Heritage-Crystal Clean, Inc. - FORM 8-K - EX-99.1 - July 28, 2021

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8-K - 8-K - Heritage-Crystal Clean, Inc.hcci-20210728.htm

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

Second Quarter Highlights Include:

•Net income was a record high $15.1 million; up significantly compared to a net loss of $2.7 million in the second quarter of 2020.

•Basic earnings per share was a record $0.65 for the quarter, up significantly from a basic loss of $0.11 for the second quarter of 2020.

•Environmental Services segment revenue was a second-quarter record $72.7 million, an increase of 21.6% from the year-ago quarter.

•Environmental Services segment profit before corporate selling, general, and administrative expenses was a 12-week quarter record of $19.2 million, an increase of 130% compared to the second quarter of 2020.

•Oil Business segment revenue of $44.6 million represents a record high for a 12-week quarter, an increase of 126.0% from the year-ago quarter.

•Oil Business segment profit before corporate selling, general, and administrative expenses was a record $15.2 million with record operating margin of 34.2%.

•EBITDA was a record $26.2 million.


ELGIN, IL, July 28, 2021 — 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.
CONTACT: Mark DeVita, Chief Financial Officer, at (847) 836-5670


Heritage-Crystal Clean, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Par Value Amounts)
(Unaudited)

June 19,
2021		January 2,
2021
ASSETS
Current assets:
Cash and cash equivalents$67,272 $67,575 
Accounts receivable - net59,393 48,479 
Inventory - net25,956 24,978 
Assets held for sale1,125 2,446 
Other current assets5,053 8,005 
Total current assets158,799 151,483 
Property, plant and equipment - net156,039 153,016 
Right of use assets76,908 78,942 
Equipment at customers - net23,950 23,111 
Software and intangible assets - net17,824 19,576 
Goodwill35,541 35,541 
Other assets780 — 
Total assets$469,841 $461,669 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$32,186 $29,663 
Current portion of lease liabilities20,770 19,198 
Contract liabilities - net2,314 1,983 
Accrued salaries, wages, and benefits6,154 6,647 
Taxes payable10,120 10,592 
Other current liabilities6,341 4,918 
Total current liabilities77,885 73,001 
  Lease liabilities, net of current portion57,904 60,294 
  Long-term debt, less current maturities— 29,656 
Other long term liabilities196 — 
Deferred income taxes29,830 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 capital203,356 201,148 
Retained earnings100,436 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 revenues51,551 21,863 93,817 59,584 
Rental income5,695 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 expenses13,039 11,134 25,228 22,656 
Depreciation and amortization5,619 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 – net177 344 501 558 
Income (loss) before income taxes20,445 (2,912)32,870 3,827 
Provision for (benefit from) income taxes5,334 (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: basic23,404 23,260 23,389 23,249 
Number of weighted average shares outstanding: diluted23,565 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 BusinessCorporate and
Eliminations		Consolidated
Revenues
Service revenues$56,403 $3,630 $— $60,033 
Product revenues10,627 40,924 — 51,551 
Rental income5,686 9 — 5,695 
Total revenues$72,716 $44,563 $— $117,279 
Operating expenses
Operating costs51,11927,210— 78,329 
Operating depreciation and amortization2,4302,109— 4,539 
Profit before corporate selling, general, and administrative expenses$19,167 $15,244 $— $34,411 
Selling, general, and administrative expenses13,03913,039
Depreciation and amortization from SG&A1,0801,080
Total selling, general, and administrative expenses$14,119 $14,119 
Other (income) - net(330)(330)
Operating income20,622
Interest expense – net177177
Income before income taxes$20,445 


Second Quarter Ended,
June 13, 2020
(thousands)Environmental
Services		Oil BusinessCorporate and
Eliminations		Consolidated
Revenues
Service revenues$46,097 $6,150 $— $52,247 
Product revenues8,295 13,568 — 21,863 
Rental income5,408 — — 5,408 
Total revenues$59,800 $19,718 $— $79,518 
Operating expenses
Operating costs49,10423,189— 72,293
Operating depreciation and amortization2,3482,082— 4,430
Profit (loss) before corporate selling, general, and administrative expenses$8,348 $(5,553)$— $2,795 
Selling, general, and administrative expenses11,13411,134
Depreciation and amortization from SG&A1,0251,025
Total selling, general, and administrative expenses$12,159 $12,159 
Other income - net(6,796)(6,796)
Operating loss(2,568)
Interest expense – net344344
Loss before income taxes$(2,912)

First Half Ended,
June 19, 2021
(thousands)Environmental
Services		Oil BusinessCorporate and
Eliminations		Consolidated
Revenues
Service revenues$109,706 $8,026 $— $117,732 
Product revenues21,374 72,443 — 93,817 
Rental income11,093 18 — 11,111 
Total revenues$142,173 $80,487 $— $222,660 
Operating expenses
Operating costs102,99952,100— 155,099
Operating depreciation and amortization4,0083,058— 7,066
Profit before corporate selling, general, and administrative expenses$35,166 $25,329 $— $60,495 
Selling, general, and administrative expenses25,22825,228
Depreciation and amortization from SG&A2,3352,335
Total selling, general, and administrative expenses$27,563 $27,563 
Other (income) - net(439)(439)
Operating income33,371
Interest expense – net501501
Income before income taxes$32,870 




First Half Ended,
June 13, 2020
(thousands)Environmental ServicesOil BusinessCorporate and EliminationsConsolidated
Revenues
  Service revenues $107,056 $8,948 $— $116,004 
  Product revenues19,023 40,561 — 59,584 
  Rental income11,173 21 — 11,194 
Total revenues$137,252 $49,530 $— $186,782 
Operating expenses
  Operating costs 105,50850,035— 155,543
  Operating depreciation and amortization4,6184,136— 8,754
Profit (loss) before corporate selling, general, and administrative expenses$27,126 $(4,641)$— $22,485 
Selling, general, and administrative expenses22,65622,656
Depreciation and amortization from SG&A1,9691,969
Total selling, general, and administrative expenses$24,625 $24,625 
Other income - net(6,525)(6,525)
Operating income4,385
Interest expense – net558558
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, 2021June 13, 2020June 19, 2021June 13, 2020
Net income$15,111 $(2,658)$24,317 $2,633 
Interest expense – net177 344 501 558 
Provision for (benefit from) income taxes5,334 (254)8,553 1,194 
Depreciation and amortization5,619 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.

Heritage-Crystal Clean, Inc. Reports