US Ecology Announces Third Quarter 2015 Results
Adjusted EBITDA of $33.8 Million and Adjusted EPS of $0.50
Revises 2015 Outlook on Reduced Business Activity
/EINPresswire.com/ -- BOISE, ID--(Marketwired - October 29, 2015) - US Ecology, Inc. (NASDAQ: ECOL) ("the Company") today reported financial results for the third quarter and nine months ended September 30, 2015.
Operating income for the third quarter of 2015 was $22.4 million compared to $26.8 million in the third quarter of 2014. The Allstate Power Vac business ("Allstate"), which is expected to be divested in the fourth quarter of 2015, contributed $1.7 million and $475,000 of operating income for the third quarters of 2015 and 2014, respectively. Adjusted EBITDA for the third quarter of 2015 was $33.8 million, down 17% from $40.4 million in the same period last year. The Allstate business contributed adjusted EBITDA of $2.3 million in the third quarter of 2015 compared to $2.1 million the third quarter of 2014. Net income for the third quarter of 2015 was $9.9 million, or $0.46 per diluted share, compared to $13.3 million, or $0.61 per diluted share in the third quarter of 2014. Adjusted earnings per share, which excludes foreign currency translation losses and business development expenses, was $0.50 in the third quarter of 2015, down from $0.65 in the third quarter of 2014. 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 third quarter of 2015 was $148.4 million, down from $170.9 million in the same quarter last year. Revenue for the Environmental Services ("ES")
For the third quarter of 2015, gross profit was $45.9 million, down from $52.3 million in the third quarter of 2014. Gross profit for the ES segment was $36.6 million in the third quarter of 2015, down from $42.7 million in the same quarter of 2014. T&D gross margin for the ES segment was 43% for the third quarter of 2015, down from 45% in the third quarter of 2014. Gross profit for the FIS segment in the third quarter of 2015 was $9.4 million (including $4.9 million from the Allstate business) compared to $9.6 million (including $3.7 million from the Allstate business) in the third quarter of 2014.
Selling, general and administrative ("SG&A") expense for the third quarter of 2015 was $23.5 million compared with $25.5 million in the same quarter last year. SG&A includes $3.2 million in SG&A expenses from the Allstate business for the third quarter of 2015 and 2014. The decrease in SG&A primarily reflects lower labor and incentive compensation, and lower depreciation and amortization in the third quarter of 2015 compared to the third quarter of 2014.
Consolidated net interest expense for the third quarter of 2015 was $5.1 million, up from $4.5 million in the third quarter of 2014. The increase is primarily the result of a higher interest rate due to the interest rate swap the Company entered into at the beginning of 2015, which fixed the interest rate for approximately 60% of the Company's long-term debt. This increase was partially offset by principal payments on the Company's long-term debt since the third quarter of 2014.
The Company's consolidated effective income tax rate for the third quarter of 2015 was 40.9%, up from 38.7% for the third quarter of 2014. This increase primarily reflects a lower proportion of earnings from our Canadian operations which are taxed at a lower corporate tax rate.
"Third quarter operating results did not materialize as we had expected," commented Chairman and Chief Executive Officer, Jeff Feeler. "Many factors contributed to these lower than anticipated results but slower business activity and deferment of remedial project based Event Business were the primary contributors. Adjusted EBITDA from our Environmental Services segment was approximately 10% below our expectations for the quarter. With the expected reduction in volume from an east coast clean up project and unanticipated lower replacement work as a result of project deferrals and shipment schedules, we experienced a 22% decline in project-driven Event Business
Year-To-Date Results
The comparison between the nine month periods of September 30, 2015 and 2014 reflects the acquisition of EQ Holdings, Inc. ("EQ") that was completed on June 17, 2014.
Total revenue for the first nine months of 2015 was $424.8 million, up from $290.3 million in the first nine months of 2014. Revenue for the first nine months of 2015 included $268.8 million from the acquired EQ businesses compared to $125.6 million in the first nine months of 2014. Revenue for the ES segment was $278.9 million for the first nine months of 2015, up from $219.3 million in the same period last year. Revenue for the FIS business segment was $145.9 million for the first nine months of 2015 compared to $71.0 million for the first nine months of 2014. The Allstate business, which is expected to be divested in the fourth quarter of 2015, contributed $51.0 million of revenue in the first nine months of 2015 compared to $19.6 million in the first nine months of 2014.
Excluding the acquired EQ operations, ES revenue decreased $8.7 million, or 5%, in the first nine months of 2015 compared to the same period last year on a 7% decline in T&D revenue. Transportation service revenue increased 5% compared to the first nine months of 2014.
For the first nine months of 2015, gross profit was $127.3 million, up from $99.6 million in the first nine months of 2014. Gross profit for the ES segment in the first nine months of 2015 was $103.9 million, up from $88.5 million in the same period of 2014. Excluding the acquired EQ operations, ES gross profit was $60.3 million, down 11% from $67.4 million in the first nine months of 2014. T&D gross margin for the legacy US Ecology business was 48% for the first nine months of 2015 and 50% for the first nine months of 2014. Gross profit for the FIS segment was $23.3 million for the first nine months of 2015 compared to $11.1 million for the first nine months of 2014 and included $10.8 million and $4.2 million of gross profit, respectively, from the Allstate business which is expected to be divested in the fourth quarter of 2015.
SG&A expense for the first nine months of 2015 was $71.1 million compared with $46.3 million in the first nine months of 2014. The increase reflects $44.2 million in SG&A from the acquired EQ operations in the first nine months of 2015 compared to $20.2 million for the first nine months of 2014. This increase was partially offset by lower business development expenses in the first nine months of 2015 compared to the same period of 2014.
As previously reported in the second quarter of 2015, the Company performed an evaluation of the recoverability of the assets associated with the industrial services business and as a result of this evaluation recorded a non-cash goodwill impairment charge of $6.7 million during the second quarter of 2015.
Consolidated net interest expense for the first nine months of 2015 was $16.1 million, up from $5.4 million in the same period of 2014, reflecting interest expense on increased credit facility borrowings used to fund the EQ acquisition.
The Company's consolidated effective income tax rate when excluding the non-deductible goodwill impairment charge for the first nine months of 2015 was 37.6%, down slightly from 37.7% for the first nine months of 2014.
2015 Outlook
"We currently expect the headwinds we encountered during the third quarter to continue in the fourth quarter," commented Feeler. "Industry verticals such as chemical and metal manufacturing are likely to see lower business activity throughout the balance of the year, creating a difficult comparison. On the Event Business side, despite seeing emerging opportunities in the market place that will benefit the fourth quarter and beyond, we continue to see other projects being delayed or deferred and certain shipping schedules slipping. Given this trend in both our Base and Event business, we expect that our final quarter of 2015 will look very similar to the just completed third quarter."
As a result of current market conditions, we are revising our full year guidance. We now expect Adjusted EBITDA for our core business (excluding the full year impact of the Allstate business expected to be divested on November 1, 2015) to range between $122 million and $125 million for the full year of 2015. Our previously issued Adjusted EBITDA guidance (excluding Allstate) was expected to range between $128 million to $132 million. We also expect Adjusted Earnings Per Share to range between $1.73 to $1.80, down from our previous range of $1.76 to $1.92 per diluted share. Our Adjusted Earnings Per Share reflects an approximately $0.03 contribution from the Allstate business for our ownership period in 2015.
All guidance information excludes business development expenses, foreign currency gains and losses, goodwill impairment charges and other non-recurring, noncash charges.
"We believe the current quarter challenges are short-term and reflect a changing business cycle as manufacturers and select Base business customers adjust for slowing growth in 2015. As we cycle through the completion of some of our larger project-based business, market opportunities continue to be strong. We have secured work that has commenced the reloading of remedial cleanup projects for 2016 and with a solid pipeline we remain optimistic in our long-term prospects and market position," commented Feeler.
Dividend
On October 1, 2015, the Company declared a quarterly dividend of $0.18 per common share for stockholders of record on October 21, 2015. The $3.9 million dividend was paid on October 28, 2015.
Conference Call
US Ecology, Inc. will hold an investor conference call on Friday, October 30, 2015 at 10:00 a.m. Eastern Time (8:00 a.m. Mountain Time) to discuss these results and its current financial position and business outlook. Questions will be invited after management's presentation. Interested parties can access the conference call by dialing 877-512-4138 or 412-317-5478. The conference call will also be broadcast live on our website at www.usecology.com. An audio replay will be available through November 14, 2015 by calling 877-344-7529 or 412-317-0088 and using the passcode 10074910. 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, non-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 best-in-class 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. 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 forward-looking 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, including our acquisition of EQ Holdings, Inc. in June 2014, 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 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" section of our reports filed with the SEC could harm our business, prospects, operating results, and financial condition.
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2015 2014 2015 2014
--------- --------- --------- ---------
Revenue
Environmental Services $ 96,270 $ 108,034 $ 278,885 $ 219,266
Field & Industrial Services 52,144 62,830 145,912 70,971
--------- --------- --------- ---------
Total 148,414 170,864 424,797 290,237
Gross Profit
Environmental Services 36,554 42,700 103,938 88,494
Field & Industrial Services 9,386 9,608 23,316 11,079
--------- --------- --------- ---------
Total 45,940 52,308 127,254 99,573
Selling, General &
Administrative Expenses
Environmental Services 6,062 7,006 17,483 13,024
Field & Industrial Services 5,712 6,759 17,665 7,599
Corporate 11,733 11,743 35,927 25,648
--------- --------- --------- ---------
Total 23,507 25,508 71,075 46,271
Impairment Charges
Field & Industrial Services - - 6,700 -
Operating income 22,433 26,800 49,479 53,302
--------- --------- --------- ---------
Other income (expense):
Interest income 17 11 64 94
Interest expense (5,081) (4,543) (16,208) (5,488)
Foreign currency loss (994) (830) (1,769) (1,027)
Other 387 301 1,156 557
--------- --------- --------- ---------
Total other expense (5,671) (5,061) (16,757) (5,864)
Income before income taxes 16,762 21,739 32,722 47,438
Income tax expense 6,858 8,406 14,815 17,880
--------- --------- --------- ---------
Net income $ 9,904 $ 13,333 $ 17,907 $ 29,558
========= ========= ========= =========
Earnings per share:
Basic $ 0.46 $ 0.62 $ 0.83 $ 1.37
Diluted $ 0.46 $ 0.61 $ 0.82 $ 1.37
Shares used in earnings per
share calculation:
Basic 21,655 21,570 21,619 21,526
Diluted 21,749 21,680 21,723 21,649
Dividends paid per share $ 0.18 $ 0.18 $ 0.54 $ 0.54
========= ========= ========= =========
US ECOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
December
September 31, 2014
30, 2015 As Adjusted
Assets
Current Assets:
Cash and cash equivalents $ 9,350 $ 22,971
Receivables, net 104,283 113,454
Prepaid expenses and other current assets 10,241 10,057
Income tax receivable 332 6,912
Deferred income taxes 2,599 2,109
Assets held for sale 78,775 84,579
----------- -----------
Total current assets 205,580 240,082
Property and equipment, net 204,387 209,846
Restricted cash and investments 5,773 5,729
Intangible assets, net 243,187 255,598
Goodwill 194,825 197,671
Other assets 9,624 11,308
Deferred income taxes - 85
----------- -----------
Total assets $ 863,376 $ 920,319
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 16,745 $ 18,306
Deferred revenue 7,212 13,190
Accrued liabilities 28,119 34,775
Accrued salaries and benefits 10,624 12,813
Income tax payable 1,730 4,124
Current portion of closure and post-closure
obligations 4,402 5,359
Current portion of long-term debt 3,505 3,828
Liabilities associated with assets held for
sale 20,240 20,140
----------- -----------
Total current liabilities 92,577 112,535
Long-term closure and post-closure obligations 67,061 67,511
Long-term debt 356,410 390,825
Other long-term liabilities 7,351 4,336
Deferred income taxes 87,771 93,775
----------- -----------
Total liabilities 611,170 668,982
Contingencies and commitments
Stockholders' Equity
Common stock 217 216
Additional paid-in capital 168,978 165,524
Retained earnings 99,509 93,301
Treasury stock (60) (18)
Accumulated other comprehensive loss (16,438) (7,686)
----------- -----------
Total stockholders' equity 252,206 251,337
----------- -----------
Total liabilities and stockholders' equity $ 863,376 $ 920,319
=========== ===========
US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
-------------------------
2015 2014
----------- -----------
Cash Flows From Operating Activities:
Net income $ 17,907 $ 29,558
Adjustments to reconcile net income to net
cash provided by operating activities:
Impairment charges 6,700 -
Depreciation and amortization of property
and equipment 21,726 16,730
Amortization of intangible assets 9,558 5,233
Accretion of closure and post-closure
obligations 3,208 1,675
Unrealized foreign currency loss 2,740 1,453
Deferred income taxes (4,015) 2,407
Share-based compensation expense 1,736 869
Unrecognized tax benefits - (424)
Net loss on disposal of property and
equipment 935 86
Amortization of debt discount 111 37
Changes in assets and liabilities (net of
effect of business acquistions):
Receivables 7,221 (20,938)
Income tax receivable 6,560 (17)
Other assets 1,785 (3,219)
Accounts payable and accrued liabilities (5,256) 2,449
Deferred revenue (5,371) 391
Accrued salaries and benefits (1,877) (1,949)
Income tax payable (2,317) (2,281)
Closure and post-closure obligations (4,386) (879)
----------- -----------
Net cash provided by operating
activities 56,965 31,181
Cash Flows From Investing Activities:
Purchases of property and equipment (25,693) (17,910)
Purchases of restricted cash and investments (848) (40)
Proceeds from sale of restricted cash and
investments 804 662
Proceeds from sale of property and equipment 404 120
Business acquisition (net of cash acquired) - (465,895)
----------- -----------
Net cash used in investing activities (25,333) (483,063)
Cash Flows From Financing Activities:
Payments on long-term debt (34,848) (1,038)
Dividends paid (11,700) (11,640)
Proceeds from exercise of stock options 1,664 1,445
Proceeds from issuance of long-term debt - 413,962
Deferred financing costs paid - (14,001)
Other 7 204
----------- -----------
Net cash (used in) provided by financing
activities (44,877) 388,932
Effect of foreign exchange rate changes on cash (376) (69)
Decrease in cash and cash equivalents (13,621) (63,019)
Cash and cash equivalents at beginning of period 22,971 73,940
----------- -----------
Cash and cash equivalents at end of period $ 9,350 $ 10,921
=========== ===========
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, non-cash impairment charges 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 nine months ended September 30, 2015 and 2014:
Three Months Ended Nine Months Ended
(in thousands) September 30, September 30,
-------------------- --------------------
2015 2014 2015 2014
--------- --------- --------- ---------
Net Income $ 9,904 $ 13,333 $ 17,907 $ 29,558
Income tax expense 6,858 8,406 14,815 17,880
Interest expense 5,081 4,543 16,208 5,488
Interest income (17) (11) (64) (94)
Foreign currency loss 994 830 1,769 1,027
Other income (387) (301) (1,156) (557)
Impairment charges - - 6,700 -
Depreciation and amortization
of plant and equipment 6,591 8,318 21,726 16,730
Amortization of intangible
assets 2,952 4,018 9,558 5,233
Stock-based compensation 646 344 1,736 869
Accretion and non-cash
adjustments of closure &
post-closure obligations 1,132 959 3,208 1,675
--------- --------- --------- ---------
Adjusted EBITDA $ 33,754 $ 40,439 $ 92,407 $ 77,809
========= ========= ========= =========
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 impairment charges and 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.
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 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 non-cash impairment charges, 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.
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 nine months ended September 30, 2015 and 2014:
(in thousands,
except per Three Months Ended September Nine Months Ended September
share data) 30, 30,
----------------------------- -----------------------------
2015 2014 2015 2014
-------------- -------------- -------------- --------------
per per per per
share share share share
Net income /
earnings per
diluted share $ 9,904 $ 0.46 $13,333 $ 0.61 $17,907 $ 0.82 $29,558 $ 1.37
Adjustments, net
of tax:
Impairment
charges - - - - 6,700 0.31 - -
Non-cash
foreign
currency
translation
loss 722 0.04 679 0.03 1,151 0.05 622 0.03
Business
development
costs 93 - 211 0.01 1,311 0.06 4,337 0.20
------- ------ ------- ------ ------- ------ ------- ------
Adjusted net
income /
adjusted
earnings per
diluted share $10,719 $ 0.50 $14,223 $ 0.65 $27,069 $ 1.24 $34,517 $ 1.60
======= ====== ======= ====== ======= ====== ======= ======
Shares used in
earnings per
diluted share
calculation 21,749 21,680 21,723 21,649
======= ======= ======= =======
Contact:
Alison Ziegler
Cameron Associates
(212) 554-5469
alison@cameronassoc.com
www.usecology.com
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