01—Abstract
Summary
Summary of the 10-K filed February 13, 2020. Cited figures are marked; the original filing is the authoritative source.
Waste Connections, Inc. is the third largest solid waste services company in North America, providing non-hazardous waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the U.S. and Canada, plus non-hazardous E&P waste treatment through its R360 Environmental Solutions subsidiary and intermodal services in the Pacific Northwest.
In 2019, revenues rose 9.5% to $5.389 billiona from $4.923 billion, with acquisitions closed during or after 2018 contributing $312.7 million of incremental revenue and net price increases of $237.0 million. Operating income increased 0.7% to $837.8 million, though operating margin fell to 15.5% from 16.9%, reflected in higher cost of operations (59.4% of revenues versus 58.2%) and $61.9 million of impairments and other operating items. Net income attributable to Waste Connections was $566.8 million, or $2.14 per diluted share, compared with $2.07 in 2018.
Adjusted EBITDA increased 6.8% to $1.674 billion, and adjusted free cash flow rose to $916.8 millionb. Cash generation supported investment and shareholder returns. Net cash from operating activities was $1.541 billion, while capital expenditures for property and equipment were $634.4 million and 21 acquisitions consumed $837.7 million of net fair value.
The company returned $175.1 millionc to shareholders through dividends, raised the quarterly dividend 15.6% to $0.185 per share, and repurchased no shares in 2019. Total indebtedness was approximately $4.376 billion at December 31, 2019, and the leverage ratio improved to 2.41x from 2.45x. The company issued $500.0 million of 3.50% Senior Notes due 2029 in April 2019 and, after year end, $600.0 million of 2.60% Senior Notes due 2030.
Investors should note several risk areas disclosed in the filing: E&P waste demand tied to crude oil prices, exposure to recycled commodity prices after China's import restrictions, renewable fuel (RIN) price volatility, and pending litigation including the Lower Duwamish Waterway Superfund allocation and Los Angeles County landfill expansion lawsuits. The company expects 2020 capital expenditures of $600 million to $625 milliond.
02—Key points
Key Highlights
- Revenues grew 9.5% to $5.389 billion in 2019, driven by $237.0 million of net price increases and $312.7 million of incremental revenue from acquisitions.
- Operating income rose 0.7% to $837.8 million, but operating margin declined to 15.5% from 16.9%, with cost of operations rising to 59.4% of revenues from 58.2%.
- Net income attributable to Waste Connections was $566.8 million, or $2.14 per diluted share, versus $2.07 in 2018; adjusted net income per diluted share was $2.72 versus $2.52.
- Adjusted EBITDA increased 6.8% to $1.674 billion; adjusted free cash flow increased to $916.8 million from $879.9 million.
- Net cash provided by operating activities was $1.541 billion, and the company completed 21 acquisitions for consideration with a net fair value of $837.7 million.
- Dividends totaled $175.1 million in 2019, with the quarterly dividend raised to $0.185 per share, and no shares were repurchased during the year.
- Leverage ratio improved to 2.41x from 2.45x; total indebtedness was approximately $4.376 billion at December 31, 2019, and 2020 capital expenditures are expected at $600 million to $625 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Waste Connections kept $0.11.
- Revenue$5.39B100.0%
- Cost of revenue−$3.20B59.4%
- Gross profit$2.19B40.6%
- Operating costs−$1.35B25.1%
- Operating income$837.8M15.5%
- Interest, other & tax−$271.1M5.0%
- Net income$566.7M10.5%
Where FY2019 revenue went
$5.39B- Cost of revenue: $3.20B, 59% of revenue
- Other operating costs: $805.9M, 15% of revenue
- Net income: $566.7M, 11% of revenue
- SG&A: $546.3M, 10% of revenue
- Interest, other & tax: $271.1M, 5.0% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 13, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $5.39B$4.92B | +9.5% |
| Cost of Revenue | $3.20B$2.87B | +11.6% |
| Gross Profit | $2.19B$2.06B | +6.4% |
| SG&A Expenses | $546.28M$524.39M | +4.2% |
| Operating Income | $837.78M$832.24M | +0.7% |
| Interest Expense | $147.37M$132.10M | +11.6% |
| Net Income | $566.68M$547.15M | +3.6% |
| EPS (Basic) | $2.15$2.07 | +3.9% |
| EPS (Diluted) | $2.14$2.07 | +3.4% |
| Shares Outstanding (Basic) | 263.79M263.65M | +0.1% |
| Shares Outstanding (Diluted) | 264.53M264.40M | 0.0% |
05—Questions
Frequently Asked Questions
What drove revenue growth in 2019?
Revenues increased $465.8 million, or 9.5%, to $5.389 billion. The filing attributes this to net price increases of $237.0 million and incremental revenue of approximately $312.7 million from acquisitions closed during or after 2018, partly offset by divestitures and lower recycled commodity values.
Why did operating margin decline in 2019?
Operating margin fell to 15.5% from 16.9%. The filing attributes the decline to a 1.2 percentage point increase in cost of operations, a 0.8 percentage point increase in impairments and other operating items, and a 0.1 percentage point increase in amortization, partly offset by lower SG&A and depreciation as a percentage of revenue.
How much debt does the company carry and how is it managed?
Total indebtedness was approximately $4.376 billion at December 31, 2019. The leverage ratio decreased to 2.41x from 2.45x, within the company's 2.5x to 3.0x target range. A large portion of the variable-rate debt is hedged with 16 interest rate swaps, and $450.0 million of senior notes were issued in 2019 and early 2020 combined with other financing.
What are the main risks highlighted for investors?
The filing highlights exposure to crude oil prices affecting E&P waste demand, recycled commodity price volatility after Chinese import restrictions, volatility in renewable identification number (RIN) prices, fuel cost fluctuations, and pending litigation such as the Lower Duwamish Waterway Superfund allocation process and Los Angeles County landfill expansion lawsuits.
06—Continue