Heritage-crystal clean, inc. announces 2020 fourth quarter and full year financial results
Elgin, ill.--(business wire)--heritage-crystal clean, inc. (nasdaq: hcci), a leading provider of parts cleaning, hazardous and non-hazardous waste services, used oil re-refining, antifreeze recycling and field services primarily focused on small and mid-sized customers, today announced results for the fourth quarter of fiscal 2020 and for the full fiscal year, which ended january 2, 2021. fourth quarter review total company revenue for the fourth quarter of 2020 declined 4.9% to $132.0 million compared to $138.8 million for the same quarter of 2019. the company's fourth quarter of fiscal 2020 was comprised of 79 working days compared to 77 working days in the fiscal fourth quarter of 2019. on a sales-per-working day basis, revenue decreased approximately 7.3% compared to the prior year quarter. lower revenue was primarily the result of the negative impact of the covid-19 pandemic and related shelter-in-place orders. operating margin increased to 19.8% from 18.6% in the fourth quarter of 2020 mainly due to lower field services related disposal costs, workers compensation, and fleet repair costs, partially offset by lower revenues and higher catalyst cost compared to the year-ago quarter. our sg&a expense as a percentage of revenue increased slightly to 12.3% from 12.1% of revenue in the fourth quarter of 2020 mainly due to lower revenue and higher software licensing fees, partially offset by lower share-based compensation and travel expense. net income attributable to common shareholders was $5.3 million, or $0.23 per diluted share, for the fourth quarter of 2020. this compares to a net loss attributable to common shareholders of $2.2 million, or $0.09 per diluted share, in the year earlier quarter which included an $11.0 million pretax charge relating to class action litigation pertaining to fuel surcharges. see our reconciliations of net income (loss) and net income (loss) per share below. fiscal 2020 review in 2020, we generated $406.0 million of revenue compared to prior year revenue of $444.4 million, a decrease of $38.4 million, or 8.7%. the company's 2020 fiscal year was comprised of 256 working days compared to 253 working days in fiscal 2019. on a sales-per-working day basis, revenue decreased approximately 9.7% in fiscal 2020 compared to the prior year. the decrease in revenue was primarily driven by the negative impacts of the covid-19 pandemic and related shelter-in-place orders. since experiencing a 24.3% revenue decline on a year-over-year basis during the second quarter, amid the depths of the pandemic, our year-over-year revenue deficit shrank to 16.9% in the third quarter and only 4.9% in the fourth quarter. operating margin for 2020 was 15.8% compared to 18.1% operating margin in fiscal 2019. the decrease in margin was mainly attributable to lower revenues along with higher insurance expense and field services related disposal costs, partially offset by lower health and welfare costs and lower worker's compensation expense. sg&a expense for fiscal 2020 was 12.7% of revenue, compared to 12.2% of revenue in fiscal 2019. net income attributable to common shareholders for fiscal 2020 was $11.9 million, or $0.51 per diluted share, compared to net income of $8.4 million, or $0.36 per diluted share, for fiscal 2019. 2020 full-year net income was favorably impacted by a $6.5 million reversal of an $11.0 million class action lawsuit charge taken in the fourth quarter of fiscal 2019. segments our environmental services segment includes parts cleaning, containerized waste, vacuum services, antifreeze recycling, and field services. the environmental services segment reported revenue of $90.9 million, a decrease of $6.0 million, or 6.2%, during the quarter compared to the fourth quarter of fiscal 2019. the decrease in revenue was mainly due to the lingering impacts of covid-19 related volume declines in our field services, parts cleaning, and containerized waste product and service lines, partially offset by favorable pricing in our parts cleaning business. on a sales-per-working day basis, environmental services segment revenue decreased approximately 8.5% compared to the prior year quarter. our profit before sg&a expense as a percentage of revenue was 24.6% compared to 25.1% in the year ago quarter. the decline in margin was mainly due to lower revenue and higher depreciation expense for trucks, partially offset by lower field services related disposal costs, worker's compensation expense, and health and welfare costs. during fiscal 2020, environmental services segment revenue decreased $12.0 million, or 4.0%, compared to fiscal 2019, while our 2020 profit before sg&a expense as a percentage of revenue was 22.1% compared to 25.0% in fiscal 2019. president and ceo brian recatto commented, "we are pleased that since the middle of the second quarter we have continually improved our year-over-year performance on both a revenue and operating margin basis despite the continued challenges posed by the impact of the covid-19 pandemic on our business and our customers." our oil business segment includes used oil collection activities, sales of recycled fuel oil, and re-refining activities. during the fourth quarter of fiscal 2020, oil business revenues decreased 2.0% to $41.1 million compared to the fourth quarter of fiscal 2019. the decrease in revenue was mainly due to lower selling prices of our base oil, partially offset by higher base oil gallons sold during the fourth quarter of 2020 compared to the prior year quarter. on a sales-per-working day basis, our oil business segment revenue decreased approximately 4.4% compared to the prior year quarter. oil business segment operating margin improved 5.6 percentage points to 9.1% in the fourth quarter of 2020 compared to 3.5% during the same period of 2019. the increase in margin was mainly due to lower fleet repairs, lower worker's compensation expense, and lower shutdown maintenance, partially offset by higher catalyst costs compared to the year-ago quarter. full year 2020 revenue was down $26.5 million compared to fiscal 2019, while operating margin broke even compared to operating margin of 3.3% in fiscal 2019. recatto commented, "we are extremely proud of the record high operating margin percentage result achieved during the fourth quarter in our oil business segment. because of this strong finish to the year, we were able to produce near breakeven operating margin for the full fiscal year 2020 despite the fact that we were forced to idle our re-refinery for most of the month of may due to the negative impacts on the economy from the covid-19 pandemic." covid-19 update during the fourth quarter and into the beginning of the first quarter of 2021, we continued executing the company's pandemic response plan to combat the covid-19 outbreak-induced downturn in our business and remain focused on ensuring the health and safety of all our employees and their families. 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, 2020. 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, vacuum truck services, 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 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 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 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 2020 we collected 20 tons of regulated waste which was sent for energy recovery. through our vacuum services program during 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 91,000 customer locations. conference call the company will host a conference call on tuesday, march 2, 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) 968-1975. after dialing the number, you will be required to provide the following passcode before being joined to the conference call: 1354827. 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) january 2, 2021 december 28, 2019 assets current assets: cash and cash equivalents $ 67,575 $ 60,694 accounts receivable - net 48,479 55,586 inventory - net 24,978 29,373 assets held for sale 2,446 — other current assets 8,005 7,104 total current assets 151,483 152,757 property, plant and equipment - net 153,016 154,911 right of use assets 78,942 89,525 equipment at customers - net 23,111 24,232 software and intangible assets - net 19,576 16,892 goodwill 35,541 32,997 total assets $ 461,669 $ 471,314 liabilities and stockholders' equity current liabilities: accounts payable $ 29,663 $ 38,058 current portion of lease liabilities 19,198 20,407 contract liabilities - net 1,983 2,252 accrued salaries, wages, and benefits 6,647 6,771 taxes payable 10,592 6,538 other current liabilities 4,918 16,418 total current liabilities 73,001 90,444 lease liabilities, net of current portion 60,294 68,734 long-term debt, less current maturities 29,656 29,348 deferred income taxes 21,218 17,157 total liabilities $ 184,169 $ 205,683 stockholders' equity: common stock - 26,000,000 shares authorized at 0.01 par value, 23,340,700 and 23,191,498 shares issued and outstanding at january 2, 2021 and december 28, 2019, respectively 233 232 additional paid-in capital 201,148 200,583 retained earnings 76,119 64,182 total heritage-crystal clean, inc. stockholders' equity 277,500 264,997 noncontrolling interest — 634 total equity $ 277,500 $ 265,631 total liabilities and stockholders' equity $ 461,669 $ 471,314 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, january 2, 2021 december 28, 2019 january 2, 2021 december 28, 2019 revenues service $ 76,212 $ 78,969 $ 245,474 $ 250,491 product revenues 48,072 52,149 136,178 171,273 rental income 7,751 7,696 24,299 22,663 total revenues $ 132,035 $ 138,814 $ 405,951 $ 444,427 operating expenses operating costs $ 98,980 $ 108,154 $ 321,648 $ 349,603 selling, general, and administrative expenses 15,026 15,545 47,091 50,224 depreciation and amortization 8,205 6,072 24,563 18,249 other expense (income) - net 1,600 11,013 (5,365 ) 13,490 operating income (loss) 8,224 (1,970 ) 18,014 12,861 interest expense – net 411 240 1,252 869 income (loss) before income taxes 7,813 (2,210 ) 16,762 11,992 provision for (benefit of) income taxes 2,468 (168 ) 4,825 3,243 net income (loss) $ 5,345 $ (2,042 ) $ 11,937 $ 8,749 income attributable to noncontrolling interest — 108 — 386 income (loss) attributable to heritage-crystal clean, inc. common stockholders $ 5,345 $ (2,150 ) $ 11,937 $ 8,363 net income (loss) per share: basic $ 0.23 $ (0.09 ) $ 0.51 $ 0.36 net income (loss) per share: diluted $ 0.23 $ (0.09 ) $ 0.51 $ 0.36 number of weighted average shares outstanding: basic 23,305 23,190 23,286 23,160 number of weighted average shares outstanding: diluted 23,474 23,190 23,453 23,398 reconciliation of operating segment information (in thousands)(unaudited) for the fourth quarters ended, january 2, 2021 (thousands) environmental services oil business corporate and eliminations consolidated revenues service revenues $ 69,534 $ 6,678 $ — $ 76,212 product revenues 13,634 34,438 — 48,072 rental income 7,733 18 — 7,751 total revenues $ 90,901 $ 41,134 $ — $ 132,035 operating expenses operating costs 64,711 34,269 — 98,980 operating depreciation and amortization 3,815 3,120 — 6,935 profit before corporate selling, general, and administrative expenses $ 22,375 $ 3,745 $ 26,120 selling, general, and administrative expenses 15,026 15,026 depreciation and amortization from sg&a 1,270 1,270 total selling, general, and administrative expenses $ 16,296 $ 16,296 other expense - net 1,600 1,600 operating income 8,224 interest expense - net 411 411 income before income taxes $ 7,813 december 28, 2019 (thousands) environmental services oil business corporate and eliminations consolidated revenues service revenues $ 75,257 $ 3,712 $ — $ 78,969 product revenues 13,984 38,165 — 52,149 rental income 7,617 79 — 7,696 total revenues $ 96,858 $ 41,956 $ — $ 138,814 operating expenses operating costs 70,016 38,138 — 108,154 operating depreciation and amortization 2,515 2,349 — 4,864 profit before corporate selling, general, and administrative expenses $ 24,327 $ 1,469 $ — $ 25,796 selling, general, and administrative expenses 15,545 15,545 depreciation and amortization from sg&a 1,208 1,208 total selling, general, and administrative expenses $ 16,753 $ 16,753 other expense - net 11,013 11,013 operating loss (1,970 ) interest expense - net 240 240 loss before income taxes $ (2,210 ) for the fiscal years ended, january 2, 2021 (thousands) environmental services oil business corporate and eliminations consolidated revenues service revenues $ 224,123 $ 21,351 $ — $ 245,474 product revenues 42,253 93,925 — 136,178 rental income 24,216 83 — 24,299 total revenues $ 290,592 $ 115,359 $ — $ 405,951 operating expenses operating costs 215,602 106,046 — 321,648 operating depreciation and amortization 10,863 9,358 — 20,221 profit (loss) before corporate selling, general, and administrative expenses $ 64,127 $ (45 ) $ — $ 64,082 selling, general, and administrative expenses 47,091 47,091 depreciation and amortization from sg&a 4,342 4,342 total selling, general, and administrative expenses $ 51,433 $ 51,433 other income - net (5,365 ) (5,365 ) operating income 18,014 interest expense - net 1,252 1,252 income before income taxes $ 16,762 december 28, 2019 (thousands) environmental services oil business corporate and eliminations consolidated revenues service revenues $ 236,530 $ 13,961 $ — $ 250,491 product revenues 43,605 127,668 — 171,273 rental income $ 22,408 $ 255 $ — $ 22,663 total revenues $ 302,543 $ 141,884 $ — $ 444,427 operating expenses operating costs 219,040 130,563 — 349,603 operating depreciation and amortization 7,768 6,656 — 14,424 profit before corporate selling, general, and administrative expenses $ 75,735 $ 4,665 $ — $ 80,400 selling, general, and administrative expenses 50,224 50,224 depreciation and amortization from sg&a 3,825 3,825 total selling, general, and administrative expenses $ 54,049 $ 54,049 other expense - net 13,490 13,490 operating income 12,861 interest expense - net 869 869 income before income taxes $ 11,992 heritage-crystal clean, inc. reconciliation of our net income (loss) 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) january 2, 2021 december 28, 2019 january 2, 2021 december 28, 2019 net income (loss) $ 5,345 $ (2,042 ) $ 11,937 $ 8,749 interest expense - net 411 240 1,252 869 provision for (benefit of) income taxes 2,468 (168 ) 4,825 3,243 depreciation and amortization 8,205 6,072 24,563 18,249 ebitda (a) $ 16,429 $ 4,102 $ 42,577 $ 31,110 impairment charges (b) 1,446 — 1,446 — provision (reversal) for loss on class action settlement (c) — 11,093 (6,502 ) 11,327 non-cash compensation (d) 848 1,232 3,197 3,976 cost and asset write-offs associated with site closures (e) 38 195 199 2,726 severance costs (f) 131 79 921 825 adoption of asc 842 impact and related implementation costs and one-time costs (g) — — — 2,557 adjusted ebitda (h) $ 18,892 $ 16,701 $ 41,838 $ 52,521 (a) ebitda represents net (loss) 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 (loss) 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 interest expense or the cash requirements necessary to service interest or principal payments on our debt; we compensate for these limitations by relying primarily on our u.s. gaap results and using ebitda only as a supplement. (b) impairment charges mainly associated with the intention to sell the company's facilities in wilmington delaware and fort pierce florida. (c) class action settlement and associated legal fees incurred in fiscal year 2019, and amounts reversed in 2020. (d) non-cash compensation expenses which are recorded in sg&a. (e) cost and asset write-offs mainly associated with the closure of the company’s facility located in wilmington, delaware. (f) cost associated with severance and other employee separations. (g) revenue deferred during the first quarter of 2019 from the adoption of asc 842 lease accounting standard, and one-time charges related to implementation of the standard. (h) 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 (loss) 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 (loss) and adjusted net earnings (loss) 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 (loss) and adjusted net earnings (loss) per share provide investors and management useful information about the earnings impact from certain non-routine items for the fourth quarter and full year of 2020 compared to the fourth quarter and full year of 2019. reconciliation of our net earnings (loss) and net earnings (loss) per share determined in accordance with u.s. gaap to our non-gaap adjusted net earnings (loss) and non-gaap adjusted net earnings (loss) per share (in thousands, except per share data) (unaudited) for the fourth quarters ended, for the fiscal years ended, january 2, 2021 december 28, 2019 january 2, 2021 december 28, 2019 gaap net (loss) earnings $ 5,345 $ (2,150 ) $ 11,937 $ 8,363 impairment charges (a) 1,446 — 1,446 — tax effect on impairment charges (194 ) — (367 ) — class action settlement (reversal) and associated legal fees (b) — 11,093 (6,502 ) 11,327 tax effect on (settlement) reversal and associated legal fees (2,812 ) 1,649 (2,867 ) cost and asset write-offs associated with site closures (c) 38 195 199 2,726 tax effect on cost and asset write-offs associated with site closures (5 ) (49 ) (50 ) (689 ) severance costs (d) 131 79 921 825 tax effect on severance costs (18 ) (20 ) (234 ) (215 ) adoption of asc 842 lease accounting standard (e) — — — 2,202 tax effect on adoption of asc 842 — — — (553 ) implementation cost of 842 (f) — — — 355 tax effect on implementation of asc 842 — — — (92 ) adjusted net earnings $ 6,743 $ 6,336 $ 8,999 $ 21,382 gaap diluted (loss) earnings per share $ 0.23 $ (0.09 ) $ 0.51 $ 0.36 impairment charges per share 0.06 — 0.06 — tax effect on impairment charges (0.01 ) — (0.02 ) — class action settlement cost and associated legal fees per share — 0.47 (0.28 ) 0.48 tax effect on class action settlement costs and associated legal fees per share — (0.12 ) 0.07 (0.12 ) cost and asset write-offs associated with site closures per share — 0.01 0.01 0.12 tax effect on cost and asset write-offs associated with site closures per share — — — (0.03 ) severance costs per share 0.01 — 0.04 0.04 tax effect on severance costs per share — — (0.01 ) (0.01 ) adoption of asc 842 lease accounting standard per share — — — 0.09 tax effect on adoption of asc 842 per share — — — (0.03 ) implementation cost of 842 per share — — — 0.02 tax effect on implementation of asc 842 per share — — — — adjusted diluted earnings per share $ 0.29 $ 0.27 $ 0.38 $ 0.92 (a) impairment charges mainly associated with the intention to sell the company's facilities in wilmington delaware and fort pierce florida. (b) class action settlement and associated legal fees incurred in fiscal year 2019, and amounts reversed in 2020. (c) cost and asset write-offs mainly associated with the closure of the company’s facility located in wilmington, delaware. (d) cost associated with severance and other employee separations. (e) revenue deferred during the first quarter of 2019 from the adoption of asc 842 lease accounting standard. (f) one-time costs associated with the implementation of asc 842.
