Waste Connections Reports Third Quarter 2021 Results And Raises Full Year Outlook
- Strong execution, accelerating solid waste pricing growth and continued strength in both resource recovery values and acquisition activity again drive outsized results and increased full year outlook
- Revenue of $1.597 billion, up 14.9% year over year, exceeding outlook
- Reports organic growth of 11.3%, including 7.3% solid waste price + volume growth, exceeding outlook
- Net income(a) of $114.4 million, and adjusted EBITDA(b) of $505.6 million, or 31.7% of revenue, up sequentially from Q2 and up 60 basis points year over year
- Net income and adjusted net income(b) of $0.44 and $0.89 per share, respectively
- Year to date net cash provided by operating activities of $1.270 billion and adjusted free cash flow(b) of $825.8 million, or 18.2% of revenue
- Year to date closed acquisitions of approximately $240 million in annualized revenues
- Increases regularly quarterly dividend by 12.2%
- Provides full year 2021 revenue outlook of approximately $6.110 billion, net income of approximately $633 million, adjusted EBITDA(b) of approximately $1.910 billion, net cash from operating activities of approximately $1.689 billion and adjusted free cash flow of approximately $1.025 billion
TORONTO, Oct. 27, 2021 /PRNewswire/ -- Waste Connections, Inc. (TSX/NYSE: WCN) ("Waste Connections" or the "Company") today announced its results for the third quarter of 2021.
"We delivered another top to bottom beat in the period on continued strength in solid waste pricing, higher recycled commodity values, and improving E&P waste activity, along with acquisitions closed during the period. More importantly, quality of revenue drove 60 basis points year-over-year adjusted EBITDA(b) margin expansion in the quarter, overcoming an estimated 40 basis points impact from margin dilutive acquisitions and hurricanes, putting us firmly on track to exceed the updated full year 2021 outlook we provided in August," said Worthing F. Jackman, President and Chief Executive Officer.
"Strong execution, proactive acceleration of solid waste pricing to address inflationary pressures, and outsized contribution from acquisitions completed in 2021, already position us for double-digit growth, underlying solid waste margin expansion and strong free cash flow conversion in 2022. Additional acquisitions expected to be completed later this year, and any continuation of trends in E&P waste activity or commodity-driven revenues, would provide incremental benefit."
Mr. Jackman continued, "As anticipated, the strength of our operating performance, free cash flow generation and balance sheet positioned us for another double-digit increase in our quarterly cash dividend, our eleventh straight year, demonstrating once again our ability to fund our differentiated growth strategy and outsized acquisition activity, along with an increasing return of capital to shareholders."
Q3 2021 Results
Revenue in the third quarter totaled $1.597 billion, up from $1.390 billion in the year ago period. Operating income was $285.1 million, which included $5.6 million in acquisition-related costs, $3.1 million of impairments and other operating items, and $0.9 million in fair value accounting changes to equity awards. This compares to operating income of $230.7 million in the third quarter of 2020, which included $7.9 million of costs primarily resulting from impairments and other operating items and acquisition-related costs. Net income in the third quarter was $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. In the year ago period, the Company reported net income of $158.0 million, or $0.60 per share on a diluted basis of 263.5 million shares.
Adjusted net income(b) in the third quarter was $233.1 million, or $0.89 per diluted share, versus $188.6 million, or $0.72 per diluted share, in the prior year period. Adjusted EBITDA(b) in the third quarter was $505.6 million and 31.7% of revenue, as compared to $432.6 million and 31.1% of revenue 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, 2021, revenue was $4.527 billion, up from $4.048 billion in the year ago period. Operating income, which included $9.8 million in impairments and other operating items, $7.6 million in fair value accounting changes to equity awards and $6.2 million in acquisition-related costs, was $790.3 million, as compared to operating income of $215.3 million for the same period in 2020, which included $453.1 million primarily related to impairments and other operating items.
Net income for the nine months ended September 30, 2021 was $451.7 million, or $1.72 per share on a diluted basis of 261.9 million shares. In the year ago period, the Company reported net income of $74.0 million, or $0.28 per share on a diluted basis of 263.7 million shares.
Adjusted net income(b) for the nine months ended September 30, 2021 was $629.5 million, or $2.39 per diluted share, compared to $517.2 million, or $1.96 per diluted share, in the year ago period. Adjusted EBITDA(b) for the nine months ended September 30, 2021 was $1.424 billion and 31.4% of revenue, up from $1.235 billion and 30.5% of revenue in the prior year period.
Updated 2021 Outlook
Waste Connections also updated its outlook for 2021, which assumes no change in the current economic environment or underlying economic trends, including as a result of or related to impacts from the COVID-19 pandemic. 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 2021 are subject to quarterly fluctuations. See reconciliations in the attached tables.
- Revenue is estimated at approximately $6.110 billion, as compared to our revised revenue outlook of $5.975 billion provided in August.
- Net income is estimated at approximately $633 million, and adjusted EBITDA(b) is estimated at approximately $1.910 billion, or about 31.3% of revenue, as compared to our revised adjusted EBITDA(b) outlook of $1.875 billion provided in August.
- Capital expenditures are estimated at approximately $700 million, as compared to our revised capital expenditures outlook of approximately $675 million provided in August.
- Net cash provided by operating activities is estimated at $1.689 billion, as compared to our revised outlook of $1.666 billion provided in August; adjusted free cash flow(b) is estimated at approximately $1.025 billion, or about 16.8% of revenue, as compared to our adjusted free cash flow outlook of $1.0 billion provided in August.
Q3 2021 Earnings Conference Call
Waste Connections will be hosting a conference call related to third quarter earnings on October 28th 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, listeners may access the call by dialing 800-915-4731 (within North America) or 212-231-2911 (international) approximately 10 minutes prior to the scheduled start time; a passcode is not required. A replay of the conference call will be available until November 4, 2021, by calling 800-633-8284 (within North America) or 402-977-9140 (international) and entering Passcode #21998075.
Waste Connections will be filing a Form 8-K on EDGAR and on SEDAR (as an "Other" document) prior to markets opening on October 28th, providing the Company's fourth quarter 2021 outlook for revenue, price plus volume growth for solid waste, and adjusted EBITDA(b).
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(a) All references to "Net income" refer to the financial statement line item "Net income attributable to Waste Connections". |
(b) A non-GAAP measure; see accompanying Non-GAAP Reconciliation Schedule. |
About Waste Connections
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 44 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.
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 through reduced incidents and enhancing employee engagement through improved voluntary turnover and Servant Leadership scores. The Company's updated 2021 Sustainability Report provides progress updates on its targets and investments towards their achievement. For more information, visit the Waste Connections website at wasteconnections.com/sustainability.
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 2021 and 2022 financial results, outlook and related assumptions, potential acquisition activity and return of capital 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 | Joe Box / (832) 442-2153 | |||
WASTE CONNECTIONS, INC. | |||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME | |||||||||||||
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2021 | |||||||||||||
(Unaudited) | |||||||||||||
(in thousands of U.S. dollars, except share and per share amounts) | |||||||||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||
2020 | 2021 | 2020 | 2021 | ||||||||||
Revenues | $ | 1,389,552 | $ | 1,597,168 | $ | 4,047,739 | $ | 4,527,042 | |||||
Operating expenses: | |||||||||||||
Cost of operations | 828,822 | 946,098 | 2,429,957 | 2,673,209 | |||||||||
Selling, general and administrative | 136,003 | 155,520 | 404,213 | 454,885 | |||||||||
Depreciation | 157,590 | 171,965 | 459,641 | 498,588 | |||||||||
Amortization of intangibles | 32,653 | 35,337 | 96,062 | 100,237 | |||||||||
Impairments and other operating items | 3,805 | 3,104 | 442,582 | 9,819 | |||||||||
Operating income | 230,679 | 285,144 | 215,284 | 790,304 | |||||||||
Interest expense | (40,636) | (40,418) | (119,562) | (124,171) | |||||||||
Interest income | 903 | 495 | 4,396 | 2,342 | |||||||||
Other income (expense), net | 702 | 3,140 | (3,046) | 5,452 | |||||||||
Loss on early extinguishment of debt | - | (115,288) | - | (115,288) | |||||||||
Income before income tax provision | 191,648 | 133,073 | 97,072 | 558,639 | |||||||||
Income tax provision | (33,657) | (18,419) | (23,654) | (106,578) | |||||||||
Net income | 157,991 | 114,654 | 73,418 | 452,061 | |||||||||
Plus (less): Net loss (income) attributable to noncontrolling interests | 58 | (273) | 594 | (325) | |||||||||
Net income attributable to Waste Connections | $ | 158,049 | $ | 114,381 | $ | 74,012 | $ | 451,736 | |||||
Earnings per common share attributable to Waste Connections' common shareholders: | |||||||||||||
Basic | $ | 0.60 | $ | 0.44 | $ | 0.28 | $ | 1.73 | |||||
Diluted | $ | 0.60 | $ | 0.44 | $ | 0.28 | $ | 1.72 | |||||
Shares used in the per share calculations: | |||||||||||||
Basic | 262,998,317 | 260,550,774 | 263,253,087 | 261,372,827 | |||||||||
Diluted | 263,507,486 | 261,145,220 | 263,718,001 | 261,879,754 | |||||||||
Cash dividends per common share | $ | 0.185 | $ | 0.205 | $ | 0.555 | $ | 0.615 | |||||
WASTE CONNECTIONS, INC. | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(Unaudited) | |||||||
(in thousands of U.S. dollars, except share and per share amounts) | |||||||
December 31, 2020 | September 30, 2021 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 617,294 | $ | 339,479 | |||
Accounts receivable, net of allowance for credit losses of $19,380 and $20,306 at December 31, 2020 and September 30, 2021, respectively | 630,264 | 692,051 | |||||
Prepaid expenses and other current assets | 160,714 | 128,758 | |||||
Total current assets | 1,408,272 | 1,160,288 | |||||
Restricted cash | 97,095 | 118,893 | |||||
Restricted investments | 57,516 | 58,430 | |||||
Property and equipment, net | 5,284,506 | 5,414,789 | |||||
Operating lease right-of-use assets | 170,923 | 162,640 | |||||
Goodwill | 5,726,650 | 6,006,533 | |||||
Intangible assets, net | 1,155,079 | 1,264,728 | |||||
Other assets, net | 92,323 | 88,531 | |||||
Total assets | $ | 13,992,364 | $ | 14,274,832 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 290,820 | $ | 341,211 | |||
Book overdraft | 17,079 | 16,527 | |||||
Deferred revenue | 233,596 | 254,135 | |||||
Accrued liabilities | 404,923 | 448,541 | |||||
Current portion of operating lease liabilities | 30,671 | 37,236 | |||||
Current portion of contingent consideration | 43,297 | 42,359 | |||||
Current portion of long-term debt and notes payable | 8,268 | 5,289 | |||||
Total current liabilities | 1,028,654 | 1,145,298 | |||||
Long-term portion of debt and notes payable | 4,708,678 | 4,869,213 | |||||
Long-term portion of operating lease liabilities | 147,223 | 132,589 | |||||
Long-term portion of contingent consideration | 28,439 | 24,592 | |||||
Deferred income taxes | 760,044 | 777,968 | |||||
Other long-term liabilities | 455,888 | 442,016 | |||||
Total liabilities | 7,128,926 | 7,391,676 | |||||
Commitments and contingencies | |||||||
Equity: | |||||||
Common shares: 262,899,174 shares issued and 262,824,990 shares outstanding at December 31, 2020; 260,526,784 shares issued and 260,453,918 shares outstanding at September 30, 2021 | 4,030,368 | 3,726,134 | |||||
Additional paid-in capital | 170,555 | 184,995 | |||||
Accumulated other comprehensive income (loss) | (651) | 17,553 | |||||
Treasury shares: 74,184 and 72,866 shares at December 31, 2020 and September 30, 2021, respectively | - | - | |||||
Retained earnings | 2,659,001 | 2,949,984 | |||||
Total Waste Connections' equity | 6,859,273 | 6,878,666 | |||||
Noncontrolling interest in subsidiaries | 4,165 | 4,490 | |||||
Total equity | 6,863,438 | 6,883,156 | |||||
$ | 13,992,364 | $ | 14,274,832 | ||||
WASTE CONNECTIONS, INC. | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2021 | |||||||
(Unaudited) | |||||||
(in thousands of U.S. dollars) | |||||||
Nine months ended September 30, | |||||||
2020 | 2021 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 73,418 | $ | 452,061 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Loss on disposal of assets and impairments | 423,832 | 9,302 | |||||
Depreciation | 459,641 | 498,588 | |||||
Amortization of intangibles | 96,062 | 100,237 | |||||
Loss on early extinguishment of debt | - | 115,288 | |||||
Deferred income taxes, net of acquisitions | (77,613) | (24,282) | |||||
Amortization of debt issuance costs | 6,146 | 3,887 | |||||
Share-based compensation | 38,316 | 42,694 | |||||
Interest accretion | 12,843 | 12,068 | |||||
Payment of contingent consideration recorded in earnings | - | (520) | |||||
Adjustments to contingent consideration | 16,852 | 89 | |||||
Other | 936 | (1,286) | |||||
Net change in operating assets and liabilities, net of acquisitions | 135,140 | 61,835 | |||||
Net cash provided by operating activities | 1,185,573 | 1,269,961 | |||||
Cash flows from investing activities: | |||||||
Payments for acquisitions, net of cash acquired | (173,810) | (561,276) | |||||
Capital expenditures for property and equipment | (420,694) | (479,480) | |||||
Capital expenditures for undeveloped landfill property | (66,809) | - | |||||
Proceeds from disposal of assets | 11,564 | 10,109 | |||||
Other | (317) | (4,193) | |||||
Net cash used in investing activities | (650,066) | (1,034,840) | |||||
Cash flows from financing activities: | |||||||
Proceeds from long-term debt | 1,790,625 | 1,943,192 | |||||
Principal payments on notes payable and long-term debt | (1,505,641) | (1,814,034) | |||||
Premiums paid on early extinguishment of debt | - | (110,617) | |||||
Payment of contingent consideration recorded at acquisition date | (2,812) | (7,998) | |||||
Change in book overdraft | (862) | (563) | |||||
Payments for repurchase of common shares | (105,654) | (305,640) | |||||
Payments for cash dividends | (145,921) | (160,754) | |||||
Tax withholdings related to net share settlements of equity-based compensation | (23,390) | (18,576) | |||||
Debt issuance costs | (11,117) | (17,997) | |||||
Proceeds from issuance of shares under employee share purchase plan | - | 1,275 | |||||
Proceeds from sale of common shares held in trust | 679 | 131 | |||||
Net cash used in financing activities | (4,093) | (491,581) | |||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 980 | 443 | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 532,394 | (256,017) | |||||
Cash, cash equivalents and restricted cash at beginning of period | 423,221 | 714,389 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 955,615 | $ | 458,372 | |||
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 | ||||||
Three months ended | Nine months ended | |||||
Core Price | 4.7 | % | 4.6 | % | ||
Surcharges | 0.4 | % | 0.1 | % | ||
Volume | 2.2 | % | 1.8 | % | ||
Recycling | 2.1 | % | 1.5 | % | ||
Foreign Exchange Impact | 0.7 | % | 1.0 | % | ||
Total | 10.1 | % | 9.0 | % | ||
Revenue Breakdown: The following table reflects a breakdown of our revenue for the three month periods ended September 30, 2020 and 2021: | ||||||||||||
Three months ended September 30, 2020 | ||||||||||||
Revenue | Inter-company Elimination | Reported Revenue | % | |||||||||
Solid Waste Collection | $ | 1,010,497 | $ | (3,940) | $ | 1,006,557 | 72.4 | % | ||||
Solid Waste Disposal and Transfer | 514,705 | (203,136) | 311,569 | 22.4 | % | |||||||
Solid Waste Recycling | 21,377 | (656) | 20,721 | 1.5 | % | |||||||
E&P Waste Treatment, Recovery and Disposal | 26,218 | (2,575) | 23,643 | 1.7 | % | |||||||
Intermodal and Other | 27,141 | (79) | 27,062 | 2.0 | % | |||||||
Total | $ | 1,599,938 | $ | (210,386) | $ | 1,389,552 | 100.0 | % | ||||
Three months ended September 30, 2021 | ||||||||||||
Revenue | Inter-company Elimination | Reported Revenue | % | |||||||||
Solid Waste Collection | $ | 1,137,206 | $ | (3,091) | $ | 1,134,115 | 71.0 | % | ||||
Solid Waste Disposal and Transfer | 553,974 | (217,899) | 336,075 | 21.0 | % | |||||||
Solid Waste Recycling | 55,772 | (1,354) | 54,418 | 3.4 | % | |||||||
E&P Waste Treatment, Recovery and Disposal | 38,519 | (3,560) | 34,959 | 2.2 | % | |||||||
Intermodal and Other | 38,377 | (776) | 37,601 | 2.4 | % | |||||||
Total | $ | 1,823,848 | $ | (226,680) | $ | 1,597,168 | 100.0 | % | ||||
Contribution from Acquisitions: The following table reflects revenues from acquisitions, net of divestitures, for the three and nine month periods | ||||||||||||
Three months ended | Nine months ended September 30, | |||||||||||
2020 | 2021 | 2020 | 2021 | |||||||||
Acquisitions, net | $ | 44,214 | $ | 51,368 | $ | 144,509 | $ | 136,035 | ||||
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, 2020 and 2021: | ||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2020 | 2021 | 2020 | 2021 | |||||||||
Cash Interest Paid | $ | 23,572 | $ | 38,685 | $ | 86,400 | $ | 120,647 | ||||
Cash Taxes Paid | 47,965 | 29,411 | 61,015 | 90,104 | ||||||||
Debt to Book Capitalization as of September 30, 2021: 41% | ||
Internalization for the three months ended September 30, 2021: 56% | ||
Days Sales Outstanding for the three months ended September 30, 2021: 40 (25 net of deferred revenue) | ||
Share Information for the three months ended September 30, 2021: | ||
Basic shares outstanding | 260,550,774 | |
Dilutive effect of equity-based awards | 594,446 | |
Diluted shares outstanding | 261,145,220 | |
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, | |||||||||||
2020 | 2021 | 2020 | 2021 | |||||||||
Net income attributable to Waste Connections | $ | 158,049 | $ | 114,381 | $ | 74,012 | $ | 451,736 | ||||
Plus/(less): Net income (loss) attributable to noncontrolling interests | (58) | 273 | (594) | 325 | ||||||||
Plus: Income tax provision | 33,657 | 18,419 | 23,654 | 106,578 | ||||||||
Plus: Interest expense | 40,636 | 40,418 | 119,562 | 124,171 | ||||||||
Less: Interest income | (903) | (495) | (4,396) | (2,342) | ||||||||
Plus: Depreciation and amortization | 190,243 | 207,302 | 555,703 | 598,825 | ||||||||
Plus: Closure and post-closure accretion | 3,723 | 3,544 | 11,340 | 10,919 | ||||||||
Plus: Impairments and other operating items | 3,805 | 3,104 | 442,582 | 9,819 | ||||||||
Plus/(Less): Other expense (income), net | (702) | (3,140) | 3,046 | (5,452) | ||||||||
Plus: Loss on early extinguishment of debt | - | 115,288 | - | 115,288 | ||||||||
Adjustments: | ||||||||||||
Plus: Transaction-related expenses(a) | 2,335 | 5,637 | 4,497 | 6,220 | ||||||||
Plus: Fair value changes to equity awards(b) | 1,798 | 914 | 6,021 | 7,638 | ||||||||
Adjusted EBITDA | $ | 432,583 | $ | 505,645 | $ | 1,235,427 | $ | 1,423,725 | ||||
As % of revenues | 31.1% | 31.7% | 30.5% | 31.4% | ||||||||
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(a) | Reflects the addback of acquisition-related transaction costs. |
(b) | 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, | |||||||||||
2020 | 2021 | 2020 | 2021 | |||||||||
Net cash provided by operating activities | $ | 432,388 | $ | 421,482 | $ | 1,185,573 | $ | 1,269,961 | ||||
Less: Change in book overdraft | (256) | (373) | (862) | (563) | ||||||||
Plus: Proceeds from disposal of assets | 922 | 2,204 | 11,564 | 10,109 | ||||||||
Less: Capital expenditures for property and equipment | (151,983) | (208,089) | (420,694) | (479,480) | ||||||||
Adjustments: | ||||||||||||
Payment of contingent consideration recorded in earnings(a) | - | - | - | 520 | ||||||||
Cash received for divestitures(b) | - | - | (4,974) | - | ||||||||
Transaction-related expenses(c) | 2,335 | 25,090 | 4,497 | 25,673 | ||||||||
Pre-existing Progressive Waste share-based grants(d) | 1,015 | 173 | 7,455 | 317 | ||||||||
Tax effect(e) | (599) | (485) | (4,168) | (699) | ||||||||
Adjusted free cash flow | $ | 283,822 | $ | 240,002 | $ | 778,391 | $ | 825,838 | ||||
As % of revenues | 20.4% | 15.0% | 19.2% | 18.2% | ||||||||
___________________________ | |
(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 operations. |
(c) | Reflects the addback of acquisition-related transaction costs and settlement of an acquired compensation liability. |
(d) | Reflects the cash settlement of pre-existing Progressive Waste share-based awards during the period. |
(e) | 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, | |||||||||||
2020 | 2021 | 2020 | 2021 | |||||||||
Reported net income attributable to Waste Connections | $ | 158,049 | $ | 114,381 | $ | 74,012 | $ | 451,736 | ||||
Adjustments: | ||||||||||||
Amortization of intangibles(a) | 32,653 | 35,337 | 96,062 | 100,237 | ||||||||
Impairments and other operating items(b) | 3,805 | 3,104 | 442,582 | 9,819 | ||||||||
Transaction-related expenses(c) | 2,335 | 5,637 | 4,497 | 6,220 | ||||||||
Fair value changes to equity awards(d) | 1,798 | 914 | 6,021 | 7,638 | ||||||||
Loss on early extinguishment of debt(e) | - | 115,288 | - | 115,288 | ||||||||
Tax effect(f) | (10,000) | (41,531) | (137,523) | (61,466) | ||||||||
Tax items(g) | - | - | 31,508 | - | ||||||||
Adjusted net income attributable to Waste Connections | $ | 188,640 | $ | 233,130 | $ | 517,159 | $ | 629,472 | ||||
Diluted earnings per common share attributable to Waste Connections' common shareholders: | ||||||||||||
Reported net income | $ | 0.60 | $ | 0.44 | $ | 0.28 | $ | 1.72 | ||||
Adjusted net income | $ | 0.72 | $ | 0.89 | $ | 1.96 | $ | 2.39 | ||||
____________________________ | |
(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 make-whole premium and related fees associated with the early termination of $1.5 billion in senior notes. |
(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) | Reflects the impact of a portion of the Company's 2019 inter-entity payments no longer being deductible for tax purposes due to the finalization of tax regulations on April 7, 2020 under Internal Revenue Code section 267A and an increase in deferred tax liabilities resulting from the E&P impairment. |
UPDATED 2021 OUTLOOK | |||||||||||||
NON-GAAP RECONCILIATION SCHEDULE | |||||||||||||
(in thousands of U.S. dollars, except where noted) | |||||||||||||
Reconciliation of Adjusted EBITDA: | |||||||||||||
2021 Outlook | |||||||||||||
August | Current | Observation | |||||||||||
Net income attributable to Waste Connections | $ | 690,000 | $ | 633,000 | |||||||||
Plus: Income tax provision (a) | 184,294 | 156,487 | Approximate 20.5% effective rate | ||||||||||
Plus: Interest expense, net | 162,000 | 162,000 | |||||||||||
Plus: Depreciation and Depletion | 680,000 | 671,000 | Approximately 11.0% of revenue | ||||||||||
Plus: Amortization | 132,000 | 139,000 | |||||||||||
Plus: Closure and post-closure accretion | 15,000 | 15,000 | |||||||||||
Plus: Loss on early extinguishment of debt (b) | - | 115,288 | |||||||||||
Plus: Impairments and other operating items (b) | 6,712 | 9,819 | |||||||||||
Plus: Other income, net (b) | (2,312) | (5,452) | |||||||||||
Adjustments: (b) | |||||||||||||
Plus: Transaction-related expenses | 583 | 6,220 | |||||||||||
Plus: Fair value changes to equity awards | 6,723 | 7,638 | |||||||||||
Adjusted EBITDA | $ | 1,875,000 | $ | 1,910,000 | Approximately 31.3% of revenue | ||||||||
____________________________ | |
(a) | Approximately 20.5% full year effective tax rate, including amounts reported for the nine month period ended September 30, 2021; figure excludes tax impact from early debt extinguishment costs. |
(b) | Reflects amounts reported for the nine month period ended September 30, 2021, as shown on page 9. |
Reconciliation of Adjusted Free Cash Flow: | |||||||||||
2021 Outlook | |||||||||||
August | Current | ||||||||||
Net cash provided by operating activities | $ | 1,666,061 | $ | 1,689,080 | |||||||
Plus: Proceeds from disposal of assets (a) | 7,906 | 10,109 | |||||||||
Less: Capital expenditures for property and equipment | (675,000) | (700,000) | |||||||||
Adjustments: (a) | |||||||||||
Payment of contingent consideration recorded in earnings | 520 | 520 | |||||||||
Transaction-related expenses | 583 | 25,673 | |||||||||
Pre-existing Progressive Waste share-based grants | 144 | 317 | |||||||||
Tax effect | (214) | (699) | |||||||||
Adjusted free cash flow | $ | 1,000,000 | $ | 1,025,000 | |||||||
As % of revenues | 16.7% | 16.8% | |||||||||
____________________________ | |
(a) | Reflects amounts reported for the nine month period ended September 30, 2021, as shown on page 10. |
SOURCE Waste Connections, Inc.
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