ALTS - NASDAQ

Jack Cameron - President and Chief Executive Officer Jeff Cammerrer - Chief Financial Officer Brad Bremer - President, ApplianceSmart Mark Eisenschenk - Chief Operating Officer and President, ARCA Recycling

Ladies and gentlemen, thank you for standing by. Welcome to the Appliance Recycling Centers of America’s Third Quarter 2013 Investor Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, November 5, 2013. I’d now like to turn the conference over to Jack Cameron. Please go ahead sir.

Thank you, Becky. I appreciate it. Good morning everyone and thanks for joining us. Welcome to the Appliance Recycling Centers of America third quarter 2013 conference call. I am Jack Cameron, President and CEO of ARCA. With me today are members of our senior management team Jeff Cammerrer, our Chief Financial Officer; Brad Bremer, President of ApplianceSmart; and Mark Eisenschenk, who has joined us this past summer as Chief Operating Officer and also as President of ARCA Recycling. This morning we will expand upon yesterday’s press release, which can be found on our website under the Investor Relations section and our website is arcainc.com. On today’s agenda today, Jeff will read our forward-looking statements and review our third quarter financial results. Then Brad will give us an update on our retail appliance business and Mark will provide an overview of our utility recycling programs. Finally, I will discuss the company and the industry developments and then we will open up the call for questions. So to start out, we will start out with Jeff. And Jeff, go ahead.

Thanks, Mark and Brad and Jeff for your comments. And I’d like to recap I don’t want to repeat everything that was said. There was lot of information given out, but I do want to go over some things. And Mark, we are very happy to have you on the team and thank you for your presentation and Brad just the same. Before I go into some details, I just want to mention that as you know 2012 was a tough year and we started making the adjustments that Brad alluded to it in sales we saw it in the utility business and the turndown in efforts by some utility companies. And we started making the adjustments across the board from operating expenses to renegotiating contracts to rightsizing the stores and we are very pleased with the progress. And I think it started to show up in the beginning of the year in the first quarter, continued in the second and now in the third quarter. Very confident about our management team and the current organizational structure that we have. Very pleased with the progress that we are making. And as you can surmise from the different comments made by everybody, the inner workings or the inner relations of our businesses between the access the product to ApplianceSmart with utility programs, increased out-of-cart merchandise because of some situations with the market share of Home Depot and then also the fact that a lot of the early housing starts last year were multi-family. And they tend to generate more out-of-cart merchandise. And now we are seeing a more residential rebounded with housing. So we are seeing all of it come together for us and providing more product and this also works in favor of AAP appliance – ARCA Advanced Processing, our joint venture in Philadelphia, because as you know the supply of appliances are generated from the Home Depot chain in the 12 states in the Northeast. So you can see how this all kind of works together. So our cost reductions are very improved as I mentioned. We are on track to continue to move forward. Our staffing is in great shape. We are ramping up where necessary. And as Mark mentioned, the call center is giving us some real flexibility and promoting our programs with the different utilities. Having the ability to expand rapidly is a very important issue when utilities consider who they are going to contract with. Brad mentioned in some of his presentations about rightsizing the stores. As you know, we did closed three stores last year and we have right-sized the Georgia market. We are also seeing better out-of-cart merchandise in those stores. We have a much better balance of inventory than we had in 2012. And as mentioned before, we are really in the replacement market and we have the ability to mix and match out-of-cart and with new merchandise and the ability of the multi-housing family and rental business being up. We are seeing a lot of business in that market as well. And so we are continuing to look at stores and rightsizing them and judging what works and doesn’t work. And I think Brad has done an outstanding job in putting that all altogether. AAP or ARCA Advanced Processing in Philadelphia has made great strides this year in developing better tools to manage the labor. This was a business that it gets down to the trailer management. When you are receiving as many trailers full of appliances that we do on a daily basis, the labor per ton is important. We have seen great improvement on that. We have added some new technologies and accounting procedures and using the computers to help manage the business and that’s all coming along and then we are making investments in that as well as making investments in other capital equipment such as trailers and conveyors and that type of thing. And so we are continuing to see improvement there. The volume increase we have got in the quarter, the profitability for AAP was $331,000 compared to a $300,000 loss last year, so that’s a $600,000 swing. A lot of that’s due to some of the negotiations on acquisition and also increased volumes. And as I mentioned a lot of that comes out of the GE home delivery system that is – that provide delivery for the Home Depot stores. As Brad mentioned some of the market share that they are gaining is because they have added new product to the floor and that’s increasing their market share, which in turn increases the number of units that we received. We are also expecting a big boost in product this fourth quarter because of Black Friday and my understanding is some of the promotion from the major retailers is starting around November 7 and will continue and we expect to be very busy all the way through the end of the year in recycling appliances at AAP. So we look forward to a good fourth quarter there. One of the developments that we have all been talking about for the last year or two is the carbon offset market. And I am happy to announce that we are finally getting the carbon offsets through the new California Cap-and-Trade system as a matter of fact we are partnered with Derek Six from ECC. We received the first ODS offset credits that were issued in California. So that system is now up and running. You have heard me talk about the lawsuits and with delays and so forth for the last couple of years, so that’s finally over with and we are now in the process of receiving the credits. As a matter of fact we did receive about $0.5 million with the carbon offset credit money. But it came in October, so we will show up in our fourth quarter, it's not in our third quarter and that was mentioned in the press release as well. So that's a milestone and we’re looking forward to – as a result of that we have more burns and we have more credits coming. And we are continuing to collect CFCs and we will continue to do that. For this year though we do expect about another $200,000 a combination between ARCA and AAP of carbon offset credit money this year and then we do expect some of the other burns, there are two or three of those that those moneys will flow into next year. And we anticipate that they will be hopefully early next year and with the progress that’s been made in California we expect that it would be earlier rather than later. And so we are going to continue to follow that. Some of the other things that’s going to add some liquidity to the market is that the Québec has joined with the California market. And also we are seeing a stable pricing in the carbon on the allowances in California as well. So there hasn’t been much change there. So we are very, very confident that this is going to continue to provide revenues for us and very pleased that it’s finally getting done. So in conclusion not to recap too many things that we have gone over is that there was the upside I think for ARCA this year is that I think the economy not this year, but going forward is that we are starting to see what everybody is indicating as a housing trend up for the next 5 to 10 years. We are seeing gasoline prices decrease that’s going to affect us in several areas. One I think it’s going to put more money into pockets of people to buy appliances and other items. At the same time it lowers our operating cost because we spend a lot of money on fuel. And also I can’t over emphasize the fact that our relationship with our bankers is fantastic and we are moving forward as Jeff mentioned we can never forget about our bank. And so the synergies between all of our business service and the economy and everything and I guess in summary I would like to say that we expect the economy over the next four or five years to continue to improve. I think it’s going to raise the tide of every business. And I think we will benefit from that in appliance sales. We will benefit in scrap prices, we will benefit in more utility programs and we are seeing those trends, and we see no reason to be discouraged at all. As a matter of fact we are very optimistic and I might say cautiously because you never know. But anyway it kind of wraps up my remarks and I would like to open up to question. So Becky if you can go ahead and open up for questions, I would appreciate it. Thank you very much.

(Operator Instructions) And we appear to have no questions at this time sir.

There are no questions, okay. Well, thank you very much. We appreciate your participation. If there are any questions that develop later, we are always available to answer them. And as you know I take all calls and whatever I could do to answer any questions you have or Jeff or Mark or Brad. So I guess it’s the last call for questions. If there are no questions at all, I guess we will say thank you very much for joining us.