US Ecology Announces Third Quarter 2013 Results

BOISE, ID--(Marketwired - Oct 28, 2013) - US Ecology, Inc. (NASDAQ: ECOL) ("the Company") today reported financial results for the quarter and nine months ended September 30, 2013.

Net income for the third quarter of 2013 was $10.3 million, or $0.56 per diluted share, up from $8.7 million, or $0.47 per diluted share, in the third quarter of 2012. Excluding foreign currency translation gains and business development expenses, adjusted earnings per diluted share grew 20% to $0.53 in the third quarter of 2013, up from $0.44 in the third quarter of 2012. Operating income for the third quarter of 2013 was a record $15.5 million, up 25% from $12.4 million in the third quarter last year. 

Adjusted EBITDA for the third quarter of 2013 was a record $20.1 million, up 20% from $16.7 million in the same period last year. 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 2013 was $53.1 million, up 16% from $45.7 million in the same quarter last year. Treatment and disposal ("T&D") revenue increased 10% quarter over quarter. Transportation revenue increased 48% quarter over quarter. T&D revenue growth in the quarter reflected a 23% increase in project-based Event Business. Recurring Base Business revenue for the third quarter of 2013 was consistent with the same period last year.

Total quarterly waste volume disposed or processed at our Idaho, Michigan, Nevada, Texas and Quebec facilities was 266,000 tons in the third quarters of both 2013 and 2012. Average selling price ("ASP") for the third quarter of 2013 increased 10% compared to the same quarter last year primarily on a more favorable service mix. 

For the third quarter of 2013, gross profit was $21.6 million, up 16% from $18.6 million in the third quarter of 2012. Total gross margin was 41% in the third quarters of both 2013 and 2012. T&D gross margin for the third quarter of 2013 was 51%, up from 48% in the third quarter of 2012 reflecting more favorable ASP on a more favorable service mix. 

Selling, general and administrative ("SG&A") expense for the third quarter of 2013 was $6.1 million, or 12% of revenue, down from $6.2 million, or 14% of revenue in the same quarter last year. 

The Company's effective income tax rate for the third quarter of 2013 was 35.7%, down from 37.4% for the third quarter of 2012. This decrease reflects a higher proportion of earnings from our Canadian operations, which are taxed at a lower corporate tax rate, partially offset by higher U.S. state income taxes.

At September 30, 2013, cash on hand was $4.4 million. Total borrowings on our lines of credit were $35.5 million, down from $45.0 million at December 31, 2012. At September 30, 2013, $47.2 million was available for future borrowings. 

"Our impressive top line performance combined with continued operational improvements and cost control drove record operating income and adjusted EBITDA for a second consecutive quarter," commented Executive Vice President and Chief Financial Officer, Eric Gerratt. "Solid T&D revenue growth reflected continued strength in the commercial business sector, which more than offset expected softness in our government business. We also saw significant expansion in our T&D gross margin due to continued improvements to our service mix and other operational improvements across our facilities."

Year-To-Date Results

Total revenue for the first nine months of 2013 was $141.8 million, up 19% from $118.7 million for the first nine months of 2012. T&D revenue increased 13% for the first nine months of 2013 compared to the same period in 2012. Transportation revenue increased 70% for the first nine months of 2013 compared to the same period last year. Excluding US Ecology Michigan, T&D revenue growth in the first nine months of 2013 reflected a 24% increase in Event Business revenue and a 1% increase in recurring Base Business revenue compared to the first nine months of 2012. 

Total waste volume disposed or processed at our Idaho, Michigan, Nevada, Texas and Quebec facilities was 742,000 tons in the first nine months of both 2013 and 2012. ASP for the first nine months of 2013 increased 13% compared to the first nine months of 2012, reflecting a more favorable service mix in the first nine months of 2013. 

For the first nine months of 2013, gross profit was $55.9 million, up 17% from $48.0 million in the first nine months of 2012. Total gross margin was 39% in the first nine months of 2013 compared to 40% in the prior year period. T&D gross margin for the first nine months of 2013 was 47%, up from 46% in the first nine months of 2012. 

SG&A expense for the first nine months of 2013 was $18.4 million, or 13% of revenue, up from $18.2 million, or 15% of revenue in the same period last year. 

Operating income for the first nine months of 2013 was $37.6 million, up 26% from $29.8 million for the first nine months of 2012. 

Adjusted EBITDA for the first nine months of 2013 was $51.0 million, 19% above the $42.7 million for the same period last year. A reconciliation of net income to adjusted EBITDA is attached as Exhibit A to this release. 

Our effective income tax rate for the first nine months of 2013 was 35.8%, down from 38.2% for the first nine months of 2012. This decrease reflects a higher proportion of earnings from our Canadian operations, which are taxed at a lower corporate tax rate, partially offset by higher U.S. state income taxes.

Net income for the first nine months of 2013 was $22.9 million, or $1.24 per diluted share, up from $19.5 million, or $1.07 per diluted share, for the first nine months of 2012. Excluding foreign currency translation gains and losses and business development expenses, adjusted earnings per diluted share grew 24% to $1.29 for the first nine months of 2013, up from $1.04 for the first nine months of 2012. A reconciliation of earnings per diluted share to adjusted earnings per diluted share is attached as Exhibit A to this release. 

2013 Update and Outlook

"Strong Event Business combined with steady Base Business and continued operational excellence across all of our facilities produced a second consecutive quarter of record financial results," commented Jeff Feeler, President and Chief Executive Officer. "Growth in our Event Business was driven by a combination of solid new project demand and accelerated shipments on longer-term projects. Our underlying Base Business is performing as expected and demand for our thermal recycling services remains strong. With a healthy pipeline of business that runs into 2014 and a solid fourth quarter outlook, we now expect full year earnings for 2013 to range from $1.68 to $1.73 per diluted share, up from our previous range of $1.45 to $1.55 per share. Adjusted EBITDA is expected to range from $67 million to $69 million, up from our previous guidance of $62 million to $65 million. As with our previous guidance, this new range excludes the impact of foreign currency translation gains or losses and business development expenses."

Dividend

On October 1, 2013, the Company declared a quarterly dividend of $0.18 per common share for stockholders of record on October 18, 2013. The $3.3 million dividend is to be paid on October 25, 2013.

Conference Call

US Ecology, Inc. will hold an investor conference call on Tuesday, October 29, 2013 at 9 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 866-713-8563 or 617-597-5311 and using the passcode 96536035. The conference call will also be broadcast live on our website at www.usecology.com. An audio replay will be available through November 5, 2013 by calling 888-286-8010 or 617-801-6888 and using the passcode 97282276. The replay will also be accessible on our website at www.usecology.com.

About US Ecology, Inc.

US Ecology, Inc., through its subsidiaries, provides radioactive, hazardous, PCB and non-hazardous industrial waste management and recycling services to commercial and government entities, such as refineries and chemical production facilities, manufacturers, electric utilities, steel mills, medical and academic institutions and waste brokers. Headquartered in Boise, Idaho, the Company is one of the oldest radioactive and hazardous waste services companies in North America.

This press release contains forward-looking statements as 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. Because such statements include risks and uncertainties, actual results may differ materially from what is expressed herein and no assurance can be given that the Company will achieve its 2013 earnings estimates, successfully execute its growth strategy, increase market share, or declare or pay future dividends. For information on other factors that could cause actual results to differ materially from expectations, please refer to US Ecology, Inc.'s December 31, 2012 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 and integrate future acquisitions.

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 September 30,								Nine Months Ended September 30,
				2013				2012				2013				2012
Revenue				$	53,090			$	45,739			$	141,766			$	118,732
Direct operating costs					20,902				19,893				61,745				56,164
Transportation costs					10,568				7,257				24,091				14,577
Gross profit					21,620				18,589				55,930				47,991
Selling, general and administrative expenses					6,108				6,196				18,353				18,167
Operating income					15,512				12,393				37,577				29,824
Other income (expense):
	Interest income				4				4				11				13
	Interest expense				(208	)			(231	)			(651	)			(659	)
	Foreign currency gain (loss)				683				1,605				(1,448	)			1,775
	Other				77				70				268				672
		Total other income (expense)			556				1,448				(1,820	)			1,801
Income before income taxes					16,068				13,841				35,757				31,625
Income tax expense					5,740				5,179				12,813				12,078
Net income				$	10,328			$	8,662			$	22,944			$	19,547
Earnings per share:
	Basic			$	0.56			$	0.48			$	1.25			$	1.07
	Diluted			$	0.56			$	0.47			$	1.24			$	1.07
Shares used in earnings per share calculation:
	Basic				18,459				18,236				18,395				18,228
	Diluted				18,533				18,270				18,475				18,262
Dividends paid per share				$	0.18			$	0.18			$	0.36			$	0.54

US ECOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
				September 30, 2013				December 31, 2012
Assets
Current Assets:
	Cash and cash equivalents			$	4,378			$	2,120
	Receivables, net				40,794				33,947
	Prepaid expenses and other current assets				4,076				3,161
	Deferred income taxes				888				1,276
		Total current assets			50,136				40,504
Property and equipment, net					115,284				109,792
Restricted cash					4,111				4,111
Intangible assets, net					38,354				40,771
Goodwill					22,359				23,105
Other assets					487				411
Total assets				$	230,731			$	218,694
Liabilities and Stockholders' Equity
Current Liabilities:
	Accounts payable			$	8,070			$	6,333
	Deferred revenue				6,439				3,919
	Accrued liabilities				8,291				7,322
	Accrued salaries and benefits				5,925				7,570
	Income tax payable				3,168				426
	Current portion of closure and post-closure obligations				894				1,913
		Total current liabilities			32,787				27,483
Long-term closure and post-closure obligations					16,286				15,449
Reducing revolving line of credit					35,500				45,000
Other long-term liabilities					80				114
Unrecognized tax benefits					477				467
Deferred income taxes					15,693				18,159
	Total liabilities				100,823				106,672
Contingencies and commitments
Stockholders' Equity
	Common stock				185				184
	Additional paid-in capital				65,838				63,969
	Retained earnings				64,723				48,424
	Treasury stock				(319	)			(1,183	)
	Accumulated other comprehensive income (loss)				(519	)			628
		Total stockholders' equity			129,908				112,022
Total liabilities and stockholders' equity				$	230,731			$	218,694

US ECOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
						Nine Months Ended September 30,
						2013				2012
Cash Flows From Operating Activities:
	Net income					$	22,944			$	19,547
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization of property and equipment					10,792				10,222
		Amortization of intangible assets					1,092				1,096
		Accretion of closure and post-closure obligations					927				1,018
		Unrealized foreign currency loss (gain)					1,706				(2,034	)
		Deferred income taxes					(1,646	)			(785	)
		Stock-based compensation expense					601				564
		Unrecognized tax benefits					10				10
		Net (gain) loss on sale of property and equipment					12				(34	)
		Changes in assets and liabilities:
			Receivables, net				(7,218	)			(1,994	)
			Income tax receivable				-				187
			Other assets				(833	)			(213	)
			Accounts payable and accrued liabilities				1,004				(3,485	)
			Deferred revenue				2,564				(112	)
			Accrued salaries and benefits				(1,541	)			875
			Income tax payable				2,752				515
			Closure and post-closure obligations				(989	)			(544	)
				Net cash provided by operating activities			32,177				24,833
Cash Flows From Investing Activities:
	Purchases of property and equipment						(15,590	)			(12,433	)
	Proceeds from sale of property and equipment						64				465
	Business acquisition, net of cash acquired						-				(10,743	)
	Restricted cash						-				5
				Net cash used in investing activities			(15,526	)			(22,706	)
Cash Flows From Financing Activities:
	Payments on reducing revolving line of credit						(19,000	)			(17,000	)
	Proceeds from reducing revolving line of credit						9,500				26,000
	Dividends paid						(6,645	)			(9,850	)
	Proceeds from stock option exercises						2,192				-
	Deferred financing costs paid						(185	)			-
	Other						(58	)			(259	)
				Net cash used in financing activities			(14,196	)			(1,109	)
Effect of foreign exchange rate changes on cash							(197	)			217
Increase in cash and cash equivalents							2,258				1,235
Cash and cash equivalents at beginning of period							2,120				4,289
Cash and cash equivalents at end of period						$	4,378			$	5,524

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, shareholders, 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 nine months ended September 30, 2013 and 2012:

(in thousands)			Three Months Ended September 30,								Nine Months Ended September 30,
			2013				2012				2013				2012
Net Income			$	10,328			$	8,662			$	22,944			$	19,547
	Income tax expense			5,740				5,179				12,813				12,078
	Interest expense			208				231				651				659
	Interest income			(4	)			(4	)			(11	)			(13	)
	Foreign currency (gain)/loss			(683	)			(1,605	)			1,448				(1,775	)
	Other income			(77	)			(70	)			(268	)			(672	)
	Depreciation and amortization of plant and equipment			3,721				3,428				10,792				10,222
	Amortization of intangibles			362				372				1,092				1,096
	Stock-based compensation			238				181				601				564
	Accretion and non-cash adjustments of closure & post-closure liabilities			314				348				927				1,018
Adjusted EBITDA			$	20,147			$	16,722			$	50,989			$	42,724

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 cost divided by the 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. Business development costs in 2012 include the acquisition of Dynecol, Inc. which closed on May 31, 2012 and other business development and strategic planning activities. 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 nine months ended September 30, 2013 and 2012:

(in thousands, except per share data)		Three Months Ended September 30,												Nine Months Ended September 30,
		2013						2012						2013						2012
					per share						per share						per share							per share
Net income / earnings per diluted share		$	10,328		$	0.56		$	8,662		$	0.47		$	22,944		$	1.24		$	19,547			$	1.07
Business development costs, net of tax			26			-			290			0.02			26			-			483				0.03
Non-cash foreign currency (gain)/loss, net of tax			(535	)		(0.03	)		(1,040	)		(0.05	)		912			0.05			(1,141	)			(0.06	)
Adjusted net income / adjusted earnings per diluted share		$	9,819		$	0.53		$	7,912		$	0.44		$	23,882		$	1.29		$	18,889			$	1.04
Shares used in earnings per diluted share calculation			18,533						18,270						18,475						18,262