WCN Reports Q4 2019 Earnings Results, 2020 Outlook

The company stated it ended 2019 “on a high note” and predicted what’s to come in 2020.

Mallory Szczepanski, Vice President of Member Relations and Publications

February 13, 2020

7 Min Read
WCN Reports Q4 2019 Earnings Results, 2020 Outlook

Toronto-based Waste Connections, Inc. (WCN) held a call with investors on February 13 to discuss its Q4 2019 earnings results as well as its full-year 2019 highlights and its outlook for 2020.

“2019 ended on a high note, as financial results for the fourth quarter exceeded expectations on better-than-expected solid waste price growth, E&P [exploration and production] waste activity and acquisition contribution. We are also extremely pleased with our results for the full year, as underlying adjusted EBITDA margins in solid waste collection, transfer and disposal expanded by 50 basis points,” said Worthing F. Jackman, president and CEO of Waste Connections, in a statement. “Moreover, our ability to deliver full-year adjusted free cash flow of $916.8 million, or 17.0 percent of revenue, and 54.8 percent of adjusted EBITDA on a 16.2 percent increase in capital expenditures as we reinvested in and expanded our business is indicative of our disciplined focus on quality of revenue and free cash flow generation.”

WCN announced that revenue for the fourth quarter of 2019 totaled $1.362 billion, up 7.9 percent from $1.262 billion in the year-ago period, due to higher solid waste pricing and E&P waste activity as well as contribution from acquisitions closed during the quarter. In total, acquisitions completed since the year-ago period contributed about $70.4 million of revenue in the quarter.

“Acquisition activity also accelerated into year-end, as we announced an additional $130 million in acquired annualized revenue in December, including a new market entry in Pennsylvania and tuck-ins in Illinois and Tennessee,” added Jackman. “Acquisitions completed in 2019 provide rollover revenue growth of approximately $170 million in 2020, and the pace of acquisition activity remains elevated. Along with strong pricing growth, this already sets us up for high single-digit growth in revenue and adjusted free cash flow. Positive solid waste volumes, any increases in values for recycled commodities or renewable energy credits since year-end or additional acquisitions closed during the year would provide upside to our initial 2020 outlook.”

More highlights for Q4 2019:

  • Revenue for the quarter was $1.362 billion, compared to revenue of $1.262 billion in Q4 2018.

  • Net income in Q4 2019 was $133.3 million, or $0.50 per share on a diluted basis of 264.6 million shares. In Q4 2018, the company reported net income of $132.5 million, or $0.50 per share on a diluted basis of 264.5 million shares.

  • Adjusted net income in Q4 2019 was $181.4 million, or $0.69 per diluted share, versus $166.2 million, or $0.63 per diluted share, in the prior year period.

  • Adjusted EBITDA in the fourth quarter was $419.0 million, as compared to adjusted EBITDA of $397.2 million in the prior year period.

  • During the call with investors, Jackman reported that solid waste price plus volume growth was 4 percent, which is in line with the upper end of the company’s outlook for the quarter.

  • Operating income, which included $29.0 million of impairments and other operating items primarily related to the company’s sale of a non-strategic materials processing facility and $3.7 million of acquisition-related costs, was $194.2 million. This compares to $200.0 million in the prior year period, which included $14.0 million of impairments and other operating items and $2.8 million of acquisition-related costs.

  • Recycling revenue, excluding acquisitions, was about $12 million in Q4 2019, down $10 million, or approximately 46 percent, year-over-year. Old corrugated cardboard (OCC) prices in Q4 averaged about $41 per ton, down about 56 percent in the year-ago period and about 5 percent, or $2 per ton, from Q3. "We continue to believe that pricing stability and ultimately some amount of improvement are reasonable expectations as a result of higher demand for recycled feedstock by both new mills and domestic mills expected to convert to accepting recovered fiber," said Jackman. "We've also seen indications of higher international demand for OCC, which could also support higher domestic fiber pricing for us."

  • On a combined basis, commodity-related revenues from recycled commodities and renewable energy credits (RINs) from landfill gas sales were largely in line with Q3 as expected, with slightly weaker recycled commodity values offset by stronger RINs.

  • Landfill gas revenue was approximately $12 million in Q4, down about $4 million, or 25 percent, year-over-year. RINs, which account for about 40 to 45 percent of landfill gas revenue, averaged about 82 cents in Q4, up 19 percent from Q3 but down 59 percent year-over-year.

  • WCN reported $62.5 million of E&P waste revenue in the quarter, which was above the high end of its outlook. E&P waste revenue in Q4 was down about 2.3 percent year-over-year and down about 5.8 percent sequentially from Q3, marking the company’s strongest quarter in two years, according to Jackman.

  • The company closed approximately $130 million in acquired annualized revenue in Q4. These acquisitions included Penn Waste, a recycling facility in Illinois that complements the company’s existing operations and collection and transfer assets in Tennessee.  

Full-year 2019 highlights:

  • Adjusted free cash flow in 2019 was $916.8 million, or 17 percent of revenue.

  • Revenue was $5.389 billion, up 9.5 percent.

  • Net income of $566.8 million, or $2.14 per share, and adjusted net income of of $719.6 million, or $2.72 per share.

  • Adjusted EBITDA of $1.674 billion, or 31.1 percent of revenue.

  • Net cash provided by operating activities was $1.541 billion, up 9.2 percent.

  • Commercial collection revenue increased approximately 5 percent, mostly due to price increases. Roll-off revenue increased approximately 4.5 percent, due to a combination of higher pulls and higher revenue per pull.

  • Solid waste landfill tonnage increased about 1 percent. This uptick was led by increases in Florida and on the West Coast, as well as higher construction and demolition tons, up 7 percent, with the largest increases in the Northeast.

  • Total acquired annualized revenue in 2019 was approximately $300 million, which will provide a rollover acquisition contribution of about $170 million in 2020.

  • “Over 55 percent of our operating locations either posted zero safety-related incidents in 2019 or drove further year-over-year improvements. We would like to recognize the tireless efforts of our more than 18,000 employees for our continuing success,” said Jackman in a statement.

2020 outlook highlights:

  • WCN expects pricing growth to continue to average about 5 percent, starting higher at approximately 5.5 percent early in the year due to the rollover impact of higher price increases implemented in 2019.

  • Jackman noted that WCN expects reported volumes to be about flat for the full year.

  • For full-year 2020, WCN estimates that revenue will be in the range of $5.725 billion and $5.775 billion.

  • The company expects solid waste pricing growth of approximately 5 percent, with volumes about flat.

  • Adjusted EBITDA in 2020 is expected to be in the range of approximately $1.76 billion to $1.785 billion, down about 20 to 40 basis points year-over-year as underlying margin expansion in solid waste collection, transfer and disposal is expected to be more than offset by a combined estimated 65 basis point impact.

  • Adjusted free cash flow in 2020 is expected to be in the range of $975 million to $1 billion, or between 17 percent and 17.3 percent of revenue.

  • Net income is expected to be in the range of $653.0 million to $668.0 million.

  • Net cash provided by operating activities is expected to be in the range of $1.600 billion to $1.625 billion.

  • For Q1 2020, revenue is estimated to be approximately $1.36 billion, and price growth for solid waste is expected to be approximately 5.5 percent, with volume in the range of flat to up to 50 basis points. Additionally, E&P waste revenue is estimated to be in the range of $55 million to 60 million, and adjusted EBITDA is estimated to be approximately $405 million, or 29.8 percent of revenue.

  • The margin headwinds expected from lower year-over-year commodity-related revenues, lower E&P waste revenues and acquisition contributions are expected to be the most pronounced in Q1, totaling more than 100 basis points. One additional headwind specific to Q1 is the impact of one extra day in the quarter due to leap year, stated Mary Ann Whitney, WCN senior vice president and chief financial officer, on the call with investors.

  • Jackman noted that throughout January, RIN prices remained mostly in line with Q4 levels, but they recently jumped as high as $1.60. He said it’s too soon to know if these levels will persist throughout the quarter and full year, however.

“Our 2020 vision is also focused on engagement with our employees, our customers and our communities. Engagement means continued investment, training and development for our local leaders and frontline employees and building our technology offerings to increase connectivity both inside and outside of the company. Engagement drives culture, increases retention and further improves safety,” concluded Jackman.

“In addition, our 2020 vision is focused on sustainability. At Waste Connections, we’re continuing our efforts to minimize our impact on the environment and measuring the positive impacts we have in the communities we serve,” he added. “The development and welfare of our employees, the financial health of our company and the returns to our shareholders—we hold ourselves accountable to deliver on these commitments.”

About the Author(s)

Mallory Szczepanski

Vice President of Member Relations and Publications, NWRA

Mallory Szczepanski was previously the editorial director for Waste360. She holds a bachelor’s degree in journalism from Columbia College Chicago, where her research focused on magazine journalism. She also has previously worked for Contract magazine, Restaurant Business magazine, FoodService Director magazine and Concrete Construction magazine.

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