US Ecology Announces Second Quarter 2014 Results

2014 Guidance Raised on Acquisition of EQ -- The Environmental Quality Company

Marketwired

BOISE, ID--(Marketwired - Aug 6, 2014) - US Ecology, Inc. (NASDAQ: ECOL) ("the Company") today reported financial results for the quarter and six-months ended June 30, 2014.

For the second quarter of 2014, net income was $6.9 million, or $0.32 per diluted share, down from $7.2 million, or $0.39 per diluted share, in the second quarter of 2013. Excluding foreign currency translation losses and business development expenses, adjusted earnings per diluted share grew to $0.47 in the second quarter of 2014, up from $0.44 in the second quarter of 2013. Total shares outstanding were 21.6 million at June 30, 2014 and reflect 3.0 million shares issued in December 2013.

Results for the second quarter of 2014 include the operations of EQ Holdings, Inc. ("EQ"), an integrated environmental services company, as of June 17, 2014 and reflects $5.1 million in pre-tax business development costs ($4.0 million after tax, or $0.19 per share) associated with the acquisition. We estimate that EQ's operations contributed approximately $0.02 of earnings per diluted share in the second quarter of 2014. EQ was acquired for a total purchase price of $465.9 million which is subject to post-closing adjustments based on agreed upon working capital requirements. The purchase was funded through a combination of cash on hand and borrowings under a new $415.0 million term loan.

Operating income for the second quarter of 2014 was $11.0 million, down 11% from $12.4 million in the second quarter last year. Adjusted EBITDA for the second quarter of 2014 was $17.1 million, up 1% from $16.9 million in the same period last year. Both operating income and adjusted EBITDA for the second quarter of 2014 include the $5.1 million of acquisition related costs noted above. A reconciliation of earnings per diluted share to adjusted earnings per diluted share and net income to adjusted EBITDA is attached as Exhibit A to this release.

Total revenue for the second quarter of 2014 was $66.0 million, up 44% from $45.8 million in the same quarter last year. EQ contributed $14.6 million of revenue for the 13 days following the acquisition. Treatment and disposal ("T&D") revenue (excluding EQ) increased 13% from the same period in the prior year, reflecting a 26% increase in project-based Event Business. Transportation revenue (excluding EQ) increased 12% from the same quarter in the prior year. Recurring Base Business revenue (excluding EQ) for the second quarter of 2014 increased 4% compared to the second quarter of 2013.

For the legacy US Ecology business, total quarterly waste volume disposed or processed was 289,000 tons in the second quarter of 2014, up 14% from 253,000 tons in the second quarter of 2013. Average selling price ("ASP") for the second quarter of 2014 (excluding EQ) was unchanged compared to the same quarter last year.

For the second quarter of 2014, gross profit was $25.2 million, up 33% from $18.9 million in the second quarter of 2013. EQ contributed $4.0 million of gross profit for the 13 days following the acquisition. Total gross margin (excluding EQ) was 41% for both the second quarter of 2014 and 2013. T&D gross margin (excluding EQ) for the second quarter of 2014 was 49%, consistent with the same period last year.

Selling, general and administrative ("SG&A") expense for the second quarter of 2014 was $14.2 million compared with $6.5 million in the same quarter last year primarily reflecting $5.1 million of business development expenses related to the EQ acquisition and $2.4 million of SG&A expenses associated with EQ operations. The remaining increase reflects higher labor costs and variable compensation.

Interest expense for the second quarter of 2014 was $858,000, up from $222,000 in the second quarter of 2013, primarily reflecting interest expense on borrowings under the Company's new $415.0 million term loan supporting the EQ acquisition.

The Company's effective income tax rate for the second quarter of 2014 was 38.2%, up from 35.0% for the second quarter of 2013. This increase primarily reflects non-deductible business development expenses associated with the EQ acquisition, partially offset by a higher proportion of earnings from our Canadian operations, which are taxed at a lower corporate tax rate.

"Continued operational excellence across US Ecology's facilities delivered strong quarterly financial results," commented President and Chief Executive Officer, Jeff Feeler. "Increased waste volumes and revenues were driven by strong project-based Event Business and continued growth in our recurring Base Business. With the addition of EQ, our portfolio of high quality treatment and disposal assets has been expanded geographically while new complementary front-end field and industrial services have been added. Together our management team is actively engaged in integrating and unlocking the potential of this unique combination of assets."

Year-To-Date Results

Total revenue for the first six months of 2014 was $119.4 million, up 35% from $88.7 million for the first six months of 2013. EQ contributed $14.6 million of revenue for the 13 days following the acquisition. T&D revenue (excluding EQ) increased 18% for the first six months of 2014 compared to the first six months of 2013, reflecting a 43% increase in project-based Event Business. Recurring Base Business revenue (excluding EQ) for the first six months of 2014 increased 4% compared to the first six months of 2013. Transportation revenue (excluding EQ) increased 20% for the first six months of 2014 compared to the first six months of 2013.

Total waste volume disposed or processed was 584,000 tons (excluding EQ) in the first six months of 2014, up 23% from 476,000 tons in the first six months of 2013. Average selling price ("ASP") for the first six months of 2014 (excluding EQ) decreased 3% compared to the same quarter last year as a result of service mix.

Gross profit for the first six months of 2014 was $47.4 million, up 38% from $34.3 million for the first six months of 2013. EQ contributed $4.0 million of gross profit for the 13 days following the acquisition. Total gross margin (excluding EQ) was 41% for the first six months of 2014, compared with 39% for the first six months of 2013. T&D gross margin (excluding EQ) for the first six months of 2014 was 49%, up from 46% for the first six months of 2013.

SG&A expense for the first six months of 2014 was $20.9 million compared with $12.2 million for the first six months of 2013. SG&A expense for the first six months of 2014 includes $5.3 million of business development expenses related to the EQ acquisition and $2.4 million of EQ SG&A expenses for the 13 days following the acquisition. The remaining increase reflects higher labor costs and variable compensation and other administrative expenses supporting increased business activity.

Operating income increased 20% for the first six months of 2014 to $26.5 million from $22.1 million for the first six months of 2013. Operating income for the first six months of 2014 includes $5.3 million of EQ acquisition related costs.

Interest expense in the first six months of 2014 was $944,000, up from $443,000 in the first six months of 2013, primarily reflecting interest expense on borrowings under the Company's new $415.0 million term loan.

Adjusted EBITDA for the first six months of 2014 was $37.4 million, 21% above the $30.8 million for the same period last year. A reconciliation of net income to adjusted EBITDA is attached as Exhibit A to this release.

The Company's effective income tax rate for the first six months of 2014 was 36.9%, up from 35.9% for the first six months of 2013. This increase reflects non-deductible business development expenses associated with the EQ acquisition, partially offset by a higher proportion of earnings from our Canadian operations which are taxed at a lower corporate tax rate.

Net income for the first six months of 2014 was $16.2 million, or $0.75 per diluted share, up from $12.6 million, or $0.68 per diluted share, in the first six months of 2013. We estimate that EQ contributed approximately $0.02 of earnings for the first six months of 2014. Excluding foreign currency translation losses and business development expenses, adjusted earnings per diluted share grew 24% to $0.94 in the first six months of 2014, up from $0.76 in the first six months of 2013. A reconciliation of earnings per diluted share to adjusted earnings per diluted share is attached as Exhibit A to this release.

2014 Outlook

"Based on our strong first half performance, the addition of EQ, and our current outlook for the combined business for the balance of 2014, we are increasing our full year adjusted earnings per share guidance to a range of $1.70 to $1.80 per share and adjusted EBITDA to range of $100 million to $110 million," commented Feeler. "This compares to our previous guidance of $1.60 to $1.70 per share of adjusted diluted earnings and $74 to $78 million of adjusted EBITDA." Estimates exclude foreign currency translation gains or losses and business development and integration expenses.

"Base Business is expected to continue delivering mid-single digit revenue growth for the balance of the year on strong industrial production," commented Feeler. "Event business remains stable with solid second half volumes expected from projects currently shipping or under contract. The pipeline for new projects has softened slightly in recent months relative to stronger-than-typical first half activity. We continue to identify new opportunities as we go through the integration process and we remain excited about the potential represented by the combined US Ecology-EQ team and assets."

Dividend

On July 1, 2014, the Company declared a quarterly dividend of $0.18 per common share for stockholders of record on July 21, 2014. The $3.9 million dividend was paid on July 28, 2014. As previously announced, we do not expect the acquisition of EQ to affect the Company's dividend policy.

Conference Call

US Ecology, Inc. will hold an investor conference call on Thursday, August 7, 2014 at 9:00 a.m. Eastern Daylight Time (7:00 a.m. Mountain Daylight Time) to discuss these results and its current financial position and business outlook. Questions will be invited after management's presentation. Interested parties can join the conference call by dialing (866) 825-1709 or (617) 213-8060 and using the passcode 12600771. The conference call will also be broadcast live on our website at www.usecology.com. An audio replay will be available through August 14, 2014 by calling (888) 286-8010 or (617) 801-6888 and using the passcode 27759159. The replay will also be accessible on our website at www.usecology.com.

About US Ecology, Inc.

US Ecology, Inc. is a leading North American provider of environmental services to commercial and government entities. The Company addresses the complex waste management needs of its customers, offering treatment, disposal and recycling of hazardous and radioactive waste, as well as a wide range of complementary field and industrial services. US Ecology's focus on safety, environmental compliance, and customer service, enables us to effectively meet the needs of our customers and to build long-lasting relationships. Headquartered in Boise, Idaho, with operations in the United States, Canada and Mexico, the Company has been protecting the environment since 1952. For more information visit www.usecology.com.

This press release contains 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, 2013 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 otherwise. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking information include a loss of a major customer or contract, compliance with and changes to applicable laws, rules, or regulations, access to cost effective transportation services, access to insurance, surety bonds and other financial assurances, loss of key personnel, lawsuits, labor disputes, adverse economic conditions, government funding or competitive pressures, incidents or adverse weather conditions that could limit or suspend specific operations, implementation of new technologies, market conditions, average selling prices for recycled materials, our ability to replace business from recently completed large projects, our ability to perform under required contracts, our ability to permit and contract for timely construction of new or expanded disposal cells, our willingness or ability to pay dividends and our ability to effectively close, integrate and realize anticipated synergies from future acquisitions, which can be impacted by the failure of the acquired company to achieve anticipated revenues, earnings or cash flows, assumption of liabilities that exceed our estimates, potential compliance issues, diversion of management's attention or other resources from our existing business, risks associated with entering product / service areas in which we have limited experience, increases in working capital investment, unexpected capital expenditures, potential losses of key employees and customers of the acquired company and future write-offs of intangible and other assets, including goodwill, if the acquired operations fail to generate sufficient cash flows.

Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of US Ecology, Inc.

   
   
US ECOLOGY, INC.  
CONSOLIDATED STATEMENTS OF INCOME  
(in thousands, except per share data)  
(unaudited)  
                         
                         
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2014     2013     2014     2013  
                                 
Revenue   $ 66,024     $ 45,777     $ 119,378     $ 88,676  
Direct operating costs     31,400       19,759       54,021       40,843  
Transportation costs     9,377       7,090       17,990       13,523  
                                 
Gross profit     25,247       18,928       47,367       34,310  
                                 
Selling, general and administrative expenses     14,225       6,519       20,861       12,245  
Operating income     11,022       12,409       26,506       22,065  
                                 
Other income (expense):                                
  Interest income     39       2       83       7  
  Interest expense     (858 )     (222 )     (944 )     (443 )
  Foreign currency gain (loss)     743       (1,193 )     (197 )     (2,131 )
  Other     166       94       252       191  
    Total other expense     90       (1,319 )     (806 )     (2,376 )
                                 
Income before income taxes     11,112       11,090       25,700       19,689  
Income tax expense     4,247       3,880       9,474       7,073  
Net income   $ 6,865     $ 7,210     $ 16,226     $ 12,616  
                                 
Earnings per share:                                
  Basic   $ 0.32     $ 0.39     $ 0.75     $ 0.69  
  Diluted   $ 0.32     $ 0.39     $ 0.75     $ 0.68  
                                 
Shares used in earningsper share calculation:                                
  Basic     21,528       18,401       21,503       18,362  
  Diluted     21,667       18,483       21,632       18,446  
                                 
Dividends paid per share (1)   $ 0.18     $ 0.18     $ 0.36     $ 0.18  
                                 
(1) First quarter 2013 dividend was accelerated and paid in December 2012
 
 
   
   
US ECOLOGY, INC.  
CONSOLIDATED BALANCE SHEETS  
(in thousands)  
(unaudited)  
             
    June 30, 2014     December 31, 2013  
Assets                
                 
Current Assets:                
  Cash and cash equivalents   $ 13,797     $ 73,940  
  Receivables, net     128,345       43,636  
  Prepaid expenses and other current assets     12,681       3,612  
  Income tax receivable     7,193       -  
  Deferred income taxes     5,327       1,340  
    Total current assets     167,343       122,528  
                 
Property and equipment, net     221,146       114,859  
Restricted cash and investments     5,723       4,097  
Intangible assets, net     286,391       36,832  
Goodwill     212,524       21,693  
Other assets     12,258       547  
Total assets   $ 905,385     $ 300,556  
                 
Liabilities and Stockholders' Equity                
                 
Current Liabilities:                
  Accounts payable   $ 23,381     $ 7,277  
  Deferred revenue     9,427       8,870  
  Accrued liabilities     32,912       8,691  
  Accrued salaries and benefits     11,175       6,957  
  Income tax payable     1,469       4,428  
  Current portion of closure and post-closure obligations     5,338       949  
  Current portion of long-term debt     4,002       -  
    Total current liabilities     87,704       37,172  
                 
Long-term closure and post-closure obligations     53,250       16,519  
Long-term debt     409,961       -  
Other long-term liabilities     1,288       69  
Unrecognized tax benefits     487       480  
Deferred income taxes     110,454       14,778  
  Total liabilities     663,144       69,018  
                 
Contingencies and commitments                
                 
Stockholders' Equity                
  Common stock     216       215  
  Additional paid-in capital     164,926       162,830  
  Retained earnings     79,073       70,597  
  Treasury stock     (267 )     (319 )
  Accumulated other comprehensive loss     (1,707 )     (1,785 )
    Total stockholders' equity     242,241       231,538  
Total liabilities and stockholders' equity   $ 905,385     $ 300,556  
                 
                 
                 
   
   
US ECOLOGY, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in thousands)  
(unaudited)  
             
    Six Months Ended
June 30,
 
    2014     2013  
Cash Flows From Operating Activities:                
  Net income   $ 16,226     $ 12,616  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation and amortization of property and equipment     8,417       7,071  
    Amortization of intangible assets     1,215       729  
    Accretion of closure and post-closure obligations     716       613  
    Unrealized foreign currency loss     323       2,400  
    Deferred income taxes     2,095       (1,665 )
    Share-based compensation expense     525       363  
    Unrecognized tax benefits     7       7  
    Net loss on sale of property and equipment     14       10  
    Changes in assets and liabilities:                
      Receivables     4,661       (682 )
      Income tax receivable     (3,426 )     (787 )
      Other assets     (418 )     (563 )
      Accounts payable and accrued liabilities     (2,347 )     (1,583 )
      Deferred revenue     (2,349 )     1,594  
      Accrued salaries and benefits     (1,772 )     (2,386 )
      Income tax payable     (3,024 )     582  
      Closure and post-closure obligations     (364 )     (621 )
        Net cash provided by operating activities     20,499       17,698  
                 
Cash Flows From Investing Activities:                
  Business acquisition, net of cash acquired     (465,895 )     -  
  Purchases of property and equipment     (8,658 )     (12,530 )
  Purchases of restricted cash and investments     (30 )     -  
  Proceeds from sale of property and equipment     19       52  
        Net cash used in investing activities     (474,564 )     (12,478 )
                 
Cash Flows From Financing Activities:                
  Proceeds from term loan     413,962       -  
  Dividends paid     (7,750 )     (3,314 )
  Proceeds from stock option exercises     1,420       2,110  
  Payments on reducing revolving line of credit     -       (10,000 )
  Proceeds from reducing revolving line of credit     -       8,000  
  Deferred financing costs paid     (14,001 )     (185 )
  Other     205       261  
        Net cash provided by (used in) financing activities     393,836       (3,128 )
                 
Effect of foreign exchange rate changes on cash     86       (230 )
                 
Increase (decrease) in cash and cash equivalents     (60,143 )     1,862  
                 
Cash and cash equivalents at beginning of period     73,940       2,120  
                 
Cash and cash equivalents at end of period   $ 13,797     $ 3,982  
                 
                 
                 

EXHIBIT A

Non-GAAP Results and Reconciliation

US Ecology reports 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 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 and adjusted earnings per diluted share are significant components in understanding and assessing financial performance.

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 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. Some of the limitations are:

  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
  • Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt;
  • Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes;
  • Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; and
  • although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements.

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. The following reconciliation itemizes the differences between reported net income and adjusted EBITDA for the three and six months ended June 30, 2014 and 2013:

             
             
(in thousands)   Three Months Ended June 30,     Six Months Ended June 30,  
    2014     2013     2014     2013  
                                 
Net Income   $ 6,865     $ 7,210     $ 16,226     $ 12,616  
  Income tax expense     4,247       3,880       9,474       7,073  
  Interest expense     858       222       944       443  
  Interest income     (39 )     (2 )     (83 )     (7 )
  Foreign currency (gain)/loss     (743 )     1,193       197       2,131  
  Other income     (166 )     (94 )     (252 )     (191 )
  Depreciation and amortization of plant and equipment     4,579       3,632       8,417       7,071  
  Amortization of intangible assets     862       362       1,215       729  
  Stock-based compensation     255       218       525       363  
  Accretion and non-cash adjustments of closure & post-closure obligations     386       306       716       613  
Adjusted EBITDA   $ 17,104     $ 16,927     $ 37,379     $ 30,841  
                                 
                                 

EXHIBIT A

Non-GAAP Results and Reconciliation, continued

Adjusted Earnings Per Diluted Share

The Company defines adjusted earnings per diluted share as net income plus the after tax impact of non-cash, non-operational foreign currency gains or losses ("Foreign Currency Gain/Loss") plus the after tax impact of business development costs divided by the number of diluted shares used in the earnings per share calculation. The Foreign Currency Gain/Loss 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. We believe excluding the currency movements for these intercompany financial instruments provides meaningful information to investors regarding the operational and financial performance of the Company.

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 business development costs provides meaningful information to investors regarding the operational and financial performance of the Company.

The following reconciliation itemizes the differences between reported net income and earnings per diluted share to adjusted net income and adjusted earnings per diluted share for the three and six months ended June 30, 2014 and 2013:

         
         
(in thousands, except per share data)   Three Months Ended June 30,   Six Months Ended June 30,
    2014     2013   2014   2013
                                                       
          per
share
      per
 share
 
     per
 share
 
   per
share
Net income / earnings per diluted share   $ 6,865     $ 0.32     $ 7,210   $ 0.39   $ 16,226     $ 0.75   $ 12,616   $ 0.68
                                                       
Business development costs, net of tax     4,039       0.19       -     -     4,202       0.19     -     -
Non-cash foreign currency (gain)/loss, net of tax     (762 )     (0.04 )     854     0.05     (56 )     -     1,449     0.08
                                                       
Adjusted net income / adjusted earnings per diluted share   $ 10,142     $ 0.47     $ 8,064   $ 0.44   $ 20,372     $ 0.94   $ 14,065   $ 0.76
                                                       
                                                       
Shares used in earnings per diluted share calculation     21,667               18,483           21,632             18,446      
                                                       
                                                       
Contact:

Alison Ziegler
Cameron Associates
(212) 554-5469
alison@cameronassoc.com
www.usecology.com
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