US Ecology, Inc.

Good morning and welcome to the third quarter 2020 U.S. Psychology, Inc. earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Eric Jarrett, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining us today. Joining me on the call this morning are Chairman, President, and Chief Executive Officer Jeff Thieler, Executive Vice President and Chief Operating Officer Simon Bell, and Executive Vice President of Sales and Marketing Steve Welling. Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include but are not limited to those discussed in the company's filings with the Securities and Exchange Commission. These risks and uncertainties also include but are not limited to statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact of specific end markets in which we operate, and our expectations for financial results for 2020. Management cannot control or predict many factors that determine future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only on the date such statements are made. We undertake 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. For those joining by webcast, you can follow along with today's presentation. For those listening by phone, you can access today's presentation on our website at www.usecology.com. Throughout yesterday's earnings release and our call and presentation today, we referred to adjusted EBITDA, adjusted earnings per diluted share, cash earnings per diluted share, and adjusted free cash flow. These metrics are not determined in accordance with generally accepted accounting principles and are therefore susceptible to varying calculations. A definition, calculation, and reconciliation to the financial statements of adjusted earnings per diluted share, cash earnings per diluted share, adjusted EBITDA, and adjusted free cash flow can be found in Exhibit A of our earnings release. We believe these non-GAAP metrics are useful in evaluating our reported results. We would also like to point out that our third quarter results include contribution from the NRC group holdings acquisition that closed on November 1st of 2019. Throughout this presentation, we often refer to NRC group holdings as NRC. We have also provided data on standalone U.S. ecology basis, which is referred to as legacy U.S. ecology. Similarly, for standalone NRC data, we refer to that group as legacy NRC. This disaggregation is an attempt to provide increased transparency and understanding of the underlying business.

With that, I would now like to turn the call over to Jeff. Thank you, Eric, and good morning, everyone. We appreciate you all taking the time to join us today and hope you and your families have remained safe during these uncertain times. Before I have Eric review the third quarter financial results, I'd like to update everyone on how U.S. Ecology is navigating the current business environment. For those that are following the webcast presentation, please direct your attention to slide five. Despite continued COVID-19 headwinds, our third quarter results were substantially improved across most of our business units, resulting in an 11% sequential improvement in revenue and a 17% improvement in our adjusted EBITDA from the second quarter of 2020. The resilience of our overall business, diversification of our services, and execution by our exceptional team compounded by the capital preservation initiatives implemented earlier this year, resulted in an 8% improvement in year-over-year free cash flow. Overall, the company delivered total adjusted EBITDA of $45.4 million, an increase of 9% over prior year, on revenues of $238.1 million. Year-to-date, our adjusted free cash flow of $51.5 million is already ahead of the adjusted free cash flow generated in all of 2019. We ended the quarter with $102 million of cash and approved net debt position from the beginning of the year and repaid $30 million of debt, proactively drawn off our lines of credit at the beginning of the pandemic. Several bright spots emerged this quarter as industrial activity shows signs of life. Leading the way is our collection of services-based business, which generated solid top-line growth and EBITDA margin expansion, helping to offset some of the current industrial softness impacting the waste side of the business. Moving on to slide six, legacy U.S. ecology field and industrial services revenue was up 10%, led by strong execution in our small quantity generation, emergency response, and total waste management services. With higher activity levels, this segment also saw adjusted EBITDA margins expand 59 basis points, which helped offset the negative operating leverage experienced on the waste side of the business due to COVID-19-induced manufacturing slowdowns. Our legacy U.S. Ecology Environmental Services segment revenue declined 12%. during the quarter, reflecting a 15% decline in base business revenue, partially offset by an 8% growth in our event business, as project-based shipments remained strong throughout the quarter. Sequentially, base business was down just under 1% from the second quarter of this year, as we saw trends stabilize and start to improve. Event business was up 13% sequentially. Overall, Legacy U.S. Ecology saw a revenue decline of 6% compared to the third quarter last year, but a 10% sequential increase from the second quarter of 2020. Legacy U.S. Ecology's adjusted EBITDA was down 8% when excluding the $2.6 million of business interruption proceeds recognized in the third quarter of 2019. Sequentially, Legacy U.S. Ecology's adjusted EBITDA was up 7% from the second quarter of 2020. Taking a look at Legacy NRC results on slide 7, NRC contributed $81 million of revenue, which was up 15% sequentially from our second quarter. NRC revenue was down 21% from the prior year, primarily resulting from energy waste services business. NRC generated adjusted EBITDA of $9.7 million in the third quarter, a sequential improvement of 87%. NRC's field and industrial services business saw revenue and EBITDA growth both sequentially and compared to the third quarter last year on increased COVID decontamination, industrial, and weather-based emergency response services, as well as synergies. With With revenue in our energy waste disposal business down 30% sequentially from the second quarter, we have worked diligently to take further costs out of the business while adjusting our go-to-market strategy to focus on non-drilling waste opportunities. The resulting EBITDA loss of $766,000 in the third quarter was a 60% improvement over the second quarter of this year. We believe we have right-sized the business for future quarters with some remediation projects and a slight pickup in rig count. We believe we have found bottom. We continue to expect this business to be breakeven to slightly positive on an adjusted EBITDA basis for the full year of 2020. Turning to NRC integration activities, net synergies are ahead of our $7.2 million 2020 plan for the first nine months of the year. While we still have plenty to do, cost savings are coming in better than anticipated, and revenue trends are improving in the third quarter and beyond. As a result, we now expect NetSynergies to be in the $10 million range for 2020. Other integration activities have not slowed, and we remain on track for our project plans, despite COVID and related travel restrictions. When you look beyond the quarter to year-to-date results, the resilience of our business model is even more evident. In the first nine months of 2020, in the face of a global pandemic, our legacy U.S. ecology business delivered the same level of revenue when compared with the prior year. This translated into us achieving adjusted EBITDA on our legacy U.S. ecology business that was down just 3%. from the same period last year. This solid performance underscores the successful execution of our multiyear strategy to grow our services-based business to support a robust treatment, disposal, and recycling network. When looking at NRC, we are still in the early stages of realizing the benefits of this combination. While COVID-19 and the related impacts on the oil and gas markets have more severely impacted this business, the non-energy services have begun to show the benefits of the combination in our third quarter. Synergies are trending ahead of our first-year targets, and the outlook remains promising. Before I turn the call over to Eric, I want to touch on some of what we have been doing with regard to environmental, social, and governance initiatives. While we published our first Sustainability and Citizenship Report in 2019, We recently formed a separate corporate responsibility and risk committee of our board of directors to enhance our environmental and social reporting. Updates to our sustainability report are being worked on as we speak and are expected to be updated in early 21. Being a responsible steward of our environmental resources and promoting a sustainable future is at the heart of what we do every day at U.S. Ecology. Since 1952 and for the last 68 years, we have been building U.S. Ecology into a leading North American provider of environmental services where we address the complex waste management needs of our customers and do so with a focus on the environment, our people, and our communities. Historically, we have not had the metrics to be able to communicate our efforts to stakeholders, and those are being worked on as near-term initiatives. On the environmental responsibility front, while we primarily manage inorganic waste at our landfills, we don't generate landfill gas emissions typical of solid waste firms. We are looking to target reductions in vehicle emissions by lowering the carbon footprint of our fleet through things like routing software and improved route densities. Our fixed facilities are not high-energy users, so the numbers there are already pretty low. Also, over the last five years, we have been upgrading our infrastructure to be more energy efficient as part of our normal growth in capital investments. We are also deploying capital investments to expand our recycling capabilities and technologies and help our customers reduce their overall waste generation. As to social responsibility, our team members are the most important part of U.S. Ecology. We realized this long ago that it is our people that drive our success. Taking care of our team members is a top priority and it begins with a laser focus on health and safety. While we generate safety results that are better than industry standard, we continuously invest in our safety programs and are always looking to make process modifications in an effort to drive to zero incidents. Our social responsibility efforts have created a special culture here at U.S. Ecology that is built on inclusion, respect, protecting the environment, and continuous improvement in everything we do. We invest in our team members with a total rewards program that includes incentive plans, top-tier medical benefits, and learning and development programs. This has led to a highly engaged workforce and contributes to our overall low voluntary turnover levels. In the coming years, we will continue to develop and expand on our ESG reporting with a near-term focus of developing goals for the future reporting years. We look forward to updating you on these efforts to make a lasting impact on our environment, our people, and our communities. And with that, I'll turn it over to Eric. Thanks, Jeff.