Toronto-based Waste Connections (TSX/NYSE: WCN) reported Q3 revenue of $1.880 billion, exceeding expectations for the quarter.

Despite the plummet of recycled commodities prices in September, the company saw revenue up 17.7 percent year over year, about $15 million above the anticipated outlook.

"We're extremely pleased by the strength of our results in Q3," said president and CEO Worthing Jackman. "Continued pricing acceleration and strong execution enabled us to overcome both a precipitous decline in recycled commodity values during the quarter and continued inflationary pressures."

Jackman noted that, excluding acquisitions, recycled commodity revenues were down almost 35 percent year over year (YOY), a sequential decline from Q2 2022 of 30 percent, or about twice the magnitude anticipated. He added that the company expects underlying margin expansion to beat any headwinds.

Q3 2022 net income reached $236.9 million. Acquisition activity remains robust, with $535 million in annualized revenue recognized as of Q3 and another $35 million expected to close by the end of 2022 or early into the next year. Jackman noted "some unique opportunities to expand our portfolio of West Coast exclusive markets."

CFO Mary Anne Whitney gave further details on the impact of declining recycled commodity values.

"Adjusted EBIT da for q3 is reconciled and our earnings release was $588 million, up about 82 million or 16.3 percent year over year, and about $7 million above our outlook," she said. "This was in spite of an incremental $10 million drag from the precipitous drop and recycled commodity values primarily in September, which essentially doubled the sequential decline as compared to our expectations in early August."

While capital expenditures were up $139 million, or 29 percent, since the previous year's quarter, Waste Connections delivered adjusted free cash flow of $929 million or 17.4 percent of revenue.

"We are extremely pleased with our year to date performance and our positioning for both Q4 and 2023, particularly given inflationary pressures and ongoing labor constraints and the recent precipitous decline of recycled commodity values," Jackman concluded. "But in the face of these challenges, pricing growth and acquisition activity remain at elevated levels."

Q3 2022 Highlights

Revenue: $1.880 billion
Operating Income: $326.8 million
Net Income: $236.9 million
Adjusted EBITDA: $588.1 million

Full-Year 2022 Outlook

Revenue: $7.190 billion
Net Income: 836.7 million
Adjusted EBITDA: $2.210 billion, or about 30.7% of revenue
Net cash provided by operating activities: $1.963 billion
Adjusted free cash flow: $1.160 billion