thousands) December 29, 2018 December 30, 2017 December 29, 2018 December 30, 2017
                     
                     
    Net income $2,601  $11,850  $15,038  $28,410 
             
    Interest expense - net 310  320  1,052  1,094 
             
    Provision for (benefit of) income taxes 1,455  (3,438) 5,451  5,923 
             
    Depreciation and amortization 5,079  5,465  16,157  17,967 
             
    EBITDA(a) $9,445  $14,197  $37,698  $53,394 
             
    Legal Fees (b)       727 
             
    Non-cash compensation (c) 1,321  1,074  4,381  3,036 
             
    Gain on sale of property (d)       (3,071)
             
    Severance (e) 67    706  1,221 
             
    Gain from Arbitration award and FCC Settlement (f)       (8,736)
             
    Site Closure Costs (g) 271  622  966  622 
             
    Adjusted EBITDA (h) $11,104  $15,893  $43,751  $47,193 
             


    (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) Legal fees incurred to resolve routine and non-routine matters stemming from the acquisition of FCC Environmental and International Petroleum Corp.
       
    (c) Non-Cash compensation expenses which are recorded in SG&A.
       
    (d) Gain from having sold a facility located in Pompano Beach, Florida.
       
    (e) Severance charges related to the departure of our former COO (2017).
       
    (f) Gains from partial award for claims made in our arbitration related to our acquisition of FCC Environmental and International Petroleum Corp. in 2014 and settlement of disputes related to the acquisition of FCC Environmental and International Petroleum Corp. of Delaware.
       
    (g) Costs primarily associated with closure of the Company’s facility located in Wilmington, Delaware.
       
    (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 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 and adjusted net 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 earnings and adjusted net earnings per share provide investors and management useful information about the earnings impact of certain severance and related costs.
     
    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
    (Dollars in thousands, except per share data)
    (Unaudited)
              
       Fourth Quarters Ended, Fiscal Years Ended,
     
            
       December 29,
    2018
     December 30,
    2017
     December 29,
    2018
     December 30,
    2017
     
     
            
    GAAP net earnings $2,504  $11,720  $14,728  $28,123  
               
    Site Closure costs (a) 271  622  966  622  
    Tax effect on site closure costs (71) (218) (247) (232) 
               
    Severance of certain employees (b)      706    
    Tax effect on severance      (180)   
               
    Tax reform benefit of deferred tax liability (c)   (6,155)   (6,155) 
               
    Gain from Arbitration Award(d)       (5,136) 
              
    Interest income from Arbitration Award       (409) 
              
    Extraordinary Legal fees(e)       784  
               
    Gain from settlement with sellers of FCCE(f)       (3,600) 
              
    Gain on sale from property(g)       (3,071) 
              
    Severance of COO(h)       1,221  
               
    Net tax effect of items above        3,815  
               
    Adjusted net earnings  $2,704  $5,969  $15,973  $15,962  
               
    GAAP diluted earnings per share $0.11  $0.51  $0.63  $1.23  
               
    Site closure costs per share 0.01  0.03  0.04  0.03  
    Tax effect on site closure costs per share   (0.01) (0.01) (0.01) 
               
    Severance of certain employees per share     0.03    
               
    Tax effect on severance of certain employees per share     (0.01)   
               
    Tax reform benefit of deferred tax liability per share   (0.27)   (0.27) 
               
    Gain from Arbitration Award per share       (0.22) 
              
    Interest income from Arbitration Award per share       (0.02) 
              
    Extraordinary Legal fees per share       0.03  
               
    Gain from settlement with sellers of FCCE per share       (0.16) 
               
    Gain on sale from property per share       (0.13) 
              
    Severance of COO per share       0.05  
              
    Net tax effect per share of items above       0.17  
               
    Adjusted diluted earnings per share $0.12  $0.26  $0.68  $0.70  
               
    (a) Costs primarily associated with closure of certain facilities of the Company. 
               
    (b) Severance due to retirement and other employee separations.     
          
    (c) Benefit from the revaluation of our net deferred income tax liability as a result of the new federal income tax law. 
      
    (d) Arbitration Award, interest income, and legal fess stemming from the acquisition of FCC Environmental and International Petroleum Corp. 
      
    e) Legal fees stemming from the acquisition of FCC Environmental. 
        
    (f) Settlement from the acquisition of FCC Environmental and International Petroleum Corp. of Delaware. 
      
    (g) Gain from having sold a facility located in Pompano Beach, Florida. 


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