US Ecology, Inc. Q Earnings Conference Call

Transcription

1 US Ecology, Inc. Q Earnings Conference Call May 4,

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 Financial Position, Cash Flow & Return Metrics 2018 Business Outlook Questions & Comments Appendix: Financial Results & Reconciliations 4 4

5 Q1-18 Highlights Revenues up 9% to $120.1 million Adjusted EBITDA 1 up 4% to $24.5 million Adjusted Earnings Per Share 1 of $0.36, up 57% Results in line with expectations Environmental Services Segment revenue grew 6% Base Business up 2% Event Business up 8% Field and Industrial Service Segment revenue grew 16% Field Services up 20% Strong growth led by total waste management and small quantity generation business lines Industrial Services revenues flat to Q 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 Q1-18 Financial Review Total revenue $120.1 million, up 9% compared with $110.2 million last year Q1 18 Revenue by Segment ES revenue $86.5 million compared to $81.3 million in prior year 28% 5% higher treatment and disposal revenue Growth in the other, chemical manufacturing and waste management & remediation industry groups, partially offset by declines in the refining and general manufacturing industry groups 72% ES FIS Base business up 2% compared to the prior year Event business up 8% compared to prior year 12% higher transportation revenue Q1 17 Revenue by Segment FIS revenue $33.6 million, up 16% from $28.9 million in prior year Stronger overall market conditions 26% ES 74% FIS 7

8 Q1-18 Financial Review Environmental Services T&D Revenue by Industry Percent of Total Percent Change Q1 '18 Q1 '17 Q1 '18 vs. Q1 '17 Metal Manufacturing 14% 16% -5% Chemical Manufacturing 13% 11% 19% Broker / TSDF 13% 15% -7% General Manufacturing 12% 14% -9% Refining 11% 14% -17% Government 5% 6% -7% Utilities 4% 4% 7% Waste Management & Remediation 4% 2% 73% Transportation 3% 2% 22% Mining and E&P 2% 3% -14% Other 19% 13% 35% Environmental Services T&D Revenue by Industry % Change - Q1 '18 vs. Q1 '17 Base Event Metal Manufacturing -7% 149% Chemical Manufacturing 35% -24% Broker / TSDF -7% -31% General Manufacturing 9% -100% Refining -13% -29% Government -4% -9% Utilities -33% 60% Waste Management & Remediation 31% 235% Transportation 22% 989% Mining and E&P -5% -87% Other 10% 189% 8

9 Q1-18 Financial Review Gross profit of $35.7 million, up from $31.9 million in Q1-17 ES gross profit of $32.5 million, up from $28.7 million in Q1-17 T&D margin of 39.7%, up from 37.8% in Q1-17 FIS gross profit of $3.2 million, consistent with $3.2 million in Q1-17 SG&A of $22.2 million compared with $19.7 million in Q1-17 Higher labor and incentive compensation Higher consulting, professional services and insurance expenses Lower bad debt expense Operating income of $13.4 million, up from $12.2 million in Q1-17 Other income of $2.1 million, up from $135,000 due to issuance of property easement Net income of $9.2 million, or $0.42 per diluted share, compared with $5.2 million, or $0.24 per diluted share, in Q1-17 Q1-18 reflects favorable tax reform impact of approximately $0.04 per diluted share Adjusted EPS 1 of $0.36 per diluted share compared with $0.23 per diluted share in Q1-17 Adjusted EBITDA 1 of $24.5 million, up from $23.5 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 Financial Position & Cash Flow Metrics Net borrowings on credit agreement = $232.7 million Working capital = $92.3 million Q1-18 cash generated from operations = $28.8 million Q1-18 capital expenditures = $7.6 million Q1-18 dividends paid = $3.9 million Q1-18 free cash flow 1 = $12.9 million (in t housands) March 31, 2018 December 31, 2017 Assets Current Assets: Cash and cash equivalents $ 44,251 $ 27,042 Receivables, net 95, ,777 Other current assets 10,508 9,138 Total current assets 150, ,957 Long-term assets 650, ,119 Total assets $ 801,085 $ 802,076 Liabilities and Stockholders Equity Current Liabilities: Accounts payable, accrued liabilities, income taxes payable $ 47,007 $ 54,968 Deferred revenue 8,793 8,532 Current portion of closure and post-closure obligations 2,333 2,330 Total current liabilities 58,133 65,830 Long-term closure and post-closure obligations 74,490 73,758 Long-term debt 277, ,000 Other liabilities 61,315 61,411 Total liabilities 470, ,999 Stockholders Equity 330, ,077 Total liabilities and stockholders' equity $ 801,085 $ 802,076 Working Capital $ 92,268 $ 81,127 Three Months Ended March 31, Selected Cash Flow Items: Net cash provided by operating activities $ 28,830 $ 20,873 Free cash flow 1 $ 12,858 $ 9, See reconciliation of free cash flow on page 20 of this presentation 10

11 2018 Business Outlook Positive trends in industrial sector should deliver growth over 2017 ES Segment Base Business expected to grow 3%-5% Event pipeline continues to build, supporting single digit growth FIS Segment Strong growth on contracts won in 2017 Total waste management and small quantity generation outlook positive Industrial services outlook softer 11 11

12 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 Normal seasonality expected Sequential improvement in revenue and profits through Q3 Q3 likely being the peak quarter of the year Capital expenditures estimated between $39 million to $42 million 12 1 Guidance excludes non-cash foreign currency translation gains or losses, and business development expenses 12

13 Questions and Comments 13 13

14 Appendix 14 14

15 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

16 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 land easement, 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 land 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 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. 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 the gain on issuance of a land easement, 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 accretion and non-cash adjustments of closure and post-closure obligations, plus stock-based compensation, plus/(minus) foreign currency loss/(gain), less capital expenditures

17 Financial Results: Q1 18 vs. Q1 17 (in t housands, except per share dat a) $ Change % Change Revenue $ 120,059 $ 110,234 $ 9, % Gross profit 35,671 31,873 3, % SG&A 1 22,232 19,714 2, % Operating income 1 13,439 12,159 1, % Interest expense, net (2,785) (4,120) 1, % Foreign currency gain (loss) (14) 88 (102) % Other income 2, , % Income before income taxes 12,763 8,264 4, % Income tax expense 3,520 3, % Net income $ 9,243 $ 5,185 $ 4, % Earnings per share: Basic $ 0.42 $ 0.24 $ % Diluted $ 0.42 $ 0.24 $ % Shares used in earnings per share calculation: Three Months Ended March 31, Basic 21,801 21,725 Diluted 21,957 21,845 1 Includes pre-tax Business Development expenses of $11,000 and $37,000 for the three months ended March 31, 2018 and 2017, respectively

18 Financial Results: Q1 18 vs. Q1 17 Three Months Ended March 31, (in t housands) $ Change % Change Adjusted EBITDA / Pro Forma Adjusted EBITDA Reconciliation Net income $ 9,243 $ 5,185 Income tax expense 3,520 3,079 Interest expense, net 2,785 4,120 Foreign currency (gain) loss 14 (88) Other income (2,123) (137) Depreciation and amortization 6,605 6,633 Amortization of intangibles 2,302 2,670 Stock-based compensation 1, Accretion and non-cash adjustments of closure & post-closure obligations 1,074 1,073 Adjusted EBITDA 1 $ 24,488 $ 23,453 $ 1, % Business development expenses Pro Forma Adjusted EBITDA $ 24,499 $ 23,490 $ 1, % Adjusted EBITDA by Operating Segment: Environmental Services $ 34,672 $ 31,856 2, % Field & Industrial Services 2,345 2, % Corporate 1 (12,529) (10,467) (2,062) 19.7% Total $ 24,488 $ 23,453 $ 1, % 1 Includes pre-tax Business Development expenses of $11,000 and $37,000 for the three months ended March 31, 2018 and 2017, respectively

19 Financial Results: Q1 18 vs. Q1 17 Three Months Ended March 31, (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 $ 12,763 $ (3,520) $ 9,243 $ 0.42 $ 8,264 $ (3,079) $ 5,185 $ 0.24 Adjustments: Less: TX land easement gain (1,990) 549 (1,441) (0.07) Plus: Business development costs 11 (3) 8-37 (14) 23 - Non-cash foreign currency translation (gain) loss 171 (47) (145) 54 (91) (0.01) As adjusted $ 10,955 $ (3,021) $ 7,934 $ 0.36 $ 8,156 $ (3,039) $ 5,117 $ 0.23 Shares used in earnings per diluted share calculation 21,957 21,

20 Free Cash Flow: Q1 18 vs. Q1 17 Three Months Ended March 31, (in t housands) Free Cash Flow Reconciliation Net income $ 9,243 $ 5,185 Depreciation and amortization 6,605 6,633 Amortization of intangibles 2,302 2,670 Accretion and non-cash adjustments of closure & post-closure obligations 1,074 1,073 Stock-based compensation 1, Foreign currency (gain) loss, after tax 124 (91) Capital expenditures (7,558) (7,151) Free Cash Flow $ 12,858 $ 9,