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US Ecology, Inc. (NASDAQ:ECOL)

Q4 2012 Earnings Call

February 14, 2013 10:00 AM ET

Executives

Eric Gerratt – VP, CFO and Chief Accounting Officer

Jeff Feeler – President and COO

Steve Welling – SVP, Sales and Marketing

Simon Bell – VP, Operations

Analysts

Rich Wesolowski – Sidoti & Company

Brian Butler – Wunderlich Securities

Rob Stone – Cowen & Company

Tim O’Toole – Tetra Capital Management

Edward Heil

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter US Ecology, Inc. Earnings Conference Call. My name is Aysha, and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Eric Gerratt, Vice President and acting Chief Financial Officer. Please proceed sir.

Eric Gerratt

Good morning. Joining me on the call today is acting President and Chief Operating Officer, Jeff Feeler; also on the line are Senior Vice President of Sales and Marketing, Steve Welling; and Vice President of Operations, 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 could follow along with today’s presentation. For those listening by phone, you can obtain a copy of today’s presentation on our website at www.usecology.com.

Throughout our call today, as we stated in our earnings release, we refer to adjusted EBITDA and adjusted earnings per share. Both adjusted EBITDA and adjusted earnings per share are measurements 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 each can be found in Exhibit A of our press release. We believe these two non-GAAP metrics are useful to better understand our reported results.

Now I’d like to turn the call over to Jeff.

Jeff Feeler

Thank you, Eric, and good morning everybody. I’ll start this morning’s call off with a few opening comments before turning the call back to Eric, who’ll provide more details on the financial results released earlier today. I will then discuss the company’s outlook for 2013 and then open the call up for questions.

For those joining by webcast please direct your attention to Slide 5. We are very pleased with the strong performance and record annual results released earlier this morning. These results surpassed our expectations and reflect strong performance across our business. Turning first to our fourth quarter results, we delivered year-over-year growth from the top line to the bottom line.

Treatment and Disposal revenue grew 18%, operating income was up 4% and adjusted earnings per share grew 6% quarter-over-quarter. What makes our performance even more impressive is the fact that the growth – this growth is on top of the record fourth quarter 2011 that we had last year. Many of you may remember that the fourth quarter of 2011 benefited from significant volumes from the GE Hudson River project which did not shipped to us under their 2012 campaign this year.

Strong Base business, solid Event business and our hallmark operational efficiency allowed us not only to replace but exceed the lost 2011 GE revenue and earnings. Our quarterly growth benefited from solid quarter-over-quarter performance at our Idaho facility and Nevada facility and even stronger contributions at our Texas and Stablex operations.

We are particularly pleased to note that our Texas Thermal Recycling Operation posted record quarterly revenue and operating income during the quarter. The fourth quarter capped off a record year for US Ecology in 2012, coming on the yield of its strong year in 2011, this performance is a testament to the viability of our growth strategy, the intrinsic value of our unique combination of fixed facility assets and operating permits and the strength of our team.

Before Eric dives deeper into the financials, I’d like to highlight several accomplishments that bear this out. First, we set a new annual record for Treatment and Disposal revenue at a $145.7 million. Operating income grew 26% over 2011 levels reaching a record $40.6 million. Net income grew 40% to a record $25.7 million, adjusted EBITDA climbed 17% to a record $58.4 million, adjusted earnings per share grew over 30% year-over-year.

In addition to delivering record financial results, we added US Ecology Michigan, formally Dynecol, to our family of companies. Invested $15.8 million of capital into our fixed facilities and paid out $16.4 million of dividend to our shareholders.

I’ll now turn it back to Eric.

Eric Gerratt

Thanks Jeff. As shown on Slide 6, fourth quarter 2012 revenue was $50.4 million. This was up 21% from $41.6 million in the fourth quarter last year. Treatment and Disposal revenue climbed 18% higher in the fourth quarter of 2012 compared to the fourth quarter last year, and Transportation revenue grew 39%.

US Ecology Michigan contributed approximately $2.7 million of total revenue in the fourth quarter of 2012. Excluding Michigan, organic treatment and disposal revenue increased 11% over the same period last year. We disposed up 291,000 tons in the fourth quarter of 2012, down 27% from the 398,000 tons disposed in the fourth quarter last year. This decline primarily reflects the absence of GE Hudson River project shipment in our fourth quarter this year.

Excluding the GE project and US Ecology Michigan, volumes grew 32% in the fourth quarter of 2012, compared to the same period last year. Our average selling price increased an impressive 61% during this same time period, reflecting higher average selling price or ASP without the GE project.

Slide 7 breaks down our Base and Event business over the last six quarters excluding US Ecology Michigan. Base Business during the fourth quarter of 2012 contributed 62% of our Treatment and Disposal revenue and increased 14% over the fourth quarter last year. Event Business was 38% of Treatment and Disposal revenue, up 9% from the fourth quarter last year.

Slide 8 breaks down Treatment and Disposal revenue for both Base and Event business by customer category. As of the previous slide, US Ecology Michigan is excluded. Our Government Cleanup business increased 173% in the fourth quarter of 2012. This improvement was primarily due to higher volumes from the U.S. Army Corps of Engineers and waste received from the cleanup of the post military base. Treatment and Disposal revenue from the Army Corps was 80% higher in the fourth quarter of 2012 than the same period last year.

Total revenue from the Army Corps, including Transportation Services, was $2.4 million. This was up from $1.4 million in the fourth quarter last year. Treatment and Disposal revenue from third-party waste brokers was up 14% in the fourth quarter of 2012 over the fourth quarter of 2011. This reflects higher volumes of brokered thermal recycling services. Excluding brokered thermal recycling, our broker business still grew 9% quarter-over-quarter.

Treatment and Disposal revenue from our other industry customer group increased 13% over the same quarter last year. Growth in this area reflects an overall 18% increase in Base business on both stronger industrial production from existing customers and new business. Our Refinery business was up 4% quarter-over-quarter. This increase reflects higher volumes and improved thermal recycling pricing for refinery customers.

As a remainder Thermal Recycling business maybe included in our refinery, broker or other industry category, depending on who our customer is. As Jeff mentioned earlier, our Thermal Recycling Operations posted record treatment and disposal revenue, specifically the Thermal Recycling revenue climbed 38% to $5.4 million in the fourth quarter of 2012. This is driven by a 29% volume increase and a favorable service mix.

Treatment and Disposal revenue from private cleanup events decreased 42% quarter-over-quarter. This reflects the 2011 GE Hudson River project not being fully replaced by other private cleanup projects in the fourth quarter this year.

Continuing on to Slide 9. Gross profit was $18.3 million in the fourth quarter of 2012. This was up 14% from $16 million in the fourth quarter last year. Overall gross margin was 36.3% in the fourth quarter of 2012, down from 38.6% in the same quarter last year. Treatment and Disposal gross margin for the fourth quarter of 2012 was 44.2%, down from 45.8% in the same quarter last year. This gross margin decline reflects the addition of US Ecology Michigan which we acquired in May of 2012.

Selling, general and administrative spending or SG&A was $7.5 million in the fourth quarter of 2012. This was up from $5.6 million in the fourth quarter last year. The increase reflects higher payroll-related costs, including variable incentive compensation, severance related costs associated with the October management reorganization, business development costs and other general administrative costs associated with higher levels of business activity.

Operating income grew 4% to $10.8 million in the fourth quarter of 2012, which was up from $10.4 million in the same quarter last year. Adjusted EBITDA for the fourth quarter of 2012 was $15.6 million, up 2% from the $15.3 million in the same period last year.

We realized $562,000 of non-cash net foreign currency losses in the fourth quarter of 2012 on a weaker Canadian dollar. This compared to a net foreign currency gain of $872,000 in the fourth quarter last year. Net income was $6.1 million or $0.33 per diluted share. Adjusted earnings per share, which excludes foreign currency loss of $0.02 per share and business development cost of $0.01 per share was $0.36. This was up 6% from adjusted earnings per share of $0.34 in the fourth quarter last year.

Turning now to full-year results on Slide 11. Revenue for 2012 was $169.1 million. This was up from $154.9 million in the 2011. Treatment and Disposal revenue was up 13% in 2012 over 2011. This growth was partially offset by a 9% decline in Transportation Service revenue. Base Business revenue increased 17% in 2012 over 2011. Event Business was down 2% from the 2011, again reflecting the GE Hudson River project. Our average selling price or ASP was up 21% in 2012 compared to 2011. Volumes declined 6% over the same period. Both the improvement in ASP and reduction in volumes were primarily related to the GE Hudson River project.

Slide 12 breaks down Treatment and Disposal revenue for both Base and Event business by customer category. As with the earlier slide, this excludes US Ecology Michigan. Our Government Cleanup business was up 59% on higher volume shipped by the Army Corps in 2012 and new project-based work. Treatment and Disposal revenue from our Other Industry customer group increased 28%. Third-party Broker business was up 13% over the same period last year.

Our Refinery business was down 5% due to lower thermal recycling services sold directly to refinery customers. Our Private Cleanup business was down 46% due to 2011 results including the GE Hudson River project.

Continuing to Slide 13, gross profit was $66.3 million in 2012. This was up 23% from $53.9 million in 2011. Gross margin was 39.2% in 2012, up from 34.8% in 2011 and Treatment and Disposal gross margin for 2012 was 45.7%, up from 42.9% in 2011.

SG&A was $25.7 in 2012 compared to $21.5 million in 2011. This increase reflects higher payroll-related costs, including variable incentive compensation, business development costs, severance related costs associated with the October management reorganization and other general administrative costs associated with higher levels of business activity.

As Jeff noted, operating income grew 26% to a record $40.6 million in 2012. Adjusted EBITDA for 2012 was $58.4 million, also a record which was up 17% from previous record of $49.8 million in 2011. Net income for 2012 was also a record $25.7 million or $1.40 per diluted share. Net income was $18.4 million or $1.01 per diluted share in 2011. Adjusted earnings per share grew 31% to $1.39 in 2012, up from $1.06 per share in 2011.

Slide 15 summarizes our financial position and return metrics. At December 31, 2012, we had $2.1 million in cash. Borrowings on our credit agreement totaled $45 million. This left $26.5 million available under our credit facility for future borrowings. On January 30, 2013, we amended our credit agreement increasing our total capacity in $95 million maturing in November 2015. $2.8 million in quarterly scheduled reduction will begin on March 31, 2013.

During 2012, we generated $35.2 million of cash from operating activities. As Jeff mentioned, we invested $15.8 million in capital projects and paid up $16.4 million in dividends to our stockholders, including accelerating the January 2013 dividend to December 2012. Our return on invested capital for the year-ended December 31, 2012, was 14.6%. Our return on total assets was 12.2% and return on equity for the same period was 24.2%.

With that I’ll turn the call back to Jeff.

Jeff Feeler

Thank you, Eric. Our 2012 results were very strong with new record set for Treatment and Disposal revenue, operating income, net income and adjusted EBITDA. These record results were driven by an increasingly diverse customer mix and expanding service offerings.

In 2012, our single largest customer represented only 6% of total revenues, our top 10 customers accounted for just 35% of revenue. This shows how far we’ve come from 2010 when our single largest customer generated 17% of our total revenue and our top 10 customers accounted for 46% of total revenue. As the diversity of our customers, geography and service mix continues to broaden, it gives our earnings power, improves sustainability.

Another major accomplishment in 2012 was the receipt of the first waste shipments of radioactive waste from the Westinghouse Hematite Decommissioning Project at our Idaho facility. This milestone made possible by a 2008 permit modification establishes an important precedent that has already helped us land other nuclear power related cleanup projects. This notable success highlights US Ecology’s expertise in expanding its service offerings by working with its regulators, customers and customers to meet this important demand for services and expertise.

Anyway, 2012 was a fantastic year for US Ecology. Looking ahead, we are optimistic that 2013 will be another record year. On Slide 16, you can see that we are projecting that diluted earnings per share will range from $1.45 to $1.55 per diluted share. We estimate that adjusted EBTIDA will range from $62 million to $65 million. These projections reflect adjusted EPS growth of 12% – of up to 12% and adjusted EBITDA growth of up to 11% over the record 2012 results.

We expect business condition to continue to be strong as the overall economy continues to improve. We expect industrial output to show modest growth in 2013, translating into continued growth in our Base business. For Event business, the pipeline of opportunities remains strong and better than it has been for several years.

We enter 2013 with multiple cleanup projects under contract and shipping and expect many more throughout the year. Further shipments from the Westinghouse Hematite Decommissioning Project are expected to increase over the last year’s level. The Texas refining market remains strong. With refineries adding additional capacity, we expect a strong business climate in Texas that will benefit our facilities of thermo recycling and disposal services.

Like the last two years, we expect the first quarter to be seasonably slower than the fourth quarter. This is due in part to Stablex which experiences more seasonal impact from winter conditions than our other U.S. sites. For those of you modeling our business, we expect our Treatment and Disposal gross margins will range between 43% and $45% and our effective income tax rate will approximate 38%.

The projected decline in Treatment and Disposal gross margins from the 2012 level primarily relates to higher contributions from our lower margin businesses such as Stablex, Thermal Recycling and US Ecology Michigan. In our view this is a good thing as these recent additions to the US Ecology portfolio contribute more earnings and cash flows.

On the capital expenditure side, we expect 2013 capital expenditures to range from $22 million to $23 million. This reflects approximately $3.4 million of capital projects started in 2012, that will be completed this year. In addition, we are accelerating construction of a new landfill space in Nevada and associated relocation of ancillary facilities to handle increased demand for our services. The Nevada expansion was originally slated for 2014.

We also plan to build new landfill space in Texas and Stablex. Further we recently purchased additional land, adjacent to our Texas facility to accommodate long-term growth. Finally, we’ll continue to invest in property, equipment and other upgrades at all of our facilities to maintain best-in-class service and operational efficiencies, we believe customers have come to expect from US Ecology.

Strategically, we remain focused on driving revenue and building business through a combination of organic growth and targeted acquisitions. Our team is clearly focused on executing the 2013 plans in a safe compliant manner and protecting the people and the environment. It wouldn’t be right to end the call without thanking people that made 2012 such a great year for US Ecology and on whom we will rely on to continue growing the business in 2013.

To our Texas team for operational excellence and safely handling increased waste processing and dispose of volumes and laying the groundwork for expanded thermal recycling services. To our Idaho team for continuing its long standing tradition of delivering outstanding results with a can-do attitude. To our Nevada and Stablex team, for delivering solid year-over-year growth. To our Washington team, for another year of safe compliant operations. To our new team in Michigan, who have already made great strides at integrating themselves with our existing operations, and to our world class sales team and corporate office personnel who continue to accomplish more with less than any other organization I’ve been associated with. You all continue to impress me daily.

In closing, we are very excited about the opportunities ahead and the ability to increased earnings and deliver sustainable long-term shareholder value. We have a superb team, irreplaceable assets and a focused strategy.

With that I’ll turn the call back to the operator for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Rich Wesolowski with Sidoti & Company. Please proceed.

Rich Wesolowski – Sidoti & Company

Thank you, good morning.

Jeff Feeler

Good morning.

Rich Wesolowski – Sidoti & Company

Last year at this time the company had discussed raising prices for Base volume by a range of 3% to 7%. Would you comment on the price hike that was achieved during the year, and maybe any plans for further moves in 2013?

Jeff Feeler

Sure, I’ll have Steve Welling to address that.

Steve Welling

Hi Rich, how are you this morning?

Rich Wesolowski – Sidoti & Company

Great. How are you?

Steve Welling

Most of those price increases from 2012 have already cycled through. We were successful throughout the year in raising prices mostly in second and third quarter. For first quarter, we’ve gone through another round here. Most of the customers have been notified. It’s in select markets on Base business, single digit increases mostly inflationary type increase, and then at certain areas particularly thermo, we’re looking at a higher increase but that’s not effective until March.

Rich Wesolowski – Sidoti & Company

Okay. Jeff, you had mentioned the T&D margin forecast was influenced by Stablex and Dynecol and higher contributions there. Can I infer then that the sequential drop in the T&D margin from the September quarter was driven by similarly a larger contribution from Stablex?

Jeff Feeler

Rich, actually the sequential drop was more driven just from a waste mix criteria than anything to do with Stablex during the quarter. Just the material we took in, in the third quarter at a higher ASP out of U.S. landfill business and what it did in the fourth quarter and it primarily is just the type the material that came through the gate.

Rich Wesolowski – Sidoti & Company

Are there any numbers you can offer to communicate the recent or 2012 improvement for Stablex, the potential for more relative to the year one, I know you don’t pack out individual sites but it’s tough for us to discern how well it’s doing compared to what it was?

Jeff Feeler

Yes, Rich we don’t provide site by site financial details, as you can imagine. What I will say is we continue to be pleased to the Stablex acquisition and believe it will be a significant contributor to future growth. The quarter-over-quarter and year-over-year improvements at the facility are really driven from just increased operational efficiencies and improvements, permit expansions, and the market is up there have improved.

Rich Wesolowski – Sidoti & Company

Okay. Last subject on the thermal, I believe Eric has stated it was a 29% jump in thermal volume from a year ago, by my math that would put you comfortably above 11,000 tons for the December quarter. Is that accurate and if so, has there been a change in the capacity of the unit?

Jeff Feeler

Yes, this is Jeff. We did do over a 11,000 tons through the unit. As we’ve talked about capacity on the unit, it’s really driven by the mix, the material that came in, and during the fourth quarter we had a great mix of material that came into that unit with good pricing. And that has allowed us to generate better results that we saw in the fourth quarter.

Rich Wesolowski – Sidoti & Company

Lastly, if you would mind up telling us about your efforts to secure the permits to expand thermal operation or extend the operational hours at the Corpus Christi site? Thank you.

Jeff Feeler

Yes, I’ll let Simon address that.

Simon Bell

Hi Rich. Yes, we’re in the process currently preparing the RCRA Permit for our thermal operations. And we’re on track to submit this application by mid 2013. The amount of time it will take to attain approval for this RCRA Permit associated with our thermal operations is influenced by multiple factors including, agency review and the levels of public interest. So it can be quite difficult to give a specific timeframe but certainly we will have that application in by midyear.

In terms of the RCRA Part B renewal which applies to the site-wide [ph] operations, we initiate that process in 2011 and we appear to be on track to have that permit by year-end.

Rich Wesolowski – Sidoti & Company

Great, I appreciate your time. Thank you.

Jeff Feeler

Great, thank you.

Operator

Your next question comes from the line of Brian Butler with Wunderlich Securities. Please proceed.

Brian Butler – Wunderlich Securities

Good morning, thanks for taking the questions.

Jeff Feeler

Good morning, Brian.

Brian Butler – Wunderlich Securities

First one, just on the Event pipeline, I know in the past you’ve talked about some larger kind of mid-sized projects, kind of getting close to finalization. Can you give a little update on where the pipeline stands and where you stand on a couple of those projects?

Jeff Feeler

I’ll start out and I’ll let Steve fill in a little bit on this. The pipeline as we enter 2013 just remains really strong. There are several projects we won towards the end of the year, that began shipping in the first quarter, pretty sizable, they’ll be shipping throughout the year.

With regard to the rest of the pipeline there is a lot of opportunities that continue to be out there. And we’re very optimistic and believe that we’re going to land out share [ph] those that will drive good growth in our Event business. Steve, is there anything else that?

Steve Welling

That’s a little bit different this year than prior years as we have multiple contracts, projects that are moving currently that are projected to move over the rest of the year. Lot of years we’ve ended the January where we have a lot of unknown in our budgets, we still have unknown in our budget so we have more contracted in 2013 I think in any prior year that I can remember.

Brian Butler – Wunderlich Securities

Okay, that’s good to hear. And then thinking about your guidance for 2013 and new kind of industrial – I should say an industrial capacity has kind of coming online through the market. How aggressive you guys have been in putting that kind of growth in your 2013 guidance, I mean what – I am just kind of looking little bit more color on what’s built in on the business trends for 2013?

Jeff Feeler

Yes, Brian, I’ll try to address this. As you can imagine, just developing the guidance, there is a lot of variable that goes into that and our approach to the guidance is consistent with our past practice. And that’s where we really take our detailed budgeting process and finding process which really looks at regional economic conditions, business that’s been awarded. It’s really the project pipelines and other factors to assess our earnings level.

At the lower end, I would say it’s more impacted from lower government spending considerations that are out there and then on the upper end, it really reflects some higher levels of Event business. From the Base business side of the equation, we really expect the Base business to be growing mid single to lower double-digits. We’re going to be cycling some difficult comp periods in 2012 and so those gross rates are definitely going to see some contraction.

Brian Butler – Wunderlich Securities

Okay. And maybe one or two more, you talked about the government contracts or government – lower government spending, what’s the right way to think about the Army Corps contribution in 2013? Is that still to be thought of as kind of flat lined or is there a little opportunity there?

Jeff Feeler

Yes, actually it’s one of the areas that we continue to monitor and it’s one that we think that we’re going to see headwind just with all government programs. It’s not something that’s given today, but as we look out we’re cautious in that area. I would expect U.S. Army Corps revenues to actually decline year-over-year and that’s really what’s factored into our guidance.

Brian Butler – Wunderlich Securities

Okay. And then one last one, on the hematite volumes, you said we’re going to be up in 2013. Is this the last year of really shipping or taking in volumes from that project or is there a little bit longer tail on it?

Jeff Feeler

Sure, I’ll let Steve address to that.

Steve Welling

We are currently in, what they call, phase one of the project which should go most of all of 2013 and we’re expecting the second exemption to be approved by NRC in March, which would then allow us to move into phase two which should go through hopefully beginning or at least the middle of 2015. So we have a couple of years ahead.

Brian Butler – Wunderlich Securities

Is that – the size of phase two from a kind of an annual perspective kind of the same pace as phase one or does it change?

Steve Welling

Similar volume on phase two, so we should be seeing pretty much very similar volumes in 2014 to what we’re seeing in 2013.

Brian Butler – Wunderlich Securities

Great, thank you very much.

Jeff Feeler

Thank you.

Operator

(Operator Instructions) And you have a follow-up question coming from the line of Rich Wesolowski with Sidoti & Company. Please proceed.

Rich Wesolowski – Sidoti & Company

That was quick. Is the company taking much non-hazardous waste from fracking activity? This was a factor in the September quarter if I remember. I was wondering if that was a one-off?

Jeff Feeler

Yes, actually we did take up volume in the second quarter, not in the third quarter but from – for the fourth quarter perspective, we really didn’t take significant volumes from fracking operations down in the Eagle Ford Shale. This Texas facility is as well positioned to compete for opportunities down there. What we really saw in the second quarter of 2012 was the volumes came in from Event project, pipeline spills, other usual contaminant levels that really not allowed it at solid-waste landfills.

As the industry here matures and disposal regulations really come out with regard to these operations down there, I think we stand well positioned to benefit from these opportunities.

Rich Wesolowski – Sidoti & Company

Shifting to oil and gas up in Eastern Canada, Suncor suggested they are going to be updating their Montreal refinery. Does that create any opportunities for you in Blainville, is that on your radar screen?

Jeff Feeler

Steve, you want to address that?

Steve Welling

Rich, I am not totally familiar with what they are doing there, but we do work with refineries at our Stablex facility, so any upgrades or improvements most likely will create opportunities for Blainville. And I definitely – now you’ve brought that up, we’ll be checking into that. So thank you.

Rich Wesolowski – Sidoti & Company

Does the company have any opportunity related to the decommissioning of coal-fired power plants?

Jeff Feeler

Rich, if those opportunities, if they truly decommission them and dismantle them, there is a lot of hazards around those facilities and we’d be able to – it creates opportunities for us to bid for that work and compete for that work.

Steve Welling

We’ve been tracking the regulations but – proposed changes, but nothing at this point is a real opportunity for us now, hopefully that will change next year whatever the regulations actually are effective.

Rich Wesolowski – Sidoti & Company

Right, I understand it’s a long dated question, but if and when they do, there is a lot of PCBs and other things they will have to cleanup I imagine?

Steve Welling

We believe so.

Rich Wesolowski – Sidoti & Company

Okay. Would you lastly relay any progress the company has made in appointing a new CEO?

Jeff Feeler

Sure Rich, as our Chairman indicated last quarter upon announcement, the Board is not conducting a search for CEO at this time. The Board has high confidence level in the current management team and its ability to execute on our business strategy. I can tell you that myself and the rest of the management team are excited about driving 2013 with a support of the Board and that we’re focused on it.

As for transition period, permanent appointments anything like that, there is really been no timetable set.

Rich Wesolowski – Sidoti & Company

Great. Again thanks a lot. I appreciate and best of luck for the rest of the year.

Jeff Feeler

All right, thank you.

Operator

Your next question comes from the line of Rob Dillon [ph] with Cowen & Company. Please proceed.

Rob Stone – Cowen & Company

Hi it’s actually Rob Stone. Good morning gentlemen.

Jeff Feeler

Good morning.

Rob Stone – Cowen & Company

Just a couple of questions on your CapEx spend for the year. Can you provide any color on how you expect that to be spread over the quarters?

Jeff Feeler

Yes, I’ll try to address that, I mean we tend to see not the landfill construction happened in really the starting – really in the first – late first quarter and into the second quarter. And that’s where a vast majority of the expenditures are coming in. We’ve already acquired the property in Texas and that happened in the first quarter. So I would expect it to be front half loaded with the trailing off in the second half.

Rob Stone – Cowen & Company

Okay. How should we think about your run rate operating expenses excluding some one-time items that you had in the fourth quarter?

Jeff Feeler

So when you’re saying operating expenses you are more in particular SG&A or?

Rob Stone – Cowen & Company

Yes, exactly.

Jeff Feeler

Okay. I’ll let Eric address that one.

Eric Gerratt

Yes, Rob I think in the 2013 and as you mentioned there is some items that were unusual and we don’t expect to recur in 2013. Qualitatively, there is not really any major increases that we’re expecting in 2013. We have some new headcount positions here and there, but nothing significant so we’re really looking at it to be kind of normal inflationary increases excluding those non-recurring items in 2012.

Rob Stone – Cowen & Company

Can you say how much approximately the one-time element of SG&A was in fourth quarter?

Jeff Feeler

Well it would be more for the year. It was probably somewhere between $1.5 million to $2 million.

Eric Gerratt

Yes. That’s about right.

Rob Stone – Cowen & Company

And finally on the revision to the credit line, any other significant change in terms and what the effective rate?

Jeff Feeler

Eric, why don’t you address that?

Eric Gerratt

Yes Rob, really no significant changes in terms – really one of the big shift was our regular line of credit was set to expire in June of this year, so we extended that to November and then we increased the reducing revolving line of credit by an additional $20 million to put that back to up to $75 million, but the rest of the terms remain the same and we don’t expect to change in the rate. The rate schedule is still the same under the amended agreement as it was under the previous agreement.

Jeff Feeler

Yes, and more specifically on the rate, I mean it’s a very favorable rate, we pay margin over LIBOR and the effective rate for the year was like 1.5%.

Rob Stone – Cowen & Company

Good. All right, thanks very much for taking my questions.

Eric Gerratt

Thank you.

Operator

Your next question comes from the line of Tim O’Toole with Tetra Capital Management. Please proceed.

Tim O’Toole – Tetra Capital Management

Yes, good morning. I had a couple of things to follow-up on that hasn’t been covered so far. The first relates to Clean Harbors’ acquisition of Safety-Kleen. I was wondering how much volume that you do with them and what channels that would come through if it’s all broker and some refinery or however you categorize it, and the degree, well that’s going to be – they’ve stated they want to internalize lot of that, I am sure that that’s going to be regional decision just in terms of shipping it all over the place, so I am wondering how much you expect to retain in the kind of timeline for backfilling that? And then the second question would be, I wonder if you could a talk a little bit about refinery schedules locally to your facilities, refineries had very good margins which means they can afford to do turnarounds and you mentioned some increases in planned capacity adds, I am wondering if there has been some delays also in terms of trying to milk the higher spreads and first quarter, second quarter what the refinery turnaround schedules look like and how that might benefit you in terms of incremental revenues there? And then a third area that’s kind of a much longer term dynamic that maybe you could speak a little bit more about is, there is some discussions looks in the industry about potentially taking some older or aging or less efficient potentially or less scalable nuclear facilities offline with natural gas staying where it is, at low level, that maybe not this year in fact maybe you could talk about timeline also but if one or two or three of those over the next one, two, three, four, five years looks to be decommissioned. I am wondering if you could tell us how much your radiation – radioactive disposal revenues look like today and what that could do to revenue streams there over the next – over the coming years? Thanks very much.

Jeff Feeler

That was a lot of questions in there. I am going to let Steve, start addressing of our backfill. Make sure we address all your questions.

Tim O’Toole – Tetra Capital Management

Okay, thanks.

Steve Welling

So let’s start with Safety-Kleen. So Safety-Kleen revenue was shown up under our broker revenue in prior years. They have been under 1.5% of our total revenue. So important valuable customers, we do expect that Clean Harbors will internalize some of the waste streams we’ve been getting and we are working on couple of things, we’re working on – working with Clean Harbors, number one, to determine what volumes we can keep because we know that their preference would be to internalize what they can, it makes sense they have their own landfills, but there are going to be streams that there is continued need for our services, Clean Harbors is a customer of our company even though they are also a competitor.

And we will work with them to and protect whatever we can protect, but I think the key point is they were our number seven broker. We had six larger brokers than that and less than 1.5% of our revenue.

Tim O’Toole – Tetra Capital Management

Great, thank you for that.

Steve Welling

Okay, next one was on refinery and thermal market. Somewhat of a difficult answer because what we’ve seen in prior years is generally when refineries are extremely busy, they don’t take the time to pull tanks out of service because there is such a high demand for the gasoline, so what you’ll see is in the summer months for example, there is usually less thermal and refinery waste stream volumes than there is maybe in the fall, after the summer season is over.

Right now, we’re seeing high production levels, and at the same time we’re continually busy. So the trend is different than it’s been in prior years. We’re still trying to get a bit, put a handle on that. All I can tell you is the market is strong. We’re looking at price increases and we’re not seeing a drop off. Does that answer somewhat what you’re looking for?

Tim O’Toole – Tetra Capital Management

Well it kind of does but you actually touched on some of the dynamics, they tend to hold – when spreads are really good and they are really busy, they tend to hold off for a long time on turnarounds in general which they are going to incorporate some of the tank work obviously, but at some point I think regulatorily they have to get to some of the turnaround work. And I am just wondering if there is kind of a take going through the python at this point and as you mentioned seasonally it tends to be at sync [ph] first quarter and somewhat in the early part of the second quarter, but in advancing and sitting with table for driving season and that kind of thing. So I was just wondering if you are – have you had some visibility to an increased level of work coming your way or maybe you’re seeing it ratably and they continue to kind of hold things off and I am just kind of wondering about that dynamic?

Jeff Feeler

What I can tell you right now is we service refineries in two different ways. We handle landfill type streams for stabilization and capsulation and direct landfill. Those we would hope would increase project work throughout the summer. Thermal however, we’re pretty much running near capacity and we’re hoping to stay at capacity for the rest of the year. So the opportunity to grow dramatically in thermal even if there is more refinery work out there, it’s going to be difficult for us to capitalize on there right now until we have our new permit and our new treatment capabilities.

Tim O’Toole – Tetra Capital Management

Yes, I think you touched on the timing of that, would you remind me what that was?

Jeff Feeler

I’ll let Simon answer that.

Simon Bell

Yes, we’re going to be submitting the RCRA Permit and that should be prepared by Q2 of 2013, say mid-2013. What’s more difficult is to predict how long it takes to get to obtain approval on that permit. It can range quite a bit depending on regulatory reviews and the levels of public interest. So it’s a tough one to really give a specific date, but I can say we’ll be submitting here by mid-2013.

Tim O’Toole – Tetra Capital Management

What seems to be typical although, is it a quarter or is it all – does that go into some of the morass [ph] or does it relates to some of the morass that [ph] – can be the EPA if they decide that they don’t want capacity anymore?

Simon Bell

A lot of influencing factors but it can take as little as six to nine months, it can take as much as say two years. It really depends on the level of complexity, the level of public interest and certainly we’ll do everything within our control to expedite the process and to make sure that the submittal was technical complete thereby making it the shortest timeframe possible.

Tim O’Toole – Tetra Capital Management

But the near term dynamics sounds like – that backdrop in terms of pricing sounds like it makes the pricing in the thermal area potentially quite robust as they can get tired and people are looking for homes for that?

Jeff Feeler

Correct. That’s correct.

Tim O’Toole – Tetra Capital Management

Okay, thanks very much for that.

Simon Bell

And then the – you want me to remind me of your question, on the nuclear business one more time?

Jeff Feeler

Small facilities coming off, because of the lower price of natural gas.

Tim O’Toole – Tetra Capital Management

Yes, exactly and just a lot of these things are very old and locally folks are scratching their head whether it makes sense to put more money into them and go through – jump in incremental regulatory hoops when the backdrop there seems like the (inaudible) just to see them go away they can.

Jeff Feeler

Yes, this is Jeff I’ll just address that. If more of these clients come offline, it creates a better opportunities for us. As they come offline, it takes many years for them to actually get into a place where we would actually receive waste on them plus we have to go through the exemption process and other things but it does create long-term opportunities for us and it is good for our business.

Tim O’Toole – Tetra Capital Management

Right, okay. But it is – I am right and that is that tends to be very long timeline, you are speaking about the Westinghouse dynamic and obviously you have a very good visibility now that it’s sort of established in the tables that some of these things are just – people are just beginning to scratch their head about the dynamics for what they are going to do about and when. Okay, that’s awesome, thanks very much for the feedback.

Jeff Feeler

Thank you.

Operator

Your next question comes from the line of Edward Heil [ph]. Please proceed.

Edward Heil

Gentlemen?

Jeff Feeler

Good morning, Ed.

Edward Heil

Good morning. First of all I want to thank everybody for such a good year under some pretty adverse conditions doing such a terrific job?

Jeff Feeler

Thank you.

Edward Heil

I just have one question. You gentlemen have been doing pretty good. It looks like a good year ahead of us also and the shareholders would be looking at any increase in dividends?

Jeff Feeler

Well Ed, as you know we evaluate our dividend policy on an annual basis and the Board will continue to evaluate that and look at our capital allocation and what’s best for our shareholders, whether redeploy those funds back into the business and grow through capital appreciation or giving it back to the shareholders then and we’ll be reviewing that process. At this time, we have no intention of cutting the dividends, but we’ll definitely be looking at what the proper level is on a go-forward basis at the – probably in the May timeframe.

Edward Heil

As you know as shareholders are very happy with the dividend that you have now and of course as the company does better, a little increase always makes us even more happy, but thank you again.

Jeff Feeler

Understand. Thank you so much, Ed.

Operator

(Operator Instructions) There are no further questions in the queue at this time. I would now like to turn the call over to Jeff Feeler for closing remarks.

Jeff Feeler

All right. Well I want to thank everybody for joining the call today and the interest in the company and we’ll look forward to talking with you at the Q1 call. Thank you so much.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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