Casella Waste Systems, Inc. — Q2 2015 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2015. Casella provides integrated solid-waste collection, transfer, disposal, recycling and organics services, primarily in six northeastern states. It reports Eastern, Western, Recycling and Other segments. Unless noted, amounts below are in millions of dollars.
Financial performance
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $143.7 | $260.3 | $137.3 quarter; $250.5 six months |
| Operating income (loss) | $11.3 | $14.5 | $(0.5) quarter; $(4.1) six months |
| Operating margin | 7.9% | 5.6% | (0.3)% quarter; (1.7)% six months |
| Net income (loss) attributable to common stockholders | $1.0; $0.03 per share | $(8.2); $(0.20) per share | $(6.7) quarter; $(20.1) six months |
| Net cash from operating activities | Not reported separately | $23.9 | $22.4 six months |
Second-quarter revenue rose 4.7%; first-half revenue rose 3.9%. Solid-waste revenue growth was led by disposal volumes and favorable pricing. Recycling revenue declined as lower commodity prices outweighed higher volumes. For the quarter, cost of operations improved to 68.7% of revenue from 70.8%, while general and administrative expense increased to 12.6% from 11.4%.
First-half capital expenditures were $16.3; operating cash flow less property, plant and equipment additions was approximately $7.6. Investing cash outflow was $11.6 and financing cash outflow was $11.3. Cash increased by $1.0 from year-end to $3.2. At June 30, total assets were $657.5, current liabilities $86.1, and stockholders’ deficit $18.9.
Debt and liquidity
- Debt and capital leases totaled $528.3 carrying value, down from $535.7 at December 31, 2014. Cash was $3.2.
- In February, Casella issued an additional $60.0 of 7.75% senior subordinated notes due February 2019 and refinanced its prior revolving facility with a new asset-based revolving credit facility (ABL) maturing in February 2020, subject to an earlier maturity trigger if the 2019 notes are not refinanced by November 2018.
- The ABL had $64.7 drawn and $58.8 of borrowing availability at quarter-end, after letters of credit; the borrowing base was $150.4. The company reported compliance with its covenants, including minimum trailing-twelve-month EBITDA of $104.4 against a $75.0 minimum.
- Interest expense was $10.2 for the quarter and $20.3 for the first half, versus $9.6 and $19.2, respectively, in 2014. First-half financing costs were $8.1.
Changes, unusual items and outlook
- Reported operating results benefited from divestiture-related items. First-half divestiture transactions were a net $5.6 gain, including gains on CARES-related asset sales, the Maine Energy reserve reversal, and a route-business sale. The comparable 2014 periods included a $7.5 CARES impairment charge. These items materially affect year-over-year operating comparisons.
- Eastern and Western operating income improved; Recycling reported operating losses of $0.4 for the quarter and $2.4 for the first half, with commodity prices, hauling and labor costs contributing to weakness.
- Management gave no numerical revenue or earnings guidance in the provided filing text. It cautioned that results are seasonal, with lower activity generally in late fall, winter and early spring; severe weather can raise costs and disrupt volumes. Early-2015 winter weather also affected productivity.
- Key exposures include recyclable-commodity prices, fuel and interest rates, permitting and landfill capacity, environmental obligations, and regional economic and weather conditions. A 100-basis-point change in variable borrowing rates was estimated to change quarterly interest expense by about $0.2. The company reported no hedging agreements at June 30.
- Environmental matters include a $5.2 recorded Potsdam remediation liability; the company is jointly and severally liable with another respondent, and actual costs could exceed estimates. A Massachusetts landfill consent order resulted in a $172,000 penalty, of which $129,000 was designated for a supplemental environmental project.
- Activist investor JCP Group, which reported owning approximately 5% of Class A shares, proposed three director nominees for the 2015 annual meeting. The company warned that a proxy contest could be disruptive and costly.
Important facts for investors to verify
- How much of the operating improvement reflects recurring performance versus gains, reversals and the prior-year CARES impairment.
- Whether disposal-volume growth, pricing and cost controls continue, and whether Recycling margins recover amid commodity-price pressure.
- ABL borrowing availability and covenant headroom through seasonally weaker quarters, as well as the refinancing path for the 2019 notes.
- Cash conversion, capital spending needs, landfill closure obligations and ultimate Potsdam remediation costs.
- Developments in the activist proxy contest and any related effects on management focus or strategy.