Waste Connections, Inc.
Net income in the quarter was $15.7 million, or $0.33 per share on a diluted basis of 47.6 million shares. Net income and earnings per share were $18.4 million and $0.39, respectively, each a non-GAAP measure, excluding a $4.2 million non-cash, pre-tax expense ($2.6 million net of taxes) for the write-off of unamortized debt issuance costs associated with convertible notes that have been called for redemption. Stock-based compensation costs in the quarter were $0.6 million ($0.4 million net of taxes), or approximately $0.01 per share. In the year ago period, the Company reported income from continuing operations of $19.6 million and diluted earnings per share from continuing operations of $0.40.
Ronald J. Mittelstaedt, Chairman and Chief Executive Officer, said, "We are very pleased with our performance in the quarter. Pricing growth accelerated to 4.8% and volume growth increased to 3.8%, each above the high end of our expectations for the full year. Operating income as a percentage of revenue was 20.6%, consistent with our guidance for the quarter. As we have previously communicated, operating margins for the year reflect increased fuel costs resulting from the expiration of our fixed-price fuel supply contract at the end of 2005, increased equity compensation costs, and lower margin acquisitions completed since the year ago period. During the quarter, we repurchased more than $80 million of common stock, putting us well on our way to repurchasing at least $100 million during the year."
Waste Connections will be hosting a conference call related to first quarter earnings and second quarter outlook on April 25th 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 the Company's web site at 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.
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 that quarter. Results for the first quarter of 2005 have been reclassified to present the results for these operations as discontinued operations.
In accordance with the Company's adoption of SFAS 123R at the beginning of the first quarter of 2006, excess tax benefits on the exercise of stock options, which totaled $3.4 million in the first quarter of 2006, are now classified as a cash flow from financing activities, rather than as a cash flow from operating activities as classified in prior year periods. This requirement will reduce the amounts recorded as net cash provided by operating activities, and will increase the amount recorded as net cash provided by financing activities. In order to improve comparability to prior periods, the Company's definition of free cash flow, a non-GAAP financial measure, has been expanded to include the excess tax benefits on the exercise of stock options. Total cash flow will remain unchanged from what would have been reported under prior accounting rules.
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.
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," "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) efforts by labor unions could divert management attention and adversely affect operating results; (5) increases in insurance costs and the amount that Waste Connections self-insures for various risks could reduce its operating margins and reported earnings; (6) Waste Connections may lose contracts through competitive bidding, early termination or governmental action; (7) the geographic concentration of Waste Connections' business makes its results vulnerable to economic and seasonal factors affecting the regions in which it operates; (8) competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit Waste Connections' ability to grow through acquisitions; (9) Waste Connections' growth and future financial performance depend significantly on its ability to integrate acquired businesses into its organization and operations; (10) Waste Connections' acquisitions may not be successful, resulting in changes in strategy, operating losses or a loss on sale of the business acquired; (11) 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; (12) Waste Connections' intermodal business could be adversely affected by steamship lines diverting business to ports other than those Waste Connections services, or by heightened security measures or actual or threatened terrorist attacks; (13) Waste Connections depends significantly on the services of the members of its senior and district management team, and the departure of any of those persons could cause its operating results to suffer; (14) Waste Connections' decentralized decision-making structure could allow local managers to make decisions that adversely affect Waste Connections' operating results; (15) Waste Connections' financial results are based upon estimates and assumptions that may differ from actual 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; and (18) the adoption of new accounting standards or interpretations could adversely impact 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.
- financial tables attached - WASTE CONNECTIONS, INC. CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 2005 AND 2006 (Unaudited) (in thousands, except share and per share amounts) Three months ended March 31, 2005 2006 Revenues $164,444 $190,169 Operating expenses: Cost of operations 94,150 113,063 Selling, general and administrative 17,140 19,801 Depreciation and amortization 14,612 18,232 Gain on disposal of assets (121) (82) Operating income 38,663 39,155 Interest expense (4,934) (7,494) Minority interests (2,687) (2,711) Other income (expense), net 105 (3,993) Income from continuing operations before income taxes 31,147 24,957 Income tax provision (11,587) (9,234) Income from continuing operations 19,560 15,723 Loss from discontinued operations, net of tax (201) -- Net income $19,359 $15,723 Basic earnings per common share: Continuing operations $0.41 $0.34 Discontinued operations -- -- Net income per common share $0.41 $0.34 Diluted earnings per common share: Continuing operations $0.40 $0.33 Discontinued operations -- -- Net income per common share $0.40 $0.33 Shares used in the per share calculations: Basic 47,486,402 45,669,545 Diluted 48,878,703 47,590,476 WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share amounts) December 31, March 31, 2005 2006 ASSETS Current assets: Cash and equivalents $7,514 $7,847 Accounts receivable, net of allowance for doubtful accounts of $2,826 and $2,395 at December 31, 2005 and March 31, 2006, respectively 94,438 89,313 Deferred tax assets 5,145 4,064 Prepaid expenses and other current assets 17,279 18,062 Total current assets 124,376 119,286 Property and equipment, net 700,508 705,367 Goodwill 723,120 725,139 Intangible assets, net 87,651 86,935 Restricted assets 13,888 14,305 Other assets, net 26,764 27,516 $1,676,307 $1,678,548 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $54,795 $44,783 Book overdraft 8,869 7,186 Accrued liabilities 44,522 45,647 Deferred revenue 30,957 30,947 Current portion of long-term debt and notes payable 10,858 8,619 Total current liabilities 150,001 137,182 Long-term debt and notes payable 586,104 644,049 Other long-term liabilities 20,478 14,919 Deferred tax liabilities 175,167 178,995 Total liabilities 931,750 975,145 Commitments and contingencies Minority interests 26,357 27,010 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; 45,924,686 and 44,455,746 shares issued and outstanding at December 31, 2005 and March 31, 2006, respectively 459 445 Additional paid-in capital 373,382 307,864 Deferred stock compensation (2,234) -- Treasury stock at cost, 106,600 shares outstanding at December 31, 2005 (3,672) -- Retained earnings 345,308 361,031 Accumulated other comprehensive income 4,957 7,053 Total stockholders' equity 718,200 676,393 $1,676,307 $1,678,548 WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2005 AND 2006 (Unaudited) (Dollars in thousands) Three months ended March 31, 2005 2006 Cash flows from operating activities: Net income $19,359 $15,723 Adjustments to reconcile net income to net cash provided by operating activities: Gain on disposal of assets (121) (82) Depreciation 14,129 17,248 Amortization of intangibles 640 984 Deferred income taxes, net of acquisitions (3,018) 3,679 Minority interests 2,687 2,711 Amortization of debt issuance costs 296 4,763 Stock-based compensation 255 618 Interest income on restricted assets (70) (141) Closure and post-closure accretion 167 149 Tax benefit on the exercise of stock options 2,358 -- Excess tax benefit on the exercise of stock options -- (3,353) Net change in operating assets and liabilities, net of acquisitions 16,184 (4,443) Net cash provided by operating activities 52,866 37,856 Cash flows from investing activities: Payments for acquisitions, net of cash acquired (6,719) (3,755) Capital expenditures for property and equipment (14,315) (19,966) Proceeds from disposal of assets 647 171 Decrease (increase) in restricted cash, net of interest income 1,353 (276) Decrease (increase) in other assets (264) (392) Net cash used in investing activities (19,298) (24,218) Cash flows from financing activities: Proceeds from long-term debt 37,032 229,964 Principal payments on notes payable and long-term debt (26,485) (173,349) Change in book overdraft (5,916) (1,683) Proceeds from option and warrant exercises 9,285 17,361 Excess tax benefit on the exercise of stock options -- 3,353 Distributions to minority interest holders (2,401) (2,058) Payments for repurchase of common stock (44,941) (80,586) Debt issuance costs (31) (6,307) Net cash used in financing activities (33,457) (13,305) Net increase in cash and equivalents 111 333 Cash and equivalents at beginning of period 3,610 7,514 Cash and equivalents at end of period $3,721 $7,847 ADDITIONAL STATISTICS THREE MONTHS ENDED MARCH 31, 2006 (Dollars in thousands)
Internal Growth: The following table reflects revenue growth for operations owned for at least 12 months:
Three Months Ended March 31, 2006 Price 4.8% Volume 3.8% Intermodal, Recycling and Other (0.5%) Total 8.1% Uneliminated Revenue Breakdown: Three Months Ended March 31, 2006 Collection $140,280 64.7% Disposal and Transfer 58,427 26.9% Intermodal, Recycling and Other 18,132 8.4% Total $216,839 100.0% Inter-company elimination $26,670
Days Sales Outstanding for the three months ended March 31, 2006: 42 (28 net of deferred revenue)
Internalization for the three months ended March 31, 2006: 69% Other Cash Flow Items for the three months ended March 31, 2006: Cash Interest Paid: $7,507 Cash Taxes Paid: $594 Debt to Capitalization: 49.1% Total Debt divided by Total Debt plus Total Stockholders' Equity: ($644,049 + $8,619) / ($644,049 + $8,619 + $676,393) = 49.1% Share Information for the three months ended March 31, 2006: Basic shares outstanding 45,669,545 Dilutive effect of options and warrants 1,254,379 Dilutive effect of convertible notes 615,313 Dilutive effect of restricted stock 51,239 Diluted shares outstanding 47,590,476 Shares repurchased 2,138,500 NON-GAAP RECONCILIATION SCHEDULE (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 and excess tax benefit on the exercise of stock options, 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 Three Months Ended March 31, 2005 March 31, 2006 Net cash provided by operating activities $52,866 $37,856 Change in book overdraft (5,916) (1,683) Plus: Cash proceeds from disposal of assets 647 171 Plus: Excess tax benefit on the exercise of stock options -- 3,353 Less: Capital expenditures for property and equipment (14,315) (19,966) Less: Distributions to minority interest holders (2,401) (2,058) Free cash flow $30,881 $17,673 Free cash flow as % of revenues 18.8% 9.3%
Net income and EPS adjusted to exclude the write-off of unamortized debt issuance costs associated with convertible notes called for redemption are provided as a measure of our operating performance on a more comparable basis to historical periods. The item excluded is financing related and may not occur in every reporting period. Therefore, management evaluates net income and EPS performance excluding this item to evaluate and monitor the ongoing financial performance of our operations. These measures should be used in conjunction with GAAP net income and EPS.
Net income and EPS reconciliation: Three Months Ended March 31, 2006 Net income $15,723 After-tax cost for write-off of unamortized debt costs 2,637 Net income excluding write-off of unamortized debt costs $18,360 Diluted shares used in the per share calculation: 47,590,476 Diluted EPS excluding cost for early retirement of debt: $0.39
SOURCE: Waste Connections, Inc.
CONTACT: Worthing Jackman of Waste Connections, Inc., +1-916-608-8266 or
Web site: http://www.wasteconnections.com/