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Heritage-Crystal Clean, Inc. Announces 2016 Fourth Quarter and Full Year Financial Results

Highlights:

  • Revenues for the fourth quarter increased 6.4%, to $106.7 million, compared to the fourth quarter of 2015
  • Full-year cash flow from operations increased 32% to a record $38.1 million, an increase of $9.2 million from fiscal 2015
  • Fiscal 2016 diluted earnings per share was $0.26, compared to $0.06 in fiscal 2015
  • Environmental Services segment operating margin was a record 30.7% for the fourth quarter and up to a record 29.0% for the full-year fiscal 2016
  • Oil Business segment operating margin was 4.1% in the fourth quarter compared to a loss of 18.7% in the fourth quarter of 2015
  • Fourth quarter EBITDA was a record $11.4 million compared to EBITDA of $0.7 million for the fourth quarter of 2015

/EIN News/ -- ELGIN, Ill., March 01, 2017 (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 2016 and for the full fiscal year, which ended December 31, 2016.

Fourth Quarter Review

Revenue for the fourth quarter of 2016 was $106.7 million compared to $100.4 million for the same quarter of 2015, an increase of 6.4%.

Operating margin increased to 21.1% from 14.4% in the fourth quarter of 2015 which was negatively impacted due to inventory write-downs. Higher revenue from used oil collection services, and lower disposal costs helped improve margins during the quarter. Our SG&A expense as a percentage of revenue was 15.5% for the fourth quarter compared to 15.0% of revenue in the fourth quarter of 2015.

Net income attributable to common shareholders for the fourth quarter was $3.4 million compared to a net loss attributable to common shareholders of $2.5 million in the year earlier quarter. Basic earnings per share was $0.15 in the fourth quarter of fiscal 2016 compared to a loss of $0.11 in the fourth quarter of fiscal 2015. After excluding severance and related costs, adjusted earnings per share for the fourth quarter of fiscal 2016 would have been $0.20 per share.

Fiscal 2016 Review

In 2016 we generated $347.6 million of revenue, compared to prior year revenue of $350.0 million, a decrease of $2.4 million or 0.7%.

Operating margin increased to 18.9% in fiscal 2016 compared to 16.0% in fiscal in fiscal 2015. The improvement in profitability is due to significantly higher revenues from used oil collection charges, significantly lower inventory write-downs, and lower fuel prices in fiscal 2016 compared to fiscal 2015. SG&A expense for fiscal 2016 was 15.4% of revenue, up from 14.0% in fiscal 2015 mainly due to higher legal fees year over year.

Net income attributable to common shareholders for fiscal 2016 was $5.8 million compared to net income attributable to common shareholders of $1.3 million for fiscal 2015. Basic earnings per share was $0.26 for fiscal 2016 compared to $0.06 in fiscal 2015. The Company’s recently appointed President and CEO Brian Recatto commented, “We are pleased that we were able to achieve record net income during the year.” Mark DeVita, Chief Financial Officer stated, "Along with record profitability we were able to generate improved cash flow during 2016 which will give us the flexibility to take advantage of future opportunities to help grow our revenue."

Segments

Our Environmental Services segment includes parts cleaning, containerized waste, vacuum services, antifreeze recycling, and field services. Environmental Services revenues remained flat at $68.3 million during the quarter compared to the fourth quarter of fiscal 2015. During fiscal 2016, Environmental Services segment revenues decreased $1.9 million, or 0.9%, compared to fiscal 2015. The decrease in this segment was primarily driven by a downturn in activity at customers directly involved in, and related to, the energy sector.

Brian Recatto commented, "While we had hoped to see revenue growth during the fourth quarter, we are optimistic that the stable results produced in the quarter will provide the foundation for renewed growth in our Environmental Services segment businesses during 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 2016, Oil Business revenues increased 20.1% to $38.5 million compared to $32.0 million in the fourth quarter of fiscal 2015. The revenue increase was mainly driven by higher charges for used oil collection services and higher volumes of base oil sold. Oil Business segment operating margin was 4.1% in the fourth quarter of 2016 compared to a loss of 18.7% in the fourth quarter of fiscal 2015.

Brian Recatto, commented, "Even with very challenging market conditions in early 2016 we were able to stabilize our Oil Business segment after the first quarter. We believe we have additional opportunities to drive improved efficiencies in this business during 2017."

Arbitration Update

During the first quarter of fiscal 2017 we received a partial award for a claim made in our ongoing arbitration related to our acquisition of FCC Environmental in 2014.  As part of the partial award we received a payment of $5.5 million for which we will recognize a gain during the first quarter of fiscal 2017.

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 extended 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 17, 2016. 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 83 branches serving approximately 107,000 customer locations.

Conference Call

The Company will host a conference call on Thursday, March 2, 2017 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

 
Heritage-Crystal Clean, Inc.
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
 
  December 31,
 2016
  January 2,
 2016
ASSETS      
Current Assets:      
Cash and cash equivalents $ 36,610     $ 23,608  
Accounts receivable - net 47,533     41,592  
Inventory - net 18,558     24,774  
Other current assets 6,094     4,810  
Total Current Assets 108,795     94,784  
Property, plant and equipment - net 131,175     131,365  
Equipment at customers - net 23,033     23,172  
Software and intangible assets - net 19,821     22,202  
Goodwill 31,483     30,325  
Total Assets $ 314,307     $ 301,848  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current Liabilities:      
Accounts payable $ 30,984     $ 25,129  
Current maturities of long-term debt and term loan 6,936     6,700  
Accrued salaries, wages, and benefits 6,312     4,330  
Taxes payable 6,729     6,735  
Other current liabilities 3,245     3,617  
Total Current Liabilities 54,206     46,511  
Term loan, less current maturities - net 56,518     62,778  
Deferred income taxes 5,314     2,726  
Total Liabilities $ 116,038     $ 112,015  
       
STOCKHOLDERS' EQUITY:      
Common stock $ 223     $ 222  
Additional paid-in capital 185,099     182,558  
Retained earnings 12,227     6,385  
Total Heritage-Crystal Clean, Inc. Stockholders' Equity 197,549     189,165  
Noncontrolling Interest 720     668  
Total Equity 198,269     189,833  
Total Liabilities and Stockholders' Equity $ 314,307     $ 301,848  


  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 31,
 2016
  January 2,
 2016
  December 31,
 2016
  January 2,
 2016
                   
Revenues                
  Product revenues   $ 36,147     $ 34,812     $ 111,729     $ 134,320  
  Service revenues   70,602     65,543     235,898     215,698  
Total revenues   $ 106,749     $ 100,355     $ 347,627     $ 350,018  
                   
Operating expenses                
  Operating costs   $ 79,849     $ 83,132     $ 267,503     $ 280,708  
  Selling, general, and administrative expenses   15,368     13,716     49,823     45,269  
  Depreciation and amortization   5,549     4,147     17,991     17,197  
  Impairment of goodwill       3,952         3,952  
  Other expense (income) - net   176     (1,143 )   1,416     (1,297 )
Operating income (loss)   5,807     (3,449 )   10,894     4,189  
Interest expense – net   637     513     2,069     1,880  
Income (loss) before income taxes   5,170     (3,962 )   8,825     2,309  
Provision (benefit of) for income taxes   1,672     (1,519 )   2,811     899  
Net income (loss)   $ 3,498     $ (2,443 )   $ 6,014     $ 1,410  
Income attributable to noncontrolling interest   55     44     172     160  
Income (loss) attributable to Heritage-Crystal Clean, Inc. common stockholders   $ 3,443     $ (2,487 )   $ 5,842     $ 1,250  
                 
                 
Net income (loss) per share: basic   $ 0.15     $ (0.11 )   $ 0.26     $ 0.06  
Net income (loss) per share: diluted   $ 0.15     $ (0.11 )   $ 0.26     $ 0.06  
                 
Number of weighted average shares outstanding: basic   22,285     22,166     22,258     22,146  
Number of weighted average shares outstanding: diluted   22,603     22,366     22,516     22,408  


Heritage-Crystal Clean, Inc.
Reconciliation of Operating Segment Information
(In Thousands)
(Unaudited)
 
For the Fourth Quarters Ended,
 
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  
Impairment of goodwill                
Other expense - net           176     176  
Operating income               5,807  
Interest expense - net           637     637  
Income before income taxes               $ 5,170  
                   
January 2, 2016
       

Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
                   
Revenues                
  Product revenues   $ 6,828     $ 27,984     $     $ 34,812  
  Service revenues   61,507     4,036         65,543  
Total revenues   $ 68,335     $ 32,020         $ 100,355  
Operating expenses                
  Operating costs   45,486     37,646         83,132  
  Operating depreciation and amortization   2,422     360         2,782  
Profit (loss) before corporate selling, general, and administrative expenses   $ 20,427     $ (5,986 )   $     $ 14,441  
Selling, general, and administrative expenses           13,716     13,716  
Depreciation and amortization from SG&A           1,365     1,365  
Total selling, general, and administrative expenses           $ 15,081     $ 15,081  
Impairment of goodwill           3,952     3,952  
Other (income) - net           (1,143 )   (1,143 )
Operating loss               (3,449 )
Interest expense - net           513     513  
Loss before income taxes               $ (3,962 )


For the Fiscal Years Ended,
 
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  


 
January 2, 2016
 
      Environmental
Services
  Oil Business   Corporate and
Eliminations
  Consolidated
                   
Revenues                
  Product revenues   $ 22,462     $ 111,858     $     $ 134,320  
  Service revenues   203,851     11,847     $     215,698  
Total revenues   $ 226,313     $ 123,705     $     $ 350,018  
Operating expenses                
  Operating costs   155,321     125,387         280,708  
  Operating depreciation and amortization   7,468     6,013         13,481  
Profit (loss) before corporate selling, general, and administrative expenses   $ 63,524     $ (7,695 )   $     $ 55,829  
Selling, general, and administrative expenses           45,269     45,269  
Depreciation and amortization from SG&A           3,716     3,716  
Total selling, general, and administrative expenses           $ 48,985     $ 48,985  
Impairment of goodwill           3,952     3,952  
Other (income) - net           (1,297 )   (1,297 )
Operating income               4,189  
Interest expense - net           1,880     1,880  
Income before income taxes           $     $ 2,309  


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 31, 2016   January 2, 2016   December 31, 2016   January 2, 2016  
                     
Net income (loss)   $ 3,498     $ (2,443 )   $ 6,014     $ 1,410    
                     
Interest expense - net   637     513     2,069     1,880    
                     
Provision (benefit of) for income taxes   1,672     (1,519 )   2,811     899    
                     
Depreciation and amortization   5,549     4,147     17,991     17,197    
                     
EBITDA(a)   $ 11,356     $ 698     $ 28,885     $ 21,386    
                     
Legal Fees (b)   537     893     5,581     1,532    
                     
Fines and Restitution (c)           1,579        
                     
Inventory write-down (d)       2,371     1,651     9,217    
                     
Severance   1,231         1,231        
                     
Impairment of goodwill       3,952         3,952    
                     
Acquisition and integration costs of FCC Environmental       90         1,793    
                     
Non-cash compensation   1,028     255     1,926     1,077    
                     
Adjusted EBITDA(e)   $ 14,152     $ 8,259     $ 40,853     $ 38,957    
                     
(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) 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.  
(e) Adjusted EBITDA also represents EBITDA adjusted for certain non-cash or infrequently occurring items such as:  
  (1) Non-cash inventory impairment charge, which is included in Operating Costs  
  (2) Acquisition and integration costs related to the purchase of FCC Environmental, which are included in SG&A  
  (3) Non-cash compensation expenses which are recorded in SG&A  
  We have presented 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 Quarter Ended,  
         
      December 31, 2016  
         
GAAP net earnings     $ 3,443    
         
Severance and related costs (a)     1,527    
Tax effect on severance and related costs     (494 )  
         
Adjusted net earnings     $ 4,476    
         
GAAP basic and diluted earnings per share   $ 0.15    
         
Severance and related costs per share   0.07    
Tax effect severance and related costs per share   (0.02 )  
       
         
Adjusted basic and diluted earnings per share   $ 0.20    
         
(a) Severance and related costs include severance and expenses for accelerated vesting of retiree restricted stock grants.  

 

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

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