Waste Business Journal

WCA Waste Posts 19% Jump in Yearly Revenue, Earnings Down on Charges

Date: March 15, 2012

Source: WCA Waste Corp.

During 2011, our revenue was $273.8 million, which represents an 19.3% increase over 2010. Our operating income was $24.2 million in 2011, a 4.2% increase as compared to $23.3 million in 2010. Net loss available to common stockholders for 2011 was $7.1 million, or $0.32 per share, compared to $2.6 million, or $0.13 per share, for 2010. Adjusted EBITDA for 2011 was $59.5 million, an increase of 10.7% over $53.8 million in 2010. During 2011, we recorded charges of $3.8 million (net of tax) related to loss on early extinguishment of our 9.25% senior notes due 2014 (the “2014 Notes”), $0.1 million (net of tax) related to the write-off of deferred financing costs associated with an amendment of our revolving credit facility, and $1.2 million (net of tax) related to merger and acquisition related expenses. Our net loss for 2010 included charges of $0.2 million (net of tax) due to the impact of interest rate swap agreements, $0.1 million (net of tax) related to the write-off of deferred financing costs associated with an amendment of our revolving credit facility, $0.3 million (net of tax) related to merger and acquisition related expenses, and $0.1 million due to the tax impact of vested restricted shares.

Factors that impacted our 2011 performance include, but are not limited to, the following:

• increases in revenue and cost of services mainly due to acquisitions, including the Emerald Waste acquisition and the Stoughton transaction;

• rising fuel costs during 2011 resulted in reduced operating margins;

• severe weather conditions in several markets causing interruption of normal operations and, as a result, lost revenue during the first and second quarters of 2011;

• higher cost of services as a percentage of revenue, primarily due to higher fuel costs across all regions, higher disposal and hauling costs primarily due to higher rail hauling costs associated with increased volumes, integration costs, a change in our mix of business due to adding more residential collection with the Emerald Waste acquisition, and labor cost increases in Texas associated with acquisitions, produced lower operating margins;

• increase in merger and acquisition related expenses, primarily due to the Merger; and

• increases in interest expense as a result of carrying larger debt balances due to acquisitions and debt financing, loss on early extinguishment of debt due to the tender and redemption of the 2014 Notes, and the write-off of deferred financing costs associated with an amendment of our revolving credit facility.

Except for the reduction in C&D revenue in Texas and the increase in special waste revenue in Arkansas, revenues in our other locations have stayed relatively flat or are slightly improving. We are actively seeking growth opportunities through acquisitions and we expect that our existing operations in 2011 will remain stable, with slight improvements due to pricing increases. Significant improvement in general economic activity and/or construction activity would be likely to have a significant favorable/positive impact on our operations.

In 2011, we invested approximately $53.1 million on a combination of newly acquired companies and similar expansion and growth expenditures, including $38.4 million of cash, 2,816,308 shares of our common stock valued at $14.7 million. As of December 31, 2011, we had approximately $88.9 million available under our existing credit facility.

Proposed Acquisition by a Subsidiary of Macquarie Infrastructure Partners

Agreement and Plan of Merger

On December 21, 2011, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Cod Intermediate, LLC, a Delaware limited liability company (“Parent”), and Cod Merger Company, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”).  Parent is owned by Macquarie Infrastructure Partners II U.S., L.P. and Macquarie Infrastructure Partners II International, L.P.

Upon the terms and subject to the conditions set forth in the Merger Agreement, which has been unanimously approved by our board of directors, at the closing of the merger (the “Effective Time”), Merger Sub will merge with and into WCA (the “Merger”) and the separate corporate existence of Merger Sub will cease.  WCA will be the Surviving Corporation in the Merger and will be a wholly-owned subsidiary of Parent.  Each share of common stock of WCA issued and outstanding immediately prior to the Effective Time (other than shares held by dissenting stockholders) shall thereupon be converted automatically into the right to receive $6.50 in cash.  Each share of Series A Preferred Stock issued and outstanding immediately prior to the Effective Time (other than any shares held by dissenting stockholders) shall thereupon be converted automatically into the right to receive an amount in cash equal to the preferred stock liquidation preference as of the date of closing.  Each share of Common Stock and Series A Preferred Stock owned, directly or indirectly, by Merger Sub immediately prior to the Effective Time or held by WCA or any of its subsidiaries immediately prior to the Effective Time shall be cancelled and cease to exist and no consideration shall be delivered in exchange for such cancellation and retirement.  All shares of restricted Common Stock shall vest in full at the Effective Time and the holders shall be entitled to receive $6.50 in cash for each share of restricted Common Stock.   Each party’s obligation to complete the Merger is subject to various customary conditions, including, among others, (a) approval of the Merger Agreement by the stockholders of WCA, which occurred on March 8, 2012, (b) there being no law or injunction prohibiting consummation of the Merger, (c) expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which occurred on February 6, 2012, (d) subject to specified materiality standards, the accuracy of the representations and warranties of the other party and (e) compliance by the other party in all material respects with its covenants. Parent’s obligation to complete the Merger is additionally subject to (a) no material adverse effect on WCA having occurred since December 21, 2011, (b) holders of no more than 10% of the outstanding common stock of WCA and holders of no more than 10% of the outstanding preferred stock of WCA shall have exercised their dissenters’ rights, (c) no event of default under the WCA’s credit agreement shall have occurred and have caused the debt financing not to be available in full, and (d) certain regulatory approvals having been obtained by WCA, all of which have been obtained.

We anticipate that the Merger will close in March 2012.  As of December 31, 2011, we incurred approximately $1.1 million associated with the transaction.

Acquisition History and Outlook

Acquisitions have played a key role in our revenue growth and operating history.  Our acquisition history has included both strategic acquisitions of landfill assets that have enabled us to enter new markets and “tuck-in” acquisitions of collection operations and transfer stations that have expanded our operations in those markets which we already serve.  Collectively, the numerous acquisitions which we have completed have contributed significantly to our overall growth and continue to have a material effect on our operating results.  We strive to integrate all of our completed acquisitions into our existing operations as soon as feasible; however, it may take up to a year to fully realize operating synergies for the acquisitions that we completed in 2011.  Please read Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview—Acquisitions” to this Form 10-K for more information regarding our completed acquisitions.  For a summary of the impact of the acquisitions during 2011, 2010 and 2009 on our reported financial results for such periods, please read note 3 to our consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplemental Data” to this Form 10-K.

On December 31, 2009 we consummated the acquisition of the operating subsidiaries of Live Earth, LLC (collectively, the “Live Earth Companies”), which included certain assets and related liabilities held by Live Earth, LLC that relate to the Live Earth Companies.  The acquisition of the Live Earth Companies represented our largest acquisition to date and included the Sunny Farms Landfill, a 457-acre site permitted to accept municipal solid waste, industrial waste and construction and demolition debris located in Seneca County, Ohio; Champion City Recovery, a transfer station permitted to accept 1,000 tons a day located south of Boston, Massachusetts; and a rail haul operation over a Class 1 rail line transporting waste from the east coast to Sunny Farms Landfill.  In 2010, we acquired Washita Disposal, Five JAB Environmental Services, Sprint Waste Services and DINA Industries, all of which are tuck-in acquisitions.  Effective January 1, 2011, we acquired all of the outstanding capital stock of IESI OK Corporation, which is now known as WCA of Chickasha.  The acquired operations include nine commercial and residential routes around Chickasha, Oklahoma, which is approximately 40 miles southwest of Oklahoma City, and a transfer station, which is approximately 50 miles from our Pauls Valley Landfill.  The transfer station is fully permitted but is not currently in operation.  On February 15, 2011, we entered into an operating agreement with and an option to purchase Stoughton Recycling Technologies, LLC (“SRT”).  SRT is a commercial and demolition recycling facility and transfer station in Stoughton, Massachusetts.  This facility is located three miles from the WCA-owned Champion City Recovery transfer station and approximately 25 miles south of Boston, Massachusetts.  On February 28, 2011, we completed the acquisition of certain assets of Emerald Waste Services (“Emerald Waste”), including one transfer station and three collection operations located in Central Florida.  The acquired operations consist of 117 residential, commercial and roll-off routes servicing seven counties and 113,500 customers in the Gainesville, Orange City and Daytona Beach market areas.  In 2012, we intend to continue seeking and pursuing attractive acquisition opportunities that enable us to internalize waste into our existing landfills and that offer new markets where: (i) we are able to acquire disposal facilities; (ii) we can secure long-term disposal contracts; or (iii) the landfills are municipally owned.  We have sufficient capacity under our credit agreement and through available authorized shares of our capital stock to pursue and consummate opportunistic acquisitions that enable us to effectively leverage our existing infrastructure and maximize the internalization of waste.

Our Operations and Customers

Our operations consist of the collection, transfer, processing and disposal of solid waste.  Our revenue mix for the years ended December 31, 2011, 2010 and 2009 is shown in the table below (dollars in thousands):

 

		2011								2010								2009
		$				%				$				%				$				%
Collection		$	153,380				56.0	%		$	123,070				53.6	%		$	125,931				64.9	%
Disposal			73,217				26.7				70,503				30.7				43,722				22.5
Transfer and other, net			47,217				17.3				35,911				15.7				24,485				12.6
Total revenue		$	273,814				100.0	%		$	229,484				100.0	%		$	194,138				100.0	%

 

		2011								2010								2009
		$				%				$				%				$				%
Collection:
Residential		$	68,515				25.0	%		$	53,619				23.3	%		$	55,086				28.4	%
Commercial			40,048				14.6				25,917				11.3				25,082				12.9
Roll-off			44,817				16.4				43,534				19.0				45,763				23.6
Total collection			153,380				56.0				123,070				53.6				125,931				64.9
Disposal			102,902								98,841								68,831
Less intercompany			29,685								28,338								25,109
Disposal, net			73,217				26.7				70,503				30.7				43,722				22.5
Transfer and other			60,612								47,493								35,924
Less intercompany			13,395								11,582								11,439
Transfer and other, net			47,217				17.3				35,911				15.7				24,485				12.6
Total revenue		$	273,814				100.0	%		$	229,484				100.0	%		$	194,138				100.0	%

 

		Years Ended December 31,
		2011				2010				2009
Revenue		$	273,814			$	229,484			$	194,138
Expenses:
Cost of services			200,736				165,110				130,287
Depreciation and amortization			33,489				30,058				26,357
General and administrative (including stock-based compensation of $2,155, $1,564 and $1,737, respectively)			15,713				11,999				13,496
Gain on sale of assets			(349	)			(938	)			(86	)
			249,589				206,229				170,054
Operating income			24,225				23,255				24,084
Other income (expense):
Interest expense, net			(20,203	)			(19,028	)			(18,052	)
Write-off of deferred financing costs			(157	)			(184	)			—
Loss on early extinguishment of debt			(5,797	)			—				—
Impact of interest rate swap			—				(236	)			(2,063	)
Other expense, net			(4	)			(3	)			(3	)
			(26,161	)			(19,451	)			(20,118	)
Income (loss) before income taxes			(1,936	)			3,804				3,966
Income tax provision			(461	)			(1,915	)			(2,958	)
Net income (loss)			(2,397	)			1,889				1,008
Accrued payment-in-kind dividend on preferred stock			(4,724	)			(4,501	)			(4,278	)
Net loss available to common stockholders		$	(7,121	)		$	(2,612	)		$	(3,270	)
Net loss available to common stockholders:
Earnings per share – basic		$	(0.32	)		$	(0.13	)		$	(0.21	)
Earnings per share – diluted		$	(0.32	)		$	(0.13	)		$	(0.21	)
Weighted average shares outstanding — basic			22,254				19,598				15,824
Weighted average shares outstanding — diluted			22,254				19,598				15,824

See accompanying notes to consolidated financial statements.

 

		December 31,
		2011				2010
Assets
Current assets:
Cash and cash equivalents		$	343			$	2,763
Accounts receivable, net of allowance for doubtful accounts of $284 and $482			31,148				26,113
Deferred tax assets			306				3,436
Prepaid expenses and other			5,933				3,962
Total current assets			37,730				36,274
Property and equipment, net			334,121				320,564
Goodwill, net			101,269				71,578
Intangible assets, net			15,430				7,891
Deferred financing costs, net			5,701				3,210
Deferred tax assets			1,704				—
Other assets			251				345
Total assets		$	496,206			$	439,862
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	11,252			$	13,131
Accrued liabilities and other			16,485				13,921
Note payable			1,470				1,251
Current maturities of long-term debt			1,575				500
Total current liabilities			30,782				28,803
Long-term debt, less current maturities			274,000				232,571
Accrued closure and post-closure liabilities			12,156				11,571
Deferred tax liabilities			—				1,399
Other long-term liabilities			1,769				1,789
Total liabilities			318,707				276,133
Commitments and contingencies
Stockholders’ equity:
Series A convertible preferred stock, $0.01 par value per share. Authorized 8,000 shares; issued and outstanding 960 shares and 914 shares, respectively (liquidation preference $98,058 and $96,006, respectively)			10				9
Common stock, $0.01 par value per share. Authorized 50,000 shares; issued 24,773 shares and 21,684 shares			248				217
Treasury stock, 1,074 shares and 1,074 shares, respectively			(5,322	)			(5,322	)
Additional paid-in capital			220,486				199,627
Contingent considerations			3,225				3,225
Retained earnings (deficit)			(41,148	)			(34,027	)
Total stockholders’ equity			177,499				163,729
Total liabilities and stockholders’ equity		$	496,206			$	439,862

See accompanying notes to consolidated financial statements.

 

		Years Ended December 31,
		2011				2010				2009
Supplemental cash flow information:
Interest paid		$	18,723			$	17,577			$	16,914
Interest rate swap paid			—				8,778				5,897
Income taxes paid			476				515				509
Income tax refund received			335				—				—
Non-cash investing and financing activities:
Insurance premiums financed by direct debt			1,810				1,541				3,135
Acquisitions of operations:
Accounts receivable			—				4				3,514
Prepaid expenses and other			212				(167	)			167
Property and equipment, net			14,632				1,973				44,706
Goodwill			29,691				6,769				738
Intangible assets			8,918				1,721				408
Debt and liabilities issued or assumed, net of debt discount			637				278				2,442
Long-term debt			—				—				859
Accrued closure post-closure liabilities			—				—				4,344
Common stock			28				—				35
Additional paid-in capital			14,622				100				15,253
Contingent considerations			—				—				3,225