Waste Business Journal

IESI-BFC First Quarter Revenue Up By 38%, Helped by Acquisition

Date: April 29, 2011

Source: IESI-BFC Ltd.

IESI-BFC Ltd. Announces Strong Results for the Three Months Ended March 31, 2011

IESI-BFC Ltd. (the "Company") (TSX:BIN)(NYSE:BIN) reported financial results for the three months ended March 31, 2011.

(All amounts are in thousands of United States ("U.S.") dollars, unless otherwise stated)

Management Commentary

Reported revenues increased $158.8 million or 60.1% from $264.0 million in the first quarter of 2010 to $422.9 million in the first quarter of 2011 due in large part to our acquisition of Waste Services, Inc. ("WSI").

Organic gross revenue, which includes intercompany revenues, grew 3.9% on a consolidated basis and is comprised of total price and volume growth of 3.3% and 0.6%, respectively. Total price and volume improvements in Canada were 4.2% and 0.7%, respectively, and 2.6% and 0.5% in the U.S. Each revenue growth component has been prepared on a comparable basis, as if WSI's operations were combined with ours in the current and previously comparable quarter, and has assumed a foreign currency exchange ("FX") rate of parity when prepared on a consolidated basis.

Strong revenue growth translated into strong adjusted EBITDA^(A) and operating income growth. Adjusted EBITDA^(A) was $123.1 million, or 62.1% higher, in the first quarter of 2011 versus $75.9 million in the same quarter a year ago. Our first quarter adjusted EBITDA^(A) margin was 29.1% compared to 28.8% in the first quarter of 2010. Adjusted operating income^(A) was $61.7 million, or 69.1% higher, in the quarter versus $36.5 million in the comparative period last year.

We also generated higher adjusted net income^(A) quarter over quarter. Adjusted net income^(A) for the first quarter of 2011 was $28.1 million, or $0.23 per weighted average diluted share ("diluted share"), compared to $18.7 million, or $0.20 per diluted share in the comparative period.

Free cash flow^(B) for the quarter totaled $70.6 million and was 68.6% higher than $41.9 million achieved in the comparative period last year. Our free cash flow^(B) margin was 16.7% in the quarter compared to 15.9% in the first quarter of 2010. Free cash flow^(B) growth was the result of strong operating income, partially offset by higher interest expense and higher capital and landfill purchases. The increase in each of these measures is largely attributable to our acquisition of WSI.

"Our first-quarter results were in line with expectations and we believe we are on track to achieve the outlook we provided for our 2011 financial performance," said Keith Carrigan, Vice Chairman and Chief Executive Officer of IESI-BFC Ltd. "We overcame a number of headwinds in the quarter to achieve revenue growth of 60.1% and consolidated organic gross revenue growth of 3.9%. Our revenue improvement, combined with lower SG&A expenses as a percentage of revenue, translated into adjusted EBITDA^(A) margin expansion of 30 basis points and free cash flow^(B) margin expansion of 80 basis points, compared with the same period a year ago. We are pleased with these results, particularly given the challenges that we faced in the quarter due to harsher comparative weather conditions in certain parts of the United States and Canada."

Mr. Carrigan continued, "In Canada, we delivered solid pricing growth, but harsher weather conditions in the quarter, and most notably in March, resulted in us receiving lower municipal solid and special waste volumes at our landfills. However, our outlook for the year anticipates that we will fully recoup these volumes as the spring seasonal cycle and our organic sales activities take effect, which will result in a stronger comparative volume performance over the balance of the year. Like Canada, the U.S. northeast segment experienced harsher weather conditions as well. However, special and municipal solid waste volumes and higher pricing drove landfill revenue growth, while acquisitions boosted the industrial service line. In the U.S. south segment, we achieved volume growth in almost all service lines."

"With our anticipated revenue and adjusted EBITDA^(A) growth through the balance of the year, we reaffirm our free cash flow^(B) guidance of approximately $270 million in 2011," Mr. Carrigan added. "We will continue to deploy these proceeds strategically in order to deliver the optimal return to our shareholders. Even following an active year of acquisitions, we have a robust pipeline and there are attractive opportunities. However, as always, we continue to take a disciplined and balanced approach to apply our capital in the most accretive manner possible."

Financial and Other Highlights

For the Three Months Ended March 31, 2011

• Revenues increased $158.8 million or 60.1% ($149.7 million or 56.7%, excluding FX)
• Adjusted EBITDA^(A) increased $123.1 million or 62.1% ($120.1 million or 58.1%, excluding FX)
• Adjusted EBITDA^(A) margin, on a reported basis, was 29.1%
• Free cash flow^(B) increased $28.7 million or 68.6% ($27.2 million or 65.0%, excluding FX)
• Free cash flow^(B) margin of 16.7%
• Adjusted net income^(A) per diluted share, $0.23
• Consolidated total price increased 3.3%, prepared on a comparable basis
• Consolidated volumes increased 0.6%, prepared on a comparable basis

Other Highlights for the Three Months Ended March 31, 2011

• Successful secondary offering of 10,906 common shares held by TC Carting III, L.L.C., an affiliate of Thayer Hidden Creek Partners, L.L.C.
• Repurchase of 1,000 common shares from the underwriters in the secondary offering, at the public offering price of $23.50 per share.

Acquisition of WSI

On July 2, 2010, we completed our acquisition of WSI. WSI's Canadian operations are included in our Canadian segment, while their Florida operations are included in our U.S. south segment. WSI's operating results have been included with our own since the date of acquisition. In addition, we have elected to exclude corporate allocated costs from the operating results of our reportable segments. Accordingly, expenses specific to corporate activities have been presented separately from those presented for our reporting segments, for each current and comparative period presented.

Annual General Meeting

The Company also announced details of its annual general meeting, which are as follows:

On a "comparable basis", prepared as if WSI's operations were combined with ours in the current and previously comparable quarter, our Canadian segment delivered price growth in every service line, excluding industrial, which was only slightly behind last year's mark. The primary headwind to comparative gross revenue growth was lower landfill volumes. Weather conditions in 2011, most notably in March, was the primary cause of the volume decline. We remain optimistic that we will fully recoup these volumes, which, all else equal, will result in stronger comparative quarterly performances over the balance of the year. All other service lines delivered solid comparative volume growth, through a combination of both organic and acquisition growth, while industrial volumes were essentially flat. Rising diesel fuel prices also contributed to the increase in comparable fuel surcharges.

U.S. south segment gross revenue growth, presented on a "comparable basis", increased on the back of acquisitions. Volume growth across all service lines, excluding residential, also contributed to the comparative increase in gross revenues. Residential volumes were only down marginally on a comparative basis. Acquisitions pushed comparative pricing marginally lower in our commercial, and landfill and disposal service lines, but stronger volumes more than offset lower contributions from pricing. Fuel surcharges also contributed to gross revenue growth period over period.

The increase in U.S. northeast gross revenue growth is largely attributable to our landfill and industrial service lines. Like Canada, the U.S. northeast segment shared similar comparative weather conditions. However, higher special and municipal solid waste volumes and higher comparative pricing contributed to landfill revenue growth, while acquisitions supported growth in the industrial service line. Acquisitions were the primary reasons for higher gross revenues in our commercial service line, partially offset by volume and pricing which fell marginally short of prior year marks. On a comparative basis, commodity pricing showed continued resilience, while volumes were up slightly but largely unchanged from 2010 levels. Fuel surcharges were relatively unchanged from the prior year.

Operating expenses

The comparative increase in operating expenses is due principally to our mix of business attributable to our acquisition of WSI and other "tuck-in" acquisitions, FX, higher fuel costs and higher overall collected waste volumes in our pre-existing base business. Acquisitions are the primary reason for higher disposal, labour, vehicle operating and insurance costs. Acquisitions also led to higher subcontract costs. Commodity rebates also contributed to the increase in operating expenses due to higher comparative commodity pricing. The increase in commodity rebates was most notable in our U.S. northeast and Canadian businesses. On a sequential basis, however, we realized a 100 basis point improvement in operating expense as a percentage of revenues compared to the fourth quarter of 2010. In addition, the rising price of fuel and resulting increase in fuel surcharges has also contributed to a higher level of operating expenses relative to revenues quarter over quarter. As a percentage of reportable revenues, disposal and vehicle operating costs are the primary reasons for this increase which we attribute principally to the composition of revenues we acquired on our acquisition of WSI and other recently completed acquisitions.

Looking at Canada in isolation, the increase in operating expenses as a percentage of reportable revenues is principally attributable to the mix of revenues we acquired from our acquisition of WSI and other "tuck-in" acquisitions. The mix of revenues acquired on our acquisition of WSI and from other "tuck-in" acquisitions also impacted operating expenses as a percentage of reportable revenues in our U.S. south segment, however, unlike Canada, the impact was favourable. Our U.S. northeast segment incurred higher comparative trucking and disposal costs due in part to higher comparative volumes. In addition, an acquisition completed in the first quarter also contributed to the increase in operating costs as a percentage of revenues in the U.S. northeast coupled with higher commodity rebates and higher vehicle operating costs.

SG&A expenses

Excluding the impact of FX, the comparable increase is the result of higher SG&A expense attributable to our acquisition of WSI and other "tuck-in" acquisitions, coupled with organic growth. The increase is primarily attributable to salaries, which includes higher comparative fair value charges for stock options. Facility cost increases also contributed to the comparative increase.

Corporate SG&A includes certain executive costs, accounting, internal audit, treasury, investor relations, corporate development, environmental management, information technology, human resources and other administrative support functions. Corporate SG&A also includes transaction and related costs and charges for fair value changes to stock options. While we experienced an increase in corporate salary and office costs resulting from our acquisition of WSI, and higher charges for fair value changes in stock options, we did realize a decline in professional fees due in large part to a reduction in legal fees. As a percentage of reportable revenues, SG&A expense, expressed on an adjusted basis, is 12.5% (2010 – 14.0%). Rationalizing personnel and operating locations, since our acquisition of WSI, is the primary reason for the comparative improvement.

Free cash flow^(B)

Purpose and objective

The purpose of presenting this non-GAAP measure is to provide disclosure similar to that provided by other U.S. publicly listed companies in our industry and to provide investors and analysts with an additional measure of our value and liquidity. We use this non-GAAP measure to assess our performance relative to other U.S. publicly listed companies and to assess the availability of funds for growth investment, debt repayment, share repurchases or dividend increases.

Free cash flow^(B)- cash flow approach

Excluding FX, free cash flow^(B) increased over the comparative period. The acquisition of WSI contributed to the free cash flow^(B) and adjusted EBITDA^(A) growth that we enjoyed on a comparative basis. In addition, we also realized improvements to free cash flow^(B) and adjusted EBITDA^(A) resulting from a combination of organic growth and other "tuck-in" acquisitions. Higher debt levels resulting principally from our acquisition of WSI and higher interest rates in Canada and the U.S. was a partial offset to adjusted EBITDA^(A) improvements. Higher capital and landfill asset purchases, due in large part to the acquisition of WSI and other "tuck-in" acquisitions, also partially offset adjusted EBITDA^(A) growth. Proportionately, capital and landfill asset purchases were lower than the comparative period due in large part to the timing of spend and contract wins. Cash taxes increased comparatively, which was most pronounced in our Canadian business. Higher cash taxes in Canada are the result of continuing organic base business growth, coupled with the acquisition of WSI. WSI's Canadian operations had no meaningful loss carryforwards to shelter income subject to tax.

Capital and landfill purchases

Capital and landfill purchases characterized as replacement and growth expenditures are as follows:

Capital and landfill purchases – replacement

Capital and landfill purchases characterized as "replacement" expenditures represent cash outlays to sustain current cash flows and are funded from free cash flow^(B). Replacement expenditures include the replacement of existing capital assets and all construction spending at our landfills.

Excluding the impact of FX, replacement expenditures increased. The increase is principally attributable to higher vehicle and equipment and landfill asset spending. A larger comparative base business profile, combined with the timing of spend, are the principal reasons for the increase.

Capital and landfill purchases – growth

Capital and landfill purchases characterized as "growth" expenditures represent cash outlays to generate new or future cash flows and are generally funded from free cash flow^(B). Growth expenditures include capital assets, including facilities (new or expansion), to support new contract wins and organic business growth.

Growth expenditures declined comparatively. The decline is entirely attributable to lower comparable vehicle purchases resulting from the timing of contract wins in Canada.

Readers are reminded that revenue, adjusted EBITDA^(A), and cash flow contributions realized from growth expenditures will materialize over future periods.

Canadian facility

On March 31, 2011, advances under our Canadian facility were $328,000 Canadian dollars ("C$") and total letters of credit amounted to approximately C$54,100. Available capacity at March 31, 2011, excluding the accordion, was approximately C$142,900 and our funded debt to EBITDA ratio (as defined and calculated in accordance with our Canadian facility) was 1.9 times.

We increased Canadian facility advances since December 31, 2010 by C$3,000. Satisfaction of accrued dividends, income taxes payable, and payments on accrued management compensation amounts owing for 2010 are the primary reasons for the increase. Advances were partially offset by repayments resulting from our application of excess free cash flow^(B) to Canadian facility borrowings.

U.S. facility

On March 31, 2011, advances under our U.S. facility were $777,000 and total letters of credit amounted to approximately $144,800. Available capacity under the facility at Mach 31, 2011, excluding the accordion, was approximately $155,700 and our funded debt to EBITDA ratio (as defined and calculated in accordance with our U.S. facility) was 3.21 times.

The increase in U.S. facility advances since December 31, 2010 totals $16,000 and is due in part to the purchase of 1,000 shares in the secondary public offering at a cost of $23,500. We also completed one "tuck-in" acquisition in the quarter for total cash consideration of approximately $12,400. These amounts were partially offset by debt repayments from excess free cash flow^(B).

Long-term debt to pro forma adjusted EBITDA^(A)

Our pro forma adjusted EBITDA^(A) ratio prepared on a combined basis, assuming FX parity, is approximately 2.6 times.

Definitions of Adjusted EBITDA and Free cash flow

^(A) All references to "Adjusted EBITDA" in this press release are to revenues less operating expense and SG&A, excluding certain non-operating or non-recurring SG&A expense, on the condensed consolidated statement of operations and comprehensive income. Adjusted EBITDA excludes some or all of the following: certain SG&A expenses, restructuring expenses, amortization, net gain or loss on sale of capital assets, interest on long-term debt, net foreign exchange gain or loss, net gain or loss on financial instruments, other expenses, income taxes and income or loss from equity accounted investee. Adjusted EBITDA is a term used by us that does not have a standardized meaning prescribed by U.S. GAAP and is therefore unlikely to be comparable to similar measures used by other companies. Adjusted EBITDA is a measure of our operating profitability, and by definition, excludes certain items as detailed above. These items are viewed by us as either non-cash (in the case of amortization, net gain or loss on financial instruments, net foreign exchange gain or loss, deferred income taxes and net income or loss from equity accounted investee) or non-operating (in the case of certain SG&A expenses, restructuring expenses, net gain or loss on sale of capital assets, interest on long-term debt, other expenses, and current income taxes). Adjusted EBITDA is a useful financial and operating metric for us, our Board of Directors, and our lenders, as it represents a starting point in the determination of free cash flow^(B). The underlying reasons for the exclusion of each item are as follows:

Certain SG&A expenses – SG&A expense includes certain non-operating or non-recurring expenses. These expenses include transaction costs related to acquisitions and fair value adjustments attributable to stock options. These expenses are not considered an expense indicative of continuing operations. Certain SG&A costs represent a different class of expense than those included in adjusted EBITDA.

Restructuring expenses – restructuring expenses includes costs to integrate various operating locations with our own, exiting certain property and building and office leases, employee severance and employee relocation costs incurred in connection with our acquisition of WSI. These expenses are not considered an expense indicative of continuing operations. Accordingly, restructuring expenses represent a different class of expense than those included in adjusted EBITDA.

Amortization – as a non-cash item amortization has no impact on the determination of free cash flow^(B).

Net gain or loss on sale of capital assets – proceeds from the sale of capital assets are either reinvested in additional or replacement capital assets or used to repay revolving credit facility borrowings.

Interest on long-term debt – interest on long-term debt is a function of our debt/equity mix and interest rates; as such, it reflects our treasury/financing activities and represents a different class of expense than those included in adjusted EBITDA.

Net foreign exchange gain or loss – as non-cash items, foreign exchange gains or losses have no impact on the determination of free cash flow^(B).

Net gain or loss on financial instruments – as non-cash items, gains or losses on financial instruments have no impact on the determination of free cash flow^(B).

Other expenses – other expenses typically represent amounts paid to certain management of acquired companies who are retained by us post acquisition and amounts paid to certain executives in respect of acquisitions successfully completed. These expenses are not considered an expense indicative of continuing operations. Accordingly, other expenses represent a different class of expense than those included in adjusted EBITDA.

Income taxes – income taxes are a function of tax laws and rates and are affected by matters which are separate from our daily operations.

Net income or loss from equity accounted investee – as a non-cash item, net income or loss from our equity accounted investee has no impact on the determination of free cash flow^(B).

Adjusted EBITDA should not be construed as a measure of income or of cash flows. The reconciling items between adjusted EBITDA and net income are detailed in the condensed consolidated statement of operations and comprehensive income or loss beginning with operating income before restructuring expenses, amortization and net gain or loss on sale of capital assets and ending with net income and includes certain adjustments for expenses recorded to SG&A which management views as not being indicative of continuing operations. A reconciliation between operating income and adjusted EBITDA is provided in the table that follows. Adjusted operating income and adjusted net income are also presented in the reconciliation below.

^(B) We have adopted a measure called "free cash flow" to supplement net income or loss as a measure of operating performance. Free cash flow is a term which does not have a standardized meaning prescribed by U.S. GAAP, is prepared before dividends declared, and is therefore unlikely to be comparable to similar measures used by other companies. The purpose of presenting this non-GAAP measure is to provide similar disclosures to other U.S. publicly listed companies in the waste industry. We use this non-GAAP measure to assess our performance relative to other publically listed companies and to assess the availability of funds for growth investment, debt repayment, share repurchases or dividend increases. All references to "free cash flow" in this press release have the meaning set out in this note.

About IESI-BFC Ltd.

As North America's third largest full-service waste management company, we provide non-hazardous solid waste collection and disposal services to commercial, industrial, municipal and residential customers in 12 U.S. states and the District of Columbia and six Canadian provinces. We serve our customers with vertically integrated collection and disposal assets. IESI-BFC's shares are listed on the New York and Toronto Stock Exchanges under the symbol BIN.

To find out more about IESI-BFC, visit our website at www.iesi-bfc.com.