Waste Connections, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Unaudited figures are in U.S. dollars. The company provides solid-waste collection, transfer, recycling and disposal services, along with non-hazardous oilfield waste and intermodal services in the U.S. and Canada.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $1.396 billion | $1.352 billion | +3.2% |
| Operating income | $238.4 million | $217.0 million | +9.9% |
| Operating margin | 17.1% | 16.0% | +1.1 percentage points |
| Net income attributable to Waste Connections | $160.3 million | $143.0 million | +12.1% |
| Diluted EPS | $0.61 | $0.54 | +13.0% |
| Adjusted EBITDA (non-GAAP) | $433.2 million | $408.5 million | +6.0% |
| Adjusted free cash flow (non-GAAP) | $289.8 million | $235.7 million | +22.9% |
Operating cash flow was $400.4 million, up from $369.6 million. Capital expenditures were $96.8 million; investing cash outflow was $100.6 million. Cash, cash equivalents and restricted cash totaled $849.2 million at quarter-end, including $743.5 million of unrestricted cash. Working capital surplus was $397.1 million.
Carrying debt, including current and long-term portions, was approximately $4.719 billion; cash-only net debt was approximately $3.976 billion. The revolving credit facility had $1.240 billion available, with $204.0 million drawn and $118.4 million of letters of credit outstanding. The $650 million term loan and revolver mature in March 2023. The company expects approximately $625 million of 2021 capital expenditures and says cash, operating funds and credit availability should cover foreseeable needs.
Changes and operating drivers
- Revenue growth reflected $52.2 million of net price increases, including $55.9 million of core pricing, and $43.7 million from acquisitions; volume declines in existing solid-waste operations reduced revenue by $40.5 million. Divestitures reduced revenue by $3.2 million.
- Solid-waste volumes were down 3.2%, reflecting the strong pre-pandemic Q1 2020 comparison, the extra leap-year business day in 2020 and severe February weather. Volumes rose 2.6% year over year in March 2021.
- E&P revenue fell $34.7 million, to $28.0 million, amid lower oilfield activity and demand. Recycling revenue rose to $32.4 million from $18.1 million, driven by higher commodity prices and residential volumes.
- Cost of operations fell to 59.2% of revenue from 60.3%, supporting margin expansion. SG&A remained 10.1% of revenue. Interest expense rose 11.7% to $42.4 million; the effective tax rate increased to 20.1% from 16.7%.
- Segment EBITDA rose in the Eastern, Western, Central and Canada segments; Southern segment EBITDA declined 12.1%, primarily due to E&P weakness. Canada benefited from currency translation and stronger renewable-energy-credit revenue.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is stated in the supplied filing text. Management expects 2021 capital expenditures of approximately $625 million. COVID-19-related employee support costs are expected to continue in 2021, but at a lower level than in 2020, when they exceeded $35 million.
- COVID-19 effects remain uncertain and vary by market and service line. The company cites vaccination progress, variants, containment measures and the pace of economic normalization as factors affecting future results.
- Oil and gas prices and activity remain material risks to E&P services and associated asset values. Other exposures include labor and operating costs, fuel and recycled-commodity prices, foreign exchange, interest rates, regulatory requirements, landfill permitting and capacity, and seasonality.
- Material legal and environmental contingencies include the Lower Duwamish Waterway Superfund matter, for which the company cannot determine its likely allocation or liability, and litigation over conditions and fees for the Chiquita Canyon landfill expansion. The related environmental-review appeal was resolved in the company’s favor; other landfill matters remained pending.
- The company redeemed $100 million of 4.64% notes on April 1, 2021 and stated it intended to redeem $150 million of 2.39% notes on June 1, 2021 using credit-facility borrowings. A $0.205-per-share quarterly dividend was approved after quarter-end for payment in May.
- Reported net income included $3.5 million of other income, compared with $9.5 million of other expense in Q1 2020, reflecting, among other items, investment and foreign-currency effects and acquisition-liability adjustments. Adjusted EBITDA and adjusted free cash flow are non-GAAP measures and are not directly comparable across companies.
Investor verification checklist
- Confirm that price increases, acquisition contributions and improving March volumes can offset ongoing COVID-related solid-waste volume pressure.
- Track E&P demand recovery and whether lower oilfield activity prompts further impairment or operating changes.
- Review delivery and funding of the approximately $625 million 2021 capital-expenditure plan, plus the company’s $1.240 billion reported revolver availability and March 2023 credit-facility maturity.
- Verify repayment or refinancing of the 2021 notes, and monitor interest-rate hedge exposure and the transition away from LIBOR.
- Follow developments in the Lower Duwamish and Chiquita Canyon matters, including potential costs, permit conditions and landfill expansion capacity.