Casella Waste Systems (CWST) Q4 2007 earnings summary

Executive summary

• FY2007 revenue rose 6.2% to $547.0M, while operating income fell 71.5% to $12.1M; a $26.9M Hardwick impairment and closure charge drove the decline.

• Net loss was $17.9M versus net income of $11.1M in FY2006; diluted EPS was $(0.85).

• Free cash flow improved to $(20.1)M from $(38.3)M, exceeding the high end of guidance, primarily on lower capital spending.

Financial highlights

• Revenue increased $31.8M YoY; solid waste growth was 3.3%, while FCR Recycling grew 13.9%, supported by commodity prices, volume and acquisitions.

• Cost of operations rose 6.1% to $360.7M and was 65.9% of revenue, compared with 66.0% in FY2006; G&A increased 11.6% to $74.9M.

• Net interest expense increased 24.3% to $38.9M, reflecting higher average rates and debt; the average interest rate rose from 7.8% to 8.5%.

• Operating cash flow was $81.5M, up from $75.5M; capital expenditures were $102.2M versus $112.8M in FY2006.

Outlook and guidance

• FY2008 capital expenditures are expected at $76M–$80M as major investment in new landfill capacity winds down.

• FY2007 guidance was revenue of $550M–$570M, capital expenditures of $100M–$104M and free cash flow of $(30)M–$(22)M; actual revenue was $547.0M, capex $102.2M and free cash flow $(20.1)M.

• Priorities shifted toward positive free cash flow, debt repayment and higher returns on landfill investments; permitting efforts target over 900,000 tons of incremental annual capacity.