US Ecology Inc  (NASDAQ: ECOL) Q1 2020 Earnings Call Transcript

US Ecology Inc  (ECOL) Q1 2020 earnings call dated May 08, 2020

Corporate Participants:

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Analysts:

Michael Hoffman — Stifel — Analyst

Jeff Silber — BMO Capital Markets — Analyst

Tyson Bauer — KC Capital — Analyst

Tyler Brown — Raymond James — Analyst

Presentation:

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 L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

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 disclosed 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 COVID-19 pandemic on our business, the microeconomic impact of specific end markets in which we operate, and our expectation for 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 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 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 Holdings 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 stand-alone 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.

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Thank you, Eric, and good morning, everyone. I hope you and your families are staying 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 COVID-19 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 of need. And this includes US Ecology’s 3,500 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 values 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 applies to our team members, our customers and the communities in which we live and operate. At the start of this crisis, we immediately mobilized a COVID-19 crisis management task force to swiftly take action to address matters of importance. Throughout this process, we deployed safety protocols throughout our organization based off our extensive experience with Ebola, SARS and H1N1. We mobilized 30% of our workforce to work from home and extended special COVID-19 time-off benefits to our team members. We have been in constant communication throughout the organization, providing critical information to our team members that could 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 our 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 remained operational while we deployed field teams to perform decontamination and cleaning projects were 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 COVID-19 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. Environmental 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 lab pack program. Factoring in margin expansion in both segments, 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 COVID-19 decontamination services in March. Our standby retainer based business was not impacted by the COVID-19 pandemic during the first quarter and saw a solid performance, beating our own expectations. Weakness in the upstream energy services worsened during the quarter with the direct impact of the COVID-19 pandemic compounded by the production war that drove oil prices to historic lows. These truly black swan events resulted in us taking a $300 million noncash 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 quarterDespite 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 a proactive announced proactive and prudent measures, to adjust our operating plan, to reduce cost 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 activities, elimination of discretionary spending, reductions in travel, hiring and variable compensation, will save an additional $15 million to $20 million. Furthermore, 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 COVID-19 pandemic, in late March, we did withdraw our 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, permitted facilities and resilient business model. Further, many of the field service offerings we field service offerings are seeing continued growth and opportunities during this time. Execution on our retail program and strengthen in our emergency response business that has benefited from increased COVID-19 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 begin to reopen, our customers will restart their businesses. We are already seeing positive signs of increased activities especially in those markets where they’re either where either reopening has commenced or is planned to in the near term. We also expect that will be a gradual phased-in approach, starting in May, leading to strengthening 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 the low point of the year. Looking at the most recent data, we started seeing a reduction in waste volumes into our network starting at the end of March and accelerating into April. Our April Base Business volumes were down both sequentially from 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 have 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 to Eric.

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

Thank you, Jeff. I would like to echo our 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 stand-alone 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 noncash 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 noncash 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 as 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 of 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 lines. 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 the 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 low required amortization of only 1% per year or $4.5 million in cash repayments. Our revolving credit facility is with the syndication of highly capitalized financial institutions with which we have strong and long-term relationships. This credit facility has two financial covenants. A leverage ratio limited to 4 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 three.four times. Our capital preservation initiatives Jeff 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 syndications leading banks and are comfortable with the potential to obtain a covenant waiver or amendment, if needed. Overall, despite current market conditions and the COVID-19 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.

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Thank you, Eric. While these are truly 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 footprint 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 customers’ 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 are well positioned to benefit from when the recovery happens.

With that, operator, we’ll open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] And we’ll begin with Michael Hoffman with Stifel.

Michael Hoffman — Stifel — Analyst

Hey, Jeff, thank you for all of the commentary and details and I’m glad to hear everybody is safe and healthy. In the Base Business, the 15% to 20% down, is there a particular industry concentration? Like you all have an exposure to auto and auto production is down, as an example, or is there a geographic issue? You’ve got a big landfill in Corpus, and there’s a big refining capacity. Is there something that you can point to that helps us understand why that level of steep decline?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. So a couple of things on that, Michael. First and foremost, this is volume data. I want to point that out. It doesn’t necessarily correlate our revenue because it doesn’t take into account pricing, it doesn’t take into account mix on there. So not all waste is created equal, as you know, on there. So we wanted to provide this data to give a sense 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 that 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 dependent on where it’s at. The auto exposure, yes, there’s going to be some impact on that in our Greater Michigan area, it did see some declines in that area, but we do expect that to recover as those plants are starting to open up and the associated services here in actually this week or next. So we’re on track in there. So a couple of 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 until it start as we start seeing that phase reopening happen.

Michael Hoffman — Stifel — Analyst

And so you’re leading that volume doesn’t equal revenue, I’m assuming the revs are less than the volume decline?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

That’s right. That would be my expectation.

Michael Hoffman — Stifel — Analyst

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

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. We don’t have revenue numbers for April yet. We haven’t we’re early in May. So we were able to give you volume data to give you a sense but we’ll be able to report more on that when it comes to the second quarter.

Michael Hoffman — Stifel — Analyst

Okay. Fair enough. And then one of your biggest competitors in the retail lab pack portal got sold, and that company, on its call this morning, suggests that the retail results were mixed. Some was great and some was terrible. I’m curious what you’re experience has been in that business, I think, it’s been an area of focus?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. For the vast majority of our customer rates in the retail sector, they all remained open. And so we’ve actually seen increasing service offerings, 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 if 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 were being ultrasensitive on just having volumes just being thrown in and treated as opposed to trying to segregate out. So we saw increases in volumes as well during that time period.

Michael Hoffman — Stifel — Analyst

And then the decontamination work you alluded to, can you frame for us what you’ve been doing? And I’m assuming that’s all in the Field and Industrial Services line of business when we see it?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. It is all in the Field and Industrial Services line, and the vast majority of that falls from NRCs cost centers or revenue centers there. So what we’re doing is we’re providing emergency response services to decon, everything from retailers to commercial buildings to government contracts or government contracts, where there’s been a known contamination in 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 around $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 as we start seeing reopenings and go from an emergency response perspective to more preventive-type reopening options for our teams.

Michael Hoffman — Stifel — Analyst

And can we think of that as above corporate margins? In line with corporate market? How do we think about margin?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

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, a good business for us. And that is something we would expect to continue.

Michael Hoffman — Stifel — Analyst

And last one for me. Eric, your comment about the waiver is you all being prudent in having those conversations, but you’re not anticipating having challenges on the covenant given your actions you’re taking?

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

Yes. At this point, we’re not. But it is something we, like I’m 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 be, that kicks you in different scenarios. So in 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 not have to focus on it.

Michael Hoffman — Stifel — Analyst

And is it fair that what you’re seeing is kind of like a swoosh, a Nike swoosh that’s sharp, shallow a sharp steep and then a long gradual is the way to think about it at the moment?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

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 shutdown 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 like throughout the U.S. in particular and even in Canada. And based off what we’ve seen in those markets that have opened up, we do expect our customers to start bringing their workforce back more quickly, start rapid production and starting to see waste volumes and service offerings come into place. As that phases out, yes, 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.

Michael Hoffman — Stifel — Analyst

Okay, thank you very much.

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Thanks, Michael.

Operator

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

Jeff Silber — BMO Capital Markets — Analyst

Thank you so much, Jeff, you mentioned this in your prepared remarks, and I think that you may have just mentioned in the answer to the previous question, but 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?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. And that comment is really made, Jeff. In thinking, when you think about the economy overall, what’s really been shut down, a lot of it’s 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 them, especially the smaller ones, they shutdown, and I would expect them to reopen more quickly than what you’re going to see. They’re going to have better opportunities to put in the safe practices such as social distancing, putting protocols coming in. They’re not having customers come on site. So all of that is what I’m trying to allude to, is why I think our customer base will open more quickly than a vast majority of the service companies out there.

Jeff Silber — BMO Capital Markets — Analyst

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

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

Yes, Jeff, this is Eric. Not nothing significant yet. Obviously, it’s something that we’re monitoring very closely. It’s something that we monitor pretty closely anyway, 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 at our DSOs, our DSOs actually improved in the first quarter, which is a good thing, but we will continue to monitor it and evaluate it as we go.

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

I’ll just add I’ll just add. When you kind of look to April and you look at our cash position, it’s held with what we exited the quarter at, 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 definitely something that is being monitored very closely.

Jeff Silber — BMO Capital Markets — Analyst

Okay. Great. And then just one clarification. You had that slide. I think it’s slide 10 where you talked about the potential cash savings and the deferral of the withholding tax, about $8 million in cash. So that’s, again, payroll-related taxes you’re deferring now that you’ll be paying, I think it’s the second half of 2021 and into 2022, is that correct?

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

That is correct.

Jeff Silber — BMO Capital Markets — Analyst

Okay, great. All right. Thanks so much.

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Thank you,

Operator

[Operator Instructions] We’ll move to Tyson Bauer with KC Capital.

Tyson Bauer — KC Capital — Analyst

Good morning, gentlemen. I appreciate what you’ve been able to do to protect shareholders and taking a very conservative approach on preserving cash and capital. So well done on that side of it. The on the Event Business, since a lot of it is mandated by either development, litigation, legislation, other events that create that cleanup or that impetus for 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?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. So this is Tyson Tyson, this is Jeff. Sorry, my mind is bumping around. So yes. 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 projects that were regulatory enforced that all indications are not flipping, they’re not moving. Shifting maybe out of a month or 2, but kind of normal course and not pandemic-related per se. We also, this year, expect quite a bit of government work coming in, which is continuing to go on. And where we’ve actually seen most of those government-controlled sites not shut down in March and April, which has helped some of our volumes come through in there. When you kind of look at the, I’ll 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 see that pipeline being strong. We see a lot of opportunities. Our customers are not telling us right now that they’re slipping and deferring. And it was one of the things as 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 was 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, maybe a shifting in there, but it’s definitely something that we’re going to monitor as we go throughout the year.

Tyson Bauer — KC Capital — Analyst

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

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. As of right now, I’m not seeing any changes in the pricing dynamic 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 kind of bodes well for just having consistency in pricing.

Tyson Bauer — KC Capital — Analyst

The cuts that you talked about on the capex, are those related just to the expectations on volumes being pushed to the right. So there’s some easier decisions for you to make or where exactly can you pinpoint some of those cuts will be allocated to?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. Most of the cuts are really across the board, and it hits almost every one of our are 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 we’re 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 that was planned to start at 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 volume. 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 Bell, 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 — KC Capital — Analyst

Okay. And lastly, just bookkeeping questions. Eric, given the $300 million of goodwill, obviously, it doesn’t affect your EBITDA, but what kind of quarter impact should we expect from that taking 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 in other government programs that may adjust your cash taxes?

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

Yes, Tyson. So on the goodwill impairment, yes, what you really see it 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 flows through 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 will 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 or the NRC acquisition. We may potentially have some additional true-ups 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 that purchase accounting exercise by November of this year.

Tyson Bauer — KC Capital — Analyst

Okay. $0.01 on that [non-GAAP] on the cash earnings as opposed to GAAP earnings, which is what we wanted people to focus on anyway was the cash earnings.

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

That’s correct. And Tyson, refresh me on your second question.

Tyson Bauer — KC Capital — Analyst

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?

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

Yes. In terms of our cash taxes, we I don’t think we’re expecting any major implications. 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 are 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 where we’re at in the U.S. In fact, given how our some of our state effective rates have increased with the NRC acquisition given their presence in some of the higher taxed states in the U.S. The Canadian overall rate is actually on par, maybe even slightly lower than the overall U.S. rate. So all in all, I’m not expecting a major change or shift in our cash tax rate due to events in Canada.

Tyson Bauer — KC Capital — Analyst

Thank you, gentlemen.

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Thanks.

Operator

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

Tyler Brown — Raymond James — Analyst

Hey, good morning guys.

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Good morning.

Tyler Brown — Raymond James — Analyst

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

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. So Event Business in April was up sequentially from March about 6%, and it was down slightly around 2% year-over-year.

Tyler Brown — Raymond James — Analyst

Okay. That’s good. And then how do we think about the incremental margins in ES? So is it going to be something like 50% to 75%, and that really depends if transportation is involved? Or how do we think about that?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. I think as you see, 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 a 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 — Raymond James — Analyst

Okay. That’s helpful.

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

As that event grows, we would definitely expect that incremental margin flow through. Now as we go forward, the Base Business, depending on what it does in terms of growth. Well obviously, there’s operating leverage there that can cut the other way.

Tyler Brown — Raymond James — Analyst

Right. That was more of my question, how are the decremental, I should say, decrementals look on the Base Business?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. I think the decrementals on the base would be smaller than what you’d see on the event just because, again, over the years, we’ve built the base up to cover 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 — Raymond James — Analyst

Okay. That’s very helpful. And then Jeff, I think you’ve 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? I mean, could we be talking like a low single digit millions?

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

So what particular part of NRC? Are you talking about the Energy Waste?

Tyler Brown — Raymond James — Analyst

Yes.

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

Yes. 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 big swings on the margin profile as well. So right now, we’re looking at low single digits to almost breakeven on that business for 2020.

Tyson Bauer — KC Capital — Analyst

Okay. That’s helpful. And then my last one. So Eric, how exactly is the bank EBITDA debt calculated? Is this it feels significantly different? Do they add back something in EBITDA? Or did they not take something or they add something back in debt, I suppose?

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

Yes. Some of the differences in that calculation are we get it’s a rolling 4-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 that calculation include the EBITDA as NRC calculated it. 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 — Raymond James — Analyst

Okay. So very pro forma, so to speak?

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

Correct. Correct.

Tyler Brown — Raymond James — Analyst

Very helpful. That helps explain some of that.

Eric L. Gerratt — Executive Vice President, Chief Financial Officer and Treasurer

Okay, guys. Thank you.

Tyler Brown — Raymond James — Analyst

Thank you.

Operator

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

Jeffrey R. Feeler — Chairman of the Board, President and Chief Executive Officer

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

Operator

[Operator Closing Remarks]