Waste Connections Reports Third Quarter 2012 Results

Marketwired

THE WOODLANDS, TX--(Marketwire - Oct 22, 2012) - Waste Connections, Inc. (NYSE: WCN)

  • Revenue of $425.7 million, up 5.4%, and adjusted net income* of $49.3 million, up 4.8%
  • GAAP and adjusted EPS* of $0.40
  • YTD net cash provided by operating activities of $326.7 million
  • YTD adjusted free cash flow* of $223.9 million, or 18.5% of revenue
  • R360 acquisition on track to close during Q4

Waste Connections, Inc. (NYSE: WCN) today announced its results for the third quarter of 2012. Revenue totaled $425.7 million, a 5.4% increase over revenue of $404.0 million in the year ago period. Operating income was $89.1 million compared to $89.3 million in the third quarter of 2011. Operating income in the current year period included approximately $3.5 million ($2.2 million net of taxes) associated with costs incurred in connection with the relocation of our corporate headquarters from California to Texas, acquisition-related transaction costs and loss on disposal of assets, which were offset by an approximate $3.5 million ($2.2 million net of taxes) gain from litigation settlement. Net income attributable to Waste Connections in the quarter was $49.4 million, or $0.40 per share on a diluted basis of 123.7 million shares. In the year ago period, the Company reported net income attributable to Waste Connections of $46.3 million, or $0.41 per share on a diluted basis of 113.2 million shares.

Adjusted net income attributable to Waste Connections in the quarter was $49.3 million*, or $0.40 per share*, adjusting for the items noted above. Adjusted net income attributable to Waste Connections in the prior year period was $47.1 million*, or $0.42 per share*, adjusting primarily for a loss on disposal of assets.

"We once again are extremely pleased with our performance for the quarter as revenue, margins and free cash flow exceeded the upper end of our expectations -- notable achievements in light of declining recycled commodity values realized during the period. Throughout the year, we have cautioned investors about the tepid macro environment, the headwinds of lower recycled commodity prices and tough disposal comps. We believe the strength of our operating performance continues to demonstrate the resiliency of our differentiated strategy," said Ronald J. Mittelstaedt, Chairman and Chief Executive Officer. "Although the direction of the economy remains uncertain, we are encouraged both by recent improvements in construction data and increases since early October in recycled commodity prices."

Mr. Mittelstaedt added, "We also are especially encouraged by our prospects for 2013 given the expected highly accretive rollover contribution from acquisitions already completed or announced this year. The Alaska Waste and SKB acquisitions completed earlier this year are exceeding our initial expectations. And as announced in September, we entered into an agreement to acquire the business of R360 Environmental Solutions, Inc. for approximately $1.3 billion in cash. R360 is a leading provider of non-hazardous oilfield waste treatment, recovery and disposal services in several of the most active natural resource producing areas in the United States, including the oil-rich Permian, Bakken and Eagle Ford Basins. Its growth is being fueled by increased drilling activity in unconventional basins, increased environmental regulatory scrutiny, and the strategic positioning of its assets across several basins. The R360 transaction, which remains subject to certain closing conditions including receipt of regulatory approvals, remains on track to close during the fourth quarter of 2012."

* A non-GAAP measure; see accompanying Non-GAAP Reconciliation Schedule.

For the nine months ended September 30, 2012, revenue was $1.2 billion, a 7.7% increase over revenue of $1.1 billion in the year ago period. Operating income was $235.9 million compared to $242.7 million for the same period in 2011. Operating income in the current year period included approximately $10.9 million ($7.8 million net of taxes) of costs incurred in connection with the relocation of our corporate headquarters from California to Texas, acquisition-related transaction costs, a one-time equity compensation expense related to awards made at the time of the modification of our named executive officers' employment contracts, and loss on disposal of assets, partially offset by a gain from litigation settlement. Operating income in the prior year period included approximately $2.0 million of expenses ($1.5 million net of taxes) associated with acquisition-related transaction costs and loss on disposal of assets.

Net income attributable to Waste Connections for the nine months ended September 30, 2012, was $123.1 million, or $1.02 per share on a diluted basis of 121.2 million shares. In the year ago period, the Company reported net income attributable to Waste Connections of $127.3 million, or $1.12 per share on a diluted basis of 114.0 million shares. Adjusted net income attributable to Waste Connections for the nine months ended September 30, 2012, was $130.9 million*, or $1.08 per share*, compared to $128.8 million*, or $1.13 per share*, in the year ago period.

Waste Connections, Inc. is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets. The Company serves more than two million residential, commercial and industrial customers from a network of operations in 30 states. The Company also provides intermodal services for the movement of cargo and solid waste containers in the Pacific Northwest. Waste Connections, Inc. was founded in September 1997 and is headquartered in The Woodlands, Texas.

Waste Connections will be hosting a conference call related to third quarter earnings and fourth quarter outlook on October 23rd  at 8:30 A.M. Eastern Time. The call will be broadcast live over the Internet at www.streetevents.com or through a link on our website at www.wasteconnections.com. A playback of the call will be available at both of these websites.

For more information, visit the Waste Connections web site at www.wasteconnections.com. Copies of financial literature, including this release, are available on the Waste Connections website or through contacting us directly at (832) 442-2200.

* A non-GAAP measure; see accompanying Non-GAAP Reconciliation Schedule.

Information Regarding Forward-Looking Statements

Certain statements contained in this release are forward-looking in nature, including statements related to: expected operating performance; expected roll-off activity and recycled commodity prices; expected contribution from recently completed and announced acquisitions; the anticipated closing date for announced acquisitions and the Company's ability to finance such activity; and the impact of the relocation of the Company's corporate headquarters from Folsom, California to The Woodlands, Texas. These statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates," or the negative thereof or comparable terminology, or by discussions of strategy. Factors that could cause actual results to differ from those projected include, but are not limited to, the following: (1) our acquisitions may not be successful, resulting in changes in strategy, operating losses or a loss on sale of the business acquired; (2) a portion of our growth and future financial performance depends on our ability to integrate acquired businesses into our organization and operations; (3) competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit our ability to grow through acquisitions; (4) we may be unable to compete effectively with larger and better capitalized companies, companies with lower return expectations, and governmental service providers; (5) we may lose contracts through competitive bidding, early termination or governmental action; (6) price increases may not be adequate to offset the impact of increased costs or may cause us to lose volume; (7) economic downturns adversely affect operating results; (8) our results are vulnerable to economic conditions and seasonal factors affecting the regions in which we operate; (9) we may be subject in the normal course of business to judicial, administrative or other third party proceedings that could interrupt or limit our operations, require expensive remediation, result in adverse judgments, settlements or fines and create negative publicity; (10) increases in the price of fuel may adversely affect our business and reduce our operating margins; (11) increases in labor and disposal and related transportation costs could impact our financial results; (12) efforts by labor unions could divert management attention and adversely affect operating results; (13) we could face significant withdrawal liability if we withdraw from participation in one or more underfunded multiemployer pension plans in which we participate; (14) increases in insurance costs and the amount that we self-insure for various risks could reduce our operating margins and reported earnings; (15) our indebtedness could adversely affect our financial condition; we may incur substantially more debt in the future; (16) each business that we acquire or have acquired may have liabilities or risks that we fail or are unable to discover, including environmental liabilities; (17) liabilities for environmental damage may adversely affect our financial condition, business and earnings; (18) our accruals for our landfill site closure and post-closure costs may be inadequate; (19) the financial soundness of our customers could affect our business and operating results; (20) we depend significantly on the services of the members of our senior, regional and district management team, and the departure of any of those persons could cause our operating results to suffer; (21) our decentralized decision-making structure could allow local managers to make decisions that adversely affect our operating results; (22) we may incur charges related to capitalized expenditures of landfill development projects, which would decrease our earnings; (23) because we depend on railroads for our intermodal operations, our operating results and financial condition are likely to be adversely affected by any reduction or deterioration in rail service; (24) our financial results are based upon estimates and assumptions that may differ from actual results; (25) the adoption of new accounting standards or interpretations could adversely affect our financial results; (26) pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements; and (27) if we are not able to develop and protect intellectual property, or if a competitor develops or obtains exclusive rights to a breakthrough technology, our financial results may suffer. These risks and uncertainties, as well as others, are discussed in greater detail in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change.

   
WASTE CONNECTIONS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2012  
(Unaudited)  
(in thousands, except share and per share amounts)  
   
    Three months ended
September 30,
    Nine months ended
September 30,
 
    2011     2012     2011     2012  
                                 
Revenues   $ 403,962     $ 425,654     $ 1,125,614     $ 1,212,815  
Operating expenses:                                
  Cost of operations     228,561       243,243       637,499       698,351  
  Selling, general and administrative     41,047       47,977       121,054       143,899  
  Depreciation     38,868       42,313       108,843       119,331  
  Amortization of intangibles     5,138       6,267       14,788       18,115  
  Loss on disposal of assets     1,034       244       742       715  
  Gain from litigation settlement     -       (3,537 )     -       (3,537 )
Operating income     89,314       89,147       242,688       235,941  
                                 
Interest expense     (12,029 )     (11,949 )     (31,948 )     (36,063 )
Interest income     132       333       408       630  
Other income (expense), net     (899 )     492       (750 )     1,033  
Income before income tax provision     76,518       78,023       210,398       201,541  
                                 
Income tax provision     (29,934 )     (28,403 )     (82,415 )     (77,967 )
Net income     46,584       49,620       127,983       123,574  
Less: net income attributable tononcontrolling interests    
(255
)    
(235
)    
(702
)    
(470
)
Net income attributable to Waste Connections   $ 46,329     $ 49,385     $ 127,281     $ 123,104  
                                 
Earnings per common share attributable to Waste Connections' common stockholders:                                
  Basic   $ 0.41     $ 0.40     $ 1.13     $ 1.02  
                                 
  Diluted   $ 0.41     $ 0.40     $ 1.12     $ 1.02  
                                 
Shares used in the per share calculations:                                
  Basic     112,327,410       123,031,259       113,130,314       120,571,106  
  Diluted     113,192,884       123,665,589       113,979,165       121,198,901  
                                 
Cash dividends per common share   $ 0.075     $ 0.09     $ 0.225     $ 0.27  
   
   
WASTE CONNECTIONS, INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(Unaudited)  
(in thousands, except share and per share amounts)  
   
    December 31,     September 30,  
    2011     2012  
ASSETS                
Current assets:                
Cash and equivalents   $ 12,643     $ 103,532  
Accounts receivable, net of allowance for doubtful accounts of $6,617 and $6,577 at December 31, 2011 and September 30, 2012, respectively     176,277       196,617  
Deferred income taxes     20,630       29,125  
Prepaid expenses and other current assets     39,708       33,487  
    Total current assets     249,258       362,761  
                 
Property and equipment, net     1,450,469       1,561,415  
Goodwill     1,116,888       1,183,363  
Intangible assets, net     449,581       496,341  
Restricted assets     30,544       32,982  
Other assets, net     31,265       36,965  
    $ 3,328,005     $ 3,673,827  
                 
LIABILITIES AND EQUITY                
Current liabilities:                
Accounts payable   $ 95,097     $ 105,883  
Book overdraft     12,169       8,786  
Accrued liabilities     97,020       119,579  
Deferred revenue     64,694       68,694  
Current portion of contingent consideration     8,923       25,958  
Current portion of long-term debt and notes payable     5,899       4,128  
    Total current liabilities     283,802       333,028  
                 
Long-term debt and notes payable     1,172,758       976,446  
Long-term portion of contingent consideration     22,573       23,995  
Other long-term liabilities     52,051       66,045  
Deferred income taxes     397,134       422,487  
    Total liabilities     1,928,318       1,822,001  
                 
Commitments and contingencies                
                 
Equity:                
Preferred stock: $0.01 par value; 7,500,000 shares authorized; none issued and outstanding    
-
     
-
 
Common stock: $0.01 par value; 250,000,000 shares authorized; 110,907,782 and 122,783,945 shares issued and outstanding at December 31, 2011 and September 30, 2012, respectively    

1,109
     

1,228
 
Additional paid-in capital     408,721       772,043  
Retained earnings     988,560       1,079,482  
Accumulated other comprehensive loss     (3,480 )     (6,080 )
  Total Waste Connections' equity     1,394,910       1,846,673  
Noncontrolling interest in subsidiaries     4,777       5,153  
  Total equity     1,399,687       1,851,826  
    $ 3,328,005     $ 3,673,827  
   
   
WASTE CONNECTIONS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2012  
(Unaudited)  
(Dollars in thousands)  
   
    Nine months ended  
    September 30,  
    2011     2012  
                 
                 
Cash flows from operating activities:                
Net income   $ 127,983     $ 123,574  
Adjustments to reconcile net income to net cash provided by operating activities:                
  Loss on disposal of assets     742       715  
  Depreciation     108,843       119,331  
  Amortization of intangibles     14,788       18,115  
  Deferred income taxes, net of acquisitions     36,960       18,451  
  Amortization of debt issuance costs     1,005       1,247  
  Equity-based compensation     8,906       14,036  
  Interest income on restricted assets     (355 )     (491 )
  Interest accretion     1,977       2,797  
  Excess tax benefit associated with equity-based compensation     (4,500 )     (3,415 )
  Net change in operating assets and liabilities, net of acquisitions     1,375       32,379  
Net cash provided by operating activities     297,724       326,739  
                 
Cash flows from investing activities:                
  Payments for acquisitions, net of cash acquired     (247,862 )     (223,256 )
  Capital expenditures for property and equipment     (84,051 )     (110,995 )
  Proceeds from disposal of assets     3,238       2,107  
  Decrease in restricted assets, net of interest income     2,241       4,779  
  Other     (1,706 )     (6,287 )
Net cash used in investing activities     (328,140 )     (333,652 )
                 
Cash flows from financing activities:                
  Proceeds from long-term debt     515,500       334,000  
  Principal payments on notes payable and long-term debt     (343,726 )     (545,069 )
  Payment of contingent consideration     (100 )     (4,099 )
  Change in book overdraft     (937 )     (3,383 )
  Proceeds from option and warrant exercises     4,956       1,042  
  Excess tax benefit associated with equity-based compensation     4,500       3,415  
  Payments for repurchase of common stock     (85,068 )     (18,597 )
  Payments for cash dividends     (25,497 )     (32,182 )
  Tax withholdings related to net share settlementsof restricted stock units    
(5,436
)    
(6,039
)
  Distributions to noncontrolling interests     (675 )     (94 )
  Proceeds from common stock offering, net     -       369,584  
  Debt issuance costs     (6,414 )     (776 )
Net cash provided by financing activities     57,103       97,802  
                 
Net increase in cash and equivalents     26,687       90,889  
Cash and equivalents at beginning of period     9,873       12,643  
Cash and equivalents at end of period   $ 36,560     $ 103,532  
                 
 
ADDITIONAL STATISTICS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012
(Dollars in thousands)

Internal Growth: The following table reflects revenue growth for operations owned for at least 12 months:

    Three months ended
September 30, 2012
 
Core Price   2.9 %
Surcharges   0.0 %
Volume   (3.4 %)
Intermodal, Recycling and Other   (2.2 %)
Total   (2.7 %)
       

Revenue Breakdown:

    Three months ended
September 30, 2012
    Nine months ended
September 30, 2012
 
Collection   $ 304,166     62.8 %   $ 880,920     63.5 %
Disposal and Transfer     148,117     30.5 %     406,034     29.3 %
Intermodal, Recycling and Other     32,316     6.7 %     100,041     7.2 %
Total before inter-company elimination     484,599     100.0 %     1,386,995     100.0 %
                             
Inter-company elimination     (58,945 )           (174,180 )      
  Reported Revenue   $ 425,654           $ 1,212,815        
                               

Days Sales Outstanding for the three months ended September 30, 2012: 42 (28 net of deferred revenue)

Internalization for the three months ended September 30, 2012: 55%

Other Cash Flow Items:

    Three months ended
September 30, 2012
  Nine months ended
September 30, 2012
Cash Interest Paid   $ 3,593   $ 26,731
Cash Taxes Paid   $ 28,448   $ 42,149
             

Debt to Book Capitalization as of September 30, 2012: 35%

Share Information for the three months ended September 30, 2012:

Basic shares outstanding   123,031,259
Dilutive effect of options and warrants   303,293
Dilutive effect of restricted stock units   331,037
Diluted shares outstanding   123,665,589
 
 
NON-GAAP RECONCILIATION SCHEDULE
(in thousands)

Reconciliation of Adjusted Operating Income before Depreciation and Amortization:

Adjusted operating income before depreciation and amortization, a non-GAAP financial measure, is provided supplementally because it is widely used by investors as a performance and valuation measure in the solid waste industry. Waste Connections defines adjusted operating income before depreciation and amortization as operating income, plus depreciation and amortization expense, plus closure and post-closure accretion expense, plus or minus any gain or loss on disposal of assets. The Company further adjusts this calculation to exclude the effects of items management believes impact the ability to assess the operating performance of our business. This measure is not a substitute for, and should be used in conjunction with, GAAP financial measures. Management uses adjusted operating income before depreciation and amortization as one of the principal measures to evaluate and monitor the ongoing financial performance of the Company's operations. Other companies may calculate adjusted operating income before depreciation and amortization differently. 

             
    Three months ended
September 30, 2011
    Three months ended
September 30, 2012
 
Operating income   $ 89,314     $ 89,147  
Plus: Depreciation and amortization     44,006       48,580  
Plus: Closure and post-closure accretion     484       645  
Plus: Loss on disposal of assets     1,034       244  
Adjustments:                
  Plus: Acquisition-related transaction costs (a)     183       1,451  
  Plus: Corporate relocation expenses (b)     -       1,774  
  Less: Gain from litigation settlement (d)     -       (3,537 )
Adjusted operating income before depreciation and amortization   $ 135,021     $ 138,304  
                 
As % of revenues     33.4 %     32.5 %
             
    Nine months ended
September 30, 2011
    Nine months ended
September 30, 2012
 
Operating income   $ 242,688     $ 235,941  
Plus: Depreciation and amortization     123,631       137,446  
Plus: Closure and post-closure accretion     1,451       1,870  
Plus: Loss on disposal of assets     742       715  
Adjustments:                
  Plus: Acquisition-related transaction costs (a)     1,278       3,610  
  Plus: Corporate relocation expenses (b)     -       6,491  
  Plus: NEO one-time equity grants (c)     -       3,585  
  Less: Gain from litigation settlement (d)     -       (3,537 )
Adjusted operating income before depreciation and amortization   $ 369,790     $ 386,121  
                 
As % of revenues     32.9 %     31.8 %
   
(a)
(b)
(c)
Reflects the addback of acquisition-related costs.
Reflects the addback of costs associated with the relocation of the Company's corporate headquarters from California to Texas.
Reflects the addback of one-time equity compensation expense incurred at the time the Company's NEOs' employment contracts were modified.
(d) Reflects the elimination of a non-recurring gain from an arbitration award.
   
 
 
NON-GAAP RECONCILIATION SCHEDULE (continued)
 (in thousands, except per share amounts)

Reconciliation of Net Income to Adjusted Net Income and Adjusted Net Income per diluted share:

Adjusted net income and adjusted net income per diluted share, both non-GAAP financial measures, are provided supplementally because they are widely used by investors as a valuation measure in the solid waste industry. Waste Connections provides adjusted net income to exclude the effects of items management believes impact the comparability of operating results between periods. Adjusted net income has limitations due to the fact that it may exclude items that have an impact on the Company's financial condition and results of operations. Adjusted net income and adjusted net income per diluted share are not a substitute for, and should be used in conjunction with, GAAP financial measures. Management uses adjusted net income and adjusted net income per diluted share as one of the principal measures to evaluate and monitor ongoing financial performance of the Company's operations. Other companies may calculate adjusted net income and adjusted net income per diluted share differently. 

             
    Three months ended
September 30,
    Nine months ended
September 30,
 
    2011   2012     2011   2012  
                             
Reported net income attributable to Waste Connections   $ 46,329   $ 49,385     $ 127,281   $ 123,104  
Adjustments:                            
  Acquisition-related transaction costs, net of taxes (a)     114     900       1,037     2,238  
  Loss on disposal of assets, net of taxes (b)     641     151       460     443  
  Corporate relocation expenses, net of taxes (c)     -     1,100       -     4,024  
  NEO one-time equity grants, net of taxes (d)     -     -       -     3,315  
  Litigation settlement, net of taxes (e)     -     (2,193 )     -     (2,193 )
Adjusted net income attributable to Waste Connections   $ 47,084   $ 49,343     $ 128,778   $ 130,931  
                             
Diluted earnings per common share attributable to Waste Connections common stockholders:                            
  Reported net income   $ 0.41   $ 0.40     $ 1.12   $ 1.02  
  Adjusted net income   $ 0.42   $ 0.40     $ 1.13   $ 1.08  
   
(a) Reflects the elimination of acquisition-related costs.
(b) Reflects the elimination of a loss on disposal of assets.
(c) Reflects the addback of costs associated with the relocation of the Company's corporate headquarters from California to Texas.
(d) Reflects the addback of one-time equity compensation expense incurred at the time our NEOs' employment contracts were modified.
(e) Reflects the elimination of a non-recurring gain from an arbitration award.
   
 
 
NON-GAAP RECONCILIATION SCHEDULE (continued)
(in thousands)

Reconciliation of Adjusted Free Cash Flow:

Adjusted free cash flow, a non-GAAP financial measure, is provided supplementally because it is widely used by investors as a valuation and liquidity measure in the solid waste industry. Waste Connections defines adjusted free cash flow as net cash provided by operating activities, plus proceeds from disposal of assets, plus or minus change in book overdraft, plus excess tax benefit associated with equity-based compensation, less capital expenditures for property and equipment and distributions to noncontrolling interests. The Company further adjusts this calculation to exclude the effects of items management believes impact the ability to assess the operating performance of its business. This measure is not a substitute for, and should be used in conjunction with, GAAP liquidity or financial measures. Management uses adjusted free cash flow as one of the principal measures to evaluate and monitor the ongoing financial performance of the Company's operations. Other companies may calculate adjusted free cash flow differently. 

             
    Three months ended
September 30, 2011
    Three months ended
September 30, 2012
 
Net cash provided by operating activities   $ 107,748     $ 121,799  
Plus/less: Change in book overdraft     981       (3,519 )
Plus: Proceeds from disposal of assets     1,375       610  
Plus: Excess tax benefit associated with equity-based compensation     1,671       132  
Less: Capital expenditures for property and equipment     (37,489 )     (43,550 )
Less: Distributions to noncontrolling interests     -       -  
Adjustment:                
  Corporate office relocation, net of taxes (a)     -       (75 )
Adjusted free cash flow   $ 74,286     $ 75,397  
                 
As % of revenues     18.4 %     17.7 %
             
    Nine months ended
September 30, 2011
    Nine months ended
September 30, 2012
 
Net cash provided by operating activities   $ 297,724     $ 326,739  
Less: Change in book overdraft     (937 )     (3,383 )
Plus: Proceeds from disposal of assets     3,238       2,107  
Plus: Excess tax benefit associated with equity-based compensation     4,500       3,415  
Less: Capital expenditures for property and equipment     (84,051 )     (110,995 )
Less: Distributions to noncontrolling interests     (675 )     (94 )
Adjustment:                
  Corporate office relocation, net of taxes (a)     -       6,149  
Adjusted free cash flow   $ 219,799     $ 223,938  
As % of revenues     19.5 %     18.5 %
   
(a) Reflects the addback of third party expenses and reimbursable advances to employees associated with the relocation of our corporate headquarters from California to Texas.
Contact:
CONTACT:
Worthing Jackman
(832) 442-2266
Email Contact

Mary Anne Whitney
(832) 442-2253
Email Contact

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