01—Abstract
Summary
Summary of the 10-K filed February 27, 2017. Cited figures are marked; the original filing is the authoritative source.
Waste Connections, Inc. (the registrant, filed in Ontario, Canada) reported fiscal 2016 revenues of $3.376 billiona, up from $2.117 billion in 2015, driven primarily by the Progressive Waste acquisition completed June 1, 2016, which contributed $1.270 billion in incremental revenues.
Operating income swung to $452.3 millionb from a loss of $61.5 million in 2015, which had included $494.5 million of impairments tied to the E&P segment. Net income attributable to Waste Connections was $246.5 million, or $1.60 diluted earnings per share, compared with a loss of $95.8 million in 2015. Adjusted EBITDA rose to $1.071 billion from $710.6 million, and adjusted free cash flow increased to $550.9 million from $343.0 million.
The balance sheet grew substantially with total assets of $11.19 billionc and long-term debt and notes payable of $3.62 billion at year-end, against total equity of $5.65 billion. The leverage ratio decreased to 2.69x from 2.88x, within the company's stated target range of approximately 2.75x to 3.0x total debt to EBITDA. Management expects 2017 capital expenditures of approximately $450 million and announced a quarterly dividend of $0.18 per share.
Subsequent events include the acquisition of Groot Industries and a planned $400 milliond senior notes issuance. Investors should note the disclosed material weakness in internal control over financial reporting related to fair value measurements in business combinations, which led PricewaterhouseCoopers to express an adverse opinion on internal control. The E&P segment remains under pressure from lower crude oil prices, with E&P revenues falling to $120.5 million from $215.4 million, and the company carries a $77.3 million E&P goodwill balance whose fair value exceeded carrying value by $125.7 million at year-end.
02—Key points
Key Highlights
- Revenues rose 59.4% to $3.376 billion, with acquisitions contributing $1.270 billion of incremental revenue, including $1.185 billion from Progressive Waste.
- Operating income of $452.3 million (13.4% of revenues) compared with an operating loss of $61.5 million in 2015, which included $494.5 million of impairments.
- Diluted EPS of $1.60 versus a loss of $0.78 per share in 2015; adjusted net income attributable to Waste Connections was $395.2 million, or $2.57 per diluted share.
- Adjusted EBITDA increased 50.7% to $1.071 billion, with the margin declining to 31.7% from 33.6% due to the lower-margin Progressive Waste operations.
- Net cash provided by operating activities rose to $795.3 million, and capital expenditures were $344.7 million.
- Leverage ratio decreased to 2.69x from 2.88x; total indebtedness outstanding was approximately $3.633 billion.
- Management disclosed a material weakness in internal control over fair value measurements in business combinations, which remains unremediated at year-end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Waste Connections kept $0.07.
- Revenue$3.38B100.0%
- Cost of revenue−$1.96B58.0%
- Gross profit$1.42B42.0%
- Operating costs−$965.9M28.6%
- Operating income$452.3M13.4%
- Interest, other & tax−$205.8M6.1%
- Net income$246.5M7.3%
Where FY2016 revenue went
$3.38B- Cost of revenue: $1.96B, 58% of revenue
- Other operating costs: $491.6M, 15% of revenue
- SG&A: $474.3M, 14% of revenue
- Net income: $246.5M, 7.3% of revenue
- Interest, other & tax: $205.8M, 6.1% of revenue
Kept 7.3% as net incomeNet income $246.5M · 7.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 27, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $3.38B$2.12B | +59.4% |
| Cost of Revenue | $1.96B$1.18B | +66.3% |
| Gross Profit | $1.42B$939.88M | +50.9% |
| SG&A Expenses | $474.26M$237.48M | +99.7% |
| Operating Income | $452.30M-$61.53M | +835.1% |
| Interest Expense | $92.71M$64.24M | +44.3% |
| Net Income | $246.54M-$95.76M | +357.4% |
| EPS (Basic) | $1.07$-0.52 | +305.8% |
| EPS (Diluted) | $1.07$-0.52 | +305.8% |
| Shares Outstanding (Basic) | 230.33M185.24M | +24.3% |
| Shares Outstanding (Diluted) | 231.08M185.24M | +24.7% |
05—Questions
Frequently Asked Questions
What drove the large increase in revenue and what is the Progressive Waste acquisition?
Revenue increased $1.259 billion to $3.376 billion, primarily due to acquisitions of $1.270 billion in incremental revenue, of which $1.185 billion came from the Progressive Waste acquisition completed June 1, 2016. Old Waste Connections' stockholders received 2.076843 new common shares per share and owned approximately 70% of the combined company.
Why did the company report a loss in 2015 and profit in 2016?
The 2015 loss reflected $494.5 million of impairments and other operating items, mainly $411.8 million of E&P goodwill impairment, $38.4 million of E&P indefinite-lived intangible impairments and $67.6 million of E&P property and equipment impairments, as crude oil price declines reduced E&P waste demand. In 2016 impairments fell to $27.7 million, and operating income returned to $452.3 million.
What risks does the filing highlight for investors?
The filing highlights a material weakness in internal control over financial reporting, E&P revenue pressure from lower crude oil prices (E&P revenues fell to $120.5 million from $215.4 million), exposure to variable-rate debt (a one percentage point rate increase would reduce annual pre-tax income by approximately $15.9 million), recycled commodity and RIN price volatility, and a Lower Duwamish Waterway Superfund matter where the EPA estimated clean-up costs of about $342,000 thousand.
What are the capital return and liquidity plans?
The quarterly dividend was increased 24% to $0.18 per share in October 2016, with $92.5 million paid in 2016. No shares were repurchased in 2016. A normal course issuer bid authorizes up to 8,770,732 shares through August 7, 2017. Cash and equivalents were $154.4 million at year-end, and the company expects approximately $450 million of capital expenditures in 2017.
What happened after year-end 2016?
On January 3, 2017, the company acquired Groot Industries, Inc., which the filing describes as the largest privately owned solid waste company in Illinois with total annual revenue of approximately $200,000 thousand. On February 13, 2017, the company agreed to issue $400 million of senior unsecured notes expected to fund on April 20, 2017, in part to fund the Groot purchase price.
06—Continue