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Waste Connections Reports Fourth Quarter Results And Provides 2019 Outlook

Feb 13, 2019

Fourth Quarter 2018 Highlights
- Revenue of $1.262 billion, exceeding outlook
- Reports 4.9% solid waste price + volume growth, exceeding outlook
- Net income attributable to Waste Connections of $132.5 million, or $0.50 per share
- Adjusted net income attributable to Waste Connections* of $166.2 million, or $0.63 per share, up 21.2% per share
- Adjusted EBITDA* of $397.2 million, or 31.5% of revenue

 Full-Year 2018 Highlights
- Revenue of $4.923 billion, up 6.3%
- Net income attributable to Waste Connections of $546.9 million, or $2.07 per share
- Adjusted net income attributable to Waste Connections* of $667.3 million or $2.52 per share, up 16.7% per share
- Adjusted EBITDA* of $1.566 billion, or 31.8% of revenue, up 7.3% and 30 basis points YoY
- Net cash provided by operating activities of $1.411 billion, up 18.9%
- Adjusted free cash flow* of $879.9 million, or 17.9% of revenue, up 15.2%

 Looking at 2019
- Expects revenue of approximately $5.310 billion, excluding additional acquisitions
- Expects adjusted EBITDA* margin expansion of 30 basis points YoY
- Expects net cash provided by operating activities of approximately $1.525 billion and double digit adjusted free cash flow* per share growth

TORONTO, Feb. 13, 2019 /PRNewswire/ -- Waste Connections, Inc. (TSX/NYSE: WCN) ("Waste Connections" or the "Company") today announced its results for the fourth quarter of 2018. 

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

"2018 finished on a high note, as financial results for the fourth quarter exceeded expectations on better than expected solid waste organic growth, E&P waste activity and acquisition contribution.  We are also extremely pleased with our results for the full year as adjusted EBITDA* as a percent of revenue expanded 30 basis points, and adjusted free cash flow* increased 15.2%.  Increases in both solid waste pricing growth, which was up 130 basis points year-over-year to 4.5%, and E&P waste activity enabled us to overcome the precipitous decline in recycled commodity values and certain cost pressures noted during the year," said Ronald J. Mittelstaedt, Chairman and Chief Executive Officer.  "The strength of these results continues to reflect the benefits of our purposeful culture, differentiated strategy and disciplined execution."

Mr. Mittelstaedt added, "2018 was also noteworthy for the continuing elevated pace of acquisition activity.  Our acquisition of American Disposal in the fourth quarter brought total annualized acquired revenue to more than $360 million for the year, with rollover revenue contribution of approximately $200 million in 2019.  Along with continued strong pricing growth, this already positions us for high single digit revenue growth and another 30 basis points adjusted EBITDA* margin expansion in 2019, with any growth in solid waste volumes, E&P waste activity or additional acquisitions providing further upside.  We have increased adjusted free cash flow* per share at a compounded rate of more than 15% per year over the past several years, and expect continuing double-digit per share growth in the upcoming year.  Our strong financial profile continues to afford the flexibility to fund outsized acquisition activity, an increasing cash dividend and opportunistic share repurchases."

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

Q4 2018 Results

Revenue in the fourth quarter totaled $1.262 billion, up from $1.157 billion in the prior year period.  Operating income, which included $14.0 million of impairments and other operating items and $2.8 million of acquisition-related costs, was $200.0 million.  This compares to $175.0 million in the prior year period, which included $15.2 million of impairments and other operating items and $7.0 million of acquisition-related costs. 

Net income attributable to Waste Connections in the fourth quarter was $132.5 million, or $0.50 per share on a diluted basis of 264.5 million shares.  In the prior year period, the Company reported $315.1 million, or $1.19 per share on a diluted basis of 264.6 million shares; this included a $209.4 million benefit to the income tax provision primarily resulting from enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act").

Adjusted net income attributable to Waste Connections* in the fourth quarter was $166.2 million, or $0.63 per share, versus $137.0 million, or $0.52 per share, in the prior year period.  Adjusted EBITDA* in the fourth quarter was $397.2 million, as compared to adjusted EBITDA* of $360.7 million 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 the impact of the Tax Act, fair value accounting changes to certain equity awards, and acquisition-related items, as shown in the detailed reconciliation in the attached schedules. 

Full Year 2018 Results

For the year ended December 31, 2018, revenue was $4.923 billion, as compared to revenue of $4.630 billion in 2017.  Operating income, which included $40.7 million of impairments and other operating items, fair value accounting changes to certain equity awards, and other acquisition-related costs, was $832.2 million.  This compares to operating income of $627.1 million in the prior year, which included $189.2 million of expenses primarily related to both goodwill impairment against the Company's E&P segment resulting from the early adoption of FASB's recent accounting pronouncement simplifying the test for goodwill impairment, and impairments and other operating items mostly related to the divestiture or expected divestiture of certain assets acquired in the Progressive Waste acquisition. 

Net income attributable to Waste Connections in 2018 was $546.9 million, or $2.07 per share on a diluted basis of 264.4 million shares.  In 2017, the Company reported net income attributable to Waste Connections of $576.8 million, or $2.18 per share on a diluted basis of 264.3 million shares; this included a $205.6 million benefit to the income tax provision primarily related to the Tax Act.

Adjusted net income attributable to Waste Connections* in 2018 was $667.3 million, or $2.52 per share, compared to $570.7 million, or $2.16 per share, in the prior year. Adjusted EBITDA* in 2018 was $1.566 billion, as compared to $1.461 billion in the prior year.  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 the impact of the Tax Act, acquisition-related items and impairments and other operating items, as reflected in the detailed reconciliations in the attached tables. 

2019 Outlook

Waste Connections also announced its outlook for 2019, which assumes no change in the current economic environment.  The Company's outlook excludes any impact from additional acquisitions that may close during the year, and expensing of transaction-related items.  The outlook provided below is forward looking, and actual results may differ materially depending on risks and uncertainties detailed at the end of this release and in our periodic filings with the Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada. Certain components of the outlook for 2019 are subject to quarterly fluctuations.  See reconciliations in the attached tables.

  • Revenue is estimated at approximately $5.310 billion.
  • Net income attributable to Waste Connections is estimated at approximately $636.0 million.
  • Adjusted EBITDA* is estimated at approximately $1.705 billion, or about 32.1% of revenue.
  • Net cash provided by operating activities is estimated to be approximately $1.525 billion.
  • Adjusted free cash flow* is estimated to be approximately $950.0 million.

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

Q4 2018 Earnings and 2019 Outlook Conference Call

Waste Connections will be hosting a conference call related to fourth quarter earnings and 2019 outlook on February 14th at 8:30 A.M. Eastern Time.  To access the call, listeners should dial 877-256-3271 (within North America) or 212-231-2927 (international) approximately 10 minutes prior to the scheduled start time and ask the operator for the Waste Connections conference call (a passcode is not required).  A replay of the conference call will be available until February 21, 2019 by calling 800-633-8284 (within North America) or 402-977-9140 (international) and entering Passcode # 21912651.  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 February 14th, providing the Company's first quarter 2019 outlook for revenue, price plus volume growth for solid waste and adjusted EBITDA*.

About Waste Connections

Waste Connections is an integrated solid waste services company that provides non-hazardous 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 41 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 (SEDAR) 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 2019 financial results, outlook and related assumptions, 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 SEC 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:
Mary Anne Whitney / (832) 442-2253
maryannew@wasteconnections.com

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

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2017 AND 2018

(Unaudited)

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



Three months ended
December 31,


Twelve months ended
December 31,


2017



2018


2017


2018

Revenues

$

1,157,175



$

1,261,732


$

4,630,488


$

4,922,941

Operating expenses:













Cost of operations


680,373




744,757



2,704,775



2,865,704

Selling, general and administrative


126,038




125,806



509,638



524,388

Depreciation


135,179




148,841



530,187



572,708

Amortization of intangibles


25,411




28,336



102,297



107,779

Impairments and other operating items


15,160




14,012



156,493



20,118

Operating income


175,014




199,980



627,098



832,244














Interest expense


(32,534)




(35,230)



(125,297)



(132,104)

Interest income


2,042




3,493



5,173



7,170

Other income (expense), net


175




(1,113)



3,736



1,263

Foreign currency transaction gain (loss)


1,302




(1,110)



(2,200)



(1,433)

Income before income tax provision


145,999




166,020



508,510



707,140














Income tax (provision) benefit


169,129




(33,477)



68,910



(159,986)

Net income


315,128




132,543



577,420



547,154

Less: Net income attributable to noncontrolling interests


(42)




(65)



(603)



(283)

Net income attributable to Waste Connections

$

315,086



$

132,478


$

576,817


$

546,871














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













Basic

$

1.19



$

0.50


$

2.19


$

2.07














Diluted

$

1.19



$

0.50


$

2.18


$

2.07














Shares used in the per share calculations:













Basic


263,825,060




263,628,941



263,682,608



263,650,155

Diluted


264,610,894




264,453,655



264,302,411



264,395,618














Cash dividends per common share

$

0.14



$

0.16


$

0.50


$

0.58

 

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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




December 31,
2017


December 31,
2018

ASSETS







Current assets:







Cash and equivalents


$

433,815


$

319,305

Accounts receivable, net of allowance for doubtful accounts of $17,154 and $16,760 at December 31, 2017 and 2018, respectively



554,458



609,545

Current assets held for sale



1,596



-

Prepaid expenses and other current assets



186,999



164,053

Total current assets



1,176,868



1,092,903

Restricted cash



119,412



84,661

Restricted investments



47,600



47,486

Property and equipment, net



4,820,934



5,168,996

Goodwill



4,681,774



5,031,685

Intangible assets, net



1,087,436



1,128,628

Long-term assets held for sale



12,625



-

Other assets, net



68,032



72,970



$

12,014,681


$

12,627,329

LIABILITIES AND EQUITY







Current liabilities:







Accounts payable


$

330,523


$

359,967

Book overdraft



19,223



18,518

Accrued liabilities



278,039



289,544

Deferred revenue



145,197



179,282

Current portion of contingent consideration



15,803



11,612

Current liabilities held for sale



2,155



-

Current portion of long-term debt and notes payable



11,659



1,786

      Total current liabilities



802,599



860,709








Long-term debt and notes payable



3,899,572



4,153,465

Long-term portion of contingent consideration



31,482



43,003

Other long-term liabilities



316,191



349,931

Deferred income taxes



690,767



760,033

      Total liabilities



5,740,611



6,167,141

Commitments and contingencies







Equity:







Common shares: 263,660,803 shares issued and 263,494,670 shares outstanding at December 31, 2017; 263,271,302 shares issued and 263,141,413 shares outstanding at December 31, 2018



4,187,568



4,131,307

Additional paid-in capital



115,743



133,577

Accumulated other comprehensive income (loss)



108,413



(74,786)

Treasury shares: 166,133 and 129,889 shares at December 31, 2017 and 2018, respectively



-



-

Retained earnings



1,856,946



2,264,510

      Total Waste Connections' equity



6,268,670



6,454,608

Noncontrolling interest in subsidiaries



5,400



5,580

      Total equity



6,274,070



6,460,188



$

12,014,681


$

12,627,329

 

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

TWELVE MONTHS ENDED DECEMBER 31, 2017 AND 2018

(Unaudited)

(in thousands of U.S. dollars)





Twelve months ended December 31,





2017



2018

Cash flows from operating activities:







Net income


$

577,420


$

547,154

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







Loss on disposal of assets and impairments



134,491



10,193

Depreciation



530,187



572,708

Amortization of intangibles



102,297



107,779

Deferred income taxes, net of acquisitions



(153,283)



77,859

Amortization of debt issuance costs



4,341



4,158

Share-based compensation



39,361



43,803

Interest accretion



13,822



14,861

Payment of contingent consideration recorded in earnings



(10,012)



(11)

Adjustments to contingent consideration



17,754



349

Other



1,611



943

Net change in operating assets and liabilities, net of acquisitions



(70,729)



31,439

Net cash provided by operating activities



1,187,260



1,411,235








Cash flows from investing activities:







Payments for acquisitions, net of cash acquired



(410,695)



(830,091)

Capital expenditures for property and equipment



(479,287)



(546,145)

Proceeds from disposal of assets



28,432



5,385

Other



636



(969)

Net cash used in investing activities



(860,914)



(1,371,820)








Cash flows from financing activities:







Proceeds from long-term debt



973,754



1,022,737

Principal payments on notes payable and long-term debt



(770,106)



(970,773)

Payment of contingent consideration recorded at acquisition date



(17,158)



(6,127)

Change in book overdraft



8,241



(839)

Payments for repurchase of common shares



-



(58,928)

Payments for cash dividends



(131,975)



(152,550)

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



(13,994)



(15,032)

Debt issuance costs



(3,667)



(8,630)

Proceeds from sale of common shares held in trust



10,814



2,667

Other



851



(103)

Net cash provided by (used in) financing activities



56,760



(187,578)

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



1,795



(1,290)

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



384,901



(149,453)

Cash, cash equivalents and restricted cash at beginning of year



168,476



553,227

Plus (less): change in cash held for sale



(150)



192

Cash, cash equivalents and restricted cash at end of year


$

553,227


$

403,966

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 December 31, 2018:



U.S.


Canada


Total

Core Price

4.1%


6.2%


4.4%

Surcharges

0.4%


0.8%


0.4%

Volume

0.3%


(0.7%)


0.1%

Recycling

(0.7%)


(1.6%)


(0.8%)

Foreign Exchange Impact

-


(3.9%)


(0.6%)

Total

4.1%


0.8%


3.5%

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


Three Months Ended December 31, 2017



Revenue



Inter-
company
Elimination



Reported
Revenue


%

Solid Waste Collection

$

800,625


$

(2,396)


$

798,229


69.0%

Solid Waste Disposal and Transfer


388,010



(149,909)



238,101


20.6%

Solid Waste Recycling


30,285



(1,730)



28,555


2.4%

E&P Waste Treatment, Recovery and Disposal


55,812



(2,547)



53,265


4.6%

Intermodal and Other


39,331



(306)



39,025


3.4%

Total

$

1,314,063


$

(156,888)


$

1,157,175


100.0%

 


Three Months Ended December 31, 2018



Revenue



Inter-
company
Elimination



Reported
Revenue


%

Solid Waste Collection

$

874,601


$

(2,338)


$

872,263


69.1%

Solid Waste Disposal and Transfer


447,998



(177,946)



270,052


21.4%

Solid Waste Recycling


23,075



(1,208)



21,867


1.7%

E&P Waste Treatment, Recovery and Disposal


67,192



(3,218)



63,974


5.1%

Intermodal and Other


34,308



(732)



33,576


2.7%

Total

$

1,447,174


$

(185,442)


$

1,261,732


100.0%

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


Three months ended
December 31,



Twelve months ended
December 31,


2017


2018



2017


2018

Acquisitions, net  

$

37,615


$

61,420



$

1,002,979


$

153,139

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 and twelve-month periods ended December 31, 2017 and 2018:


Three months ended
December 31,



Twelve months ended
December 31,


2017


2018



2017


2018

Cash Interest Paid

$

39,145


$

39,296



$

115,645


$

124,338

Cash Taxes Paid


74,101



19,102




155,532



52,464

Debt to Book Capitalization as of December 31, 2018:  39%

Internalization for the three months ended December 31, 2018:  56%

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

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

Basic shares outstanding

263,628,941

Dilutive effect of equity-based awards

824,714

Diluted shares outstanding

264,453,655

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 any loss 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
December 31,


Twelve months ended
December 31,


2017


2018


2017


2018

Net income attributable to Waste Connections

$

315,086


$

132,478


$

576,817


$

546,871

Plus: Net income attributable to noncontrolling interests


42



65



603



283

Plus (Less): Income tax provision (benefit)


(169,129)



33,477



(68,910)



159,986

Plus: Interest expense


32,534



35,230



125,297



132,104

Less: Interest income


(2,042)



(3,493)



(5,173)



(7,170)

Plus: Depreciation and amortization


160,590



177,177



632,484



680,487

Plus: Closure and post-closure accretion


2,976



3,248



11,781



12,997

Plus: Impairments and other operating items


15,160



14,012



156,493



20,118

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


(175)



1,113



(3,736)



(1,263)

Plus (Less): Foreign currency transaction loss (gain)


(1,302)



1,110



2,200



1,433

Adjustments:












Plus: Transaction-related expenses (a)


1,282



3,701



5,700



8,607

Plus (less): Fair value changes to certain equity awards (b)


3,033



(896)



16,357



9,205

Plus (less) : Integration-related and other expenses (c)


2,645



(35)



10,612



2,760

Adjusted EBITDA

$

360,700


$

397,187


$

1,460,525


$

1,566,418













As % of revenues


31.2%



31.5%



31.5%



31.8%









(a)

Reflects the addback of acquisition-related transaction costs.

(b) 

Reflects fair value accounting changes associated with certain equity awards.

(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. 



Twelve months ended
December 31,



2017


2018

Net cash provided by operating activities


$

1,187,260


$

1,411,235

Plus/(Less): Change in book overdraft



8,241



(839)

Plus: Proceeds from disposal of assets



28,432



5,385

Less: Capital expenditures for property and equipment



(479,287)



(546,145)

Less: Distributions to noncontrolling interests



-



(103)

Adjustments:







  Payment of contingent consideration recorded in earnings (a)



10,012



11

  Cash received for divestitures (b)



(21,100)



(2,030)

  Transaction-related items (c)



5,700



8,607

  Integration-related and other expenses (d)



10,602



2,760

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



17,037



5,772

  Synergy bonus (f)



11,798



-

  Tax effect (g)



(14,804)



(4,752)

Adjusted free cash flow


$

763,891


$

879,901








As % of revenues



16.5%



17.9%









(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 certain Progressive Waste operations.

(c) 

Reflects the addback of acquisition-related items, including 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 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
December 31,


Twelve months ended
December 31,



2017


2018


2017


2018

Reported net income attributable to Waste Connections


$

315,086


$

132,478


$

576,817


$

546,871

Adjustments:













Amortization of intangibles (a)



25,411



28,336



102,297



107,779

Impairments and other operating items (b)



15,160



14,012



156,493



20,118

Transaction-related expenses (c)



1,282



3,701



5,700



8,607

Fair value changes to certain equity awards (d)



3,033



(896)



16,357



9,205

Integration-related and other expenses (e)



2,645



(35)



10,612



2,760

     Tax effect (f)



(16,151)



(11,383)



(91,979)



(37,165)

     Tax items (g)



(209,418)



-



(205,631)



9,093

Adjusted net income attributable to Waste Connections


$

137,048


$

166,213


$

570,666


$

667,268














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













Reported net income


$

1.19


$

0.50


$

2.18


$

2.07

Adjusted net income


$

0.52


$

0.63


$

2.16


$

2.52







(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 fair value accounting changes associated with certain equity awards.

(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.

(g) 

In 2018, primarily reflects refinements to the estimates, as provided by Staff Accounting Bulletin No. 118, of the impact of a portion of the Company's U.S. earnings no longer permanently reinvested in conjunction with the Tax Act.  In 2017, reflects income tax benefit primarily resulting from a reduction of deferred tax liabilities due to enactment of the Tax Act, partially offset by deferred income tax expense due to a portion of the Company's U.S. earnings no longer permanently reinvested, also related to the Tax Act.

 

2019 OUTLOOK

NON-GAAP RECONCILIATION SCHEDULE

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


Reconciliation of Adjusted EBITDA:




2019 Outlook




Estimate


Observation

Net income attributable to Waste Connections


$

636,000



    Plus: Net income attributable to noncontrolling interests



1,000



    Plus: Income tax provision



201,000


Approximate 24.0% effective rate*

    Plus: Interest expense, net



134,000



    Plus: Depreciation and Depletion



600,000


Approximately 11.3% of revenue

    Plus: Amortization



120,000



    Plus: Closure and post-closure accretion



13,000



Adjusted EBITDA


$

1,705,000


Approximately 32.1% of revenue


*Rather than current estimated rate of 21.5%, reflects midpoint of estimated 21.5% to 26.5% potential range resulting from IRS proposed regulations released in late December 2018 related to the Tax Act, which, if finalized and implemented in 2019, could impact 2019's effective tax rate.

 

Reconciliation of Adjusted Free Cash Flow:





2019 Outlook



Estimate

Net cash provided by operating activities 


$

1,525,000

    Less: Capital expenditures



(575,000)

Adjusted free cash flow


$

950,000

 

SOURCE Waste Connections, Inc.


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