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 first quarter which ended March 26, 2022.

First Quarter Review

Revenue for the first quarter of 2022 was $139.4 million compared to $105.4 million for the same quarter of 2021, an increase of 32.2%.

Overall Operating Margin increased by $6.5 million but decreased slightly on a percentage of revenue basis to 23.4%, driven primarily by the increase in costs compared to the increase in revenue in our Environmental Services Segment, compared to 24.8% during the first quarter of 2021. Our first quarter corporate SG&A expense was $15.3 million, or 11.0% of revenue, compared to $13.4 million, or 12.8% of revenue, for the first quarter of 2021.

Net income for the first quarter was $12.9 million compared to net income of $9.2 million in the year-ago quarter. Basic earnings per share were $0.55 compared $0.39 in the year-ago quarter.

Segments

Our Environmental Services segment includes parts cleaning, containerized waste, wastewater vacuum, antifreeze recycling, and field services. Environmental Services revenue was $84.7 million during the quarter compared to $69.5 million during the first quarter of fiscal 2021. The 21.9% increase in revenue was mainly due to the increase in demand for our services compared to the prior year quarter and, to a lesser extent, by revenue from acquisitions made during the second half of 2021. We experienced revenue increases across all service lines in the segment when compared to the first quarter of 2021. Environmental Services profit before corporate selling, general, and administrative expenses was $14.1 million, or 16.7% of revenue, compared to $16.0 million, or 23.0% of revenue, in the year-ago quarter. The decrease in operating margin was mainly driven by higher disposal, transportation and container costs caused by extraordinarily high inflation.

President and CEO Brian Recatto commented, "We are very pleased with the level of revenue growth we achieved during the quarter compared to 2021. However, despite actions taken in the fourth quarter and near the end of the first quarter, we were not able to do enough to protect our margin in the segment. During the second quarter we are taking additional steps to help battle the unprecedented inflationary pressure we are experiencing in this segment."

Our Oil Business segment includes used oil collection and re-refining activities, as well as sales of recycled fuel oil. During the first quarter of fiscal 2022, Oil Business revenue was a record high for a 12-week quarter at $54.7 million, an increase of $18.8 million, or 52.3%, compared to $35.9 million in the first quarter of fiscal 2021. An increase in base oil prices was the main driver of the increase in revenue along with a slight increase in base oil sales volume compared to the prior year quarter. Oil Business segment operating margin increased to 33.7% in the first quarter of 2022 compared to 28.1% in the first quarter of fiscal 2021. The higher operating margin compared to the first quarter of 2021 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.

Recatto commented, "We're excited to report our Oil Business team continued to execute well during the first quarter in terms of managing pay-for-oil, route collection efficiency and operation of our re-refinery which allowed us to produce a record fifth straight quarter of operating margin above 28.0%."

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, 2022. 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 manufacturers and other industrial businesses as well as customers in the vehicle maintenance sector. 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 small-to-medium sized manufacturers, such as metal product fabricators and printers, and other industrial businesses as well as businesses involved in vehicle maintenance operations, such as car dealerships, automotive repair shops, and trucking firms. Through our used oil re-refining program during fiscal 2021, we recycled approximately 66 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 2021 we recycled approximately 3.9 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 2021 we recycled 2 million gallons of used solvent into virgin-quality solvent to be used again by our customers. In addition, we sold 0.5 million gallons of used solvent into the reuse market. Through our containerized waste program during fiscal 2021 we collected 21 thousand tons of regulated waste which was sent for energy recovery. Through our wastewater vacuum services program during fiscal 2021 we treated approximately 49 million gallons of wastewater. Heritage-Crystal Clean, Inc. is headquartered in Elgin, Illinois, and operates through 91 branches serving approximately 98,000 customer locations.

Conference Call

The Company will host a conference call on Thursday May 5, 2022 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, https://crystal-clean.com/investor-relations/, and can participate on the call by dialing (888) 440-4149. After dialing the number, you will be required to provide the following passcode before being joined to the conference call: 8889427.

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)

 

 

 

March 26,
2022

 

January 1,
2022

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

71,066

 

 

$

56,269

 

Accounts receivable - net

 

 

70,047

 

 

 

62,513

 

Inventory - net

 

 

30,195

 

 

 

29,536

 

Assets held for sale

 

 

1,125

 

 

 

1,125

 

Other current assets

 

 

5,954

 

 

 

6,773

 

Total current assets

 

 

178,387

 

 

 

156,216

 

Property, plant and equipment - net

 

 

171,893

 

 

 

166,301

 

Right of use assets

 

 

91,528

 

 

 

83,865

 

Equipment at customers - net

 

 

24,582

 

 

 

24,146

 

Software and intangible assets - net

 

 

44,676

 

 

 

45,949

 

Goodwill

 

 

49,695

 

 

 

49,695

 

Other assets

 

 

654

 

 

 

692

 

Total assets

 

$

561,415

 

 

$

526,864

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

43,055

 

 

$

36,179

 

Current portion of lease liabilities

 

 

21,598

 

 

 

20,146

 

Contract liabilities - net

 

 

2,570

 

 

 

2,094

 

Accrued salaries, wages, and benefits

 

 

6,632

 

 

 

8,980

 

Taxes payable

 

 

13,448

 

 

 

8,474

 

Other current liabilities

 

 

11,944

 

 

 

9,476

 

Total current liabilities

 

 

99,247

 

 

 

85,349

 

Lease liabilities, net of current portion

 

 

72,192

 

 

 

65,041

 

Other long term liabilities

 

 

591

 

 

 

473

 

Contingent consideration

 

 

1,410

 

 

 

2,819

 

Deferred income taxes

 

 

31,525

 

 

 

31,126

 

Total liabilities

 

$

204,965

 

 

$

184,808

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

Common stock - 26,000,000 shares authorized at $0.01 par value, 23,477,764 and 23,473,931 shares issued and outstanding at March 26, 2022 and January 1, 2022, respectively

 

$

235

 

 

$

235

 

Additional paid-in capital

 

 

206,390

 

 

 

204,920

 

Retained earnings

 

 

149,945

 

 

 

137,067

 

Accumulated other comprehensive loss

 

 

(120

)

 

 

(166

)

Total stockholders' equity

 

$

356,450

 

 

 

342,056

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

561,415

 

 

$

526,864

 

 

Heritage-Crystal Clean, Inc.

Condensed Consolidated Statements of Income

(In Thousands, Except per Share Amounts)

(Unaudited)

 

 

 

First Quarter Ended,

 

 

March 26,
2022

 

March 27,
2021

 

 

 

 

 

Revenues

 

 

 

 

Service revenues

 

$

68,907

 

 

$

57,700

 

Product revenues

 

 

64,482

 

 

 

42,266

 

Rental income

 

 

5,977

 

 

 

5,416

 

Total revenues

 

$

139,366

 

 

$

105,382

 

 

 

 

 

 

Operating expenses

 

 

 

 

Operating costs

 

$

101,783

 

 

$

76,771

 

Selling, general, and administrative expenses

 

 

13,735

 

 

 

12,188

 

Depreciation and amortization

 

 

6,507

 

 

 

3,782

 

Other (income) - net

 

 

(210

)

 

 

(108

)

Operating income

 

 

17,551

 

 

 

12,749

 

Interest expense – net

 

 

223

 

 

 

324

 

Income before income taxes

 

 

17,328

 

 

 

12,425

 

Provision for income taxes

 

 

4,450

 

 

 

3,219

 

Net income

 

$

12,878

 

 

$

9,206

 

 

 

 

 

 

Net income per share: basic

 

$

0.55

 

 

$

0.39

 

Net income per share: diluted

 

$

0.54

 

 

$

0.39

 

 

 

 

 

 

Number of weighted average shares outstanding: basic

 

 

23,476

 

 

 

23,373

 

Number of weighted average shares outstanding: diluted

 

 

23,636

 

 

 

23,509

 

 

Heritage-Crystal Clean, Inc.

Reconciliation of Operating Segment Information

(Unaudited)

 

First Quarter Ended,

March 26, 2022

(thousands)

 

Environmental
Services

 

Oil Business

 

Corporate and
Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Service revenues

 

$

66,299

 

$

2,608

 

$

—

 

 

$

68,907

 

 

Product revenues

 

 

12,389

 

 

52,093

 

 

—

 

 

 

64,482

 

 

Rental income

 

 

5,963

 

 

14

 

 

—

 

 

 

5,977

 

Total revenues

 

$

84,651

 

$

54,715

 

$

—

 

 

$

139,366

 

Operating expenses

 

 

 

 

 

 

 

 

 

Operating costs

 

 

67,618

 

 

34,165

 

 

—

 

 

 

101,783

 

 

Operating depreciation and amortization

 

 

2,888

 

 

2,084

 

 

—

 

 

 

4,972

 

Profit before corporate selling, general, and administrative expenses

 

$

14,145

 

$

18,466

 

$

—

 

 

$

32,611

 

Selling, general, and administrative expenses

 

 

 

 

 

 

13,735

 

 

 

13,735

 

Depreciation and amortization from SG&A

 

 

 

 

 

 

1,535

 

 

 

1,535

 

Total selling, general, and administrative expenses

 

 

 

 

 

$

15,270

 

 

$

15,270

 

Other (income) - net

 

 

 

 

 

 

(210

)

 

 

(210

)

Operating income

 

 

 

 

 

 

 

 

17,551

 

Interest expense – net

 

 

 

 

 

 

223

 

 

 

223

 

Income before income taxes

 

 

 

 

 

 

 

$

17,328

 

First Quarter Ended,

March 27, 2021

(thousands)

 

Environmental
Services

 

Oil Business

 

Corporate and
Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Service revenues

 

$

53,303

 

$

4,397

 

$

—

 

 

$

57,700

 

 

Product revenues

 

 

10,747

 

 

31,519

 

 

—

 

 

 

42,266

 

 

Rental income

 

 

5,407

 

 

9

 

 

—

 

 

 

5,416

 

Total revenues

 

$

69,457

 

$

35,925

 

$

—

 

 

$

105,382

 

Operating expenses

 

 

 

 

 

 

 

 

 

Operating costs

 

 

51,880

 

 

24,891

 

 

—

 

 

 

76,771

 

 

Operating depreciation and amortization

 

 

1,579

 

 

948

 

 

—

 

 

 

2,527

 

Profit before corporate selling, general, and administrative expenses

 

$

15,998

 

$

10,086

 

$

—

 

 

$

26,084

 

Selling, general, and administrative expenses

 

 

 

 

 

 

12,188

 

 

 

12,188

 

Depreciation and amortization from SG&A

 

 

 

 

 

 

1,255

 

 

 

1,255

 

Total selling, general, and administrative expenses

 

 

 

 

 

$

13,443

 

 

$

13,443

 

Other (income) - net

 

 

 

 

 

 

(108

)

 

 

(108

)

Operating income

 

 

 

 

 

 

 

 

12,749

 

Interest expense – net

 

 

 

 

 

 

324

 

 

 

324

 

Income before income taxes

 

$

12,425 

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)

 

 

 

 

 

 

 

First Quarter Ended,

(thousands)

March 26,
2022

 

March 27,
2021

Net income

$

12,878

 

$

9,206

 

 

 

 

 

Interest expense – net

 

223

 

 

324

 

 

 

 

 

Provision for income taxes

 

4,450

 

 

3,219

 

 

 

 

 

Depreciation and amortization

 

6,507

 

 

3,782

 

 

 

 

 

EBITDA (a)

$

24,058

 

$

16,531

 

 

 

 

Non-cash compensation (b)

 

1,493

 

 

1,218

 

 

 

 

Adjusted EBITDA (c)

$

25,551

 

$

17,749

 

 

 

 

 

(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)

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.