01—Abstract
Summary
Summary of the 10-K filed February 15, 2018. Cited figures are marked; the original filing is the authoritative source.
Waste Connections, Inc. (Ontario corporation, NYSE and TSX: WCN) reported 2017 revenues of $4.630 billiona, up 37.2% from $3.376 billion in 2016, driven mainly by the full-year contribution of the Progressive Waste acquisition completed June 1, 2016 and about $1.003 billion of incremental revenue from acquisitions.
Net income attributable to Waste Connections rose to $576.8 millionb from $246.5 million, helped by a $269.8 million discrete tax benefit from the Tax Cuts and Jobs Act. Adjusted EBITDA increased 36.4% to $1.461 billion, with adjusted EBITDA margin at 31.5% of revenue, and net cash provided by operating activities rose to $1.187 billion. The company's results were also affected by a $156.5 million impairments and other operating items charge, including a $77.3 million goodwill impairment at its E&P segment, and E&P waste revenue recovered to $192.0 million from $120.2 million as crude oil prices rebounded.
Management is targeting a leverage ratio of approximately 2.75x to 3.0x total debt to EBITDA and reported a leverage ratio of 2.53x at year-end, with total indebtedness of about $3.926 billionc. Capital expenditures were $479.3 million, and management expects about $500 million in 2018 capital spending.
The company did not repurchase shares in 2017 and raised its quarterly dividend to $0.14d per share. The filing also flags risks including competitive bidding on about 400 contracts (about 2.5% of annual revenues) expiring by December 31, 2018, exposure to recycled commodity prices and RIN values, landfill permitting, and ongoing litigation involving the Chiquita Canyon landfill in Los Angeles County and the Lower Duwamish Waterway Superfund site.
02—Key points
Key Highlights
- Revenues rose 37.2% to $4.630 billion in 2017, with acquisitions contributing about $1.059 billion of incremental revenue and internal solid waste growth of 5.1%.
- Net income attributable to Waste Connections was $576.8 million, up from $246.5 million, including a $269.8 million net income tax benefit from the Tax Act.
- Adjusted EBITDA increased 36.4% to $1.461 billion, with adjusted EBITDA at 31.5% of revenue versus 31.7% in 2016.
- Operating cash flow increased 49.3% to $1.187 billion, and adjusted free cash flow increased to $763.9 million from $550.9 million.
- Impairments and other operating items totaled $156.5 million, including a $77.3 million goodwill impairment at the E&P segment.
- Leverage ratio decreased to 2.53x at December 31, 2017, from 2.69x, within the target range of approximately 2.75x to 3.0x total debt to EBITDA.
- Quarterly dividend increased 16.7% to $0.14 per share; no shares were repurchased in 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Waste Connections kept $0.12.
- Revenue$4.63B100.0%
- Cost of revenue−$2.70B58.4%
- Gross profit$1.93B41.6%
- Operating costs−$1.30B28.0%
- Operating income$627.1M13.5%
- Interest, other & tax−$50.3M1.1%
- Net income$576.8M12.5%
Where FY2017 revenue went
$4.63B- Cost of revenue: $2.70B, 58% of revenue
- Other operating costs: $789.0M, 17% of revenue
- Net income: $576.8M, 12% of revenue
- SG&A: $509.6M, 11% of revenue
- Interest, other & tax: $50.3M, 1.1% of revenue
Kept 12% as net incomeInterest, other & tax $50.3M · 1.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 15, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $4.63B$3.38B | +37.2% |
| Cost of Revenue | $2.70B$1.96B | +38.2% |
| Gross Profit | $1.93B$1.42B | +35.8% |
| SG&A Expenses | $509.64M$474.26M | +7.5% |
| Operating Income | $627.10M$452.30M | +38.6% |
| Interest Expense | $125.30M$92.71M | +35.2% |
| Net Income | $576.82M$246.54M | +134.0% |
| EPS (Basic) | $2.19$1.07 | +104.7% |
| EPS (Diluted) | $2.18$1.07 | +103.7% |
| Shares Outstanding (Basic) | 263.68M230.33M | +14.5% |
| Shares Outstanding (Diluted) | 264.30M231.08M | +14.4% |
05—Questions
Frequently Asked Questions
What drove the large increase in revenue and net income in 2017?
Revenue increased $1.255 billion, or 37.2%, mainly due to the full-year effect of the Progressive Waste acquisition completed June 1, 2016, which contributed $826.9 million of 2017 revenue, plus other acquisitions. Net income attributable to Waste Connections increased 134.0% to $576.8 million, primarily due to the full-year Progressive Waste contribution and a $269.8 million income tax benefit from the Tax Act.
How much debt does the company carry and how is leverage trending?
As of December 31, 2017, total indebtedness was approximately $3.926 billion. The leverage ratio, as defined in the Credit Agreement, decreased to 2.53x from 2.69x, and management targets approximately 2.75x to 3.0x total debt to EBITDA. The Credit Agreement matures in June 2021.
What are the main risks to future contract revenue?
The company has approximately 400 contracts, representing about 2.5% of annual revenues, set for expiration or automatic renewal on or before December 31, 2018, and some may be lost through competitive bidding. Municipal annexation in Washington and changes in exclusive arrangements could also reduce revenue.
How exposed is the company to E&P and commodity prices?
E&P waste revenue rose to $192.0 million from $120.2 million on higher drilling activity, but the E&P segment recorded a $77.3 million goodwill impairment and the filing warns that a renewed decline in oil and gas prices could lead to further impairments. Recycled commodity prices declined from September 2017, and management estimates 2018 recyclable commodity revenue could fall about 30% from 2017 if January 2018 prices persist.
What is the company's capital spending plan and capital return policy?
Capital expenditures were $479.3 million in 2017, and the company expects about $500 million in 2018 for its existing business, funded mainly by cash on hand, internally generated funds and Credit Agreement borrowings. Cash dividends paid were $132.0 million in 2017, and no shares were repurchased under the normal course issuer bid.
06—Continue