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US Ecology, Inc. (NASDAQ:ECOL)

Q3 2010 Earnings Call

October 26, 2010; 10:00 am ET

Executives

Jim Baumgardner - President & Chief Executive Officer

Jeff Feeler - Chief Financial Officer

Steve Welling - Senior Vice President of Sales and Marketing

Simon Bell - Vice President of Operations

Analysts

Rich Wesolowski – Sidoti & Company

Ted Kundtz - Needham

Patt Mclaughlin – UBS

Michael Hoffman – Wunderlich Securities

Edward Walbridge – Aragon LLC

Operator

Good day ladies and gentlemen, and welcome to the Third Quarter 2010 US Ecology Earnings Conference Call. My name is Michelle 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. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn your conference over to your host Mr. Jeff Feeler, Chief Financial Officer. Please proceed, Sir.

Jeff Feeler

Good morning. Joining me today is President and Chief Executive Officer, Jim Baumgardner; 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 by 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 other forward-looking statements whether as a result of new information, future events or otherwise.

For those joining by webcast, we will have momentarily our presentation up live; we are having some technical difficulties. For those, you can access our webcast on our website at www.usecology.com in the intervening time.

With that, I will now turn the call over to Jim Baumgardner.

Jim Baumgardner

Thank you, Jeff, and good morning everyone. I’ll start this morning’s call with a quick overview of the quarterly results released earlier today, and then I’ll turn the call back to Jeff to give a more detailed review of the financial statements. Also I have Steve Welling, our EVP of Sales, provide a general market update, Simon’s going to update us on our capital spending initiatives. And then I’ll provide an overview of our business outlook for the remainder of 2010. And close our prepared remarks with an update on the pending acquisition of Stablex and the Siemens facility in California.

After our prepared remarks, we will open the call up to questions and comments. For those following along on the PowerPoint presentation, as soon as it’s available, I’ll refer you to slide five for the third quarter highlights. Much like we had anticipated, the third quarter of 2010 saw substantial improvement over the first two quarters. For the third quarter of 2010, net income was $3.9 million or $0.22 per diluted share, as compared to $4.2 million or $0.23 per fully diluted share posted in the third quarter of 2009. The third quarter of 2010 included approximately $500,000 of business development expenses associated with the pending acquisitions were about $0.02 per share.

During the third quarter, we disposed 237,000 tons of material equally in the total volume disposed in the entire first half of 2010. The higher revenue in volume resulted from the GE Hudson River project, shipments under our Army Crop contract and several other smaller to mid size cleanups that shipped during the quarter.

While Base business was down 3% during the quarter as compared with the third quarter of 2009, full year-to-date Base business was relatively flat. Our Event business was up 14% during the quarter when compared to the third quarter last year due to contributions from the previously mentioned GE contract, Army Crop contract and various other projects.

Jeff will provide more details on the financials in a minute, but I wanted to give you a quick status on our pending acquisitions. First, our pending acquisition of Stablex Canada is progressing well and we expect the transaction to close this coming Friday. That means this time next week, we expect to own the Stablex treatment and landfill near Montreal, Canada.

The more we learn about Stablex, the more excited we are to add this premier hazardous waste facility to the US Ecology family facilities, in particular we have been impressed with the people and their commitment to the business.

Our acquisition of the Siemens hazardous liquids treatment facility near Los Angeles and Vernon, California is also progressing, albeit, more slowly that we like. There are several conditions that need to be met prior to closing including regulatory approval and the resolution of a minor environmental matter. But we continue to believe that this acquisition will close by the end of the year, however, closing is depended upon a couple of matters that are currently outside our control.

We are very excited to add these two top-notch facilities to our family of facilities, but I will give you a little more on that later. For now, I will turn the call back to Jeff to provide a more detailed review of the financial results released earlier today. Jeff?

Jeff Feeler

Thank you, Jim. As you can see on slide six of today’s presentation, third quarter 2010 revenue was $26 million as compared to $37.5 million in the third quarter last year. This reflects a 69% quarter-over-quarter decrease in transportation service revenue partially offset by a 2% increase in Treatment and Disposal revenue. The decline in total revenue was primarily a result of the completed Honeywell project in October 2009, while we provided both transportation and disposal services.

Honeywell contributed $16 million or 43% of total revenue in the third quarter of 2009. The increase in Treatment and Disposal revenue was a result of an 18% increase in volume, partially offset by an approximate 13% decline in average selling price. The average selling price decline was a result of continued pricing pressure in our thermal recycling services and a higher percentage of direct landfill disposal.

As Jim noted, Treatment and Disposal revenue from recurring customers or Base business decreased 3% in the third quarter of 2010 over the same quarter last year, a decrease shipment from our refinery and broker customers.

Event business was 14% higher in the third quarter of 2010 in the same quarter last year reflecting the GE Hudson River project, increased shipment under the US Army Corps contract and other smaller remedial project activity. When revenue from Honeywell is excluded from the third quarter 2009 results, our Event business increased to 122% over the same period last year.

On slide six, you can see that Base business represented 53% of our total treatment and disposal revenue in the third quarter of 2010. This compares with 57% in the third quarter last year. Event business, which has been more significantly impacted by the adverse economic conditions increased nicely to 47% of Treatment and Disposal revenue in the third quarter of 2010.

Slide seven breaks down our Treatment and Disposal revenue for both Base and Event business by customer category. Our government cleanup business increased 60% during the third quarter of 2010 over the same quarter last year. This reflects increased shipments under the Army Corp contract as well as Field Services contract, where we provide them logistics and project management oversight brokerage disposal services to an alternative disposal facility.

Total revenue from the Army Corp, including transportation services, increased to $5 million during the quarter or 19% of total revenue. This compares to $2.2 million or 6% of total revenue in the same quarter last year.

When backing out transportation related services, Treatment and Disposal revenue from the Army Corp was 49% higher in the third quarter of 2010 compared to the same quarter last year, which we believe reflects timing. On a sequential quarter basis, Treatment and Disposal revenue from the Army Corp increased 21% in the third quarter of 2010 with that of the second quarter this year.

Our waste broker business increased 18% in the third quarter of 2010 over the same quarter last year. This increase was a result of more thermal recycling jobs being sold to waste brokers during the quarter than in the third quarter of 2009. Excluding our brokerage thermal recycling project, our broker business was up 9% in the third quarter of 2010 as compared to the third quarter of 2009.

Our other industry customers, includes electric utilities, steel mills, chemical and technology manufactures and other non-broker industry. Third quarter Treatment and Disposal revenue from our other industry customers increased to 11% over the same quarter last year. This increase reflects higher shipments across the broad range of industrial based customers including higher [Inaudible].

Our rate regulated business in Richland, Washington was down 1% in the third quarter, this quarter, compared to same quarter last year. This increased reflex timing of revenue recognition. Treatment and disposal revenue from private cleanup events decreased 31% in the third quarter of 2010 over the same quarter last year. This largely reflects the completion of the Honeywell cleanup site partially offset by revenue earned from GE Hudson River cleanup project and other smaller remedial project.

Our refinery business declined 34% in the third quarter of 2010 over the same quarter last year. This reduction reflect more brokerage thermal recycling jobs during the quarter then those being forced directly with the customer. Thermal recycling pricing pressure also had a impact on lower revenue in the third quarter of 2010 compared to the same period last year. Continuing on to slide eight, gross profit was $10.4 million in the third quarter of 2010 compared to $10 million in the third quarter of 2009.

Gross margin was 40% in the third quarter of 2010 up from 27% in the same quarter last year. This quarter recorded gross margin improvement was due to lower levels of pass-through transportation service revenue and normal service mix. Treatment and disposal gross margin for the third quarter was 51% and 46% for the third quarter of 2009. This increase reflects the operating leverage resulting from an 18% increase in disposal volume and normal service mix. Selling, general and administrative spending or SG&A was $3.9 million in the third quarter of 2010 compared to $3.2 million in the third quarter last year.

SG&A for the third quarter of 2010 includes $500,000 of business development expenses related to our recently announced acquisition. Our effective income tax rate for the third quarter was 39.3%, down slightly from 39.6% in the same quarter last year.

Turning to year-to-date results on slide 10, revenue for the first nine months of 2010 was $65.4 million, down from $108.9 million in the first nine months of 2009. Revenue contribution from the completed Honeywell project represented $50 million in the first nine months of 2009. Excluding Honeywell, total revenue was up 11% during the first nine months of 2010 over the same period last year.

Base business was flat in the first nine months of 2010, when compared to the same period last year. Event business, which includes the Honeywell project, declined 23%. Excluding Honeywell, Event business was up 44%, with growth in our other industry, broker and government customers.

Slide 11 breaks down both Base and Event business by customer category. Revenue from our government customers increased 28% as a result of the field services job discussed earlier and increased shipments from the Army Crop. Year-to-date 2010 Treatment and Disposal revenue from the Army Corp was up 14% over the same period last year.

Our other industry category grew 22%, reflecting a remedial cleanup project with an aluminum manufacturer that was completed in the second quarter of this year and increased shipments from numerous industrial customers. Our broker business was up 11% in the first nine months of 2010 over the same period last year. Revenue from our refinery customer base was down 19% in the first nine months of 2010, as compared to the same period in the prior year. This decline reflects the continued pricing pressure on the thermal recycling service partially offset by increased volumes.

Our private cleanup customer category was down 75%, reflecting the completion of the Honeywell contract last year. Continuing on to slide 12, gross profit was $24.1 million in the first nine months of 2010, compared to $28.6 million in the first nine months of 2009. Gross margin was 37% in the first nine months of this year, up from 26% in the same period last year. The gross margin improvement was due to lower pass-through transportation service revenue.

Treatment and Disposal margin for the first nine months of 2010 and 2009 were 45%. In the first nine months of 2010, we disposed 474,000 tons of waste as compared to 642,000 tons in the first nine months of 2009. 2009, we had disposed 281,000 tons from the Honeywell project.

Excluding Honeywell from the prior year, volumes have increased year-to-date by 113,000 tons or 31%. SG&A was $10.9 million for the first nine months of 2010, compared to $10.2 million in the first nine months last year. SG&A expense for the first nine months of 2010 include $562,000 in business development expenses and a cumulative $497,000 charge related to our regulatory fine discussed in previous quarters.

Excluding our business development activity and regulatory fine from the first nine months of 2010, SG&A would be 4% lower reflecting lower sales commissions and labor costs. Our effective income tax rate for the first nine months of 2010 was 40%, up from 39.7% in the same period last year. This slight increase primarily reflects the regulatory fine and business development expenses that are not deductible for income tax purposes.

Slide 14 summarizes our financial position and return metrics. At September 30, 2010, working capital was $32.3 million. We exited the quarter with $30.4 million in cash and continue to have no term debt. Our return on invested capital for the 12 months ended September 30, 2010 was 13.8% and our return on total assets was 8.4%. At September 30, 2010, we had $16 million available on our $20 million line of credit; the remaining $4 million is pledged as collateral for closure and post-closure financial assurance obligation. As summarized on slide 15, we continued our quarterly dividend program on October 22, distributing $0.18 per share or $3.3 million to our stockholders.

With that, I’ll turn the call back to Jim.

Jim Baumgardner

Thank you, Jeff. I’d like to turn the call over now to Steve Welling, who will provide just a general overview of the market and business in the quarter of year-to-date. Steve?

Steve Welling

Thank you, Jim. Please refer to slide 16, I’ll provide an overview of current market conditions. As discussed last quarter, we are seeing an improved pipeline of project work that resulted in increased disposal volumes during the third quarter and is continuing this quarter. New projects are from a variety of industries and government cleanup sites including the Department of Defense, various public utilities, USEPA, mining industry, chemical industry and a number of other private industry cleanups.

During the quarter, we successfully utilized our rail fleet on multiple bundle transportation and disposal jobs into both our Idaho and Texas facilities. We are also receiving new project waste streams via a variety of different shipment modes including gondola rail, intermodal container, rail boxcars, ocean, barge, rail and truck.

In Q4, we are currently kicking off a number of new projects that were delayed in Q1 and Q2, but are now finally moving. Our Base business waste volumes showed some softness during the third quarter declining 3% when measured against the same quarter last year and declining 4% compared to the second quarter of this year. However, our year-to-date Base business is flat compared with the same period last year.

Looking to the fourth quarter, we are continuing to see a healthy pipeline of bidding activity for both project and Base business that we believe will materialize into disposal volumes in coming quarters. Thermal recycling services continue to experience pricing pressure with little improvements. However, pricing for our landfill business remains competitive but stable.

We’ve also been working to position ourselves for new Base business and project work in 2011 by establishing new master service agreements with select Fortune 500 companies. We expect these new national contracts will lead to business and incremental revenue in 2011.

Lastly, our company is expanding its approved outlet network for off-site waste services and this will further enhance our total package service offering and allow US Ecology to provide an additional solution for our existing customers.

And with that, I’ll turn it back to Jim.

Jim Baumgardner

Thank you, Steve. I’d like to have Simon now to give us a quick update on our capital projects on spending initiatives.

Simon Bell

Thanks Jim. We expect 2010 capital expenditures to approximate $14 million; this is down from our previous estimate of $15.6 million to $16.6 million. This decrease is related to the timing of ongoing construction projects that will now be completed and partially paid for in the first quarter of 2011.

So far this year, we have spent approximately $9 million on new capital projects. This includes the completion of new landfill capacity on our Texas facility and our new treatment facility in Texas that is substantially completed and expect to begin service later this year.

This new facility will increase our treatment capacity and capabilities in Texas providing us with an additional platform to build our growing Texas treatment business. Further, we are also initiating construction of a new catalyst handling system at our Texas site in Q4 that is expected to be completed in Q1 2011. This will substantially improve operating efficiencies and provide new capabilities during the recycling of catalyst in Texas.

These improved efficiencies and capabilities will allow us to address new catalyst recycling markets not currently compatible with our current handling system. New landfill construction is also underway at our Nevada site and is expected to be completed in Q1 2011. The construction of this additional landfill capacity has been driven by higher than expected disposal volumes during the last three or four months causing us to accelerate the scheduled expansion into Q4 2010.

We are confident in the investments we are making in improved and expanding infrastructure will have a positive effect in our business three years to come.

And with that, I will turn the call back to Jim.

Jim Baumgardner

Thank you, Simon. For those of you following on in the webcast, assuming it’s up there, I will ask you to turn to slide 18 as I discuss the remainder of 2010. The first nine months of 2010 has largely gone as we expected with quarterly improvements in volume and the Event business returning in the second half of the year. The improved pipeline of Event work that we talked about last quarter materialized in the higher disposal volumes in the third quarter. Base business was a little soft; I wouldn’t read too much into that.

We expect it to continue to bounce along the bottom until there is a pick up in the general economy. We believe our Base business is closely tied with general economic activity in industrial output. Until we see more improvement at the macroeconomic level, growth in the Base business is going to be limited.

As Steve mentioned, our pipeline for Event work remained healthy going into the fourth quarter. But risk remains in the projects we delayed as we experienced in the first half of the year. However, thus far we believe we will deliver on a solid fourth quarter. Overall, the market for environmental services does not seem to be getting any worse, although market conditions continue to be a bit irregular. It’s clear that our customers continue to face uncertainties, which caused them to be cautiously deliberate when it comes to engaging in activities that drive waste volume, like increased production levels, plan expansion and cleanups.

However, we take the improvement in the Event business as a very good sign. Despite the market risk that exists, we believe we will achieve our previously issued guidance between $0.57 and $0.67 per fully diluted share. Excluding the costs associated with closing on the two pending acquisitions, we anticipate business development costs for these two acquisitions will total approximately $3 million for the full year. We are about $0.14 per diluted share. Unfortunately, a significant portion of these one-time business development costs are not deductible for income tax purposes and will push our full-year effective tax rate to approximately 44%.

As I mentioned earlier, we are moving forward to acquire all of the outstanding stock at Stablex Canada, we expect to close this week. We have mobilized our management team and we have expended significant time and effort on transition planning and integration efforts. As I noted in my opening comments, the more we learn about Stablex, the more we like the business. The more we think we can do with it, we are convinced, more than ever that the combination of US Ecology and Stablex will create a formidable North American hazardous waste company.

While the Siemens acquisition is moving a bit more slowly, we still anticipate closing before year end. The addition of this Vernon, California facility will increase our penetration of the largest west coast industrial market and will drive additional volumes to our Beatty, Nevada facility while growing a local niche business. This also gets us closer to key customers in a very important market.

This is a very exciting time for US Ecology and we are about to add two very high-quality assets to our portfolio businesses providing us the increased service and geographic mix that we have long sought. As a result, we are extremely bullish on the long-term outlook for our company. We believe we are uniquely positioned to take advantage of improving market conditions.

Remember, during this down cycle, due to our strong financial condition, we have continued to invest in our waste handling infrastructure as Simon noted and we made the investment in these two premier facilities.

It’s our intention to close and integrate these assets to ensure that they are in place and ready to respond to stronger economic activity that we expect to see in 2011. We remain focused on those things that we control such as customer service, controlling our cost, building a robust waste handling infrastructure and improving our service offering. With the addition of these facilities, we enter 2011, better positioned to capture an increasing share of what we expect to be an improving hazardous and radioactive waste market next year.

2010 and 2011 will be remembered as pivotal years for US Ecology as we extend our successful business strategy of driving volumes with these additional high-quality assets. We can’t tell by now, we’re pretty excited and optimistic about our future and our ability to deliver sustainable, long-term shareholder value.

With that, I will now open the call up for questions.

Question-and-Answer Session

Operator

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

Rich Wesolowski – Sidoti & Company

Thank you. Good morning everybody.

Jim Baumgardner

Good morning.

Rich Wesolowski – Sidoti & Company

Jim, earlier in the year, you discussed a pick up in Event-driven bidding which clearly translate here in 3Q earnings. Is the bidding as strong today for event work as it was earlier in the year?

Jim Baumgardner

I’ll let Steve answer that. I mean, we continue to see activity, is that right Steve?

Steve Welling

The Event bidding activity, the last few months has been stronger than the first half of the year and that’s what is translating into additional volumes in Q3 and Q4.

Rich Wesolowski – Sidoti & Company

Okay. So, it sounds like there is a pretty quick turnaround time between when you bid these and when you recognize them in earnings.

Steve Welling

Correct, we’ve been seeing for the six-week turnarounds where we did a job and then they’ll start moving the waste that quickly.

Rich Wesolowski - Sidoti & Company

Okay. And then on the Base business, you gave a very broad overview that it’s going to trend with the industrial economy, but would you relay to us what your customers are saying, maybe highlight a couple of sectors that are stronger or weaker than others, and how you translate that to your own volume expectations for 2011?

Jim Baumgardner

Yes, let me start out with a general comment, then I will let Steve kind of little more specifically talk of the customer side of it, but I wouldn’t read too much into this slight decrease in Q3 Base business.

I mean, we see variability in the Base business a lot. So, I think that, again I really would characterize our Base business, we are not losing market share, our relationships remains strong and it’s kind of bouncing along the bottom. In fact, Steve indicated and maybe you can elaborate a little more Steve, that we are actually bidding a fair number on new Base business opportunities.

Steve Welling

Rich, it’s also somewhat of a timing issue, even though we say it’s base business, it’s not necessarily where customer shifts are drawn every week. I mean, there’s definitely some timing issues. In Q1, our base business was down a bit from ‘09, Q2 was up; Q3 is slightly down, so hopefully Q4 will be up.

Jeff Feller

And then, I think Rich’s second part of the question, Steve. Rich, could you--? The second part about what our customers saying would you restate that a little bit…?

Rich Wesolowski - Sidoti & Company

We are just highlighting perhaps a sector two -- that stick out is stronger then the rest and maybe one or two that are weaker.

Steve Welling

I know that steel business is up a bit. Brokers, generally it’s flat because they serve so many different industries. We are not hearing anything specific about brokers complaining or wining, there are certain industry sectors down. So, I can’t really pinpoint anything for you specifically.

Rich Wesolowski - Sidoti & Company

Okay. Separately, how much volume, if you care to say, that GE did in the quarter and how much is expected in total and is the job expected to be completed by the year end?

Jim Baumgardner

Well, as you know, Rich, we have a contract with GE and under the terms of that contract, we have a confidential agreement that limits what we can say about the projects. So, I don’t want to get in specifics about what exactly was shipped in the quarter while the project is ongoing. However, what I can tell you is, as we noted, it was almost $3 million of revenue for the quarter and the project is going to cross over into Q4, although we don’t expect it to have a material impact in Q4 there, but we will continue to receive waste in Q4 and we do expect it to be done by the end of the year after our contract expires at the end of the year.

I would note though the contract does have a provision that allows for the extension of the contract mutually agreed to by the parties.

Rich Wesolowski - Sidoti & Company

Okay. And then lastly, what is your revised estimate for maintenance CapEx when Stablex and Siemens are included in the mix and with the $2 million in CapEx pushed out into 2011, does that suggest maybe mid teens capital budget for 2011. Thank you.

Jim Baumgardner

I don’t know that we are prepared today. In fact, Jeff is shaking his head; no we are not prepared to talk about our plan for capital spending for 2011. I think, we still have a lot to learn about Stablex. Obviously, next week, we’ll be the owner of the company, we will be meeting with the management team in the next two months we will be evaluating the operations of the business along with the capital needs for next year. So I’m not sure we can speculate today on 2011 capital.

Jeff Feller

Yes Rich, we are just starting our budgeting cycle from a CapEx standpoint for the core US Ecology assets as well as the Stablex assets that will be coming on board. So, we will be in a better position really in Q4 and talk about 2011 to give those updates.

Rich Wesolowski - Sidoti & Company

Okay, appreciate it. Thank you.

Operator

Your next question comes from the line of Ted Kundtz of Needham.

Ted Kundtz - Needham

Yes. Good morning, everyone.

Jim Baumgardner

Hi, Ted.

Ted Kundtz - Needham

Could you cover, maybe could you talk a little bit about your outlook for Stablex?

Jim Baumgardner

Well.

Ted Kundtz - Needham

How your business is doing and maybe just a little bit color on your outlook?

Jim Baumgardner

We don’t own that company yet. So it’s kind of hard for me to, with any level of specificity, talk about the outlook. I can generally tell you, I think as we mentioned during our acquisition call that we expect to be able to grow their business. We continue to think that we can do a lot more with the asset and with the facility that’s been. I mean we are very excited. I know the sales force is excited about what we can do having a Northeast facility.

But beyond what we have already said in terms of what we think and, Jeff, could you remind us what we talked about in terms of our outlook for the next year for Stablex?

Jeff Feeler

Yes. So just a little bit more Ted on Stablex is in our announcement call we held back in September, we had reported that Stablex had about $39 million of revenue in 2009. From a 2010 perspective, they are on page to do about the same level. Looking forward, we do expect the Stablex acquisition to be accretive starting next year and continuing to grow beyond that.

Ted Kundtz - Needham

Terrific. Okay. Good reminder of that. How about the thermal desorption business, could you talk a little bit about the pricing environment there and what your outlook for that business is? Hopefully, it sounds like things have stabilized, but maybe now they have gotten a whole lot better but maybe could you update us a little bit?

Jeff Feller

Steve, go ahead.

Steve Welling

It has stabilized. We’re kind of at the bottom, they are on the pricing level right now and with the new catalyst handling system expected in Q1, that will allow us to go after some higher margin materials that hopefully will improve the ASP.

Jim Baumgardner

I would note that, I think, as Jeff noted in his comments that we did experience continued pricing pressure, what we’ve been experiencing all year for thermal, but volumes were actually up for us in the quarter, actually I think one of our best quarters we’ve had since we’ve opened the thermal unit from a volume standpoint. So and as Steve indicates, we are at the bottom on pricing, we are had a no bill [ph] we are going to walk away from what was pretty close to it, so...

Ted Kundtz - Needham

Alright. Okay. Is it contributing to the bottom line at all or is it penalizing results?

Jeff Feeler

Ted, it is actually contributing to the bottom line. It is still generating decent returns and we are still pleased with the technology and the service that we are offering there.

Ted Kundtz - Needham

Okay, great. And the last one, just going back to the GE outlook, when do they make the next -- when is the next decision point on whether they’re going to proceed with this or not or is it undetermined?

Jim Baumgardner

Well, I don’t know with specificity what decisions, if any, have been made about the next phase. I know the EPA, GE and other stakeholders have different opinions about the path forward, but to my knowledge, no decisions have been made about Phase II. Like I mentioned earlier, our contract runs to the end of the year. We have GE, US Ecology have the right to extend that contract, but as we sit here today we don’t have any commitment or schedule received from GE plan for 2011. And I just can’t speculate on what or when it could happen with that Phase II.

I know there is a lot of, like I said, I probably get three emails a week with different intelligence reports about what’s going on with Phase II, so I think it’s still up in the air and I just don’t know what the timeline for revolution is. I don’t know, Steve if you have anymore information on that.

Steve Welling

It’s not finalized at this point.

Ted Kundtz - Needham

Okay, guys thanks very much.

Jim Baumgardner

Okay.

Operator

Your next question is from the line Patt Mclaughlin of UBS. Please proceed.

Patt Mclaughlin – UBS

My question also relates to GE and the disposal projects that’s being completed in this quarter. What percent, if there were three firms that were going to be part of this disposal effort, what percent of the disposal does Ecology expect to win or take care of this project?

Jim Baumgardner

Patt, fair question. We don’t know yet because the project is still ongoing, so we don’t know and we do know that GE. Here’s the thing we do know, we executed our commitment to GE quite frankly flawlessly. Our Grand View, Idaho Rail Transfer team and site team did a phenomenal job on very short notice of turning new trains around consistent with the terms of the contract.

We’ve executed on our contract whether or not the other sites are executed, don’t know, can’t say. We stand ready to serve GE. We know that their whole strategy was one about multiple sites to make sure that there was uninterrupted service and we continue to stand ready to serve GE, but I can’t speculate on what the total amount of that stock power material we are going to end up, it’s not preciously known today.

Patt Mclaughlin – UBS

Okay, all right, thank you.

Operator

Your next question comes from the line of Eric Prouty of Canaccord. Please proceed.

Eric Prouty – Canaccord

Great, thanks a lot. On the transportation revenue side of things, nice tick up during the quarter, some Army Corps work, is that going to continue going forward or is that a kind of a one-quarter bleb where the increase in transportation revs?

Jim Baumgardner

Yes, we can talk about transportation and Jeff and Steve please clarify, add comments as you see fit. I mean, I will tell you that our railcar fleet has been fully utilized. We’ve actually leased a few cars to meet our obligations under both projects coming to Idaho, Texas and our individual transportation comments. So, as we sit here today, our rail fleet is fully utilized and I would expect to see continued strength in that. Steve, any additive comments, I mean?

Steve Welling

Now we have, like you said, in my comments a number of buddle transportation and disposal contracts where projects are just kicking off in the next few weeks, so we can continue to see transportation revenues at least this quarter and hopefully into Q1, Q2 of next year.

Eric Prouty – Canaccord

Yeah, right.

Jeff Feller

Hi Eric, I would add to that just that we definitely will see something in Q4, but as far as visibility in the Q1, it gets a little more cloudy as regarding to what materials are going to come in on a bundle arrangement.

Eric Prouty – Canaccord

Okay, great and then back to the gross margins, obviously very impressive quarter. Maybe you could just help us out a bit by talking about the impact in that gross margin from GE itself. It looks like a lower ASP business maybe, but obviously helped out a lot with the utilization and covering your fixed overhead. Would we expect, as GE roles off that that gross margin dips back down below 50% and actually not to make the question too complicated, but obviously we’ll have a few months of Stablex in there. So, maybe you could kind of weave that into the comments of what we could expect for our gross margin range in the December quarter?

Jeff Feller

Yes, so Eric I’ll address it a little bit differently versus a specific quarter. For the year, we still do expect growth margins from a disposal, treatment and disposal perspective even with Stablex coming on being in the mid 40. That’s what we’re after year-to-date. The third quarter pick up, definitely there were some advantages from the inherent operating leverage, but also we did have a higher percentage of our landfill volume as directed both of material, which had a lower ASP as you alluded to but also has a pretty healthy margin as a percent of the revenue.

Jim Baumgardner

I just want to add to that Eric that I know there is a lot of focus on GE in the quarter, but as we allude you our Army Corps business was very strong in the quarter, and we shifted a fairly meaningful number of other projects in particular into our Beatty facility, direct disposal projects that really made a difference in the quarter, so I know there is focus on GE but I think as we noted in our prepared comments in the press release, the core business resolved and so was other Event business.

Eric Prouty – Canaccord

And I guess what I’m trying to get to is that 50 plus percent gross margin during the quarter, there is no aberration in there if with any project you are able to get volumes up to the levels we saw, that’s what we could expect as gross margin level because of your high utilization?

Jim Baumgardner

Yes, if we get volumes up to the levels we saw in the third quarter as definitely achievable to be 50 plus percent in gross margin.

Eric Prouty – Canaccord

Okay, perfect. And then finally just because obviously Stablex is going to have a big impact in your business going forward, are we going to get an update with that once the acquisition is closed to help models to account for the acquisition or is it going to take some time for you guys to get your arms around the business?

Jim Baumgardner

Well, as far as an update, we don’t anticipate doing any further update this year with regard to Stablex. We will be filing certain securities and exchange report towards January that will get more visibility into the financial performance of Stablex and US Ecology.

Eric Prouty – Canaccord

Sure. Okay, fair enough. Thanks guys.

Operator

Your next question comes from the line of Michael Hoffman of Wunderlich Securities.

Michael Hoffman – Wunderlich Securities

Hi, good morning. Would you be willing to share with us some of the details that I know come in the Q, but we’ve got to wait for that, there is a revenue mix that you breakout in the Q in a table that you used to do by percentage, could you give us that now so we get a better accurate assessment of the breakdown of revenues for the quarter?

Jim Baumgardner

Yes, actually it is in our investor presentation and available on our website now if you would like it, but I would be happy to go through those. As a percentage, our government cleanup work was about 20%, that’s year-to-date, I apologize. I’ll go to the quarter; for the quarter, our government cleanup work was 21%, our refinery business was about 7%, our other industry was about 10%, regulated business was 6%, broker business was 41% and private cleanup was 15%, this is Treatment and Disposal revenue.

Michael Hoffman – Wunderlich Securities

Okay. And then when I look at, I guess one of the questions, in the press release there is a quote said that base, the economy is weak and then there has been a lot of questions on it. But I think, what I am really hearing is that, this is really about refining and third party brokers got in the middle of your business, got between you and your customer and that hurt your refining revenues, otherwise cost across the of Base business, it’s a low-growth economy and there’s activity that’s corresponding to a low-growth economy, but things are …?

Jim Baumgardner

With regard to the thermal business for the past year and a half, we have done a number of events directly with refineries, we’ve handled other events through our broker network and there is really no trend where brokers are taking the direct job. It’s just that the jobs that were available in the third quarter happened to be through brokers rather than through direct. So, I wouldn’t say there is any trend there that brokers are in taking the margin away from us.

Michael Hoffman - Wunderlich Securities

Okay. If that’s the case, then there is just fewer jobs is what I’m hearing, but all other things being equal, the industrial business is the customer base, what I heard through the rest of the presentation is stable, albeit, reflecting a low-growth economy.

Jim Baumgardner

I think that’s correct.

Michael Hoffman - Wunderlich Securities

Okay. I certainly don’t want a leave a message that there is a deteriorating economic pressure on the business?

Jim Baumgardner

Yes, I think going back to my comments, I don’t think things are getting worse. I don’t think things are getting worse. In fact, I think you heard Steve talk about, again we’re seeing, a couple of things about the economy. It’s a very good sign that the event business broke free in Q3, that’s a very good sign. That means people have a little more confidence and willing to spend money, maybe where they weren’t a year ago to-date. The second thing is while the base business we actually received through the first nine months have been flat year-over-year, I think that we are seeing some new opportunities there.

I think Steve alluded to the fact that we’re bidding on a number of new base business opportunities that I think our combination of taking market share, but also just new opportunities. So, I don’t want to over sell, I’m not an economist, I don’t want to over sell the economic recovery seeing a few signs that I think I would take as positives. I’m not prepared to say its back, and back to low end, ‘07 or ’08, but there are some signs, very good signs remember that people spend.

We saw a lot of increased activity in the event side in the quarter, actually the shipments, and we’re seeing -- the bid activity we saw for that Event in Q2 turning to Q3 revenue. We are seeing pretty good bid activity for both Event and Base work kind to go forward. So, I characterize it has cautious optimism.

Michael Hoffman - Wunderlich Securities

Okay. Follow through the line of thinking here, if the bulk of GE was done in 3Q, there’s a tail end of 4Q; your presentation suggests that you have some weakness in the 4Q on a relative basis to base. So, if I’m following that logic, whatever the revenue number is based in 3Q, I’m going to have less in 4Q, X, Stablex. Is that correct?

Jim Baumgardner

Well, XX, Stablex, what we are seeing is we are going to achieve our guidance and I do the math real quick, we got $0.13 to $0.23 to make our guidance range. The quarter was $0.22, I think on the upper end of the range we could have a better quarter in Q4, but if shipments gets delayed, deferred, if the uncertainty persists, it could be at the lower end of that $0.13 to $0.23 range.

Michael Hoffman - Wunderlich Securities

Okay. Event business, based on the pattern you are describing, if all things being equal, be up in the fourth quarter X Stablex?

Jim Baumgardner

Yes, that’s how we would anticipate for the fourth quarter.

Michael Hoffman - Wunderlich Securities

And then Stablex, guess I’m following the math 39 million on a year-to-date basis just divided by 12, it’s kind of 3 to 3.25 a month. So that’s sort of a contribution of 6 to 6.5 million in the fourth quarter?

Jim Baumgardner

The one piece I’ll add to that is the Stablex business model is a little bit more driven by seasonality. So, there is going to be less in the fourth quarter than there is going to be in the summertime month, and we get only two months.

Michael Hoffman - Wunderlich Securities

So, I’ve just divided by 12 your 39 million, so you want to me seasonally adjust the fourth quarter. But, I mean if somewhere been around 4 to 6 million in revenues is going to come in the fourth quarter.

Jim Baumgardner

That’s fair.

Michael Hoffman - Wunderlich Securities

Fair enough? Okay. Okay, I think that’s all I need at the moment. Thanks.

Operator

(Operator Instructions) Your next question is from the line of Edward Walbridge of Aragon LLC. Please proceed.

Edward Walbridge - Aragon LLC

Gentlemen, I like your long-term plan and I think you are executing very well on it, so congratulations on that.

Jim Baumgardner

Thanks Ed.

Edward Walbridge - Aragon LLC

On the acquisitions, the Canadian and the California ones, as I recall about 10 years ago American Ecology as it was then had a near death experience because they acquired some, one or two companies that had essentially landmines of environmental issues that had not been appreciated. Now, that won’t be the case with these two acquisitions, is that right?

Jim Baumgardner

Well Ed, this is Jim. And as you know, I think those acquisitions actually were more in the mid 90s and Steve and I obviously were part of cleaning those things up. So, we are very sensitized to ensuring the assets we are buying or what we think they are. A couple differences between the acquisition strategy of the 90s, obviously we have a different management team today, versus today, is we are focused on core competency. We know how to sell and operate the facility in Canada.

Specifically, you are talking about the Oak Ridge facility that we used to own, and we shut down and I forget, 2003 or ‘04 and the facilities that we are contemplating acquiring, we do not believe and we’ve done pretty extensive due diligence to have any long-term unidentified liabilities associated with -- I’m pretty sensitized to that end.

Edward Walbridge - Aragon LLC

Okay. Well, thank you very much. Yes, I have confidence in you on that.

Jim Baumgardner

Thanks.

Operator

If there are no further questions, I would like to turn the call back over to management for closing remarks.

Jeff Feeler

Alright. Well great, thank you for attending and have a wonderful day.

Operator

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

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