0001558370-20-006169.txt : 20200511 0001558370-20-006169.hdr.sgml : 20200511 20200511125839 ACCESSION NUMBER: 0001558370-20-006169 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 102 CONFORMED PERIOD OF REPORT: 20200331 FILED AS OF DATE: 20200511 DATE AS OF CHANGE: 20200511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US Ecology, Inc. CENTRAL INDEX KEY: 0001783400 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39120 FILM NUMBER: 20863753 BUSINESS ADDRESS: STREET 1: 101 S. CAPITOL BLVD. STREET 2: SUITE 1000 CITY: BOISE STATE: ID ZIP: 83702 BUSINESS PHONE: (208) 331-8400 MAIL ADDRESS: STREET 1: 101 S. CAPITOL BLVD. STREET 2: SUITE 1000 CITY: BOISE STATE: ID ZIP: 83702 FORMER COMPANY: FORMER CONFORMED NAME: US Ecology Parent, Inc. DATE OF NAME CHANGE: 20190723 10-Q 1 ecol-20200511x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or

TRANSITION REPORT PURSUANT TO Section 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                       .

Commission file number: 001-39120

Graphic

US ECOLOGY, INC.

(Exact name of registrant as specified in its charter)

Delaware

84-2421185

(State or other jurisdiction of incorporation or

(I.R.S. Employer Identification No.)

organization)

101 S. Capitol Blvd., Suite 1000

BoiseIdaho

83702

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (208) 331-8400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ECOL

Nasdaq Global Select Market

Warrants to Purchase Common Stock

ECOLW

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes       No  

At May 5, 2020, there were 31,503,073 shares of the registrant’s Common Stock outstanding.

US ECOLOGY, INC.

FORM 10-Q

TABLE OF CONTENTS

Item

    

Page

PART I — FINANCIAL INFORMATION

1.

Financial Statements (Unaudited)

3

Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

3

Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

4

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019

5

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

6

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019

7

Notes to Consolidated Financial Statements

8

Report of Independent Registered Public Accounting Firm

32

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

3.

Quantitative and Qualitative Disclosures About Market Risk

47

4.

Controls and Procedures

48

PART II — OTHER INFORMATION

Cautionary Statement

49

1.

Legal Proceedings

50

1A.

Risk Factors

51

2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

3.

Defaults Upon Senior Securities

53

4.

Mine Safety Disclosures

53

5.

Other Information

53

6.

Exhibits

54

SIGNATURE

55

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

US ECOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value amount)

    

March 31, 2020

    

December 31, 2019

Assets

Current Assets:

Cash and cash equivalents

$

109,790

$

41,281

Receivables, net

 

240,378

 

255,310

Prepaid expenses and other current assets

 

27,080

 

25,136

Income taxes receivable

10,332

11,244

Total current assets

 

387,580

 

332,971

Property and equipment, net

 

485,325

 

478,768

Operating lease assets

55,843

57,396

Restricted cash and investments

 

5,168

 

5,069

Intangible assets, net

 

564,124

 

574,902

Goodwill

 

466,031

 

766,980

Other assets

 

14,568

 

15,158

Total assets

$

1,978,639

$

2,231,244

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable

$

51,387

$

46,906

Deferred revenue

 

21,698

 

14,788

Accrued liabilities

 

50,245

 

65,869

Accrued salaries and benefits

 

22,069

 

29,653

Income taxes payable

 

1,324

 

726

Short-term borrowings

396

Current portion of long-term debt

3,358

3,359

Current portion of closure and post-closure obligations

 

2,704

 

2,152

Current portion of operating lease liabilities

17,813

17,317

Total current liabilities

 

170,994

 

180,770

Long-term debt

 

855,003

 

765,842

Long-term closure and post-closure obligations

 

84,392

 

84,231

Long-term operating lease liabilities

38,092

39,954

Other long-term liabilities

 

31,439

 

20,722

Deferred income taxes, net

 

122,396

 

128,345

Total liabilities

 

1,302,316

 

1,219,864

Commitments and contingencies (See Note 18)

Stockholders’ Equity:

Common stock $0.01 par value per share, 50,000 authorized; 31,503 and 31,461 shares issued and outstanding, respectively

 

315

 

315

Additional paid-in capital

 

817,730

 

816,345

Retained (deficit) earnings

 

(97,179)

 

206,574

Treasury stock, at cost, 415 and 0 shares, respectively

 

(18,332)

 

Accumulated other comprehensive loss

 

(26,211)

 

(11,854)

Total stockholders’ equity

 

676,323

 

1,011,380

Total liabilities and stockholders’ equity

$

1,978,639

$

2,231,244

The accompanying notes are an integral part of these consolidated financial statements.

3

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended March 31, 

    

2020

    

2019

Revenue

$

240,720

$

131,037

Direct operating costs

 

179,598

 

95,796

Gross profit

 

61,122

 

35,241

Selling, general and administrative expenses

 

51,058

 

20,305

Goodwill impairment charges

300,300

Operating (loss) income

 

(290,236)

 

14,936

Other income (expense):

Interest income

 

89

 

207

Interest expense

 

(9,310)

 

(4,030)

Foreign currency gain (loss)

 

937

 

(139)

Other

 

171

 

110

Total other expense

 

(8,113)

 

(3,852)

(Loss) income before income taxes

 

(298,349)

 

11,084

Income tax (benefit) expense

 

(263)

 

3,041

Net (loss) income

$

(298,086)

$

8,043

(Loss) earnings per share:

Basic

$

(9.52)

$

0.37

Diluted

$

(9.52)

$

0.36

Shares used in (loss) earnings per share calculation:

Basic

 

31,305

 

21,987

Diluted

 

31,305

 

22,197

The accompanying notes are an integral part of these consolidated financial statements.

4

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2020

    

2019

Net (loss) income

$

(298,086)

$

8,043

Other comprehensive income (loss):

Foreign currency translation (loss) gain

 

(8,259)

 

1,689

Net changes in interest rate hedge, net of taxes of $(1,621) and ($184), respectively

(6,098)

(691)

Comprehensive (loss) income, net of tax

$

(312,443)

$

9,041

The accompanying notes are an integral part of these consolidated financial statements.

5

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2020

    

2019

Cash flows from operating activities:

Net (loss) income

$

(298,086)

$

8,043

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization of property and equipment

 

17,978

 

8,125

Amortization of intangible assets

 

9,441

 

2,811

Accretion of closure and post-closure obligations

 

1,266

 

1,125

Property and equipment impairment charges

25

Goodwill impairment charges

300,300

Unrealized foreign currency loss (gain)

 

2,703

 

(371)

Deferred income taxes

 

(3,320)

 

2,905

Share-based compensation expense

 

1,564

 

1,222

Share-based payments of business development and integration expenses

 

181

 

Unrecognized tax benefits

 

52

131

Net loss (gain) on disposition of assets

 

184

 

(272)

Gain on insurance proceeds from damaged property and equipment

(4,653)

Amortization and write-off of debt issuance costs

298

204

Amortization and write-off of debt discount

245

Change in fair value of contingent consideration

 

(1,127)

 

Changes in assets and liabilities (net of effects of business acquisitions):

Receivables

 

13,467

 

16,577

Income taxes receivable

 

893

 

(1,487)

Other assets

 

(2,957)

 

525

Accounts payable and accrued liabilities

 

(13,618)

 

(11,935)

Deferred revenue

 

7,083

 

(47)

Accrued salaries and benefits

 

(7,446)

 

(3,417)

Income taxes payable

 

662

 

(517)

Closure and post-closure obligations

 

(417)

 

(470)

Net cash provided by operating activities

 

29,346

 

18,524

Cash flows from investing activities:

Business acquisitions (net of cash acquired)

(3,309)

Purchases of property and equipment

 

(19,131)

 

(7,223)

Insurance proceeds from damaged property and equipment

5,000

Proceeds from sale of property and equipment

 

781

 

459

Purchases of restricted investments

 

(56)

 

(23)

Net cash used in investing activities

 

(21,715)

 

(1,787)

Cash flows from financing activities:

Proceeds from long-term debt

90,000

Payments on long-term debt

(1,125)

(30,000)

Payments on short-term borrowings

(49,871)

(4,331)

Proceeds from short-term borrowings

50,267

6,449

Repurchase of common stock

 

(18,332)

 

(915)

Dividends paid

 

(5,667)

 

(3,970)

Payment of equipment financing obligations

(1,525)

(199)

Net cash provided by (used in) financing activities

 

63,747

 

(32,966)

Effect of foreign exchange rate changes on cash

 

(2,825)

 

393

Increase (decrease) in Cash and cash equivalents and restricted cash

 

68,553

 

(15,836)

Cash and cash equivalents and restricted cash at beginning of period

 

42,140

 

32,753

Cash and cash equivalents and restricted cash at end of period

$

110,693

$

16,917

Reconciliation of Cash and cash equivalents and restricted cash

Cash and cash equivalents at beginning of period

41,281

31,969

Restricted cash at beginning of period

859

784

Cash and cash equivalents and restricted cash at beginning of period

$

42,140

$

32,753

Cash and cash equivalents at end of period

109,790

16,120

Restricted cash at end of period

903

797

Cash and cash equivalents and restricted cash at end of period

$

110,693

$

16,917

Supplemental Disclosures:

Income taxes paid, net of receipts

$

1,241

$

2,085

Interest paid

$

7,642

$

3,462

Non-cash investing and financing activities:

Capital expenditures in accounts payable

$

3,531

$

912

The accompanying notes are an integral part of these consolidated financial statements.

6

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2020

    

2019

Total stockholders' equity, beginning balances

$

1,011,380

$

359,217

Common stock:

Beginning balances

$

315

$

220

Stock option exercises and issuance of common stock and restricted common stock

 

1

Ending balances

$

315

$

221

Additional paid-in capital:

Beginning balances

$

816,345

$

183,834

Share-based compensation

 

1,564

1,222

Share-based payments of business development and integration expenses

181

Stock option exercises and issuance of common stock and restricted common stock

(360)

(1,103)

Ending balances

$

817,730

$

183,953

Retained (deficit) earnings:

Beginning balances

$

206,574

$

189,324

Net (loss) income

 

(298,086)

8,043

Dividends paid

(5,667)

(3,970)

Ending balances

$

(97,179)

$

193,397

Treasury stock:

Beginning balances

$

$

(370)

Repurchase of common stock

 

(18,332)

(916)

Ending balances

$

(18,332)

$

(1,286)

Accumulated other comprehensive income (loss):

Beginning balances

$

(11,854)

$

(13,791)

Other comprehensive (loss) income

 

(14,357)

998

Ending balances

$

(26,211)

$

(12,793)

Total stockholders' equity, ending balances

$

676,323

$

363,492

The accompanying notes are an integral part of these consolidated financial statements.

7

US ECOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.     GENERAL

Basis of Presentation

The accompanying unaudited consolidated financial statements include the results of operations, financial position and cash flows of US Ecology, Inc. and its wholly-owned subsidiaries. All inter-company balances have been eliminated. Throughout these consolidated financial statements words such as “we,” “us,” “our,” “US Ecology” and “the Company” refer to US Ecology, Inc. and its subsidiaries.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly, in all material respects, the results of the Company for the periods presented. These consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted pursuant to the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2020.

The Company’s consolidated balance sheet as of December 31, 2019 has been derived from the Company’s audited consolidated balance sheet as of that date.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements. As it relates to estimates and assumptions in amortization rates and environmental obligations, significant engineering, operations and accounting judgments are required. We review these estimates and assumptions no less than annually. In many circumstances, the ultimate outcome of these estimates and assumptions will not be known for decades into the future. Actual results could differ materially from these estimates and assumptions due to changes in applicable regulations, changes in future operational plans and inherent imprecision associated with estimating environmental impacts far into the future.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses” (Topic 326), which became effective for reporting periods beginning after December 15, 2019. The standard replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning

8

of the first reporting period in which the guidance is effective. The Company adopted the new credit loss standard effective January 1, 2020 and the impact of the adoption was not material to the Company's consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors. The Company will continue to actively monitor the impact of the recent coronavirus (‘COVID-19”) pandemic on expected credit losses.

NOTE 2.     REVENUES

Our operations are managed in two reportable segments, Environmental Services and Field & Industrial Services, reflecting our internal reporting structure and nature of services offered. See Note 17 for additional information on our operating segments.

The following table presents our revenue disaggregated by our reportable segments and service lines:

Three Months Ended March 31, 2020

Field &

Environmental

Industrial

$s in thousands

    

Services

    

Services

    

Total

Treatment & Disposal Revenue (1)

$

100,049

$

9,984

$

110,033

Services Revenue:

Transportation and Logistics (2)

26,696

6,154

32,850

Industrial Services (3)

28,478

28,478

Small Quantity Generation (4)

11,084

11,084

Total Waste Management (5)

8,482

8,482

Remediation (6)

10,441

10,441

Emergency Response (7)

24,922

24,922

Domestic Standby Services (8)

9,467

9,467

Other (9)

4,963

4,963

Revenue

$

126,745

$

113,975

$

240,720

Three Months Ended March 31, 2019

Field &

Environmental

Industrial

$s in thousands

    

Services

    

Services

    

Total

Treatment & Disposal Revenue (1)

$

77,713

$

2,796

$

80,509

Services Revenue:

Transportation and Logistics (2)

14,619

7,093

21,712

Industrial Services (3)

6,016

6,016

Small Quantity Generation (4)

8,189

8,189

Total Waste Management (5)

8,714

8,714

Remediation (6)

1,726

1,726

Emergency Response (7)

3,046

3,046

Other (9)

1,125

1,125

Revenue

$

92,332

$

38,705

$

131,037

(1)We categorize our treatment and disposal revenue as either “Base Business” or “Event Business” based on the underlying nature of the revenue source. We define Event Business as non-recurring projects that are expected to equal or exceed 1,000 tons, with Base Business defined as all other business not meeting the definition of Event Business. For the three months ended March 31, 2020 and 2019, 25% and 15%, respectively, of our treatment and disposal revenue was derived from Event Business projects. Base Business revenue accounted for 75% and 85% of our treatment and disposal revenue for the three months ended March 31, 2020 and 2019, respectively.
(2)Includes collection and transportation of non-hazardous and hazardous waste.
(3)Includes industrial cleaning and maintenance for refineries, chemical plants, steel and automotive plants, marine terminals and refinery services such as tank cleaning and temporary storage.

9

(4)Includes retail services, laboratory packing, less-than-truck-load service and household hazardous waste collection. Contracts for Small Quantity Generation may extend beyond one year and a portion of the transaction price can be fixed.
(5)Through our total waste management (“TWM”) program, customers outsource the management of their waste compliance program to us, allowing us to organize and coordinate their waste management disposal activities and environmental compliance. TWM contracts may extend beyond one year and a portion of the transaction price can be fixed.
(6)Includes site assessment, onsite treatment, project management and remedial action planning and execution. Contracts for Remediation may extend beyond one year and a portion of the transaction price can be fixed.
(7)Includes spill response, waste analysis and treatment and disposal planning.
(8)We provide government-mandated, commercial standby oil spill compliance solutions to companies that store, transport, produce or handle petroleum and certain nonpetroleum oils on or near U.S. waters. Our standby services customers pay annual retainer fees under long-term or evergreen contracts for access to our regulatory certifications, specialized assets and highly trained personnel. When a customer with a retainer contract experiences a spill incident, we coordinate and manage the spill response, which results in incremental revenue for the services provided, in addition to the retainer fees.
(9)Includes equipment rental and other miscellaneous services.

We provide services primarily in the United States, Canada and the Europe, Middle East, and Africa (“EMEA”) region. The following table presents our revenue disaggregated by our reportable segments and geographic location where the underlying services were performed:

    

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

Field &

Field &

Environmental

Industrial

Environmental

Industrial

$s in thousands

    

Services

    

Services

    

Total

    

Services

    

Services

    

Total

United States

$

107,928

$

105,546

$

213,474

$

77,359

$

38,705

$

116,064

Canada

18,817

1,077

19,894

14,973

14,973

EMEA

5,239

5,239

Other (1)

 

 

2,113

 

2,113

 

 

 

Total revenue

$

126,745

$

113,975

$

240,720

$

92,332

$

38,705

$

131,037

(1)Includes Mexico, Asia Pacific, and Latin America and Caribbean geographical regions.

Deferred Revenue

We record deferred revenue when cash payments are received, or advance billings are charged, prior to performance of services, such as waste that has been received but not yet treated or disposed, and is recognized when these services are performed. During the three months ended March 31, 2020 and 2019, we recognized $8.4 million and $7.5 million of revenue that was included in the deferred revenue balance at the beginning of each year, respectively.

Receivables

Our receivables include invoiced and unbilled amounts where the Company has an unconditional right to payment.

Principal versus Agent Considerations

The Company commonly contracts with third-parties to perform certain waste-related services that we have promised in our customer contracts. We consider ourselves the principal in these arrangements as we direct the timing, nature and pricing of the services ultimately provided by the third-party to the customer.

10

Costs to obtain a contract

The Company pays sales commissions to employees, which qualify as costs to obtain a contract. Sales commissions are expensed as incurred as the commissions are earned by the employee and paid by the Company over time as the related revenue is recognized. Other commissions and incremental costs to obtain a contract are not material.

Practical Expedients and Optional Exemptions

Our payment terms may vary based on type of service or customer; however, we do not adjust the promised amount of consideration in our contracts for the time value of money as payment terms extended to our customers do not exceed one year and are not considered a significant financing component in our contracts.

We do not disclose the value of unsatisfied performance obligations as contracts with an original expected length of more than one year and contracts for which we do not recognize revenue at the amount to which we have the right to invoice for services performed is insignificant and the aggregate amount of fixed consideration allocated to unsatisfied performance obligations is not material.

NOTE 3.     BUSINESS COMBINATIONS

Acquisition of Impact Environmental Services, Inc.

On January 28, 2020, we acquired Impact Environmental Services, Inc., an industrial cleaning and environmental services company based in Romulus, Michigan for $3.3 million. The acquired operations are reported as part of our Field & Industrial Services segment, however, revenues, net income, earnings per share and total assets are not material to our consolidated financial position or results of operations.

We allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, resulting in $300,000 allocated to goodwill and $900,000 allocated to amortizing intangible assets (primarily customer relationships) to be amortized over a weighted average life of approximately 12 years. All of the goodwill recognized was assigned to our Field & Industrial Services segment and is expected to be deductible for income tax purposes over a 15-year amortization period.

NRC Group Holdings Corp.

On November 1, 2019, the Company completed its acquisition (the “NRC Merger”) of NRC Group Holdings Corp. (“NRC”), a provider of comprehensive environmental, compliance and waste management services to the marine and rail transportation, general industrial and energy industries. The addition of NRC’s substantial service network strengthened and expanded US Ecology’s suite of environmental services, including new energy waste disposal and service capabilities, and provided expanded opportunities to establish US Ecology as a leader in standby and emergency response services.

The total merger consideration was $1,024.8 million, comprised of the following:

November 1,

$s in thousands

    

2019

Fair value of US Ecology common stock issued (1)

$

581,101

Fair value of replacement warrants issued (2)

 

44,858

Fair value of replacement restricted stock units issued (3)

 

141

Fair value of replacement stock options (4)

 

360

Repayment of NRC’s term loan and revolving credit facility

 

398,373

Total merger consideration

$

1,024,833

(1)The fair value of US Ecology common stock issued was calculated based on 9,337,949 shares of US Ecology common stock multiplied by the closing price of US Ecology common stock of $62.23 per share on October 31, 2019, the day

11

immediately preceding the closing of the NRC Merger.
(2)The fair value of replacement warrants issued was calculated based on 3,772,753 replacement warrants multiplied by the fair value per warrant of $11.89. The fair value per warrant was based on the closing price of the replaced NRC warrants (NYSE: NRCG.WS) of $2.33 on October 31, 2019, the day immediately preceding the closing of the NRC Merger, divided by the exchange ratio of 0.196 pursuant to the Merger Agreement.
(3)The fair value of replacement restricted stock units issued was calculated based on 118,239 replacement restricted stock units multiplied by the closing price of US Ecology common stock of $62.23 per share on October 31, 2019, the day immediately preceding the closing of the NRC Merger, further multiplied by the ratio of the precombination service period to the remaining vesting period, or approximately 1.9%.
(4)The fair value of replacement stock options issued was calculated based on 29,400 replacement stock options multiplied by the fair value per option of $12.26. The fair value per option was calculated using the Black-Scholes option pricing model, with the following weighted-average assumptions: strike price of $52.30 per option, dividend yield of 1.2%; expected volatility of 28.9%; average risk-free interest rate of 1.5%; and an expected term of 1 year. The replacement stock options became fully vested at the merger date therefore the entire fair value is considered merger consideration.

The payment of transaction fees and expenses and repayment of $398.4 million of NRC’s debt were funded using proceeds from a new $450.0 million seven-year term loan. See Note 11 for more information.

We have recognized the assets and liabilities of NRC based on our preliminary estimates of their acquisition date fair values. The purchase price allocations are preliminary and subject to change. We continue to gather information relevant to our determination of the fair value of acquired assets and liabilities primarily related to, but not limited to, property and equipment, identifiable intangible assets and deferred income taxes. Any adjustments to the purchase price allocations are made as soon as practicable but no later than one year from the merger date. The following table summarizes the merger consideration and the preliminary fair value estimates of assets acquired and liabilities assumed, recognized at the merger date, with purchase price allocation adjustments since the preliminary purchase price allocation as previously disclosed as of December 31, 2019:

December 31, 

March 31, 

$s in thousands

    

2019

    

Adjustments

    

2020

Current assets

$

131,653

$

$

131,653

Property and equipment

197,045

197,045

Identifiable intangible assets

303,600

303,600

Other assets

41,687

41,687

Current liabilities

(83,460)

(1,215)

(84,675)

Deferred income tax liabilities

(56,596)

194

(56,402)

Other liabilities

(57,581)

(57,581)

Total identifiable net assets

476,348

(1,021)

475,327

Goodwill

548,485

1,021

549,506

Total purchase price

$

1,024,833

$

$

1,024,833

Purchase price allocation adjustments related primarily to the receipt of additional information regarding the fair values of accrued liabilities, deferred income taxes and residual goodwill.

Goodwill of $549.5 million arising from the acquisition is primarily attributable to the assembled workforce of NRC and expected synergies from combining operations. $309.4 million of the goodwill recognized was allocated to our Environmental Services segment and $240.1 million of the goodwill recognized was allocated to Field & Industrial Services segment. We expect $33.3 million of the acquired goodwill to be deductible for income tax purposes.

During the first quarter of 2020, management determined that the projected future cash flows of certain reporting units identified as part of the NRC Merger indicated that the fair value of the reporting units may be below their respective

12

carrying amounts. Accordingly, we performed an interim assessment of each reporting unit’s goodwill as of March 31, 2020. Based on the results of this assessment, we recognized goodwill impairment charges of $283.6 million related to our Environmental Services segment and $16.7 million related to our Field & Industrial Services segment in the first quarter of 2020. Refer to Note 10 for additional information.

The preliminary fair value of identifiable intangible assets related to the acquisition of NRC by major intangible asset class and corresponding weighted average amortization period are as follows:

Average

Amortization

$s in thousands

    

Fair Value

    

Period (Years)

Amortizing intangible assets:

Customer relationships - noncontractual

$

193,700

14

Customer relationships - contractual

34,400

7

Permits and licenses

8,700

16

Tradenames

6,100

2

Non-compete agreements

3,300

2

Total identified amortizing intangible assets

246,200

Non-amortizing intangible assets:

Permits and licenses

57,400

n/a

Total identified intangible assets

$

303,600

The following unaudited pro forma financial information presents the combined results of operations as if NRC had been combined with US Ecology as of January 1, 2019. The pro forma financial information includes the accounting effects of the business combination, including the amortization of intangible assets, depreciation of property, plant and equipment, and interest expense. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the periods presented, nor should it be taken as indication of our future consolidated results of operations.

(unaudited)

Three Months Ended

$s in thousands

    

March 31, 2019

Pro forma combined:

Revenue

231,195

Net loss

(2,857)

The amounts of revenue and operating loss from NRC included in the Company’s consolidated statements of operations for the three months ended March 31, 2020 were $86.6 million and $304.0 million, respectively. NRC Merger-related business development and integration expenses of $2.9 million are included in Selling, general and administrative expenses in the Company’s consolidated statements of operations for the three months ended March 31, 2020.

W.I.S.E. Environmental Solutions Inc.

On August 1, 2019, we acquired 100% of the outstanding shares of W.I.S.E. Environmental Solutions Inc. (“US Ecology Sarnia”), an equipment rental and waste services company based in Sarnia, Ontario, Canada for 23.5 million Canadian dollars, which translated to $17.9 million at the time of transaction and was funded with borrowings under the Credit Agreement. US Ecology Sarnia is reported as part of our Field & Industrial Services segment. The Company assessed the revenues, net income, earnings per share and total assets of US Ecology Sarnia and concluded they are not material to our consolidated financial position or results of operations. As such, pro forma financial information has not been provided.

We allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, resulting in $7.7 million allocated to goodwill and $6.2 million allocated to intangible assets (primarily customer relationships) to be amortized over a weighted average life of approximately 14 years. The purchase price allocation is preliminary, as estimates and assumptions are subject to change as more information becomes available.

13

Goodwill of $7.7 million arising from the acquisition is attributable to the assembled workforce and the future economic benefits of synergies with our other regional facilities and expansion into new markets. All of the goodwill recognized was assigned to our Field & Industrial Services segment and is not expected to be deductible for income tax purposes.

NOTE 4.     ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) (“AOCI”) consisted of the following:

Foreign

Unrealized Gain

Currency

(Loss) on Interest

$s in thousands

    

Translation

    

Rate Hedge

    

Total

Balance at December 31, 2019

$

(10,925)

$

(929)

$

(11,854)

Other comprehensive loss before reclassifications, net of tax

 

(8,259)

 

(6,310)

 

(14,569)

Amounts reclassified out of AOCI, net of tax (1)

 

 

212

 

212

Other comprehensive loss, net

 

(8,259)

 

(6,098)

 

(14,357)

Balance at March 31, 2020

$

(19,184)

$

(7,027)

$

(26,211)

(1)Before-tax reclassifications of $268,000 ($212,000 after-tax) for the three months ended March 31, 2020, were included in Interest expense in the Company’s consolidated statements of operations. Amounts relate to the Company’s interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made or, for terminated swap agreements, amortized to interest expense over the period from termination to original maturity. Amounts in AOCI expected to be reclassified to interest expense over the next 12 months total approximately $516,000 ($407,000 after-tax).

Foreign

Unrealized Gain

Currency

(Loss) on Interest

$s in thousands

    

Translation

    

Rate Hedge

    

Total

Balance at December 31, 2018

$

(14,697)

$

906

$

(13,791)

Other comprehensive income (loss) before reclassifications, net of tax

 

1,689

 

(581)

 

1,108

Amounts reclassified out of AOCI, net of tax (2)

 

 

(110)

 

(110)

Other comprehensive income (loss), net

 

1,689

 

(691)

 

998

Balance at March 31, 2019

$

(13,008)

$

215

$

(12,793)

(2)Before-tax reclassifications of $139,000 ($110,000 after-tax) for the three months ended March 31, 2019, were included as a reduction of Interest expense in the Company’s consolidated statements of operations. Amounts relate to the Company’s interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made.

NOTE 5.     CONCENTRATIONS AND CREDIT RISK

Major Customers

No customer accounted for more than 10% of total revenue for the three months ended March 31, 2020 or 2019, respectively. No customer accounted for more than 10% of total trade receivables as of March 31, 2020 or December 31, 2019.

Credit Risk Concentration

We maintain most of our cash and cash equivalents with nationally recognized financial institutions. Substantially all balances are uninsured and are not used as collateral for other obligations. Concentrations of credit risk on accounts receivable are believed to be limited due to the number, diversification and character of the obligors and our credit

14

evaluation process. Credit risk associated with a portion of the Company’s trade receivables is reduced by our ability to submit claims to the Oil Spill Liability Trust Fund (“OSLTF”) for reimbursement of unpaid customer receivables related to services regulated under the provisions of the Oil Pollution Act of 1990 (“OPA 90”). As of March 31, 2020, the Company did not have any trade receivables that are eligible for submission to the OSLTF for reimbursement.

NOTE 6.     RECEIVABLES

Receivables consisted of the following:

    

March 31, 

December 31, 

$s in thousands

2020

    

2019

Trade

$

187,619

$

196,593

Unbilled revenue

 

49,854

 

54,727

Other

 

5,959

 

7,000

Total receivables

 

243,432

 

258,320

Allowance for doubtful accounts

 

(3,054)

 

(3,010)

Receivables, net

$

240,378

$

255,310

NOTE 7.     FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair value measurements, as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
Level 3 - Unobservable inputs in which little or no market activity exists, requiring an entity to develop its own assumptions that market participants would use to value the asset or liability.