Heritage-Crystal Clean, Inc. Announces 2017 Fourth Quarter And Full Year Financial Results

Fourth Quarter Highlights:
  • Environmental Services segment revenue was a record $74.7 million, growth of 9.4% over 2016
  • Oil Business segment revenue was $41.1 million, and operating profit was a record of $3.3 million
  • EBITDA was $14.2 million and Adjusted EBITDA was $15.9 million, both records for a 16-week quarter

Full Year Highlights:
  • Total Company revenue for fiscal 2017 was a record $366.0 million, growth of 5.3% over 2016
  • EBITDA was $53.4 million and Adjusted EBITDA was $47.2 million, both record highs
  • Diluted earnings per share was a record $1.23 which includes a $0.27 per share impact from the revaluation of our net deferred income tax liability as a result of the new federal income tax law
  • Cash flow from operations was a record $45.3 million

ELGIN, Ill., Feb. 28, 2018 (GLOBE NEWSWIRE) -- Heritage-Crystal Clean, Inc. (Nasdaq:HCCI), a leading provider of parts cleaning, hazardous and non-hazardous waste services, and used oil re-refining primarily focused on small and mid-sized customers, today announced results for the fourth quarter of fiscal 2017 and for the full fiscal year, which ended December 30, 2017.

Fourth Quarter Review

Revenue for the fourth quarter of 2017 was $115.8 million compared to $106.7 million for the same quarter of 2016, an increase of 8.5%.

Operating margin decreased to 20.4% from 21.1% in the fourth quarter of 2016 as higher revenue in both segments was more than offset by higher labor and transportation costs compared to the year-ago quarter. Our SG&A expense as a percentage of revenue was 12.7% for the fourth quarter compared to 15.5% of revenue in the fourth quarter of 2016, mainly due to lower severance and incentive compensation costs.

Net income attributable to common shareholders for the fourth quarter was $11.7 million compared to net income attributable to common shareholders of $3.4 million in the year earlier quarter. Basic earnings per share was $0.51 in the fourth quarter of fiscal 2017 compared to earnings of $0.15 in the fourth quarter of fiscal 2016.

Fiscal 2017 Review

In 2017, we generated $366.0 million of revenue compared to prior year revenue of $347.6 million, an increase of $18.3 million or 5.3%, driven by growth in each of our segments.

Operating margin increased to 20.6% in fiscal 2017 compared to 18.9% in fiscal 2016. The improvement in profitability is due to significantly higher revenues in both segments and a significant improvement in our base oil spread, partially offset by higher labor costs, lower used oil collection charges, and higher transportation costs compared to fiscal 2016. SG&A expense for fiscal 2017 was 14.0% of revenue, down from 15.4% in fiscal 2016, mainly due to lower legal and bank fees year over year.

Net income attributable to common shareholders for fiscal 2017 was $28.1 million compared to net income of $5.8 million for fiscal 2016. Diluted earnings per share for fiscal 2017 was a record $1.23, compared to $0.26 in fiscal 2016. Brian Recatto, the Company's President and CEO commented, "Looking back at my first year as CEO of the company, I am proud of the challenges we have overcome and the record results we've produced as we look forward to continued success during fiscal 2018."

Segments

Our Environmental Services segment includes parts cleaning, containerized waste, vacuum services, antifreeze recycling, and field services. The Environmental Services segment recorded record revenue of $74.7 million, an increase of $6.4 million, or 9.4%, during the quarter compared to the fourth quarter of fiscal 2016. During fiscal 2017, the Environmental Services segment revenue increased $13.7 million, or 6.1%, compared to fiscal 2016. The increase in this segment was primarily driven by growth in our containerized waste, aqueous parts cleaning, vacuum services, and antifreeze businesses.

Recatto commented, "We are very proud of the strong results our sales team delivered during the fourth quarter and throughout fiscal 2017."

Our Oil Business segment includes used oil collection activities, sales of recycled fuel oil, and re-refining activities. During the fourth quarter of fiscal 2017, Oil Business revenues increased 6.8% to $41.1 million compared to $38.5 million in the fourth quarter of fiscal 2016. The revenue increase was mainly driven by higher pricing for our base oil products, partially offset by lower used oil collection charges. Oil Business segment operating margin was 7.9% in the fourth quarter of 2017 compared to 4.1% in the fourth quarter of fiscal 2016.

Recatto commented, "We are pleased that we were able to produce strong operating margin for the fourth quarter and record margin for the full fiscal year, driven by improved operating efficiency at our re-refinery and oil-spread management."

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 3, 2017. 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 86 branches serving approximately 90,000 customer locations.

Conference Call

The Company will host a conference call on Thursday, March 1, 2018 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://www.crystal-clean.com/investor/FinancialReleases.asp , 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.

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

Heritage-Crystal Clean, Inc.
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
 
  December 30,  2017   December 31,  2016
ASSETS      
Current Assets:      
Cash and cash equivalents $ 41,889     $ 36,610  
Accounts receivable - net 45,491     47,533  
Inventory - net 21,639     18,558  
Other current assets 5,895     6,094  
Total Current Assets 114,914     108,795  
Property, plant and equipment - net 128,119     131,175  
Equipment at customers - net 23,312     23,033  
Software and intangible assets - net 16,732     19,821  
Goodwill 31,580     31,483  
Total Assets $ 314,657     $ 314,307  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current Liabilities:      
Accounts payable $ 25,568     $ 30,984  
Current maturities of long-term debt and term loan     6,936  
Accrued salaries, wages, and benefits 6,386     6,312  
Taxes payable 5,787     6,729  
Other current liabilities 2,690     3,245  
Total Current Liabilities 40,431     54,206  
  Term loan, less current maturities - net 28,744     56,518  
  Deferred income taxes 9,556     5,314  
Total Liabilities $ 78,731     $ 116,038  
       
STOCKHOLDERS' EQUITY:      
Common stock $ 229     $ 223  
Additional paid-in capital 193,640     185,099  
Retained earnings 41,359     12,227  
Total Heritage-Crystal Clean, Inc. Stockholders' Equity 235,228     197,549  
Noncontrolling Interest 698     720  
Total Equity 235,926     198,269  
Total Liabilities and Stockholders' Equity $ 314,657     $ 314,307  

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 30,  2017   December 31,  2016   December 30,  2017   December 31,  2016
                   
Revenues                
  Product revenues   $ 43,863     $ 36,147     $ 131,958     $ 111,729  
  Service revenues   71,928     70,602     233,999     235,898  
Total revenues   $ 115,791     $ 106,749     $ 365,957     $ 347,627  
                   
Operating expenses                
  Operating costs   $ 87,892     $ 79,849     $ 276,102     $ 267,503  
  Selling, general, and administrative expenses   13,530     15,368     47,401     49,823  
  Depreciation and amortization   5,465     5,549     17,967     17,991  
  Other expense (income) - net   172     176     (10,940 )   1,416  
Operating income   8,732     5,807     35,427     10,894  
Interest expense - net   320     637     1,094     2,069  
Income before income taxes   8,412     5,170     34,333     8,825  
(Benefit of) provision for income taxes   (3,438 )   1,672     5,923     2,811  
Net income   $ 11,850     $ 3,498     $ 28,410     $ 6,014  
Income attributable to noncontrolling interest   130     55     287     172  
Income attributable to Heritage-Crystal Clean, Inc. common stockholders   $ 11,720     $ 3,443     $ 28,123     $ 5,842  
                 
                 
Net income per share: basic   $ 0.51     $ 0.15     $ 1.24     $ 0.26  
Net income per share: diluted   $ 0.51     $ 0.15     $ 1.23     $ 0.26  
                 
Number of weighted average shares outstanding: basic   22,887     22,285     22,662     22,258  
Number of weighted average shares outstanding: diluted   23,099     22,603     22,922     22,516  

Heritage-Crystal Clean, Inc.
Reconciliation of Operating Segment Information
(In Thousands)
(Unaudited)
 
For the Fourth Quarters Ended,
 
December 30, 2017
      Environmental Services   Oil Business   Corporate and Eliminations   Consolidated
                   
Revenues                
  Product revenues   $ 7,957     $ 35,906     $     $ 43,863  
  Service revenues   66,748     5,180           71,928  
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  
                   
December 31, 2016
        Environmental Services   Oil Business   Corporate and Eliminations   Consolidated
                   
Revenues                
  Product revenues   $ 7,056     $ 29,091     $     $ 36,147  
  Service revenues   61,242     9,360         70,602  
Total revenues   $ 68,298     $ 38,451     $     $ 106,749  
Operating expenses                
  Operating costs   44,968     34,881         79,849  
  Operating depreciation and amortization   2,350     1,996         4,346  
Profit before corporate selling, general, and administrative expenses   $ 20,980     $ 1,574     $     $ 22,554  
Selling, general, and administrative expenses           15,368     15,368  
Depreciation and amortization from SG&A           1,203     1,203  
Total selling, general, and administrative expenses           $ 16,571     $ 16,571  
Other expense - net           176     176  
Operating income               5,807  
Interest expense - net           637     637  
Income before income taxes               $ 5,170  

For the Fiscal Years Ended,
 
December 30, 2017
      Environmental Services   Oil Business   Corporate and Eliminations   Consolidated
                   
Revenues                
  Product revenues   $ 25,172     $ 106,786     $     $ 131,958  
  Service revenues   212,883     21,116         233,999  
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  

 
December 31, 2016
        Environmental Services   Oil Business   Corporate and Eliminations   Consolidated
                   
Revenues                
  Product revenues   $ 21,882     $ 89,847     $     $ 111,729  
  Service revenues   202,496     33,402         235,898  
Total revenues   $ 224,378     $ 123,249     $     $ 347,627  
Operating expenses                
  Operating costs   151,860     115,643         267,503  
  Operating depreciation and amortization   7,517     6,784         14,301  
Profit before corporate selling, general, and administrative expenses   $ 65,001     $ 822     $     $ 65,823  
Selling, general, and administrative expenses           49,823     49,823  
Depreciation and amortization from SG&A           3,690     3,690  
Total selling, general, and administrative expenses           $ 53,513     $ 53,513  
Other expense - net           1,416     1,416  
Operating income               10,894  
Interest expense - net           2,069     2,069  
Income before income taxes               $ 8,825  

 
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 30, 2017   December 31, 2016   December 30, 2017   December 31, 2016  
                     
Net income   $ 11,850     $ 3,498     $ 28,410     $ 6,014    
                     
Interest expense - net   320     637     1,094     2,069    
                     
(Benefit of) provision for income taxes   (3,438 )   1,672     5,923     2,811    
                     
Depreciation and amortization   5,465     5,549     17,967     17,991    
                     
EBITDA (a)   $ 14,197     $ 11,356     $ 53,394     $ 28,885    
                     
Legal Fees (b)       537     727     5,581    
                     
Fines and Restitution (c)               1,579    
                     
Non-cash compensation (d)   1,074     1,028     3,036     1,926    
                     
Inventory write-down (e)               1,651    
                     
Gain on sale of property (f)           (3,071 )      
                     
Severance (g)       1,231     1,221     1,231    
                     
Gain from Arbitration award and FCC Settlement (h)           (8,736 )      
                     
Site Closure Costs (i)   622         622        
                     
Adjusted EBITDA (j)   $ 15,893     $ 14,152     $ 47,193     $ 40,853    
                     
 (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 former CEO (2016) and former COO (2017).  
     
(h)  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.  
     
(i)  Costs associated with closure of the Company's facility located in Wilmington, 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 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 withU.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,  
             
      December 30,2017   December 31,2016  
             
GAAP net earnings     $ 11,720     $ 3,443    
             
Site Closure costs (a)     622        
Tax effect on site closure costs     (218 )      
             
Severance and related costs (b)         1,527    
Tax effect on severance and related costs         (494 )  
             
Tax reform benefit of deferred tax liability (c)     (6,155 )      
             
Adjusted net earnings     $ 5,969     $ 4,476    
             
GAAP diluted earnings per share   $ 0.51     $ 0.15    
             
Site closure costs per share   0.03        
Tax effect on site closure costs per share   (0.01 )      
             
Severance and related costs per share       0.07    
Tax effect on severance and related costs per share       (0.02 )  
             
Tax reform benefit of deferred tax liability per share     (0.27 )      
             
Adjusted diluted earnings per share   $ 0.26     $ 0.20    
             
(a) Costs associated with closure of the Company's facility located in Wilmington, Delaware.      
             
(b) Severance and related costs include severance and expenses for accelerated vesting of retiree restricted stock grants.      
             
(c) Benefit from the revaluation of our net deferred income tax liability as a result of the new federal income tax law.      

 

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