Date: November 1, 2006
Source: Synagro Technologies, Inc.
Synagro Reports Third Quarter Revenue And Earnings
Key Third Quarter Results
Revenue during the quarter increased 3.2 percent to $91.1 million
-- Net income applicable to common stock for the quarter totaled $3.0 million
-- Earnings before interest, taxes, depreciation and amortization totaled $16.4 million
-- Adjusted earnings before interest, taxes, depreciation and amortization totaled $18.4 million
Synagro Technologies, Inc. (NASDAQ Global Market and NYSE Arca Markets: SYGR), (the "Company") announced today its results of operations for the three and nine months ended September 30, 2006.
Commenting on the results of the quarter, the Company's Chief Executive Officer, Robert C. Boucher, Jr. stated, "We are pleased with our third quarter results which include improved results from ongoing operations. For the quarter our revenue increased 3.2 percent to $91.1 million, including a $4.4 million increase in our contract revenues and a $3.1 million increase in event revenues, partially offset by a decrease in design build revenues of $4.0 million due to the substantial completion of the Honolulu dryer facility. "
"Operating income for the quarter totaled $11.3 million compared to $13.7 million reported last year. Excluding $0.8 million of non-cash charges for share based compensation in 2006, and $2.4 million of one-time gains related to real estate sales in 2005, our operating income increased to $12.1 million compared to $11.3 million last year. Net income applicable to common stock for the quarter totaled $3.0 million compared to $5.1 million last year. Our earnings before interest, taxes, depreciation and amortization for the quarter totaled $16.4 million compared to $19.2 million reported in the same period last year. Our EBITDA adjusted to exclude non-cash charges for share based compensation, derivative charges, and one-time gains related to real estate sales in 2005 increased to $18.4 million for the quarter from $16.6 million reported last year."
"Based on our actual results for the first nine months and our expectations for the remainder of the year, we expect to report 2006 revenues of approximately $340.0 million to $350.0 million, net income of approximately $7.7 million to $10.0 million, and adjusted EBITDA of approximately $60.0 million to $64.0 million."
"During the quarter we continued construction of the Kern composting and Woonsocket incinerator projects both of which are over 75 percent complete, and are expected to generate in excess of $14.0 million of annual operating revenue when they commence commercial operations, which we expect to occur during the first quarter of 2007.
September 30, 2006 – Third Quarter Financial Results
Revenue for the quarter ended September 30, 2006, increased $2.9 million or 3.2 percent to $91.1 million from $88.2 million in the comparable period last year. Contract revenues increased $4.4 million due primarily to a $1.9 million increase in revenue from a long term cleanout project, a $1.7 million increase in revenues from new facility projects, including the Central Valley compost, Providence Soils dewatering and Honolulu dryer facilities, and other volume changes. Event revenues increased $3.1 million due primarily to revenue generated on several large clean water lagoon clean-out projects and other volume changes. Design build construction revenues decreased $4.0 million primarily due to the decrease in construction revenue on the Honolulu dryer facility project and other construction projects that were substantially completed last year.
Gross profit for the quarter ended September 30, 2006 increased by $1.3 million to $19.0 million compared to $17.7 million in the comparable quarter last year. The positive impact of revenue mix changes associated with the increase in higher margin contract and event work and the decrease in lower margin design build construction work, was partially offset by an increase in repairs and disposal costs, higher insurance claims, and a $0.5 million increase in depreciation expense.
Operating income for the quarter ended September 30, 2006 decreased $2.4 million to $11.3 million compared to $13.7 million in the comparable quarter last year. Excluding $0.8 million of non-cash charges for share based compensation in 2006, and $2.4 million of one-time gains related to real estate sales in 2005, operating income increased to $12.1 million compared to $11.3 million last year. The $0.8 million of non-cash expense for share based compensation expense relates to the issuance of restricted stock and the implementation of SFAS 123R in January 2006 (which requires that beginning in 2006 the Company expense the fair value of employee stock options over the related service period).
Pre-tax income for the quarter ended September 30, 2006 decreased $4.1 million to $5.1 million compared to $9.2 million reported in the third quarter of 2005 as the increase in operating results was offset by the $0.8 million of non-cash expense for share based compensation expense and the $2.4 million decrease in one time gains on real estate sales in 2005 described above. Additionally, other expense, net increased due to an increase in interest expense due to higher LIBOR rates in the third quarter of 2006 compared to 2005 and $0.9 million of charges for non-cash mark to market adjustments related to derivatives that manage exposure for changes in interest rates and natural gas prices.
Provision for income taxes decreased to $2.1 million in the third quarter of 2006 from $4.0 million in the third quarter of 2005. The effective tax rate for the third quarter of 2006 was approximately 41 percent compared to 44 percent in the same period in 2005. The Company's tax provision is currently principally a deferred tax provision that will not significantly impact cash flow because of tax deductions that have historically exceeded book deductions and net operating loss carryforwards that are available to offset future taxable income.
Net income applicable to common stock totaled $3.0 million, or $0.04 per diluted share, for the quarter ended September 30, 2006 compared to $5.1 million, or $0.07 per diluted share, for the same period in 2005.
Earnings before interest, taxes, depreciation and amortization expense (EBITDA) for the quarter ended September 30, 2006, totaled $16.4 million compared to $19.2 million in the comparable quarter last year. EBITDA adjusted to exclude share based compensation expense, debt extinguishment costs (Adjusted EBITDA), totaled $18.4 million in the third quarter of 2006 compared to $19.0 million in the third quarter of last year ($16.6 million excluding the $2.4 million of one time asset sale gains in 2005). See Note B to the attached financial statements for the reasons why management believes that EBITDA and Adjusted EBITDA are useful financial measures and for a reconciliation of net income (loss) before preferred stock dividends to EBITDA and Adjusted EBITDA.
September 30, 2006 – Year to Date Financial Results
Revenue for the nine months ended September 30, 2006, increased $8.6 million or 3.5 percent to $256.6 million from $248.0 million in the comparable period last year. Contract revenues increased $12.7 million due primarily to a $4.7 million increase in revenue from new facilities, including the Central Valley compost, Providence Soils dewatering and Honolulu dryer facilities, a $2.7 million increase related to a disposal contract that started in the third quarter of 2005, a $1.8 million increase related to a long-term cleanout project, and other volume changes. Event revenues increased $12.5 million due primarily to $2.4 million of revenue generated on a large clean water lagoon clean-out project that is being completed over a two year period, $2.4 million of emergency digester clean-out work, $2.7 million on a soil disposal project, $4.2 million on several large lagoon clean-out projects, and other volume changes. Design build construction revenues decreased $15.9 million primarily due to the decrease in construction revenue on the Honolulu dryer facility and other construction projects that have been substantially completed.
Gross profit for the nine months ended September 30, 2006 increased $1.3 million to $48.1 million compared to $46.8 million in the comparable nine months last year. The positive impact of revenue mix changes associated with the increase in higher margin contract and event work and the decrease in lower margin design build construction work, was partially offset by expected higher fuel and utility costs, an increase in repairs and disposal costs, higher insurance claims, and a $1.2 million increase in depreciation expense.
Operating income for the nine months ended September 30, 2006 increased $1.0 million to $24.0 million compared to $23.0 million in the comparable nine months last year. The increase in operating income is primarily due to an $8.0 million decrease in transaction costs and expenses and stock option redemptions and bonuses partially offset by a $6.0 million increase in general and administrative expense and a $2.4 million gain on asset sales in 2005. The increase in general and administrative expense is primarily due to $2.1 million of non-cash expense for share based compensation expense related to the issuance of restricted stock and the implementation of SFAS 123R in January 2006, $0.9 million of costs related to the completion of the 2005 audit, including the external audit of internal controls required by Section 404 of the Sarbanes-Oxley Act, a $1.4 million favorable litigation reserve adjustment that occurred in the second quarter of 2005, $0.3 million of severance costs related to changesin regional management, and an increase in commission and other charges.
Pre-tax income for the nine months ended September 30, 2006 increased $21.8 million to $8.2 million from a loss of $13.6 million reported in the first nine months of 2005 due to the $1.0 million increase in operating income described above, a $19.5 million decrease in debt extinguishment costs related to a significant debt and equity offering that occurred in the second quarter of 2005 (the "Recapitalization"), a $1.3 million decrease in interest expense due to lower cost of debt after the Recapitalization, and $0.3 million of charges for non cash mark to market adjustments related to derivatives that manage exposure for changes in interest rates and natural gas prices.
Provision for income taxes for the nine months ended September 30, 2006 increased from a benefit of $4.5 million to a provision of $3.4 million in 2006. The effective tax rate for the first nine months of 2006 was approximately 42 percent compared to 33 percent in the same period in 2005. The Company's tax provision is currently principally a deferred tax provision that will not significantly impact cash flow because of tax deductions that have historically exceeded book deductions and net operating loss carryforwards that are available to offset future taxable income.
Net income before preferred stock dividends for the nine months ended September 30, 2006 totaled $4.8 million, or $0.06 per diluted share, compared to a loss of $9.1 million, or $(0.47) per share, for the same period in 2005. There were no preferred stock dividends in 2006 as all outstanding preferred stock was retired in connection with the Recapitalization in the second quarter of 2005.
EBITDA for the nine months ended September 30, 2006, totaled $41.1 million compared to $19.6 million in the comparable period last year. Adjusted EBITDA totaled $44.1 million for the nine months ended September 30, 2006, compared to $45.8 million for the nine months ended September 30, 2005 ($43.4 million excluding the $2.4 million of one time asset sale gains in 2005). See Note C to the attached financial statements for the reasons why management believes that EBITDA and Adjusted EBITDA are a useful financial measure and for a reconciliation of net income (loss) before preferred stock dividends to EBITDA and Adjusted EBITDA.
Consistent with historical operating trends, the Company expects to report lower profits during the first and fourth calendar quarters than the second and third quarters as seasonal weather conditions prevent the Company from handling and processing customer materials in several geographic markets. Unseasonable or unusual weather conditions may materially impact the Company's results of operations and cash flow during the affected period.
A reconciliation of all non-Generally Accepted Accounting Principles financial information disclosed herein is included in the notes to the attached financial statements.
Synagro Technologies, Inc. believes that it is the largest recycler of biosolids and other organic residuals in the United States and it believes that it is the only national company focused exclusively on the estimated $8 billion organic residuals industry, which includes water and wastewater residuals. The Company serves approximately 600 municipal and industrial water and wastewater treatment accounts with operations in 37 states and the District of Columbia. The Company offers a broad range of water and wastewater residuals management services focusing on the beneficial reuse of organic, nonhazardous residuals resulting from the wastewater treatment process, including drying and pelletization, composting, product marketing, incineration, alkaline stabilization, land application, collection and transportation, regulatory compliance, dewatering, and facility cleanout services.
For more information, contact:
Robert C. Boucher, Jr.
President and CEO
(713) 369-1700
www.synagro.com.
(www.shareholder.com/synagro/ReleaseDetail.cfm?ReleaseID=216837)
Sign up to receive our free Weekly News Bulletin