US Ecology, Inc.

Good morning and welcome to the fourth quarter 2020 U.S. Ecology, Inc. earnings conference call. All participants will be in 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 telephone keypad. 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 Beeler, 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 2021. 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-in presentation today, we refer 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 therefore are 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 fourth 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 information on a 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. Before I turn the call over to Jeff, I would also like to point your attention to slide five. As noted in our earnings release yesterday, in connection with our year-end 2020 reporting, we have redefined our reporting segments to better align with our strategy and to increase clarity. Our new reporting segments include waste solutions, field services, and energy waste, which are defined in detail in yesterday's earnings release. Throughout our presentation today, we will be referring to these new reporting segments. All financial information presented has been recast to reflect these changes. The waste solutions segment was formerly known as the environmental services segment, with the only difference being that it now excludes the energy waste business, which is now a separate segment. The field services segment remains unchanged from what was formerly known as the field and industrial services segment, and the energy waste segment represents the energy waste disposal services business acquired through the NRC acquisition.

With that, I'll turn the call over to Jeff. Thank you, Eric, and good morning, everyone. It is with gratitude for the tireless work of our U.S. Ecology team members and their flexibility across our organization that I share the results of a solid quarter for the company, despite the challenges faced. For those that are following the webcast presentation, I want to direct your attention to slide six. Our business continued on its path to recovery as evidenced by strong trends in the fourth quarter that have continued into early 2021. Total company revenue for the fourth quarter of 2020 was up 4% year over year and up 1% sequentially from the third quarter of 2020. Our field services segment led that way with double-digit growth in revenue, which drove a 57% improvement in segment EBITDA. The growth was particularly strong in our legacy U.S. ecology field services segment, which grew revenue by 16% in the fourth quarter and drove adjusted EBITDA up by 46%. Our base business revenue in our waste solutions segment saw a 7% sequential improvement compared to the third quarter of 2020. Looking more specifically at trends in our base business, the month of December was the strongest month of the quarter. and resulted in a return to positive year-over-year growth compared to December 2019. The overall resiliency of our business augmented by the capital preservation and cost-saving initiatives implemented earlier in the year resulted in a 31% improvement in year-over-year adjusted free cash flow during the quarter. Overall, the company delivered adjusted EBITDA of $42.8 million in the fourth quarter of 2020 and would have been in the top half of our guidance range when factoring in the $2.7 million incentive plan adjustment we gave to our frontline workers and non-executive team members. Looking at the full year for 2020, the company achieved $934 million of revenue, adjusted EBITDA of $170.2 million, and adjusted free cash flow of $68.8 million, up 45% from 2019 levels. Considering the difficult operating conditions that the pandemic created, our legacy U.S. ecology business had a solid year with 2020 revenue flat with that of 2019 levels, which was a record year for the company. Base business was down 7% on the lower industrial activity, but was substantially made up by a 20% increase in our event business. Adjusted EBITDA was down approximately 4%, reflecting higher revenues in our field services segment compared to our waste solution segment. Legacy NRC was significantly impacted by the operating conditions the pandemic created in 2020. This was most felt in our energy-exposed businesses, where revenue was 50% below our initial 2020 plan and down 40% from the prior year under NRC's ownership. Our energy waste segment, which operates in the Permian and Eagle Fort basins, delivered $1 million in adjusted EBITDA for 2020, down from our original plan of $40 million. We have seen sequential improvement in this segment and expect this to continue as we see continued stability and recovery in our oil prices. Legacy NRC was also impacted by lower overall industrial activity, which resulted in fewer land and marine industrial-related spills and cleanings, and there were limited large cleanups from industrial accidents or weather events like we have experienced in the past. We did experience increased business from COVID-19 decontamination work where we generated $29 million of revenue and on over 5,100 events for all of 2020. We have now cycled our first year of ownership and continue to realize many benefits of this combination. In 2020, we realized net annualized synergies of approximately $13 million which was ahead of our $7.2 million estimate coming into 2020. Cost savings came in ahead of plan, and revenue trends continued to improve. For 2021, we expect another incremental $5 to $7 million of annualized net synergies, and we are well on track to achieve our $20 million of net synergies by the end of 2022. Before I turn the call over to Eric, I want to provide a brief update on our environmental, social, and governance initiatives that are designed to strengthen our business performance, increase reporting, and develop goals to make a lasting impact on our environment, our people, and our community. In January, we launched our new ESG reporting portal on our website and published our second annual sustainability and citizenship report, which reflects 2019 data. Our core purpose is to provide environmental solutions that protect human health and the environment. The data shows the positive impact our business has on accomplishing this through managing over 3 billion pounds of waste and nearly 70 million gallons of wastewater that our customers have entrusted to us for safe treatment, recycling, and ultimate disposition or disposal. We are aggressively pursuing sustainable waste solutions, including technologies to recover oil, solvents, metals, and other products through distillation and other technologies, including our aerosol recovery system that we launched in 2020. We remain focused on growing our beneficial reuse and recovery programs, which not only support long-term sustainable business practices, but also align with our customers' ESG goals. We continue to upgrade our infrastructure to be more energy efficient and deploy capital investments into sustainable technologies and solutions. This effort will continue in 2021 with new investments. We also recently announced that we are participating in a pilot study to evaluate the potential migration to electric vehicles for our over 1,100 vehicle fleet. As to social responsibility, taking care of our team members remains top priority. It all starts with our continued investment and focus in our Safety360 program, designed to protect our team and promote safety first. I am pleased with our 2020 results, showing year-over-year improvement and are at levels that are significantly below industry averages. Our focus on our people goes well beyond these great health and safety priorities. We have created a special culture that is built on inclusion, respect, protecting the environment, and continuous improvement in everything that we do. We invest in our team members with a total rewards program that includes incentive plans, top tier medical benefits, learning and development programs, and in 2020 and 2021 includes incremental COVID-19 paid time off to deal with these uncertain times. To this end, as I mentioned in the earlier comments today and in yesterday's press release, our 2020 results includes a discretionary increase of $2.7 million to our non-executive incentive plans to recognize our team for the tremendous work they accomplished throughout 2020 in these most trying of times. We continue to see success in these programs, helping us lower our overall turnover levels and allowing us to recruit great talent. These programs have allowed us to improve our year-over-year diversity across the organization. Finally, we are not sitting idly by when it comes to governance. We constantly evaluate best-in-class governance practices and adopting those that make sense with our strategy. Most recently, we further expanded our already diverse and experienced board, adding additional talent, experience, and diversity, and I welcome Matt Hogan's valued contributions as we work together building upon this great company. I look forward to updating all of you as we continue to make significant progress in this area throughout 2021. With that, I'll turn it back to Eric. Thanks, Jeff.