US Ecology, Inc.
Q1 2020 Earnings Call Transcript

Published: 9 May 2020

[Operator:]

Good day and welcome to the First Quarter 2020 US Ecology Inc. Earnings Conference Call. Today’s conference is being recorded. [Operator Instructions]I would now like to turn the conference over to Eric Gerratt. Please go ahead, sir.

[Eric Gerratt:]

Good morning and thank you for joining us today.Joining me on the call this morning is Chairman and Chief Executive Officer, Jeff Feeler.Before we begin please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include but are not limited to those discussed in the company's filings with the Securities and Exchange Commission. These risks and uncertainties also include but are not limited to statements regarding the continued impact of the COVID19 pandemic on our business, the microeconomic impact of specific end markets in which we operate and our results for 2020.Management cannot control or predict many factors that determine future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only on the date such statements are made. We undertake no obligation to revise or update any forward-looking statements or to make any other forward-looking statements whether as a result of new information, future events or otherwise.For those joining by webcast you can follow along with today's presentation. For those listening by phone you can access today's presentation on our website at www.usecology.com.Throughout yesterday's earnings release and our call and presentation today, we refer to adjusted EBITDA, adjusted earnings per diluted share, cash earnings per diluted share and adjusted free cash flow. These metrics are not determined in accordance with Generally Accepted Accounting Principles and are therefore are susceptible to varying calculations. A definition, calculation and reconciliation to the financial statements of adjusted earnings per diluted share, cash earnings per diluted share, adjusted EBITDA and adjusted free cash flow can be found on Slides 22 through Slide 28 of today's presentation.We believe these non-GAAP metrics are useful in evaluating our reported results. We would also like to point out that our first quarter results include contribution from the NRC Group Holding's acquisition that closed on November 1, 2019. Throughout this presentation we often refer to NRC Group Holdings as NRC. We have also provided data on a standalone basis for US Ecology, which is referred to as legacy US Ecology. Similarly for stand-alone NRC data, we refer to that group as legacy NRC. This disaggregation is an attempt to provide increased transparency and understanding of the underlying business.With that I'd like to turn the call over to Jeff.

[Jeff Feeler:]

Thank you, Eric and good morning, everyone. I hope you and your families are staying stations safe during these difficult times. Before I have Eric review the first quarter results, I'd like to address the coronavirus pandemic and how US Ecology is responding to it. For those that are following the webcast presentation, please direct your attention to Slide Five.We are in unprecedented times with the COVID19 pandemic affecting all humanity and US Ecology is no exception. Our hearts go out to all those impacted. You are in our thoughts and prayers. I want to offer a special thank you to all essential service providers that are keeping us safe in this time and need and that includes US Ecology's 3500 team members that have not missed a beat despite the rapidly changing, unparalleled and stressful conditions.In these unprecedented times, focusing on our core foundation and upholding our value has never been more important. In fact, our mission has always been to provide safe and compliant solutions to protect human health and the environment, which is exactly what is needed today.Moving on to Slide Six safety is our number one priority and is a core part of our DNA at US Ecology. This is applied to our team members, our customers and the communities in which we live and operate. At the start of this crisis we immediately mobilize a COVID19 crisis management taskforce that swiftly take action to address matters of importance. Throughout this process, we deployed safety protocols throughout our organization based off our extensive experience with the Bolus, SARS and H1N1.We mobilized 30% of our workforce to work from home and extended special COVID19 time off benefits to our team members. We have been in constant communication throughout the organization, providing critical information to our team members, they can use that personally and professionally to protect themselves and others. We mobilized and secured valued PPE using our established sourcing networks and expanded our sourcing message during this crisis to ensure teams and customers were properly protected at all times.With our services deemed essential by homeland security, we implemented our business continuity plans to ensure we remain operational while we deploy field teams to perform decontamination cleaning projects where needed. All of this was done while running the day-to-day business.As you can see our results on Slide Seven operationally we saw little impact from COVID19 during our first quarter other than our energy services business. Total company revenue grew to $240.7 million, adjusted EBITDA was $43.2 million and we saw a 32% growth in our adjusted free cash flow to $15.9 million.Looking at Slide Eight, our legacy US Ecology business had an outstanding quarter. Our Environmental Services segment grew 19% with base business growth of 5% and event business growth of 102%. Our field and industrial services business was up 14% driven by solid execution of our strategy to grow our small quantity generation business, led by our success of our retail program and the implementation of our national laptop program.Factoring in margin expansion in both segment adjusted EBITDA grew 31% over Q1 2019 to $31 million. As shown on Slide Nine NRC contributed $86.6 million in revenue during the first quarter. Domestic environmental services performed well in most markets and experienced an uptick in COVID19 decontamination services in March. Our standby retainer base business was not impacted by the COVID19 pandemic during the first quarter and saw a solid performance, beating our own expectations.The weakness in the upstream energy services worsened during the quarter with the direct impact of the COVID19 pandemic, compounded by the production that drove more oil prices to historic lows. These truly black swan events resulted in us taking a $300 million non-cash goodwill impairment charge. Despite this charge, we have a strong belief in the value of the underlying assets, the markets we serve and believe the growth opportunities will be there, just over a longer time horizon.Overall NRC delivered $12.2 million of adjusted EBITDA during the quarter. Despite these strong results, the evolving health crisis and its impact on the global economy is creating uncertainty in many of our markets and will negatively impact our second quarter. As a result, at the end of March, we announced proactive and prudent measures to adjust our operating plan to reduce costs and capital spending in order to safeguard the financial strength of the company as outlined on Slide 10.Our capital preservation initiatives included a reduction of approximately 30% to our planned 2020 capital expenditures, expected to save up to $30 million of cash. Additionally, the suspension of our quarterly cash dividend will preserve approximately $18 million for the balance of the year. 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 millionFurthermore, we are taking advantage of the deferral of withholding taxes expected to generate approximately $8 million of additional cash savings in 2020 and we drew $60 million off our line of credit, adding additional cash to the balance sheet while leaving $76 million of additional capacity. 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. These actions also supplement our strong operational cash flow generation, providing further financial flexibility as we navigate these unprecedented times.As covered on Slide 11 due to the uncertainty surrounding the magnitude and duration of the COVID19 pandemic, in late March we did withdraw guidance for the full year 2020. Looking further into 2020, we expect that our environmental services business will weather the current market conditions due to the collection of irreplaceable, primitive facilities and resilient business model.Further, many of the field service offerings -- we feel service offerings are seeing continued growth and opportunities during this time. Execution on our retail program and strengthen our emergency response business that has benefited from increased COVID19 decontamination work should help offset some of the industrial softness. Our energy waste disposal services business, which is operating in extremely challenging conditions will be negatively impacted for the balance of 2020.We are hopeful that when states began to reopen, our customers will restart their businesses. We are already seeing positive signs of increased activities, especially in those markets where either reopening has commenced or is plan to in the near-term. We also expect that there will be a gradual phased-in approach starting in May leading to strengthen overall industrial activity towards the end of the second quarter through the second half of the year. As a result we believe at this time that the second quarter will be below point of year.Looking at the most recent data, we started seeing a reduction in waste volumes and touring network starting at the end of March and accelerating into April. Our April base business volumes were down both sequentially for March and year-over-year by approximately 15% to 20%, which is in line with what we had expected.Our event business was up sequentially 6% from March 2020, however down slightly when compared to April 2019. We expect our base business to recover at the pace of which states and businesses reopen and expect our customers to reopen earlier than other services industries. So far we have seen little deferment in our event business with only a handful of projects that have been pushed from April and May into the summer where we already have a healthy pipeline.As for the pipeline it is healthy and even in this shutdown, we have seen bidding activity emerge. I would expect as of right now, most of the event business impact will be a shift into our third and fourth quarters. Overall, we believe with the actions we've taken, the company will be positioned to continue to generate positive year-over-year free cash flow even at significantly lower-than-expected adjusted EBITDA levels.As to guidance, while we do not have enough clarity to refresh guidance, we expect to reestablish our 2020 guidance at the time of our second quarter earnings release. In summary, the flexibility of our business model, continued free cash flow generation, strong financial liquidity, provided by cash on hand and available capacity on the company's lines of credit and a committed workforce, will enable us to navigate these challenging times and position the company to quickly capitalize on those opportunities for growth as business conditions begin to recover.With that, I'll turn it Eric.

[Eric Gerratt:]

Thank you, Jeff. I would like to echo your earlier comments about the outstanding work of our team and everyone on the front lines. As I go into the detailed financial review, I will be discussing consolidated results that include NRC before delving into the legacy US Ecology standalone results for the quarter.Starting with consolidated results on Slide 13 revenue, for the first quarter of 2020 was $240.7 million up 84% from the same quarter last year and included $86.6 million from NRC. Revenue for the environmental services segment increased 37% to $126.7 million including $16.8 million from NRC, which compared to $92.3 million in the first quarter last year.The field and industrial services segment delivered revenue of $114 million in the first quarter of 2020 and included $69.8 million from NRC. This was up 194% from $38.7 million in the first quarter of 2019. Total gross margin was 25% in the first quarter of 2020 down from 27% in the first quarter of 2019. Treatment and disposal margin for our Environmental Services segment was 39% in both the first quarter of 2020 and the first quarter of 2019.Gross margin for our field and industrial services segment was 15% in the first quarter of 2020 compared to 10% in the first quarter of 2019. Selling, general and administrative spending or SG&A was $51.1 million and included $19.7 million for NRC as well as $2.9 million in consolidated business development and integration expenses. This compared to $25 million in the first quarter last year when excluding the $4.7 million of favorable property insurance recoveries that were not repeated in the first quarter of 2020.As Jeff mentioned, we recorded a non-cash goodwill impairment charges of $300.3 million in the first quarter of 2020 related to our energy waste disposal services and our international businesses. This non-cash charge was directly related to the supply and demand shock in the global oil market and the associated negative impact on the expected future cash flows of each business.Adjusted earnings per share was $0.12 in the first quarter of 2020 compared to $0.22 in the same quarter last year. Cash earnings per diluted share which adds back the amortization of intangible assets to adjusted earnings per diluted share was $0.33 in the first quarter of 2020 compared to $0.31 in the first quarter of 2019, which represented 6% year-over-year growth.Consolidated adjusted EBITDA was $43.2 million in the first quarter of 2020 up 82% from the same period last year, reflecting strong growth by Legacy US Ecology as well the addition of NRC.Shifting to Legacy US Ecology results on Slide 14, revenues were $154.1 million in the first quarter of 2020 up 18% from $131 million in the first quarter last year. Our Environmental Services revenues were up 19% to $109.9 million on a 17% increase in treatment and disposal revenue and a 32% increase in transportation revenue. Our base business grew 5% and our event business was up 102% in the first quarter of 2020 compared to the first quarter last year.Legacy US Ecology field and industrial services revenue was $44.2 million in the first quarter of 2020 up 14% driven primarily by increased revenues in our remediation and small quantity generation service line. Gross margin for the Legacy US Ecology business was 29% in the first quarter of 2020 up from 27% in the first quarter last year. Our Environmental Services segment treatment and disposal margin expanded by nearly 300 basis points to 42% in the first quarter of 2020 compared to 39% in the first quarter of 2019 on an increased base and event business along with the grand view Idaho recovery.Gross margin for the Legacy US Ecology field and industrial services segment expanded by 246 basis points to 12% in the first quarter of 2020 compared to 9.5% in the first quarter of 2019. This margin expansion is attributed to service mix as well as improved route density. SG&A for the Legacy US Ecology business was $30.9 million compared to $20.3 million in the first quarter last year. As a reminder SG&A for the first quarter of 2019 reflected a favorable $4.7 million property insurance recovery that was not repeated in the first quarter of 2020.The increase in SG&A for the first quarter of 2020 was also partially due to $2.4 million of business development and integration expenses as well as increased labor and insurance costs. SG&A as a percent of total revenue improved by 43 basis points to 18.5% compared to the first quarter of 2019 when excluding property insurance gains and business development and integration expenses from both periods. Legacy US Ecology adjusted EBITDA was up 31% to $31 million for the first quarter of 2020. This compares to $23.7 million in the first quarter last year.Turning to Slide 15, we exited the quarter with a solid balance sheet and strong liquidity. We had cash of $110 million and net borrowings of $749 million at March 31, 2020. Our operating cash flow was up 58% during the quarter to $29.3 million driving our adjusted free cash flow up 32% to $15.9 million compared to $12.1 million in the same quarter last year.Looking at our overall debt position at March 31, 2020, we have a $500 million revolving line of credit with approximately $76 million of available capacity remaining as well as $448.9 million on our term loan B that matures in 2026. The overall current average cash interest rate on our debt is approximately 3%. Our term loan B financing is structured with no financial covenants and lower acquired amortization of only 1% per year or $4.5 million in cash repayment.Our under revolving credit facility is a syndication of highly capitalized financial institutions with which we have strong and long-term relationship. This credit facility has two financial covenants; a leverage ratio limited to four times our total outstanding debt and capital leases to our trailing 12 month bank calculated adjusted EBITDA as well as an interest coverage ratio. At the end of the first quarter, we were well within our covenants with a leverage ratio of 3.4 times.Our capital preservation initiatives just discussed earlier along with expected free cash flow generation is expected to allow us to remain in compliance with our debt covenants for the balance of 2020. However, we are proactively discussing the current environment and our outlook with the syndication's leading banks and are comfortable with the potential to obtain a covenant waiver or amendment if needed.Overall, despite current market conditions and the COVID19 pandemic, our solid liquidity and strong balance sheet will allow us to continue to operate the business with a long-term focus.With that I'll turn the call back to Jeff.

[Jeff Feeler:]

Thank you, Eric. While these unprecedented times, our industry-leading position, diversity of customers and business, strong balance sheet and liquidity puts us in excellent shape to be able to navigate and continue to generate cash despite these challenges. Having the financial flexibility allows us to be focused on long-term initiatives, operational improvements and will position the company to take advantage of the recovery, while protecting our highly talented team.The integration with NRC is continuing at pace despite these trying times. Actually, the complementary service offerings and the diversity of our footprints is in many ways leading to an acceleration of our integration efforts. The teams are coming together and we are seeing synergistic value of the combination as we have had to redeploy our workforce to best service our customer's needs.This is enabling our emergency response group to leverage the full breadth of our new operations and really work together as a singular unit. In closing, I'd like to thank our team members throughout the organization and their extraordinary effort and their unwavering commitment to servicing our customers in the most trying of times. We remain focused on those things that we can control, including the preservation of our financial strength to sustain excellent stewardship on behalf of all stakeholders and believe we're well positioned to benefit from when the recovery happens.With that, operator we'll open it up for questions.

[Operator:]

[Operator instructions] And we'll begin with Michael Hoffman with Stifel.

[Michael Hoffman:]

In the base business there are 15 to 20 down, is there a particular industry concentration like exposure to auto and auto production is down as an example or is there a geographic issues? You got a big win from a corporate synergy big refund. Is there something that you employ to helps us understand why that level of decline?

[Jeff Feeler:]

Yeah so a couple things on that Michael. First and foremost this is volume data, I want to point that out. Doesn't necessarily correlate revenue because it doesn't take into account pricing, it doesn't take into account mix on there. So not always discrete equal as you know on there. So we wanted to provide this data to get us for.When this pandemic really gained traction in March and as we started seeing the severity unfold, this is kind of in our line of expectations. A lot of the smaller manufacturers are going to be the ones are going to be forced down to close down and it definitely had more of a geographic presence than per se an industry line presence.So for example our Canadian marketplace, Canada took a more severe approach and we saw a much more decline up in those markets than we have in say our Texas marketplace. And so it's all depended on where it's at. The auto exposure, yeah there is going to be some impact on that in our greater Michigan area. Did see some declines in that area but we do expect that to recover as those plans are starting to open up and the associated services herein actually this week or next. So we're on track in there.So a couple points there, that's just kind of what we would have expected to see that decline in April and it probably will continue into may as we start the phased reopening happen.

[Michael Hoffman:]

And so in that volume equal revenue I am assuming the revenues are less than the volume decline.

[Jeff Feeler:]

That's right, that would be my expectation.

[Michael Hoffman:]

Okay. And can you help us proportion that a little bit?

[Jeff Feeler:]

Yeah. We don't have revenue numbers for April. Yet we haven't worked early in May. So we were able to give you a sense but we'll be able to report more on that one when it comes into the second quarter.

[Michael Hoffman:]

Okay. Fair enough and then one of your biggest competitors in the retail lab pack that sold and that company on its call this morning adjusted retail results were mixed. Some was great and some was terrible. I'm curious what your experience has been in that business because it's been an area of focus.

[Jeff Feeler:]

Yeah. For the vast majority of our customer rates in the retail sector, they all remained open and so we've actually seeing increase in service offerings and volumes. We had very strong growth in Q1 that continued into Q2 -- continued into April from that standpoint. We did have some customers that were shut down that they were tied to say anything from apparel or cosmetics or things to that, that were not deemed essential.They shut down and we didn't get those pickups, but we service most of the grocery store chains throughout the United States. We have some of the larger hardware type stores things like that, all those remained open and they saw increased volume transactions. They also put in additional protocols that I think they will be ultrasensitive on just having volumes just being thrown in and treated as opposed to trying to figure it out. So we saw increases in volumes as well during the time period.

[Michael Hoffman:]

And then if you can make sure you alluded to -- can you frame for us what you’ve been doing and I am seeing it's all in the field and industrial services line so I can see it?

[Jeff Feeler:]

Yeah. It is all in the field and industrial services line and the vast majority of that fall in NRCs cost centers or revenue centers there. So what we're doing is we're providing an emergency response services to Decon everything from retailers to commercial buildings, to government contracts, or government contracts where there's been a known contamination and often cases now that it's kind of changing to where people are getting ready to open. We're providing preventative and initial Decon services to go in to decontaminate that.It comes with the experience that we gained by the acquisition of NRC and their vast experience in this area. From a framework in the first quarter we probably did about $3 million in work and that's actually grown in April. We've done about 900 emergency responses through the end of April and so that has been a good business and it's one that will probably continue to morph on as we start seeing reopenings and go from an emergency response perspective to more preventive tight reopening options for our teams.

[Michael Hoffman:]

And can we think of that as above corporate margins and line of corporate in that margin?

[Jeff Feeler:]

Vast majority when it comes to emergency response as long as we can internalize the talent, we can get above average segment margins on that. So yes, that is good business for us and that is something we would expect to continue.

[Michael Hoffman:]

And last one for me. Eric you talked the labor is you all being prudent in having those conversations, but you're not anticipating had any challenges on the covenant given your actions you're taking.

[Jeff Feeler:]

Yeah, at this point we're not, but it is something we like I am sure most companies are doing all sorts of scenarios and modeling and things like that and depending on how dire and how long you model the slowdown to be and the shutdowns to the that picture a different scenarios. So on some of those scenarios we do get close or trip the covenant. Again these are scenarios. So I don't anticipate an issue at this point, but we are also being pretty proactive and I think it's likely that we're going to seek to do something in the near-term just to give us that headroom and keep that out of the way and I have to tip out this on it.

[Michael Hoffman:]

And is it fair that what you're seeing is kind of like a swoosh and making swoosh start see the long gradual, is the way to think about it at the moment.

[Jeff Feeler:]

I would frame it that way. I mean the hard part in this is we don't know first of all the pace of reopening. We don't know if there's going to be another shut down later on in the year. There's a lot of variables we just don't know, don't have control on, but if we see a gradual pace of reopening which is kind of what from our vantage point is kind of looking throughout the US in particular and even in Canada and based on what we've seen in those markets that have opened up, we do expect our customers to start bringing the workforce back more quickly, start rapid production and starting to see waste volumes and service offerings come into play.As that phases out, yeah it should gradually improve up through the second quarter and really when you look to the back half of the year, if it continues at pace, I would expect the exact same thing in the back half of the year.

[Operator:]

[Operator instructions] We'll now move to a question from Jeff Silber with BMO Capital Markets.

[Jeff Silber:]

Jeff you mentioned it in your prepared remarks and I think I made mention in the answer to the previous question, you said something about how you expect your customers to reopen earlier than other service providers? Can we get a little bit of color on that?

[Jeff Feeler:]

And we've had comments really made Jeff in thinking when you think about the economy overall, what's really been shut down, a lot of it restaurants, nonessential services, we don't get waste from that. So when you think about reopening, most of the industrial facilities I mean they kept open if they could and some of our model, especially the smaller ones, they shut down and I would expect them to reopen more quickly than what you're going to see, they're going to have better opportunity to put in the safe practices such as social distancing, putting protocol coming, they're not having customers come on site.So all of that is what I'm trying to elude to is why I think our customer base will open more quickly than the vast majority of the service companies out there.

[Jeff Silber:]

Got it. I thought you may have been referring to other waste companies but thank you for clarifying that and I'm just curious, obviously there is a lot going on, from a cash flow collection perspective have you seen any issues with any of your customers?

[Eric Gerratt:]

Yeah, Jeff this is Eric. Nothing significant yet. Obviously it's something that we're monitoring very closely. It's something that we monitor pretty closely any way, but we've put some additional procedures in place and process in place to monitor even more closely. To this point, no, we're not seeing any significant issues or any major issues but we will continue to monitor it.If you look at again through the first quarter, if you look at our collections, our DSOs actually improved in the first quarter which is a good thing, but we will continue to monitor and evaluate it as we go.

[Jeff Feeler:]

And Jeff, I'll just add, when you look to April and you look at our cash position its held with what we exited the quarter out which tells me that we're still collecting the same rate and we're not seeing any initial signs of challenges right now, but it's deftly something that it be monitored very closely.

[Jeff Silber:]

Okay Great and just one clarification you kind of talk about I think in Slide 10 when you talked about the potential cash saving and the deferral of the withholding tax about $8 million in cash. So that payroll related tax you're deferring now that you'll be paying in the second half of 2021 and into 2022 is that correct?

[Jeff Feeler:]

That is correct. Thanks so much.

[Operator:]

[Operator instructions] We'll move to Tyson Bauer with KC Capital.

[Tyson Bauer:]

Good morning, gentlemen and I appreciate what you've been able to do to protect shareholders and taken a very conservative approach on that preserving cash and capital. So well done on side of it. The event business since a lot of it is mandated by either development litigation, legislation and other events that create that cleanup, are you somewhat insulated you may have a variation on timetable but are you still somewhat insulated with the pipeline that should still arise and also getting those jobs completed?

[Jeff Feeler:]

This is Jeff. My mind has been bumping around. So actually for the most part when I look at the event business for all of 2020 right now, we entered the year with some fairly large project that were already in force that all indications are not sloping, they're not moving, shifting maybe out of a month or two but kind of normal course and not pandemic related per se.We also this year expect quite a bit of government work common in which has continue to go on and we've actually see most of those government controlled sites not shut down in March and April, which has helped some of our volumes come through on in there. When you look at the or call it the unknown filler work that just happens through normal course of business activity, we entered the year that being right around 25% to 30%, which is normal course.We still that pipeline been strong. We see a lot of opportunities, our customers are not telling us right now that they're slipping and deferring. And there was one of the things that this pandemic started was one of the areas that I was really monitoring closely with our sales team as to what the customers are saying and how they're acting and that has continued to date and most of it has just slipped out of April where most of the country we shut down and now that we're seeing reemergence in May, we're starting to see those things starting to gear up and ready to go.So right now we're cautiously optimistic we're going to see no impact may be a shifting in there but it's definitely something that we're going to monitor as we go throughout the year.

[Tyson Bauer:]

Does that also mean that we should see pricing hold fairly well as people are treating as a kind of one-off or a onetime event that your bid pricing and the pricing that's out there, there isn’t big competition necessarily for volumes. So given the quicker as things ramp up, so kind of your outlook on pricing?

[Jeff Feeler:]

Yeah as of right now, I'm not seeing any changes in the pricing dynamics as a result of the pandemic. The great thing about our industry is we have some very rational and disciplined players in the marketplace and so that bodes well for just having consistency in pricing.

[Tyson Bauer:]

The customer you talked about on the CapEx are those related to just to the expectations on volumes being pushed to the right. So there is somewhat easier decisions for you to make or were exactly can you pinpoint some of those costs will be allocated to?

[Jeff Feeler:]

Yeah, most of the cuts are really across the board and it hits almost every one of our key areas. So we're going to control and be more disciplined on our maintenance spend. We're going to definitely push some of the growth projects that we were seeking and looking for out probably into 2021. We had some capital deployment going out for the Idaho rebuild that was funded through insurance proceeds and there was plan to start in the back half of this year that probably will shift into 2021 type area and some of the landfill spend especially in the energy services business, we're not expecting the same volumes. So that was an easy move to future periods.And so we're being disciplined. We're still keeping our eye on the long term. We're not going to do something that's crazy and jeopardize the long-term benefits and so we have a great capital team led by Simon and Bill and they are all over this really monitoring this throughout the organization and we're going to be very prudent and disciplined when it comes to that capital deployment.

[Tyson Bauer:]

Okay. And lastly just bookkeeping questions, Eric given the $300 million obviously doesn't affect your EBITDA but looking at a quarter impact should we expect from that to take that off the balance sheet and then two, will we see any cash taxes impact if Canada is -- may have less volumes and less percentage of overall sales this year or another government programs that may adjust your cash taxes?

[Jeff Feeler:]

Yeah Tyson so on the goodwill impairment, what you really see doesn't impact our EBITDA but essentially what it does is it removes that $300 million out of our goodwill asset category which is in our long-term assets. So that's how that closer on the balance sheet on the income statement it flows through operating income on a GAAP basis and obviously GAAP EPS and then if you look at how we calculate adjusted EPS and EBITDA you'll see that added back in that piece.In terms of the balance sheet going forward that will be off our balance sheet going forward and we'll continue that way. One thing to note on the goodwill impairment though since we are still technically in the accounting allocation period or purchase price allocation period going in NRC acquisition, we may potentially have some additional true up to that number as we finalize the purchase accounting during the year, but again that would be flowing through similar to this if there are any additional true ups, which at this point we're not expecting right now, but we'll finalize the purchase accounting exercise by November of this year.

[Tyson Bauer:]

Once on the GAAP on the cash earnings as to GAAP earnings, which is what we want people to focus on anyway was the cash earnings.

[Jeff Feeler:]

That's correct and Tyson refresh my memory on your second question.

[Tyson Bauer:]

If you're going to have any cash tax implications from the various government programs or because you're going to have different allocation of expectations from sales. So you won't have like say the Canadian tax rate, which may be higher than what you have here, what's the implications on cash taxes?

[Jeff Feeler:]

Yeah, in terms of our cash taxes, I don't think we're expecting any major implication. Some of the things that we're doing are going to benefit us from a cash tax perspective in 2020. Some of the things that we were able to defer will help us from that perspective. In terms of the overall rate, the effective rate or the cash tax rate in Canada for example is not significantly different from we were at in the US.In fact given how are some of our state effective rates of inventories with the NRC acquisition given their presence in some of the higher tax states in the US, the Canadian overall rate is actually on par maybe even slightly lower than the overall US rate. So all in all, I'm not expecting a major change or shift in our cash tax rate due to events in Canada.

[Operator:]

Now we'll take a question from Tyler Brown with Raymond James.

[Tyler Brown:]

Hey Jeff so I appreciate that you gave base trends in April but do you have any color of what event did in April?

[Jeff Feeler:]

Yeah, so event business in April was up sequentially from March about 6% and it was down slightly around 2% year-over-year.

[Tyler Brown:]

And then how do we think about the incremental margins yes, so it there going to be something like 50% to 75% in that in all depends on transportation is involved or how do we think about that?

[Jeff Feeler:]

Yeah, I think as you see it and I really think that was one of the key drivers in our treatment and disposal margin improvement in the first quarter this year was when you have 102% increase in event business that event business volume with that kind of an increase or as you see an increase definitely comes into the higher incremental margin and that could be again with strong base and then growth in event, that incremental margin could be 60%, 70%.

[Tyler Brown:]

Okay. That's helpful.

[Jeff Feeler:]

As that event grows, we would deftly expect that incremental margin flows through. Now as we go forward, the base business depending on what it does in terms of growth will obviously -- there's operating leverage there that can cut the other way.

[Tyler Brown:]

Right that was more my questions how are the decremental I should say decrementals book on the base business?

[Jeff Feeler:]

Yeah I think the decremental on the base would be smaller than what you would see on the event just because again over the years we've built the base up to cover a large portion of our fixed costs and so the incremental and decremental margins on the event are probably more pronounced than they would be on the base.

[Tyler Brown:]

Okay. That's very helpful. Okay. And then I think you said that in ES NRC contributed $17 million in the quarter in Q1 but is there any way to think about what that might step down to in Q2? Could we talking like a low single-digit millions?

[Jeff Feeler:]

So what particular part of NRC are you talking about the energy waste?

[Tyler Brown:]

Yes.

[Jeff Feeler:]

So we're not seeing positive trends in the energy waste business right now. So we actually had a fairly strong relatively I should say strong first quarter. A lot of positives developed until really the first part of March and we definitely are trending to where that business is going to be from a revenue perspective trending about 50% from what we thought at the beginning of the year, down from and that has some pretty, pretty big swings on the margin profile as well. So right now we're looking at low single digits to almost breakeven in that business for 2020.

[Tyler Brown:]

Okay. That's helpful. And my last one so Eric how exactly is the bank EBITDA get calculated? It feels significantly different? Do they add back something in EBITDA or do they not take something -- they add something back in debt I suppose.

[Eric Gerratt:]

Some of the differences in that calculation are it's a rolling four quarter EBITDA or trailing EBITDA and so in terms of how NRC rolls into that calculation, some of it is for the quarters prior to the acquisition in the calculation include EBITDA as NRC calculated, but also there are things in that calculation where we are able to include some synergies out projected synergies into that calculation as well as some cost savings forward-looking cost savings in that calculation.

[Tyler Brown:]

Okay. So very pro forma.

[Eric Gerratt:]

Correct.

[Tyler Brown:]

Okay. All right. That's very helpful. That helps explain some of that. Okay guys, thank you.

[Operator:]

Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the call back over to Jeff for any additional remarks.

[Jeff Feeler:]

Well I'd like to just conclude by taking those that participated and wishing you all well during these challenging times and looking forward to given an update on our Q2 results towards August of this year. Thank you so much.

[Operator:]

With that, ladies and gentlemen, this concludes your conference. Thank you for attending today's presentation. You may now disconnect.