US Ecology Announces Third Quarter 2016 Results

BOISE, ID--(Marketwired - October 27, 2016) -

Net Income of $10.1 Million

Adjusted EBITDA of $31.7 Million

Lowers 2016 Outlook on Project Deferrals and Continued Softness in Event Business

US Ecology, Inc. (NASDAQ: ECOL) ("the Company") today reported total revenue of $124.8 million and net income of $10.1 million, or $0.46 per diluted share for the quarter-ended September 30, 2016.

"Continued sluggishness in the macro industrial environment resulted in our third quarter not materializing as expected," commented Jeff Feeler, Chairman and Chief Executive Officer. "Recurring Base Business delivered solid 4% growth for our Environmental Services segment during the quarter and was in-line with expectations. However, we continued to experience challenging market dynamics in our Event Business resulting from a combination of project delays and fewer remedial cleanup opportunities. Our Field and Industrial Services business unit saw solid growth on a year-over-year basis but also delivered lower than anticipated results on softer business activity levels."

Total revenue for the third quarter of 2016 of $124.8 million was down from $148.4 million in the same quarter last year. Revenue for the third quarter of 2015 included $20.1 million of revenue for Allstate Power Vac ("Allstate"), which was divested on November 1, 2015. Revenue for the Environmental Services ("ES")¹ segment was $87.8 million for the third quarter of 2016, down from $91.9 million in the third quarter of 2015. This decline consisted of a 4% decrease in treatment and disposal ("T&D") revenue and a 9% decrease in transportation revenue compared to the third quarter of 2015. Revenue for the Field and Industrial Services ("FIS")² segment was $37.0 million for the third quarter of 2016 compared to $56.5 million in the same period of 2015. After taking into account the divested Allstate business, which contributed $20.1 million of revenue in the third quarter of 2015, our remaining FIS revenue was relatively consistent with the same quarter in the prior year.

Gross profit for the third quarter of 2016 was $39.4 million, down from $45.9 million in the same quarter last year. Gross profit for the ES segment was $33.6 million in the third quarter of 2016, down from $35.6 million in the same quarter of 2015. T&D gross margin for the ES segment was 43% for the third quarter of 2016, compared to 44% for the third quarter of 2015. Gross profit for the FIS segment in the third quarter of 2016 was $5.7 million. This compares to $10.4 million in the third quarter of 2015, which included $4.9 million from the divested Allstate business, representing therefore a year-over-year improvement of over 4% in the remaining FIS business.

Selling, general and administrative ("SG&A") expense for the third quarter of 2016 was $18.4 million compared with $23.5 million in the same quarter last year, which included $3.2 million related to the divested Allstate business. Excluding the SG&A related to the Allstate divestiture, SG&A decreased primarily due to lower labor and incentive compensation costs as well as insurance recoveries in the third quarter of 2016 compared to the third quarter of 2015.

Operating income for the third quarter of 2016 was $20.9 million compared to $22.4 million in the third quarter of 2015. Allstate had operating income of $1.7 million in the third quarter of 2015. Excluding Allstate, operating income improved marginally over the third quarter of 2015.

Net interest expense for the third quarter of 2016 was $4.3 million, down from $5.1 million in the third quarter of 2015. The decrease was primarily due to lower debt levels in the third quarter of 2016 compared with the same period of 2015.

The Company's consolidated effective income tax rate for the third quarter of 2016 was 38.3%, down from 40.9% for the third quarter of 2015. This decrease primarily reflects a higher proportion of earnings from our Canadian operations which are taxed at a lower corporate tax rate. The decrease was partially offset by a higher U.S. effective tax rate in the third quarter of 2016, driven by a higher overall effective state tax rate resulting from changes in our apportionment between the various states in which we operate.

Net income for the third quarter of 2016 of $10.1 million, or $0.46 per diluted share, compared to $9.9 million, or $0.46 per diluted share, in the third quarter of 2015. Adjusted earnings per share, which excludes loss on sale of divested businesses, the divested Allstate business, foreign currency translation gains and losses and business development expenses, was $0.47 per diluted share in the third quarter of 2016 compared to $0.45 per diluted share for the third quarter of 2015. Adjusted EBITDA for the third quarter of 2016 was $31.7 million, down 6% from $33.8 million in the same period last year. Pro Forma adjusted EBITDA, which excludes the divested Allstate business and business development expenses, was $31.7 million in the third quarter of 2016 compared to $31.6 million in the third quarter of 2015. Reconciliations of earnings per diluted share to adjusted earnings per diluted share and net income to adjusted EBITDA and Pro Forma adjusted EBITDA are attached as Exhibit A to this release.

Year-To-Date Results

Total revenue for the first nine months of 2016 was $360.5 million compared to $424.8 million in the first nine months of 2015. Revenue for the first nine months of 2015 included $51.0 million of revenue for Allstate. Revenue for the ES segment was $252.1 million for the first nine months of 2016, down from $266.3 million in the same period of 2015. This decline consisted of a 6% decrease in T&D revenue and a 4% reduction in transportation revenue compared to the first nine months of 2015. Revenue for the FIS segment was $108.4 million for the first nine months of 2016 compared to $158.5 million in the same period of 2015. After taking into account the divested Allstate business, FIS revenue was relatively consistent over the prior year period.

Gross profit for the first nine months of 2016 was $111.5 million, down from $127.3 million in the same period last year. Gross profit for the ES segment was $94.7 million in the first nine months of 2016, down from $101.3 million in the first nine months of 2015. T&D gross margin for the ES segment was 42% for the first nine months of 2016 compared to 43% for the first nine months of 2015. Gross profit for the FIS segment in the first nine months of 2016 was $16.8 million. This compares to $25.9 million in the first nine months of 2015, which included $10.8 million from the divested Allstate business, representing therefore a year-over-year improvement of approximately 11% in gross profit in the remaining FIS business.

SG&A expense for the first nine months of 2016 was $57.7 million compared with $71.1 million in the same period last year, which included $9.9 million related to the divested Allstate business. Excluding the decline related to the Allstate divestiture, SG&A expense decreased primarily due to lower business development costs, incentive compensation and consulting and professional services in the first nine months of 2016 compared to the first nine months of 2015.

Operating income for the first nine months of 2016 was $53.8 million, up 9% from $49.5 million in the first nine months of 2015. Allstate had an operating loss of $5.5 million in the first nine months of 2015 which included a $6.4 million goodwill impairment charge.

Net interest expense for the first nine months of 2016 was $13.0 million, down from $16.1 million in the first nine months of 2015. The decrease was primarily due to lower debt levels in the first nine months of 2016 compared with the same period in 2015.

The Company's consolidated effective income tax rate for the first nine months of 2016 was 38.8%, up from 37.6% when excluding the non-deductible goodwill impairment charge for the first nine months of 2015. This increase primarily reflects a lower proportion of earnings from our Canadian operations which are taxed at a lower corporate tax rate. The increase is also partially attributable to a higher U.S. effective tax rate in the first nine months of 2016 driven by a higher overall effective state tax rate resulting from changes in our apportionment between the various states in which we operate.

Net income for the first nine months of 2016 was $26.6 million, or $1.22 per diluted share, compared to $17.9 million, or $0.82 per diluted share, in the first nine months of 2015. Adjusted earnings per share, which excludes the gain on sale of divested businesses, goodwill impairment charges, the divested Allstate business, foreign currency translation gains and losses and business development expenses, was $1.16 in the first nine months of 2016 compared to $1.21 per diluted share for the first nine months of 2015. Adjusted EBITDA for the first nine months of 2016 was $85.5 million, down 7% from $92.4 million in the same period last year. Pro Forma adjusted EBITDA, which excludes the divested Allstate business and business development expenses, was $86.0 million in the first nine months of 2016 compared to $90.0 million in the first nine months of 2015. Reconciliations of earnings per diluted share to adjusted earnings per diluted share and net income to adjusted EBITDA and Pro Forma adjusted EBITDA are attached as Exhibit A to this release.

2016 Outlook

"The market environment for the first nine months has remained challenging, and we don't expect to see any improvement over the balance of the year," commented Feeler. "Despite generating single digit growth in our Base Business, project deferrals continue to push volume to future periods. Additionally, as we exit the summer construction season, it is unlikely we will see improvement in our Event Business, with customers more likely to wait until 2017 to start new projects. Our Field and Industrial services business is expected to slow in the fourth quarter as a result of lower industrial spending and the expiration of a contract that was not renewed. It is this combination of factors that has us lowering our expectations for our 2016 financial results. We now expect diluted earnings per share to range between $1.54 to $1.65 per share and Adjusted EBITDA to range from $113 to $118 million for 2016. This is down from our previously issued guidance of $1.80 to $1.95 per diluted share and Adjusted EBITDA between $126 million to $132 million."

Our 2016 outlook does not take into account business development costs, results of divested businesses or foreign currency translation gains or losses.

Feeler concluded, "While there may continue to be short-term headwinds in the industrial sector, we continue to be strategically focused on growing our base business and adding strategic, high quality assets that expand or complement our disposal network allowing us to diversify our business while lessening our dependence on a single remedial project. We have strengthened our balance sheet and paid down debt with our strong cash flows, while our Board authorized a $25 million share repurchase program in order to further enhance our value creation strategy. We remain confident in our ability to deliver value to our stockholders over the long term."

The following table reconciles our adjusted EBITDA guidance range to our projected net income.

Dividend

On October 3, 2016, the Company declared a quarterly dividend of $0.18 per common share for stockholders of record on October 21, 2016. The $3.9 million dividend will be paid on October 28, 2016.

Conference Call

US Ecology, Inc. will hold an investor conference call on Friday, October 28, 2016 at 10:00 a.m. Eastern Daylight Time (8:00 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 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 4, 2016 by calling 877-344-7529 or 412-317-0088 and by using the passcode 10094182. 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.

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, 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.

¹ Environmental Services ("ES") - This segment provides diversified waste services including transportation, recycling, treatment and disposal of hazardous and non-hazardous materials at Company-owned landfill, wastewater and other treatment facilities.

² Field & Industrial Services ("FIS") - This segment provides waste packaging, collection and total waste management solutions at customer sites and through our 10-day transfer facilities. Services include on-site management, waste characterization, transportation and disposal of non-hazardous and hazardous waste. This segment also provides specialty services such as high-pressure cleaning, tank cleaning, decontamination, remediation, spill cleanup, emergency response and other services to commercial and industrial facilities and government entities.

EXHIBIT A

Non-GAAP Results and Reconciliation

US Ecology reports adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share results, which are non-GAAP financial measures, as a complement to results provided in accordance with generally accepted accounting principles in the United States (GAAP) and believes that such information provides analysts, stockholders, and other users information to better understand the Company's operating performance. Because adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations they may not be comparable to similar measures used by other companies. Items excluded from adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share are significant components in understanding and assessing financial performance.

Adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Adjusted EBITDA, Pro Forma adjusted EBITDA and adjusted earnings per diluted share have limitations as analytical tools and should not be considered in isolation or a substitute for analyzing our results as reported under GAAP. 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.
• Pro Forma adjusted EBITDA does not reflect our business development expenses, which may vary significantly quarter to quarter.

Adjusted EBITDA

The Company defines adjusted EBITDA as net income before interest expense, interest income, income tax expense, depreciation, amortization, stock based compensation, accretion of closure and post-closure liabilities, foreign currency gain/loss, non-cash impairment charges and other income/expense, which are not considered part of usual business operations.

Pro Forma adjusted EBITDA

The Company defines Pro Forma adjusted EBITDA as adjusted EBITDA (see definition above) less the adjusted EBITDA related to the divested Allstate business, 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 2016 guidance which includes neither the divested Allstate business nor business development expenses.

The following reconciliation itemizes the differences between reported net income and adjusted EBITDA and Pro Forma adjusted EBITDA for the three and nine months ended September 30, 2016 and 2015:

Adjusted Earnings Per Diluted Share

The Company defines adjusted earnings per diluted share as net income adjusted for the after-tax impact of the gain on sale of divested businesses, non-cash foreign currency translation gains or losses, the after-tax impact of business development costs, and the after-tax impact of the divested Allstate business, divided by the number of diluted shares used in the earnings per share calculation.

Impairment charges excluded from the earnings per diluted share calculation are related to the Company's decision to explore strategic alternatives for our industrial services business. The foreign currency translation gains or losses excluded from the earnings per diluted share calculation are related to intercompany loans between our Canadian 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 these non-cash foreign currency movements for intercompany financial instruments and business development costs provides meaningful information to investors regarding the operational and financial performance of the Company.

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, 2016 and 2015:

⁽¹⁾ Impairment charges were not deductible for income tax purposes