TORONTO, ONTARIO — (Marketwired) — 10/24/13 — Progressive Waste Solutions Ltd. (the “Company”) (NYSE: BIN)(TSX: BIN) reported financial results for the three and nine months ended September 30, 2013.
Third quarter highlights
Management Commentary
(All amounts are in United States (“U.S.”) dollars, unless otherwise stated)
“In the third quarter, we achieved our strongest consolidated organic revenue performance in the past five years, with organic growth of 3.3% driven by pricing and volume improvements in our collection and transfer business lines. We continued to experience notably higher industrial collection volumes, which increased 7.0%, and we saw the results of our strategic sales programs contribute to the revenue line as well,” said Joseph Quarin, Vice Chairman and Chief Executive Officer, Progressive Waste Solutions Ltd. “Our revenue gains were offset by higher than anticipated costs relative to revenue in the quarter, including higher than normal expenses in the area of insurance and claims. We also experienced higher operating costs relative to revenue that were largely associated with the increase in industrial roll-off demand and delayed contributions from two new material recovery facilities, but that are also reflective of our focus on asset utilization and return on invested capital.”
Mr. Quarin continued, “Given our third-quarter performance, we are adjusting items in our previously provided guidance for fiscal year 2013. We are increasing our revenue outlook to $2.02 to $2.03 billion, but the higher costs relative to revenue experienced in the third quarter will result in a corresponding reduction to our expectations for adjusted EBITDA(A) and adjusted net income(A) for the year. We remain confident in our free cash flow(B) guidance which is $211 to $225 million, excluding internal infrastructure investments, for 2013. Going forward, we expect our gross margins to normalize as we improve our execution and manage our labor and repair and maintenance expenses in line with our volume growth and implement processes to obtain better operating efficiencies. At the same time, we will continue to execute our disciplined capital deployment program. Our unified organizational structure and leadership team, which we announced earlier this month, are clearly aligned to create shareholder value through consistent operational execution, accretive growth and improving return on invested capital.”
Third quarter ended September 30, 2013
Reported revenues increased $33.5 million or 6.9% from $487.2 million in the third quarter of 2012 to $520.7 million in the third quarter of 2013. Expressed on a reportable basis and assuming a foreign currency exchange (“FX”) rate of parity between the Canadian and U.S. dollar (“FX parity”), revenues increased 8.6% due in large part to a 5.3% increase attributable to acquisitions. The remaining increase is a function of higher overall volumes, core pricing and recycled commodity pricing.
Operating income was $50.8 million in the third quarter of 2013 versus $63.0 million in the third quarter of 2012. Net income was $20.1 million versus $32.2 million in the third quarter of 2013 and 2012, respectively.
Adjusted amounts
Adjusted EBITDA(A) was $134.9 million in the third quarter of 2013 versus $136.9 million posted in the same quarter a year ago. Adjusted operating EBIT(A) was $61.6 million or (7.8)% lower in the quarter compared to $66.8 million in the same period last year. Adjusted net income(A) was $31.3 million, or $0.27 per diluted share, compared to $32.1 million, or $0.28 per diluted share in the comparative period.
Nine months ended September 30, 2013
For the nine months ended September 30, 2013, reported revenues increased $123.1 million or 8.8% from $1,400.9 million in 2012 to $1,524.0 million. Expressed on a reportable basis and at FX parity, revenues increased 9.7% on a comparative basis. The increase is due in large part to a 7.5% increase attributable to acquisitions and higher overall core pricing, volumes and fuel surcharges, which outpaced lower commodity pricing.
For the nine months ended September 30, operating income was $174.6 million in 2013 versus $179.1 million in 2012. Net income was $81.7 million versus $82.6 million for the nine months ended September 30, 2013 and 2012, respectively.
Adjusted amounts
For the nine months ended September 30, adjusted EBITDA(A) was $398.8 million or 3.3% higher in 2013 versus $385.9 million in 2012. Adjusted operating EBIT(A) was $187.0 million, or 1.4% higher compared to the $184.5 million recorded last year. Adjusted net income(A) was $93.7 million, or $0.81 per diluted share, compared to $85.0 million, or $0.73 per diluted share in the same period last year.
Other highlights for the three months ended September 30, 2013
2013 Guidance Update and Fourth-Quarter Outlook
The Company is revising its 2013 guidance in light of its operating performance in the third quarter this year, and its expectations for both interest expense and income taxes for 2013. Details for each of these revisions are outlined in the Changes to assumptions and impact on guidance outlook section of this press release. The Company is also providing its guidance outlook for the fourth quarter of 2013.
Our revised guidance for the fiscal year ended 2013 and our outlook for the fourth quarter ending December 31, 2013 are as follows (in millions of U.S. dollars, except per share amounts and where otherwise stated):
FX Impact on Consolidated Results
The following tables have been prepared to assist readers in assessing the FX impact on selected results for the three and nine months ended September 30, 2013.
Revenues
Gross revenue by service type
The table below present–s gross revenue by service type prepared on a consolidated basis and includes the impact of FX.
Revenue growth or decline components – expressed in percentages and excluding FX
The table below has been prepared assuming Canadian and U.S. dollar parity except for percentages presented that include FX.
Free cash flow(B)
Purpose and objective
The purpose of presenting this non-GAAP measure is to provide investors and analysts with an additional measure of our value and liquidity. We use this non-GAAP measure to assess our relative performance to our peers and to assess the availability of funds for growth investment, share repurchases, debt repayment or dividend increases.
Free cash flow(B) – cash flow approach
Free cash flow(B) – adjusted EBITDA(A) approach
We typically calculate free cash flow(B) using an operations approach which is better reflects how we manage the business and free cash flow(B).
Funded debt to EBITDA (as defined and calculated in accordance with our consolidated facility)
The ratio of funded debt to EBITDA, which includes first year pro forma EBITDA for completed acquisitions, is 3.00 times.
Foreign Currency
(in thousands of U.S. dollars unless otherwise stated)
We have elected to report our financial results in U.S. dollars. However, we earn a significant portion of our revenues and earnings in Canada. Based on 2012 results, if the U.S. dollar strengthens by one cent our reported revenues will decline by approximately $7,800. EBITDA(A) is similarly impacted by approximately $2,500, assuming a strengthening U.S. dollar. The impact on net income for a similar change in FX rate, results in an approximately $700 decline. Should the U.S. dollar weaken by one cent, our reported revenues, EBITDA(A) and net income will improve by amounts similar to those outlined above in the event of a strengthening U.S. dollar.
Quarterly dividend declared
The Company–s Board of Directors declared a quarterly dividend of $0.15 Canadian per share to shareholders of record on December 31, 2013. The dividend will be paid on January 15, 2014. The Company has designated these dividends as eligible dividends for the purposes of the Income Tax Act (Canada).
Definitions
(A) All references to “Adjusted EBITDA” in this document are to revenues less operating expense and SG&A, excluding certain non-operating or non-recurring SG&A expense, on the consolidated statement of operations and comprehensive income or loss. Adjusted EBITDA excludes some or all of the following: certain SG&A expenses, restructuring expenses, goodwill impairment, amortization, net gain or loss on sale of capital assets, interest on long-term debt, net foreign exchange gain or loss, net gain or loss on financial instruments, loss on extinguishment of debt, other expenses, income taxes and income or loss from equity accounted investee. Adjusted EBITDA is a term used by us that does not have a standardized meaning prescribed by U.S. GAAP and is therefore unlikely to be comparable to similar measures used by other companies. Adjusted EBITDA is a measure of our operating profitability, and by definition, excludes certain items as detailed above. These items are viewed by us as either non-cash (in the case of goodwill impairment, amortization, net gain or loss on financial instruments, net foreign exchange gain or loss, deferred income taxes and net income or loss from equity accounted investee) or non-operating (in the case of certain SG&A expenses, restructuring expenses, net gain or loss on sale of capital assets, interest on long-term debt, loss on extinguishment of debt, other expenses, and current income taxes). Adjusted EBITDA is a useful financial and operating metric for us, our Board of Directors, and our lenders, as it represents a starting point in the determination of free cash flow(B). The underlying reasons for the exclusion of each item are as follows:
Certain SG&A expenses – SG&A expense includes certain non-operating or non-recurring expenses. Non-operating expenses include transaction costs or recoveries related to acquisitions, fair value adjustments attributable to stock options and restricted share expense. Non-recurring expenses include certain equity based compensation, payments made to senior management on their departure, severance and other non-recurring expenses from time-to-time. These expenses are not considered an expense indicative of continuing operations. Certain SG&A costs represent a different class of expense than those included in adjusted EBITDA.
Restructuring expenses – restructuring expenses includes costs to integrate various operating locations with our own, exiting certain property and building and office leases, employee severance and employee relocation costs incurred in connection with our acquisition of WSI. These expenses are not considered an expense indicative of continuing operations. Accordingly, restructuring expenses represent a different class of expense than those included in adjusted EBITDA.
Goodwill impairment – as a non-cash item goodwill impairment has no impact on the determination of free cash flow(B).
Amortization – as a non-cash item amortization has no impact on the determination of free cash flow(B).
Net gain or loss on sale of capital assets – proceeds from the sale of capital assets are either reinvested in additional or replacement capital assets or used to repay revolving credit facility borrowings.
Interest on long-term debt – interest on long-term debt is a function of our debt/equity mix and interest rates; as such, it reflects our treasury/financing activities and represents a different class of expense than those included in adjusted EBITDA.
Net foreign exchange gain or loss – as non-cash items, foreign exchange gains or losses have no impact on the determination of free cash flow(B).
Net gain or loss on financial instruments – as non-cash items, gains or losses on financial instruments have no impact on the determination of free cash flow(B).
Loss on extinguishment of debt – loss on extinguishment of debt is a function of our debt financing; as such, it reflects our treasury/financing activities and represents a different class of expense than those included in adjusted EBITDA.
Other expenses – other expenses typically represent amounts paid to certain management of acquired companies who are retained by us post acquisition and amounts paid to certain executives in respect of acquisitions successfully completed. These expenses are not considered an expense indicative of continuing operations. Accordingly, other expenses represent a different class of expense than those included in adjusted EBITDA.
Income taxes – income taxes are a function of tax laws and rates and are affected by matters which are separate from our daily operations.
Net income or loss from equity accounted investee – as a non-cash item, net income or loss from our equity accounted investee has no impact on the determination of free cash flow(B).
All references to “Adjusted EBITA” in this document represent Adjusted EBITDA after deducting amortization of capital and landfill assets. All references to “Adjusted operating income or adjusted operating EBIT” in this document represent Adjusted EBITDA after adjusting for net gain or loss on the sale of capital assets and all amortization expense, including amortization expense recognized on the impairment of intangible assets. All references to “Adjusted net income” are to adjusted operating income after adjusting net gain or loss on financial instruments, loss on extinguishment of debt, other expenses and net income tax expense or recovery.
Adjusted EBITA, Adjusted operating income or adjusted operating EBIT and Adjusted net income should not be construed as measures of income or of cash flows. Collectively, these terms do not have standardized meanings prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures used by other companies. Each of these measures are important for investors and are used by management in the management of its business. Adjusted operating income or adjusted operating EBIT removes the impact of a company–s capital structure and its tax rates when comparing the results of companies within or across industry sectors. Management uses Adjusted operating EBIT as a measure of how its operations are performing and to focus attention on amortization and depreciation expense to drive higher returns on invested capital. In addition, Adjusted operating EBIT is used by management as a means to measure the performance of its operating locations and is a significant metric in the determination of compensation for certain employees. Adjusted EBITA accomplishes a similar comparative result as Adjusted operating EBIT, but further removes amortization attributable to intangible assets. Intangible assets are measured at fair value when we complete an acquisition and amortized over their estimated useful lives. We view capital and landfill asset amortization as a proxy for the amount of capital reinvestment required to continue operating our business steady state. We believe that the replacement of intangible assets is not required to continue our operations as the costs associated with continuing operations are already captured in operating or selling, general and administration expenses. Accordingly, we view Adjusted EBITA as a measure that eliminates the impact of a company–s acquisitive nature and permits a higher degree of comparability across companies within our industry or across different sectors from an operating performance perspective. Finally, Adjusted net income is a measure of our overall earnings and profits and is further used to calculate our net income per share. Adjusted net income reflects what we believe is our “operating” net income which excludes certain non-operating income or expenses. Adjusted net income is an important measure of a company–s ability to generate profit and earnings for its shareholders which is used to compare company performance both amongst and between industry sectors.
(B) We have adopted a measure called “free cash flow” to supplement net income or loss as a measure of our operating performance. Free cash flow is a term which does not have a standardized meaning prescribed by U.S. GAAP, is prepared before dividends declared and shares repurchased, and may not be comparable to similar measures prepared by other companies. The purpose of presenting this non-GAAP measure is to provide disclosure similar to the disclosure provided by other U.S. publicly listed companies in our industry and to provide investors and analysts with an additional measure of our value and liquidity. We use this non-GAAP measure to assess our performance relative to other U.S. publicly listed companies and to assess the availability of funds for growth investment, debt repayment, share repurchases or dividend increases. All references to “free cash flow” in this document have the meaning set out in this note.
Guidance outlook
Included in our press release for the fourth quarter and year ended December 31, 2012, issued February 14, 2013, was our guidance for the fiscal year ending December 31, 2013, including our 2013 outlook assumptions and factors. We updated our 2013 guidance outlook in our second quarter and six month ended June 30, 2013 press release issued July 30, 2013 as a result of our implementation of a long-term internal financing structure, including our intention to fix a portion of the variable rate interest borne on amounts drawn under our consolidated credit facility, and to update our FX assumption from parity to 97 cents U.S. for each Canadian dollar. We also updated our 2013 full year guidance for our second quarter performance on the following measures: net gain on sale of capital assets, lower current income tax expense and higher deferred income tax expense. This press release, and our original press release issued February 14, 2013, is available at and . As of October 23, 2013, we have updated our 2013 outlook assumptions and factors as outlined below in the Changes to assumptions and impact on guidance outlook section of this press release.
Changes to assumptions and impact on guidance outlook
(All amounts are in thousands of U.S. dollars, unless otherwise stated)
Third quarter and full year performance adjustments
Revenues
Our full year guidance has been adjusted to reflect stronger third quarter and year-to-date core pricing and volume improvement. Stronger organic revenue growth was most pronounced in our U.S. northeast segment, followed closely by improvements in the Texas region of our U.S. south segment. A stronger economic environment than was originally expected is the primary reason for the higher than anticipated organic revenue growth. Accordingly, we expect full year revenues to be approximately $33,000 to $43,000 higher than the revised guidance provided on July 30, 2013. Please refer to our Management Discussion and Analysis for third quarter ended September 30, 2013 for additional details supporting our revenue performance in the third quarter and year-to-date periods.
Adjusted EBITDA(A)
Our adjusted EBITDA(A) outlook has been lowered for full year 2013. We have lowered our adjusted EBITDA(A) expectation as a result of higher third quarter expenses, including higher unanticipated insurance and claims, labour and repairs and maintenance costs. These costs increased in the third quarter of 2013 beyond our expectations as a result of our mix of revenues, organizational costs we incurred to meet the demand of the third quarter mix of revenues and delayed vehicle receipt. We have revised our expected adjusted EBITDA(A) outlook for 2013 down by approximately $8,000 to $12,000 to reflect higher than anticipated third quarter costs. Please refer to our Management Discussion and Analysis for the third quarter ended September 30, 2013 for additional details about our operating cost performance in the third quarter. The revised outlook for adjusted EBITDA(A) results in a total income tax recovery of approximately $3,400, at the mid-point, and represents an approximately six cent decline to adjusted net income(A) per diluted share.
Amortization expense
Our outlook for amortization expense reflects the third quarter charge of approximately $4,100 due to the revocation of an operating permit for a redundant transfer station we acquired in 2010. The permit was revoked due to the completion of a new waste facility in central Canada in the third quarter of this year. The balance of the increase is due to higher than anticipated landfill volumes. Accordingly, we expect 2013 full year amortization expense to be approximately 14.6% of revenues. The additional amortization expense of approximately $8,000 to $9,000 results in a deferred tax recovery of approximately $2,900 and represents an approximately five cent decline to adjusted net income(A) per diluted share.
Interest rate swaps and interest expense
With the implementation of our long-term internal financing structure, we intended to enter into interest rate swaps to fix a portion of the variable rate interest borne on amounts drawn under our consolidated credit facility. Our updated guidance outlook prepared at July 30, 2013 contemplated swapping variable rate interest to fixed rate interest for approximately $300,000 of notional amounts drawn on our revolving credit facility. Based on market rates prevailing at that time, we assumed an incremental increase of approximately 300 basis points to our cost of borrowing compared to our originally prepared guidance outlook issued in February. As a result, we anticipated an approximately $4,500 increase in interest expense and an approximately $1,200 decline in current income tax expense resulting in an approximately three cent decline in adjusted net income(A) per diluted share compared to our previously issued outlook in February. Through September 30, 2013, we have entered into interest rates swaps on notional borrowings of approximately $275,000. Based on current interest rates the expected increase in interest expense is approximately $1,300 for the fourth quarter of 2013 or approximately $5,100 annually. We expect to enter into additional interest rate swaps on notionally borrowed amounts of between $250,000 and $280,000. We estimate that for the balance of 2013 we will incur additional interest expense of approximately $700, based on current market rates, resulting from swaps we intend to enter into in the fourth quarter of this year. We have further adjusted our expectation for interest expense downward for an anticipated rise in interest rates that hasn–t materialized. Accordingly, we expect interest expense to be approximately $5,000 lower than the amount anticipated in our most recent outlook issued in July 2013. We also expect cash tax to increase by approximately $1,300 and adjusted net income(A) per diluted share to improve by approximately three cents per share.
Cash and deferred taxes
Our revised outlook reflects lower cash and deferred taxes for 2013. Lower cash and deferred taxes reflect our revised outlook for adjusted EBITDA(A), amortization and interest expense, as outlined above. We have also adjusted our expected full year 2013 tax rate down to 34% from 35% to better reflect the benefit we expect from the implementation of our long-term internal financing structure which we put in place at the end of the second quarter this year.
Free cash flow(B) and items impacting free cash flow(B)
Lower adjusted EBITDA(A) is partially offset by lower interest and cash taxes, all of which are outlined above. Accordingly, we anticipate no change to our expectations for free cash flow(B) for 2013 compared to our guidance outlook previously issued in July 2013.
Other assumptions and factors
We have further reflected the impact of all items impacting adjusted net income(A), beyond those listed above, which we have recognized in the year-to-date period ended September 30, 2013, together with the related tax effect. All other assumptions and factors remain unchanged and are consistent with those outlined in our July 30, 2013 and February 14, 2013 press releases.
Caution regarding forward looking statements
The Company–s 2013 outlook is subject to the same risks and uncertainties outlined in the Risk and Uncertainties section of the Company–s Management Discussion and Analysis, as applicable and investors are urged to fully review these sections before making an investment decision. This press release contains forward-looking statements and forward-looking information. Forward-looking statements are not based on historical facts but instead reflect our expectations, estimates or projections concerning future results or events. These statements can generally be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goals,” “intend,” “intent,” “belief,” “may,” “plan,” “foresee,” “likely,” “potential,” “project,” “seek,” “strategy,” “synergies,” “targets,” “will,” “should,” “would,” or variations of such words and other similar words. Forward-looking statements include, but are not limited to, statements relating to future financial and operating results and our plans, objectives, prospects, expectations and intentions. These statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Numerous important factors could cause our actual results, performance or achievements to differ materially from those expressed in or implied by these forward-looking statements, including, without limitation, those factors outlined in the Risks and Uncertainties section of the Company–s Management Discussion and Analysis. We caution that the list of factors is illustrative and by no means exhaustive. In addition, we cannot assure you that any of our expectations, estimates or projections will be achieved.
All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements in this press release are qualified by these cautionary statements. The forward-looking statements in this press release are made as of the date of this press release and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law.
About Progressive Waste Solutions Ltd.
As one of North America–s largest full-service waste management companies, we provide non-hazardous solid waste collection, recycling and disposal services to commercial, industrial, municipal and residential customers in 13 U.S. states and the District of Columbia and six Canadian provinces. We serve our customers with vertically integrated collection and disposal assets. Progressive Waste Solutions Ltd.–s shares are listed on the New York and Toronto Stock Exchanges under the symbol BIN.
To find out more about Progressive Waste Solutions, visit our website at .
Management will hold a conference call on Thursday, October 24, 2013, at 8:30 a.m. (ET) to discuss results for the three and nine months ended September 30, 2013. Participants may listen to the call by dialing 1-888-241-0394, conference ID 73623841, at approximately 8:20 a.m. (ET). International or local callers should dial 647-427-3413. The call will also be webcast live at and at . A supplemental slide presentation will be available at .
A replay will be available after the call until Thursday, November 7, 2013, at midnight, and can be accessed by dialing 1-855-859-2056, conference ID 73623841. International or local callers can access the replay by dialing 404-537-3406. The audio webcast will also be archived at and .
Contacts:
Progressive Waste Solutions Ltd.
Chaya Cooperberg
VP, Investor Relations and Corporate Communications
(905) 532-7517
Progressive Waste Solutions Ltd.
Laura Lepore
Manager, Investor Relations and Corporate Communications
(905) 532-7519