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Waste Connections Reports First Quarter 2018 Results

May 2, 2018

- Revenue of $1.140 billion, exceeding outlook

- Net income attributable to Waste Connections of $124.9 million, or $0.47 per share

- Adjusted net income attributable to Waste Connections* of $148.6 million, or $0.56 per share, up 14.3% per share

- Adjusted EBITDA* of $356.9 million, or 31.3% of revenue, exceeding outlook

- Net cash provided by operating activities of $307.2 million

- Adjusted free cash flow* of $220.2 million, or 19.3% of revenue

- Signs or closes acquisitions YTD with approximately $165 million total annualized revenue

- Repurchases $42 million of common shares

TORONTO, May 2, 2018 /PRNewswire/ -- Waste Connections, Inc. (TSX/NYSE: WCN) ("Waste Connections" or the "Company") today announced its results for the first quarter of 2018.  Revenue in the first quarter totaled $1.140 billion, up from $1.091 billion in the year ago period.  Operating income was $188.7 million; this compares to $26.4 million in the year ago period, which included $141.7 million in non-cash impairments and other charges.

Waste Connections logo. (PRNewsFoto/Waste Connections, Inc.) (PRNewsFoto/WASTE CONNECTIONS_ INC_)

Net income attributable to Waste Connections in the first quarter was $124.9 million, or $0.47 per share on a diluted basis of 264.6 million shares. In the year ago period, the Company reported net income attributable to Waste Connections of $14.9 million, or $0.06 per share on a diluted basis of 263.9 million shares. Shares and per share numbers reflect a three-for-two share split completed in June 2017.

Adjusted net income attributable to Waste Connections* in the first quarter was $148.6 million, or $0.56 per share, versus $130.3 million, or $0.49 per share, in the prior year period.  Adjusted EBITDA* in the first quarter was $356.9 million and 31.3% of revenue, as compared to adjusted EBITDA* of $332.8 million and 30.5% of revenue in the prior year period.  Adjusted net income attributable to Waste Connections, adjusted net income attributable to Waste Connections per diluted share and adjusted EBITDA, all non-GAAP measures, primarily exclude acquisition-related items and impairments and other operating items, as reflected in the detailed reconciliations in the attached tables.

"Better than expected solid waste price growth and E&P waste activity drove strong performance in the period and position us well for the remainder of 2018.  Adjusted EBITDA* margins in the first quarter increased 80 basis points year-over-year in spite of both the precipitous decline in recycled fiber values and weather-related impacts across a majority of our operational footprint.  We are extremely pleased that given the strong start to the year and our recent acquisitions, adjusted free cash flow* is tracking to exceed our original outlook of $850 million for 2018," said Ronald J. Mittelstaedt, Chief Executive Officer and Chairman. "Moreover, as anticipated, we resumed our share repurchase program, opportunistically buying back approximately $42 million of shares in the first quarter."

Mr. Mittelstaedt added, "Acquisition activity is another bright spot for 2018.  Year-to-date, we've signed or closed acquisitions with total annualized revenue of approximately $165 million, including three new market entries.  Since our previous update in February, we acquired Right Away Disposal, an integrated provider of solid waste collection, recycling, transfer and disposal services in Arizona's fast growing Pinal and Maricopa Counties, consisting of three collection operations, one recycling facility, two transfer stations and a municipal solid waste landfill.  We also acquired the Heart of Florida Landfill in Central Florida, a municipal solid waste landfill that complements existing operations.  And in early May, we signed a definitive agreement for a new market entry to acquire a provider of collection, recycling and transfer services with approximately $55 million of annualized revenue, expected to close in June. We are fortunate that the strength of our financial profile and free cash flow generation provide us with the flexibility to continually increase the return of capital to shareholders while funding an above average amount of acquisition activity."

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

CONFERENCE CALL

Waste Connections will be hosting a conference call related to first quarter earnings and second quarter outlook on May 3rd at 8:30 A.M. Eastern Time.  The call will be broadcast live over the Internet through a link on the Company's website at www.wasteconnections.com.  A playback of the call will be available on the Company's website. Waste Connections will be filing a Form 8-K on EDGAR and on SEDAR (as an "Other" document) prior to markets opening on May 3rd, providing the Company's second quarter 2018 outlook for revenue, core price plus volume growth for solid waste and adjusted EBITDA*.

*A non-GAAP measure.

About Waste Connections
Waste Connections is an integrated solid waste services company that provides waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the United States and Canada.  Through its R360 Environmental Solutions subsidiary, Waste Connections is also 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 Permian, Bakken and Eagle Ford Basins.  Waste Connections serves more than six million residential, commercial, industrial, and exploration and production customers in 39 states in the U.S., and six provinces in Canada.  The Company also provides intermodal services for the movement of cargo and solid waste containers in the Pacific Northwest. 

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 (905) 532-7510.  Investors can also obtain these materials and other documents filed with the U.S. Securities and Exchange Commission ("SEC") and the Canadian securities regulators free of charge at the SEC's website, www.sec.gov, and at the System for Electronic Document Analysis and Retrieval maintained by the Canadian Securities Administrators at www.sedar.com.

Safe Harbor and Forward-Looking Information
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 ("PSLRA"), including "forward-looking information" within the meaning of applicable Canadian securities laws. These forward-looking statements are neither historical facts nor assurances of future performance and reflect Waste Connections' current beliefs and expectations regarding future events and operating performance. These forward-looking statements are often identified by the words "may," "might," "believes," "thinks," "expects," "estimate," "continue," "intends" or other words of similar meaning. All of the forward-looking statements included in this press release are made pursuant to the safe harbor provisions of the PSLRA and applicable securities laws in Canada. Forward-looking statements involve risks and uncertainties. Forward-looking statements in this press release include, but are not limited to, statements about expected 2018 financial results, potential acquisition activity and the amount of capital returned to shareholders. Important factors that could cause actual results to differ, possibly materially, from those indicated by the forward-looking statements include, but are not limited to, risk factors detailed from time to time in the Company's filings with the U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada.  You should not place undue reliance on forward-looking statements, which speak only as of the date of this press release.  Waste Connections undertakes no obligation to update the forward-looking statements set forth in this press release, whether as a result of new information, future events, or otherwise, unless required by applicable securities laws.

– financial tables attached –

CONTACT:




Worthing Jackman / (832) 442-2266

Mary Anne Whitney / (832) 442-2253

[email protected] 

[email protected]

 

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

THREE MONTHS ENDED MARCH 31, 2017 AND 2018

(Unaudited)

(in thousands of U.S. dollars, except share and per share amounts)



Three months ended

March 31,


2017



2018

Revenues

$

1,091,266



$

1,140,131

Operating expenses:







Cost of operations


643,380




659,803

Selling, general and administrative


129,051




131,308

Depreciation


125,240




133,185

Amortization of intangibles


25,510




26,098

Impairments and other operating items


141,681




1,030

Operating income


26,404




188,707








Interest expense


(29,131)




(32,370)

Interest income


449




1,155

Other income (expense), net


1,017




(387)

Foreign currency transaction loss


(590)




(221)

Income (loss) before income tax provision


(1,851)




156,884








Income tax (provision) benefit


16,871




(31,852)

Net income


15,020




125,032

Less: Net income attributable to noncontrolling interests


(146)




(163)

Net income attributable to Waste Connections

$

14,874



$

124,869








Earnings per common share attributable to Waste Connections' common shareholders:







Basic

$

0.06



$

0.47








Diluted

$

0.06



$

0.47








Shares used in the per share calculations:







Basic


263,061,945




263,827,963

Diluted


263,903,223




264,588,069








Cash dividends per common share

$

0.12



$

0.14


 

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands of U.S. dollars, except share and per share amounts)




December 31,
2017


March 31,
2018

ASSETS







Current assets:







Cash and equivalents


$

433,815


$

217,537

Accounts receivable, net of allowance for doubtful accounts of $17,154 and $16,780 at December 31, 2017 and March 31, 2018, respectively



554,458



555,285

Current assets held for sale



1,596



1,509

Prepaid expenses and other current assets



186,999



195,318

Total current assets



1,176,868



969,649

Restricted cash



122,652



77,008

Restricted investments



44,360



44,230

Property and equipment, net



4,820,934



4,924,263

Goodwill



4,681,774



4,772,949

Intangible assets, net



1,087,436



1,077,560

Long-term assets held for sale



12,625



12,267

Other assets, net



68,032



85,292



$

12,014,681


$

11,963,218

LIABILITIES AND EQUITY







Current liabilities:







Accounts payable


$

330,523


$

287,894

Book overdraft



19,223



18,965

Accrued liabilities



278,039



260,542

Deferred revenue



145,197



156,528

Current portion of contingent consideration



15,803



14,462

Current liabilities held for sale



2,155



2,071

Current portion of long-term debt and notes payable



11,659



1,675

      Total current liabilities



802,599



742,137








Long-term debt and notes payable



3,899,572



3,878,698

Long-term portion of contingent consideration



31,482



43,199

Other long-term liabilities



316,191



307,205

Deferred income taxes



690,767



711,241

      Total liabilities



5,740,611



5,682,480

Commitments and contingencies







Equity:







Common shares: 263,660,803 shares issued and 263,494,670 shares outstanding  at December 31, 2017; 263,467,240 shares issued and 263,327,956 shares outstanding at March 31, 2018



4,187,568



4,147,475

Additional paid-in capital



115,743



109,613

Accumulated other comprehensive income



108,413



56,893

Treasury shares: 166,133 and 139,284 shares at December 31, 2017 and March 31, 2018, respectively



-



-

Retained earnings



1,856,946



1,961,297

      Total Waste Connections' equity



6,268,670



6,275,278

Noncontrolling interest in subsidiaries



5,400



5,460

      Total equity



6,274,070



6,280,738



$

12,014,681


$

11,963,218

 

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2017 AND 2018

(Unaudited)

(in thousands of U.S. dollars)





Three months ended March 31,





2017



2018

Cash flows from operating activities:







Net income


$

15,020


$

125,032

Adjustments to reconcile net income to net cash provided by operating activities:







Loss on disposal of assets and impairments



129,887



2,863

Depreciation



125,240



133,185

Amortization of intangibles



25,510



26,098

Foreign currency transaction loss



590



221

Deferred income taxes, net of acquisitions



(26,528)



20,957

Amortization of debt issuance costs



1,013



1,076

Share-based compensation



12,990



9,180

Interest income on restricted investments



(137)



(120)

Interest accretion



3,424



3,665

Adjustments to contingent consideration



11,313



702

Payment of contingent consideration recorded in earnings



-



(11)

Net change in operating assets and liabilities, net of acquisitions



(10,844)



(15,601)

Net cash provided by operating activities



287,478



307,247








Cash flows from investing activities:







Payments for acquisitions, net of cash acquired



(344,265)



(311,964)

Capital expenditures for property and equipment



(91,205)



(91,216)

Proceeds from disposal of assets



18,815



1,002

Change in restricted investments, net of interest income



(1,423)



-

Other



(650)



(104)

Net cash used in investing activities



(418,728)



(402,282)








Cash flows from financing activities:







Proceeds from long-term debt



436,086



35,625

Principal payments on notes payable and long-term debt



(170,374)



(106,812)

Payment of contingent consideration recorded at acquisition date



(5,290)



(2,205)

Change in book overdraft



20,047



(295)

Proceeds from option and warrant exercises



1,946



-

Payments for repurchase of common shares



-



(42,040)

Payments for cash dividends



(31,707)



(36,814)

Tax withholdings related to net share settlements of equity-based compensation



(13,030)



(14,121)

Debt issuance costs



(633)



(2,188)

Proceeds from sale of common shares held in trust



2,369



1,947

Other



-



(103)

Net cash provided by (used in) financing activities



239,414



(167,006)

Effect of exchange rates changes on cash, cash equivalents and restricted cash



87



18

Net increase (decrease) in cash, cash equivalents and restricted cash



108,251



(262,023)

Cash, cash equivalents and restricted cash at beginning of period



169,112



556,467

Plus (less): change in cash held for sale



(27)



101

Cash, cash equivalents and restricted cash at end of period


$

277,336


$

294,545

ADDITIONAL STATISTICS
(in thousands of U.S. dollars, except where noted)

Solid Waste Internal Growth:  The following table reflects a breakdown of the components of our solid waste internal growth for the three months ended March 31, 2018:



U.S.


Canada


Total

Core Price

3.9%


4.8%


4.1%

Surcharges

0.2%


0.4%


0.2%

Volume

(0.6%)


(4.1%)


(1.1%)

Recycling

(1.5%)


(4.1%)


(1.9%)

Foreign Exchange Impact

-


4.6%


0.7%

Total

2.0%


1.6%


2.0%


Revenue Breakdown:  The following table reflects a breakdown of our revenue for the three month periods ended March 31, 2017 and 2018:


Three Months Ended March 31, 2017


Revenue


Inter-
company
Elimination


Reported

Revenue


%

Solid Waste Collection

$

768,346


$

(2,200)


$

766,146


70.2%

Solid Waste Disposal and Transfer


357,025



(143,441)



213,584


19.6%

Solid Waste Recycling


43,889



(2,584)



41,305


3.8%

E&P Waste Treatment, Recovery and Disposal


39,821



(2,968)



36,853


3.4%

Intermodal and Other


33,765



(387)



33,378


3.0%

Total

$

1,242,846


$

(151,580)


$

1,091,266


100.0%





Three Months Ended March 31, 2018


Revenue


Inter-
company
Elimination


Reported

Revenue


%

Solid Waste Collection

$

809,646


$

(2,399)


$

807,247


70.8%

Solid Waste Disposal and Transfer


370,929



(149,568)



221,361


19.4%

Solid Waste Recycling


23,485



(972)



22,513


2.0%

E&P Waste Treatment, Recovery and Disposal


58,359



(2,749)



55,610


4.9%

Intermodal and Other


34,004



(604)



33,400


2.9%

Total

$

1,296,423


$

(156,292)


$

1,140,131


100.0%


Contribution from Acquisitions: The following table reflects revenues from solid waste acquisitions, net of divestitures, for the three month periods ended March 31, 2017 and 2018:


Three months ended
March 31,


2017


2018

Acquisitions, net  

$

538,900


$

10,800

ADDITIONAL STATISTICS (continued)
(in thousands of U.S. dollars, except where noted)

Other Cash Flow Items: The following table reflects cash interest and cash taxes for the three month periods ended March 31, 2017 and 2018:


Three months ended
March 31,


2017


2018

Cash Interest Paid

$

22,302


$

22,440

Cash Taxes Paid


14,017



6,670

Debt to Book Capitalization as of March 31, 2018:  38%

Internalization for the three months ended March 31, 2018:  57%

Days Sales Outstanding for the three months ended March 31, 2018:  44 (31 net of deferred revenue)

Share Information for the three months ended March 31, 2018:

Basic shares outstanding

263,827,963

Dilutive effect of equity-based awards

760,106

Diluted shares outstanding

264,588,069

NON-GAAP RECONCILIATION SCHEDULE
(in thousands of U.S. dollars, except where noted)

Reconciliation of Adjusted EBITDA:

Adjusted EBITDA, 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.  Management uses adjusted EBITDA as one of the principal measures to evaluate and monitor the ongoing financial performance of Waste Connections' operations.  Waste Connections defines adjusted EBITDA as net income attributable to Waste Connections, plus net income attributable to noncontrolling interests, plus or minus income tax provision (benefit), plus interest expense, less interest income, plus depreciation and amortization expense, plus closure and post-closure accretion expense, plus or minus any loss or gain on impairments and other operating items, plus other expense, less other income, plus foreign currency transaction loss, less foreign currency transaction gain.  Waste Connections further adjusts this calculation to exclude the effects of other 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 financial measures.  Other companies may calculate adjusted EBITDA differently. 



Three months ended
March 31,


2017


2018

Net income attributable to Waste Connections

$

14,874


$

124,869

Plus: Net income attributable to noncontrolling interests


146



163

Plus (less): Income tax provision (benefit)


(16,871)



31,852

Plus: Interest expense


29,131



32,370

Less: interest income


(449)



(1,155)

Plus: Depreciation and amortization


150,750



159,283

Plus: Closure and post-closure accretion


2,917



3,238

Plus: Impairments and other operating items


141,681



1,030

Plus (less): Other expense (income), net


(1,017)



387

Plus: Foreign currency transaction loss


590



221

Adjustments:






Plus: Transaction-related expenses (a)


1,744



2,385

Plus: Pre-existing Progressive Waste share-based grants (b)


6,475



1,163

Plus: Integration-related and other expenses (c)


2,828



1,110

Adjusted EBITDA

$

332,799


$

356,916







As % of revenues


30.5%



31.3%







(a) 

Reflects the addback of acquisition-related transaction costs.

(b) 

Reflects share-based compensation costs, including changes in fair value and related expenses, associated with share-based awards granted by Progressive Waste outstanding at the time of the Progressive Waste acquisition.

(c) 

Reflects the addback of integration-related items, including rebranding costs, associated with the Progressive Waste acquisition.

NON-GAAP RECONCILIATION SCHEDULE (continued)
(in thousands of U.S. dollars, except where noted)

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.  Management uses adjusted free cash flow as one of the principal measures to evaluate and monitor the ongoing financial performance of Waste Connections' operations.  Waste Connections defines adjusted free cash flow as net cash provided by operating activities, plus or minus change in book overdraft, plus proceeds from disposal of assets, less capital expenditures for property and equipment and distributions to noncontrolling interests.  Waste Connections 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.  Other companies may calculate adjusted free cash flow differently. 



Three months ended
March 31,



2017


2018

Net cash provided by operating activities


$

287,478


$

307,247

Plus/(less): Change in book overdraft



20,047



(295)

Plus: Proceeds from disposal of assets



18,815



1,002

Less: Capital expenditures for property and equipment



(91,205)



(91,216)

Less: Distributions to noncontrolling interests



-



(103)

Adjustments:







     Payment of contingent consideration recorded in earnings (a)



-



11

     Cash received for divestitures (b)



(17,400)



-

     Transaction-related expenses (c)



1,744



2,385

     Integration-related and other expenses (d)



459



1,110

     Pre-existing Progressive Waste share-based grants (e)



12,714



1,919

     Synergy bonus (f)



11,798



-

     Tax effect (g)



(6,959)



(1,907)

Adjusted free cash flow


$

237,491


$

220,153








As % of revenues



21.8%



19.3%







(a) 

Reflects the addback of acquisition-related payments for contingent consideration that were recorded as expenses in earnings and as a component of cash flows from operating activities as the amounts paid exceeded the fair value of the contingent consideration recorded at the acquisition date.

(b) 

Reflects the elimination of cash received in conjunction with the divestiture of Progressive Waste operations.

(c) 

Reflects the addback of acquisition-related transaction costs.

(d) 

Reflects the addback of integration-related items, including rebranding costs, associated with the Progressive Waste acquisition.

(e) 

Reflects the cash settlement of pre-existing Progressive Waste share-based awards and related payments during the period.

(f) 

Reflects the addback of cash bonuses paid pursuant to the Company's Synergy Bonus Program in conjunction with the Progressive Waste acquisition.

(g) 

The aggregate tax effect of footnotes (a) through (f) is calculated based on the applied tax rates for the respective periods.

NON-GAAP RECONCILIATION SCHEDULE (continued)
 (in thousands of U.S. dollars, except per share amounts)

Reconciliation of Net Income attributable to Waste Connections to Adjusted Net Income attributable to Waste Connections and Adjusted Net Income per Diluted Share attributable to Waste Connections:

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



Three months ended
March 31,



2017


2018

Reported net income attributable to Waste Connections


$

14,874


$

124,869

Adjustments:







Amortization of intangibles (a)



25,510



26,098

Impairments and other operating items (b)



141,681



1,030

Transaction-related expenses (c)



1,744



2,385

Pre-existing Progressive Waste share-based grants (d)



6,475



1,163

Integration-related and other expenses (e)



2,828



1,110

Tax effect (f)



(62,763)



(8,044)

Adjusted net income attributable to Waste Connections


$

130,349


$

148,611








Diluted earnings per common share attributable to Waste Connections' common shareholders:







Reported net income


$

0.06


$

0.47

Adjusted net income


$

0.49


$

0.56







(a) 

Reflects the elimination of the non-cash amortization of acquisition-related intangible assets.

(b) 

Reflects the addback of impairments and other operating items.

(c) 

Reflects the addback of acquisition-related transaction costs.

(d) 

Reflects share-based compensation costs, including changes in fair value and related expenses, associated with share-based awards granted by Progressive Waste outstanding at the time of the Progressive Waste acquisition.

(e) 

Reflects the addback of integration-related items, including rebranding costs, associated with the Progressive Waste acquisition.

(f) 

The aggregate tax effect of the adjustments in footnotes (a) through (e) is calculated based on the applied tax rates for the respective periods.

 

SOURCE Waste Connections, Inc.


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