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Table of Contents

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 June 30, 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

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 August 4, 2020, there were 31,509,734 shares of the registrant’s Common Stock outstanding.

Table of Contents

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 June 30, 2020 and December 31, 2019

3

Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019

4

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019

5

Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

6

Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019

7

Notes to Consolidated Financial Statements

8

Report of Independent Registered Public Accounting Firm

35

2.

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

36

3.

Quantitative and Qualitative Disclosures About Market Risk

57

4.

Controls and Procedures

58

PART II — OTHER INFORMATION

Cautionary Statement

60

1.

Legal Proceedings

61

1A.

Risk Factors

62

2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

3.

Defaults Upon Senior Securities

63

4.

Mine Safety Disclosures

63

5.

Other Information

63

6.

Exhibits

64

SIGNATURE

65

2

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

US ECOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value amount)

    

June 30, 2020

    

December 31, 2019

Assets

Current Assets:

Cash and cash equivalents

$

122,521

$

41,281

Receivables, net

 

211,181

 

255,310

Prepaid expenses and other current assets

 

30,524

 

25,136

Income taxes receivable

10,842

11,244

Total current assets

 

375,068

 

332,971

Property and equipment, net

 

483,578

 

478,768

Operating lease assets

52,202

57,396

Restricted cash and investments

 

5,172

 

5,069

Intangible assets, net

 

555,973

 

574,902

Goodwill

 

469,278

 

766,980

Other assets

 

14,878

 

15,158

Total assets

$

1,956,149

$

2,231,244

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable

$

38,048

$

46,906

Deferred revenue

 

19,258

 

14,788

Accrued liabilities

 

38,759

 

65,869

Accrued salaries and benefits

 

24,786

 

29,653

Income taxes payable

 

2,572

 

726

Short-term borrowings

3,978

Current portion of long-term debt

3,359

3,359

Current portion of closure and post-closure obligations

 

3,374

 

2,152

Current portion of operating lease liabilities

17,312

17,317

Total current liabilities

 

151,446

 

180,770

Long-term debt

 

854,163

 

765,842

Long-term closure and post-closure obligations

 

84,672

 

84,231

Long-term operating lease liabilities

35,121

39,954

Other long-term liabilities

 

35,164

 

20,722

Deferred income taxes, net

 

122,636

 

128,345

Total liabilities

 

1,283,202

 

1,219,864

Commitments and contingencies (See Note 16)

Stockholders’ Equity:

Common stock $0.01 par value per share, 50,000 authorized; 31,139 and 31,461 shares issued and outstanding, respectively

 

315

 

315

Additional paid-in capital

 

817,557

 

816,345

Retained (deficit) earnings

 

(102,362)

 

206,574

Treasury stock, at cost, 370 and 0 shares, respectively

 

(16,366)

 

Accumulated other comprehensive loss

 

(26,197)

 

(11,854)

Total stockholders’ equity

 

672,947

 

1,011,380

Total liabilities and stockholders’ equity

$

1,956,149

$

2,231,244

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

3

Table of Contents

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

Revenue

$

213,918

$

155,802

$

454,638

$

286,839

Direct operating costs

 

160,107

 

106,219

 

339,705

 

202,015

Gross profit

 

53,811

 

49,583

 

114,933

 

84,824

Selling, general and administrative expenses

 

48,487

 

24,049

 

99,545

 

44,354

Goodwill impairment charges

300,300

Operating income (loss)

 

5,324

 

25,534

 

(284,912)

 

40,470

Other income (expense):

Interest income

 

153

 

202

 

242

 

409

Interest expense

 

(7,853)

 

(3,588)

 

(17,163)

 

(7,618)

Foreign currency (loss) gain

 

(671)

 

(384)

 

266

 

(523)

Other

 

125

 

122

 

296

 

232

Total other expense

 

(8,246)

 

(3,648)

 

(16,359)

 

(7,500)

(Loss) income before income taxes

 

(2,922)

 

21,886

 

(301,271)

 

32,970

Income tax expense

 

2,261

 

6,395

 

1,998

 

9,436

Net (loss) income

$

(5,183)

$

15,491

$

(303,269)

$

23,534

(Loss) earnings per share:

Basic

$

(0.17)

$

0.70

$

(9.73)

$

1.07

Diluted

$

(0.17)

$

0.70

$

(9.73)

$

1.06

Shares used in (loss) earnings per share calculation:

Basic

 

31,054

 

22,006

 

31,179

 

21,997

Diluted

 

31,054

 

22,208

 

31,179

 

22,203

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

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US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

Net (loss) income

$

(5,183)

$

15,491

$

(303,269)

$

23,534

Other comprehensive income (loss):

Foreign currency translation gain (loss)

 

3,008

 

1,680

 

(5,251)

 

3,369

Net changes in interest rate hedge, net of taxes of $(796), $(313), $(2,417) and ($497), respectively

(2,994)

(1,177)

(9,092)

(1,868)

Comprehensive (loss) income, net of tax

$

(5,169)

$

15,994

$

(317,612)

$

25,035

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

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US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Six Months Ended June 30, 

    

2020

    

2019

Cash flows from operating activities:

Net (loss) income

$

(303,269)

$

23,534

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

Depreciation and amortization of property and equipment

 

36,396

 

17,254

Amortization of intangible assets

 

18,634

 

5,674

Accretion of closure and post-closure obligations

 

2,533

 

2,258

Property and equipment impairment charges

25

Goodwill impairment charges

300,300

Unrealized foreign currency loss (gain)

 

1,020

 

(502)

Deferred income taxes

 

(2,093)

 

3,690

Share-based compensation expense

 

3,088

 

2,467

Share-based payments of business development and integration expenses

 

973

 

Unrecognized tax benefits

 

52

131

Net loss (gain) on disposition of assets

 

188

 

(142)

Gain on insurance proceeds from damaged property and equipment

(9,153)

Amortization and write-off of debt issuance costs

679

409

Amortization and write-off of debt discount

490

Change in fair value of contingent consideration

 

(3,282)

 

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

Receivables

 

43,619

 

(5,346)

Income taxes receivable

 

380

 

452

Other assets

 

(5,235)

 

(1,384)

Accounts payable and accrued liabilities

 

(32,218)

 

404

Deferred revenue

 

2,702

 

2,418

Accrued salaries and benefits

 

(6,481)

 

(2,025)

Income taxes payable

 

1,848

 

(515)

Closure and post-closure obligations

 

(798)

 

(775)

Net cash provided by operating activities

 

59,526

 

38,874

Cash flows from investing activities:

Business acquisitions (net of cash acquired)

(3,309)

Purchases of property and equipment

 

(35,957)

 

(24,657)

Insurance proceeds from damaged property and equipment

9,500

Proceeds from sale of property and equipment

 

788

 

512

Purchases of restricted investments

 

(902)

 

(400)

Proceeds from sale of restricted investments

 

752

 

354

Net cash used in investing activities

 

(38,628)

 

(14,691)

Cash flows from financing activities:

Proceeds from long-term debt

90,000

Payments on long-term debt

(2,250)

(30,000)

Payments on short-term borrowings

(68,375)

(14,384)

Proceeds from short-term borrowings

72,353

14,384

Repurchase of common stock

 

(18,332)

 

Dividends paid

 

(5,667)

 

(7,942)

Payment of acquired contingent consideration liabilities

(2,085)

Deferred financing costs paid

 

(1,026)

 

Payment of equipment financing obligations

(3,046)

(408)

Other

27

(914)

Net cash provided by (used in) financing activities

 

61,599

 

(39,264)

Effect of foreign exchange rate changes on cash

 

(1,303)

 

836

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

 

81,194

 

(14,245)

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

$

123,334

$

18,508

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

122,521

17,690

Restricted cash at end of period

813

818

Cash and cash equivalents and restricted cash at end of period

$

123,334

$

18,508

Supplemental Disclosures:

Income taxes paid, net of receipts

$

1,612

$

5,694

Interest paid

$

15,279

$

6,850

Non-cash investing and financing activities:

Capital expenditures in accounts payable

$

1,215

$

834

Restricted stock issued from treasury shares

$

1,966

$

451

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

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US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

Total stockholders' equity, beginning balances

$

676,323

$

363,492

$

1,011,380

$

359,217

Common stock:

Beginning balances

$

315

$

221

$

315

$

220

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

 

 

 

1

Ending balances

$

315

$

221

$

315

$

221

Additional paid-in capital:

Beginning balances

$

817,730

$

183,953

$

816,345

$

183,834

Share-based compensation

 

1,524

1,245

 

3,088

 

2,467

Share-based payments of business development and integration expenses

792

973

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

(77)

(437)

(1,103)

Issuance of restricted common stock from treasury shares

(2,412)

(451)

(2,412)

(451)

Ending balances

$

817,557

$

184,747

$

817,557

$

184,747

Retained earnings (deficit):

Beginning balances

$

(97,179)

$

193,397

$

206,574

$

189,324

Net (loss) income

 

(5,183)

15,491

 

(303,269)

 

23,534

Dividends paid

(3,972)

(5,667)

(7,942)

Ending balances

$

(102,362)

$

204,916

$

(102,362)

$

204,916

Treasury stock:

Beginning balances

$

(18,332)

$

(1,286)

$

$

(370)

Repurchase of common stock

 

 

(18,332)

 

(916)

Issuance of restricted common stock from treasury shares

1,966

451

1,966

451

Ending balances

$

(16,366)

$

(835)

$

(16,366)

$

(835)

Accumulated other comprehensive income (loss):

Beginning balances

$

(26,211)

$

(12,793)

$

(11,854)

$

(13,791)

Other comprehensive income (loss)

 

14

503

 

(14,343)

 

1,501

Ending balances

$

(26,197)

$

(12,290)

$

(26,197)

$

(12,290)

Total stockholders' equity, ending balances

$

672,947

$

376,759

$

672,947

$

376,759

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

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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 and six months ended June 30, 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

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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 June 30, 2020

Field &

Environmental

Industrial

$s in thousands

    

Services

    

Services

    

Total

Treatment & Disposal Revenue (1)

$

90,955

$

9,965

$

100,920

Services Revenue:

Transportation and Logistics (2)

19,454

6,907

26,361

Industrial Services (3)

28,566

28,566

Small Quantity Generation (4)

11,159

11,159

Total Waste Management (5)

6,848

6,848

Remediation (6)

3,117

3,117

Emergency Response (7)

23,168

23,168

Domestic Standby Services (8)

8,102

8,102

Other (9)

5,677

5,677

Revenue

$

110,409

$

103,509

$

213,918

Three Months Ended June 30, 2019

Field &

Environmental

Industrial

$s in thousands

    

Services

    

Services

    

Total

Treatment & Disposal Revenue (1)

$

90,379

$

3,133

$

93,512

Services Revenue:

Transportation and Logistics (2)

22,465

12,760

35,225

Industrial Services (3)

4,963

4,963

Small Quantity Generation (4)

9,326

9,326

Total Waste Management (5)

8,004

8,004

Remediation (6)

889

889

Emergency Response (7)

3,180

3,180

Other (9)

703

703

Revenue

$

112,844

$

42,958

$

155,802

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Six Months Ended June 30, 2020

Field &

Environmental

Industrial

$s in thousands

    

Services

    

Services

    

Total

Treatment & Disposal Revenue (1)

$

191,005

$

19,884

$

210,889

Services Revenue:

Transportation and Logistics (2)

46,149

13,245

59,394

Industrial Services (3)

57,064

57,064

Small Quantity Generation (4)

22,236

22,236

Total Waste Management (5)

15,317

15,317

Remediation (6)

13,349

13,349

Emergency Response (7)

48,188

48,188

Domestic Standby Services (8)