US Ecology on May 8 said a freeze on all discretionary spending and reduced travel are among the cost controls instituted earlier this year as part of an effort to save tens of millions of dollars in annual expenses to blunt the business impact from the COVID-19 pandemic.
The belt-tightening is part of a set of money-saving measures announced in March, alongside up to $30 million in reduced capital spending and a halt to quarterly cash dividends that is expected to save about $18 million.
“Cost controls, including the deferment of noncritical activity, elimination of discretionary spending, reductions in travel, hiring and variable compensation, will save an additional $15 million to $20 million,” Chairman, President, and CEO Jeff Feeler said during the conference call to discuss the Boise, Idaho-based waste management provider’s first-quarter earnings.
Management expects to retain another $8 million in savings this year via deferral of withholding taxes and has drawn $60 million in credit, Feeler said. “These actions are anticipated to generate more than $70 million of cash savings providing its flexibility to preserve our talented workforce by limiting furloughs and staff reductions while positioning us to take advantage of those opportunities when the market rebounds.”
US Ecology in March also withdrew its earnings guidance for the year. The company had previously anticipated $1.05 billion to $1.15 billion in annual revenue, which would have generated $1.65 to $2.12 in adjusted diluted earnings per share. Feeler said the guidance should be reset in the second-quarter earnings release.
Reduced capital spending will involve tightening outlays on maintenance and delaying certain “growth projects” into 2021, Feeler said in response to an analyst’s question. He specifically indicated that some rebuilding from the November 2018 explosion at US Ecology’s Grand View, Idaho, waste facility would be pushed back from the second half of 2020 into 2021.
That specifically could involve the damaged stabilization building, company spokesman David Crumrine said Friday by email. Grand View is otherwise largely back in business, he added.
US Ecology offers a wide range of waste disposal and processing services, including operating one of four licensed commercial facilities for disposal of low-level radioactive waste, at the Department of Energy’s Hanford Site in Washington state. Its field services now include COVID-19 decontamination.
Roughly one-third of the company’s nearly 4,000 employees have been working remotely during the federal public health emergency, even as daily operations continued within the federal designation as an essential service, Feeler said. US Ecology used its supply chain to ensure personnel had sufficient access to personal protective equipment, he added.
Some segments of the business are vulnerable to impacts of the health crisis to its customer base, while others are expected to remain strong, executives said.
The Environmental Services branch will benefit from “the collection of irreplaceable, primitive facilities and resilient business model,” according to Feeler. However, shipments of waste for disposal from energy clients are expected to suffer through the year, due to the effect of drastically reduced oil and natural gas prices on those companies.
The impacts in the first quarter were identifiable but limited, US Ecology said in a 10-Q report filed Monday with the Securities and Exchange Commission – with the caveat that it had not comprehensively evaluated the effects of temporary shutdowns and personnel reductions at its industrial customers.
There is likely to be less waste volume for treatment and disposal starting in the current second quarter and continuing until those industrial plants restart production, according to the 10-Q.
Base business volumes for April were down 15% to 20% from both March and the prior April, Feeler noted. That involves waste for disposal from regular customers, rather than material generated by “event driven clean-up projects,” according to Crumrine.
“The Company’s services-based business is expected to remain stable and has shown growth as a result of our small quantity generation services and our emergency response business that has seen an uptick in COVID-19 decontamination services,” the 10-Q says. “However, we have also experienced, and expect to continue to experience, delays and deferments in industrial cleaning services and some of our field services as our customers limit on site visitation and delay noncritical services based on business conditions”
During the earnings call, Feeler expressed optimism that US Ecology customers would have greater need for its services as they reopen along with their home states. Industrial business should pick up as the second quarter progresses and through the rest of the year, he said.
For the first quarter, US Ecology reported $300.3 million in goodwill impairment charges, most connected to its energy waste disposal business. That pushed the company into a $298.1 million net loss for the quarter ended March 31, despite otherwise strong earnings numbers.
“Goodwill” here involves 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, but not 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.
