Waste Connections, Inc. (TSX/NYSE: WCN) ("Waste Connections" or the "Company") today announced its results for the third quarter of 2022 and updated its outlook for 2022
Increasing solid waste pricing growth, E&P waste activity and acquisition contribution once again drive better than expected quarterly results
Revenue of $1.880 billion, up 17.7%
Net income(a) of $236.9 million, and adjusted EBITDA(b) of $588.1 million, up 16.3%
Adjusted EBITDA(b) margin of 31.3% of revenue, above outlook and up 20 basis points year over year, excluding acquisitions
Net income of $0.92 per share, and adjusted net income(b) of $1.10 per share
Year to date net cash provided by operating activities of $1.500 billion and adjusted free cash flow(b) of $929.0 million, or 17.4% of revenue
Year to date signed or closed acquisitions with approximately $570 million of total annualized revenue
Increases regular quarterly dividend by 10.9%
TORONTO, Nov. 2, 2022 /PRNewswire/ -- Waste Connections, Inc. (TSX/NYSE: WCN) ("Waste Connections" or the "Company") today announced its results for the third quarter of 2022 and updated its outlook for 2022.
"Strong execution once again provided for better than expected results, driven in the third quarter by continued acceleration of solid waste pricing to 10.1% and higher E&P waste activity, along with acquisitions closed during the period. Most notably, we overcame 50 basis points in incremental headwinds, primarily from the precipitous decline in recycled commodity values in September, to beat our outlook and expand adjusted EBITDA margin both sequentially and on a year-over-year basis, excluding the dilutive impact from acquisitions completed since the year ago period," said Worthing F. Jackman, President and Chief Executive Officer.
Mr. Jackman added, "As anticipated, acquisition activity continues to run well above historical levels, with $535 million in annualized revenue closed in 2022 plus an additional $35 million under definitive agreement expected to close by year end or early in 2023. These transactions include multi-market solid waste franchises in California and Oregon; integrated market expansions in Arizona and Texas; new market entries in Pennsylvania, British Columbia and Quebec; and multiple tuck-ins and market expansions within our recently established footprint in Massachusetts."
"The strength of our balance sheet, operating performance and free cash flow generation positioned us for another double-digit increase in our quarterly cash dividend, once again demonstrating our capacity for outsized acquisition activity while continuing to fund our differentiated growth strategy and increasing return of capital to shareholders."
Mr. Jackman concluded, "Our outperformance through the third quarter and acquisitions closed year to date enhance our visibility for expected double-digit revenue growth in 2023, led by pricing expected to remain at elevated levels, plus rollover contribution from acquisitions already signed or closed year to date. In addition, we expect underlying margin expansion to overcome headwinds from recent decreases in recycled commodity values."
Revenue in the third quarter totaled $1.880 billion, up from $1.597 billion in the year ago period. Operating income was $326.8 million, which included $25.1 million primarily in impairments and other operating items and transaction expenses. This compares to operating income of $285.1 million in the third quarter of 2021, which included $9.7 million primarily related to transaction expenses and impairments and other operating items. Net income in the third quarter was $236.9 million, or $0.92 per share on a diluted basis of 257.9 million shares, including a $15.3 million net of tax benefit, or $0.06 per share, primarily as a result of the impact from changes in foreign currency exchange rates on certain debt in the period. In the year ago period, the Company reported net income of $114.4 million, or $0.44 per share on a diluted basis of 261.1 million shares, including a net of tax loss on debt extinguishment associated with the prepayment of senior notes of $84.2 million or $0.32 per share.
Adjusted net income(b) in the third quarter was $284.9 million, or $1.10 per diluted share, versus $233.1 million, or $0.89 per diluted share, in the prior year period. Adjusted EBITDA(b) in the third quarter was $588.1 million, as compared to $505.6 million in the prior year period. Adjusted net income, adjusted net income per diluted share and adjusted EBITDA, all non-GAAP measures, primarily exclude impairments and acquisition-related items, as reflected in the detailed reconciliations in the attached tables.
Nine Months Year to Date Results
For the nine months ended September 30, 2022, revenue was $5.343 billion, up from $4.527 billion in the year ago period. Operating income, which included $38.5 million primarily attributable to impairments and other operating items and transaction-related expenses, was $930.2 million, as compared to operating income of $790.3 million in 2021, which included $23.7 million in impairments, fair value changes in equity awards and transaction expenses.
Net income for the nine months ended September 30, 2022 was $641.3 million, or $2.49 per share on a diluted basis of 258.1 million shares, including a $18.9 million net of tax benefit, or $0.07 per share, primarily as a result of the impact from changes in foreign currency exchange rates on certain debt. In the year ago period, the Company reported net income of $451.7 million, or $1.72 per share on a diluted basis of 261.9 million shares, including a net of tax loss on debt extinguishment associated with the prepayment of senior notes of $84.2 million or $0.32 per share.
Adjusted net income(b) for the nine months ended September 30, 2022 was $755.5 million, or $2.93 per diluted share, compared to $629.5 million, or $2.39 per diluted share, in the year ago period. Adjusted EBITDA(b) for the nine months ended September 30, 2022 was $1.657 billion, as compared to $1.424 billion in the prior year period.
Waste Connections also updated its outlook for 2022, which assumes no change in the current economic environment or underlying economic trends. 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 U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada. Certain components of the outlook for 2022 are subject to quarterly fluctuations. See reconciliations in the attached tables.
Revenue is estimated to be approximately $7.190 billion, as compared to our previously revised revenue outlook of approximately $7.125 billion.
Net income is estimated to be approximately $836.7 million, and adjusted EBITDA(b) is estimated to be approximately $2.210 billion, or about 30.7% of revenue, as compared to our previously revised adjusted EBITDA(b) outlook of $2.190 billion or 30.7% of revenue.
Capital expenditures are estimated to be approximately $850 million, in line with our original outlook.
Net cash provided by operating activities is estimated to be approximately $1.963 billion, and adjusted free cash flow(b) is estimated at approximately $1.160 billion, or about 16.1% of revenue, as compared to our previously revised adjusted free cash flow(b) outlook of $1.160 billion or 16.3% of revenue.
Environmental, Social and Governance
Waste Connections views its Environmental, Social and Governance ("ESG") efforts as integral to its business, with initiatives consistent with its objective of long-term value creation. In 2020, the Company introduced long-term, aspirational ESG targets and committed over $500 million for investments to meet or exceed such sustainability targets. These investments primarily focus on reducing emissions, increasing resource recovery of both recyclable commodities and clean energy fuels, reducing reliance on off-site disposal for landfill leachate, further improving safety and enhancing employee engagement. The Company's 2022 Sustainability Report provides progress updates on its targets and investments towards their achievement, and introduces new emissions reduction targets. For more information, visit wasteconnections.com/sustainability.
All references to "Net income" refer to the financial statement line item "Net income attributable to Waste Connections".
A non-GAAP measure; see accompanying Non-GAAP Reconciliation Schedule.
Q3 2022 Earnings Conference Call
Waste Connections will be hosting a conference call related to third quarter earnings on November 3rd at 8:30 A.M. Eastern Time. A live audio webcast of the conference call can be accessed by visiting investors.wasteconnections.com and selecting "News & Events" from the website menu. Alternatively, conference call participants can preregister by clicking here. Registered participants will receive dial-in instructions and a personalized code for entry to the conference call. A replay of the conference call will be available until November 10, 2022, by calling 877-344-7529 (within North America) or 412-317-0088 (international) and entering Passcode #5667024.
Waste Connections will be filing a Form 8-K on EDGAR and on SEDAR (as an "Other" document) prior to markets opening on November 3rd, providing the Company's fourth quarter 2022 outlook for revenue, price plus volume growth for solid waste, and adjusted EBITDA(b).
Waste Connections is an integrated solid waste services company that provides non-hazardous waste collection, transfer and disposal services, along with resource recovery primarily through recycling and renewable fuels generation. The Company serves more than eight million residential, commercial and industrial customers in mostly exclusive and secondary markets across 43 states in the U.S. and six provinces in Canada. Waste Connections also provides non-hazardous oilfield waste treatment, recovery and disposal services in several basins across the U.S., as well as intermodal services for the movement of cargo and solid waste containers in the Pacific Northwest. For more information, visit Waste Connections at wasteconnections.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 2022 and 2023 financial results, outlook and related assumptions, and potential acquisition activity. 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 –
Mary Anne Whitney / (832) 442-2253
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2022
(in thousands of U.S. dollars, except share and per share amounts)
Three months ended
September 30,
Nine months ended
September 30,
Selling, general and administrative
Amortization of intangibles
Impairments and other operating items
Loss on early extinguishment of debt
Income before income tax provision
Less: Net income attributable to noncontrolling interests
Net income attributable to Waste Connections
Earnings per common share attributable to Waste
Connections' common shareholders:
Shares used in the per share calculations:
Cash dividends per common share
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share and per share amounts)
Accounts receivable, net of allowance for credit losses of $18,480 and $20,512 at
December 31, 2021 and September 30, 2022, respectively
Prepaid expenses and other current assets
Property and equipment, net
Operating lease right-of-use assets
Current portion of operating lease liabilities
Current portion of contingent consideration
Current portion of long-term debt and notes payable
Total current liabilities
Long-term portion of debt and notes payable
Long-term portion of operating lease liabilities
Long-term portion of contingent consideration
Other long-term liabilities
Commitments and contingencies
Common shares: 260,283,158 shares issued and 260,212,496 shares outstanding at
December 31, 2021; 257,183,663 shares issued and 257,118,204 shares outstanding at
September 30, 2022
Additional paid-in capital
Accumulated other comprehensive income
Treasury shares: 70,662 and 65,459 shares at December 31, 2021 and September 30, 2022,
respectively
Total Waste Connections' equity
Noncontrolling interest in subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2022
(in thousands of U.S. dollars)
Nine months ended September 30,
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on disposal of assets and impairments
Amortization of intangibles
Loss on early extinguishment of debt
Deferred income taxes, net of acquisitions
Current period provision for expected credit losses
Amortization of debt issuance costs
Payment of contingent consideration recorded in earnings
Adjustments to contingent consideration
Net change in operating assets and liabilities, net of acquisitions
Net cash provided by operating activities
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired
Capital expenditures for property and equipment
Proceeds from disposal of assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Principal payments on notes payable and long-term debt
Premiums paid on early extinguishment of debt
Payment of contingent consideration recorded at acquisition date
Payments for repurchase of common shares
Payments for cash dividends
Tax withholdings related to net share settlements of equity-based compensation
Proceeds from issuance of shares under employee share purchase plan
Proceeds from sale of common shares held in trust
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
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 and nine month periods ended September 30, 2022:
Revenue Breakdown: The following table reflects a breakdown of our revenue for the three month periods ended September 30, 2021 and 2022:
Three months ended September 30, 2021
Inter-company
Elimination
Solid Waste Disposal and Transfer
E&P Waste Treatment, Recovery and Disposal
Three months ended September 30, 2022
Inter-company
Elimination
Solid Waste Disposal and Transfer
E&P Waste Treatment, Recovery and Disposal
Contribution from Acquisitions: The following table reflects revenues from acquisitions, net of divestitures, for the three and nine month periods ended September 30, 2021 and 2022:
Three months ended
September 30,
Nine months ended
September 30,
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 nine month periods ended September 30, 2021 and 2022:
Three months ended
September 30,
Nine months ended
September 30,
Debt to Book Capitalization as of September 30, 2022: 47%
Internalization for the three months ended September 30, 2022: 54%
Days Sales Outstanding for the three months ended September 30, 2022: 40 (25 net of deferred revenue)
Share Information for the three months ended September 30, 2022:
Dilutive effect of equity-based awards
Diluted shares outstanding
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 or minus net income (loss) attributable to noncontrolling interests, plus income tax provision, 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. 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
September 30,
Nine months ended
September 30,
Net income attributable to Waste Connections
Plus: Net income attributable to noncontrolling interests
Plus: Income tax provision
Plus: Depreciation and amortization
Plus: Closure and post-closure accretion
Plus: Impairments and other operating items
Plus: Loss on early extinguishment of debt
Plus: Transaction-related expenses(a)
Plus: Fair value changes to equity awards(b)
Reflects the addback of acquisition-related transaction costs.
Reflects fair value accounting changes associated with certain equity awards.
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
September 30,
Nine months ended
September 30,
Net cash provided by operating activities
Less: Change in book overdraft
Plus: Proceeds from disposal of assets
Less: Capital expenditures for property and equipment
Payment of contingent consideration recorded in earnings(a)
Cash received for divestitures(b)
Transaction-related expenses(c)
Pre-existing Progressive Waste share-based grants(d)
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.
Reflects the elimination of cash received in conjunction with the divestiture of certain operations.
Reflects the addback of acquisition-related transaction costs and the settlement of an acquired tax liability.
Reflects the cash settlement of pre-existing Progressive Waste share-based awards during the period.
The aggregate tax effect of footnotes (a) through (d) 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 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
September 30,
Nine months ended
September 30,
Reported net income attributable to Waste Connections
Amortization of intangibles(a)
Impairments and other operating items(b)
Transaction-related expenses(c)
Fair value changes to equity awards(d)
Loss on early extinguishment of debt(e)
Adjusted net income attributable to Waste Connections
Diluted earnings per common share attributable to Waste Connections' common shareholders:
Reflects the elimination of the non-cash amortization of acquisition-related intangible assets.
Reflects the addback of impairments and other operating items.
Reflects the addback of acquisition-related transaction costs.
Reflects fair value accounting changes associated with certain equity awards.
Reflects the make-whole premium and related fees associated with the early termination of $1.5 billion in senior notes.
The aggregate tax effect of the adjustments in footnotes (a) through (e) is calculated based on the applied tax rates for the respective periods.
UPDATED 2022 OUTLOOK
NON-GAAP RECONCILIATION SCHEDULE
(in thousands of U.S. dollars, except where noted)
Reconciliation of Adjusted EBITDA:
Net income attributable to Waste Connections
Plus: Income tax provision (a)
Approximate 20% effective rate
Plus: Interest expense, net
Plus: Depreciation and Depletion
Approximately 10.5% of revenue
Plus: Closure and post-closure accretion
Plus: Impairments and other operating items (b)
Plus: Other income, net (b)
Plus: Transaction-related expenses
Plus: Fair value changes to equity awards
Approximately 30.7% of revenue
Approximately 20.0% full year effective tax rate, including amounts reported for the nine-month period ended September 30, 2022.
Reflects amounts reported for the nine-month period ended September 30, 2022, as shown on page 9.
Reconciliation of Adjusted Free Cash Flow:
Net cash provided by operating activities
Less: Change in book overdraft (a)
Plus: Proceeds from disposal of assets (a)
Less: Capital expenditures for property and equipment
Payment of contingent consideration recorded in earnings
Cash received for divestitures
Transaction-related expenses
Pre-existing Progressive Waste share-based grants
________________________________
Reflects amounts reported for the nine-month period ended September 30, 2022, as shown on page 10.
SOURCE Waste Connections, Inc.