The chief executive of Charlotte-based Swisher Hygiene is trying to convince investors and customers that his company is on the verge of a turnaround. But in many ways, Swisher Hygiene is still haunted by its recent mistakes.
Tom Byrne, who took over in February, faces a daunting task: Take a company once lauded as a homegrown Charlotte success story and guide its recovery from accounting issues that cost millions of dollars and knocked the stock down to 82 cents a share.
Swisher says federal prosecutors and the Securities and Exchange Commission have contacted the company, seeking more information about alleged accounting irregularities. The company also faces federal lawsuits from shareholders.
It’s been a rough year for a company formerly run by business moguls Wayne Huizenga and Steve Berrard, the duo behind Blockbuster Video and Waste Management.
Swisher enjoyed years of rapid growth: In 2011, The Wall Street Journal named Swisher the most acquisitive company in the U.S., as it purchased 54 different businesses with an announced deal value of $220 million.
Byrne, a veteran of Blockbuster and a private equity firm, says Swisher still has a bright future.
“If we are able to execute and create the critical mass, we should be able to grow to a level of profitability,” Byrne said in an interview at Swisher’s SouthPark-area headquarters, where the company employs about 100 people. “It’s not a new business where you’re wondering, ‘Gosh, I wonder if this business model is going to work.’ ”
Swisher Hygiene built its reputation doing other companies’ dirty work: it sanitized restrooms. But Swisher is trying to shed its original image as a toilet-cleaning company, Byrne said, as about two-thirds of its revenue now comes from manufacturing and selling cleaning chemicals.
Less than a third of its revenue comes from bathroom hygiene, now called the “legacy business.”
The company’s financial picture has been choppy: Swisher lost $15.4 million in its second quarter, on top of a $17.2 million loss in its first quarter.
The lawsuits against the company allege financial malfeasance. In one filed in Charlotte, plaintiffs claim the company deliberately inflated its stock price.
In another, the former owners of a Florida waste company sued Swisher Hygiene and former executives including Berrard and Huizenga. The waste company owners claim Swisher used misleading information to persuade them to sell their company. They also maintain they didn’t receive stock that was part of the sale price.
“I don’t know how they can say all of their troubles are behind them, and we think they still owe our clients upwards of $50 million,” said attorney Bud Bennington, who represents the waste company’s former owners.
Problems follow growth
Byrne is telling investors the company’s troubles boil down to one thing: It grew too rapidly.
Huizenga and Berrard bought Swisher Hygiene in 2004, for a reported $14 million. Berrard left early retirement to serve as CEO, and Huizenga, who has a Forbes-estimated net worth of $2.45 billion, became chairman of the board.
In 2007, Berrard told the Observer that Swisher Hygiene was “probably the best business I’ve ever seen.” The company’s expansion plans accelerated to a gallop after Swisher went public for the second time in 2010, using its stock to fuel the acquisitions of dozens of smaller hygiene and chemical firms.
Swisher has said its accounting personnel and procedures were simply inadequate to deal with the flood of acquisitions the company took on in 2011, resulting in accounting mistakes.
Those problems led to delayed financial reports and restatements from Swisher. Ultimately, the company cycled through three chief financial officers as it sought to resolve the issues. Swisher’s restated financials increased losses by $4.8 million for 2011, before taxes.
“We did a lot of acquisitions in a quick period of time,” said Byrne, who is a partner in Berrard and Huizenga’s private equity fund. “People in accounting did what they thought was proper, and upon a more lengthy review we found things that needed to be changed.”
He said there was no wrongdoing. “Employees here weren’t concerned there was anything really bad that happened,” said Byrne.
Berrard and Huizenga left their executive posts at Swisher, but remain the company’s largest shareholders. Between them, they own about 28 percent of shares outstanding. Former Florida Gov. Jeb Bush and Canadian Senator David Braley, two of the board’s other members, also stepped down. Berrard remains a board member.
Byrne, who commutes to Charlotte from his home in Florida, is a co-founder with Berrard at New River Capital Partners, their private equity fund. He said Swisher now must work to rebuild trust from investors, by getting back to filing timely financial reports.
The company filed its second-quarter results on time this month. “Filing a timely second quarter restores trust,” said Byrne.
For years, Swisher Hygiene grew steadily from its roots in Charlotte, where the company was founded. In 1987, when Swisher shares first started trading publicly, the company reported $3.4 million in annual revenue. By 2001, revenue had increased to a reported $15 million.
But in 2001, the SEC accused the company of accounting fraud in a civil lawsuit. Swisher paid $400,000 in fines and penalties to settle the case, without admitting or denying guilt.
Then, in 2002, founder Patrick Swisher was sentenced to 2 1/2 years in prison after pleading guilty in a federal tax evasion case. He is no longer involved with the company.
Now, Swisher Hygiene is in legal hot water again.
The company disclosed this year that the Securities and Exchange Commission and Charlotte-based federal prosecutors have asked for information about the company’s restated financials, requests with which Swisher said it is complying. The U.S. Attorney’s Office declined to comment, and the SEC didn’t return a message seeking comment.
A class-action lawsuit in federal court in Charlotte accuses the company of deliberately misstating its financials to boost its stock price.
Relying on statements from unnamed confidential witnesses who used to work at the company, the plaintiffs said Swisher changed its financial results to keep the company within limits on its loan covenants and meet pre-determined financial goals.
“Swisher was attempting to manage its earnings by manipulating its accounting results to meet internal projections,” the lawsuit says.
The plaintiffs also accuse Swisher of a host of other financial deceptions, including recording a corporate apartment in Charlotte, plane tickets and meals for senior executives and board members as accounts payable instead of executive compensation.
Swisher has denied deliberate wrongdoing and moved to dismiss the case.
The pending lawsuits aren’t weighing down the company’s day-to-day operations, Byrne said, but he acknowledged they are likely hurting the company’s stock price.
He said he couldn’t comment on the lawsuits, other than to say Swisher will continue to defend itself vigorously.
A $35 billion market
For the past few weeks, Swisher’s stock has bounced around below $1 a share. The company faces possible delisting from Nasdaq if the price doesn’t improve in the next few months. Byrne said he believes the stock will come back as the company starts to perform.
“The stock will recover as we deliver on the plans that we have for the business and investors can see that consistent growth,” said Byrne. “The stock will take care of itself. The fundamentals of this business are very attractive.”
Byrnes’ pitch now is straightforward.
The sanitation and hygiene chemicals business is a $35-billion market. That market has come to be largely dominated by one company, Minnesota-based Ecolab, which has $11.8 billion worth of annual revenues – far larger that Swisher’s $230 million worth of revenue last year.
“Large corporate accounts and distributors got to the point where they really only had one viable option in the market,” said Byrne. “I think there will always need to be a competitor in this market.”
Swisher is trying to cut costs and increase efficiency. The company eliminated 1.2 million annual paper transactions with new, handheld electronic devices, and now makes 80 percent of its own chemicals, up from none three years ago. And Swisher now ships directly to many customers, eliminating warehousing costs.
The annual savings add up to $15 million, which the company expects to start seeing soon. Internal investigation costs – which have topped $18.9 million – are winding down. Swisher is also hoping to land more lucrative, large corporate accounts, which Byrne said were most impacted by the financial restatement process.
“We lost a couple customers, but the biggest impact was customers that had wanted to move their business to Swisher, but stepped back,” he said.
Interest from large corporate accounts is picking up now that the company has filed restated financials and declared the audit process over, Byrne said. In its most recent quarter, Swisher said it gained 2,000 new clients and new corporate accounts with more than 700 locations.
Byrne said Swisher doesn’t plan to acquire any more companies in 2013.
“Certainly for 2013 the focus is on organic growth,” said Byrne. “In 2014, will we start to look at acquisitions? Yes.”
Portillo: 704-358-5041; Twitter @ESPortillo
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