Waste Connections, Inc.: Waste Connections Reports Fourth Quarter 2022 Results And Provides 2023 Outlook

Fourth Quarter Highlights

• Price-led organic growth and acquisition activity drive Q4 results above expectations and provide higher entry point into 2023
• Revenue of $1.869 billion, net income^(a) of $194.4 million, and adjusted EBITDA^(b) of $563.6 million, or 30.2% of revenue, above expectations
• Net income and adjusted net income^(b) of $0.75 and $0.89 per share, respectively

Full Year 2022 Highlights

• Revenue of $7.212 billion, up 17.2%
• Net income of $835.7 million, or $3.24 per share, and adjusted net income^(b) of $985.3 million, or $3.82 per share, up 18.3%
• Adjusted EBITDA^(b) of $2.221 billion, up 15.7%, and 30.8% of revenue, up 10 basis points year over year, excluding acquisitions
• Net cash provided by operating activities of $2.022 billion, up 19.1%, and adjusted free cash flow^(b) of $1.165 billion, up 15.4%
• Completes acquisitions with approximately $640 million of total annualized revenue in 2022

Expectations for 2023

• Strong pricing and acquisition growth to drive both double-digit percentage increase in revenue, and adjusted EBITDA* margin expansion
• Revenue of approximately $8.05 billion, up 11.6%
• Net income of approximately $961 million and adjusted EBITDA^(b) of approximately $2.50 billion, or about 31.1% of revenue
• Additional acquisitions, increases in recycled commodities and renewable fuels values, or reduction of inflationary pressures to provide upside to 2023 outlook

TORONTO, Feb. 15, 2023 /PRNewswire/ -- Waste Connections, Inc. (TSX/NYSE: WCN) ("Waste Connections" or the "Company") today announced its results for the fourth quarter of 2022 and outlook for 2023.

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

392,868

$

638,728

Book overdraft

16,721

15,645

Deferred revenue

273,720

325,002

Accrued liabilities

442,596

431,247

Current portion of operating lease liabilities

38,017

35,170

Current portion of contingent consideration

62,804

60,092

Current portion of long-term debt and notes payable

6,020

6,759

Total current liabilities

1,232,746

1,512,643

Long-term portion of debt and notes payable

5,040,500

6,890,149

Long-term portion of operating lease liabilities

129,628

165,462

Long-term portion of contingent consideration

31,504

21,323

Deferred income taxes

850,921

1,013,742

Other long-term liabilities

421,080

417,640

Total liabilities

7,706,379

10,020,959

Commitments and contingencies

Equity:

Common shares: 260,283,158 shares issued and 260,212,496 shares outstanding at
December 31, 2021; 257,211,175 shares issued and 257,145,716 shares outstanding at
December 31, 2022

3,693,027

3,271,958

Additional paid-in capital

199,482

244,076

Accumulated other comprehensive income (loss)

39,584

(56,830)

Treasury shares: 70,662 and 65,459 shares at December 31, 2021 and 2022, respectively

-

-

Retained earnings

3,056,845

3,649,494

Total Waste Connections' equity

6,988,938

7,108,698

Noncontrolling interest in subsidiaries

4,607

4,946

Total equity

6,993,545

7,113,644

Total liabilities and equity

$

14,699,924

$

17,134,603

WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS TWELVE MONTHS ENDED DECEMBER 31, 2021 AND 2022 (Unaudited) (in thousands of U.S. dollars)
		Twelve months ended December 31,
		2021			2022
Cash flows from operating activities:
Net income		$	618,489		$	836,001
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on disposal of assets and impairments			27,727			9,519
Depreciation			673,730			763,285
Amortization of intangibles			139,279			155,675
Loss on early extinguishment of debt			115,288			-
Deferred income taxes, net of acquisitions			14,563			93,481
Current period provision for expected credit losses			9,719			17,353
Amortization of debt issuance costs			5,055			5,454
Share-based compensation			58,221			63,485
Interest accretion			15,970			17,668
Payment of contingent consideration recorded in earnings			(520)			(2,982)
Adjustments to contingent consideration			2,954			(1,030)
Other			(1,260)			(8,217)
Net change in operating assets and liabilities, net of acquisitions			19,014			72,800
Net cash provided by operating activities			1,698,229			2,022,492
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired			(960,449)			(2,206,901)
Capital expenditures for property and equipment			(744,315)			(912,677)
Investment in noncontrolling interests			(25,000)			-
Proceeds from disposal of assets			42,768			30,676
Other			(6,486)			1,731
Net cash used in investing activities			(1,693,482)			(3,087,171)
Cash flows from financing activities:
Proceeds from long-term debt			2,112,193			4,816,146
Principal payments on notes payable and long-term debt			(1,893,100)			(3,073,985)
Premiums paid on early extinguishment of debt			(110,617)			-
Payment of contingent consideration recorded at acquisition date			(12,934)			(16,911)
Change in book overdraft			(367)			(1,076)
Payments for repurchase of common shares			(338,993)			(424,999)
Payments for cash dividends			(220,203)			(243,013)
Tax withholdings related to net share settlements of equity-based compensation			(18,606)			(18,358)
Debt issuance costs			(18,521)			(13,271)
Proceeds from issuance of shares under employee share purchase plan			1,222			3,270
Proceeds from sale of common shares held in trust			430			660
Net cash provided by (used in) financing activities			(499,496)			1,028,463
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(25)			(2,035)
Net decrease in cash, cash equivalents and restricted cash			(494,774)			(38,251)
Cash, cash equivalents and restricted cash at beginning of year			714,389			219,615
Cash, cash equivalents and restricted cash at end of year		$	219,615		$	181,364

ADDITIONAL STATISTICS
(in thousands of U.S. dollars, except where noted)

Solid Waste Internal Growth:The following table reflects a breakdown of the components of our solid waste internal growth for the three and twelve month periods ended December 31, 2022 :

		Three months ended December 31, 2022			Twelve months ended December 31, 2022
Core Price			9.0 %			7.7 %
Surcharges			1.6 %			1.5 %
Volume			(2.5 %)			(1.1 %)
Recycling			(2.9 %)			(0.7 %)
Foreign Exchange Impact			(0.9 %)			(0.5 %)
Total			4.3 %			6.9 %

Revenue Breakdown: The following table reflects a breakdown of our revenue for the three month periods ended December 31, 2021 and 2022:

		Three months ended December 31, 2021
		Revenue			Inter-company Elimination			Reported Revenue			%
Solid Waste Collection		$	1,169,428		$	(2,780)		$	1,166,648		71.8	%
Solid Waste Disposal and Transfer			533,122			(216,957)			316,165		19.5	%
Solid Waste Recycling			75,317			(5,646)			69,671		4.3	%
E&P Waste Treatment, Recovery and Disposal			37,570			(3,244)			34,326		2.1	%
Intermodal and Other			39,592			(2,083)			37,509		2.3	%
Total		$	1,855,029		$	(230,710)		$	1,624,319		100.0	%

		Three months ended December 31, 2022
		Revenue			Inter-company Elimination			Reported Revenue			%
Solid Waste Collection		$	1,385,682		$	(6,093)		$	1,379,589		73.8	%
Solid Waste Disposal and Transfer			619,176			(254,381)			364,795		19.5	%
Solid Waste Recycling			26,031			(496)			25,535		1.4	%
E&P Waste Treatment, Recovery and Disposal			55,857			(3,296)			52,561		2.8	%
Intermodal and Other			48,865			(2,043)			46,822		2.5	%
Total		$	2,135,611		$	(266,309)		$	1,869,302		100.0	%

Contribution from Acquisitions: The following table reflects revenues from acquisitions, net of divestitures, for the three and twelve month periods ended December 31, 2021 and 2022:

		Three months ended December 31,								Twelve months ended December 31,
		2021			2022				2021				2022
Acquisitions, net		$	79,363		$	149,994			$		215,398		$	552,001

ADDITIONAL STATISTICS (continued)
(in thousands of U.S. dollars, except where noted)

Other Cash Flow Items: The following table reflects cash interest and cash taxes for the three and twelve month periods ended December 31, 2021 and 2022:

		Three months ended December 31,						Twelve months ended December 31,
		2021			2022			2021			2022
Cash Interest Paid		$	36,839		$	58,883		$	157,485		$	177,424
Cash Taxes Paid			56,094			46,556			146,198			100,156

Debt to Book Capitalization as of December 31, 2022:49%

Internalization for the three months ended December 31, 2022 : 54%

Days Sales Outstanding for the three months ended December 31, 2022 : 41 (25 net of deferred revenue)

Share Information for the three months ended December 31, 2022 :

Basic shares outstanding		257,219,843
Dilutive effect of equity-based awards		754,906
Diluted shares outstanding		257,974,749

NON-GAAP RECONCILIATION SCHEDULE
(in thousands of U.S. dollars, except where noted)

Reconciliation of Adjusted EBITDA:

Adjusted EBITDA, a non-GAAP financial measure, is provided supplementally because it is widely used by investors as a performance and valuation measure in the solid waste industry. Management uses adjusted EBITDA as one of the principal measures to evaluate and monitor the ongoing financial performance of Waste Connections' operations. Waste Connections defines adjusted EBITDA as net income attributable to Waste Connections, plus or minus net income (loss) attributable to noncontrolling interests, plus income tax provision, plus interest expense, less interest income, plus depreciation and amortization expense, plus closure and post-closure accretion expense, plus or minus any loss or gain on impairments and other operating items, plus other expense, less other income, plus loss on early extinguishment of debt. Waste Connections further adjusts this calculation to exclude the effects of other items management believes impact the ability to assess the operating performance of its business. This measure is not a substitute for, and should be used in conjunction with, GAAP financial measures. Other companies may calculate adjusted EBITDA differently.

		Three months ended December 31,						Twelve months ended December 31,
		2021			2022			2021			2022
Net income attributable to Waste Connections		$	166,310		$	194,352		$	618,047		$	835,662
Plus/(Less): Net income (loss) attributable to noncontrolling interests			117			(51)			442			339
Plus: Income tax provision			45,675			57,063			152,253			212,962
Plus: Interest expense			38,625			64,766			162,796			202,331
Less: Interest income			(573)			(3,376)			(2,916)			(5,950)
Plus: Depreciation and amortization			214,184			242,830			813,009			918,960
Plus: Closure and post-closure accretion			3,579			4,105			14,497			16,253
Plus/(Less): Impairments and other operating items			22,497			(1,237)			32,316			18,230
Less: Other income, net			(833)			(781)			(6,285)			(3,154)
Plus: Loss on early extinguishment of debt			-			-			115,288			-
Adjustments:
Plus: Transaction-related expenses(a)			5,098			6,239			11,318			24,933
Plus/(Less): Fair value changes to equity awards(b)			755			(263)			8,393			86
Adjusted EBITDA		$	495,434		$	563,647		$	1,919,158		$	2,220,652
As % of revenues			30.5 %			30.2 %			31.2 %			30.8 %

____________________________
(a)	Reflects the addback of acquisition-related transaction costs.
(b)	Reflects fair value accounting changes associated with certain equity awards.

NON-GAAP RECONCILIATION SCHEDULE (continued)
(in thousands of U.S. dollars, except where noted)

Reconciliation of Adjusted Free Cash Flow:

Adjusted free cash flow, a non-GAAP financial measure, is provided supplementally because it is widely used by investors as a valuation and liquidity measure in the solid waste industry. Management uses adjusted free cash flow as one of the principal measures to evaluate and monitor the ongoing financial performance of Waste Connections' operations. Waste Connections defines adjusted free cash flow as net cash provided by operating activities, plus or minus change in book overdraft, plus proceeds from disposal of assets, less capital expenditures for property and equipment and distributions to noncontrolling interests. Waste Connections further adjusts this calculation to exclude the effects of items management believes impact the ability to assess the operating performance of its business. This measure is not a substitute for, and should be used in conjunction with, GAAP liquidity or financial measures. Other companies may calculate adjusted free cash flow differently.

				Twelve months ended December 31,
				2021					2022
Net cash provided by operating activities				$	1,698,229				$	2,022,492
Less: Change in book overdraft					(367)					(1,076)
Plus: Proceeds from disposal of assets					42,768					30,676
Less: Capital expenditures for property and equipment					(744,315)					(912,677)
Adjustments:
Payment of contingent consideration recorded in earnings(a)					520					2,982
Cash received for divestitures(b)					(17,118)					(5,671)
Transaction-related expenses(c)					30,771					30,825
Pre-existing Progressive Waste share-based grants(d)					397					286
Tax effect(e)					(1,287)					(2,993)
Adjusted free cash flow				$	1,009,598				$	1,164,844
As % of revenues					16.4 %					16.2 %

___________________________
(a)	Reflects the addback of acquisition-related payments for contingent consideration that were recorded as expenses in earnings and as a component of cash flows from operating activities as the amounts paid exceeded the fair value of the contingent consideration recorded at the acquisition date.
(b)	Reflects the elimination of cash received in conjunction with the divestiture of certain operations.
(c)	Reflects the addback of acquisition-related transaction costs and the settlement of an acquired tax liability.
(d)	Reflects the cash settlement of pre-existing Progressive Waste share-based awards during the period.
(e)	The aggregate tax effect of footnotes (a) through (d) is calculated based on the applied tax rates for the respective periods.

NON-GAAP RECONCILIATION SCHEDULE (continued)
(in thousands of U.S. dollars, except per share amounts)

Reconciliation of Adjusted Net Income attributable to Waste Connections and Adjusted Net Income per Diluted Share attributable to Waste Connections:

Adjusted net income attributable to Waste Connections and adjusted net income per diluted share attributable to Waste Connections, both non-GAAP financial measures, are provided supplementally because they are widely used by investors as a valuation measure in the solid waste industry. Management uses adjusted net income attributable to Waste Connections and adjusted net income per diluted share attributable to Waste Connections as one of the principal measures to evaluate and monitor the ongoing financial performance of Waste Connections' operations. Waste Connections provides adjusted net income attributable to Waste Connections to exclude the effects of items management believes impact the comparability of operating results between periods. Adjusted net income attributable to Waste Connections has limitations due to the fact that it excludes items that have an impact on the Company's financial condition and results of operations. Adjusted net income attributable to Waste Connections and adjusted net income per diluted share attributable to Waste Connections are not a substitute for, and should be used in conjunction with, GAAP financial measures. Other companies may calculate these non-GAAP financial measures differently.

		Three months ended December 31,						Twelve months ended December 31,
		2021			2022			2021			2022
Reported net income attributable to Waste Connections		$	166,310		$	194,352		$	618,047		$	835,662
Adjustments:
Amortization of intangibles(a)			39,042			41,719			139,279			155,675
Impairments and other operating items(b)			22,497			(1,237)			32,316			18,230
Transaction-related expenses(c)			5,098			6,239			11,318			24,933
Fair value changes to equity awards(d)			755			(263)			8,393			86
Loss on early extinguishment of debt(e)			-			-			115,288			-
Tax effect(f)			(16,574)			(11,053)			(78,041)			(49,312)
Adjusted net income attributable to Waste Connections		$	217,128		$	229,757		$	846,600		$	985,274
Diluted earnings per common share attributable to Waste Connections' common shareholders:
Reported net income		$	0.64		$	0.75		$	2.36		$	3.24
Adjusted net income		$	0.83		$	0.89		$	3.23		$	3.82

____________________________
(a)	Reflects the elimination of the non-cash amortization of acquisition-related intangible assets.
(b)	Reflects adjustments for impairments and other operating items.
(c)	Reflects the addback of acquisition-related transaction costs.
(d)	Reflects fair value accounting changes associated with certain equity awards.
(e)	Reflects the make-whole premium and related fees associated with the early termination of $1.5 billion in senior notes.
(f)	The aggregate tax effect of the adjustments in footnotes (a) through (e) is calculated based on the applied tax rates for the respective periods.

2023 OUTLOOK
NON-GAAP RECONCILIATION SCHEDULE
(in thousands of U.S. dollars, except where noted)

Reconciliation of Adjusted EBITDA:

			2023 Outlook
			Estimates		Observation
Net income attributable to Waste Connections		$	961,000
Plus: Net income attributable to noncontrolling interests			1,000
Plus: Income tax provision			271,000		Approximate 22.0% effective rate
Plus: Interest expense, net			255,000
Plus: Depreciation and Depletion			842,000		Approximately 10.5% of revenue
Plus: Amortization			153,000
Plus: Closure and post-closure accretion			17,000
Adjusted EBITDA		$	2,500,000		Approximately 31.1% of revenue

Reconciliation of Adjusted Free Cash Flow:

		2023 Outlook Estimates
Net cash provided by operating activities		$	2,120,000
Less: Capital expenditures, net(a)			(895,000)
Adjusted free cash flow		$	1,225,000

____________________________

(a) Reflects proceeds from disposal of assets estimated at $30 million; capital expenditures of $925 million includes $50 million in delayed fleet deliveries
from the prior year.

SOURCE Waste Connections, Inc.