US Ecology, Inc. Q Earnings Conference Call

Transcription

1 US Ecology, Inc. Q Earnings Conference Call August 3,

2 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 2 2

3 Safe Harbor 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. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on management's beliefs and assumptions, which in turn are based on currently available information. Important assumptions include, among others, those regarding demand for Company services, expansion of service offerings geographically or through new or expanded service lines, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forwardlooking statement. Many of these factors are beyond our ability to control or predict. Such factors 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 repurchase shares or 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. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (the SEC ), we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on our forward-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 the occurrence 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. 3 3

4 Agenda Highlights Financial Review Q YTD Results Financial Position, Cash Flow & Return Metrics 2018 Business Outlook Questions & Comments Appendix: Financial Results & Reconciliations 4 4

5 Q2-18 Highlights Revenues up 9% to $136.9 million Adjusted EBITDA 1 up 15% to $31.7 million Adjusted Earnings Per Share 1 of $0.61, up 61% Solid results in line with expectations Healthy growth even after adjusting for our idled treatment facility in Q Environmental Services Segment revenue grew 10% Base Business up 13% (up 9% excluding impact from idled facility) Event Business down 8% Field and Industrial Service Segment revenue grew 4% Field Services revenue up 5% Growth led by small quantity generation services Industrial Services revenues down 2% 5 1 See definition and reconciliation of adjusted EBITDA and adjusted earnings per share on pages of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K 5

6 Financial Review 6

7 Q2-18 Financial Review Total revenue $136.9 million, up 9% compared with $126.1 million last year ES revenue $99.0 million compared to $89.6 million in prior year 9% higher treatment and disposal revenue Base business up 13% compared to Q2-17 Event business down 8% compared Q % higher transportation revenue FIS revenue $38.0 million, up 4% from $36.5 million in prior year Growth in Small Quantity Generation services Stronger overall market conditions 7

8 Q2-18 Financial Review Environmental Services T&D Revenue by Industry Percent of Total Percent Change Q2 '18 Q2 '17 Q2 '18 vs. Q2 '17 Metal Manufacturing 17% 17% 12% Chemical Manufacturing 14% 15% 7% Broker / TSDF 14% 12% 27% General Manufacturing 12% 12% 1% Refining 11% 10% 15% Government 6% 6% 9% Waste Management & Remediation 4% 2% 52% Utilities 3% 4% -19% Transportation 3% 3% 2% Mining and E&P 2% 2% 19% Other 14% 17% -6% Environmental Services T&D Revenue by Industry % Change - Q2 '18 vs. Q2 '17 Base Event Metal Manufacturing -3% 381% Chemical Manufacturing 28% -23% Broker / TSDF 31% -100% General Manufacturing 4% -26% Refining 20% -7% Government 21% 4% Waste Management & Remediation 48% 62% Utilities 10% -47% Transportation 25% -62% Mining and E&P 18% 27% Other 4% -31% 8

9 Q2-18 Financial Review Gross profit of $41.4 million, up from $35.9 million in Q2-17 ES gross profit of $35.9 million, up from $30.7 million in Q2-17 T&D margin of 42%, up from 38% in Q2-17 FIS gross profit of $5.5 million, up from $5.2 million in Q2-17 SG&A of $21.2 million compared with $20.0 million in Q2-17 Higher labor and incentive compensation Operating income of $20.3 million, up from $15.9 million in Q2-17 Net interest expense of $2.9 million, down from $8.5 million in Q2-17 $5.5 million write-off of deferred financing costs in Q2-17 Net income of $13.2 million, or $0.60 per diluted share, compared with $5.0 million, or $0.23 per diluted share, in Q2-17 Q2-18 reflects favorable tax reform impact of approximately $0.08 per diluted share Adjusted EPS 1 of $0.61 per diluted share compared with $0.38 per diluted share in Q2-17 Adjusted EBITDA 1 of $31.7 million, up 15% from $27.6 million in Q See definition and reconciliation of adjusted earnings per share and adjusted EBITDA on pages of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K 9

10 YTD Financial Review Total revenue of $257.0 million, up 9% from $236.3 million for the same period last year ES revenue of $185.4 million, up from $170.9 million for the same period last year 7% increase in T&D revenue; 13% increase in transportation revenue FIS revenue of $71.5 million, up 9% from $65.4 million for the same period last year Gross profit of $77.1 million, up from $67.8 million for the same period last year ES gross profit of $68.4 million, up from $59.4 million for the same period last year T&D margin of 41%, up from 38% for the same period last year FIS gross profit of $8.8 million, up from $8.4 million for the same period last year SG&A of $43.4 million compared with $39.7 million for the same period last year driven primarily by higher labor and incentive compensation Operating income of $33.7 million, up 20% from $28.1 million for the same period last year Net interest expense of $5.7 million, down from $12.6 million for the same period last year $5.5 million write-off of deferred financing costs in April 2017 and a lower interest rate Net income of $22.5 million, or $1.02 per diluted share, compared with $10.2 million, or $0.47 per diluted share, for the same period last year Adjusted EPS 1 of $0.97 per diluted share compared with $0.61 per diluted share for the same period last year Adjusted EBITDA 1 of $56.2 million, up 10% from $51.1million for the same period last year 10 1 See definition and reconciliation of adjusted earnings per share and adjusted EBITDA on pages of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K 10

11 Net borrowings on credit agreement = $223.7 million Working capital = $105.1 million YTD cash generated from operations = $48.0 million YTD capital expenditures = $15.0 million YTD dividends paid = $7.9 million YTD free cash flow 1 = $30.3 million Financial Position & Cash Flow Metrics (in t housands) June 30, 2018 December 31, 2017 Assets Current Assets: Cash and cash equivalents $ 53,303 $ 27,042 Receivables, net 112, ,777 Other current assets 11,895 9,138 Total current assets 177, ,957 Long-term assets 647, ,119 Total assets $ 824,663 $ 802,076 Liabilities and Stockholders Equity Current Liabilities: Accounts payable, accrued liabilities, income taxes payable $ 59,959 $ 54,968 Deferred revenue 10,228 8,532 Current portion of closure and post-closure obligations 2,299 2,330 Total current liabilities 72,486 65,830 Long-term closure and post-closure obligations 75,268 73,758 Long-term debt 277, ,000 Other liabilities 59,609 61,411 Total liabilities 484, ,999 Stockholders Equity 340, ,077 Total liabilities and stockholders' equity $ 824,663 $ 802,076 Working Capital $ 105,128 $ 81,127 Six Months Ended June 30, Selected Cash Flow Items: Net cash provided by operating activities $ 48,010 $ 30,822 Free cash flow 1 $ 30,327 $ 20, See reconciliation of free cash flow on page 24 of this presentation 11

12 2018 Business Outlook Solid execution in first half and continued positive trends in industrial sector increase confidence in 2018 growth outlook ES Segment Base Business growth revised upward to 6% - 9% Event pipeline continues to be healthy Lower single digit growth expected FIS Segment Field Service growth resulting from 2017 contract wins Industrial services expected to be flat with prior year 12 12

13 2018 Business Outlook Reaffirming previously issued guidance: Adjusted EBITDA 1 estimated to range from $122 million to $128 million Earnings per diluted share 1 estimated between $2.15 to $2.34 Still looking to the midpoint of each range Capital expenditures estimated between $39 million to $42 million Trending toward the upper end of the range on increased opportunities to deploy growth capital Sequential growth now expected from Q2 to Q3 to Q Guidance excludes the gain on the issuance of a property easement, non-cash foreign currency translation gains or losses, and business development expenses 13

14 Questions and Comments 14 14

15 Appendix 15 15

16 Non-GAAP Financial Measures US Ecology reports adjusted EBITDA, Pro Forma adjusted EBITDA, adjusted earnings per diluted share and free cash flow 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, adjusted earnings per diluted share and free cash flow 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, adjusted earnings per diluted share and free cash flow are significant components in understanding and assessing financial performance. Adjusted EBITDA, Pro Forma adjusted EBITDA, adjusted earnings per diluted share and free cash flow 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, adjusted earnings per diluted share and free cash flow have limitations as analytical tools and should not be considered in isolation or a substitute for analyzing our results as reported under GAAP

17 Non-GAAP Financial Measures - Definitions 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) 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 2018 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 the gain on the issuance of a property easement, the after-tax impact of non-cash write-off of deferred financing fees related to our former credit agreement, the after-tax impact of business development costs, and non-cash foreign currency translation gains or losses, divided by the number of diluted shares used in the earnings per share calculation. The property easement gain relates to the issuance of an easement on a small portion of owned land at an operating facility which should not hinder our future use. The non-cash write-off of deferred financing fees relates to the write-off of the remaining unamortized fees associated with our former credit agreement which was refinanced in April Business development costs relate to expenses incurred to evaluate businesses for potential acquisition or costs related to closing and integrating successfully acquired businesses. The foreign currency translation gains or losses excluded from the earnings per diluted share calculation are related to intercompany loans between our Canadian subsidiaries 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. We believe excluding the gain on issuance of a property easement, the after-tax impact of the non-cash write off of deferred financing fees, the after-tax impact of business development costs, and non-cash foreign currency translation gains or losses provides meaningful information to investors regarding the operational and financial performance of the Company. Free Cash Flow The Company defines free cash flow as net income plus depreciation and amortization, plus non-cash write-off of deferred financing fees related to our former credit agreement, plus accretion and non-cash adjustments of closure and post-closure obligations, plus stockbased compensation, plus/(minus) foreign currency loss/(gain), less capital expenditures

18 Financial Results: Q2 18 vs. Q2 17 (in t housands, except per share dat a) $ Change % Change Revenue $ 136,912 $ 126,057 $ 10, % Gross profit 41,448 35,896 5, % SG&A 1 21,156 20,000 1, % Operating income 1 20,292 15,896 4, % Interest expense, net (2,868) (8,453) 5, % Foreign currency gain (loss) (139) 158 (297) % Other income % Income before income taxes 17,478 7,767 9, % Income tax expense 4,258 2,718 1, % Net income $ 13,220 $ 5,049 $ 8, % Earnings per share: Basic $ 0.60 $ 0.23 $ % Diluted $ 0.60 $ 0.23 $ % Shares used in earnings per share calculation: Three Months Ended June 30, Basic 21,867 21,751 Diluted 22,024 21,890 1 Includes pre-tax Business Development expenses of $18,000 and $16,000 for the three months ended June 30, 2018 and 2017, respectively

19 Financial Results: Q2 18 vs. Q2 17 Three Months Ended June 30, (in t housands) $ Change % Change Adjusted EBITDA / Pro Forma Adjusted EBITDA Reconciliation Net income $ 13,220 $ 5,049 Income tax expense 4,258 2,718 Interest expense, net 2,868 8,453 Foreign currency (gain) loss 139 (158) Other income (193) (166) Depreciation and amortization 7,044 6,987 Amortization of intangibles 2,296 2,615 Stock-based compensation 1,011 1,043 Accretion and non-cash adjustments of closure & post-closure obligations 1,081 1,082 Adjusted EBITDA 1 $ 31,724 $ 27,623 $ 4, % Business development expenses Pro Forma Adjusted EBITDA $ 31,742 $ 27,639 $ 4, % Adjusted EBITDA by Operating Segment: Environmental Services $ 39,860 $ 34,642 5, % Field & Industrial Services 4,562 4, % Corporate 1 (12,698) (11,138) (1,560) 14.0% Total $ 31,724 $ 27,623 $ 4, % 1 Includes pre-tax Business Development expenses of $18,000 and $16,000 for the three months ended June 30, 2018 and 2017, respectively

20 Financial Results: Q2 18 vs. Q2 17 Three Months Ended June 30, (in t housands, except per share dat a) Adjusted Earnings Per Share Reconciliation Income before income taxes Income tax Net income per share Income before income taxes Income tax Net income per share As reported $ 17,478 $ (4,258) $ 13,220 $ 0.60 $ 7,767 $ (2,718) $ 5,049 $ 0.23 Adjustments: Plus: Non-cash write-off of deferred financing fees related to former credit agreement ,461 (1,911) 3, Plus: Business development costs 18 (4) (6) 10 - Non-cash foreign currency translation (gain) loss 287 (70) (370) 129 (241) (0.01) As adjusted $ 17,783 $ (4,332) $ 13,451 $ 0.61 $ 12,874 $ (4,506) $ 8,368 $ 0.38 Shares used in earnings per diluted share calculation 22,024 21,

21 Financial Results: 6mo vs. 6mo (in t housands, except per share dat a) $ Change % Change Revenue $ 256,971 $ 236,291 $ 20, % Gross profit 77,119 67,769 9, % SG&A 1 43,388 39,714 3, % Operating income 1 33,731 28,055 5, % Interest expense, net (5,653) (12,573) 6, % Foreign currency gain (loss) (153) 246 (399) % Other income 2, , % Income before income taxes 30,241 16,031 14, % Income tax expense 7,778 5,797 1, % Net income $ 22,463 $ 10,234 $ 12, % Earnings per share: Basic $ 1.03 $ 0.47 $ % Diluted $ 1.02 $ 0.47 $ % Shares used in earnings per share calculation: Six Months Ended June 30, Basic 21,835 21,738 Diluted 21,991 21,874 1 Includes pre-tax Business Development expenses of $29,000 and $53,000 for the six months ended June 30, 2018 and 2017, respectively

22 Financial Results: 6mo vs. 6mo Six Months Ended June 30, (in t housands) $ Change % Change Adjusted EBITDA / Pro Forma adjusted EBITDA Reconciliation Net income $ 22,463 $ 10,234 Income tax expense 7,778 5,797 Interest expense, net 5,653 12,573 Foreign currency (gain) loss 153 (246) Other income (2,316) (303) Depreciation and amortization 13,649 13,621 Amortization of intangibles 4,598 5,286 Stock-based compensation 2,079 1,959 Accretion and non-cash adjustments of closure & post-closure obligations 2,155 2,155 Adjusted EBITDA 1 $ 56,212 $ 51,076 $ 5, % Business development expenses Pro Forma adjusted EBITDA $ 56,241 $ 51,129 $ 5, % Adjusted EBITDA by Operating Segment: Environmental Services $ 74,532 $ 66,498 8, % Field & Industrial Services 6,907 6, % Corporate 1 (25,227) (21,605) (3,622) 16.8% Total $ 56,212 $ 51,076 $ 5, % 1 Includes pre-tax Business Development expenses of $29,000 and $53,000 for the six months ended June 30, 2018 and 2017, respectively

23 Financial Results: 6mo vs. 6mo Six Months Ended June 30, (in t housands, except per share dat a) Adjusted Earnings Per Share Reconciliation Income before income taxes Income tax Net income per share Income before income taxes Income tax Net income per share As reported $ 30,241 $ (7,778) $ 22,463 $ 1.02 $ 16,031 $ (5,797) $ 10,234 $ 0.47 Adjustments: Less: TX land easement gain (1,990) 512 (1,478) (0.07) Plus: Non-cash write-off of deferred financing fees related to former credit agreement ,461 (1,975) 3, Plus: Business development costs 29 (7) (19) 34 - Non-cash foreign currency translation (gain) loss 462 (119) (515) 186 (329) (0.02) As adjusted $ 28,742 $ (7,392) $ 21,350 $ 0.97 $ 21,030 $ (7,605) $ 13,425 $ 0.61 Shares used in earnings per diluted share calculation 21,991 21,

24 Free Cash Flow: 6mo vs. 6mo (in t housands) Free Cash Flow Reconciliation Net income $ 22,463 $ 10,234 Depreciation and amortization 13,649 13,621 Non-cash write-off of deferred financing fees related to former credit agreement - 5,461 Amortization of intangibles 4,598 5,286 Accretion and non-cash adjustments Six Months Ended June 30, of closure & post-closure obligations 2,155 2,155 Stock-based compensation 2,079 1,959 Foreign currency (gain) loss, after tax 343 (329) Capital expenditures (14,960) (17,552) Free Cash Flow $ 30,327 $ 20,