Waste Connections, Inc. annual report, FY2023

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Waste Connections, Inc. — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023; filed February 14, 2024. The filing is an annual report, not a standalone fourth-quarter report. Waste Connections provides non-hazardous waste collection, transfer, disposal and resource recovery across the U.S. and Canada, plus E&P waste and Pacific Northwest intermodal services.

Financial performance and liquidity

  • Revenue: $8.022 billion, up 11.2% from $7.212 billion. Solid-waste internal growth was 6.2%, driven by 9.0% pricing growth; volumes fell 2.0%. Acquisitions contributed materially to growth.
  • Profit: Net income attributable to Waste Connections was $762.8 million, down 8.7% from $835.7 million; diluted EPS was $2.95 versus $3.24. Adjusted net income, a non-GAAP measure, rose 9.7% to $1.081 billion, or $4.19 per diluted share.
  • Operating results and margins: Operating income was $1.236 billion, down 0.5%; operating margin fell to 15.4% from 17.2%. Adjusted EBITDA increased 13.6% to $2.523 billion, with margin rising to 31.5% from 30.8%. The adjusted figures exclude specified items and are not GAAP measures.
  • Cash flow and investment: Operating cash flow was $2.127 billion, up 5.2%. Capital expenditures were $934 million. Adjusted free cash flow increased to $1.224 billion from $1.165 billion, but fell to 15.3% of revenue from 16.2%.
  • Debt and liquidity: Total debt was $6.812 billion, versus $6.963 billion a year earlier. Leverage ratio declined to 2.60x from 2.93x; management targets approximately 2.5x–3.0x. Cash was $78.4 million, with $1.357 billion of remaining capacity under the credit agreement. Working capital was negative $546.1 million. The company reported compliance with debt covenants.
  • Returns to shareholders: Cash dividends paid were $270.6 million, and the quarterly dividend increased to $0.285 per share in October 2023. No shares were repurchased under the normal course issuer bid during 2023.

Changes versus 2022

  • Revenue growth reflected pricing and acquisitions, while collection and post-collection volumes declined; management cited intentional non-renewal of certain lower-quality residential contracts.
  • Lower diesel and natural gas prices and price-led growth supported operating cost leverage. Higher labor, risk-management, maintenance and insurance costs partly offset those benefits.
  • Impairments and other operating items rose to $238.8 million from $18.2 million, including a $159.5 million increase to a landfill closure and post-closure liability and charges related to contingent consideration, asset values, contracts, litigation and facility damage.
  • Interest expense rose 35.7% to $274.6 million, reflecting higher average borrowings, debt issuance and higher rates. Cash interest paid increased to $260.9 million from $177.4 million.
  • Recycling revenue declined to $147.0 million from $204.9 million, primarily due to lower commodity prices. E&P revenue increased to $232.2 million from $210.6 million.

Outlook, commentary and key risks

  • 2024 investment: Management expects approximately $1.15 billion in property and equipment capital expenditures, including about $150 million for renewable natural gas facilities, funded principally by operating cash, cash on hand and credit-agreement borrowings. The filing provides no specific 2024 revenue or earnings guidance.
  • Landfill incident and contingencies: Chiquita Canyon experienced an elevated-temperature landfill event, increasing leachate, operating and closure-related costs. The company reported approximately 122 odor-related notices of violation and said potential penalties are uncertain but likely substantial. A modified regulatory abatement order was in place.
  • Other litigation: Jefferson Parish landfill odor litigation includes a putative class action and mass actions; the court found general causation, while damages and allocation of liability remain unresolved. The company said it could not determine the likely outcome. A Los Angeles County landfill-permit modification and related litigation also remain subject to approvals and contingencies; estimated new CUP costs exceed $300 million.
  • Principal operating and financial risks: Environmental regulation and permitting, landfill capacity and closure obligations, fuel and interest-rate exposure, labor availability and negotiations, acquisition execution, recycling commodity prices, E&P activity, weather, inflation, and cybersecurity. Canadian-dollar translation also affects reported results.
  • Capital and environmental obligations: Surety bonds totaled approximately $1.645 billion for closure and retirement assurances and contract performance. The company disclosed $2.329 billion of estimated final capping, closure and post-closure payments in its contractual-obligations table; timing and estimates depend on landfill operations, regulation and assumptions.
  • Audit and controls: The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Landfill accounting and acquired intangible-asset valuations were identified as critical audit matters.

Investor verification priorities

  1. Review the $159.5 million landfill liability adjustment, the Chiquita Canyon event’s continuing costs, regulatory requirements and possible penalties.
  2. Track operating cash flow, capital spending, adjusted free cash flow and the substantial 2024 capex plan, including RNG project timing and returns.
  3. Assess debt maturities, variable-rate exposure, interest costs, available credit and leverage against management’s target.
  4. Follow developments and potential financial exposure in the Jefferson Parish and Los Angeles County matters.
  5. Test whether pricing can continue to offset cost inflation while volumes, surcharges, recycled commodity prices and E&P demand fluctuate; compare reported GAAP results with management’s non-GAAP adjustments.