SOURCE: US Ecology, Inc.

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April 27, 2017 16:30 ET

US Ecology Announces First Quarter 2017 Results

Net Income of $5.2 Million; Adjusted EBITDA of $23.5 Million; Debt Refinancing Completed in April to Improve Free Cash Flow

BOISE, ID--(Marketwired - April 27, 2017) - US Ecology, Inc. (NASDAQ: ECOL) ("the Company") today reported total revenue of $110.2 million and net income of $5.2 million, or $0.24 per diluted share, for the quarter ended March 31, 2017.

"First quarter operating results and adjusted EBITDA were consistent with our expectations as we cycled some completed event projects as well as a Field and Industrial Services contract that was not renewed," commented Chairman and Chief Executive Officer, Jeff Feeler. "Base Business for the Environmental Services segment continued its positive momentum with a 3% increase over what was a strong first quarter of 2016. As expected, Event Business for the Environmental Services segment was down 9% in the first quarter due to the strength of our Event Business in the first quarter of 2016."

Total revenue for the first quarter of 2017 was $110.2 million, down from $113.3 million in the same quarter last year. Revenue for the Environmental Services ("ES") segment was $81.3 million for the first quarter of 2017, relatively consistent with the $81.5 million reported in the first quarter of 2016. A 17% decline in transportation revenue more than offset a 3% increase in treatment and disposal ("T&D") revenue. Revenue for the Field and Industrial Services ("FIS") segment was $28.9 million for the first quarter of 2017 compared to $31.8 million in the same period of 2016, down 9% reflecting the expiration of a contract that was not renewed and softer overall market conditions.

Gross profit for the first quarter of 2017 was $31.9 million, down from $35.2 million in the same quarter last year. Gross profit for the ES segment was $28.7 million in the first quarter of 2017, down from $30.5 million in the same quarter of 2016. T&D gross margin for the ES segment was 38% for the first quarter of 2017, compared to 41% for the first quarter of 2016 on a less favorable service mix. Gross profit for the FIS segment in the first quarter of 2017 was $3.2 million. This compares to gross profit of $4.8 million in the first quarter of 2016. The decline was due to the reduced revenue as well as a less favorable service mix in the first quarter of 2017.

Selling, general and administrative ("SG&A") expense for the first quarter of 2017 was $19.7 million compared with $19.4 million in the same quarter last year. SG&A expense increased in the first quarter of 2017 compared to the same period last year due to higher labor, professional and consulting services and insurance costs, partially offset by lower bad debt expenses.

Operating income for the first quarter of 2017 was $12.2 million compared to $15.8 million in the first quarter of 2016.

Net interest expense for the first quarter of 2017 was $4.1 million, down from $4.5 million in the first quarter of 2016. The decrease was due to lower debt levels compared to the first quarter last year.

The Company's consolidated effective income tax rate for the first quarter of 2017 was 37.3%, down from 38.4% for the first quarter of 2016. The decrease was due primarily to a higher proportion of earnings from our Canadian operations in the first quarter of 2017, which are taxed at a lower corporate tax rate.

Net income for the first quarter of 2017 was $5.2 million, or $0.24 per diluted share, compared to $7.5 million, or $0.35 per diluted share, in the first quarter of 2016. Adjusted earnings per share, which excludes foreign currency translation gains and losses and business development expenses, was $0.23 per diluted share in the first quarter of 2017, compared to $0.32 per diluted share for the first quarter of 2016.

Adjusted EBITDA for the first quarter of 2017 was $23.5 million, down 10% from $26.1 million in the same period last year. Pro Forma adjusted EBITDA, which excludes business development expenses, was $23.5 million in the first quarter of 2017, compared to $26.2 million in the first quarter of 2016.

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.

Debt Refinancing

On April 18, 2017, the Company entered into a new $500 million, five-year, senior revolving credit facility (the "New Credit Agreement") with a syndicate of banks to refinance the Company's former credit facility. The interest rate under the New Credit Agreement is initially set at LIBOR Rate plus 1.50%, representing a 150 basis point improvement over the interest rate from our previous credit facility. Additional details and terms, including a copy of the New Credit Agreement, can be found in the Form 8-K filed by the Company on April 20, 2017.

The reduced interest rates and fees on the New Credit Agreement are expected to generate cash interest savings of approximately $15 million over the five-year term. Additionally, in connection with the termination of the former credit agreement, the Company expects to write off approximately $5.4 million of unamortized deferred financing costs related to fees paid on the former credit facility. This non-cash charge will be recognized as additional interest expense in our second quarter 2017 financial results.

2017 Outlook

"Overall, business conditions remain in-line with our expectations," added Feeler. "Our underlying Base Business remains strong and we continue to bid on and secure Event Business opportunities, further supporting our view of sequentially stronger quarterly financial performance as we progress through the year."

As a result, the Company reaffirms its previously issued 2017 Adjusted EBITDA guidance range of $120 million to $130 million and its previously issued diluted earnings per share guidance of $1.69 to $1.93. Diluted earnings per share reflects the one-time, non-cash charge associated with the write-off of deferred financing fees related to the former credit agreement of approximately $0.15 per diluted share, to be recorded in the second quarter of 2017 as well as the estimated annual interest savings under the New Credit Agreement of approximately $0.08 per diluted share. The Company's earnings guidance excludes business development expenses and foreign currency gains and losses.

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

    
   For the Year Ending December 31, 2017  
(in thousands)  Low   High  
          
Net Income  $36,900   $42,000  
 Income tax expense   22,600    27,000  
 Interest expense   16,400    16,400  
 Other income   (500 )  (500 )
 Depreciation and amortization of plant and equipment   26,800    27,300  
 Amortization of intangible assets   9,800    9,800  
 Stock-based compensation   3,900    3,900  
 Accretion of closure & post-closure obligations   4,100    4,100  
Adjusted EBITDA  $120,000   $130,000  
            
            

Dividend

On April 3, 2017, the Company declared a quarterly dividend of $0.18 per common share for stockholders of record on April 21, 2017. The $3.9 million dividend will be paid on April 28, 2017.

Conference Call

US Ecology, Inc. will hold an investor conference call on Friday, April 28, 2017 at 10:00 a.m. Eastern Standard Time (8:00 a.m. Mountain Standard 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 May 5, 2017 by calling 877-344-7529 or 412-317-0088 and using the passcode 10104760. 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.

  
US ECOLOGY, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(in thousands, except per share data)  
(unaudited)  
        
  Three Months Ended March 31,  
   2017   2016  
Revenue         
 Environmental Services $81,303  $81,524  
 Field & Industrial Services  28,931   31,794  
          
  Total  110,234   113,318  
          
Gross Profit         
 Environmental Services  28,686   30,454  
 Field & Industrial Services  3,187   4,754  
          
  Total  31,873   35,208  
          
Selling, General & Administrative Expenses         
 Environmental Services  5,731   5,578  
 Field & Industrial Services  2,641   2,453  
 Corporate  11,342   11,394  
          
  Total  19,714   19,425  
          
Operating income  12,159   15,783  
          
Other income (expense):         
 Interest income  10   49  
 Interest expense  (4,130 ) (4,559 )
 Foreign currency gain  88   759  
 Other  137   169  
  Total other expense  (3,895 ) (3,582 )
          
Income before income taxes  8,264   12,201  
Income tax expense  3,079   4,684  
Net income $5,185  $7,517  
          
Earnings per share:         
  Basic $0.24  $0.35  
  Diluted $0.24  $0.35  
          
Shares used in earnings per share calculation:         
        
  Basic  21,725   21,684  
  Diluted  21,845   21,745  
          
Dividends paid per share $0.18  $0.18  
          
          
  
US ECOLOGY, INC.  
CONSOLIDATED BALANCE SHEETS  
(in thousands)  
(unaudited)  
          
   March 31, 2017   December 31, 2016  
Assets           
            
Current Assets:           
 Cash and cash equivalents  $10,309   $7,015  
 Receivables, net   93,387    96,819  
 Prepaid expenses and other current assets   7,892    7,458  
 Income tax receivable   2,039    4,076  
  Total current assets   113,627    115,368  
            
Property and equipment, net   225,760    226,237  
Restricted cash and investments   5,794    5,787  
Intangible assets, net   231,905    234,356  
Goodwill   193,765    193,621  
Other assets   875    1,031  
Total assets  $771,726   $776,400  
            
Liabilities and Stockholders' Equity           
            
Current Liabilities:           
 Accounts payable  $12,529   $13,948  
 Deferred revenue   9,867    7,820  
 Accrued liabilities   19,903    22,605  
 Accrued salaries and benefits   10,605    10,720  
 Income tax payable   105    165  
 Current portion of closure and post-closure obligations   2,257    2,256  
 Revolving credit facilitiy   -    2,177  
 Current portion of long-term debt   2,862    2,903  
  Total current liabilities   58,128    62,594  
            
Long-term closure and post-closure obligations   73,642    72,826  
Long-term debt   270,171    274,459  
Other long-term liabilities   4,399    5,164  
Deferred income taxes   81,870    81,333  
 Total liabilities   488,210    496,376  
            
Contingencies and commitments           
            
Stockholders' Equity           
 Common stock   218    218  
 Additional paid-in capital   174,044    172,704  
 Retained earnings   123,141    121,879  
 Treasury stock   (135 )  (52 )
 Accumulated other comprehensive loss   (13,752 )  (14,725 )
  Total stockholders' equity   283,516    280,024  
Total liabilities and stockholders' equity  $771,726   $776,400  
            
            
   
US ECOLOGY, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in thousands)  
(unaudited)  
          
   For the Three Months Ended
March 31,
 
   2017   2016  
Cash Flows From Operating Activities:           
 Net income  $5,185   $7,517  
 Adjustments to reconcile net income to net cash provided by operating activities:           
  Depreciation and amortization of property and equipment   6,633    5,904  
  Amortization of intangible assets   2,670    2,610  
  Accretion of closure and post-closure obligations   1,073    1,024  
  Unrealized foreign currency gain   (168 )  (846 )
  Deferred income taxes   179    (699 )
  Share-based compensation expense   918    795  
  Net (gain) loss on disposal of property and equipment   219    (17 )
  Amortization of debt issuance costs   504    638  
  Amortization of debt discount   37    37  
  Changes in assets and liabilities:           
   Receivables   2,991    12,222  
   Income tax receivable   2,045    943  
   Other assets   (417 )  365  
   Accounts payable and accrued liabilities   (2,577 )  571  
   Deferred revenue   2,037    (1,461 )
   Accrued salaries and benefits   (124 )  (2,122 )
   Income tax payable   (61 )  3,243  
   Closure and post-closure obligations   (271 )  (472 )
    Net cash provided by operating activities   20,873    30,252  
            
Cash Flows From Investing Activities:           
  Purchases of property and equipment   (7,151 )  (7,219 )
  Purchases of restricted cash and investments   (13 )  (53 )
  Proceeds from sale of restricted cash and investments   6    6  
  Proceeds from sale of property and equipment   40    56  
    Net cash used in investing activities   (7,118 )  (7,210 )
            
Cash Flows From Financing Activities:           
  Proceeds from revolving credit facility   11,260    6,934  
  Payments on revolving credit facility   (13,438 )  (6,934 )
  Payments on long-term debt   (4,726 )  (10,764 )
  Dividends paid   (3,923 )  (3,918 )
  Proceeds from exercise of stock options   496    -  
  Payment of equipment financing obligations   (85 )  -  
  Other   (74 )  (225 )
    Net cash used in financing activities   (10,490 )  (14,907 )
            
Effect of foreign exchange rate changes on cash   29    158  
            
Increase in cash and cash equivalents   3,294    8,293  
            
Cash and cash equivalents at beginning of period   7,015    5,989  
            
Cash and cash equivalents at end of period  $10,309   $14,282  
            

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 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 2017 guidance which does not include business development expenses.

The following reconciliation itemizes the differences between reported net income and adjusted EBITDA and Pro Forma adjusted EBITDA for the three months ended March 31, 2017 and 2016:

    
(in thousands)  Three Months Ended March 31,  
   2017   2016  
          
Net Income  $5,185   $7,517  
 Income tax expense   3,079    4,684  
 Interest expense   4,130    4,559  
 Interest income   (10 )  (49 )
 Foreign currency gain   (88 )  (759 )
 Other income   (137 )  (169 )
 Depreciation and amortization of plant and equipment   6,633    5,904  
 Amortization of intangible assets   2,670    2,610  
 Stock-based compensation   918    795  
 Accretion and non-cash adjustments of closure & post-closure obligations   1,073    1,024  
Adjusted EBITDA   23,453    26,116  
            
 Business development expenses   37    68  
Pro Forma adjusted EBITDA  $23,490   $26,184  
            
            

Adjusted Earnings Per Diluted Share

The Company defines adjusted earnings per diluted share as net income adjusted for the after-tax impact of non-cash foreign currency translation gains or losses and 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 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 non-cash foreign currency translation gains or losses and the after-tax impact of 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 months ended March 31, 2017 and 2016:

    
(in thousands, except per share data)  Three Months Ended March 31,  
   2017  2016  
   Income before income taxes  Income tax  Net income  per share  Income before income taxes  Income tax  Net income  per share  
As Reported  $8,264  $(3,079 )$5,185  $0.24  $12,201  $(4,684 )$7,517  $0.35  
                                   
Adjustments:                                  
 Non-cash foreign currency translation (gain) loss   (145 ) 54   (91 ) (0.01 ) (930 ) 357   (573 ) (0.03 )
 Plus: Business development costs   37   (14 ) 23   -   68   (26 ) 42   -  
                                   
As Adjusted  $8,156  $(3,039 )$5,117  $0.23  $11,339  $(4,353 )$6,986  $0.32  
                                   
Shares used in earnings per diluted share calculation           21,845               21,745      
                                   
                                   

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