NRC Group Holdings Corp. (NYSE American: NRCG) (“NRCG” or the
“Company”), a global provider of a wide range of environmental,
compliance and waste management services, today reported financial
results for the second quarter ended June 30, 2019.
Second Quarter 2019 Financial Results
Operating revenue in the second quarter of 2019 increased 49% to
$121.8 million compared to $81.7 million in the prior year period.
The increase was largely driven by increased emergency response
activity in connection with an event in the Gulf Coast region,
acquisitions completed in 2018 and 2019 and increased remediation
activity. Excluding the impact of acquisitions, as well as the
increased emergency response activity in the Gulf Coast region,
organic operating revenue growth was 9% compared to the prior year
period.
Operating expenses, which include cost of revenue (exclusive of
depreciation and amortization), in the second quarter of 2019 were
$83.7 million compared to $54.5 million in the prior year period.
The increase was primarily due to incremental expenses related to
increased emergency response activity and acquisitions completed in
2018 and 2019.
General and administrative expenses in the second quarter of
2019 were $17.2 million compared to $12.7 million in the prior year
period. Approximately $1.8 million of this increase was related to
the acquisitions completed in 2018 and 2019, with the remaining
increase primarily due to increased public company costs and an
increase in the Sprint segment to support waste disposal
growth.
Net loss in the second quarter of 2019 was $10.1 million, or
$(0.27) per share1, compared to a net loss of $0.2 million, or
$(0.01) per share1, in the prior year period. The increase in net
loss was largely due to the previously disclosed $10.0 million
payment of common stock made to NRCG’s majority stockholder upon
consummation of the acquisition by NRCG of Organic Incineration
Technology, Inc., which closed in the second quarter of 2019,
transaction expenses related to the proposed merger with US
Ecology, Inc. (“US Ecology”), and the change in fair value of
contingent consideration related to several acquisitions.
Adjusted EBITDA2, a non-GAAP financial measure that is
calculated consistent with the Company’s senior credit facility, in
the second quarter of 2019 increased 28% to $23.3 million compared
to $18.3 million in the prior year period.
Segment Results
Domestic Standby Services – Domestic Standby Services operating
revenue in the second quarter of 2019 increased 6% to $9.7 million
compared to $9.1 million in the prior year period. The increase was
primarily due to an increase in equipment leasing and emergency
response activity. Operating profit in the second quarter of 2019
was $3.5 million compared to $3.8 million in the prior year period.
The slight decline was due to lower tolling revenue and higher
emergency response activity (project mix).
Domestic Environmental Services – Domestic Environmental
Services operating revenue in the second quarter of 2019 increased
69% to $82.1 million compared to $48.6 million in the prior year
period. The increase was largely due to increased emergency
response activity in connection with an event in the Gulf Coast
region and increased remediation activity, partially offset by a
decline in Alaska and New England. Operating profit in the second
quarter of 2019 increased 173% to $12.1 million compared to $4.4
million in the prior year period. The increase was largely due to
increased emergency response activity in the Gulf Coast region.
International Services – International Services operating
revenue in the second quarter of 2019 increased 65% to $9.3 million
compared to $5.7 million in the prior year period. The increase was
primarily due to increased remediation activity in Turkey and
growth in Clean Line Waste Water Solutions Limited (“Clean Line”),
which was acquired in March 2018. Operating profit in the second
quarter of 2019 increased 80% to $1.7 million compared to $0.9
million in the prior year period. The increase was due to the
contribution of increased remediation activity and growth in Clean
Line.
Sprint – Sprint operating revenue in the second quarter of 2019
increased 13% to $20.8 million compared to $18.4 million in the
prior year period. The increase was primarily due to the
acquisition of Quail Run Services, LLC (“Quail Run”) in October
2018, partially offset by lower rig counts in the Eagle Ford Basin
which impacted waste disposal revenue. Operating profit in the
second quarter of 2019 increased 2% to $7.7 million compared to
$7.6 million in the prior year period. The increase was largely due
to the benefit from the Quail Run acquisition.
Balance Sheet and Cash Flow
At June 30, 2019, the Company had $22.6 million in cash and
equivalents and $384.4 million of total debt (gross of issuance
fees) compared to $18.4 million in cash and equivalents and $352.2
million of total debt (gross of issuance fees) at December 31,
2018.
Free cash flow conversion2, defined as Adjusted EBITDA less
total capital expenditures (excluding one-time waste disposal
investments) divided by Adjusted EBITDA, for the second quarter of
2019 was 80% compared to 86% in the prior year period. Free cash
flow conversion2 for the six months ended June 30, 2019 was 84%
compared to 80% in the prior year period.
__________________________ 1 Excludes dividends from 7.00%
Series A Convertible Cumulative Preferred Stock. 2 Adjusted EBITDA
and Free cash flow conversion are non-GAAP financial measures. See
below under the headings “Use of Non-GAAP Financial Information”
and “Reconciliation of Non-GAAP Financial Measures” in the tables
that follow for a description of the Company’s use of Non-GAAP
financial information in this release and a reconciliation of such
non-GAAP financial measures to GAAP.
Proposed Merger with US Ecology, Inc.
As previously announced, NRCG has entered into a definitive
merger agreement with US Ecology (Nasdaq-GS: ECOL) pursuant to
which US Ecology will form a new holding company that immediately
upon the closing of the transaction will own both US Ecology and
NRCG. The merger is expected to close in the fourth quarter of
2019. Until the closing, NRCG will continue to operate as an
independent company.
Conference Call
Management will not be holding a conference call to review
results nor providing any forward guidance due to the previously
announced proposed merger with US Ecology.
About NRCG
NRCG is a global provider of a wide range of environmental,
compliance and waste management services. NRCG’s broad range of
capabilities and global reach enable it to meet the critical, and
often non-discretionary, needs of more than 5,000 customers across
diverse end markets to ensure compliance with environmental, health
and safety laws and regulations around the world. NRC Group, a
wholly owned subsidiary of NRCG, was established in June 2018
through the combination of two businesses, National Response
Corporation and Sprint Energy Services, both previously operating
separately under the ownership of investment affiliates of J.F.
Lehman & Company. For more information, please visit
www.nrcg.com. No portion of the website referenced in this
paragraph is incorporated by reference into or otherwise deemed to
be a part of this news release.
Use of Non-GAAP Financial Information
This release describes historical financial information that
includes “Adjusted EBITDA,” and “Free cash flow conversion,” both
of which are financial measures that are not calculated in
accordance with GAAP and provided only as supplemental information.
The Company has presented Adjusted EBITDA because it is
substantially the same as the metric called “Consolidated Adjusted
EBITDA,” as defined in the Company’s senior credit facility, which
is a key component in the determination of its leverage ratios
(including its ability to service debt and incur capital
expenditures). The Company believes its presentation of Adjusted
EBITDA is useful because it provides investors and industry
analysts the same information that it uses internally for purposes
of assessing its liquidity and core operating performance. The
Company provides Free cash flow conversion because it is a useful
measure to investors as to the ongoing liquidity of the business
after required capital expenditure investments. Adjusted EBITDA and
Free cash flow conversion are each a non-GAAP financial measure and
should not be considered as an alternative to financial measures
prepared in accordance with GAAP such as operating income or net
income as measures of operating performance or cash flows or as
measures of liquidity. Adjusted EBITDA and Free cash flow
conversion are not necessarily calculated the same way as other
companies and should not be considered a substitute for or more
meaningful than GAAP results, and should be read in conjunction
with the GAAP financial information provided in this release.
For a further description of Adjusted EBITDA and Free cash flow
conversion and explanation of the Company’s use thereof, please see
“Reconciliation of Non-GAAP Financial Measure” in the tables that
follow.
Forward-Looking Statements
Statements in this communication that are not historical facts
are forward-looking statements that reflect NRCG’s management’s
current expectations, assumptions and estimates of future
performance and economic conditions. These forward-looking
statements relate to, among other things, the anticipated closing
of the proposed transaction and structure of the combined company.
All statements other than historical facts may be forward-looking
statements; words such as “anticipate,” “believe,” “could,”
“design,” “estimate,” “expect,” “forecast,” “goal,” “guidance,”
“imply,” “intend,” “may,” “objective,” “opportunity,” “outlook,”
“plan,” “position,” “potential,” “predict,” “project,”
“prospective,” “pursue,” “seek,” “should,” “strategy,” “target,”
“would,” “will” or other similar expressions that convey the
uncertainty of future events or outcomes are used to identify
forward-looking statements. Such forward-looking statements are not
guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond the
control of NRCG. Factors that could cause NRCG’s actual results to
differ materially from those implied in the forward-looking
statements include: (1) the risk that the conditions to the closing
of the proposed merger with US Ecology are not satisfied, including
the risk that required approvals for the transaction from
governmental authorities or the stockholders of NRCG or US Ecology
are not obtained; (2) the occurrence of any event, change or other
circumstances that either could give rise to the right of one or
both of NRCG or US Ecology to terminate the merger agreement, (3)
litigation relating to the transaction; (4) uncertainties as to the
timing of the consummation of the transaction and the ability of
each party to consummate the transaction; (5) risks related to
disruption of management time from ongoing business operations due
to the proposed transaction; (6) unexpected costs, charges or
expenses resulting from the transaction (7) the ability of NRCG and
US Ecology to retain and hire key personnel; (8) competitive
responses to the proposed transaction and the impact of competitive
services; (9) certain restrictions during the pendency of the
mergers that may impact NRCG’s or US Ecology’s ability to pursue
certain business opportunities or strategic transaction; (10) the
terms and availability of the indebtedness planned to be incurred
in connection with the transaction to refinance NRCG’s existing
indebtedness; (11) potential adverse changes to business
relationships resulting from the announcement or completion of the
transaction; (12) the combined companies’ ability to achieve the
growth prospects and synergies expected from the transaction, as
well as delays, challenges and expenses associated with integrating
the combined companies’ existing businesses; and (13) legislative,
regulatory and economic developments, including changing business
conditions in the industries in which NRCG and US Ecology operate.
These risks, as well as other risks associated with the proposed
transaction, are more fully described in the preliminary joint
proxy statement/prospectus, dated July 31, 2019, that was filed by
US Ecology Parent, Inc. with the Securities and Exchange Commission
(“SEC”) in connection with the proposed transaction. Investors and
potential investors are urged not to place undue reliance on
forward-looking statements in this communication, which speak only
as of this date. NRCG undertakes no obligation to revise or update
publicly any forward-looking statement to reflect future events or
circumstances. Nothing contained herein constitutes or will be
deemed to constitute a forecast, projection or estimate of the
future financial performance of NRCG or the combined company,
whether following the implementation of the proposed transaction or
otherwise.
In addition, actual results are subject to other risks and
uncertainties that relate more broadly to NRCG’s overall business,
including those more fully described in NRCG’s filings with the
SEC.
No Offer or Solicitation
This communication relates to a proposed business combination
between US Ecology Parent, Inc., US Ecology and NRCG. The
information in this communication is for informational purposes
only and is neither an offer to purchase, nor a solicitation of an
offer to sell, subscribe for or buy any securities or the
solicitation of any vote in any jurisdiction pursuant to the
proposed transactions or otherwise, nor shall there be any sale,
issuance or transfer of securities in any jurisdiction in
contravention of applicable law. No offer of securities shall be
made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended.
Additional Information and Where to Find It
In connection with the proposed transaction, US Ecology Parent,
Inc. filed with the SEC a Registration Statement on Form S-4, dated
July 31, 2019 that includes a preliminary joint proxy statement of
US Ecology and NRCG and a prospectus of US Ecology Parent, Inc., as
well as other relevant documents regarding the proposed
transaction. The information in the preliminary joint proxy
statement/prospectus is not complete and may be changed. US Ecology
Parent, Inc. may not sell the securities referenced in the
preliminary joint proxy statement/prospectus until the Registration
Statement on Form S-4 filed with the SEC becomes effective.
INVESTORS AND SECURITY HOLDERS ARE ENCOURAGED TO READ THE
REGISTRATION STATEMENT, INCLUDING THE PRELIMINARY JOINT PROXY
STATEMENT/PROSPECTUS, REGARDING THE MERGERS AND ANY OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR
SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THESE DOCUMENTS WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. A
definitive Joint Proxy Statement/Prospectus will be mailed to
stockholders of US Ecology and NRCG. A free copy of the Joint Proxy
Statement/Prospectus, as well as other filings containing
information about US Ecology Parent, Inc., US Ecology and NRCG, may
be obtained once it becomes available at the SEC’s website,
www.sec.gov. You will also be able to obtain these documents, free
of charge, by accessing US Ecology’s website at
https://investors.usecology.com/ or by accessing NRCG’s website at
http://ir.nrcg.com/.
Participants in the Solicitation Relating to the
Mergers
US Ecology and NRCG and their respective directors and executive
officers and other members of management and employees may be
deemed to be participants in the solicitation of proxies from US
Ecology stockholders and NRCG common stockholders in respect of the
proposed transaction. Information regarding US Ecology’s directors
and executive officers is contained in US Ecology’s Annual Report
on Form 10-K for the year ended December 31, 2018 and its Proxy
Statement on Schedule 14A, dated April 11, 2019, which are filed
with the SEC. Information regarding NRCG’s directors and executive
officers is contained in NRCG’s Annual Report on Form 10-K for the
year ended December 31, 2018 and its Proxy Statement on Schedule
14A, dated April 17, 2019, which are filed with the SEC. Additional
information regarding the interests of those participants and other
persons who may be deemed participants in the transaction is
included in the registration statement and joint proxy
statement/prospectus and other relevant materials to be filed with
the SEC. Free copies of these documents may be obtained as
described in the preceding paragraph.
NRC GROUP HOLDINGS CORP AND
SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(in thousands except share and
per share amounts)
June 30,
December 31,
2019
2018
(Unaudited)
ASSETS Current assets Cash and cash equivalents
$
22,615
$
18,365
Receivables: Trade, net of allowance for doubtful accounts of $2.5
million and $0.6 million, respectively
100,345
102,709
Other
1,227
1,112
Inventory
7,329
7,257
Prepaid expenses and other current assets
5,438
4,692
Total current assets
136,954
134,135
Property and equipment, net
156,534
122,565
Goodwill
52,864
51,417
Intangible assets, net of accumulated amortization of $38.5 million
and $34.5 million, respectively
70,833
64,614
Other assets
4,081
3,396
Total assets
$
421,266
$
376,127
LIABILITIES AND SHAREHOLDERS' EQUITY Current
liabilities Accounts payable
$
34,373
$
36,171
Accrued expenses
11,293
10,644
Accrued wages and benefits
5,659
4,858
Contingent consideration
6,509
2,470
Deferred revenue
3,704
1,199
Other current liabilities
3,325
-
Current portion of term loans
3,431
3,431
Current portion of equipment loan
728
737
Borrowings outstanding under revolving credit agreements
43,000
10,000
Accrued dividend on Series A convertible preferred stock
1,838
1,511
Total current liabilities
113,860
71,021
Contingent consideration, net of current portion
4,886
3,846
Term loans, net of current portion and deferred financing costs
329,145
330,104
Equipment loan, net of current portion
979
78
Asset retirement obligation
1,346
1,379
Other long-term liabilities
13,445
1,243
Total liabilities
463,661
407,671
Commitments and contingencies Shareholders'
Equity (Deficit) Series A Convertible Preferred Stock, par
value $0.0001; 5,000,000 shares authorized; 1,050,000 issued with a
liquidation preference of $105,000 as of June 30, 2019 and December
31, 2018.
102,967
102,967
Common stock, par value $0.0001; 200,000,000 shares authorized;
38,050,385 and 36,902,544 shares issued and outstanding as of June
30, 2019 and December 31, 2018, respectively.
4
4
Additional paid in capital
20,677
13,084
Accumulated deficit
(159,637
)
(141,062
)
Accumulated other comprehensive loss
(6,406
)
(6,537
)
Total shareholders' equity (deficit)
(42,395
)
(31,544
)
Total liabilities and shareholders' equity
$
421,266
$
376,127
NRC GROUP HOLDINGS CORP AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS AND
COMPREHENSIVE INCOME
(LOSS)
(in thousands except share and
per share amounts)
(unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Operating revenue
$
121,841
$
81,692
$
222,335
$
152,924
Costs and expenses Operating expenses, including cost of
revenue (exclusive of depreciation and amortization)
83,678
54,482
154,933
102,848
General and administrative expenses
17,188
12,740
34,081
23,135
Depreciation and amortization
9,678
5,325
18,690
11,784
Management fees
-
357
-
800
Acquisition expenses
10,715
2,064
11,162
3,286
Share-based compensation
1,268
-
1,268
-
Change in fair value of contingent consideration
2,026
-
4,077
-
Other expense, net
413
1,443
1,813
2,340
Total costs and expenses
124,966
76,411
226,024
144,193
Operating (loss) income
(3,125
)
5,281
(3,689
)
8,731
Other income (expenses) Interest expense
(7,730
)
(3,963
)
(14,339
)
(7,633
)
Foreign currency transaction gain (loss)
(40
)
78
51
41
Loss on debt extinguishment
-
(2,720
)
-
(2,720
)
Other income (expense), net
(87
)
(23
)
89
(8
)
Total other expenses, net
(7,857
)
(6,628
)
(14,199
)
(10,320
)
Loss before income taxes
(10,982
)
(1,347
)
(17,888
)
(1,589
)
Income tax (benefit) expense
(867
)
(1,139
)
687
(1,020
)
Net loss
$
(10,115
)
$
(208
)
$
(18,575
)
$
(569
)
Other comprehensive income (loss), net of tax Foreign
currency translation (loss) income
(315
)
(1,245
)
131
(540
)
Total other comprehensive (loss) income
(315
)
(1,245
)
131
(540
)
Comprehensive loss
$
(10,430
)
$
(1,453
)
$
(18,444
)
$
(1,109
)
Net loss
$
(10,115
)
$
(208
)
$
(18,575
)
$
(569
)
Less dividend on Series A convertible preferred stock
(1,837
)
-
(3,675
)
-
Net loss attributable to common shareholders
$
(11,952
)
$
(208
)
$
(22,250
)
$
(569
)
Net loss per share, basic and diluted
$
(0.32
)
$
(0.01
)
$
(0.60
)
$
(0.03
)
Weighted average common shares outstanding, basic and diluted
37,545,840
21,873,680
37,225,969
21,873,680
Dividends declared per Series A convertible preferred share
$
1.75
-
$
3.50
-
NRC GROUP HOLDINGS CORP AND
SUBSIDIARIES
SEGMENT PERFORMANCE
(in thousands)
(unaudited)
Domestic Domestic Standby Environmental Corporate Services
Services International Sprint Items Total Three Months Ended June
30,
2019
Operating revenue
$
9,671
$
82,071
$
9,314
$
20,785
$
-
$
121,841
Operating expenses, including cost of revenue (excluding
depreciation, amortization and certain other expenses)
5,196
62,843
6,696
8,943
-
83,678
General and administrative expenses
991
7,163
958
4,105
3,971
17,188
Operating profit (exclusive of depreciation, amortization and
certain other expenses)
3,484
12,065
1,660
7,737
(3,971
)
20,975
2018
Operating revenue
$
9,119
$
48,561
$
5,651
$
18,361
$
-
$
81,692
Operating expenses, including cost of revenue (excluding
depreciation, amortization and certain other expenses)
4,467
38,346
3,721
7,948
-
54,482
General and administrative expenses
830
5,792
1,008
2,859
2,251
12,740
Operating profit (exclusive of depreciation, amortization and
certain other expenses)
3,822
4,423
922
7,554
(2,251
)
14,470
Six Months Ended June 30,
2019
Operating revenue
$
20,064
$
142,937
$
17,461
$
41,873
$
-
$
222,335
Operating expenses, including cost of revenue (excluding
depreciation, amortization and certain other expenses)
10,419
114,102
12,642
17,770
-
154,933
General and administrative expenses
1,940
14,362
1,855
7,856
8,068
34,081
Operating profit (exclusive of depreciation, amortization and
certain other expenses)
7,705
14,473
2,964
16,247
(8,068
)
33,321
Goodwill
-
32,014
1,865
18,985
-
52,864
Assets
77,576
182,438
19,677
150,823
(9,248
)
421,266
2018
Operating revenue
$
18,091
$
89,418
$
10,444
$
34,971
$
-
$
152,924
Operating expenses, including cost of revenue (excluding
depreciation, amortization and certain other expenses)
8,156
72,152
7,065
15,475
-
102,848
General and administrative expenses
1,619
10,372
1,710
5,470
3,964
23,135
Operating profit (exclusive of depreciation, amortization and
certain other expenses)
8,316
6,894
1,669
14,026
(3,964
)
26,941
Goodwill
-
31,008
2,620
10,935
-
44,563
Assets
76,245
159,054
20,092
92,772
(18,935
)
329,228
Reconciliation of Non-GAAP Financial
Measures
Adjusted EBITDA and Free Cash Flow
Conversion
This release uses the term “Adjusted EBITDA,” which is not a
recognized measure under GAAP. The Company uses Adjusted EBITDA as
a supplement to its GAAP results in evaluating certain aspects of
its business, as described below. For purposes of this release, the
Company defines Adjusted EBITDA as net income (loss) plus (i)
depreciation and amortization, (ii) interest expense, net, (iii)
provision for income taxes, net (net income (loss) plus clauses (i)
through (iii) referred to collectively as “EBITDA”), (iv) foreign
currency translation gain or loss and (v) gain or loss on equipment
sales or retirements, adjusted to include certain add-backs
permitted by the Company’s new senior credit facility dated June
11, 2018 (as amended, the “New Credit Facility”), including (i)
management fees, (ii) impairment expense of goodwill and intangible
assets, (iii) acquisition-related transaction expenses (including
due diligence costs, legal, accounting and other advisory fees and
costs, retention and severance payments, facility closure costs and
financing fees and expenses), (iv) the impact of pre-acquisition
revenues, earnings and EBITDA of certain recent acquisitions and
certain management estimates relating thereto, (v) normalization
adjustments to reflect a run-rate level of EBITDA within NRC
Group’s historical financial statements, (vi) non-recurring costs
and other non-operating expenses and income, (vii) the impact of
certain completed cost savings initiatives at various domestic
regions, (viii) the impact of a reduction in force adjustment, (ix)
costs relating to the shutdown of certain international operations
and (x) certain out-of-period timing adjustments and
reclassification of capitalized leases not applicable under the New
Credit Facility. “Adjusted EBITDA” is substantially the same as the
metric called “Consolidated Adjusted EBITDA,” as defined in the New
Credit Facility, which is a key component in the determination of
the Company’s leverage ratios (including its ability to service
debt and incur capital expenditures).
The Company’s method of computing Adjusted EBITDA is
substantially consistent with that used for debt covenant
calculation purposes under the New Credit Facility and also is
routinely reviewed by management for that purpose. For example,
under the New Credit Facility if as of the last day of any fiscal
quarter the sum of the aggregate outstanding principal amount of
all revolving loans plus the aggregate amount of letters of credit
obligations (excluding letters of credit to the extent cash
collateralized and undrawn letters of credit in an aggregate amount
not to exceed $15 million) plus the aggregate outstanding principal
amount of all swingline loans exceeds 30% of the revolving credit
limit then in effect, the Company is required to maintain a
consolidated total net leverage ratio, calculated in accordance
with the New Credit Facility, of equal to or less than 5.45:1.00.
The total net leverage ratio is the ratio of consolidated total net
debt (as defined in the New Credit Facility) to Consolidated
Adjusted EBITDA (as defined in the New Credit Facility). This
covenant is not currently in effect.
The Company believes its presentation of Adjusted EBITDA is
useful because it provides investors and industry analysts the same
information that it uses internally for purposes of assessing its
liquidity and core operating performance. However, Adjusted EBITDA
is not a substitute for, or more meaningful than, net income
(loss), cash flows from operating activities, operating income or
any other measure prescribed by GAAP, and there are limitations to
using non-GAAP measures such as Adjusted EBITDA. Certain items
excluded from Adjusted EBITDA are significant components in
understanding and assessing a company’s financial performance, such
as a company’s cost of capital, tax structure and the historic
costs of depreciable assets. Additionally, certain items excluded
from Adjusted EBITDA are also significant components in
understanding and assessing the Company’s liquidity, such as
interest payments, payments made for transaction expenses and
extraordinary items and management fees. Also, other companies in
the Company’s industry may define Adjusted EBITDA differently than
it does, and as a result, it may be difficult to use Adjusted
EBITDA or similarly named non-GAAP measures that other companies
may use to compare the liquidity or performance of those companies
to the Company’s liquidity or performance. Because of these
limitations, Adjusted EBITDA should not be considered as a measure
of the income generated by the Company’s business or cash flow
available to it to invest in the growth of its business. The
Company’s management compensates for these limitations by relying
primarily on GAAP results and using Adjusted EBITDA
supplementally.
The release also uses the term “Free cash flow conversion,”
which is not a recognized measure under GAAP. The Company uses Free
cash flow conversion as a supplement to its GAAP results because it
believes it is useful to show investors the ongoing liquidity of
the business after required capital expenditure investments. For
purposes of this release, the Company defines Free cash flow
conversion as Adjusted EBITDA less total capex (excluding one-time
waste-disposal investments) divided by Adjusted EBITDA. Free cash
flow conversion is not a substitute for, or more meaningful than,
its comparable GAAP measure, and there are limitations to using
non-GAAP measures such as Free cash flow conversion.
A reconciliation of net cash provided by operating activities to
net income (loss) to Adjusted EBITDA and Free cash flow conversion
for the periods indicated is as follows:
For the Quarter Ended June
30,
For the Six Months Ended June
30,
($ thousands)
2019
2018
2019
2018
Net cash provided by operating activities
6,648
144
5,845
6,451
Depreciation of property and equipment
(7,659
)
(4,111
)
(14,807
)
(9,017
)
Amortization of intangible assets
(2,019
)
(1,227
)
(3,883
)
(2,767
)
Accretion of asset retirement obligation
(27
)
(13
)
(54
)
(26
)
Amortization of deferred financing costs
(419
)
(552
)
(855
)
(835
)
Share-based compensation expense
(1,268
)
-
(1,268
)
-
Bad debt expense
(948
)
(146
)
(2,212
)
(271
)
Change in fair value of contingent consideration
(2,026
)
-
(4,077
)
-
Deferred income tax provision
-
-
-
(23
)
Realized loss (gain) from equipment sales or retirements
57
-
381
-
Loss on extinguishment of debt
-
(2,720
)
-
(2,720
)
Non-cash OIT acquisition related expense
(10,000
)
-
(10,000
)
-
Changes in operating assets and liabilities, net of acquisition:
7,546
8,417
12,355
8,639
Net income (loss) 1
(10,115
)
(208
)
(18,575
)
(569
)
Total income tax expense (benefit)
(867
)
(1,139
)
687
(1,020
)
Interest expense
7,730
3,963
14,339
7,633
Foreign currency transaction gain (loss)
40
(78
)
(51
)
(41
)
Loss on debt extinguishment
-
2,720
-
2,720
Change in fair value of contingent consideration
2,026
-
4,077
-
Share-based compensation
1,268
-
1,268
-
Other expense, net
420
30
1,229
8
Depreciation and amortization
9,678
5,325
18,690
11,784
Management fees
-
550
-
800
Acquisition Transaction expenses
10,714
2,064
11,162
3,286
Transition expenses and extraordinary items 2
59
1,436
408
2,340
Pre-NRC EBITDA contribution 3
-
(1,381
)
-
(1,708
)
Restructuring and Large Event Adjustments 4
68
2,158
252
2,967
Estimated SWS Acquisition Synergies 5
211
961
1,049
1,923
Expenses not in the normal course of business 6
244
167
475
522
Reorganization Adjustments 7
842
1,069
1,749
2,763
Reclassification items 8
1,007
615
3,753
2,313
Total Adjustments
33,441
18,461
59,087
36,290
Adjusted EBITDA, per Credit Agreement
$
23,326
$
18,253
$
40,512
$
35,721
Pro Forma Capital Expenditures
Total Capex
15,262
2,654
21,549
7,386
Less: One-time Waste Disposal Investment
(10,502
)
(180
)
(15,165
)
(330
)
Adj. Capex
4,760
2,474
6,384
7,056
Adj. EBITDA less Adj. Capex
18,566
15,779
34,128
28,665
Free Cash Flow Conversion
80
%
86
%
84
%
80
%
Footnotes
1 GAAP net income.
2 Consists of one-time set-up costs for
growth opportunities in Mexico, senior management placement fees,
as well as expenses related to add-on acquisitions such as
severance, one-time legal, rebranding, and closure costs.
3 Stub period Reported EBITDA of certain
NRC acquisitions prior to NRC acquisition.
4 NRC normalized results from SoCal and
New England regions, which underwent material reorganization
starting in April 2017. These adjustments are evidenced by
increased performance in Q1 2018 vs. Q1 2017. This also includes
the savings from terminating SWS corporate employees as well as the
remaining financial results associated with the closed SWS service
centers. Sprint normalized results consist of the impact of
Hurricane Harvey-related closure of the Karnes Facility and
temporarily low margins during the start-up phase of the Pecos
facility.
5 Consists of identified hard cost savings
from planned headcount reductions, insurance savings and purchasing
efficiencies from integration the SWS acquisition. Actions have
taken or are currently taking place.
6 NRC includes identified one-time,
non-recurring expenses including severance, consulting, lawsuit
settlement and other expenses not anticipated to occur in future
periods. Sprint consists of extraordinary, non-recurring items
including ad-back of landfill rental equipment that has been
purchased and start-up costs for a new yard.
7 NRC consists of savings realized from
cost reduction initiatives completed in the PNW, NoCal and East
regions, including headcount reductions and procurement along with
a reduction-in-force completed in April 2018 and Sept 2018. Sprint
consists of the impact of price increases implemented by Sprint
since late 2017 at the Karnes Facility as well as the removal of
non-recurring operating costs associated with the disposal pit.
8 Consists of out-of-period timing
adjustments and reclassification of capitalized leases stemming
from the PCAOB audit which are not applicable under the Credit
Agreement.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190806005994/en/
Gateway Investor Relations Cody Slach or Jared Filippone, CFA
1-949-574-3860 NRCG@gatewayir.com
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