FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with our Condensed
Consolidated Financial Statements and the related notes included in Part I,
Item 1 of this Quarterly Report on Form 10-Q.
We make statements in this Quarterly Report on Form 10-Q that are
forward-looking in nature. These include:
Statements regarding our landfills, including capacity, duration, special
? projects, demand for and pricing of recyclables, landfill alternatives and
related capital expenditures;
? Discussion of competition, loss of contracts, price increases and additional
exclusive and/or long-term collection service arrangements;
Forecasts of cash flows necessary for operations and free cash flow to reduce
? leverage as well as our ability to draw on our credit facility and access the
capital markets to refinance or expand;
? Statements regarding our ability to access capital resources or credit markets
at all or on favorable terms;
? Plans for, and the amounts of, certain capital expenditures for our existing
and newly acquired properties and equipment;
? Statements regarding fuel, oil and natural gas demand, prices, and price
volatility;
? Assessments of regulatory developments and potential changes in environmental,
health, safety and tax laws and regulations; and
Other statements on a variety of topics such as the coronavirus disease 2019
("COVID-19") pandemic, credit risk of customers, seasonality, labor/pension
? costs and labor union activity, operational and safety risks, acquisitions,
litigation results, goodwill impairments, insurance costs and cybersecurity
threats.
These statements can be ?identified by the use of forward-looking terminology
such as "believes," "expects," "intends," "may," "might," "will," ??"could,"
"should" or "anticipates," or the negative thereof or comparable terminology, or
by discussions of strategy.
Our ?business and operations are subject to a variety of risks and uncertainties
and, consequently, actual results may differ ?materially from those projected by
any forward-looking statements. Factors that could cause actual results to
differ ?from those projected include, but are not limited to, risk factors
detailed from time to time in our filings with the SEC and the securities
commissions or similar regulatory authorities in Canada.
There may be additional risks of which we are not presently aware or that we
currently believe are immaterial that ?could have an adverse impact on our
business. We make no commitment to revise or update any forward-looking
?statements to reflect events or circumstances that may change, unless required
under applicable securities laws.
OVERVIEW OF OUR BUSINESS
We are an integrated solid waste services company that provides non-hazardous
waste collection, transfer and disposal services, along with resource recovery
primarily through recycling and renewable fuels generation, in mostly exclusive
and secondary markets across 43 states in the U.S. and six provinces in Canada.
Waste Connections also provides non-hazardous oil and natural gas exploration
and production ("E&P") waste treatment, recovery and disposal services in
several basins across the U.S., as well as intermodal services for the movement
of cargo and solid waste containers in the Pacific Northwest.
30
Table of Contents
Environmental, organizational and financial sustainability initiatives have been
key components of our success since we were founded in 1997. We remain
committed to growing and expanding these efforts as our industry and technology
continue to evolve. To that end, in 2020 we made a $500 million commitment to
the advancement of the long-term, aspirational targets outlined in our 2021
Sustainability Report. This report can be found at
www.wasteconnections.com/sustainability but does not constitute a part of, and
is not incorporated by reference into, this Quarterly Report on Form 10-Q.
We generally seek to avoid highly competitive, large urban markets and instead
target markets where we can attain high market share either through exclusive
contracts, vertical integration or asset positioning. In markets where waste
collection services are provided under exclusive arrangements, or where waste
disposal is municipally owned or funded or available at multiple municipal
sources, we believe that controlling the waste stream by providing collection
services under exclusive arrangements is often more important to our growth and
profitability than owning or operating landfills. We also target niche markets,
like non-hazardous E&P waste treatment, recovery and disposal services.
The solid waste industry is local and highly competitive in nature, requiring
substantial labor and capital resources. We compete for collection accounts
primarily on the basis of price and, to a lesser extent, the quality of service,
and compete for landfill business on the basis of tipping fees, geographic
location and quality of operations. The solid waste industry has been
consolidating and continues to consolidate as a result of a number of factors,
including the increasing costs and complexity associated with waste management
operations and regulatory compliance. Many small independent operators and
municipalities lack the capital resources, management, operating skills and
technical expertise necessary to operate effectively in such an environment. The
consolidation trend has caused solid waste companies to operate larger landfills
that have complementary collection routes that can use company-owned disposal
capacity. Controlling the point of transfer from haulers to landfills has become
increasingly important as landfills continue to close and disposal capacity
moves farther from the collection markets it serves.
Generally, the most profitable operators within the solid waste industry are
those companies that are vertically integrated or enter into long-term
collection contracts. A vertically integrated operator will benefit from:
(1) the internalization of waste, which is bringing waste to a company-owned
landfill; (2) the ability to charge third-party haulers tipping fees either at
landfills or at transfer stations; and (3) the efficiencies gained by being able
to aggregate and process waste at a transfer station prior to landfilling.
The demand for our E&P waste services depends on the continued demand for, and
production of, oil and natural gas. Crude oil and natural gas prices
historically have been volatile. Macroeconomic and geopolitical conditions,
including a significant decline in oil prices driven by both surplus production
and supply, as well as the decrease in demand caused by factors including the
COVID-19 pandemic, have resulted in decreased levels of E&P activity and a
corresponding decrease in demand for our E&P waste services. Additionally,
across the industry there is uncertainty regarding future demand for oil and
related services, as noted by several energy companies, many of whom are
customers of our E&P operations. These companies have written down the values
of their oil and gas assets in anticipation of the potential for the
decarbonization of their energy product mix given an increased global focus on
reducing greenhouse gases and addressing climate change. Such uncertainty
regarding global demand has had a significant impact on the investment and
operating plans of our E&P waste customers in the basins where we operate.
If
the prices of crude oil and natural gas substantially decline, it could lead to
declines in the level of production activity and demand for our E&P waste
services, which could result in the recognition of impairment charges on our
intangible assets and property and equipment associated with our E&P operations.
Conversely, sustained increases in prices of crude oil as a result of
inflationary pressures, the uncertainty associated with the Ukrainian conflict
and any related bans on oil sales from Russia or supply chain disruptions could
result in increasing levels of production activity and demand for our E&P waste
services.
THE COVID-19 PANDEMIC'S IMPACT ON OUR RESULTS OF OPERATIONS
March 11, 2022 marked the two-year anniversary of COVID-19 being declared a
global pandemic by the World Health Organization. The related economic
disruptions largely associated with closures or restrictions put into effect
following the onset of the COVID-19 pandemic in the first quarter of 2020
resulted in declines in solid waste commercial collection, transfer station and
landfill volumes, and roll off activity. Throughout the remaining fiscal year
2020 and during 2021, solid waste revenue and reported volumes largely reflected
the pace and shape of the closures and subsequent
31
Table of Contents
reopening activity, with the timing and magnitude of recovery varying by market.
Most of the impacts to solid waste volumes associated with the pandemic have
largely abated, with landfill volumes and roll off pulls returning to
pre-pandemic levels. In certain markets, commercial collection volumes have not
returned to pre-pandemic levels.
The COVID-19 pandemic also contributed to a decline in demand for and the value
of crude oil, which impacted E&P drilling activity and resulted in lower E&P
waste revenue. In recent quarters, E&P waste revenue has improved sequentially
on increased drilling activity in several of the major basins.
Since the onset of the COVID-19 pandemic, protecting the health, welfare and
safety of our employees has been our top priority. Recognizing the potential for
financial hardship and other challenges, we have looked to provide a safety net
for our employees on issues of income and family health. To that end, since the
onset of the pandemic through year-end 2021, we have incurred over $40 million
in incremental COVID-19-related costs, primarily supplemental pay for frontline
employees. During Q1 2022, we continued to support our employees and their
families, including approximately $10 million in supplemental pay and benefits
due to surges in cases related to certain variants of COVID-19.
As a result of the COVID-19 pandemic and subsequent reopening activity, we have
also experienced an impact to our operating costs as a result of factors
including supply chain disruptions and labor constraints, as demand has
recovered and competition has increased. As a result, we have incurred
incremental costs associated with higher wages, increased overtime as a result
of higher turnover, and increased reliance on third-party services.
The impact of the COVID-19 pandemic on our business, results of operations,
financial condition and cash flows in future periods will depend largely on
future developments, including the duration and spread of the outbreak in the
U.S. and Canada, the rate of vaccinations, the severity of COVID-19 variants,
the actions to contain such coronavirus variants, and how quickly and to what
extent normal economic and operating conditions can resume.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles, or GAAP, requires estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses and
related disclosures of contingent assets and liabilities in the condensed
consolidated financial statements. As described by the SEC, critical accounting
estimates and assumptions are those that may be material due to the levels of
subjectivity and judgment necessary to account for highly uncertain matters or
the susceptibility of such matters to change, and that have a material impact on
the financial condition or operating performance of a company. Such critical
accounting estimates and assumptions are applicable to our reportable segments.
Refer to our most recent Annual Report on Form 10-K for a complete description
of our critical accounting estimates and assumptions.
NEW ACCOUNTING PRONOUNCEMENTS
For a description of the new accounting standards that affect us, see Note 3 to
our Condensed Consolidated Financial Statements included in Part I, Item 1 of
this Quarterly Report on Form 10-Q.
32
Table of Contents
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
The following table sets forth items in our Condensed Consolidated Statements of
Net Income in thousands of U.S. dollars and as a percentage of revenues for
the
periods indicated.
Three Months Ended March 31,
2022 2021
Revenues $ 1,646,255 100.0 % $ 1,395,942 100.0 %
Cost of operations 989,518 60.1 825,920 59.2
Selling, general and administrative 163,414 9.9
141,422 10.1
Depreciation 179,950 11.0 157,402 11.3
Amortization of intangibles 37,635 2.3 32,192 2.3
Impairments and other operating items 1,878 0.1
634 0.0
Operating income 273,860 16.6 238,372 17.1
Interest expense (41,324) (2.5) (42,425) (3.0)
Interest income 137 0.0 1,103 0.1
Other income (expense), net (3,466) (0.2) 3,548 0.2
Income tax provision (48,839) (2.9) (40,291) (2.9)
Net income 180,368 11.0 160,307 11.5
Net loss (income) attributable to
noncontrolling interests (44) 0.0
2 0.0
Net income attributable to Waste Connections $ 180,324 11.0 % $ 160,309 11.5 %
Revenues. Total revenues increased $250.3 million, or 17.9%, to $1.646 billion
for the three months ended March 31, 2022, from $1.396 billion for the three
months ended March 31, 2021.
During the three months ended March 31, 2022, incremental revenue from
acquisitions closed during, or subsequent to, the three months ended March 31,
2021, increased revenues by $112.3 million.
Operations that were divested subsequent to March 31, 2021 decreased revenues by
$2.3 million for the three months ended March 31, 2022.
During the three months ended March 31, 2022, the net increase in prices charged
to our customers at our existing operations was $94.0 million, consisting of
$83.5 million of core price increases and surcharges of $10.5 million.
During the three months ended March 31, 2022, we overcame the nonrenewal of two
large residential collection contracts subsequent to March 31, 2021, which
recognized $10.7 million of revenue in the prior year period, to generate total
solid waste volume in our existing business of $7.0 million due primarily to
increased commercial and roll off collection and increased landfill disposal.
E&P waste revenues at facilities owned during the three months ended March 31,
2022 and 2021 increased $16.6 million due to recoveries in the demand for crude
oil resulting in an increase in the value of crude oil, increases in drilling
and production activity levels and increases in overall demand for our E&P waste
services.
Revenues from sales of recyclable commodities at facilities owned during the
three months ended March 31, 2022 and 2021 increased $15.0 million due primarily
to higher prices for old corrugated cardboard, aluminum, plastics and other
paper products, higher volumes collected from commercial recycling customers,
which declined in the prior year period due to economic disruptions resulting
from the COVID-19 pandemic, and the impact of changes in our accounting policy
associated with recognizing certain recyclable commodity sales gross of selling
and processing expenses.
Other revenues increased $7.7 million during the three months ended March 31,
2022, due primarily to a $2.8 million increase resulting from higher prices for
renewable energy credits associated with the generation of landfill gas at our
Canada segment, a $2.7 million increase in intermodal revenues due primarily to
reductions in shipping port logistical constraints which decreased intermodal
cargo volumes in the prior year period, a $1.1 million increase in landfill gas
sales at our U.S. segments and a $1.1 million increase in other non-core revenue
sources.
33
Table of Contents
Cost of Operations. Total cost of operations increased $163.6 million, or
19.8%, to $989.5 million for the three months ended March 31, 2022, from $825.9
million for the three months ended March 31, 2021. The increase was primarily
the result of an increase in operating costs at our existing operations of $91.3
million and $74.2 million of additional operating costs from acquisitions closed
during, or subsequent to, the three months ended March 31, 2021, partially
offset by a decrease in operating costs of $1.9 million at operations divested
subsequent to the three months ended March 31, 2021.
The increase in operating costs of $91.3 million at our existing operations for
the three months ended March 31, 2022 consisted of an increase in labor and
recurring incentive compensation expenses of $20.4 million due primarily to
employee pay increases and headcount additions to support solid waste and E&P
volume increases, an increase in fuel expense of $16.2 million due to higher
diesel and natural gas prices, an increase in truck, container, equipment and
facility maintenance and repair expenses of $11.9 million due primarily to
increased collection routes and equipment operating hours and parts and service
rate increases, an increase in third-party trucking and transportation expenses
of $10.2 million due primarily to increased landfill special waste volumes
requiring trucking and transportation services to our landfills and higher rates
charged by third-party providers, an increase in third-party disposal expenses
of $6.7 million due primarily to increased solid waste collection volumes, an
increase in supplemental compensation to non-management personnel of $9.0
million to provide financial assistance associated with the impact of COVID-19,
an increase in taxes on revenues of $4.3 million due primarily to increased
revenues, an increase in expenses for purchasing and processing recyclable
commodities of $3.5 million due to higher recyclable commodity values and
changes in our accounting policy associated with recognizing certain recyclable
commodity sales gross of selling and processing expenses, an increase in
leachate expense of $2.2 million due primarily to higher precipitation in
certain markets where our landfills are located, an increase in expenses for
auto and workers' compensation claims of $1.9 million due primarily to
adjustments recorded in the prior year period to decrease projected losses on
outstanding claims originally recorded prior to 2021, an increase in insurance
premium expenses of $1.4 million due primarily to increased insurance premium
costs for auto and environmental compliance, an increase in subcontracted
hauling services at our solid waste operations of $1.2 million due to higher
costs charged by third-party providers, an increase in intermodal rail expenses
of $1.2 million due to higher cargo volumes and $4.3 million of other net
expense increases, partially offset by a decrease in employee medical benefits
expenses of $3.1 million due to decreased severity and declines in the quantity
of medical visits.
Cost of operations as a percentage of revenues increased 0.9 percentage points
to 60.1% for the three months ended March 31, 2022, from 59.2% for the three
months ended March 31, 2021. The increase as a percentage of revenues consisted
of a 0.7 percentage point increase from higher fuel expense, a 0.6 percentage
point increase from higher supplemental compensation to non-management
personnel, a 0.3 percentage point increase from higher third-party trucking and
transportation expenses, a 0.3 percentage point increase from acquisitions
closed during, or subsequent to, the three months ended March 31, 2021 having
operating margins lower than our company average and a 0.2 percentage point
increase from higher maintenance and repair expenses, partially offset by a 0.4
percentage point decrease from lower benefits expenses, a combined 0.6
percentage point decrease from disposal and labor due to price-driven revenue
increases and a 0.2 percentage point decrease from all other net changes.
SG&A. SG&A expenses increased $22.0 million, or 15.6%, to $163.4 million for
the three months ended March 31, 2022, from $141.4 million for the three months
ended March 31, 2021. The increase was comprised of an increase of $13.7 million
in SG&A expenses at our existing operations and $8.5 million of additional SG&A
expenses from operating locations at acquisitions closed during, or subsequent
to, the three months ended March 31, 2021, partially offset by a decrease in
SG&A expenses of $0.2 million at operations divested during, or subsequent to,
the three months ended March 31, 2021.
The increase in SG&A expenses at our existing operations of $13.7 million for
the three months ended March 31, 2022 was comprised of a collective increase in
travel, meeting, training and community activity expenses of $5.5 million due to
increased travel and social gatherings in the current year period due to a
reduction in restrictions associated with the COVID-19 pandemic, an increase in
direct acquisition expenses of $4.0 million due to an increase in acquisition
activity in the current period, an increase in administrative payroll expenses
of $3.5 million due primarily to annual pay and headcount increases, an increase
in equity-based compensation expenses of $2.2 million associated with our annual
recurring grant of restricted share units to our personnel, an increase in
professional fees of $1.6 million due primarily to increased legal services, an
increase of $0.8 million resulting from the payment of supplemental bonuses
to
non-
34
Table of Contents
management employees to provide financial assistance associated with the impact
of COVID-19 and $1.0 million of other net expense increases, partially offset by
a decrease in deferred compensation expenses of $3.1 million as a result of
decreases in the market value of investments to which employee deferred
compensation liability balances are tracked and a decrease in accrued recurring
cash incentive compensation expense to our management of $1.8 million.
SG&A expenses as a percentage of revenues decreased 0.2 percentage points to
9.9% for the three months ended March 31, 2022, from 10.1% for the three months
ended March 31, 2021. The decrease as a percentage of revenues consisted of a
0.3 percentage point decrease from lower cash incentive compensation expense and
a 0.2 percentage point decrease from lower deferred compensation expense,
partially offset by a 0.3 percentage point increase from higher direct
acquisition expenses.
Depreciation. Depreciation expense increased $22.5 million, or 14.3%, to $179.9
million for the three months ended March 31, 2022, from $157.4 million for the
three months ended March 31, 2021. The increase was comprised of an increase in
depreciation and depletion expense of $10.8 million from acquisitions closed
during, or subsequent to, the three months ended March 31, 2021, an increase in
depreciation expense of $6.2 million from the impact of additions to our fleet
and equipment purchased to support our existing operations, an increase in
depletion expense of $6.2 million resulting from increased landfill municipal
solid waste, special waste and E&P volumes, partially offset by a decrease in
depreciation and depletion expense of $0.7 million from operations divested
subsequent to the three months ended March 31, 2021.
Depreciation expense as a percentage of revenues decreased 0.3 percentage points
to 11.0% for the three months ended March 31, 2022, from 11.3% for the three
months ended March 31, 2021. The decrease as a percentage of revenues was
primarily attributable to the impact of price-driven revenue increases in our
solid waste services, recyclable commodity sales and renewable energy credits.
Amortization of Intangibles. Amortization of intangibles expense increased $5.4
million, or 16.9%, to $37.6 million for the three months ended March 31, 2022,
from $32.2 million for the three months ended March 31, 2021. The increase was
the result of $9.0 million from intangible assets acquired in acquisitions
closed during, or subsequent to, the three months ended March 31, 2021,
partially offset by a decrease of $3.6 million from certain intangible assets
becoming fully amortized subsequent to March 31, 2021.
Amortization expense as a percentage of revenues was unchanged at 2.3% for the
three months ended March 31, 2022 and 2021.
Impairments and Other Operating Items. Impairments and other operating items
increased $1.3 million, to net losses totaling $1.9 million for the three months
ended March 31, 2022, from net losses totaling $0.6 million for the three months
ended March 31, 2021.
The net losses of $1.9 million recorded during the three months ended March 31,
2022 consisted of $3.6 million of charges to terminate or write off the carrying
cost of certain contracts that were not, or are not expected to be, renewed
prior to their original estimated termination date, partially offset by net
gains of $1.7 million from disposal of property and equipment.
The net losses of $0.6 million recorded during the three months ended March 31,
2021 consisted of $0.5 million of charges to terminate or write off the carrying
cost of certain contracts that were not, or are not expected to be, renewed
prior to their original estimated termination date and $0.1 million of other net
charges.
Operating Income. Operating income increased $35.5 million, or 14.9%, to $273.9
million for the three months ended March 31, 2022, from $238.4 million for the
three months ended March 31, 2021.
The increase in our operating income for the three months ended March 31, 2022
was due primarily to price increases for our solid waste services, increases in
solid waste collection and disposal volumes, operating income contributions from
increased sales of recyclable commodities and renewable energy credits
associated with the generation of landfill gas,
35
Table of Contents
operating income generated from acquisitions closed during, or subsequent to,
the three months ended March 31, 2021 and an increase in earnings at our E&P
waste operations.
Operating income as a percentage of revenues decreased 0.5 percentage points to
16.6% for the three months ended March 31, 2022, from 17.1% for the three months
ended March 31, 2021. The decrease in operating income as a percentage of
revenues was comprised of a 0.9 percentage point increase in cost of operations
and a 0.1 percentage point increase in impairments and other operating items,
partially offset by a 0.3 percentage point decrease in depreciation expense and
a 0.2 percentage point decrease in SG&A expense.
Interest Expense. Interest expense decreased $1.1 million, or 2.6%, to $41.3
million for the three months ended March 31, 2022, from $42.4 million for the
three months ended March 31, 2021. The decrease was primarily attributable to a
decrease of $13.7 million from the repayment of $1.75 billion of senior
unsecured notes in 2021, a decrease of $0.8 million from lower interest rates on
borrowings outstanding under our Credit Agreement and $0.7 million of other net
decreases, partially offset by an increase of $10.9 million from the issuance of
$2.0 billion of senior unsecured notes subsequent to March 31, 2021 and an
increase of $3.2 million due to an increase in the average borrowings
outstanding under our Credit Agreement.
Interest Income. Interest income decreased $1.0 million to $0.1 million for the
three months ended March 31, 2022, from $1.1 million for the three months ended
March 31, 2021. The decrease was primarily attributable to lower average cash
balances in the current period.
Other Income (Expense), Net. Other income (expense), net decreased $7.0
million, to an expense total of $3.5 million for the three months ended March
31, 2022, from an income total of $3.5 million for the three months ended March
31, 2021.
Other expense of $3.5 million recorded during the three months ended March 31,
2022 consisted of $1.9 million from a decline in the value of investments
purchased to fund our employee deferred compensation obligations, a $1.0 million
adjustment to increase certain acquisition-related accrued liabilities recorded
in prior periods and $0.6 million of other net expenses.
Other income of $3.5 million recorded during the three months ended March 31,
2021 consisted of $1.2 million of income earned on investments purchased to fund
our employee deferred compensation obligations, $1.2 million of adjustments to
decrease certain accrued liabilities acquired in prior period acquisitions and
$1.1 million in other net income sources.
Income Tax Provision. Income taxes increased $8.5 million, to $48.8 million for
the three months ended March 31, 2022, from $40.3 million for the three months
ended March 31, 2021. Our effective tax rate for the three months ended March
31, 2022 was 21.3%. Our effective tax rate for the three months ended March 31,
2021 was 20.1%.
The income tax provision for the three months ended March 31, 2022 included a
benefit of $2.4 million from share-based payment awards being recognized in the
income statement when settled, as well as a portion of our internal financing
being taxed at effective rates substantially lower than the U.S. federal
statutory rate.
The income tax provision for the three months ended March 31, 2021 included a
benefit of $2.0 million from share-based payment awards being recognized in the
income statement when settled, as well as a portion of our internal financing
being taxed at effective rates substantially lower than the U.S. federal
statutory rate.
36
Table of Contents
SEGMENT RESULTS
General
No single contract or customer accounted for more than 10% of our total revenues
at the consolidated or reportable segment level during the periods presented.
The following table disaggregates our revenue by service line for the periods
indicated (dollars in thousands of U.S. dollars).
Three Months Ended March 31,
2022 2021
Commercial $ 499,676 $ 426,395
Residential 440,288 400,819
Industrial and construction roll off 259,488 209,258
Total collection 1,199,452 1,036,472
Landfill 299,765 271,936
Transfer 217,957 189,323
Recycling 63,094 32,448
E&P 43,555 28,012
Intermodal and other 45,693 35,634
Intercompany (223,261) (197,883)
Total $ 1,646,255 $ 1,395,942
We manage our operations through the following five geographic solid waste
operating segments: Eastern, Southern, Western, Central and Canada. Our five
geographic solid waste operating segments comprise our reportable segments.
Our
Chief Operating Decision Maker evaluates operating segment profitability and
determines resource allocations based on several factors, of which the primary
financial measure is segment EBITDA. We define segment EBITDA as earnings before
interest, taxes, depreciation, amortization, impairments and other operating
items and other income (expense). Segment EBITDA is not a measure of operating
income, operating performance or liquidity under GAAP and may not be comparable
to similarly titled measures reported by other companies. Our management uses
segment EBITDA in the evaluation of segment operating performance as it is a
profit measure that is generally within the control of the operating segments.
Each operating segment is responsible for managing several vertically
integrated operations, which are comprised of districts.
Summarized financial information for our reportable segments are shown in the
following tables in thousands of U.S. dollars and as a percentage of total
segment revenue for the periods indicated.
Three Months Ended EBITDA Depreciation and
March 31, 2022 Revenue EBITDA(b) Margin Amortization
Eastern $ 421,597 $ 107,788 25.6 % $ 65,284
Southern 387,064 108,610 28.1 % 47,572
Western 346,710 104,747 30.2 % 36,563
Central 276,177 92,036 33.3 % 35,026
Canada 214,707 84,844 39.5 % 27,364
Corporate(a) - (4,702) - 5,776
$ 1,646,255 $ 493,323 30.0 % $ 217,585
37
Table of Contents
Three Months Ended EBITDA Depreciation and
March 31, 2021 Revenue EBITDA(b) Margin Amortization
Eastern $ 336,461 $ 89,121 26.5 % $ 53,474
Southern 338,161 93,424 27.6 % 45,485
Western 297,004 93,825 31.6 % 30,089
Central 235,386 79,040 33.6 % 31,575
Canada 188,930 73,940 39.1 % 26,492
Corporate(a) - (750) - 2,479
$ 1,395,942 $ 428,600 30.7 % $ 189,594
The majority of Corporate expenses are allocated to the five operating
segments. Direct acquisition expenses, expenses associated with common
shares held in the deferred compensation plan exchanged for other investment
(a) options and share-based compensation expenses associated with Progressive
Waste share-based grants outstanding at June 1, 2016 that were continued by
the Company are not allocated to the five operating segments and comprise the
net EBITDA for our Corporate segment for the periods presented.
For those items included in the determination of segment EBITDA, the
(b) accounting policies of the segments are the same as those described in our
most recent Annual Report on Form 10-K.
A reconciliation of segment EBITDA to Income before income tax provision is
included in Note 10 to our Condensed Consolidated Financial Statements included
in Part 1, Item 1 of this report.
Significant changes in revenue, EBITDA and depreciation, depletion and
amortization for our reportable segments for the three month periods ended March
31, 2022, compared to the three month periods ended March 31, 2021, are
discussed below.
Eastern
Revenue increased $85.1 million to $421.6 million for the three months ended
March 31, 2022, from $336.5 million for the three months ended March 31, 2021,
due to price increases, solid waste collection and disposal volume increases,
contributions from acquisitions, higher prices for recyclable commodities and
higher volumes collected from commercial recycling customers.
EBITDA increased $18.7 million to $107.8 million for the three months ended
March 31, 2022, from $89.1 million for the three months ended March 31, 2021.
EBITDA margin was 25.6% and 26.5% for the three months ended March 31, 2022 and
2021, respectively. The decrease in our EBITDA margin was due primarily to
increased diesel fuel expenses, increased third-party trucking and
transportation expenses, increased repair and maintenance expenses, increased
leachate disposal expenses and increased corporate overhead expense allocations,
partially offset by decreases from disposal due to price-driven revenue
increases and decreased medical benefits expenses.
Depreciation, depletion and amortization expense increased $11.8 million, to
$65.3 million for the three months ended March 31, 2022, from $53.5 million for
the three months ended March 31, 2021, due to assets acquired in acquisitions,
higher depreciation from additions to our fleet and equipment and higher
depletion from increased landfill volumes.
Southern
Revenue increased $48.9 million to $387.1 million for the three months ended
March 31, 2022, from $338.2 million for the three months ended March 31, 2021,
due to solid waste price increases, increased E&P waste revenues attributable to
increases in drilling and production activity levels resulting in increases in
the demand for our E&P waste services, contributions from acquisitions and
increased roll off collection and landfill volumes, partially offset by lower
residential collection volumes due to the loss of a collection contract
subsequent to March 31, 2021 and a decrease resulting from the divestiture of
certain non-strategic operating locations.
EBITDA increased $15.2 million to $108.6 million for the three months ended
March 31, 2022, from $93.4 million for the three months ended March 31, 2021.
EBITDA margin was 28.1% and 27.6% for the three months ended March
38
Table of Contents
31, 2022 and 2021, respectively. The increase in our EBITDA margin was due to
increased earnings at our E&P operations, price-led increases in solid waste
revenue at locations owned in the comparable periods and decreased medical
benefits expenses, partially offset by increased diesel and natural gas fuel
expenses, increased vehicle and equipment maintenance and repair expenses and
the impact of acquisitions closed subsequent to March 31, 2021 having lower
EBITDA margins than our segment average.
Depreciation, depletion and amortization expense increased $2.1 million, to
$47.6 million for the three months ended March 31, 2022, from $45.5 million for
the three months ended March 31, 2021, due to assets acquired in acquisitions
and higher depletion from increased solid waste and E&P landfill volumes.
Western
Revenue increased $49.7 million to $346.7 million for the three months ended
March 31, 2022, from $297.0 million for the three months ended March 31, 2021,
due to contributions from acquisitions, price increases, increased collection
and disposal volumes, higher prices for recyclable commodities and higher
volumes collected from residential recycling customers and increased intermodal
revenue.
EBITDA increased $10.9 million to $104.7 million for the three months ended
March 31, 2022, from $93.8 million for the three months ended March 31, 2021.
EBITDA margin was 30.2% and 31.6% for the three months ended March 31, 2022 and
2021, respectively. The decrease in our EBITDA margin was due to increased
vehicle and equipment maintenance and repair expenses, increased diesel and
natural gas fuel expenses, increased third-party trucking and transportation
expenses and increased labor expenses attributable to pay rate increases,
partially offset by decreases from disposal due to price-driven revenue
increases and decreased medical benefits expenses.
Depreciation, depletion and amortization expense increased $6.5 million, to
$36.6 million for the three months ended March 31, 2022, from $30.1 million for
the three months ended March 31, 2021, due to assets acquired in acquisitions
and higher depreciation from additions to our fleet and equipment.
Central
Revenue increased $40.8 million to $276.2 million for the three months ended
March 31, 2022, from $235.4 million for the three months ended March 31, 2021,
due to price increases, contributions from acquisitions and higher prices for
recyclable commodities.
EBITDA increased $13.0 million to $92.0 million for the three months ended March
31, 2022, from $79.0 million for the three months ended March 31, 2021. EBITDA
margin was 33.3% and 33.6% for the three months ended March 31, 2022 and 2021,
respectively. The decrease in our EBITDA margin was due to increased vehicle and
equipment maintenance and repair expenses, increased diesel and natural gas fuel
expenses and increased labor expenses attributable to pay rate increases,
partially offset by decreased medical benefits expenses and decreased
third-party trucking and transportation expenses.
Depreciation, depletion and amortization expense increased $3.4 million, to
$35.0 million for the three months ended March 31, 2022, from $31.6 million for
the three months ended March 31, 2021, due to assets acquired in acquisitions
and higher depreciation from additions to our fleet and equipment.
Canada
Revenue increased $25.8 million to $214.7 million for the three months ended
March 31, 2022, from $188.9 million for the three months ended March 31, 2021,
due to price increases, contributions from acquisitions, higher commercial and
roll off collection volumes, higher landfill special waste volumes, higher
prices for renewable energy credits associated with the generation of landfill
gas, higher prices for recyclable commodities and higher volumes collected from
commercial recycling customers, partially offset by lower residential collection
volumes due to the loss of a collection contract subsequent to March 31, 2021.
39
Table of Contents
EBITDA increased $10.9 million to $84.8 million for the three months ended March
31, 2022, from $73.9 million for the three months ended March 31, 2021. EBITDA
margin was 39.5% and 39.1% for the three months ended March 31, 2022 and 2021,
respectively. The increase in our EBITDA margin was due to price-led increases
in revenue at locations owned in the comparable periods, partially offset by
increased diesel fuel expenses and increased cost of recyclable commodities
expenses.
Depreciation, depletion and amortization expense increased $0.9 million, to
$27.4 million for the three months ended March 31, 2022, from $26.5 million for
the three months ended March 31, 2021, due to assets acquired in acquisitions
and higher depletion from increased landfill volumes.
Corporate
EBITDA decreased $4.0 million, to a loss of $4.7 million for the three months
ended March 31, 2022, from a loss of $0.7 million for the three months ended
March 31, 2021. The decrease was due to increased equity-based compensation
expenses, increased travel, meeting, training and community activity expenses,
increased direct acquisition expenses, increased legal expenses and the payment
of supplemental bonuses to non-management employees to provide financial
assistance associated with the impact of COVID-19, partially offset by increased
allocations of corporate overhead expenses to our segments, decreased deferred
compensation expenses and decreased cash incentive compensation expense to our
management.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain cash flow information for the three
months ended March 31, 2022 and 2021 (in thousands of U.S. dollars):
Three Months Ended
March 31,
2022 2021
Net cash provided by operating activities $ 440,897 $ 400,396
Net cash used in investing activities (489,881)
(100,553)
Net cash provided by (used in) financing activities 292,058
(165,482)
Effect of exchange rate changes on cash, cash equivalents
and restricted cash
595
403
Net increase in cash, cash equivalents and restricted cash 243,669
134,764
Cash, cash equivalents and restricted cash at beginning of
period 219,615
714,389
Cash, cash equivalents and restricted cash at end of
period $ 463,284
$ 849,153
Operating Activities Cash Flows
For the three months ended March 31, 2022, net cash provided by operating
activities was $440.9 million. For the three months ended March 31, 2021, net
cash provided by operating activities was $400.4 million. The $40.5 million
increase was due primarily to the following:
Increase in earnings - Our increase in net cash provided by operating
activities was favorably impacted by $54.4 million from an increase in net
income, excluding depreciation, amortization of intangibles, share-based
compensation, adjustments to and payments of contingent consideration recorded
1) in earnings and loss on disposal of assets and impairments, due primarily to
price increases, earnings from acquisitions closed during, or subsequent to,
the three months ended March 31, 2021, earnings generated from the increased
sales of recyclable commodities and renewal energy credits associated with the
generation of landfill gas and an increase in earnings at our E&P waste
operations.
40
Table of Contents
Deferred income taxes - Our increase in net cash provided by operating
activities was favorably impacted by $30.0 million from deferred income taxes
as changes in deferred income taxes resulted in an increase to operating cash
2) flows of $38.4 million for the three months ended March 31, 2022, compared to
an increase to operating cash flows of $8.4 million for the three months ended
March 31, 2021. The increase in deferred taxes for each of the three months
ended March 31, 2022 and 2021 was attributable to capital expenditures
providing tax benefits resulting from accelerated tax depreciation.
Accounts payable and accrued liabilities - Our increase in net cash provided
by operating activities was favorably impacted by $20.8 million from accounts
payable and accrued liabilities as changes in accounts payable and accrued
liabilities resulted in an increase to operating cash flows of $3.6 million
for the three months ended March 31, 2022, compared to a decrease to operating
cash flows of $17.2 million for the three months ended March 31, 2021. The
3) increase for the three months ended March 31, 2022 was due primarily to
increases in operating expenses during the period which remained as
outstanding obligations at March 31, 2022, partially offset by the payment of
annual cash incentive compensation to our management, which was accrued as a
liability at year end. The decrease for the three months ended March 31, 2021
was due primarily to the payment of annual cash incentive compensation to our
management, which was accrued as a liability at year end.
Deferred revenue - Our increase in net cash provided by operating activities
was favorably impacted by $7.7 million from deferred revenue as changes in
deferred revenue resulted in an increase to operating cash flows of $16.6
4) million for the three months ended March 31, 2022, compared to an increase to
operating cash flows of $8.9 million for the three months ended March 31,
2021. For both comparative periods, deferred revenue increased due to price
increases on our advanced billed residential and commercial collection
services.
Accounts receivable - Our increase in net cash provided by operating
activities was unfavorably impacted by $33.2 million from accounts receivable
as changes in accounts receivable resulted in a decrease to operating cash
flows of $11.2 million for the three months ended March 31, 2022, compared to
5) an increase to operating cash flows of $22.0 million for the three months
ended March 31, 2021. The decrease for the three months ended March 31, 2022
was due to increases in revenues, which remained as outstanding receivables at
March 31, 2022. The increase for the three months ended March 31, 2021 was
attributable to improved accounts receivable turnover resulting in lower
uncollected receivable compared to the prior period end.
Prepaid expenses - Our increase in net cash provided by operating activities
was unfavorably impacted by $29.8 million from prepaid expenses as changes in
prepaid expenses resulted in a decrease to operating cash flows of $21.2
million for the three months ended March 31, 2022, compared to an increase to
6) operating cash flows of $8.6 million for the three months ended March 31,
2021. The decrease for the three months ended March 31, 2022 was due primarily
to inflation-led increases in inventory, prepaid income taxes for our Canadian
operations and prepaid information technology application licenses. The
increase for the three months ended March 31, 2021 was due primarily to the
benefit of utilizing prior period prepaid vendor payments.
Other long-term liabilities - Our increase in net cash provided by operating
activities was unfavorably impacted by $11.6 million from other long-term
liabilities as changes in other long-term liabilities resulted in a decrease
to operating cash flows of $5.5 million for the three months ended March 31,
2022, compared to an increase to operating cash flows of $6.1 million for the
7) three months ended March 31, 2021. The decrease for the three months ended
March 31, 2022 was due primarily to distributions to employees from our
deferred compensation plan. The increase for the three months ended March 31,
2021 was primarily attributable to the receipt of funds associated with the
eminent domain purchase of an operating facility that will be replaced with a
newly constructed facility in a future period.
As of March 31, 2022, we had a working capital surplus of $155.1 million,
including cash and equivalents of $391.4 million. Our working capital increased
$355.1 million from a working capital deficit of $200.0 million at December 31,
2021 including cash and equivalents of $147.4 million, due primarily to an
increase in cash balance and current income tax benefits. To date, we have
experienced no loss or lack of access to our cash and equivalents; however, we
can provide no assurances that access to our cash and equivalents will not be
impacted by adverse conditions in the financial markets. Our strategy in
managing our working capital is generally to apply the cash generated from our
operations that remains after satisfying our working capital and capital
expenditure requirements, along with share repurchase and dividend programs, to
reduce the unhedged portion of our indebtedness under our Credit Agreement and
to minimize our cash balances.
41
Table of Contents
Investing Activities Cash Flows
Net cash used in investing activities increased $389.3 million to $489.9 million
for the three months ended March 31, 2022, from $100.6 million for the three
months ended March 31, 2021. The significant components of the increase included
the following:
1) An increase in cash paid for acquisitions of $346.7 million;
An increase in capital expenditures at operations owned in the comparable
2) periods of $42.1 million due to increases in land and buildings, landfill site
costs, trucks and containers; and
An increase in capital expenditures at operations acquired during the
3) comparative periods of $13.4 million due to additional trucks and containers;
less
An increase in proceeds from disposal of assets of $12.9 million due to
4) additional disposal of non-strategic assets to provide funding toward new
capital expenditures.
Financing Activities Cash Flows
Net cash provided by financing activities increased $457.6 million to $292.1
million for the three months ended March 31, 2022, from net cash used in
financing activities of $165.5 million for the three months ended March 31,
2021. The significant components of the increase included the following:
An increase from the net change in long-term borrowings of $805.6 million
1) (long-term borrowings increased $800.2 million during the three months ended
March 31, 2022 and decreased $5.4 million during the three months ended March
31, 2021); and
An increase from the change in book overdraft of $16.9 million due primarily
2) to maintaining, in the prior year period, additional funds in our bank
accounts that were used to fund outstanding checks; less
3) A decrease from higher payments to repurchase our common shares of $359.0
million due to an increased volume of shares repurchased; less
A decrease from higher cash dividends paid of $5.5 million due primarily to an
4) increase in our quarterly dividend rate for the three months ended March 31,
2022 to $0.23 per share, from $0.205 per share for the three months ended
March 31, 2021; less
5) A decrease from higher debt issuance costs of $4.4 million attributable to
senior note offerings completed in the comparative periods.
Our business is capital intensive. Our capital requirements include acquisitions
and capital expenditures for landfill cell construction, landfill development,
landfill closure activities and intermodal facility construction in the future.
On July 27, 2021, our Board of Directors approved, subject to receipt of
regulatory approvals, the annual renewal of our normal course issuer bid, or the
NCIB, to purchase up to 13,025,895 of our common shares during the period of
August 10, 2021 to August 9, 2022 or until such earlier time as the NCIB is
completed or terminated at our option. Shareholders may obtain a copy of our TSX
Form 12 - Notice of Intention to Make a Normal Course Issuer Bid, without
charge, by request directed to our Executive Vice President and Chief Financial
Officer at (832) 442-2200. The timing and amounts of any repurchases pursuant
to the NCIB will depend on many factors, including our capital structure, the
market price of our common shares and overall market conditions. All common
shares purchased under the NCIB will be immediately cancelled following their
repurchase. Information regarding our NCIB can be found under the "Normal
Course Issuer Bid" section in Note 16 to the Condensed Consolidated Financial
Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and
is incorporated herein by reference.
Our Board of Directors authorized the initiation of a quarterly cash dividend in
October 2010 and has increased it on an annual basis. In October 2021, our Board
of Directors authorized an increase to our regular quarterly cash dividend of
$0.025, from $0.205 to $0.230 per share. Cash dividends of $59.4 million and
$53.9 million were paid during the three months ended March 31, 2022 and 2021,
respectively. We cannot assure you as to the amounts or timing of future
dividends.
42
Table of Contents
We made $152.3 million in capital expenditures for property and equipment during
the three months ended March 31, 2022, and we expect to make total capital
expenditures for property and equipment of approximately $850 million in 2022.
We have funded and intend to fund the balance of our planned 2022 capital
expenditures principally through cash on hand, internally generated funds and
borrowings under our Credit Agreement. In addition, we may make substantial
additional capital expenditures in acquiring land and solid waste businesses. If
we acquire additional landfill disposal facilities, we may also have to make
significant expenditures to bring them into compliance with applicable
regulatory requirements, obtain permits or expand our available disposal
capacity. We cannot currently determine the amount of these expenditures because
they will depend on the number, nature, condition and permitted status of any
acquired landfill disposal facilities. We believe that our cash and equivalents,
Credit Agreement and the funds we expect to generate from operations will
provide adequate cash to fund our working capital and other cash needs for the
foreseeable future. However, disruptions in the capital and credit markets could
adversely affect our ability to draw on our Credit Agreement or raise other
capital. Our access to funds under the Credit Agreement is dependent on the
ability of the banks that are parties to the agreement to meet their funding
commitments. Those banks may not be able to meet their funding commitments if
they experience shortages of capital and liquidity or if they experience
excessive volumes of borrowing requests within a short period of time.
As of March 31, 2022, $650.0 million under the term loan and $1.087 billion
under the revolving credit facility were outstanding under the Credit Agreement,
exclusive of outstanding standby letters of credit of $44.7 million. We also had
$81.6 million of letters of credit issued and outstanding at March 31, 2022
under a facility other than the Credit Agreement. Our Credit Agreement matures
in July 2026.
On March 9, 2022, we completed an underwritten public offering (the "Offering")
of $500.0 million aggregate principal amount of 3.20% Senior Notes due 2032 (the
"New 2032 Senior Notes"). We issued the New 2032 Senior Notes under the
Indenture, dated as of November 16, 2018, by and between the Company and U.S.
Bank Trust Company, National Association, as successor in interest to U.S. Bank
National Association, as trustee, as supplemented by the Sixth Supplemental
Indenture, dated as of March 9, 2022.
We will pay interest on the New 2032 Senior Notes semi-annually in arrears. The
New 2032 Senior Notes will mature on June 1, 2032. The New 2032 Senior Notes are
our senior unsecured obligations, ranking equally in right of payment with our
other existing and future unsubordinated debt and senior to any of our future
subordinated debt. The New 2032 Senior Notes are not guaranteed by any of our
subsidiaries.
See Note 9 to our Condensed Consolidated Financial Statements included in Part
I, Item 1 of this report for further details on the debt agreements.
We are a well-known seasoned issuer with an effective shelf registration
statement on Form S-3 filed in September 2021, which registers an unspecified
amount of debt securities, including debentures, notes or other types of debt.
In the future, we may issue debt securities under our shelf registration
statement or in private placements from time to time on an opportunistic basis,
based on market conditions and available pricing. Unless otherwise indicated in
the relevant offering documents, we expect to use the proceeds from any such
offerings for general corporate purposes, including repaying, redeeming or
repurchasing debt, acquiring additional assets or businesses, capital
expenditures and increasing our working capital.
43
Table of Contents
As of March 31, 2022, we had the following contractual obligations:
Payments
Due by Period
(amounts in
thousands of U.S. dollars)
Less Than 1 to 3 Over 5
Recorded Obligations Total 1 Year Years 3 to 5 Years Years
Long-term debt $ 5,904,926 $ 28,070 $ 12,639 $ 1,748,327 $ 4,115,890
Cash interest payments $ 2,091,742 $ 168,089 $ 342,605 $ 300,200 $ 1,280,848
Contingent consideration $ 114,244 $ 64,480 $ 12,962 $ 3,224 $ 33,578
Operating leases $ 197,049 $ 30,396 $
63,344 $ 36,185 $ 67,124
Final capping, closure and post-closure $ 1,655,241 $ 18,468 $ 38,670 $ 14,643 $ 1,583,460
____________________
Long-term debt payments include:
$1.087 billion in principal payments due July 2026 related to our revolving
credit facility under our Credit Agreement. We may elect to draw amounts on
our Credit Agreement in U.S. dollar LIBOR rate loans, U.S. dollar base rate
loans, Canadian-based bankers' acceptances or BA equivalent notes, and
Canadian dollar prime rate loans. At March 31, 2022, $824.5 million of the
outstanding borrowings drawn under the revolving credit facility were in U.S.
LIBOR rate loans, which bear interest at the LIBOR rate plus the applicable
1) margin (for a total rate of 1.46% on such date). At March 31, 2022, $100.0
million of the outstanding borrowings drawn under the revolving credit
facility were in U.S. base rate loans, which bear interest at the base rate
plus the applicable margin (for a total rate of 3.50% on such date). At March
31, 2022, $162.1 million of the outstanding borrowings drawn under the
revolving credit facility were in Canadian-based bankers' acceptances, which
bear interest at the Canadian Dollar Offered Rate plus the applicable
acceptance fee (for a total rate of 1.96% on such date).
$650.0 million in principal payments due July 2026 related to our term loan
under our Credit Agreement. Outstanding amounts on the term loan can be either
2) base rate loans or LIBOR loans. At March 31, 2022, all amounts outstanding
under the term loan were in LIBOR loans which bear interest at the LIBOR rate
plus the applicable margin (for a total rate of 1.46% on such date).
3) $500.0 million in principal payments due 2028 related to our 2028 Senior
Notes. The 2028 Senior Notes bear interest at a rate of 4.25%.
4) $500.0 million in principal payments due 2029 related to our 2029 Senior
Notes. The 2029 Senior Notes bear interest at a rate of 3.50%.
5) $600.0 million in principal payments due 2030 related to our 2030 Senior
Notes. The 2030 Senior Notes bear interest at a rate of 2.60%.
6) $650.0 million in principal payments due 2032 related to our 2032 Senior
Notes. The 2032 Senior Notes bear interest at a rate of 2.20%.
7) $500.0 million in principal payments due 2032 related to our New 2032 Senior
Notes. The New 2032 Senior Notes bear interest at a rate of 3.20%.
8) $500.0 million in principal payments due 2050 related to our 2050 Senior
Notes. The 2050 Senior Notes bear interest at a rate of 3.05%.
9) $850.0 million in principal payments due 2052 related to our 2052 Senior
Notes. The 2052 Senior Notes bear interest at a rate of 2.95%.
44
Table of Contents
$58.4 million in principal payments related to our notes payable to sellers
10) and other third parties. Our notes payable to sellers and other third parties
bear interest at rates between 2.42% and 10.35% at March 31, 2022, and have
maturity dates ranging from 2022 to 2036.
$10.0 million in principal payments related to our financing leases. Our
11) financing leases bear interest at a rate of 1.89% at March 31, 2022, and have
expiration dates ranging from 2026 to 2027.
The following assumptions were made in calculating cash interest payments:
We calculated cash interest payments on the Credit Agreement using the LIBOR
rate plus the applicable LIBOR margin, the base rate plus the applicable base
1) rate margin, the Canadian Dollar Offered Rate plus the applicable acceptance
fee and the Canadian prime rate plus the applicable prime rate margin at March
31, 2022. We assumed the Credit Agreement is paid off when it matures in July
2026.
We calculated cash interest payments on our interest rate swaps using the
2) stated interest rate in the swap agreement less the LIBOR rate through the
earlier expiration of the term of the swaps or the term of the credit
facility.
Contingent consideration payments include $96.0 million recorded as liabilities
in our Condensed Consolidated Financial Statements at March 31, 2022, and $18.2
million of future interest accretion on the recorded obligations.
We are party to operating lease agreements and finance leases. These lease
agreements are established in the ordinary course of our business and are
designed to provide us with access to facilities and equipment at competitive,
market-driven prices.
The estimated final capping, closure and post-closure expenditures presented
above are in current dollars.
Amount of
Commitment Expiration Per Period
(amounts in thousands of U.S. dollars)
Less Than 1 to 3 3 to 5 Over 5
Unrecorded Obligations(1) Total 1 Year Years Years Years
Unconditional purchase obligations $ 135,363 $ 93,820
$ 41,543 $ - $ -
____________________
We are party to unconditional purchase obligations. These purchase
obligations are established in the ordinary course of our business and are
designed to provide us with access to products at competitive, market-driven
prices. At March 31, 2022, our unconditional purchase obligations consisted
of multiple fixed-price fuel purchase contracts under which we have
(1) 51.9 million gallons remaining to be purchased for a total of $135.4 million.
The current fuel purchase contracts expire on or before December 31, 2024.
These arrangements have not materially affected our financial position,
results of operations or liquidity during the three months ended March 31,
2022, nor are they expected to have a material impact on our future financial
position, results of operations or liquidity.
We have obtained financial surety bonds, primarily to support our financial
assurance needs and landfill and E&P operations. We provided customers and
various regulatory authorities with surety bonds in the aggregate amounts of
approximately $1.361 billion and $1.301 billion at March 31, 2022 and
December 31, 2021, respectively. These arrangements have not materially affected
our financial position, results of operations or liquidity during the three
months ended March 31, 2022, nor are they expected to have a material impact on
our future financial position, results of operations or liquidity.
From time to time, we evaluate our existing operations and their strategic
importance to us. If we determine that a given operating unit does not have
future strategic importance, we may sell or otherwise dispose of those
operations. Although we believe our reporting units would not be impaired by
such dispositions, we could incur losses on them.
45
Table of Contents
The disposal tonnage that we received in the three month periods ended March 31,
2022 and 2021, at all of our landfills during the respective period, is shown
below (tons in thousands):
Three Months Ended March 31,
2022 2021
Number Total Number Total
of Sites Tons of Sites Tons
Owned operational landfills and landfills
operated under life-of-site agreements 89 10,987
87 10,189
Operated landfills 5 150 4 127
94 11,137 91 10,316
46
Table of Contents
NON-GAAP FINANCIAL MEASURES
Adjusted Free Cash Flow
We present adjusted free cash flow, a non-GAAP financial measure, 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
our operations. We define 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. We further adjust this calculation to
exclude the effects of items management believes impact the ability to assess
the operating performance of our 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. Our adjusted
free cash flow for the three month periods ended March 31, 2022 and 2021, are
calculated as follows (amounts in thousands of U.S. dollars):
Three Months Ended
March 31,
2022 2021
Net cash provided by operating activities $ 440,897 $ 400,396
Plus (less): Change in book overdraft 87
(16,849)
Plus: Proceeds from disposal of assets 15,012
2,080
Less: Capital expenditures for property and equipment (152,318)
(96,793)
Adjustments:
Payment of contingent consideration recorded in earnings (a) -
520
Cash received for divestitures (b) (5,671) -
Transaction-related expenses (c) 23,404
526
Pre-existing Progressive Waste share-based grants (d) 76
97
Tax effect (e) (1,110) (188)
Adjusted free cash flow $ 320,377 $ 289,789
____________________
Reflects the addback of acquisition-related payments for contingent
(a) 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.
47
Table of Contents
Adjusted EBITDA
We present adjusted EBITDA, a non-GAAP financial measure, 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 our
operations. We define 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. We further
adjust this calculation to exclude the effects of other items management
believes impact the ability to assess the operating performance of our 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. Our adjusted EBITDA for the three month periods ended March 31,
2022 and 2021, are calculated as follows (amounts in thousands of U.S. dollars):
Three Months Ended
March 31,
2022 2021
Net income attributable to Waste Connections $ 180,324 $ 160,309
Plus (less): Net income (loss) attributable to
noncontrolling interests 44 (2)
Plus: Income tax provision 48,839 40,291
Plus: Interest expense 41,324 42,425
Less: Interest income (137) (1,103)
Plus: Depreciation and amortization 217,585
189,594
Plus: Closure and post-closure accretion 4,096
3,709
Plus: Impairments and other operating items 1,878
634
Plus (less): Other expense (income), net 3,466
(3,548)
Adjustments:
Plus: Transaction-related expenses (a) 4,540
526
Plus: Fair value changes to equity awards (b) 161
339
Adjusted EBITDA $ 502,120 $ 433,174
____________________
(a) Reflects the addback of acquisition-related transaction costs.
(b) Reflects fair value accounting changes associated with certain equity awards.
48
Table of Contents
Adjusted Net Income Attributable to Waste Connections and Adjusted Net Income
per Diluted Share Attributable to Waste Connections
We present adjusted net income attributable to Waste Connections and adjusted
net income per diluted share attributable to Waste Connections, both non-GAAP
financial measures, 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 our operations. We
provide 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
our 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. Our adjusted net income
attributable to Waste Connections and adjusted net income per diluted share
attributable to Waste Connections for the three month periods ended March 31,
2022 and 2021, are calculated as follows (amounts in thousands of U.S. dollars,
except per share amounts):
Three Months Ended
March 31,
2022 2021
Reported net income attributable to Waste Connections $ 180,324 $ 160,309
Adjustments:
Amortization of intangibles (a) 37,635
32,192
Impairments and other operating items (b) 1,878
634
Transaction-related expenses (c) 4,540
526
Fair value changes to equity awards (d) 161
339
Tax effect (e) (11,092)
(8,543)
Adjusted net income attributable to Waste Connections $ 213,446 $ 185,457
Diluted earnings per common share attributable to Waste
Connections' common shareholders:
Reported net income $ 0.69 $ 0.61
Adjusted net income $ 0.82 $ 0.70
____________________
(a) Reflects the elimination of the non-cash amortization of acquisition-related
intangible assets.
(b) Reflects the addback of 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) The aggregate tax effect of the adjustments in footnotes (a) through (d) is
calculated based on the applied tax rates for the respective periods.
INFLATION
In the current environment, we have seen inflationary pressures resulting from
higher fuel, materials and labor costs in certain markets and higher resulting
third-party costs in areas such as brokerage, repairs and construction.
Consistent with industry practice, many of our contracts allow us to pass
through certain costs to our customers, including increases in landfill tipping
fees and, in some cases, fuel costs. To the extent that there are decreases in
fuel costs, in some cases, a portion of these reductions are passed through to
customers in the form of lower fuel and material surcharges. Therefore, we
believe that we should be able to increase prices to offset many cost increases
that result from inflation in the ordinary course of business. However,
competitive pressures or delays in the timing of rate increases under certain of
our contracts may require us to absorb at least part of these cost increases,
especially if cost increases exceed the average rate of inflation. Management's
estimates associated with inflation have an impact on our accounting for
landfill liabilities.
49
Table of Contents
SEASONALITY
Based on historic trends, excluding any impact from the COVID-19 pandemic or an
economic recession, we would expect our operating results to vary seasonally,
with revenues typically lowest in the first quarter, higher in the second and
third quarters and lower in the fourth quarter than in the second and third
quarters. This seasonality reflects (a) the lower volume of solid waste
generated during the late fall, winter and early spring because of decreased
construction and demolition activities during winter months in Canada and the
U.S. and (b) reduced E&P activity during harsh weather conditions, with expected
fluctuation due to such seasonality between our highest and lowest quarters of
approximately 10%. In addition, some of our operating costs may be higher in the
winter months. Adverse winter weather conditions slow waste collection
activities, resulting in higher labor and operational costs. Greater
precipitation in the winter increases the weight of collected municipal solid
waste, resulting in higher disposal costs, which are calculated on a per ton
basis.
© Edgar Online, source Glimpses
English (UK)
English (Canada)
Deutsch (Deutschland)
Deutsch (Schweiz)
Español
Français (France)
Italiano
Nederlands (Nederland)
Nederlands (België)
Report
