Waste Connections Earnings 2019-06-30

WCN 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2019
	Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 1-34370

WASTE CONNECTIONS, INC.

(Exact name of registrant as specified in its charter)

Ontario, Canada

(State or other jurisdiction of incorporation or organization)

98-1202763

(I.R.S. Employer Identification No.)

610 Applewood Crescent, 2^nd Floor

Vaughan

Ontario L4K 0E3

Canada

(Address of principal executive offices)

(905) 532-7510

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, no par value	WCN	New York Stock Exchange (“NYSE”) Toronto Stock Exchange (“TSX”)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


þ Large Accelerated Filer	◻ Accelerated Filer	◻ Non-accelerated Filer	☐ Smaller Reporting Company	☐ Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common shares:

As of July 19, 2019: 263,666,142 common shares

Table of Contents

WASTE CONNECTIONS, INC.

FORM 10-Q

TABLE OF CONTENTS

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands of U.S. dollars, except share and per share amounts)


	June 30,		December 31,
	2019		2018
ASSETS
Current assets:
Cash and equivalents	$	209,209	$	319,305
Accounts receivable, net of allowance for doubtful accounts of $14,029 and $16,760 at June 30, 2019 and December 31, 2018, respectively		663,931		609,545
Prepaid expenses and other current assets		117,454		164,053
Total current assets		990,594		1,092,903

Restricted cash		84,527		84,661
Restricted investments		54,515		47,486
Property and equipment, net		5,318,196		5,168,996
Operating lease right-of-use assets		194,361		—
Goodwill		5,316,670		5,031,685
Intangible assets, net		1,124,107		1,128,628
Other assets, net		62,802		72,970
Total assets	$	13,145,772	$	12,627,329
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	408,229	$	359,967
Book overdraft		17,984		18,518
Accrued liabilities		274,478		289,544
Current portion of operating lease liabilities		30,255		—
Current portion of contingent consideration		11,773		11,612
Deferred revenue		199,401		179,282
Current portion of long-term debt and notes payable		798		1,786
Total current liabilities		942,918		860,709

Long-term debt and notes payable		4,082,876		4,153,465
Long-term portion of operating lease liabilities		170,829		—
Long-term portion of contingent consideration		45,227		43,003
Deferred income taxes		783,609		760,033
Other long-term liabilities		412,508		349,931
Total liabilities		6,437,967		6,167,141

Commitments and contingencies (Note 18)

Equity:
Common shares: 263,686,518 shares issued and 263,601,239 shares outstanding at June 30, 2019; 263,271,302 shares issued and 263,141,413 shares outstanding at December 31, 2018		4,135,002		4,131,307
Additional paid-in capital		138,194		133,577
Accumulated other comprehensive loss		(23,487)		(74,786)
Treasury shares: 85,279 and 129,889 shares at June 30, 2019 and December 31, 2018, respectively		—		—
Retained earnings		2,452,687		2,264,510
Total Waste Connections’ equity		6,702,396		6,454,608
Noncontrolling interest in subsidiaries		5,409		5,580
Total equity		6,707,805		6,460,188
	$	13,145,772	$	12,627,329

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)

(In thousands of U.S. dollars, except share and per share amounts)


	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Revenues	$	1,369,639	$	1,239,968	$	2,614,275	$	2,380,099
Operating expenses:
Cost of operations		815,819		725,022		1,549,508		1,384,825
Selling, general and administrative		139,664		128,261		272,249		259,568
Depreciation		156,776		142,450		303,623		275,634
Amortization of intangibles		31,344		26,474		61,886		52,573
Impairments and other operating items		3,902		7,073		20,014		8,104
Operating income		222,134		210,688		406,995		399,395

Interest expense		(37,245)		(32,426)		(74,533)		(64,796)
Interest income		1,818		1,056		5,129		2,210
Other income, net		805		2,031		3,363		1,644
Foreign currency transaction gain (loss)		1,115		30		1,218		(190)
Income before income tax provision		188,627		181,379		342,172		338,263

Income tax provision		(39,788)		(42,565)		(67,756)		(74,417)
Net income		148,839		138,814		274,416		263,846
Plus (less): Net loss (income) attributable to noncontrolling interests		9		(132)		54		(295)
Net income attributable to Waste Connections	$	148,848	$	138,682	$	274,470	$	263,551

Earnings per common share attributable to Waste Connections’ common shareholders:
Basic	$	0.56	$	0.53	$	1.04	$	1.00
Diluted	$	0.56	$	0.52	$	1.04	$	1.00

Shares used in the per share calculations:
Basic		263,846,970		263,691,172		263,725,867		263,757,179
Diluted		264,494,943		264,332,029		264,416,610		264,452,785

Cash dividends per common share	$	0.16	$	0.14	$	0.32	$	0.28

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands of U.S. dollars)


	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Net income	$	148,839	$	138,814	$	274,416	$	263,846

Other comprehensive income (loss), before tax:
Interest rate swap amounts reclassified into interest expense		(2,472)		(1,273)		(4,944)		(1,872)
Fuel hedge amounts reclassified into cost of operations		—		(1,688)		—		(2,837)
Changes in fair value of interest rate swaps		(25,615)		3,196		(41,336)		14,965
Changes in fair value of fuel hedges		—		2,045		—		2,661
Foreign currency translation adjustment		43,135		(43,474)		85,315		(102,804)
Other comprehensive income (loss), before tax		15,048		(41,194)		39,035		(89,887)
Income tax (expense) benefit related to items of other comprehensive income (loss)		7,443		(594)		12,264		(3,420)
Other comprehensive income (loss), net of tax		22,491		(41,788)		51,299		(93,307)
Comprehensive income		171,330		97,026		325,715		170,539
Plus (less): Comprehensive loss (income) attributable to noncontrolling interests		9		(132)		54		(295)
Comprehensive income attributable to Waste Connections	$	171,339	$	96,894	$	325,769	$	170,244

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands of U.S. dollars, except share amounts)


	WASTE CONNECTIONS' EQUITY
						ACCUMULATED
				ADDITIONAL		OTHER
	COMMON SHARES			PAID-IN		COMPREHENSIVE		TREASURY SHARES			RETAINED		NONCONTROLLING
	SHARES	AMOUNT		CAPITAL		INCOME (LOSS)		SHARES	AMOUNT		EARNINGS		INTERESTS		TOTAL
Balances at December 31, 2018	263,141,413	$	4,131,307	$	133,577	$	(74,786)	129,889	$	—	$	2,264,510	$	5,580	$	6,460,188
Sale of common shares held in trust	43,637		3,610		—		—	(43,637)		—		—		—		3,610
Vesting of restricted share units	400,555		—		—		—	—		—		—		—		—
Vesting of performance-based restricted share units	180,258		—		—		—	—		—		—		—		—
Restricted share units released from deferred compensation plan	15,371		—		—		—	—		—		—		—		—
Tax withholdings related to net share settlements of equity-based compensation	(202,679)		—		(16,974)		—	—		—		—		—		(16,974)
Equity-based compensation	—		—		11,627		—	—		—		—		—		11,627
Exercise of warrants	8,690		—		—		—	—		—		—		—		—
Cash dividends on common shares	—		—		—		—	—		—		(42,084)		—		(42,084)
Amounts reclassified into earnings, net of taxes	—		—		—		(1,817)	—		—		—		—		(1,817)
Changes in fair value of cash flow hedges, net of taxes	—		—		—		(11,555)	—		—		—		—		(11,555)
Foreign currency translation adjustment	—		—		—		42,180	—		—		—		—		42,180
Cumulative effect adjustment from adoption of new accounting pronouncement	—		—		—		—	—		—		(2,078)		—		(2,078)
Net income (loss)	—		—		—		—	—		—		125,622		(45)		125,577
Balances at March 31, 2019	263,587,245	$	4,134,917	$	128,230	$	(45,978)	86,252	$	—	$	2,345,970	$	5,535	$	6,568,674
Sale of common shares held in trust	973		85		—		—	(973)		—		—		—		85
Vesting of restricted share units	6,495		—		—		—	—		—		—		—		—
Tax withholdings related to net share settlements of equity-based compensation	(3,081)		—		(290)		—	—		—		—		—		(290)
Equity-based compensation	—		—		10,254		—	—		—		—		—		10,254
Exercise of warrants	9,607		—		—		—	—		—		—		—		—
Cash dividends on common shares	—		—		—		—	—		—		(42,131)		—		(42,131)
Amounts reclassified into earnings, net of taxes	—		—		—		(1,817)	—		—		—		—		(1,817)
Changes in fair value of cash flow hedges, net of taxes	—		—		—		(18,827)	—		—		—		—		(18,827)
Foreign currency translation adjustment	—		—		—		43,135	—		—		—		—		43,135
Distributions to noncontrolling interests	—		—		—		—	—		—		—		(117)		(117)
Net income (loss)	—		—		—		—	—		—		148,848		(9)		148,839
Balances at June 30, 2019	263,601,239	$	4,135,002	$	138,194	$	(23,487)	85,279	$	—	$	2,452,687	$	5,409	$	6,707,805

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands of U.S. dollars, except share amounts)


	WASTE CONNECTIONS' EQUITY
						ACCUMULATED
				ADDITIONAL		OTHER
	COMMON SHARES			PAID-IN		COMPREHENSIVE		TREASURY SHARES			RETAINED		NONCONTROLLING
	SHARES	AMOUNT		CAPITAL		INCOME (LOSS)		SHARES	AMOUNT		EARNINGS		INTERESTS		TOTAL
Balances at December 31, 2017	263,494,670	$	4,187,568	$	115,743	$	108,413	166,133	$	—	$	1,856,946	$	5,400	$	6,274,070
Sale of common shares held in trust	26,849		1,947		—		—	(26,849)		—		—		—		1,947
Vesting of restricted share units	452,700		—		—		—	—		—		—		—		—
Vesting of performance-based restricted share units	154,181		—		—		—	—		—		—		—		—
Restricted share units released from deferred compensation plan	114		—		—		—	—		—		—		—		—
Tax withholdings related to net share settlements of equity-based compensation	(206,084)		—		(14,121)		—	—		—		—		—		(14,121)
Equity-based compensation	—		—		7,991		—	—		—		—		—		7,991
Repurchase of common shares	(594,474)		(42,040)		—		—	—

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$91.61	264	$24,150

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30

8-K	2019-08-01	Exhibits
8-K	2019-07-30	Regulation FD
8-K	2019-07-29	Earnings, Regulation FD, Exhibits
8-K	2019-07-25	Officers, Exhibits
8-K	2019-06-03	Regulation FD, Exhibits
8-K	2019-05-17	Shareholder Vote, Other Events, Exhibits
8-K	2019-04-25	Regulation FD
8-K	2019-04-24	Earnings, Regulation FD, Exhibits
8-K	2019-04-16	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-04-09	Enter Agreement, Regulation FD, Exhibits
8-K	2019-04-06	Other Events, Exhibits
8-K	2019-02-19	Officers, Exhibits
8-K	2019-02-14	Regulation FD
8-K	2019-02-13	Earnings, Regulation FD, Exhibits
8-K	2019-01-03	Other Events, Exhibits
8-K	2018-12-10	Other Events, Exhibits
8-K	2018-11-16	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-11-06	Enter Agreement, Regulation FD, Exhibits
8-K	2018-10-30	Regulation FD
8-K	2018-10-29	Earnings, Regulation FD, Exhibits
8-K	2018-10-17	Officers, Exhibits
8-K	2018-09-14	Regulation FD
8-K	2018-07-25	Regulation FD
8-K	2018-07-24	Earnings, Regulation FD, Exhibits
8-K	2018-05-24	Shareholder Vote, Other Events, Exhibits
8-K	2018-05-14	Officers, Exhibits
8-K	2018-05-03	Regulation FD
8-K	2018-03-21	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-03-09	Regulation FD
8-K	2018-02-14	Earnings, Regulation FD, Exhibits

EVOP	EVO Payments	2,330
TEN	Tenneco	1,020
SLCA	US Silica Holdings	960
NRE	Northstar Realty Europe	878
SFBC	Sound Financial Bancorp	87
BGFV	Big 5 Sporting Goods	51
IZEA	IZEA	8
CNSX	Tower One Wireless	0
MPACU	Matlin & Partners Acquisition	0
VABK	Virginia National Bankshares	0

EX-10.1	wcn-20190630ex1017747e0.htm
EX-10.2	wcn-20190630ex102fe6fed.htm
EX-10.3	wcn-20190630ex103032d1d.htm
EX-31.1	wcn-20190630ex3116ad3ba.htm
EX-31.2	wcn-20190630ex312375c95.htm
EX-32.1	wcn-20190630ex3219fb5c6.htm
EX-32.2	wcn-20190630ex322727586.htm


		Page
PART I – FINANCIAL INFORMATION (unaudited)
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Net Income	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Statements of Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	69
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	70
Item 5.	Other Information	70
Item 6.	Exhibits	71
Signatures		72