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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended June 30, 2023 |
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Or |
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from to |
Commission file number 1-34370
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
Ontario, Canada
(State or other jurisdiction of incorporation or organization)
98-1202763
(I.R.S. Employer Identification No.)
6220 Hwy 7, Suite 600
Woodbridge
Ontario L4H 4G3
Canada
(Address of principal executive offices)
(905) 532-7510
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, no par value |
WCN |
New York Stock Exchange (“NYSE”) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
þ Large Accelerated |
◻ Accelerated |
◻ Non-accelerated |
☐ Smaller Reporting |
☐ Emerging Growth |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common shares:
As of July 21, 2023: 257,630,679 common shares
WASTE CONNECTIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
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3 |
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4 |
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6 |
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7 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
32 |
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56 |
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58 |
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59 |
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59 |
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60 |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of U.S. dollars, except share and per share amounts)
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June 30, |
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December 31, |
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2023 |
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2022 |
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ASSETS |
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Current assets: |
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Cash and equivalents |
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$ |
91,712 |
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$ |
78,637 |
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Accounts receivable, net of allowance for credit losses of $22,710 and $22,939 at June 30, 2023 and December 31, 2022, respectively |
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855,479 |
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833,862 |
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Prepaid expenses and other current assets |
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164,485 |
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205,146 |
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Total current assets |
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1,111,676 |
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1,117,645 |
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Restricted cash |
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112,623 |
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102,727 |
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Restricted investments |
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73,075 |
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68,099 |
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Property and equipment, net |
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7,030,118 |
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6,950,915 |
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Operating lease right-of-use assets |
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248,967 |
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192,506 |
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Goodwill |
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6,992,466 |
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6,902,297 |
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Intangible assets, net |
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1,659,645 |
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1,673,917 |
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Other assets, net |
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130,957 |
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126,497 |
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Total assets |
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$ |
17,359,527 |
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$ |
17,134,603 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
539,216 |
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$ |
638,728 |
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Book overdraft |
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15,411 |
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15,645 |
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Deferred revenue |
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341,408 |
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325,002 |
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Accrued liabilities |
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452,949 |
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431,247 |
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Current portion of operating lease liabilities |
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32,747 |
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35,170 |
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Current portion of contingent consideration |
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71,065 |
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60,092 |
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Current portion of long-term debt and notes payable |
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10,699 |
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6,759 |
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Total current liabilities |
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1,463,495 |
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1,512,643 |
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Long-term portion of debt and notes payable |
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6,681,384 |
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6,890,149 |
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Long-term portion of operating lease liabilities |
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224,566 |
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165,462 |
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Long-term portion of contingent consideration |
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21,344 |
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21,323 |
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Deferred income taxes |
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1,048,986 |
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1,013,742 |
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Other long-term liabilities |
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460,295 |
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417,640 |
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Total liabilities |
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9,900,070 |
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10,020,959 |
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Commitments and contingencies (Note 18) |
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Equity: |
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Common shares: 257,614,671 shares issued and 257,555,015 shares outstanding at June 30, 2023; 257,211,175 shares issued and 257,145,716 shares outstanding at December 31, 2022 |
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3,274,564 |
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3,271,958 |
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Additional paid-in capital |
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255,667 |
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244,076 |
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Accumulated other comprehensive loss |
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(1,081) |
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(56,830) |
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Treasury shares: 59,656 and 65,459 shares at June 30, 2023 and December 31, 2022, respectively |
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— |
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— |
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Retained earnings |
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3,925,376 |
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3,649,494 |
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Total Waste Connections’ equity |
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7,454,526 |
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7,108,698 |
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Noncontrolling interest in subsidiaries |
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4,931 |
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4,946 |
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Total equity |
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7,459,457 |
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7,113,644 |
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Total liabilities and equity |
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$ |
17,359,527 |
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$ |
17,134,603 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited)
(In thousands of U.S. dollars, except share and per share amounts)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenues |
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$ |
2,021,095 |
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$ |
1,816,435 |
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$ |
3,921,598 |
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$ |
3,462,690 |
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Operating expenses: |
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|
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Cost of operations |
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1,197,349 |
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1,087,892 |
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2,344,290 |
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2,077,410 |
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Selling, general and administrative |
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216,385 |
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168,404 |
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410,052 |
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331,818 |
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Depreciation |
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213,322 |
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188,937 |
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417,380 |
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368,887 |
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Amortization of intangibles |
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39,052 |
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37,462 |
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78,335 |
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75,098 |
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Impairments and other operating items |
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10,859 |
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4,150 |
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12,724 |
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6,028 |
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Operating income |
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344,128 |
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329,590 |
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658,817 |
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603,449 |
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Interest expense |
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(67,545) |
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(45,079) |
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(135,898) |
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(86,404) |
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Interest income |
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1,338 |
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|
652 |
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4,053 |
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|
790 |
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Other income (expense), net |
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(200) |
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(2,649) |
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2,974 |
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(6,114) |
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Income before income tax provision |
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277,721 |
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282,514 |
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529,946 |
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511,721 |
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Income tax provision |
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(68,551) |
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(58,307) |
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(122,940) |
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(107,146) |
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Net income |
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209,170 |
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224,207 |
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407,006 |
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404,575 |
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Plus (less): Net loss (income) attributable to noncontrolling interests |
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38 |
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(133) |
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15 |
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(177) |
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Net income attributable to Waste Connections |
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$ |
209,208 |
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$ |
224,074 |
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$ |
407,021 |
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$ |
404,398 |
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Earnings per common share attributable to Waste Connections’ common shareholders: |
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Basic |
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$ |
0.81 |
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$ |
0.87 |
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$ |
1.58 |
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$ |
1.57 |
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Diluted |
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$ |
0.81 |
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$ |
0.87 |
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$ |
1.58 |
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$ |
1.57 |
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Shares used in the per share calculations: |
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Basic |
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257,596,993 |
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257,179,434 |
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257,485,587 |
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257,555,033 |
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Diluted |
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258,110,491 |
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257,736,745 |
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258,050,350 |
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258,140,714 |
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Cash dividends per common share |
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$ |
0.255 |
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$ |
0.230 |
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$ |
0.510 |
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$ |
0.460 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands of U.S. dollars)
|
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net income |
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$ |
209,170 |
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$ |
224,207 |
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$ |
407,006 |
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$ |
404,575 |
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Other comprehensive income (loss), before tax: |
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|
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Interest rate swap amounts reclassified into interest expense |
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(4,754) |
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3,646 |
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(8,834) |
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8,396 |
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Changes in fair value of interest rate swaps |
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16,490 |
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2,591 |
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13,191 |
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|
47,290 |
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Foreign currency translation adjustment |
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50,865 |
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(73,504) |
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|
52,547 |
|
|
(39,075) |
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Other comprehensive income (loss), before tax |
|
|
62,601 |
|
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(67,267) |
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|
56,904 |
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|
16,611 |
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Income tax expense related to items of other comprehensive income (loss) |
|
|
(3,110) |
|
|
(1,653) |
|
|
(1,155) |
|
|
(14,757) |
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Other comprehensive income (loss), net of tax |
|
|
59,491 |
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|
(68,920) |
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|
55,749 |
|
|
1,854 |
|
Comprehensive income |
|
|
268,661 |
|
|
155,287 |
|
|
462,755 |
|
|
406,429 |
|
Plus (less): Comprehensive loss (income) attributable to noncontrolling interests |
|
|
38 |
|
|
(133) |
|
|
15 |
|
|
(177) |
|
Comprehensive income attributable to Waste Connections |
|
$ |
268,699 |
|
$ |
155,154 |
|
$ |
462,770 |
|
$ |
406,252 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands of U.S. dollars, except share amounts)
|
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WASTE CONNECTIONS' EQUITY |
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ACCUMULATED |
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ADDITIONAL |
|
OTHER |
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|
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COMMON SHARES |
|
PAID-IN |
|
COMPREHENSIVE |
|
TREASURY SHARES |
|
RETAINED |
|
NONCONTROLLING |
|
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|
||||||||||
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SHARES |
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AMOUNT |
|
CAPITAL |
|
INCOME (LOSS) |
|
SHARES |
|
AMOUNT |
|
EARNINGS |
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INTERESTS |
|
TOTAL |
|||||||
Balances at December 31, 2022 |
|
257,145,716 |
|
$ |
3,271,958 |
|
$ |
244,076 |
|
$ |
(56,830) |
|
65,459 |
|
$ |
— |
|
$ |
3,649,494 |
|
$ |
4,946 |
|
$ |
7,113,644 |
Sale of common shares held in trust |
|
5,803 |
|
|
765 |
|
|
— |
|
|
— |
|
(5,803) |
|
|
— |
|
|
— |
|
|
— |
|
|
765 |
Vesting of restricted share units |
|
325,490 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Vesting of performance-based restricted share units |
|
140,498 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Restricted share units released from deferred compensation plan |
|
19,151 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Tax withholdings related to net share settlements of equity-based compensation |
|
(176,837) |
|
|
— |
|
|
(22,966) |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(22,966) |
Equity-based compensation |
|
— |
|
|
— |
|
|
17,374 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
17,374 |
Exercise of warrants |
|
13,019 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Issuance of shares under employee share purchase plan |
|
14,594 |
|
|
1,841 |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,841 |
Cash dividends on common shares |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(65,788) |
|
|
— |
|
|
(65,788) |
Amounts reclassified into earnings, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
(2,999) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,999) |
Changes in fair value of cash flow hedges, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
(2,425) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,425) |
Foreign currency translation adjustment |
|
— |
|
|
— |
|
|
— |
|
|
1,682 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,682 |
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
197,813 |
|
|
23 |
|
|
197,836 |
Balances at March 31, 2023 |
|
257,487,434 |
|
|
3,274,564 |
|
|
238,484 |
|
|
(60,572) |
|
59,656 |
|
|
— |
|
|
3,781,519 |
|
|
4,969 |
|
|
7,238,964 |
Vesting of restricted share units |
|
43,431 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Vesting of performance-based restricted share units |
|
55,167 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Tax withholdings related to net share settlements of equity-based compensation |
|
(62,304) |
|
|
— |
|
|
(5,709) |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,709) |
Equity-based compensation |
|
— |
|
|
— |
|
|
22,892 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
22,892 |
Exercise of warrants |
|
31,287 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Cash dividends on common shares |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(65,351) |
|
|
— |
|
|
(65,351) |
Amounts reclassified into earnings, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
(3,494) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,494) |
Changes in fair value of cash flow hedges, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
12,120 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
12,120 |
Foreign currency translation adjustment |
|
— |
|
|
— |
|
|
— |
|
|
50,865 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
50,865 |
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
209,208 |
|
|
(38) |
|
|
209,170 |
Balances at June 30, 2023 |
|
257,555,015 |
|
$ |
3,274,564 |
|
$ |
255,667 |
|
$ |
(1,081) |
|
59,656 |
|
$ |
— |
|
$ |
3,925,376 |
|
$ |
4,931 |
|
$ |
7,459,457 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands of U.S. dollars, except share amounts)
|
|
WASTE CONNECTIONS' EQUITY |
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
ACCUMULATED |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL |
|
OTHER |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
COMMON SHARES |
|
PAID-IN |
|
COMPREHENSIVE |
|
TREASURY SHARES |
|
RETAINED |
|
NONCONTROLLING |
|
|
|
||||||||||
|
|
SHARES |
|
AMOUNT |
|
CAPITAL |
|
INCOME |
|
SHARES |
|
AMOUNT |
|
EARNINGS |
|
INTERESTS |
|
TOTAL |
|||||||
Balances at December 31, 2021 |
|
260,212,496 |
|
$ |
3,693,027 |
|
$ |
199,482 |
|
$ |
39,584 |
|
70,662 |
|
$ |
— |
|
$ |
3,056,845 |
|
$ |
4,607 |
|
$ |
6,993,545 |
Sale of common shares held in trust |
|
2,203 |
|
|
305 |
|
|
— |
|
|
— |
|
(2,203) |
|
|
— |
|
|
— |
|
|
— |
|
|
305 |
Vesting of restricted share units |
|
312,706 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Vesting of performance-based restricted share units |
|
57,677 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Restricted share units released from deferred compensation plan |
|
19,149 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Tax withholdings related to net share settlements of equity-based compensation |
|
(143,243) |
|
|
— |
|
|
(17,236) |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(17,236) |
Equity-based compensation |
|
— |
|
|
— |
|
|
14,139 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,139 |
Exercise of warrants |
|
11,560 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Issuance of shares under employee share purchase plan |
|
12,015 |
|
|
1,554 |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,554 |
Repurchase of common shares |
|
(3,388,155) |
|
|
(424,999) |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(424,999) |
Cash dividends on common shares |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(59,391) |
|
|
— |
|
|
(59,391) |
Amounts reclassified into earnings, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
3,491 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,491 |
Changes in fair value of cash flow hedges, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
32,854 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
32,854 |
Foreign currency translation adjustment |
|
— |
|
|
— |
|
|
— |
|
|
34,429 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
34,429 |
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
180,324 |
|
|
44 |
|
|
180,368 |
Balances at March 31, 2022 |
|
257,096,408 |
|
|
3,269,887 |
|
|
196,385 |
|
|
110,358 |
|
68,459 |
|
|
— |
|
|
3,177,778 |
|
|
4,651 |
|
|
6,759,059 |
Sale of common shares held in trust |
|
3,000 |
|
|
355 |
|
|
— |
|
|
— |
|
(3,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
355 |
Vesting of restricted share units |
|
522 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Tax withholdings related to net share settlements of equity-based compensation |
|
(145) |
|
|
— |
|
|
(30) |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(30) |
Equity-based compensation |
|
— |
|
|
— |
|
|
14,412 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,412 |
Exercise of warrants |
|
806 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Cash dividends on common shares |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(59,421) |
|
|
— |
|
|
(59,421) |
Amounts reclassified into earnings, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
2,680 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,680 |
Changes in fair value of cash flow hedges, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
1,904 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,904 |
Foreign currency translation adjustment |
|
— |
|
|
— |
|
|
— |
|
|
(73,504) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(73,504) |
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
224,074 |
|
|
133 |
|
|
224,207 |
Balances at June 30, 2022 |
|
257,100,591 |
|
$ |
3,270,242 |
|
$ |
210,767 |
|
$ |
41,438 |
|
65,459 |
|
$ |
— |
|
$ |
3,342,431 |
|
$ |
4,784 |
|
$ |
6,869,662 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of U.S. dollars)
|
|
Six Months Ended June 30, |
|
||||
|
|
2023 |
|
2022 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net income |
|
$ |
407,006 |
|
$ |
404,575 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Loss on disposal of assets and impairments |
|
|
12,558 |
|
|
6,048 |
|
Depreciation |
|
|
417,380 |
|
|
368,887 |
|
Amortization of intangibles |
|
|
78,335 |
|
|
75,098 |
|
Deferred income taxes, net of acquisitions |
|
|
31,427 |
|
|
84,991 |
|
Current period provision for expected credit losses |
|
|
7,035 |
|
|
6,907 |
|
Amortization of debt issuance costs |
|
|
3,241 |
|
|
2,484 |
|
Share-based compensation |
|
|
41,469 |
|
|
27,716 |
|
Interest accretion |
|
|
9,835 |
|
|
8,798 |
|
Adjustments to contingent consideration |
|
|
(910) |
|
|
(1,030) |
|
Other |
|
|
(2,828) |
|
|
(2,173) |
|
Net change in operating assets and liabilities, net of acquisitions |
|
|
12,164 |
|
|
(8,623) |
|
Net cash provided by operating activities |
|
|
1,016,712 |
|
|
973,678 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Payments for acquisitions, net of cash acquired |
|
|
(213,152) |
|
|
(546,982) |
|
Capital expenditures for property and equipment |
|
|
(394,143) |
|
|
(371,428) |
|
Proceeds from disposal of assets |
|
|
3,819 |
|
|
16,894 |
|
Other |
|
|
(1,145) |
|
|
9,566 |
|
Net cash used in investing activities |
|
|
(604,621) |
|
|
(891,950) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
538,421 |
|
|
1,517,732 |
|
Principal payments on notes payable and long-term debt |
|
|
(768,059) |
|
|
(920,107) |
|
Payment of contingent consideration recorded at acquisition date |
|
|
(2,193) |
|
|
(8,898) |
|
Change in book overdraft |
|
|
(234) |
|
|
(54) |
|
Payments for repurchase of common shares |
|
|
— |
|
|
(424,999) |
|
Payments for cash dividends |
|
|
(131,140) |
|
|
(118,812) |
|
Tax withholdings related to net share settlements of equity-based compensation |
|
|
(28,675) |
|
|
(17,266) |
|
Debt issuance costs |
|
|
— |
|
|
(4,668) |
|
Proceeds from issuance of shares under employee share purchase plan |
|
|
1,841 |
|
|
1,554 |
|
Proceeds from sale of common shares held in trust |
|
|
765 |
|
|
660 |
|
Net cash provided by (used in) financing activities |
|
|
(389,274) |
|
|
25,142 |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
154 |
|
|
(1,941) |
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents and restricted cash |
|
|
22,971 |
|
|
104,929 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
181,364 |
|
|
219,615 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
204,335 |
|
$ |
324,544 |
|
|
|
|
|
|
|
|
|
Non-cash financing activities: |
|
|
|
|
|
|
|
Liabilities assumed and notes payable issued to sellers of businesses acquired |
|
$ |
45,669 |
|
$ |
43,693 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
1.BASIS OF PRESENTATION AND SUMMARY
The accompanying condensed consolidated financial statements relate to Waste Connections, Inc. and its subsidiaries (the “Company”) for the three and six month periods ended June 30, 2023 and 2022. In the opinion of management, the accompanying balance sheets and related interim statements of net income, comprehensive income, cash flows and equity include all adjustments, consisting only of normal recurring items, necessary for their fair statement in conformity with U.S. generally accepted accounting principles (“GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include accounting for landfills, self-insurance accruals, income taxes, allocation of acquisition purchase price, contingent consideration accruals and asset impairments. An additional area that involves estimation is when the Company estimates the amount of potential exposure it may have with respect to litigation, claims and assessments in accordance with the accounting guidance on contingencies. Actual results for all estimates could differ materially from the estimates and assumptions that the Company uses in the preparation of its condensed consolidated financial statements.
Interim results are not necessarily indicative of results for a full year. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
2.REPORTING CURRENCY
The functional currency of the Company, as the parent corporate entity, and its operating subsidiaries in the United States, is the U.S. dollar. The functional currency of the Company’s Canadian operations is the Canadian dollar. The reporting currency of the Company is the U.S. dollar. The Company’s consolidated Canadian dollar financial position is translated to U.S. dollars by applying the foreign currency exchange rate in effect at the consolidated balance sheet date. The Company’s consolidated Canadian dollar results of operations and cash flows are translated to U.S. dollars by applying the average foreign currency exchange rate in effect during the reporting period. The resulting translation adjustments are included in other comprehensive income or loss. Gains and losses from foreign currency transactions are included in earnings for the period.
3.NEW ACCOUNTING STANDARDS
Accounting Standards Pending Adoption
Clawback of Executive Compensation Rules. In October 2022, the Securities and Exchange Commission (the “SEC”) adopted final rules regarding the recovery of erroneously awarded executive incentive compensation. The rules direct U.S. securities exchanges to establish standards to require listed issuers to develop and implement a written policy providing for the recovery of incentive compensation received by current and former executive officers in the event of a required accounting restatement when that compensation was based on an erroneously reported financial reporting measure. The new rule and related amendments include a number of new disclosure requirements, including requiring issuers to file their recovery policy as an exhibit to their annual reports and establishing new cover page disclosures on Form 10-K indicating whether the financial statements included in the filing reflect the correction of an error and whether the error correction required an incentive compensation recovery analysis. The U.S. securities exchanges filed listing standards to implement the SEC’s directive, and those listing standards will be effective on October 2, 2023. Registrants listed on those exchanges will be required to adopt a recovery policy by December 1, 2023.
7
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
4.REVENUE
The Company’s operations primarily consist of providing non-hazardous waste collection, transfer, disposal and recycling services, non-hazardous oil and natural gas exploration and production (“E&P”) waste treatment, recovery and disposal services and intermodal services. The following table disaggregates the Company’s revenues by service line for the periods indicated:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
||||
Commercial |
|
$ |
615,803 |
|
$ |
538,525 |
|
$ |
1,218,082 |
|
$ |
1,038,201 |
|
Residential |
|
|
529,872 |
|
|
463,320 |
|
|
1,043,926 |
|
|
903,608 |
|
Industrial and construction roll off |
|
|
340,030 |
|
|
295,557 |
|
|
658,344 |
|
|
555,045 |
|
Total collection |
|
|
1,485,705 |
|
|
1,297,402 |
|
|
2,920,352 |
|
|
2,496,854 |
|
Landfill |
|
|
382,944 |
|
|
339,719 |
|
|
726,376 |
|
|
639,484 |
|
Transfer |
|
|
306,021 |
|
|
261,475 |
|
|
579,543 |
|
|
479,432 |
|
Recycling |
|
|
38,319 |
|
|
67,504 |
|
|
69,621 |
|
|
130,598 |
|
E&P |
|
|
58,607 |
|
|
54,155 |
|
|
110,365 |
|
|
97,711 |
|
Intermodal and other |
|
|
39,459 |
|
|
46,310 |
|
|
77,671 |
|
|
92,002 |
|
Intercompany |
|
|
(289,960) |
|
|
(250,130) |
|
|
(562,330) |
|
|
(473,391) |
|
Total |
|
$ |
2,021,095 |
|
$ |
1,816,435 |
|
$ |
3,921,598 |
|
$ |
3,462,690 |
|
The factors that impact the timing and amount of revenue recognized for each service line may vary based on the nature of the service performed. Generally, the Company recognizes revenue at the time it performs a service. In the event that the Company bills for services in advance of performance, it recognizes deferred revenue for the amount billed and subsequently recognizes revenue at the time the service is provided. Substantially all of the deferred revenue recorded as of March 31, 2023 was recognized as revenue during the three months ended June 30, 2023 when the service was performed.
See Note 11 for additional information regarding revenue by reportable segment.
Contract Acquisition Costs
The incremental direct costs of obtaining a contract, which consist of sales incentives, are recognized as Other assets in the Company’s Condensed Consolidated Balance Sheets, and are amortized to Selling, general and administrative expense over the estimated life of the relevant customer relationship, which ranges from one to five years. The Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company would have recognized is one year or less. The Company had $25,618 and $23,818 of deferred sales incentives at June 30, 2023 and December 31, 2022, respectively.
5.ACCOUNTS RECEIVABLE
Accounts receivable are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of the Company’s receivables, net of the allowance for credit losses, represents their estimated net realizable value.
The allowance for credit losses is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics. The Company monitors the collectability of its trade receivables as one overall pool due to all trade receivables having similar risk characteristics.
8
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The Company estimates its allowance for credit losses based on historical collection trends, the age of outstanding receivables, geographical location of the customer, existing economic conditions and reasonable forecasts. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due.
The following is a rollforward of the Company’s allowance for credit losses for the periods indicated:
|
|
Six Months Ended June 30, |
||||
|
|
2023 |
|
2022 |
||
Beginning balance |
|
$ |
22,939 |
|
$ |
18,480 |
Current period provision for expected credit losses |
|
|
7,035 |
|
|
6,907 |
Write-offs charged against the allowance |
|
|
(10,738) |
|
|
(7,522) |
Recoveries collected |
|
|
3,403 |
|
|
2,412 |
Impact of changes in foreign currency |
|
|
71 |
|
|
(24) |
Ending balance |
|
$ |
22,710 |
|
$ |
20,253 |
6.LANDFILL ACCOUNTING
At June 30, 2023, the Company’s landfills consisted of 90 owned landfills, five landfills operated under life-of-site operating agreements and seven landfills operated under limited-term operating agreements. The Company’s landfills had site costs with a net book value of $3,312,150 at June 30, 2023. For the Company’s landfills operated under limited-term operating agreements and life-of-site operating agreements, the owner of the property (generally a municipality) usually owns the permit and the Company operates the landfill for a contracted term. Where the contracted term is not the life of the landfill, the property owner is generally responsible for final capping, closure and post-closure obligations. The Company is responsible for all final capping, closure and post-closure liabilities at the landfills it operates under life-of-site operating agreements.
The Company’s internal and third-party engineers perform surveys at least annually to estimate the remaining disposal capacity at its landfills. Many of the Company’s existing landfills have the potential for expanded disposal capacity beyond the amount currently permitted. The Company’s landfill depletion rates are based on the remaining disposal capacity, considering both permitted and probable expansion airspace, at the landfills it owns and landfills it operates, but does not own, under life-of-site agreements. The Company’s landfill depletion rate is based on the term of the operating agreement at its operated landfill that has capitalized expenditures. Expansion airspace consists of additional disposal capacity being pursued through means of an expansion that has not yet been permitted. Expansion airspace that meets certain criteria is included in the estimate of total landfill airspace.
Based on remaining permitted capacity as of June 30, 2023, and projected annual disposal volumes, the average remaining landfill life for the Company’s owned landfills and landfills operated under life-of-site operating agreements is estimated to be approximately 32 years. As of June 30, 2023, the Company is seeking to expand permitted capacity at eight of its owned landfills and two landfills that it operates under life-of-site operating agreements, and considers the achievement of these expansions to be probable. Although the Company cannot be certain that all future expansions will be permitted as designed, the average remaining life, when considering remaining permitted capacity, probable expansion capacity and projected annual disposal volume, of the Company’s owned landfills and landfills operated under life-of-site operating agreements is approximately 35 years. The estimated remaining lives of the Company’s owned landfills and landfills operated under life-of-site operating agreements range from 2 to 308 years, with approximately 90% of the projected annual disposal volume from landfills with remaining lives of less than 70 years.
9
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
During the six months ended June 30, 2023 and 2022, the Company expensed $125,130 and $113,091, respectively, or an average of $5.10 and $4.83 per ton consumed, respectively, related to landfill depletion at owned landfills and landfills operated under life-of-site agreements.
The Company reserves for estimated final capping, closure and post-closure maintenance obligations at the landfills it owns and landfills it operates under life-of-site operating agreements. The Company calculates the net present value of its final capping, closure and post-closure liabilities by estimating the total obligation in current dollars, inflating the obligation based upon the expected date of the expenditure and discounting the inflated total to its present value using a credit-adjusted risk-free rate. Any changes in expectations that result in an upward revision to the estimated undiscounted cash flows are treated as a new liability and are inflated and discounted at rates reflecting market conditions. Any changes in expectations that result in a downward revision (or no revision) to the estimated undiscounted cash flows result in a liability that is inflated and discounted at rates reflecting the market conditions at the time the cash flows were originally estimated. This policy results in the Company’s final capping, closure and post-closure liabilities being recorded in “layers.” The Company’s discount rate assumption for purposes of computing “layers” for final capping, closure and post-closure liabilities is based on its long-term credit adjusted risk-free rate. The Company’s discount rate assumption for purposes of computing 2023 and 2022 “layers” for final capping, closure and post-closure obligations is 5.50% for 2023 and ranged from 3.25% to 5.50% for 2022. The Company’s long-term inflation rate assumption is 2.75% for the year ending December 31, 2023 and ranged from 2.25% to 2.75% for the year ending December 31, 2022. The resulting final capping, closure and post-closure obligations are recorded on the Condensed Consolidated Balance Sheets along with an offsetting addition to site costs which is amortized to depletion expense as the remaining landfill airspace is consumed. Interest is accreted on the recorded liability using the corresponding discount rate. During the six months ended June 30, 2023 and 2022, the Company expensed $8,992 and $7,992, respectively, or an average of $0.37 and $0.34 per ton consumed, respectively, related to final capping, closure and post-closure accretion expense.
The following is a reconciliation of the Company’s final capping, closure and post-closure liability balance from December 31, 2022 to June 30, 2023:
Final capping, closure and post-closure liability at December 31, 2022 |
|
$ |
344,606 |
Liability adjustments |
|
|
20,508 |
Accretion expense associated with landfill obligations |
|
|
8,992 |
Closure payments |
|
|
(8,282) |
Assumption of closure liabilities from acquisitions |
|
|
3,505 |
Foreign currency translation adjustment |
|
|
794 |
Final capping, closure and post-closure liability at June 30, 2023 |
|
$ |
370,123 |
Liability adjustments of $20,508 for the six months ended June 30, 2023, represent non-cash changes to final capping, closure and post-closure liabilities and are recorded on the Condensed Consolidated Balance Sheets along with an offsetting addition to site costs, which is amortized to depletion expense as the remaining landfill airspace is consumed. The final capping, closure and post-closure liability is included in Other long-term liabilities in the Condensed Consolidated Balance Sheets. The Company performs its annual review of its cost and capacity estimates in the first quarter of each year.
At June 30, 2023 and December 31, 2022, $9,957 and $6,890, respectively, of the Company’s restricted cash balance and $60,975 and $57,469, respectively, of the Company’s restricted investments balance was for purposes of securing its performance of future final capping, closure and post-closure obligations.
10
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
7.ACQUISITIONS
The Company acquired seven individually immaterial non-hazardous solid waste collection, transfer, recycling and disposal businesses and one E&P landfill during the six months ended June 30, 2023. The total transaction-related expenses incurred during the six months ended June 30, 2023 for these acquisitions were $3,905. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.
The Company acquired eight individually immaterial non-hazardous solid waste collection, transfer and recycling businesses during the six months ended June 30, 2022. The total transaction-related expenses incurred during the six months ended June 30, 2022 for these acquisitions were $8,232. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.
The results of operations of the acquired businesses have been included in the Company’s Condensed Consolidated Financial Statements from their respective acquisition dates. The Company expects these acquired businesses to contribute towards the achievement of the Company’s strategy to expand through acquisitions. Goodwill acquired is attributable to the synergies and ancillary growth opportunities expected to arise after the Company’s acquisition of these businesses.
11
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The following table summarizes the consideration transferred to acquire these businesses and the preliminary amounts of identifiable assets acquired and liabilities assumed at the acquisition dates for the acquisitions consummated in the six months ended June 30, 2023 and 2022:
|
|
2023 |
|
2022 |
||
|
|
Acquisitions |
|
Acquisitions |
||
Fair value of consideration transferred: |
|
|
|
|
|
|
Cash |
|
$ |
213,152 |
|
$ |
546,982 |
Debt assumed |
|
|
17,097 |
|
|
— |
|
|
|
230,249 |
|
|
546,982 |
|
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed associated with businesses acquired: |
|
|
|
|
|
|
Accounts receivable |
|
|
9,047 |
|
|
14,656 |
Prepaid expenses and other current assets |
|
|
2,214 |
|
|
3,444 |
Restricted investments |
|
|
5,462 |
|
|
— |
Operating lease right-of-use assets |
|
|
885 |
|
|
2,852 |
Property and equipment |
|
|
123,506 |
|
|
139,121 |
Long-term franchise agreements and contracts |
|
|
59,509 |
|
|
17,482 |
Customer lists |
|
|
4,457 |
|
|
53,099 |
Permits and other intangibles |
|
|
2,403 |
|
|
62,406 |
Accounts payable and accrued liabilities |
|
|
(5,661) |
|
|
(21,347) |
Current portion of operating lease liabilities |
|
|
(191) |
|
|
(947) |
Deferred revenue |
|
|
(1,342) |
|
|
(4,877) |
Contingent consideration |
|
|
(13,350) |
|
|
(5,543) |
Long-term portion of operating lease liabilities |
|
|
(694) |
|
|
(1,905) |
Other long-term liabilities |
|
|
(6,257) |
|
|
— |
Deferred income taxes |
|
|
(1,077) |
|
|
(9,074) |
Total identifiable net assets |
|
|
178,911 |
|
|
249,367 |
Goodwill |
|
$ |
51,338 |
|
$ |
297,615 |
Goodwill acquired during the six months ended June 30, 2023 and 2022, totaling $51,338 and $156,645, respectively, is expected to be deductible for tax purposes. The fair value of acquired working capital related to six individually immaterial acquisitions completed during the twelve months ended June 30, 2023, is provisional pending receipt of information from the acquirees to support the fair value of the assets acquired and liabilities assumed. Any adjustments recorded relating to finalizing the working capital for these six acquisitions are not expected to be material to the Company’s financial position.
The gross amount of trade receivables due under contracts acquired during the six months ended June 30, 2023, was $9,189, of which $142 was expected to be uncollectible. The gross amount of trade receivables due under contracts acquired during the six months ended June 30, 2022, was $17,436, of which $2,780 was expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of these businesses.
12
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
8.INTANGIBLE ASSETS, NET
Intangible assets, exclusive of goodwill, consisted of the following at June 30, 2023:
|
|
Gross |
|
|
|
|
Accumulated |
|
Net |
|||
|
|
Carrying |
|
Accumulated |
|
Impairment |
|
Carrying |
||||
|
|
Amount |
|
Amortization |
|
Loss |
|
Amount |
||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term franchise agreements and contracts |
|
$ |
966,814 |
|
$ |
(324,668) |
|
$ |
— |
|
$ |
642,146 |
Customer lists |
|
|
784,181 |
|
|
(564,321) |
|
|
— |
|
|
219,860 |
Permits and other |
|
|
784,195 |
|
|
(127,385) |
|
|
(40,784) |
|
|
616,026 |
|
|
|
2,535,190 |
|
|
(1,016,374) |
|
|
(40,784) |
|
|
1,478,032 |
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Solid waste collection and transportation permits |
|
|
181,613 |
|
|
— |
|
|
— |
|
|
181,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, exclusive of goodwill |
|
$ |
2,716,803 |
|
$ |
(1,016,374) |
|
$ |
(40,784) |
|
$ |
1,659,645 |
The weighted-average amortization period of long-term franchise agreements and contracts acquired during the six months ended June 30, 2023 was 20.5 years. The weighted-average amortization period of customer lists acquired during the six months ended June 30, 2023 was 11.6 years. The weighted-average amortization period of finite-lived permits and other acquired during the six months ended June 30, 2023 was 40.0 years.
Intangible assets, exclusive of goodwill, consisted of the following at December 31, 2022:
|
|
Gross |
|
|
|
|
Accumulated |
|
Net |
|||
|
|
Carrying |
|
Accumulated |
|
Impairment |
|
Carrying |
||||
|
|
Amount |
|
Amortization |
|
Loss |
|
Amount |
||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term franchise agreements and contracts |
|
$ |
916,582 |
|
$ |
(297,382) |
|
$ |
— |
|
$ |
619,200 |
Customer lists |
|
|
776,719 |
|
|
(527,425) |
|
|
— |
|
|
249,294 |
Permits and other |
|
|
779,689 |
|
|
(115,095) |
|
|
(40,784) |
|
|
623,810 |
|
|
|
2,472,990 |
|
|
(939,902) |
|
|
(40,784) |
|
|
1,492,304 |
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Solid waste collection and transportation permits |
|
|
181,613 |
|
|
— |
|
|
— |
|
|
181,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, exclusive of goodwill |
|
$ |
2,654,603 |
|
$ |
(939,902) |
|
$ |
(40,784) |
|
$ |
1,673,917 |
Estimated future amortization expense for the next five years relating to finite-lived intangible assets owned as of June 30, 2023 is as follows:
For the year ending December 31, 2023 |
|
$ |
157,099 |
For the year ending December 31, 2024 |
|
$ |
139,820 |
For the year ending December 31, 2025 |
|
$ |
122,876 |
For the year ending December 31, 2026 |
|
$ |
107,184 |
For the year ending December 31, 2027 |
|
$ |
93,500 |
13
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
9.LEASES
The Company rents certain equipment and facilities under short-term agreements, non-cancelable operating lease agreements and finance leases. The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. The lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date.
Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.
The lease guidance requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
The lease term for the Company’s leases includes the noncancelable period of the lease, plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
Lease payments included in the measurement of the lease liability comprise fixed payments or variable lease payments. The variable lease payments take into account annual changes in the consumer price index and common area maintenance charges, if known.
ROU assets for operating and finance leases are periodically reviewed for impairment losses. The Company uses the long-lived asset impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. The Company did not recognize an impairment charge for any of its ROU assets during the six months ended June 30, 2023 and 2022.
The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset. The Company did not recognize any significant remeasurements during the six months ended June 30, 2023 and 2022.
The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company has elected to apply the short-term lease recognition and measurement exemption allowed for in the lease accounting standard. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term.
14
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Lease cost for operating and finance leases for the three and six months ended June 30, 2023 and 2022 were as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
||||
Operating lease cost |
|
$ |
11,821 |
|
$ |
10,168 |
|
$ |
22,967 |
|
$ |
20,992 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
|
682 |
|
|
590 |
|
|
1,365 |
|
|
1,120 |
|
Interest on leased liabilities |
|
|
51 |
|
|
53 |
|
|
105 |
|
|
101 |
|
Total lease cost |
|
$ |
12,554 |
|
$ |
10,811 |
|
$ |
24,437 |
|
$ |
22,213 |
|
Supplemental cash flow information and non-cash activity related to the Company’s leases are as follows:
|
|
Six Months Ended June 30, |
||||
|
|
2023 |
|
|
2022 |
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
22,668 |
|
$ |
20,877 |
Operating cash flows from finance leases |
|
$ |
105 |
|
$ |
101 |
Financing cash flows from finance leases |
|
$ |
6,908 |
|
$ |
4,225 |
Non-cash activity: |
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease liabilities - operating leases |
|
$ |
74,605 |
|
$ |
21,928 |
Right-of-use assets obtained in exchange for lease liabilities - finance leases |
|
$ |
398 |
|
$ |
1,340 |
Weighted-average remaining lease term and discount rate for the Company’s leases are as follows:
|
|
Six Months Ended June 30, |
|||||
|
|
2023 |
|
2022 |
|
||
Weighted average remaining lease term - operating leases |
|
10.3 |
years |
|
8.6 |
years |
|
Weighted average remaining lease term - finance leases |
|
3.7 |
years |
|
4.8 |
years |
|
Weighted average discount rate - operating leases |
|
3.75 |
% |
|
3.23 |
% |
|
Weighted average discount rate - finance leases |
|
1.96 |
% |
|
1.92 |
% |
|
As of June 30, 2023, future minimum lease payments, reconciled to the respective lease liabilities, are as follows:
|
|
|
Operating Leases |
|
|
Finance Leases |
Last 6 months of 2023 |
|
$ |
22,155 |
|
$ |
1,513 |
2024 |
|
|
37,684 |
|
|
2,978 |
2025 |
|
|
32,283 |
|
|
2,978 |
2026 |
|
|
30,014 |
|
|
2,392 |
2027 |
|
|
29,019 |
|
|
970 |
Thereafter |
|
|
167,823 |
|
|
48 |
Minimum lease payments |
|
|
318,978 |
|
|
10,879 |
Less: imputed interest |
|
|
(61,665) |
|
|
(365) |
Present value of minimum lease payments |
|
|
257,313 |
|
|
10,514 |
Less: current portion of lease liabilities |
|
|
(32,747) |
|
|
(2,791) |
Long-term portion of lease liabilities |
|
$ |
224,566 |
|
$ |
7,723 |
15
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
10.LONG-TERM DEBT
The following table presents the Company’s long-term debt at June 30, 2023 and December 31, 2022:
|
|
June 30, |
|
December 31, |
|
||
|
|
2023 |
|
2022 |
|
||
Revolver under Credit Agreement, bearing interest ranging from 5.98% to 6.26% (a) |
|
$ |
409,943 |
|
$ |
614,705 |
|
Term loan under Credit Agreement, bearing interest at 6.14% (a) |
|
|
650,000 |
|
|
650,000 |
|
Term loan under Term Loan Agreement, bearing interest at 6.26% (a) |
|
|
800,000 |
|
|
800,000 |
|
4.25% Senior Notes due 2028 |
|
|
500,000 |
|
|
500,000 |
|
3.50% Senior Notes due 2029 |
|
|
500,000 |
|
|
500,000 |
|
2.60% Senior Notes due 2030 |
|
|
600,000 |
|
|
600,000 |
|
2.20% Senior Notes due 2032 |
|
|
650,000 |
|
|
650,000 |
|
3.20% Senior Notes due 2032 |
|
|
500,000 |
|
|
500,000 |
|
4.20% Senior Notes due 2033 |
|
|
750,000 |
|
|
750,000 |
|
3.05% Senior Notes due 2050 |
|
|
500,000 |
|
|
500,000 |
|
2.95% Senior Notes due 2052 |
|
|
850,000 |
|
|
850,000 |
|
Notes payable to sellers and other third parties, bearing interest ranging from 2.42% to 10.35%, principal and interest payments due periodically with due dates ranging from 2024 to 2036 (a) |
|
|
35,283 |
|
|
37,232 |
|
Finance leases, bearing interest ranging from 1.89% to 2.16%, with lease expiration dates ranging from 2026 to 2028 (a) |
|
|
10,514 |
|
|
11,464 |
|
|
|
|
6,755,740 |
|
|
6,963,401 |
|
Less – current portion |
|
|
(10,699) |
|
|
(6,759) |
|
Less – unamortized debt discount and issuance costs |
|
|
(63,657) |
|
|
(66,493) |
|
Long-term portion of debt and notes payable |
|
$ |
6,681,384 |
|
$ |
6,890,149 |
|
____________________
| (a) | Interest rates represent the interest rates at June 30, 2023. |
16
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Credit Agreement
Details of the Credit Agreement are as follows:
|
|
June 30, |
|
December 31, |
|
|
||
|
|
2023 |
|
2022 |
|
|
||
Revolver under Credit Agreement |
|
|
|
|
|
|
|
|
Available |
|
$ |
1,400,619 |
|
$ |
1,193,502 |
|
|
Letters of credit outstanding |
|
$ |
39,438 |
|
$ |
41,793 |
|
|
Total amount drawn, as follows: |
|
$ |
409,943 |
|
$ |
614,705 |
|
|
Amount drawn – U.S. Term SOFR rate loan |
|
$ |
150,000 |
|
$ |
391,000 |
|
|
Interest rate applicable – U.S. Term SOFR rate loan |
|
|
6.14 |
% |
|
5.42 |
% |
|
Amount drawn – U.S. Term SOFR rate loan |
|
$ |
50,000 |
|
$ |
— |
|
|
Interest rate applicable – U.S. Term SOFR rate loan |
|
|
6.26 |
% |
|
— |
% |
|
Amount drawn – U.S. Term SOFR rate loan |
|
$ |
40,000 |
|
$ |
— |
|
|
Interest rate applicable – U.S. Term SOFR rate loan |
|
|
6.20 |
% |
|
— |
% |
|
Amount drawn – Canadian bankers’ acceptance |
|
$ |
169,943 |
|
$ |
223,705 |
|
|
Interest rate applicable – Canadian bankers’ acceptance |
|
|
5.98 |
% |
|
5.74 |
% |
|
Commitment – rate applicable |
|
|
0.09 |
% |
|
0.09 |
% |
|
Term loan under Credit Agreement |
|
|
|
|
|
|
|
|
Amount drawn – U.S. Term SOFR rate loan |
|
$ |
650,000 |
|
$ |
650,000 |
|
|
Interest rate applicable – U.S. Term SOFR rate loan |
|
|
6.14 |
% |
|
5.42 |
% |
|
In addition to the $39,438 of letters of credit at June 30, 2023 issued and outstanding under the Credit Agreement, the Company has issued and outstanding letters of credit totaling $85,259 under facilities other than the Credit Agreement.
11.SEGMENT REPORTING
The Company’s revenues are generated from the collection, transfer, recycling and disposal of non-hazardous solid waste and the treatment, recovery and disposal of non-hazardous E&P waste. No single contract or customer accounted for more than 10% of the Company’s total revenues at the consolidated or reportable segment level during the periods presented.
Effective April 1, 2023, the Company modified its organizational structure under new regional operating segments as the result of continued growth in its business. The Company now reports revenue and segment EBITDA based on the following six geographic solid waste operating segments: Southern, Western, Central, Eastern, Canada and MidSouth. A small number of operating locations have been reallocated from the Western segment to the Central segment, the previous Eastern segment has been bifurcated into two smaller geographies now referred to as the Eastern segment and MidSouth segment, and a small number of operating locations have been reallocated from the Southern segment to the MidSouth segment. The Company’s six geographic solid waste operating segments comprise its reportable segments. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts. The segment information presented herein reflects the realignment of these regions.
The Company’s 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. The Company defines 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. The Company’s 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.
17
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
A reconciliation of segment EBITDA to Income before income tax provision is included at the end of this Note 11.
Summarized financial information concerning the Company’s reportable segments for the three and six months ended June 30, 2023 and 2022, is shown in the following tables:
Three Months Ended |
|
|
|
|
Intercompany |
|
Reported |
|
Segment |
|||
June 30, 2023 |
|
Revenue |
|
Revenue(b) |
|
Revenue |
|
EBITDA(c) |
||||
Southern |
|
$ |
466,547 |
|
$ |
(52,486) |
|
$ |
414,061 |
|
$ |
129,674 |
Western |
|
|
471,481 |
|
|
(52,509) |
|
|
418,972 |
|
|
119,560 |
Central |
|
|
415,975 |
|
|
(46,790) |
|
|
369,185 |
|
|
130,958 |
Eastern |
|
|
405,614 |
|
|
(62,190) |
|
|
343,424 |
|
|
86,515 |
Canada |
|
|
278,282 |
|
|
(29,577) |
|
|
248,705 |
|
|
95,194 |
MidSouth |
|
|
273,156 |
|
|
(46,408) |
|
|
226,748 |
|
|
62,418 |
Corporate(a) |
|
|
— |
|
|
— |
|
|
— |
|
|
(16,958) |
|
|
$ |
2,311,055 |
|
$ |
(289,960) |
|
$ |
2,021,095 |
|
$ |
607,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
Intercompany |
|
Reported |
|
Segment |
|||
June 30, 2022 |
|
Revenue |
|
Revenue(b) |
|
Revenue |
|
EBITDA(c) |
||||
Southern |
|
$ |
416,878 |
|
$ |
(43,082) |
|
$ |
373,796 |
|
$ |
117,410 |
Western |
|
|
390,126 |
|
|
(43,541) |
|
|
346,585 |
|
|
105,378 |
Central |
|
|
364,239 |
|
|
(39,052) |
|
|
325,187 |
|
|
114,444 |
Eastern |
|
|
363,064 |
|
|
(53,210) |
|
|
309,854 |
|
|
71,664 |
Canada |
|
|
279,274 |
|
|
(28,892) |
|
|
250,382 |
|
|
92,648 |
MidSouth |
|
|
252,984 |
|
|
(42,353) |
|
|
210,631 |
|
|
61,278 |
Corporate(a) |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,683) |
|
|
$ |
2,066,565 |
|
$ |
(250,130) |
|
$ |
1,816,435 |
|
$ |
560,139 |
Six Months Ended |
|
|
|
|
Intercompany |
|
Reported |
|
Segment |
|||
June 30, 2023 |
|
Revenue |
|
Revenue(b) |
|
Revenue |
|
EBITDA(c) |
||||
Southern |
|
$ |
917,547 |
|
$ |
(103,593) |
|
$ |
813,954 |
|
$ |
251,588 |
Western |
|
|
916,277 |
|
|
(101,466) |
|
|
814,811 |
|
|
230,249 |
Central |
|
|
799,500 |
|
|
(90,330) |
|
|
709,170 |
|
|
246,714 |
Eastern |
|
|
794,411 |
|
|
(121,858) |
|
|
672,553 |
|
|
159,790 |
Canada |
|
|
531,952 |
|
|
(56,091) |
|
|
475,861 |
|
|
178,178 |
MidSouth |
|
|
524,241 |
|
|
(88,992) |
|
|
435,249 |
|
|
120,149 |
Corporate(a) |
|
|
— |
|
|
— |
|
|
— |
|
|
(19,412) |
|
|
$ |
4,483,928 |
|
$ |
(562,330) |
|
$ |
3,921,598 |
|
$ |
1,167,256 |
18
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
Intercompany |
|
Reported |
|
Segment |
|||
June 30, 2022 |
|
Revenue |
|
Revenue(b) |
|
Revenue |
|
EBITDA(c) |
||||
Southern |
|
$ |
802,515 |
|
$ |
(82,653) |
|
$ |
719,862 |
|
$ |
218,534 |
Western |
|
|
766,664 |
|
|
(86,420) |
|
|
680,244 |
|
|
205,378 |
Central |
|
|
687,236 |
|
|
(71,988) |
|
|
615,248 |
|
|
211,395 |
Eastern |
|
|
679,031 |
|
|
(98,375) |
|
|
580,656 |
|
|
136,951 |
Canada |
|
|
519,489 |
|
|
(54,399) |
|
|
465,090 |
|
|
177,492 |
MidSouth |
|
|
481,146 |
|
|
(79,556) |
|
|
401,590 |
|
|
111,097 |
Corporate(a) |
|
|
— |
|
|
— |
|
|
— |
|
|
(7,385) |
|
|
$ |
3,936,081 |
|
$ |
(473,391) |
|
$ |
3,462,690 |
|
$ |
1,053,462 |
____________________
| (a) | The majority of Corporate expenses are allocated to the six operating segments. Direct acquisition expenses, expenses associated with common shares held in the deferred compensation plan exchanged for other investment 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 six operating segments and comprise the net EBITDA of the Company’s Corporate segment for the periods presented. |
| (b) | Intercompany revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments. Transactions within and between segments are made on a basis intended to reflect the market value of the service. |
| (c) | For those items included in the determination of segment EBITDA, the accounting policies of the segments are the same as those described in the Company’s most recent Annual Report on Form 10-K. |
The following tables show changes in goodwill during the six months ended June 30, 2023 and 2022, by reportable segment:
|
|
Southern |
|
Western |
|
Central |
|
Eastern |
|
Canada |
|
MidSouth |
|
Total |
|||||||
Balance as of December 31, 2022 |
|
$ |
1,547,894 |
|
$ |
732,335 |
|
$ |
1,003,470 |
|
$ |
1,189,111 |
|
$ |
1,684,670 |
|
$ |
744,817 |
|
$ |
6,902,297 |
Goodwill acquired |
|
|
— |
|
|
45,072 |
|
|
4,026 |
|
|
3,895 |
|
|
— |
|
|
1,366 |
|
|
54,359 |
Goodwill acquisition adjustments |
|
|
(1,493) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,528) |
|
|
— |
|
|
(3,021) |
Impact of changes in foreign currency |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
38,831 |
|
|
— |
|
|
38,831 |
Balance as of June 30, 2023 |
|
$ |
1,546,401 |
|
$ |
777,407 |
|
$ |
1,007,496 |
|
$ |
1,193,006 |
|
$ |
1,721,973 |
|
$ |
746,183 |
|
$ |
6,992,466 |
|
|
Southern |
|
Western |
|
Central |
|
Eastern |
|
Canada |
|
MidSouth |
|
Total |
|||||||
Balance as of December 31, 2021 |
|
$ |
1,457,437 |
|
$ |
503,223 |
|
$ |
931,269 |
|
$ |
992,578 |
|
$ |
1,559,512 |
|
$ |
743,624 |
|
$ |
6,187,643 |
Goodwill acquired |
|
|
— |
|
|
— |
|
|
5,976 |
|
|
121,041 |
|
|
166,491 |
|
|
— |
|
|
293,508 |
Goodwill acquisition adjustments |
|
|
— |
|
|
2,999 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,108 |
|
|
4,107 |
Impact of changes in foreign currency |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(27,348) |
|
|
— |
|
|
(27,348) |
Balance as of June 30, 2022 |
|
$ |
1,457,437 |
|
$ |
506,222 |
|
$ |
937,245 |
|
$ |
1,113,619 |
|
$ |
1,698,655 |
|
$ |
744,732 |
|
$ |
6,457,910 |
19
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
A reconciliation of the Company’s primary measure of segment profitability (segment EBITDA) to Income before income tax provision in the Condensed Consolidated Statements of Net Income is as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
||||
Southern segment EBITDA |
|
$ |
129,674 |
|
$ |
117,410 |
|
$ |
251,588 |
|
$ |
218,534 |
|
Western segment EBITDA |
|
|
119,560 |
|
|
105,378 |
|
|
230,249 |
|
|
205,378 |
|
Central segment EBITDA |
|
|
130,958 |
|
|
114,444 |
|
|
246,714 |
|
|
211,395 |
|
Eastern segment EBITDA |
|
|
86,515 |
|
|
71,664 |
|
|
159,790 |
|
|
136,951 |
|
Canada segment EBITDA |
|
|
95,194 |
|
|
92,648 |
|
|
178,178 |
|
|
177,492 |
|
MidSouth segment EBITDA |
|
|
62,418 |
|
|
61,278 |
|
|
120,149 |
|
|
111,097 |
|
Subtotal reportable segments |
|
|
624,319 |
|
|
562,822 |
|
|
1,186,668 |
|
|
1,060,847 |
|
Unallocated corporate overhead |
|
|
(16,958) |
|
|
(2,683) |
|
|
(19,412) |
|
|
(7,385) |
|
Depreciation |
|
|
(213,322) |
|
|
(188,937) |
|
|
(417,380) |
|
|
(368,887) |
|
Amortization of intangibles |
|
|
(39,052) |
|
|
(37,462) |
|
|
(78,335) |
|
|
(75,098) |
|
Impairments and other operating items |
|
|
(10,859) |
|
|
(4,150) |
|
|
(12,724) |
|
|
(6,028) |
|
Interest expense |
|
|
(67,545) |
|
|
(45,079) |
|
|
(135,898) |
|
|
(86,404) |
|
Interest income |
|
|
1,338 |
|
|
652 |
|
|
4,053 |
|
|
790 |
|
Other income (expense), net |
|
|
(200) |
|
|
(2,649) |
|
|
2,974 |
|
|
(6,114) |
|
Income before income tax provision |
|
$ |
277,721 |
|
$ |
282,514 |
|
$ |
529,946 |
|
$ |
511,721 |
|
12.DERIVATIVE FINANCIAL INSTRUMENTS
The Company recognizes all derivatives on the Condensed Consolidated Balance Sheets at fair value. All of the Company’s derivatives have been designated as cash flow hedges; therefore, the gain or loss on the derivatives will be recognized in accumulated other comprehensive income (loss) (“AOCIL”) and reclassified into earnings in the same period during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item. The Company classifies cash inflows and outflows from derivatives within operating activities on the Condensed Consolidated Statements of Cash Flows.
One of the Company’s objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the variable interest rates of certain borrowings under the Credit Agreement. The Company’s strategy to achieve that objective involves entering into interest rate swaps. The interest rate swaps outstanding at June 30, 2023 were specifically designated to the Credit Agreement and accounted for as cash flow hedges.
At June 30, 2023, the Company’s derivative instruments included four interest rate swap agreements as follows:
|
|
|
|
|
Fixed |
|
Variable |
|
|
|
|
|
|
Notional |
|
Interest |
|
Interest Rate |
|
|
|
|
|
Date Entered |
|
Amount |
|
Rate Paid (a) |
|
Received |
|
Effective Date (b) |
|
Expiration Date |
|
August 2017 |
|
$ |
200,000 |
|
2.1230 |
% |
1-month Term SOFR |
|
November 2022 |
|
October 2025 |
June 2018 |
|
$ |
200,000 |
|
2.8480 |
% |
1-month Term SOFR |
|
November 2022 |
|
October 2025 |
June 2018 |
|
$ |
200,000 |
|
2.8284 |
% |
1-month Term SOFR |
|
November 2022 |
|
October 2025 |
December 2018 |
|
$ |
200,000 |
|
2.7715 |
% |
1-month Term SOFR |
|
November 2022 |
|
July 2027 |
____________________
20
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The fair values of derivative instruments designated as cash flow hedges at June 30, 2023, were as follows:
Derivatives Designated as Cash |
|
Asset Derivatives |
|
Liability Derivatives |
||||||
Flow Hedges |
|
Balance Sheet Location |
|
Fair Value |
|
Balance Sheet Location |
|
Fair Value |
||
Interest rate swaps |
|
Prepaid expenses and other current assets(a) |
|
$ |
21,003 |
|
Accrued liabilities |
|
$ |
— |
|
|
Other assets, net |
|
|
15,160 |
|
|
|
|
|
Total derivatives designated as cash flow hedges |
|
|
|
$ |
36,163 |
|
|
|
$ |
— |
____________________
The fair values of derivative instruments designated as cash flow hedges at December 31, 2022, were as follows:
Derivatives Designated as Cash |
|
Asset Derivatives |
|
Liability Derivatives |
||||||
Flow Hedges |
|
Balance Sheet Location |
|
Fair Value |
|
Balance Sheet Location |
|
Fair Value |
||
Interest rate swaps |
|
Prepaid expenses and other current assets |
|
$ |
17,906 |
|
Accrued liabilities |
|
$ |
— |
|
|
Other assets, net |
|
|
13,901 |
|
|
|
|
|
Total derivatives designated as cash flow hedges |
|
|
|
$ |
31,807 |
|
|
|
$ |
— |
The following table summarizes the impact of the Company’s cash flow hedges on the results of operations, comprehensive income (loss) and AOCIL for the three and six months ended June 30, 2023 and 2022:
Derivatives |
|
|
|
|
|
|
|
Statement of |
|
Amount of (Gain) or Loss Reclassified |
||||
Designated as Cash |
|
Amount of Gain or (Loss) Recognized |
|
Net Income |
|
from AOCIL into Earnings, |
||||||||
Flow Hedges |
|
as AOCIL on Derivatives, Net of Tax (a) |
|
Classification |
|
Net of Tax (b) |
||||||||
|
|
Three Months Ended |
|
|
|
Three Months Ended |
||||||||
|
|
June 30, |
|
|
|
June 30, |
||||||||
|
|
2023 |
|
2022 |
|
|
|
2023 |
|
2022 |
||||
Interest rate swaps |
|
$ |
12,120 |
|
$ |
1,904 |
|
Interest expense |
|
$ |
(3,494) |
|
$ |
2,680 |
Derivatives |
|
|
|
|
|
|
|
Statement of |
|
Amount of (Gain) or Loss Reclassified |
||||
Designated as Cash |
|
Amount of Gain or (Loss) Recognized |
|
Net Income |
|
from AOCIL into Earnings, |
||||||||
Flow Hedges |
|
as AOCIL on Derivatives, Net of Tax (a) |
|
Classification |
|
Net of Tax (b) |
||||||||
|
|
Six Months Ended |
|
|
|
Six Months Ended |
||||||||
|
|
June 30, |
|
|
|
June 30, |
||||||||
|
|
2023 |
|
2022 |
|
|
|
2023 |
|
2022 |
||||
Interest rate swaps |
|
$ |
9,695 |
|
$ |
34,758 |
|
Interest expense |
|
$ |
(6,493) |
|
$ |
6,171 |
____________________
See Note 16 for further discussion on the impact of the Company’s hedge accounting to its consolidated comprehensive income (loss) and AOCIL.
21
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
13.FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist primarily of cash and equivalents, trade receivables, restricted cash and investments, trade payables, debt instruments, contingent consideration obligations and interest rate swaps. As of June 30, 2023 and December 31, 2022, the carrying values of cash and equivalents, trade receivables, restricted cash and investments, trade payables and contingent consideration are considered to be representative of their respective fair values. The carrying values of the Company’s debt instruments, excluding certain notes as listed in the table below, approximate their fair values as of June 30, 2023 and December 31, 2022, based on current borrowing rates, current remaining average life to maturity and borrower credit quality for similar types of borrowing arrangements, and are classified as Level 2 within the fair value hierarchy. The carrying values and fair values of the Company’s debt instruments where the carrying values do not approximate their fair values as of June 30, 2023 and December 31, 2022, are as follows:
|
|
Carrying Value at |
|
Fair Value (a) at |
||||||||
|
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||
4.25% Senior Notes due 2028 |
|
$ |
500,000 |
|
$ |
500,000 |
|
$ |
480,900 |
|
$ |
470,850 |
3.50% Senior Notes due 2029 |
|
$ |
500,000 |
|
$ |
500,000 |
|
$ |
460,200 |
|
$ |
457,650 |
2.60% Senior Notes due 2030 |
|
$ |
600,000 |
|
$ |
600,000 |
|
$ |
516,360 |
|
$ |
510,540 |
2.20% Senior Notes due 2032 |
|
$ |
650,000 |
|
$ |
650,000 |
|
$ |
521,560 |
|
$ |
514,540 |
3.20% Senior Notes due 2032 |
|
$ |
500,000 |
|
$ |
500,000 |
|
$ |
435,300 |
|
$ |
429,000 |
4.20% Senior Notes due 2033 |
|
$ |
750,000 |
|
$ |
750,000 |
|
$ |
704,550 |
|
$ |
699,450 |
3.05% Senior Notes due 2050 |
|
$ |
500,000 |
|
$ |
500,000 |
|
$ |
339,450 |
|
$ |
343,300 |
2.95% Senior Notes due 2052 |
|
$ |
850,000 |
|
$ |
850,000 |
|
$ |
580,975 |
|
$ |
561,425 |
____________________
*Senior Notes are classified as Level 2 within the fair value hierarchy. Fair value inputs include third-party calculations of the market interest rate of notes with similar ratings in similar industries over the remaining note terms.
For details on the fair value of the Company’s interest rate swaps, restricted cash and investments and contingent consideration, refer to Note 15.
14.NET INCOME PER SHARE INFORMATION
The following table sets forth the calculation of the numerator and denominator used in the computation of basic and diluted net income per common share attributable to the Company’s shareholders for the three and six months ended June 30, 2023 and 2022:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Waste Connections for basic and diluted earnings per share |
|
$ |
209,208 |
|
$ |
224,074 |
|
$ |
407,021 |
|
$ |
404,398 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding |
|
|
257,596,993 |
|
|
257,179,434 |
|
|
257,485,587 |
|
|
257,555,033 |
|
Dilutive effect of equity-based awards |
|
|
513,498 |
|
|
557,311 |
|
|
564,763 |
|
|
585,681 |
|
Diluted shares outstanding |
|
|
258,110,491 |
|
|
257,736,745 |
|
|
258,050,350 |
|
|
258,140,714 |
|
22
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
15.FAIR VALUE MEASUREMENTS
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis in periods subsequent to their initial measurement. These tiers include: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data.
The Company’s financial assets and liabilities recorded at fair value on a recurring basis include derivative instruments and restricted cash and investments. At June 30, 2023 and December 31, 2022, the Company’s derivative instruments included pay-fixed, receive-variable interest rate swaps. The Company’s interest rate swaps are recorded at their estimated fair values based on quotes received from financial institutions that trade these contracts. The Company verifies the reasonableness of these quotes using similar quotes from another financial institution as of each date for which financial statements are prepared. For the Company’s interest rate swaps, the Company also considers the Company’s creditworthiness in its determination of the fair value measurement of these instruments in a net liability position and the counterparties’ creditworthiness in its determination of the fair value measurement of these instruments in a net asset position. The Company’s restricted cash is valued at quoted market prices in active markets for identical assets, which the Company receives from the financial institutions that hold such investments on its behalf. The Company’s restricted cash measured at fair value is invested primarily in money market accounts, bank time deposits and U.S. government and agency securities. The Company’s restricted investments are valued at quoted market prices in active markets for similar assets, which the Company receives from the financial institutions that hold such investments on its behalf. The Company’s restricted investments measured at fair value are invested primarily in money market accounts, bank time deposits, U.S. government and agency securities and Canadian bankers’ acceptance notes.
The Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022, were as follows:
|
|
Fair Value Measurement at June 30, 2023 Using |
||||||||||
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
|
||
|
|
|
|
|
Active Markets |
|
Other |
|
Significant |
|||
|
|
|
|
|
for Identical |
|
Observable |
|
Unobservable |
|||
|
|
|
|
|
Assets |
|
Inputs |
|
Inputs |
|||
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
||||
Interest rate swap derivative instruments – net asset position |
|
$ |
36,163 |
|
$ |
— |
|
$ |
36,163 |
|
$ |
— |
Restricted cash |
|
$ |
112,623 |
|
$ |
112,623 |
|
$ |
— |
|
$ |
— |
Restricted investments |
|
$ |
72,883 |
|
$ |
— |
|
$ |
72,883 |
|
$ |
— |
Contingent consideration |
|
$ |
(92,409) |
|
$ |
— |
|
$ |
— |
|
$ |
(92,409) |
|
|
Fair Value Measurement at December 31, 2022 Using |
||||||||||
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
|
||
|
|
|
|
|
Active Markets |
|
Other |
|
Significant |
|||
|
|
|
|
|
for Identical |
|
Observable |
|
Unobservable |
|||
|
|
|
|
|
Assets |
|
Inputs |
|
Inputs |
|||
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
||||
Interest rate swap derivative instruments – net asset position |
|
$ |
31,807 |
|
$ |
— |
|
$ |
31,807 |
|
$ |
— |
Restricted cash |
|
$ |
102,727 |
|
$ |
102,727 |
|
$ |
— |
|
$ |
— |
Restricted investments |
|
$ |
66,402 |
|
$ |
— |
|
$ |
66,402 |
|
$ |
— |
Contingent consideration |
|
$ |
(81,415) |
|
$ |
— |
|
$ |
— |
|
$ |
(81,415) |
23
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The following table summarizes the changes in the fair value for Level 3 liabilities related to contingent consideration for the six months ended June 30, 2023 and 2022:
|
|
Six Months Ended June 30, |
|
||||
|
|
2023 |
|
2022 |
|
||
Beginning balance |
|
$ |
81,415 |
|
$ |
94,308 |
|
Contingent consideration recorded at acquisition date |
|
|
13,350 |
|
|
5,543 |
|
Payment of contingent consideration recorded at acquisition date |
|
|
(2,193) |
|
|
(8,898) |
|
Adjustments to contingent consideration |
|
|
(910) |
|
|
(1,030) |
|
Interest accretion expense |
|
|
747 |
|
|
712 |
|
Ending balance |
|
$ |
92,409 |
|
$ |
90,635 |
|
16.OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) includes changes in the fair value of interest rate swaps that qualify for hedge accounting. The components of other comprehensive income (loss) and related tax effects for the three and six months ended June 30, 2023 and 2022 are as follows:
|
|
Three Months Ended June 30, 2023 |
|||||||
|
|
Gross |
|
Tax Effect |
|
Net of Tax |
|||
Interest rate swap amounts reclassified into interest expense |
|
$ |
(4,754) |
|
|
1,260 |
|
$ |
(3,494) |
Changes in fair value of interest rate swaps |
|
|
16,490 |
|
|
(4,370) |
|
|
12,120 |
Foreign currency translation adjustment |
|
|
50,865 |
|
|
— |
|
|
50,865 |
|
|
$ |
62,601 |
|
$ |
(3,110) |
|
$ |
59,491 |
|
|
Three Months Ended June 30, 2022 |
|||||||
|
|
Gross |
|
Tax Effect |
|
Net of Tax |
|||
Interest rate swap amounts reclassified into interest expense |
|
$ |
3,646 |
|
$ |
(966) |
|
$ |
2,680 |
Changes in fair value of interest rate swaps |
|
|
2,591 |
|
|
(687) |
|
|
1,904 |
Foreign currency translation adjustment |
|
|
(73,504) |
|
|
— |
|
|
(73,504) |
|
|
$ |
(67,267) |
|
$ |
(1,653) |
|
$ |
(68,920) |
|
|
Six Months Ended June 30, 2023 |
|||||||
|
|
Gross |
|
Tax Effect |
|
Net of Tax |
|||
Interest rate swap amounts reclassified into interest expense |
|
$ |
(8,834) |
|
$ |
2,341 |
|
$ |
(6,493) |
Changes in fair value of interest rate swaps |
|
|
13,191 |
|
|
(3,496) |
|
|
9,695 |
Foreign currency translation adjustment |
|
|
52,547 |
|
|
— |
|
|
52,547 |
|
|
$ |
56,904 |
|
$ |
(1,155) |
|
$ |
55,749 |
|
|
Six Months Ended June 30, 2022 |
|||||||
|
|
Gross |
|
Tax Effect |
|
Net of Tax |
|||
Interest rate swap amounts reclassified into interest expense |
|
$ |
8,396 |
|
$ |
(2,225) |
|
$ |
6,171 |
Changes in fair value of interest rate swaps |
|
|
47,290 |
|
|
(12,532) |
|
|
34,758 |
Foreign currency translation adjustment |
|
|
(39,075) |
|
|
— |
|
|
(39,075) |
|
|
$ |
16,611 |
|
$ |
(14,757) |
|
$ |
1,854 |
24
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
A rollforward of the amounts included in AOCIL, net of taxes, for the six months ended June 30, 2023 and 2022, is as follows:
|
|
|
|
|
Foreign |
|
Accumulated |
||
|
|
|
|
|
Currency |
|
Other |
||
|
|
Interest |
|
Translation |
|
Comprehensive |
|||
|
|
Rate Swaps |
|
Adjustment |
|
Income (Loss) |
|||
Balance at December 31, 2022 |
|
$ |
23,378 |
|
$ |
(80,208) |
|
$ |
(56,830) |
Amounts reclassified into earnings |
|
|
(6,493) |
|
|
— |
|
|
(6,493) |
Changes in fair value |
|
|
9,695 |
|
|
— |
|
|
9,695 |
Foreign currency translation adjustment |
|
|
— |
|
|
52,547 |
|
|
52,547 |
Balance at June 30, 2023 |
|
$ |
26,580 |
|
$ |
(27,661) |
|
$ |
(1,081) |
|
|
|
|
|
Foreign |
|
Accumulated |
||
|
|
|
|
|
Currency |
|
Other |
||
|
|
Interest |
|
Translation |
|
Comprehensive |
|||
|
|
Rate Swaps |
|
Adjustment |
|
Income (Loss) |
|||
Balance at December 31, 2021 |
|
$ |
(37,544) |
|
$ |
77,128 |
|
$ |
39,584 |
Amounts reclassified into earnings |
|
|
6,171 |
|
|
— |
|
|
6,171 |
Changes in fair value |
|
|
34,758 |
|
|
— |
|
|
34,758 |
Foreign currency translation adjustment |
|
|
— |
|
|
(39,075) |
|
|
(39,075) |
Balance at June 30, 2022 |
|
$ |
3,385 |
|
$ |
38,053 |
|
$ |
41,438 |
See Note 12 for further discussion on the Company’s derivative instruments.
17.SHAREHOLDERS’ EQUITY
Share-Based Compensation
Restricted Share Units
A summary of activity related to restricted share units (“RSUs”) during the six-month period ended June 30, 2023, is presented below:
|
|
Unvested Shares |
Outstanding at December 31, 2022 |
|
955,999 |
Granted |
|
411,181 |
Forfeited |
|
(28,388) |
Vested and issued |
|
(368,921) |
Outstanding at June 30, 2023 |
|
969,871 |
The weighted average grant-date fair value per share for the common shares underlying the RSUs granted during the six-month period ended June 30, 2023 was $133.61.
Recipients of the Company’s RSUs who participate in the Company’s Nonqualified Deferred Compensation Plan may have elected in years prior to 2015 to defer some or all of their RSUs as they vest until a specified date or dates they choose. At the end of the deferral periods, unless a qualified participant makes certain other elections, the Company issues to recipients who deferred their RSUs common shares of the Company underlying the deferred RSUs. At June 30, 2023 and 2022, the Company had 62,201 and 81,712 vested deferred RSUs outstanding, respectively.
25
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Performance-Based Restricted Share Units
A summary of activity related to performance-based restricted share units (“PSUs”) during the six-month period ended June 30, 2023, is presented below:
|
|
Unvested Shares |
Outstanding at December 31, 2022 |
|
341,850 |
Granted |
|
113,347 |
Vested and issued |
|
(195,665) |
Outstanding at June 30, 2023 |
|
259,532 |
During the six months ended June 30, 2023, the Company’s Compensation Committee granted PSUs with three-year performance-based metrics that the Company must meet before those awards may be earned, and the performance period for those grants ends on December 31, 2025. The Compensation Committee will determine the achievement of performance results and corresponding vesting of PSUs for each performance period. The weighted average grant-date fair value per share for the common shares underlying all PSUs granted during the six-month period ended June 30, 2023 was $133.83.
Deferred Share Units
A summary of activity related to deferred share units (“DSUs”) during the six-month period ended June 30, 2023, is presented below:
|
|
Vested Shares |
Outstanding at December 31, 2022 |
|
26,536 |
Granted |
|
3,945 |
Outstanding at June 30, 2023 |
|
30,481 |
The DSUs consist of a combination of DSU grants outstanding under the Progressive Waste share-based compensation plans that were continued by the Company following the Progressive Waste acquisition and DSUs granted by the Company since the Progressive Waste acquisition. The weighted average grant-date fair value per share for the common shares underlying the DSUs granted during the six-month period ended June 30, 2023 was $136.47.
Other Restricted Share Units
RSU grants outstanding under the Progressive Waste share-based compensation plans were continued by the Company following the Progressive Waste acquisition and allow for the issuance of shares or cash settlement to employees upon vesting. A summary of activity related to Progressive Waste RSUs during the six-month period ended June 30, 2023, is presented below:
Outstanding at December 31, 2022 |
|
57,829 |
Cash settled |
|
(5,803) |
Outstanding at June 30, 2023 |
|
52,026 |
No RSUs under the Progressive Waste share-based compensation plans were granted subsequent to June 1, 2016. All remaining RSUs were vested as of March 31, 2019.
26
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Share-Based Options
Share-based options outstanding under the Progressive Waste share-based compensation plans were continued by the Company following the Progressive Waste acquisition and allow for the issuance of shares or cash settlement to employees upon vesting. A summary of activity related to Progressive Waste share-based options during the six-month period ended June 30, 2023, is presented below:
Outstanding at December 31, 2022 |
|
43,570 |
Cash settled |
|
(7,787) |
Outstanding at June 30, 2023 |
|
35,783 |
No share-based options under the Progressive Waste share-based compensation plans were granted subsequent to June 1, 2016. All outstanding share-based options were vested as of December 31, 2017.
Employee Share Purchase Plan
On May 15, 2020, the Company’s shareholders approved the 2020 Employee Share Purchase Plan (the “ESPP”). Under the ESPP, qualified employees may elect to have payroll deductions withheld from their eligible compensation on each payroll date in amounts equal to or greater than one percent (1%) but not in excess of ten percent (10%) of eligible compensation in order to purchase the Company’s common shares under certain terms and subject to certain restrictions set forth in the ESPP. The exercise price is equal to 95% of the closing price of the Company’s common shares on the last day of the relevant offering period, provided, however, that such exercise price will not be less than 85% of the volume weighted average price of the Company’s common shares as reflected on the Toronto Stock Exchange (the “TSX”) over the final five trading days of such offering period. The maximum number of shares that may be issued under the ESPP is 1,000,000. Under the ESPP, employees purchased 14,594 of the Company’s common shares for $1,841 during the six months ended June 30, 2023. Under the ESPP, employees purchased 12,015 of the Company’s common shares for $1,554 during the six months ended June 30, 2022.
Normal Course Issuer Bid
On July 26, 2022, the Board of Directors of the Company approved, subject to receipt of regulatory approvals, the annual renewal of the Company’s normal course issuer bid (the “NCIB”) to purchase up to 12,859,066 of the Company’s common shares during the period of August 10, 2022 to August 9, 2023 or until such earlier time as the NCIB is completed or terminated at the option of the Company. The renewal followed the conclusion of the Company’s NCIB that expired August 9, 2022. The Company received TSX approval for its annual renewal of the NCIB on August 8, 2022. Under the NCIB, the Company may make share repurchases only in the open market, including on the New York Stock Exchange (the “NYSE”), the TSX, and/or alternative Canadian trading systems, at the prevailing market price at the time of the transaction.
In accordance with TSX rules, any daily repurchases made through the TSX and alternative Canadian trading systems is limited to a maximum of 85,956 common shares, which represents 25% of the average daily trading volume on the TSX of 343,825 common shares for the period from February 1, 2022 to July 31, 2022. The TSX rules also allow the Company to purchase, once a week, a block of common shares not owned by any insiders, which may exceed such daily limit. The maximum number of shares that can be purchased per day on the NYSE will be 25% of the average daily trading volume for the four calendar weeks preceding the date of purchase, subject to certain exceptions for block purchases.
27
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The timing and amounts of any repurchases pursuant to the NCIB will depend on many factors, including the Company’s capital structure, the market price of the common shares and overall market conditions. All common shares purchased under the NCIB shall be immediately cancelled following their repurchase.
For the six months ended June 30, 2023, the Company did not repurchase any common shares pursuant to the NCIB in effect during that period. For the six months ended June 30, 2022, the Company repurchased 3,388,155 common shares pursuant to the NCIB in effect during that period at an aggregate cost of $424,999. As of June 30, 2023, the remaining maximum number of shares available for repurchase under the current NCIB was 12,859,066.
Cash Dividend
In November 2022, the Company announced that its Board of Directors increased its regular quarterly cash dividend by $0.025, from $0.23 to $0.255 per Company common share. Cash dividends of $131,140 and $118,812 were paid during the six months ended June 30, 2023 and 2022, respectively.
18.COMMITMENTS AND CONTINGENCIES
In the normal course of its business and as a result of the extensive governmental regulation of the solid waste and E&P waste industries, the Company is subject to various judicial and administrative proceedings involving Canadian regulatory authorities as well as U.S. federal, state and local agencies. In these proceedings, an agency may subpoena the Company for records, or seek to impose fines on the Company or revoke or deny renewal of an authorization held by the Company, including an operating permit. From time to time, the Company may also be subject to actions brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of landfills, transfer stations, and E&P waste treatment, recovery and disposal operations, or alleging environmental damage or violations of the permits and licenses pursuant to which the Company operates. The Company uses $1,000 as a threshold for disclosing environmental matters involving potential monetary sanctions.
In addition, the Company is a party to various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of the Company’s business. Except as noted in the matters described below, as of June 30, 2023, there is no current proceeding or litigation involving the Company or its property that the Company believes could have a material adverse effect on its business, financial condition, results of operations or cash flows.
Jefferson Parish, Louisiana Landfill Litigation
Between June 2016 and December 31, 2020, one of the Company’s subsidiaries, Louisiana Regional Landfill Company (“LRLC”), conducted certain operations at a municipal solid waste landfill known as the Jefferson Parish Landfill (the “JP Landfill”), located in Avondale, Louisiana, near the City of New Orleans. LRLC’s operations were governed by an Operating Agreement entered into in May 2012 by LRLC under its previous name, IESI LA Landfill Corporation, and the owner of the JP Landfill, Jefferson Parish (the “Parish”). The Parish also holds the State of Louisiana permit for the operation of the JP Landfill. Aptim Corporation, and later River Birch, LLC, operated the landfill gas collection system at the JP Landfill under a separate contract with the Parish.
In July and August 2018, four separate lawsuits seeking class action status were filed against LRLC and certain other Company subsidiaries, the Parish, and Aptim Corporation in Louisiana state court, and subsequently removed to the United States District Court for the Eastern District of Louisiana, before Judge Susie Morgan in New Orleans. The Court later consolidated the claims of the putative class action plaintiffs. Beginning in December 2018, a series of 11 substantively identical mass actions were filed in Louisiana state court against LRLC and certain other Company subsidiaries, the Parish, and Aptim Corporation.
28
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The claims of the mass action plaintiffs were removed to and consolidated in federal court in the Eastern District of Louisiana, also before Judge Susie Morgan (the “Addison” action).
The putative class actions and the Addison action assert claims for damages from odors allegedly emanating from the JP Landfill. The consolidated putative class action complaint alleges that the JP Landfill released “noxious odors” into the plaintiffs’ properties and the surrounding community and asserts a range of liability theories—nuisance, negligence (since dismissed), and strict liability—against all defendants. The putative class is described as all residents of Jefferson Parish who have sustained legally cognizable damages as a result of odors from the JP Landfill, but the complaint proposes to revise the geographic definition based on further evidence. The putative class plaintiffs seek unspecified damages for nuisance and unidentified property value diminution. The Addison plaintiffs assert claims for nuisance, negligence, and (with respect to the Parish) unconstitutional takings under the Louisiana Constitution; on behalf of two plaintiffs, the Addison complaint also asserts claims for wrongful death and survivorship.
The Court held an eight-day trial on general causation during January and February 2022.
On November 29, 2022, the Court issued a 45-page decision on the general causation trial. The Court concluded that all putative class and mass action plaintiffs established general causation—specifically that emissions and gases from the JP Landfill were capable of causing certain damages alleged by the plaintiffs. The Court held that it only needed to determine the level of exposure necessary to result in injuries and that the level existed somewhere offsite, and that it was not required to delineate this level of exposure within a geographic area. The Court did, however, limit the time period for damages, to between July 2017 and December 2019, and the types of alleged injuries for which the plaintiffs are able to seek damages, to headaches, nausea, vomiting, loss of appetite, sleep disruption, dizziness, fatigue, anxiety and worry, a decrease in quality of life, and loss of enjoyment or use of property. The Addison plaintiffs’ claims of diminution of property value were put on a separate track from these damages and not addressed.
The Court has held several case management conferences since the general causation decision to discuss how to proceed with the class and mass action cases, and the Court has proposed trying certain Addison plaintiffs’ cases on the merits prior to class certification being determined as to the putative class case. The Company has opposed that sequence by motion, and the Court has recognized its objection on the record. Subject to that objection, the Company jointly proposed a case management order with the Addison plaintiffs that allows for fact and expert discovery on a subset of 8-13 Addison plaintiffs who will proceed to trial. The Court adopted and so-ordered that case management order on April 17, 2023, under which trial was scheduled for September 2023.
On April 17, 2023, the Company and the other Defendants filed a petition for a writ of mandamus from the Fifth Circuit Court of Appeals challenging the April 17 case management order’s sequencing of a merits trial before class certification. The Defendants also filed a motion to stay proceedings in the district court until the Fifth Circuit issues a decision on the writ petition. On June 8, 2023, the Fifth Circuit stayed proceedings in the district court, and oral argument was held on July 12, 2023. Following oral argument, the Fifth Circuit clarified that its stay applies only to the Addison action but has not yet issued a decision on the writ petition.
The Company has already obtained dismissal of approximately one third of the original Addison plaintiffs, the number of which now totals 544, and believes it has strong defenses to the merits of the Addison action, including specific causation issues due to other odor sources in the area. The Company also believes it has strong defenses to certification of the putative class actions, although the Court has not yet indicated when it will allow certification to be briefed and decided, and sequencing of that process may be affected by the Fifth Circuit’s decision on the writ petition. The Company is continuing to vigorously defend itself in these lawsuits; however, at this time, the Company is not able to determine the likelihood of any outcome regarding the underlying claims, including the allocation of any potential liability among the Company, the Parish, and Aptim Corporation.
29
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Los Angeles County, California Landfill Expansion Litigation
| A. | Chiquita Canyon, LLC Lawsuit Against Los Angeles County |
In October 2004, the Company’s subsidiary, Chiquita Canyon, LLC (“CCL”), then under prior ownership, filed an application (the “Application”) with the County of Los Angeles (the “County”) Department of Regional Planning (“DRP”) for a conditional use permit (the “CUP”) to authorize the continued operation and expansion of the Chiquita Canyon Landfill (the “CC Landfill”). The CC Landfill has operated since 1972, and as a regional landfill, accepted approximately 2.6 million tons of materials for disposal and beneficial use in 2022. The Application requested expansion of the existing waste footprint on CCL’s contiguous property, an increase in maximum elevation, creation of a new entrance and new support facilities, construction of a facility for the County or another third-party operator to host household hazardous waste collection events, designation of an area for mixed organics/composting, and other modifications.
After many years of reviews and delays, upon the recommendation of County staff, the County’s Regional Planning Commission (the “Commission”) approved the Application on April 19, 2017, but imposed operating conditions, fees and exactions that substantially reduced the historical landfill operations and represented a large increase in aggregate taxes and fees. CCL objected to many of the requirements imposed by the Commission. Current estimates for new costs imposed on CCL under the CUP are in excess of $300,000.
CCL appealed the Commission’s decision to the County Board of Supervisors, but the appeal was not successful. At a subsequent hearing, on July 25, 2017, the Board of Supervisors approved the CUP. On October 20, 2017, CCL filed in the Superior Court of California, County of Los Angeles a verified petition for writ of mandate and complaint against the County and the County Board of Supervisors captioned Chiquita Canyon, LLC v. County of Los Angeles, No. BS171262 (Los Angeles Co. Super Ct.) (the “Complaint”). The Complaint challenges the terms of the CUP in 13 counts generally alleging that the County violated multiple California and federal statutes and California and federal constitutional protections. CCL seeks the following relief: (a) an injunction and writ of mandate against certain of the CUP’s operational restrictions, taxes and fees, (b) a declaration that the challenged conditions are unconstitutional and in violation of state and federal statutes, (c) reimbursement for any such illegal fees paid under protest, (d) damages, (e) an award of just compensation for a taking, (f) attorney fees, and (g) all other appropriate legal and equitable relief.
Following extensive litigation in 2018 and 2019 on the permissible scope of CCL’s challenge, the Superior Court issued its decision on July 2, 2020, granting CCL’s petition for writ of mandate in part and denying it in part. CCL prevailed with respect to 12 of the challenged conditions, many of which imposed new fees and exactions on the CC Landfill. On October 11, 2022, CCL and the County entered into a settlement agreement that requires CCL to file a CUP modification application with the County embodying the terms of the settlement agreement. CCL filed the CUP modification application on November 10, 2022. If the CUP modification application is approved by the County and certain other contingencies are satisfied, CCL will dismiss this lawsuit. However, at this time, the Company is not able to determine the likelihood of any outcome in this matter.
| B. | December 11, 2017 Notice of Violation Regarding Certain CUP Conditions. |
The County, through its DRP, issued a Notice of Violation, dated December 11, 2017 (the “NOV”), alleging that CCL violated certain conditions of the CUP, including Condition 79(B)(6) of the CUP by failing to pay an $11,600 Bridge & Thoroughfare Fee (“B&T Fee”) that was purportedly due on July 25, 2017. The alleged B&T fee was ostensibly to fund the construction of transportation infrastructure in the area of the Landfill. At the time the NOV was issued, CCL had already contested the legality of the B&T fee in the October 20, 2017 Complaint filed against the County in Los Angeles County Superior Court, described above under paragraph A (the “CUP lawsuit”).
30
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
On January 12, 2018, CCL filed an appeal of the alleged violations in the NOV. Subsequently, CCL filed additional legal arguments and exhibits contesting the NOV. On March 6, 2018, a DRP employee designated as hearing officer sustained the NOV, including the $11,600 B&T fee, and imposed an administrative penalty in the amount of $83 and a noncompliance fee of $0.75. A written decision memorializing the hearing officer’s findings and order was issued on July 10, 2018. On April 13, 2018, CCL filed in the Superior Court of California, County of Los Angeles a Petition for Writ of Administrative Mandamus against the County seeking to overturn the decision sustaining the NOV, contending that the NOV and decision are not supported by the facts or law. On July 17, 2018, the Court granted CCL leave to pay the $11,600 B&T fee and to amend its Complaint in the CUP lawsuit to reflect the payment under protest, allowing the challenge to the B&T fee under the Mitigation Fee Act to proceed in the CUP lawsuit. CCL paid the B&T fee under protest on August 10, 2018, and also paid on that date the administrative penalty of $83 and the noncompliance fee of $0.75. The Court indicated that the NOV case would be coordinated with the CUP lawsuit. On October 11, 2022, CCL and the County entered into the settlement agreement, described above under paragraph A. If the CUP modification application is approved by the County and certain other contingencies are satisfied, CCL will dismiss this lawsuit. However, at this time, the Company is not able to determine the likelihood of any outcome in this matter.
19.SUBSEQUENT EVENTS
On August 2, 2023, the Company announced that its Board of Directors approved a regular quarterly cash dividend of $0.255 per Company common share. The dividend will be paid on August 30, 2023, to shareholders of record on the close of business on August 16, 2023.
On July 25, 2023, the Company’s Board of Directors approved, subject to receipt of regulatory approvals, the annual renewal of its NCIB. The renewal is expected to commence following the conclusion of the Company’s current NCIB expiring August 9, 2023. Upon approval, the Company anticipates that it will be authorized to make purchases during the period of August 10, 2023 to August 9, 2024 or until such earlier time as the NCIB is completed or terminated at the Company’s option.
31
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
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; |
| ● | 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, inflation, credit risk of customers, seasonality, labor/pension costs and labor union activity, operational and safety risks, acquisitions, litigation developments and 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.
32
Environmental, organizational and financial sustainability initiatives have been key components of our success since we were founded in 1997. We continue to grow and expand these efforts and our disclosure regarding progress towards their achievement as our industry and technology continue to evolve. To that end, we have committed $500 million to the advancement of long-term, aspirational ESG targets, which have been incorporated into executive compensation metrics. Our investments primarily focus on reducing emissions, increasing resource recovery of both recyclable commodities and clean energy fuels, reducing reliance on off-site disposal for landfill leachate, further improving safety through reduced incidents and enhancing employee engagement through improved voluntary turnover and Servant Leadership scores. Our 2022 Sustainability 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, including as a result of macroeconomic and geopolitical conditions, which may impact levels of exploration and production activity, with a corresponding impact to our E&P waste activity. In 2022, 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 as recently experienced contributed to increased levels of drilling activity and demand for our E&P waste services. Conversely, in 2020 and 2021, 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, resulted in decreased levels of E&P drilling activity and a corresponding decrease in demand for our E&P waste services. Additionally, across the industry there was uncertainty regarding future demand for oil and related services, as noted by several energy companies, many of whom are customers of our E&P waste services. These energy companies wrote 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. At that time, the uncertainty regarding global demand had a significant impact on the investment and operating plans of our E&P waste customers in the basins where we operate.
33
THE COVID-19 PANDEMIC’S IMPACT ON OUR RESULTS OF OPERATIONS
March 11, 2023 marked the three-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 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 during 2020 and 2021. During 2022, E&P waste revenue increased on higher levels of 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 2022, we incurred over $50 million in incremental COVID-19-related costs, primarily supplemental pay and benefits for frontline employees, including approximately $10 million during 2022.
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 any further outbreaks 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.
34
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
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 June 30, |
|
|
Six Months Ended June 30, |
|
|
||||||||||||||||
|
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
|
||||||||||||
Revenues |
|
$ |
2,021,095 |
|
100.0 |
% |
$ |
1,816,435 |
|
100.0 |
% |
|
$ |
3,921,598 |
|
100.0 |
% |
$ |
3,462,690 |
|
100.0 |
% |
|
Cost of operations |
|
|
1,197,349 |
|
59.2 |
|
|
1,087,892 |
|
59.9 |
|
|
|
2,344,290 |
|
59.8 |
|
|
2,077,410 |
|
60.0 |
|
|
Selling, general and administrative |
|
|
216,385 |
|
10.7 |
|
|
168,404 |
|
9.3 |
|
|
|
410,052 |
|
10.5 |
|
|
331,818 |
|
9.6 |
|
|
Depreciation |
|
|
213,322 |
|
10.6 |
|
|
188,937 |
|
10.4 |
|
|
|
417,380 |
|
10.6 |
|
|
368,887 |
|
10.6 |
|
|
Amortization of intangibles |
|
|
39,052 |
|
1.9 |
|
|
37,462 |
|
2.1 |
|
|
|
78,335 |
|
2.0 |
|
|
75,098 |
|
2.2 |
|
|
Impairments and other operating items |
|
|
10,859 |
|
0.6 |
|
|
4,150 |
|
0.2 |
|
|
|
12,724 |
|
0.3 |
|
|
6,028 |
|
0.2 |
|
|
Operating income |
|
|
344,128 |
|
17.0 |
|
|
329,590 |
|
18.1 |
|
|
|
658,817 |
|
16.8 |
|
|
603,449 |
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(67,545) |
|
(3.4) |
|
|
(45,079) |
|
(2.5) |
|
|
|
(135,898) |
|
(3.5) |
|
|
(86,404) |
|
(2.5) |
|
|
Interest income |
|
|
1,338 |
|
0.1 |
|
|
652 |
|
0.0 |
|
|
|
4,053 |
|
0.1 |
|
|
790 |
|
0.0 |
|
|
Other income (expense), net |
|
|
(200) |
|
(0.0) |
|
|
(2,649) |
|
(0.1) |
|
|
|
2,974 |
|
0.1 |
|
|
(6,114) |
|
(0.1) |
|
|
Income tax provision |
|
|
(68,551) |
|
(3.4) |
|
|
(58,307) |
|
(3.2) |
|
|
|
(122,940) |
|
(3.1) |
|
|
(107,146) |
|
(3.1) |
|
|
Net income |
|
|
209,170 |
|
10.3 |
|
|
224,207 |
|
12.3 |
|
|
|
407,006 |
|
10.4 |
|
|
404,575 |
|
11.7 |
|
|
Net income attributable to noncontrolling interests |
|
|
38 |
|
0.0 |
|
|
(133) |
|
(0.0) |
|
|
|
15 |
|
0.0 |
|
|
(177) |
|
(0.0) |
|
|
Net income attributable to Waste Connections |
|
$ |
209,208 |
|
10.3 |
% |
$ |
224,074 |
|
12.3 |
% |
|
$ |
407,021 |
|
10.4 |
% |
$ |
404,398 |
|
11.7 |
% |
|
Revenues. Total revenues increased $204.7 million, or 11.3%, to $2.021 billion for the three months ended June 30, 2023, from $1.816 billion for the three months ended June 30, 2022. Total revenues increased $458.9 million, or 13.3%, to $3.922 billion for the six months ended June 30, 2023, from $3.463 billion for the three months ended June 30, 2022.
Acquisitions closed during, or subsequent to, the three months ended June 30, 2022, increased revenues by $121.5 million for the three months ended June 30, 2023. Acquisitions closed during, or subsequent to, the six months ended June 30, 2022, increased revenues by $254.1 million for the six months ended June 30, 2023.
Operations that were divested during, or subsequent to, the three and six months ended June 30, 2022, decreased revenues by $0.2 million and $0.7 million, respectively, for the three and six months ended June 30, 2023.
During the three months ended June 30, 2023, the net increase in prices charged to our customers at our existing operations was $155.8 million, consisting of $168.5 million of core price increases and decreases in surcharges of $12.7 million. During the six months ended June 30, 2023, the net increase in prices charged to our customers at our existing operations was $339.3 million, consisting of $339.8 million of core price increases and decreases in surcharges of $0.5 million.
During the three months ended June 30, 2023, we recognized volume losses totaling $32.9 million, primarily due to lower post-collection volumes in our Eastern and Western segment markets and lower residential volumes in our Canada and Southern segments, partially offset by increases in commercial collection services in our Western segment. During the six months ended June 30, 2023, we recognized volume losses totaling $53.4 million, primarily due to lower post collection volumes and a decrease in residential collection services.
E&P waste revenues at facilities owned during the three and six months ended June 30, 2023 and 2022 increased $3.6 million and $11.4 million, respectively, due to increases in overall demand for our E&P waste services as a result of increases in drilling and production activity levels in certain basins.
35
Revenues from sales of recyclable commodities at facilities owned during the three and six months ended June 30, 2023 and 2022 decreased $25.8 million and $55.7 million, respectively. The decreases are primarily attributable to lower commodity pricing for old corrugated cardboard, aluminum, plastics and other paper products as compared to the prior period. Commodity pricing decreased significantly during the three months ended September 30, 2022 and have not fully recovered.
A decrease in the average Canadian dollar to U.S. dollar currency exchange rate resulted in a decrease in revenues of $12.3 million and $26.0 million for the three and six months ended June 30, 2023, respectively. The average Canadian dollar to U.S. dollar exchange rates on our Canadian revenues were 0.7447 and 0.7833 for the three months ended June 30, 2023 and 2022, respectively. The average Canadian dollar to U.S. dollar exchange rates on our Canadian revenues were 0.7423 and 0.7863 for the six months ended June 30, 2023 and 2022, respectively.
Other revenues decreased $5.0 million during the three months ended June 30, 2023, due primarily to a $4.5 million decrease in landfill gas revenues on lower values for renewable energy credits partially offset by higher landfill gas volumes, as well as a $1.4 million decrease in intermodal revenues, partially offset by a $0.9 million increase in other non-core revenue sources. Other revenues decreased $10.1 million during the six months ended June 30, 2023, due primarily to an $8.8 million decrease in landfill gas revenues on lower values for renewable energy credits partially offset by higher landfill gas volumes, as well as a $3.3 million decrease in intermodal revenues, partially offset by a $2.0 million increase in other non-core revenue sources.
Cost of Operations. Total cost of operations increased $109.5 million, or 10.1%, to $1.197 billion for the three months ended June 30, 2023, from $1.088 billion for the three months ended June 30, 2022. The increase was primarily the result of $66.4 million of additional operating costs from acquisitions closed during, or subsequent to, the three months ended June 30, 2022, and an increase in operating costs at our existing operations of $49.8 million, assuming foreign currency parity, partially offset by a decrease in operating costs of $6.7 million resulting from a lower average foreign currency exchange rate in effect during the current period.
The increase in operating costs of $49.8 million, assuming foreign currency parity, at our existing operations for the three months ended June 30, 2023 consisted of higher labor and recurring incentive compensation expenses of $26.9 million, an increase in expenses for auto and workers’ compensation claims of $15.9 million due primarily to increased claims and an increase in our average claim cost, an increase in truck, container, equipment and facility maintenance and repair expenses of $10.4 million, an increase in taxes on revenues of $3.8 million as the result of higher revenues, an increase in leachate costs of $3.2 million, an increase in landfill maintenance costs of $2.6 million and $4.9 million of other net expense increases, partially offset by a decrease in fuel expense of $10.4 million due to lower average diesel and natural gas prices, a decrease in third-party trucking and transportation expenses of $6.5 million due primarily to lower post collection volumes, and lower disposal costs of $1.0 million primarily driven by decreased collection volumes and increased internalization in certain markets.
Total cost of operations increased $266.9 million, or 12.8%, to $2.344 billion for the six months ended June 30, 2023, from $2.077 billion for the six months ended June 30, 2022. The increase was primarily the result of $152.8 million of additional operating costs from acquisitions closed during, or subsequent to, the six months ended June 30, 2022, and an increase in operating costs at our existing operations of $128.0 million, assuming foreign currency parity, partially offset by a decrease in operating costs of $13.9 million resulting from a lower average foreign currency exchange rate in effect during the current period.
The increase in operating costs of $128.0 million, assuming foreign currency parity, at our existing operations for the six months ended June 30, 2023 consisted of higher labor and recurring incentive compensation expenses of $61.4 million, an increase in truck, container, equipment and facility maintenance and repair expenses of $28.0 million, an increase in expenses for auto and workers’ compensation claims of $19.0 million due primarily to increased claims and an increase in our average claim cost, an increase in taxes on revenues of $7.0 million as the result of increased revenues, an increase in leachate costs of $6.6 million, an increase in other facility operating costs and professional fees of $5.1 million, an increase in landfill maintenance costs of $4.7 million, an increase in third-party trucking and transportation expenses of $2.5 million due primarily to higher rates charged by third-party providers partially offset by lower post collection volumes, an increase in benefits costs of $2.4 million and a net increase of other expenses of $2.2 million, partially offset by a decrease in supplemental compensation to non-management personnel of $9.0 million associated with the impact of the COVID-19 pandemic that occurred in the prior year period and a decrease in fuel expense of $1.9 million due to lower diesel and natural gas prices.
36
Cost of operations as a percentage of revenues decreased 0.7 percentage points to 59.2% for the three months ended June 30, 2023, from 59.9% for the three months ended June 30, 2022. The decrease as a percentage of revenues consisted of a 0.8 percentage point decrease due to lower average diesel and natural gas prices, a 0.7 percentage point decrease in third-party trucking and transportation expenses related to lower volumes and a 0.5 percentage point decrease due to lower disposal costs resulting from lower collection volumes and increased internalization in certain markets, partially offset by a 0.8 percentage point increase due to increases in our average cost of auto and workers' compensation claims, a 0.4 percentage point increase related to higher labor and recurring incentive compensation expenses and a 0.1 percentage point increase from all other net changes.
Cost of operations as a percentage of revenues decreased 0.2 percentage points to 59.8% for the six months ended June 30, 2023, from 60.0% for the six months ended June 30, 2022. The decrease as a percentage of revenues was primarily driven by the impact of price-led revenue growth, a 0.6 percentage point decrease in disposal costs, a 0.4 percentage point decrease in fuel costs due to lower diesel and natural gas prices, a 0.3 percentage point decrease in third-party trucking and transportation expenses and a 0.2 percentage point decrease in compensation to non-management personnel associated with the impact of the COVID-19 pandemic that occurred in the prior year period, partially offset by a 0.5 percentage point increase in expenses for auto and workers’ compensation claims due to an increase in our average claim cost, a 0.3 percentage point increase in truck, container, equipment and facility maintenance and repair expenses, a 0.2 percentage point increase from acquisitions closed during, or subsequent to, the six months ended June 30, 2022 having operating costs as a percentage of revenue higher than our company average and a 0.3 percentage point increase from all other net changes.
SG&A. SG&A expenses increased $48.0 million, or 28.5%, to $216.4 million for the three months ended June 30, 2023, from $168.4 million for the three months ended June 30, 2022. The increase was comprised of an increase of $39.5 million, assuming foreign currency parity, at our existing operations and $9.2 million from acquisitions closed during, or subsequent to, the three months ended June 30, 2022, partially offset by a decrease of $0.7 million resulting from a lower average foreign currency exchange rate in effect during the current period.
The increase in SG&A expenses at our existing operations of $39.5 million, assuming foreign currency parity, for the three months ended June 30, 2023 was comprised of an increase in executive separation costs of $15.1 million, administrative payroll expenses of $7.1 million, an increase in incentive compensation expenses of $6.4 million, an increase in deferred compensation expenses of $6.0 million as a result of increases in the market value of investments to which employee deferred compensation liability balances are tracked, an increase in equity-based compensation expenses of $2.0 million associated with our annual recurring grants of restricted share units to our personnel and an increase of $2.9 million from all other net changes.
SG&A expenses increased $78.2 million, or 23.6%, to $410.0 million for the six months ended June 30, 2023, from $331.8 million for the six months ended June 30, 2022. The increase was comprised of an increase of $62.5 million, assuming foreign currency parity, at our existing operations and $18.5 million from acquisitions closed during, or subsequent to, the six months ended June 30, 2022, partially offset by a decrease of $2.8 million resulting from a lower average foreign currency exchange rate in effect during the current period.
The increase in SG&A expenses at our existing operations of $62.5 million, assuming foreign currency parity, for the six months ended June 30, 2023 was comprised of an increase in executive separation costs of $15.1 million, an increase in administrative payroll expenses of $14.2 million, an increase in deferred compensation expenses of $9.3 million as a result of increases in the market value of investments to which employee deferred compensation liability balances are tracked, an increase in equity-based compensation expenses of $7.1 million associated with our annual recurring grants of restricted share units to our personnel, an increase in incentive compensation expense of $6.1 million, a collective increase in travel, meetings and training expenses of $3.4 million, an increase in professional fees of $3.4 million, an increase in software license fees of $3.2 million and $5.0 million of other net expense increases, partially offset by a decrease in direct acquisition expenses of $4.3 million due to a decrease in acquisition activity in the current period.
37
SG&A expenses as a percentage of revenues increased 1.4 percentage points to 10.7% for the three months ended June 30, 2023, from 9.3% for the three months ended June 30, 2022. The increase as a percentage of revenues was primarily attributable to a 0.9 percentage point increase in executive separation costs, a 0.3 percentage point increase in deferred compensation expense, a 0.3 percentage point increase in administrative payroll expenses and a 0.3 percentage point increase in incentive compensation expenses, partially offset by a 0.2 percentage point decrease from acquisitions closed during, or subsequent to, the three months ended June 30, 2022 having lower SG&A costs as a percentage of revenue than our company average and a 0.2 percentage point decrease from all other net changes.
SG&A expenses as a percentage of revenues increased 0.9 percentage points to 10.5% for the six months ended June 30, 2023, from 9.6% for the six months ended June 30, 2022. The increase as a percentage of revenues was primarily attributable to a 0.4 percentage point increase in executive separation costs, a 0.3 percentage point increase in deferred compensation expense and a 0.2 percentage point increase in administrative payroll expenses.
Depreciation. Depreciation expense increased $24.4 million, or 12.9%, to $213.3 million for the three months ended June 30, 2023, from $188.9 million for the three months ended June 30, 2022. The increase was comprised of an increase in depreciation and depletion expense of $16.6 million from acquisitions closed during, or subsequent to, the three months ended June 30, 2022, an increase in depreciation expense of $7.8 million from the impact of additions to our fleet and equipment purchased to support our existing operations and $1.3 million of other net increases, partially offset by a decrease of $1.3 million resulting from a lower average foreign currency exchange rate in effect during the current period.
Depreciation expense increased $48.5 million, or 13.1%, to $417.4 million for the six months ended June 30, 2023, from $368.9 million for the six months ended June 30, 2022. The increase was comprised of an increase in depreciation and depletion expense of $34.7 million from acquisitions closed during, or subsequent to, the six months ended June 30, 2022, an increase in depreciation expense of $14.5 million from the impact of additions to our fleet and equipment purchased to support our existing operations and $1.9 million of other net increases, partially offset by a decrease of $2.6 million resulting from a lower average foreign currency exchange rate in effect during the current period.
Depreciation expense as a percentage of revenues increased 0.2 percentage points to 10.6% for the three months ended June 30, 2023, from 10.4% for the three months ended June 30, 2022. Depreciation expense as a percentage of revenues remained flat at 10.6% for the six months ended June 30, 2023 and 2022. The increase for the three months ended June 30, 2023 as a percentage of revenues was primarily attributable to acquisitions closed during, or subsequent to, the three months ended June 30, 2022 having higher depreciation expense as a percentage of revenue than our company average, partially offset by the impact of price driven revenue increases in our solid waste services.
Amortization of Intangibles. Amortization of intangibles expense increased $1.6 million, or 4.2%, to $39.1 million for the three months ended June 30, 2023, from $37.5 million for the three months ended June 30, 2022. The increase was the result of $5.9 million from intangible assets acquired in acquisitions closed during, or subsequent to, the three months ended June 30, 2022, partially offset by a decrease of $4.0 million from certain intangible assets becoming fully amortized subsequent to June 30, 2022, and a decrease of $0.3 million resulting from a lower average foreign currency exchange rate in effect during the current period.
Amortization of intangibles expense increased $3.2 million, or 4.3%, to $78.3 million for the six months ended June 30, 2023, from $75.1 million for the six months ended June 30, 2022. The increase was the result of $14.1 million from intangible assets acquired in acquisitions closed during, or subsequent to, the six months ended June 30, 2022, partially offset by a decrease of $10.2 million from certain intangible assets becoming fully amortized subsequent to June 30, 2022, and a decrease of $0.7 million resulting from a lower average foreign currency exchange rate in effect during the current period.
Amortization of intangibles expense as a percentage of revenues decreased 0.2 percentage points to 1.9% for the three months ended June 30, 2023, from 2.1% for the three months ended June 30, 2022. Amortization of intangibles expense as a percentage of revenues decreased 0.2 percentage points to 2.0% for the six months ended June 30, 2023, from 2.2% for the six months ended June 30, 2022. The decreases as a percentage of revenues were attributable to the impact of price-driven revenue increases in our solid waste services.
38
Impairments and Other Operating Items. Impairments and other operating items increased $6.8 million to $10.9 million of net losses for the three months ended June 30, 2023, from $4.1 million of net losses for the three months ended June 30, 2022.
The net losses of $10.9 million recorded during the three months ended June 30, 2023 resulted from $6.2 million of charges to write off the carrying cost of certain contracts that were not, or are not expected to be, renewed prior to the original estimated termination date, $4.5 million of losses on disposal of property and equipment and $0.2 million of other net charges.
The net losses of $4.1 million recorded during the three months ended June 30, 2022 consisted of $2.6 million of losses on property and equipment disposals, $1.3 million of charges to write off the carrying cost of certain contracts that were not, or are not expected to be, renewed prior to the original estimated termination date and $0.2 million of other net charges.
Impairments and other operating items increased $6.7 million, to net losses totaling $12.7 million for the six months ended June 30, 2023, from net losses totaling $6.0 million for the six months ended June 30, 2022.
The net losses of $12.7 million recorded during the six months ended June 30, 2023 consisted of $6.4 million of losses on disposal of property and equipment, $6.2 million of charges to write off the carrying cost of certain contracts that were not, or are not expected to be, renewed prior to the original estimated termination date and $0.1 million of other net charges.
The net losses of $6.0 million recorded during the six months ended June 30, 2022 consisted of $4.9 million of charges to write off the carrying cost of certain contracts that were not, or are not expected to be, renewed prior to the original estimated termination date, $0.9 million of losses on property and equipment disposals and $0.2 million of other net charges.
Operating Income. Operating income increased $14.5 million, or 4.4%, to $344.1 million for the three months ended June 30, 2023, from $329.6 million for the three months ended June 30, 2022.
The increase in our operating income for the three months ended June 30, 2023 was due primarily to price increases for our solid waste services, operating income generated from acquisitions closed during, or subsequent to, the three months ended June 30, 2022 and an increase in earnings at our E&P waste operations, partially offset by lower recyclable commodity pricing in the period and an increase in executive separation costs.
Operating income increased $55.4 million, or 9.2%, to $658.8 million for the six months ended June 30, 2023, from $603.4 million for the six months ended June 30, 2022.
The increase in our operating income for the six months ended June 30, 2023 was due primarily to price increases for our solid waste services, operating income generated from acquisitions closed during, or subsequent to, the six months ended June 30, 2022 and an increase in earnings at our E&P waste operations, partially offset by lower recyclable commodity pricing in the period and an increase in executive separation costs.
Operating income as a percentage of revenues decreased 1.1 percentage points to 17.0% for the three months ended June 30, 2023, from 18.1% for the three months ended June 30, 2022. The decrease as a percentage of revenues was comprised of a 1.4 percentage point increase in SG&A expense, a 0.4 percentage point increase in impairments and other operating items, and a 0.2 percentage point increase in depreciations expense, partially offset by a 0.7 percentage point increase in our costs of operations and a 0.2 percentage point decrease in amortization expense.
Operating income as a percentage of revenues decreased 0.6 percentage points to 16.8% for the six months ended June 30, 2023, from 17.4% for the six months ended June 30, 2022. The decrease as a percentage of revenues was comprised of a 0.9 percentage point increase in SG&A expense and a 0.1 percentage point increase in impairments and other operating items, partially offset by a 0.2 percentage point decrease in our costs of operations and a 0.2 percentage point decrease in amortization expense.
39
Interest Expense. Interest expense increased $22.4 million, or 49.8%, to $67.5 million for the three months ended June 30, 2023, from $45.1 million for the three months ended June 30, 2022. The increase was primarily attributable to an increase of $9.8 million due to a net increase in the average borrowings outstanding under our Credit Agreement and Term Loan Agreement, an increase of $7.9 million from the issuance of $750 million of senior unsecured notes during, or subsequent to, the three months ended June 30, 2022, an increase of $4.4 million from higher interest rates on borrowings outstanding under our Credit Agreement and $0.3 million of other net expense increases.
Interest expense increased $49.5 million, or 57.3%, to $135.9 million for the six months ended June 30, 2023, from $86.4 million for the six months ended June 30, 2022. The increase was primarily attributable to an increase of $19.6 million due to a net increase in the average borrowings outstanding under our Credit Agreement and Term Loan Agreement, an increase of $18.7 million from the issuance of $1.250 billion of senior unsecured notes during, or subsequent to, the six months ended June 30, 2022, an increase of $10.3 million from higher interest rates on borrowings outstanding under our Credit Agreement and an increase of 0.9 million of other net expense increases.
Interest Income. Interest income increased $0.6 million to $1.3 million for the three months ended June 30, 2023, from $0.7 million for the three months ended June 30, 2022. Interest income increased $3.3 million to $4.1 million for the six months ended June 30, 2023, from $0.8 million for the six months ended June 30, 2022. The increases were primarily attributable to higher average investment rates in the current period.
Other Income (Expense), Net. Other income (expense), net increased $2.4 million, to an expense total of $0.2 million for the three months ended June 30, 2023, from an expense total of $2.6 million for the three months ended June 30, 2022.
Other expense of $0.2 million recorded during the three months ended June 30, 2023 consisted of increases in other expenses of $1.7 million primarily driven by net write off adjustments in the period, partially offset by $1.3 million from an increase in the value of investments purchased to fund our employee deferred compensation obligations and $0.2 million from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods reducing the U.S. dollar consideration required to settle international liabilities.
Other expense of $2.6 million recorded during the three months ended June 30, 2022 consisted of $4.3 million from a decline in the value of investments purchased to fund our employee deferred compensation obligations and a $1.0 million adjustment to increase certain acquisition-related accrued liabilities recorded in prior periods, partially offset by foreign currency transaction gains of $2.5 million resulting from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods reducing the U.S. dollar consideration required to settle international liabilities and $0.2 million of other net income.
Other income (expense), net increased $9.1 million, to an income total of $3.0 million for the six months ended June 30, 2023, from an expense total of $6.1 million for the six months ended June 30, 2022.
Other income of $3.0 million recorded during the six months ended June 30, 2023 consisted of $2.6 million from an increase in the value of investments purchased to fund our employee deferred compensation obligations and $0.4 million from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods reducing the U.S. dollar consideration required to settle international liabilities.
Other expense of $6.1 million recorded during the six months ended June 30, 2022 consisted of $6.2 million from a decline in the value of investments purchased to fund our employee deferred compensation obligations and a $2.0 million adjustment to increase certain acquisition-related accrued liabilities recorded in prior periods, partially offset by foreign currency transaction gains of $1.9 million resulting from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods reducing the U.S. dollar consideration required to settle international liabilities and $0.2 million of other net income.
Income Tax Provision. Income taxes increased $10.3 million, to $68.6 million for the three months ended June 30, 2023, from $58.3 million for the three months ended June 30, 2022. Our effective tax rate for the three months ended June 30, 2023 was 24.7%. Our effective tax rate for the three months ended June 30, 2022 was 20.6%. Income taxes increased $15.8 million, to $122.9 million for the six months ended June 30, 2023, from $107.1 million for the six months ended June 30, 2022.
40
Our effective tax rate for the six months ended June 30, 2023 was 23.2%. Our effective tax rate for the six months ended June 30, 2022 was 20.9%.
The income tax provision for the three and six months ended June 30, 2023 included a benefit of $0.2 million and $2.9 million, respectively, 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 and six months ended June 30, 2022 included a benefit of $0.1 million and $2.5 million, respectively, 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.
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 (in thousands of U.S. dollars).
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||
Commercial |
|
$ |
615,803 |
|
$ |
538,525 |
|
$ |
1,218,082 |
|
$ |
1,038,201 |
Residential |
|
|
529,872 |
|
|
463,320 |
|
|
1,043,926 |
|
|
903,608 |
Industrial and construction roll off |
|
|
340,030 |
|
|
295,557 |
|
|
658,344 |
|
|
555,045 |
Total collection |
|
|
1,485,705 |
|
|
1,297,402 |
|
|
2,920,352 |
|
|
2,496,854 |
Landfill |
|
|
382,944 |
|
|
339,719 |
|
|
726,376 |
|
|
639,484 |
Transfer |
|
|
306,021 |
|
|
261,475 |
|
|
579,543 |
|
|
479,432 |
Recycling |
|
|
38,319 |
|
|
67,504 |
|
|
69,621 |
|
|
130,598 |
E&P |
|
|
58,607 |
|
|
54,155 |
|
|
110,365 |
|
|
97,711 |
Intermodal and other |
|
|
39,459 |
|
|
46,310 |
|
|
77,671 |
|
|
92,002 |
Intercompany |
|
|
(289,960) |
|
|
(250,130) |
|
|
(562,330) |
|
|
(473,391) |
Total |
|
$ |
2,021,095 |
|
$ |
1,816,435 |
|
$ |
3,921,598 |
|
$ |
3,462,690 |
Effective April 1, 2023, we modified our organizational structure under new regional operating segments as the result of continued growth in our business. We now report revenue and segment EBITDA based on the following six geographic solid waste operating segments: Southern, Western, Central, Eastern, Canada and MidSouth. A small number of operating locations have been reallocated from the Western segment to the Central segment, the previous Eastern segment has been bifurcated into two smaller geographies now referred to as the Eastern segment and MidSouth segment, and a small number of operating locations have been reallocated from the Southern segment to the MidSouth segment. Our six geographic solid waste operating segments comprise our reportable segments. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts. The segment information presented herein reflects the realignment of these regions.
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.
41
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 |
|||
June 30, 2023 |
|
Revenue |
|
EBITDA (b) |
|
Margin |
|
Amortization |
||||
Southern |
|
$ |
414,061 |
|
$ |
129,674 |
|
31.3 |
% |
|
$ |
45,875 |
Western |
|
|
418,972 |
|
|
119,560 |
|
28.5 |
% |
|
|
50,465 |
Central |
|
|
369,185 |
|
|
130,958 |
|
35.5 |
% |
|
|
42,791 |
Eastern |
|
|
343,424 |
|
|
86,515 |
|
25.2 |
% |
|
|
52,312 |
Canada |
|
|
248,705 |
|
|
95,194 |
|
38.3 |
% |
|
|
30,763 |
MidSouth |
|
|
226,748 |
|
|
62,418 |
|
27.5 |
% |
|
|
29,896 |
Corporate(a) |
|
|
— |
|
|
(16,958) |
|
— |
|
|
|
272 |
|
|
$ |
2,021,095 |
|
$ |
607,361 |
|
30.1 |
% |
|
$ |
252,374 |
Three Months Ended |
|
|
|
|
|
|
EBITDA |
|
Depreciation and |
|||
June 30, 2022 |
|
Revenue |
|
EBITDA (b) |
|
Margin |
|
Amortization |
||||
Southern |
|
$ |
373,796 |
|
$ |
117,410 |
|
31.4 |
% |
|
$ |
43,900 |
Western |
|
|
346,585 |
|
|
105,378 |
|
30.4 |
% |
|
|
36,630 |
Central |
|
|
325,187 |
|
|
114,444 |
|
35.2 |
% |
|
|
39,181 |
Eastern |
|
|
309,854 |
|
|
71,664 |
|
23.1 |
% |
|
|
46,417 |
Canada |
|
|
250,382 |
|
|
92,648 |
|
37.0 |
% |
|
|
31,914 |
MidSouth |
|
|
210,631 |
|
|
61,278 |
|
29.1 |
% |
|
|
29,229 |
Corporate(a) |
|
|
— |
|
|
(2,683) |
|
— |
|
|
|
(872) |
|
|
$ |
1,816,435 |
|
$ |
560,139 |
|
30.8 |
% |
|
$ |
226,399 |
Six Months Ended |
|
|
|
|
|
|
EBITDA |
|
Depreciation and |
|||
June 30, 2023 |
|
Revenue |
|
EBITDA (b) |
|
Margin |
|
Amortization |
||||
Southern |
|
$ |
813,954 |
|
$ |
251,588 |
|
30.9 |
% |
|
$ |
90,924 |
Western |
|
|
814,811 |
|
|
230,249 |
|
28.3 |
% |
|
|
98,111 |
Central |
|
|
709,170 |
|
|
246,714 |
|
34.8 |
% |
|
|
84,167 |
Eastern |
|
|
672,553 |
|
|
159,790 |
|
23.8 |
% |
|
|
100,348 |
Canada |
|
|
475,861 |
|
|
178,178 |
|
37.4 |
% |
|
|
60,756 |
MidSouth |
|
|
435,249 |
|
|
120,149 |
|
27.6 |
% |
|
|
57,379 |
Corporate(a) |
|
|
— |
|
|
(19,412) |
|
— |
|
|
|
4,030 |
|
|
$ |
3,921,598 |
|
$ |
1,167,256 |
|
29.8 |
% |
|
$ |
495,715 |
Six Months Ended |
|
|
|
|
|
|
EBITDA |
|
Depreciation and |
|||
June 30, 2022 |
|
Revenue |
|
EBITDA (b) |
|
Margin |
|
Amortization |
||||
Southern |
|
$ |
719,862 |
|
$ |
218,534 |
|
30.4 |
% |
|
$ |
86,087 |
Western |
|
|
680,244 |
|
|
205,378 |
|
30.2 |
% |
|
|
72,205 |
Central |
|
|
615,248 |
|
|
211,395 |
|
34.4 |
% |
|
|
75,375 |
Eastern |
|
|
580,656 |
|
|
136,951 |
|
23.6 |
% |
|
|
90,418 |
Canada |
|
|
465,090 |
|
|
177,492 |
|
38.2 |
% |
|
|
59,279 |
MidSouth |
|
|
401,590 |
|
|
111,097 |
|
27.7 |
% |
|
|
55,718 |
Corporate(a) |
|
|
— |
|
|
(7,385) |
|
— |
|
|
|
4,903 |
|
|
$ |
3,462,690 |
|
$ |
1,053,462 |
|
30.4 |
% |
|
$ |
443,985 |
____________________
| (a) | The majority of Corporate expenses are allocated to the six operating segments. Direct acquisition expenses, expenses associated with common shares held in the deferred compensation plan exchanged for other investment 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 six operating segments and comprise the net EBITDA for our Corporate segment for the periods presented. |
| (b) | For those items included in the determination of segment EBITDA, the accounting policies of the segments are the same as those described in our most recent Annual Report on Form 10-K. |
42
A reconciliation of segment EBITDA to Income before income tax provision is included in Note 11 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 and six month periods ended June 30, 2023, compared to the three and six month periods ended June 30, 2022, are discussed below.
Southern
Revenue increased $40.3 million to $414.1 million for the three months ended June 30, 2023, from $373.8 million for the three months ended June 30, 2022, due to solid waste price increases, contributions from acquisitions and increased E&P waste revenues attributable to increases in the demand for our E&P waste services, partially offset by lower volumes in our residential and post-collection lines of business and a decrease in recyclable commodity prices as compared to the prior year.
Revenue increased $94.1 million to $814.0 million for the six months ended June 30, 2023, from $719.9 million for the six months ended June 30, 2022, due to solid waste price increases, contributions from acquisitions, increased E&P waste revenues attributable to increases in the demand for our E&P waste services and increased landfill volumes in our Florida market driven by the impact of Hurricane Ian on construction and demolition activity in the first three months of 2023, partially offset by lower residential collection volumes due to the purposeful non-renewal of a collection contract during the prior year period and other decreases in residential volumes, lower transfer station volumes and a decrease in recyclable commodity prices as compared to the prior years.
EBITDA increased $12.3 million to $129.7 million, or a 31.3% EBITDA margin for the three months ended June 30, 2023, from $117.4 million, or a 31.4% EBITDA margin for the three months ended June 30, 2022. The decrease in our EBITDA margin for the three months ended June 30, 2023 was due to an increase in auto and workers’ compensation claim costs driven by higher average claim expense, an increase in allocated corporate overhead, higher leachate costs, higher labor costs due primarily to wage increases, higher bad debt expense, increased meetings cost and an increase in the costs of parts for trucks, equipment and containers, partially offset by the impact of price-led revenue growth, lower trucking costs related to lower transfer station volumes, decreases in diesel and natural gas costs due to a decline in average fuel prices, decreased professional fees, increased earnings at our E&P waste operations and the impact of acquisitions having higher EBITDA margins than our segment average.
EBITDA increased $33.1 million to $251.6 million, or a 30.9% EBITDA margin for the six months ended June 30, 2023, from $218.5 million, or a 30.4% EBITDA margin for the six months ended June 30, 2022. The increase in our EBITDA margin for the six months ended June 30, 2023 was due to price-led increases in solid waste revenue, contribution from the aforementioned hurricane-driven construction and demolition activity, the impact of acquisitions having higher EBITDA margins than our segment average, lower trucking costs related to lower transfer station volumes, decreases in diesel and natural gas costs due to a decline in average fuel prices, the purposeful non-renewal of a residential contract and increased earnings at our E&P waste operations, partially offset by an increase in auto and workers’ compensation claim costs, higher labor costs, an increase in truck, container, equipment and facility maintenance and repair expenses, an increase in allocated corporate overhead and increased leachate expense.
Depreciation, depletion and amortization expense increased $2.0 million, to $45.9 million for the three months ended June 30, 2023, from $43.9 million for the three months ended June 30, 2022. Depreciation, depletion and amortization expense increased $4.8 million, to $90.9 million for the six months ended June 30, 2023, from $86.1 million for the six months ended June 30, 2022. The increases for the three and six months ended June 30, 2023 were due to assets acquired in acquisitions and additions to our fleet and equipment, partially offset by a reduction in amortization expense associated with the loss of certain residential service contracts.
Western
Revenue increased $72.4 million to $419.0 million for the three months ended June 30, 2023, from $346.6 million for the three months ended June 30, 2022. Revenue increased $134.6 million to $814.8 million for the six months ended June 30, 2023, from $680.2 million for the six months ended June 30, 2022.
43
The increases for the three and six months ended June 30, 2023 were due to contributions from acquisitions, price increases and increases in residential and commercial collection volumes, partially offset by decreased roll off and post-collection volumes, a decrease in the price of recyclable commodities as compared to the prior year periods, and lower intermodal revenue.
EBITDA increased $14.2 million to $119.6 million, or a 28.5% EBITDA margin for the three months ended June 30, 2023, from $105.4 million, or a 30.4% EBITDA margin for the three months ended June 30, 2022. EBITDA increased $24.8 million to $230.2 million, or a 28.3% EBITDA margin for the six months ended June 30, 2023, from $205.4 million, or a 30.2% EBITDA margin for the six months ended June 30, 2022. The decreases in our EBITDA margin for the three and six months ended June 30, 2023 were due to an increase in auto and workers’ compensation claim costs driven by higher average claim expense, an increase in allocated corporate overhead, higher labor costs due primarily to wage increases, higher leachate costs and an increase in processing costs incurred for recyclable material driven primarily by a decrease in commodity values, partially offset by lower trucking costs and decreases in diesel and natural gas costs due to a decline in average fuel prices. The three months ended June 30, 2023 also benefitted from the impact of acquisitions having higher EBITDA margins than our segment average.
Depreciation, depletion and amortization expense increased $13.9 million, to $50.5 million for the three months ended June 30, 2023, from $36.6 million for the three months ended June 30, 2022. Depreciation, depletion and amortization expense increased $25.9 million, to $98.1 million for the six months ended June 30, 2023, from $72.2 million for the six months ended June 30, 2022. The increases for the three and six months ended June 30, 2023 were due to assets acquired in acquisitions and additions to our fleet and equipment.
Central
Revenue increased $44.0 million to $369.2 million for the three months ended June 30, 2023, from $325.2 million for the three months ended June 30, 2022. Revenue increased $94.0 million to $709.2 million for the six months ended June 30, 2023, from $615.2 million for the six months ended June 30, 2022. The increases for the three and six months ended June 30, 2023 were due to price increases and contributions from acquisitions, partially offset by a decrease in the value of recyclable commodities compared to the prior year periods.
EBITDA increased $16.6 million to $131.0 million, or a 35.5% EBITDA margin for the three months ended June 30, 2023, from $114.4 million, or a 35.2% EBITDA margin for the three months ended June 30, 2022. EBITDA increased $35.3 million to $246.7 million, or a 34.8% EBITDA margin for the six months ended June 30, 2023, from $211.4 million, or a 34.4% EBITDA margin for the six months ended June 30, 2022. The increases in our EBITDA margin for the three and six months ended June 30, 2023 were due to the benefits from price-led increases in revenue, decreases in diesel and natural gas costs due to a decline in average fuel prices and the impact of acquisitions having higher EBITDA margins than our segment average, partially offset by a decrease in the value of recyclable commodities as compared to the prior year periods, an increase in auto and workers’ compensation claim costs driven by higher average claim expense and an increase in allocated corporate overhead.
Depreciation, depletion and amortization expense increased $3.6 million, to $42.8 million for the three months ended June 30, 2023, from $39.2 million for the three months ended June 30, 2022. Depreciation, depletion and amortization expense increased $8.8 million, to $84.2 million for the six months ended June 30, 2023, from $75.4 million for the six months ended June 30, 2022. The increases for the three and six months ended June 30, 2023 were due to assets acquired in acquisitions, additions to our fleet and equipment and higher depletion expense due to higher landfill development costs increasing our per ton landfill depletion rates and increased volumes.
Eastern
Revenue increased $33.5 million to $343.4 million for the three months ended June 30, 2023, from $309.9 million for the three months ended June 30, 2022. Revenue increased $91.9 million to $672.6 million for the six months ended June 30, 2023, from $580.7 million for the six months ended June 30, 2022. The increases for the three and six months ended June 30, 2023 were due to price increases and contributions from acquisitions, partially offset by decreased post-collection volumes, decreased residential collection volumes, and a decrease in the value of recyclable commodities compared to the prior year periods.
44
EBITDA increased $14.8 million to $86.5 million, or a 25.2% EBITDA margin for the three months ended June 30, 2023, from $71.7 million, or a 23.1% EBITDA margin for the three months ended June 30, 2022. EBITDA increased $22.8 million to $159.8 million, or a 23.8% EBITDA margin for the six months ended June 30, 2023, from $137.0 million, or a 23.6% EBITDA margin for the six months ended June 30, 2022. The increases in our EBITDA margin for the three and six months ended June 30, 2023 were due primarily to price-led increases in revenue, lower disposal expense, decreases in leachate costs, decreases in diesel and natural gas costs due to a decline in average fuel prices and lower benefits costs, partially offset by higher labor costs primarily driven by wage increases, the impact of acquisitions having lower EBITDA margins than our segment average, an increase in the average auto and workers’ compensation claim cost, higher landfill maintenance costs, an increase in professional fees driven by legal costs, and lower recycle commodity revenues, net of lower rebates, driven by lower average commodity pricing.
Depreciation, depletion and amortization expense increased $5.9 million, to $52.3 million for the three months ended June 30, 2023, from $46.4 million for the three months ended June 30, 2022. Depreciation, depletion and amortization expense increased $9.9 million, to $100.3 million for the six months ended June 30, 2023, from $90.4 million for the six months ended June 30, 2022. The increases for the three and six months ended June 30, 2023 were due to assets acquired in acquisitions, additions to our fleet and equipment and higher depletion expense due to higher landfill development costs increasing our per ton landfill depletion rates, net of lower landfill volumes, partially offset by a reduction in amortization expense associated with the loss of certain residential service contracts.
Canada
Revenue decreased $1.7 million to $248.7 million for the three months ended June 30, 2023, from $250.4 million for the three months ended June 30, 2022. The decrease for the three months ended June 30, 2023 was due to a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods, lower prices for renewable energy credits associated with the generation of landfill gas, lower residential and commercial volumes, and lower prices for recyclable commodities as compared to the prior year period, partially offset by price increases and contributions from acquisitions.
Revenue increased $10.8 million to $475.9 million for the six months ended June 30, 2023, from $465.1 million for the six months ended June 30, 2022. The increase for the six months ended June 30, 2023 was due to price increases and contributions from acquisitions, partially offset by a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods, lower prices for renewable energy credits associated with the generation of landfill gas, lower landfill volumes driven by decreased special waste, a decrease in residential collection volumes, and lower prices for recyclable commodities as compared to the prior year period.
EBITDA increased $2.6 million to $95.2 million, or a 38.3% EBITDA margin for the three months ended June 30, 2023, from $92.6 million, or a 37.0% EBITDA margin for the three months ended June 30, 2022. The increase in our EBITDA margin for the three months ended June 30, 2023 was due to decreases in diesel and natural gas costs due to a decline in average fuel prices, decrease in trucking costs and lower meeting costs, partially offset by lower recycle commodity revenues, net of lower rebates, driven by lower average commodity pricing, an increase in the average auto and workers’ compensation claim cost, an increase in truck, container, equipment and facility maintenance and repair expenses, higher labor costs, and an increase in allocated corporate expense as compared to the prior year period.
EBITDA increased $0.7 million to $178.2 million, or a 37.4% EBITDA margin for the six months ended June 30, 2023, from $177.5 million, or a 38.2% EBITDA margin for the six months ended June 30, 2022. The decrease in our EBITDA margin for the six months ended June 30, 2023 was due to lower recycle commodity revenues, net of lower rebates, driven by lower average commodity pricing, an increase in the average auto and workers’ compensation claim cost, an increase in truck, container, equipment and facility maintenance and repair expenses, higher labor costs, an increase in allocated corporate expense as compared to the prior year period, and the impact of acquisitions having EBITDA margins lower than our segment average, partially offset by decreases in diesel and natural gas costs due to a decline in average fuel prices, a decrease in trucking costs and lower meeting costs.
45
Depreciation, depletion and amortization expense decreased $1.1 million, to $30.8 million for the three months ended June 30, 2023, from $31.9 million for the three months ended June 30, 2022. The decrease for the three months ended June 30, 2023 was due to a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods, a decrease in depletion expense due to lower landfill disposal volumes, partially offset by assets acquired in acquisitions and additions to our fleet and equipment.
Depreciation, depletion and amortization expense increased $1.5 million, to $60.8 million for the six months ended June 30, 2023, from $59.3 million for the six months ended June 30, 2022. The increase for the six months ended June 30, 2023 was due to assets acquired in acquisitions and additions to our fleet and equipment, partially offset by a decrease in depletion expense due to lower landfill disposal volumes and a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods.
MidSouth
Revenue increased $16.1 million to $226.7 million for the three months ended June 30, 2023, from $210.6 million for the three months ended June 30, 2022. Revenue increased $33.6 million to $435.2 million for the six months ended June 30, 2023, from $401.6 million for the six months ended June 30, 2022. The increases for the three and six months ended June 30, 2023 were due to price increases partially offset by a decrease in the value of recyclable commodities compared to the prior year periods.
EBITDA increased $1.1 million to $62.4 million, or a 27.5% EBITDA margin for the three months ended June 30, 2023, from $61.3 million, or a 29.1% EBITDA margin for the three months ended June 30, 2022. EBITDA increased $9.0 million to $120.1 million, or a 27.6% EBITDA margin for the six months ended June 30, 2023, from $111.1 million, or a 27.7% EBITDA margin for the six months ended June 30, 2022. The decreases in our EBITDA margin for the three and six months ended June 30, 2023 were due primarily to higher leachate costs, an increase in auto and workers’ compensation claim costs, an increase in allocated corporate overhead, lower recycle commodity revenues, net of lower rebates, driven by lower average commodity pricing and an increase in professional fees, partially offset by price-led revenue growth, lower disposal costs due to increased internalization in certain markets and decreases in diesel and natural gas costs due to a decline in average fuel prices.
Depreciation, depletion and amortization expense increased $0.7 million, to $29.9 million for the three months ended June 30, 2023, from $29.2 million for the three months ended June 30, 2022. Depreciation, depletion and amortization expense increased $1.7 million, to $57.4 million for the six months ended June 30, 2023, from $55.7 million for the six months ended June 30, 2022. The increases for the three and six months ended June 30, 2023 were due to additions to our fleet and equipment, higher depletion expense due to higher landfill development costs increasing our per ton landfill depletion rates and increased landfill volumes.
Corporate
EBITDA decreased $14.3 million, to a loss of $17.0 million for the three months ended June 30, 2023, from a loss of $2.7 million for the three months ended June 30, 2022. EBITDA decreased $12.0 million, to a loss of $19.4 million for the six months ended June 30, 2023, from a loss of $7.4 million for the six months ended June 30, 2022. The decreases in our EBITDA for the three and six months ended June 30, 2023 were due to an increase in executive separation expenses, increased equity-based compensation expense associated with our annual recurring grants of restricted share units to our personnel, increased deferred compensation expenses, increased incentive compensation costs, increased administrative payroll costs primarily driven by wage increases and additional headcount to support continued growth, and increased costs due to increased travel and meetings, partially offset by lower compensation to non-management personnel associated with the impact of the COVID-19 pandemic that occurred in the first three months of 2022 that did not reoccur in the current year periods, increased allocation of costs to our operating segments driven by overall higher corporate expenses and lower direct acquisition expenses associated with a decrease in acquisition activity in the current year.
46
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth cash flow information for the six months ended June 30, 2023 and 2022 (in thousands of U.S. dollars):
|
|
Six Months Ended |
|
||||
|
|
June 30, |
|
||||
|
|
2023 |
|
2022 |
|
||
Net cash provided by operating activities |
|
$ |
1,016,712 |
|
$ |
973,678 |
|
Net cash used in investing activities |
|
|
(604,621) |
|
|
(891,950) |
|
Net cash provided by (used in) financing activities |
|
|
(389,274) |
|
|
25,142 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
154 |
|
|
(1,941) |
|
Net increase in cash, cash equivalents and restricted cash |
|
|
22,971 |
|
|
104,929 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
181,364 |
|
|
219,615 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
204,335 |
|
$ |
324,544 |
|
Operating Activities Cash Flows
For the six months ended June 30, 2023, net cash provided by operating activities was $1.017 billion. For the six months ended June 30, 2022, net cash provided by operating activities was $973.7 million. The $43.0 million increase was due primarily to the following:
| 1) | Increase in earnings — Our increase in net cash provided by operating activities was favorably impacted by $74.5 million from an increase in net income, excluding depreciation, amortization of intangibles, share-based compensation, adjustments to and payments of contingent consideration recorded in earnings and loss on disposal of assets and impairments, due primarily to price increases, earnings from acquisitions closed during, or subsequent to, the six months ended June 30, 2022, a decrease in compensation to non-management personnel associated with the impact of the COVID-19 pandemic that occurred in the six months ended June 30, 2022 that did not reoccur in the current period, and an increase in earnings at our E&P waste operations. |
| 2) | Accounts receivable — Our increase in net cash provided by operating activities was favorably impacted by $66.9 million from accounts receivable as changes in accounts receivable resulted in a decrease to operating cash flows of $16.4 million for the six months ended June 30, 2023, compared to a decrease to operating cash flows of $83.3 million for the six months ended June 30, 2022. The decrease for the six months ended June 30, 2023 was due to increases in revenue, which remained as outstanding receivables at June 30, 2023, partially offset by one additional collection day in the period. The decrease for the six months ended June 30, 2022 was due to increases in revenues, which remained as outstanding receivables at June 30, 2022. |
| 3) | Prepaid expenses — Our increase in net cash provided by operating activities was favorably impacted by $64.7 million from prepaid expenses as changes in prepaid expenses resulted in an increase to operating cash flows of $46.4 million for the six months ended June 30, 2023, compared to a decrease to operating cash flows of $18.3 million for the six months ended June 30, 2022. The increase for the six months ended June 30, 2023 was due primarily to decreased prepaid income tax payments. The decrease for the six months ended June 30, 2022 was due primarily to increases in prepaid income tax payments and prepaid vendor payments. |
| 4) | Accounts payable and accrued liabilities — Our increase in net cash provided by operating activities was unfavorably impacted by $101.3 million from accounts payable and accrued liabilities as changes in accounts payable and accrued liabilities resulted in a decrease to operating cash flows of $18.5 million for the six months ended June 30, 2023, compared to an increase to operating cash flows of $82.8 million for the six months ended June 30, 2022. The decrease for the six months ended June 30, 2023 was due primarily to outstanding obligations to vendors and accrued annual management bonus compensation as of December 31, 2022 that were paid in the current period, partially offset by an increase in accrued interest due primarily to higher interest rates and higher accrued insurance costs outstanding at period end. The increase for the six months ended June 30, 2022 was due primarily to increases in operating expenses during the period which remained as outstanding obligations at June 30, 2022 and increased accrued interest due to the timing of interest payments for our senior unsecured notes issued subsequent to June 30, 2021, partially offset by the payment of annual cash incentive compensation to our management, which was accrued as a liability at year end. |
47
| 5) | Deferred income taxes — Our increase in net cash provided by operating activities was unfavorably impacted by $53.6 million from deferred income taxes as changes in deferred income taxes resulted in an increase to operating cash flows of $31.4 million for the six months ended June 30, 2023, compared to an increase to operating cash flows of $85.0 million for the six months ended June 30, 2022. The increase for the six months ended June 30, 2023 was primarily due to accelerated tax depreciation from capital expenditures. The increase for the six months ended June 30, 2022 was attributable to capital expenditures providing tax benefits resulting from accelerated depreciation and tax benefits resulting from the divestiture of certain non-strategic E&P disposal operating locations. |
| 6) | Deferred revenue — Our increase in net cash provided by operating activities was unfavorably impacted by $13.1 million from deferred revenue as changes in deferred revenue resulted in an increase to operating cash flows of $14.4 million for the six months ended June 30, 2023, compared to an increase to operating cash flows of $27.5 million for the six months ended June 30, 2022. For both comparative periods, deferred revenue increased due to price increases on our advanced billed residential and commercial collection services. |
At June 30, 2023, we had a working capital deficit of $351.8 million, including cash and equivalents of $91.7 million. Our working capital increased $43.2 million from a working capital deficit of $395.0 million at December 31, 2022 including cash and equivalents of $78.6 million, due primarily to an increase in accounts receivables as a result of increases in revenue, higher cash balances and decreases in accounts payable and accrued liabilities driven by the timing of payments for obligations to vendors and accrued annual management bonus compensation that were outstanding as of December 31, 2022, partially offset by a decrease in prepaid income tax, lower prepaid insurance costs, and an increase in deferred revenues. 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.
Investing Activities Cash Flows
Net cash used in investing activities decreased $287.3 million to $604.6 million for the six months ended June 30, 2023, from $891.9 million for the six months ended June 30, 2022. The significant components of the decrease included the following:
| 1) | A decrease in cash paid for acquisitions of $333.8 million; less |
| 2) | An increase in capital expenditures at operations acquired during the comparative periods of $20.2 million due to expenditures for landfill site costs, trucks and equipment; |
| 3) | An increase in capital expenditures at operations owned in the comparable periods of $2.5 million due to increases in trucks, equipment and landfill site costs; and |
| 4) | A decrease in proceeds from disposal of assets of $13.1 million due to lower disposal of non-strategic assets to provide funding toward new capital expenditures. |
Financing Activities Cash Flows
Net cash used in financing activities increased $414.4 million to $389.3 million for the six months ended June 30, 2023, from net cash provided by financing activities of $25.1 million for the six months ended June 30, 2022. The significant components of the increase included the following:
| 1) | An increase from the net change in long-term borrowings of $827.0 million in which long-term borrowings decreased $228.3 million during the six months ended June 30, 2023 and increased $598.7 million during the six months ended June 30, 2022; |
| 2) | An increase from higher cash dividends paid of $12.3 million due primarily to an increase in our quarterly dividend rate for the six months ended June 30, 2023 to $0.255 per share, from $0.23 per share for the six months ended June 30, 2022; and |
48
| 3) | An increase in tax withholdings related to net share settlements of equity-based compensation of $11.4 million due to an increase in the value of equity-based compensation awards vesting; less |
| 4) | A decrease from lower payments to repurchase our common shares of $425.0 million that occurred in the six months ended June 30, 2022. |
On July 26, 2022, 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 12,859,066 of our common shares during the period of August 10, 2022 to August 9, 2023 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 section “Normal Course Issuer Bid” in Note 17 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.
On July 25, 2023, our Board of Directors approved, subject to receipt of regulatory approvals, the annual renewal of our NCIB. The renewal is expected to commence following the conclusion of our current NCIB expiring August 9, 2023. Upon approval, we anticipate that we will be authorized to make purchases during the period of August 10, 2023 to August 9, 2024 or until such earlier time as the NCIB is completed or terminated at our option.
Our Board of Directors authorized the initiation of a quarterly cash dividend in October 2010 and has increased it on an annual basis. In November 2022, we announced that our Board of Directors increased our regular quarterly cash dividend by $0.025, from $0.230 to $0.255 per share. Cash dividends of $131.1 million and $118.8 million were paid during the six months ended June 30, 2023 and 2022, respectively. We cannot assure as to the amounts or timing of future dividends.
Our business is capital intensive. Our capital requirements include acquisitions and capital expenditures, including for landfill cell construction, landfill development, landfill closure activities and intermodal facility construction in the future.
We made $390.3 million in capital expenditures for property and equipment, net of proceeds from disposal of assets, during the six months ended June 30, 2023, and we expect to make total capital expenditures for property and equipment of approximately $920 million in 2023, net of proceeds from disposal of assets. We have funded and intend to fund the balance of our planned 2023 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.
At June 30, 2023, $650.0 million under the term loan and $409.9 million under the revolving credit facility were outstanding under the Credit Agreement, exclusive of outstanding standby letters of credit of $39.4 million. We also had $85.3 million of letters of credit issued and outstanding at June 30, 2023 under a facility other than the Credit Agreement. Our Credit Agreement matures in July 2026. At June 30, 2023, $800.0 million under the term loan was outstanding under the Term Loan Agreement, which matures in July 2026.
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.
49
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.
At June 30, 2023, 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 |
|
$ |
6,755,740 |
|
$ |
10,699 |
|
$ |
13,987 |
|
$ |
1,870,329 |
|
$ |
4,860,725 |
Cash interest payments |
|
$ |
2,381,899 |
|
$ |
257,482 |
|
$ |
522,935 |
|
$ |
323,649 |
|
$ |
1,277,833 |
Contingent consideration |
|
$ |
109,479 |
|
$ |
71,065 |
|
$ |
3,224 |
|
$ |
3,224 |
|
$ |
31,966 |
Operating leases |
|
$ |
318,978 |
|
$ |
22,155 |
|
$ |
69,967 |
|
$ |
59,033 |
|
$ |
167,823 |
Final capping, closure and post-closure |
|
$ |
1,784,775 |
|
$ |
16,385 |
|
$ |
14,514 |
|
$ |
15,399 |
|
$ |
1,738,477 |
____________________
Long-term debt payments include:
| 1) | $409.9 million 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 Term SOFR rate loans, U.S. dollar base rate loans, Canadian-based bankers’ acceptances or BA equivalent notes, and Canadian dollar prime rate loans. At June 30, 2023, $240.0 million of the outstanding borrowings drawn under the revolving credit facility were in U.S. Term SOFR rate loans, which bear interest at the Term SOFR rate plus the applicable margin (for a total rate ranging from 6.14% to 6.26% on such date). At June 30, 2023, $169.9 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 5.98% on such date). |
| 2) | $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 base rate loans or Term SOFR loans. At June 30, 2023, all amounts outstanding under the term loan were in Term SOFR loans which bear interest at the Term SOFR rate plus the applicable margin (for a total rate of 6.14% on such date). |
| 3) | $800.0 million in principal payments due July 2026 related to our term loan under our Term Loan Agreement. Outstanding amounts on the term loan can be either base rate loans or Term SOFR loans. At June 30, 2023, all amounts outstanding under the term loan were in Term SOFR loans which bear interest at the Term SOFR rate plus the applicable margin (for a total rate of 6.26% on such date). |
| 4) | $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%. |
| 5) | $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%. |
| 6) | $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%. |
| 7) | $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%. |
| 8) | $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%. |
50
| 9) | $750.0 million in principal payments due 2033 related to our 2033 Senior Notes. The 2033 Senior Notes bear interest at a rate of 4.20%. |
| 10) | $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%. |
| 11) | $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%. |
| 12) | $35.3 million in principal payments related to our notes payable to sellers and other third parties. Our notes payable to sellers and other third parties bear interest at rates between 2.42% and 10.35% at June 30, 2023, and have maturity dates ranging from 2024 to 2036. |
| 13) | $10.5 million in principal payments related to our financing leases. Our financing leases bear interest at rates between 1.89% and 2.16% at June 30, 2023, and have expiration dates ranging from 2026 to 2028. |
The following assumptions were made in calculating cash interest payments:
| 1) | We calculated cash interest payments on the Credit Agreement using the Term SOFR rate plus the applicable Term SOFR margin, the base rate plus the applicable base rate margin, the Canadian Dollar Offered Rate plus the applicable acceptance fee and the Canadian prime rate plus the applicable prime rate margin at June 30, 2023. We assumed the Credit Agreement is paid off when it matures in July 2026. |
| 2) | We calculated cash interest payments on the Term Loan Agreement using the Term SOFR rate plus the applicable Term SOFR margin at June 30, 2023. We assumed the Term Loan Agreement is paid off when it matures in July 2026. |
| 3) | We calculated cash interest payments on our interest rate swaps using the stated interest rate in the swap agreement less the Term SOFR rate through the earlier expiration of the term of the swaps or the term of the credit facility. |
Contingent consideration payments include $92.4 million recorded as liabilities in our Condensed Consolidated Financial Statements at June 30, 2023, and $17.1 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 |
|
$ |
165,110 |
|
$ |
115,225 |
|
$ |
49,414 |
|
$ |
471 |
|
$ |
— |
____________________
| (1) | 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 June 30, 2023, our unconditional purchase obligations consisted of multiple fixed-price fuel purchase contracts under which we have 56.3 million gallons remaining to be purchased for a total of $165.1 million. The current fuel purchase contracts expire on or before December 31, 2026. These arrangements have not materially affected our financial position, results of operations or liquidity during the six months ended June 30, 2023, nor are they expected to have a material impact on our future financial position, results of operations or liquidity. |
51
We have obtained financial surety bonds, primarily to support our financial assurance needs and landfill and E&P waste operations. We provided customers and various regulatory authorities with surety bonds in the aggregate amounts of approximately $1.539 billion and $1.447 billion at June 30, 2023 and December 31, 2022, respectively. These arrangements have not materially affected our financial position, results of operations or liquidity during the six months ended June 30, 2023, 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.
The disposal tonnage that we received in the six month periods ended June 30, 2023 and 2022, at all of our landfills during the respective period, is shown below (tons in thousands):
|
|
Six Months Ended June 30, |
||||||
|
|
2023 |
|
2022 |
||||
|
|
Number |
|
Total |
|
Number |
|
Total |
|
|
of Sites |
|
Tons |
|
of Sites |
|
Tons |
Owned operational landfills and landfills operated under life-of-site agreements |
|
95 |
|
24,554 |
|
89 |
|
23,403 |
Operated landfills |
|
7 |
|
333 |
|
5 |
|
296 |
|
|
102 |
|
24,887 |
|
94 |
|
23,699 |
52
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 liquidity measure in the solid waste industry. We calculate 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 periodic distributions to noncontrolling interests. We further adjust this calculation to exclude the effects of items management believes impact the ability to evaluate the liquidity of our business operations. 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 six month periods ended June 30, 2023 and 2022, are calculated as follows (amounts in thousands of U.S. dollars):
|
|
Six Months Ended |
||||
|
|
June 30, |
||||
|
|
2023 |
|
2022 |
||
Net cash provided by operating activities |
|
$ |
1,016,712 |
|
$ |
973,678 |
Less: Change in book overdraft |
|
|
(234) |
|
|
(54) |
Plus: Proceeds from disposal of assets |
|
|
3,819 |
|
|
16,894 |
Less: Capital expenditures for property and equipment |
|
|
(394,143) |
|
|
(371,428) |
Adjustments: |
|
|
|
|
|
|
Cash received for divestitures (a) |
|
|
— |
|
|
(5,671) |
Transaction-related expenses (b) |
|
|
2,264 |
|
|
27,096 |
Executive separation costs (c) |
|
|
1,686 |
|
|
— |
Pre-existing Progressive Waste share-based grants (d) |
|
|
841 |
|
|
12 |
Tax effect (d) |
|
|
(990) |
|
|
(2,165) |
Adjusted free cash flow |
|
$ |
629,955 |
|
$ |
638,362 |
____________________
| (a) | Reflects the elimination of cash received in conjunction with the divestiture of certain operations. |
| (b) | Reflects the addback of acquisition-related transaction costs and the settlement of an acquired tax liability. |
| (c) | Reflects the cash component of severance expense associated with a recent executive departure. |
| (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. |
53
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 and six month periods ended June 30, 2023 and 2022, are calculated as follows (amounts in thousands of U.S. dollars):
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||
Net income attributable to Waste Connections |
|
$ |
209,208 |
|
$ |
224,074 |
|
$ |
407,021 |
|
$ |
404,398 |
Plus (less): Net income (loss) attributable to noncontrolling interests |
|
|
(38) |
|
|
133 |
|
|
(15) |
|
|
177 |
Plus: Income tax provision |
|
|
68,551 |
|
|
58,307 |
|
|
122,940 |
|
|
107,146 |
Plus: Interest expense |
|
|
67,545 |
|
|
45,079 |
|
|
135,898 |
|
|
86,404 |
Less: Interest income |
|
|
(1,338) |
|
|
(652) |
|
|
(4,053) |
|
|
(790) |
Plus: Depreciation and amortization |
|
|
252,374 |
|
|
226,399 |
|
|
495,715 |
|
|
443,985 |
Plus: Closure and post-closure accretion |
|
|
4,567 |
|
|
3,992 |
|
|
9,087 |
|
|
8,087 |
Plus: Impairments and other operating items |
|
|
10,859 |
|
|
4,150 |
|
|
12,724 |
|
|
6,028 |
Plus (less): Other expense (income), net |
|
|
200 |
|
|
2,649 |
|
|
(2,974) |
|
|
6,114 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Transaction-related expenses (a) |
|
|
1,824 |
|
|
3,692 |
|
|
3,905 |
|
|
8,232 |
Plus: Fair value changes to equity awards (b) |
|
|
72 |
|
|
(1,009) |
|
|
445 |
|
|
(847) |
Plus: Executive separation costs (c) |
|
|
15,063 |
|
|
— |
|
|
15,063 |
|
|
— |
Adjusted EBITDA |
|
$ |
628,887 |
|
$ |
566,814 |
|
$ |
1,195,756 |
|
$ |
1,068,934 |
____________________
| (a) | Reflects the addback of acquisition-related transaction costs. |
| (b) | Reflects fair value accounting changes associated with certain equity awards. |
| (c) | Reflects the cash and non-cash components of severance expense associated with a recent executive departure. |
54
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 valuation measures 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 and six month periods ended June 30, 2023 and 2022, are calculated as follows (amounts in thousands of U.S. dollars, except per share amounts):
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||
Reported net income attributable to Waste Connections |
|
$ |
209,208 |
|
$ |
224,074 |
|
$ |
407,021 |
|
$ |
404,398 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles (a) |
|
|
39,052 |
|
|
37,462 |
|
|
78,335 |
|
|
75,098 |
Impairments and other operating items (b) |
|
|
10,859 |
|
|
4,150 |
|
|
12,724 |
|
|
6,028 |
Transaction-related expenses (c) |
|
|
1,824 |
|
|
3,692 |
|
|
3,905 |
|
|
8,232 |
Fair value changes to equity awards (d) |
|
|
72 |
|
|
(1,009) |
|
|
445 |
|
|
(847) |
Executive separation costs (e) |
|
|
15,063 |
|
|
— |
|
|
15,063 |
|
|
— |
Tax effect (f) |
|
|
(13,746) |
|
|
(11,224) |
|
|
(24,770) |
|
|
(22,316) |
Adjusted net income attributable to Waste Connections |
|
$ |
262,332 |
|
$ |
257,145 |
|
$ |
492,723 |
|
$ |
470,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Waste Connections’ common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income |
|
$ |
0.81 |
|
$ |
0.87 |
|
$ |
1.58 |
|
$ |
1.57 |
Adjusted net income |
|
$ |
1.02 |
|
$ |
1.00 |
|
$ |
1.91 |
|
$ |
1.82 |
____________________
| (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) | Reflects the cash and non-cash components of severance expense associated with a recent executive departure. |
| (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. |
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.
55
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.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risk, including changes in interest rates, prices of certain commodities and foreign currency exchange rate risks. We use hedge agreements to manage a portion of our risks related to interest rates. While we are exposed to credit risk in the event of non-performance by counterparties to our hedge agreements, in all cases such counterparties are highly rated financial institutions and we do not anticipate non-performance under current market conditions. We do not hold or issue derivative financial instruments for trading purposes. We monitor our hedge positions by regularly evaluating the positions at market and by performing sensitivity analyses over the unhedged variable rate debt positions.
At June 30, 2023, our derivative instruments included four interest rate swap agreements that effectively fix the interest rate on the applicable notional amounts of our variable rate debt as follows (dollars in thousands of U.S. dollars):
|
|
|
|
|
Fixed |
|
Variable |
|
|
|
|
|
|
Notional |
|
Interest |
|
Interest Rate |
|
|
|
Expiration |
|
Date Entered |
|
Amount |
|
Rate Paid (a) |
|
Received |
|
Effective Date (b) |
|
Date |
|
August 2017 |
|
$ |
200,000 |
|
2.1230 |
% |
1-month Term SOFR |
|
November 2022 |
|
October 2025 |
June 2018 |
|
$ |
200,000 |
|
2.8480 |
% |
1-month Term SOFR |
|
November 2022 |
|
October 2025 |
June 2018 |
|
$ |
200,000 |
|
2.8284 |
% |
1-month Term SOFR |
|
November 2022 |
|
October 2025 |
December 2018 |
|
$ |
200,000 |
|
2.7715 |
% |
1-month Term SOFR |
|
November 2022 |
|
July 2027 |
____________________
| (a) | Plus applicable margin. |
| (b) | In October 2022, we amended the reference rate in all of our outstanding interest rate swap contracts to replace One-Month LIBOR with One-Month Term SOFR and certain credit spread adjustments. We did not record any gains or losses upon the conversion of the reference rates in these interest rate swap contracts, and we believe these amendments will not have a material impact on our Condensed Consolidated Financial Statements. |
Under derivatives and hedging guidance, the interest rate swap agreements are considered cash flow hedges for a portion of our variable rate debt, and we apply hedge accounting to account for these instruments. The notional amounts and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged.
We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our unhedged floating rate debt. Such an analysis is inherently limited in that it reflects a singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions. Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market rate movements. We are exposed to cash flow risk due to changes in interest rates with respect to the unhedged floating rate balances owed at June 30, 2023 and December 31, 2022, of $1.057 billion and $1.115 billion, respectively, including floating rate debt under our Credit Agreement and Term Loan Agreement. A one percentage point increase in interest rates on our variable-rate debt at June 30, 2023 and December 31, 2022, would decrease our annual pre-tax income by approximately $10.6 million and $11.1 million, respectively. All of our remaining debt instruments are at fixed rates, or effectively fixed under the interest rate swap agreements described above; therefore, changes in market interest rates under these instruments would not significantly impact our cash flows or results of operations, subject to counterparty default risk.
56
The market price of diesel fuel is unpredictable and can fluctuate significantly. Because of the volume of fuel we purchase each year, a significant increase in the price of fuel could adversely affect our business and reduce our operating margins. To manage a portion of this risk, we periodically enter into fuel hedge agreements related to forecasted diesel fuel purchases, and we also enter into fixed price fuel purchase contracts. At June 30, 2023, we had no fuel hedge agreements in place; however, we have entered into fixed price diesel fuel purchase contracts for 2023 as described below.
For the year ending December 31, 2023, we expect to purchase approximately 89.3 million gallons of diesel fuel, of which 47.0 million gallons will be purchased at market prices and 42.3 million gallons will be purchased under our fixed price diesel fuel purchase contracts. We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our unhedged, market rate diesel fuel purchases. Such an analysis is inherently limited in that it reflects a singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions. Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market rate movements. During the six month period of July 1, 2023 to December 31, 2023, we expect to purchase approximately 23.5 million gallons of diesel fuel at market prices; therefore, a $0.10 per gallon increase in the price of diesel fuel over the remaining six months in 2023 would decrease our pre-tax income during this period by approximately $2.3 million.
We market a variety of recyclable materials, including compost, cardboard, mixed paper, plastic containers, glass bottles and ferrous and aluminum metals. We own and operate recycling operations and market collected recyclable materials to third parties for processing before resale. Where possible, to reduce our exposure to commodity price risk with respect to recycled materials, we have adopted a pricing strategy of charging collection and processing fees for recycling volume collected from third parties. In the event of a decline in recycled commodity prices, a 10% decrease in average recycled commodity prices from the average prices that were in effect during the six months ended June 30, 2023 and 2022, would have had a $6.8 million and $12.5 million impact on revenues, respectively.
We have operations in Canada and, where significant, we have quantified and described the impact of foreign currency translation on components of income, including operating revenue and operating costs. However, the impact of foreign currency has not materially affected our results of operations in 2023 or 2022. A $0.01 change in the Canadian dollar to U.S. dollar exchange rate would impact our annual revenue and EBITDA by approximately $13.0 million and $5.0 million, respectively.
57
Item 4.Controls and Procedures
As required by Rule 13a-15(b) under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on this evaluation, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded as of June 30, 2023, that our disclosure controls and procedures were effective at the reasonable assurance level such that information required to be disclosed in our Exchange Act reports: (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) is accumulated and communicated to our management, including our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
During the quarter ended June 30, 2023, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
58
PART II – OTHER INFORMATION
Item 1.Legal Proceedings
Information regarding our legal proceedings can be found in Note 18 of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and is incorporated herein by reference.
Item 6.Exhibits
Exhibit |
|
Description of Exhibits |
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
3.4 |
|
|
10.1 + |
|
|
10.2 + |
|
|
10.3 + |
|
|
31.1 |
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Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) |
31.2 |
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Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) |
32.1 |
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Certification of Principal Executive Officer pursuant to 18 U.S.C. §1350 |
32.2 |
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Certification of Principal Financial Officer pursuant to 18 U.S.C. §1350 |
101.INS |
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The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH |
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XBRL Taxonomy Extension Schema Document |
101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB |
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XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
104 |
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Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
+ |
Management contract or compensatory plan, contract or arrangement. |
59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
WASTE CONNECTIONS, INC. |
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Date: August 3, 2023 |
BY: |
/s/ Ronald J. Mittelstaedt |
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Ronald J. Mittelstaedt |
|
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President and Chief Executive Officer |
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Date: August 3, 2023 |
BY: |
/s/ Mary Anne Whitney |
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Mary Anne Whitney |
|
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Executive Vice President and Chief Financial Officer |
60
Exhibit 10.1
July 10, 2023
Eric O. Hansen
3 Waterway Square Place, Suite 110
The Woodlands, Texas 77380
Re: |
The Waste Connections US, Inc. Separation Benefits Plan |
Dear Eric:
This letter agreement (this “Letter Agreement”) relates to the Separation Benefits Plan (and Summary Plan Description) of Waste Connections US, Inc., a Delaware corporation (the “Company”), effective July 24, 2018 (as Amended and Restated July 26, 2022) (the “Plan”).
Through this Letter Agreement, you are being offered the opportunity to become a participant in the Plan (a “Participant”), and thereby to be eligible to receive the severance and change in control benefits set forth therein, effective as of July 10, 2023 (the “Participant Effective Date”). A copy of the Plan is attached to this Letter Agreement. You should read it carefully and become comfortable with its terms and conditions, and those set forth below.
By signing below, you will be acknowledging and agreeing to the following provisions:
| 1. | that you have received and reviewed a copy of the Plan; |
| 2. | that terms not defined in this Letter Agreement but beginning with a capital letter have the meaning assigned to them in the Plan; |
| 3. | that participation in the Plan requires that you agree irrevocably and voluntarily to the terms of the Plan (including, without limitation, the covenants set forth in Sections 5, 6 and 13 of the Plan) and the terms set forth below; and |
| 4. | that you have had the opportunity to carefully evaluate this opportunity, and desire to participate in the Plan according to the terms and conditions set forth herein. |
Subject to the foregoing, we invite you to become a Participant in the Plan. Your participation in the Plan will be effective upon your signing and returning this Letter Agreement to the Company within thirty (30) days of your receipt of this Letter Agreement.
You and the Company (hereinafter referred to as the “parties”) hereby AGREE as follows:
| 1. | Positions and Responsibilities. During the Term, you will be directly employed by the Company, will serve as Senior Vice President—Chief Information Officer of Waste Connections, Inc., a corporation organized under the laws of Ontario, Canada (the “Parent”) and certain of its subsidiaries, including the Company, and will perform such other duties and responsibilities as may be reasonably assigned to you from time to time by the Parent’s Executive Vice President and Chief Operating Officer (the “COO”), Chief Executive Officer and/or Board of Directors (the “Board”). You will devote your attention, energies and abilities in those capacities to the proper oversight and operation of the business of the WCI Group to the exclusion of any other occupation. As Senior Vice President—Chief Information Officer of the Parent and certain of its subsidiaries, including the Company, you will: (i) report to the COO or his designee, (ii) be based at the Parent’s principal administrative offices in The Woodlands, Texas, and (iii) be responsible for all duties, authority and responsibility customary for such positions. You will devote such time and attention to your duties as are reasonably necessary to the proper discharge of your responsibilities hereunder. You agree to perform all duties consistent with: (a) policies established from time to time by the WCI Group; and (b) all applicable legal requirements. For purposes of the Plan, you are hereby designated as an SVP Participant. |
| a. | Base Salary. The Company hereby agrees to pay you an annual base salary of Three Hundred Fifty-Seven Thousand Dollars ($357,000) (“Base Salary”). Your Base Salary will be payable in accordance with the Company’s normal payroll practices, and your Base Salary is subject to withholding and social security, unemployment and other taxes. Further increases in Base Salary will be considered by the Board. |
| b. | Performance Bonus. You shall be entitled to an annual cash bonus (the “Bonus”) based on the Parent’s attainment of reasonable financial objectives to be determined annually by the Board. Your target annual Bonus will equal Eighty Percent (80%) of the applicable year’s ending Base Salary and will be payable if the Board determines, in its sole and exclusive discretion, that that year’s financial objectives have been fully met. Nothing in the Plan or in this Letter Agreement shall invalidate any cash bonus plan approval by the Board or a Committee of the Board providing for higher payments in the event extraordinary or “stretch” goals are met. The Bonus |
| will be paid in accordance with the Parent’s bonus plan, as approved by the Board; provided, that in no case shall any portion of the Bonus with respect to any such fiscal year be paid more than three (3) months after the end of such fiscal year. |
| c. | Grants of Equity Awards. You shall be eligible for annual grants of restricted share unit awards, performance share unit awards or other Equity Awards on such terms and to such level of participation as the Board or the Compensation Committee of the Board determines to be appropriate, bearing in mind your positions and responsibilities. The terms of any such Equity Awards shall be governed by the relevant plans under which they are issued and described in detail in applicable agreements between the Parent and you. |
| d. | Other Benefits. You will be entitled to paid annual vacation, which will accrue on the same basis as for other employees of the Company of similar rank, but which will in no event be less than four (4) weeks for any twelve (12) month period commencing January 1st of each year. You also will be entitled to participate, on the same terms as other employees of the Company participate, in any medical, dental or other health plan, pension plan, profit-sharing plan and life insurance plan that the Company may adopt or maintain, any of which may be changed, terminated or eliminated by the Company at any time in its exclusive discretion. |
| e. | Reimbursement of Other Expenses. The Company agrees to pay or reimburse you for all reasonable travel and other expenses incurred by you in connection with the performance of your duties on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. |
| 3. | Change in Control. For purposes of this Letter Agreement, in addition to the events described in the definition of “Change in Control” in Section 28(f) of the Plan, a Change in Control shall also occur if: |
| a. | any “person” (as defined in Section 13(d) and 14(d) of the Exchange Act), shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the outstanding voting securities of a subsidiary of Parent that owns all or substantially all of the WCI Group’s United States operations; |
| b. | there is a reorganization, merger or other business combination of a subsidiary of Parent that owns all or substantially all of the WCI Group’s United States operations with any other corporation, other than any such |
| merger or other combination that would result in the voting securities of the subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the subsidiary or such surviving entity outstanding immediately after such transaction; or |
| c. | there is a direct or indirect sale, lease, exchange or other transfer (in one transaction or a series of related transactions) by the WCI Group of all, or substantially all, of its United States operations. |
| 4. | Property. Section 6 of the Plan, as it applies to you, shall be amended by adding the following provisions as the second and third paragraphs of Section 6 of the Plan: |
“The Participant is only authorized to access WCI Group computers that are within the course and scope of the Participant’s duties, and may only do so while in the active employment of the Company. All such authorization ends immediately upon the termination of employment. The Participant is not authorized to access or use the WCI Group’s computers, email, or related computer systems to compete or to prepare to compete, or to otherwise compromise the WCI Group’s legitimate business interests, and unauthorized access to or use of the WCI Group’s computers in violation of the foregoing understanding may subject the Participant to civil and/or criminal liability.
Upon request, the Participant will provide for inspection any personal electronic storage devices that the Company believes may contain confidential or proprietary business or technical information of the WCI Group, in a state that makes inspection possible, to permit the Company to confirm that the Participant has completely removed all such information from the devices. If the Participant stores any WCI Group information with any service provider (e.g., gmail, DropBox, iCloud), the Participant will provide the Company with any required passwords and access to inspect such account directly. Upon the Company’s request, the Participant will also consent to the service provider’s disclosure of such information to the Company. The Participant will, upon the Company’s request where allowed by law, execute any additional authorizations required by the service provider to disclose the WCI Group’s confidential or proprietary business or technical information to the Company.”
| 5. | Right to Other Payments. In consideration of becoming eligible to receive the severance and change in control benefits provided under the terms and conditions of the Plan, in addition to providing the waiver required by Section 7(e) or Section 8(c) of the Plan, as applicable, you agree to waive any and all rights, benefits, and privileges to severance benefits that you might otherwise be entitled to receive under any other plan or arrangement. |
| 6. | Entire Agreement. You understand that the waiver set forth in Section 4 above is irrevocable and that this Letter Agreement and the Plan set forth the entire agreement between the parties with respect to any subject matter covered herein. You agree and acknowledge that this Letter Agreement and the Plan supersede and replace that certain letter agreement between you and the Company dated February 12, 2019, as amended from time to time. |
| 7. | Survival. Your participation in the Plan will continue in effect following any termination that occurs while you are a Participant in the Plan with respect to all rights and obligations accruing as a result of such termination. |
| 8. | Counterparts. This Letter Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. A facsimile, telecopy or other reproduction of this Letter Agreement may be executed by one or more parties and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of each such party can be seen. Such execution and delivery shall be considered valid, binding and effective for all purposes. |
| 9. | Miscellaneous. This Letter Agreement and the Plan set forth the entire agreement between the WCI Group and you concerning the subject matter described herein, and fully supersede any and all prior oral or written agreements, promises or understandings between the WCI Group and you concerning the subject matter described herein including, without limitation, any acceleration provisions set forth in any agreement evidencing an Equity Award held by you. Further, you represent and acknowledge that in executing this Letter Agreement, you do not rely, and have not relied, on any prior oral or written communications by the WCI Group, and you expressly disclaim any reliance on any prior oral or written communications, agreements, promises, inducements, understandings, statements or representations in entering into this Letter Agreement. Therefore, you understand that you are precluded from bringing any fraud or fraudulent inducement claim against the WCI Group associated with any such communications, agreements, promises, inducements, understandings, statements or representations. The Company and you are entering into this Letter Agreement based on each party’s own judgment. |
| 10. | Execution. You recognize and agree that your execution of this Letter Agreement results in your enrollment and participation in the Plan, that you agree to be bound by the terms and conditions of the Plan and this Letter Agreement, and that you understand that this Letter Agreement may not be amended or modified except pursuant to Section 21 of the Plan. |
[Remainder of page left intentionally blank. Signatures to follow.]
IN WITNESS WHEREOF, the parties have executed this Letter Agreement, which shall be deemed effective as of the Participant Effective Date.
WASTE CONNECTIONS US, INC.
By:/s/ Ronald J. Mittelstaedt
Ronald J. Mittelstaedt
President and Chief Executive Officer
PARTICIPANT
/s/ Eric O. Hansen
Eric O. Hansen
Exhibit 10.2
July 10, 2023
Rob Nielsen
3 Waterway Square Place, Suite 110
The Woodlands, Texas 77380
Re: |
The Waste Connections US, Inc. Separation Benefits Plan |
Dear Rob:
This letter agreement (this “Letter Agreement”) relates to the Separation Benefits Plan (and Summary Plan Description) of Waste Connections US, Inc., a Delaware corporation (the “Company”), effective July 24, 2018 (as Amended and Restated July 26, 2022) (the “Plan”).
Through this Letter Agreement, you are being offered the opportunity to become a participant in the Plan (a “Participant”), and thereby to be eligible to receive the severance and change in control benefits set forth therein, effective as of July 10, 2023 (the “Participant Effective Date”). A copy of the Plan is attached to this Letter Agreement. You should read it carefully and become comfortable with its terms and conditions, and those set forth below.
By signing below, you will be acknowledging and agreeing to the following provisions:
| 1. | that you have received and reviewed a copy of the Plan; |
| 2. | that terms not defined in this Letter Agreement but beginning with a capital letter have the meaning assigned to them in the Plan; |
| 3. | that participation in the Plan requires that you agree irrevocably and voluntarily to the terms of the Plan (including, without limitation, the covenants set forth in Sections 5, 6 and 13 of the Plan) and the terms set forth below; and |
| 4. | that you have had the opportunity to carefully evaluate this opportunity, and desire to participate in the Plan according to the terms and conditions set forth herein. |
Subject to the foregoing, we invite you to become a Participant in the Plan. Your participation in the Plan will be effective upon your signing and returning this Letter Agreement to the Company within thirty (30) days of your receipt of this Letter Agreement.
You and the Company (hereinafter referred to as the “parties”) hereby AGREE as follows:
| 1. | Positions and Responsibilities. During the Term, you will be directly employed by the Company, will serve as Senior Vice President—Operations of Waste Connections, Inc., a corporation organized under the laws of Ontario, Canada (the “Parent”) and certain of its subsidiaries, including the Company, and will perform such other duties and responsibilities as may be reasonably assigned to you from time to time by the Parent’s Executive Vice President and Chief Operating Officer (the “COO”), Chief Executive Officer and/or Board of Directors (the “Board”). You will devote your attention, energies and abilities in those capacities to the proper oversight and operation of the business of the WCI Group to the exclusion of any other occupation. As Senior Vice President—Operations of the Parent and certain of its subsidiaries, including the Company, you will: (i) report to the COO or his designee, (ii) be based at the Parent’s principal administrative offices in The Woodlands, Texas, and (iii) be responsible for all duties, authority and responsibility customary for such positions. You will devote such time and attention to your duties as are reasonably necessary to the proper discharge of your responsibilities hereunder. You agree to perform all duties consistent with: (a) policies established from time to time by the WCI Group; and (b) all applicable legal requirements. For purposes of the Plan, you are hereby designated as an SVP Participant. |
| a. | Base Salary. The Company hereby agrees to pay you an annual base salary of Five Hundred Thousand Dollars ($500,000) (“Base Salary”). Your Base Salary will be payable in accordance with the Company’s normal payroll practices, and your Base Salary is subject to withholding and social security, unemployment and other taxes. Further increases in Base Salary will be considered by the Board. |
| b. | Performance Bonus. You shall be entitled to an annual cash bonus (the “Bonus”) based on the Parent’s attainment of reasonable financial objectives to be determined annually by the Board. Your target annual Bonus will equal Eighty Percent (80%) of the applicable year’s ending Base Salary and will be payable if the Board determines, in its sole and exclusive discretion, that that year’s financial objectives have been fully met. Nothing in the Plan or in this Letter Agreement shall invalidate any cash bonus plan approval by the Board or a Committee of the Board providing for higher payments in the event extraordinary or “stretch” goals are met. The Bonus will be paid in accordance with the Parent’s bonus plan, as approved by the |
| Board; provided, that in no case shall any portion of the Bonus with respect to any such fiscal year be paid more than three (3) months after the end of such fiscal year. |
| c. | Grants of Equity Awards. You shall be eligible for annual grants of restricted share unit awards, performance share unit awards or other Equity Awards on such terms and to such level of participation as the Board or the Compensation Committee of the Board determines to be appropriate, bearing in mind your positions and responsibilities. The terms of any such Equity Awards shall be governed by the relevant plans under which they are issued and described in detail in applicable agreements between the Parent and you. |
| d. | Other Benefits. You will be entitled to paid annual vacation, which will accrue on the same basis as for other employees of the Company of similar rank, but which will in no event be less than four (4) weeks for any twelve (12) month period commencing January 1st of each year. You also will be entitled to participate, on the same terms as other employees of the Company participate, in any medical, dental or other health plan, pension plan, profit-sharing plan and life insurance plan that the Company may adopt or maintain, any of which may be changed, terminated or eliminated by the Company at any time in its exclusive discretion. |
| e. | Reimbursement of Other Expenses. The Company agrees to pay or reimburse you for all reasonable travel and other expenses incurred by you in connection with the performance of your duties on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. |
| 3. | Change in Control. For purposes of this Letter Agreement, in addition to the events described in the definition of “Change in Control” in Section 28(f) of the Plan, a Change in Control shall also occur if: |
| a. | any “person” (as defined in Section 13(d) and 14(d) of the Exchange Act), shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the outstanding voting securities of a subsidiary of Parent that owns all or substantially all of the WCI Group’s United States operations; |
| b. | there is a reorganization, merger or other business combination of a subsidiary of Parent that owns all or substantially all of the WCI Group’s United States operations with any other corporation, other than any such merger or other combination that would result in the voting securities of the |
| subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the subsidiary or such surviving entity outstanding immediately after such transaction; or |
| c. | there is a direct or indirect sale, lease, exchange or other transfer (in one transaction or a series of related transactions) by the WCI Group of all, or substantially all, of its United States operations. |
| 4. | Right to Other Payments. In consideration of becoming eligible to receive the severance and change in control benefits provided under the terms and conditions of the Plan, in addition to providing the waiver required by Section 7(e) or Section 8(c) of the Plan, as applicable, you agree to waive any and all rights, benefits, and privileges to severance benefits that you might otherwise be entitled to receive under any other plan or arrangement. |
| 5. | Entire Agreement. You understand that the waiver set forth in Section 4 above is irrevocable and that this Letter Agreement and the Plan set forth the entire agreement between the parties with respect to any subject matter covered herein. You agree and acknowledge that this Letter Agreement and the Plan supersede and replace that certain Employment Agreement between you and the Company dated as of March 11, 2013, as amended from time to time. |
| 6. | Survival. Your participation in the Plan will continue in effect following any termination that occurs while you are a Participant in the Plan with respect to all rights and obligations accruing as a result of such termination. |
| 7. | Counterparts. This Letter Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. A facsimile, telecopy or other reproduction of this Letter Agreement may be executed by one or more parties and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of each such party can be seen. Such execution and delivery shall be considered valid, binding and effective for all purposes. |
| 8. | Miscellaneous. This Letter Agreement and the Plan set forth the entire agreement between the WCI Group and you concerning the subject matter described herein, and fully supersede any and all prior oral or written agreements, promises or understandings between the WCI Group and you concerning the subject matter described herein including, without limitation, any acceleration provisions set forth in any agreement evidencing an Equity Award held by you. Further, you represent and acknowledge that in executing this Letter Agreement, you do not rely, and have |
| not relied, on any prior oral or written communications by the WCI Group, and you expressly disclaim any reliance on any prior oral or written communications, agreements, promises, inducements, understandings, statements or representations in entering into this Letter Agreement. Therefore, you understand that you are precluded from bringing any fraud or fraudulent inducement claim against the WCI Group associated with any such communications, agreements, promises, inducements, understandings, statements or representations. The Company and you are entering into this Letter Agreement based on each party’s own judgment. |
| 9. | Execution. You recognize and agree that your execution of this Letter Agreement results in your enrollment and participation in the Plan, that you agree to be bound by the terms and conditions of the Plan and this Letter Agreement, and that you understand that this Letter Agreement may not be amended or modified except pursuant to Section 21 of the Plan. |
[Remainder of page left intentionally blank. Signatures to follow.]
IN WITNESS WHEREOF, the parties have executed this Letter Agreement, which shall be deemed effective as of the Participant Effective Date.
WASTE CONNECTIONS US, INC.
By:/s/ Ronald J. Mittelstaedt
Ronald J. Mittelstaedt
President and Chief Executive Officer
PARTICIPANT
/s/ Rob Nielsen
Rob Nielsen
Exhibit 10.3
July 10, 2023
Phil Rivard
3 Waterway Square Place, Suite 110
The Woodlands, Texas 77380
Re: |
The Waste Connections US, Inc. Separation Benefits Plan |
Dear Phil:
This letter agreement (this “Letter Agreement”) relates to the Separation Benefits Plan (and Summary Plan Description) of Waste Connections US, Inc., a Delaware corporation (the “Company”), effective July 24, 2018 (as Amended and Restated July 26, 2022) (the “Plan”).
Through this Letter Agreement, you are being offered the opportunity to become a participant in the Plan (a “Participant”), and thereby to be eligible to receive the severance and change in control benefits set forth therein, effective as of July 10, 2023 (the “Participant Effective Date”). A copy of the Plan is attached to this Letter Agreement. You should read it carefully and become comfortable with its terms and conditions, and those set forth below.
By signing below, you will be acknowledging and agreeing to the following provisions:
| 1. | that you have received and reviewed a copy of the Plan; |
| 2. | that terms not defined in this Letter Agreement but beginning with a capital letter have the meaning assigned to them in the Plan; |
| 3. | that participation in the Plan requires that you agree irrevocably and voluntarily to the terms of the Plan (including, without limitation, the covenants set forth in Sections 5, 6 and 13 of the Plan) and the terms set forth below; and |
| 4. | that you have had the opportunity to carefully evaluate this opportunity, and desire to participate in the Plan according to the terms and conditions set forth herein. |
Subject to the foregoing, we invite you to become a Participant in the Plan. Your participation in the Plan will be effective upon your signing and returning this Letter Agreement to the Company within thirty (30) days of your receipt of this Letter Agreement.
You and the Company (hereinafter referred to as the “parties”) hereby AGREE as follows:
| 1. | Positions and Responsibilities. During the Term, you will be directly employed by the Company, will serve as Senior Vice President—Business Development of Waste Connections, Inc., a corporation organized under the laws of Ontario, Canada (the “Parent”) and certain of its subsidiaries, including the Company, and will perform such other duties and responsibilities as may be reasonably assigned to you from time to time by the Parent’s Chief Executive Officer (the “CEO”) and/or Board of Directors (the “Board”). You will devote your attention, energies and abilities in those capacities to the proper oversight and operation of the business of the WCI Group to the exclusion of any other occupation. As Senior Vice President—Business Development of the Parent and certain of its subsidiaries, including the Company, you will: (i) report to the CEO or his designee, (ii) be based at the Parent’s principal administrative offices in The Woodlands, Texas, and (iii) be responsible for all duties, authority and responsibility customary for such positions. You will devote such time and attention to your duties as are reasonably necessary to the proper discharge of your responsibilities hereunder. You agree to perform all duties consistent with: (a) policies established from time to time by the WCI Group; and (b) all applicable legal requirements. For purposes of the Plan, you are hereby designated as an SVP Participant. |
| a. | Base Salary. The Company hereby agrees to pay you an annual base salary of Four Hundred Ten Thousand Dollars ($410,000) (“Base Salary”). Your Base Salary will be payable in accordance with the Company’s normal payroll practices, and your Base Salary is subject to withholding and social security, unemployment and other taxes. Further increases in Base Salary will be considered by the Board. |
| b. | Performance Bonus. You shall be entitled to an annual cash bonus (the “Bonus”) based on the Parent’s attainment of reasonable financial objectives to be determined annually by the Board. Your target annual Bonus will equal Eighty Percent (80%) of the applicable year’s ending Base Salary and will be payable if the Board determines, in its sole and exclusive discretion, that that year’s financial objectives have been fully met. Nothing in the Plan or in this Letter Agreement shall invalidate any cash bonus plan approval by the Board or a Committee of the Board providing for higher payments in the event extraordinary or “stretch” goals are met. The Bonus will be paid in accordance with the Parent’s bonus plan, as approved by the |
| Board; provided, that in no case shall any portion of the Bonus with respect to any such fiscal year be paid more than three (3) months after the end of such fiscal year. |
| c. | Grants of Equity Awards. You shall be eligible for annual grants of restricted share unit awards, performance share unit awards or other Equity Awards on such terms and to such level of participation as the Board or the Compensation Committee of the Board determines to be appropriate, bearing in mind your positions and responsibilities. The terms of any such Equity Awards shall be governed by the relevant plans under which they are issued and described in detail in applicable agreements between the Parent and you. |
| d. | Other Benefits. You will be entitled to paid annual vacation, which will accrue on the same basis as for other employees of the Company of similar rank, but which will in no event be less than four (4) weeks for any twelve (12) month period commencing January 1st of each year. You also will be entitled to participate, on the same terms as other employees of the Company participate, in any medical, dental or other health plan, pension plan, profit-sharing plan and life insurance plan that the Company may adopt or maintain, any of which may be changed, terminated or eliminated by the Company at any time in its exclusive discretion. |
| e. | Reimbursement of Other Expenses. The Company agrees to pay or reimburse you for all reasonable travel and other expenses incurred by you in connection with the performance of your duties on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. |
| 3. | Change in Control. For purposes of this Letter Agreement, in addition to the events described in the definition of “Change in Control” in Section 28(f) of the Plan, a Change in Control shall also occur if: |
| a. | any “person” (as defined in Section 13(d) and 14(d) of the Exchange Act), shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the outstanding voting securities of a subsidiary of Parent that owns all or substantially all of the WCI Group’s United States operations; |
| b. | there is a reorganization, merger or other business combination of a subsidiary of Parent that owns all or substantially all of the WCI Group’s United States operations with any other corporation, other than any such merger or other combination that would result in the voting securities of the |
| subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the subsidiary or such surviving entity outstanding immediately after such transaction; or |
| c. | there is a direct or indirect sale, lease, exchange or other transfer (in one transaction or a series of related transactions) by the WCI Group of all, or substantially all, of its United States operations. |
| 4. | Right to Other Payments. In consideration of becoming eligible to receive the severance and change in control benefits provided under the terms and conditions of the Plan, in addition to providing the waiver required by Section 7(e) or Section 8(c) of the Plan, as applicable, you agree to waive any and all rights, benefits, and privileges to severance benefits that you might otherwise be entitled to receive under any other plan or arrangement. |
| 5. | Entire Agreement. You understand that the waiver set forth in Section 4 above is irrevocable and that this Letter Agreement and the Plan set forth the entire agreement between the parties with respect to any subject matter covered herein. You agree and acknowledge that this Letter Agreement and the Plan supersede and replace that certain Employment Agreement between you and the Company dated as of April 1, 2022, as amended from time to time. |
| 6. | Survival. Your participation in the Plan will continue in effect following any termination that occurs while you are a Participant in the Plan with respect to all rights and obligations accruing as a result of such termination. |
| 7. | Counterparts. This Letter Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. A facsimile, telecopy or other reproduction of this Letter Agreement may be executed by one or more parties and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of each such party can be seen. Such execution and delivery shall be considered valid, binding and effective for all purposes. |
| 8. | Miscellaneous. This Letter Agreement and the Plan set forth the entire agreement between the WCI Group and you concerning the subject matter described herein, and fully supersede any and all prior oral or written agreements, promises or understandings between the WCI Group and you concerning the subject matter described herein including, without limitation, any acceleration provisions set forth in any agreement evidencing an Equity Award held by you. Further, you represent and acknowledge that in executing this Letter Agreement, you do not rely, and have |
| not relied, on any prior oral or written communications by the WCI Group, and you expressly disclaim any reliance on any prior oral or written communications, agreements, promises, inducements, understandings, statements or representations in entering into this Letter Agreement. Therefore, you understand that you are precluded from bringing any fraud or fraudulent inducement claim against the WCI Group associated with any such communications, agreements, promises, inducements, understandings, statements or representations. The Company and you are entering into this Letter Agreement based on each party’s own judgment. |
| 9. | Execution. You recognize and agree that your execution of this Letter Agreement results in your enrollment and participation in the Plan, that you agree to be bound by the terms and conditions of the Plan and this Letter Agreement, and that you understand that this Letter Agreement may not be amended or modified except pursuant to Section 21 of the Plan. |
[Remainder of page left intentionally blank. Signatures to follow.]
IN WITNESS WHEREOF, the parties have executed this Letter Agreement, which shall be deemed effective as of the Participant Effective Date.
WASTE CONNECTIONS US, INC.
By:/s/ Ronald J. Mittelstaedt
Ronald J. Mittelstaedt
President and Chief Executive Officer
PARTICIPANT
/s/ Phil Rivard
Phil Rivard
Exhibit 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR RULE 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald J. Mittelstaedt, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Waste Connections, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 3, 2023 |
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/s/ Ronald J. Mittelstaedt |
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Ronald J. Mittelstaedt |
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President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR RULE 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mary Anne Whitney, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Waste Connections, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 3, 2023 |
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/s/ Mary Anne Whitney |
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Mary Anne Whitney |
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Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
I, Ronald J. Mittelstaedt, being the duly elected and acting President and Chief Executive Officer of Waste Connections, Inc., a corporation organized under the laws of Ontario, Canada (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| 1. | The Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2023 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 3, 2023 |
By: |
/s/ Ronald J. Mittelstaedt |
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Ronald J. Mittelstaedt |
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President and Chief Executive Officer |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing, except to the extent that the Company specifically incorporates it by reference.
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
I, Mary Anne Whitney, being the duly elected and acting Executive Vice President and Chief Financial Officer of Waste Connections, Inc., a corporation organized under the laws of Ontario, Canada (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| 1. | The Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2023 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 3, 2023 |
By: |
/s/ Mary Anne Whitney |
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Mary Anne Whitney |
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Executive Vice President and |
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Chief Financial Officer |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing, except to the extent that the Company specifically incorporates it by reference.