US Ecology, Inc.
Q2 2017 Earnings Call Transcript

Published: 28 Jul 2017

[Operator:]

Good morning and welcome to the second quarter 2017 US Ecology Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Eric Gerratt, Chief Financial Officer. Please go ahead sir.

[Eric Gerratt:]

Good morning and thank you for joining us today. Joining me on the call this morning are Chairman and Chief Executive Officer, Jeff Feeler; Executive Vice President of Sales and Marketing, Steve Welling and Executive Vice President and Chief Operating Officer, Simon Bell. 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. 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 refer to adjusted EBITDA and adjusted earnings per share. 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 share and adjusted EBITDA can be found in Exhibit A of our earnings release. We believe these non-GAAP metrics are useful in evaluating our reported results and our 2017 guidance. With that, I would like to turn the call over to Jeff.

[Jeffrey Feeler:]

Thank you, Eric, and good morning, everyone. I will start this morning's call with a few summary comments on our second quarter results released yesterday before turning it back to Eric for additional details on our financials. I will then close out the call with an update on our 2017 business outlook before opening up the call for questions or comments. For those that are following along the webcast presentation, please direct your attention to Slide 5. Yesterday, US Ecology reported second quarter 2017 financial results delivering $126.1 million of revenue and $27.6 million of adjusted EBITDA during the quarter. Second quarter 2017 revenue was up 3% over the same period last year and was up 14% sequentially from the first quarter of 2017. Adjusted EBITDA for the second quarter was up 17% sequentially from the first quarter of 2017 and down just under 1% for the second quarter last year. These results were achieved despite one of our large treatment facilities not being operational during the second quarter. As we discussed on our first quarter 2017 earnings call, this treatment facility was damaged in a winter storm that did not come back on line until the end of June. There are team’s effectively rerouted ways throughout our extended network due to logistics and operational cost differentials, performance efficiency suffered. As a result of loss business and profits in the second quarter of 2017, we expect to receive business interruption proceeds ranging from $2.5 million to $3.5 million in the second half of the year. Factoring in this expected business interruption proceeds, we would have shown significant adjusted EBITDA growth over the prior year. Our Environmental Services segment had a strong quarter. Base business grew 3%, while our Event business returned to growth increasing 24% over the second quarter of 2016. Our Field Services segment performed as expected for the quarter with reduced business activity due to a contract that was not renewed in the prior year. We continued to see significant growth in our field services solutions such as total waste management, lab pack, and LTL services that help to offset declines in our retail and remediation business. Our industrial services business unit delivered lower than expected results during the quarter on softness in industrial maintenance and cleaning services. Despite these lower level business opportunities compared to 2016, we continue to be focused on operational efficiencies that helped mitigate the financial impact of the softer business conditions. When looking at business overall, I'm pleased with the progress. We continue to see indications of a stronger U.S. and Canadian industrial economy and increased business activity consistent with our 2017 outlook. With that, I'll turn it back to Eric.

[Eric Gerratt:]

Thanks Jeff. As shown on Slide 8, revenue for the Environmental Services segment for the second quarter was $89.6 million up 8% compared to $82.8 million in the second quarter last year. The increase was driven by a 6% increase in treatment and disposal revenue and 15% increase in transportation service revenue. Base Business for the Environmental Services segment was up 3% compared to the second quarter last year and represented 77% of treatment and disposal revenue. Event Business for the Environmental Services segment was also up increasing 24% from the second quarter last year and represented 23% of treatment and disposal revenue. The Field and Industrial Services segment delivered revenue of $36.5 million in the second quarter of 2017. This is down from $39.6 million in the second quarter of 2016, primarily reflecting the expiration of a contract that was not renewed and softer market conditions for industrial and remediation services. Slide 9 breaks down our environmental services treatment and disposal revenue for both Base and Event Business by industry verticals. Base Business increased primarily in the refining, metal manufacturing and other verticals. These increases were partially offset by decreases in the Broker/TSDF verticals during the quarter. The increase in Event Business was primarily driven by increases in the chemical manufacturing and other verticals. Partially offset by decreases in the refining and general manufacturing verticals. Turning to Slide 10. Gross profit was $35.9 million in the second quarter of 2017, down from $36.9 million in the same quarter last year. Treatment and disposal margins and our Environmental Services segment were 38% in the second quarter of 2017 compared to 42% in the second quarter of 2016. This decrease was primarily due to the shut down one of our treatment facilities that Jeff referred to earlier. As a result of the loss business and profits in the second quarter of 2017 we expect to receive business interruption proceeds ranging from $2.5 million to $3.5 million in the second half of this year. Gross margin for the Field and Industrial Services segment was 14% in the second quarter of 2017 compared to 16% in the second quarter of last year. This decline was due to the reduced revenue as well as the less favorable service mix in the second quarter of 2017. Selling, general and administrative spending or SG&A was $20 million in the second quarter of 2017. This was up 1% from $19.8 million in the second quarter of last year. The increase is primarily due to higher labor and incentive compensation, partially offset by insurance recoveries of approximately $1.1 million primarily related to repairs that are wind damage treatment facility. Operating income was $15.9 million in the second quarter of 2017, down 7% from operating income of $17.1 million in the same quarter last year. Net interest expense for the second quarter increased to $8.5 million compared to $4.3 million in the same quarter of last year. This increase was the result of the non-cash write-down of $5.5 million related to the deferred financial fees on our farmer credit facility that was refinanced in April. This increase was partially offset by a lower interest rate as well as lower overall debt levels in the second quarter of 2017. Turning to Slide 11. The Company's effective income tax rate for the second quarter was 35%, down from 39.6% in the second quarter last year. This decrease reflects a higher proportion of earnings from our Canadian operations which are taxed at a lower corporate tax rate. We reported net income of $5 million and diluted earnings per share of $0.23 in the second quarter of 2017 compared to net income of $8.9 million and diluted earnings per share of $0.41 in the second quarter of last year. Adjusted earnings per share was $0.38 in the second quarter of 2017 compared to $0.37 in the second quarter of last year. Adjusted EBITDA for the second quarter was $27.6 million, down slightly from $27.7 million in the second quarter of last year. Turning to results for the first six months of 2017 on Slide 12, total revenue $236.3 million compared to $235.7 million in the first six months of 2016. Revenue for the Environmental Services segment was $170.9 million, up 4% compared to $164.3 million in the first six months of 2016. The Field and Industrial Services segment delivered revenue of $65.4 million in the first half of 2017, down 8% compared to $71.3 million in the same period of 2016. Net income for the first six months of 2017 was $10.2 million, or $0.47 per diluted share, compared to $16.5 million, or $0.76 per diluted share for the first six months of 2016. Adjusted earnings per share, which excludes the gain on sale of divested businesses in the prior year, the non-cash write-off of deferred financing costs, foreign currency translation gains and losses and business development expenses was $0.61 for the first six months of 2017 compared to $0.69 for the same period of 2016. Adjusted EBITDA was $51.1 million for the first six months of 2017, compared to $53.9 million in the first six months of 2016. Turning to Slide 13, we generated $30.8 million of cash from operations in the first half of 2017. We also invested $17.6 million in capital projects, paid down $10.9 million on our long-term debt and paid out $7.8 million in dividends to our stockholders. Our balance sheet continues to improve with net borrowings of $272.1 million at June 30, 2017. With that, I will turn the call back to Jeff.

[Jeffrey Feeler:]

Thank you. With half of 2017 behind us, business conditions are generally as we expected when we released guidance earlier this year. Year-to-date, we have seen growth in our Base Business that exceeds that of 2016, industrial trends as measured by the ISM inducts continue to improve and support industrial expansion. We believe this metric supports our expectations for continued growth in our Base Business ranging from 3% to 5% for the full-year. Our Event Business is return to growth in 2017 and with a growing pipeline of opportunities we are confident we will the Event Business growth for the full-year. Our Field Services business continues to perform well despite cycling a large contract loss. Our Field Services Group is bidding to give you a contract and as one or renewed multiple contracts that will rollout toward the end of this year and benefit future years that should more than offset some of the lost revenue in 2016. These positives have as reaffirming our previously issued adjusted EBITDA guidance of $120 million to $130 million for the full-year of 2017 as highlighted on Slide 15. As we reflect on the first half performance and look out for the balance of the year despite these positives some headwinds remain in our business that have it's currently trending towards the lower end of our guidance range. We are still in the process of rebuilding and rerouting business back to our treatment facility that was out of service for over 100 days and it's likely to remain a drag as we seek to recover certain loss business during the remainder of the year. Our Industrial Services business is softer than expected and it's created a headwind that other parts of our business will likely offset. Further we've seen some slippage in our quarter-to-quarter expectations as projects are starting later in the summer. As a result, we are now expecting our fourth quarter financial performance to approach or equal that of the third quarter of 2017. This however, raises the risk the some of the volume that we are expecting for 2017 May carryover into 2018. I emphasize the word May as it's too early to predict. On the earnings per share side, we are also reaffirming our adjusted diluted earnings per share outlook that have revised the calculation this quarter to exclude the non-cash charge related to the write-off of the deferred financing fees on our old credit facility. We have also adjusted our interest expense expectations as we now anticipate a shift in our business to the second half that will likely result in working capital growth and may prevent us from paying down additional debt this year. As a result, we are tracking above the midpoint of our reaffirmed earnings per share guidance range of $1.69 to $1.93 per share. As for other guidance items, we still expect our tax rate to approximate 37% for the full-year. Our capital expenditures are expected to range from $37 million to $39 million and increased to $2 million to reflect additional capital for landfill development as well as some anticipated maintenance expenditures. Overall, I'm very pleased with the execution throughout the first half of the year. We delivered very solid financial gains in the second quarter, demonstrating growth in many of our business units. Our Base business continues to show an accelerating growth trends on the heels of positive industrial production indicators. Our Event business has rebounded in the first half of 2017 over the same period last year and the pipeline continues to grow and be strong. With the second half of 2017 it's setting up for a significant improvement over the first half. With that, operator, can you open up the call for questions or comments.

[Operator:]

Thank you. [Operator Instructions] And our first question will come from Michael Hoffman of Stifel.

[Michael Hoffman:]

Hi, Jeff and Eric. Thanks for taking my questions. Jeff, just following through the sort of a lot the conversation about the state of the business. As I hear this, what I'm doing in my models at a minimum holding 3% constant on the Base business for the remainder of the years is a safe bet. Do I assume in dollars of revenues that Event gets better each subsequent quarter just maybe happening at a slower pace than we’re hoping?

[Eric Gerratt:]

Yes, Michael, that's a good question. So with regard to Event business Q3 to Q4 it's really dependent on what we’ll ultimately see on projects start dates. I would expect them to be fairly consistent Q3 to Q4 on that. As far as the expectation differential, Event business is going pretty well. I mean I think it's at the level where we expected. We have seen some deferrals, some slippage, but that's just what’s inherent in the business. We are not seeing the same levels that we had seen in 2016 from that. Base business is going strong and when you really come down to it, it's just some of those headwinds that I talked about in our prepared remarks that's really causing us to be near or lower than the midpoint.

[Michael Hoffman:]

Okay. Fair enough. Just so – parse this a little bit, you shared at various times in the last six months that you did about 50 million Event business last year. You expect to be up, you've been up year-over-year in 1Q and 2Q. The expectation is you'll be up in 3Q year-over-year and will you be up sequentially as well 3Q versus 2Q?

[Eric Gerratt:]

Yes.

[Jeffrey Feeler:]

Yes.

[Michael Hoffman:]

And then 4Q is flat with 3Q is a way to think about it and that will be up year-over-year, but flat sequentially.

[Jeffrey Feeler:]

Yes.

[Michael Hoffman:]

Okay. And about the kind of level of rate of change we saw in 2Q year-over-year?

[Jeffrey Feeler:]

Well hopefully it's much greater. I mean we're always trying to land everything that's available that's out there, but what we're seeing right now is that, yes, we should be up at least for year-to-date in the high single-digits.

[Steven Welling:]

We have a number of projects scheduled Michael – this is Steve Welling, but not all have started yet. So until we have railcars moving, we're a bit cautiously optimistic.

[Michael Hoffman:]

Okay. Fair enough. And then you had given ranges on sales for the Environmental Services and then Field and Industrial. Based on what's happening in Field and Industrial, it would seem like maybe that number is going to be lower than you thought and the Environmental Services is going to fall somewhere in the middle of the range given us.

[Eric Gerratt:]

Yes, Michael, this is Eric. I think that we are characterizing it as right. I think we’ll probably come in a little bit low on the Field and Industrial Services side and kind of the middle on the ES side.

[Michael Hoffman:]

Okay. So the thing that I’m encouraged by, Base business is growing which means there's an industrial economic growth. So we're now down to decision makers saying, I feel good enough about – like to spend a discretionary dollar, because your regulatory enforcement one's happening, so this is about the discretionary dollar one, right, the cycle of fill the pipeline and then what’s the conversion rate?

[Steven Welling:]

This is Steve again. I would say it's a combination of both Michael. We have a number of projects that are enforcement, court orders in addition to real estate development type projects where they're cleaning up a property in a valued area longed to be or something like that. It’s a combination of all the above.

[Michael Hoffman:]

Great. I don't want to leave that to general of an answer. I mean you have a big regulatory enforcement and it's on a cycle and it's happening and you may have a bunch of littler ones, but the big ones happening. This is a real swing here, is about this discretionary part of this and it's just this gradual growing in confidence by the decision makers on the discretionary piece that's what I'm picking up.

[Steven Welling:]

Yes. So Michael I would agree with that. I think what you're seeing this year as compared to last year which was a disappointment from a business perspective is that we're in a new state of business environment right now and we're seem businesses move ahead, make investments, they're driving their businesses forward, and they're going to make routine investments that cause expansion or and there will be more funding put to project based work. And so we're starting to see that that's what we saw coming out in this year. And so I think that's the big driver of the big change from last year to this year.

[Michael Hoffman:]

Got it. One last sort of beat this dead horse one more time because you’ve got pretty good visibility about that underlying base and what's happening at the customer activity. You're not seeing any – if this part is good, but that part got weak all the sudden, there's a sort of general overall healthy encomia and outlook maybe shallow, but it's healthy. So this project piece comes we're just – this is the hard part, it's hard to predict to when and the operating leverage is still there?

[Jeffrey Feeler:]

Exactly.

[Michael Hoffman:]

Okay. That’s what I needed to hear. Thanks.

[Jeffrey Feeler:]

Thank you.

[Operator:]

The next question will come from Joe Box of KeyBanc.

[Joe Box:]

Yes. Good morning, guys.

[Jeffrey Feeler:]

Good morning, Joe.

[Steven Welling:]

Good morning, Joe.

[Joe Box:]

So I just want to dig into the commentary that EBITDA would have been better if your damage facility was up and running. Anyway you guys could put a figure on how much the revenue and EBITDA shortfall may have been?

[Eric Gerratt:]

Pretty much all of the business interruption that we're expecting, so whether you pick 2.5 or 3.5 in that range is all EBITDA, it's all really pretax income.

[Simon Bell:]

And then really wasn't a revenue hit because we rerouted the ways. That was really just an EBITDA hit right Joe.

[Jeffrey Feeler:]

It’s more of an operational efficiency, so think of it additional costs in our system for the most part.

[Joe Box:]

Okay. That's perfect. So ultimately I mean if you just pick the midpoint, I could literally just add $0.14 to your current year-to-date EPS to kind of give us a sense of where operationally you should have shaken out at?

[Eric Gerratt:]

Yes. Make sure your tax effective.

[Joe Box:]

Okay. Got it. Jeff, just a question for you on the FIS segment, X the last contract, what do you think the business is organically growing at right now? And then you mentioned some new business wins that could start in the latter part of this year. Can you maybe give us a sense on magnitude and how we should be thinking about into the longer term growth rate of the business?

[Jeffrey Feeler:]

Sure. So I'll start out with the kind of your first question. I'll let Steve jump into some of the projects that his team has secured. But as far as the underlying business, we've seen some really good growth. And if you think about our field services business, it’s a combination of a number of different business unit within there, it's not all the same model. But we've seen our total waste management group grow on in double-digits. We've seen our lab pack in LTL and another small quantity have a high single-digit, low double-digit rate. Even our retail sector, if you take out the one larger contract that we've lost, that will growth almost 20% during the quarter. So we’re seeing some good traction there across the businesses, when you blended all together it's probably in the high single-digit level. We're just being mass right now as we did – we didn't renew our larger contract last year that we're in the process of replacing.

[Steven Welling:]

Well and we're also seeing – some of the growth is just renewals of existing customers, but we're adding scope and adding new locations, so we've had quite a bit of success with that in the last year in addition to new accounts.

[Joe Box:]

So I recognize that you guys aren’t going to give any guidance for 2018, but is the high single-digit growth rate a reasonable proxy for how we should start to think about the out years or could it actually be north of that, given you've already replaced the large contract that you’ve lost or you're close to replacing it?

[Jeffrey Feeler:]

So Joe just clarifying point, are you talking on the Field and Industrial Services segment or as a Company overall?

[Joe Box:]

FIS.

[Jeffrey Feeler:]

Yes, I would think that we'd be up in – towards the high single-digits, if not low double-digits. And yes, we haven't done our detailed budgeting, but we're seeing a lot of traction here. We're making a lot of progress.

[Joe Box:]

Understood. Thank you, guys.

[Jeffrey Feeler:]

Thanks Joe.

[Operator:]

And the next question will come from Justin Ward of Wells Fargo Securities.

[Justin Ward:]

Hi, good morning, guys.

[Jeffrey Feeler:]

Good morning, Justin.

[Justin Ward:]

Your Environmental Services, the margins have been trending down for last few quarters and I realize this quarter sounds like there was some impact from that facility destruction. But I think even if you add some of that back that still trending down, as the Event Business ramps up and you have more transportation revenues going into the back half of the year and into next year. How are you guys thinking about the margin on the environmental services trend wise? I mean is this maybe a bottom here or what are you guys thinking on that?

[Eric Gerratt:]

So Justin, this is Eric. I think it's going to come up. I don't know that I'd say it's the bottom year, but I think we're pretty depressed that that facility shutdown had a pretty big margin impact in it. If you kind of layer that into the similar margin to last year on this year's revenue, our margin for the ES business would have actually been up year-over-year. So I think you'll see that margin particularly on the T&D margin side kind of grows back up to a more normal level possibly up a bit.

[Justin Ward:]

Okay and that commentary includes in the next year, is that right way to think about it?

[Jeffrey Feeler:]

Yes, I think that's fair.

[Justin Ward:]

Okay. And then on the Base Business side, you had good growth there up 3%, but the broker piece was down, I think is 14% in that segment and struggled for the last maybe year that used to be a really important growth segment for you guys in years past. What do you guys seeing there? Is anything changing on the competitive front from the broker channel?

[Jeffrey Feeler:]

Yes, if you look at it this quarter, we were down on the broker side, which is mostly Base Business, the biggest driver of this quarter compared to last year. There has been some consolidation and we've had a broker to that have been acquired and that waste has been internalized by the acquirer. So that that's been impact that we’re seeing this year and I think it will be a bit of a headwind in that vertical for the balance of this year.

[Justin Ward:]

Okay.

[Eric Gerratt:]

So just in out of that the broker business keep in mind that the history on this brokers being used in a different word. So the current number you're seen here for broker Base Business is those customers that the ability to terminate manifests and others that that are coming. So it's not a traditional broker that we may have done in the past. So you're going to see ebbs and flows in there from time-to-time.

[Jeffrey Feeler:]

What we're tracking and what we're reporting is actually the generator of the ways to not necessarily the customer that we're building. So what you'll see is for example in our refining business could show up in a quarter, some of that weighs is actually brokered to us through where we're billing a broker that's handling the waste at the refineries. So it’s a little bit confusing to get to say that our broker business is actually down. What that says is the shipments from broker facilities where they receive the waste and then they take the title and ship it as under their name that's what's down currently. But in total we're actually doing pretty well.

[Justin Ward:]

Okay. And then could you update us on what you’re seeing from the [Tronox], cleanup, how the trustee is moving those along? Is there any change from last time we spoke on that?

[Jeffrey Feeler:]

Not much, there are a couple sites that we're working right now that there's planning activities happening. One of the problems is in the one side in particular. The estimated cost to do the cleanup is a lot more than the trust has in the bank. So they're not sure, do they want to start the project or not. So we're monitoring a couple locations. One in the Southeast, one in the Midwest in particular that are in progress. But no nothing waste wise of any volume has moved to our facilities as of yet.

[Justin Ward:]

All right. Thanks a lot guys.

[Jeffrey Feeler:]

Thank you.

[Operator:]

The next question will come from Charlie Wohlhuter of Raymond James.

[Charles Wohlhuter:]

Good morning, gentlemen. Thanks for taking my call.

[Jeffrey Feeler:]

Thank you, Charlie.

[Charles Wohlhuter:]

So kind of piggybacking off of that refining comment you made a second ago. With refinery utilization looking at about five-year highs over the entire second quarter, so the revenue coming in through the base side, is that from the actual refining process or is that more from like turnaround work at the facilities?

[Jeffrey Feeler:]

Some of the turnarounds are considered base business because they have a routine schedule, but it's a combination of both like catalyst for example, some of that we have base business catalyst that comes in on a monthly basis versus where we would call it event is when it's greater than a 1,000 tons into the tank cleanout maybe tank bottoms, but there are a number of base streams from refineries that are routine.

[Charles Wohlhuter:]

Okay. So it's fair to say just basically a combination of kind of the two?

[Jeffrey Feeler:]

Yes.

[Charles Wohlhuter:]

Okay. And then looking at your overall revenue mix, chemical manufacturing ranks pretty high up there. We follow the railroads. We’ve been kind of touting the whole opportunity in the sector especially looking out into 2018, so is this kind of an area of an excitement for you where you see some perhaps good opportunities? Any commentary there would be helpful.

[Steven Welling:]

Yes. Charlie, so the chemical sector there's a lot of investment being put into the Gulf Coast. And I'm sure that's what the rail facilities are and transporters are talking about. It creates opportunities for us. And so, yes, as those come on line, I see opportunities for us to either provide services or there will be some way streams that would be generated out of those that will be in prime position to be able compete for.

[Charles Wohlhuter:]

Okay. And then my last one maybe for Eric here. Any update on the free cash flow guidance for the year just kind of given the puts and takes here in the second quarter and with kind of the working capital drag and then as well as I guess the increase here in CapEx for the year?

[Eric Gerratt:]

Yes. So free cash flow, our previous guidance was $47 million to $50 million. I think that with to your point a bit of working capital pull down in the second half as well as we have increased our CapEx guidance a couple million dollar, so the combination was to – we're looking at free cash flow between $44 million, $45 million up to about $48 million on the top end, so it's come down a couple million dollars.

[Charles Wohlhuter:]

Okay, great. Thank you.

[Steven Welling:]

Thanks Charlie.

[Operator:]

And our next question comes from Jon Windham of Barclays.

[Jonathan Windham:]

Hey, thanks for taking the question. I have maybe just two questions to ask one at a time. Can you just help me sort of reconcile the EPS on Slide 14? You talked about reaffirming the range, but now it's excluding non-recurring non-cash charge. Is there some way to think about that on an apples-to-apples basis there had not been a change in what you're excluding?

[Jeffrey Feeler:]

So Jon, yes, if we're talking our adjusted EPS last quarter when we talked about guidance, we kind of reaffirmed guidance and said the guidance range would support or would be able to hold basically net $0.07 drag which there are $0.15 charge for the write-off of the deferred fees and then go in the other way about $0.08 of interest savings. Fast forward to this quarter that charge that deferred financing charges actually from [indiscernible] and ended up being $0.16. And so we're adding that back to adjusted EPS for the quarter and for the year since its non-cash, non-recurring kind of a charge. And so as a result, we kind of looked at guidance and said okay based on the guidance range now that that's come through and it's added back to adjusted EPS. How does that impact the guidance range from an EPS perspective? And so what we've done now as I said okay, if we contemplate that in our adjusted EPS guidance that $0.16 add back, that's really what pushes us above the midpoint of the EPS guidance range. So if you just look at that from a $0.15 or $0.16 on the bottom end of the range of $1.69 that kind of get you over the midpoint.

[Jonathan Windham:]

Okay, got it. Thanks. And then my second question, much less specific but just sort of broader, you guys did a really good job of flagging. I think back in October of last year because we're already through a flag in the possibility that deferral might not just be a 2016 and 2017 issue, but possibly into 2018 and some comments on the call today around that that potential. Is there any other possible explanation that maybe these are just deferrals that just the level of business is sort of structurally lower because it's really what I think about it these are all deferrals. There should be a lump of business coming through at some point? Am I thinking about that right? Is there another possible explanation?

[Jeffrey Feeler:]

Well these are – when we say deferrals of events that's what – these are projects. So it's digging soiled contaminated properties. So it hasn't gone away. It's not like there's been a decision that it won't be cleaned at some point. So yes, there is potentially a backlog of business there that we're still tracking that could happen at various points and there's a number of them that are moving now. But we're still tracking at least 40 projects that we had identified as either virtually awarded contracted or something was going to happen in 2016 that we continue to track today.

[Simon Bell:]

This is Simon. And this is really a relative comment isn't it. There's constantly tried this being deferred. It was really the pace of deferrals we saw grow and we're seeing that pace of deferrals go back to normal ranges. I think might be a fair way of looking at it.

[Jonathan Windham:]

Okay, that's super. Helpful, thanks for the color.

[Operator:]

Next we have a question from Jeff Silber of BMO Capital Markets.

[Jeff Silber:]

It’s close enough. Thanks so much. You would mention in your prepared remarks about some of the softness that you're seeing in your industrial maintenance business. Can we get a little bit more color on that? How are you tracking that in terms of seeing if that will pick up again?

[Jeffrey Feeler:]

Yes, so that the softness we're seeing in industrial services, maintenance and cleaning side is really relative to what we had in the prior year. There was more opportunities last year, not necessarily can point to reasons why per se. But we have not been able to replace some of the activities we had this current year. And so we're continuing to focus on operational efficiency to help mitigate some of the lower opportunities we’re seeing.

[Jeff Silber:]

And where there any specific business lines or end markets that were stronger last year than this year that you could point to?

[Eric Gerratt:]

In some cases in the auto industry, when there is retooling, there is more activity for us on that industrial services side and in 2015 and 2016 there were actually more going on that aspect than there is this year.

[Jeff Silber:]

Okay, fair enough. I just want to double check just a couple things. You mentioned the shutdown of the treatment facility because of the wind damage. Is it back up and running now? Is everything kind of copasetic?

[Eric Gerratt:]

It back up and running it operational as we talked about in the prepared remarks. We're still rerouting getting ways back to the facility. There is going to be some lost business. We're going to have to go try to rewin and get back to the facility. And so though continue to be a little bit of a drag through the balance of the year and that's reflected in our guidance.

[Jeff Silber:]

Okay, appreciate that color. And then just a couple quick questions on the guidance, in the slide on the business outlook, you said you expect your fourth quarter financial performance to approach or equal that of the third quarter. Are we talking adjusted EBITDA? Are we talking revenues, a little bit more color would be great?

[Eric Gerratt:]

It would be either one of those. And the reason why we call that out as previously we kind of highlighted Q3 being the peak quarter and we just seen that shift and that happens from time-to-time depending on when projects start. And the summertime is the heighten season and we're just seeing some of those projects starting to – really start looking in August to start shift and moving to October or November.

[Jeff Silber:]

Okay. And just one more question on the interest expense line. Now that you refinanced and I know you mentioned the issue in terms of working capital, but what should we expect for interest expense either on a quarterly basis for the back half of the year? Thanks so much.

[Eric Gerratt:]

Yes, So for interest expense we're looking at around $3 million to $3.2 million a quarter for the third quarter and fourth quarter. And that kind of assumes to our earlier point that we don't do too much if anything in the way of additional debt paydown this year.

[Jeff Silber:]

Okay. That's very helpful. Thanks so much.

[Jeffrey Feeler:]

Thank you.

[Operator:]

[Operator Instructions] And our next question will come from Barbara Noverini of MorningStar.

[Barbara Noverini:]

Hey, good morning, everybody. If I recall correctly you guys had some good expectations for thermal desorption for 2017, you had some strong volumes in that business in Q1? Did that continue to Q2 and then what I'll say expecting from this business through the back half of the year?

[Simon Bell:]

Hi, Barbara, this is Simon speaking. Yes, the second half we seen continued strength quarter-over-quarter and year-to-date when sequentially compared to 2016. I think it's worth mentioning to this is done in the heels we did have a minor setback where we were had an outage for three weeks related to some damage to one of the MCC. So despite that three-week of not being operational we were still growing year-over-year quarter-over-quarter.

[Barbara Noverini:]

Okay. Thanks so much.

[Jeffrey Feeler:]

Also add Barbara I mean this business line has been very strong for us and one of the right spots in the company and we continue to be bullish on it. We've seen double-digit volume growth in that unit for the first half of the year even anticipated to see strong growth in the second half for the year. There continues to be good backlog, good demand for NS stable and I think that's one of the things that out of all of our business lines is one that is more predictable than not for the demand.

[Barbara Noverini:]

All right. Great. Thanks so much. End of Q&A

[Operator:]

[Operator Instructions] And showing no further questions, I would like to turn the conference back over to Jeff Feeler for any closing remarks.

[Jeffrey Feeler:]

I want to thank those who participated today and look forward to given you an update on our third quarter results in October this year. Have a great day.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.