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| WCAA > SEC Filings for WCAA > Form 10-Q on 7-Aug-2008 | All Recent SEC Filings |
7-Aug-2008
Quarterly Report
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report on Form 10-Q. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our annual report on Form 10-K for the year ended December 31, 2007 as filed with the SEC on March 5, 2008. The discussion below contains forward-looking statements that involve risks and uncertainties. For additional information regarding some of these risks and uncertainties, please read "Risk Factors and Cautionary Statement About Forward-Looking Statements" included elsewhere in this quarterly report on Form 10-Q. Unless the context requires otherwise, references in this quarterly report on Form 10-Q to "WCA Waste," "we," "us" or "our" refer to WCA Waste Corporation on a consolidated basis.
Overview
We are a vertically integrated, non-hazardous solid waste management company providing non-hazardous solid waste collection, transfer, processing, and disposal services in the south and central regions of the United States. As of June 30, 2008, we served approximately 327,000 commercial, industrial and residential collection customers and 5,000 landfill and transfer station customers in Alabama, Arkansas, Colorado, Florida, Kansas, Missouri, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee and Texas. We currently own and/or operate 24 landfills, 27 collection operations and 23 transfer stations/materials recovery facilities (MRFs). Of these facilities, two transfer stations and two landfills are fully permitted but not yet opened, and one transfer station is idle. Additionally, we currently operate but do not own two of the transfer stations.
Acquisition Strategy
Our future growth will significantly depend on successful implementation of our strategy of acquisitions in our existing markets and selected additional markets. In markets where we already own a landfill, we intend to focus on expanding our presence by acquiring companies that also operate in that market or in adjacent markets ("tuck-in" acquisitions). Tuck-in acquisitions should allow growth in revenue and increase market share and enable disposal internalization and consolidation of duplicative facilities and functions to maximize cost efficiencies and economies of scale. We will typically seek to enter a new market by acquiring a permitted landfill in that market. Upon acquiring a landfill in a new market, we then intend to expand our operations by acquiring collection and/or transfer operations and internalizing waste into the landfill.
We intend to pursue our acquisition strategy primarily with cash on hand and available capacity under our $175 million revolving credit facility. We may also issue additional debt, and/or additional equity, including common stock or preferred stock, in connection with acquisitions. As of June 30, 2008, we had approximately $128.1 million available under our existing credit facility.
Since completing our initial public offering in June 2004 through the six months ended June 30, 2008, we have completed 32 acquisitions. The purchase price for these acquisitions consisted of approximately $225.7 million of cash, $1.3 million of prepaid airspace, $6.1 million of convertible debt, $11.9 million of assumed debt (net of $0.5 million of debt discount), $4.4 million of assumed deferred tax liabilities and 1,726,336 shares of our common stock, less a note receivable valued at $7.2 million. The note receivable was a $10.5 million non-interest bearing promissory note with payments to us in the amount of $125,000 per month for 84 months through June 2014. In May 2008, the Company sold the note receivable for approximately $6.2 million.
During the three and six months ended June 30, 2008, we acquired certain collection routes from Maguire Disposal, Inc. The purchase price for this acquisition was approximately $0.3 million of cash. Information concerning our acquisitions may be found in our previously filed periodic and current reports and in note 2 to the condensed consolidated financial statements included in Item 1 of this report.
The following sets forth additional information regarding our acquisitions since our initial public offering:
Completion
Company Location Region Date Operations
Texas Houston, TX II July 13, Collection
Environmental 2004
Waste
Ashley Trash Springfield, MO I August 17, Collection
Service 2004
Power Waste Birmingham, AL III August 31, Collection
2004
Blount Recycling Birmingham, AL III September Collection,
3, 2004 Landfill & Transfer
Station
Translift, Inc. Little Rock, AR II September Collection
17, 2004
Rural Disposal, Willow Springs, I November Collection
Inc. MO 12, 2004
Trash Away, Inc. Piedmont, SC IV November Collection &
30, 2004 Transfer Station
Gecko Investments St. Louis, MO I January Collection &
(Eagle Ridge) 11, 2005 Landfill
MRR Southern, LLC High IV April 1, Landfill, Transfer
Point/Raleigh, NC 2005 Station & MRF
Triangle Raleigh, NC IV May 16, Collection
Environmental 2005
Foster Ferguson El Dorado I May 16, Collection
Springs, MO 2005
Triad Waste High Point, NC IV May 31, Collection
2005
Proper Disposal Chanute, KS I May 31, Collection
2005
Fort Meade Fort Meade, FL III October 3, Landfill
Landfill 2005
Meyer & Gabbert Sarasota/Arcadia, III October 3, Collection,
FL 2005 Landfill & Transfer
Station
Pendergrass Refuse Springfield, MO I October 4, Collection
2005
Andy's Hauling Sarasota, FL III October Collection
21, 2005
Transit Waste Durango, V February Collection &
CO/Bloomfield, NM 10, 2006 Landfill
Fort Myers Fort Myers, FL III August 10, Transfer Station
Transfer Station 2006
(*)
WCA of St. Lucie, St. Lucie, FL III October 2, Transfer Station
LLC 2006
Sunrise Disposal, Springfield, MO I December Collection
LLC 28, 2006
Southwest Fort Myers, FL III January 3, Collection
Dumpster, Inc. (*) 2007
American Waste, Oklahoma City, OK V February Collection &
Inc. 21, 2007 Landfill
Klean Way Springfield, MO I March 30, Collection
Disposal, Inc. 2007
Carpenter Waste Oklahoma City, OK V May 31, Collection
Systems, LLC 2007
Fort Bend Regional Houston, TX II June 29, Collection,
Landfill 2007 Landfill & Transfer
Station
Big Red Ardmore, OK V August 14, Collection
Containers, Inc. 2007
Roll-Off Rentals Huntsville, AL III September Collection
4, 2007
Waste Pro Houston, TX II October 1, Collection
Services, LLC 2007
DH Griffin Greensboro, NC IV October 1, Collection
Container 2007
Services, LLC
DH Griffin Raleigh, NC IV October 1, Collection
Container of 2007
Raleigh, LLC
Maguire Disposal, Oklahoma City, OK V January 2, Collection
Inc. 2008
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(*) These assets were exchanged as part of the consideration for the acquisition of Fort Bend Regional Landfill.
After an acquisition is completed, we incur integration expenses related to (i) incorporating newly-acquired truck fleets into our preventative maintenance program, (ii) testing new employees to comply with Department of Transportation regulations, (iii) implementing our safety program, (iv) re-routing trucks and equipment to assure maximization of routing efficiencies and disposal internalization, and (v) converting customers to our billing system. We generally expect that the costs of acquiring and integrating an acquired business will be incurred primarily during the first 12 months after acquisition. Synergies from tuck-in acquisitions can also take as long as 12 months to be realized.
General Review of Results for the Three and Six Months Ended June 30, 2008
Our operations consist of the collection, transfer, processing and disposal of non-hazardous solid waste. Our revenue is generated primarily from our landfill disposal services and our collection operations provided to residential, commercial and roll-off customers. Internalization refers to the disposal of collected waste into the landfills we own. All collected waste must ultimately be processed or disposed of, with landfills being the main depository for such waste. Generally, the most cost efficient collection services occur within a 35-mile operating radius from the disposal site (up to 100 miles if a transfer station is used). Collection companies that do not own a landfill within such range from their collection routes will usually have to dispose of the waste they collect in landfills owned by third parties. Thus, owning a landfill in a market area increases internalization which increases operating margins, improves operating cash flows and provides substantial leverage in the waste management business. Our internalization for the three and six months ended June 30, 2008 was 74.6% and 74.7%, respectively.
The following table reflects our revenue segmentation (before elimination of intercompany revenue) for the three and six months ended June 30, 2008 and 2007:
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Collection 51.1 % 50.7 % 51.5 % 50.5 %
Disposal 29.7 % 30.8 % 30.3 % 30.6 %
Transfer and other 19.2 % 18.5 % 18.2 % 18.9 %
Total uneliminated revenue 100.0 % 100.0 % 100.0 % 100.0 %
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The following table reflects our total revenue by source for the three and six months ended June 30, 2008 and 2007 (dollars in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
2008 2007 2008 2007
Collection:
Residential $ 12,360 $ 10,339 $ 24,277 $ 19,220
Commercial 5,122 4,891 9,993 9,278
Roll-off 15,287 13,428 29,498 25,229
Total collection 32,769 28,658 63,768 53,727
Disposal 19,079 17,410 37,448 32,481
Less Intercompany 7,694 6,654 15,156 12,235
Disposal, net 11,385 10,756 22,292 20,246
Transfer and other 12,327 10,477 22,552 20,064
Less Intercompany 3,735 3,691 7,029 7,210
Transfer and other, net 8,592 6,786 15,523 12,854
Total revenue $ 52,746 $ 46,200 $ 101,583 $ 86,827
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Please read note 12 to our condensed consolidated financial statements included in Item 1 of this report for certain geographic information related to our operations.
Costs of services include, but are not limited to, labor, fuel and other operating expenses, equipment maintenance, disposal fees paid to third-party disposal facilities, insurance premiums and claims expense, selling expenses, wages and salaries of field personnel located at operating facilities, third-party transportation expense and state and local waste taxes. We are self-insured for a portion of our general liability, workers' compensation and automobile liability. The frequency and amount of claims or incidents could vary significantly from quarter-to-quarter and/or year-to-year, resulting in increased volatility of our costs of services.
General and administrative expenses include the salaries and benefits of our corporate management, certain centralized reporting, information technology and cash management costs and other overhead costs associated with our corporate office.
Depreciation and amortization expense includes depreciation of fixed assets over their estimated useful lives using the straight-line method and amortization of landfill costs and asset retirement costs based on the consumption of airspace.
We capitalize third-party expenditures related to pending acquisitions, such as legal, engineering, and accounting expenses, and certain direct expenditures such as travel costs. We expense indirect acquisition costs, such as salaries, commissions and other corporate services, as we incur them. We routinely evaluate all capitalized costs, and expense those related to projects that we believe are not likely to succeed.
Forward-Looking Statements and Non-GAAP Measures
As indicated in "Risk Factors and Cautionary Statement About Forward-Looking Statements" this report contains forward-looking statements, all of which are qualified by the risk factors and other statements set forth in that section.
Our management evaluates our performance based on non-GAAP measures, of which the primary performance measure is EBITDA. EBITDA consists of earnings (net income or loss) available to common stockholders before preferred stock dividend, interest expense (including gains (losses) on interest rate swap agreements as well as write-off of deferred financing costs and debt discount), income tax expense, depreciation and amortization, and loss on disposition of note receivable. We also compute EBITDA before the cumulative effect of change in accounting principle and before considering the effect of discontinued operations as the effect of these items is not relevant to our ongoing operations. We also use these same measures when evaluating potential acquisition candidates.
We believe EBITDA is useful to an investor in evaluating our operating performance because:
· it is widely used by investors in our industry to measure a company's operating performance without regard to items such as interest expense, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired;
· it helps investors more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest charges from our outstanding debt and the impact of our interest rate swap agreements and payment-in-kind (PIK) dividend) and asset base (primarily depreciation and amortization of our landfills and vehicles) from our operating results; and
· it helps investors identify items that are within our operational control. Depreciation charges, while a component of operating income, are fixed at the time of the asset purchase in accordance with the depreciable lives of the related asset and as such are not a directly controllable period operating charge.
Our management uses EBITDA:
· as a measure of operating performance because it assists us in comparing our performance on a consistent basis as it removes the impact of our capital structure and asset base from our operating results;
· as one method to estimate a purchase price (often expressed as a multiple of EBITDA) for solid waste companies we intend to acquire. The appropriate EBITDA multiple will vary from acquisition to acquisition depending on factors such as the size of the operation, the type of operation, the anticipated growth in the market, the strategic location of the operation in its market as well as other considerations;
· in presentations to our board of directors to enable them to have the same consistent measurement basis of operating performance used by management;
· as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations;
· in evaluations of field operations since it represents operational performance and takes into account financial measures within the control of the field operating units;
· as a component of incentive cash bonuses paid to our executive officers and other employees;
· to assess compliance with financial ratios and covenants included in our credit agreements; and
· in communications with investors, lenders, and others, concerning our financial performance.
The following presents a reconciliation of our total EBITDA to net income (loss) available to common stockholders (dollars in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
2008 2007 2008 2007
Total EBITDA $ 13,553 $ 12,413 $ 25,100 $ 24,295
Depreciation and amortization (6,909 ) (6,096 ) (13,400 ) (11,285 )
Interest expense, net (4,609 ) (4,190 ) (9,143 ) (7,966 )
Realized loss on interest rate swap (1,116 ) (110 ) (1,423 ) (215 )
Unrealized gain on interest rate swap 4,809 2,336 516 1,808
Loss on disposition of note receivable (326 ) - (326 ) -
Income tax provision (2,526 ) (1,747 ) (800 ) (2,709 )
Accrued payment-in-kind dividend on
preferred stock (1,011 ) (961 ) (2,016 ) (1,915 )
Net income (loss) available to common
stockholders $ 1,865 $ 1,645 $ (1,492 ) $ 2,013
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Our EBITDA, as we define it, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. EBITDA should not be considered in isolation or as substitutes for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.
Results of Operations
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
The following table sets forth the components of operating income (loss) by
major operating segments (Region I: Kansas, Missouri; Region II: Arkansas,
Texas; Region III: Alabama, Florida; Region IV: North Carolina, South Carolina,
Tennessee; Region V: Colorado, New Mexico, Oklahoma) for the three months ended
June 30, 2008 and 2007 and the changes between the segments for each category
(dollars in thousands):
Region I Region II Region III Region IV Region V Corporate Total % of Revenue
Three months ended
June 30, 2008:
Revenue $ 13,668 $ 21,706 $ 5,261 $ 6,166 $ 5,945 $ - $ 52,746 100.0
Cost of services 9,885 13,948 3,905 4,251 4,592 - 36,581 69.4
Depreciation and
amortization 1,387 2,217 1,048 1,139 983 135 6,909 13.1
General and
administrative 844 1,406 480 432 452 (909 ) 2,705 5.1
Operating income
(loss) $ 1,552 $ 4,135 $ (172 ) $ 344 $ (82 ) $ 774 $ 6,551 12.4
Three months ended
June 30, 2007:
Revenue $ 13,497 $ 13,897 $ 8,349 $ 5,528 $ 4,929 $ - $ 46,200 100.0
Cost of services 9,323 8,798 5,430 3,306 3,922 - 30,779 66.6
Depreciation and
amortization 1,363 1,433 1,310 1,005 875 110 6,096 13.2
General and
administrative 987 910 649 399 95 95 3,135 6.8
Operating income
(loss) $ 1,824 $ 2,756 $ 960 $ 818 $ 37 $ (205 ) $ 6,190 13.4
Increase/(decrease)
in 2008 compared to
2007:
Revenue $ 171 $ 7,809 $ (3,088 ) $ 638 $ 1,016 $ - $ 6,546
Cost of services 562 5,150 (1,525 ) 945 670 - 5,802
Depreciation and
amortization 24 784 (262 ) 134 108 25 813
General and
administrative (143 ) 496 (169 ) 33 357 (1,004 ) (430 )
Operating income
(loss) $ (272 ) $ 1,379 $ (1,132 ) $ (474 ) $ (119 ) $ 979 $ 361
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Revenue. Total revenue for the three months ended June 30, 2008 increased $6.5 million, or 14.2%, to $52.7 million from $46.2 million for the three months ended June 30, 2007. Our growth in revenue between the periods has been primarily driven by acquisitions. We estimated that acquisitions contributed $3.9 million of the increase while internal volume decreased $0.9 million, operational price increases contributed $1.8 million, and pricing from fuel surcharges contributed $1.7 million. The above table reflects the total increase in revenue in each operating region. The financial results of completed acquisitions are generally blended with existing operations and do not have separate financial information available with the exception of new regions acquired which can be analyzed individually. The revenue increase of $7.8 million in Region II was primarily attributed to the volume and price increases associated with new collection and hauling contracts in our Texas residential operations as well as the acquisition of a landfill and a transfer station in late June of 2007. Revenue in Region III decreased $3.1 million primarily as a result of general economic conditions in Florida and the divestitures of a transfer station and collection operations in Fort Myers, Florida. We estimate that the Oklahoma operations contributed $0.8 million of the increase in revenue in Region V. The increase was mainly the result of additional volume brought by the tuck-in acquisitions. For more information on the factors affecting our estimates, please see "-Acquisition Strategy" above.
Cost of services. Total cost of services for the three months ended June 30, 2008 increased $5.8 million, or 18.9%, to $36.6 million from $30.8 million for the three months ended June 30, 2007. We believe that our acquisition program accounted for most of the increase in cost of services. Fuel prices, which increased 56.3% nationally from the three months ended June 30, 2007 to the three months ended June 30, 2008, contributed to the largest non-acquisition related increase in cost of services. Other factors of the increase included labor and disposal costs. For acquisitions within our existing markets, the acquired entities are merged into our existing operations and those results are indistinguishable from the remainder of the operations. As indicated above, Region II experienced growth through either acquisition or expanded volumes and reflected a corresponding increase in its cost of services. Region II had an estimated $5.2 million increase in cost of services due to the rapid growth of Texas residential collection operations and the acquisition of Fort Bend Regional Landfill at the end of June 2007. More employees and vehicles were added in this region, which caused the increase in labor, insurance, fuel and vehicle-related costs. In addition, third party disposal and hauling costs increased as we disposed of more residential waste to a third party landfill and contracted third party hauling operations to transport waste from our transfer station to the landfill acquired in 2007. Cost of services in Region III decreased $1.5 million as a result of the decrease in revenue in Florida. The estimated $0.9 million increase in cost of services in Region IV was primarily attributed to the increase in labor, fuel and vehicle-related costs associated with the tuck-in acquisitions in North Carolina in 2007. For more information on the factors affecting our estimates, please see "-Acquisition Strategy" above.
Overall cost of services increased to 69.4% of revenue for the three months ended June 30, 2008 from 66.6% during the same period last year. Increases in operating costs as a percentage of revenue were primarily attributable to higher fuel, outside repairs and landfill site maintenance costs. Diesel fuel costs as a percentage of revenue increased from 7.0% for the three months ended June 30, 2007 to 10.7% for the three months ended June 30, 2008. In addition, there is a lag between the actual increase in fuel costs and the recovery through fuel surcharges. Other than periodic volatility in fuel prices, inflation has not materially affected our operations.
Depreciation and amortization. Depreciation and amortization expense for the . . .
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