us ecology, inc. q2 2017 earnings conference call/media/files/... · 8 q2-17 financial review 71%...
TRANSCRIPT
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US Ecology, Inc.Q2 2017 Earnings Conference Call
July 28, 2017
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Today’s Hosts
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 and Chief Operating Officer
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During the course of this presentation the Company will be making forward-looking statements (as such term is defined in thePrivate Securities Litigation Reform Act of 1995) that are based on our current expectations, beliefs and assumptions about theindustry and markets in which US Ecology, Inc. and its subsidiaries operate.
Forward-looking statements are only predictions and are not guarantees of performance. These statements are based onmanagement's beliefs and assumptions, which in turn are based on currently available information. Important assumptionsinclude, among others, those regarding demand for Company services, expansion of service offerings geographically orthrough new or expanded service lines, the timing and cost of planned capital expenditures, competitive conditions andgeneral economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known andunknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include the replacement ofnon-recurring event clean-up projects, a loss of a major customer, our ability to permit and contract for timely construction ofnew or expanded disposal cells, our ability to renew our operating permits or lease agreements with regulatory bodies, loss ofkey personnel, compliance with and changes to applicable laws, rules, or regulations, access to insurance, surety bonds andother 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 marketconditions, government funding or competitive pressures, incidents or adverse weather conditions that could limit or suspendspecific operations, access to cost effective transportation services, fluctuations in foreign currency markets, lawsuits, ourwillingness or ability to repurchase shares or pay dividends, implementation of new technologies, limitations on our availablecash flow as a result of our indebtedness and our ability to effectively execute our acquisition strategy and integrate futureacquisitions.
Except as required by applicable law, including the securities laws of the United States and the rules and regulations of theSecurities and Exchange Commission (the “SEC”), we are under no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise. You should not place undue reliance on ourforward-looking statements. Although we believe that the expectations reflected in forward-looking statements are reasonable,we cannot guarantee future results or performance. Before you invest in our common stock, you should be aware that theoccurrence of the events described in the "Risk Factors" sections of our annual and quarterly reports could harm our business,prospects, operating results, and financial condition.
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Safe Harbor
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Highlights
Financial Review― Q2 2017
― Year-to-Date 2017
― Financial Position, Cash Flow & Return Metrics
2017 Business Outlook
Questions & Comments
Appendix: Financial Results & Reconciliations
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Agenda
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• Reported solid second quarter results
― $126.1 million of revenue
Up 3% over Q2-2016
Up 14% over Q1-2017
― $27.6 million of adjusted EBITDA
Down less than 1% from Q2-2016
Up 17% from Q1-2017
― Results negatively impacted by idled treatment facility
― Expecting $2.5 to $3.5 million or more of business interruption proceeds related
to Q2-2017
• Environmental Services (“ES”) Segment
― Base Business up 3%
― Event Business returned to growth, up 24%
Second half outlook strong
Some slippage from Q2-17 to Q3-17 to Q4-17
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Q2-17 Highlights
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• Field Services (“FIS”) Segment
― Performance down compared to Q2-16 as expected due to contract non-
renewal
― Significant growth in other field services such as total waste management, lab
pack and LTL helping to partially offset declines
― Industrial Services business lower than expected on industrial maintenance
softness
• Strong indicators of industrial growth and increased business activities, consistent with 2017 outlook
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Q2-17 Highlights
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Financial
Review
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Q2-17 Financial Review
71%
29%
Q2 ‘17 Revenue by Segment
ES
FIS
68%
32%
Q2 ‘16 Revenue by Segment
ES
FIS
• Total revenue $126.1 million compared with
$122.4 million last year
• ES revenue $89.6 million compared to $82.8
million in prior year
― 6% higher treatment and disposal revenue
Growth in the “other”, chemical manufacturing, metal manufacturing and government industry groups, partially offset by declines in the broker/TSDF and general manufacturing industry groups
Base business up 3% compared to the prior year
Event business up 24% compared to prior year
― 15% higher transportation revenue
• FIS revenue $36.5 million, down from $39.6 million
in prior year
− Cycling a large contract not renewed last year
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Q2-17 Financial ReviewPercent Change
Q2 '17 Q2 '16 Q2 '17 vs. Q2 '16
Metal Manufacturing 17% 17% 6%
Chemical Manufacturing 15% 13% 26%
Broker / TSDF 12% 15% -13%
General Manufacturing 12% 14% -10%
Refining 10% 10% 7%
Government 6% 6% 17%
Utilities 4% 5% -8%
Transportation 3% 2% 16%
Mining and E&P 2% 3% -20%
Waste Management & Remediation 2% 2% 9%
Other 17% 13% 40%
Base Event
Metal Manufacturing 10% -46%
Chemical Manufacturing -2% 114%
Broker / TSDF -14% 40%
General Manufacturing -1% -50%
Refining 28% -41%
Government 1% 27%
Utilities -5% -10%
Transportation -10% 500%
Mining and E&P 6% -76%
Waste Management & Remediation 17% -5%
Other 10% 328%
Environmental Services T&D Revenue by Industry
Percent of Total
Environmental Services T&D Revenue by Industry
% Change - Q2 '17 vs. Q2 '16
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• Gross profit of $35.9 million, down from $36.9 million in Q2-16
― ES gross profit of $30.7 million, up from $30.6 million in Q2-16
T&D margin of 38%, down from 42% in Q2-16
Severe wind damage shut down a large treatment facility all of Q2-17
― FIS gross profit of $5.2 million, down from $6.3 million in Q2-16
• SG&A of $20.0 million compared with $19.8 million in Q2-16
― Includes $16,000 of business development expenses compared to $368,000 in Q2-16
• Operating income of $15.9 million, down from $17.1 million in Q2-16
• Interest expense of $8.5 million, up from $4.3 million in Q2-16
― $5.5 million non-cash write-off of deferred financing fees related to former credit
agreement in Q2-17
― Lower overall debt levels and interest rates in Q2-17 compared to Q2-16
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Q2-17 Financial Review`
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• Effective tax rate decreased to 35.0% versus 39.6% in Q2-16
― Higher proportion of earnings from Canadian operations in Q2-17, taxed at a
lower corporate tax rate
• Net income of $5.0 million, or $0.23 per diluted share, compared with $8.9 million, or $0.41 per diluted share in Q2-16
• Adjusted EPS1
of $0.38 per share compared with $0.37 per diluted share in Q2-16
• Adjusted EBITDA1
of $27.6 million, flat compared to $27.7 million in Q2-16
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Q2-17 Financial Review
1See definition and reconciliation of adjusted earnings per share and adjusted EBITDA on pages 19-24 of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K
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• Total revenue of $236.3 million, compared with $235.7 million last year
― ES Segment revenue was $170.9 million, compared with $164.3 million last year
― FIS Segment revenue was $65.4 million, compared with $71.3 million last year
• Gross profit of $67.8 million, down from $72.1 million last year
― ES gross profit of $59.4 million, down from $61.1 million last year
― FIS gross profit of $8.4 million, down from $11.1 million last year
• SG&A of $39.7 million compared with $39.2 million last year
― Includes $53,000 of business development expenses compared to $436,000 last year
• Net income was $10.2 million, or $0.47 per diluted share, down from $16.5 million, or $0.76 per diluted share, last year
• Adjusted EBITDA1 was $51.1 million, compared with $53.9 million last year
• Adjusted EPS1
of $0.61 per share, down from $0.69 per share last year
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YTD Financial Review
1See definition and reconciliation of adjusted earnings per share and adjusted EBITDA on pages 19-24 of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K
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Financial Position, Cash Flow & Return Metrics
• Exited quarter with cash of $4.9 million
• Net borrowings on credit agreement of $272.1 million
• Working Capital = $60.2 million
• YTD Cash generated from operations = $30.8 million
• YTD Capital expenditures = $17.6 million
• YTD Dividends paid = $7.8 million
• YTD Payments on long-term debt = $10.9 million (excl. refinancing)
Return Metrics:
• Return on total capital = 5.6%
• Return on total assets = 3.6%
• Return on total equity = 10.1%
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2017 Business Outlook• Reaffirming 2017 adjusted EBITDA guidance of $120 million to $130 million
– Trending to low end of range
• Reaffirming 2017 adjusted diluted Earnings Per Share Guidance of $1.69 to $1.93
– Now excluding non-recurring, non-cash charge to write-off deferred financing fees on former credit agreement of $0.16
– Previous guidance range remains intact, however now tracking above the mid-point of the range
• Base Business still expected to grow 3-5% for full year 2017
• Event Business remains strong, supports growth in second half 2017
• Expecting Q4 financial performance to approach or equal that of Q3
– Raises risk that some volume “may” shift to 2018
• Increasing 2017 capital expenditures to $37-39 million, up $2 million on landfill and unplanned maintenance spending
• Tax rate expected at 37% for full year
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We invite your questions &
comments!
Questions and
Comments
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We invite your questions &
comments!
Appendix
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US Ecology reports adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per dilutedshare results, which are non-GAAP financial measures, as a complement to results provided inaccordance with generally accepted accounting principles in the United States (GAAP) andbelieves that such information provides analysts, stockholders, and other users information tobetter understand the Company’s operating performance. Because adjusted EBITDA, Pro Formaadjusted EBITDA and adjusted earnings per diluted share are not measurements determined inaccordance with GAAP and are thus susceptible to varying calculations they may not becomparable 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 inunderstanding and assessing financial performance.
Adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share should notbe considered in isolation or as an alternative to, or substitute for, net income, cash flowsgenerated by operations, investing or financing activities, or other financial statement datapresented in the consolidated financial statements as indicators of financial performance orliquidity. Adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted sharehave limitations as analytical tools and should not be considered in isolation or a substitute foranalyzing our results as reported under GAAP.
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Non-GAAP Financial Measures
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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 currencygain/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) plus business developmentexpenses incurred during the period. We believe Pro Forma adjusted EBITDA is helpful in understanding our business and howit relates to our 2017 guidance which does not include 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-cashforeign currency translation gains or losses, the after-tax impact of the non-cash write-off of deferred financing fees relatedto our former credit agreement and the after-tax impact of business development costs, divided by the number of dilutedshares used in the earnings per share calculation.
The foreign currency translation gains or losses excluded from the earnings per diluted share calculation are related tointercompany loans between our Canadian subsidiaries and the U.S. parent that have been established as part of our taxand treasury management strategy. These intercompany loans are payable in Canadian dollars (“CAD”) requiring us torevalue the outstanding loan balance through our consolidated income statement based on the CAD/United Statescurrency movements from period to period. Business development costs relate to expenses incurred to evaluate businessesfor potential acquisition or costs related to closing and integrating successfully acquired businesses. The non-cash write-off ofdeferred financing fees relates to the write-off of the remaining unamortized fees associated with our former creditagreement which was refinanced in April 2017.
We believe excluding non-cash foreign currency translation gains or losses and the after-tax impact of the non-cash write offof deferred financing fees and the after-tax impact of business development costs provides meaningful information toinvestors regarding the operational and financial performance of the Company.
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Non-GAAP Financial Measures - Definitions
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Financial Results: Q2‘17 vs. Q2‘16
1Includes pre-tax Business Development expenses of $16,000 and $368,000 for the three months ended June 30, 2017 and 2016, respectively.
(in t housands, except per share dat a) 2017 2016 $ Change % Change
Revenue $ 126,057 $ 122,351 $ 3,706 3.0%
Gross profit 35,896 36,906 (1,010) -2.7%
SG&A1
20,000 19,819 181 0.9%
Operating income1 15,896 17,087 (1,191) -7.0%
Interest expense, net (8,453) (4,270) (4,183) 98.0%
Foreign currency gain (loss) 158 (343) 501 -146.1%
Other income 166 2,330 (2,164) -92.9%
Income before income taxes 7,767 14,804 (7,037) -47.5%
Income tax expense 2,718 5,866 (3,148) -53.7%
Net income $ 5,049 $ 8,938 $ (3,889) -43.5%
Earnings per share:
Basic $ 0.23 $ 0.41 $ (0.18) -43.9%
Diluted $ 0.23 $ 0.41 $ (0.18) -43.9%
Shares used in earnings per share calculation:
Basic 21,751 21,700
Diluted 21,890 21,790
Three Months Ended June 30,
2020
Financial Results: Q2‘17 vs. Q2‘16
1Includes pre-tax Business Development expenses of $16,000 and $368,000 for the three months ended June 30, 2017 and 2016, respectively.
(in t housands) 2017 2016 $ Change % Change
Adjusted EBITDA / Pro Forma Adjusted EBITDA Reconciliation
Net income 5,049$ 8,938$
Income tax expense 2,718 5,866
Interest expense, net 8,453 4,270
Foreign currency (gain) loss (158) 343
Other income (166) (2,330)
Depreciat ion and amort izat ion 6,987 6,202
Amort izat ion of intangibles 2,615 2,646
Stock-based compensation 1,043 783
Accret ion and non-cash adjustments
of closure & post-closure obligations 1,082 1,025
Adjusted EBITDA1 27,623 27,743 (120)$ -0.4%
Business development expenses 16 368
Pro Forma Adjusted EBITDA 27,639$ 28,111$ (472)$ -1.7%
Adjusted EBITDA by Operating Segment:
Environmental Services 34,642$ 33,551$ 1,091 3.3%
Field & Industrial Services 4,119 5,123 (1,004) -19.6%
Corporate1
(11,138) (10,931) (207) 1.9%
Total 27,623$ 27,743$ (120)$ -0.4%
Three Months Ended June 30,
2121
Financial Results: Q2‘17 vs. Q2‘16
(in t housands, except per share dat a)
Adjusted Earnings Per Share ReconciliationIncome before
income taxes
Income
tax
Net
income
per
share
Income before
income taxes
Income
tax
Net
income
per
share
As reported 7,767$ (2,718)$ 5,049$ 0.23$ 14,804$ (5,866)$ 8,938$ 0.41$
Adjustments:
Non-cash foreign currency translat ion (gain) loss (370) 129 (241) (0.01) 331 (131) 200 0.01
Less: Gain on sale of divested business - - - - (2,208) 875 (1,333) (0.06)
Plus: non-cash write-off of deferred financing fees
related to former credit agreement 5,461 (1,911) 3,550 0.16 - - - -
Plus: Business development costs 16 (6) 10 - 368 (146) 222 0.01
As adjusted 12,874$ (4,506)$ 8,368$ $ 0.38 13,295$ (5,268)$ 8,027$ $ 0.37
Shares used in earnings per diluted share calculat ion 21,890 21,790
Three Months Ended June 30,
2017 2016
2222
Financial Results: Q2’17 YTD vs. Q2’16 YTD
1Includes pre-tax Business Development expenses of $53,000 and $436,000 for the six months ended June 30, 2017 and 2016, respectively.
(in t housands, except per share dat a) 2017 2016 $ Change % Change
Revenue $ 236,291 $ 235,669 $ 622 0.3%
Gross profit 67,769 72,114 (4,345) -6.0%
SG&A1
39,714 39,244 470 1.2%
Impairment charges - - - n/m
Operating income1 28,055 32,870 (4,815) -14.6%
Interest expense, net (12,573) (8,780) (3,793) 43.2%
Foreign currency gain 246 416 (170) -40.9%
Other income 303 2,499 (2,196) -87.9%
Income before income taxes 16,031 27,005 (10,974) -40.6%
Income tax expense 5,797 10,550 (4,753) -45.1%
Net income $ 10,234 $ 16,455 $ (6,221) -37.8%
Earnings per share:
Basic $ 0.47 $ 0.76 $ (0.29) -38.2%
Diluted $ 0.47 $ 0.76 $ (0.29) -38.2%
Shares used in earnings per share calculation:
Basic 21,738 21,692
Diluted 21,874 21,768
Six Months Ended June 30,
2323
Financial Results: Q2’17 YTD vs. Q2’16 YTD
1Includes pre-tax Business Development expenses of $53,000 and $436,000 for the six months ended June 30, 2017 and 2016, respectively.
(in t housands) 2017 2016 $ Change % Change
Adjusted EBITDA / Pro Forma adjusted EBITDA Reconciliation
Net income 10,234$ 16,455$
Income tax expense 5,797 10,550
Interest expense, net 12,573 8,780
Foreign currency gain (246) (416)
Other income (303) (2,499)
Depreciat ion and amort izat ion 13,621 12,106
Amort izat ion of intangibles 5,286 5,256
Stock-based compensation 1,959 1,578
Accret ion and non-cash adjustments
of closure & post-closure obligations 2,155 2,049
Impairment charges - -
Adjusted EBITDA1 51,076 53,859 (2,783)$ -5.2%
EBITDA related to divested Allstate business 53 436
Business development expenses - -
Pro Forma adjusted EBITDA 51,129$ 54,295$ (3,166)$ -5.8%
Adjusted EBITDA by Operating Segment:
Environmental Services 66,498$ 66,604$ (106) -0.2%
Field & Industrial Services 6,183 8,801 (2,618) -29.7%
Corporate1
(21,605) (21,546) (59) 0.3%
Total 51,076$ 53,859$ (2,783)$ -5.2%
Six Months Ended June 30,
2424
Financial Results: Q2’17 YTD vs. Q2’16 YTD
(in t housands, except per share dat a)
Adjusted Earnings Per Share ReconciliationIncome before
income taxes
Income
tax
Net
income
per
share
Income before
income taxes
Income
tax
Net
income
per
share
As reported 16,031$ (5,797)$ 10,234$ 0.47$ 27,005$ (10,550)$ 16,455$ 0.76$
Adjustments:
Non-cash foreign currency translat ion gain (515) 186 (329) (0.02) (599) 234 (365) (0.02)
Less: Gain on sale of divested business - - - - (2,208) 863 (1,345) (0.06)
Plus: non-cash write-off of deferred financing fees related to former credit agreement5,461 (1,975) 3,486 0.16 - - - -
Plus: Business development costs 53 (19) 34 - 436 (170) 266 0.01
As adjusted 21,030$ (7,605)$ 13,425$ $ 0.61 24,634$ (9,623)$ 15,011$ $ 0.69
Shares used in earnings per diluted share calculat ion 21,874 21,768
Six Months Ended June 30,
2017 2016