By John Stang
Goodwill impairment charges totaling $300.3 million knocked US Ecology’s net income significantly into the red for the first quarter of 2020.
The Boise, Idaho-based waste management specialist “recognized a $283.6 million goodwill impairment charge on its Energy Waste Disposal Services business operating within the Environmental Services segment,” according to a press release issued after market close Thursday. “The Company also recognized a $16.7 million goodwill impairment charge in its international business within the Field and Industrial Services segment. These non-cash charges were primarily the result of the supply and demand shock in the global oil market and the associated and expected impact on long-term cash flows of each business.”
“Goodwill” in this case applies to intangibles US Ecology acquired when it bought Houston-based oil and gas cleanup specialist NRC Group Holdings on Nov. 1, 2019. These intangibles include the brand name, customer lists, employees, and technology, while not covering hard assets such as land, buildings, and equipment.
The massive price drop in the global oil market is expected to hurt NRC’s cash flows, thus cutting much of the “goodwill” value on its books. “It is not lost income. It is a balance sheet adjustment,” US Ecology spokeswoman said Alison Ziegler said by email.
US Ecology reported total revenue of $240.7 million for the three-month period ended March 31, with a net loss of $298.1 million ($9.52 per diluted share) due to the goodwill impairment charges. Net income in the first quarter of 2019 was $8 million, which translated to $0.36 per diluted share.
Revenue in the latest earnings period rose 84% from $131 million in the same quarter last year. That included a $86.6 million sales contribution from NRC Group Holdings. The acquisition has more than 50 service locations and operates three landfills for waste from the Permian and Eagle Ford oil and gas basins. It is one of two top U.S. oil spill removal organizations.
Adjusted earnings came in at $0.12 per diluted share for the first quarter of 2020, dropping $0.10 per share on a year-over-year basis.
Broken down by division, first-quarter revenue for the Environmental Services segment was $126.7 million, up 37% from $92.3 million in 2019. NRC contributed $16.8 million to segment revenue in the quarter. The business line covers US Ecology’s waste treatment and disposal operations, including its low-level radioactive waste disposal facility at the Department of Energy’s Hanford Site in Washington state.
Revenue for the Field and Industrial Services segment landed at $114 million, up 194% from $38.7 million in the first quarter of 2019. The segment revenue received $69.8 million from NRC in the quarter.
The COVID-19 pandemic’s impacts on US Ecology’s customers is expected to slow its business in the second quarter, US Ecology Chairman, President, and CEO Jeff Feeler told analysts in a Friday morning teleconference with financial analysts.
“Although the impact of the COVID-19 pandemic on our first quarter 2020 results was fairly limited we currently expect the second quarter to be adversely impacted as social distancing measures and shelter in place took effect,” Feeler said in the release Thursday. “In addition to the capital preservation initiatives announced earlier this year, the Company continues to evaluate additional cost saving measures and cash flow enhancements to strengthen our already strong balance sheet position, particularly if conditions worsen beyond our current expectations.”
On March 31, Us Ecology announced that it would establish cost controls to save $15 million to $20 million in 2020, reduce its capital spending plan for 2020 by roughly $30 million, and suspend quarterly dividends to save another $6 million per quarter.
Management expects the second quarter will be its worst in 2020, with some business starting to grow again in May.
US Ecology in March withdrew its previous earnings guidance for 2020 that anticipated $1.05 billion to $1.15 billion in annual revenue — which would have been a big increase from the total of $685.5 million in revenue collected in 2019. The company expects to issue new earnings guidance for 2020 when it releases its second-quarter figures.
Editor’s Note: An initial version of this article stated the incorrect total for the goodwill impairment charges.
