NRC Group Reports Second Quarter 2019 Financial Results

NRC Group Holdings Corp. NRCG ("NRCG" or the "Company"), a global provider of a wide range of environmental, compliance and waste management services, today reported financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 Financial Results

Operating revenue in the second quarter of 2019 increased 49% to $121.8 million compared to $81.7 million in the prior year period. The increase was largely driven by increased emergency response activity in connection with an event in the Gulf Coast region, acquisitions completed in 2018 and 2019 and increased remediation activity. Excluding the impact of acquisitions, as well as the increased emergency response activity in the Gulf Coast region, organic operating revenue growth was 9% compared to the prior year period.

Operating expenses, which include cost of revenue (exclusive of depreciation and amortization), in the second quarter of 2019 were $83.7 million compared to $54.5 million in the prior year period. The increase was primarily due to incremental expenses related to increased emergency response activity and acquisitions completed in 2018 and 2019.

General and administrative expenses in the second quarter of 2019 were $17.2 million compared to $12.7 million in the prior year period. Approximately $1.8 million of this increase was related to the acquisitions completed in 2018 and 2019, with the remaining increase primarily due to increased public company costs and an increase in the Sprint segment to support waste disposal growth.

Net loss in the second quarter of 2019 was $10.1 million, or $(0.27) per share¹, compared to a net loss of $0.2 million, or $(0.01) per share¹, in the prior year period. The increase in net loss was largely due to the previously disclosed $10.0 million payment of common stock made to NRCG's majority stockholder upon consummation of the acquisition by NRCG of Organic Incineration Technology, Inc., which closed in the second quarter of 2019, transaction expenses related to the proposed merger with US Ecology, Inc. ("US Ecology"), and the change in fair value of contingent consideration related to several acquisitions.

Adjusted EBITDA², a non-GAAP financial measure that is calculated consistent with the Company's senior credit facility, in the second quarter of 2019 increased 28% to $23.3 million compared to $18.3 million in the prior year period.

Segment Results

Domestic Standby Services – Domestic Standby Services operating revenue in the second quarter of 2019 increased 6% to $9.7 million compared to $9.1 million in the prior year period. The increase was primarily due to an increase in equipment leasing and emergency response activity. Operating profit in the second quarter of 2019 was $3.5 million compared to $3.8 million in the prior year period. The slight decline was due to lower tolling revenue and higher emergency response activity (project mix).

Domestic Environmental Services – Domestic Environmental Services operating revenue in the second quarter of 2019 increased 69% to $82.1 million compared to $48.6 million in the prior year period. The increase was largely due to increased emergency response activity in connection with an event in the Gulf Coast region and increased remediation activity, partially offset by a decline in Alaska and New England. Operating profit in the second quarter of 2019 increased 173% to $12.1 million compared to $4.4 million in the prior year period. The increase was largely due to increased emergency response activity in the Gulf Coast region.

International Services – International Services operating revenue in the second quarter of 2019 increased 65% to $9.3 million compared to $5.7 million in the prior year period. The increase was primarily due to increased remediation activity in Turkey and growth in Clean Line Waste Water Solutions Limited ("Clean Line"), which was acquired in March 2018. Operating profit in the second quarter of 2019 increased 80% to $1.7 million compared to $0.9 million in the prior year period. The increase was due to the contribution of increased remediation activity and growth in Clean Line.

Sprint – Sprint operating revenue in the second quarter of 2019 increased 13% to $20.8 million compared to $18.4 million in the prior year period. The increase was primarily due to the acquisition of Quail Run Services, LLC ("Quail Run") in October 2018, partially offset by lower rig counts in the Eagle Ford Basin which impacted waste disposal revenue. Operating profit in the second quarter of 2019 increased 2% to $7.7 million compared to $7.6 million in the prior year period. The increase was largely due to the benefit from the Quail Run acquisition.

Balance Sheet and Cash Flow

At June 30, 2019, the Company had $22.6 million in cash and equivalents and $384.4 million of total debt (gross of issuance fees) compared to $18.4 million in cash and equivalents and $352.2 million of total debt (gross of issuance fees) at December 31, 2018.

Free cash flow conversion², defined as Adjusted EBITDA less total capital expenditures (excluding one-time waste disposal investments) divided by Adjusted EBITDA, for the second quarter of 2019 was 80% compared to 86% in the prior year period. Free cash flow conversion² for the six months ended June 30, 2019 was 84% compared to 80% in the prior year period.

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1} Excludes dividends from 7.00% Series A Convertible Cumulative Preferred Stock.
² Adjusted EBITDA and Free cash flow conversion are non-GAAP financial measures. See below under the headings "Use of Non-GAAP Financial Information" and "Reconciliation of Non-GAAP Financial Measures" in the tables that follow for a description of the Company's use of Non-GAAP financial information in this release and a reconciliation of such non-GAAP financial measures to GAAP.

Proposed Merger with US Ecology, Inc.

As previously announced, NRCG has entered into a definitive merger agreement with US Ecology (Nasdaq-GS: ECOL) pursuant to which US Ecology will form a new holding company that immediately upon the closing of the transaction will own both US Ecology and NRCG. The merger is expected to close in the fourth quarter of 2019. Until the closing, NRCG will continue to operate as an independent company.

Conference Call

Management will not be holding a conference call to review results nor providing any forward guidance due to the previously announced proposed merger with US Ecology.

About NRCG

NRCG is a global provider of a wide range of environmental, compliance and waste management services. NRCG'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. NRC Group, a wholly owned subsidiary of NRCG, was established in June 2018 through the combination of two businesses, National Response Corporation and Sprint Energy Services, both previously operating separately under the ownership of investment affiliates of J.F. Lehman & Company. For more information, please visit www.nrcg.com. No portion of the website referenced in this paragraph is incorporated by reference into or otherwise deemed to be a part of this news release.

Use of Non-GAAP Financial Information

This release describes historical financial information that includes "Adjusted EBITDA," and "Free cash flow conversion," both of which are financial measures that are not calculated in accordance with GAAP and provided only as supplemental information. The Company has presented Adjusted EBITDA because it is substantially the same as the metric called "Consolidated Adjusted EBITDA," as defined in the Company's senior credit facility, which is a key component in the determination of its leverage ratios (including its ability to service debt and incur capital expenditures). The Company believes its presentation of Adjusted EBITDA is useful because it provides investors and industry analysts the same information that it uses internally for purposes of assessing its liquidity and core operating performance. The Company provides Free cash flow conversion because it is a useful measure to investors as to the ongoing liquidity of the business after required capital expenditure investments. Adjusted EBITDA and Free cash flow conversion are each a non-GAAP financial measure and should not be considered as an alternative to financial measures prepared in accordance with GAAP such as operating income or net income as measures of operating performance or cash flows or as measures of liquidity. Adjusted EBITDA and Free cash flow conversion are not necessarily calculated the same way as other companies and should not be considered a substitute for or more meaningful than GAAP results, and should be read in conjunction with the GAAP financial information provided in this release.

For a further description of Adjusted EBITDA and Free cash flow conversion and explanation of the Company's use thereof, please see "Reconciliation of Non-GAAP Financial Measure" in the tables that follow.

Forward-Looking Statements

Statements in this communication that are not historical facts are forward-looking statements that reflect NRCG's management's current expectations, assumptions and estimates of future performance and economic conditions. These forward-looking statements relate to, among other things, the anticipated closing of the proposed transaction and structure of the combined company. All statements other than historical facts may be forward-looking statements; words such as "anticipate," "believe," "could," "design," "estimate," "expect," "forecast," "goal," "guidance," "imply," "intend," "may," "objective," "opportunity," "outlook," "plan," "position," "potential," "predict," "project," "prospective," "pursue," "seek," "should," "strategy," "target," "would," "will" or other similar expressions that convey the uncertainty of future events or outcomes are used to identify forward-looking statements. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the control of NRCG. Factors that could cause NRCG's actual results to differ materially from those implied in the forward-looking statements include: (1) the risk that the conditions to the closing of the proposed merger with US Ecology are not satisfied, including the risk that required approvals for the transaction from governmental authorities or the stockholders of NRCG or US Ecology are not obtained; (2) the occurrence of any event, change or other circumstances that either could give rise to the right of one or both of NRCG or US Ecology to terminate the merger agreement, (3) litigation relating to the transaction; (4) uncertainties as to the timing of the consummation of the transaction and the ability of each party to consummate the transaction; (5) risks related to disruption of management time from ongoing business operations due to the proposed transaction; (6) unexpected costs, charges or expenses resulting from the transaction (7) the ability of NRCG and US Ecology to retain and hire key personnel; (8) competitive responses to the proposed transaction and the impact of competitive services; (9) certain restrictions during the pendency of the mergers that may impact NRCG's or US Ecology's ability to pursue certain business opportunities or strategic transaction; (10) the terms and availability of the indebtedness planned to be incurred in connection with the transaction to refinance NRCG's existing indebtedness; (11) potential adverse changes to business relationships resulting from the announcement or completion of the transaction; (12) the combined companies' ability to achieve the growth prospects and synergies expected from the transaction, as well as delays, challenges and expenses associated with integrating the combined companies' existing businesses; and (13) legislative, regulatory and economic developments, including changing business conditions in the industries in which NRCG and US Ecology operate. These risks, as well as other risks associated with the proposed transaction, are more fully described in the preliminary joint proxy statement/prospectus, dated July 31, 2019, that was filed by US Ecology Parent, Inc. with the Securities and Exchange Commission ("SEC") in connection with the proposed transaction. Investors and potential investors are urged not to place undue reliance on forward-looking statements in this communication, which speak only as of this date. NRCG undertakes no obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances. Nothing contained herein constitutes or will be deemed to constitute a forecast, projection or estimate of the future financial performance of NRCG or the combined company, whether following the implementation of the proposed transaction or otherwise.

In addition, actual results are subject to other risks and uncertainties that relate more broadly to NRCG's overall business, including those more fully described in NRCG's filings with the SEC.

No Offer or Solicitation

This communication relates to a proposed business combination between US Ecology Parent, Inc., US Ecology and NRCG. The information in this communication is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities or the solicitation of any vote in any jurisdiction pursuant to the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Additional Information and Where to Find It

In connection with the proposed transaction, US Ecology Parent, Inc. filed with the SEC a Registration Statement on Form S-4, dated July 31, 2019 that includes a preliminary joint proxy statement of US Ecology and NRCG and a prospectus of US Ecology Parent, Inc., as well as other relevant documents regarding the proposed transaction. The information in the preliminary joint proxy statement/prospectus is not complete and may be changed. US Ecology Parent, Inc. may not sell the securities referenced in the preliminary joint proxy statement/prospectus until the Registration Statement on Form S-4 filed with the SEC becomes effective. INVESTORS AND SECURITY HOLDERS ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT, INCLUDING THE PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS, REGARDING THE MERGERS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THESE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. A definitive Joint Proxy Statement/Prospectus will be mailed to stockholders of US Ecology and NRCG. A free copy of the Joint Proxy Statement/Prospectus, as well as other filings containing information about US Ecology Parent, Inc., US Ecology and NRCG, may be obtained once it becomes available at the SEC's website, www.sec.gov. You will also be able to obtain these documents, free of charge, by accessing US Ecology's website at https://investors.usecology.com/ or by accessing NRCG's website at http://ir.nrcg.com/.

Participants in the Solicitation Relating to the Mergers

US Ecology and NRCG and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from US Ecology stockholders and NRCG common stockholders in respect of the proposed transaction. Information regarding US Ecology's directors and executive officers is contained in US Ecology's Annual Report on Form 10-K for the year ended December 31, 2018 and its Proxy Statement on Schedule 14A, dated April 11, 2019, which are filed with the SEC. Information regarding NRCG's directors and executive officers is contained in NRCG's Annual Report on Form 10-K for the year ended December 31, 2018 and its Proxy Statement on Schedule 14A, dated April 17, 2019, which are filed with the SEC. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction is included in the registration statement and joint proxy statement/prospectus and other relevant materials to be filed with the SEC. Free copies of these documents may be obtained as described in the preceding paragraph.

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA and Free Cash Flow Conversion

This release uses the term "Adjusted EBITDA," which is not a recognized measure under GAAP. The Company uses Adjusted EBITDA as a supplement to its GAAP results in evaluating certain aspects of its business, as described below. For purposes of this release, the Company defines Adjusted EBITDA as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, net, (iii) provision for income taxes, net (net income (loss) plus clauses (i) through (iii) referred to collectively as "EBITDA"), (iv) foreign currency translation gain or loss and (v) gain or loss on equipment sales or retirements, adjusted to include certain add-backs permitted by the Company's new senior credit facility dated June 11, 2018 (as amended, the "New Credit Facility"), including (i) management fees, (ii) impairment expense of goodwill and intangible assets, (iii) acquisition-related transaction expenses (including due diligence costs, legal, accounting and other advisory fees and costs, retention and severance payments, facility closure costs and financing fees and expenses), (iv) the impact of pre-acquisition revenues, earnings and EBITDA of certain recent acquisitions and certain management estimates relating thereto, (v) normalization adjustments to reflect a run-rate level of EBITDA within NRC Group's historical financial statements, (vi) non-recurring costs and other non-operating expenses and income, (vii) the impact of certain completed cost savings initiatives at various domestic regions, (viii) the impact of a reduction in force adjustment, (ix) costs relating to the shutdown of certain international operations and (x) certain out-of-period timing adjustments and reclassification of capitalized leases not applicable under the New Credit Facility. "Adjusted EBITDA" is substantially the same as the metric called "Consolidated Adjusted EBITDA," as defined in the New Credit Facility, which is a key component in the determination of the Company's leverage ratios (including its ability to service debt and incur capital expenditures).

The Company's method of computing Adjusted EBITDA is substantially consistent with that used for debt covenant calculation purposes under the New Credit Facility and also is routinely reviewed by management for that purpose. For example, under the New Credit Facility if as of the last day of any fiscal quarter the sum of the aggregate outstanding principal amount of all revolving loans plus the aggregate amount of letters of credit obligations (excluding letters of credit to the extent cash collateralized and undrawn letters of credit in an aggregate amount not to exceed $15 million) plus the aggregate outstanding principal amount of all swingline loans exceeds 30% of the revolving credit limit then in effect, the Company is required to maintain a consolidated total net leverage ratio, calculated in accordance with the New Credit Facility, of equal to or less than 5.45:1.00. The total net leverage ratio is the ratio of consolidated total net debt (as defined in the New Credit Facility) to Consolidated Adjusted EBITDA (as defined in the New Credit Facility). This covenant is not currently in effect.

The Company believes its presentation of Adjusted EBITDA is useful because it provides investors and industry analysts the same information that it uses internally for purposes of assessing its liquidity and core operating performance. However, Adjusted EBITDA is not a substitute for, or more meaningful than, net income (loss), cash flows from operating activities, operating income or any other measure prescribed by GAAP, and there are limitations to using non-GAAP measures such as Adjusted EBITDA. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital, tax structure and the historic costs of depreciable assets. Additionally, certain items excluded from Adjusted EBITDA are also significant components in understanding and assessing the Company's liquidity, such as interest payments, payments made for transaction expenses and extraordinary items and management fees. Also, other companies in the Company's industry may define Adjusted EBITDA differently than it does, and as a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the liquidity or performance of those companies to the Company's liquidity or performance. Because of these limitations, Adjusted EBITDA should not be considered as a measure of the income generated by the Company's business or cash flow available to it to invest in the growth of its business. The Company's management compensates for these limitations by relying primarily on GAAP results and using Adjusted EBITDA supplementally.

The release also uses the term "Free cash flow conversion," which is not a recognized measure under GAAP. The Company uses Free cash flow conversion as a supplement to its GAAP results because it believes it is useful to show investors the ongoing liquidity of the business after required capital expenditure investments. For purposes of this release, the Company defines Free cash flow conversion as Adjusted EBITDA less total capex (excluding one-time waste-disposal investments) divided by Adjusted EBITDA. Free cash flow conversion is not a substitute for, or more meaningful than, its comparable GAAP measure, and there are limitations to using non-GAAP measures such as Free cash flow conversion.

A reconciliation of net cash provided by operating activities to net income (loss) to Adjusted EBITDA and Free cash flow conversion for the periods indicated is as follows:

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