Date: February 12, 2007
Source: Waste Connections, Inc.
Fourth Quarter 2006 Highlights:
- Revenue increased 11.8% to $210.7 million on stronger than expected internal growth
- Reports internal growth of 5.5% price and 2.0% volume
- Reports operating margin consistent with Q4 outlook
- Reports free cash flow of $25 million, or 11.9% of revenue
Waste Connections, Inc. (NYSE: WCN) today announced its results for the fourth quarter 2006. Revenue totaled $210.7 million, an 11.8% increase over revenue of $188.4 million in the year ago period. Operating income was $43.9 million, an 11.8% increase over operating income of $39.3 million in the fourth quarter of 2005. Net income was $20.6 million, or $0.44 per share on a diluted basis of 46.7 million shares. Operating income and net income in the current period included a $0.8 million ($0.5 million net of taxes, or approximately $0.01 per share) non-cash loss on disposal of assets. The income tax provision and net income in the current period also included $0.8 million expense (approximately $0.02 per share) due to the approval during the quarter of a change in tax accounting method regarding certain landfills, which also reduced cash taxes in the period. In the year ago period, the Company reported net income of $18.7 million and diluted earnings per share of $0.40. Net income in the prior year period included a non-cash charge of approximately $1.6 million ($1.0 million net of taxes, or approximately $0.02 per share) related to the accelerated vesting of outstanding options.
"We are extremely pleased with our continuously improving results during 2006 and the pieces we already have in place for expected margin expansion and double-digit revenue growth in 2007. Many of the improvements in our underlying financials achieved during 2006 were masked primarily by the significant year-to-year increase in our fuel costs. Now that we have transitioned to a higher fuel cost environment, we expect continuing pricing strength and increasing volume growth to drive year-over-year margin expansion in 2007," said Ronald J. Mittelstaedt, Chairman and Chief Executive Officer. "Our strong free cash flow in the fourth quarter enabled us to exit the year with sufficient cash balances to fund our recent acquisition of Waste Management's integrated operations in Eastern Kentucky without incremental borrowings."
For the year ended December 31, 2006, revenue was $824.4 million, a 14.2% increase over revenue of $721.9 million in 2005. Operating income was $171.4 million versus $168.0 million in 2005. Net income was $77.4 million, or $1.65 per share on a diluted basis of 46.9 million shares. In 2005, the Company reported income from continuing operations of $84.5 million and diluted earnings per share from continuing operations of $1.75.
2007 OUTLOOK
Waste Connections also announced its outlook for 2007, its 10th anniversary year. The Company's outlook excludes the impact of any additional acquisitions and assumes: (1) approximately $5.7 million of equity-based compensation costs; and (2) $100 million of common stock is repurchased during the year. 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.
-- Revenue is estimated to range between $920 million and $930 million. This assumes internal growth in a range between 8.0% and 8.5%, excluding the impact of intermodal services and commodities, with between 4.0% and 4.5% from price and surcharges, and the remainder from volume growth.
-- Selling, general and administrative expense, which includes increased equity-based compensation costs, is estimated at approximately 10.2% of revenue, subject to quarterly fluctuations.
-- Depreciation and amortization is estimated at approximately 9.0% of revenue, subject to quarterly fluctuations.
-- Operating income is estimated at approximately 21.2% of revenue, subject to quarterly fluctuations.
-- Net interest expense is estimated at approximately $33.5 million.
-- Minority interest expense is estimated at approximately 1.6% of revenue, subject to quarterly fluctuations.
-- Effective tax rate is expected to be approximately 38.0%, subject to quarterly fluctuations.
-- Net cash provided by operating activities is estimated to be approximately 24% of revenue, subject to quarterly fluctuations.
-- Capital expenditures are estimated to be approximately $115 million, of which approximately $15 million relates to up-front outlays for trucks and containers associated with the commencement of a long- term collection contract in Northern California.
Waste Connections will be hosting a conference call related to fourth quarter earnings and 2007 outlook on February 13th 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 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 associated with equity-based compensation, which totaled $7.7 million for the year ended December 31, 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 associated with equity-based compensation. 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 22 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.
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2006
(Unaudited)
(in thousands, except share and per share amounts)
Three months ended Twelve months ended
December 31, December 31,
2005 2006 2005 2006
Revenues $188,445 $210,668 $721,899 $824,354
Operating expenses:
Cost of operations 111,068 124,421 416,883 492,766
Selling, general and
administrative 20,470 22,695 72,395 84,541
Depreciation and amortization 17,511 18,825 64,788 74,865
Loss (gain) on disposal
of assets 116 831 (216) 796
Operating income 39,280 43,896 168,049 171,386
Interest expense (6,946) (7,285) (23,489) (28,970)
Minority interests (3,150) (3,157) (12,422) (12,905)
Other income (expense), net 223 81 450 (3,759)
Income from continuing
operations before income tax 29,407 33,535 132,588 125,752
Income tax provision (10,706) (12,908) (48,066) (48,329)
Income from continuing
operations 18,701 20,627 84,522 77,423
Loss from discontinued
operations, net of tax - - (579) -
Net income $18,701 $20,627 $83,943 $77,423
Basic earnings per common share:
Continuing operations $0.41 $0.45 $1.81 $1.70
Discontinued operations - - (0.01) -
Net income per common share $0.41 $0.45 $1.80 $1.70
Diluted earnings per common share:
Continuing operations $0.40 $0.44 $1.75 $1.65
Discontinued operations - - (0.01) -
Net income per common share $0.40 $0.44 $1.74 $1.65
Shares used in the per
share calculations:
Basic 46,096,009 45,364,370 46,700,64945,424,084
Diluted 47,316,277 46,686,227 48,211,30146,939,115
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
December 31, December 31,
2005 2006
ASSETS
Current assets:
Cash and equivalents $7,514 $34,949
Accounts receivable, net of allowance
for doubtful accounts of $2,826 and
$3,489 at December 31, 2005 and
2006, respectively 94,438 100,269
Deferred income taxes 5,145 9,373
Prepaid expenses and other
current assets 17,279 15,642
Total current assets 124,376 160,233
Property and equipment, net 700,508 736,428
Goodwill 723,120 750,397
Intangible assets, net 87,651 86,098
Restricted assets 13,888 15,917
Other assets, net 26,764 24,818
$1,676,307 $1,773,891
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $54,795 $53,010
Book overdraft 8,869 -
Accrued liabilities 44,522 57,810
Deferred revenue 30,957 32,161
Current portion of long-term
debt and notes payable 10,858 6,884
Total current liabilities 150,001 149,865
Long-term debt and notes payable 586,104 637,308
Other long-term liabilities 20,478 16,712
Deferred tax liabilities 175,167 205,532
Total liabilities 931,750 1,009,417
Commitments and contingencies
Minority interests 26,357 27,992
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 45,510,697
shares issued and outstanding at
December 31, 2005 and 2006, respectively 459 455
Additional paid-in capital 373,382 310,229
Deferred stock compensation (2,234) -
Treasury stock at cost, 106,600 shares
outstanding at December 31, 2005 (3,672) -
Retained earnings 345,308 422,731
Accumulated other comprehensive income 4,957 3,067
Total stockholders' equity 718,200 736,482
$1,676,307 $1,773,891
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2006
(Unaudited)
(Dollars in thousands)
Twelve months ended
December 31,
2005 2006
Cash flows from operating activities:
Net income $83,943 $77,423
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss (gain) on disposal of assets (413) 796
Depreciation 61,968 70,785
Amortization of intangibles 3,070 4,080
Deferred income taxes, net of acquisitions (792) 26,585
Minority interests 12,422 12,905
Amortization of debt issuance costs 2,001 6,238
Stock-based compensation 2,826 3,451
Interest income on restricted assets (390) (618)
Closure and post-closure accretion 681 623
Tax benefit on the exercise
of stock options 7,338 -
Excess tax benefit associated with
equity-based compensation - (7,728)
Net change in operating assets and
liabilities, net of acquisitions 27,158 9,694
Net cash provided by operating activities 199,812 204,234
Cash flows from investing activities:
Payments for acquisitions, net
of cash acquired (80,849) (38,594)
Capital expenditures for property
and equipment (97,482) (96,519)
Proceeds from disposal of assets 5,254 2,198
Decrease (increase) in restricted
assets, net of interest income 661 (1,411)
Increase in other assets (856) (224)
Net cash used in investing activities (173,272) (134,550)
Cash flows from financing activities:
Proceeds from long-term debt 232,631 666,035
Principal payments on notes
payable and long-term debt (159,688) (621,161)
Change in book overdraft 208 (8,869)
Proceeds from option and
warrant exercises 28,716 32,146
Excess tax benefit associated with
equity-based compensation - 7,728
Distributions to minority
interest holders (10,486) (11,270)
Payments for repurchase of common stock (113,874) (100,245)
Debt issuance costs (143) (6,613)
Net cash used in financing activities (22,636) (42,249)
Net increase in cash and equivalents 3,904 27,435
Cash and equivalents at beginning of period 3,610 7,514
Cash and equivalents at end of period $7,514 $34,949
ADDITIONAL STATISTICS
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2006
(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, 2006 December 31, 2006
Price 5.5% 5.1%
Volume 2.0% 2.8%
Intermodal, Recycling
and Other 0.3% (0.3%)
Total 7.8% 7.6%
Uneliminated Revenue Breakdown:
Three Months Ended Twelve Months Ended
December 31, 2006 December 31, 2006
Collection $153,221 64.1% $602,762 64.2%
Disposal and Transfer 65,582 27.5% 259,190 27.6%
Intermodal, Recycling
and Other 20,120 8.4% 77,202 8.2%
Total $238,923 100.0% $939,154 100.0%
Inter-company elimination $28,255 $114,800
Days Sales Outstanding for the three months ended December 31, 2006: 44 (30 net of deferred revenue)
Internalization for the three months ended December 31, 2006: 69%
Other Cash Flow Items for the three months ended December 31, 2006:
Cash Interest Paid: $10,039
Cash Taxes Paid: $45
Debt to Capitalization Ratio as of December 31, 2006: 46.7%
Share Information for the three months ended December 31, 2006:
Basic shares outstanding 45,364,370
Dilutive effect of options and warrants 1,198,467
Dilutive effect of restricted stock 123,390
Diluted shares outstanding 46,686,227
NON-GAAP RECONCILIATION SCHEDULE
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2006
(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 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, 2006 December 31, 2006
Net cash provided by
operating activities $51,894 $204,234
Change in book overdraft (2,726) (8,869)
Plus: Proceeds from
disposal of assets 248 2,198
Plus: Excess tax benefit
associated with equity-based
compensation 2,068 7,728
Less: Capital expenditures
for property and equipment (23,037) (96,519)
Less: Distributions to minority
interest holders (3,430) (11,270)
Free cash flow $25,017 $97,502
Free cash flow as % of revenues 11.9% 11.8%
For more information, contact:
Worthing Jackman
916-608-8266
worthingj@wasteconnections.com.
Or visit: www.wasteconnections.com or www.wcnx.org.
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