Waste Business Journal

Casella Earnings Down on Lower Commodity Prices and Volume

Date: August 29, 2012

Source: Casella Waste Systems, Inc.

Casella Waste Systems, Inc. Announces First Quarter Fiscal Year 2013 Results

Casella Waste Systems, Inc. (NASDAQ: CWST), a regional solid waste, recycling and resource management services company, today reported financial results for its first quarter fiscal year 2013.

Highlights for the quarter included:

• Pricing growth of 1.0 percent in the collection line-of-business; 13 consecutive quarters of positive collection pricing growth.

• Robust volume growth of 4.4 percent in the recycling line-of-business driven by continued adoption of Zero-Sort^® Recycling.

For the quarter ended July 31, 2012, revenues were $121.2 million, down $6.0 million or 4.7 percent from the same quarter last year, with positive collection pricing more than offset by lower solid waste volumes and lower recycling commodity prices.

The company's net loss attributable to common shareholders was ($8.4) million, or ($0.31) per common share for the quarter, compared to net loss of ($3.1) million, or ($0.12) per share for the same quarter last year.

Operating income was $5.8 million for the quarter, down $4.5 million from the same quarter last year. The current quarter includes a $0.6 million expense related to the pending sale of the Maine Energy Recovery Company and certain financing costs. The quarter ended July 31, 2011 included a $1.0 million legal settlement charge. Adjusted EBITDA* was $24.3 million for the quarter, down $4.4 million from same quarter last year.

"During our first quarter recycling commodity prices weakened and we continued to experience declines in special waste volumes at our western New York landfills mainly due to decreased Marcellus Shale drilling activity," said John W. Casella, chairman and CEO of Casella Waste Systems. "Despite these headwinds, I believe that we are executing well against factors that we can control in this challenging economic environment, such as:

• "As announced on August 10, we took a number of steps to realign our operations to streamline support functions and to eliminate approximately $6.5 million of annualized costs. We expect these permanent cost savings to partially offset the cyclical revenue declines from lower recycling commodity pricing and lower landfill special waste volumes. Further, these steps position us well to leverage a lower cost structure as cyclical revenues return in the future.

• "In early August we signed a purchase and sale agreement to sell our waste-to-energy facility to the City of Biddeford, ME. We are expecting to complete the sale by December 2012.

• "Despite a stagnant economy, we have grown our residential and commercial customer counts year-over year, 6 percent and 1 percent, respectively, and have delivered positive pricing gains in each segment. We attribute this to our strategy of offering differentiated resource solutions that allow us to stand out in our markets as a service provider that creates value for our customers.

"Weakness in the roll-off collection line-of-business offset much of gains we had in the residential and commercial lines-of-business," Casella said. "The roll-off line-of-business was down in the quarter due to: pull forward of work into our fourth quarter with the early spring in the northeast, continued pressure on roll-off work because of depressed construction activity, and a tough comparison to the first quarter last year when we saw increased demand from flooding activity."

"Nevertheless, we've reduced costs and realigned the way we operate, making us more efficient and more customer service-oriented, and putting us in a great position to prosper when economic conditions improve," Casella said.

The company reaffirms guidance issued on August 10, 2012 for its fiscal year 2013, which began May 1, 2012, by estimating results in the following ranges:

• Revenues between $475.0 million and $485.0 million;

• Adjusted EBITDA* between $101.0 million and $105.0 million;

The above guidance does not include the financial impacts from the potential sale of Maine Energy or the potential refinancing of the 11.0 percent $180.0 million second lien notes due July 2014 during fiscal year 2013.

*Non-GAAP Financial Measures

In addition to disclosing financial results prepared in accordance with Generally Accepted Accounting Principles in the United States (GAAP), the company also discloses earnings before interest, taxes, depreciation and amortization, adjusted for accretion, depletion of landfill operating lease obligations, gain on sale of assets, development project charge write-offs, legal settlement charges, bargain purchase gains, asset impairment charges, environmental remediation charges, as well as severance and reorganization charges (Adjusted EBITDA) which is a non-GAAP measure. The company also discloses earnings before interest, taxes, adjusted for gain on sale of assets, development project charge write-off, legal settlement charges, bargain purchase gains, asset impairment charges, environmental remediation charges, as well as severance and reorganization charges (Adjusted Operating Income) which is a non-GAAP measure. The company also discloses Free Cash Flow, which is defined as net cash provided by operating activities, less capital expenditures attributable to growth and maintenance (excluding acquisition related capital), less payments on landfill operating leases, less assets acquired through financing leases, plus proceeds from the sale of property and equipment, plus contributions from non-controlling interest holder, which is a non-GAAP measure. Adjusted EBITDA is reconciled to net income (loss), while Free Cash Flow is reconciled to net cash provided by operating activities.

The company presents Adjusted EBITDA, Adjusted Operating Income, and Free Cash Flow because it considers them important supplemental measures of its performance and believes they are frequently used by securities analysts, investors and other interested parties in the evaluation of the company's results. Management uses these non-GAAP measures to further understand the company's "core operating performance." The company believes its "core operating performance" represents its on-going performance in the ordinary course of operations. The company believes that providing Adjusted EBITDA, Adjusted Operating Income, and Free Cash Flow to investors, in addition to corresponding income statement and cash flow statement measures, affords investors the benefit of viewing its performance using the same financial metrics that the management team uses in making many key decisions and understanding how the core business and its results of operations may look in the future. The company further believes that providing this information allows its investors greater transparency and a better understanding of its core financial performance. In addition, the instruments governing the company's indebtedness use EBITDA (with additional adjustments) to measure its compliance with covenants such as interest coverage, leverage and debt incurrence.

Non-GAAP financial measures are not in accordance with or an alternative for GAAP. Adjusted EBITDA, Adjusted Operating Income, and Free Cash Flow should not be considered in isolation from or as a substitute for financial information presented in accordance with GAAP, and may be different from Adjusted EBITDA, Adjusted Operating Income, or Free Cash Flow presented by other companies.

About Casella Waste Systems, Inc.

Casella Waste Systems, Inc., headquartered in Rutland, Vermont, provides solid waste management services consisting of collection, transfer, disposal, and recycling services in the northeastern United States. For further information, investors contact Ned Coletta, vice president of finance and investor relations at (802) 772-2239, media contact Joseph Fusco, vice president at (802) 772-2247, or visit the company's website at www.casella.com.

Conference call to discuss quarter

The Company will host a conference call to discuss these results on Thursday, August 30, 2012 at 10:00 a.m. ET. Individuals interested in participating in the call should dial (877) 548-9590 or for international participants (914) 495-8541 at least 10 minutes before start time. The call will also be webcast; to listen, participants should visit Casella Waste Systems' website at http://ir.casella.com and follow the appropriate link to the webcast. A replay of the call will be available on the company's website, or by calling (855) 859-2056 or (404) 537-3406 (Conference ID 21047750) until 11:59 p.m. ET on Thursday, September 6, 2012.

Safe Harbor Statement

Certain matters discussed in this press release are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by the context of the statements, including words such as "believe," "expect," "anticipate," "plan," "may," "will," "would," "intend," "estimate," "guidance" and other similar expressions, whether in the negative or affirmative. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management's beliefs and assumptions. We cannot guarantee that we actually will achieve the plans, intentions, expectations or guidance disclosed in the forward-looking statements made. Such forward-looking statements, and all phases of our operations, involve a number of risks and uncertainties, any one or more of which could cause actual results to differ materially from those described in our forward-looking statements. Such risks and uncertainties include or relate to, among other things: current economic conditions that have adversely affected and may continue to adversely affect our revenues and our operating margin; we may be unable to reduce costs or increase pricing or volumes sufficiently to achieve estimated Adjusted EBITDA and other targets; landfill operations and permit status may be affected by factors outside our control; we may be required to incur capital expenditures in excess of our estimates; fluctuations in energy pricing or the commodity pricing of our recyclables may make it more difficult for us to predict our results of operations or meet our estimates; we may incur environmental charges or asset impairments in the future; and we may be unable to sell our waste-to-energy facility and shift waste volumes to other landfill sites. There are a number of other important risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements. These additional risks and uncertainties include, without limitation, those detailed in Item 1A, "Risk Factors" in our Form 10-K for the year ended April 30, 2012.

We undertake no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except amounts per share)
			Three Months Ended
			July 31,				July 31,
			2012				2011
Revenues			$	121,195			$	127,193
Operating expenses:
	Cost of operations			84,811				85,224
	General and administration			15,324				16,207
	Depreciation and amortization			14,756				14,506
	Expense from divestiture and financing costs			553				-
	Legal settlement			-				1,000
				115,444				116,937
Operating income				5,751				10,256
	Other expense/(income), net:
	Interest expense, net			11,844				11,151
	Loss from equity method investment			1,766				2,257
	Other income			(130	)			(105	)
				13,480				13,303
Loss from continuing operations before income taxes and discontinued operations				(7,729	)			(3,047	)
Provision for income taxes				650				661
Loss from continuing operations before discontinued operations				(8,379	)			(3,708	)
Discontinued operations:
	Gain on disposal of discontinued operations, net of income taxes (1)			-				646
Net loss				(8,379	)			(3,062	)
	Less: Net loss attributable to noncontrolling interest			(8	)			-
Net loss attributable to common stockholders			$	(8,371	)		$	(3,062	)
Common stock and common stock equivalent shares outstanding, assuming full dilution				26,992				26,564
Net loss per common share			$	(0.31	)		$	(0.12	)
Adjusted EBITDA (2)			$	24,315			$	28,661

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
			July 31,			April 30,
ASSETS			2012			2012
CURRENT ASSETS:
	Cash and cash equivalents		$	3,505		$	4,534
	Restricted cash			76			76
	Accounts receivable - trade, net of allowance for doubtful accounts			53,432			47,472
	Other current assets			15,539			15,274
Total current assets				72,552			67,356
Property, plant and equipment, net of accumulated depreciation				422,096			416,717
Goodwill				102,516			101,706
Intangible assets, net				3,487			2,970
Restricted assets				419			424
Notes receivable - related party/employee				723			722
Investments in unconsolidated entities				21,234			22,781
Other non-current assets				20,247			21,067
Total assets			$	643,274		$	633,743
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Current maturities of long-term debt and capital leases		$	1,232		$	1,228
	Current maturities of financing lease obligations			344			338
	Accounts payable			48,729			46,709
	Other accrued liabilities			39,987			40,060
Total current liabilities				90,292			88,335
Long-term debt and capital leases, less current maturities				487,501			473,381
Financing lease obligations, less current maturities				1,729			1,818
Other long-term liabilities				54,196			51,978
Total stockholders' equity				9,556			18,231
Total liabilities and stockholders' equity			$	643,274		$	633,743

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
				Three Months Ended
				July 31,				July 31,
				2012				2011
Cash Flows from Operating Activities:
Net loss				$	(8,379	)		$	(3,062	)
Gain on disposal of discontinued operations, net					-				(646	)
Adjustments to reconcile net loss to net cash provided by operating activities -
	Gain on sale of equipment				(46	)			(192	)
	Depreciation and amortization				14,756				14,506
	Depletion of landfill operating lease obligations				2,288				2,030
	Interest accretion on landfill and environmental remediation liabilities				933				869
	Amortization of discount on second lien notes				259				230
	Loss from equity method investment				1,766				2,257
	Stock-based compensation				675				649
	Excess tax benefit on the vesting of share based awards				(205	)			(246	)
	Deferred income taxes				565				939
	Changes in assets and liabilities, net of effects of acquisitions and divestitures				(5,091	)			(3,394	)
		Net Cash Provided by Operating Activities			7,521				13,940
Cash Flows from Investing Activities:
	Acquisitions, net of cash acquired				(3,150	)			(715	)
	Additions to property, plant and equipment
		- acquisitions			(288	)			-
		- growth			(2,002	)			(1,143	)
		- maintenance			(14,394	)			(13,725	)
	Payment for capital related to divestiture				(618	)			-
	Payments on landfill operating lease contracts				(1,814	)			(1,858	)
	Proceeds from sale of property and equipment				265				199
	Investments in unconsolidated entities				(1,000	)			(650	)
		Net Cash Used In Investing Activities			(23,001	)			(17,892	)
Cash Flows from Financing Activities:
	Proceeds from long-term borrowings				62,310				48,500
	Principal payments on long-term debt				(48,689	)			(44,439	)
	Payment of financing costs				(96	)			(90	)
	Proceeds from exercise of share based awards				-				176
	Excess tax benefit on the vesting of restricted stock				205				246
	Contributions from noncontrolling interest holder				721				-
		Net Cash Provided By Financing Activities			14,451				4,393
		Net Cash Provided By Discontinued Operations			-				646
Net (decrease) increase in cash and cash equivalents					(1,029	)			1,087
Cash and cash equivalents, beginning of period					4,534				1,817
Cash and cash equivalents, end of period				$	3,505			$	2,904
Supplemental Disclosures:
Cash interest				$	11,391			$	11,189
Cash income taxes, net of refunds				$	(26	)		$	2,159

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

Note 1:     Discontinued Operations

On January 23, 2011, we entered into a purchase and sale agreement and related agreements to sell non-integrated recycling assets and select intellectual property assets to a new company (the "Purchaser") formed by Pegasus Capital Advisors, L.P. and Intersection LLC for $130,400 in gross proceeds. Pursuant to these agreements, we divested non-integrated recycling assets located outside our core operating regions of New York, Massachusetts, Vermont, New Hampshire, Maine and northern Pennsylvania, including 17 material recovery facilities ("MRFs"), one transfer station and certain related intellectual property assets. Following the transaction, we retained four integrated MRFs located in our core operating regions. As a part of the disposition, we also entered into a ten-year commodities marketing agreement with the Purchaser to market 100% of the tonnage from three of our remaining integrated MRFs.

We completed the transaction on March 1, 2011 for $134,195 in gross cash proceeds. This included an estimated $3,795 working capital and other purchase price adjustment, which was subject to further adjustment, as defined in the purchase and sale agreement. The final working capital adjustment, along with additional legal expenses related to the transaction, of $646 was recorded to gain on disposal of discontinued operations, net of income taxes in the three months ended July 31, 2011.

Note 2:     Non - GAAP Financial Measures

In addition to disclosing financial results prepared in accordance with Generally Accepted Accounting Principles in the United States (GAAP), we also disclose earnings before interest, taxes, depreciation and amortization, adjusted for accretion, depletion of landfill operating lease obligations, gain on sale of assets, development project charge write-offs, legal settlement charges, bargain purchase gains, asset impairment charges, environmental remediation charges, severance and reorganization charges, as well as expenses from divestiture and financing costs (Adjusted EBITDA) which is a non-GAAP measure. We also disclose earnings before interest, taxes, adjusted for gain on sale of assets, development project charge write-offs, legal settlement charges, bargain purchase gains, asset impairment charges, environmental remediation charges, severance and reorganization charges, as well as expenses from divestiture and financing costs (Adjusted Operating Income) which is a non-GAAP measure. We also disclose Free Cash Flow, which is defined as net cash provided by operating activities, less capital expenditures attributable to growth and maintenance (excluding acquisition related capital), less payments on landfill operating leases, less assets acquired through financing leases, plus proceeds from the sale of property and equipment, plus contributions from non-controlling interest holder, which is a non-GAAP measure. Adjusted EBITDA is reconciled to net income (loss), while Free Cash Flow is reconciled to net cash provided by operating activities.

We present Adjusted EBITDA, Adjusted Operating Income, and Free Cash Flow because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of our results. We use these non-GAAP measures to further understand our "core operating performance." We believe our "core operating performance" represents our on-going performance in the ordinary course of operations. We believe that providing Adjusted EBITDA, Adjusted Operating Income, and Free Cash Flow to investors, in addition to corresponding income statement and cash flow statement measures, affords investors the benefit of viewing our performance using the same financial metrics that our management team uses in making many key decisions and understanding how the core business and our results of operations may look in the future. We further believe that providing this information allows our investors greater transparency and a better understanding of our core financial performance. In addition, the instruments governing our indebtedness use EBITDA (with additional adjustments) to measure our compliance with covenants such as interest coverage, leverage and debt incurrence.

Non-GAAP financial measures are not in accordance with or an alternative for GAAP. Adjusted EBITDA, Adjusted Operating Income, and Free Cash Flow should not be considered in isolation from or as a substitute for financial information presented in accordance with GAAP, and may be different from Adjusted EBITDA, Adjusted Operating Income, or Free Cash Flow presented by other companies.

Following is a reconciliation of Adjusted EBITDA and Adjusted Operating Income to Net Loss:
			Three Months Ended
			July 31,				July 31,
			2012				2011
Net Loss			$	(8,379	)		$	(3,062	)
	Gain on disposal of discontinued operations, net			-				(646	)
	Provision for income taxes			650				661
	Other expense, net			1,636				2,152
	Interest expense, net			11,844				11,151
	Legal settlement			-				1,000
	Expense from divestiture and financing costs			553				-
	Depreciation and amortization			14,756				14,506
	Severance and reorganization charges			34				-
	Depletion of landfill operating lease obligations			2,288				2,030
	Interest accretion on landfill and environmental remediation liabilities			933				869
Adjusted EBITDA (2)			$	24,315			$	28,661
	Depreciation and amortization			(14,756	)			(14,506	)
	Depletion of landfill operating lease obligations			(2,288	)			(2,030	)
	Interest accretion on landfill and environmental remediation liabilities			(933	)			(869	)
Adjusted Operating Income (2)			$	6,338			$	11,256
Following is a reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities:
			Three Months Ended
			July 31,				July 31,
			2012				2011
Net Cash Provided by Operating Activities			$	7,521			$	13,940
Capital expenditures - growth and maintenance				(16,396	)			(14,868	)
Payments on landfill operating lease contracts				(1,814	)			(1,858	)
Proceeds from sale of property and equipment				265				199
Contributions from noncontrolling interest holder				721				-
Free Cash Flow (2)			$	(9,703	)		$	(2,587	)

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA TABLES
(Unaudited)
(In thousands)
Amounts of our total revenues attributable to services provided for the three months ended July 31, 2012 and 2011 are as follows:
			Three Months Ended July 31,
			2012			% of Total Revenue			2011			% of Total Revenue
Collection			$	53,043		43.8	%		$	53,626		42.2	%
Disposal				30,967		25.5	%			32,173		25.3	%
Power generation				2,663		2.2	%			3,042		2.4	%
Processing and organics				14,633		12.1	%			14,738		11.6	%
	Solid waste operations			101,306		83.6	%			103,579		81.5	%
Major accounts				9,524		7.9	%			10,711		8.4	%
Recycling				10,365		8.5	%			12,903		10.1	%
Total revenues			$	121,195		100.0	%		$	127,193		100.0	%

 

Components of revenue growth for the three months ended July 31, 2012 compared to the three months ended July 31, 2011 are as follows:
		Amount				% of Related Business			% of Solid Waste Operations			% of Total Company
Solid Waste Operations:
Collection		$	541			1.0	%		0.5	%		0.4	%
Disposal			(375	)		-1.2	%		-0.3	%		-0.3	%
Solid Waste Yield			166						0.2	%		0.1	%
Collection			(1,799	)					-1.7	%		-1.4	%
Disposal			(890	)					-0.9	%		-0.7	%
Processing and organics			37						0.0	%		0.0	%
Solid Waste Volume			(2,652	)					-2.6	%		-2.1	%
Fuel surcharge			(174	)					-0.2	%		-0.1	%
Commodity price & volume			(693	)					-0.7	%		-0.5	%
Acquisitions			1,096						1.1	%		0.8	%
Closed landfill			(16	)					0.0	%		0.0	%
Total Solid Waste			(2,273	)					-2.2	%		-1.8	%
Major Accounts			(1,187	)								-0.9	%
Recycling Operations:									% of Recycling Operations
Commodity price			(3,101	)					-24.0	%		-2.4	%
Commodity volume			563						4.4	%		0.4	%
Total Recycling			(2,538	)					-19.6	%		-2.0	%
Total Company		$	(5,998	)								-4.7	%
Solid Waste Internalization Rates by Region:
		Three Months Ended July 31,
		2012				2011
Eastern region			53.8	%		54.1	%
Western region			72.5	%		76.1	%
Solid waste internalization			63.9	%		65.6	%

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA TABLES
(Unaudited)
(In thousands)
GreenFiber Financial Statistics (1):
		Three Months Ended July 31,
		2012				2011
Revenues		$	13,101			$	16,016
Net loss			(3,569	)			(4,515	)
Cash flow provided by (used in) operations			225				(1,278	)
Net working capital changes			1,935				906
Adjusted EBITDA		$	(1,710	)		$	(2,184	)
As a percentage of revenues:
Net loss			-27.2	%			-28.2	%
Adjusted EBITDA			-13.1	%			-13.6	%
(1) We hold a 50% interest in US Green Fiber, LLC ("GreenFiber"), a joint venture that manufactures, markets and sells cellulose insulation made from recycled fiber.
Components of Growth and Maintenance Capital Expenditures (1):
		Three Months Ended July 31,
		2012				2011
Growth capital expenditures:
Landfill development		$	332			$	41
Water treatment facility			760				-
Landfill gas-to-energy project			-				367
MRF equipment upgrades			-				509
Other			910				226
Total Growth Capital Expenditures			2,002				1,143
Maintenance capital expenditures:
Vehicles, machinery / equipment and containers		$	3,053			$	6,440
Landfill construction & equipment			10,922				6,997
Facilities			279				175
Other			140				113
Total Maintenance Capital Expenditures			14,394				13,725
Total Growth and Maintenance Capital Expenditures		$	16,396			$	14,868
(1) Our capital expenditures are broadly defined as pertaining to either growth, maintenance or acquisition activities. Growth capital expenditures are defined as costs related to development of new airspace, permit expansions, and new recycling contracts along with incremental costs of equipment and infrastructure added to further such activities. Growth capital expenditures include the cost of equipment added directly as a result of organic business growth as well as expenditures associated with increasing infrastructure to increase throughput at transfer stations and recycling facilities. Maintenance capital expenditures are defined as landfill cell construction costs not related to expansion airspace, costs for normal permit renewals, and replacement costs for equipment due to age or obsolescence. Acquisition capital expenditures are defined as costs of equipment added directly as a result of new business growth related to an acquisition.

For more information, contact:

Investors:
Ned Coletta
Vice President of Finance and Investor Relations
(802) 772-2239

Media:
Joseph Fusco
Vice President
(802) 772-2247

www.casella.com.