US Ecology, Inc.
Q1 2015 Earnings Call Transcript

Published: 3 May 2015

[Operator:]

Good morning, afternoon, and evening. And welcome to US Ecology First Quarter 2015 Earnings Results Conference Call and Live Webcast. All participants will be in listen-only mode (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Eric Gerratt. Please go ahead.

[Eric Gerratt:]

Thank you and good morning. 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 Web site at www.usecology.com. Throughout our call and presentation today and yesterday's earnings release, we refer to adjusted EBITDA, adjusted earnings per share, pro forma earnings per share and pro forma adjusted EBITDA. 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 EBITDA and adjusted earnings per share can be found in Exhibit A of our earnings release. A reconciliation of pro forma earnings per share and pro forma adjusted EBTIDA can be found on Slides 29 to 30 on the investor presentation we furnished as an exhibit to our Form 8-KA filed yesterday. 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.

[Jeff Feeler:]

Thank you, Eric, and good morning, everyone. I'll start this morning's call with a few summary comments on our first quarter results that we released yesterday before turning the call back to Eric, who will provide more details on the financial results. I will close out the call with some comments regarding our outlook for 2015 and then open up the call for questions. For those following on the webcast presentation, I direct you to Slide 5. As announced yesterday, US Ecology reported solid financial results that were in line with our expectations. Total revenues were $136.7 million, up significantly over the same period last year as a result of the EQ acquisition. We generated $15 million of operating income and had $27 million of adjusted EBITDA. Both operating income and adjusted EBITDA, included $1.7 million of business development expenses related to the EQ acquisition completed last year as well as other activities during the quarter. Net income for the first quarter was $5.9 million with adjusted EPS of $0.35 per share. Moving on to Slide 6. Despite the significant adverse weather conditions impacting the East Coast, both our environmental services and field and industrial services segments posted strong quarterly revenues of $91.4 million and $45.2 million respectively. The environmental services business was surprisingly strong in the east, benefiting from solid event business volumes. In the Gulf Coast region, we saw strong growth in our thermal recycling business as a result of increased capacity from the installation of a larger unit in late 2014. This, combined with a favorable service mix in our landfill business more than offset the year-over-year decline in landfill volumes in that region. Similarly in the southwest, strong containerized waste business resulted in a favorable service mix, making up for short falls in project based work. In the northwest we saw increased volumes from shipments from our government customers as well as increased shipments from third party waste brokers. Our field and industrial services business was strong during the quarter, showing significant improvement over the pre-ownership first quarter 2014. The group continues to be focused on revenue quality and optimization strategies, which are yielding positive results. Moving on to Slide 7, legacy US Ecology business produced solid results during the quarter. But as expected, was down from the first quarter last year, which was unseasonably strong, creating a difficult comparison. The legacy EQ business saw tremendous improvement over the pre-ownership first quarter 2014 with pro forma adjusted EBITDA growth of 84%. On a per share basis, legacy EQ improved to a loss of just $0.06 per diluted share in the seasonally weak first quarter. This compares to a pro forma loss of $0.12 per share in the pre-ownership period of first quarter last year. Overall, consolidated adjusted EBITDA for the first quarter of 2015 was 9% higher than pro forma first quarter results of 2014 when adjusting for business development related expenses. First quarter played out consistent with our expectations and I’m pleased with the overall results. With that I’ll turn the call back to Eric.

[Eric Gerratt:]

Thanks Jeff. As shown on Slide 9, revenue for the first quarter of 2015 was $136.7 million, up from $53.4 million in the first quarter of 2014. The first quarter in 2015 included $84.7 million of revenue contributed by the legacy EQ business. Revenue for the environmental services segment for the first quarter of 2015 was $91.4 million compared to $53.4 million in the first quarter of 2014. The field and industrial services segment delivered revenue of $45.2 million in the first quarter. Legacy U.S. Ecology revenue for the first quarter of 2015 decreased 2% to $52 million. This was driven by lower treatment and disposal revenue partially offset by higher transportation revenue. Recurring base business related to U.S. Ecology contributed 61% of treatment and disposal revenue and increased 7% compared to the first quarter of last year. Event business decreased 17% from the first quarter of last year and represented 39% of treatment and disposal revenue in the quarter. Slide 9 breaks down treatment and disposal revenue for both base and event business by customer category for the legacy U.S. Ecology business. As you can see, the most significant changes during the quarter were in the government refinery and private clean up categories. Our government cleanup business increased 100% in the first quarter of 2015, primarily due to higher disposal revenues from the U.S. Army Corp of Engineers. Treatment and disposal revenue from the Army Corps was significantly than the first quarter of 2014 based on significant increase in volumes. This increase was partially offset by lower volumes from other government related cleanup projects. Treatment and disposal revenue from our refinery customer group increased 47% in the first quarter of 2015, compared to the same quarter of last year. This increase is primarily the result of highest thermal recycling volumes at the new larger dryers operational for the entire first quarter of 2015. Treatment and disposal revenue from private cleanup customers decreased 26% in the first quarter of 2015 compared to the same period last year. This decrease is primarily the result of lower shipments from a nuclear fuel fabrication decommissioning project and an expected decrease from an East Coast cleanup project in the first quarter of 2015 compared to an unusually strong first quarter of 2014. Turning to Slide 10, gross profit was $39.8 million in the quarter, up from $22.1 million in the same quarter last year. EQ contributed $18.8 million in gross profit during the quarter. The ES segment contributed $34 million in gross profit while the FIS segment contributed $5.9 million in the first quarter of 2015. Selling, general and administrative spending or SG&A was $24.9 million in the first quarter of 2015. This was up from $6.6 million in the first quarter of last year. EQ SG&A spending was $15.3 million in the first quarter. As Jeff mentioned earlier, SG&A also included $1.7 million of business development expenses during the quarter. The remaining increase was primarily due to higher incentive compensation and higher professional fees and expenses. Operating income was $15 million in the first quarter of 2015 compared to $15.5 million in the same quarter last year and included $3.5 million of operating income from EQ. We reported net income of $5.9 million and diluted earnings per share of $0.27 in the first quarter of 2015. This was down from $9.4 million and $0.43 per diluted share in the same quarter last year. We delivered adjusted earnings per share of $0.35 in the first quarter, down from $0.48 per share in the first quarter of last year. Adjusted EBITDA for the first quarter was $27.2 million, up from $20.3 million in the same quarter last year. Adjusted EBITDA was $37.1 million for the ES segment, $3.1 million for the FIS segment and negative adjusted EBITDA of $13 million for our corporate function. Legacy U.S. Ecology operations delivered adjusted EBIDA of $16 million in the quarter compared to $20.3 million in the first quarter of 2014. Legacy EQ contributed $11.2 million during the quarter. Turning to Slide 11, we generated $22.6 million of cash from operating activities in the first quarter of 2015. We also invested $9.2 million in capital projects, paid down $22 million on a long-term debt and paid out $3.9 million in dividends to our stockholders. Pro forma return on invested capitals for the 12 months ended March 31, 2015, assuming a full year of EQ was 6.5%. Pro forma return on assets was 4.1% and pro forma return on equity for the same period was 15%. With that I’ll turn the call back to Jeff.

[Jeff Feeler:]

Thank you, Eric. As mentioned in my remarks 2015 is off to a solid start and in line with our exceptions. Business conditions remain strong and we are seeing continued opportunities emerge for the summer time cleanup season. Many projects have already been secured and we are actively bidding on others. As a result, we are reaffirming our previously issued 2015 guidance with adjusted EBITDA ranging from $137 million to $143 million and earnings per share ranging from $1.76 to $1.92 per share. Consistent with our initial guidance, this excludes business development related costs as well as any non-cash foreign currency translation gains or losses. We continue to project capital expenditures will range between $40 million to $45 million in 2015 with most of the capital being allocated to landfill development, infrastructure upgrades and equipment replacements at our operating facilities. Our teams continue to be energized and the integration activities are progressing smoothly. We continue to unify the company and develop the premier North American provider of environmental and industrial services, delivering sustainable solutions for our customers and long term value for our stockholders. With that operator, we will now open up the call for questions.

[Operator:]

We will now begin the question-and-answer session (Operator Instructions). The first question is from Justin Ward from Wells Fargo. Please go ahead.

[Justin Ward:]

Just a quick one. First a quick one, what was the foreign exchange headwind in the quarter on revenues and/or profitability?

[Jeff Feeler:]

Justin, to your point, the Canadian dollar has weakened relative to U.S. dollar. So our exposure is isolated really to our Stablex operation. As we look at it and kind of compare to first quarter of last year based on changing the exchange rate, there was a favorable impact but it was probably in the range of $0.5 million or so.

[Justin Ward:]

Okay. And then is there any way to quantify the weather impact in the quarter? And related to that, you guys have commented that Q1 basically met your expectations for financial performance, even with the weather impact. So does that suggest that maybe the remainder of the year could exceed your initial expectations, if we see some of that pent up activity from the weather impact low, through the remainder of the year?

[Jeff Feeler:]

Justin, this is Jeff. It’s pretty difficult to quantify what the impact is on the weather. What I will say is that as we look throughout the quarter, we started out the year really strong in January. The weather conditions really hit in late, late, late January and into February. February was a pretty poor performing month for the Company, especially on the East Coast because of the conditions we were in. That turned in March and we’re continuing to see the benefits in April. To see how that trend weighs out, I will say that the teams in the northeast in particular, really managed the business well, much better than they probably did in the previous year. This is the second year of some pretty adverse conditions on the east side. So that being said, I don’t know if we’re going to see like an uptick. But we are seeing good business conditions going into the second quarter.

[Justin Ward:]

And then maybe could you talk a little bit more about the event pipeline that you guys see out there right now. At this point in the year, is it as robust as you guys were expecting to see at this point? Where are you seeing opportunities, et cetera? Maybe can you talk about that a little bit?

[Steven Welling:]

Sure. Justin, this is Steve Welling. The pipeline looks quite strong in the northeast. And actually, just in the last few weeks, it’s picked up bidding activity quite a bit after the fall. And growth is still strong. And then some of the radioactive business just now starting to kick back in. We had a bit of a slowdown on some of the commercial work in the first quarter but we’re expecting strong shipments going forward, starting this next month. So overall, the pipeline still remains strong. We do have a couple of the jobs that it will winding down this summer. But we are confident at this point that we have enough opportunities to look for replacement.

[Operator:]

Next question is from Tyler Brown from Raymond James. Please go ahead.

[Tyler Brown:]

Hey Jeff, so I'm curious. So rail service has been really a big issue across the country, but particularly in the east. And I'm just curious if you have seen any improvement in those cycle times on the rail side? And how should we think about that impacting your business? Is it a cost issue? Is it a revenue issue? Or is it largely a moot point?

[Jeff Feeler:]

I'm going to let Simon address some of those details.

[Simon Bell:]

Hi Tyler. We’ve really seen the bottleneck that was really kind of its worst on the East Coast in the kind of January-February period, and maybe even the early into December. For the most part, we’ve seen the railroads release that bottleneck. So it’s a -- moving forward I don’t expect any issues. And it really doesn’t have large impacts to our business. It can cause delays, it can cause certain logistical difficulties, but for the most part we’ve got the infrastructure and it just affects the timing of receipts.

[Tyler Brown:]

Okay, it’s very helpful. And then, I get it than the Canadian dollar is down and it may hurt you from the translation perspective, but does that make Stablex much more competitive when it goes out to bid?

[Jeff Feeler:]

Yes, so that’s a good point. So yes, we do have headwind on the Canadian sales, and about 40% to 50% of Stablex's revenues are in actually in Canada at least this past quarter. The rest are coming from the U.S. to actually build in the U.S. dollar. So we have no impacts there. It makes them more competitive competing for U.S. business when you have a devalued Canadian dollar there, and it does make them more competitive.

[Eric Gerratt:]

And Tyler, this is Eric. That’s why -- my earlier point about $0.5 million impact. There is kind of an offsetting impact as we translate from Canadian to U.S. dollars and kind of take the hit for the weaker Canadian dollar. We also get some benefit for those sales that we actually go and collect in U.S. dollars. So kind of the net impact is that roughly $0.5 million.

[Tyler Brown:]

Okay, that’s helps to bridge that, okay. This is a bigger question, and I totally get it that you guys are a Haz player and you got this hazardous aerospace and you don’t want to fill that up with coal ash. But clearly one of your competencies is managing landfills. So if you think about it kind of outside the box, could coal ash still be an opportunity for you guys? Would you maybe go to a utility and operate it on their behalf or would you be even willing to invest to develop, call it non-haz monofill?

[Steven Welling:]

This is Steve Welling again. We’ve been looking at are some opportunities to do the remediation work, like for pond closure at a couple of different utilities. Most of that right now is nonhazardous waste. Not sure that the material would go to our disposal facilities, but our services group has been looking at a couple of different potential opportunities where we could do onsite work, nothing very far along at this point. We’ve just put in a statement of qualifications through one of the larger utilities.

[Tyler Brown:]

Okay, that’s good. And then maybe lastly, in the K you guys talk about Beatty and Robstown both having I think four years of aerospace, but can you talk about some expansion efforts there? I think in the K you even mentioned that you bought some land last year in Texas and then there is that big buffer zone in Nevada. If you could talk about opportunities to expand there.

[Simon Bell:]

Tyler, this is Simon here. Starting with the Nevada expansion, we couldn’t be more pleased with the progress we're making to secure the land at our Beatty facility and we expect to be in a position to have this completed by mid-2015, of significance they've completed the environment assessments and notice of realty actions that were published by the BOM, and we really have seen very little interest and comments. So at this point we’re expecting to be in a position to initiate construction in 2016. So I’m feeling very good about the status of the Nevada facility. Relative to the Texas facility, we’re also well into the process of permitting we call the [indiscernible] property. There's an additional 200 acres that we’re going to be sighting and permitting for landfill capacity and we’ve been meeting with the state and we don’t see any obstacles there. So on both fronts I feel confident that we’ll have the available landfill capacity that we need to continue the growth trajectory.

[Tyler Brown:]

Okay, great. And then just lastly, the [indiscernible] trust seemingly funded back in January. I’m just curious if you’re seeing any of those funds beginning to be disbursed. Maybe any -- if there is the possibility of gauging the opportunity out there and if that’s part of your optimism on the event pipeline?

[Steven Welling:]

Yes, it is part of event pipeline. This is Steve again. What we’re seeing is there is a combination of different things happening. We’ve actually talked to a few of the trusts. Trust money in some cases is going to the EPA where EPA would then be managing the projects. There is a couple of those in the Midwest and the Northeast that we understand that the trust has already provided the money to EPA which then could create the opportunity potentially later this year for some offsite disposal. Our best guess would be that EPA will put it out for bid to a prime contractor and so we would likely be working as a subcontractor for someone -- a large firm like a TetraTech or URS or someone like that where we'll then handle the disposal and maybe other pieces as a sub for them. In addition to that, there is also the possibility of some direct work under Army Corp Engineers contract later this year. But none of these have really come to the point where we’re actually being asked for final pricing or actual timing -- scheduled timing yet. So this is a long-term opportunity. There is a lot of money set aside for these projects. So we do see it as a long-term pipeline opportunity.

[Operator:]

The next question is from Joe Box from KeyBanc Capital. Please go ahead.

[Sean Egan:]

This is Shaun for Joe. I was hoping that you could provide a little bit of color on the -- what drove that legacy EQ strong performance this quarter? Was it easy comparison than last year? Was it new synergy opportunities? Anything there would be helpful.

[Jeff Feeler:]

This is Jeff. So, I think that it was an easier comparison period that helped the performance, but -- and when you break it down, the environmental services side of the equation, the assets on that side from the EQ business had a very strong quarter. There were event projects that shipped in there and drove landfill volumes that were up in around 44% higher than the prior year. And so that is a great, great news especially in the first quarter of the year. On the field industrial services side, the teams are executing and they’re looking at the quality of revenue. They’re seeing some margin enhancement there. They’re delivering better results. And I think it’s a combination. There was a lot of distraction in I’ll call the legacy organization a year ago. I'm aware they were up for sale and didn’t know who is going to be in there and things like that. And so now that that's kind of settled down and we’ve gotten the teams together and unified, I think that’s what you’re starting to see is the delivery of those results.

[Sean Egan:]

And then can you give us a little more color on the strength in base business? Can you kind of maybe rank by order of magnitude as some of the drivers there?

[Jeff Feeler:]

That’s a difficult question because it’s all by region. We’re seeing strong base business in those regions where we have a lot of containerized waste coming in, Southern California and the Gulf Coast regions. We’re seeing it across the board in a lot of our treatment faculties in the east. So there isn’t really one driver per se that’s driving the base business up. I think business conditions are good. And that’s helping contribute to the overall waste generation that’s coming to our facility. And Steve do you have anything to add on that?

[Steven Welling:]

A key point of our strategy in the last actually 10 years has been to diversify where we’re not tied to any one or two or even three industries. So what you'll see with our base business is its coming from aerospace and steel and just a number of different business types and industry types around the United States. So if one area goes down, we’re hoping something else is up and that’s what has proven to be a good formula over the last few years.

[Simon Bell:]

Sean, just to add on, if you look at it from kind of our legacy US Ecology industry groups or customer groups, it was -- the biggest drivers of the increase in base were on the broker side of the business and then to a lesser extent our refinery base business.

[Sean Egan:]

And just quickly on the event business, I know you guys have touched on it earlier. But with some of the inherent choppiness, do you expect maybe some pent up demand to kind of fall into 2Q, 3Q, given some of the shortfalls this quarter?

[Simon Bell:]

We are seeing strong bid activity. We do have some contracts signed that are kicking in, but we do also have couple -- the one larger job in the northeast that is tapering down. So whether that’s going to result in a big uptick in overall volume, I'm not sure yet. Do we have waste volume to fill the gap? We’re pretty confident we do and we’re looking for positive things later this year.

[Jeff Feeler:]

And Sean I think I’d add a little bit to this. You mentioned about short fall and the decline in the event business. And that event business decline is really on the legacy US Ecology side. One of the things that we wanted to try to make clear is that the Q1 of 2014 was unusually strong. And the good thing about event business is when it comes -- it normally comes in large volumes, and the bad thing about it is when you cycle those projects, you have difficult comparative periods. We really didn’t, from our expectations perspective, we didn’t see a shortfall in event business during the first quarter. That’s our lowest point of the year. I think what we’d expect is that continuing to go in Q2 and through the balance of the year it’s kind of on our expected path. So we will have difficult comparisons on event business throughout the balance of the year, and it would not be surprising to me if we see declines every single quarter in that area of the business, just because of the strength of that last year. But the pipeline remains good. It’s our objective to show growth in those areas and we’re going to win everything we possibly can win that’s out there.

[Operator:]

Next question is from Barbara Noverini from Morningstar. Please go ahead.

[Barbara Noverini:]

Can you remind us what the margin profile is for your thermal recycling business? And have you been able to improve operational efficiency of the service as you expanded capacity there? Also is there anything over at EQ that complements this business in any way?

[Jeff Feeler:]

So I'm going to direct the question and let Eric address some of the -- kind of the volumes, and the staffs, and then just try and then Simon can address the operational efficiencies.

[Eric Gerratt:]

Barb, just from a volume perspective, as you may recall, we installed a larger dryer unit at the end of the fourth quarter that allows us to crank through quite a bit more volume which we were able to leverage for the entirety of the first quarter. So that helped us drive about a 40% increase in volumes in the first quarter of this year, compared to the first quarter of last year, which translated into a revenue increase of about that same 40%. It does kind of increase the margin profile. We do pay processing rates on the units. So the margin profile isn’t your typical haz waste disposal. It's probably in 25% plus range from a gross margin perspective. But as we're able to get more volumes through the unit, and through the facility, obviously the leverage will increase that margin profile.

[Simon Bell:]

This is Simon, Barbara. From efficiency perspective, we were very pleased with the results of the first quarter. Typically you have to take some ramp up time to really hit your maximum production capabilities, but we saw that happen lot quicker than we thought. I do believe that further opportunity to improve mix which will then further improve volumes. So overall our contractor has been performing the [indiscernible], been a large success and we think there is further opportunities to improve efficiency. But as Eric mentioned, in terms of margins, we do pay a totaling rate, although there is some margin improvements. Really we just like to win by doing, driving more volume to our facilities and certainly the [indiscernible] Dryer is proven to be a lot success in the front.

[Barbara Noverini:]

Got it. And then is there anything over at EQ that compliments this business is anyway?

[Jeff Feeler:]

Not at this time. That’s definitely an area that we continue to evaluate, and if market conditions prove out there, we could be looking at putting some additional units in.

[Operator:]

Next question is from Michael Hoffman from Stifel. Please go ahead.

[Michael Hoffman:]

A year ago at this time you and the legacy company were able to raise your guidance because of the strength of that event activity. Have you striped away the PPG and Westinghouse that provided some of that upside in the quarter? How does the pipeline look on a competitive basis?

[Jeff Feeler:]

It looks stronger.

[Michael Hoffman:]

Okay. So would PPG and Westinghouse attract at the same kind of performance a year ago and you would have had the same kind of opportunity to raise guidance and sort of a circumstances providing, and I’m not saying you would have raised it, but the circumstances that supported doing that a year ago was supported doing that now?

[Jeff Feeler:]

Yes, probably Michael. Those are hypothetical questions that you’re getting into but I think the underlying business in Q1 was really strong last year. If you strip away Westinghouse and PPG this year, we did see quite a bit of strength during the quarter and the pipeline continues to look good.

[Michael Hoffman:]

Okay. And then as you look at your business activity, there is some handwringing about overall industrial growth and the outlook for industrial growth currently going through the earning cycles, partly because the strong dollar, all those sort of collateral impacts. How do you think about the industrial economy in the context of your business model as you’re looking forward right now?

[Jeff Feeler:]

Right now we’re not seeing any impact from industrials. I’ll say and tell GDP and stuff was released this week. I think that that took a lot of people by surprise on assets. Right now our customers continue to shift. We saw strength in our base business which is really, really tied to the industrial. We’re not seeing any slowdown in any major sectors across the Board. So at this stage we're not seeing anything that’s providing the headwind on that front.

[Michael Hoffman:]

Okay.

[Jeff Feeler:]

We see -- the larger events many times are court ordered cleanups or government cleanups that have already been funded regardless of the industrial production.

[Michael Hoffman:]

Right. And then with regards to the field and industrial services, if you think about sort of three components, on the heavy industry side which has tie into sort of that northeast refining utility and manufacturing sort of turnaround cycles, what's sort of the outlook there? Was there more of that happening in light of where crude prices are and refining margins is less? How do you think about that, since that’s the biggest sections, sort of component of that business?

[Mario Romero:]

This is Mario. Michael a lot of the business activity that we do in the northeast on the industrial services side is not necessarily tied to the outage and production as strongly as you might expect it here in the Gulf Coast, and a lot of our work is tied -- on those larger industrial activities. It's more day-to-day activity, maintenance activity, much more so than the larger shutdowns and turnarounds. And that applied to both utilities and refineries. We do a fair amount of work for outages at paper mills. That’s also part of that. But most of our activity tends of be related to day-to-day maintenance type work, as well as some emergency response work.

[Michael Hoffman:]

Okay. And then on, Mario on the remediation side a year ago, there was a decent amount of revenues but not great margin? How would you compare sort of what the mix looks like today?

[Mario Romero:]

The mix is going to be improving with respect to the margins because we are focused on the remediation activity. We’re paying a lot closer attention to the kind of work that we’re taking on. The kind of activity that we’re doing is also -- last year we also suffered because of those number of changes of scope of work and changed conditions that we did not act quickly on with respect to addressing those that affected margins and our management teams understand that moving forward that’s something we can change aggressively.

[Michael Hoffman:]

Okay and then on the technical services side, you have a nice small container business targeted towards retail. Can you talk about what the trend has been in that, and sort of the opportunity for significantly growing that?

[Jeff Feeler:]

Michael, this is Jeff. Our retail business actually falls in our field and industrial services segment. And the waste disposal of that falls into our environmental services segment. So there is kind of across aspect of this. We have seen some pretty good growth in the retail business. That market continues to be providing a lot of opportunities as regulators step in, whether at the state or federal level to enforce hazardous waste laws on your normal retailers. And so we’ve being seeing growth in there. That’s an expansion opportunity for us out west. We’ve been able to secure a couple of new contracts under the US Ecology combined umbrella now. And so it’s a positive story for us.

[Steven Welling:]

Real synergy, this is Steve, Michael. Because we’re bidding these jobs and now we’re utilizing expertise from Beatty and from Texas to make sure we have a hub you might to say to bring the waste back and then do consolidation and ship off to various outlets. So two new awards based on the combined company.

[Michael Hoffman:]

And then just so we get the modeling right, PPG talked about sort of give everybody on the vendor side a heads up that they were ending at the end of June. Is that still your expectation? And maybe there’s a tail as they go through punch outlets with EPA to get to their enforcement closing on December. But is there expectation PPG is done by the middle of year still?

[Jeff Feeler:]

It’s tapering down now and things could change. It’s changed every couple of months the last three or four years. So we’re going with what we have today which is tapering down and be done by the end of the summer.

[Michael Hoffman:]

And then Westinghouse is still expected to play through the course of the year and it’s an unknown whether it carries into ’16. Is that still the outlook?

[Jeff Feeler:]

Yes. We have an opinion of whether it will carry forward which we’re optimistic but we don’t know for sure at this point but through the rest of this year, yes.

[Michael Hoffman:]

Right, well the scope of work seems to keep changing to your advantage. That’s the good news. And then thermal, is it actually sold out now the capacity?

[Simon Bell:]

Michael this is Simon here. Yes, technical it is. We’re at maximum utilization and we’re processing as quickly as we can. So I would say there continues to be a backlog and ample demand for that business.

[Michael Hoffman:]

And where are you on the permit mod to open up petroleum markets versus just the refining markets?

[Simon Bell:]

We’re proceeding as planned. We’ve been working with the state agencies, answering final questions. So we’re -- it’s always -- as I say in prior months it’s always very difficult to put specific timing in there. But our expectation is to see a permit to drop permit, the draft from here in the coming months and with a little bit of luck hopefully we can have the permit by end of 2015 allowing us to really take full advantage of that broader market into 2016.

[Michael Hoffman:]

And there is no need -- no incremental capital need, once you get that. Is there? It’s just getting that stamp and approval to be out of…

[Simon Bell:]

That’s correct and there is no additional capital. It really just allows us to enter into additional markets and leverage certain strengths that we have within the thermal business that we can’t take advantage of today. So you are correct, no additional capital.

[Operator:]

The next question is from Scott Levine from Imperial Capital. Please go ahead.

[Scott Levine:]

So I know it’s not your custom to provide quarterly guidance but maybe just given the needs for the business seasonality as for the new businesses, I was hoping for maybe a little bit more detail with regard to how you see the year playing out and whether there are some seasonal factors here that should be markedly different than what you guys reported last year?

[Jeff Feeler:]

So Scott this is Jeff. We do not provide quarterly guidance. This typical seasonal patterns where Q1 being the lowest point of the year and improving Q2, improving Q3 and Q4 is always our wild card. As we look out this year with some of the larger projects probably falling off mid-summer, that may make Q2 a little bit higher than Q3. However, with the robustness of the pipeline I would expect its trend the same way that we thought at the beginning of the year with sequential improvement up until Q4 with Q4 either being a little bit down just because the completion of project based work on the summer time side or a lot of times that carries over. So I do view Q1 being the low point of the year.

[Scott Levine:]

And then with regard to some of the return statistics, you guys provide some of the pro formas, I am wondering if there are metrics you can speak to with -- clearly you expect the margins on the field and industrial side to improve just on a secular basis as you apply more rigorous profitability. But given informal targets and thoughts in mind that we can think about some of these returns reaching over call it a three-five year horizon even just so can get some sense of your expectations there.

[Jeff Feeler:]

Scott, the target we have on return on invested capital is, we wanted to gets double digit return here over the course of three to five years, if not sooner. We knew going in to acquiring EQ we were going to see a hit on that return metric, similar to when we bought Stablex five years ago. We went from high-teens down to low-teens on return on invested capital and we were able to over a three to five year period get that back up to the mid-teens level. We’re seeing the exact same thing with EQ acquisition. The teams are moving, posting opportunities to grow the business on a longer term basis and we won’t be satisfied until we get that up into a double digit range.

[Scott Levine:]

Got it. Thanks. Then maybe one last one regarding capital deployment, focus I got some debt repayment here but just really looking to get a sense of your mindset with regard to acquisitions and the landscape there and whether we might see something out of you guys and what your interest priorities might be on that front?

[Jeff Feeler:]

Yes. So, Scott, strategy remains the same as we are always looking for high quality assets that expand our disposal network or complimentary services that help feed as we call vis-à-vis internally is we’re looking for those types of assets. As they come into market we’re going to continue to look at those. Our focus today is integrating the EQ acquisition and that really hasn’t changed. And so if there are other opportunities to come to market we’ll take a look at them and be in the game. With regard to other capital strategies, internal capitalization to drag organic growth is the top priority, debt pay down when we don’t have acquisition opportunities or organic growth opportunities from a capital perspective we'll do that.

[Operator:]

(Operator Instructions) We have a follow up question from Justin Ward from Wells Fargo. Please go ahead.

[Justin Ward:]

I’m wondering what the opportunity is on the coal power plant replacement cycle. A significant number of these coal power plants are going to be decommissioned or converted in the coming years. Is there any sense of the volume, the ways it comes off with each of those projects and whether that’s -- what size of an opportunity that could be for you guys, or is that still kind of small potatoes compared to your other markets.

[Steven Welling:]

This is Steve again. I’m not confident that we totally it qualified yet. We just started an effort to reach to certain utilities offering remediation type services for pond closure on some of these high hazard ponds. In terms of offsite disposal, we have not uncovered an opportunity yet where the utility is looking at offsite shipment for hazardous waste. So it will be evolving over the next six months to a year and hopefully we’ll have a lot more information for you later, but we are tracking it.

[Operator:]

The next question is a follow up question from Tyler Brown from Raymond James. Please go ahead.

[Tyler Brown:]

Just real quick guys. Did you guys give tonnage maybe just legacy or Ecology tonnage in the quarter?

[Eric Gerratt:]

I don’t we have yet. There will be some information in our 10-Q we'll file early next week. But basically our tonnage with legacy EQ Q1 this year versus Q1 of last year was down about 22%. So last year first quarter it was about 296,000 tons. This year first quarter it’s about 230,000.

[Jeff Feeler:]

That was legacy U.S.

[Eric Gerratt:]

That’s legacy U.S., I’m sorry. Yes, that’s legacy U.S. Ecology.

[Tyler Brown:]

Right, okay. And then do you breakout I think you may have in the past thermal revenue?

[Steven Welling:]

Yes, we have in the past for the first quarter, and I believe we might in the 10-Q. First quarter Q1 ‘15 revenue was about $5.5 million, and that was up from about $4 million in the first quarter of last year.

[Operator:]

That was the last question.

[Jeff Feeler:]

Wonderful. Well, thank you so much for attending the conference call today. And we’ll look forward to updating you with our Q2 results in last part of July.

[Operator:]

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