US Ecology, Inc.

Good morning and welcome to the third quarter 2021 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 the 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 immediate impact of the ongoing COVID-19 pandemic, the macroeconomic impact of specific end markets in which we operate, and our expectations for the 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 this morning'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. With that, I'd like to turn the call over to Jeff.

Thank you, Eric, and good morning everyone joining the call today. I would like to begin by thanking all of our colleagues who are working hard keeping people and the environment safe, including our emergency response teams that are actively involved in cleaning up the aftermath of Hurricane Ida and finishing up the oil spill in Southern California. Responding to these and other emergencies is part of our core mission to provide critical environmental solutions to protect human health and the environment. Turning to our third quarter results, for those that are following the webcast presentation, I'll direct your attention to slide five. As expected, we saw sequential improvement in revenue and profitability across our three operating segments in the third quarter, despite ongoing delays in our event business, along with continued supply chain, cost inflation, and pandemic-related challenges. Our waste solution segments revenue increased 7% in the third quarter over last year. Base business for our waste solution segment increased 11% compared to the third quarter last year and was up 2% sequentially from the second quarter of this year. The increase was driven by continued improvement in fundamentals and a 13% increase in our landfill volumes. We saw broad base business improvements across most of our end markets during the quarter. Year-to-date, base business is up 5%. While we're on track with our target of base business growth of 5% to 7% for the full year, due to ongoing challenges with our industrial customers and what they're facing, we expect the base business to come in at the low end of that range, plus or minus a percent or two for the full year. Our event business for the waste solution segment declined 18% compared to the third quarter last year due to additional deferrals into 2022, a less favorable service mix as replacement projects were at a lower average selling price compared to the third quarter last year. This, combined with cost pressures, contributed to a decline in profitability and margin in the third quarter compared to last year. Turning to our field services, this segment saw and delivered solid growth of 5% despite a difficult comp with strong COVID decontamination work and large emergency response projects in the third quarter last year that were not replaced. Revenue growth was driven by our remediation and small quantity generation service lines led by a 14% increase in our retail services as we continue to execute and gain market share. With a recent award commencing in the first quarter of 2022, and the potential for additional growth from our existing retail customers, we expect to gain additional market share next year. Our field services growth was partially offset by lower transportation and logistics that has been hampered by supply and labor constraints and lower large-scale emergency response revenue. However, late in the third quarter and into the early into the fourth quarter, we responded to multiple large-scale ER emergencies, emergency response incidents for the first time this year, which is expected to be a positive for our fourth quarter. Like others in the industry, we are facing labor constraints resulting in higher subcontracted work as well as higher inflation-related costs, including transportation, materials, and supplies, which resulted in lower EBITDA and margin compared to the third quarter last year. To help mitigate the impact, we are focused on managing the costs we can control and adjusting spot pricing and surcharges while we prepare for more significant price increases in 2022. We believe that we will be able to pass through these costs through pricing over time. Our energy waste segment had another strong quarter of growth and delivered results ahead of our expectations with a fifth consecutive quarter of improved EBITDA and EBITDA margin. These improving results were driven by increased activity in the Permian and Eagleport basins and resulted in revenue doubling from the third quarter last year and resulted in EBITDA of $3.5 million. Total EBITDA for the quarter was $45.4 million in line with the third quarter of last year. We are encouraged with the growth generated from our recurring revenue in our base business, field services, and energy waste segments. was able to offset some of the challenges we are facing, including the lower large-scale ER emergency response and event business, a less favorable service mix, and continued labor and inflation challenges. We remain confident that our business fundamentals are strong, and we are seeing improvements driven by an industrial recovery despite ongoing supply chain disruption and labor challenges that many companies are navigating. We believe growth opportunities will accelerate across our service lines as port congestion subsides and more people return to the workforce. On the labor front, we are seeing labor conditions improve with increased applications and the highest recruiting rates of the year. As we enter the final quarter of the year, we expect sequential improvement supported by continued growth in our recurring business, the start of several sizable event business projects, execution on several large scale emergency response events and continued recovery in our energy waste business. As such, we expect the fourth quarter will be the strongest quarter of the year. We expect project deferments experienced this year will benefit 2022 and combined with expectations for continued recovery of the industrial sector next year, we believe we'll be well positioned for growth in 2022. Before I turn the call over to Eric, I want to review some key priorities initiatives that our teams are working and executing towards that we believe will drive some longer-term value. First, we are in the midst of advancing several permit modifications across our network that will open up more service and waste opportunities. To that end, we are focused on expanding our radiological capabilities, mercury waste treatment options, and growing our thermal capabilities to increase our addressable market, internalize more waste, and thereby limiting our dependence on the backlog incineration market. Next, we are leveraging recent technology advancements including digitalization and software to help increase business and drive efficiencies in our operations. For example, our digital marketing efforts have generated a 300% increase in our lead generation this year. Our investments in AI software has generated a 30% increase in stops per day in our retail program with the installation of this technology in our fleet. We believe further efficiencies will be realized as retail customers adopt these technologies, including a new sorting process in the back of the retail stores. We also recently launched a new lab-packed platform program known as LPX, that will improve in-field efficiencies, reduce training cycles for technicians, and deliver improved accuracy and real-time data to our customers. Further, we also continue to deploy organic investments to support both our service offerings and sustainability initiatives. Some of our larger investments this year include the construction of a new container management building in the eastern part of the U.S. to support our growing retail and LTL business. We are in the final stages of deploying a second aerosol recycling unit in the Midwest, which we expect will be fully deployed and operational in the first quarter of next year. This aerosol unit will open up additional opportunities to internalize high volume waste streams generated from our services group. On the sustainability front, we have successfully piloted a new container reconditioning system that allows us to recycle and reuse containers within our operations. We expect to have a production run rate of 100,000 containers by the end of the year, and we anticipate this will continue to grow in future years, eventually opening up opportunities to provide refurbished containers to our customers. As part of our overall ESG strategy, in 2021, we set out to quantify the amount of greenhouse gas emissions throughout our operations and establish reduction goals. As we have discussed before, our fleet operations represents our largest source of direct greenhouse gases as our landfills are inorganic and do not generate methane gas. We have established a goal to reduce our direct emissions by 30% by 2030 through upgrades to our fleet, use of renewable fuels, and other improved route efficiencies. We are also exploring the feasibility of integrating electric vehicles as well as other alternative fuel to our power units into our fleet. We have established a goal to demonstrate by 2025 that our recycling businesses, such as our aerosol can recycling, glycol and oil recycling, and metals recovery, minimize the environmental impacts from new production of many carbon-intensive materials and thereby eliminate the generation of greenhouse gas by three times the direct emissions produced by our operations. Finally, we are well positioned to take advantage of the emerging PFAS market with a wide variety of capabilities across our network, including thermal, Class I deep well, RCRA permitted subtitle C landfills, and wastewater treatment options, all included as options in the EPA's guidance. In fact, during the third quarter and continuing into the fourth quarter of this year, we have seen several large PFAS jobs where customers are choosing our secured solutions to address their environmental needs. We expect further opportunities in this area as regulations are formalized and additional funding is secured for cleanup activities. With that, I'll turn the call back to Eric.