US Ecology, Inc. Q1 2016 Earnings Conference Call April 29, 2016 1 - - PowerPoint PPT Presentation
US Ecology, Inc. Q1 2016 Earnings Conference Call April 29, 2016 1 Todays Hosts Jeff Feeler Chairman & Chief Executive Officer Eric Gerratt Executive Vice President & Chief Financial Officer Steve Welling Executive Vice
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US Ecology, Inc. Q1 2016 Earnings Conference Call
April 29, 2016
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Jeff Feeler Chairman & Chief Executive Officer Eric Gerratt Executive Vice President & Chief Financial Officer Steve Welling Executive Vice President of Sales and Marketing Simon Bell Executive Vice President of Operations – Environmental Services Mario Romero Executive Vice President of Operations – Field and Industrial Services
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During the course of this presentation the Company will be making forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) that are based on our current expectations, beliefs and assumptions about the industry and markets in which US Ecology, Inc. and its subsidiaries operate. Such statements may include, but are not limited to, statements about the Company's ability to integrate its acquisition of EQ—The Environmental Quality Company (EQ), expected synergies from the transaction, projections of the financial results of the combined company and other statements that are not historical facts. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by US Ecology, EQ and their respective subsidiaries, conditions affecting our customers and suppliers, competitor responses to our products and services, the overall market acceptance of such products and services, the integration and performance of acquisitions (including the acquisition of EQ) and other factors disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. For information on other factors that could cause actual results to differ materially from expectations, please refer to US Ecology, Inc.'s December 31, 2015 Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission. Many of the factors that will determine the Company's future results are beyond the ability of management to control or predict. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date such statements are made. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or
Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking information include the replacement of non-recurring event clean-up projects, a loss of a major customer, our ability to permit and contract for timely construction of new or expanded disposal cells, our ability to renew our operating permits or lease agreements with regulatory bodies, loss of key personnel, compliance with and changes to applicable laws, rules, or regulations, access to insurance, surety bonds and other financial assurances, a deterioration in our labor relations or labor disputes, our ability to perform under required contracts, failure to realize anticipated benefits and operational performance from acquired operations, adverse economic or market conditions, government funding or competitive pressures, incidents or adverse weather conditions that could limit or suspend specific operations, access to cost effective transportation services, fluctuations in foreign currency markets, lawsuits, our willingness or ability to pay dividends, implementation of new technologies, limitations on our available cash flow as a result of our indebtedness and our ability to effectively execute our acquisition strategy and integrate future acquisitions.
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Highlights Financial Review
― Q1 2016 ― Financial Position, Cash Flow & Return Metrics
2016 Business Outlook Questions & Comments Appendix: Financial Results & Reconciliations
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― Strong Field and Industrial Services (“FIS”) segment growth ― Focus on corporate cost control ― Environmental Services (“ES) segment results were in- line with expectations
― Excluding Allstate & business development expenses, pro forma adjusted EBITDA1 was down 6% from Q1-15
share in Q1-15
1See definition and reconciliation of adjusted EBITDA, pro forma adjusted EBITDA and adjusted earnings per share on pages 20-24 of this presentation or attached as Exhibit A to our earnings
release filed with the SEC on Form 8-K
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Q1-15 after adjusting for the divested Allstate business
revenues by 10%
― Cycling of an event project where we provided transportation and logistics support through our FIS segment ― Growth in our managed services, small quantity generator services and industrial services
contributed to lower costs year over year
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― Down 6% sequentially from Q4-15, as expected ― Stronger Base Business across several industry verticals:
― Cycled completion of large east coast cleanup project and nuclear fuels fabrication cleanup ― Excluding these two large projects, Event Business was down 2% from compared to Q1-15 ― No benefit from milder winter conditions
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― Will generate a gain in Q2-16
― Paid down $10.8 million of debt in the first quarter
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72% 28% Q1 ‘16 Revenue by Segment
ES FIS
64% 36% Q1 ‘15 Revenue by Segment
ES FIS
million last year
year ― 7% lower treatment and disposal revenue ― 4% lower service (transportation & logistics) revenue ― Lower revenues from the chemical manufacturing, government and metal manufacturing industry groups, partially offset by higher revenues from the
groups ― Base business up 7% compared to the prior year ― Event business down 44% compared to prior year from cycling the completion of large east coast cleanup project and nuclear fuels fabrication cleanup
year − Allstate revenue of $13.9 million in Q1-15 − Remaining decrease primarily from lower transportation services revenues due to cycling the completion of large east coast cleanup project
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Percent Change Q1 '16 Q1 '15 Q1 '16 vs. Q1 '15 Metal Manufacturing 16% 16%
Broker / TSDF 15% 15%
Chemical Manufacturing 14% 25%
Refining 12% 10% 5% General Manufacturing 11% 9% 11% Government 6% 7%
Utilities 5% 3% 36% Mining and E&P 3% 2% 13% Transportation 3% 2% 14% Waste Management & Remediation 2% 2%
Other 13% 9% 51% Base Event Metal Manufacturing
Broker / TSDF
Chemical Manufacturing
Refining 57%
General Manufacturing 15%
Government
Utilities 6% 67% Mining and E&P
306% Transportation 14% 13% Waste Management & Remediation
Other 31% 762% Environmental Services T&D Revenue by Industry Percent of Total Environmental Services T&D Revenue by Industry % Change - Q1 '16 vs. Q1 '15
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― ES gross profit of $30.5 million, down from $33.2 million in Q1-15
― FIS gross profit of $4.8 million, down from $6.7 million in Q1-15
― Total SG&A includes $68,000 of business development expenses, compared to $1.7 million in Q1-15 ― Allstate contributed $3.0 million of SG&A in Q1-15
― Allstate contributed $398,000 of operating loss in Q1-15
― Lower debt levels ― Q1-16 includes $200,000 of incremental non-cash amortization of deferred financing fees associated with debt prepayments during the quarter
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― Lower proportion of earnings from Canadian operations, taxed at a lower corporate tax rate ― Higher effective U.S. state rate from changes in apportionment between the various states in which we operate
― Pro Forma adjusted EBITDA1 of $26.2 million, down 6% from $27.9 million in Q1-15
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1See definition and reconciliation of adjusted earnings per share, adjusted EBITDA , and Pro Forma
adjusted EBITDA on pages 20-24 of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K
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Return Metrics (excl. $6.7 million of Q2 ‘15 impairment charges):
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― Adjusted EBITDA1 estimated to range from $126 million to $132 million ― Earnings Per Share1 estimated between $1.80 to $1.95 per diluted share
business unit reclassification ― ES revenue range of $361 million to $379 million ― FIS revenue estimate of $141 million to $149 million
1Guidance excludes non-cash foreign currency translation gains or losses,
gain/loss on divestiture and business development expenses
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Business Climate and Segment Outlook:
― Base Business full year growth in low single digit range ― Event pipeline remains strong, solid bidding activity, still back- half loaded
― Expect growth experienced in first quarter to be tempered in future quarters ― Continued focus on revenue quality
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Allstate Power Vac Quarterly Income Statements: 2015
For the Year Ended March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015 December 31, 2015 Revenue 13,935 $ 16,925 $ 20,139 $ 8,056 $ 59,055 $ Direct operating costs 11,293 13,666 15,249 6,480 46,688 Gross profit 2,642 3,259 4,890 1,576 12,367 Selling, general and administrative expenses 3,040 3,657 3,213 1,039 10,949 Impairment charges
Operating income (398) (6,765) 1,677 538 (4,948) Other income (expense): Interest income
(21) (6)
Foreign currency loss
33 33 33 (531) (432) Total other income (expense) 12 27 33 (531) (459) Income before income taxes (386) (6,738) 1,710 7 (5,407) Income tax expense (benefit) (147) (2,560) 650 3 (2,054) Net income (239) $ (4,178) $ 1,060 $ 4 $ (3,353) $ Earnings per share: Basic ( 0.01 ) $ ( 0.19 ) $ 0.05 $
( 0.16 ) $ Diluted ( 0.01 ) $ ( 0.19 ) $ 0.05 $
( 0.16 ) $ Shares used in earnings per share calculation: Basic 21,583 21,617 21,655 21,676 21,637 Diluted 21,689 21,748 21,749 21,748 21,733 Net Income (239) $ (4,178) $ 1,060 $ 4 $ (3,353) $ Income tax expense (147) (2,560) 650 3 (2,055) Interest expense 21 6
Interest income
(33) (33) (33) 531 432 Impairment charges
Depreciation and amortization of plant and equipment 899 967 377
Amortization of intangible assets 569 569 235
Stock-based compensation 12 20 24 (35) 21 Accretion and non-cash adjustments of closure & post- closure obligations
1,082 $ 1,158 $ 2,313 $ 502 $ 5,055 $ For the Three Months Ended
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US Ecology reports adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share results, which are non-GAAP financial measures, as a complement to results provided in accordance with generally accepted accounting principles in the United States (GAAP) and believes that such information provides analysts, stockholders, and other users information to better understand the Company’s operating performance. Because adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations they may not be comparable to similar measures used by other companies. Items excluded from adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share are significant components in understanding and assessing financial performance. Adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or
have limitations as analytical tools and should not be considered in isolation or a substitute for analyzing our results as reported under GAAP.
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Adjusted EBITDA The Company defines adjusted EBITDA as net income before interest expense, interest income, income tax expense, depreciation, amortization, stock based compensation, accretion of closure and post-closure liabilities, foreign currency gain/loss and other income/expense, which are not considered part of usual business operations. Pro Forma adjusted EBITDA The Company defines Pro Forma adjusted EBITDA as adjusted EBITDA (see definition above) less the adjusted EBITDA related to the divested Allstate business, plus business development expenses incurred during the period. We believe Pro Forma adjusted EBITDA is helpful in understanding our business and how it relates to our 2016 guidance which includes neither the divested Allstate business nor business development expenses. Adjusted Earnings Per Diluted Share The Company defines adjusted earnings per diluted share as net income adjusted for the after-tax impact of non-cash foreign currency translation gains or losses, the after-tax impact of business development costs, and the after-tax impact of the divested Allstate business, divided by the number of diluted shares used in the earnings per share calculation. The foreign currency translation gains or losses excluded from the earnings per diluted share calculation are related to intercompany loans between our Canadian subsidiary and the U.S. parent which have been established as part of our tax and treasury management strategy. These intercompany loans are payable in Canadian dollars (“CAD”) requiring us to revalue the
from period to period. Business development costs relate to expenses incurred to evaluate businesses for potential acquisition or costs related to closing and integrating successfully acquired businesses. We believe excluding these non-cash foreign currency movements for intercompany financial instruments and business development costs provides meaningful information to investors regarding the operational and financial performance of the Company.
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1Includes pre-tax Business Development expenses of $0.1 million and $1.7 million for the
three months ended March 31, 2016 and 2015, respectively
(in t housands, except per share dat a) 2016 2015 $ Change % Change Revenue $ 113,318 $ 136,651 $ (23,333)
Gross profit 35,208 39,844 (4,636)
SG&A1 19,425 24,893 (5,468)
Operating income1 15,783 14,951 832 5.6% Interest expense, net (4,510) (5,653) 1,143
Foreign currency gain (loss) 759 (1,067) 1,826
Other 169 536 (367)
Income before income taxes 12,201 8,767 3,434 39.2% Income tax expense 4,684 2,902 1,782 61.4% Net income $ 7,517 $ 5,865 $ 1,652 28.2% Earnings per share: Basic $ 0.35 $ 0.27 $ 0.08 29.6% Diluted $ 0.35 $ 0.27 $ 0.08 29.6% Shares used in earnings per share calculation: Basic 21,684 21,583 Diluted 21,745 21,689 Three Months Ended March 31,
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(in t housands) 2016 2015 $ Change % Change Adjusted EBITDA / Pro Forma adjusted EBITDA Reconciliation Net income 7,517 $ 5,865 $ Income tax expense 4,684 2,902 Interest expense, net 4,510 5,653 Foreign currency (gain) loss (759) 1,067 Other income (169) (536) Depreciation and amortization 5,904 7,479 Amortization of intangibles 2,610 3,302 Stock-based compensation 795 463 Accretion and non-cash adjustments
1,024 1,035 Adjusted EBITDA1 26,116 27,230 (1,114) $
EBITDA related to divested Allstate business
Business development expenses 68 1,740 Pro Forma adjusted EBITDA 26,184 $ 27,888 $ (1,704) $
Three Months Ended March 31,
1Includes pre-tax Business Development expenses of $0.1 million and $1.7 million for the
three months ended March 31, 2016 and 2015, respectively
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(in t housands, except per share dat a) Adjusted Earnings Per Share Reconciliation per share per share Net income / earnings per diluted share 7,517 $ 0.35 $ 5,865 $ 0.27 $ Adjustments, net of tax: Divested Allstate businesss
0.01 Non-cash foreign currency translation (gain) loss (573) (0.03) 647 0.03 Business development costs 42
0.05 Adjusted net income / adjusted earnings per diluted share 6,986 $ $ 0.32 7,818 $ $ 0.36 Shares used in earnings per diluted share calculation 21,745 21,689 Three Months Ended March 31, 2016 2015