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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

TRANSITION REPORT PURSUANT TO Section 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                       .

Commission file number: 001-39120

US ECOLOGY, INC.

(Exact name of registrant as specified in its charter)

Delaware

84-2421185

(State or other jurisdiction of incorporation or

(I.R.S. Employer Identification No.)

organization)

101 S. Capitol Blvd., Suite 1000

BoiseIdaho

83702

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (208) 331-8400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ECOL

Nasdaq Global Select Market

Warrants to Purchase Common Stock

ECOLW

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes       No  

At April 27, 2022, there were 31,512,324 shares of the registrant’s Common Stock outstanding.

US ECOLOGY, INC.

FORM 10-Q

TABLE OF CONTENTS

Item

    

Page

PART I — FINANCIAL INFORMATION

1.

Financial Statements (Unaudited)

3

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

3

Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021

4

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021

5

Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

6

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

7

Notes to Consolidated Financial Statements

8

Report of Independent Registered Public Accounting Firm

29

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

3.

Quantitative and Qualitative Disclosures About Market Risk

41

4.

Controls and Procedures

42

PART II — OTHER INFORMATION

Cautionary Statement

44

1.

Legal Proceedings

45

1A.

Risk Factors

45

2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

3.

Defaults Upon Senior Securities

46

4.

Mine Safety Disclosures

46

5.

Other Information

46

6.

Exhibits

46

SIGNATURE

47

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

US ECOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value amount)

    

March 31, 2022

    

December 31, 2021

Assets

Current Assets:

Cash and cash equivalents

$

74,186

$

67,487

Receivables, net

 

248,233

 

250,154

Prepaid expenses and other current assets

 

30,012

 

32,136

Income taxes receivable

7,961

14,441

Total current assets

 

360,392

 

364,218

Property and equipment, net

 

455,041

 

456,384

Operating lease assets

54,884

43,607

Restricted cash and investments

 

1,532

 

1,567

Intangible assets, net

 

482,127

 

489,573

Goodwill

 

413,526

 

413,126

Other assets

 

51,171

 

36,923

Total assets

$

1,818,673

$

1,805,398

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable

$

63,933

$

64,793

Deferred revenue

 

19,903

 

15,950

Accrued liabilities

 

47,589

 

51,265

Accrued salaries and benefits

 

26,061

 

29,438

Income taxes payable

 

231

 

559

Current portion of long-term debt

3,359

3,359

Current portion of closure and post-closure obligations

 

6,322

 

5,771

Current portion of operating lease liabilities

17,780

15,799

Total current liabilities

 

185,178

 

186,934

Long-term debt

 

734,285

 

735,125

Long-term closure and post-closure obligations

 

93,332

 

93,149

Long-term operating lease liabilities

37,991

28,477

Other long-term liabilities

 

12,947

 

13,907

Deferred income taxes, net

 

123,702

 

123,482

Total liabilities

 

1,187,435

 

1,181,074

Commitments and contingencies (See Note 15)

Stockholders’ Equity:

Common stock $0.01 par value per share, 50,000 authorized; 31,512 shares issued and outstanding

 

315

 

315

Additional paid-in capital

 

818,707

 

821,970

Retained deficit

 

(192,136)

 

(183,115)

Treasury stock, at cost, 141 and 242 shares, respectively

 

(6,177)

 

(10,652)

Accumulated other comprehensive income (loss)

 

10,529

 

(4,194)

Total stockholders’ equity

 

631,238

 

624,324

Total liabilities and stockholders’ equity

$

1,818,673

$

1,805,398

The accompanying notes are an integral part of these consolidated financial statements.

3

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended March 31, 

    

2022

    

2021

Revenue

$

240,980

$

228,619

Direct operating costs

 

187,567

 

175,746

Gross profit

 

53,413

 

52,873

Selling, general and administrative expenses

 

57,336

 

51,368

Operating (loss) income

 

(3,923)

 

1,505

Other income (expense):

Interest income

 

229

 

273

Interest expense

 

(6,821)

 

(7,357)

Foreign currency loss

 

(698)

 

(371)

Other

 

177

 

3,710

Total other expense

 

(7,113)

 

(3,745)

Loss before income taxes

 

(11,036)

 

(2,240)

Income tax benefit

 

(2,014)

 

(1,444)

Net loss

$

(9,022)

$

(796)

Loss per share:

Basic

$

(0.29)

$

(0.03)

Diluted

$

(0.29)

$

(0.03)

Shares used in loss per share calculation:

Basic

 

31,208

 

31,104

Diluted

 

31,208

 

31,104

The accompanying notes are an integral part of these consolidated financial statements.

4

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2022

    

2021

Net loss

$

(9,022)

$

(796)

Other comprehensive income:

Foreign currency translation gain

 

1,469

 

1,439

Net changes in interest rate hedge, net of taxes of $3,523 and $2,450, respectively

13,254

9,217

Comprehensive income, net of tax

$

5,701

$

9,860

The accompanying notes are an integral part of these consolidated financial statements.

5

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2022

    

2021

Cash flows from operating activities:

Net loss

$

(9,022)

$

(796)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization of property and equipment

 

16,900

 

18,234

Amortization of intangible assets

 

7,872

 

9,135

Accretion of closure and post-closure obligations

 

1,227

 

1,182

Unrealized foreign currency gain

 

(852)

 

(315)

Deferred income taxes

 

(3,467)

 

(3,781)

Share-based compensation expense

 

1,948

 

1,928

Share-based payments of business development and integration expenses

 

120

 

163

Unrecognized tax benefits

 

13

12

Net gain on disposition of assets

 

(245)

 

(221)

Amortization of debt issuance costs

589

577

Amortization of debt discount

40

40

Change in fair value of minority interest investment

(3,509)

Changes in assets and liabilities:

Receivables

 

3,865

 

(680)

Income taxes receivable

 

6,514

 

1,276

Other assets

 

1,106

 

1,114

Accounts payable and accrued liabilities

 

(4,155)

 

(3,647)

Deferred revenue

 

3,917

 

2,214

Accrued salaries and benefits

 

(3,407)

 

(3,028)

Income taxes payable

 

(329)

 

(98)

Closure and post-closure obligations

 

(517)

 

(337)

Net cash provided by operating activities

 

22,117

 

19,463

Cash flows from investing activities:

Purchases of property and equipment

 

(16,180)

 

(9,614)

Proceeds from sale of property and equipment

 

438

 

1,623

Minority interest investment

(712)

Proceeds from sale of short-term investments

1,932

Purchases of restricted investments

 

 

(913)

Proceeds from sale of restricted investments

 

 

934

Net cash used in investing activities

 

(13,810)

 

(8,682)

Cash flows from financing activities:

Proceeds from short-term borrowings

1,959

3,227

Payments on short-term borrowings

(1,959)

(2,950)

Payments on long-term debt

(1,125)

(1,125)

Payment of equipment financing obligations

(1,218)

(1,461)

Repurchase of common stock

 

(12)

 

(465)

Net cash used in financing activities

 

(2,355)

 

(2,774)

Effect of foreign exchange rate changes on cash

 

712

 

708

Increase in Cash and cash equivalents and restricted cash

 

6,664

 

8,715

Cash and cash equivalents and restricted cash at beginning of period

 

69,054

 

75,104

Cash and cash equivalents and restricted cash at end of period

$

75,718

$

83,819

Reconciliation of Cash and cash equivalents and restricted cash:

Cash and cash equivalents at beginning of period

67,487

73,848

Restricted cash at beginning of period

1,567

1,256

Cash and cash equivalents and restricted cash at beginning of period

$

69,054

$

75,104

Cash and cash equivalents at end of period

74,186

82,354

Restricted cash at end of period

1,532

1,465

Cash and cash equivalents and restricted cash at end of period

$

75,718

$

83,819

Supplemental Disclosures:

Income taxes (received) paid, net

$

(4,746)

$

1,270

Interest paid

$

6,198

$

6,404

Non-cash investing and financing activities:

Capital expenditures in accounts payable

$

6,789

$

4,569

Restricted common stock and common stock issued from treasury shares

$

4,487

$

4,127

The accompanying notes are an integral part of these consolidated financial statements.

6

US ECOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2022

    

2021

Total stockholders' equity, beginning balances

$

624,324

$

601,931

Common stock:

Beginning balances

$

315

$

315

Ending balances

$

315

$

315

Additional paid-in capital:

Beginning balances

$

821,970

$

820,567

Share-based compensation

 

1,948

1,928

Share-based payments of business development and integration expenses

120

161

Issuance of restricted common stock and common stock from treasury shares

(5,331)

(4,838)

Ending balances

$

818,707

$

817,818

Retained deficit:

Beginning balances

$

(183,115)

$

(188,452)

Net loss

 

(9,022)

(796)

Other

1

(1)

Ending balances

$

(192,136)

$

(189,249)

Treasury stock:

Beginning balances

$

(10,652)

$

(15,841)

Repurchase of common stock

 

(12)

(465)

Issuance of restricted common stock and common stock from treasury shares

4,487

4,127

Ending balances

$

(6,177)

$

(12,179)

Accumulated other comprehensive income (loss):

Beginning balances

$

(4,194)

$

(14,658)

Other comprehensive income

 

14,723

10,656

Ending balances

$

10,529

$

(4,002)

Total stockholders' equity, ending balances

$

631,238

$

612,703

The accompanying notes are an integral part of these consolidated financial statements.

7

US ECOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.     GENERAL

Basis of Presentation

The accompanying unaudited consolidated financial statements include the results of operations, financial position and cash flows of US Ecology, Inc. and its wholly-owned subsidiaries. All inter-company balances have been eliminated. Throughout these consolidated financial statements words such as “we,” “us,” “our,” “US Ecology” and “the Company” refer to US Ecology, Inc. and its subsidiaries.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly, in all material respects, the results of the Company for the periods presented. These consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted pursuant to the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2022.

The Company’s consolidated balance sheet as of December 31, 2021 has been derived from the Company’s audited consolidated balance sheet as of that date.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements. As it relates to estimates and assumptions in amortization rates and environmental obligations, significant engineering, operations and accounting judgments are required. We review these estimates and assumptions no less than annually. In many circumstances, the ultimate outcome of these estimates and assumptions will not be known for decades into the future. Actual results could differ materially from these estimates and assumptions due to changes in applicable regulations, changes in future operational plans and inherent imprecision associated with estimating environmental impacts far into the future.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. The ASU is currently not expected to have a material impact on our consolidated financial statements.

8

Republic Services, Inc. Merger Agreement

On February 8, 2022, we entered into the previously disclosed Agreement and Plan of Merger (the “Merger Agreement”) with Republic Services, Inc., a Delaware corporation (“Republic”) and Bronco Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Republic (“Merger Sub”).  The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and as a wholly-owned subsidiary of Republic.

The foregoing description of the Merger Agreement is a summary only and is qualified in its entirety by reference to the complete text of the Merger Agreement filed as Exhibit 2.1 in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

On March 30, 2022 the waiting period under Hart Scott-Rodino Anitrust Improvements Act of 1976, as amended, expired with respect to the Merger, and on April 26, 2022 we held a Special Meeting of the stockholders of the Company wherein we received the necessary affirmative vote to consummate the Merger. The transaction is currently expected to close on May 2, 2022.

NOTE 2.     REVENUES

Effective in the second quarter of 2021, we made changes to the manner in which we evaluate revenues associated with our various response-based services, including emergency response, standby services and remediation. As a result, revenues from Emergency Response and Domestic Standby Services, which were formerly presented as discrete service lines, are now combined and presented as a single “Emergency Response” service line and certain revenues formerly classified as Domestic Standby Services are now classified as Remediation. Throughout this Quarterly Report on Form 10-Q, our disaggregated revenues for all periods presented have been recast to reflect these changes.

The following table presents our revenue disaggregated by our reportable segments and service lines:

Three Months Ended March 31, 2022

Waste

Field

Energy

$s in thousands

    

Solutions

    

Services

Waste

    

Total

Treatment & Disposal Revenue (1)

$

96,280

$

10,781

$

7,104

$

114,165

Services Revenue:

Transportation and Logistics (2)

18,486

7,273

4,384

30,143

Industrial Services (3)

28,870

972

29,842

Small Quantity Generation (4)

15,039

15,039

Total Waste Management (5)

10,589

10,589

Remediation (6)

5,360

5,360

Emergency Response (7)

31,416

31,416

Other (8)

2,995

1,431

4,426

Revenue

$

114,766

$

112,323

$

13,891

$

240,980

9

Three Months Ended March 31, 2021

Waste

Field

Energy

$s in thousands

    

Solutions

    

Services

Waste

    

Total

Treatment & Disposal Revenue (1)

$

88,060

$

9,977

$

3,783

$

101,820

Services Revenue:

Transportation and Logistics (2)

16,082

6,329

1,401

23,812

Industrial Services (3)

26,256

409

26,665

Small Quantity Generation (4)

13,052

13,052

Total Waste Management (5)

9,882

9,882

Remediation (6)

11,975

11,975

Emergency Response (7)

37,355

37,355

Other (8)

3,423

635

4,058

Revenue

$

104,142

$

118,249

$

6,228

$

228,619

(1)We categorize our treatment and disposal revenue as either “Base Business” or “Event Business” based on the underlying nature of the revenue source. We define Event Business as non-recurring projects that are expected to equal or exceed 1,000 tons, with Base Business defined as all other business not meeting the definition of Event Business. For the three months ended March 31, 2022 and 2021, 20% and 24%, respectively, of our treatment and disposal revenue was derived from Event Business projects. Base Business revenue accounted for 80% and 76% of our treatment and disposal revenue for the three months ended March 31, 2022 and 2021, respectively.
(2)Includes collection and transportation of non-hazardous and hazardous waste.
(3)Includes industrial cleaning and maintenance for refineries, chemical plants, steel and automotive plants, marine terminals and refinery services such as tank cleaning and temporary storage.
(4)Includes retail services, laboratory packing, less-than-truck-load service and household hazardous waste collection. Contracts for Small Quantity Generation may extend beyond one year and a portion of the transaction price can be fixed.
(5)Through our total waste management (“TWM”) program, customers outsource the management of their waste compliance program to us, allowing us to organize and coordinate their waste management disposal activities and environmental compliance. TWM contracts may extend beyond one year and a portion of the transaction price can be fixed.
(6)Includes site assessment, onsite treatment, project management and remedial action planning and execution. Contracts for Remediation may extend beyond one year and a portion of the transaction price can be fixed.
(7)Includes services such as spill response, waste analysis and treatment and disposal planning as well as government-mandated, commercial standby oil spill compliance solutions and services that we provide to companies that store, transport, produce or handle petroleum and certain nonpetroleum oils on or near U.S. waters. Our standby services customers pay annual retainer fees under long-term or evergreen contracts for access to our regulatory certifications, specialized assets and highly trained personnel. When a customer with a retainer contract experiences a spill incident, we coordinate and manage the spill response, which results in incremental revenue for the services provided, in addition to the retainer fees.
(8)Includes equipment rental and other miscellaneous services.

We provide services primarily in the United States, Canada and the Europe, Middle East, and Africa (“EMEA”) region. The following table presents our revenue disaggregated by our reportable segments and geographic location where the underlying services were performed:

    

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

Waste

Field

Energy

Waste

Field

Energy

$s in thousands

    

Solutions

    

Services

    

Waste

    

Total

    

Solutions

    

Services

    

Waste

    

Total

United States

$

97,142

$

104,440

$

13,891

$

215,473

$

84,474

$

106,051

$

6,228

$

196,753

Canada

17,624

592

18,216

19,668

579

20,247

EMEA

6,264

6,264

10,018

10,018

Other (1)

 

 

1,027

 

 

1,027

 

 

1,601

 

 

1,601

Total revenue

$

114,766

$

112,323

$

13,891

$

240,980

$

104,142

$

118,249

$

6,228

$

228,619

(1)Includes Mexico, Asia Pacific, and Latin America and Caribbean geographical regions.

10

Deferred Revenue

We record deferred revenue when cash payments are received, or advance billings are charged, prior to performance of services, such as waste that has been received but not yet treated or disposed. Revenue is recognized when these services are performed. During the three months ended March 31, 2022 and 2021, we recognized $13.5 million and $10.7 million of revenue that was included in the deferred revenue balance at the beginning of each year, respectively.

Receivables

Our receivables include invoiced and unbilled amounts where the Company has an unconditional right to payment.

Principal versus Agent Considerations

The Company commonly contracts with third-parties to perform certain waste-related services that we have promised in our customer contracts. We consider ourselves the principal in these arrangements as we direct the timing, nature and pricing of the services ultimately provided by the third-party to the customer.

Costs to obtain a contract

The Company pays sales commissions to employees, which qualify as costs to obtain a contract. Sales commissions are expensed as incurred as the commissions are earned by the employee and paid by the Company over time as the related revenue is recognized. Other commissions and incremental costs to obtain a contract are not material.

Practical Expedients and Optional Exemptions

Our payment terms may vary based on type of service or customer; however, we do not adjust the promised amount of consideration in our contracts for the time value of money as payment terms extended to our customers do not exceed one year and are not considered a significant financing component in our contracts.

We do not disclose the value of unsatisfied performance obligations as contracts with an original expected length of more than one year and contracts for which we do not recognize revenue at the amount to which we have the right to invoice for services performed is insignificant and the aggregate amount of fixed consideration allocated to unsatisfied performance obligations is not material.

NOTE 3.     ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) (“AOCI”) consisted of the following:

Foreign

Unrealized Gain

Currency

(Loss) on Interest

$s in thousands

    

Translation

    

Rate Hedge

    

Total

Balance at December 31, 2021

$

(9,375)

$

5,181

$

(4,194)

Other comprehensive income before reclassifications, net of tax

 

1,469

 

12,746

 

14,215

Amounts reclassified out of AOCI, net of tax (1)

 

 

508

 

508

Other comprehensive income, net

 

1,469

 

13,254

 

14,723

Balance at March 31, 2022

$

(7,906)

$

18,435

$

10,529

(1)Before-tax reclassifications of $642,000 ($508,000 after-tax) for the three months ended March 31, 2022, were included in Interest expense in the Company’s consolidated statements of operations. Amounts relate to the Company’s interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made or, for terminated swap agreements, amortized to interest expense over the period from termination to original

11

maturity. Amounts in AOCI expected to be reclassified to interest expense over the next 12 months total approximately $1.2 million ($927,000 after-tax).

Foreign

Unrealized Gain

Currency

(Loss) on Interest

$s in thousands

    

Translation

    

Rate Hedge

    

Total

Balance at December 31, 2020

$

(7,870)

$

(6,788)

$

(14,658)

Other comprehensive income before reclassifications, net of tax

 

1,439

 

8,323

 

9,762

Amounts reclassified out of AOCI, net of tax (2)

 

 

894

 

894

Other comprehensive income, net

 

1,439

 

9,217

 

10,656

Balance at March 31, 2021

$

(6,431)

$

2,429

$

(4,002)

(2)Before-tax reclassifications of $1.1 million ($894,000 after-tax) for the three months ended March 31, 2021, were included in Interest expense in the Company’s consolidated statements of operations. Amounts relate to the Company’s interest rate swap which is designated as a cash flow hedge. Changes in fair value of the swap recognized in AOCI are reclassified to interest expense when hedged interest payments on the underlying long-term debt are made or, for terminated swap agreements, amortized to interest expense over the period from termination to original maturity.

NOTE 4.     CONCENTRATIONS AND CREDIT RISK

Major Customers

No customer accounted for more than 10% of total revenue for the three months ended March 31, 2022 or 2021, respectively. No customer accounted for more than 10% of total trade receivables as of March 31, 2022 or December 31, 2021.

Credit Risk Concentration

We maintain most of our cash and cash equivalents with nationally recognized financial institutions. Substantially all balances are uninsured and are not used as collateral for other obligations. Concentrations of credit risk on accounts receivable are believed to be limited due to the number, diversification and character of the obligors and our credit evaluation process. Credit risk associated with a portion of the Company’s trade receivables may be reduced by our ability to submit claims to the Oil Spill Liability Trust Fund (“OSLTF”) for reimbursement of unpaid customer receivables related to services regulated under the provisions of the Oil Pollution Act of 1990. As of March 31, 2022, the Company did not have any trade receivables that are eligible for submission to the OSLTF for reimbursement.

NOTE 5.     RECEIVABLES

Receivables consisted of the following:

    

March 31, 

December 31, 

$s in thousands

2022

    

2021

Trade

$

186,906

$

183,747

Unbilled revenue

 

60,513

 

62,029

Other

 

3,834

 

7,421

Total receivables

 

251,253

 

253,197

Allowance for credit losses

 

(3,020)

 

(3,043)

Receivables, net

$

248,233

$

250,154

12

NOTE 6.     FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair value measurements, as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
Level 3 - Unobservable inputs in which little or no market activity exists, requiring an entity to develop its own assumptions that market participants would use to value the asset or liability.

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash and investments, accounts payable and accrued liabilities, debt and interest rate swap agreements. The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying value due to the short-term nature of these instruments.

In each of September 2019 and March 2021, the Company invested $7.9 million and $712,000, respectively, in the preferred stock of a privately held company. The investment does not have a readily determinable fair value therefore the investment is valued at cost, less impairment, plus or minus observable price changes of an identical or similar investment of the same issuer, if any. In March 2021, in connection with our incremental investment of $712,000, we observed that the fair value of our initial investment of $7.9 million increased by $3.5 million and, accordingly, recognized a gain on our minority interest investment of $3.5 million. The fair value of our minority interest investment is included in Other assets in the Company’s consolidated balance sheets. Changes in the fair value of our minority interest investment are included in Other income in the Company’s consolidated statements of operations. As of March 31, 2022, there have been no other identified events or changes in circumstances that would indicate the cost method investment should be impaired nor have there been any observable price changes of an identical or similar investment of the same issuer.

The Company estimates the fair value of its variable-rate debt using Level 2 inputs, such as interest rates, related terms and maturities of similar obligations. At March 31, 2022, the fair value of the Company’s variable rate term loan was estimated to be $438.5 million, and the carrying value of the Company’s variable-rate revolving credit facility approximates fair value due to the short-term nature of the interest rates.

The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following:

March 31, 2022

Quoted Prices in

Other Observable

Unobservable

Active Markets

Inputs

Inputs

$s in thousands

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

Money market funds (2)

1,597

1,597

Interest rate swap agreement (3)

21,900

21,900

Total

$

1,597

$

21,900

$

$

23,497

13

December 31, 2021

Quoted Prices in

Other Observable

Unobservable

Active Markets

Inputs

Inputs

$s in thousands

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

Fixed-income securities (1)

$

1,695

$

255

$

$

1,950

Money market funds (2)

1,886

1,886

Interest rate swap agreement (3)

5,022

5,022

Total

$

3,581

$

5,277

$

$

8,858

(1)   We had short-term investments in fixed-income securities, including U.S. Treasury and U.S. agency securities as of December 31, 2021. We measured the fair value of U.S. Treasury securities using quoted prices for identical assets in active markets. We measured the fair value of U.S. agency securities using observable market activity for similar assets. The fair value of our fixed-income securities approximated our cost basis in the investments.

(2)   We invest portions of our Cash and cash equivalents and Restricted cash and investments in money market funds. We measure the fair value of these money market fund investments using quoted prices for identical assets in active markets. The portion of Restricted cash and investments that is invested in money market funds is considered restricted cash for purposes of reconciling the beginning-of-year and end-of-year amounts presented in the Company’s consolidated statements of cash flows.

(3)   In order to manage interest rate exposure, we entered into an interest rate swap agreement in March 2020 that effectively converts a portion of our variable-rate debt to a fixed interest rate. The swap is designated as a highly-effective cash flow hedge, with gains and losses deferred in other comprehensive income to be recognized as an adjustment to interest expense in the same period that the hedged interest payments affect earnings. The interest rate swap has an effective date of March 31, 2020 in an initial notional amount of $500.0 million. The fair value of the interest rate swap agreement represents the difference in the present value of cash flows calculated (i) at the contracted interest rates and (ii) at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments. The fair value of the interest rate swap agreement is included in Other assets in the Company’s consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.

NOTE 7.     PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

    

March 31, 

December 31, 

$s in thousands

2022

    

2021

Cell development costs

$

204,067

$

203,217

Land and improvements

 

74,524

 

74,298

Buildings and improvements

 

137,204