Notes to Consolidated Financial Statements

(unaudited)

NOTE 1 - DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

NRC Group Holdings Corp. (“NRCG,” and together with its subsidiaries, the “Company”) was originally formed on January 3, 2017 as a special purpose acquisition company (“SPAC”) under the name Hennessy Capital Acquisition Corp. III (“Hennessy Capital”). On October 17, 2018, Hennessy Capital consummated the acquisition (the “Business Combination”) of all of the issued and outstanding membership interests of NRC Group Holdings, LLC (“NRC Group”) from JFL-NRC-SES Partners, LLC (“JFL Partners”). Upon consummation of the Business Combination, Hennessy Capital changed its name to NRC Group Holdings Corp.

NRCG is a global provider of a wide range of environmental, compliance and waste management services. The Company’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.

NRCG operates in four reportable business segments: (1) Domestic Environmental Services, (2) Sprint, (3) Domestic Standby Services and (4) International Services. The Domestic Environmental Services segment provides environmental and industrial services across the United States. The Sprint segment provides energy-related services and waste management and disposal services predominately to upstream energy customers concentrated in the Eagle Ford and Permian Basin regions of the Texas Shale Oil Fields (“Eagle Ford and Permian Basin”). The Domestic Standby Services segment provides commercial standby oil spill compliance and emergency response services in the United States and across North America. The International Services segment provides international standby oil spill, emergency response, specialty industrial and environmental solutions in seven countries. Through its domestic and international wholly-owned subsidiaries, the Company primarily provides these services to oil and gas, chemical, industrial and marine transportation clients in the United States and abroad.

NRC Group

On January 6, 2012, JFL-NRC Holdings, LLC (“NRC Holdings”) was formed under Delaware law by its sole member, JFL-NRC Partners, LLC (“NRC Partners”), for the purpose of acquiring National Response Corporation and its affiliated businesses, including, among others, NRC Environmental Services, SEACOR Response and SEACOR Environmental Products (collectively, “NRC”) from affiliates of SEACOR Holdings, Inc. (“SEACOR”). On March 16, 2012, NRC Holdings completed the acquisition (the “NRC Acquisition”) of all of the issued and outstanding stock of NRC from SEACOR. Prior to March 16, 2012, NRC Holdings did not engage in any business except for activities related to its formation.

On May 5, 2015, SES Holdco, LLC (“SES Holdco”), a Texas limited liability company, was formed under Delaware law by its sole member, JFL-SES Partners, LLC (“SES Partners”), for the purpose of acquiring Sprint Energy Services, LLC (“SES”), a Texas limited liability company. On May 5, 2015, SES Holdco completed the acquisition (the “SES Acquisition”) of all the issued and outstanding stock of SES. Sprint Karnes County Disposal LLC (“SKCD”), a Texas limited liability company, is a wholly-owned subsidiary of SES. SKCD received an oilfield waste disposal permit from the Railroad Commission of Texas (“RRC”) on December 31, 2015.

NRC Partners and SES Partners are ultimately majority-owned by funds advised by J.F. Lehman and Company (“JFL”), a leading middle-market private equity firm focused on the defense, aerospace, maritime, government and environmental sectors. In June 2018, NRC Partners and SES Partners formed JFL Partners, a Delaware limited liability company, and contributed their respective equity interests in NRC Holdings and SES Holdco to JFL Partners. JFL Partners formed NRC Group and contributed all of its equity interest in NRC Holdings and SES Holdco to NRC Group. On June 11, 2018, NRC Group made a dividend payment of approximately $86.5 million to J.F. Lehman & Company, LLC (“JFLCo”) (the “Dividend Recapitalization”). Following the Dividend Recapitalization, NRC Group became the holding company for NRC Holdings and SES Holdco.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. They may not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2018, which were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2019 (the “2018 Annual Report”). The results of operations for any interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period. Certain prior period financial information has been recast to reflect the current year’s presentation.

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable at the time under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2018 Annual Report.

Fair Value

The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value .

The Company’s only financial instruments carried at fair value, with changes in fair value flowing through current earnings, consist of contingent consideration liabilities recorded in conjunction with business combinations, as follows (in thousands):

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

There were no transfers made among the three levels in the fair value hierarchy for the three months ended March 31, 2019 and 2018.

The following table presents additional information about Level 3 liabilities measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for liabilities within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

Changes in Level 3 liabilities measured at fair value for the three months ended March 31, 2019 and 2018 (in thousands):

The fair value of the Company’s contingent consideration liabilities recorded as part of the acquisitions of Enpro Holdings Group (“Enpro”) in April 2016, Clean Line Waste Water Solutions Limited (“Clean Line”) in March 2018 and Quail Run Services, LLC (“Quail Run”) in October 2018, has been classified within Level 3 in the fair value hierarchy. The contingent consideration represents the estimated fair value of future payments due to the sellers of Enpro, Clean Line and Quail Run based on each company’s achievement of annual earnings targets in certain years and other events considered in certain transaction documents. The initial fair values of the contingent consideration were calculated through the use of either Monte Carlo simulation or modified Black-Scholes analyses based on earnings projections for the respective earn-out periods, corresponding earnings thresholds, and approximate timing of payments as outlined in the purchase agreements. The analyses utilized the following assumptions: (i) expected term; (ii) risk-adjusted net sales or earnings; (iii) risk-free interest rate; and (iv) expected volatility of earnings. Estimated payments, as determined through the respective models, were further discounted by a credit spread assumption to account for credit risk. The contingent consideration is revalued to fair value each period, and any increase or decrease is recorded in operating income (loss). The fair value of the contingent consideration may be impacted by certain unobservable inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant changes to these inputs in isolation could result in a significantly different fair value measurement.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term nature of these instruments. The carrying value of the Company’s term loans and revolving credit facilities, including the current portion, approximate fair value as the terms and conditions of these loans are consistent with comparable market debt issuances. The carrying value of the equipment loans approximate fair value as the underlying interest rates approximate current market rates for all periods presented (Level 2).

The Company measures certain assets at fair value on a non-recurring basis, generally annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include goodwill and other intangible assets. See Note 5.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Trade Receivables and Allowance for Doubtful Accounts

Customers are domestic and international shippers, major oil companies, independent exploration and production companies, pipeline and transportation companies, power generating operators, industrial companies, airports and state and local government agencies. All customers are granted credit on a short-term basis and related credit risks are considered minimal. The Company routinely reviews its trade receivables and makes provisions for probable doubtful accounts based on the credit worthiness of the parties involved, historical collection information and economic conditions. However, those provisions are estimates and actual results could differ from those estimates and those differences may be material. Trade receivables that are deemed uncollectible are removed from accounts receivable and from the allowance for doubtful accounts when collection efforts have been exhausted.

The Company records allowances for doubtful accounts receivable based upon expected collectability. The reserve is generally established based upon an analysis of its aged receivables. Additionally, if necessary, a specific reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligations, such as in the case of a bankruptcy filing or deterioration in the customer’s operating results or financial position. The Company also regularly reviews the allowance by considering factors such as historical collections experience, credit quality, age of the accounts receivable balance and current economic conditions that may affect a customer’s ability to pay. If actual bad debts differ from the reserves calculated, the Company records an adjustment to bad debt expense in the period in which the difference occurs.

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

The following table provides a roll forward of the allowance for doubtful accounts for the three months ended March 31, 2019 and 2018 (in thousands):

Asset Retirement Obligations

Under the terms of its oilfield waste disposal permit for the SKCD facility, the Company is required to perform certain necessary closure activities as required by the RRC. The SKCD facility consists of multiple active and planned disposal pits within the facility, each of which must be closed once they have reached their permitted capacity for waste. Closure of the disposal pit entails capping the pit with a high-density polyethylene liner and topsoil amongst other environmental remediation procedures. The Company records an asset retirement obligation (“ARO”) for disposal pits in the year they become active and begin receiving oilfield waste, the balance of which represents the estimated amount the Company will incur to close each disposal pit in the landfill. The liability is initially recorded at fair value with the corresponding cost capitalized as a component of property and equipment within the Consolidated Balance Sheet. The liability is accreted to its present value each period, and the capitalized costs are amortized on a straight-line basis over the expected period of operation of the respective disposal pit.

The Company determines the ARO by calculating the present value of estimated future cash flows related to the liability. Estimating the future ARO requires management to make estimates and judgments regarding timing and existence of a liability, as well as the necessary cost to achieve adequate closure of each pit. Inherent in the fair value calculation are numerous assumptions and judgments including the ultimate costs, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the related asset.

In each of December 2017 and April 2018, the Company established an ARO liability and associated asset in the amount of $0.65 million and $0.65 million, respectively. The Company recorded accretion expense of $27,000 and $13,000 during the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019 and December 31, 2018, the ARO liability was $1.4 million and $1.4 million, respectively. These ARO liabilities relate to the future closure costs associated with Disposal Pit #1 and Disposal Pit #2, respectively. Disposal Pit #1 and Disposal Pit #2 are the Company’s only active cells in the SKCD facility. This obligation represents the net present value of the estimated future payout of approximately $1.6 million, which is expected to be incurred by the Company upon closure of Disposal Pit #1 in 2020 and Disposal Pit # 2 in 2019 or 2020.

Recent Accounting Pronouncements

Standards implemented

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532,  Disclosure Update and Simplification , amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The final rule is effective on November 5, 2018, however the SEC staff announced that it would not object if the filer’s first presentation of the changes in stockholders’ equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments. The Company included the required presentation of changes in stockholders’ equity in this Form 10-Q.

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

Standards to be implemented

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The FASB subsequently issued ASU 2016-10, Revenue from Contracts with Customers: (Topic 606) Identifying Performance Obligations and Licensing , to address issues arising from implementation of the new revenue recognition standard. The effective date is the Company’s annual fiscal year 2019 and interim periods thereafter, using one of two retrospective application methods: the full retrospective method or the modified retrospective method. The Company plans to adopt the standard using the modified retrospective method. While this assessment is still in progress, the Company does not believe there will be a significant impact to the timing and recognition of revenue. In conjunction with its continuing assessment of the impact of the new guidance, the Company is also reviewing and updating its internal controls over financial reporting to ensure that information required to implement the new standard is appropriately captured and recorded. In addition, the Company continues to monitor additional changes, modifications, clarifications or interpretations undertaken by the FASB or others, which may impact its current expectations.

In February 2016 the FASB issued ASU No. 2016-02 , Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10 and ASU 2018-11 (collectively, Topic 842). Topic 842 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. Topic 842 is effective for annual and interim periods beginning after December 15, 2019 for emerging growth companies, with early adoption permitted. The Company is currently evaluating the impact of the pending adoption of Topic 842 on its consolidated financial statements. The Company currently expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption of Topic 842, which will increase the total assets and the total liabilities that the Company will report relative to such amounts prior to adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . ASU 2016-03 changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings upon adoption. The new standard will be effective on January 1, 2020 and may be adopted earlier. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst, or hierarchy associated with, Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

3. BUSINESS ACQUISITIONS

On March 28, 2018, the Company and Clean Line entered into an agreement for the sale and purchase of the entire issued share capital of Clean Line for approximately $5.0 million, net of cash acquired, and exclusive of deferred consideration and a potential $3.9 million (£3.0 million) in earn out consideration, discussed below. Clean Line is a leading provider of environmental, industrial and emergency response services in the United Kingdom. Clean Line is headquartered in Liverpool, England. Goodwill related to Clean Line is not deductible for tax purposes.

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

The following table summarizes the final allocation of the purchase price to the assets acquired and liabilities assumed for the Clean Line acquisition (in thousands):

For the three months ended March 31, 2018, the Company recorded $1.1 million in transaction costs related to the acquisition of Clean Line, which are recorded in Acquisition Expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).

For the three months ended March 31, 2019 and 2018, the Company recognized depreciation expense of $7.1 million and $4.9 million, respectively.

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

The intangible assets are being amortized over their respective original useful lives, which range from 2 to 25 years. The Company recorded approximately $1.9 million and $1.5 million of amortization expense related to the above intangible assets for the three months ended March 31, 2019 and 2018, respectively. There were no impairment charges recorded during the three months ended March 31, 2019 and 2018.

The following table shows the remaining amortization expense associated with amortizable intangible assets as of March 31, 2019 (in thousands):

The table below summarizes goodwill by reportable segment at March 31, 2019 and December 31, 2018 (in thousands):

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

Domestic Environmental Services, International Services and Sprint Segment Goodwill

The Company performed a quantitative test of goodwill at year end for the years ended December 31, 2018, 2017 and 2016. The Company evaluated goodwill at the segment level for the International Services segment as it does not have components below the segment level that meet the definition of a reporting unit. Goodwill for the Domestic Environmental Services segment is evaluated at the segment level as the reporting units are economically similar. The Sprint Segment is evaluated at the reporting unit level. The Company estimates the fair value of its reporting units using an income approach based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital (“WACC”) determined separately for each reporting unit. The determination of fair value involves the use of significant estimates and assumptions, including revenue growth rates driven by future commodity prices and volume expectations, operating margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, discount rates and synergistic benefits available to market participants. The Company did not record impairment charges related to goodwill in the three months ended March 31, 2019 and 2018.

NRC and SES, NRC US Holding Company, LLC (a wholly owned subsidiary of NRC) and SES (collectively, the “Borrowers”), NRC Group, as parent, and the other guarantors party thereto entered into a credit facility (the “Credit Facility”) on June 11, 2018, which included a $308.0 million term loan (the “Original Term Loan”) and a $40.0 million revolving credit facility (the “Revolver”). The Borrowers and the other guarantors (including NRC Group) entered into a joinder agreement (the “Joinder Agreement”) on October 2, 2018, pursuant to which the Borrowers increased the Original Term Loan in the amount of $35.0 million (the “Incremental Term Loan,” and together with the Original Term Loan, the “Term Loan”) and the amount available under the Revolver was reduced by $5 million to $35.0 million. On March 15, 2019, the Company entered into an incremental revolving credit commitment of $10.0 million under the Credit Facility, bringing its total revolving credit commitments under the Revolver up to $45.0 million. The Revolver matures on June 11, 2023 and the Term Loan matures on June 11, 2024, in each case unless otherwise extended in accordance with the terms of the Credit Facility. The Borrowers may also incur incremental revolving and term loan commitments pursuant to and in accordance with the terms of the Credit Facility.

During the three months ended March 31, 2019, the Company made a principal payment on the Term Loan of $857,719.

Outstanding loans under the Credit Facility will bear interest at the Borrowers’ option at either the Eurodollar rate plus 5.25% or the base rate plus 4.25% per year. In addition, the Borrowers will be charged (1) a commitment fee in an amount equal to 0.50% per annum times the average daily undrawn portion of the Revolver, (2) a letter of credit fee in an amount equal to the applicable margin then in effect for revolving loans bearing interest at the Eurodollar Rate times the average aggregate daily maximum amount available to be drawn under all outstanding letters of credit, (3) a letter of credit fronting fee in an amount equal to 0.125% times the average aggregate daily maximum amount available to be drawn under all letters of credit and (4) certain other fees as agreed between the parties. The interest rate applicable to the Term Loan and Revolver under the Credit Facility at March 31, 2019 is approximately 7.95%.

As of March 31, 2019 and December 31, 2018, the Company was in compliance with the covenants of all of its debt agreements.

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

7. INCOME TAXES

The Company’s effective income tax rate for the three months ended March 31, 2019 was 22.5% as compared to 49.2% for the three months ended March 31, 2018. The effective tax rate for the three months ended March 31, 2019 reflects a discrete charge to adjust income taxes payable associated with certain of the Company’s subsidiaries to reflect the Company’s consolidated income tax liability.

The Company has evaluated its income tax positions and determined that no material uncertain tax positions existed at March 31, 2019. The Company does not expect a significant change in its unrecognized tax benefits within the next twelve months.

The Company files income tax returns in the U.S. Federal and various state, local and foreign jurisdictions. For Federal income tax purposes, the 2015 through 2017 tax years remain open for examination by the tax authorities under the normal three-year statute of limitations. For state tax purposes, the 2014 through 2017 tax years remain open for examination by the tax authorities under a four-year statute of limitations. For foreign income tax purposes, the tax years 2013 through 2017 remain open for examination by the tax authorities under the various statute of limitation year requirement by that specific local country’s tax laws.

8. RELATED PARTY TRANSACTIONS

Related Party Transactions

During the three months ended March 31, 2019 and 2018, the Company derived approximately $8,000 and $27,000 in revenues from related entities, respectively. The Company paid approximately $6,000 and $3,000 for waste hauling services to the same related entities in the three months ended March 31, 2019 and 2018, respectively.

Prior to the Business Combination, the Company had a management agreement with JFLCo whereby JFLCo provided services, including, among other things, cash flow planning/forecasting and merger/acquisition target identification. The Company incurred approximately $0.4 million in management fees for the three months ended March 31, 2018. No management fees were incurred for the three months ended March 31, 2019. These expenses are reflected as Management Fees on the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).

9. COMMITMENTS AND CONTINGENCIES

Letters of Credit and Guarantees

Under the terms of the Company’s oilfield waste disposal permit for the SKCD facility, financial security must be provided to the RRC in an amount necessary to close the facility. The Company has secured letters of credit from third-party financial institutions in the amount of $3.3 million as required by the terms of the permit, which have been pledged to the RRC to cover potential closure costs. In addition, the Company has secured letters of credit from third-party financial institutions in the amount of $1.6 million as required by the terms of the permit, which have been pledged to cover potential closure costs of the Company’s two transfer storage and disposal facilities in Vermont and Maine, as well as other corporate matters. The letters of credit are renewed annually.

Litigation

In the normal course of business, the Company and its subsidiaries are involved in various claims and legal proceedings. While the ultimate resolution of these matters has yet to be determined, the Company does not believe that any unfavorable outcomes will have a material adverse effect on the Company’s consolidated financial position or results of operations. At March 31, 2019 and December 31, 2018, the Company had no reserves recorded for any outstanding litigation, claim or assessment.

Leases

Total rent expense for the Company’s operating leases for the three months ended March 31, 2019 and 2018 was $2.3 million and $2.0 million, respectively.

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

As of March 31, 2019, future minimum lease payments in the years ended December 31 that have a remaining term in excess of one year are as follows (in thousands):

The present value of minimum lease payments is included in Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheets.

10. SEGMENT DATA AND GEOGRAPHICAL DATA

The Company’s operations are managed within four operating segments: Domestic Standby Services, Domestic Environmental Services, International Services and Sprint. Costs not managed through the Company’s operating segments described above are recorded as “Corporate Items.” Corporate Items represents certain central services that are not allocated to the Company’s operating segments for internal reporting purposes and include selling, general and administrative expenses such as legal, accounting and other items of a general corporate nature that are not allocated to the Company’s operating segments. These segments have been selected based on the Company’s Chief Operating Decision Maker (“CODM”) assessment of resources allocation and performance. The Company considers its Chief Executive Officer to be its CODM. The CODM evaluates the performance of our segments based on revenue and income measures which include operating profit (exclusive of depreciation, amortization and certain other charges). Operating profit (exclusive of depreciation, amortization and certain other charges) is defined as Operating revenue, less Operating expenses, including cost of revenue, and General and administrative expenses. The classification of certain prior period Operating expenses, including costs of revenue (excluding depreciation and amortization) and certain prior period General and administrative expenses have been recast to reflect the current period presentation.

The following table provides segment data for the three months ended March 31, 2019 and 2018 (in thousands):

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

The following table presents a reconciliation of Operating profit (exclusive of depreciation, amortization and certain other charges) to net loss (in thousands):

The following tables provides revenue by geographic location with each segment for the three months ended March 31, 2019 and 2018 (in thousands):

For the three months ended March 31, 2019 and 2018, there was no single customer responsible for 10% or more of the Company’s operating revenue.

NRC GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)  

11. STOCKHOLDERS’ EQUITY (DEFICIT) 

Common Stock 

The Company is authorized to issue up to 200,000,000 shares of Common Stock. Common Stock has voting rights of one vote for each share of Common Stock. The Company did not issue common stock during the three months ended March 31, 2019 and March 31, 2018. 

Series A Convertible Cumulative Preferred Stock 

The Company is authorized to issue up to 5,000,000 shares of Preferred Stock, par value $0.0001, 1,050,000 shares of which have been designated as Series A Convertible Cumulative Preferred Stock (the “Series A Convertible Preferred Stock”) and the remaining 3,950,000 of which are undesignated. 

On March 29, 2019, the Company declared a cash dividend of $1.75 per share on all of the issued and outstanding shares of the Company’s Series A Convertible Preferred Stock, in accordance with the terms and conditions of the Certificate of Designations, Preferences, Rights and Limitations of 7.00% Series A Convertible Cumulative Preferred Stock of NRC Group Holdings Corp. A dividend of $1.8 million was accrued as of March 31, 2019 and was subsequently paid on April 15, 2019.  

Share Based Payments 

During fiscal year 2018, the Company adopted the NRC Group Holdings Corp. 2018 Equity and Incentive Compensation Plan (the “Plan”). There are 3,000,000 shares reserved under the plan for issuance of share-based payments. As of March 31, 2019 and December 31, 2018, no awards have been granted under this plan. 

On April 5, 2019 the Company granted 831,705 restricted stock units and 150,000 stock options under the Plan to certain directors, officers and employees of the Company. The awards granted under the Plan are subject to service-based vesting requirements and expense will be recognized over the vesting period. 

12. NET INCOME (LOSS) PER SHARE 

In calculating earnings (loss) per share, the Company retrospectively applied the effects of the Business Combination.  

Basic net income (loss) per common share (“EPS”) is calculated by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed similar to basic net income (loss) per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue Common Stock were exercised or converted into Common Stock. 

The following securities were not included in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented (in thousands): 

13. SUBSEQUENT EVENTS  

On March 15, 2019 the Company entered into a definitive asset purchase agreement with OIT, Inc. (“OIT”), an environmental services provider including services related to thermal treatment of non-hazardous petroleum contaminated soils, absorbent pads and sludges, and the treatment of Per- and Polyfluoroalkyl substances. The transaction closed on April 26, 2019. The Company purchased the assets and business of OIT for an initial cash purchase price of $6.0 million paid at closing, plus an additional $2.0 million deferred consideration payable in cash, common stock of the Company or a combination of the two, and up to an additional $5.0 million in earn-out payments payable in cash, common stock of the Company or a combination of the two over the next three years based on certain financial milestones. The acquisition will be accounted for as a business combination using the acquisition method of accounting in accordance with FASB ASC Topic 805, which will establish a new basis of accounting for all identifiable assets acquired and liabilities assumed at fair value as of the date control is obtained. 

In addition, pursuant to the Purchase Agreement, dated as of June 25, 2018, as amended on July 12, 2018, between JFL Partners and Hennessy Capital Acquisition Corp III (now known as NRC Group Holdings Corp.), the closing of the OIT transaction has triggered a payment obligation by the Company of $10.0 million to JFL Partners, which payment can be made, at the election of the Company’s board of directors, in cash, common stock of the Company or a combination of the two. Pursuant to the terms of the Purchase Agreement, the Company may also be obligated to pay to JFL Partners additional consideration of up to $25.0 million (payable in cash, shares of Company common stock or any combination thereof, at the Company’s option) to the extent certain financial performance metrics are achieved by the OIT business during calendar years 2019 and 2020.  The full $25.0 million would be payable if the OIT business’s normalized earnings before interest, taxes, depreciation and amortization exceeds $10.0 million in either calendar year, and no payment would be due unless the OIT business achieves normalized earnings before interest, taxes, depreciation and amortization of more than $6.0 million in either calendar year.

On May 1, 2019, the Company received a commitment from HSBC Bank USA, N.A., to provide an incremental revolving credit commitment of an additional $15.0 million under the Company’s existing credit facility. The commitment is subject to the execution and delivery of definitive credit documents and other customary conditions and, if consummated, would increase the Company’s aggregate revolving credit commitments under its existing credit facility to $60.0 million.