Heritage-Crystal Clean, Inc. Announces Record Second Quarter 2021 Financial Results

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 which ended June 19, 2021.

Second Quarter Review

Revenue for the second quarter of 2021 was $117.3 million compared to $79.5 million for the same quarter of 2020, an increase of 47.4%.

Overall Operating Margin jumped to 17.6% due to strong results in both operating segments, but primarily in the Oil Business segment. The 2020 second quarter operating margin was (3.2%), which included approximately $6.5 million of income from the reversal of a portion of the expense accrual for a class action settlement. Our second quarter corporate SG&A expense was $13.0 million, or 11.1% of revenue, compared to $11.1 million, or 14.0% of revenue, for the second quarter of 2020.

Net income for the second quarter was $15.1 million compared to a net loss of $2.7 million in the year earlier quarter. Basic earnings per share was $0.65 compared to a basic loss per share of $0.11 in the year-ago quarter.

President and CEO Brian Recatto commented, "We are very excited with our overall results for the second quarter. We are also pleased that both segments made significant contributions during the quarter to help achieve our record-setting results."

Segments

Our Environmental Services segment includes parts cleaning, containerized waste, wastewater vacuum, antifreeze recycling, and field services. Environmental Services revenue was $72.7 million during the quarter compared to $59.8 million during the second quarter of fiscal 2020. The 21.6% increase in revenue was mainly due to our continuing recovery from the negative impacts of the COVID-19 pandemic which resulted in volume increases across all service lines in the segment when compared to the second quarter of 2020. Environmental Services profit before corporate selling, general, and administrative expenses was $19.2 million, or 26.4% of revenue, compared to $8.3 million, or 13.9% of revenue, in the year-ago quarter. The increase in operating margin was mainly driven by higher revenue, as well as higher labor cost efficiency and lower solvent expense and field services disposal costs as a percentage of revenue.

Recatto commented, "During the second quarter our team worked hard to put the negative impacts of the COVID-19 pandemic behind us and get back to growing our business. We were pleased that segment revenue during the quarter exceeded segment revenue during the second quarter of 2019 by 3.6%."

Our Oil Business segment includes used oil collection and re-refining activities, as well as sales of recycled fuel oil. During the second quarter of fiscal 2021, Oil Business revenue was a second quarter record of $44.6 million, an increase of $24.8 million, or 126.0%, compared to $19.7 million in the second quarter of fiscal 2020. An increase in base oil prices was the main driver of the increase along with an increase in base oil sales volume compared to the prior year quarter. Oil Business segment operating margin increased sharply to a record 34.2% in the second quarter of 2021 compared to (28.2%) in the second quarter of fiscal 2020. The higher operating margin compared to the second quarter of 2020 was mainly due to an increase in the spread between the netback (sales price net of freight impact) on our base oil sales and the price paid/charged to our customers for the removal of their used oil along with less downtime at our re-refinery.

Recatto commented, "We continued to execute well at our re-refinery during the second quarter which enabled us to produce more base oil volume compared to the prior year quarter when we intentionally idled the facility due to the negative impact of the COVID-19 pandemic. This allowed us to take advantage of very favorable base oil pricing conditions to produce record profitability in our Oil Business segment during the second quarter."

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: developments in the COVID-19 pandemic and the resulting impact on our business and operations, 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; the impact of legal proceedings and class action litigation on us and our ability to estimate the cash payments we will make under litigation settlements; 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 2, 2021. 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, wastewater vacuum, 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 during fiscal 2020, we recycled approximately 61 million gallons of 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 during fiscal 2020 we recycled approximately 3.7 million gallons of spent antifreeze which was used to produce a full line of virgin-quality antifreeze products. Through our parts cleaning program during fiscal 2020 we recycled 4 million gallons of used solvent into virgin-quality solvent to be used again by our customers. Through our containerized waste program during fiscal 2020 we collected 20 thousand tons of regulated waste which was sent for energy recovery. Through our wastewater vacuum services program during fiscal 2020 we treated approximately 52 million gallons of wastewater. Heritage-Crystal Clean, Inc. is headquartered in Elgin, Illinois, and operates through 89 branches serving approximately 89,000 customer locations.

Conference Call

The Company will host a conference call on Thursday July 29, 2021 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 on the call by dialing (833) 772-0398. After dialing the number, you will be required to provide the following passcode before being joined to the conference call: 6091366.

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

Heritage-Crystal Clean, Inc.

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Par Value Amounts)

(Unaudited)

 

 

June 19,
2021

 

January 2,
2021

 

 

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

67,272

 

 

$

67,575

 

Accounts receivable - net

 

59,393

 

 

48,479

 

Inventory - net

 

25,956

 

 

24,978

 

Assets held for sale

 

1,125

 

 

2,446

 

Other current assets

 

5,053

 

 

8,005

 

Total current assets

 

158,799

 

 

151,483

 

Property, plant and equipment - net

 

156,039

 

 

153,016

 

Right of use assets

 

76,908

 

 

78,942

 

Equipment at customers - net

 

23,950

 

 

23,111

 

Software and intangible assets - net

 

17,824

 

 

19,576

 

Goodwill

 

35,541

 

 

35,541

 

Other assets

 

780

 

 

 

Total assets

 

$

469,841

 

 

$

461,669

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

32,186

 

 

$

29,663

 

Current portion of lease liabilities

 

20,770

 

 

19,198

 

Contract liabilities - net

 

2,314

 

 

1,983

 

Accrued salaries, wages, and benefits

 

6,154

 

 

6,647

 

Taxes payable

 

10,120

 

 

10,592

 

Other current liabilities

 

6,341

 

 

4,918

 

Total current liabilities

 

77,885

 

 

73,001

 

Lease liabilities, net of current portion

 

57,904

 

 

60,294

 

Long-term debt, less current maturities

 

 

 

29,656

 

Other long term liabilities

 

196

 

 

 

Deferred income taxes

 

29,830

 

 

21,218

 

Total liabilities

 

$

165,815

 

 

$

184,169

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

Common stock - 26,000,000 shares authorized at $0.01 par value, 23,410,606 and 23,340,700 shares issued and outstanding at June 19, 2021 and January 2, 2021, respectively

 

$

234

 

 

$

233

 

Additional paid-in capital

 

203,356

 

 

201,148

 

Retained earnings

 

100,436

 

 

76,119

 

Total stockholders' equity

 

$

304,026

 

 

$

277,500

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

469,841

 

 

$

461,669

 

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statements of Income

(In Thousands, Except per Share Amounts)

(Unaudited)

 

 

 

Second Quarter Ended,

 

First Half Ended,

 

 

 

June 19,
2021

 

June 13,
2020

 

June 19,
2021

 

June 13,
2020

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Service revenues

 

$

60,033

 

 

 

$

52,247

 

 

 

$

117,732

 

 

 

$

116,004

 

 

 

Product revenues

 

51,551

 

 

 

21,863

 

 

 

93,817

 

 

 

59,584

 

 

 

Rental income

 

5,695

 

 

 

5,408

 

 

 

11,111

 

 

 

11,194

 

 

Total revenues

 

$

117,279

 

 

 

$

79,518

 

 

 

$

222,660

 

 

 

$

186,782

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Operating costs

 

$

78,329

 

 

 

$

72,293

 

 

 

$

155,099

 

 

 

$

155,543

 

 

 

Selling, general, and administrative expenses

 

13,039

 

 

 

11,134

 

 

 

25,228

 

 

 

22,656

 

 

 

Depreciation and amortization

 

5,619

 

 

 

5,455

 

 

 

9,401

 

 

 

10,723

 

 

 

Other (income) - net

 

(330

)

 

 

(6,796

)

 

 

(439

)

 

 

(6,525

)

 

Operating income (loss)

 

20,622

 

 

 

(2,568

)

 

 

33,371

 

 

 

4,385

 

 

Interest expense – net

 

177

 

 

 

344

 

 

 

501

 

 

 

558

 

 

Income (loss) before income taxes

 

20,445

 

 

 

(2,912

)

 

 

32,870

 

 

 

3,827

 

 

Provision for (benefit from) income taxes

 

5,334

 

 

 

(254

)

 

 

8,553

 

 

 

1,194

 

 

Net income (loss)

 

$

15,111

 

 

 

$

(2,658

)

 

 

$

24,317

 

 

 

$

2,633

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share: basic

 

$

0.65

 

 

 

$

(0.11

)

 

 

$

1.04

 

 

 

$

0.11

 

 

Net income (loss) per share: diluted

 

$

0.64

 

 

 

$

(0.11

)

 

 

$

1.03

 

 

 

$

0.11

 

 

 

 

 

 

 

 

 

 

 

Number of weighted average shares outstanding: basic

 

23,404

 

 

 

23,260

 

 

 

23,389

 

 

 

23,249

 

 

Number of weighted average shares outstanding: diluted

 

23,565

 

 

 

23,260

 

 

 

23,537

 

 

 

23,434

 

 

Heritage-Crystal Clean, Inc.

Reconciliation of Operating Segment Information

(Unaudited)

Second Quarter Ended,

June 19, 2021

(thousands)

 

Environmental
Services

 

Oil Business

 

Corporate and
Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Service revenues

 

$

56,403

 

$

3,630

 

$

 

 

$

60,033

 

 

Product revenues

 

10,627

 

40,924

 

 

 

51,551

 

 

Rental income

 

5,686

 

9

 

 

 

5,695

 

Total revenues

 

$

72,716

 

$

44,563

 

$

 

 

$

117,279

 

Operating expenses

 

 

 

 

 

 

 

 

 

Operating costs

 

51,119

 

27,210

 

 

 

78,329

 

 

Operating depreciation and amortization

 

2,430

 

2,109

 

 

 

4,539

 

Profit before corporate selling, general, and administrative expenses

 

$

19,167

 

$

15,244

 

$

 

 

$

34,411

 

Selling, general, and administrative expenses

 

 

 

 

 

13,039

 

 

13,039

 

Depreciation and amortization from SG&A

 

 

 

 

 

1,080

 

 

1,080

 

Total selling, general, and administrative expenses

 

 

 

 

 

$

14,119

 

 

$

14,119

 

Other (income) - net

 

 

 

 

 

(330

)

 

(330

)

Operating income

 

 

 

 

 

 

 

20,622

 

Interest expense – net

 

 

 

 

 

177

 

 

177

 

Income before income taxes

 

 

 

 

 

 

 

$

20,445

 

Second Quarter Ended,

June 13, 2020

(thousands)

 

Environmental
Services

 

Oil Business

 

Corporate and
Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Service revenues

 

$

46,097

 

$

6,150

 

 

$

 

 

$

52,247

 

 

Product revenues

 

8,295

 

13,568

 

 

 

 

21,863

 

 

Rental income

 

5,408

 

 

 

 

 

5,408

 

Total revenues

 

$

59,800

 

$

19,718

 

 

$

 

 

$

79,518

 

Operating expenses

 

 

 

 

 

 

 

 

 

Operating costs

 

49,104

 

23,189

 

 

 

 

72,293

 

 

Operating depreciation and amortization

 

2,348

 

2,082

 

 

 

 

4,430

 

Profit (loss) before corporate selling, general, and administrative expenses

 

$

8,348

 

$

(5,553

)

 

$

 

 

$

2,795

 

Selling, general, and administrative expenses

 

 

 

 

 

11,134

 

 

11,134

 

Depreciation and amortization from SG&A

 

 

 

 

 

1,025

 

 

1,025

 

Total selling, general, and administrative expenses

 

 

 

 

 

$

12,159

 

 

$

12,159

 

Other income - net

 

 

 

 

 

(6,796

)

 

(6,796

)

Operating loss

 

 

 

 

 

 

 

(2,568

)

Interest expense – net

 

 

 

 

 

344

 

 

344

 

Loss before income taxes

 

 

 

 

 

 

 

$

(2,912

)

First Half Ended,

June 19, 2021

(thousands)

 

Environmental
Services

 

Oil Business

 

Corporate and
Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Service revenues

 

$

109,706

 

$

8,026

 

$

 

 

$

117,732

 

 

Product revenues

 

21,374

 

72,443

 

 

 

93,817

 

 

Rental income

 

11,093

 

18

 

 

 

11,111

 

Total revenues

 

$

142,173

 

$

80,487

 

$

 

 

$

222,660

 

Operating expenses

 

 

 

 

 

 

 

 

 

Operating costs

 

102,999

 

52,100

 

 

 

155,099

 

 

Operating depreciation and amortization

 

4,008

 

3,058

 

 

 

7,066

 

Profit before corporate selling, general, and administrative expenses

 

$

35,166

 

$

25,329

 

$

 

 

$

60,495

 

Selling, general, and administrative expenses

 

 

 

 

 

25,228

 

 

25,228

 

Depreciation and amortization from SG&A

 

 

 

 

 

2,335

 

 

2,335

 

Total selling, general, and administrative expenses

 

 

 

 

 

$

27,563

 

 

$

27,563

 

Other (income) - net

 

 

 

 

 

(439

)

 

(439

)

Operating income

 

 

 

 

 

 

 

33,371

 

Interest expense – net

 

 

 

 

 

501

 

 

501

 

Income before income taxes

 

 

 

 

 

 

 

$

32,870

 

First Half Ended,

June 13, 2020

(thousands)

 

Environmental Services

 

Oil Business

 

Corporate and
Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

Service revenues

 

$

107,056

 

$

8,948

 

 

$

 

 

$

116,004

 

Product revenues

 

19,023

 

40,561

 

 

 

 

59,584

 

Rental income

 

11,173

 

21

 

 

 

 

11,194

 

Total revenues

 

$

137,252

 

$

49,530

 

 

$

 

 

$

186,782

 

Operating expenses

 

 

 

 

 

 

 

 

Operating costs

 

105,508

 

50,035

 

 

 

 

155,543

 

Operating depreciation and amortization

 

4,618

 

4,136

 

 

 

 

8,754

 

Profit (loss) before corporate selling, general, and administrative expenses

 

$

27,126

 

$

(4,641

)

 

$

 

 

$

22,485

 

Selling, general, and administrative expenses

 

 

 

 

 

22,656

 

 

22,656

 

Depreciation and amortization from SG&A

 

 

 

 

 

1,969

 

 

1,969

 

Total selling, general, and administrative expenses

 

 

 

 

 

$

24,625

 

 

$

24,625

 

Other income - net

 

 

 

 

 

(6,525

)

 

(6,525

)

Operating income

 

 

 

 

 

 

 

4,385

 

Interest expense – net

 

 

 

 

 

558

 

 

558

 

Income before income taxes

 

 

 

 

 

 

 

$

3,827

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended,

 

First Half Ended,

 

 

 

 

 

 

 

 

 

 

 

(thousands)

 

 

June 19, 2021

 

June 13, 2020

 

June 19, 2021

 

June 13, 2020

Net income

 

$

15,111

 

$

(2,658

)

 

$

24,317

 

$

2,633

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense – net

 

177

 

344

 

 

501

 

558

 

 

 

 

 

 

 

 

 

 

 

 

Provision for (benefit from) income taxes

 

5,334

 

(254

)

 

8,553

 

1,194

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

5,619

 

5,455

 

 

9,401

 

10,723

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA (a)

 

 

$

26,241

 

$

2,887

 

 

$

42,772

 

$

15,108

 

 

 

 

 

 

 

 

 

 

Non-cash compensation (b)

 

1,668

 

552

 

 

2,886

 

1,621

 

 

 

 

 

 

 

 

 

 

 

Retirement costs and severance (c)

 

 

 

327

 

 

 

 

369

 

 

 

 

 

 

 

 

 

 

Costs and asset write-offs associated with site closures (d)

 

 

 

 

 

 

 

138

 

 

 

 

 

 

 

 

 

 

Reversal of settlement provision in excess of payout (e)

 

 

 

(6,502

)

 

 

 

(6,502

)

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (f)

 

$

27,909

 

$

(2,736

)

 

$

45,658

 

$

10,734

 

 

 

 

 

 

 

 

 

 

 

 

(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)

Non-cash compensation expenses which are recorded in SG&A.

 

 

(c)

Costs associated with employee separations.

 

 

(d)

Cost associated with write-offs of site closures.

 

 

 

 

 

 

 

 

 

 

 

(e)

Reversal of a portion of the provision for a class action settlement originally charged against income in the fourth quarter of 2019.

 

 

(f)

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.