Date: April 21, 2008
Source: Waste Connections, Inc.
Reports revenue of $250.3 million, up 14.3%, and earnings per share of $0.34
Reports internal growth of 8.1%
Reports free cash flow of $35.4 million, or 14.2% of revenue, up 42.4%
Repurchases approximately $31.5 million of common stock
Waste Connections, Inc. (NYSE: WCN) today announced its results for the first quarter 2008. Revenue totaled $250.3 million, a 14.3% increase over revenue of $219.0 million in the year ago period. Operating income was $50.8 million, a 9.4% increase over operating income of $46.4 million in the first quarter of 2007. Net income in the quarter was $23.1 million, or $0.34 per share on a diluted basis of 68.1 million shares. In the year ago period, the Company reported net income of $22.4 million and diluted earnings per share of $0.32. Non-cash costs for equity-based compensation and amortization of acquisition-related intangibles were $3.5 million ($2.1 million net of taxes, or approximately $0.03 per share) in the quarter compared to $2.7 million ($1.7 million net of taxes, or approximately $0.02 per share) in the year ago period.
"We continue to be extremely pleased with the underlying strength of our business in the face of spiraling fuel costs and more difficult weather conditions during the quarter. Excluding the dilutive margin impact of acquisitions completed since the year ago period, operating margins were almost flat year-over-year despite an almost 40% increase in average fuel costs resulting in fuel as a percentage of revenue increasing more than 150 basis points in the quarter," said Ronald J. Mittelstaedt, Chairman and Chief Executive Officer. "Continuing pricing strength and the improving performance of recently completed acquisitions position us to recover a significant portion of this recent spike in fuel costs should diesel prices remain at record levels for the remainder of the year."
Waste Connections will be hosting a conference call related to first quarter earnings and second quarter outlook on April 22nd at 8:30 A.M. Eastern Time. The call will be broadcast live over the Internet at http://www.streetevents.com and through a link on the Company's web site at http://www.wasteconnections.com. A playback of the call will be available at both of these sites.
For non-GAAP measures, see accompanying Non-GAAP Reconciliation Schedule.
Waste Connections, Inc. is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly secondary markets in the Western and Southern U.S. The Company serves approximately 1.5 million residential, commercial and industrial customers from a network of operations in 23 states. The Company also provides intermodal services for the movement of containers in the Pacific Northwest. Waste Connections, Inc. was founded in September 1997 and is headquartered in Folsom, California.
For more information, visit the Waste Connections web site at http://www.wasteconnections.com. Copies of financial literature, including this release, are available on the Waste Connections web site or through contacting us directly at (916) 608-8200.
Certain statements contained in this press release are forward-looking in nature. These statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates," or the negative thereof or comparable terminology, or by discussions of strategy. Waste Connections' business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may differ materially from those projected by any forward-looking statements. Factors that could cause actual results to differ from those projected include, but are not limited to, the following: (1) Waste Connections may be unable to compete effectively with larger and better capitalized companies and governmental service providers; (2) increases in the price of fuel may adversely affect Waste Connections' business and reduce its operating margins; (3) increases in labor and disposal and related transportation costs could impact Waste Connections' financial results; (4) increases in insurance costs and the amount that Waste Connections self-insures for various risks could reduce its operating margins and reported earnings; (5) Waste Connections depends significantly on the services of the members of its senior, regional and district management team, and the departure of any of those persons could cause its operating results to suffer; (6) Waste Connections' financial results are based upon estimates and assumptions that may differ from actual results; (7) efforts by labor unions could divert management attention and adversely affect operating results; (8) Waste Connections' results are vulnerable to economic conditions and seasonal factors affecting the regions in which it operates; (9) Waste Connections may lose contracts through competitive bidding, early termination or governmental action; (10) Waste Connections may be subject in the normal course of business to judicial and administrative proceedings that could interrupt its operations, require expensive remediation, result in adverse judgments or settlements and create negative publicity; (11) competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit Waste Connections' ability to grow through acquisitions; (12) Waste Connections' growth and future financial performance depend significantly on its ability to integrate acquired businesses into its organization and operations; (13) Waste Connections' acquisitions may not be successful, resulting in changes in strategy, operating losses or a loss on sale of the business acquired; (14) because Waste Connections depends on railroads for its intermodal operations, its operating results and financial condition are likely to be adversely affected by any reduction or deterioration in rail service; (15) Waste Connections' decentralized decision- making structure could allow local managers to make decisions that adversely affect Waste Connections' operating results; (16) Waste Connections may incur additional charges related to capitalized expenditures, which would decrease its earnings; (17) each business that Waste Connections acquires or has acquired may have liabilities that Waste Connections fails or is unable to discover, including environmental liabilities; (18) liabilities for environmental damage may adversely affect Waste Connections' business and earnings; and (19) the adoption of new accounting standards or interpretations could adversely affect Waste Connections' financial results. These risks and uncertainties, as well as others, are discussed in greater detail in Waste Connections' filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K. There may be additional risks of which Waste Connections is not presently aware or that it currently believes are immaterial which could have an adverse impact on its business. Waste Connections makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change.
WASTE CONNECTIONS, INC. CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 2007 AND 2008 (Unaudited) (in thousands, except share and per share amounts) Three months ended March 31, 2007 2008 Revenues $ 218,951 $ 250,300 Operating expenses: Cost of operations 128,869 149,132 Selling, general and administrative 23,910 27,090 Depreciation and amortization 19,590 23,223 Loss on disposal of assets 160 57 Operating income 46,422 50,798 Interest expense, net (7,818) (9,319) Minority interests (2,840) (3,373) Other income (expense), net 51 (12) Income before income taxes 35,815 38,094 Income tax provision (13,435) (14,976) Net income 22,380 $ 23,118 Basic earnings per common share $ 0.33 $ 0.35 Diluted earnings per common share $ 0.32 $ 0.34 Shares used in the per share calculations: Basic 68,465,359 66,789,398 Diluted 70,583,096 68,121,953 WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share amounts) December 31, March 31, 2007 2008 ASSETS Current assets: Cash and equivalents $10,298 $9,505 Accounts receivable, net of allowance for doubtful accounts of $4,387 and $3,716 at December 31, 2007 and March 31, 2008, respectively 123,882 116,193 Deferred income taxes 14,732 15,552 Prepaid expenses and other current assets 21,953 15,512 Total current assets 170,865 156,762 Property and equipment, net 865,330 870,316 Goodwill 811,049 824,929 Intangible assets, net 93,957 109,376 Restricted assets 19,300 20,090 Other assets, net 21,457 21,512 $1,981,958 $2,002,985 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $59,912 $51,194 Bank overdraft 8,835 5,239 Accrued liabilities 69,578 76,185 Deferred revenue 44,074 44,343 Current portion of long-term debt and notes payable 13,315 13,473 Total current liabilities 195,714 190,434 Long-term debt and notes payable 719,518 744,514 Other long-term liabilities 38,053 45,517 Deferred income taxes 223,308 227,197 Total liabilities 1,176,593 1,207,662 Commitments and contingencies Minority interests 30,220 30,751 Stockholders' equity: Preferred stock: $0.01 par value; 7,500,000 shares authorized; none issued and outstanding - - Common stock: $0.01 par value; 150,000,000 shares authorized; 67,052,135 and 66,397,922 shares issued and outstanding at December 31, 2007 and March 31, 2008, respectively 670 664 Additional paid-in capital 254,284 229,151 Retained earnings 524,481 547,599 Accumulated other comprehensive income (4,290) (12,842) Total stockholders' equity 775,145 764,572 $1,981,958 $2,002,985 Waste Connections, Inc. Condensed Consolidated Statements of Cash Flows THREE MONTHS ENDED MARCH 31, 2007 AND 2008 (Unaudited) (Dollars in thousands) Three months ended March 31, 2007 2008 Cash flows from operating activities: Net income $22,380 $23,118 Adjustments to reconcile net income to net cash provided by operating activities: Loss on disposal of assets 160 57 Depreciation 18,558 21,827 Amortization of intangibles 1,032 1,396 Deferred income taxes, net of acquisitions 2,852 7,989 Minority interests 2,840 3,373 Amortization of debt issuance costs 482 486 Stock-based compensation 1,663 2,065 Interest income on restricted assets (107) (170) Closure and post-closure accretion 253 333 Excess tax benefit associated with equity-based compensation (2,260) (1,101) Net change in operating assets and liabilities, net of acquisitions 13,061 5,220 Net cash provided by operating activities 60,914 64,593 Cash flows from investing activities: Payments for acquisitions, net of cash acquired (35,860) (32,327) Capital expenditures for property and equipment (36,147) (24,108) Proceeds from disposal of assets 215 301 Increase in restricted assets, net of interest income (581) (621) Decrease (increase) in other assets (517) 96 Net cash used in investing activities (72,890) (56,659) Cash flows from financing activities: Proceeds from long-term debt 21,000 80,500 Principal payments on notes payable and long-term debt (23,616) (57,487) Change in book overdraft - (3,596) Proceeds from option and warrant exercises 6,513 5,124 Excess tax benefit associated with equity-based compensation 2,260 1,101 Distributions to minority interest holders (2,352) (2,842) Payments for repurchase of common stock (5,414) (31,527) Debt issuance costs (100) - Net cash used in financing activities (1,709) (8,727) Net decrease in cash and equivalents (13,685) (793) Cash and equivalents at beginning of period 34,949 10,298 Cash and equivalents at end of period $21,264 $9,505
Internal Growth: The following table reflects revenue growth for operations owned for at least 12 months:
ADDITIONAL STATISTICS THREE MONTHS ENDED MARCH 31, 2008 (Dollars in thousands) Three Months Ended March 31, 2008 Price 5.3% Volume 2.2% Intermodal, Recycling and Other 0.6% Total 8.1% Uneliminated Revenue Breakdown: Three Months Ended March 31, 2008 Collection $186,161 65.9% Disposal and Transfer 72,158 25.6% Intermodal, Recycling and Other 23,960 8.5% Total $282,279 100.0% Inter-company elimination $31,979
Days Sales Outstanding for the three months ended March 31, 2008: 42 (26 net of deferred revenue)
Internalization for the three months ended March 31, 2008: 68% Other Cash Flow Items for the three months ended March 31, 2008: Cash Interest Paid: $6,998 Cash Taxes Paid: $ 215 Debt to Capitalization: 49.8% Share Information for the three months ended March 31, 2008: Basic shares outstanding 66,789,398 Dilutive effect of options and warrants 1,189,879 Dilutive effect of restricted stock 142,676 Diluted shares outstanding 68,121,953 Shares repurchased 1,041,271
Free cash flow, a non-GAAP financial measure, is provided supplementally because it is widely used by investors as a valuation and liquidity measure in the solid waste industry. Waste Connections defines free cash flow as net cash provided by operating activities, plus proceeds from disposal of assets and excess tax benefit associated with equity-based compensation, plus or minus change in book overdraft, less capital expenditures for property and equipment and distributions to minority interest holders. This measure should be used in conjunction with GAAP financial measures. Management uses free cash flow as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate free cash flow differently.
NON-GAAP RECONCILIATION SCHEDULE (in thousands) Free cash flow reconciliation: Three Months Ended Three Months Ended March 31, 2007 March 31, 2008 Net cash provided by operating activities $60,914 $64,593 Change in book overdraft - (3,596) Plus: Proceeds from disposal of assets 215 301 Plus: Excess tax benefit associated with equity-based compensation 2,260 1,101 Less: Capital expenditures for property and equipment (36,147) (24,108) Less: Distributions to minority interest holders (2,352) (2,842) Free cash flow $24,890 $35,449 Free cash flow as % of revenues 11.4% 14.2%