Heritage-crystal clean, inc. announces third quarter 2020 financial results
Elgin, ill.--(business wire)--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 third quarter which ended september 5, 2020. third quarter review revenue for the third quarter of 2020 was $87.1 million compared to $104.8 million for the same quarter of 2019, a decrease of 16.9%. operating margin decreased to 17.8% compared to 20.5% in the third quarter of 2019 primarily due to decreased revenues as a result of the lower economic activity caused by the covid-19 pandemic. our third quarter sg&a expense decreased 12.7% to $10.5 million during the third quarter of 2020 compared to $12.0 million for the third quarter of 2019. the decrease was mainly driven by lower compensation costs, partially offset by higher severance expense. net income attributable to common shareholders for the third quarter was $4.0 million compared to net income attributable to common shareholders of $6.0 million in the year earlier quarter. diluted earnings per share were $0.17 compared to diluted earnings per share of $0.25 in the year-ago quarter. president and ceo brian recatto commented, "while we continue to feel the impact of lower economic activity as a result of the covid-19 pandemic, we experienced significant improvement in our business during the third quarter compared to the second quarter which we believe was the low point of this pandemic driven downturn. the initiatives we put in place to adjust our cost structure during the second quarter helped minimize the negative impact on our profitability during the third quarter." segments our environmental services segment includes parts cleaning, containerized waste, vacuum services, antifreeze recycling, and field services. environmental services revenue was $62.4 million during the quarter compared to $69.0 million during the third quarter of fiscal 2019. the 9.5% decrease in revenue was primarily due to covid-19 related volume declines in most of our product and service lines, partially offset by favorable pricing variances in our parts cleaning and containerized waste lines of business. environmental services profit before corporate selling, general, and administrative expenses was $14.6 million compared to $17.8 million in the year-ago quarter, but $6.3 million, or 75%, higher compared to the second quarter of 2020. our oil business segment includes used oil collection activities, re-refining activities, and sales of recycled fuel oil. during the third quarter of fiscal 2020, oil business revenues decreased 31.1% to $24.7 million compared to $35.8 million in the third quarter of fiscal 2019. during the third quarter, the covid-19 pandemic continued to drive decreased demand for finished lubricants directly impacting both the demand and price for our base oil products. however, revenue increased $5.0 million, or 25.2%, quarter-over-quarter as economic activity improved from pandemic-lows. in addition, base oil gallons produced in the third quarter of 2020 increased 76% from the second quarter of 2020 with production being in-line with the third quarter of 2019. operating margin for the segment fell to 3.4% in the third quarter, compared to 10.5% in the year-ago-quarter, but increased 31.6 percentage points from the fiscal second quarter of 2020. recatto commented, "as demand for our base oil and the supply of used oil improved incrementally during the third quarter, we were able run our re-refinery efficiently which yielded vastly improved profitability in our oil business segment compared to the second quarter." covid-19 update during the third quarter 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. recatto commented, "we are impressed with the efforts of our employees as they continue to provide our customers the excellent service they've come to expect from heritage-crystal clean despite the many personal and professional challenges they face as a result of the pandemic." 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, future financial and operating results, future disclosures of historical financial and operating results, general economic conditions and downturns in the business cycles of automotive repair shops, industrial manufacturing businesses and small businesses in general; increased solvent, fuel and energy costs and volatility in the price of crude oil, the selling price of lubricating base oil, solvent, fuel, energy, and commodity costs; our ability to successfully integrate businesses we acquire; 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 processing facilities including other 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 dependency on key employees; our level of indebtedness, which could affect our ability to fulfill our obligations, impede the implementation of our strategy, and expose us to interest rate risk; our ability to effectively manage our extended network of branch locations; the control of the heritage group over the company; and the risks identified in our annual report on form 10-k filed with the sec on march 3, 2020 and subsequent filings with the sec. given these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. we assume no obligation to update or revise them or provide reasons why actual results may differ. the information in this release should be read in light of such risks and in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this release. about heritage-crystal clean, inc. heritage-crystal clean, inc. provides parts cleaning, used oil re-refining, and hazardous and non-hazardous waste services 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, we recycle 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 we recycle spent antifreeze and produce a full line of virgin-quality antifreeze products. 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 thursday, october 15, 2020 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: 4274573. 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) september 5, 2020 december 28, 2019 assets current assets: cash and cash equivalents $ 52,650 $ 60,694 accounts receivable - net 48,877 55,586 inventory - net 24,835 29,373 other current assets 8,475 7,104 total current assets 134,837 152,757 property, plant and equipment - net 157,473 154,911 right of use assets 82,322 89,525 equipment at customers - net 23,460 24,232 software and intangible assets - net 18,002 16,892 goodwill 37,513 32,997 total assets $ 453,607 $ 471,314 liabilities and stockholders' equity current liabilities: accounts payable $ 26,928 $ 38,058 current portion of lease liabilities 21,563 20,407 contract liabilities - net 2,268 2,252 accrued salaries, wages, and benefits 6,279 6,771 taxes payable 9,162 6,538 other current liabilities 5,782 16,418 total current liabilities 71,982 90,444 lease liabilities, net of current portion 61,582 68,734 long-term debt, less current maturities 29,557 29,348 deferred income taxes 19,645 17,157 total liabilities $ 182,766 $ 205,683 stockholders' equity: common stock - 26,000,000 shares authorized at $0.01 par value, 23,295,600 and 23,191,498 shares issued and outstanding at september 5, 2020 and december 28, 2019, respectively $ 233 $ 232 additional paid-in capital 199,835 200,583 retained earnings 70,773 64,182 total heritage-crystal clean, inc. stockholders' equity 270,841 264,997 noncontrolling interest — 634 total equity 270,841 265,631 total liabilities and stockholders' equity $ 453,607 $ 471,314 heritage-crystal clean, inc. condensed consolidated statements of income (in thousands, except per share amounts) (unaudited) third quarter ended, first three quarters ended, september 5, 2020 september 7, 2019 september 5, 2020 september 7, 2019 revenues service revenues $ 53,257 $ 57,208 $ 169,262 $ 171,522 product revenues 28,522 41,964 88,106 119,124 rental income 5,355 5,668 16,548 14,967 total revenues $ 87,134 $ 104,840 $ 273,916 $ 305,613 operating expenses operating costs $ 67,125 $ 80,116 $ 222,669 $ 241,449 selling, general, and administrative expenses 9,410 11,241 32,066 34,679 depreciation and amortization 5,635 3,980 16,358 12,176 other (income) expense - net (441 ) 1,020 (6,967 ) 2,477 operating income 5,405 8,483 9,790 14,832 interest expense – net 284 181 842 629 income before income taxes 5,121 8,302 8,948 14,203 provision for income taxes 1,163 2,246 2,357 3,411 net income 3,958 6,056 6,591 10,792 income attributable to noncontrolling interest — 86 — 278 net income attributable to heritage-crystal clean, inc. common stockholders $ 3,958 $ 5,970 $ 6,591 $ 10,514 net income per share: basic $ 0.17 $ 0.26 $ 0.28 $ 0.45 net income per share: diluted $ 0.17 $ 0.25 $ 0.28 $ 0.45 number of weighted average shares outstanding: basic 23,294 23,185 23,277 23,146 number of weighted average shares outstanding: diluted 23,479 23,421 23,456 23,384 heritage-crystal clean, inc. reconciliation of operating segment information (unaudited) third quarter ended, september 5, 2020 (thousands) environmental services oil business corporate and eliminations consolidated revenues service revenues $ 47,532 $ 5,725 $ — $ 53,257 product revenues 9,597 18,925 — 28,522 rental income 5,310 45 — 5,355 total revenues $ 62,439 $ 24,695 $ — $ 87,134 operating expenses operating costs 45,383 21,742 — 67,125 operating depreciation and amortization 2,431 2,102 — 4,533 profit before corporate selling, general, and administrative expenses $ 14,625 $ 851 $ — $ 15,476 selling, general, and administrative expenses 9,410 9,410 depreciation and amortization from sg&a 1,102 1,102 total selling, general, and administrative expenses $ 10,512 $ 10,512 other (income) - net (441 ) (441 ) operating income 5,405 interest expense – net 284 284 income before income taxes $ 5,121 third quarter ended, september 7, 2019 (thousands) environmental services oil business corporate and eliminations consolidated revenues service revenues $ 54,066 $ 3,142 $ — $ 57,208 product revenues 9,305 32,659 — 41,964 rental income 5,620 48 — 5,668 total revenues $ 68,991 $ 35,849 $ — $ 104,840 operating expenses operating costs 49,486 30,630 — 80,116 operating depreciation and amortization 1,745 1,439 — 3,184 profit before corporate selling, general, and administrative expenses $ 17,760 $ 3,780 $ — $ 21,540 selling, general, and administrative expenses 11,241 11,241 depreciation and amortization from sg&a 796 796 total selling, general, and administrative expenses $ 12,037 $ 12,037 other expense - net 1,020 1,020 operating income 8,483 interest expense – net 181 181 income before income taxes $ 8,302 first three quarters ended, september 5, 2020 (thousands) environmental services oil business corporate and eliminations consolidated revenues service revenues $ 154,589 $ 14,673 $ — $ 169,262 product revenues 28,619 59,487 — 88,106 rental income 16,483 65 — 16,548 total revenues $ 199,691 $ 74,225 $ — $ 273,916 operating expenses operating costs 150,891 71,778 — 222,669 operating depreciation and amortization 7,049 6,238 — 13,287 profit (loss) before corporate selling, general, and administrative expenses $ 41,751 $ (3,791 ) $ — $ 37,960 selling, general, and administrative expenses 32,066 32,066 depreciation and amortization from sg&a 3,071 3,071 total selling, general, and administrative expenses $ 35,137 $ 35,137 other (income) - net (6,967 ) (6,967 ) operating income 9,790 interest expense – net 842 842 income before income taxes $ 8,948 first three quarters ended, september 7, 2019 (thousands) environmental services oil business corporate and eliminations consolidated revenues service revenues $ 161,273 $ 10,249 $ — $ 171,522 product revenues 29,620 89,504 — 119,124 rental income 14,791 176 — 14,967 total revenues $ 205,684 $ 99,929 $ — $ 305,613 operating expenses operating costs 149,024 92,425 — 241,449 operating depreciation and amortization 5,252 4,308 — 9,560 profit before corporate selling, general, and administrative expenses $ 51,408 $ 3,196 $ — $ 54,604 selling, general, and administrative expenses 34,679 34,679 depreciation and amortization from sg&a 2,616 2,616 total selling, general, and administrative expenses $ 37,295 $ 37,295 other expense - net 2,477 2,477 operating income 14,832 interest expense – net 629 629 income before income taxes $ 14,203 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) third quarter ended, first three quarters ended, (thousands) september 5, 2020 september 7, 2019 september 5, 2020 september 7, 2019 net income $ 3,958 $ 6,056 $ 6,591 $ 10,792 interest expense – net 284 181 842 629 provision for income taxes 1,163 2,246 2,357 3,411 depreciation and amortization 5,635 3,980 16,358 12,176 ebitda (a) $ 11,040 $ 12,463 $ 26,148 $ 27,008 non-cash compensation (b) 726 1,022 2,348 2,744 severance and related costs(c) 422 80 791 746 costs and asset write-offs associated with site closures (d) 22 1,020 160 2,530 adoption of asc 842 lease accounting standard(e) — — — 2,202 implementation costs of asc 842(f) — — — 355 adjusted ebitda (g) $ 12,210 $ 14,585 $ 29,447 $ 35,585 (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 income 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 expense. (c) costs associated with severance and other employee separations. (d) costs mainly associated with the closure of the company's former hub location in indianapolis, in. during fiscal year 2020, and the closure of our facility located in wilmington, delaware during fiscal year 2019. (e) revenue deferred during the first quarter from the adoption of asc 842 lease accounting standard. (f) one-time cost associated with the implementation of asc 842. (g) 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. use of non-gaap financial measures reconciliation of our net income and net income per share determined in accordance with u.s. gaap to our non-gaap adjusted net income and non-gaap adjusted diluted income per share adjusted net income and adjusted net income 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 income and adjusted net income per share provides investors and management useful information about the income impact from certain non-routine items for the third quarter of 2020 compared to the third quarter of 2019. third quarter ended, (in thousands, except per share amounts) september 5, 2020 september 7, 2019 gaap net income $ 3,958 $ 6,056 severance costs 422 80 costs and asset write-offs associated with site closures 22 1,020 net tax effect of items above (112 ) (263 ) adjusted net income $ 4,290 $ 6,893 gaap diluted earnings per share $ 0.17 $ 0.25 severance cost per share 0.02 — costs and asset write-offs associated with site closures per share — 0.04 net tax effect per share of items above (0.01 ) (0.01 ) adjusted diluted income per share $ 0.18 $ 0.28
