Ladies and gentlemen, thank you for standing by. Welcome to the Appliance Recycling Centers of America's First Quarter 2014 Investor Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, May 6, 2014. I would now like to turn the conference over to Jack Cameron. Please go ahead. Edward R. (Jack) Cameron: Thank you, Chris, and good morning, everyone, and thank you for joining us. As mentioned, this is Appliance Recycling Centers of America's First Quarter 2014 Conference Call. I'm Jack Cameron, President and CEO. With me today are members of our executive team, Jeff Cammerrer, who's our Chief Financial Officer; Brad Bremer, President of ApplianceSmart; and Mark Eisenschenk, Chief Operating Officer and President of ARCA Recycling. This morning, we'll expand on yesterday's press release, which can be found also on our website under www.arcainc.com, in Investor Relations section, as I mentioned. On today's agenda, Jeff will read the forward-looking statement and review our first quarter financial results. Then, Brad will give an update on our retail appliance business. Mark will provide an overview of our utility recycling programs and I will discuss some of the industry and market trends. At the end, we'll open it up for questions. And so to get started, Jeff, why don't you take over?

Thank you, Jack. Our comments may contain certain forward-looking statements regarding possible events, including expectations that are not considered guarantees of future performance. Future results may differ materially, and you should not attribute undue certainty to any forward-looking statements. Please refer to the cautionary statements in our SEC filings to understand risks that may impact our business. We are very happy with the financial results for the first quarter. Despite the weather challenges we experienced in our markets, overall, revenues were up 10%, and EBITDA grew by $1.6 million compared to the first quarter last year. We generated a bottom line profit of $1 million or $0.17 per diluted share, which was an $800,000 improvement over the first quarter last year. The increase in revenues and profit compared to the first quarter last year is primarily due to growth of our appliance replacement programs and recognizing $1 million in carbon offset revenues. Our recycling segment continues to generate solid financial results. Recycling revenues of $12.1 million were up $3.8 million compared to the first quarter last year. The growth was primarily due to a 72% increase in appliance replacement program volumes, partially offset by a 16% decline in recycling-only volumes. Mark will talk more about our recycling division later in the call. Byproduct revenues of $4.8 million were up $800,000 compared to the first quarter last year. The increase is the result of recognizing $1 million in carbon offset revenues. Of the $1 million, $700,000 was at ARCA, and $300,000 was at AAP. We expect to generate another $500,000 in carbon offset revenues during the latter part of 2014. Revenues at AAP, which are also reported on the income statement as byproduct revenues, were $2.8 million in the first quarter, up $200,000 compared with last year. The increase was due primarily to $300,000 in carbon offset revenues, and partially offset by a 6% decline in recyclable appliances. Our recycling business, including AAP, generated an operating profit of $2.1 million in the first quarter, up $1.3 million compared with last year. Within that increase, AAP improved its operating profit by $400,000 due to a combination of the carbon offset sales previously mentioned, and a 65% reduction in the acquisition costs of certain recyclable appliances. ApplianceSmart, our retail division, improved its operating profit despite the tough winter weather that negatively impacted top line sales. ApplianceSmart sales were down $1.5 million compared with the first quarter last year. The decrease in revenue was also a result of a 6% decline in same-store sales we believe to be weather-related and operating one less store. ApplianceSmart generated an operating profit of $100,000 in the first quarter, an improvement of $300,000 compared with last year. The improvement was due primarily to a more favorable sales mix and lower occupancy and operating expenses. I will now turn the call over to Brad who will talk more about ApplianceSmart.

Thanks, Jeff. Like other retailers, our first quarter business was dampened by unusual winter weather in January and February. Snowstorms and extreme cold forced some closures and hurt traffic. Fortunately, we did see some pickup in March, and are on track to a more normalized levels. Everything considered, it was a pretty solid, profitable quarter. We saw a good $300,000 swing in profitability compared to the first quarter of 2013. If we hadn't run into weather-related issues, it could've been much better. Although many appliance manufacturers are announcing modest sales gains, retailers are not necessarily seeing it in the stores. The growth has been driven primarily by multi-housing projects. Many times, manufacturers bid and ship direct to builders without any builder or distributors involved. Other manufacturers are pursuing growth by entering new markets. Of course, housing market activity impacts appliance sales. The U.S. housing market continues to struggle. The National Association of Homebuilders says that consumer credit is tight, material prices are rising and lots are in short supply. The U.S. Commerce Department reported that the residential building permits were down 2.4% in March 2014 from the prior month, but up 11.2% from March of 2013. However, there are some encouraging signs. The Pending Home Sales Index for March rose 3.4% according to The National Association of Realtors. The U.S. government's gross domestic product report in late April show consumer confidence rising, with consumer spending on pace for a 3% annual growth. Recent business news reports indicated payrolls, retail sales and manufacturing activity all rising. The economy appears to be slowly coming out of its doldrums. While waiting for that recovery to strengthen, we continue working on rightsizing our stores, including and exploring sublet opportunities with some of our leases. Our product mix remains good and we're seeing an increase in availability of out-of-carton product, which bodes well for future quarters. I'll now turn the call over to Mark to talk about ARCA Recycling.

Thanks very much, Brad. Regarding ARCA's recycling business, total recycling revenues for the first quarter were $12.1 million, that's an increase of $3.8 million above the first quarter of 2013. The 46% growth was due to the success of our unique combination of programs that we provide to utility companies across North America. In a broad sense, those programs almost always involve removing energy-guzzling appliances from the grid. And in a specific sense, they involve appliance recycling and replacement activities. To further elaborate, in our straight recycling programs, we pick up and responsibly recycle old energy-guzzling appliances from utility customers who are usually rewarded with a rebate. In our replacement programs, we install new energy-efficient appliances to replace old energy guzzlers. Both programs then feed our recycling centers and enable us to recover valuable scrap materials, materials such as steel, copper and plastic, while also capturing potentially harmful organic compounds, such as refrigerant CFCs. From a financial perspective, during the first quarter, our straight recycling revenues decreased 16% compared to last year. Nearly 1/2 of that decline was due to a loss of a low-margin utility contract, the other half was due to a lower unit volume caused by weather-related issues that hampered appliance pickups and also due to price compression with certain contracts. Overall, our total volume of units recycled declined 11%, and the average revenue per unit lift 1.4% compared with the same quarter last year. Our replacement programs, on the other hand, enjoyed a revenue increase of $4.1 million. Replacement revenues for the quarter of $10.2 million was due to significantly higher unit volumes. And this growth is a function of a shift we've seen toward replacement programs. At least for the near term, that is for the rest of 2014, we believe the shift will continue.…

[Operator Instructions] And we do have a question from the line of David Kanen with Aegis Capital.

First question is on the retail side. You closed one store. Can you tell me approximately what that store was losing? And do you expect, on a yearly basis, with an improved cost structure and retail for this year, to breakeven or be profitable because it looks like there's a pretty good year-over-year improvement despite the decline of 6% in same-store sales? Edward R. (Jack) Cameron: Well, no -- one thing is we do not do projections and that type of stuff. But as far as that store is concerned, I don't know whether we have the detailed information in the room with us today. Jeff, do you have those?

I don't. Edward R. (Jack) Cameron: I'm sorry, I don't -- we don't have the breakdown with us at this point in time. The store was in Rogers and was closed in April last year. It was a nonperforming store and the lease was running out, so we just didn't renew the lease. I don't, off the top of my head, have the exact loss for that store, but it was a store that was not making money. I can get back to you. We have the information, I just don't have it in front of me.

Okay. And then, how much of the recycling revenue do you think, if you can quantify, was impacted due to weather? Like any sort of guesstimate, have things been more normal, what we would have done? Edward R. (Jack) Cameron: That's a good question. I know that we pulled a lot of our centers in the Midwest and we were affected by the weather. We pulled trucks off the road 3 or 4 days in all of our centers. And so that's another one that's a little hard to estimate.

Okay. About 3 to 4 days. I mean, I could just guesstimate based on 3 to 4 days and average it out. Okay. Edward R. (Jack) Cameron: So what happens if you have 5 centers, there's 6 centers that makes a difference. So -- but then also, that's rescheduling and that kind of stuff and some of that doesn't stand as lost as a result of that as well, too. So it's a hard number to really get, we know it had an influence.

Okay. It looks like free cash flow was around $2.3 million for the quarter. I'm going by what was paid down on your credit facility and then the sequential improvement in cash, is that about right?

Yes, that's about right.

Okay. And then, do you expect continued working capital improvements in the current quarter and for there to be meaningful cash generation like in Q1? Edward R. (Jack) Cameron: Well, we're -- that's getting into projections. We obviously are upbeat about this.

I just mean on working capital. I'm just talking about working capital because it looks like receivables were high ending the year and I know there were some utility programs that you had alluded to in the December call. Edward R. (Jack) Cameron: Well, Jeff, you want to try to answer that?

From a working capital perspective, David, I don't think we're going to see a huge increase in cash coming from our working capital. The programs that generated those high receivables continue to operate at the same level. So we're going to turn working capital at the same rate, but we're not going to see it go down. Meaning, cash coming into the business.

Okay. And Jeff, on your balance sheet, the long-term obligations, less current maturities, are those primarily leases related to the retail? Can you just give me a little color on that?

Well, it's primarily -- we consolidate AAP on our balance sheet, 100% on our balance sheet, and it's primarily related to financing the URT equipment out at AAP. And then, some other financing obligations, some are leases, some aren't leases. But that's a smaller portion of the total.

[Operator Instructions] Our next question comes from the line of John Pinuco [ph], a private investor.

Great quarter... Edward R. (Jack) Cameron: John, we can hardly hear you.

Can you hear me now? Edward R. (Jack) Cameron: Barely.

Can you hear me now? Edward R. (Jack) Cameron: Yes, that's better.

Good. Jack, as well as the -- you mentioned about the opportunities and as you, over the years, have put this recycling business together here and developed strategy and all the elements seem to be working together to move forward. What do you see are the greatest hurdles down the road here in the next year, 2 years, 3 years, as well as competition to what you're doing? And at the same time, how would you maybe broaden your definition or the specifics of the strategy, the business strategy going forward? Edward R. (Jack) Cameron: Well, our main goal has always been, as our name, Appliance Recycling Centers of America. We have been trying for 25 years to develop a state-of-the-art recycling center. It's our belief that every major market needs a center that does things properly. One of the issues we had is we never had enough supply or guaranteed supply to make the capital investment into a center, until we struck a deal with a major manufacturer that had control over returns, as GE has with their program with Home Depot. And with the ability to have guaranteed supply, we then have the ability to make the capital investment and take the risk of putting up what would be the state-of-the-art equipment. And one of the major issues there is that some of the revenues that you have to develop, you have to guess at, unless you actually have a center up and running. So it's hard to sell materials from a shredder of appliances if you don't have the materials. And so we accomplished a big hurdle that we got over by getting that center up and running. Thank goodness that working with somebody as responsible about these issues as GE is and Home Depot. We have…

If I could follow up, if I can here, as you mentioned the word leg -- that you're doing this without the benefit of major legislation. The question arises then, what -- is there any major legislation emanating on EPA and/or other governmental agencies, as well as the states that's going to be -- that can help to drive this business? Edward R. (Jack) Cameron: Well, I think, a little -- it's a little by little situation. You're not going to see any national legislation come out. It's going to be state and local. It's going to be people taking on the responsibility. It's a huge industry. There's 50 million, 60 million, 70 million appliances a year that need to be recycled in United States, and a lot of them are getting recycled but not properly. A lot of them are going back in the second hand market, which is not helpful. So I think, you're going to see this as a gradual change. Something that will allow us to grow our business over the coming years. And I think, if you take a look at where we're going to be 5 and 10 years from now, you're going to see many centers that have state-of-the-art equipment that will continue to push that envelope. And I think, you'll see more manufacturers and retailers and governments that are looking for people to be responsible. You're seeing it in the electronics industry now, most of the major companies that are getting rid of computers are saying to the recycler, they just don't want them to go to any Tom, Dick or Harry. They want -- the first question they're asking the recycling are, "Are you certified? Do you know where this material is going? Are you going to hold us harmless? Is…

And we do have a follow-up question from the line of David Kanen with Aegis Capital.

In your prepared remarks, you were referring to the potential with recycling plastics as it relates to some capital investments on your part. I think, you said 3x to 4x. Could you just repeat that? I have gotten distracted during that and I didn't get exactly what you said. Edward R. (Jack) Cameron: So 2 of the major plastics that come out of appliances are ABS and HIPS, and that's a lot of the plastics. Right now, they're co-mingled when they come out of the shredder. And I'll just use that as an example. There's other plastics that can be handled as well. But those typically come out of the shredder mix. We know if we separate those, their value could come close to $0.80 to $1 a pound as opposed to $0.18 a pound. And so if we're generating $1 million in revenue on plastics, now that could go $2 million or $3 million. And I think that as -- and this was -- this is happening in the industry, the auto shredders are facing the same problem, is that more cars and more appliances are containing more plastics, and these plastics need to be recycled as opposed to go to the landfills. And right now, most of the shredders in the United States that have plastics come out of them, they all end up in landfills. And I think, there's a real -- there's really -- EPA has just finally -- has come out with an announcement that they're going to allow the auto shredders to be able to sort the plastics and start recycling it now. They've been holding that up for years, saying that some of those plastics were contaminated with PCBs, they've now reversed that position. And so you're going to see some more development…

Okay. And then, final question. What do you think the life is of these carbon offset credits, are you recognizing this revenue? How long will it last approximately? Edward R. (Jack) Cameron: Well, let me answer it this way, 10 years ago, almost all the refrigerators that we saw had CFC or R12. Today, we're seeing about half of the ones coming into Philadelphia, for example, are CFC and some of the utility programs. A newer program with the utility company, it runs higher because we're cleaning up a lot of old appliances. In some more mature markets where we've been, for example, California, where we've been in that market 20 years, we're seeing the percent of units coming in with CFCs is about 30%. But California is a little different because they were early on, on energy-efficient appliances. California was requiring manufacturers to produce energy-efficient appliances before there was a national standard, and so they're way ahead of the curve in California, and it's still running 30%. So we think that the CFC revenue will continue for 3, 4, 5 years. It will be declining because the number of units are going to decline. But also, there's some other issues with new refrigerants coming out. And so there will be new opportunities, but we think that there'll be 2 or 3 or 4 years, but it won't go forever, if that's your question. There will be a sunset on it someday.

And there are no further questions on the phone lines at this time. Edward R. (Jack) Cameron: Okay. Well, thank you, Chris, and thanks, everybody, for listening to us today. And we look forward to the future. And thank you very much for joining us. And with no further questions, that'll be the end of the conference call today. Thank you for joining us. Thank you. Bye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.