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Executives

Tom Fatjo – Chairman and CEO

Jerry Kruszka – President and COO

Chuck Casalinova – CFO

Analysts

Michael Hoffman – Wunderlich Securities

Michael Plancey – Credit Suisse

Jeff Beach – Stifel Nicolaus

WCA Waste Corporation (WCAA) Q1 2010 Earnings Conference Call April 29, 2010 8:30 AM ET

Operator

Good day ladies and gentlemen, and welcome to the first quarter 2010 WCA Waste Corp. earnings conference call. My name is Tom and I will be your operator for today. At this time all attendees are in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference.

(Operator Instructions)

I would now like to turn the presentation over to Tommy Fatjo [ph], Senior Vice President. Please proceed.

Unidentified Company Representative

Good morning, and welcome to the WCA Waste Corporation conference call in which we will be reporting results for the quarter ended March 31, 2010. Participating on our call will be Tom Fatjo, our Chairman and Chief Executive Officer; Jerry Kruszka, President and Chief Operating Officer; and Chuck Casalinova, our Senior Vice President and Chief Financial Officer.

Prior to the call, it is important to discuss certain risk factors regarding our forward-looking statements. In our presentation today, we will be making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934.

Forward-looking statements generally include discussions and descriptions other than historical information. Words such as expects, intends, plans, projects, believes, will, outlook, estimates and similar expressions are often used to identify forward-looking statements. Our guidance and descriptions of revenue run rate, and acquisition activities are also forward-looking statements.

Since WCA’s business, operations and strategies are subject to a number of risks, uncertainties and other factors, actual results may differ materially from those described in the forward-looking statements. In our earnings release and our public filings, we identify a number of risks and uncertainties associated with our forward-looking statements including those that are in the following presentation.

I direct your attention to the earnings release and our filings with the Securities and Exchange Commission where we describe risk and uncertainties in detail. The forward-looking statements made today are only made as of this day, and the company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Our presentation today also includes certain non-GAAP financial measures including EBITDA, adjusted EBITDA and revenue and EBITDA run rates. We direct your attention to our earnings release and our filings for a description of the computations of those measures.

Thank you for joining us and at this time I would like to turn the call over to Tom Fatjo, our Chairman and Chief Executive.

Tom Fatjo

Good morning. Revenue and earnings were impacted in the first quarter by weather, integration costs and the economy. However, substantial upturn began to occur in March providing 45% of the first quarter EBITDA. According to an industry analyst weather during January and February of 2010 was unprecedentedly severe.

The company has begun to identify and successfully capture new revenue streams. We have been particularly successful in securing special waste disposable volume. We’re pursuing other revenue opportunities such as coal ash disposal.

The integration of the Live Earth acquisition, which is a major investment in the rail haul of waste on the East Coast that closed on December 31, 2009 is proceeding smoothly with improved operating efficiency and increased volume. Since this industry segment has a higher component of transportation cost, overall profit margins are lower. We’re very excited about the opportunity this acquisition affords WCA.

We now have disposal capacity in the Midwest with service to the upper East Coast. Growth by acquisition is a renewed priority for WCA. In executing our acquisition strategy, we are placing emphasis on internalizing more waste into our Sunny Farms Landfill in Ohio and our Fort Bend County Landfill near Houston, Texas.

We are reiterating our 2010 forecast of revenue of $225 million and EBITDA of $55 million. Now I’ll turn the call over to Jerry Kruszka, President.

Jerry Kruszka

Thank you Tom, good morning. We’ll now discuss WCA’s operating results for the quarter ended March 31, 2010. Revenue for the quarter was $52.3 million versus $48.2 million reported for the same quarter of 2009. This 8.5% increase in revenue is broken down as follows; an increase of 16.4% from acquisition and acquisition roll forward. Majority of the acquisition revenue growth came from the purchase of Live Earth assets of December 31, 2009.

Live Earth assets include Sunny Farms Landfill in Ohio and Champions City Transfer Station in Massachusetts. Pricing for the quarter was down 2.3% for a couple of reasons. First hurricane volumes was received in the Houston Landfills during the first quarter of 2009, (the movers) and general contractors that gave rates (growth) are normally higher than contracted customer rates.

Second, you have seen several of our competitors being aggressive on pricing. And as a result we are continuing to bid at lower prices in certain of our markets. We have also reduced some of our residential contract rates and renewal process to meet competitive pricing and to extend these contracts.

Volume decreased 5.6% during the quarter as a result of having increased volume during the first quarter 2009 with a cleanup of Hurricane Ike in Houston, and severe weather in a majority of our service areas has shut down construction demolition volumes for numerous days in January and February of 2010.

Volume in March reached expected levels as we experienced the first month in 2010 without significant weather issues.

Quarter with Live Earth operations and our consolidated results. The Live Earth operations have larger transportation component, a substantial portion of our volume includes direct passthrough for rate cost back to our customers. As a result the margin is lower than we have historically integrated into WCA Waste Corporation.

The Live Earth revenue represented 14.1% of our first quarter of revenue and 5% of our first quarter EBITDA net of integration startup costs.

We anticipated that once these operations are fully integrated, the EBITDA margins of Live Earth will be approximately 15% to 17%. With Live Earth representing 15% of WCA revenue, we anticipate our overall revenue mix to generate approximately 2% less than historical EBITDA margins.

Fuel surcharge was flat for the quarter. However fuel did increase compared to the first quarter of 2009. Fuel surcharges do lag the fuel price increases by up to 90 days. We will see an increase as our fuel surcharge takes effect during the second quarter.

As we laid in our last call, WCA anticipates 2010 revenues of $225 million and EBITDA of $55 million. This will result in a 2010 EBITDA margin of 24.4%.

WCA 2009 adjusted EBITDA margin was 26.5%. Again, the reduction in margin reflects our change of revenue mix with the larger component of revenue being a direct or 100% passthrough of rail transportation cost.

Adjusted EBITDA for the quarter was $11 million versus $13 million for the comparable quarter in 2009. This reduction in actual EBITDA was a result of Hurricane Ike volume in 2009, pricing pressures on residential contracts and new industrial collection efforts and severe weather in January and February of 2010. March 2010 was a strong month and met internal expectations generating 45% of our EBITDA for the quarter. We feel that this momentum will roll into the second quarter.

The Live Earth acquisition was completed on December 31, 2009. At this point, we’re well into our integration effort of bringing the operation into WCA standards of maintenance, safety, 404 compliance, system integration and policies and procedures compliance. We are excited about the opportunities we see in having disposal capability in the Midwest and on the East Coast.

Our internalization rate was 67% for the first quarter of 2010 and as of March 31st, 2010 WCA operated 25 landfills, 24 transfer stations and 26 collection operations and serviced approximately 341,000 customers.

Our employee headcount on March 31st, 2010 was 1119.

I will now turn the call over to Chuck Casalinova, our Chief Financial Officer, for further financial review.

Chuck Casalinova

Thank you, Jerry. Continuing with our analysis of the first quarter results, non-operating items impacting the quarter include the impact of our interest swap, the non-cash tax impact of vested restricted shares and acquisition related expenses. The interest rate swap expires in November of 2010, which will result in a cash savings of approximately $6 million to $7 million annually based on 2009 results.

Excluding these three non-operating items, our loss available to common stock holders was $0.08 per share. As of March 31st, 2010 our weighted average shares outstanding were approximately 19.5 million shares and our total common shares outstanding net of treasury shares were at approximately 20.2 million.

We also have 2 million shares reserved for Live Earth earnout, which we anticipate releasing by 12/31/2012.

We invested $3.6 million in maintenance and growth capital during the quarter.

As of March 31, 2010 we had approximately $95 million available in available capacity under a senior credit facility.

Our days sales outstanding during the first quarter remained low at 27.6 days. This reflects the focus our field personnel have continued to put forth on collecting our receivables.

Operator, I would now like to open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Michael Hoffman with Wunderlich Securities. Please proceed.

Michael Hoffman – Wunderlich Securities

Can you help us a little bit with the transportation number that would flow through the revenue and then flow through the expense side? And the second part of that question is, I get this as a sort of a new issue, there are precedents in the accounting world that will allow you to show that as a revenue line and therefore then to be able to talk about the expense line. I’m curious if you’ll consider that kind of disclosure going forward.

Tom Fatjo

The answer is yes, we will going forward and to just kind of give you a basis, it represents about 30% to 35% of the revenue.

Michael Hoffman – Wunderlich Securities

It’s the transportation number?

Tom Fatjo

It’s the transportation.

Michael Hoffman – Wunderlich Securities

Okay. And for all intents and purposes it’s the same number shows up in cost of goods sold?

Tom Fatjo

Exactly.

Michael Hoffman – Wunderlich Securities

Okay, all right, great. And then do you have a cash from operations number?

Tom Fatjo

Yes, we generated about $1.3 million in cash from operations or free cash flow, Mike.

Michael Hoffman – Wunderlich Securities

So that’s the free cash flow, so that means you –

Tom Fatjo

From operations we generated about $4.4 million.

Michael Hoffman – Wunderlich Securities

All right, $4.4 million, okay. And then were you able to isolate – I’m assuming the weather had two effects; one is this volume doesn’t get to you and some of it’s going to show up eventually because work will start. But there’s also productivity issues of more over time, things like that. Do you have a sense what that impact was in the quarter?

Tom Fatjo

It’s difficult, Michael because next quarter we won’t have Hurricane Ike comparisons. So that made the comparison a little more difficult. So it was very hard to – but we do know that certain of our operations were closed for up to four and five days.

Michael Hoffman – Wunderlich Securities

Okay. And then when you look at March, well, I get that it’s back and on budget, is there any sense of some stuff that didn’t get done in February so it shows up in March or can you feel pretty good that what was happening was daily activity, normal daily activity of volume being produced and therefore showing up to you.

Jerry Kruszka

Michael, this is Jerry; there might have been some catch up, I’d say it was minor because of how it continued through the month and what we’re seeing going into the first part of April as well.

Michael Hoffman – Wunderlich Securities

That would have been the following question is what’s the pattern. We’re hearing some just chatter that you guys have been looking around in collection operations and sort of the north Jersey metropolitan New York market. And I’m curious of why do you think that’s necessary given that New York is a long haul market and you’ve got a destination. So do you really need to control the volume at the point of generation?

Jerry Kruszka

So I think keeping with our strategy, we always set up our disposal facilities first. And our next step and we do have a transfer station, will be transfer stations and then to assure that volume continuation would be kind of a backward integration into the collection itself.

Michael Hoffman – Wunderlich Securities

Okay, so we could expect to see you in that marketplace looking for transfer capacity more than collection capacity?

Jerry Kruszka

We’d be looking for both but ideally would be if we could tie up disposal agreements. And if that would be unsuccessful, we would further reverse integrate.

Operator

(Operator Instructions) Your next question comes from the line of Michael Plancey with Credit Suisse. Please proceed.

Michael Plancey – Credit Suisse

Just had a question for you on the coal ash opportunity, is that something you can do prior to the EPA coming out with regulations or is that something that you want to be in position to capitalize once those regulations are released?

Tom Fatjo

Well, we’ve had meetings. I think people are anticipating the regulations coming down shortly. Is it something beforehand? More than likely not because we’re hearing that they maybe out as early as the end of this month. So in the next few days we may see something.

Michael Plancey – Credit Suisse

And then have you quantified sort of the – in your market sort of what the total available tonnage might be when you look at this opportunity?

Tom Fatjo

Probably the best information we can give is the EPA being the source of it themselves, overall nationwide, and not just our markets. They estimate that there are 120 million tons of coal ash to be disposed of annually and that compares to 200 million plus tons of MSW. So it’s a major amount.

Now as far as in our markets, I think they’ve identified 39 plants that generate coal ash that needs to be disposed of and this is informal on a liner. And I believe at least a third of those are in the markets that we’re in. So provided that the EPA enforces the regulations that we anticipate to see, I mean obviously if they have regulations they are going to enforce them, but enact regulations is a better way to put it. It should be a major revenue component for all of the waste companies and obviously we’ll be in there competing for our share of it. One particular – the largest plant in the United States is about 4.5 to 5 miles from our large landfill in Fort Bend County. So that’s just an illustration of the opportunity.

Operator

Your next question comes from the line of Jeff Beach with Stifel Nicolaus. Please proceed.

Jeff Beach – Stifel Nicolaus

Can you talk a little bit about some of your regional markets? I know I’m looking here at this 5% decline in volume but it’s an unrepresentative of comparison. Can you walk through some of the markets? And my companies are exposed to residential construction and are all looking at an upturn coming here, non-res we haven’t seen it yet, but do you think you’ll see favorable volume before the end of this year?

Chuck Casalinova

Well, there’s a couple of things, Jeff. First, we’re being compared to the first quarter where we had the hurricane volume coming in. So from that level we’re down. As we mentioned we were actually closed in some of the C&D markets due to snow fall and storms, actually it was five or six days. Well, we’re starting to see that come back. We’re starting to see regionally I would say three out of the four regions right now seemed to be doing quite well and back on the level we expect them to be.

Jeff Beach – Stifel Nicolaus

Again, do you think you’ll see volume turn positive over the next few quarters, is that still something that’s too hard to tell?

Chuck Casalinova

No, I think the volume is coming back as we speak. As we mentioned earlier, March was pretty strong and it’s continuing into April.

Tom Fatjo

This might help you too, is half of our volume loss was from Hurricane Ike in comparing quarter to quarter, the other half is probably ongoing (get) business. So we do anticipate it flattening out and getting positive the rest of the year.

Jeff Beach – Stifel Nicolaus

And with it I assume that will likely lead to better pricing.

Tom Fatjo

Correct.

Operator

Since there are no further questions, I would now like to turn the call back over to Tom Fatjo for closing remarks.

Tom Fatjo

Well, obviously we appreciate each of you taking the time to listen in to the call and focus on our operating results. We continue to be excited about the future for 2010. We’re particularly are placing a lot of the company’s emphasis on acquisition opportunities. As we said earlier, the initial considerations are increasing the volume in our Sunny Farms Landfill in Ohio and also increasing the volume in our Fort Bend County Landfill, our two largest landfills. However, we do see real opportunities in the acquisition area where the annual conference for the waste industry referred to as the Waste Expo is next week. We anticipate more participation with – more companies to that convention this year than usual.

So, as we look forward we feel like that we came through an aggressive acquisition program. We can dynamically increase the size and scope of WCA.

If you have any further questions, we’ll be here at the office today and I look forward to answering them. Thanks again for being available.

Operator

Ladies and gentlemen, thank you for attending today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

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