01—Abstract
Summary
Summary of the 10-K filed February 14, 2019. Cited figures are marked; the original filing is the authoritative source.
Waste Connections, Inc. (NYSE and TSX: WCN) reported 2018 revenues of $4.923 billiona, up from $4.630 billion in 2017, with the filing attributing the growth to acquisitions, net of divestitures ($153.1 million incremental revenue), internal solid waste growth of 2.2%, and higher E&P waste revenue, which rose to $244.6 million from $192.0 million.
Net income attributable to Waste Connections decreased 5.2% to $546.9 millionb, primarily because 2017 included a large income tax benefit from the Tax Cuts and Jobs Act. Adjusted EBITDA increased 7.2% to $1.566 billion, and adjusted free cash flow rose to $879.9 million from $763.9 million, with adjusted free cash flow at 17.9% of revenues. The company made 20 acquisitions in 2018 for consideration with a net fair value of $1.032 billion, including the American Disposal Services business acquired in December 2018.
Capital expenditures were $546.1 millionc, and the company expects about $575 million in 2019. Leverage improved to 2.45x at year-end 2018 from 2.53x, and total indebtedness was approximately $4.175 billion.
The company returned $211.5 milliond to shareholders through dividends and buybacks, raised its quarterly dividend to $0.16 per share, and repurchased 831,704 shares for $58.9 million. Risks flagged in the filing include a $11.0 million accrual for a Florida default judgment, ongoing Los Angeles County landfill litigation at Chiquita Canyon, the Lower Duwamish Waterway Superfund allocation process, and exposure to recycled commodity prices, RIN values, and E&P activity tied to crude oil prices.
02—Key points
Key Highlights
- Revenue rose 6.3% to $4.923 billion in 2018, with acquisitions contributing $153.1 million of incremental revenue net of divestitures.
- Solid waste internal growth was 2.2%, driven by pricing growth of 4.5%, partly offset by a 0.7% volume decrease and a 1.6% decrease from lower recycled commodity values.
- Net income attributable to Waste Connections decreased 5.2% to $546.9 million, mainly because 2017 included a $269.8 million tax benefit from the Tax Act.
- Adjusted EBITDA increased 7.2% to $1.566 billion, and adjusted EBITDA margin was 31.8% of revenue versus 31.5% in 2017.
- Adjusted free cash flow increased to $879.9 million from $763.9 million; net cash from operating activities rose 18.9% to $1.411 billion.
- Made 20 acquisitions for $1.032 billion of net fair value, including American Disposal Services in December 2018.
- Leverage ratio decreased to 2.45x at December 31, 2018 from 2.53x, and the company returned $211.5 million to shareholders through dividends and repurchases.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Waste Connections kept $0.11.
- Revenue$4.92B100.0%
- Cost of revenue−$2.87B58.2%
- Gross profit$2.06B41.8%
- Operating costs−$1.22B24.9%
- Operating income$832.2M16.9%
- Interest, other & tax−$285.1M5.8%
- Net income$547.2M11.1%
Where FY2018 revenue went
$4.92B- Cost of revenue: $2.87B, 58% of revenue
- Other operating costs: $700.6M, 14% of revenue
- Net income: $547.2M, 11% of revenue
- SG&A: $524.4M, 11% of revenue
- Interest, other & tax: $285.1M, 5.8% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 14, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $4.92B$4.63B | +6.3% |
| Cost of Revenue | $2.87B$2.70B | +5.9% |
| Gross Profit | $2.06B$1.93B | +6.8% |
| SG&A Expenses | $524.39M$509.64M | +2.9% |
| Operating Income | $832.24M$627.10M | +32.7% |
| Interest Expense | $132.10M$125.30M | +5.4% |
| Net Income | $547.15M$576.82M | −5.1% |
| EPS (Basic) | $2.07$2.19 | −5.5% |
| EPS (Diluted) | $2.07$2.18 | −5.0% |
| Shares Outstanding (Basic) | 263.65M263.68M | 0.0% |
| Shares Outstanding (Diluted) | 264.40M264.30M | 0.0% |
05—Questions
Frequently Asked Questions
What drove revenue growth in 2018?
Revenue increased $292.4 million, or 6.3%, to $4.923 billion. The filing attributes this to acquisitions closed during or after 2017 (about $221.5 million of incremental revenue), price increases of $188.6 million, and E&P revenue growth, partially offset by lower volumes, divestitures of about $68.3 million, and lower recycled commodity revenue.
Why did net income decline in 2018 despite higher operating income?
Net income attributable to Waste Connections fell 5.2% to $546.9 million from $576.8 million. Operating income rose 32.7% to $832.2 million, but 2018 income tax expense was $160.0 million, compared with a $68.9 million benefit in 2017 that reflected the Tax Act's lower corporate rate and a $269.8 million discrete benefit.
How is the company funding its capital needs and shareholder returns?
The company had $319.3 million of cash at year-end 2018 and a working capital surplus of $232.2 million. It expects 2019 capital expenditures of about $575 million, to be funded mainly by cash on hand, internally generated funds and Credit Agreement borrowings. In 2018 it paid $152.6 million in dividends and repurchased 831,704 shares for $58.9 million, and it issued $500 million of 4.250% senior notes due 2028.
What are the main legal and environmental risks disclosed?
The company recorded an $11.0 million accrual for a Florida final judgment, which it is contesting before the Florida Supreme Court. It is also a party to the Los Angeles County Chiquita Canyon landfill expansion litigation, where it cannot determine the likelihood of outcomes, and to the Lower Duwamish Waterway Superfund allocation process, where the potential liability cannot be reasonably determined.
06—Continue