Swisher Hygiene's (SWSH) CEO Bill Pierce on Q1 2014 Results - Earnings Call Transcript

May.13.14 | About: Swisher Hygiene, (SWSH)

Swisher Hygiene, Inc. (NASDAQ:SWSH)

Q1 2014 Earnings Conference Call

May 13, 2014 8:30 am ET


Garrett Edson - ICR

Bill Pierce - President & CEO

Bill Nanovsky - SVP & CFO

Blake Thompson - SVP & COO


Justin Hauke - Robert W. Baird & Co., Inc.


Good day, ladies and gentlemen, and welcome to the Swisher First Quarter 2014 Earnings Call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this call is being recorded.

I would now like to turn the call over to Garrett Edson. Mr. Edson, you may begin.

Garrett Edson

Thank you, Andrew. By now everyone should have access to our earnings announcement and Form 10-Q, which were filed earlier and can be found at swsh.com under the Investors section. Before we begin our formal remarks, I need to remind everyone this conference call may include forward-looking statements regarding Swisher Hygiene, Inc., its business and prospects.

The forward-looking information is subject to risks, uncertainties and other factors that may cause actual results and performance to materially differ from results or performance expressed or implied by the forward-looking information.

Swisher undertakes no obligation to publicly revise the forward-looking information presented except as acquired by law. Also, our discussion today may include references to certain non-GAAP measures, reconciliation of these measures to the most comparable GAAP measure can be found on our website at swsh.com under the Investors section.

At this time, I would like to turn the call over to Bill Pierce, President and Chief Executive Officer of Swisher.

Bill Pierce

Thank you, Garrett, and good morning. With me today are Bill Nanovsky, our Senior Vice President and Chief Financial Officer, as well as our Senior Vice President and Chief Operating Officer, Blake Thompson. Both of them will be available later in the call to answer questions.

Our first quarter of 2014 saw significant progress in our efforts to achieve efficiency in order of right-size our cost structure and stabilize our operating platform. As a result, we went from a fourth quarter where we had over $17 million in cash usage when excluding cash received from assets that were sold to a first quarter where we used only $3.9 million including $1.9 million legal settlement. This was a dramatic improvement in our cash usage in just quarter and has left us optimistic that our use of cash is aligning much more closely with our improving operating efficiencies and cost reductions.

It has been a true team effort in all facets over the last few quarters and we believe our efforts are being rewarded. Let me take you through some brief highlights of the quarter and where things stand with regard to our operations and our expectations.

The first quarter 2014 for Swisher saw revenue of $48.3 million, down 7% from the prior year period, but down only 3% when fully adjusting for assets that were sold.

Net loss was $0.08 per share compared to a net loss per share of $0.10 in the prior year period.

Our adjusted EBITDA loss was $5.2 million versus $6.3 million in the prior year period.

Blake Thompson will take you through a more detailed revenue analysis and Bill Nanovsky will take you through the financials in more detail in a few minutes.

As I just noted, while our revenue has not yet turned positive on a year-over-year basis, we have closed the gap further which tracks with what we are seeing on our previous call in terms of certain business operations and regions being up year-over-year. With a significant cost improvement now being realized in our results our main focus is squarely on growing the top line via our velocity of sales through service.

To reiterate, that means doing the right thing the first time, every time with our existing account base to maximize revenue, increase our retention and set the base from which we can build future growth and cross-selling opportunities with our existing customers and with our new customers.

Blake will be along shortly to talk about our progress including recent wins, contract renewals and additional revenue gains from our cross-selling efforts.

Further, despite the ongoing efforts with our existing customer base that we have spent so much time and focus on, we approached the top brand national accounts in the first quarter that was not profitable for us and worked out a new cost structure that is mutually beneficial for both parties. This is just one example of recent successes that Blake will discuss and we believe it is predicated on our service excellence. Without taking the utmost care of our customers we would not be in a position to increase sales for the long-term.

On the cost side, you will note that we have reclassified certain service function to be reflected as route related expense, which is more indicative of the primary role we expect from our customer facing account manager. We continue to see the positive impact of our operating plan on cost reductions in the first quarter and most notably on our SG&A expense line.

Our overall focus on service excellence, our people and growing profitability has not wavered. And the team is in place and is starting to deliver on its promise. As I said repeatedly, we don't need to dominate the sector to grow successfully. We just need to win our fair share of profitable business going forward, continue to provide premium service to our customers and further improve our cost structure. We are progressing in each of those areas as we continue to manage the business better and make the hard decisions necessary to turn Swisher around for the long-term.

I'd now like to turn the call over to Blake who will give you more detail about where we are in the execution of our recent sales efforts and sales force restructuring. Blake?

Blake Thompson

Thanks, Bill. As Bill described, we made significant progress with our efforts on the cost and capital spending components in the business. I am confident our ongoing initiatives in place today will continue to streamline our expenses. We want to personally congratulate and thank our team members for their diligence and performance in these areas of the business.

On our last call, we discussed the efforts being made to build out the structure for our service and sales organization along with the supporting processes, systems and tools that will support sustainable, profitable revenue growth.

Let me provide some detail on the quarter revenue results, talk to some wins on the revenue front and then update on our progress with these ongoing efforts.

As we discussed in the prior call in March, we experienced revenue weakness in the northeastern service geographies which included the upper Midwestern U.S. with customers reporting lower patron foot traffic having an impact on both chemical and hygiene services sales in January and February. We were also impacted with some collateral revenue loss in our hygiene products and services as we essentially decoupled it from the linen business in the southeast region.

We continue to be encouraged with our core product revenue performance of which the sizeable majority consists of chemical customers and dispensing equipment sales as we have started to make headway and stabilize that product line. Overall, as our core chemical product continues to increase its share of the business, we believe this area will have the most impact in our ability to grow. We are within reach of growing our top line there on a year-over-year basis.

In the first quarter, we generated some solid wins with existing and new key customers, distributed partners. In our western sales geography, we recently on boarded a larger hospitality property with potential additions for future sister properties. This is a good example of our ability to cross sell and close deals to move the revenue needle.

We are originally biding on these customers in-house laundry only which will generate about $250,000 in annual revenue. The scope expanded to their ware washing and housekeeping services in total with single property we now generate $400,000 to $500,000 of annual revenue.

Our commitment to service got us in the door and when we deliver on our service commitment they are potentially three other properties in same geography we would have the opportunity to win.

We also made significant strides in retaining our top customers. We recently extended service agreements with two of our four largest customers, while our other largest customers still have multiple years remaining on their existing agreements. Of those top four customers, we continue to see solid growth with all of them; three of the four growing revenue by double-digits in the first quarter and remaining one in the high single-digits.

We also recently renewed a service with one of our larger casual dining multiple rooftop customers that continues to open new stores.

We believe our renewals are being realized through our focus on service excellence. We perform better with some us customers versus others but our customers know we are committed to service excellence and may see our efforts focused on continually improving these key areas.

We recently entered into agreements with two new solid distribution partners in our opportunity rich northeastern sales geography. In the first quarter, we also launched an ongoing national program to focus our service and sales teams as well as our distributor partners on additional cross-selling efforts.

Our growth efforts continue to build on the structural changes we have made in our selling organization as well as improving on the supporting process and systems and tools. We're reinventing our approach in terms of how we attack opportunities for profitable growth by geography, by customer and by business. Again, it is all predicated and ultimately focused on sales through service and getting all team members working smarter.

It is important to remember that not too long ago we were many different acquired companies with different approaches for growing revenue and servicing customers. We continue to come together driving a unified Swisher culture aligning ourselves around a common approach for servicing customers and growing revenue. As I mentioned in the last call, we're focused on three key outcomes of our actions to grow profitably. Number one, retention of existing customers; two, up-selling our existing customers; and number three, building a reputation for service that will ensure revenue growth from new customers.

Again, the approach we're taking is one of building from the bottom up to be built to last. Engaging all of our service and sales team members to drive sales through service is critical for our ultimate organic growth success. We need to lead first with our service excellence proposition and then ensure we are delivering on our promise each and every time.

We still have much work ahead of us but we're gaining momentum. Our team members are energized and committed and we continue to have confidence in our approach and our people.

We want to thank all of our team members for their efforts and contributions to-date. You are making a difference.

I'd now like to introduce Bill Nanovsky, who will review the financial results for the quarter in more detail.

Bill Nanovsky

Thanks, Blake, and good morning. The revenue softness from the prior year was primarily due to the sale of non-core route business during the previous three quarters. We grew hospitality revenue in our northeastern geography and customer turnover.

As Bill Pierce mentioned earlier, excluding revenue generated in the first quarter of 2013 from assets that were sold, revenue for the first quarter of 2014 declined 3% from the prior year period. By way of comparison, in the first quarter of 2013, the year-over-year decline in revenue compared with the first quarter in 2012 was 11% and the year over year shortfall has steadily decreased during the last four quarters.

First quarter cost of sales dollars improved 3% from the prior year period. However, as a percentage of revenue, it was up 180 basis points for the first quarter of 2013. The increase primarily reflects $500,000 related to a realignment of freight cost previously classified in SG&A as well as our overall revenue mix. First quarter route expenses declined 7% from the prior year period. As a percentage of revenue, first quarter route expenses were up 20 basis points from 2013 due primarily to the decline in the first quarter 2014 revenue and partially offset by route optimization and operating standardization initiatives.

SG&A expenses were down $7.6 million or 27% from the first quarter of 2013. Excluding unusual expenses in the first quarter of '14 and the prior year quarter, SG&A expenses declined $3.9 million or 16% from the prior year quarter.

This decrease reflects the $500,000 related to a realignment of freight cost to cost of sales, reduced compensation expenses, cost efficiencies, a reduction in stock-based compensation and the sale of certain linen assets. To give you some flavor, we have 18 lines in SG&A which we track, and 15 of those 18 lines have declined. Of the three that increased they increased by only an aggregate amount of $250,000.

During the first quarter of 2014, the company sold a small portion of its assets held for sale. Additionally, the company recorded an impairment of $2 million on the remaining assets held for sale. As of March 31, 2014, Swisher had assets held for sale on its balance sheet of $1.6 million.

On the balance sheet, we have $17.5 million in non-restricted cash and over $32 million in working capital as of March 31, 2014. We also have $6.1 million in outstanding debt having paid down $1.2 million in debt during the first quarter.

Also, for the first quarter of 2014, we spent $1.9 million on property and equipment purchases, a 50% decline from the prior year quarter, while dish machine and dispenser installations actually increased by 6%.

We continue to expect to spend less than $10 million on property and equipment purchases in 2014. And that total includes the planned plant consolidation beginning in the third quarter of 2014.

From a liquidity standpoint, we used $3.9 million in cash in the first quarter of which $1.9 million was a one-time litigation settlement payment linked to our former solid waste segment.

If you look at our operating cash flow from a continuing operations before capital expenditures and debt payments, we were actually positive in the quarter, a major improvement from just a quarter ago given the softness in revenue in the quarter.

There is still much work to be done to improve our operating cash flow but we expect to continue to see our operating efficiencies and cost reductions aligning with our use of cash.

I'd like to now turn the call back over to Bill Pierce for closing remarks.

Bill Pierce

Thanks, Bill. As you can see, we have made great strides in reducing our cost footprint, and that's due to our entire team making a commitment to our operating plan. Yet, our job is not done and we expect continue improvement with our cost structure.

To sum up, I want to again thank the dedicated men and women of the Swisher team for their hard work as their efforts in the field and corporate support led us to a much improved first quarter. We acknowledge that the next step is to grow our top line in a proper manner and this remains our primary focus.

Our near term goal is to get over the hump and generate quarterly cash flow profitability, and we expect to continue our progress toward that goal during the remainder of 2014. Ultimately, we are focused on the sustainable long-term goal of both positive annual operating EBITDA and cash flow and we believe we can deliver this for the 2015 fiscal year.

We remain committed to our overall philosophy of service people and profitability. We have an operating plan, positive momentum toward our goals, committed management field teams and the assets necessary to achieve success.

We know there is a demand for an alternative provider in this $30 billion industry and we will continue to execute to get our fair share of that business and grow Swisher for the long-term.

Thank you for joining our call this morning and for your continued support. We will now open up the call for questions and answers. Operator?

Question-and-Answer Session


Thank you. (Operator Instructions). And I have the first question from the line of Justin Hauke from Baird. Your line is open.

Justin Hauke - Robert W. Baird & Co., Inc.

Thanks. Good morning, guys. And thanks for taking us through the color on the cash flow and good to see that improvement during the quarter. So good job on that. I wanted to dig a little bit more into that just to kind of understand the balance of the year and outside of the operating cash flow maybe some of the other movers that are in there. With the $6 million or $6.1 million of debt, can you talk a little bit about the pay down schedule on that and what that’s comprised? And I know there is some converts in there that, I think you’ve some discretion on, and so maybe just what we should think about in terms of what your additional debt pay down will be for the balance of this year?

Bill Nanovsky

Justin, Bill Nanovsky, good morning. The long-term debt consists of three pieces. It consists of seller notes, which is about two-thirds of the balance. It consists of insurance financing, which is an annual note, and it consists of a small amount of capital leases.

Of the seller notes, about 60%, 65% of those will be repaid a year from now. On the capital lease, over half will be repaid a year from now, and obviously on the insurance financing all will be paid a year from now. So we, about a year from now we will have under $2 million of debt on the books.

Bill Pierce

So Justin, that's kind of (inaudible) through the traffic, that kind of bill that kind of equates to about $4 million of all those obligations. I think you look on the balance sheet we've got about $4.3 million in obligations within in a year. So you’re trying to model that out around $4 million for the remainder of the year. Is that right, Bill?

Bill Nanovsky

That’s correct.

Justin Hauke - Robert W. Baird & Co., Inc.

Got it, okay. Okay so that’s about $4 million balance of the year on that and you spent just under $2 million on CapEx you’re looking at somewhere under $10 million. So call it another $7 million or $8 million of CapEx for the balance of the year. So that’s what we should be kind of thinking about in terms of outside of the operating side of the business?

Bill Nanovsky

Justin one minor tweak, the numbers I was giving you were 12 months numbers multiply those by 75% if you’re trying to get the December 31.

Justin Hauke - Robert W. Baird & Co., Inc.

Got it.

Bill Nanovsky

In other words, about $3 million.

Justin Hauke - Robert W. Baird & Co., Inc.

Sure, got it. Okay, that makes sense. Okay that’s helpful on that side I guess on the top-line you mentioned whether, I don’t know if that’s something you can quantify specifically how that impacted the foot traffic in the upper Midwest, in the northeast, some of the regions where you saw there was weakness. I mean it sounds like other regions of the business actually did post positive year-over-year growth. Any additional detail on that front that can kind of help us think about may be the one-times in the quarter that holds you back otherwise?

Bill Pierce

Yes, this is Bill Pierce, Justin; let me let Blake talk to that more specifically. We were focused in our business, in our out-based business you can’t allow the weather to dictate your business. And we were very cognizant of the service regimen we had to complete despite the weather. And Blake’s field report is that we did an outstanding job in those geographies and all geographies particularly those impacted by weather in completing services.

What Blake will elaborate on though is that our customers have reported to us that they had significant softness in their foot traffic which impacts our ultimate sales of chemicals, et cetera and the use of paper or air fresheners and everything else. So there is obviously is a correlation. And I'll let Blake talk to it a little bit further.

Blake Thompson

I don’t know that there is a definitive analytic you can get into. It's anecdotal and I can’t -- I can’t give you a number of an impact. I know we know we felt some impact in our regions hit the hardest from the winter weather. And although we had some other geographies that did quite well, I’ve got two geographies that actually beat last year’s revenue numbers on the chemical side of the business on the chemical revenue in our southeastern region its been seasoned and Florida we had some good growth there.

One of the other things that we dealt with I mentioned it on my script is we decoupled the linen business in the southeast. We started that process in the late fourth quarter and finished it somewhere in the middle of January, at the end of January. And it was a little disruptive for us. It was very intertwined with our existing chemical and service business and was probably beginning middle of February when we actually transitioned out of the effects of all that with lot of customers taking all services from us that we had to decouple as we sold that business off.

Justin Hauke - Robert W. Baird & Co., Inc.

Okay, that’s helpful. May be one another question on the top-line. You mentioned retention rate and clearly that’s a part of at least in the past what was a headwind for you, can you talk about may be what your retention rate is today versus may be where it was a year ago or couple of quarters ago just to kind to get a sense of how that metric has improved?

Blake Thompson

I can’t give you specific numbers, okay. What I will tell you is that when you look at mid tier and larger customers we’ve had a significantly fewer losses of those customers over the last six months. Most of losses occurred beginning middle of last year and the end of 2012. I would tell you that in general our retention rate has improved. And again, that is -- I can’t quantify that but I know we’ve improved our retention rate particularly with the and mid -- mid tier and larger customers that we service.

Justin Hauke - Robert W. Baird & Co., Inc.

Got it. Okay. And then, let me do one last one and then I'll jump back in the queue. Just for modeling purposes. On the realignment from the route expense or SG&A to route expense, in terms of thinking about 2Q through 4Q since we don't have reclassified financials for those quarters, should we think about being basically at $2 million shift between those two line items like it was in the first quarter for the balance of the year? Just for getting a clean year-over-year comparison.

Bill Nanovsky

We obviously were being responsive to the change in the expectations of what our account managers do.

Justin Hauke - Robert W. Baird & Co., Inc.


Bill Nanovsky

And that number is somewhat a variable number that will grow or shrink with our performance on the sale side. Being a believer in where we're going, I'll say it will grow with the performance on the sales side. And $2 million is a good platform for the rest of the year because the number of people is what it is.

Bill Pierce

Okay. And Justin, this is Bill. I think Bill said it very well, Bill Pierce. The first quarter is big at baseline in terms of looking forward.

Justin Hauke - Robert W. Baird & Co., Inc.


Bill Pierce

And the impact on the business, as Bill Nanovsky said, will impact that obviously, but hopefully the growth causes us to start moving that lineup in dollars but down in percent.

Justin Hauke - Robert W. Baird & Co., Inc.

Got it. Okay. Great. Thank you very much. I'll jump in queue.


Thank you. Our next question comes from the line of Robert Shrago[ph] from RIS Investments. Your line is open.

Bill Pierce

Good morning, Robert.

Unidentified Analyst

Congratulations. I used to be involved with our old company before you went private. I see that Wayne Hussein[ph] is the biggest shareholder in the company. Is he involved in the company at all? Because you guys are doing a good job but you still can't get the bottom line to be positive and the stock has sort of reflected itself that your $0.40 stock down from $1.32 at time, so people don't -- investors don't particularly see your company's future bright as you guys think is going to be. So the question number one is, is Hussein. Is he involved with your company because I have the highest respect for him and for his past performance and he is the biggest shareholder by far of the company and insiders buying as well? Those are the type of questions I have right now. If you can answer then I'll appreciate it.

Bill Pierce

Sure. Thanks Robert. Wayne is one of the largest shareholders, not the largest, and is not involved in the company. Stepped beyond from the board just over a year ago.

And with respect to insiders buying, we've had one insider buy in the last quarter and we are always open to insiders buying and obviously it's reported, so you will know when, if they did. I appreciate your question.

Unidentified Analyst

The last question I have and we'll drive to that. I mean the company does have some cash. The stock seems to be very low in regard to other things although you do have a market cap of $65 million, you obviously have so many shares out there. Number one, is a company considering possibility of a reverse split or buying back some of the shares?

Bill Pierce

Yes, the company has announced in it's proxy that as a requirement to remain listed on the NASDAQ, we put shareholders 10:1 share, 10:1 split on plan in place that if your stock does not get to a dollar for the minimal number of days except when we will remain listed on the NASDAQ capital markets, we'll require to remain listed to affect the stock split and that is being voted on by shareholders and we will talk about that in the annual meeting in two days.

Unidentified Analyst

All right. That may explain why our stock is so low, may be going lower unfortunately. You guys talk a very positive thing but ultimately our stock is getting destroyed. And I think you should be considering that more than anything else. You got to get the bottom line positive.

Bill Pierce

We agree 100% with you, that's what everyone's efforts are toward. And we're working on and that is to produce results and produce numbers that instill confident on our investors and enable them to make good investment decisions and buy the stock and increase the value for all shareholders. Thank you for your questions, Robert.


Thank you. Our next question is actually a follow-up from Justin Hauke from Baird. Your line is open.

Justin Hauke - Robert W. Baird & Co., Inc.

Yeah. Thanks guys. Just one last one. On the remaining $1.6 million, its asset held for sale, I think in the queue you noted that those were expected to be sold within the next three months. Have you already signed definitive letters and is there a buyer for that? Or where are you on the process of divesting your remaining winning assets?

Bill Nanovsky

Justin, Bill Nanovsky. The answer is all of the above and I'm not being cute. There are certain locations where we have multiple parties that are interested and giving us indications of interest. We have some areas that are continuing discussions with companies that have made prior purchases. The only thing they all have in common is our goal to have them all liquidated by June 30.

Justin Hauke - Robert W. Baird & Co., Inc.

Got it. Okay. That's it for me. Thank you.


Thank you. (Operator Instructions).

Bill Pierce

We appreciate everyone’s attendance, appreciate the questions, appreciate your confidence in the company and your interest in the company. And we're going to go back to work following this call to deliver on the expectation that we set out in the call. Thank you, everyone.


Ladies and gentlemen, this now concludes today’s conference. Thank you for your participation and you may now disconnect. Everyone have a great day.

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