US Ecology, Inc.

Good day, and welcome to the second quarter 2021 U.S. Ecology Incorporated 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. And 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 Garrett, Chief Financial Officer, please go ahead, sir.

Good morning, and thank you for joining us today. Joining me on the call this morning are Chairman, President, and Chief Executive Officer Jeff Feeler, 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 ongoing COVID-19 pandemic, 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 column 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 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. With that, I'd like to turn the call over to Jeff.

Thank you, Eric, and good morning to everyone joining the call today. I would like to begin first by personally thanking all of my colleagues on the U.S. Ecology team who are working hard to continue to keep people and our environment safe for our communities. Our emergency response teams are currently responding to the wildfires that are impacting the western parts of the United States and Canada, protecting critical infrastructure that we all depend on. My thoughts and well wishes are with these team members and all of those that are involved for their continued safety in these challenging times. Turning to our second quarter results, for those that are following the webcast presentation, I'll direct your attention to slide five. Strong industrial trends and solid momentum continue to accelerate in the second quarter of 2021, allowing us to drive revenue growth across each of our business segments, with total revenue up 13% compared to the second quarter of 2020. Due to project deferment and unfavorable service mix in the quarter concentrated primarily in our waste solution segment, our results came in below expectations, both from a margin and EBITDA perspective. We do expect to see continued improvement in the coming months and quarters. Turning first to field services, our strong execution in this segment delivered double-digit revenue growth and EBITDA growth when stripping out a contingency consideration game recorded in the second quarter of last year. This growth was reflected across substantially all of our service offerings. We are encouraged by the recovery and remain confident in our ability to more than offset the COVID-19 decontamination work that we had last year. Our energy waste segment delivered results ahead of expectations and reported its fourth quarter a sequential EBITDA improvement with rising disposal volumes driven by improved rig counts and related business activity. We remain encouraged by the trends in our energy waste segment with oil remaining above $70 per barrel. Our waste solution segment returned to revenue growth in the second quarter with strong base business revenue growth, up 7% from the second quarter last year and is up 3% sequentially from the first quarter earlier this year. reflecting broad improvement in our end markets, including metals manufacturing, mining and EMP, general manufacturing, and chemical manufacturing. With this growth, our base business is up 2% in the first six months of the year compared to the first six months last year, keeping us on track to achieve our expected base business target growth of 5% to 7% for the full year. The growth in this segment reflects an overall improvement in the industrial sector that we are seeing in our services side of the business, as well as those industrial production metrics that are being reported. However, some industry headwinds remain as customers continue to manage through supply chain disruptions, labor challenges, and transportation shortages, while others, like our refinery-based customers, are managing their maintenance spending to focus on free cash flow generation. We expect these headwinds to lessen over the coming quarters. Additionally, our base business growth is being further constrained by third-party incineration capacity, which is causing restrictions on our waste receipts across the industry. Our waste solutions segment was impacted during the quarter by a 13% decline in event business compared to the second quarter last year. due in large part to project shifting to the back half of the year and into 2022, along with the early completion of a few larger projects. The event business revenue decline had a disproportionate impact on our second quarter margin due to an unfavorable service mix as replacement projects were at a lower average selling price and margin profile compared to the second quarter last year. Overall, the second quarter, we delivered adjusted EBITDA of $34.2 million and generated free cash flow of $11.6 million. Despite the year-over-year decline in adjusted EBITDA, we continue to see strong fundamentals driven by the industrial recovery as seen by our solid base business and services revenue growth, which is expected to continue into the second half of the year. Before I turn the call, Back over to Eric to further review our financial results. I want to provide a quick update on some of our latest sustainability initiatives. Providing environmental solutions for our customers' complex needs is at the heart of what we do, and we have compiled a nearly 70-year history of regulatory and operational expertise. This week, we released our 2020 ESG Supplement Report, which is available on our website, that builds upon our previously issued sustainability report and includes more detailed disclosures based off SASB, an independent nonprofit that develops sustainability accounting standards. I want to take a quick moment and point out a couple highlights from this report. On the environmental front, in 2020, we protected our environment by ensuring safe treatment, recycling, and final disposal of more than 4.6 billion pounds of customers' hazardous waste, We also treated more than 68 million gallons of wastewater and recycled more than 22 million pounds of metal and more than 1.7 million gallons of oil. We are pleased to report that 39% of our power consumption used in our facilities in 2020 came from renewable energy sources. We are making significant progress gathering our baseline greenhouse gas emissions data in 2021 and are on track to publish these results and reduction goals by the end of the year. On the social front, our Inclusion and Diversity Committee continues to promote our shared values of diversity, equity, and inclusion and improve engagement with employees. We are dedicated to promoting a culture of safety. And while we are already significantly better than industry average statistics, we continue to bring down the number of safety incidents and accidents across our organization. We also recognize the difficulties of the ongoing pandemic has had on our team members and have provided more than 46,000 hours of incremental COVID related paid time off for our team members to deal with these uncertain and trying times. We are proud of the special culture we've created here at U.S. Ecology that is built on inclusion, respect, protecting the environment, and continuous improvement. And we look forward to continue building on this strong foundation. With that, I'll turn it back to Eric. Thanks, Jeff.