Notes to Unaudited Consolidated Financial
Statements
NOTE 1 - DESCRIPTION OF ORGANIZATION AND BUSINESS
OPERATIONS
NRC Group Holdings Corp. (“NRCG,”
and together with its subsidiaries, the “Company”) was originally formed on January 3, 2017 as a special purpose acquisition
company (“SPAC”) under the name Hennessy Capital Acquisition Corp. III (“Hennessy Capital”). On October
17, 2018, Hennessy Capital consummated the acquisition (the “Business Combination”) of all of the issued and outstanding
membership interests of NRC Group Holdings, LLC (“NRC Group”) from JFL-NRC-SES Partners, LLC (“JFL Partners”).
Upon consummation of the Business Combination, Hennessy Capital changed its name to NRC Group Holdings Corp. On November 1, 2019,
NRCG became a subsidiary of US Ecology, Inc.
NRCG is a global provider of a wide range
of environmental, compliance and waste management services. The Company’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.
NRCG operates in four reportable business
segments: (1) Domestic Environmental Services, (2) Sprint, (3) Domestic Standby Services and (4) International Services. The Domestic
Environmental Services segment provides environmental and industrial services across the United States. The Sprint segment provides
energy-related services and waste management and disposal services predominately to upstream energy customers concentrated in the
Eagle Ford and Permian Basin regions of the Texas Shale Oil Fields (“Eagle Ford and Permian Basin”). The Domestic Standby
Services segment provides commercial standby oil spill compliance and emergency response services in the United States and across
North America. The International Services segment provides international standby oil spill, emergency response, specialty industrial
and environmental solutions in seven countries. Through its domestic and international wholly-owned subsidiaries, the Company primarily
provides these services to oil and gas, chemical, industrial and marine transportation clients in the United States and abroad.
NRC Group
On January 6, 2012, JFL-NRC Holdings, LLC
(“NRC Holdings”) was formed under Delaware law by its sole member, JFL-NRC Partners, LLC (“NRC Partners”),
for the purpose of acquiring National Response Corporation and its affiliated businesses, including, among others, NRC Environmental
Services, SEACOR Response and SEACOR Environmental Products (collectively, “NRC”) from affiliates of SEACOR Holdings,
Inc. (“SEACOR”). On March 16, 2012, NRC Holdings completed the acquisition (the “NRC Acquisition”) of all
of the issued and outstanding stock of NRC from SEACOR. Prior to March 16, 2012, NRC Holdings did not engage in any business except
for activities related to its formation.
On May 5, 2015, SES Holdco, LLC (“SES
Holdco”), a Texas limited liability company, was formed under Delaware law by its sole member, JFL-SES Partners, LLC (“SES
Partners”), for the purpose of acquiring Sprint Energy Services, LLC (“SES”), a Texas limited liability company.
On May 5, 2015, SES Holdco completed the acquisition (the “SES Acquisition”) of all the issued and outstanding stock
of SES. Sprint Karnes County Disposal LLC (“SKCD”), a Texas limited liability company, is a wholly-owned subsidiary
of SES. SKCD received an oilfield waste disposal permit from the Railroad Commission of Texas (“RRC”) on December 31,
2015.
NRC Partners and SES Partners are ultimately
majority-owned by funds advised by J.F. Lehman and Company (“JFL”), a leading middle-market private equity firm focused
on the defense, aerospace, maritime, government and environmental sectors. In June 2018, NRC Partners and SES Partners formed JFL
Partners, a Delaware limited liability company, and contributed their respective equity interests in NRC Holdings and SES Holdco
to JFL Partners. JFL Partners formed NRC Group and contributed all of its equity interest in NRC Holdings and SES Holdco to NRC
Group. On June 11, 2018, NRC Group made a dividend payment of approximately $86.5 million to J.F. Lehman & Company, LLC (“JFLCo”)
(the “Dividend Recapitalization”). Following the Dividend Recapitalization, NRC Group became the holding company for
NRC Holdings and SES Holdco.
US Ecology Merger
On June 23, 2019, NRCG entered into the
previously disclosed Agreement and Plan of Merger (the “Merger Agreement”) among US Ecology Holdings, Inc. (f/k/a US
Ecology, Inc.), a Delaware corporation (“Predecessor US Ecology”), US Ecology, Inc. (f/k/a US Ecology Parent, Inc.),
a Delaware corporation (“Successor US Ecology”), Rooster Merger Sub, Inc., a Delaware corporation (“NRCG Merger
Sub”), and ECOL Merger Sub, Inc., a Delaware corporation (“ECOL Merger Sub”).
The Merger Agreement provides that, subject
to the conditions set forth in the Merger Agreement, ECOL Merger Sub will merge with and into Predecessor US Ecology, with Predecessor
US Ecology continuing as the surviving company and as a wholly-owned subsidiary of Successor US Ecology (the “ECOL Merger”).
Substantially concurrently therewith, NRCG Merger Sub will merge with and into NRCG, with NRCG continuing as the surviving company
and as a wholly-owned subsidiary of Successor US Ecology (the “NRCG Merger,” and, together with the ECOL Merger, the
“Mergers”).
The Mergers were completed on November
1, 2019 (the “Effective Time”). Following the completion of the Mergers, Successor US Ecology contributed all of the
issued and outstanding equity interests of NRCG to Predecessor US Ecology so that, after such contribution, NRCG became a wholly-owned
subsidiary of Predecessor US Ecology (the “Contribution”).
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X
of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which
include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented.
They may not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these
financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year
ended December 31, 2018, which were included in the Company’s Annual Report on Form 10-K for the year ended December 31,
2018 filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2019 (the “2018 Annual Report”).
The results of operations for any interim periods are not necessarily indicative of the results that may be expected for the entire
fiscal year or any other interim period. Certain prior period financial information has been recast to reflect the current year’s
presentation.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions, which are evaluated on an ongoing basis, that affect
the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management bases its estimates
on historical experience and on various other assumptions it believes to be reasonable at the time under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Significant Accounting Policies
There have been no material changes in
the Company’s significant accounting policies to those previously disclosed in the 2018 Annual Report.
Fair Value
The fair value of an asset or liability
is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes
a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring
fair value and defines three levels of inputs that may be used to measure fair value.
|
●
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Level 1 - uses quoted prices in active markets for identical
assets or liabilities.
|
|
●
|
Level 2 - uses observable inputs other than quoted prices
in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar
assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data.
|
|
●
|
Level 3 - uses one or more significant inputs that are
unobservable and supported by little or no market activity, and that reflect the use of significant management judgment.
|
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
The Company’s only financial instruments
carried at fair value, with changes in fair value flowing through current earnings, consist of contingent consideration liabilities
recorded in conjunction with business combinations, as follows (in thousands):
|
|
|
|
|
Fair Value Measurement at Reporting
Date
Using
|
|
|
|
Balance as of
September 30,
2019
|
|
|
Quoted Prices in Active Markets for Identical
Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration - current
|
|
$
|
7,514
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,514
|
|
Contingent consideration - long-term
|
|
|
3,448
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,448
|
|
Total liabilities measured at fair value
|
|
$
|
10,962
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,962
|
|
|
|
Balance as of
December 31,
2018
|
|
|
Quoted Prices in Active Markets for Identical
Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration - current
|
|
$
|
2,470
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,470
|
|
Contingent consideration - long-term
|
|
|
3,846
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,846
|
|
Total liabilities measured at fair value
|
|
$
|
6,316
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,316
|
|
There were no transfers made among the
three levels in the fair value hierarchy for the three and nine months ended September 30, 2019 and 2018.
The following table presents additional
information about Level 3 liabilities measured at fair value. Both observable and unobservable inputs may be used to determine
the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and
losses for liabilities within the Level 3 category may include changes in fair value that were attributable to both observable
(e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
Changes in Level 3 liabilities measured
at fair value for the three and nine months ended September 30, 2019 and 2018 are as follows (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Contingent consideration - beginning of period
|
|
$
|
11,395
|
|
|
$
|
4,639
|
|
|
$
|
6,316
|
|
|
$
|
4,132
|
|
Acquisition of Clean Line (March 28, 2018)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
507
|
|
Acquisition of OIT (April 26, 2019)
|
|
|
524
|
|
|
|
-
|
|
|
|
4,547
|
|
|
|
-
|
|
Change in fair value of contingent consideration (recognized in earnings)
|
|
|
(957
|
)
|
|
|
-
|
|
|
|
3,120
|
|
|
|
-
|
|
Contingent consideration paid
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,021
|
)
|
|
|
-
|
|
Contingent consideration - end of period
|
|
$
|
10,962
|
|
|
$
|
4,639
|
|
|
$
|
10,962
|
|
|
$
|
4,639
|
|
The fair value of the Company’s contingent
consideration liabilities recorded as part of the acquisitions of Enpro Holdings Group (“Enpro”) in April 2016, Clean
Line Waste Water Solutions Limited (“Clean Line”) in March 2018, Quail Run Services, LLC (“Quail Run”)
in October 2018 and OIT Inc. (“OIT”) in April 2019, has been classified within Level 3 in the fair value hierarchy.
The contingent consideration represents the estimated fair value of future payments due to the sellers of Enpro, Clean Line, Quail
Run and OIT based on each company’s achievement of annual earnings targets in certain years and other events considered in
certain transaction documents. The initial fair values of the contingent consideration were calculated through the use of either
Monte Carlo simulation or modified Black-Scholes analyses based on earnings projections for the respective earn-out periods, corresponding
earnings thresholds, and approximate timing of payments as outlined in the purchase agreements. The analyses utilized the following
assumptions: (i) expected term; (ii) risk-adjusted net sales or earnings; (iii) risk-free interest rate; and (iv) expected volatility
of earnings. Estimated payments, as determined through the respective models, were further discounted by a credit spread assumption
to account for credit risk. The contingent consideration is adjusted to fair value each period, and any increase or decrease
is recorded in operating income (loss). The fair value of the contingent consideration may be impacted by certain unobservable
inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant
changes to these inputs in isolation could result in a significantly different fair value measurement.
In connection with the Mergers described
in Note 1, on November 1, 2019, the Company paid $4.0 million to the sellers of Enpro pursuant
to the terms of its purchase agreement with the Company.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
The carrying value of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term nature of these
instruments. The carrying value of the Company’s term loans and revolving credit facilities, including the current portion,
approximate fair value as the terms and conditions of these loans are consistent with comparable market debt issuances. The carrying
value of the equipment loans approximate fair value as the underlying interest rates approximate current market rates for all periods
presented.
The Company measures certain assets at
fair value on a non-recurring basis, generally annually or when events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable. These assets include goodwill and other intangible assets. See Note 5.
A financial instrument’s categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Trade Receivables and Allowance for
Doubtful Accounts
Customers are domestic and international
shippers, major oil companies, independent exploration and production companies, pipeline and transportation companies, power generating
operators, industrial companies, airports and state and local government agencies. All customers are granted credit on a short-term
basis and related credit risks are considered minimal. The Company routinely reviews its trade receivables and makes provisions
for probable doubtful accounts based on the credit worthiness of the parties involved, historical collection information and economic
conditions. However, those provisions are estimates and actual results could differ from those estimates and those differences
may be material. Trade receivables that are deemed uncollectible are removed from accounts receivable and from the allowance for
doubtful accounts when collection efforts have been exhausted.
The Company records allowances for doubtful
accounts receivable based upon expected collectability. The reserve is generally established based upon an analysis of its aged
receivables. Additionally, if necessary, a specific reserve for individual accounts is recorded when the Company becomes aware
of a customer’s inability to meet its financial obligations, such as in the case of a bankruptcy filing or deterioration
in the customer’s operating results or financial position. The Company also regularly reviews the allowance by considering
factors such as historical collections experience, credit quality, age of the accounts receivable balance and current economic
conditions that may affect a customer’s ability to pay. If actual bad debts differ from the reserves calculated, the Company
records an adjustment to bad debt expense in the period in which the difference occurs.
The following table provides a roll forward
of the allowance for doubtful accounts for the nine months ended September 30, 2019 and 2018 (in thousands):
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Allowance for doubtful accounts, beginning of period
|
|
$
|
627
|
|
|
$
|
895
|
|
Bad debt expense
|
|
|
3,657
|
|
|
|
423
|
|
Write-offs, net of recoveries, for bad debt
|
|
|
(469
|
)
|
|
|
(120
|
)
|
Allowance for doubtful accounts, end of period
|
|
$
|
3,815
|
|
|
$
|
1,198
|
|
Asset Retirement Obligations
Under the terms of its oilfield waste disposal
permit for the SKCD facility, the Company is required to perform certain necessary closure activities as required by the RRC. The
SKCD facility consists of multiple active and planned disposal pits within the facility, each of which must be closed once they
have reached their permitted capacity for waste. Closure of the disposal pit entails capping the pit with a high-density polyethylene
liner and topsoil amongst other environmental remediation procedures. The Company records an asset retirement obligation (“ARO”)
for disposal pits in the year they become active and begin receiving oilfield waste, the balance of which represents the estimated
amount the Company will incur to close each disposal pit in the landfill. The liability is initially recorded at fair value with
the corresponding cost capitalized as a component of property and equipment within the Consolidated Balance Sheet. The liability
is accreted to its present value each period, and the capitalized costs are amortized on a straight-line basis over the expected
period of operation of the respective disposal pit.
The Company determines the ARO by calculating
the present value of estimated future cash flows related to the liability. Estimating the future ARO requires management to make
estimates and judgments regarding timing and existence of a liability, as well as the necessary cost to achieve adequate closure
of each pit. Inherent in the fair value calculation are numerous assumptions and judgments including the ultimate costs, inflation
factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political
environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding
adjustment is made to the related asset.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
In each of December 2017 and April 2018,
the Company established an ARO liability and associated asset in the amount of $0.65 million and $0.65 million, respectively. The
Company recorded accretion expense of $28,000 and $82,000 during the three and nine months ended September 30, 2019, respectively,
and made payments of $87,000 during the nine months ended September 30, 2019. The Company recorded accretion expense of $13,000
and $52,000 during the three and nine months ended September 30, 2018, respectively. As of September 30, 2019 and December 31,
2018, the ARO liability was $1.4 million and $1.4 million, respectively. These ARO liabilities relate to the future closure costs
associated with Disposal Pit #1 and Disposal Pit #2, respectively. Disposal Pit #1 and Disposal Pit #2 are the Company’s
only active cells in the SKCD facility. This obligation represents the net present value of the estimated future payout of approximately
$1.6 million, which is expected to be incurred by the Company upon closure of Disposal Pit #1 in 2020 and Disposal Pit # 2 in 2020.
Recent Accounting Pronouncements
Standards implemented
In August 2018, the SEC adopted the final
rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements
that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements
on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in
each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The
analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of
comprehensive income is required to be filed. The final rule is effective on November 5, 2018, however the SEC staff announced
that it would not object if the filer’s first presentation of the changes in stockholders’ equity is included in its
Form 10-Q for the quarter that begins after the effective date of the amendments. The Company has included the presentation of
changes in stockholders’ equity as required.
Standards to be implemented
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606), which requires entities to recognize revenue in a way that depicts the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount,
timing and uncertainty of revenue and cash flows arising from customer contracts. The FASB subsequently issued ASU 2016-10, Revenue
from Contracts with Customers: (Topic 606) Identifying Performance Obligations and Licensing, to address issues arising from
implementation of the new revenue recognition standard. The effective date is the Company’s annual fiscal year 2019 and interim
periods thereafter, using one of two retrospective application methods: the full retrospective method or the modified retrospective
method. The Company plans to adopt the standard using the modified retrospective method. The Company completed its preliminary
assessment of the financial statement impact of the standard and does not expect it to have a material impact on its financial
position or results of operations. The Company will continue to finalize its assessment of the impact of the new guidance and will
review and update its internal controls over financial reporting to ensure that information required to implement the new standard
is appropriately captured and recorded. In addition, the Company continues to monitor additional changes, modifications, clarifications
or interpretations undertaken by the FASB or others, which may impact its current expectations.
In February 2016 the FASB issued ASU No.
2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10 and ASU 2018-11
(collectively, Topic 842). Topic 842 requires companies to generally recognize on the balance sheet operating and financing lease
liabilities and corresponding right-of-use assets. Topic 842 is effective for annual periods beginning after December 15, 2019
for emerging growth companies, with early adoption permitted. The Company completed its preliminary assessment of the financial
statement impact of the adoption of Topic 842 and expects that most of its operating lease commitments will be subject to the new
standard which will result in the recognition of a material operating lease liability and corresponding right-of use asset upon
adoption.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-03 changes
the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities
will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition
of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in
a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized
cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality
indicators and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings upon
adoption. The new standard will be effective on January 1, 2020 and may be adopted earlier. The Company is currently evaluating
the effect that the new standard will have on its consolidated financial statements and related disclosures.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
, which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst,
or hierarchy associated with, Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of
the update. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
3. BUSINESS ACQUISITIONS
OIT
On March 15, 2019 the Company entered into
a definitive asset purchase agreement with OIT, an environmental services provider including services related to thermal treatment
of non-hazardous petroleum contaminated soils, absorbent pads and sludges, and the treatment of Per- and Polyfluoroalkyl substances.
The transaction closed on April 26, 2019. The Company purchased the assets and business of OIT for an initial adjusted cash purchase
price of $5.8 million paid at closing, plus an additional $2.0 million deferred consideration payable in cash, Company Common Stock
or a combination of the two, and up to an additional $5.0 million in earn-out payments payable in cash, Company Common Stock or
a combination of the two over the next three years based on certain financial milestones. The fair value of this earn out consideration
is included in Contingent Consideration, net of current portion in the Consolidated Balance Sheets. Goodwill related to OIT is
expected to be deductible for tax purposes.
The following table summarizes the preliminary
allocation of the purchase price to the assets acquired and liabilities assumed for the OIT acquisition (in thousands):
Accounts receivable
|
|
$
|
110
|
|
Property, plant and equipment
|
|
|
1,145
|
|
Intangible assets
|
|
|
10,009
|
|
Goodwill
|
|
|
1,184
|
|
Accounts payable and accrued expenses
|
|
|
(181
|
)
|
Deferred consideration
|
|
|
(1,915
|
)
|
Contingent consideration
|
|
|
(4,547
|
)
|
Cash purchase price, net of cash acquired
|
|
$
|
5,805
|
|
For the nine months ended September 30,
2019, the Company recorded $0.5 million in transaction costs related to the acquisition of OIT, which are recorded in Acquisition
Expense in the Consolidated Statements of Operations and Comprehensive Loss.
Clean Line
On March 28, 2018, the Company and Clean
Line entered into an agreement for the sale and purchase of the entire issued share capital of Clean Line for approximately $5.0
million, net of cash acquired, and exclusive of deferred consideration and a potential $3.9 million (£3.0 million) in earn
out consideration, discussed below. Clean Line is a leading provider of environmental, industrial and emergency response services
in the United Kingdom. Clean Line is headquartered in Liverpool, England. Goodwill related to Clean Line is not deductible for
tax purposes.
The following table summarizes the final
allocation of the purchase price to the assets acquired and liabilities assumed for the Clean Line acquisition (in thousands):
Trade receivable
|
|
$
|
1,590
|
|
Other current assets
|
|
|
188
|
|
Property and equipment
|
|
|
1,908
|
|
Intangible assets
|
|
|
1,104
|
|
Goodwill
|
|
|
1,865
|
|
Accounts payable and accrued expenses
|
|
|
(1,147
|
)
|
Contingent liability
|
|
|
(507
|
)
|
Cash purchase price, net of cash acquired
|
|
$
|
5,001
|
|
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
For the nine months ended September
30, 2018, the Company recorded $1.1 million in transaction costs related to the acquisition of Clean Line, which are recorded in
Acquisition Expense in the Consolidated Statements of Operations and Comprehensive Loss.
SWS Acquisition
On May 14, 2018, the Company acquired Progressive
Environmental Services, Inc. (“SWS”) in exchange for approximately $21.8 million, net of cash acquired. SWS, headquartered
in Fort Worth, Texas, expands the Company’s environmental services geographic coverage to 20 locations in eight states throughout
the Southeast, Gulf Coast and Midwest of the United States.
As a result of the Company’s acquisition
of SWS, a temporary difference between the book fair value and tax basis for the assets acquired was created, resulting in a deferred
tax liability and additional goodwill. With the increase in deferred tax liability, the Company reduced the deferred tax asset
valuation account and recognized a $1.2 million deferred tax benefit during the nine months ended September 30, 2018.
The following table summarizes the final
allocation of the purchase price to the assets acquired and liabilities assumed for the SWS acquisition (in thousands):
Accounts receivable
|
|
$
|
12,942
|
|
Other current assets
|
|
|
545
|
|
Property, plant and equipment
|
|
|
7,037
|
|
Deposits
|
|
|
362
|
|
Bid bonds
|
|
|
565
|
|
Intangible assets
|
|
|
2,879
|
|
Goodwill
|
|
|
4,899
|
|
Accounts payable and accrued expenses
|
|
|
(6,176
|
)
|
Deferred tax liability
|
|
|
(1,237
|
)
|
Cash purchase price, net of cash acquired
|
|
$
|
21,816
|
|
For the nine months ended September
30, 2018, the Company recorded $1.5 million in transaction costs related to the acquisition of SWS, which are recorded in Acquisition
Expense in the Consolidated Statements of Operations and Comprehensive Loss.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
4. PROPERTY AND EQUIPMENT
Property and equipment, net consists of
the following as of September 30, 2019 and December 31, 2018 (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Vessels and equipment
|
|
$
|
37,847
|
|
|
$
|
35,553
|
|
Vehicles and trailers
|
|
|
71,919
|
|
|
|
50,458
|
|
Machinery and equipment
|
|
|
110,632
|
|
|
|
109,961
|
|
Office equipment and fixtures
|
|
|
9,159
|
|
|
|
8,549
|
|
Landfill
|
|
|
34,731
|
|
|
|
18,525
|
|
Leasehold improvements
|
|
|
10,060
|
|
|
|
6,490
|
|
Computer systems/license fees
|
|
|
3,655
|
|
|
|
3,527
|
|
Construction in progress
|
|
|
13,936
|
|
|
|
7,697
|
|
|
|
|
291,939
|
|
|
|
240,760
|
|
Less: Accumulated depreciation
|
|
|
(132,963
|
)
|
|
|
(118,195
|
)
|
Property and equipment, net
|
|
$
|
158,976
|
|
|
$
|
122,565
|
|
For the three and nine months ended September
30, 2019, the Company recognized depreciation expense of $6.6 million and $21.4 million, respectively. For the three and nine months
ended September 30, 2018, the Company recognized depreciation expense of $8.3 million and $17.3 million, respectively.
5. GOODWILL AND INTANGIBLE ASSETS
The table below summarizes the Company’s
finite-lived intangible assets and indefinite-lived trademarks as of September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
September 30, 2019
|
|
|
|
Useful Lives
|
|
Weighted average remaining life
|
|
Intangible
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
(Years)
|
|
(Years)
|
|
Assets
|
|
|
Amortization
|
|
|
Balance
|
|
Customer Relationships
|
|
8 - 20
|
|
9.4
|
|
|
70,896
|
|
|
|
(22,981
|
)
|
|
$
|
47,915
|
|
Tradenames/Trademarks
|
|
2 - 25
|
|
10.8
|
|
|
13,148
|
|
|
|
(7,300
|
)
|
|
|
5,848
|
|
Trademarks
|
|
Indefinite
|
|
N/A
|
|
|
837
|
|
|
|
-
|
|
|
|
837
|
|
Permits/License
|
|
3-10
|
|
8.6
|
|
|
27,770
|
|
|
|
(9,466
|
)
|
|
|
18,304
|
|
Non-compete Agreements
|
|
5 - 6
|
|
0.1
|
|
|
856
|
|
|
|
(850
|
)
|
|
|
6
|
|
|
|
|
|
|
|
$
|
113,507
|
|
|
$
|
(40,597
|
)
|
|
$
|
72,910
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Useful Lives
|
|
Weighted average remaining life
|
|
Intangible
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
(Years)
|
|
(Years)
|
|
Assets
|
|
|
Amortization
|
|
|
Balance
|
|
Customer Relationships
|
|
8 - 20
|
|
10.1
|
|
$
|
70,896
|
|
|
$
|
(18,939
|
)
|
|
$
|
51,957
|
|
Tradenames/Trademarks
|
|
2 - 25
|
|
10.7
|
|
|
13,148
|
|
|
|
(6,378
|
)
|
|
|
6,770
|
|
Trademarks
|
|
Indefinite
|
|
N/A
|
|
|
837
|
|
|
|
-
|
|
|
|
837
|
|
Permits/License
|
|
3-10
|
|
9.1
|
|
|
13,458
|
|
|
|
(8,491
|
)
|
|
|
4,967
|
|
Non-compete Agreements
|
|
5 - 6
|
|
0.8
|
|
|
856
|
|
|
|
(773
|
)
|
|
|
83
|
|
|
|
|
|
|
|
$
|
99,195
|
|
|
$
|
(34,581
|
)
|
|
$
|
64,614
|
|
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
The intangible assets are being amortized
over their respective original useful lives, which range from 2 to 25 years. The Company recorded approximately $2.1 million and
$6.0 million of amortization expense related to the above intangible assets for the three and nine months ended September 30, 2019,
respectively. The Company recorded approximately $1.6 million and $4.4 million of amortization expense related to the above intangible
assets for the three and nine months ended September 30, 2018, respectively. There were no impairment charges recorded during the
nine months ended September 30, 2019 and 2018.
During the nine months ended September
30, 2019, the Company recorded approximately $4.3 million as an intangible asset for its permit related to its landfill disposal
facilities in Pecos and Regan County, Texas. These permits will be amortized over their useful life of 7 years.
The following table shows the remaining
amortization expense associated with amortizable intangible assets as of September 30, 2019 (in thousands):
Year ended December 31, 2019 (excluding the nine months ended September 30, 2019)
|
|
$
|
2,465
|
|
Year ended December 31, 2020
|
|
|
8,793
|
|
Year ended December 31, 2021
|
|
|
8,367
|
|
Year ended December 31, 2022
|
|
|
8,192
|
|
Year ended December 31, 2023
|
|
|
7,877
|
|
Thereafter
|
|
|
36,379
|
|
|
|
$
|
72,073
|
|
The table below summarizes goodwill activity
during the nine months ended September 30, 2019 (in thousands):
Ending balance at December 31, 2018
|
|
$
|
51,417
|
|
Addition- OIT acquisition
|
|
|
1,184
|
|
Change in SWS acquisition allocation
|
|
|
402
|
|
Ending balance at September 30, 2019
|
|
$
|
53,003
|
|
The table below summarizes goodwill by
reportable segment at September 30, 2019 and December 31, 2018 (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Domestic Environmental Services
|
|
$
|
32,153
|
|
|
$
|
30,567
|
|
International Services
|
|
|
1,865
|
|
|
|
1,865
|
|
Sprint Segment
|
|
|
18,985
|
|
|
|
18,985
|
|
Total Goodwill
|
|
$
|
53,003
|
|
|
$
|
51,417
|
|
Domestic Environmental Services, International
Services and Sprint Segment Goodwill
The Company performed a quantitative test
of goodwill at year end for the year ended December 31, 2018. The Company evaluated goodwill at the segment level for the International
Services segment as it does not have components below the segment level that meet the definition of a reporting unit. Goodwill
for the Domestic Environmental Services segment is evaluated at the segment level as the reporting units are economically similar.
The Sprint Segment is evaluated at the reporting unit level. The Company estimates the fair value of its reporting units using
an income approach based on the present value of expected future cash flows, including terminal value, utilizing a market-based
weighted average cost of capital (“WACC”) determined separately for each reporting unit. The determination of fair
value involves the use of significant estimates and assumptions, including revenue growth rates driven by future commodity prices
and volume expectations, operating margins, capital expenditures, working capital requirements, tax rates, terminal growth rates,
discount rates and synergistic benefits available to market participants. No events or conditions indicated the carrying value
of the Company’s reporting units may not be recoverable in the nine months ended September 30, 2019, and therefore the Company
did not perform an interim period impairment assessment. The Company did not record impairment charges related to goodwill in the
nine months ended September 30, 2019 and 2018.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
6. LONG-TERM DEBT
As of September 30, 2019 and December 31, 2018 short-term and
long-term debt consisted of the following (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Term Loan principal
|
|
$
|
338,799
|
|
|
$
|
341,372
|
|
Less: Unamortized deferred financing fees
|
|
|
(6,687
|
)
|
|
|
(7,837
|
)
|
Less: Current portion
|
|
|
(3,431
|
)
|
|
|
(3,431
|
)
|
Term loans, net of current portion and deferred financing costs
|
|
|
328,681
|
|
|
|
330,104
|
|
|
|
|
|
|
|
|
|
|
Revolver (current )
|
|
|
57,000
|
|
|
|
10,000
|
|
Term loans, net of current portion and deferred financing costs, and Revolver
|
|
$
|
385,681
|
|
|
$
|
340,104
|
|
NRC US Holding Company, LLC (a wholly owned
subsidiary of NRC) and SES (collectively, the “Borrowers”), NRC Group, as parent, and the other guarantors party thereto
entered into a credit facility (the “Credit Facility”) on June 11, 2018, which included a $308.0 million term loan
(the “Original Term Loan”) and a $40.0 million revolving credit facility (the “Revolver”). The Borrowers
and the other guarantors (including NRC Group) entered into a joinder agreement (the “Joinder Agreement”) on October
2, 2018, pursuant to which the Borrowers increased the Original Term Loan in the amount of $35.0 million (the “Incremental
Term Loan,” and together with the Original Term Loan, the “Term Loan”) and the amount available under the Revolver
was reduced by $5 million to $35.0 million. On March 15 and May 10, 2019 the Company entered into incremental revolving credit
commitments of $10.0 million and $15.0 million, respectively, under the Credit Facility, bringing its total revolving credit commitments
under the Revolver up to $60.0 million. During the nine months ended September 30, 2019, the Company borrowed $47.0 million under
this commitment. The Revolver matures on June 11, 2023 and the Term Loan matures on June 11, 2024, in each case unless otherwise
extended in accordance with the terms of the Credit Facility. The Borrowers may also incur incremental revolving and term loan
commitments pursuant to and in accordance with the terms of the Credit Facility.
During the nine months ended September
30, 2019, the Company made principal payments on the Term Loan of $2.6 million.
Outstanding loans under the Credit Facility
will bear interest at the Borrowers’ option at either the Eurodollar rate plus 5.25% or the base rate plus 4.25% per year.
In addition, the Borrowers will be charged (1) a commitment fee in an amount equal to 0.50% per annum times the average daily undrawn
portion of the Revolver, (2) a letter of credit fee in an amount equal to the applicable margin then in effect for revolving loans
bearing interest at the Eurodollar Rate times the average aggregate daily maximum amount available to be drawn under all outstanding
letters of credit, (3) a letter of credit fronting fee in an amount equal to 0.125% times the average aggregate daily maximum amount
available to be drawn under all letters of credit and (4) certain other fees as agreed between the parties. The weighted average
interest rate applicable to the Term Loan and Revolver under the Credit Facility at September 30, 2019 is approximately 7.36%.
As of September 30, 2019 and December 31,
2018, the Company was in compliance with the covenants of all of its debt agreements.
In connection with the Mergers described
in Note 1, on November 1, 2019, the Company repaid all outstanding indebtedness and terminated
all commitments under its Credit Facility.
Equipment Loans and Capital Leases
During the nine months ended September
30, 2019, the Company entered into new equipment loans of $2.9 million, with terms of 24 to 60 months. As of September 30, 2019,
$1.2 million of the remaining balance is included in Current Portion of Equipment Loan and $1.2 million is included in Equipment
Loan, Net of Current Portion in the Consolidated Balance Sheets. The Company makes monthly payments of principal and interest on
the equipment loans. Principal payments for the three and nine months ended September 30, 2019 were $0.6 million and $1.4 million,
respectively.
Additionally, the Company enters into equipment
loans that are treated as capital leases. The leases require payments over 6 to 84 months and amounts due under capital leases
are included in total liabilities (either current or non-current) in the Consolidated Balance Sheets. The equipment under the capital
leases is included in property and equipment, net, and depreciation related to capital lease assets is included in depreciation
expense in the Consolidated Statements of Operations and Comprehensive Loss. Generally, loans are collateralized by the associated
equipment it was issued to finance.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
7. INCOME TAXES
The Company’s effective income tax
rate for the three and nine months ended September 30, 2019 was 28.9% and 11.5%, respectively, as compared to effective income
tax provision (benefit) rates of 497.3% and (16.6%) for the three and nine months ended September 30, 2018, respectively. The effective
tax rates for the 2019 periods reflect a discrete charge to adjust income taxes payable associated with certain of the Company’s
subsidiaries to reflect the Company’s consolidated income tax liability.
The Company has evaluated its income tax
positions and determined that no material uncertain tax positions existed at September 30, 2019. The Company does not expect a
significant change in its unrecognized tax benefits within the next twelve months.
The Company files income tax returns in
the U.S. Federal and various state, local and foreign jurisdictions. For Federal income tax purposes, the 2016 through 2018 tax
years remain open for examination by the tax authorities under the normal three-year statute of limitations. For state tax purposes,
the 2015 through 2018 tax years remain open for examination by the tax authorities under a four-year statute of limitations. For
foreign income tax purposes, the tax years 2013 through 2017 remain open for examination by the tax authorities under the various
statute of limitation requirements of specific local country’s tax laws.
8. RELATED PARTY TRANSACTIONS
Related Party Transactions
During the three months ended September
30, 2019 and 2018, the Company derived approximately $15,000 and $6,000, respectively, in revenues from related entities. During
the nine months ended September 30, 2019 and 2018, the Company derived approximately $46,000 and $58,000 in revenues from related
entities, respectively.
The Company paid approximately $4,000 and
$2,000 for waste hauling services to the same related entities in the three months ended September 30, 2019 and 2018, respectively.
The Company paid approximately $12,500 and $5,000 for waste hauling services in the nine months ended September 30, 2019 and 2018,
respectively.
Prior to the Business Combination, the
Company had a management agreement with JFLCo whereby JFLCo provided services, including, among other things, cash flow planning/forecasting
and merger/acquisition target identification. The Company incurred approximately $0.6 million and $1.4 million in management
fees for the three and nine months ended September 30, 2018, respectively. No management fees were incurred for the three and nine
months ended September 30, 2019. These expenses are reflected as Management Fees on the Company’s Consolidated Statements
of Operations and Comprehensive Loss.
Pursuant to the Purchase Agreement, dated
as of June 25, 2018, as amended on July 12, 2018 (the “Purchase Agreement”), between JFL Partners and Hennessy Capital
(now known as NRC Group Holdings Corp.), the closing of the OIT transaction triggered a payment obligation by the Company of $10.0
million to JFL Partners, which payment could be made, at the election of the Company’s board of directors, in cash, Company
Common Stock or a combination of the two. Following the OIT acquisition, on May 10, 2019, the Company’s board of directors
authorized the payment to be made entirely in Company Common Stock. Accordingly, in accordance with the formula set forth in the
Purchase Agreement, 1,147,841 shares were issued to JFL Partners and the Company recorded $10.0 million of OIT transaction related
expenses as Acquisition Expenses in the Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September
30, 2019.
Pursuant to the terms of the Purchase Agreement,
the Company may also be obligated to pay to JFL Partners additional consideration of up to $25.0 million (payable in cash, shares
of Company Common Stock or any combination thereof, at the Company’s option) to the extent certain financial performance
metrics are achieved by the OIT business during calendar years 2019 and 2020. The full $25.0 million would be payable if
the OIT business’s normalized earnings before interest, taxes, depreciation and amortization exceeded $10.0 million in either
calendar year, and no payment would be due unless the OIT business achieved normalized earnings before interest, taxes, depreciation
and amortization of more than $6.0 million in either calendar year. In connection with the Mergers described in Note 1, Predecessor
US Ecology entered into an Investor Agreement (the “Investor Agreement”) with Successor US Ecology, JFL-NRC-SES Partners,
LLC, JFL-NRCG Holdings III, LLC and JFL-NRCG Holdings IV, LLC (collectively, “the JFL Entities”) and, solely with respect
to Section 4 thereof, NRCG. Pursuant to Section 4 of the Investor Agreement, each of the JFL Entities agreed to, among other things,
waive its right to the additional consideration.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
9. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Guarantees
Under the terms of the Company’s
oilfield waste disposal permit for the SKCD facility, financial security must be provided to the RRC in an amount necessary to
close the facility. The Company has secured letters of credit from third-party financial institutions in the amount of $3.3 million
as required by the terms of the permit, which have been pledged to the RRC to cover potential closure costs. In addition, the Company
has secured letters of credit from third-party financial institutions in the amount of $1.6 million as required by the terms of
the permit, which have been pledged to cover potential closure costs of the Company’s two transfer storage and disposal facilities
in Vermont and Maine, as well as other corporate matters. The letters of credit are renewed annually.
Litigation
In the normal course of business, the Company
and its subsidiaries are involved in various claims and legal proceedings. While the ultimate resolution of these matters has yet
to be determined, the Company does not believe that any unfavorable outcomes will have a material adverse effect on the Company’s
consolidated financial position or results of operations. At September 30, 2019 and December 31, 2018, the Company had no reserves
recorded for any outstanding litigation, claim or assessment.
Leases
As of September 30, 2019, future minimum
capital lease payments in the following years ended December 31 that have a remaining term in excess of one year are as follows
(in thousands):
|
|
Capital Leases
|
|
2019 (excluding the nine months ended September 30, 2019)
|
|
$
|
876
|
|
2020
|
|
|
3,503
|
|
2021
|
|
|
3,632
|
|
2022
|
|
|
3,312
|
|
2023
|
|
|
3,364
|
|
Thereafter
|
|
|
4,217
|
|
Total minimum payments
|
|
$
|
18,904
|
|
Less: imputed interest
|
|
|
(2,554
|
)
|
Present value of minimum capital lease payments
|
|
$
|
16,350
|
|
The present value of minimum capital lease
payments is included in Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheets.
10. SEGMENT DATA AND GEOGRAPHICAL DATA
The Company’s operations are managed
within four operating segments: Domestic Standby Services, Domestic Environmental Services, International Services and Sprint.
Costs not managed through the Company’s operating segments described above are recorded as “Corporate Items.”
Corporate Items represents certain central services that are not allocated to the Company’s operating segments for internal
reporting purposes and include selling, general and administrative expenses such as legal, accounting and other items of a general
corporate nature. These segments have been selected based on the
Company’s Chief Operating Decision Maker (“CODM”) assessment of resources allocation and performance. The Company
considers its Chief Executive Officer to be its CODM. The CODM evaluates the performance of our segments based on revenue and income
measures which include operating profit (exclusive of depreciation, amortization and certain other charges). Operating profit (exclusive
of depreciation, amortization and certain other charges) is defined as Operating revenue, less Operating expenses, including cost
of revenue, and General and administrative expenses. The classification of certain prior period Operating expenses, including costs
of revenue (excluding depreciation and amortization) and certain prior period General and administrative expenses have been recast
to reflect the current period presentation.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
The following table provides segment data
for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
|
Domestic
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby
|
|
|
Environmental
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
International
|
|
|
Sprint
|
|
|
Items
|
|
|
Total
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
10,734
|
|
|
$
|
59,568
|
|
|
$
|
11,654
|
|
|
$
|
20,033
|
|
|
$
|
-
|
|
|
$
|
101,989
|
|
Operating expenses, including cost of revenue (excluding depreciation, amortization and certain other expenses)
|
|
|
5,192
|
|
|
|
49,966
|
|
|
|
9,326
|
|
|
|
9,712
|
|
|
|
-
|
|
|
|
74,196
|
|
General and administrative expenses
|
|
|
859
|
|
|
|
6,457
|
|
|
|
992
|
|
|
|
3,177
|
|
|
|
4,767
|
|
|
|
16,252
|
|
Operating profit (exclusive of depreciation, amortization and certain other expenses)
|
|
|
4,683
|
|
|
|
3,145
|
|
|
|
1,336
|
|
|
|
7,144
|
|
|
|
(4,767
|
)
|
|
|
11,541
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
7,730
|
|
|
$
|
66,077
|
|
|
$
|
7,148
|
|
|
$
|
19,027
|
|
|
$
|
-
|
|
|
$
|
99,982
|
|
Operating expenses, including cost of revenue (excluding depreciation, amortization and certain other expenses)
|
|
|
3,727
|
|
|
|
49,524
|
|
|
|
4,701
|
|
|
|
7,724
|
|
|
|
-
|
|
|
|
65,676
|
|
General and administrative expenses
|
|
|
839
|
|
|
|
8,103
|
|
|
|
896
|
|
|
|
4,090
|
|
|
|
2,364
|
|
|
|
16,292
|
|
Operating profit (exclusive of depreciation, amortization and certain other expenses)
|
|
|
3,164
|
|
|
|
8,450
|
|
|
|
1,551
|
|
|
|
7,213
|
|
|
|
(2,364
|
)
|
|
|
18,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
30,798
|
|
|
|
202,505
|
|
|
|
29,115
|
|
|
|
61,906
|
|
|
|
-
|
|
|
|
324,324
|
|
Operating expenses, including cost of revenue (excluding depreciation, amortization and certain other expenses)
|
|
|
15,611
|
|
|
|
164,068
|
|
|
|
21,968
|
|
|
|
27,482
|
|
|
|
-
|
|
|
|
229,129
|
|
General and administrative expenses
|
|
|
2,799
|
|
|
|
20,819
|
|
|
|
2,847
|
|
|
|
11,033
|
|
|
|
14,103
|
|
|
|
51,601
|
|
Operating profit (exclusive of depreciation, amortization and certain other expenses)
|
|
|
12,388
|
|
|
|
17,618
|
|
|
|
4,300
|
|
|
|
23,391
|
|
|
|
(14,103
|
)
|
|
|
43,594
|
|
Goodwill
|
|
|
-
|
|
|
|
32,153
|
|
|
|
1,865
|
|
|
|
18,985
|
|
|
|
|
|
|
|
53,003
|
|
Assets
|
|
|
76,792
|
|
|
|
178,606
|
|
|
|
22,635
|
|
|
|
150,478
|
|
|
|
(6,709
|
)
|
|
|
421,802
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
25,821
|
|
|
|
155,495
|
|
|
|
17,592
|
|
|
|
53,998
|
|
|
|
-
|
|
|
|
252,906
|
|
Operating expenses, including cost of revenue (excluding depreciation, amortization and certain other expenses)
|
|
|
11,883
|
|
|
|
121,676
|
|
|
|
11,766
|
|
|
|
23,199
|
|
|
|
-
|
|
|
|
168,524
|
|
General and administrative expenses
|
|
|
2,458
|
|
|
|
18,475
|
|
|
|
2,606
|
|
|
|
9,560
|
|
|
|
6,328
|
|
|
|
39,427
|
|
Operating profit (exclusive of depreciation, amortization and certain other expenses)
|
|
|
11,480
|
|
|
|
15,344
|
|
|
|
3,220
|
|
|
|
21,239
|
|
|
|
(6,328
|
)
|
|
|
44,955
|
|
Goodwill
|
|
|
-
|
|
|
|
30,980
|
|
|
|
1,908
|
|
|
|
10,935
|
|
|
|
-
|
|
|
|
43,823
|
|
Assets
|
|
|
77,397
|
|
|
|
145,112
|
|
|
|
20,689
|
|
|
|
93,229
|
|
|
|
-
|
|
|
|
336,427
|
|
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
The following table presents a reconciliation
of Operating profit (exclusive of depreciation, amortization and certain other charges) to net loss (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Operating profit (exclusive of depreciation and amortization):
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Standby Services
|
|
$
|
4,683
|
|
|
$
|
3,164
|
|
|
$
|
12,388
|
|
|
$
|
11,480
|
|
Domestic Environmental Services
|
|
|
3,145
|
|
|
|
8,450
|
|
|
|
17,618
|
|
|
|
15,344
|
|
International
|
|
|
1,336
|
|
|
|
1,551
|
|
|
|
4,300
|
|
|
|
3,220
|
|
Sprint
|
|
|
7,144
|
|
|
|
7,213
|
|
|
|
23,391
|
|
|
|
21,239
|
|
Corporate
|
|
|
(4,767
|
)
|
|
|
(2,364
|
)
|
|
|
(14,103
|
)
|
|
|
(6,328
|
)
|
Total Operating profit (exclusive of depreciation, amortization and certain other charges)
|
|
|
11,541
|
|
|
|
18,014
|
|
|
|
43,594
|
|
|
|
44,955
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,722
|
|
|
|
9,889
|
|
|
|
27,412
|
|
|
|
21,673
|
|
Management fees
|
|
|
-
|
|
|
|
595
|
|
|
|
-
|
|
|
|
1,395
|
|
Acquisition expenses
|
|
|
2,297
|
|
|
|
1,042
|
|
|
|
13,459
|
|
|
|
4,328
|
|
Change in fair value of contingent consideration
|
|
|
(957
|
)
|
|
|
-
|
|
|
|
3,120
|
|
|
|
-
|
|
Other expense, net
|
|
|
354
|
|
|
|
531
|
|
|
|
2,167
|
|
|
|
2,871
|
|
Operating income (loss)
|
|
|
1,125
|
|
|
|
5,957
|
|
|
|
(2,564
|
)
|
|
|
14,688
|
|
Total other expenses, net
|
|
|
(9,024
|
)
|
|
|
(6,104
|
)
|
|
|
(23,223
|
)
|
|
|
(16,424
|
)
|
Loss before income taxes
|
|
|
(7,899
|
)
|
|
|
(147
|
)
|
|
|
(25,787
|
)
|
|
|
(1,736
|
)
|
Income tax expense (benefit)
|
|
|
2,286
|
|
|
|
731
|
|
|
|
2,973
|
|
|
|
(289
|
)
|
Net loss
|
|
$
|
(10,185
|
)
|
|
$
|
(878
|
)
|
|
$
|
(28,760
|
)
|
|
$
|
(1,447
|
)
|
The following tables provides revenue by
geographic location for each segment for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
|
For the Three Months Ended September 30,
2019
|
|
|
|
Domestic
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby
|
|
|
Environmental
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
International
|
|
|
Sprint
|
|
|
Total
|
|
North America
|
|
$
|
10,733
|
|
|
$
|
59,568
|
|
|
$
|
-
|
|
|
$
|
20,033
|
|
|
$
|
90,334
|
|
Latin America and Caribbean
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
EMEA
|
|
|
-
|
|
|
|
-
|
|
|
|
11,647
|
|
|
|
-
|
|
|
|
11,647
|
|
Asia Pacific
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
7
|
|
Total operating revenue
|
|
$
|
10,734
|
|
|
$
|
59,568
|
|
|
$
|
11,654
|
|
|
$
|
20,033
|
|
|
$
|
101,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total
|
|
|
11
|
%
|
|
|
58
|
%
|
|
|
11
|
%
|
|
|
20
|
%
|
|
|
100
|
%
|
|
|
For the Three Months Ended September 30,
2018
|
|
|
|
Domestic
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby
|
|
|
Environmental
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
International
|
|
|
Sprint
|
|
|
Total
|
|
North America
|
|
$
|
7,688
|
|
|
$
|
66,077
|
|
|
$
|
-
|
|
|
$
|
19,027
|
|
|
$
|
92,792
|
|
Latin America and Caribbean
|
|
|
42
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42
|
|
Europe, Middle East and Africa (“EMEA”)
|
|
|
-
|
|
|
|
-
|
|
|
|
7,139
|
|
|
|
-
|
|
|
|
7,139
|
|
Asia Pacific
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
9
|
|
Total operating revenue
|
|
$
|
7,730
|
|
|
$
|
66,077
|
|
|
$
|
7,148
|
|
|
$
|
19,027
|
|
|
$
|
99,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total
|
|
|
8
|
%
|
|
|
66
|
%
|
|
|
7
|
%
|
|
|
19
|
%
|
|
|
100
|
%
|
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
|
|
For the Nine Months Ended September 30, 2019
|
|
|
|
Domestic
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby
|
|
|
Environmental
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
International
|
|
|
Sprint
|
|
|
Total
|
|
North America
|
|
$
|
30,336
|
|
|
$
|
202,505
|
|
|
$
|
-
|
|
|
$
|
61,906
|
|
|
$
|
294,747
|
|
Latin America and Caribbean
|
|
|
462
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
462
|
|
EMEA
|
|
|
-
|
|
|
|
-
|
|
|
|
29,095
|
|
|
|
-
|
|
|
|
29,095
|
|
Asia Pacific
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
Total operating revenue
|
|
$
|
30,798
|
|
|
$
|
202,505
|
|
|
$
|
29,115
|
|
|
$
|
61,906
|
|
|
$
|
324,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total
|
|
|
10
|
%
|
|
|
62
|
%
|
|
|
9
|
%
|
|
|
19
|
%
|
|
|
100
|
%
|
|
|
For the Nine Months Ended September 30, 2018
|
|
|
|
Domestic
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby
|
|
|
Environmental
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
International
|
|
|
Sprint
|
|
|
Total
|
|
North America
|
|
$
|
24,886
|
|
|
$
|
155,495
|
|
|
$
|
-
|
|
|
$
|
53,998
|
|
|
$
|
234,379
|
|
Latin America and Caribbean
|
|
|
935
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
935
|
|
Europe, Middle East and Africa (“EMEA”)
|
|
|
-
|
|
|
|
-
|
|
|
|
17,573
|
|
|
|
-
|
|
|
|
17,573
|
|
Asia Pacific
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
Total operating revenue
|
|
$
|
25,821
|
|
|
$
|
155,495
|
|
|
$
|
17,592
|
|
|
$
|
53,998
|
|
|
$
|
252,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total
|
|
|
10
|
%
|
|
|
61
|
%
|
|
|
7
|
%
|
|
|
21
|
%
|
|
|
100
|
%
|
No single customer accounted for more than
10% of the Company’s consolidated operating revenue for the three and nine months ended September 30, 2019 and 2018.
11. STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
As of September 30, 2019, the Company is
authorized to issue up to 200,000,000 shares of Company Common Stock. Company Common Stock has voting rights of one vote for each
share of Company Common Stock. As described in Note 8, during the nine months ended September 30, 2019, the Company issued 1,147,841
shares of Company Common Stock pursuant to the terms of the Purchase Agreement.
In connection with the Mergers described
in Note 1, on November 1, 2019 each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than cancelled shares) was automatically converted into (1) 0.196 (the “NRCG
Exchange Ratio”) of a share of Successor US Ecology Common Stock, (2) any cash in lieu of fractional shares of Successor
US Ecology Common Stock payable pursuant to the Merger Agreement and (3) any dividends or other distributions to which the holder
thereof became entitled to upon the surrender of such shares of NRCG Common Stock in accordance with the Merger Agreement.
As
a result of the transactions contemplated by the Merger Agreement, the Company Common Stock ceased trading on the NYSE American,
LLC (“NYSE American”), effective as of the close of market on October 31, 2019. On November 1, 2019 NYSE American
filed with the SEC an application on Form 25 to delist and deregister the Company Common Stock under Section 12(b) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). .
Series A Convertible Cumulative Preferred
Stock
As of September 30, 2019, the Company is
authorized to issue up to 5,000,000 shares of preferred stock, par value $0.0001 per share, 1,050,000 shares of which have been
designated as Series A Preferred Stock and the remaining 3,950,000 shares of which are undesignated.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
In accordance with the terms and conditions
of the Certificate of Designations, Preferences, Rights and Limitations of Series A Preferred
Stock, dated as of October 17, 2018 and corrected on October 23, 2018 (the “NRCG Series A Certificate of Designations”),,
dividend activity during the nine months ended September 30, 2019 is as follows:
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend per Share
|
|
|
Total Cash Payment
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 17, 2019
|
|
October 1, 2019
|
|
October 15, 2019
|
|
$
|
1.75
|
|
|
$
|
1,838
|
|
June 20, 2019
|
|
July 1, 2019
|
|
July 15, 2019
|
|
|
1.75
|
|
|
|
1,838
|
|
March 29, 2019
|
|
April 1, 2019
|
|
April 15, 2019
|
|
|
1.75
|
|
|
|
1,838
|
|
December 20, 2018
|
|
January 1, 2019
|
|
January 15, 2019
|
|
|
1.44
|
|
|
|
1,511
|
|
As of September 30, 2019, $1.8 million
of dividends were accrued.
In connection with the Mergers described
in Note 1, on November 1, 2019, each share of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than Cancelled Series A Preferred Shares and Dissenting Shares (each as defined
in the Merger Agreement)) was automatically converted into (1) a whole number of shares of Successor US Ecology Common Stock
equal to the product of (a) the number of shares of Company Common Stock that such share of Series A Preferred Stock could be converted
into at the Effective Time (including Fundamental Change Additional Shares and Accumulated Dividends (each as defined in the NRCG
Series A Certificate of Designations)) multiplied by (b) the NRCG Exchange Ratio, (2) any cash in lieu of fractional shares of
Successor US Ecology Common Stock payable pursuant to the Merger Agreement and (3) any dividends or other distributions to which
the holder thereof became entitled to upon the surrender of such shares of Series A Preferred Stock in accordance with the Merger
Agreement.
Warrants
At September 30, 2019 and December 31,
2018, there were a total of 19,248,741 public warrants outstanding.
In connection with the Mergers described
in Note 1, on November 1, 2019, in respect of each outstanding warrant to purchase Company
Common Stock (each, a “NRCG Warrant”), Successor US Ecology issued a replacement warrant (each, a “Replacement
Warrant”) to each holder of such NRCG Warrant that is exercisable for a number of shares of Successor US Ecology Common Stock
equal to the product (rounded to the nearest whole number) of (1) the number of shares of NRCG Common Stock that would have been
issuable upon the exercise of the NRCG Warrant immediately prior to the Effective Time and (2) the NRCG Exchange Ratio, at an exercise
price equal to the quotient obtained by dividing (a) the pre-NRCG Merger exercise price ($11.50 per share) by (b) the NRCG Exchange
Ratio.
As
a result of the transactions contemplated by the Merger Agreement, NRCG Warrants ceased trading on the NYSE American effective
as of the close of market on October 31, 2019. On November 1, 2019, NYSE American filed with the SEC an application on Form 25
to delist and deregister the NRCG Warrants under Section 12(b) of the Exchange Act.
Equity and Incentive Compensation
Plan
During fiscal year 2018, the Company adopted
the NRC Group Holdings Corp. 2018 Equity and Incentive Compensation Plan (the “Plan”). The Plan is administered by
the Compensation Committee of the Company’s Board of Directors. Under the Plan, the Committee may grant an aggregate of 3,000,000 shares
of Company Common Stock in the form of non-qualified stock options, incentive stock options, stock appreciation rights, restricted
stock awards (“RSAs”), restricted stock units (“RSUs”), performance compensation awards and stock bonus
awards. Stock-based payments, including the grant of stock options and RSUs, are subject to service-based vesting requirements,
and expense is recognized over the vesting period. Forfeitures are accounted for as they occur. During the nine months ended September
30, 2019, 908,778 RSUs and 150,000 stock option awards were granted under the Plan. As of September 30, 2019, 1,945,125 shares
are available for issuance under the Plan.
In connection with the Mergers described
in Note 1, on November 1, 2019, outstanding RSU and stock options of the Company were automatically assumed by Successor US Ecology
and converted into equity awards of Successor US Ecology pursuant to the terms of the Merger Agreement.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
Restricted Stock Units
The following table summarizes the Company’s
RSU award activity for the nine months ended September 30, 2019:
|
|
Units
|
|
|
Weighted Average Grant date Fair value
|
|
Outstanding as of January 1, 2019
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
908,778
|
|
|
$
|
8.75
|
|
Forfeited
|
|
|
(3,903
|
)
|
|
$
|
8.75
|
|
Outstanding as of September 30, 2019
|
|
|
904,875
|
|
|
$
|
8.75
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized expense remaining
|
|
$
|
5,482
|
|
|
|
|
|
Weighted-average years expected to be recognized over
|
|
|
1.5
|
|
|
|
|
|
No restricted stock units vested during
the nine months ended September 30, 2019. On October 17, 2019, 302,913 RSUs vested.
Stock Options
The following table summarizes the Company’s
stock option activity for the nine months ended September 30, 2019.
|
|
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding as of January 1, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
150,000
|
|
|
|
10.25
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2019
|
|
|
150,000
|
|
|
|
10.25
|
|
|
|
9.5
|
|
|
$
|
328,500
|
|
Exercisable as of September 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The weighted average grant date fair value
of stock options granted during the nine months ended September 30, 2019 was $1.94. At September 30, 2019, unrecognized compensation
cost related to the Company’s stock options totaled $0.2 million and is expected to be recognized over a weighted-average
period of 1.5 years.
The fair value of each stock option award
on the grant date is estimated using the Black-Scholes option-pricing model with the following assumptions:
Expected volatility
|
24.3%
|
Expected dividend yield
|
0%
|
Risk-free interest rate
|
2.4%
|
Expected term (in years)
|
5.8
|
The volatility assumption used in the Black-Scholes
option-pricing model is based on peer group volatility as the Company does not have a sufficient trading history as a public company.
Additionally, due to an insufficient history with respect to stock option activity and post-vesting cancellations, the expected
term assumption is based on the simplified method under GAAP, which is based on the vesting period and contractual term for each
tranche of awards. The mid-point between the weighted-average vesting term and the expiration date is used as the expected term
under this method. The risk-free interest rate used in the Black-Scholes model is based on the implied US Treasury bill yield curve
at the date of grant with a remaining term equal to the Company’s expected term assumption. The Company has never declared
or paid a cash dividend on common shares.
Share-based compensation expense
Stock-based compensation granted to employees
include stock options and RSUs, which are recognized in the financial statements based on their fair value. RSUs are valued based
on the intrinsic value of the difference between the exercise price, if any, of the award and the fair market value of our Company
Common Stock on the grant date. RSUs and stock options vest in tranches over a period of approximately three years and expire ten
years from the grant date.
NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements
The components of pre-tax share-based compensation
expense are as follows (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
$
|
45
|
|
|
$
|
-
|
|
|
$
|
90
|
|
|
|
|
|
Restricted stock units
|
|
|
1,213
|
|
|
|
-
|
|
|
|
2,436
|
|
|
|
|
|
Total share-based compensation
|
|
$
|
1,258
|
|
|
$
|
-
|
|
|
$
|
2,526
|
|
|
$
|
-
|
|
12. NET LOSS PER SHARE
In calculating loss per share, the Company
retrospectively applied the effects of the Business Combination.
Basic net loss per common share (“EPS”)
is calculated by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per common share
is computed similar to basic net loss per common share except that it reflects the potential dilution that could occur if dilutive
securities or other obligations to issue Company Common Stock were exercised or converted into Company Common Stock.
The following securities were not included
in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Series A convertible preferred stock
|
|
|
1,050
|
|
|
|
-
|
|
|
|
1,050
|
|
|
|
-
|
|
Common stock warrants - equity treatment
|
|
|
19,249
|
|
|
|
-
|
|
|
|
19,249
|
|
|
|
-
|
|
Stock options
|
|
|
150
|
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
Restricted stock units
|
|
|
905
|
|
|
|
-
|
|
|
|
605
|
|
|
|
-
|
|
Potentially dilutive securities
|
|
|
21,354
|
|
|
|
-
|
|
|
|
21,004
|
|
|
|
-
|
|
13. SUBSEQUENT EVENTS
Merger Completion
On November 1, 2019, the NRCG completed
the previously announced Mergers contemplated by the Merger Agreement. As a result of the Mergers, NRCG is now a subsidiary of
Successor US Ecology and a wholly-owned subsidiary of Predecessor US Ecology.
As a result of the transactions contemplated
by the Merger Agreement, Company Common Stock and NRCG Warrants ceased trading on the NYSE American, in each case effective as
of the close of market on October 31, 2019. The NYSE American filed with the SEC an application on Form 25 to delist and deregister
the Company Common Stock and NRCG Warrants under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). In addition, NRCG intends to file with the SEC a Form 15 on November 12, 2019 requesting that its reporting obligations
under Sections 13 and 15(d) of the Exchange Act be suspended.
Termination of Credit Facility
On November 1, 2019, NRCG repaid all outstanding
indebtedness and terminated all commitments under its Credit Facility, dated as of June 11, 2018, as amended or supplemented from
time to time, among NRC US Holding Company, LLC, Sprint Energy Services, LLC, NRC Group Holdings, LLC, the guarantors and lender
party thereto and BNP Paribas, as administrative agent.
Compensatory Plan
Pursuant to the Merger Agreement, at the
Effective Time, Successor US Ecology assumed the NRC Group Holdings Corp. 2018 Equity and Incentive Compensation Plan (the “NRCG
Equity Plan”) by adopting the Amended and Restated US Ecology, Inc. 2018 Equity and Incentive Compensation Plan (the “Amended
Equity Plan”). The NRCG Equity Plan was assumed by Successor US Ecology solely for the purpose of replacing outstanding equity
awards of NRCG with substantially similar equity awards of Successor US Ecology, as contemplated by the Merger Agreement.
Related Party Transaction
As
previously disclosed, on July 18, 2018, the Company purchased land owned by NRC Group’s chief executive officer, Christian
Swinbank, located in Coyanosa, Texas. The property has been developed as a landfill facility. Mr. Swinbank maintained all rights
in oil, gas and other minerals and all groundwater in, on and under the purchase land. On October 30, 2019, the Company
entered into an agreement with Mr. Swinbank, whereby groundwater rights on this purchased
land are provided to the Company for a term of 10 years in exchange for a royalty on the produced groundwater. The royalty rate
on the produced groundwater is redetermined every two years based upon the prevailing water sales clearing price in the Delaware
Basin field area in Pecos County, Texas.