Jeremy L. Dillon
RW Monitor
8/7/2015
US Ecology announced this week it has agreed to sell New Jersey-based Allstate Power-Vac Inc. to a private investor group for $58 million. Allstate specializes in industrial cleaning and maintenance for utilities, refineries, chemical plants, and paper mills, along with refinery services such as tank cleaning and temporary storage. After a review, though, US Ecology determined Allstate, which it picked up in The Environmental Quality Co. acquisition, did not meet the waste management provider’s business strategy.
“After careful evaluation we concluded that Allstate Power-Vac does not adequately complement our strategy given its lack of geographic proximity to our core environmental service offerings,” US Ecology Chairman and CEO Jeff Feeler said in a statement. “Divesting Allstate will allow us to concentrate on growing our core environmental services business while continuing to expand our complementary field services. We believe the Allstate transaction is an excellent outcome for all affected employees, customers and stockholders.”
During the company’s second-quarter earnings call this week, Feeler offered more detail of the company’s rationale for the sale. “The bottom line is as we entered into the acquisition just over a year ago, the core assets we were interested in were the environmental services assets as well as those complementary assets,” Feeler said. “I would say the geographic proximity of the Allstate business was definitely in the top reasons as to why we were not that interested in that business. Also, the customer mix was different. They didn’t have the environmental services need as much as the other industrials services providers in the EQ portfolio had. It was a combination of all those factors that really factored in, and the fact that we really could not prop sale or drive volume into our disposal network was probably the key determination.”
Net Income for Second Quarter
As part of the transaction, US Ecology recorded a non-cash goodwill impairment charge of $6.7 million in the second quarter of 2015, which affected the quarterly financial results. The company announced its second-quarter results this week, including $2.1 million in net income, a steep drop from $6.9 million in the second quarter of 2014. Without the impairment, the net income would have been $8.8 million for the quarter.
Total revenue for the second quarter was $139.7 million, up from $66 million in the same quarter last year, which only included EQ revenue for two weeks of the covered period. Feeler attributed some of the slow results in the second quarter to the industrial services business segment.
“Our results, however, still fell short of our expectations primarily on the underperformance of our industrial services business,” Feeler said. “As expected, the legacy US Ecology business was down compared to a very strong second quarter of 2014 with a 23 percent decline in project-driven event business partially offset by a 3 percent increase in recurring base business. This decline was offset in part by the strong performance of the legacy EQ business, which delivered a 96 percent improvement over pro forma adjusted EBITDA for the second quarter of 2014.”
2015 Outlook
Feeler, though, did indicate that the sale would not affect the rest of 2015. “Business conditions for our core environmental and field services businesses remain very strong,” Feeler said. "With a solid shipment schedule of projects already won and a solid pipeline of opportunities, we expect our environmental services business to end the year on a strong note. Our field services business continues to have success in the market place with first half contract wins that are expected to benefit our second half results. As a result, we are expecting this increased business activity to result in a very strong third quarter and solid fourth quarter.”
US Ecology also reaffirmed its predicted adjusted EBITDA for 2015, minus the Allstate portion of the EBITDA. US Ecology has originally issued 2015 adjusted EBITDA guidance of $137 million to $143 million; that included a full year of Allstate operations, but adjusted EBITDA guidance for the continuing operations now ranges from $128 million to $132 million for the full year.
