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 two reportable segments reflecting our internal management reporting structure and nature of services offered as follows:
Environmental Services - This segment provides a broad range of specialty
material management services including transportation, recycling, treatment and
disposal of hazardous, non-hazardous and radioactive waste at Company owned or
operated landfill, wastewater, deep-well injection and other treatment
facilities.
Field & Industrial Services - This segment provides specialty field services and
total waste management solutions to commercial and industrial facilities and to
government entities through our 10-day transfer facilities and at customer
sites, both domestic and international. Specialty field services include standby
services, emergency response, industrial cleaning and maintenance, remediation,
lab packs, retail services, transportation, and other services. Total waste
management services include on-site management, waste characterization,
transportation and disposal of non- hazardous and hazardous waste.
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 Environmental Services segment based on the
industry of the waste generator, based on North American Industry Classification
System ("NAICS") codes.
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The composition of Environmental Services segment T&D revenues by waste
generator industry for the three and six months ended
% of Treatment and Disposal Revenue (1)(2) for the
Three Months Ended June 30,
Generator Industry 2020 2019
Chemical Manufacturing 21% 17%
Metal Manufacturing 14% 18%
Broker / TSDF 12% 13%
General Manufacturing 10% 11%
Government 8% 11%
Refining 8% 9%
Utilities 8% 3%
Transportation 3% 3%Waste Management & Remediation 2% 2% Mining, Exploration and Production 2%
2%
Other (3) 12% 11%
% of Treatment andDisposal Revenue (1)(2) for the
Six Months Ended June 30,
Generator Industry 2020 2019
Chemical Manufacturing 21% 16%
Metal Manufacturing 15% 17%
Broker / TSDF 13% 14%
General Manufacturing 11% 12%
Government 7% 9%
Refining 7% 10%
Transportation 5% 3%
Utilities 5% 3%Waste Management & Remediation 2% 2% Mining, Exploration and Production 2%
2%
Other (3) 12% 12%
(1) Excludes all transportation service revenue.
(2) Excludes NRC which was acquired on
(3) Includes retail and wholesale trade, rate regulated, construction and other
industries.
We also categorize our Environmental Services 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 endedJune 30, 2020 , Base Business revenue, excluding NRC, decreased 10% compared to the three months endedJune 30, 2019 . For the three months endedJune 30, 2020 , approximately 73% of our total T&D revenue, excluding NRC, was derived from our Base Business, down from 77% for the three months endedJune 30, 2019 . For the six months endedJune 30, 2020 , Base Business revenue, excluding NRC, decreased 3% compared to the six months endedJune 30, 2019 . For the six months endedJune 30, 2020 , approximately 74% of our total T&D revenue, excluding NRC, was derived from our Base Business, down from 81% for the six months endedJune 30, 2019 . Our business is highly competitive and no assurance can be given that we will maintain these revenue levels or
increase our market share.
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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 ended June 30, 2020 , approximately 27% of our total T&D revenue,
excluding NRC, was derived from Event Business projects, up from 23% for the
three months ended June 30, 2019 . For the three months ended June 30, 2020 ,
Event Business revenue, excluding NRC, increased 12% compared to the three
months ended June 30, 2019 . For the six months ended June 30, 2020 ,
approximately 26% of our total T&D revenue, excluding NRC, was derived from
Event Business projects, up from 19% for the six months ended June 30, 2019 . For
the six months ended June 30, 2020 , Event Business revenue, excluding NRC,
increased 44% compared to the six months ended June 30 , 2019.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. 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 by Congress may
also be delayed for various reasons.
IMPACT OF THE COVID-19 PANDEMIC
The COVID-19 pandemic affected our business in the second quarter of 2020. Our
core environmental services business has not been significantly impacted by the
pandemic as of the date of this Quarterly Report on Form 10-Q. However, the
impact of the temporary closure and staff reductions by industrial facilities
have yet to be fully assessed. We currently expect lower waste volumes resulting
from these closures during the third and fourth quarter of 2020, which we expect
to continue until industrial facilities resume production. We also expect the
Company's services-based business to remain stable as it has shown growth as a
result of our small quantity generation services and our emergency response
business that has seen an uptick in COVID-19 decontamination services. However,
we have also experienced, and expect to continue to experience, delays and
deferments in industrial cleaning services and some of our field services as our
customers limit on site visitation and delay noncritical services based on
business conditions.
Our energy waste disposal services business has been and will likely continue to
be adversely impacted as energy companies reduce capital expenditures as a
result of downward pressure on oil, natural gas and natural gas liquid ("NGL")
prices, which have been exacerbated during the COVID-19 pandemic. Since the
beginning of 2020, oil prices have moved downward due in part to concerns about
the COVID-19 pandemic and its impact on near-term worldwide oil demand and due
to the increase in oil production by certain members of the Organization of
Petroleum Exporting Countries ("OPEC"). This oversupply of oil, compounded by a
global shortage of oil storage capacity, has driven oil prices to historic lows.
While OPEC agreed in April 2020 to cut production, downward pressure on prices
has continued and could continue for the foreseeable future. As a result,
customers in the upstream oil and gas exploration industry and some downstream
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refineries in the energy sector have reduced capital expenditures, which has adversely affected the demand for our energy waste disposal services.
We have taken, and are continuing to take, proactive steps to manage any
disruption or potential disruption to our business caused by the COVID-19
pandemic. On
? Cost control initiatives expected to generate approximately
million of annual savings;
? Reductions to planned 2020 capital spending by approximately 30%, which are
expected to save up to
? Suspension of the Company's quarterly dividend, commencing with the second
quarter of 2020, to preserve free cash flow and enhance liquidity.
We expect that the COVID-19 pandemic will continue to affect our results of operations for the foreseeable future. See "Part II, Item 1A - Risk Factors" in this Quarterly Report on Form 10-Q.
GOODWILL IMPAIRMENT CHARGES
We assess goodwill for impairment during the fourth quarter as ofOctober 1 of each year, and also if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In connection with our financial review and forecasting procedures performed during the first quarter of 2020, management determined that the projected future cash flows of our Energy Waste Disposal Services ("EWDS") reporting unit and our International reporting unit (described below) indicated that the fair value of such reporting units may be below their respective carrying amounts. Accordingly, we performed an interim assessment of each reporting unit's fair value as ofMarch 31, 2020 (the "Interim Assessment"). Based on the results of the Interim Assessment, we recognized goodwill impairment charges of$283.6 million related to our EWDS reporting unit and$16.7 million related to our International reporting unit in the first quarter of 2020. As ofJune 30, 2020 , after the recording these impairment charges, remaining goodwill balances for the EWDS and International reporting units were$27.2 million and$1.7 million , respectively.
Our EWDS reporting unit, a component of our Environmental Services segment, provides energy-related services including solid and liquid waste treatment and disposal, equipment cleaning and maintenance, specialty equipment rental, spill containment and site remediation for a full complement of oil and gas waste streams, predominately to upstream energy customers currently concentrated in the Eagle Ford and Permian Basins inTexas . Our International reporting unit, a component of our Field & Industrial Services segment, provides industrial and emergency response services to the offshore oil and gas sector in theNorth Sea and land-based industries across theEurope ,Middle East andAfrica ("EMEA") region. Both our EWDS and International reporting units are dependent on energy-related exploration and production investments and expenditures by our energy industry customers. Lower crude oil prices and the volatility of such prices affect the level of investment as it impacts the ability of energy companies to access capital on economically advantageous terms or at all. In addition, energy companies decrease investments when the projected profits are inadequate or uncertain due to lower crude oil prices or volatility in crude oil prices. Such reductions in capital spending negatively impact energy waste generation and therefore the demand for our services. Recent volatility and historically low oil prices have adversely impacted customers of our EWDS reporting unit and our International reporting unit, negatively affecting demand for our services. The principal factors contributing to the goodwill impairment charges for both the EWDS and International reporting units related to historically-low energy commodity prices reducing anticipated energy-related exploration and production investments and expenditures by our energy industry customers, which negatively impacted each reporting unit's prospective cash flows and each reporting unit's estimated fair value. A longer-than-expected recovery in crude oil pricing and energy-related exploration and production investments became evident during the first quarter of 2020 as we assessed the projected impact of the COVID-19 pandemic and foreign oil production increases on the global demand for oil
and
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updated the long-term projections for each reporting unit which, as a result,
decreased each reporting unit's anticipated future cash flows as compared to
those estimated previously.
The EWDS and International reporting units were acquired as part of the NRC
Merger on November 1, 2019 . As part of the preliminary purchase price
allocation, the assets and liabilities of NRC were recorded at their preliminary
fair value with the purchase price in excess of net fair value recorded as
goodwill. Goodwill was allocated to the reporting units based on the relative
preliminary fair value of each reporting unit to the total fair value of NRC.
Consistent with our annual impairment testing methodology, we utilized a weighted average of (1) an income approach and (2) a market approach to determine the fair value of each of the reporting units for the Interim Assessment. The income approach is based on the estimated present value of future cash flows for each reporting unit. The market approach is based on assumptions about how market data relates to each reporting unit.
Assessing impairment inherently involves management judgments as to the assumptions used to calculate fair value of the reporting units and the impact of market conditions on those assumptions. The key inputs that management uses in its assumptions to estimate the fair value of our reporting units under the income-based approach are as follows:
Projected cash flows of the reporting unit, with consideration given to
? projected revenues, operating margins and the levels of capital investment
required to generate the corresponding revenues; and
? Weighted average cost of capital ("WACC"), the risk-adjusted rate used to
discount the projected cash flows.
To develop the projected cash flows of our reporting units, management considers factors that may impact the revenue streams within each reporting unit. These factors include, but are not limited to, economic conditions on both a global scale and specifically in the regions in which the reporting units operate, customer relationships, strategic plans and opportunities, required returns on invested capital and competition from other service providers. With regard to operating margins, management considers its historical reporting unit operating margins on the revenue streams within each reporting unit, adjusting historical margins for the projected impact of current market trends on both fixed and variable costs. Expected future after-tax operating cash flows of each reporting unit are discounted to a present value using a risk-adjusted discount rate. Estimates of future cash flows require management to make significant assumptions regarding future operating performance including the projected mix of revenue streams within each reporting unit, projected operating margins, the amount and timing of capital investments and the overall probability of achieving the projected cash flows, as well as future economic conditions, which may result in actual future cash flows that are different than management's estimates. The discount rate, which is intended to reflect the risks inherent in future cash flow projections, used in estimating the present value of future cash flows, is based on estimates of the WACC of market participants relative to the reporting units. Financial and credit market volatility can directly impact certain inputs and assumptions used to develop the WACC. The rapid and sustained decline in the energy markets served by our EWDS and International reporting units, exacerbated by the uncertainty surrounding the impact of the COVID-19 pandemic and foreign oil production increases, has inherently increased the risk associated with the future cash flows of these reporting units. Accordingly, when performing the Interim Assessment, we increased the discount rates and decreased the projected capital investment for each reporting unit compared to the assumptions used in the initial fair value assessment in connection with the NRC Merger onNovember 1, 2019 . We believe these changes are reflective of market participant inputs in consideration of the current economic uncertainty. We also considered the estimated fair value of our EWDS and International reporting units under a market-based approach by applying industry-comparable multiples of revenues and operating earnings to reporting unit revenues and operating earnings. The lack of a broad base of publicly available market data specific to the industry in which we operate, combined with the general market volatility attributable to the COVID-19 pandemic, results in a wide range of currently observable market multiples. Accordingly, we applied less weight to the estimated fair value of our reporting units calculated under the market-based approach (10%) compared to the income approach (90%) described
above.
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We believe that the discount rates, projected cash flows and other inputs and
assumptions used in the Interim Assessment are consistent with those that a
market participant would use based on the events described above and are
reflective of the current market assessment of the fair value of our EWDS and
International reporting units. In addition, we believe that our estimates and
assumptions about future revenues and margin projections in the Interim
Assessment were reasonable and consistent with the current economic uncertainty,
both in general and specific to the energy markets served by our EWDS and
International reporting units.
During the three months ended June 30, 2020 , we did not identify any events that
occurred or circumstances that changed that would indicate the fair value of our
EWDS and International reporting units may be below their respective carrying
amounts. Accordingly, as of June 30, 2020 , we believe the carrying values of our
EWDS and International reporting units approximates their fair values. As such,
there is a risk of additional goodwill impairment to either or both reporting
units if future events related to the respective reporting unit are less
favorable than what we have assumed or estimated in our Interim Assessment. We
will continue to monitor events occurring or circumstances changing which may
suggest that goodwill should be reevaluated during future interim periods prior
to the annual impairment test. These events and circumstances include, but are
not limited to, a further sustained decline in energy commodity prices and
unanticipated impacts from the COVID-19 pandemic, as well as quantitative and
qualitative factors specific to each reporting unit which indicate potential
events that would more likely than not reduce the fair value of the reporting
unit below its carrying amount. Additionally, the carrying values of our EWDS
and International reporting units are based on preliminary estimates of their
acquisition date fair values. As such, changes to these preliminary fair value
estimates may result in an adjustment, during the measurement period, to the
impairment charges recognized in the first quarter of 2020. See Note 3 of the
Notes to Consolidated Financial Statements in "Part I, Item 1. Financial
Statements (Unaudited)" of this Quarterly Report on Form 10-Q for additional
information on the preliminary nature of the NRC Merger purchase price
allocation.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED
Operating results and percentage of revenues were as follows:
Three Months Ended June 30, 2020 vs. 2019$s in thousands 2020 % 2019 % $ Change % Change Revenue Environmental Services$ 110,409 52 %$ 112,844 72 %$ (2,435) (2) % Field & Industrial Services 103,509 48 % 42,958 28 % 60,551 141 % Total$ 213,918 100 %$ 155,802 100 %$ 58,116 37 % Gross Profit Environmental Services$ 40,206 36 %$ 43,081 38 %$ (2,875) (7) % Field & Industrial Services 13,605 13 % 6,502 15 % 7,103 109 % Total$ 53,811 25 %$ 49,583 32 %$ 4,228 9 % Selling, General & Administrative Expenses Environmental Services$ 13,506 12 %$ 2,010 2 %$ 11,496 572 % Field & Industrial Services 13,116 13 % 3,739 9 % 9,377 251 % Corporate 21,865 n/m 18,300 n/m 3,565 19 % Total$ 48,487 23 %$ 24,049 15 %$ 24,438 102 % Adjusted EBITDA Environmental Services$ 43,415 39 %$ 47,056 42 %$ (3,641) (8) % Field & Industrial Services 13,263 13 % 5,022 12 % 8,241 164 % Corporate (17,979) n/m (14,144) n/m (3,835) 27 % Total$ 38,699 18 %$ 37,934 24 %$ 765 2 %
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 income before interest expense,
interest income, income tax expense, depreciation, amortization, share-based
compensation, accretion of closure and post-closure liabilities, foreign
currency gain/loss, gain on property insurance recoveries, business development
and integration expenses and other income/expense. In 2019, we updated our
Adjusted EBITDA definition to include adjustments for business development and
integration expenses and gain on property insurance recoveries. Throughout this
Quarterly Report on Form 10-Q, our Adjusted EBITDA results for all periods
presented have been recast to reflect these adjustments. The reconciliation of
Net income to Adjusted EBITDA is as follows:
Three Months Ended June 30, 2020 vs. 2019$s in thousands 2020 2019 $ Change % Change Net (loss) income$ (5,183) $ 15,491 $ (20,674) (133) % Income tax expense 2,261 6,395 (4,134) (65) % Interest expense 7,853 3,588 4,265 119 % Interest income (153) (202) 49 (24) % Foreign currency loss 671 384 287 75 % Other income (125) (122) (3) 2 % Depreciation and amortization of plant and equipment 18,418 9,129 9,289 102 % Amortization of intangible assets 9,193 2,863 6,330 221 % Share-based compensation 1,524 1,245 279 22 % Accretion and non-cash adjustment of closure & post-closure liabilities 1,267 1,133 134 12 % Gain on property insurance recoveries - (4,500) 4,500 (100) % Business development and integration expenses 2,973
2,530 443 18 % Adjusted EBITDA$ 38,699 $ 37,934 $ 765 2 % Adjusted EBITDA is a complement to results provided in accordance with accounting principles generally accepted inthe United States ("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 42 Table of Contents
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.
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. Revenue Total revenue increased 37% to$213.9 million for the second quarter of 2020 compared with$155.8 million for the second quarter of 2019. The acquired NRC operations contributed$70.4 million of total revenue for the second quarter of 2020. Excluding NRC operations, total revenue decreased 8% to$143.5 million for the second quarter of 2020, compared with$155.8 million for the second quarter of 2019. Environmental Services Environmental Services segment revenue decreased 2% to$110.4 million for the second quarter of 2020, compared to$112.8 million for the second quarter of 2019. The acquired NRC operations contributed$7.3 million of segment revenue for the second quarter of 2020. Excluding NRC operations, segment revenue decreased 9% to$103.1 million for the second quarter of 2020, compared with$112.8 million for the second quarter of 2019. T&D revenue (excluding NRC) decreased 4% compared to the second quarter of 2019, primarily as a result of a 10% decrease in Base Business revenue and a 12% increase in project-based Event Business revenue. Transportation and logistics service revenue (excluding NRC) decreased 25% compared to the second quarter of 2019, reflecting Event Business projects utilizing less of the Company's transportation and logistics services. Total tons of waste disposed of or processed across all of our facilities (excluding NRC) decreased 15% for the second quarter of 2020 compared to the second quarter of 2019. Tons of waste disposed of or processed at our landfills (excluding NRC) decreased 14% for the second quarter of 2020 compared to the second quarter of 2019. T&D revenue (excluding NRC) from recurring Base Business waste generators decreased 10% for the second quarter of 2020 compared to the second quarter of 2019 and comprised 73% of total T&D revenue for the second quarter of 2020. Comparing the second quarter of 2020 to the second quarter of 2019, decreases in Base Business T&D revenue from the metal manufacturing, broker/TSDF, general manufacturing, government and refining industry groups were partially offset by an increase in Base Business T&D revenue from the Other industry group. T&D revenue (excluding NRC) from Event Business waste generators increased 12% for the second quarter of 2020 compared to the second quarter of 2019 and comprised 27% of total T&D revenue for the second quarter of 2020. Comparing the second quarter of 2020 to the second quarter of 2019, increases in Event Business T&D revenue from the 43
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utilities and chemical manufacturing industry groups were partially offset by decreases in Event Business T&D revenue from the government, metal manufacturing and refining industry groups. The following table summarizes combined Base Business and Event Business T&D revenue growth (excluding NRC), within the Environmental Services segment, by generator industry for the second quarter of 2020 as compared to the second
quarter of 2019:
Treatment and Disposal Revenue Growth
Three Months Ended June 30, 2020 vs.
Three Months Ended June 30, 2019
Utilities 176%
Chemical Manufacturing 10%
Other 6%
Mining, Exploration & Production 6%
Transportation 1%
Waste Management & Remediation -4%
General Manufacturing -12%
Broker / TSDF -12%
Refining -18%
Metal Manufacturing -25%
Government -30%
Field & Industrial Services
Field & Industrial Services segment revenue increased 141% to $103.5 million for
the second quarter of 2020 compared with $43.0 million for the second quarter of
2019. The acquired NRC operations contributed $63.1 million of segment revenue
for the second quarter of 2020. Excluding NRC operations, segment revenue
decreased 6% to $40.4 million for the second quarter of 2020, compared with
$43.0 million for the second quarter of 2019. The decrease in Field & Industrial
Services segment revenue (excluding NRC) is primarily attributable to lower
revenues from our Transportation and Logistics and Industrial Services business
lines, partially offset by higher revenues from our Emergency Response and Small
Quantity Generation business lines.
Gross Profit
Total gross profit increased 9% to$53.8 million for the second quarter of 2020, up from$49.6 million for the second quarter of 2019. Total gross margin was 25% for the second quarter of 2020 compared with 32% for the second quarter of 2019. The acquired NRC operations contributed$7.2 million of total gross profit for the second quarter of 2020. Excluding NRC operations, total gross profit decreased 6% to$46.6 million for the second quarter of 2020, compared with$49.6 million for the second quarter of 2019. Excluding NRC operations, total gross margin was 32% for both the second quarter of 2020 and 2019. Environmental Services Environmental Services segment gross profit decreased 7% to$40.2 million for the second quarter of 2020, down from$43.1 million for the second quarter of 2019. Total segment gross margin for the second quarter of 2020 was 36% compared with 38% for the second quarter of 2019. The acquired NRC operations contributed$2.0 million of segment gross loss for the second quarter of 2020. Excluding NRC operations, segment gross profit decreased 2% to$42.2 million for the second quarter of 2020, compared with$43.1 million for the second quarter of 2019. Excluding NRC operations, segment gross margin was 41% for the second quarter of 2020 compared with 38% for the second quarter of 2019. T&D gross margin (excluding NRC) was 45% for both the second quarter of 2020 and 2019. Field & Industrial Services Field & Industrial Services segment gross profit increased 109% to$13.6 million for the second quarter of 2020, up from$6.5 million for the second quarter of 2019. Total segment gross margin was 13% for the second quarter of 2020 compared 44 Table of Contents with 15% for the second quarter of 2019. The acquired NRC operations contributed$9.2 million of segment gross profit for the second quarter of 2020. Excluding NRC operations, segment gross profit decreased 32% to$4.4 million for the second quarter of 2020, compared with$6.5 million for the second quarter of 2019, reflecting both lower margins and lower revenues. Excluding NRC operations, segment gross margin was 11% for the second quarter of 2020 compared with 15% for the second quarter of 2019, primarily reflecting a less favorable service mix.
Selling, General and Administrative Expenses ("SG&A")
Total SG&A increased to$48.5 million , or 23% of total revenue, for the second quarter of 2020, up from$24.0 million , or 15% of total revenue, for the second quarter of 2019. The acquired NRC operations contributed$19.5 million of SG&A for the second quarter of 2020. Excluding NRC operations, total SG&A increased to$29.0 million , or 20% of total revenue, for the second quarter of 2020 compared with$24.0 million , or 15% of total revenue, for the second quarter of 2019. Environmental Services
Environmental Services segment SG&A increased 572% to$13.5 million , or 12% of segment revenue, for the second quarter of 2020 compared with$2.0 million , or 2% of segment revenue, for the second quarter of 2019. The acquired NRC operations contributed$6.4 million of segment SG&A for the second quarter of 2020. Excluding NRC operations, segment SG&A increased to$7.1 million , or 7% of segment revenue, for the second quarter of 2020 compared with$2.0 million , or 2% of segment revenue, for the second quarter of 2019. The increase in Environmental Services segment SG&A (excluding NRC) is primarily attributable to property insurance recoveries of$4.5 million recognized in the second quarter of 2019 related to the incident at ourGrand View, Idaho facility in the fourth quarter of 2018 and higher insurance costs in the second quarter of 2020 compared to the second quarter of 2019. Field & Industrial Services Field & Industrial Services segment SG&A increased 251% to$13.1 million , or 13% of segment revenue, for the second quarter of 2020 compared with$3.7 million , or 9% of segment revenue, for the second quarter of 2019. The acquired NRC operations contributed$9.1 million of segment SG&A for the second quarter of 2020. Excluding NRC operations, segment SG&A increased to$4.0 million , or 10% of segment revenue, for the second quarter of 2020 compared with$3.7 million , or 9% of segment revenue, for the second quarter of 2019. The increase in Field & Industrial Services segment SG&A (excluding NRC) primarily reflects higher intangible asset amortization expense and higher labor costs, partially offset by lower bad debt expenses in the second quarter of 2020 compared to the second quarter of 2019. Corporate
Corporate SG&A increased to$21.9 million , or 10% of total revenue, for the second quarter of 2020 compared with$18.3 million , or 12% of total revenue, for the second quarter of 2019. The acquired NRC operations contributed$4.0 million of Corporate SG&A for the second quarter of 2020. Excluding NRC operations, Corporate SG&A decreased to$17.9 million , or 12% of total revenue, for the second quarter of 2020 compared with$18.3 million , or 12% of total revenue, for the second quarter of 2019. The decrease in Corporate SG&A (excluding NRC) primarily reflects lower business development and integration expenses related to the NRC Merger and lower travel-related expenses, partially offset by higher employee labor and benefits costs, higher professional services expenses, higher information technology related expenses and higher safety supplies expenses in the second quarter of 2020 compared to the second quarter of 2019. Components of Adjusted EBITDA Income tax expense
The Company's consolidated effective income tax rate for the second quarter of
2020 was (77.4)%, down from 29.2% in the second quarter of 2019. The decrease
was due to income tax expense on foreign earnings in the second quarter of 2020
partially offset by income tax benefit on domestic earnings in the second
quarter of 2020.
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Interest expense
Interest expense was $7.9 million for the second quarter of 2020 compared with
$3.6 million for the second quarter of 2019. The increase is the result of
higher outstanding debt levels primarily attributable to our new $450.0 million
Term Loan used to refinance the indebtedness of NRC and pay transaction expenses
incurred in connection with the NRC Merger in the fourth quarter of 2019, as
well as higher borrowings on our Revolving Credit Facility primarily used to
fund share repurchases in the first quarter of 2020, partially offset by the
impact of lower interest rates in the second quarter of 2020 compared to the
second quarter of 2019.
Foreign currency loss
We recognized a $671,000 foreign currency loss for the second quarter of 2020
compared with a $384,000 foreign currency loss for the second quarter of 2019.
Foreign currency gains and losses reflect changes in business activity conducted
in a currency other than the 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 to US 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. At June
30, 2020 , we had $30.5 million of intercompany loans subject to currency
revaluation.
Other income
Other income was
Depreciation and amortization of plant and equipment
Depreciation and amortization expense increased 102% to$18.4 million for the second quarter of 2020 compared with$9.1 million for the second quarter of 2019. The acquired NRC operations contributed$9.0 million of depreciation and amortization expense for the second quarter of 2020. Excluding NRC operations, depreciation and amortization expense was$9.4 million for the second quarter of 2020 compared with$9.1 million for the second quarter of 2019, primarily reflecting incremental depreciation expense on plant and equipment assets placed in service subsequent to the second quarter of 2019.
Amortization of intangible assets
Intangible assets amortization expense increased 221% to$9.2 million for the second quarter of 2020 compared with$2.9 million for the second quarter of 2019. The acquired NRC operations contributed$6.2 million of intangible assets amortization expense for the second quarter of 2020. Excluding NRC operations, intangible assets amortization expense was$3.0 million for the second quarter of 2020 compared with$2.9 million for the second quarter of 2019, primarily reflecting additional amortization of intangible assets recorded as a result ofUS Ecology Sarnia and Impact Environmental Services, Inc. acquisitions. Share-based compensation
Share-based compensation expense increased 22% to
Accretion and non-cash adjustment of closure and post-closure liabilities
Accretion and non-cash adjustment of closure and post-closure liabilities
increased 12% to
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Gain on property insurance recoveries
The Company recognized gains on property-related insurance recoveries of$4.5 million in the second quarter of 2019 related to the incident at ourGrand View, Idaho facility in the fourth quarter of 2018.
Business development and integration expenses
Business development and integration expenses increased 18% to$3.0 million in the second quarter of 2020, compared to$2.5 million in the second quarter of 2019, primarily attributable to post-NRC Merger integration expenses incurred in the second quarter of 2020. 47 Table of Contents
SIX MONTHS ENDED
Operating results and percentage of revenues were as follows:
Six Months Ended June 30, 2020 vs. 2019
$s in thousands 2020 % 2019 % $ Change % Change
Revenue
Environmental Services $ 237,154 52 % $ 205,177 72 % $ 31,977 16 %
Field & Industrial Services 217,484 48 % 81,662 28 % 135,822 166 %
Total $ 454,638 100 % $ 286,839 100 % $ 167,799 58 %
Gross Profit
Environmental Services $ 84,312 36 % $ 74,637 36 % $ 9,675 13 %
Field & Industrial Services 30,621 14 % 10,187 12 % 20,434 201 %
Total $ 114,933 25 % $ 84,824 30 % $ 30,109 35 %
Selling, General & Administrative Expenses
Environmental Services $ 27,740 12 % $ 3,415 2 % $ 24,325 712 %
Field & Industrial Services 27,800 13 % 7,123 9 % 20,677 290 %
Corporate 44,005 n/m 33,816 n/m 10,189 30 %
Total $ 99,545 22 % $ 44,354 15 % $ 55,191 124 %
Adjusted EBITDA
Environmental Services $ 89,539 38 % $ 82,316 40 % $ 7,223 9 %
Field & Industrial Services 27,742 13 % 7,576 9 % 20,166 266 %
Corporate (35,362) n/m (28,226) n/m (7,136) 25 %
Total $ 81,919 18 % $ 61,666 21 % $ 20,253 33 %
Adjusted EBITDA
Management uses Adjusted EBITDA as a financial measure to assess segment
performance. Adjusted EBITDA is defined as net income before interest expense,
interest income, income tax expense, depreciation, amortization, share-based
compensation, accretion of closure and post-closure liabilities, foreign
currency gain/loss, non-cash property and equipment impairment charges, non-cash
goodwill impairment charges, gain on property insurance recoveries, business
development and integration expenses and other income/expense. In 2019, we
updated our Adjusted EBITDA definition to include adjustments for business
development and integration expenses and gain on property insurance recoveries.
Throughout this Quarterly Report on Form 10-Q, our Adjusted EBITDA results for
all periods presented have been recast to reflect these adjustments. The
reconciliation of Net income to Adjusted EBITDA is as follows:
Six Months Ended June 30, 2020 vs. 2019
$s in thousands 2020 2019 $ Change % Change
Net (loss) income $ (303,269) $ 23,534 $ (326,803) (1,389) %
Income tax expense 1,998 9,436 (7,438) (79) %
Interest expense 17,163 7,618 9,545 125 %
Interest income (242) (409) 167 (41) %Foreign currency (gain) loss (266) 523 (789) (151) % Other income (296) (232) (64) 28 % Property and equipment impairment charges - 25 (25) (100) % Goodwill impairment charges 300,300 - 300,300 n/m Depreciation and amortization of plant and equipment 36,396 17,254 19,142 111 % Amortization of intangible assets 18,634 5,674 12,960 228 % Share-based compensation 3,088 2,467 621 25 % Accretion and non-cash adjustment of closure & post-closure liabilities 2,533 2,258 275 12 % Gain on property insurance recoveries - (9,153) 9,153 (100) % Business development and integration expenses 5,880
2,671 3,209 120 % Adjusted EBITDA$ 81,919 $ 61,666 $ 20,253 33 % Adjusted EBITDA is a complement to results provided in accordance with accounting principles generally accepted inthe United States ("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 48 Table of Contents
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.
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. Revenue Total revenue increased 58% to$454.6 million for the first six months of 2020 compared with$286.8 million for the first six months of 2019. The acquired NRC operations contributed$157.0 million of total revenue for the first six months of 2020. Excluding NRC operations, total revenue increased 4% to$297.6 million for the first six months of 2020, compared with$286.8 million for the first six months of 2019. Environmental Services
Environmental Services segment revenue increased 16% to$237.2 million for the first six months of 2020, compared to$205.2 million for the first six months of 2019. The acquired NRC operations contributed$24.1 million of segment revenue for the first six months of 2020. Excluding NRC operations, segment revenue increased 4% to$213.1 million for the first six months of 2020, compared with$205.2 million for the first six months of 2019. T&D revenue (excluding NRC) increased 6% compared to the first six months of 2019, primarily as a result of a 3% decrease in Base Business revenue and a 44% increase in project-based Event Business revenue. Transportation and logistics service revenue (excluding NRC) decreased 3% compared to the first six months of 2019, reflecting Event Business projects utilizing less of the Company's transportation and logistics services. Total tons of waste disposed of or processed across all of our facilities (excluding NRC) decreased 1% for the first six months of 2020 compared to the first six months of 2019. Tons of waste disposed of or processed at our landfills (excluding NRC) increased 2% for the first six months of 2020 compared to the first six months of 2019. T&D revenue (excluding NRC) from recurring Base Business waste generators decreased 3% for the first six months of 2020 compared to the first six months of 2019 and comprised 74% of total T&D revenue for the first six months of 2020. Comparing the first six months of 2020 to the first six months of 2019, decreases in Base Business T&D revenue from the refining, metal manufacturing, government and broker/TSDF industry groups were partially offset by an increase in Base Business T&D revenue from the Other industry group. T&D revenue (excluding NRC) from Event Business waste generators increased 44% for the first six months of 2020 compared to the first six months of 2019 and comprised 26% of total T&D revenue for the first six months of 2020. Comparing the first six months of 2020 to the first six months of 2019, increases in
Event
Business T&D revenue from
49
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the chemical manufacturing, utilities, transportation and waste management & remediation industry groups were partially offset by a decrease in Event Business T&D revenue from the refining industry group.
The following table summarizes combined Base Business and Event Business T&D
revenue growth (excluding NRC), within the Environmental Services segment, by
generator industry for the first six months of 2020 as compared to the first six
months of 2019:
Treatment and Disposal Revenue Growth
Six Months Ended June 30, 2020 vs.
Six Months Ended June 30, 2019
Utilities 89%
Waste Management & Remediation 68%
Transportation 38%
Chemical Manufacturing 26%
Other 7%
General Manufacturing 2%
Broker / TSDF -3%
Metal Manufacturing -4%
Mining, Exploration & Production -8%
Government -11%
Refining -22%
Field & Industrial Services
Field & Industrial Services segment revenue increased 166% to $217.5 million for
the first six months of 2020 compared with $81.7 million for the first six
months of 2019. The acquired NRC operations contributed $132.9 million of
segment revenue for the first six months of 2020. Excluding NRC operations,
segment revenue increased 4% to $84.6 million for the first six months of 2020,
compared with $81.7 million for the first six months of 2019. The increase in
Field & Industrial Services segment revenue (excluding NRC) is primarily
attributable to higher revenues from our Small Quantity Generation, Remediation
and Emergency Response business lines, partially offset by lower revenues from
our Transportation and Logistics and Industrial Services business lines.
Gross Profit
Total gross profit increased 35% to$114.9 million for the first six months of 2020, up from$84.8 million for the first six months of 2019. Total gross margin was 25% for the first six months of 2020 compared with 30% for the first six months of 2019. The acquired NRC operations contributed$23.6 million of total gross profit for the first six months of 2020. Excluding NRC operations, total gross profit increased 8% to$91.3 million for the first six months of 2020, compared with$84.8 million for the first six months of 2019. Excluding NRC operations, total gross margin was 31% for the first six months of 2020 compared with 30% for the first six months of 2019. Environmental Services
Environmental Services segment gross profit increased 13% to$84.3 million for the first six months of 2020, up from$74.6 million for the first six months of 2019. Total segment gross margin for both the first six months of 2020 and 2019 was 36%. The acquired NRC operations contributed$2.7 million of segment gross profit for the first six months of 2020. Excluding NRC operations, segment gross profit increased 9% to$81.6 million for the first six months of 2020, compared with$74.6 million for the first six months of 2019. Excluding NRC operations, segment gross margin was 38% for the first six months of 2020 compared with 36% for the first six months of 2019. T&D gross margin (excluding NRC) was 44% for the first six months of 2020 compared with 42% for the first six months of 2019, primarily reflecting higher revenues and a more favorable service mix. 50 Table of Contents Field & Industrial Services Field & Industrial Services segment gross profit increased 201% to$30.6 million for the first six months of 2020, up from$10.2 million for the first six months of 2019. Total segment gross margin was 14% for the first six months of 2020 compared with 12% for the first six months of 2019. The acquired NRC operations contributed$20.9 million of segment gross profit for the first six months of 2020. Excluding NRC operations, segment gross profit decreased 5% to$9.7 million for the first six months of 2020, compared with$10.2 million for the first six months of 2019. Excluding NRC operations, segment gross margin was 11% for the first six months of 2020 compared with 12% for the first six months of 2019, primarily reflecting a less favorable service mix, partially offset by higher revenues.
Selling, General and Administrative Expenses ("SG&A")
Total SG&A increased to$99.5 million , or 22% of total revenue, for the first six months of 2020, up from$44.4 million , or 15% of total revenue, for the first six months of 2019. The acquired NRC operations contributed$39.7 million of SG&A for the first six months of 2020. Excluding NRC operations, total SG&A increased to$59.8 million , or 20% of total revenue, for the first six months of 2020 compared with$44.4 million , or 15% of total revenue, for the first six months of 2019. Environmental Services
Environmental Services segment SG&A increased 712% to$27.7 million , or 12% of segment revenue, for the first six months of 2020 compared with$3.4 million , or 2% of segment revenue, for the first six months of 2019. The acquired NRC operations contributed$13.0 million of segment SG&A for the first six months of 2020. Excluding NRC operations, segment SG&A increased to$14.7 million , or 7% of segment revenue, for the first six months of 2020 compared with$3.4 million , or 2% of segment revenue, for the first six months of 2019. The increase in Environmental Services segment SG&A (excluding NRC) is primarily attributable to property insurance recoveries of$9.2 million recognized in the first six months of 2019 related to the incident at ourGrand View, Idaho facility in the fourth quarter of 2018, higher insurance costs and lower bad debt recoveries in the first six months of 2020 compared to the first six months of 2019. Field & Industrial Services Field & Industrial Services segment SG&A increased 290% to$27.8 million , or 13% of segment revenue, for the first six months of 2020 compared with$7.1 million , or 9% of segment revenue, for the first six months of 2019. The acquired NRC operations contributed$19.7 million of segment SG&A for the first six months of 2020. Excluding NRC operations, segment SG&A increased to$8.1 million , or 10% of segment revenue, for the first six months of 2020 compared with$7.1 million , or 9% of segment revenue, for the first six months of 2019. The increase in Field & Industrial Services segment SG&A (excluding NRC) primarily reflects higher labor costs, higher intangible asset amortization expense and lower gains on disposals of assets in the first six months of 2020 compared to the first six months of 2019. Corporate
Corporate SG&A increased to$44.0 million , or 10% of total revenue, for the first six months of 2020 compared with$33.8 million , or 12% of total revenue, for the first six months of 2019. The acquired NRC operations contributed$7.0 million of Corporate SG&A for the first six months of 2020. Excluding NRC operations, Corporate SG&A increased to$37.0 million , or 12% of total revenue, for the first six months of 2020 compared with$33.8 million , or 12% of total revenue, for the first six months of 2019. The increase in Corporate SG&A (excluding NRC) primarily reflects higher employee labor and benefits costs, higher business development and integration expenses related to the NRC Merger and higher information technology related expenses, partially offset by lower travel-related expenses in the first six months of 2020 compared to the first six months of 2019. 51 Table of Contents
Components of Adjusted EBITDA
Income tax expense
Our effective income tax rate for the first six months of 2020 was (0.7)%, compared with 28.6% for the first six months of 2019. This decrease was primarily due to non-deductible goodwill impairment charges as well income tax expense on foreign earnings in the first six months of 2020, partially offset by income tax benefit on domestic earnings in the first six months of 2020. Interest expense Interest expense was$17.2 million for the first six months of 2020 compared with$7.6 million for the first six months of 2019. The increase is the result of higher outstanding debt levels primarily attributable to our new$450.0 million Term Loan used to refinance the indebtedness of NRC and pay transaction expenses incurred in connection with the NRC Merger in the fourth quarter of 2019, as well as higher borrowings on our Revolving Credit Facility primarily used to fund share repurchases in the first quarter of 2020, partially offset by the impact of lower interest rates in the first six months of 2020 compared
to the first six months of 2019. Foreign currency gain (loss)
We recognized a$266,000 foreign currency gain for the first six months of 2020 compared with a$523,000 foreign currency loss for the first six months of 2019. Foreign currency gains and losses reflect changes in business activity conducted in a currency other than the 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. AtJune 30, 2020 , we had$30.5 million of intercompany loans subject to currency revaluation. Other income
Other income was
Goodwill impairment charges As previously discussed, in the first quarter of 2020 we performed an interim assessment of the fair value of certain reporting units as ofMarch 31, 2020 . Based on the results of the assessment, we recognized goodwill impairment charges of$300.3 million during the first six months of 2020.
Depreciation and amortization of plant and equipment
Depreciation and amortization expense increased 111% to$36.4 million for the first six months of 2020 compared with$17.3 million for the first six months of 2019. The acquired NRC operations contributed$17.7 million of depreciation and amortization expense for the first six months of 2020. Excluding NRC operations, depreciation and amortization expense was$18.7 million for the first six months of 2020 compared with$17.3 million for the first six months of 2019, primarily reflecting incremental depreciation expense on plant and equipment assets placed in service subsequent to the first six months of 2019.
Amortization of intangible assets
Intangible assets amortization expense increased 228% to$18.6 million for the first six months of 2020 compared with$5.7 million for the first six months of 2019. The acquired NRC operations contributed$12.6 million of intangible assets amortization expense for the first six months of 2020. Excluding NRC operations, intangible assets amortization expense 52
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was$6.0 million for the first six months of 2020 compared with$5.7 million for the first six months of 2019, primarily reflecting additional amortization of intangible assets recorded as a result ofUS Ecology Sarnia and Impact Environmental Services, Inc. acquisitions. Share-based compensation Share-based compensation expense increased 25% to$3.1 million for the first six months of 2020, compared with$2.5 million for the first six months of 2019, primarily reflecting incremental share-based compensation associated with replacement restricted stock units issued in connection with the NRC Merger.
Accretion and non-cash adjustment of closure and post-closure liabilities
Accretion and non-cash adjustment of closure and post-closure liabilities
increased 12% to
Gain on property insurance recoveries
The Company recognized gains on property-related insurance recoveries of$9.2 million in the first six months of 2019 related to the incident at ourGrand View, Idaho facility in the fourth quarter of 2018.
Business development and integration expenses
Business development and integration expenses increased 120% to$5.9 million in the first six months of 2020, compared to$2.7 million in the first six months of 2019, primarily attributable to post-NRC Merger integration expenses incurred in the first six months of 2020. 53 Table of Contents 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 consolidated financial statements are prepared using the same critical accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 .
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 is fluid and highly uncertain, we have analyzed a wide range of economic scenarios and the impact on our ability to generate cash. These analyses inform our liquidity plans and activities. OnMarch 31, 2020 , for example, the Company announced certain cost-saving measures including, but not limited to, cost control initiatives, expected to generate between$15 million to$20 million of annual savings; a reduction to planned 2020 capital spending of approximately 30%, expected to save up to$30 million in cash; and suspension of the Company's quarterly dividend, commencing with the second quarter of 2020, to preserve free cash flow and enhance liquidity. We also plan to take advantage of the provision of the Coronavirus Aid, Relief and Economic Security Act, which was signed into law onMarch 27, 2020 , allowing for the deferral of the payment of the employer portion of payroll tax withholdings, which is expected to yield up to$8 million of additional cash savings in 2020. We are committed to protecting our workforce, managing through lower business activity by redeploying team members to other business lines, reducing hours and taking advantage of furlough programs that enable the Company to better align personnel costs with customer activity levels. Our primary sources of liquidity are cash and cash equivalents, cash generated from operations and borrowings under the Credit Agreement. AtJune 30, 2020 , we had$122.5 million in unrestricted cash and cash equivalents immediately available and$68.8 million of borrowing capacity 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 future operating cash flows will be sufficient to meet our future operating, investing and dividend cash needs for the foreseeable future, and that the cost-saving measures described above have strengthened our ability to withstand the adverse impact of the COVID-19 pandemic. Furthermore, existing cash balances and availability of additional borrowings under the Credit Agreement provide additional sources of liquidity should they be required. OnJune 26, 2020 , Predecessor US Ecology amended the Credit Agreement, which provides for a covenant relief period through the earlier ofMarch 31, 2022 and the date the Predecessor US Ecology elects to end such covenant relief period pursuant to the terms therein. See additional information on the Third Amendment under "Amendments to the Credit Agreement," below. Operating Activities For the six months endedJune 30, 2020 , net cash provided by operating activities was$59.5 million . This primarily reflects net loss of$303.3 million , non-cash goodwill impairment charges of$300.3 million , non-cash depreciation, amortization and accretion of$57.6 million and a decrease in accounts receivable of$43.6 million , partially offset by a decrease in accounts payable and accrued liabilities of$32.2 million , a decrease in accrued salaries and benefits of$6.5 million and an increase in other assets of$5.2 million . Impacts on net income are due to the factors discussed above under "Results of Operations." 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 2019 financial performance. 54 Table of Contents 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 85 days as ofJune 30, 2020 , compared to 84 days as ofDecember 31, 2019 and 80 days as ofJune 30, 2019 . For the six months endedJune 30, 2019 , net cash provided by operating activities was$38.9 million . This primarily reflects net income of$23.5 million , non-cash depreciation, amortization and accretion of$25.2 million , deferred incomes taxes of$3.7 million , share-based compensation of$2.5 million , and an increase in deferred revenue of$2.4 million , partially offset by a$9.2 million gain on insurance proceeds from damaged property and equipment, an increase in accounts receivable of$5.3 million , a decrease in accrued salaries and benefits of$2.0 million and an increase in other assets of$1.4 million . Impacts on net income are due to the factors discussed above under "Results of Operations." Changes in deferred income taxes are primarily attributable to deferred tax gains resulting from involuntary conversions related to the incident at ourGrand View, Idaho facility in the fourth quarter of 2018. 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. We recognized property-related insurance recoveries in the first six months of 2019 related to the incident at ourGrand View, Idaho facility in the fourth quarter of 2018. The increase in receivables is primarily attributable to the timing of customer payments. The decrease in accrued salaries and benefits is primarily attributable to cash payments during the first six months of 2019 for accrued 2018 incentive compensation. Investing Activities For the six months endedJune 30, 2020 , net cash used in investing activities was$38.6 million , primarily related to capital expenditures of$36.0 million and the acquisition ofImpact Environmental, Inc. for$3.3 million inJanuary 2020 . Capital projects consisted primarily of equipment purchases and infrastructure upgrades at our corporate and operating facilities. For the six months endedJune 30, 2019 , net cash used in investing activities was$14.7 million , primarily related to capital expenditures of$24.7 million , partially offset by property insurance proceeds of$9.5 million related to the incident at ourGrand View, Idaho facility in the fourth quarter of 2018. Significant capital projects included construction of additional disposal capacity at ourBlainville, Quebec, Canada and ourRobstown, Texas facilities as well as equipment purchases and infrastructure upgrades at our corporate and operating facilities. Financing Activities For the six months endedJune 30, 2020 , net cash provided by financing activities was$61.6 million , consisting primarily of$90.0 million in borrowings on our revolving credit facility, partially offset by repurchases of our common stock of$18.3 million and dividend payments to our stockholders of$5.7 million . Quarterly cash dividends have been suspended and no dividends were paid in the second quarter of 2020.
For the six months ended
Credit Agreement OnApril 18, 2017 , Predecessor US Ecology, a wholly-owned subsidiary of the Company, entered into a new senior secured credit agreement (as amended, restated, supplemented or otherwise modified through the date hereof, the "Credit Agreement") with Wells Fargo, as administrative agent for the lenders, swingline lender and issuing lender, andBank of America, N.A ., as an issuing lender, that provides for a$500.0 million , five-year 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 below, the Credit Agreement was amended inNovember 2019 in connection with the NRC Merger and further amended onJune 26, 2020 pursuant to the Third Amendment (as defined below). 55 Table of Contents During the six months endedJune 30, 2020 , 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 3.70%. 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$500.0 million , or approximately 58%, of the Revolving Credit Facility and term loan borrowings outstanding as ofJune 30, 2020 . Except as modified by the Third Amendment as described below, Predecessor US Ecology is required to pay a commitment fee ranging from 0.175% to 0.35% on the average daily unused portion of the Revolving Credit Facility, with such commitment fee to be reduced 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 provides for a letter of credit fee equal to the applicable margin for LIBOR loans under the Revolving Credit Facility. AtJune 30, 2020 , there were$417.0 million of revolving credit loans outstanding on the Revolving Credit Facility. These revolving credit loans are due upon the earliest to occur of (i)November 1, 2024 (or, with respect to any lender, such later date as requested by us and accepted by such lender), (ii) the date of termination of the entire revolving credit commitment (as defined in the Credit Agreement) by us, and (iii) the date of termination of the revolving credit commitment 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 ofJune 30, 2020 , there were$4.0 million in borrowings outstanding subject to the Sweep Arrangement. As ofJune 30, 2020 , the availability under the Revolving Credit Facility was$68.8 million with$10.2 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.
Amendments to the Credit Agreement
OnAugust 6, 2019 , Predecessor US Ecology entered into the first amendment (the "First Amendment") to the Credit Agreement, by and among Predecessor US Ecology, the subsidiaries of Predecessor US Ecology party thereto, the lenders referred to therein and Wells Fargo, as issuing lender, swingline lender and administrative agent. 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 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 lender joinder agreement and second amendment (the "Second Amendment") to the Credit Agreement. 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 six months endedJune 30, 2020 , the effective interest rate on the term loan, including the impact of the amortization of debt issuance costs, was 3.82%. 56 Table of Contents OnJune 26, 2020 , Predecessor US Ecology entered into the third amendment (the "Third Amendment") to the Credit Agreement. 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 the 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, revolving credit loans are available based on a base rate (as defined in the Credit Agreement) or the LIBOR, at the Company's option, plus an applicable margin.
For additional information see Note 11 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$500.0 million , or approximately 58%, of the Revolving Credit Facility and term loan borrowings outstanding as ofJune 30, 2020 . 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 11 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 six months endedJune 30, 2020 . For further information on our contractual obligations and guarantees, refer to our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 .
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