Business Wire | Jul 28, 2021 04:59PM EDT

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

Jul. 28, 2021

ELGIN, Ill.--(BUSINESS WIRE)--Jul. 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.

Heritage-Crystal Clean, Inc.

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Par Value Amounts)

(Unaudited)

June 19, January 2, 2021 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 $ 234 $ 233 issued and outstanding at June 19, 2021 and January2, 2021, respectively

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.

Condensed Consolidated Statements of Income

(In Thousands, Except per Share Amounts)

(Unaudited)

Second Quarter Ended, First Half Ended,

June 19, June 13, June 19, June 13, 2021 2020 2021 2020



Revenues

Service $ 60,033 $ 52,247 $ 117,732 $ 116,004 revenues

Product 51,551 21,863 93,817 59,584 revenues

Rental income 5,695 5,408 11,111 11,194

Total revenues $ 117,279 $ 79,518 $ 222,660 $ 186,782



Operating expenses

Operating $ 78,329 $ 72,293 $ 155,099 $ 155,543 costs

Selling, general, and 13,039 11,134 25,228 22,656 administrative expenses

Depreciation and 5,619 5,455 9,401 10,723 amortization

Other (income) (330 ) (6,796 ) (439 ) (6,525 ) - net

Operating income 20,622 (2,568 ) 33,371 4,385 (loss)

Interest expense 177 344 501 558 - net

Income (loss)before income 20,445 (2,912 ) 32,870 3,827 taxes

Provision for(benefit from) 5,334 (254 ) 8,553 1,194 income taxes

Net income $ 15,111 $ (2,658 ) $ 24,317 $ 2,633 (loss)



Net income(loss) per $ 0.65 $ (0.11 ) $ 1.04 $ 0.11 share: basic

Net income(loss) per $ 0.64 $ (0.11 ) $ 1.03 $ 0.11 share: diluted



Number ofweighted averageshares 23,404 23,260 23,389 23,249 outstanding:basic

Number ofweighted averageshares 23,565 23,260 23,537 23,434 outstanding:diluted

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

Heritage-Crystal Clean, Inc.

Reconciliation of Operating Segment Information

(Unaudited)

Second Quarter Ended,

June 19, 2021

Environmental Oil Corporate(thousands) Services Business and Consolidated Eliminations



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 2,430 2,109 - 4,539 amortization

Profit beforecorporate selling,general, and $ 19,167 $ 15,244 $ - $ 34,411 administrativeexpenses

Selling, general, andadministrative 13,039 13,039 expenses

Depreciation and 1,080 1,080 amortization from SG&A

Total selling,general, and $ 14,119 $ 14,119 administrativeexpenses

Other (income) - net (330 ) (330 )

Operating income 20,622

Interest expense - net 177 177

Income before income $ 20,445 taxes

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

)

Second Quarter Ended,

June 13, 2020

Environmental Oil Corporate(thousands) Services Business and Consolidated Eliminations



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 2,348 2,082 - 4,430 amortization

Profit (loss) beforecorporate selling,general, and $ 8,348 $ (5,553 ) $ - $ 2,795 administrativeexpenses

Selling, general,and administrative 11,134 11,134 expenses

Depreciation andamortization from SG 1,025 1,025 &A

Total selling,general, and $ 12,159 $ 12,159 administrativeexpenses

Other income - net (6,796 ) (6,796 )

Operating loss (2,568 )

Interest expense - 344 344 net

Loss before income $ (2,912 )taxes

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 19, 2021

Environmental Oil Corporate(thousands) Services Business and Consolidated Eliminations



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 4,008 3,058 - 7,066 amortization

Profit beforecorporate selling,general, and $ 35,166 $ 25,329 $ - $ 60,495 administrativeexpenses

Selling, general, andadministrative 25,228 25,228 expenses

Depreciation and 2,335 2,335 amortization from SG&A

Total selling,general, and $ 27,563 $ 27,563 administrativeexpenses

Other (income) - net (439 ) (439 )

Operating income 33,371

Interest expense - net 501 501

Income before income $ 32,870 taxes

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

First Half Ended,

June 13, 2020

Environmental Oil Corporate(thousands) Services Business and Consolidated Eliminations



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

Operatingdepreciation and 4,618 4,136 - 8,754 amortization

Profit (loss)before corporateselling, general, $ 27,126 $ (4,641 ) $ - $ 22,485 and administrativeexpenses

Selling, general,and administrative 22,656 22,656 expenses

Depreciation andamortization from 1,969 1,969 SG&A

Total selling,general, and $ 24,625 $ 24,625 administrativeexpenses

Other income - net (6,525 ) (6,525 )

Operating income 4,385

Interest expense - 558 558 net

Income before $ 3,827 income taxes

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210728006050/en/

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