US Ecology, Inc.
Q3 2014 Earnings Call Transcript

Published: 6 Nov 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to Q3 2014 US Ecology Incorporated Earnings Conference Call. My name is Tracy, and I am your operator for today. [Operator Instructions] As a reminder, this call is being recorded. Now I would like to turn the call over to Eric Gerratt, Executive Vice President and CFO. Please proceed, sir.

[Eric L. Gerratt:]

Good morning, and thank you for joining us today. Joining me on the call this morning is President and Chief Executive Officer, Jeff Feeler. Also on the line are Executive Vice President of Sales and Marketing, Steve Welling; Executive Vice President of Operations for Environmental Services, Simon Bell; and Executive Vice President of Operations for Field and Industrial Services, Mario Romero. 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 our call today and yesterday's earnings release, we refer to adjusted EBITDA and adjusted earnings per share. Neither adjusted EBITDA nor adjusted earnings per share are 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 each can be found in Exhibit A of our earnings release. We believe these 2 non-GAAP metrics are useful in evaluating our reported results. With that, I'd like to turn the call over to Jeff.

[Jeffrey R. Feeler:]

Thank you, Eric, and good morning, everyone. I'll start this morning's call with a few summary comments on the third quarter results released yesterday. I'll then provide a brief update on our integration efforts before turning the call back to Eric, who'll provide more details on the financial results. I'll close off the call with comments regarding current business conditions and then we'll open up the call for questions or comments. For those following by webcast presentation, please direct your attention to Slide 5. As released yesterday, US Ecology delivered very strong results during the third quarter of 2014. This was the first full quarter with the acquired EQ operations and therefore, comparisons to prior year and prior periods are masked by this acquisition. In our release yesterday, we provided some additional information in an effort to provide investors with some transparency into the legacy US Ecology business. We will provide some additional color today focusing primarily on the legacy US Ecology operations to provide a better sense of the underlying business conditions. We will also supplement our commentary on the legacy EQ operations, which produced very strong results during the quarter. Overall, the combined company delivered $170.9 million in revenue and generated $26.8 million of operating income in the third quarter 2014. This translated into $40.5 million of adjusted EBITDA. Adjusted earnings per share for the third quarter of 2014 was $0.65 per share, well above the $0.53 per share for the same period last year. These results exceeded our expectations on strong execution and continued strength in the business. EQ also exceeded our expectations during the quarter, adding $111.3 million of revenue, $10.5 million of operating income, $19.3 million of adjusted EBITDA and $0.16 of earnings per diluted share. The strength in EQ's business was primarily driven by the strong treatment and disposal volumes received. Our legacy US Ecology business continued to benefit from strong landfill volumes that were up 6% in the same -- over the same period last year, allowing us to deliver 11% growth in our treatment and disposal revenue. Our Base Business delivered 10% growth in the third quarter of 2014 as compared to the same period last year. Our project-based Event Business continued see double-digit growth during the quarter, up 11% over the same quarter last year. A favorable service mix and higher disposal volumes resulted in US -- legacy US Ecology treatment and disposal margins eclipsing 50% during the quarter. Favorable top line performance, service mix and cost control led to strong profitability metrics with operating income of $16.4 million, adjusted EBITDA of $21.3 million and adjusted earnings per share of $0.49 per share. Delivering these outstanding results while focusing significant time and attention on integrating the EQ operation -- EQ operations is a real testament to the collective teams. Speaking of integration activities, I'm pleased to report that our integration is progressing on schedule with little surprise. Organizational structures for most functional areas have been established, and the teams are working well together. Significant planning on IT systems are underway. We are developing common platforms expected to be launched in late 2015 or 2016. A single platform of employee benefits and compensation plans are under development, and we are on track to have these plans rolled out in 2015. Over the last 140 days, a tremendous amount of work has been accomplished, integrating the 2 companies. And the outcomes are impressive. Each day that passes, we are becoming a more unified team with a common goal to bring unmatched customer solutions with best-in-class customer service. With that, I'll turn the call back to Eric.

[Eric L. Gerratt:]

Thanks, Jeff. As shown on Slide 6, revenue for the third quarter of 2014 was $170.9 million, up from $53.1 million in the third quarter of 2013. The third quarter of 2014 included $111.3 million of revenue contributed by EQ. Gross profit was $52.7 million in the quarter, up from $21.6 million in the same quarter last year. EQ contributed $28.7 million in gross profit during the quarter. Operating income for the third quarter of 2014 was $26.8 million compared to $15.5 million in the same quarter last year and included $10.5 million of operating income from EQ. We realized $830,000 of noncash net foreign currency losses in the third quarter of 2014 on a weaker Canadian dollar. This compared to noncash net foreign currency gains of $683,000 in the third quarter last year. We reported net income of $13.3 million and diluted earnings per share of $0.61 in the third quarter of 2014. This was up from $10.3 million and $0.56 per diluted share in the same quarter last year. We delivered adjusted earnings per share of $0.65 in the third quarter of 2014, up from $0.53 per share in the third quarter last year. Our third quarter 2014 earnings per share calculation reflects the 3 million shares issued in December 2013. Our legacy US Ecology operations delivered $0.49 during the quarter and EQ delivered approximately $0.16 of adjusted earnings per share in the third quarter of 2014. Consolidated adjusted EBITDA for the third quarter was $40.5 million, up from $20.1 million in the same quarter last year. Our legacy US Ecology operations delivered $21.3 million in the third quarter, up 5% over the prior year and EQ contributed $19.3 million during the quarter. For comparative purposes, I'll review third quarter 2014 results for the legacy US Ecology business, which excludes EQ results since our acquisition on June 17, 2014, unless otherwise noted. I'll then provide some additional details on the EQ results before covering our year-to-date results and the balance sheet and return metrics. Turning to Slide 8. Legacy US Ecology revenue for the third quarter of 2014 increased 12% to $59.6 million. This was driven by higher treatment and disposal revenue, which was up 11% over the third quarter of 2013; and higher transportation revenue, which was up 19%. Legacy US Ecology disposed or processed of 283,000 tons in the third quarter of 2014, up 6% from the 266,000 tons disposed in the third quarter of 2013. Our average selling price or ASP increased 5% compared to the third quarter of 2013 on a more favorable service mix. Slide 10 breaks down the trends in our Base and Event Business for the legacy US Ecology business. Recurring Base Business contributed 59% of treatment and disposal revenue for the third quarter of 2014 and increased 10% compared to the third quarter last year. Event Business increased 11% over the third quarter last year and represented 41% of treatment and disposal revenue in the quarter. Slide 11 breaks down treatment and disposal revenue for both Base and Event Business by customer category for legacy US Ecology. As you can see, the most significant changes during the quarter were in the broker, other industry and government customer categories. Treatment and disposal revenue from third-party waste brokers increased 15% in the third quarter of 2014 compared to the same period last year. This reflects increased shipments across the diverse range of waste generators directly served by our multiple broker customers, including higher volumes of broker thermal recycling projects. Treatment and disposal revenue from our other industry customer group increased 15% over the same quarter last year, reflecting increased shipments from a broad group of industrial customers. Our government cleanup business decreased 11% in the third quarter of 2014, primarily due to lower disposal revenues from the U.S. Army Corps of Engineers. Treatment and disposal revenue from the Army Corps was 14% lower in the third quarter of 2014 than the same period last year. We have experienced sequentially stronger revenue and volumes from the U.S. Army Corps during each of the first 3 quarters of 2014 and expect the same for our fourth quarter. Despite this positive trend, we now expect that revenue will be flat with that of 2014 with volume pushing into 2015. Continuing to Slide 12. Legacy US Ecology gross profit was $24 million in the third quarter of 2014, up 11% from $21.6 million in the third quarter last year. Overall, gross margin was 40.2% in the third quarter of 2014, down slightly from 40.7% in the third quarter last year. Treatment and disposal gross margin for the third quarter was 50.9% and in line with the same quarter last year. Selling, general and administrative spending or SG&A was $7.6 million in the third quarter of 2014. This was up from $6.1 million in the third quarter last year. The increase was primarily due to higher labor costs supporting our larger scale and increased business activity as well as higher variable incentive compensation and business development expenses associated with the EQ acquisition. As mentioned above and shown on Slide 13, the acquired EQ operations delivered revenue of $111.3 million in the third quarter of 2014. Gross profit for EQ was $28.7 million for the third quarter, resulting in gross margin of 25.8%. EQ delivered operating income of $10.5 million and adjusted EBITDA of $19.3 million in the third quarter of 2014. Breaking down EQ revenue in a bit more detail. Approximately 41% of the $111.3 million was attributable to Treatment and Disposal and 59% related to Field and Industrial Services. EQ's Treatment and Disposal assets generated approximately $15.7 million in adjusted EBITDA and the Field and Industrial Services group generated approximately $3.6 million in adjusted EBITDA. Similar to the legacy US Ecology business, EQ's legacy Treatment and Disposal assets performed very well during the quarter, exceeding expectations on higher treatment and disposal volumes. EQ legacy Field and Industrial Services showed significant improvement over the first half of the year before ownership, but fell short of expectations on service mix. Like Environmental Services, our Field and Industrial Services business is impacted by the mix of services during any given quarter. Project work will vary in profitability and replacement of revenue may not fully replace lost profits from completed business. In the current year, the Field and Industrial Services business has seen strong growth in utilities-based services work that tends to be lower margin than other industrial service offerings. This lack of turnaround and outage work in the current year has impacted the industrial verticals. Turning to year-to-date results on Slide 14. Consolidated revenue was $290.3 million for the first 9 months of 2014 compared to $141.8 million in the first 9 months of 2013. Consolidated operating income was $53.3 million for the first 9 months of 2014, up from $37.6 million in the same period last year. Consolidated adjusted EBITDA for the first 9 months of 2014 was $77.9 million, up from $51 million in the same period last year. Consolidated net income was $29.6 million or $1.37 per diluted share in the first 9 months of 2014. This compared to $22.9 million or $1.24 per diluted share in the first 9 months of 2013. Adjusted earnings per share for the first 9 months of 2014 was $1.60, which includes approximately $0.19 of earnings per share from EQ and excludes approximately $0.20 of business development costs and $0.03 in noncash foreign currency losses. This was up 24% from adjusted earnings per share of $1.29 for the first 9 months of 2013. We generated $31.2 million of cash from operating activities in the 9 months ended September 30, 2014. We also invested $17.9 million in capital projects and paid out $11.6 million in dividends to our stockholders. For legacy US Ecology, return on invested capital for the 12 months ended September 30, 2014, was 15.4%. Our return on total assets was 14.3% and return on equity for the same period was 20.7%. As a reminder, on June 17, in conjunction with EQ acquisition, we entered into a $540 million credit facility. The facility consists of a 7-year $415 million term loan and a $125 million revolving line of credit. The current variable rate on the term loan is approximately 3.75%. In October, we entered into a hedging arrangement which fixed the interest rate on approximately 60% of the outstanding term loan at approximately 5.2%. The term loan has a required 1% annual amortization paid quarterly with the first payment being made this past September. The revolving line of credit is for a 5-year term with a variable interest rate and a 50 basis point unused commitment fee. With that, I'll turn the call back to Jeff.

[Jeffrey R. Feeler:]

Thank you, Eric. I cannot be more pleased with our third quarter results. And based on these results and the continued strength of our business, we're revising our full year guidance upward and now expect adjusted earnings per share to range between $1.92 to $1.97 per share, up from $1.70 to $1.80 per share. We also expect adjusted EBITDA to range from $110 million to $115 million, up from our previous adjusted EBITDA range of $100 million to $110 million. Breaking down some key assumptions in our earnings guidance. We expect Base Business to continue to support the mid-single-digit growth. We expect Event Business to be down sequentially from the third quarter levels on normal seasonality. However, we expect fourth quarter volumes to be solid with a strong developed pipeline. Strong performance in the legacy US Ecology business with solid landfill volumes in the West, Southwest and Gulf Coast markets, those markets less affected by seasonality. EQ contributing low-single digit EPS accretion in the fourth quarter on sequentially lower landfill volumes and services work as a result of the normal seasonality trends within these legacy EQ business. To get into more specifics. We expect the following for the fourth quarter

[Operator:]

[Operator Instructions] And your first question comes from the line of Justin Ward from Wells Fargo.

[Justin Ward:]

Can you guys touch a bit on your -- how sensitive your business is to oil prices? Obviously, the waste you get from broker, that's kind of hard to tell. But as you look at the lower oil prices, have you guys thought about how that might impact your business in the near term, like over the next 6 to 12 months? And I guess in line with that theme, how much of the Event Business you see in your pipeline is sensitive to oil prices?

[Jeffrey R. Feeler:]

Sure, Justin. This is Jeff, I'll address that. On the legacy US Ecology business, I would say that very little is tied to anything from the oil prices. Most of the waste that we receive is either through rail assets or is actually delivered by a customer. Lower transportation costs, in general, will benefit potentially additional funds for cleanup efforts on project and other things like that. But for the most part, that's not as sensitive. On the EQ side of the business, especially on the services side, there's more -- we do more internalization of truck and routing of waste into the network. So there should be a positive impact on lower fuel consumption from that side of the company.

[Justin Ward:]

Okay. I guess more, I guess continuing on that a little bit, maybe more on the project work side, the Event Business side. As you look at your pipeline of project work, how much is that work is kind of contingent on stronger oil prices? Maybe in the petrochem side, in the Gulf Coast region.

[Jeffrey R. Feeler:]

Yes. Justin, it's really not. It's not dependent on that. I mean, we're getting byproducts from just normal generation. So it's really not -- it's not dependent on oil prices. I guess if they stop producing, refineries stop producing waste and go on and reducing capacity, that could have an impact but, my understanding, that's really not the case that's going on.

[Justin Ward:]

Okay, great. And then one more kind of on the seasonality of the business now. Q3 was obviously a very strong quarter. Was there any event work or anything pulled from Q4 into Q3, accelerated maybe a little bit faster than you were expecting? Can you touch on that first? And then second, can you touch on what we should think about for seasonality? The EQ business, I think, is $0.16 in the quarter and you're expecting single digits in Q4. Can you just talk -- touch a little bit on what we should expect for the seasonality of EQ as we go forward?

[Jeffrey R. Feeler:]

Yes, sure. And I understand some of the confusion with regard to seasonality. Then there's a lot of questions in your question. So let's kind of talk about third quarter performance a little bit. As far as pull up from fourth quarter into third, we weren't really seeing much. I think the bigger driver on maybe why EQ surprised us a little bit in the third quarter was the first half of the year was really slow as a result of the harsh winter conditions that we had in the first quarter, and that really kind of delayed progress until we started seeing it breaking out in June of this year and it benefited a full third quarter of that. So I think that there was more pent-up demand from the first half of the year, slower performance that benefited the third quarter. [indiscernible] pulled up from the fourth quarter into the third. That would be -- it wouldn't be the same for the US Ecology business, so we didn't see much pull forward into -- from the fourth into the third. It was more in line with our expectations from that side of things. With regard to overall expectations from seasonality on the legacy EQ business, I mean first quarter tends to be the lowest. It starts improving in the second quarter. Third tends to be the highest. Fourth quarter tends to start heading down, probably at the second lowest of the year. And that's just because you have wrap-up of summertime construction activities and volumes going into landfill. And so we would expect that trend to continue. And it's the reason why it has a little bit more of the seasonality pattern than what the legacy US Ecology operations did. It's really the location of the landfills. The legacy US Ecology operations outside our Canadian landfill are all in end markets that really don't have much weather pattern impacts to it.

[Operator:]

Your next question comes from the line of Michael Hoffman from Stifel.

[Michael Edward Hoffman:]

Jeff, can you talk a little bit about the Army Corps in the context of the sort of, I call it the old normal performance before sequestration? How you think about those volumes in 3Q trending 4Q? Are we getting back to sort of an annualized pace that looks like the old normal? Not the peak in '12 but the long term sort of the 110,000 to 120,000 tons.

[Jeffrey R. Feeler:]

Yes. Mike, I'm going to have Steve address the Army Corps, and then I'll add to any comments.

[Steven D. Welling:]

Michael, it's Steve. I would say that, no, we're not back to it, what you're referring to as old normal because the budget has been reduced from 2012 levels. And so we're at a lower funding going forward. I don't expect that to increase, although I'm not setting the federal budgets. We're going to always have difficult determining what's moving at what quarter. The timing is an issue. The work has a base-like attribute, but it's a multiple projects that are starting and stopping. And they're in different phases over multiple years. So it's definitely going to be a quarter-by-quarter up and down, I don't know how we'll ever change that.

[Michael Edward Hoffman:]

Okay, fair enough. And on that vein, the railroads have had all kinds of congestion problems. Is that impacting any of that opportunity? And then PPG got impacted by it. Where's PPG relative to their own transportation logistic issues?

[Jeffrey R. Feeler:]

Michael, I'm going to have Simon address some of the transportation logistics.

[Simon G. Bell:]

Michael, it's really been both positive and negative impacts associated with some of the rail bottlenecks. We certainly had our share of challenges with rail shipments into Michigan, and in particular, with the PPG project. But we've been able to make adjustments, and I think we've been able to service our customers' needs without too many impacts. And if anything, it's been a net positive for us as we've seen some wastes that were destined for our competitors, that were diverted to our network due to rail challenges throughout the region. And in terms of the legacy U.S. E side, there really has not been any noticeable impacts to legacy U.S. E rail shipments, which were the most part, spared from the recent bottlenecks which were primarily in East Coast.

[Brian Joseph Butler:]

And have you seen those clear? Depending on which railroad you talked, you have the sense it is; and at others, it's not.

[Simon G. Bell:]

It's clearing up. But yes, there's still some issues, I mean there's some heavy demand but again we've -- for what we're receiving, we're still able to service our customers. So we're not really seeing too many impacts. We're having to make operational adjustments, perhaps work on the weekends. But it's really been -- we've been able to work through just about all of these issues.

[Michael Edward Hoffman:]

And PPG is under enforcement order. This has nothing to do with you all. It's their own issue to get done by December 15. Do you think they stay on that path? Or based on your understanding of the volumes, this probably trickles?

[Simon G. Bell:]

I'm going to defer that one to Steve Welling, Michael.

[Steven D. Welling:]

To date, they've been on track to finish on-time as far as we know. Although it's project work, so you could find additional waste. It could be less waste. So at the moment, it appears they will be on pace to finish on-time.

[Jeffrey R. Feeler:]

And Michael, I'll just add to that. I mean the lumpiness in the Event Business, that is going to eventually happen in some of these larger projects fall off. We do expect that PPG next year will continue to ship volumes. At what levels is the unknown at this stage. They do have that court enforcement, or I shouldn't even say at the court enforcement. They have a deadline of December 2015 to be done with it. They're telling us they're going to be done in ahead of that timeframe. So we're anticipating some time in the summertime, we'll be pretty much finally completed with the PPG project next year.

[Michael Edward Hoffman:]

Okay, fair enough. And then on the EQ industrials and field services, that's 66 million of revs. Relatively low margin in the aggregate on the EBITDA side. Are there pieces of that, that as they work through, you just don't replace and you seek to replace with higher quality? You might have lower dollars, but better quality going forward. I guess asked differently, could such 66 shrink to be better?

[Jeffrey R. Feeler:]

The short answer is yes, it could shrink to be better. That being said, I mean Mario's in here today and he could elaborate on this a little bit. But he spent a lot of time over the last 140 days getting a better understanding of the mix of business. And we're trying to identify some of those, I'll call it, lower-performing service lines that really don't add a lot of benefits to our disposal network. And those are the types of business lines and services we may not be offering going forward. And it's really just looking at the quality of revenue from that. And so yes, the answer is it could shrink and create margin on the services side of the business.

[Michael Edward Hoffman:]

And in all likelihood, the EBITDA dollars don't change, but the dollar revenue may be less?

[Jeffrey R. Feeler:]

That's correct.

[Michael Edward Hoffman:]

Right, okay. Can you help me, remind me the thermal treatment permit timing and then sort of based on that timing, what's the lag to the expansion?

[Jeffrey R. Feeler:]

Yes, so I'm going to have Simon address the thermal and where we're at with permitting.

[Simon G. Bell:]

Michael, this is a question I get asked a lot. It's always very difficult to predict an exact date for the subpart x permit, which we're pursuing at our thermal system in Texas. That being said, the state has been very responsive. We're making progress and all signs are positive. And we expect to have that permit some time to a mid-2015 to the tail end of 2015. So substantially, I would say, I wouldn't expect major impacts and improvements and benefits from that permit into late 2015, early 2016.

[Jeffrey R. Feeler:]

Michael, on the -- you asked a question on the expansion. So we have already worked with our regulators to continue move forward with the expansion. And we plan to expand to the larger dryer in 2015. That actually will be operational probably in January or February.

[Michael Edward Hoffman:]

Terrific, congratulations on that. And then North Dakota is about to -- supposedly about to change the picocuries level on NORM activity. And if I'm not mistaken, you've been a beneficiary of a lot of NORM, those filter socks coming out of North Dakota. If they change that standard and make it basically more uniform to lots of other states will that volume still come? Or will you see it move, stay in state as a result of the loosening of the standard?

[Steven D. Welling:]

If the standard were to loosen, most likely our Idaho site would lose some volume, but it's not a very large piece of our business in Idaho. So it wouldn't be a large impact to us. There's also a lot of controversy over loosening standard so we're not sure that's going to be happening either.

[Michael Edward Hoffman:]

Right, I get that. And then last question for me. The EQ T&D business from EBITDA 34 4, that's pretty good, particularly compared to what has always been a great margin at the legacy company. And it was 35 6 this quarter. Can -- I had it in my head because it had all those TSDs and part B facilities that, by definition, would tend to run less. So, one, correct me if I'm thinking about that wrong. And two, does that residual gap close? And then those margins look very similar across both businesses.

[Eric L. Gerratt:]

Yes, Michael this is Eric. It's a good question. I think we'll continue to see kind of that historical gap. I don't think from a sustainability perspective that the legacy EQ T&D business will operate at or above -- or even above the legacy US Ecology T&D margins. This quarter, a couple of things going on. I think the service mix and the legacy US E side was a little different. And then from a legacy EQ perspective, a lot of leverage and a lot of margin benefit from the higher volumes in the increased business during the quarter.

[Operator:]

Your next question comes from the line of Scott Levine from Imperial Capital.

[Scott Justin Levine:]

Maybe just a little bit more color. You gave a pretty thorough overview, but just looking for a little bit more insight into how the results for each of the 2 pieces of business compare to your internal expectations for the quarter, legacy versus EQ, that is. And whether your guidance here for 4Q, how that might differ from what it would have been if you were to issue formal guidance at the time of your last earnings call? Just trying to get a clearer sense of how things have evolved versus your expectations when you closed the transaction?

[Jeffrey R. Feeler:]

Sure, Scott. This is Jeff. I'll attempt to answer that. With regard to kind of Q3 and where our expectations were and where actuals actually came in, both companies exceeded our expectations. I would say that the strength in the EQ business is a little bit better than the strength in the legacy US Ecology business and it's just based off an expectation perspective. As the previous caller commented, this has been a very big transformational acquisition for us. And we're still getting to know some of the intricacies of the acquired operations. And as we go through that, we're going to be learning more things along the way, and that's going to be reflected into our guidance and expectations as we go forward. As I look to Q4 and what has happened really over the last 90 days, I would say that the US Ecology business has -- I won't say -- I hate to use the word softened, but from a perspective, it has. And because there's been some waste streams that have been deferred, probably into 2015. And from the legacy EQ business, it's strengthened a little bit as we've learned more about the services side of the business, as we've learned a little bit more about the Treatment and Disposal assets and their capabilities and just the strength of the pipeline that we're seeing there. So I think on both, perhaps that's improved a little bit. Overall, I think that both companies are executing on all fronts and doing very well from that standpoint.

[Scott Justin Levine:]

And then as my follow-up, maybe focusing on the Field Services business that you acquired. Maybe conviction level in terms of margin upside potential, cross-selling, levers to achieve that. And maybe a little bit more color regarding the outlook for the turnaround side, which I think you indicated was a little bit weaker. Any expectations there for 2015 you can share.

[Jeffrey R. Feeler:]

Yes. Scott, at this stage, we don't have a lot of expectations for 2015 with regard to those specifics. We're just going through our budgeting process right now and rolling those up and looking at it. And what we spent our time on right now up until this point is really trying to understand the business on the services side and the various operations that we have there. And from that standpoint, we're going to be evaluating how we go to market and what service lines that we offer. If you look at it from an all-in perspective, it's about a 6% EBITDA margin on that business, very consistent with what the legacy EQ business delivered as well. And as we talked about before the acquisition is we see that there's margin opportunities there. And those margin opportunities are going to come through just being smart on what revenue we go after; and two, looking for ways to improve profitability through internalization as a larger company. I think that those could yield several percentage points of improvement. The other thing I want to make sure that investors understand is that services business is always going to have a lower margin than probably a stand-alone company. And part of that is really the strategy with having the complementary services is it should get an increased opportunity to drive volumes into our treatment of disposal network and using the collective assets. And so because of that, there's going to be times that we will go after business, very similar on the legacy US Ecology business, where we may not -- we maybe bundling prices and doing other things at a lower margin to be able to secure the back-end disposal volumes where we make more of the money. So you have to keep that in mind when you evaluate both -- what will be segments going forward between the services side of the equation as well as the legacy operations.

[Operator:]

[Operator Instructions] And we do have another question, this time it comes from the line of Justin Ward from Wells Fargo.

[Justin Ward:]

I guess I'll sneak in one more. Is there any update or visibility on timing of the Anadarko Kerr-McGee cleanup at this point? Or is it still too early to think about that?

[Steven D. Welling:]

Justin, this is Steve Welling. We've been tracking the settlement. We don't have any specific details on projects yet. I mean we know where some of the money has been allotted, but no timing, nothing specific yet on work going out for bid. But we're definitely on the case on this one.

[Operator:]

Your next question comes from the line of Barbara Noverini from Morningstar.

[Barbara Noverini:]

So maybe we can share a little bit more about what kind of operational efficiencies you might be targeting on the services side in the EQ business? Presumably, these are all different kinds of services with different labor components and necessary equipment and so on and so forth. But what kind of things can you achieve at, let's call it a platform level, if you will, in order to improve the margin profile of the services business a little bit?

[Jeffrey R. Feeler:]

Sure, Barbara. I'm going to have Mario address some of the things he's uncovered during his appointment.

[Mario Romero:]

Yes. So Jeff made reference earlier to the quality of earnings being a factor that we are focusing very heavily on. And that's one of our first priorities is both the pricing as well as the -- addressing the quality of earnings and that -- so that's the first part of the review that we're doing. We're also looking at opportunities to improve our logistics and our supply chain by leveraging both the EQ purchasing power together with the US Ecology purchasing power and addressing proper staffing for the right kind of jobs. So those are the primary things that we're working on. And at the same time, we're particularly in our Western area where we have some activities from the legacy EQ services business also working closely with the legacy US Ecology facilities to again integrate the opportunity. Legacy EQ was moving a lot of material back east and we're looking forward to moving that material into the Beatty or Robstown facilities.

[Jeffrey R. Feeler:]

Yes. And Barbara, this is Jeff. I'll just add, the logistic stuff is a key focus, and it allows us to do waste optimization. And a lot of the Field and Industrial Services group does provide that front end, I'll call it, collection aggregation route-based services that drives waste into our facilities. I think on some of the other services offerings on the Industrial Services side, we're looking at growing certain areas of services, such us hydro excavation and other things that tend to be higher margin-type service lines and maybe looking at maybe some of the lower-end cleaning services that are just not really going to be accomplishing the goals that we're wanting to achieve. So it's really looking at the service mix within the various services that we offer, which ones we're going to invest capital in, which ones we're going to attempt to grow and which ones we're going to cull. Those types of things, that's what's going to drive the margin up.

[Barbara Noverini:]

Got it, and that's helpful. With the logistics component if it, is that actually also a part of the larger-scale IT platform upgrade that you're doing? Is that a component of it? Or is that just a completely separate project that you're working on basically?

[Jeffrey R. Feeler:]

There are 2 separate ones. So we're definitely looking at logistics-type, software-type programs. The other IT programs are more on the, what we call, production systems. It's the waste receipts. It's the profiling. It's those types of aspects of it. I think Steve can probably elaborate a little bit more on this. So I'm going to turn it over to him.

[Steven D. Welling:]

A lot of the upside on logistics is really, what we call, increasing the route density, which means filling the truck with more waste and not driving as many miles to pick up fewer drums. So in retail business, for example, if we can drive fewer miles and pick up more waste, that's -- would be increased route density. We make more money that way, and that's a focus that Mario is working on right now with his group.

[Operator:]

Thank you for your questions. [Operator Instructions] And we have no more questions at this time. So I would now like to turn the call over to Jeff Feeler for closing remarks.

[Jeffrey R. Feeler:]

Well, thank you for all participated -- participants today. And we look forward to updating you on our business in February of 2015.

[Operator:]

Thank you, ladies and gentlemen. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.