Waste Connections, Inc.
For the nine months ended September 30, 2005, revenue was $533.5 million, a 15.5% increase over revenue of $462.0 million in the year ago period. Operating income for the nine months ended September 30, 2005, was $128.8 million, an 8.2% increase over operating income of $119.0 million for the same period in 2004. Income from continuing operations for the nine months ended September 30, 2005, was $65.8 million, a 12.7% increase over income from continuing operations of $58.4 million in the prior year period. Diluted earnings per share from continuing operations for the nine months ended September 30, 2005, was $1.36, an increase of 12.4% over diluted earnings per share from continuing operations of $1.21 in the year ago period. The year ago period included $1.5 million pre-tax expense ($1.1 million net of taxes) for early retirement of convertible notes.
"Once again this year as in previous years, the third quarter provided many of the building blocks for the following year's growth. Internal growth continues to meet our expectations, with price increases and surcharges helping us offset a significant portion of recent cost pressures. We plan to implement additional price increases and surcharges, and to focus on improving organic volume growth, next year in an effort to address expected continuing cost pressures," said Ronald J. Mittelstaedt, Chairman and Chief Executive Officer. "We expect that increased acquisition activity and expansion of our landfill network also will benefit us in 2006. Already this year, we have closed acquisitions in nine states with annualized revenue totaling approximately $50 million, a majority of which is in what we believe are the more attractive markets in the Western U.S, and we expect the amount of acquired annualized revenue to increase in 2006. In addition, of the three new landfills currently under construction, two are expected to open in the fourth quarter, and the third site is expected to open in early 2006."
Mr. Mittelstaedt continued, "Our third quarter results were negatively impacted by costs associated with labor negotiations in San Jose, higher than expected fuel and related cost items, and lower than expected volumes from certain special waste projects. The results also reflect the contribution from lower margin acquisitions completed in the quarter."
Waste Connections will be hosting a conference call related to third quarter earnings and fourth quarter outlook on October 26th at 8:30 A.M. Eastern Time. The call will be broadcast live over the Internet at www.streetevents.com and through a link on our web site at www.wasteconnections.com. A playback of the call will be available at both of these sites.
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 more than one 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 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.
For non-GAAP measures, see accompanying Non-GAAP Reconciliation Schedule.
In the second quarter of 2005, Waste Connections classified as discontinued operations the results of certain operations in Utah and California that were exited during the quarter. In 2004, Waste Connections classified as discontinued operations the results of its Georgia operations and certain operations in Eastern Washington that were sold. Results for 2004 and the nine months ended September 30, 2005 have been reclassified to present the results for these operations as discontinued operations.
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, which may result in reduced volume and revenues and lower profits; (2) the expiration of our fuel purchase contract and increased fuel prices may adversely affect Waste Connections' business and earnings; (3) increases in Waste Connections' insurance costs and the amount that it self-insures for various risks could reduce its operating margins and reported earnings; (4) increases in labor and disposal and related transportation costs could reduce Waste Connections' operating margins; (5) Waste Connections may lose contracts through competitive bidding, early termination or governmental action, which would cause its volumes and revenues to decline; (6) competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit Waste Connections' ability to grow through acquisitions; (7) Waste Connections' intermodal business could be adversely affected by steamship lines diverting business to ports other than those it services, by heightened security measures or actual or threatened terrorist attacks, or by other reductions or deteriorations in rail service, which could cause its intermodal revenues to decline; (8) Waste Connections' growth and future financial performance depend significantly on its ability to integrate acquired businesses into its organization and operations; (9) Waste Connections' acquisitions may not be successful, resulting in changes in strategy, operating losses or a loss on sale of the business acquired; (10) Waste Connections' business and earnings may be adversely affected by its inability to successfully implement additional price increases and surcharges to meet continuing cost pressures; (11) the geographic concentration of Waste Connections' business makes its pricing growth and operating results vulnerable to economic and seasonal factors affecting the regions in which it operates; (12) Waste Connections' volume growth may be limited by the inability to renew landfill operating permits, obtain new landfills and expand existing ones; (13) extensive and evolving environmental laws and regulations may restrict Waste Connections' operations and growth and increase its costs; and (14) Waste Connections may be subject in the normal course of business to judicial and administrative proceedings that could interrupt its operations, require expensive remediation and create negative publicity. 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/A. 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 after the date any such statement is made.
WASTE CONNECTIONS, INC. CONSOLIDATED STATEMENTS OF INCOME THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005 (Unaudited) (in thousands, except share and per share amounts) Three months ended Nine months ended September 30, September 30, 2004 2005 2004 2005 Revenues $161,175 $188,745 $462,048 $533,454 Operating expenses: Cost of operations 88,682 108,049 257,693 305,815 Selling, general and administrative 15,628 17,686 45,519 51,924 Depreciation and amortization 13,931 16,728 39,985 47,278 Gain on disposal of assets (125) (198) (156) (332) Operating income 43,059 46,480 119,007 128,769 Interest expense (4,928) (6,033) (16,925) (16,543) Minority interests (3,309) (3,158) (8,995) (9,272) Other income (expense), net 3 55 (1,400) 226 Income from continuing operations before income tax 34,825 37,344 91,687 103,180 Income tax provision (12,130) (12,869) (33,300) (37,360) Income from continuing operations 22,695 24,475 58,387 65,820 Loss on discontinued operations, net of tax (244) -- (563) (579) Net income $22,451 $24,475 $57,824 $65,241 Basic earnings per common share: Continuing operations $0.48 $0.53 $1.26 $1.40 Discontinued operations (0.01) -- (0.01) (0.01) Net income per common share $0.47 $0.53 $1.25 $1.39 Diluted earnings per common share(a): Continuing operations $0.46 $0.51 $1.21 $1.36 Discontinued operations -- -- (0.01) (0.02) Net income per common share $0.46 $0.51 $1.20 $1.34 Shares used in the per share calculations: Basic 47,725,447 46,523,711 46,152,184 46,904,412 Diluted 48,966,181 48,122,605 49,538,370 48,511,858 (a) Diluted earnings per share assumes conversion of the 5.5% Convertible Subordinated Notes due 2006 prior to their redemption on April 15, 2004. The interest expense related to these notes, net of tax effects, for the three and nine months ended September 30, 2004 was $0 and $1,707, respectively. WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share amounts) December 31, September 30, 2004 2005 ASSETS Current assets: Cash and equivalents $3,610 $6,734 Accounts receivable, less allowance for doubtful accounts of $2,414 and $2,406 at December 31, 2004 and September 30, 2005, respectively 80,864 93,305 Deferred tax assets - 4,296 Prepaid expenses and other current assets 17,008 15,867 Total current assets 101,482 120,202 Property and equipment, net 640,730 676,205 Goodwill 642,773 720,033 Intangible assets, net 68,741 86,895 Restricted cash 14,159 13,320 Other assets, net 23,598 30,582 $1,491,483 $1,647,237 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $34,280 $46,837 Book overdraft 8,661 5,147 Accrued liabilities 38,780 49,001 Deferred revenue 24,155 29,155 Current portion of long-term debt and notes payable 9,266 9,791 Total current liabilities 115,142 139,931 Long-term debt and notes payable 489,343 576,132 Other long-term liabilities 9,020 19,719 Deferred tax liabilities 146,035 170,429 Total liabilities 759,540 906,211 Commitments and contingencies Minority interests 24,421 25,166 Stockholders' equity: Preferred stock: $0.01 par value; 7,500,000 shares authorized; none issued and outstanding -- -- Common stock: $0.01 par value; 100,000,000 shares authorized; 47,605,791 and 46,317,813 shares issued and outstanding at December 31, 2004 and September 30, 2005, respectively 476 463 Additional paid-in capital 444,404 385,953 Deferred stock compensation (1,598) (2,302) Retained earnings 261,365 326,606 Accumulated other comprehensive income 2,875 5,140 Total stockholders' equity 707,522 715,860 $1,491,483 $1,647,237 WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005 (Unaudited) (Dollars in thousands) Nine months ended September 30, 2004 2005 Cash flows from operating activities: Net income $57,824 $65,241 Adjustments to reconcile net income to net cash provided by operating activities: Loss (gain) on disposal of assets 119 (529) Depreciation 39,979 45,450 Amortization of intangibles 1,867 2,077 Deferred income taxes, net of acquisitions 15,420 (4,814) Minority interests 8,995 9,272 Amortization of debt issuance costs 1,740 1,430 Stock-based compensation 736 940 Interest income on restricted cash (206) (272) Closure and post-closure accretion 308 509 Tax benefit on the exercise of stock options 6,099 6,987 Net change in operating assets and liabilities, net of acquisitions 5,155 23,505 Net cash provided by operating activities 138,036 149,796 Cash flows from investing activities: Payments for acquisitions, net of cash acquired (13,737) (73,548) Capital expenditures for property and equipment (56,201) (61,418) Proceeds from disposal of assets 718 4,420 Net change in other assets 4,174 499 Net cash used in investing activities (65,046) (130,047) Cash flows from financing activities: Proceeds from long-term debt 127,000 195,098 Principal payments on notes payable and long-term debt (167,962) (132,939) Change in book overdraft (1,555) (3,514) Proceeds from option and warrant exercises 29,760 25,216 Distributions to minority interest holders (8,869) (8,526) Payments for repurchase of common stock (51,206) (91,917) Debt issuance costs (457) (43) Net cash used in financing activities (73,289) (16,625) Net increase (decrease) in cash and equivalents (299) 3,124 Cash and equivalents at beginning of period 5,276 3,610 Cash and equivalents at end of period $4,977 $6,734 ADDITIONAL STATISTICS THREE MONTHS ENDED SEPTEMBER 30, 2005 (Dollars in thousands)
Internal Growth: The following table reflects revenue growth for operations owned for at least 12 months:
Price 2.9% Volume 1.7% Recycling 0.2% Total 4.8% Uneliminated Revenue Breakdown: Collection $134,634 62.7% Disposal and Transfer 60,182 28.0% Intermodal 10,394 4.8% Recycling and Other 9,731 4.5% Total $214,941 100.0% Inter-company elimination $26,196 Days Sales Outstanding: 44 Internalization: 69% Other Cash Flow Items: Cash Interest Paid: $7,032 Cash Taxes Paid: $6,763 Debt to Capitalization: 45.0% Total Debt divided by Total Debt plus Total Stockholders' Equity: ($576,132 + $9,791) / ($576,132 + $9,791 + $715,860) = 45.0% Share Information for the three months ended September 30, 2005: Basic shares outstanding 46,523,711 Dilutive effect of options and warrants 1,056,248 Dilutive effect of convertible notes 518,949 Dilutive effect of restricted stock 23,697 Diluted shares outstanding 48,122,605 Shares repurchased 581,700 NON-GAAP RECONCILIATION SCHEDULE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 (in thousands)
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 cash proceeds from disposal of assets, plus or minus change in book overdraft, less capital expenditures and distributions to minority interest holders. This measure is not a substitute for, and 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.
Free cash flow reconciliation: Three Months Ended Nine Months Ended September 30, 2005 September 30, 2005 Net cash provided by operating activities $52,312 $149,796 Change in book overdraft 3,229 (3,514) Plus: Cash proceeds from disposal of assets 486 4,420 Less: Capital expenditures for property and equipment (27,147) (61,418) Less: Distributions to minority interest holders (3,185) (8,526) Free cash flow $25,695 $80,758 Free cash flow as % of revenues 13.6% 15.1%
SOURCE: Waste Connections, Inc.
CONTACT: Worthing Jackman of Waste Connections, Inc., +1-916-608-8266,
Web site: http://www.wasteconnections.com/