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Waste Connections Exceeds Expectations in Q2 2020 Despite Pandemic-Related Revenue Declines – while M&A Strategy Remains Robust

Despite some COVID-19-related declines in revenues, further margin expansion enabled Waste Connections to exceed expectations.

Waste Connections president and CEO Worthing F. Jackman on the company's Q2 earnings call on Friday said that "solid waste margin expansion" helped outpace "significant COVID-19 costs", enabling the company to exceed expectations despite pandemic-related declines in revenue. 

The 2Q 2020 revenue declines were largely due to reductions in collections and closures due to the pandemic. Jackman also noted that while "53% of solid waste customers had suspended or reduced service", many have since resumed service. 

The incremental COVID-related costs reported by the company came in at the tune of $20 million, primarily related to frontline supplemental wages.

The offsetting margin expansion was partially a result of pricing growth overall coming in at 4.3% in 2Q 2020. Jackman also cited that "expense management" helped support margin expansion. Jackman also noted an improvement in cash collections.

While Jackman said that the "trajectory of any recovery is inherently unpredictable", assuming no change in the underlying economic outlook, the company said it expects for the 2020 calendar year $5.325 billion in revenue and a net income of $184 million.

With respect to its growth strategy, Waste Connections maintains its M&A strategy remains robust and unimpacted by the pandemic. Their ongoing deals include acquiring a recycling company with $40 million in annual revenue which they expect to close in the fourth quarter. With respect to its M&A pipeline, Jackman also noted that potential changes in tax laws after the 2020 election could change incentives for sellers and create more M&A opportunities in the short run. The company also noted additional technology investments such as introducing artificial intelligence (AI) to fleet camera systems.

Yesterday Waste Connections announced the renewal of its share repurchase program and that the company anticipates continuing to increase its dividend in October.

Jackman also thanked frontline workers for helping to continue to keep company operations afloat in 2Q 2020 despite the pandemic.

Additional WCN Financial Highlights for Q2 2020:  

  • Revenue was $1.306 billion for Q2 2020, down $64 million (-4.7%) from Q2 2019 ($1.370 billion), but exceeded preliminary expectations 
  • Net loss attributable to Waste Connections in the second quarter was $227.1 million compared to $148.8 million for Q2 2019.   
  • Operating loss was $232.4 million in Q2 2020 
  • Adjusted net income attributable to Waste Connections for Q2 2020 was $158.0 million, down $23.3 million (-12.5%) versus $181.3 million in Q2 2019. 
  • Adjusted EBITDA in Q2 2020 was $394.3 million, down $31 million (-7.3%) from Q2 2019 (adjusted EBITDA of $425.3 million).
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