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Heritage-Crystal Clean, Inc. Announces 2016 Second Quarter Financial Results

ELGIN, Ill., July 27, 2016 (GLOBE NEWSWIRE) -- Heritage-Crystal Clean, Inc. (Nasdaq:HCCI), a leading provider of parts cleaning, used oil re-refining, and hazardous and non-hazardous waste services primarily focused on small and mid-sized customers, today announced results for the second quarter and first half of fiscal 2016, which ended June 18, 2016.

/EIN News/ -- Second quarter and first half highlights include:

  • Revenues decreased 2.9%, to $80.6 million, compared to $82.9 million in the second quarter of fiscal 2015.  Year-to-date revenues decreased 4.8%, to $159.0 million, compared to $167.0 million in the first half of fiscal 2015.  The year-over-year decrease in revenue was primarily due to the decline in oil product pricing, and specifically the approximate 27% decline in the market price for the type of base oil we sell.
     
  • Our 2016 second quarter EBITDA was $7.5 million, which represents a 263% increase over the first quarter of fiscal 2016.  For the first half of fiscal 2016, EBITDA decreased 17% to $9.5 million compared to the first half of 2015.
     
  • Our Environmental Services segment includes parts cleaning, containerized waste, and vacuum services.  During the second quarter, Environmental Services revenues decreased $0.5 million, or 1.0% compared to the second quarter of fiscal 2015.  Environmental Services revenues decreased $1.1 million, or 1.0%, for the first half of 2016 compared to the first half of 2015.
     
  • Same-branch revenues for our Environmental Services segment decreased 1.9% for the quarter, measured for the 80 branches that were in operation throughout both the second quarters of fiscal 2016 and 2015.  In the first half of fiscal 2016, same branch revenues decreased 0.4%.
     
  • Average revenues per working day in the second quarter of fiscal 2016 in our Environmental Services segment were approximately $890,000, compared to $900,000 in the second quarter of fiscal 2015. 
     
  • Our Oil Business segment includes used oil collection activities, sales of recycled fuel oil, and re-refining activities.  During the second quarter of fiscal 2016, Oil Business revenues decreased $1.9 million, to $28.1 million from $30.0 million in the second quarter of fiscal 2015.   During the first half of fiscal 2016, Oil Business revenues decreased $6.9 million, to $54.2 million from $61.1 million in the first half of fiscal 2015.  The revenue decrease was mainly due to lower selling prices for our base oil and RFO products, which was partially offset by higher base oil volume sales. The decline in revenue was further offset by increased revenue from used oil collection charges and stop fees of approximately $8.3 million during the first half of 2016.
     
  • During the second quarter of fiscal 2016, the average spot market price for the type of lubricating base oil we produce declined over 27% compared to the second quarter of fiscal 2015.  However, the average spot market price during the second quarter was up approximately 12% compared to the first quarter of fiscal 2016.
     
  • SG&A Expense for the second quarter of fiscal 2016 was $11.5 million compared to $10.6 million during the second quarter of fiscal 2015.  In the first half of fiscal 2016 SG&A expense was $23.7 million, compared to $21.7 million in the first half of fiscal 2015.  The increase in SG&A expense was due to unusually high legal expenses of $1.8 million during the second quarter of fiscal 2016 and $3.3 million for the first half of fiscal 2016.  The majority of these legal expenses pertain to matters stemming from our acquisition of FCC Environmental, including expenses incurred in connection with arbitration claims brought against the sellers of FCC Environmental in order to enforce our rights under the stock purchase agreement.  We are seeking reimbursement for legal fees incurred in these matters.
     
  • Net income for the second quarter was $1.8 million compared to $2.0 million for the year earlier quarter.  Income per share was $0.08 in the second quarter of fiscal 2016 compared to $0.09 in the second quarter of fiscal 2015.  Net income for the first half was $0.1 million compared to net income of $1.0 million for the first half of fiscal 2015.  Earnings per share was $0.00 in the first half of fiscal 2016 compared to net income per share of $0.05 in the first half of fiscal 2015. 

The Company's Founder, President, and Chief Executive Officer, Joe Chalhoub, commented, "We are pleased to report that during the second quarter we were able to generate positive operating margin in the Oil Business segment despite challenging commodity conditions at the beginning of the quarter.  This was the result of increased used oil collection charges and improved oil product pricing compared to the first quarter of fiscal 2016, as well as record base oil production at our re-refinery.  While the level of profitability during the second quarter was modest, if current conditions in our Oil Business segment continue, we expect to have an increase in profitability in this segment during the remainder of fiscal 2016."

Chalhoub added, "Even though we were not able to produce revenue growth in our Environmental Services segment, we were still able to generate a healthy operating margin of 28.8% during the second quarter.  The lack of revenue growth was due, in part, to a decline in activity at customers in, and related to, the energy sector.  We anticipate we will again generate growth in this segment by the fourth quarter of fiscal 2016."

Mark DeVita, Chief Financial Officer stated, "During the second quarter of 2016, the profit before corporate SG&A expense in our Oil Business segment was 1.6% compared to a loss before corporate SG&A expense of (11.2)% in the first quarter of 2016.  This improvement was primarily driven by an $0.08 per gallon increase in our average selling price for base oil along with an increase of approximately $0.04 per gallon in the average price charged to used oil generators for collection of their used oil. "

DeVita added, "Our profit before corporate SG&A expense in the Environmental Services segment increased 1.0% to 27.6% for the first half of fiscal 2016 compared to the first half of 2015."

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 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; our ability to realize the anticipated benefits from our used oil re-refinery expansion within the expected time period, or at all; 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 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 16, 2016 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 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, waste antifreeze collection and recycling, 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 and mid-sized 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 81 branches serving over 100,000 customer locations.

Conference Call

The Company will host a conference call on Thursday, July 28, 2016 at 7:30 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.


 
Heritage-Crystal Clean, Inc.
Condensed Consolidated Balance Sheets
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Par Value Amounts)
(Unaudited)
 
    June 18,
 2016
  January 2,
 2016
ASSETS        
Current Assets:        
Cash and cash equivalents   $ 25,325     $ 23,608  
Accounts receivable - net   43,487     41,592  
Inventory - net   21,553     24,774  
Other current assets   6,578     4,810  
Total Current Assets   96,943     94,784  
Property, plant and equipment - net   130,997     131,365  
Equipment at customers - net   23,148     23,172  
Software and intangible assets - net   21,539     22,202  
Goodwill   31,511     30,325  
Total Assets   $ 304,138     $ 301,848  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current Liabilities:        
Accounts payable   $ 25,116     $ 25,129  
Current maturities of long-term debt   6,659     6,700  
Accrued salaries, wages, and benefits   4,775     4,330  
Taxes payable   7,223     6,735  
Other current liabilities   5,310     3,617  
Total Current Liabilities   49,083     46,511  
Long term debt, less current maturities   61,426     62,778  
Deferred income taxes   2,843     2,726  
Total Liabilities   $ 113,352     $ 112,015  
         
STOCKHOLDERS' EQUITY:        
Common stock - 26,000,000 shares authorized at $0.01 par value, 22,259,042 and 22,213,364 shares issued and outstanding at June 18, 2016 and January 2, 2016, respectively   $ 223     $ 222  
Additional paid-in capital   183,525     182,558  
Retained earnings   6,449     6,385  
Total Heritage-Crystal Clean, Inc. Stockholders' Equity   190,197     189,165  
Noncontrolling interest   589     668  
Total Equity   $ 190,786     $ 189,833  
Total Liabilities and Stockholders' Equity   $ 304,138     $ 301,848  
                 


   
  Heritage-Crystal Clean, Inc.
  Condensed Consolidated Statements of Income
  (In Thousands, Except per Share Amounts)
  (Unaudited)
   
      Second Quarter Ended,   First Half Ended,
      June 18,
 2016
  June 20,
 2015
  June 18,
 2016
  June 20,
 2015
                   
Revenues                
  Product revenues   $ 24,695     $ 32,223     $ 48,399     $ 66,620  
  Service revenues   55,857     50,718     110,606     100,357  
Total revenues   $ 80,552     $ 82,941     $ 159,005     $ 166,977  
                   
Operating expenses                
  Operating costs   $ 61,711     $ 64,363     $ 125,959     $ 134,077  
  Selling, general, and administrative expenses   11,521     10,615     23,729     21,681  
  Depreciation and amortization   4,118     4,298     8,246     8,631  
  Other (income) - net   (142 )   (154 )   (201 )   (253 )
Operating income   3,344     3,819     1,272     2,841  
Interest expense – net   451     408     969     962  
Income before income taxes   2,893     3,411     303     1,879  
Provision for income taxes   1,062     1,413     197     781  
Net income   1,831     1,998     106     1,098  
Income attributable to noncontrolling interest       28     42     69  
Net income attributable to Heritage-Crystal Clean, Inc. common stockholders   $ 1,831     $ 1,970     $ 64     $ 1,029  
                 
Net income per share: basic   $ 0.08     $ 0.09     $     $ 0.05  
Net income per share: diluted   $ 0.08     $ 0.09     $     $ 0.05  
                 
Number of weighted average shares outstanding: basic   22,246     22,138     22,236     22,129  
Number of weighted average shares outstanding: diluted   22,419     22,403     22,392     22,374  
                         


 
Heritage-Crystal Clean, Inc.
Segment Information
 (In Thousands)
(Unaudited)
 
Second Quarter Ended,
June 18, 2016
       

Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
                   
Revenues                
  Product revenues   $ 5,106     $ 19,589     $     $ 24,695  
  Service revenues   47,331   8,526         55,857  
Total revenues   $ 52,437     $ 28,115     $     $ 80,552  
Operating expenses                
  Operating costs   35,631   26,080         61,711  
  Operating depreciation and amortization   1,710   1,591         3,301  
Profit before corporate selling, general, and administrative expenses   $ 15,096     $ 444     $     $ 15,540  
Selling, general, and administrative expenses             11,521       11,521  
Depreciation and amortization from SG&A             817       817  
Total selling, general, and administrative expenses           $ 12,338     $ 12,338  
Other (income) - net             (142 )     (142 )
Operating income                 3,344  
Interest expense – net             451       451  
Income before income taxes               $ 2,893  
                     


 
Second Quarter Ended,
June 20, 2015
       

Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
                   
Revenues                
  Product revenues   $ 5,370     $ 26,853     $     $ 32,223  
  Service revenues   47,600   3,118         50,718  
Total revenues   $ 52,970     $ 29,971     $     $ 82,941  
Operating expenses                
  Operating costs   35,591   28,772         64,363  
  Operating depreciation and amortization   1,671   1,840         3,511  
Profit (loss) before corporate selling, general, and administrative expenses   $ 15,708     $ (641 )   $     $ 15,067  
Selling, general, and administrative expenses             10,615       10,615  
Depreciation and amortization from SG&A             787       787  
Total selling, general, and administrative expenses           $ 11,402     $ 11,402  
Other (income) - net             (154 )     (154 )
Operating income                 3,819  
Interest expense – net             408       408  
Income before income taxes               $ 3,411  
                     


 
First Half Ended,
June 18, 2016
     
Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
                   
Revenues                
  Product revenues   $ 10,135     $ 38,264     $     $ 48,399  
  Service revenues   94,663     15,943     $     110,606  
Total revenues   $ 104,798     $ 54,207     $     $ 159,005  
Operating expenses                
  Operating costs   72,436     53,523         125,959  
  Operating depreciation and amortization   3,424     3,171         6,595  
Profit (loss) before corporate selling, general, and administrative expenses   $ 28,938     $ (2,487 )   $     $ 26,451  
Selling, general, and administrative expenses           23,729     23,729  
Depreciation and amortization from SG&A           1,651     1,651  
Total selling, general, and administrative expenses           $ 25,380     $ 25,380  
Other (income) - net           (201 )   (201 )
Operating income               1,272  
Interest expense – net           969     969  
Income before income taxes               $ 303  
                     


 
First Half Ended,
June 20, 2015
     
Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
                   
Revenues                
  Product revenues   $ 10,710     $ 55,910     $     $ 66,620  
  Service revenues   95,145   5,212         100,357  
Total revenues   $ 105,855     $ 61,122     $     $ 166,977  
Operating expenses                
  Operating costs   74,304   59,773         134,077  
  Operating depreciation and amortization   3,398   3,704         7,102  
Profit (loss) before corporate selling, general, and administrative expenses   $ 28,153     $ (2,355 )   $     $ 25,798  
Selling, general, and administrative expenses             21,681       21,681  
Depreciation and amortization from SG&A             1,529       1,529  
Total selling, general, and administrative expenses           $ 23,210     $ 23,210  
Other (income) - net             (253 )     (253 )
Operating income                 2,841  
Interest expense – net             962       962  
Income before income taxes               $ 1,879  
                     

Total assets by segment as of June 18, 2016 and January 2, 2016 were as follows: (in thousands):

         
(Thousands)   June 18, 2016   January 2, 2016
Total Assets:        
    Environmental Services   $ 129,740     $ 133,718  
    Oil Business   135,226     132,556  
    Unallocated Corporate Assets   39,172     35,574  
      Total   $ 304,138     $ 301,848  
                     

Segment assets for the Environmental Services and Oil Business segments consist of property, plant, and equipment, intangible assets, accounts receivable, goodwill, and inventories.  Assets for the corporate unallocated amounts consist of cash, other current assets, and property, plant, and equipment used at the corporate headquarters.

   
Heritage-Crystal Clean, Inc.  
Reconciliation of our Net Loss Determined in Accordance with U.S. GAAP to Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)  
(Dollars in thousands)  
(Unaudited)  
                     
      Second Quarter Ended,   First Half Ended,  
                     
      June 18, 2016   June 20, 2015   June 18, 2016   June 20, 2015  
                     
Net income   $ 1,831     $ 1,998     $ 106     $ 1,098    
                     
Interest expense - net   451     408     969     962    
                     
Provision for income taxes   1,062     1,413     197     781    
                     
Depreciation and amortization   4,118     4,298     8,246     8,631    
                     
EBITDA(a)   $ 7,462     $ 8,117     $ 9,518     $ 11,472    
                     
                     
(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.  
           

 

CONTACT
Mark DeVita
Chief Financial Officer
(847) 836-5670

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