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Heritage-Crystal Clean, Inc. Announces 2017 Third Quarter Financial Results

/EIN News/ -- Highlights:

  • Third quarter 2017 diluted earnings per share was $0.20 compared to diluted earnings per share of $0.10 in the third quarter of 2016. Excluding a non-recurring gain and severance costs described below, our diluted earnings per share would have been $0.15.
  • Revenues for the third quarter increased 1.8%, or $1.5 million, compared to the same quarter of 2016.
  • Environmental Services revenues increased 7.3%, or $3.8 million, compared to the third quarter of 2016.
  • EBITDA was $11.8 million in the third quarter compared to EBITDA of $8.0 million in the third quarter of 2016. Excluding a non-recurring gain and severance costs, our third quarter EBITDA would have been $10.6 million.

ELGIN, Ill., Oct. 18, 2017 (GLOBE NEWSWIRE) -- Heritage-Crystal Clean, Inc. (Nasdaq:HCCI), a leading provider of parts cleaning, used oil re-refining, and hazardous and non-hazardous waste services primarily focused on small and mid-sized customers, today announced results for the third quarter which ended September 9, 2017.

Third Quarter Review

Revenues for the third quarter of 2017 were $83.3 million compared to $81.9 million for the same quarter of 2016, an increase of 1.8%.

Operating margin decreased to 19.6% compared to 20.5% in the third quarter of 2016 as both of our reporting segments experienced higher costs in certain areas. Our third quarter SG&A expense as a percentage of revenue remained flat at 14.2% compared to the third quarter of 2016 as we incurred higher severance and compensation expenses which were offset by significantly lower legal fees compared to the prior year.

Net income attributable to common shareholders for the third quarter was $4.7 million compared to net income attributable to common shareholders of $2.3 million in the year earlier quarter. Basic earnings per share was $0.21 in the third quarter of fiscal 2017 compared to basic earnings per share of $0.10 in the third quarter of fiscal 2016. Pre-tax income during the third quarter of 2017 includes a $3.1 million gain on the sale of property, partially offset by $1.2 million of severance cost from the departure of our Chief Operating Officer during the third quarter.

Segments

Our Environmental Services segment includes parts cleaning, containerized waste, vacuum services, antifreeze recycling, and field services. Environmental Services revenue was $55.0 million during the quarter compared to $51.3 million during the third quarter of fiscal 2016 as the Company saw growth in all of our services lines except for our field services business during the quarter.  Environmental Services operating margin was 27.2% compared to 29.4% in 2016. The decline in operating margin was primarily due to higher labor costs due to the addition of sales and service resources along with higher solvent and workers' compensation expense, partly offset by lower disposal costs.

President and CEO Brian Recatto commented, "We are pleased with the growth rate achieved in this segment during the quarter and we continue to invest the resources required to drive additional growth."

Our Oil Business segment includes used oil collection activities, sales of recycled fuel oil, and re-refining activities. During the third quarter of fiscal 2017, Oil Business revenues decreased 7.5% to $28.3 million compared to $30.6 million in the third quarter of fiscal 2016. Oil Business segment operating margin was 4.9% in the third quarter of 2017 compared to 5.7% in the third quarter of fiscal 2016. During the third quarter of fiscal 2017 rail service issues with one of our vendors negatively impacted our Oil Business revenues by approximately $1.0 million and negatively impacted operating profit in this segment by approximately $0.5 million. Additionally, incremental expenses due to a planned, extended shutdown at our re-refinery negatively impacted Oil Business operating profit by approximately $0.4 million during the quarter.

Brian Recatto commented, "Despite additional costs associated with a scheduled, extended shutdown during the beginning of our third quarter and logistical challenges caused by railroad service disruptions, we were still able to generate operating margin of almost 5%. The capital improvements completed during the shutdown should allow us to reduce future downtime and improve profitability."

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 3, 2017 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 83 branches serving over 90,000 customer locations.

Conference Call

The Company will host a conference call on Thursday, October 19, 2017 at 9:30 AM Central Time, during which management will give a brief presentation focusing on the Company's operations and financial results.  Interested parties can listen to the audio webcast available through our company website, http://crystal-clean.com/investor-relations/ and can participate in the call by dialing (720) 545-0014.

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

CONTACT

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


Heritage-Crystal Clean, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Par Value Amounts)
(Unaudited)
 
    September 9,
 2017
  December 31,
 2016
ASSETS        
Current Assets:        
Cash and cash equivalents   $ 33,452     $ 36,610  
Accounts receivable - net   45,881     47,533  
Inventory - net   20,934     18,558  
Other current assets   6,832     6,094  
Total Current Assets   107,099     108,795  
Property, plant and equipment - net   128,123     131,175  
Equipment at customers - net   23,052     23,033  
Software and intangible assets - net   17,607     19,821  
Goodwill   31,580     31,483  
Total Assets   $ 307,461     $ 314,307  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current Liabilities:        
Accounts payable   $ 26,730     $ 30,984  
Current maturities of long-term debt       6,936  
Accrued salaries, wages, and benefits   5,693     6,312  
Taxes payable   7,601     6,729  
Other current liabilities   2,725     3,245  
Total Current Liabilities   42,749     54,206  
Long-term debt, less current maturities   28,651     56,518  
Deferred income taxes   13,210     5,314  
Total Liabilities   $ 84,610     $ 116,038  
         
STOCKHOLDERS' EQUITY:        
Common stock - 26,000,000 shares authorized at $0.01 par value, 22,879,830 and 22,300,007 shares issued and outstanding at September 9, 2017 and December 31, 2016, respectively   $ 229     $ 223  
Additional paid-in capital   192,416     185,099  
Retained earnings   29,638     12,227  
Total Heritage-Crystal Clean, Inc. Stockholders' Equity   222,283     197,549  
Noncontrolling interest   568     720  
Total Equity   $ 222,851     $ 198,269  
Total Liabilities and Stockholders' Equity   $ 307,461     $ 314,307  


Heritage-Crystal Clean, Inc.
Condensed Consolidated Statements of Income
(In Thousands, Except per Share Amounts)
(Unaudited)
 
    Third Quarters Ended,   First Three Quarters Ended,
    September 9,
 2017
  September 10,
 2016
  September 9,
 2017
  September 10,
 2016
                 
Revenues                
Product revenues   $ 29,283     $ 27,182     $ 88,095     $ 75,582  
Service revenues   54,048     54,690     162,071     165,295  
Total revenues   $ 83,331     $ 81,872     $ 250,166     $ 240,877  
                 
Operating expenses                
Operating costs   $ 63,649     $ 61,695     $ 188,210     $ 187,654  
Selling, general, and administrative expenses   10,955     10,726     33,871     34,455  
Depreciation and amortization   4,186     4,196     12,501     12,442  
Other (income) expense - net   (3,078 )   1,439     (11,112 )   1,238  
Operating income   7,619     3,816     26,696     5,088  
Interest expense – net   276     463     775     1,432  
Income before income taxes   7,343     3,353     25,921     3,656  
Provision for income taxes   2,586     942     9,361     1,140  
Net income   4,757     2,411     16,560     2,516  
Income attributable to noncontrolling interest   53     76     158     117  
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders    $ 4,704     $ 2,335     $ 16,402     $ 2,399  
                 
Net income per share: basic   $ 0.21     $ 0.10     $ 0.73     $ 0.11  
Net income per share: diluted   $ 0.20     $ 0.10     $ 0.72     $ 0.11  
                 
Number of weighted average shares outstanding: basic   22,686     22,267     22,515     22,246  
Number of weighted average shares outstanding: diluted   22,970     22,550     22,813     22,417  



Heritage-Crystal Clean, Inc.
Reconciliation of Operating Segment Information
(Unaudited)
 
Third Quarter Ended,
September 9, 2017
(thousands)  

Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
Revenues                
Product revenues   $ 5,623     $ 23,660     $     $ 29,283  
Service revenues   49,419     4,629         54,048  
Total revenues   $ 55,042     $ 28,289     $     $ 83,331  
Operating expenses                
Operating costs   38,298     25,351         63,649  
Operating depreciation and amortization   1,794     1,555         3,349  
Profit before corporate selling, general, and administrative expenses   $ 14,950     $ 1,383     $     $ 16,333  
Selling, general, and administrative expenses           10,955     10,955  
Depreciation and amortization from SG&A           837     837  
Total selling, general, and administrative expenses           $ 11,792     $ 11,792  
Other (income) - net           (3,078 )   (3,078 )
Operating income               7,619  
Interest expense – net           276     276  
Income before income taxes               $ 7,343  


Third Quarter Ended,
September 10, 2016
(thousands)  

Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
Revenues                
Product revenues   $ 4,691     $ 22,491     $     $ 27,182  
Service revenues   46,591     8,099         54,690  
Total revenues   $ 51,282     $ 30,590     $     $ 81,872  
Operating expenses                
Operating costs   34,456     27,239         61,695  
Operating depreciation and amortization   1,742     1,618         3,360  
Profit before corporate selling, general, and administrative expenses   $ 15,084     $ 1,733     $     $ 16,817  
Selling, general, and administrative expenses           10,726     10,726  
Depreciation and amortization from SG&A           836     836  
Total selling, general, and administrative expenses           $ 11,562     $ 11,562  
Other (income) - net           1,439     1,439  
Operating income               3,816  
Interest expense – net           463     463  
Income before income taxes               $ 3,353  


First Three Quarters Ended,
September 9, 2017
(Thousands)  

Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
                 
Revenues                
Product revenues   $ 17,215     $ 70,880         $ 88,095  
Service revenues   146,135     15,936         162,071  
Total revenues   $ 163,350     $ 86,816     $     $ 250,166  
Operating expenses                
Operating costs   111,419     76,791         188,210  
Operating depreciation and amortization   5,341     4,624         9,965  
Profit before corporate selling, general, and administrative expenses   $ 46,590     $ 5,401     $     $ 51,991  
Selling, general, and administrative expenses           33,871     33,871  
Depreciation and amortization from SG&A           2,536     2,536  
Total selling, general, and administrative expenses           $ 36,407     $ 36,407  
Other (income) - net           (11,112 )   (11,112 )
Operating income               26,696  
Interest expense – net           775     775  
Income before income taxes               $ 25,921  


First Three Quarters Ended,
September 10, 2016
(Thousands)  

Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
                 
Revenues                
Product revenues   $ 14,826     $ 60,756     $     $ 75,582  
Service revenues   141,254     24,041         165,295  
Total revenues   $ 156,080     $ 84,797     $     $ 240,877  
Operating expenses                
Operating costs   106,892     80,762         187,654  
Operating depreciation and amortization   5,166     4,789         9,955  
Profit (loss) before corporate selling, general, and administrative expenses   $ 44,022     $ (754 )   $     $ 43,268  
Selling, general, and administrative expenses           34,455     34,455  
Depreciation and amortization from SG&A           2,487     2,487  
Total selling, general, and administrative expenses           $ 36,942     $ 36,942  
Other expense - net           1,238     1,238  
Operating income               5,088  
Interest expense – net           1,432     1,432  
Income before income taxes               $ 3,656  


Heritage-Crystal Clean, Inc.  
Reconciliation of our Net Income Determined in Accordance with U.S. GAAP to Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) and to Adjusted EBITDA  
(Unaudited)  
                     
      Third Quarter Ended,   First Three Quarters Ended,  
                     
(thousands)   September 9,
2017
  September 10,
2016
  September 9,
2017
  September 10,
2016
 
Net income   $ 4,757     $ 2,411     $ 16,560     $ 2,516    
                     
Interest expense - net   276     463     775     1,432    
                     
Provision for income taxes   2,586     942     9,361     1,140    
                     
Depreciation and amortization 4,186     4,196     12,501     12,442    
                     
EBITDA (a)   $ 11,805     $ 8,012     $ 39,197     $ 17,530    
                     
Legal Fees (b)       1,805     727     5,044    
                     
Fines and Restitution (c)       1,579         1,579    
                     
Non-cash compensation (d)   616     138     1,962     897    
                     
Inventory write down(e)                 1,651    
                   
Gain on sale of property(f)   (3,071 )       (3,071 )      
                   
Severance of COO(g)   1,221         1,221        
                   
Gain from Arbitration award(h)           (5,136 )      
                   
Gain from settlement with sellers of FCCE(i)           (3,600 )        
                   
                   
Adjusted EBITDA(j)   $ 10,571     $ 11,534     $ 31,300     $ 26,701    
                     
(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) Fines and restitution related to activities at FCC Environmental and International Petroleum Corp. prior to our acquisition of these companies.
 
     
(d) Non-cash compensation expenses which are recorded in SG&A   
     
(e) The write down of inventory values resulted in lower carrying costs for certain types of inventories.  Depending on various factors, it is possible that these lower inventory values may result in lower cost of sales in future periods and thereby positively impact profitability in future periods.  
           
(f) Gain from having sold a facility located in Pompano Beach, Florida.        
     
(g) Severance charges related to the departure of our COO.  
     
(h) Gain from partial award for claims made in our arbitration related to our acquisition of FCC Environmental and International Petroleum Corp. in 2014.
 
     
(i) Settlement of disputes related to the acquisition of FCC Environmental and International Petroleum Corp. of Delaware.
 
     
(j) 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 third fiscal quarter of 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  
(Dollars in thousands, except per share data)  
   
             
      Third Quarter Ended,  
             
      September 9,
2017
  September 10,
2016
 
             
GAAP net earnings     $ 4,704     $ 2,335    
             
Gain on sale of property     (3,071 )      
             
Severance of COO     1,221        
             
Legal fees         1,805    
             
Restitution     1,059    
             
Fines         520    
             
             
Net tax effect of items above     691     (774 )  
             
Adjusted net earnings     $ 3,545     $ 4,945    
             
GAAP diluted earnings per share   $ 0.20     $ 0.10    
             
Gain on sale of property per share     (0.13 )      
             
Severance of COO per share     0.05        
             
Legal fees per share         0.08    
             
Restitution per share         0.05    
             
Fines per share     0.02    
             
           
Net tax effect per share of items above   0.03     (0.03 )  
             
Adjusted diluted earnings per share   $ 0.15     $ 0.22    
             


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