Waste Connections, Inc.
Non-cash costs for equity-based compensation and amortization of acquisition-related intangibles were $4.1 million ($2.5 million net of taxes, or approximately $0.03 per share) in the quarter compared to $2.7 million ($1.6 million net of taxes, or approximately $0.02 per share) in the year ago period. SG&A in the current period included a $1.5 million ($0.9 million net of taxes, or approximately $0.01 per share) charge for transaction costs associated with the LeMay acquisition completed in the quarter, and the income tax provision included a $3.9 million (or approximately $0.05 per share) benefit due to a decrease in the Company's estimated deferred tax rate primarily resulting from the LeMay acquisition.
"We are extremely pleased with our results in the fourth quarter especially in light of the most challenging macro environment we have ever experienced. A contracting economy, precipitous drop in recycling commodity prices and difficult weather conditions in the Pacific Northwest weighed on revenue," said Ronald J. Mittelstaedt, Chairman and Chief Executive Officer. "However, continued pricing strength and operational improvements drove our margin for operating income before depreciation and amortization, excluding acquisition-related costs, about 100 basis points above the upper end of our outlook for the quarter. In addition, the LeMay acquisition met our expectation for operating income before depreciation and amortization despite approximately $2.5 million lower than expected revenue in the period."
Mr. Mittelstaedt added, "While 2008 was a record year for acquired revenue, we enter 2009 with one of the strongest balance sheets in our sector and are uniquely positioned with the available capital necessary to fund additional growth opportunities, such as the acquisition of certain assets from Republic Services announced today."
For the year ended December 31, 2008, revenue was $1.05 billion, a 9.5% increase over revenue of $958.5 million in the year ago period. Operating income was $212.4 million versus $207.0 million for the same period in 2007. Net income for the year ended December 31, 2008, was $105.6 million, or $1.48 per share on a diluted basis of 71.4 million shares. In 2007, the Company reported net income of $99.1 million, or $1.42 per share on a diluted basis of 70.0 million shares. Non-cash costs for equity-based compensation and amortization of acquisition-related intangibles for the year ended December 31, 2008, were $14.2 million ($8.8 million net of taxes, or approximately $0.12 per share) compared to $10.5 million ($6.4 million net of taxes, or approximately $0.09 per share) in 2007.
Waste Connections also announced its outlook for 2009 assuming no change in the current economic environment. The Company's outlook also assumes the announced transaction with Republic Services closes April 1, 2009, but excludes the impact of any additional acquisitions, divestiture purchases or expensing of related transaction costs.
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 SEC filings. Certain components of the outlook for 2009 are subject to quarterly fluctuations.
-- Revenue is estimated to increase 14.5% to approximately $1.2 billion. -- Depreciation and amortization, which includes approximately $14.5 million of non-cash amortization expense for acquisition-related intangibles, is estimated to be approximately 10.5% of revenue. -- Operating income is estimated to be approximately 20.5% of revenue. -- Net interest expense, which includes approximately $4.5 million for non-cash expense associated with the adoption of FSP No. APB 14-1, is estimated at approximately $48.5 million. -- Effective tax rate is expected to be approximately 38.0%. -- Net cash provided by operating activities is estimated to be approximately 24.5% of revenue. -- Capital expenditures are estimated to be approximately $125 million. -- Diluted shares outstanding are expected to average approximately 81 million.
The above outlook includes approximately $29.0 million of non-cash related costs ($17.8 million net of taxes, or approximately $0.22 per share), consisting of an estimated $14.5 million for amortization of acquisition-related intangibles, $10.0 million for equity-based compensation costs and $4.5 million for non-cash interest expense related to convertible debentures associated with the adoption of FSP No. APB 14-1. In addition to increased amortization of acquisition-related intangibles, higher landfill depletion expense associated with certain sites expected to be acquired from Republic Services also contributes to the projected year-over-year increase in depreciation and amortization expense as a percentage of revenue from 9.3% in 2008.
Waste Connections will be hosting a conference call on February 10th at 8:30 A.M. Eastern Time related to this release and the announced agreement to acquire certain assets from Republic Services.
To access the call, listeners should dial 800-322-5044 (domestic) or 617-614-4927 (international) approximately 10 minutes prior to the scheduled start time and ask the operator for the Waste Connections conference call, Passcode # 12271182. A replay of the conference call will be available until February 17, 2009, by calling 888-286-8010 (domestic) or 617-801-6888 (international) and entering Passcode # 40164462.
The call also will be broadcast live over the Internet at www.streetevents.com or through a link on our website at www.wasteconnections.com. A playback of the call will be available at both of these websites.
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 1.8 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, including statements regarding our expected 2009 outlook. 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. Our 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) a portion of our growth and future financial performance depends on our ability to integrate acquired businesses into our organization and operations; (2) our acquisitions may not be successful, resulting in changes in strategy, operating losses or a loss on sale of the business acquired; (3) downturns in the worldwide economy adversely affect operating results; (4) our results are vulnerable to economic conditions and seasonal factors affecting the regions in which we operate; (5) we may be unable to compete effectively with larger and better capitalized companies and governmental service providers; (6) we may lose contracts through competitive bidding, early termination or governmental action; (7) price increases may not be adequate to offset the impact of increased costs or may cause us to lose volume; (8) increases in the price of fuel may adversely affect our business and reduce our operating margins; (9) increases in labor and disposal and related transportation costs could impact our financial results; (10) we could face significant withdrawal liability if we withdraw from participation in one or more multiemployer pension plans in which we participate; (11) efforts by labor unions could divert management attention and adversely affect operating results; (12) increases in insurance costs and the amount that we self-insure for various risks could reduce our operating margins and reported earnings; (13) competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit our ability to grow through acquisitions; (14) our indebtedness could adversely affect our financial condition; we may incur substantially more debt in the future; (15) each business that we acquire or have acquired may have liabilities that we fail or are unable to discover, including environmental liabilities; (16) liabilities for environmental damage may adversely affect our financial condition, business and earnings; (17) our accruals for our landfill site closure and post-closure costs may be inadequate; (18) we may be subject in the normal course of business to judicial, administrative or other third party proceedings that could interrupt our operations, require expensive remediation, result in adverse judgments, settlements or fines and create negative publicity; (19) the financial soundness of our customers could affect our business and operating results; (20) we depend significantly on the services of the members of our senior, regional and district management team, and the departure of any of those persons could cause our operating results to suffer; (21) our decentralized decision-making structure could allow local managers to make decisions that adversely affect our operating results; (22) because we depend on railroads for our intermodal operations, our operating results and financial condition are likely to be adversely affected by any reduction or deterioration in rail service; (23) we may incur additional charges related to capitalized expenditures, which would decrease our earnings; (24) our financial results are based upon estimates and assumptions that may differ from actual results; (25) the adoption of new accounting standards or interpretations could adversely affect our financial results; (26) our financial and operating performance may be affected by the inability to renew landfill operating permits, obtain new landfills and expand existing ones; (27) future changes in laws regulating the flow of solid waste in interstate commerce could adversely affect our operating results; (28) fluctuations in prices for recycled commodities that we sell and rebates we offer to customers may cause our revenues and operating results to decline; (29) extensive and evolving environmental and health and safety laws and regulations may restrict our operations and growth and increase our costs; (30) extensive regulations that govern the design, operation and closure of landfills may restrict our landfill operations or increase our costs of operating landfills; and (31) unusually adverse weather conditions may interfere with our operations, harming our operating results. These risks and uncertainties, as well as others, are discussed in greater detail in our filings with the Securities and Exchange Commission, including our most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. We make 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. CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2007 AND 2008 (Unaudited) (in thousands, except share and per share amounts) Three months ended Twelve months ended December 31, December 31, 2007 2008 2007 2008 Revenues $247,730 $259,568 $958,541 $1,049,603 Operating expenses: Cost of operations 149,855 154,534 566,089 628,075 Selling, general and administrative 25,083 29,949 99,565 111,114 Depreciation and amortization 22,912 25,752 85,628 97,429 Loss on disposal of assets 155 60 250 629 Operating income 49,725 49,273 207,009 212,356 Interest expense (9,143) (11,336) (35,023) (38,824) Interest income 543 2,790 1,593 3,297 Minority interests (3,725) (1,248) (14,870) (12,240) Other income (expense), net 47 (518) 289 (633) Income before income taxes 37,447 38,961 158,998 163,956 Income tax provision (14,693) (11,030) (59,917) (58,400) Net income $22,754 $27,931 $99,081 $105,556 Basic earnings per common share $0.34 $0.35 $1.45 $1.51 Diluted earnings per common share $0.33 $0.34 $1.42 $1.48 Shares used in the per share calculations: Basic 67,882,400 79,792,842 68,238,523 70,024,874 Diluted 69,478,079 81,031,028 69,994,713 71,419,712 WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share amounts) December 31, December 31, 2007 2008 ASSETS Current assets: Cash and equivalents $10,298 $265,264 Accounts receivable, net of allowance for doubtful accounts of $4,387 and $3,846 at December 31, 2007 and 2008, respectively 123,882 118,456 Deferred income taxes 14,732 22,347 Prepaid expenses and other current assets 21,953 23,144 Total current assets 170,865 429,211 Property and equipment, net 865,330 984,124 Goodwill 811,049 836,930 Intangible assets, net 93,957 306,444 Restricted assets 19,300 23,009 Other assets, net 21,457 20,922 $1,981,958 $2,600,640 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $59,912 $65,537 Book overdraft 8,835 4,315 Accrued liabilities 69,578 95,220 Deferred revenue 44,074 45,694 Current portion of long-term debt and notes payable 13,315 4,698 Total current liabilities 195,714 215,464 Long-term debt and notes payable 719,518 830,758 Other long-term liabilities 38,053 47,509 Deferred income taxes 223,308 251,514 Total liabilities 1,176,593 1,345,245 Commitments and contingencies Minority interests 30,220 668 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 79,842,239 shares issued and outstanding at December 31, 2007 and 2008, respectively 670 798 Additional paid-in capital 254,284 647,829 Retained earnings 524,481 630,037 Accumulated other comprehensive loss (4,290) (23,937) Total stockholders' equity 775,145 1,254,727 $1,981,958 $2,600,640 WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS TWELVE MONTHS ENDED DECEMBER 31, 2007 AND 2008 (Unaudited) (Dollars in thousands) Twelve months ended December 31, 2007 2008 Cash flows from operating activities: Net income $99,081 $105,556 Adjustments to reconcile net income to net cash provided by operating activities: Loss on disposal of assets 250 629 Depreciation 81,287 91,095 Amortization of intangibles 4,341 6,334 Deferred income taxes, net of acquisitions 12,440 31,902 Minority interests 14,870 12,240 Amortization of debt issuance costs 2,182 1,966 Stock-based compensation 6,128 7,854 Interest income on restricted assets (684) (542) Closure and post-closure accretion 1,155 1,400 Excess tax benefit associated with equity-based compensation (14,137) (6,441) Net change in operating assets and liabilities, net of acquisitions 12,156 18,416 Net cash provided by operating activities 219,069 270,409 Cash flows from investing activities: Payments for acquisitions, net of cash acquired (109,429) (355,150) Capital expenditures for property and equipment (124,234) (113,496) Proceeds from disposal of assets 1,016 2,560 Increase in restricted assets, net of interest income (2,698) (2,653) Decrease (increase) in other assets (264) 1,092 Net cash used in investing activities (235,609) (467,647) Cash flows from financing activities: Proceeds from long-term debt 626,000 302,000 Principal payments on notes payable and long-term debt (568,607) (223,854) Change in book overdraft 8,835 (4,520) Proceeds from option and warrant exercises 35,620 19,089 Excess tax benefit associated with equity-based compensation 14,137 6,441 Distributions to minority interest holders (12,642) (8,232) Payments for repurchase of common stock (110,329) (31,527) Proceeds from common stock offering, net - 393,930 Debt issuance costs (1,125) (1,123) Net cash provided by (used in) financing activities (8,111) 452,204 Net increase (decrease) in cash and equivalents (24,651) 254,966 Cash and equivalents at beginning of period 34,949 10,298 Cash and equivalents at end of period $10,298 $265,264 ADDITIONAL STATISTICS THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2008 (Dollars in thousands) Internal Growth: The following table reflects revenue growth for operations owned for at least 12 months: Three Months Ended Twelve Months Ended December 31, 2008 December 31, 2008 Price 5.9% 5.6% Volume (5.8%) (1.9%) Intermodal, Recycling and Other (4.0%) (0.7%) Total (3.9%) 3.0% Uneliminated Revenue Breakdown: Three Months Ended Twelve Months Ended December 31, 2008 December 31, 2008 Collection $205,082 69.4% $787,713 66.4% Disposal and Transfer 75,846 25.6% 308,811 26.0% Intermodal, Recycling and Other 14,801 5.0% 89,594 7.6% Total before inter-company elimination $295,729 100.0% $1,186,118 100.0% Inter-company elimination $36,161 $136,515 Reported Revenue $259,568 $1,049,603 Days Sales Outstanding for the three months ended December 31, 2008: 42 (26 net of deferred revenue) Internalization for the three months ended December 31, 2008: 65% Other Cash Flow Items: Three Months Ended Twelve Months Ended December 31, 2008 December 31, 2008 Cash Interest Paid $9,748 $32,626 Cash Taxes Paid $2,555 $24,635 Debt to Book Capitalization: 40.0% Share Information for the three months ended December 31, 2008: Basic shares outstanding 79,792,842 Dilutive effect of options and warrants 1,000,522 Dilutive effect of restricted stock 237,664 Diluted shares outstanding 81,031,028 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 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 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 Twelve Months Ended December 31, 2008 December 31, 2008 Net cash provided by operating activities $75,749 $270,409 Plus/less: Change in book overdraft 4,315 (4,520) Plus: Proceeds from disposal of assets 1,061 2,560 Plus: Excess tax benefit associated with equity-based compensation 794 6,441 Less: Capital expenditures for property and equipment (33,960) (113,496) Less: Distributions to minority interest holders - (8,232) Free cash flow $47,959 $153,162 Free cash flow as % of revenues 18.5% 14.6% Three Months Ended Twelve Months Ended December 31, 2007 December 31, 2007 Net cash provided by operating activities $49,003 $219,069 Plus: Change in book overdraft 2,340 8,835 Plus: Proceeds from disposal of assets 61 1,016 Plus: Excess tax benefit associated with equity-based compensation 3,948 14,137 Less: Capital expenditures for property and equipment (28,127) (124,234) Less: Distributions to minority interest holders (2,205) (12,642) Free cash flow $25,020 $106,181 Free cash flow as % of revenues 10.1% 11.1% NON-GAAP RECONCILIATION SCHEDULE (continued) (in thousands, except per share amounts) We provide cash earnings to show the impact of equity-based compensation and amortization of intangibles, net of taxes, which are non-cash. We do consider the dilutive impact to our shareholders when awarding equity-based compensation and value such awards accordingly. We provide adjusted cash earnings to exclude the effects of items management believes impact the comparability of operating results between periods. These measures are not a substitute for, and should be used in conjunction with, GAAP financial measures. Other companies may calculate cash earnings and adjusted cash earnings per share differently. Cash earnings has limitations due to the fact that it does not include all expenses primarily related to our workforce. More specifically, if we did not pay out a portion of our compensation in the form of equity-based compensation, our cash salary expense would be higher. We compensate for this limitation by providing supplemental information about outstanding equity-based awards in the footnotes to our financial statements. Equity-based compensation programs are an important element of our compensation structure and all forms of equity-based awards are valued and included as appropriate in results of operations. Adjusted cash earnings has additional limitations due to the fact that it may exclude items that have a cash impact on our financial condition and results of operations. We compensate for this limitation by using adjusted cash earnings in conjunction with, and not as a substitute for, GAAP financial measures. Cash earnings and as adjusted cash earnings per diluted share: Three months ended December 31, 2007 2008 As reported net income $22,754 $27,931 Adjustments: Impact of deferred tax adjustment (a) - (3,931) Acquisition-related transaction costs, net of taxes (b) - 920 Adjusted net income 22,754 24,920 Non-cash equity-based compensation costs, net of taxes 913 1,196 Non-cash amortization of intangibles, net of taxes 721 1,296 Adjusted cash earnings $24,388 $27,412 Diluted earnings per common share As reported net income $0.33 $0.34 As adjusted net income $0.33 $0.31 Cash earnings and as adjusted cash earnings $0.35 $0.34 (a) Reflects the adjustment to accrued deferred tax liabilities resulting from a decrease in the Company's estimated deferred tax rate primarily due to the LeMay acquisition completed in the quarter. (b) Reflects the elimination of one-time transaction costs associated with the LeMay acquisition.
First Call Analyst:
SOURCE: Waste Connections, Inc.
CONTACT: Worthing Jackman of Waste Connections, Inc., +1-916-608-8266,
Web Site: http://www.wasteconnections.com/