us ecology, inc. q4 2016 earnings conference call/media/files/u/us...q4 2016 earnings conference...

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US Ecology, Inc.Q4 2016 Earnings Conference Call

February 17, 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 the PrivateSecurities Litigation Reform Act of 1995) that are based on our current expectations, beliefs and assumptions about the industry andmarkets in which US Ecology, Inc. and its subsidiaries operate. Such statements may include, but are not limited to, statements aboutthe Company's ability to integrate its acquisition of EQ—The Environmental Quality Company (EQ), expected synergies from thetransaction, projections of the financial results of the combined company and other statements that are not historical facts. Suchstatements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company todiffer 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 andsuppliers, competitor responses to our products and services, the overall market acceptance of such products and services, theintegration and performance of acquisitions (including the acquisition of EQ) and other factors disclosed in the Company's periodicreports filed with the Securities and Exchange Commission. For information on other factors that could cause actual results to differmaterially from expectations, please refer to US Ecology, Inc.'s December 31, 2015 Annual Report on Form 10-K and other reports filedwith the Securities and Exchange Commission. Many of the factors that will determine the Company's future results are beyond theability of management to control or predict. Readers should not place undue reliance on forward-looking statements, which reflectmanagement's views only as of the date such statements are made. The Company undertakes no obligation to revise or update anyforward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events orotherwise.

Important assumptions and other important factors that could cause actual results to differ materially from those set forth in theforward-looking information include the replacement of non-recurring event clean-up projects, a loss of a major customer, our abilityto permit and contract for timely construction of new or expanded disposal cells, our ability to renew our operating permits or leaseagreements 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 toperform 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 thatcould 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 aresult of our indebtedness and our ability to effectively execute our acquisition strategy and integrate future acquisitions.

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Safe Harbor

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Highlights

Financial Review― Q4 2016

― Full Year 2016

― Financial Position, Cash Flow & Return Metrics

2017 Business Outlook

Questions & Comments

Appendix: Financial Results & Reconciliations

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Agenda

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• Continued industrial sector sluggishness and challenging market

dynamics

• Fourth quarter strong each month except December

― No significant year end push by customers

― Winter weather impacted year-end shipments

• Base Business down 4% over same period last year

― Base Business down 3% sequentially from Q3-16

• Deferrals continued in project work

― Larger multi-year project expected to ship in Q4-16 now moving

end of Q1-17

• Field and Industrial Services (“FIS”) lower than expectations on softer

market conditions

• Many long-term initiatives completed in 2016, benefiting future periods

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Q4-16 Highlights

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Financial

Review

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Q4-16 Financial Review

73%

27%

Q4 ‘16 Revenue by Segment

ES

FIS

67%

33%

Q4 ‘15 Revenue by Segment

ES

FIS

• Total revenue $117.2 million compared with $138.3 million last year

• ES revenue $85.7 million, down from $92.7 million in prior year

― 4% lower treatment and disposal revenue

― 24% lower transportation revenue

― Lower revenues from the government, metal

manufacturing and chemical manufacturing industry groups, partially offset by higher revenues from the refining industry group

― Base business down 4% compared to the prior year― Event business down 17% compared to prior year

from cycling the completion of nuclear fuels fabrication cleanup

• FIS revenue $31.5 million, down from $45.5 million in prior year

− Allstate revenue of $8.1 million in Q4-15

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Percent Change

Q4 '16 Q4 '15 Q4 '16 vs. Q4 '15

Metal Manufacturing 15% 16% -13%

Chemical Manufacturing 15% 16% -13%

General Manufacturing 14% 14% -7%

Broker / TSDF 14% 14% -8%

Refining 11% 8% 20%

Government 5% 8% -36%

Utilities 4% 4% 2%

Transportation 3% 2% 24%

Waste Management & Remediation 3% 2% -2%

Mining and E&P 2% 3% -21%

Other 14% 13% 4%

Base Event

Metal Manufacturing -4% -86%

Chemical Manufacturing -18% -6%

General Manufacturing -15% 61%

Broker / TSDF -6% -95%

Refining 6% 145%

Government 27% -56%

Utilities 62% -40%

Transportation 20% 0%

Waste Management & Remediation 6% -16%

Mining and E&P -19% -100%

Other -1% 30%

Environmental Services T&D Revenue by Industry

Percent of Total

Environmental Services T&D Revenue by Industry

% Change - Q4 '16 vs. Q4 '15

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• Gross profit of $36.1 million, down from $44.2 million in Q4-15

― ES gross profit of $32.1 million, down from $36.3 million in Q4-15

T&D margin of 41.0%, down from 44.0% in Q4-15

― FIS gross profit of $4.0 million, down from $7.8 million in Q4-15

Allstate contributed $1.6 million of gross profit in Q4-15

• SG&A of $19.9 million compared with $22.0 million in Q4-15

― Q4-16 SG&A includes $138,000 of business development expenses, compared to $88,000 in Q4-15

― Allstate contributed $1.0 million of SG&A in Q4-15

• Operating income of $16.2 million, down from $22.2 million in Q4-15

― Allstate contributed $538,000 of operating income in Q4-15

• Interest expense of $4.2 million, down from $7.2 million in Q4-15

― $2.4 million charge for deferred financing costs in Q4-15 and lower debt levels in Q4-16

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• Effective tax rate decreased to 35.5% versus 45.5% in Q4-15

― Decline in our U.S. effective tax rate, primarily driven by a non-recurring capital loss as a result of the sale of Allstate recorded in the fourth quarter of 2015, as well as changes in our apportionments between the various states in which we operate.

― Higher proportion of earnings from Canadian operations in Q4-16, taxed at a lower corporate tax rate

• Net income of $7.7 million, or $0.35 per diluted share, consistent with Q4-15

― Q4-15 net income reflects $340,000 of net income from Allstate

• Adjusted EPS1

of $0.36 per share, consistent with Q4-15

• Adjusted EBITDA1

of $27.3 million, down 17% from $33.0 million in Q4-15

― Pro Forma adjusted EBITDA1

of $27.4 million compared with $32.6 million in Q4-15

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1See definition and reconciliation of adjusted earnings per share, adjusted EBITDA , and Pro Forma adjusted EBITDA on pages 19-26 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 $477.7 million, compared with $563.1 million last year

― Allstate contributed $59.1 million of revenue during 2015

• ES Segment revenue was $337.8 million, compared with $359.0 million last year

• FIS Segment revenue was $139.9 million, compared with $204.0 million last year

― Allstate contributed $59.1 million of revenue during 2015

• Net income was $34.3 million, or $1.57 per diluted share, up from $25.6 million, or $1.18 per diluted share, in 2015

― Net income for 2015 reflects $6.7 million of impairment charges

• Adjusted EBITDA1 was $112.8 million, compared with $125.5 million last year

― Allstate contributed $5.1 million of Adjusted EBITDA during 2015

• Pro Forma Adjusted EBITDA1, which excludes Allstate and business development expenses, was $113.4 million, compared with $122.6 million last year

• Adjusted EPS1

of $1.53 per share, down from $1.57 per share last year

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2016 Financial Review

1See definition and reconciliation of adjusted earnings per share, adjusted EBITDA , and Pro Forma adjusted EBITDA on pages 19-26 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 $7.0 million

• Net borrowings on credit agreement of $277.5 million

• Working Capital = $52.8 million

• YTD Cash generated from operations = $74.6 million

• YTD Capital expenditures = $35.7 million

• YTD Dividends paid = $15.7 million

• YTD Payments on long-term debt and capital leases = $18.1 million

Return Metrics:

• Return on total capital = 6.1%

• Return on total assets = 4.4%

• Return on total equity = 12.8%

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• Adjusted EBITDA1

estimated to range from $120 million to $130 million

― Represents growth up to 15% over 2016 Pro Forma adjusted EBITDA

• Earnings Per Share1

estimated between $1.69 to $1.93 per diluted

share

― Represents growth up to 26% over 2016 adjusted EPS

• 2017 revenue estimate of $495 million to $533 million

― ES revenue range of $357 million to $389 million

― FIS revenue estimate of $138 million to $144 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:

• ES Segment

― Base Business expected to grow 3-5%

― Event pipeline continues to build

New opportunities providing optimism

2016 deferred projects supplementing 2017 growth

• FIS Segment

― Expecting slight improvement

― Growth hampered by:

Cycling larger completed contracts

Field Services contract not renewed in Q4 ’16

― Significant bidding opportunities emerging

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• Normal seasonality expected

― Q1 expected to be the lowest quarter in revenues and profits

― Likely lower than Q1 ‘16

― Results to build over the balance of the year

• Capital Expenditures estimated between $34 million to $37 million

― $28 million to $29 million of maintenance capital

― Landfill expansion ~$7.2 million

― IT and infrastructure investment ~$4.2 million

― $7 to $9 million for growth capital

― Deployment dependent on ROI

― Evaluating $20+ million in opportunities

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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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Allstate Power Vac Quarterly Income Statements: 2015For 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 - 6,367 - - 6,367

Operating income (398) (6,765) 1,677 538 (4,948)

Other income (expense):

Interest income - - - - -

Interest expense (21) (6) - - (27)

Foreign currency loss - - - - -

Other 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 - - 27

Interest income - - - - -

Foreign currency loss - - - - -

Other income (33) (33) (33) 531 432

Impairment charges - 6,367 - - 6,367

Depreciation and amortization of plant and equipment 899 967 377 - 2,243

Amortization of intangible assets 569 569 235 - 1,373

Stock-based compensation 12 20 24 (35) 21

Accretion and non-cash adjustments of closure & post-

closure obligations - - - - -

Adjusted EBITDA 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 liquidity. Adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share 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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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 currency gain/loss, non-cash impairment charges 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 thedivested Allstate business, plus business development expenses incurred during the period. We believe Pro Forma adjusted EBITDAis helpful in understanding our business and how it relates to our 2017 guidance which includes neither the divested Allstatebusiness 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 the gain on sale of divested businesses, 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.

Impairment charges excluded from the earnings per diluted share calculation are related to the Company’s decision to explore strategic alternatives for our industrial services business. 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 outstanding loan balance through our consolidated income statement based on the CAD/United States currency movements 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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Non-GAAP Financial Measures - Definitions

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Financial Results: Q4‘16 vs. Q4‘15

(in t housands, except per share dat a) 2016 2015 $ Change % Change

Revenue $ 117,172 $ 138,273 $ (21,101) -15.3%

Gross profit 36,127 44,156 (8,029) -18.2%

SG&A1

19,883 22,004 (2,121) -9.6%

Operating income1 16,244 22,152 (5,908) -26.7%

Interest expense, net (4,161) (7,161) 3,000 -41.9%

Foreign currency loss (330) (427) 97 -22.7%

Other income (expense) 151 (431) 582 -135.0%

Income before income taxes 11,904 14,133 (2,229) -15.8%

Income tax expense 4,221 6,429 (2,208) -34.3%

Net income $ 7,683 $ 7,704 $ (21) -0.3%

Earnings per share:

Basic $ 0.35 $ 0.36 $ (0.01) -2.8%

Diluted $ 0.35 $ 0.35 $ - 0.0%


Basic 21,717 21,676

Diluted 21,814 21,748

Three Months Ended December 31,

1Includes pre-tax Business Development expenses of $138,000 and $88,000 for the three months ended December 31, 2016 and 2015, respectively.

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1Includes pre-tax Business Development expenses of $138,000 and $88,000 for the three months ended December 31, 2016 and 2015, respectively.

(in t housands) 2016 2015 $ Change % Change

Adjusted EBITDA / Pro Forma Adjusted EBITDA Reconciliation

Net income 7,683$ 7,704$

Income tax expense 4,221 6,429

Interest expense, net 4,161 7,161

Foreign currency loss 330 427

Other (income) expense (151) 431

Depreciat ion and amort izat ion 6,743 6,205

Amort izat ion of intangibles 2,668 2,749

Stock-based compensation 744 561

Accret ion and non-cash adjustments

of closure & post-closure obligations 872 1,376

Adjusted EBITDA1 27,271 33,043 (5,772)$ -17.5%

EBITDA related to divested Allstate business - (502)

Business development expenses 138 88

Pro Forma Adjusted EBITDA 27,409$ 32,629$ (5,220)$ -16.0%

Adjusted EBITDA by Operating Segment:

Environmental Services 35,347$ 39,289$ (3,942) -10.0%

Field & Industrial Services 3,075 5,597 (2,522) -45.1%

Corporate1

(11,151) (11,843) 692 -5.8%

Total 27,271$ 33,043$ (5,772)$ -17.5%


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(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 11,904$ (4,221)$ 7,683$ 0.35$ 14,133$ (6,429)$ 7,704$ 0.35$

Adjustments:

Less: Loss on sale of divested businesses - - - - 542 (247) 295 0.01

Non-cash foreign currency translat ion loss (gain) 411 (146) 265 0.01 153 (65) 88 0.01

Plus: Business development costs 138 (49) 89 - 88 (37) 51 -

Plus: Divested Allstate business operating income - - - - (549) 209 (340) (0.01)

As adjusted 12,453$ (4,416)$ 8,037$ $ 0.36 14,367$ (6,569)$ 7,798$ $ 0.36

Shares used in earnings per diluted share calculat ion 21,814 21,748


2016 2015

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Financial Results: 2016 vs. 2015

(in t housands, except per share dat a) 2016 2015 $ Change % Change

Revenue $ 477,665 $ 563,070 $ (85,405) -15.2%

Gross profit 147,595 171,410 (23,815) -13.9%

SG&A1

77,566 93,079 (15,513) -16.7%

Impairment charges - 6,700 (6,700) n/m

Operating income1 70,029 71,631 (1,602) -2.2%

Interest expense, net (17,221) (23,305) 6,084 -26.1%

Foreign currency gain (loss) (138) (2,196) 2,058 -93.7%

Other income 2,631 725 1,906 262.9%

Income before income taxes 55,301 46,855 8,446 18.0%

Income tax expense 21,049 21,244 (195) -0.9%

Net income $ 34,252 $ 25,611 $ 8,641 33.7%

Earnings per share:

Basic $ 1.58 $ 1.18 $ 0.40 33.9%

Diluted $ 1.57 $ 1.18 $ 0.39 33.1%


Basic 21,704 21,637

Diluted 21,789 21,733

Year Ended December 31,

1Includes pre-tax Business Development expenses of $637,000 and $2.2 million for the year ended December 31, 2016 and 2015, respectively

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1Includes pre-tax Business Development expenses of $637,000 and $2.2 million for the year ended December 31, 2016 and 2015, respectively

(in t housands) 2016 2015 $ Change % Change

Adjusted EBITDA / Pro Forma adjusted EBITDA Reconciliation

Net income 34,252$ 25,611$

Income tax expense 21,049 21,244

Interest expense, net 17,221 23,305

Foreign currency loss 138 2,196

Other income (2,631) (725)

Depreciat ion and amort izat ion 25,304 27,931

Amort izat ion of intangibles 10,575 12,307

Stock-based compensation 2,925 2,297

Accret ion and non-cash adjustments

of closure & post-closure obligations 3,953 4,584

Impairment charges - 6,700

Adjusted EBITDA1 112,786 125,450 (12,664)$ -10.1%

EBITDA related to divested Allstate business - (5,055)

Business development expenses 637 2,212

Pro Forma adjusted EBITDA 113,423$ 122,607$ (9,184)$ -7.5%

Adjusted EBITDA by Operating Segment:

Environmental Services 139,698$ 150,067$ (10,369) -6.9%

Field & Industrial Services 16,342 21,388 (5,046) -23.6%

Corporate1

(43,254) (46,005) 2,751 -6.0%

Total 112,786$ 125,450$ (12,664)$ -10.1%


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(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 55,301$ (21,049)$ 34,252$ 1.57$ 46,855$ (21,244)$ 25,611$ 1.18$

Adjustments:

(Less)/plus: (Gain)/loss on sale of divested businesses (2,034) 774 (1,260) (0.06) 542 (247) 295 0.01

Non-cash foreign currency translat ion (gain) loss 88 (33) 55 - 2,019 (852) 1,167 0.05

Plus: Business development costs 637 (242) 395 0.02 2,212 (933) 1,279 0.06

Plus: Impairment charges1

- - - - 6,700 - 6,700 0.31

Plus: Divested Allstate business operating income - - - - (1,502) 571 (931) (0.04)

As adjusted 53,992$ (20,550)$ 33,442$ $ 1.53 56,826$ (22,705)$ 34,121$ $ 1.57

Shares used in earnings per diluted share calculat ion 21,789 21,733

1 Impairment charges were not deductible for income tax purposes


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