US ECOLOGY, INC. The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In this report words such as "we," "us," "our," "US Ecology" and "the Company" refer toUS Ecology, Inc.
and its subsidiaries. OVERVIEWUS Ecology is a leading provider of environmental services to commercial and governmental entities. The Company addresses the complex waste management and response needs of its customers, offering treatment, disposal and recycling of hazardous, non-hazardous and radioactive waste, leading emergency response and standby services, and a wide range of complementary field and industrial services.US Ecology's focus on safety, environmental compliance and best-in-class customer service enables us to effectively meet the needs of our customers and to build long-lasting relationships. We have a network of fixed facilities and service centers operating primarily inthe United States ,Canada , theUnited Kingdom andMexico . Our fixed facilities include five RCRA subtitle C hazardous waste landfills, three landfills serving waste streams regulated by the RRC and one LLRW landfill. We also have various other treatment, storage and disposal facilities ("TSDF") located throughoutthe United States . These facilities generate revenue from fees charged to transport, recycle, treat and dispose of waste and to perform various field and industrial services for our customers.
Our operations are managed in three reportable segments reflecting our internal management reporting structure and nature of services offered as follows:
Waste Solutions (formerly "Environmental Services") - This segment provides safe and compliant specialty waste management services including treatment, disposal, beneficial re-use, and recycling of hazardous, non-hazardous, and other specialty waste at Company-owned treatment, storage, and disposal facilities, excluding the services within our Energy Waste segment. Field Services (formerly "Field & Industrial Services") - This segment provides safe and compliant logistics and response solutions focusing on "in-field' service offerings through our network of 10-day transfer facilities. Our logistics solutions include specialty waste packaging, collection, transportation, and total waste management. Our response solutions include land and marine based emergency response, OSRO standby compliance, remediation, and industrial services. The Field Services segment completes our vertically integrated model and serves to increase waste volumes into our Waste Solutions segment. Energy Waste - This segment provides safe and compliant energy waste management and critical support services to up-stream oil and gas customers in the Permian andEagle Ford basins primarily operating inTexas . Services include spill containment and site remediation, equipment cleaning and maintenance services, specialty equipment rental, including tanks, pumps and containment, safety monitoring and management and transportation and disposal. The operations not managed through our three reportable segments are recorded as "Corporate." Corporate selling, general and administrative expenses include typical corporate items of a general nature such as certain labor, information technology, legal, accounting and other expenses not associated with a specific reportable segment. Income taxes are assigned to Corporate, but all other items are included in the segment where they originated. Inter-company transactions have been eliminated from the segment information and are not significant between segments. In order to provide insight into the underlying drivers of our waste volumes and related treatment and disposal ("T&D") revenues, we evaluate period-to-period changes in our T&D revenue for our Waste Solutions segment based on the industry of the waste generator, based on North American Industry Classification System codes. 30 Table of Contents
The composition of the Waste Solutions segment T&D revenues by waste generator
industry for the three months ended
% of Treatment and Disposal Revenue (1) for the
Three Months Ended March 31,
Generator Industry 2022 2021
Chemical Manufacturing 18% 19%
Metal Manufacturing 15% 18%
General Manufacturing 14% 11%
Broker / TSDF 13% 12%
Government 7% 7%
Refining 6% 6%Waste Management & Remediation 3%
4%
Utilities 3% 4%
Transportation 3% 3%Mining, Exploration and Production 2%
3%
Other (2) 16% 13%
(1) Excludes all transportation service revenue.
(2) Includes retail and wholesale trade, rate regulated, construction and other
industries.
We also categorize our Waste Solutions segment T&D revenue as either "Base Business" or "Event Business" based on the underlying nature of the revenue source.
Base Business consists of waste streams from ongoing industrial activities and tends to be recurring in nature. 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. The duration of Event Business projects can last from a several-week cleanup of a contaminated site to a multiple year cleanup project. For the three months endedMarch 31, 2022 , Base Business revenue increased 13% compared to the three months endedMarch 31, 2021 . For the three months endedMarch 31, 2022 , approximately 80% of our total T&D revenue was derived from our Base Business, up from 76% for the three months endedMarch 31, 2021 . Our business is highly competitive and no assurance can be given that we will maintain these revenue levels or increase our market share. A significant portion of our disposal revenue is attributable to discrete Event Business projects which vary widely in size, duration and unit pricing. For the three months endedMarch 31, 2022 , approximately 20% of our total T&D revenue was derived from Event Business projects, down from 24% for the three months endedMarch 31, 2021 . For the three months endedMarch 31, 2022 , Event Business revenue decreased 11% compared to the three months endedMarch 31, 2021 . The one-time nature of Event Business, diverse spectrum of waste types received and widely varying unit pricing necessarily creates variability in revenue and earnings. This variability may be influenced by general and industry-specific economic conditions, funding availability, changes in laws and regulations, government enforcement actions or court orders, public controversy, litigation, weather, commercial real estate, closed military bases and other project timing, government appropriation and funding cycles and other factors. The types and amounts of waste received from Base Business also vary from quarter to quarter. This variability can also cause significant quarter-to-quarter and year-to-year differences in revenue, gross profit, gross margin, operating income and net income. While we pursue many projects months or years in advance of work performance, cleanup project opportunities routinely arise with little or no prior notice. These market dynamics are inherent to the waste disposal business and are factored into our projections and externally communicated business outlook statements. Our projections combine historical experience with identified sales pipeline opportunities, new or expanded service line projections and prevailing market conditions. We serve oil refineries, chemical production plants, steel mills, waste brokers/aggregators serving small manufacturers and other industrial customers that are generally affected by the prevailing economic conditions and credit environment. 31 Table of Contents Adverse conditions may cause our customers as well as those they serve to curtail operations, resulting in lower waste production and/or delayed spending on off-site waste shipments, maintenance, waste cleanup projects and other work. Factors that can impact general economic conditions and the level of spending by customers include, but are not limited to, consumer and industrial spending, increases in fuel and energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other global economic factors affecting spending behavior. Market forces may also induce customers to reduce or cease operations, declare bankruptcy, liquidate or relocate to other countries, any of which could adversely affect our business. To the extent business is either government funded or driven by government regulations or enforcement actions, we believe it is less susceptible to general economic conditions. Spending by government agencies may be reduced due to declining tax revenues resulting from a weak economy or changes in policy. Disbursement of funds appropriated byCongress may also be delayed for various reasons.
REPUBLIC SERVICES, INC. MERGER AGREEMENT
OnFebruary 8, 2022 , we entered into the previously disclosed Agreement and Plan of Merger (the "Merger Agreement") with Republic Services, Inc., aDelaware corporation ("Republic") andBronco Acquisition Corp. , aDelaware corporation and a wholly-owned subsidiary of Republic ("Merger Sub"). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as the surviving corporation and as a wholly-owned subsidiary of Republic.
The foregoing description of the Merger Agreement is a summary only and is
qualified in its entirety by reference to the complete text of the Merger
Agreement filed as Exhibit 2.1 in the Company's Annual Report on Form 10-K for
the fiscal year ended
OnMarch 30, 2022 the waiting period under Hart Scott-Rodino Anitrust Improvements Act of 1976, as amended, expired with respect to the Merger, and onApril 26, 2022 we held a Special Meeting of the stockholders of the Company wherein we received the necessary affirmative vote to consummate the Merger. The transaction is currently expected to close onMay 2, 2022 .
COVID-19 PANDEMIC UPDATE
The COVID-19 pandemic continued to affect our business through the first quarter of 2022. The impact of temporary closures and staff reductions by industrial facilities has resulted in delays in mobilization and in regulatory approvals at our customers' sites. Although we have seen evidence of volume recovery in 2021 and the first three months of 2022, as the economy continues to rebound and industrial facilities return to pre-pandemic levels of production, we have experienced cost and inflationary pressures in areas such as labor and supplies. We have also experienced, and expect to continue to experience, delays and deferments of some of our field services as our customers continue to limit on-site visitation and delay noncritical services based on business conditions. While uncertainty caused by the COVID-19 pandemic remains, including the spread of new variants of the virus and government and private sector responses to prevent and manage the disease, we expect to continue to see improvements in our business as vaccines become more widely available and vaccination rates increase.
The impact of the COVID-19 pandemic will continue to affect our results of
operations for the foreseeable future. See "Item 1A - Risk Factors" of the
Company's Annual Report on Form 10-K for the fiscal year ended
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RESULTS OF OPERATIONS
THREE MONTHS ENDED
Operating results and percentage of revenues were as follows:
Three Months Ended March 31, 2022 vs. 2021
$s in thousands 2022 % 2021 % $ Change % Change
Revenue
Waste Solutions $ 114,766 48 % $ 104,142 46 % $ 10,624 10 %
Field Services 112,323 46 % 118,249 51 % (5,926) (5) %
Energy Waste 13,891 6 % 6,228 3 % 7,663 123 %
Total $ 240,980 100 % $ 228,619 100 % $ 12,361 5 %
Gross Profit
Waste Solutions $ 38,100 33 % $ 34,950 34 % $ 3,150 9 %
Field Services 12,148 11 % 18,306 15 % (6,158) (34) %
Energy Waste 3,165 23 % (383) (6) % 3,548 (926) %
Total $ 53,413 22 % $ 52,873 23 % $ 540 1 %
Selling, General & Administrative Expenses
Waste Solutions $ 6,909 6 % $ 6,301 6 % $ 608 10 %
Field Services 11,927 11 % 12,725 11 % (798) (6) %
Energy Waste 2,881 21 % 3,343 54 % (462) (14) %
Corporate 35,619 n/m 28,999 n/m 6,620 23 %
Total $ 57,336 24 % $ 51,368 22 % $ 5,968 12 %
Adjusted EBITDA
Waste Solutions $ 41,418 36 % $ 40,136 39 % $ 1,282 3 %
Field Services 10,922 10 % 17,137 14 % (6,215) (36) %
Energy Waste 4,725 34 % 1,258 20 % 3,467 276 %
Corporate (27,182) n/m (25,327) n/m (1,855) 7 %
Total $ 29,883 12 % $ 33,204 15 % $ (3,321) (10) %
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA")
Management uses Adjusted EBITDA as a financial measure to assess segment
performance. Adjusted EBITDA is defined as net loss before interest expense,
interest income, income tax expense/benefit, depreciation, amortization,
share-based compensation, accretion of closure and post-closure liabilities,
foreign currency gain/loss, business development and integration expenses and
other income/expense. The reconciliation of Net loss to Adjusted EBITDA is as
follows:
Three Months Ended March 31, 2022 vs. 2021
$s in thousands 2022 2021 $ Change % Change
Net loss $ (9,022) $ (796) $ (8,226) 1,033 %
Income tax benefit (2,014) (1,444) (570) 39 %
Interest expense 6,821 7,357 (536) (7) %
Interest income (229) (273) 44 (16) %
Foreign currency loss 698 371 327 88 %
Other income (177) (3,710) 3,533 (95) %
Depreciation and amortization of plant and
equipment 16,900 18,234 (1,334) (7) %
Amortization of intangible assets 7,872 9,135 (1,263) (14) %
Share-based compensation 1,948 1,928 20 1 %
Accretion and non-cash adjustment of closure
& post-closure liabilities 1,227 1,182 45 4 %
Business development and integration
expenses 5,859 1,220 4,639 380 %
Adjusted EBITDA $ 29,883 $ 33,204 $ (3,321) (10) %
Adjusted EBITDA is a complement to results provided in accordance with GAAP and
we believe that such information provides additional useful information to
analysts, stockholders and other users to understand the Company's operating
performance. Since Adjusted EBITDA is not a measurement determined in accordance
with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA as
presented may not be comparable to other similarly titled measures of other
companies. Items excluded from Adjusted EBITDA are significant components in
understanding and assessing our financial performance. Adjusted EBITDA should
not be considered in isolation or as an alternative to, or substitute for, net
income, cash flows generated by operations, investing or financing activities,
or other financial statement data presented in the consolidated financial
statements as indicators of financial performance or liquidity.
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Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or a substitute for analyzing our results as reported under GAAP. Some of the limitations are:
? Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
? Adjusted EBITDA does not reflect our interest expense, or the requirements
necessary to service interest or principal payments on our debt;
? Adjusted EBITDA does not reflect our income tax expenses or the cash
requirements to pay our taxes;
? Adjusted EBITDA does not reflect our cash expenditures or future requirements
for capital expenditures or contractual commitments;
Although depreciation and amortization charges are non-cash charges, the assets
? being depreciated and amortized will often have to be replaced in the future,
and Adjusted EBITDA does not reflect any cash requirements for such
replacements; and
? Adjusted EBITDA does not reflect our business development and integration
expenses, which may vary significantly from quarter to quarter.
Revenue
Total revenue increased 5% to
Waste Solutions
Waste Solutions segment revenue increased 10% to$114.8 million for the first quarter of 2022, compared to$104.1 million for the first quarter of 2021. T&D revenue increased 9% compared to the first quarter of 2021, primarily as a result of a 13% increase in Base Business revenue, partially offset by an 11% decrease in project-based Event Business revenue. Transportation and logistics service revenue increased 15% compared to the first quarter of 2021, primarily reflecting Event Business projects utilizing more of the Company's transportation and logistics services. Total tons of waste disposed of or processed across all our facilities increased approximately 9% for the first quarter of 2022 compared to the first quarter of 2021. Tons of waste disposed of or processed at our landfills increased approximately 3% for the first quarter of 2022 compared to the first quarter of 2021. T&D revenue from recurring Base Business waste generators increased 13% for the first quarter of 2022 compared to the first quarter of 2021 and comprised 80% of total T&D revenue for the first quarter of 2022. Comparing the first quarter of 2022 to the first quarter of 2021, increases in Base Business T&D revenue primarily from the chemical manufacturing, Other, metal manufacturing, broker/TSDF and general manufacturing industry groups were partially offset by decreases in Base Business T&D revenue from the mining, exploration & production and waste management & remediation industry groups. T&D revenue from Event Business waste generators decreased 11% for the first quarter of 2022 compared to the first quarter of 2021 and comprised 20% of total T&D revenue for the first quarter of 2022. Comparing the first quarter of 2022 to the first quarter of 2021, decreases in Event Business T&D revenue primarily from the metal manufacturing, chemical manufacturing, waste management & remediation and utilities industry groups were partially offset by increases in Event Business T&D revenue from the general manufacturing, Other and government industry groups. 34 Table of Contents The following table summarizes combined Base Business and Event Business T&D revenue growth, within the Waste Solutions segment, by generator industry for the first quarter of 2022 as compared to the first quarter of 2021: Treatment and Disposal Revenue Growth Three Months EndedMarch 31, 2022 vs. Three Months EndedMarch 31, 2021 General Manufacturing 30% Other 25% Refining 17% Transportation 16% Broker / TSDF 15% Government 15% Chemical Manufacturing 4% Metal Manufacturing -10% Utilities -16% Mining, Exploration & Production -24% Waste Management & Remediation -36%
Field Services
Field Services segment revenue decreased 5% to$112.3 million for the first quarter of 2022 compared with$118.2 million for the first quarter of 2021. The decrease in Field Services segment revenue is primarily attributable to lower revenues from our Remediation and Emergency Response business lines, partially offset by higher revenues from our Industrial Services, Small Quantity Generation, Transportation and Logistics and Treatment & Disposal business lines.
Energy Waste
Energy Waste segment revenue increased 123% to
Gross Profit
Total gross profit increased 1% to$53.4 million for the first quarter of 2022, up from$52.9 million for the first quarter of 2021. Total gross margin was 22% for the first quarter of 2022 compared with 23% for the first quarter of 2021.
Waste Solutions
Waste Solutions segment gross profit increased 9% to$38.1 million for the first quarter of 2022, up from$35.0 million for the first quarter of 2021. Total segment gross margin for the first quarter of 2022 was 33% compared with 34% for the first quarter of 2021. The decrease in segment gross margin was primarily attributable to higher employee labor and benefits costs in the first quarter of 2022 compared with the first quarter of 2021. T&D gross margin was 38% for the first quarter of 2022 compared with 37% for the first quarter of 2021.
Field Services
Field Services segment gross profit decreased 34% to$12.1 million for the first quarter of 2022, down from$18.3 million for the first quarter of 2021. Total segment gross margin was 11% for the first quarter of 2022 compared with 15% for the first quarter of 2021. The decrease in segment gross margin was primarily attributable to a less favorable service mix, higher employee labor and benefits costs as well as higher fuel and supplies expenses in the first quarter of 2022 compared with the first quarter of 2021. 35 Table of Contents Energy Waste
Energy Waste segment gross profit was$3.2 million for the first quarter of 2022 compared to a gross loss of$383,000 for the first quarter of 2021. Total segment gross margin was 23% for the first quarter of 2022 compared with (6)% for the first quarter of 2021. The increase in segment gross margin was primarily attributable to improved operating leverage in the first quarter of 2022 compared with the first quarter of 2021.
Selling, General and Administrative Expenses ("SG&A")
Total SG&A increased 12% to
Waste Solutions Waste Solutions segment SG&A increased 10% to$6.9 million , or 6% of segment revenue, for the first quarter of 2022 compared with$6.3 million , or 6% of segment revenue, for the first quarter of 2021. The increase in segment SG&A was primarily attributable to higher employee labor and benefits costs, higher insurance costs and higher bad debt expense, partially offset by higher gains on disposition of assets in the first quarter of 2022 compared to the first quarter of 2021. Field Services Field Services segment SG&A decreased 6% to$11.9 million , or 11% of segment revenue, for the first quarter of 2022 compared with$12.7 million , or 11% of segment revenue, for the first quarter of 2021. The decrease in segment SG&A was primarily attributable to lower intangible asset amortization expense and lower insurance costs, partially offset by higher employee labor and benefits costs and lower gains on disposition of assets in the first quarter of 2022 compared to the first quarter of 2021.
Energy Waste
Energy Waste segment SG&A decreased 14% to$2.9 million , or 21% of segment revenue, for the first quarter of 2022 compared with$3.3 million , or 54% of segment revenue, for the first quarter of 2021. The decrease in segment SG&A was primarily attributable to lower intangible asset amortization expense, lower bad debt expense and higher gains on disposition of assets in the first quarter of 2022 compared to the first quarter of 2021.
Corporate
Corporate SG&A increased 23% to$35.6 million , or 15% of total revenue, for the first quarter of 2022 compared with$29.0 million , or 13% of total revenue, for the first quarter of 2021. The increase in Corporate SG&A primarily reflects higher business development and integration expenses and higher employee labor and benefits costs, partially offset by lower professional services expenses in the first quarter of 2022 compared to the first quarter of 2021.
Components of Adjusted EBITDA
Income tax benefit
Income tax benefit for the first quarter of 2022 was$2.0 million , resulting in a consolidated effective income tax rate of 18.2%. Income tax benefit for the first quarter of 2021 was$1.4 million , resulting in a consolidated effective income tax rate of 64.5%. We used a discrete effective tax rate method to calculate taxes for the three months endedMarch 31, 2022 . For additional information on our consolidated effective income tax rate, see Note 12 of the Notes to Consolidated Financial Statements in "Part I, Item 1. Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q. 36 Table of Contents Interest expense Interest expense was$6.8 million for the first quarter of 2022 compared with$7.4 million for the first quarter of 2021. The decrease is primarily the result of lower outstanding debt levels and lower interest expense amortization related to terminated swap agreements, partially offset by the impact of higher interest rates on the variable portion of our outstanding debt in the first quarter of 2022 compared to the first quarter of 2021.
Foreign currency loss
We recognized a$698,000 foreign currency loss for the first quarter of 2022 compared with a$371,000 foreign currency loss for the first quarter of 2021. Foreign currency gains and losses reflect changes in business activity conducted in a currency other than theU.S. dollar ("USD"), our functional currency. Additionally, we established intercompany loans with certain of our Canadian subsidiaries, whose functional currency is the Canadian dollar ("CAD") as part of a tax and treasury management strategy allowing for repayment of third-party bank debt. These intercompany loans are payable by our Canadian subsidiaries toUS Ecology in CAD requiring us to revalue the outstanding loan balance through our statements of operations based on USD/CAD currency movements from period to period. AtMarch 31, 2022 , we had$7.8 million of intercompany loans subject to currency revaluation. Other income
Other income was$177,000 for the first quarter of 2022 compared with other income of$3.7 million for the first quarter of 2021. In the first quarter of 2021, the company recognized a gain of$3.5 million related to the change in the fair value of a minority interest investment.
Depreciation and amortization of plant and equipment
Depreciation and amortization expense decreased 7% to
Amortization of intangible assets
Intangible assets amortization expense decreased 14% to$7.9 million for the first quarter of 2022 compared with$9.1 million for the first quarter of 2021, primarily reflecting the full amortization of certain intangible assets in 2021.
Share-based compensation
Share-based compensation expense was a
Accretion and non-cash adjustment of closure and post-closure liabilities
Accretion and non-cash adjustment of closure and post-closure liabilities was
Business development and integration expenses
Business development and integration expenses increased 380% to$5.9 million in the first quarter of 2022, compared to$1.2 million in the first quarter of 2021, primarily attributable to higher business development expenses related to the Merger in the first quarter of 2022.
CRITICAL ACCOUNTING POLICIES
Financial statement preparation requires management to make estimates and judgments that affect reported assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. The accompanying unaudited
37
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consolidated financial statements are prepared using the same critical
accounting policies disclosed in our Annual Report on Form 10-K for the fiscal
year ended
RECENTLY ISSUED ACCOUNTING STANDARDS
For information about recently issued accounting standards, see Note 1 of the Notes to Consolidated Financial Statements in "Part I, Item 1. Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
We are continually evaluating the impact of the COVID-19 pandemic on our financial condition and liquidity. Although the situation remains uncertain, we believe that we have sufficient cash flow from operations and available borrowings under the Revolving Credit Facility to execute our business strategy in the short and longer term, even if the Merger is not consummated. While management continues to closely monitor the impact of the COVID-19 pandemic, including the spread of new variants of the virus and government and private sector responses to it in each of the locations and sectors in which the Company does business, we believe that the Company's strategy during the pandemic has increased the Company's resiliency and positioned the Company to take advantage of any post-pandemic recovery. Our primary sources of liquidity are cash and cash equivalents, cash generated from operations and borrowings under the Credit Agreement. AtMarch 31, 2022 , we had$74.2 million in unrestricted cash and cash equivalents immediately available and$27.7 million of borrowing capacity, subject to our leverage covenant limitation, available under our Revolving Credit Facility. We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our primary ongoing cash requirements are funding operations, capital expenditures, paying principal and interest on our long-term debt, and paying declared dividends pursuant to our dividend policy. We believe that even if the Merger is not consummated we will have sufficient cash for the next twelve months of operations. Furthermore, existing cash balances and availability of additional borrowings under the Credit Agreement provide additional sources of liquidity should they be required. OnJune 29, 2021 , Predecessor US Ecology amended the Credit Agreement to extend the maturity date for the existing revolving credit facility toJune 29, 2026 . The Credit Agreement was also amended to extend the existing covenant relief period to end on the earlier ofDecember 31, 2022 and the date Predecessor US Ecology elects to end such covenant relief period pursuant to the terms therein and to permanently increase Predecessor US Ecology's consolidated total net leverage ratio requirement as of the end of each fiscal quarter ending on and afterDecember 31, 2022 to 4.50 to 1.00. See additional information on the Fourth Amendment under "Amendments to the Credit Agreement," below.
Operating Activities
For the three months endedMarch 31, 2022 , net cash provided by operating activities was$22.1 million . This primarily reflects net loss of$9.0 million , non-cash depreciation, amortization and accretion of$26.0 million , a decrease in income taxes receivable of$6.5 million , an increase deferred revenue of$3.9 million , a decrease in accounts receivable of$3.9 million and share-based compensation expense of$1.9 million , partially offset by a decrease in accounts payable and accrued liabilities of$4.2 million , deferred incomes taxes of$3.5 million and a decrease in accrued salaries and benefits of$3.4 million . Impacts on net income are due to the factors discussed above under "Results of Operations." The decrease in income taxes receivable is primarily attributable to the timing of prior year income tax refund claims received and current year income tax payments. The increase in deferred revenue is primarily attributable to cash payments that are received, or advance billings charged, prior to performance of services and waste that has been received but not yet treated or disposed at the end of the period. Changes in accounts receivable and accounts payable and accrued liabilities are attributable to the timing of payments from customers and payments to vendors for products and services. The decrease in accrued salaries and benefits is primarily attributable to the payment of accrued employee-incentive compensation related to fiscal 2021 financial performance. We calculate days sales outstanding ("DSO") as a rolling four quarter average of our net accounts receivable divided by our quarterly revenue. Our net accounts receivable balance for the DSO calculation includes trade accounts receivable, net of allowance for doubtful accounts, and unbilled accounts receivable, adjusted for changes in deferred revenue. DSO was 84 days as ofMarch 31, 2022 , compared to 84 days as ofDecember 31, 2021 , and 85 days as ofMarch 31, 2021 . 38 Table of Contents For the three months endedMarch 31, 2021 , net cash provided by operating activities was$19.5 million . This primarily reflects net loss of$796,000 , non-cash depreciation, amortization and accretion of$28.6 million , an increase in deferred revenue of$2.2 million and share-based compensation expense of$1.9 million , partially offset by deferred incomes taxes of$3.8 million , a decrease in accounts payable and accrued liabilities of$3.6 million , a gain of$3.5 million related to a change in the fair value of a minority interest investment and a decrease in accrued salaries and benefits of$3.0 million . Impacts on net income are due to the factors discussed above under "Results of Operations." The increase in deferred revenue is primarily attributable to cash payments that are received, or advance billings charged, prior to performance of services and waste that has been received but not yet treated or disposed at the end of the period. Changes in accounts payable and accrued liabilities are attributable to the timing of payments to vendors for products and services. The decrease in accrued salaries and benefits is primarily attributable to the payment of accrued employee-incentive compensation related to fiscal 2020 financial performance.
Investing Activities
For the three months endedMarch 31, 2022 , net cash used in investing activities was$13.8 million , primarily related to capital expenditures of$16.2 million , partially offset by$1.9 million in proceeds from the sale of short-term investments. Capital projects consisted primarily of landfill cell development and infrastructure upgrades at our operating facilities. For the three months endedMarch 31, 2021 , net cash used in investing activities was$8.7 million , primarily related to capital expenditures of$9.6 million and a$712,000 investment in the preferred stock of a privately held company, partially offset by$1.6 million in proceeds from the sale of property and equipment. Capital projects consisted primarily of infrastructure upgrades at our operating facilities and landfill cell development.
Financing Activities
For the three months endedMarch 31, 2022 , net cash used in financing activities was$2.4 million , consisting primarily of$1.2 million in payments on our equipment financing obligations and a$1.1 million quarterly payment on our term loan. For the three months endedMarch 31, 2021 , net cash used in financing activities was$2.8 million , consisting primarily of$1.5 million in payments on our equipment financing obligations and a$1.1 million quarterly payment on our
term loan. Credit Agreement OnApril 18, 2017 ,US Ecology Holdings, Inc. (f/k/aUS Ecology, Inc. ) ("Predecessor US Ecology"), now a wholly-owned subsidiary of the Company, entered into the Credit Agreement that provides for a$500.0 million revolving credit facility (the "Revolving Credit Facility"), including a$75.0 million sublimit for the issuance of standby letters of credit and a$40.0 million sublimit for the issuance of swingline loans used to fund short-term working capital requirements. The Credit Agreement also contains an accordion feature whereby Predecessor US Ecology may request up to$200.0 million of additional funds through an increase to the Revolving Credit Facility, through incremental term loans, or some combination thereof. As described herein, the Credit Agreement was amended in August andNovember 2019 in connection with the NRC Merger; and further amended onJune 26, 2020 andJune 29, 2021 pursuant to the Third Amendment and Fourth Amendment (each as defined herein), respectively. During the three months endedMarch 31, 2022 , the effective interest rate on the Revolving Credit Facility, after giving effect to the impact of our interest rate swap and the amortization of the loan discount and debt issuance costs, was 3.94%. Interest only payments are due either quarterly or on the last day of any interest period, as applicable. InMarch 2020 , the Company entered into an interest rate swap agreement, effectively fixing the interest rate on$430.0 million , or approximately 58%, of the Revolving Credit Facility and term loan borrowings outstanding as ofMarch 31, 2022 . As modified by the Fourth Amendment as described herein, Predecessor US Ecology is required to pay a commitment fee ranging from 0.175% to 0.40% on the average daily unused portion of the Revolving Credit Facility, with such commitment fee to be based upon Predecessor US Ecology's total net leverage ratio (as defined in the Credit Agreement). The maximum letter of credit capacity under the Revolving Credit Facility is$75.0 million and the Credit Agreement 39
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provides for a letter of credit fee equal to the applicable margin for LIBOR loans under the Revolving Credit Facility. AtMarch 31, 2022 , there were$303.0 million of revolving credit loans outstanding on the Revolving Credit Facility. These revolving credit loans are due onJune 29, 2026 (or such earlier date as the revolving credit facility may otherwise terminate pursuant to the terms of the Credit Agreement) and are presented as long-term debt in the consolidated balance sheets. PredecessorUS Ecology has entered into a sweep arrangement whereby day-to-day cash requirements in excess of available cash balances are advanced to the Company on an as-needed basis with repayments of these advances automatically made from subsequent deposits to our cash operating accounts (the "Sweep Arrangement"). Total advances outstanding under the Sweep Arrangement are subject to the$40.0 million swingline loan sublimit under the Revolving Credit Facility. PredecessorUS Ecology's revolving credit loans outstanding under the Revolving Credit Facility are not subject to repayment through the Sweep Arrangement. As ofMarch 31, 2022 , there were no borrowings outstanding subject to the Sweep Arrangement. As ofMarch 31, 2022 , the availability under the Revolving Credit Facility was$27.7 million , subject to our leverage covenant limitation, with$12.2 million of the Revolving Credit Facility issued in the form of standby letters of credit utilized as collateral for closure and post-closure financial assurance and other assurance obligations. It is currently expected that all outstanding borrowings under the Credit Agreement will be repaid and the Credit Agreement will be terminated in connection with the consummation of the Merger.
Amendments to the Credit Agreement
OnAugust 6, 2019 , Predecessor US Ecology entered into the First Amendment (as defined herein). EffectiveNovember 1, 2019 , the First Amendment, among other things, extended the expiration of the Revolving Credit Facility toNovember 1, 2024 , permitted the issuance of a$400.0 million incremental term loan to be used to refinance the indebtedness of NRC and pay related transaction expenses in connection with the NRC Merger, modified the accordion feature allowing Predecessor US Ecology to request up to the greater of (x)$250.0 million and (y) 100% of Consolidated EBITDA (as defined in the credit agreement) plus certain additional amounts, increased the sublimit for the issuance of swingline loans to$40.0 million and increased the maximum consolidated total net leverage ratio to 4.00 to 1.00. OnNovember 1, 2019 , Predecessor US Ecology entered into the Second Amendment (as defined herein). EffectiveNovember 1, 2019 , the Second Amendment, among other things, amended the Credit Agreement to increase the capacity for incremental term loans by$50.0 million and provided for Wells Fargo lending$450.0 million in incremental term loans to Predecessor US Ecology to pay off the existing debt of NRC in connection with the NRC Merger, to pay certain fees, costs and expenses incurred in connection with the NRC Merger and to repay outstanding borrowings under the Revolving Credit Facility. The seven-year incremental term loan maturesNovember 1, 2026 , requires principal repayment of 1% annually, and bears interest at LIBOR plus 2.25% or a base rate plus 1.25% (with a step-up to LIBOR plus 2.50% or a base rate plus 1.50% in the event thatUS Ecology credit ratings are not BB (with a stable or better outlook) or better from S&P and Ba2 (with a stable or better outlook) or better from Moody's). During the three months endedMarch 31, 2022 , the effective interest rate on the term loan, including the impact of the amortization of debt issuance costs, was 2.91%. OnJune 26, 2020 , Predecessor US Ecology entered into the Third Amendment. Among other things, the Third Amendment amended the Credit Agreement to provide a covenant relief period through the earlier ofMarch 31, 2022 and the date Predecessor US Ecology elects to end such covenant relief period pursuant to the terms therein. During the covenant relief period, the Third Amendment increased Predecessor US Ecology's consolidated total net leverage ratio requirement as of the end of each fiscal quarter to certain ratios above the 4.00 to 1.00 ratio in effect immediately before giving effect to the Third Amendment, subject to compliance with certain restrictions on restricted payments and permitted acquisitions during such covenant relief period. Furthermore, during the covenant relief period, under the Revolving Credit Facility, revolving credit loans are available based on a base rate (as defined in the Credit Agreement) or LIBOR, at the Company's option, plus an applicable margin, which is determined according to a pricing grid under which the interest rate decreases or increases based on our ratio of funded debt to Consolidated EBITDA (as defined in the Credit Agreement).
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2026 (or such earlier date as the revolving credit facility may otherwise terminate pursuant to the terms of the Credit Agreement). The Fourth Amendment also amends the Credit Agreement (i) to extend the existing covenant relief period to end on the earlier ofDecember 31, 2022 and the date Predecessor US Ecology elects to end such covenant relief period pursuant to the terms therein and (ii) to permanently increase Predecessor US Ecology's consolidated total net leverage ratio requirement as of the end of each fiscal quarter ending on and afterDecember 31, 2022 to 4.50 to 1.00. During the covenant relief period until the fiscal quarter endingDecember 31, 2022 , the Fourth Amendment increases Predecessor US Ecology's consolidated total net leverage ratio requirement as of the end of each fiscal quarter to certain ratios above the 4.50 to 1.00 ratio otherwise in effect after giving effect to the Fourth Amendment, subject to compliance with certain restrictions on restricted payments and permitted acquisitions during such covenant relief period. Furthermore, after giving effect to the Fourth Amendment and whether or not the covenant relief period is in effect, (i) if the Borrower's consolidated total net leverage ratio is equal to or greater than 4.00 to 1.00 but less than 4.50 to 1.00, the interest rate on all outstanding borrowings of revolving credit loans under the Credit Agreement will step-up to the LIBOR plus 2.25% or a base rate plus 1.25% and the commitment fee will step-up to 0.375% and (ii) if Predecessor US Ecology's consolidated total net leverage ratio is greater than 4.50 to 1.00, the interest rate on all outstanding borrowings of revolving credit loans under the Credit Agreement will step-up to LIBOR plus 2.50% or a base rate plus 1.50% and the commitment fee will step-up to 0.40%, in each case, pursuant to the terms of the Credit Agreement. The Fourth Amendment also reset any outstanding usage of certain negative covenant baskets, including baskets in connection with the indebtedness, liens, investments, asset dispositions, restricted payments and affiliate transactions negative covenants.
For additional information see Note 10 of the Notes to Consolidated Financial Statements in "Part I, Item 1. Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q.
CONTRACTUAL OBLIGATIONS AND GUARANTEES
InMarch 2020 , the Company entered into an interest rate swap agreement with Wells Fargo, effectively fixing the interest rate on$430.0 million , or approximately 58%, of the Revolving Credit Facility and term loan borrowings outstanding as ofMarch 31, 2022 . In connection with our entry into theMarch 2020 interest rate swap, we terminated our existing interest rate swap prior to its scheduled maturity date ofJune 2021 . For more information, see Note 10 of the Notes to Consolidated Financial Statements in "Part I, Item 1. Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q. Except as set forth above, there were no material changes in the amounts of our contractual obligations and guarantees during the three months endedMarch 31, 2022 . For further information on our contractual obligations and guarantees, refer to our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .
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