US Ecology's (ECOL) CEO Jeff Feeler on Q1 2016 Results - Earnings Call Transcript

| About: US Ecology, (ECOL)

US Ecology, Inc. (NASDAQ:ECOL)

Q1 2016 Earnings Conference Call

April 29, 2016 10:00 AM ET

Executives

Eric Gerratt - Chief Financial Officer

Jeff Feeler - Chairman and Chief Executive Officer

Steve Welling - EVP of Sales and Marketing

Simon Bell - EVP of Operations for Environmental Services

Mario Romero - EVP of Operations for Field and Industrial Services

Analysts

Michael Hoffman - Stifel

Joe Box - KeyBanc Capital Markets

Tyler Brown - Raymond James

Justin Ward - Wells Fargo

Scott Levine - Imperial Capital

Pam McQuade - Allied Irish Bank

Operator

Good day, and welcome to the US Ecology, Inc.’s First Quarter 2016 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today's event is being recorded.

I would now like to turn the conference over to Eric Gerratt, Chief Financial Officer. Please go ahead.

Eric Gerratt

Good morning, and thank you for joining us today. Joining me on the call this morning is Chairman and Chief Executive Officer, Jeff Feeler. Also on the line are Executive Vice President of Sales and Marketing, Steve Welling; Executive Vice President of Operations for Environmental Services, Simon Bell; and Executive Vice President of Operations for Field and Industrial Services, Mario Romero.

Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include, but are not limited to those discussed in the Company's filings with the Securities and Exchange Commission.

Management cannot control or predict many factors that determine future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only on the date such statements are made. We undertake no obligation to revise or update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events, or otherwise.

For those joining by webcast, you can follow along with today's presentation. For those listening by phone, you can access today's presentation on our website at www.usecology.com. Throughout yesterday's earnings release and our call and presentation today, we refer to adjusted EBITDA, pro forma adjusted EBITDA and adjusted earnings per share. These metrics are not determined in accordance with Generally Accepted Accounting Principles and are therefore susceptible to varying calculations.

A definition, calculation and reconciliation to the financial statements of adjusted earnings per share, adjusted EBITDA, and pro forma adjusted EBITDA can be found in Exhibit A of our earnings release. We believe these non-GAAP metrics are useful in evaluating our reported results and our 2016 guidance.

With that, I'd like to turn the call over to Jeff.

Jeff Feeler

Thank you, Eric, and good morning everyone. I'll start this morning's call with a few summary comments on our first quarter results that we released yesterday before turning the call back to Eric for some additional details on our financial results. I will then close out the call with further comments regarding 2016 outlook, and then open up the call for questions. For those who are following by webcast presentation, I direct your attention to Slide 5.

As announced yesterday, US Ecology reported solid financial results that were slightly ahead of our own expectations. Contributing to these solid results was the strong performance of our Field and Industrial Services segment, which posted adjusted EBITDA growth of 42% from the prior year after excluding the 2015 Allstate Power Vac results.

As Allstate was divested in the fourth quarter of 2015 and therefore their results are not included in our first quarter. We also continue to be focused on cost control during the quarter and achieved a 4% decline in SG&A spending over the prior year after adjusting for the divested Allstate business and business development expenses.

Our Environmental Services segment generated results inline with our expectations with base business growth offsetting the softer than anticipated events. We reported adjusted EBITDA of $26.1 million, down 4% from the first quarter of 2015. Pro forma adjusted EBITDA, which excludes the divested Allstate business and business development costs was down 6% in the first quarter of 2016 compared to the same period last year.

As we discussed in February, in conjunction with our 2016 outlook, we expected a lower first quarter relative to the same quarter last year as a result of cycling large event business cleanout projects and exiting 2015 with minimal waste stockpiles at our Canadian facility.

Moving on to Slide 6, the stronger results in our Field and Industrial Services segment benefited from a 425 basis point EBITDA margin improvement on a 10% decline in revenue after adjusting for the divested Allstate business.

The decline in revenue was a direct result of our focus on revenue, quality, and the cycling of transportation and logistics work on completed event business. These declines were partially offset by growth in our managed services, small quantity generator and industrial services, which were aided by the milder winter conditions that provided for some additional services work as well as overall lower costs.

Moving on to Slide 7, we saw stronger than expected results in our base business, which grew 7% over the prior year. This strength was attributable to generators in the refinery, other industrial and general manufacturing verticals. We continue to see headwinds in the chemical, metals manufacturing and mining and E&P verticals.

Event business was down as a result of cycling some clean-up projects that have not yet fully been replaced. The large East Coast clean-up project that we have discussed in previous conference calls was completed in the third quarter of last year and the nuclear fuel fabrication decommissioning was substantially completed this quarter.

Excluding these two projects, our event business was down just 2% in the first quarter of 2016 compared to the same period last year. Despite the favorable winter conditions in the eastern part of North America, we did not see this translate into accelerated clean-up work during the quarter.

Overall, the first quarter played out slightly better than we expected. As we move on – beyond our initial integration efforts of our core assets, we continue to evaluate underutilized, underperforming or otherwise non-core assets. On April 4, we announced that we divested our Augusta facility. This divestiture will generate a rather nice gain in the second quarter of 2016 and the net proceeds will be redeployed to grow our core service offering.

Cash flow generation remains a key focus. As expected solid free cash flow generation in the first quarter allowed us to pay down $10.8 million of debt, further delevering our already strong balance sheet.

With that, I’ll turn it back to Eric.

Eric Gerratt

Thanks, Jeff. As shown on Slide 10, revenue for the first quarter of 2016 was $113.3 million, down from $136.7 million in the first quarter of 2015. Revenue for the Environmental Services segment for the first quarter was $81.5 million compared to $87.4 million in the first quarter last year. The 7% decline was driven by lower treatment and disposal revenue as well as lower transportation revenue.

Recurring base business for the Environmental Services segment increased 7% compared to the first quarter last year and represented 83% of treatment and disposal revenue. Event business for the Environmental Services segment decreased 44% from the first quarter last year and represented 17% of treatment and disposal revenue in the quarter.

Slide 11 breaks down treatment and disposal revenue for both base and event business by industry verticals. The 7% increase in base business was concentrated in the refining, other, and general manufacturing verticals.

These increases were partially offset by declines in the chemical manufacturing and government verticals during the quarter. The 44% decline in event business was driven by decreases in the chemical manufacturing, refining, and metals manufacturing verticals.

As expected, the most significant decline in the chemicals manufacturing group stems primarily from expected reductions in volumes from a large east coast remedial clean-up project. Breaking out this large project, our Chemical Manufacturing group was down approximately 7% in total from the first quarter of last year.

Partially offsetting the event business declines were increased revenues in the utilities, and other industry groups. The Field and Industrial Services segment delivered revenue of $31.8 million, in the first quarter of 2016.

This was down from $49.4 million in the first quarter of 2015, which included $13.9 million from the divested Allstate business. Excluding the divested Allstate business, the revenue decrease of approximately 10% was primarily the result of lower transportation services, and lower project work in the Northeast remediation market primarily associated with the large east coast cleanup project that is now completed.

Turning to Slide 12, gross profit was $35.2 million in the quarter, down from $39.8 million in the same quarter last year. The Environmental Services segment contributed $30.5 million in the first quarter of 2016, compared to $33.2 million in the same quarter last year. This decrease was due primarily lower treatment and disposal volumes. Treatment and disposal margins were 41% in the first quarter of 2016, compared to 42% in the first quarter of 2015.

Gross profit for the Field and Industrial Services segment was $4.8 million in the first quarter of 2016, compared to $6.7 million in the first quarter last year. The decline was primarily due to the divested Allstate business, which contributed gross profit of $2.6 million in the first quarter last year.

Excluding the decline related to the Allstate business, the Field and Industrial Services gross margin improved by over 300 basis points in the first quarter of 2016.

Selling, general, and administrative spending or SG&A was $19.4 million in the first quarter of 2016. This was down 22%, from $24.9 million in the first quarter last year, which included $3 million of ST&A from Allstate. Lower business development expenses and lower incentive compensation in the first quarter this year also contributed to the decline.

Operating income was $15.8 million in the first quarter of 2016, up 6% from operating income of $15 million in the same quarter last year. Interest expense for the first quarter decreased to $4.6 million compared to $5.7 million in the same quarter last year.

The decrease was primarily the result of lower debt levels in the first quarter of 2016, partially offset by approximately $200,000 of incremental non-cash amortization of our deferred financing costs due to our debt principal payments.

Turning to Slide 13, the company's effective income tax rate for the first quarter of 2016 was 38.4%, up from 33.1% in the first quarter of last year. This increase primarily reflects a lower proportion of earnings from our Canadian operations which are taxed at a lower corporate tax rate.

The increase is also partially attributable to a higher U.S. effective tax rate in the first quarter of 2016 resulting from changes in our apportionment between the various states in which we operate.

We reported net income of $7.5 million and diluted earnings per share of $0.35 in the first quarter of 2016. This was up from $5.27 per diluted share in the same quarter last year.

Adjusted earnings per share was $0.32 in the first quarter of 2016, down from $0.36 per share in the first quarter last year. Adjusted EBITDA for the first quarter was $26.1 million, down from $27.2 million in the first quarter last year. Pro forma adjusted EBITDA, which excludes the divested Allstate business and business development expenses, was $26.2 million in the first quarter of 2016, down 6% from $27.9 million in the first quarter of 2015.

Turning to Slide 13, we generated $30.3 million of cash from operations in the first quarter of 2016. We also invested $7.2 million in capital projects, paid down $10.8 million on our long-term debt and paid out $3.9 million in dividends to our stockholders.

Our balance sheet continues to improve with our long-term debt balance excluding deferred financing costs at $289.5 million at the end of the quarter. Based on our 2016 guidance range, this puts our debt to adjusted EBITDA leverage ratio at approximately 2.3 to 2.2 times.

Return on invested capital for the 12 months ended March 31, 2016 excluding the impairment charge taken in the second quarter of 2015 was 6.4%. Return on assets was 4.1% and return on equity for the same period was 13.2%.

With that, I'll turn the call back to Jeff.

Jeff Feeler

Thank you, Eric. Overall business conditions remain consistent with our range of expectations. As a result, we are reaffirming our full year 2016 guidance that was issued earlier this year in February.

We continue to expect adjusted EBITDA to range from $126 million to $132 million and adjusted EPS to range from $1.80 to $1.95 per share. As a reminder, our guidance excludes the impact of any foreign currency translation gains or losses, business development cost or other unusual transactions.

While our total revenue guidance remains unchanged at $502 million to $528 million for the full year 2016, we are revising our segment revenue guidance as a result of reclassifying a couple of our business units from the Environmental Services segment to the Field and Industrial Services segment.

These are hybrid facilities that provide both types of services. The new classification represents their primary function and reflects how we manage these operations. The total reclassification represents approximately $17 million in annual segment revenue. Our revised Environmental Services revenue range for 2016 is $361 million to $379 million. Our revised Field and Industrial Services range for 2016 is $141 million to $149 million.

As we look to the remaining three quarters of 2016, we continue to anticipate sequential quarterly improvement over the year. For our base business, we believe that we will see growth moderate towards the low single-digit range for the full year of 2016.

Our event business pipeline continues to build and we are seeing increased opportunities many of which are second-half loaded consistent with what we saw in February with a back-half loaded year, the risk of project approvals or changes in scope with our larger projects remains and we will gain more visibility as we exit our second quarter. We believe our guidance appropriately reflects this risk.

Our Field and Industrial Services segment is expected to see continued improvement over the prior year when excluding the Allstate divestiture. We think that the strength seen in the first quarter could be tampered as we continue through the balance of the year and the prior year comparable periods for this segment become more challenging.

Finally, on capital expenditures, we expect spending to range between $35 million and $38 million consistent with our previously issued guidance.

With that, operator, we will open up the call for questions or comments.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question is from Michael Hoffman with Stifel. Please go ahead.

Michael Hoffman

Hey, Jeff, Eric, thanks for taking my call.

Eric Gerratt

Good morning.

Michael Hoffman

Good morning. A housekeeping, the restatements, reorg around the revenue presentation, is that reflected in the 1Q release? So 1Q is that way?

Eric Gerratt

Correct.

Michael Hoffman

Okay.

Eric Gerratt

Yes, and we’ve also, Mike, we’ve also recapped Q1 of last year to reflect that change. So it’s comparative.

Michael Hoffman

So what are the chances we get to 3 and 4Q from last year sometime before 2Q reports this year?

Eric Gerratt

We can do that.

Michael Hoffman

Thanks. The $13 million of project EBITDA from the big stuff last year, my recollection is you kind have about half of that coming into the first quarter covered, how is your visibility on the other half?

Jeff Feeler

Well, Michael, as we talked about, the event pipeline continues to grow and we continue to see a lot of opportunities developing with regard to that $13 million EBITDA gap that we called out last quarter. We really don’t have a detailed update on that at this stage. And the reason for that is, it was really, we identified that we are about 40% to 50% full on that when we entered the year. Those were tied to some key projects and those really have not changed. We have continued to build out our opportunities. We’ve continued to secure more business and I am confident it’s north of that level, but we don’t have a detail as a percentage of where we are at relative to that $13 million gap as of today. What I will say is that, in our guidance, we still feel comfortable that we will be able to backfill all of that throughout the year and what we are seeing and it’s all reflected in our guidance range.

Michael Hoffman

Okay, and then, when we started the year, you thought you paid down about $25 million of debt, you are well on that path, does that number go up?

Jeff Feeler

Typically, I would say, no. We are still expecting about the same paydown barring any acquisitions that we see other uses of the cash. First quarter is always seasonably stronger, just because you work through some working capital adjustments. Second quarter tends to be better and then working capital becomes more of a drain on us going forward the second half as the strength of our business comes in.

Michael Hoffman

So we should assume most of that $25 million is done by the first half and there is tail in the second half?

Jeff Feeler

That’s right.

Michael Hoffman

Okay. Eric, what would be the right earning – or interest expense for 2Q in light of when you paid this off and what have you?

Eric Gerratt

I think it will be a little south of what Q1 was. We - probably in the four and a quarter to 4.3 million.

Michael Hoffman

Okay, and then, your mix in Canada, some of that was historically you built up a big sort of inventory of work to go into Canada and that you got to work down. What’s sort of the trends as we go through 2016 how you think your Canadian mix shifts throughout the year?

Jeff Feeler

What we are seeing in particular that region is that, first half of the year is definitely going to be weaker up there. That has to do with the weather conditions, how we exited the year with limited waste stockpiles there. Some of the larger projects that we have secured are targeted to go into that facility and so we are expecting to see second half growth there.

Michael Hoffman

Okay, so we could theoretically see our tax rate walk down a little bit in the second half as a result.

Eric Gerratt

Yes, Michael, this is Eric. We could – we are also, I think we are going to also have some slight walk up on the US side. So I still think we are going to be in that around 40%. I am hoping we are going to come in less than that for the full year. But, yes, there will be a benefit on the Canadian as we pick up into the seasonally stronger earnings period for stable.

Michael Hoffman

Okay, and then, do you see any changes in your capital spending plans given the slightly better start and you need to maybe add some capital here or there in relation to some of this better base activity?

Simon Bell

Yes, Michael, this is Simon speaking. We really don’t see any major changes. So I think it’s steady as it goes as far our capital outlay.

Michael Hoffman

All right. And then, Simon, one for you. The end-markets that were down – are down as a carryover from last fall, I am assuming that’s just the tail of that correction. But you are seeing any incremental down away from what was on energy sort of customer exposure? I said that very clumsily but I hope you get what I am asking?

Jeff Feeler

Yes, Michael, I’ll take that. This is Jeff. We are really not seeing on that. I mean, we saw some good growth in our base business in the fourth quarter, both in 2014 going back ways in 2015, we saw a lot of our customers extend a lot of volume towards the back-half of the year as they’ve cleared out their budgets and got ready for 2016. Many times that carries over into 2016 and makes the first quarter a little bit lighter. We have continued to see some healthy trends in our base business in the first quarter. When you look at the verticals from the generators that are producing that waste, there is definitely the strength don’t come across as been a surprise, I mean, you see general manufacturing, you see kind of other which is made up of kind of – I’ll call it indirect type industrial customers, just for your retails were at, that’s where agriculture food services, construction type stuff is at. The refining business, the refineries are still going strong and we are seeing some positive traction there on the base business. On the negatives, which is probably where you are more focused on, things such as chemical, that’s a probably high mean but some of our customers are tied to the – its base, but we’ve experienced all the way back to Q3 of last year. We are still seeing some challenges there. The metals manufacturing is definitely an area that is continuing to have some challenges across the board. So, there is not any surprises on the verticals from our perspective on it other than it’s a little bit better on the positives than what we had anticipated overall.

Michael Hoffman

Okay, great. Thanks for taking my questions.

Jeff Feeler

Okay, thanks, Michael.

Operator

Our next question comes from Joe Box with KeyBanc Capital Markets. Please go ahead.

Joe Box

Hey, good morning guys.

Jeff Feeler

Good morning, Joe.

Eric Gerratt

Good morning, Joe.

Joe Box

So, nice job on the FIS margins, ex-Allstate. Can you maybe just help us understand how much of that margin gain was more positive mix from things like, less remediation, versus just running the business more efficiently? And then, maybe just to take a step back, since you've now sold Allstate and it sounds like you are recasting the business a bit. I think this quarter you did about 7% op-profit in the business, and maybe 12% EBITDA in FIS, can you maybe just remind us where the long-term potential is, based off of the new recast?

Jeff Feeler

So, I’ll start on that. Let me start with your latter question is that, as far as our expectations on the FIS margins it’s pretty much consistent. We are not really anticipating too much change from the recast from that standpoint. So we are still thinking it’s going to be north of 10%, but our target range for that entire segment still in at 10% to 15% range and that will vary just based of mix of business and service offerings within that group. As far as the improvement goes during the quarter, a lot of the improvement does come from changing out lower quality revenue. We also recycle some of the transportation logistics revenue from some of the event cleanup projects that we supported through that segment and that comes at a pretty low margin. So there is that – we did not quantify that, but we are seeing some healthy improvement in just our overall focus in our core margins. As we go out to bid, as we look at projects that we can bring core advantage to, we are bidding accordingly and we are being successful on those markets and we are continuing to build that portfolio out and continuing to strive margin and margin improvement there.

Joe Box

Got it, okay. Thank you. And, just quickly on the working capital side, I mean, obviously that was a drag in the back-half of last year, but nice tail-wind this year. As you look to the rest of the year is that an unwind or how should we’d be thinking about the full-year impact on cash?

Eric Gerratt

I think, Joe, this is Eric, I think it will be kind of a similar trend the last year, which is typically what we see. So, a bit of a build and a push in the first quarter and into the second and then it starts to dry back down in the third.

Joe Box

Okay, so, net, maybe a bit of a tail-wind and it moderates as the year goes on or just it flattens out?

Eric Gerratt

Yes, we think it flattens out, Joe and the hard part is, timing at the end of the year and the strength. If it follows where third quarter is stronger than fourth quarter, which happens, depending on the strength of the construction season, you may not have as much of a back-half drag, because we’ll cycle through some of those paying customers. That being said, fourth quarter tends to be stronger than third quarter just based of timing of shipments and that’s kind of what we are anticipating right now. We are probably going to be neutral to be a slight drag a little bit. Our free cash flow projections – kind of getting on guidance on that assumes a neutral working capital.

Joe Box

Okay. Perfect. That's helpful. Thank you. One last one for you, so, the solid waste, MDS rail talked about really strong C&D volumes, and they had pretty good special waste in 1Q. I am curious why do you guys think that there wasn't much of a benefit on the event-base work, which if you strip out the big projects, it was down 2% in 1Q? Why would there be that disconnect between the solid waste guys and your business?

Jeff Feeler

Differences between the hazardous waste market and residential and construction market for non-haz.

Joe Box

I mean, with weather being favorable though, wouldn't you have expected to see some improvement in remediation work. I would think that there would be some correlation there. I get that the business is different.

Steve Welling

Yes, this is, Steve Welling. What we had in the first quarter, it was actually projects that we had expected to move that were delayed for various reasons. Couple of them were just simply site access, political issues that were – were actually we’re scheduling to start does in the next six weeks. So I don’t see anything that was unusual for the first quarter and it’s a normal, in hazardous waste business as well as our planning, it takes a lot more time to get a project started. So just because the weather is nice, it doesn’t mean they are going to move quicker than they normally would.

Joe Box

Okay. That answers.

Jeff Feeler

Yes, it’s pretty hard for us to answer how the solid waste guys classify their construction and demolition materials and what’s really the drivers on those. So, as you can tell, it’s not something we really can clearly answer. We are just not seeing, we didn’t see any acceleration in the first quarter as a result of the more milder winter conditions on the environmental services side and the project base. We are continuing to see our pipeline development and we expect that to continuing into the second quarter and beyond.

Joe Box

Got it. Thank you, guys. Appreciate it.

Jeff Feeler

You bet.

Eric Gerratt

Thanks, Joe.

Operator

Our next question comes from Tyler Brown with Raymond James. Please go ahead.

Tyler Brown

Hey, good morning, guys.

Jeff Feeler

Good morning, Tyler.

Tyler Brown

Hey, Jeff, nice quarter. Couple things, so you noted that weather didn't help. But can you talk about how much the extra day helped?

Jeff Feeler

Yes, we do not – we don’t measure our quarterly performance on how many number of days are in a quarter. I know others in the broader industry do, but we really haven’t quantified that nor did I really think it’s helped tremendously on an amount.

Tyler Brown

Okay, yes, February 29th, it's a hot day for waste nerds.

Jeff Feeler

Yes.

Tyler Brown

Now, but Eric, you called out incentive comp in the release, can you guys kind of quantify the year-over-year impact on incentive comp and then, just given that you're hitting your targets, why was that such a benefit?

Jeff Feeler

Yes, it’s really the biggest driver of that. If you look back at our first quarter last year, it was really knocked out of the park and a lot of that was due to the East Coast cleanup project and the volumes that moved there. So, we were well ahead by a pretty significant margin of our targets through the first quarter last year, versus this year, we are a little behind them and so that’s really the driver of the differential to the first quarter. Now, as we go throughout the year and things go as we expect, then we’ll close the gap on those targets and that will ramp up through the next three quarters.

Tyler Brown

Okay, so do you think that SG&A like physical dollars is flat or maybe slightly down this year?

Jeff Feeler

Compared to last year?

Tyler Brown

Yes.

Jeff Feeler

Yes, I think, I think, as in terms of dollars, it will likely be down and some of that is driven by the Allstate divestiture and the SG&A commitments there, that we no longer have.

Tyler Brown

Okay, and then on cash flow, I just want to be clear. So, you guys are still kind of looking for around $50 million in 2016 free cash flow or has that changed?

Jeff Feeler

Yes, it’s still $48 million to $50 million is the range.

Tyler Brown

Okay, and then can you quantify the Augusta sale?

Jeff Feeler

It wasn’t significant.

Tyler Brown

Okay, okay. And you guys – you’ve done a great job rationalizing the portfolio. But I am curious about what your appetite for M&A is. Where that might be, and what segments that might be applicable to?

Jeff Feeler

Yes, I mean, looking for high quality assets continues to be part of our core strategy and that really hasn’t changed. The one things the investors that have followed us for some time and the analysts know that we are very diligent in what we go after and so we are continuing to deploy resources or continuing to look at different things that we’re going to be patient at it and find the right fit and the right opportunity at the right time from that standpoint. I don’t see anything big and large coming out in 2016, but I do definitely see opportunities for some tuck-in acquisitions that will help fill out our next – or support our existing operations in different geographies.

Tyler Brown

Okay, great. And then Steve, I am curious if you are seeing any bidding or activity around that Tronox or Anadarko settlements?

Steve Welling

Nothing large, most of the sites that we are tracking are still in assessment stages. We’ve taken more than five to six thousand tons so far. And so, there will be future work and just not far along at this point.

Tyler Brown

Okay, okay. And then Simon, just a quick operations question. But the railroads have really improved their service over say, the last six months. I am just curious how improved cycle times or just rail service in general, if it has any noticeable impact on you. Does it lower your cost structure at all? And then two, do you think that improved cycle times actually gives 2016 a bit of a boost as we are able to get cycle in more volume or am I overthinking this?

Simon Bell

Yes, I would suggest, Tyler, maybe overthinking and I think I mentioned last quarter, maybe just the quarter before that. We did not see lot of negative impacts from cycle times. But to your larger point, do cycle times, improved cycle times help? Yes, they do. I mean, it just means, we need less equipment, but I don’t think it’s something you could really quantify. Our costs are – I think fairly well established and fairly consistent and the railroads have been fairly consistent in their cycle times and certainly met our needs.

Tyler Brown

Okay, great. Thanks guys for the time.

Jeff Feeler

All right, thanks Tyler.

Operator

Our next question is from Justin Ward with Wells Fargo. Please go ahead.

Justin Ward

Hey, good morning, guys.

Jeff Feeler

Good morning, Justin.

Justin Ward

The base business growth of 7% year-over-year, it looks like most of that was driven by strength in that Other category, and Jeff, you touched on a little bit of what was in there, it's some ags and some food services. But I wonder - a two-part question, how sustainable was that strength? And for the remainder - your guidance for the year for base business is up low single-digits. Which of those verticals are you expecting moderation in and is a lot of that really driven by that unsustainability in that – to the strength of that Other category?

Jeff Feeler

We haven’t identified the exact verticals but we expect to moderate on some of the areas that I would think that we would see some moderation on is the other side of the equation which we talked about, I don’t think that that’s sustainable at the 31% growth rate. There is some timing in there from that perspective. Refining will continue to moderate, we’ll see just general manufacturing probably continuing to moderate in there. We could see some positives on the chemical side from the base business that tends to vary from quarter-to-quarter. Metals manufacturing definitely consider – continue to expect some headwinds there as we continue to cycle through some of those. But there isn’t anything specific that I can point to that gives more clarity on that.

Justin Ward

Okay, and on the base business side, I know you talked about it's going to be back-half loaded, you've talked about kind of back-filling about half, maybe more of those two large projects that ramped down here end of last year, beginning of this year and you also mentioned a couple of the larger projects that you have on slate, may – there is some risk of delay there, those may get pushed into 2017. If those do ramp up in the back-half of 2014 – 2016, are you guys envisioning that event business starting to get closer to flat on a year-over-year basis in 2017 or when are you thinking about that inflection point might hit for the event business?

Jeff Feeler

Yes, I mean, right now, our guidance is built in that we think that it’s very achievable to get to a flat event business if things go the way we expect them to go. If there happens to be any deferrals, any changes in scope – especially the larger projects that are back-filling some of that gaps, that’s where there is risk. Now, we do think that our range are properly addressed to that risk in there, but if there is any shifting into 2017, I would think that there would be growth in our event business in 2017 just on that fact alone.

Justin Ward

Okay, and what are the risk factors that may cause a push out on some of those projects? Is it macroeconomic stuff or it more kind of scheduling and permitting for those projects, et cetera?

Jeff Feeler

Yes, the number of factors are probably too numerous to address, but the fact is, these are pretty complex cleanup sites. We tend not to be on the engineering side of the cleanup side and as they run into two different waste streams, different characteristics, things that they don’t anticipate it can cause negotiations, discussions with regulatory agencies that are outside of our control and that’s typically what you end up finding in these larger complex clean up sites is when they find something they did not intend to find causes delays. Anything to add, Steve?

Steve Welling

I would say, you are going to tie to any index. It’s not normally a generator, voluntary decision to defer. It would be just something related to the project that was unexpected that created a delay.

Jeff Feeler

And that’s…

Justin Ward

Okay. It sounds like it’s - sorry, go ahead.

Jeff Feeler

Again, the last thing, I just want to make sure it’s clear, I don’t want people, I don’t want to send alarm that we think that a lot of these projects are going to be delayed. It’s just an inherent risk that’s in the business and there is no real change in that from what we talked about in February of this year. It’s just – it is back-loaded and so that increases the risk when you look at a singular period of time being 2016.

Justin Ward

Right, so, but it does sound like the risks of delay, it's not a macroeconomic concern. It's not a concern that the cash flows of the economy might not be there, it's more so, just the complexity of the projects and it's just a matter of time of when these projects are actually executed, right?

Jeff Feeler

That is right on the risk that we are calling out. On your other question with regard to the economy goes into a tail spin, yes, there could be other factors and other risks that come into play on projects that do not have a regulatory enforcement or court order type cleanup. And we have experienced that in the past that we are not anticipating any of that at this time.

Justin Ward

And sorry, just one final one on that. Is there any sense of what the break-out of your event business pipeline is of work that's based on a regulatory component versus work that's just more economically sensitive?

Jeff Feeler

No, we don’t have that.

Justin Ward

Okay. I thought I'd try, thanks, guys.

Jeff Feeler

You bet. Thank you.

Operator

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

Scott Levine

Hey, good morning, guys.

Eric Gerratt

Hey, Scott.

Scott Levine

Hey, so trying to pull a little bit more detail on the event side. I don't know if you've offered this in the past or here, but could you comment on the average duration of your typical job on that side of the business?

Steve Welling

Sure, this is Steve Welling. I am not sure there is such thing as a typical job. But we have smaller to mid-sized jobs that could go anywhere from a week to two or three months and then we have – what I’d call the larger or sometimes even a mega project that can be multiple years and every year, the last ten years we have a combination of all of the above. So, it’s typical per se.

Scott Levine

Could you say what percentage of your jobs fall into this smaller bucket? I mean, is it like 85%, 90%, 50%, just trying to get a relative sense of what the median project duration? Just trying to assess the visibility on the pipeline in general.

Steve Welling

This is 85% or so, this is strictly a guess off the top of my head which I know I am not supposed to do, but…

Scott Levine

Can't take it back.

Steve Welling

I wouldn’t say that, we have a lot of mid to small projects with a short duration and just the business that we are in and many times those come up in the summer, we’ll get calls and they’ll happen in a very short timeframe. So, we would not have visibility to the – a large percentage of those projects right now. What we have is a history that every year those projects come up and we know they are going to be there. We just don’t know exactly what and where. And then, the large projects are - there is very few at any given time that are moving. But they can be sizable volume. So it just depends on the year.

Scott Levine

Got it. Last one on the event business, I promise. But, so does the confidence around the pipeline then stem from what you have there in the bid funnel regarding these smaller jobs that you haven't won yet or is it more a function of stuff you've already booked that you expect to kind of cover your revenue burn for the remainder of the year and beyond?

Steve Welling

It would be a combination of both.

Scott Levine

Combination of both? Okay.

Steve Welling

We have jobs booked, awarded and scheduled and we have projects in progress and then we also know that this summer we are tracking a number of mid to smaller projects that we are expecting to win, which don’t have them booked and contracted again.

Scott Levine

Got it and your tone suggests you are as confident as you were last quarter on your earnings call as well I take it?

Steve Welling

At this stage, yes.

Scott Levine

Okay, and then, not to micro-analyze the press release, but you did say just that the results came in better than you expected. So, I guess that would imply you are affirming guidance here, then if we were kind of - well, I don't want to ask you to give guidance within guidance. So, I take that question back. With regard to the integration process on the merger, I know you guys kind of alluded to your project – process, any observations there? Any new areas of emphasis you are focusing on that you think are meaningful as you kind of work through this process or has it kind of gone as you expected? Or any surprises from your point of view?

Jeff Feeler

At this stage, I would probably stamp that we are fully integrated with the exceptions of financial systems and operating systems that we’ve talked about at lengths that will be going the duration of this year and through the next couple of years with regard to that. WE continue to work to the team, continue to bring in unified company together. I think you are starting to see the benefits of the combined organizations and the results coming through and I anticipate to see continued improvement in that as we continue to work together and really become a singular US Ecology and from that standpoint.

Scott Levine

Got it. Thank you.

Operator

Our next question is from Michael – is a follow-up from Michael Hoffman with Stifel. Please go ahead.

Michael Hoffman

I am good. It got covered by everybody else. Thanks.

Jeff Feeler

Thanks, Michael.

Operator

Our next question is from Pam McQuade with Allied Irish Bank. Please go ahead.

Pam McQuade

Hi, I just had two questions. First of all, what is your maintenance CapEx? And then, secondly, could you talk a little bit about the competitive environment please? And who your main competitors are at the moment? Has that changed over the last year or two? And then, how are you competing, is it just price or what it was?

Jeff Feeler

Sure, I’ll address that, Pam. This is Jeff. So, with regard to maintenance CapEx, it’s probably in that $25 million to $30 million range and we classified maintenance CapEx with our landfill construction and we call that out separately in a lot of our presentations just because some people classify that as growth, we classify as the maintenance CapEx. So that’s – that’s kind of that range. With regard to the main competitors in the marketplace, it really hasn’t changed and it depends on what region of North America you are talking about. This primary competitor it seems like in most regions that we come across that’s Clean Harbors, in many cases we come across waste management in most of our markets and then you run into other – whether they are smaller competitors or just in different regions different competitors from that standpoint.

Pam McQuade

And have you seen Clean Harbor and Waste Management becoming more aggressive on pricing over the last year or two or has that changed?

Jeff Feeler

No, it’s been very consistent from a competitive standpoint.

Pam McQuade

Thank you.

Jeff Feeler

You are welcome.

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

Jeff Feeler

Well, thank you all for attending the conference call today and we look forward to updating you on our results in July of 2016.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!