2019 Earnings

Q4 Earnings

Waste Connections CEO Worthing Jackman described the company as "extremely pleased" with its 2019 results during this week's quarterly earnings call, capping off another year of heightened activity on multiple fronts. Executives touted $916.8 million in adjusted free cash flow, along with increased EBIDTA despite commodity challenges, as some of the most positive signs.

While there was plenty of discussion about the underlying factors propelling these returns, many financial analysts were once again focused on when (or if) the company's multi-year streak of "outsized" M&A activity might wind down.

M&A runway

• Waste Connections reported completing 21 acquisitions worth a net fair value of $837.7 million in 2019, largely paid in cash, and saw an especially busy end of the year with deals in multiple states. This included the acquisition of Penn Waste, along with operations in Illinois and Tennessee.
• Total 2019 activity amounted to an estimated $300 million worth of annual revenue, which is expected to provide $170 million of rollover benefits this year. Jackman anticipated potentially signing deals worth upward of $150 million in revenue by the end of Q2 alone, continuing that pace.
• This does not include purchasing any potential divestitures that could arise from Waste Management's acquisition of Advanced Disposal Services, with Jackman cautioning "it's way too early to tell whether or not we'll benefit from any of that."

While industry M&A activity has generally been heightened in recent years, Waste Connections has taken a particularly "outsized" approach since 2017. Its 2019 activity surpassed the typical pace of larger competitors Waste Management and Republic Services. Jackman described his company's activity over the last three years as more akin to what the company might expect in a six-year period. Many sellers continue to shop around, perhaps even more so as the 2020 election looms this fall. 

"[Possible sellers] continue to note the strength of their underlying businesses, and the clarity resulting from tax reform under the current administration, with the potential for uncertainty being introduced as a result of any change to the status quo," said Jackman in prepared remarks.

Yet when asked later by one financial analyst if 2020 might be "the last year at the party," Jackman appeared to place less stock in any political effects. He said sellers would still be active when the time was right, with a "long runway" ahead of privately-held assets worth at least $3.5-4 billion in annual revenue that could fit into the company's model.​ This is out of a broader $18 billion worth of private company revenue still theoretically available at the right price, much of that centered around collection, per the latest Waste Business Journal figures.

2019 trends

• Waste Connections continues to push disposal pricing up and overall core price was 5.4% for 2019. Like his largest competitors, Jackman foresees leachate costs continuing to rise. The company is now hoping to better "control our own destiny" by bringing more of those treatment capabilities in-house.
• While the company has less recycling exposure than others, depressed commodity prices led to a $14 million EBITDA hit in Q4 and annual revenues were down significantly to $64.3 million. The recycling commodity situation is not expected to see notable improvement this year either.
• Volatile pricing for renewable gas credits also continued to take a toll, though has risen so far in 2020. If those levels are sustained, CFO Mary Anne Whitney estimates they could create a $15-20 million EBITDA benefit for the year.

Looking ahead

• While 2019 E&P revenue came in at nearly $272 million, up from prior years even despite declining rig counts, Waste Connections anticipates a 10% revenue decline in 2020.  The company continues to make new investments in both Wyoming and the Permian Basin, but doesn't expect this level of activity to last as similarly noted by Republic.
• Capital expenditure guidance also remains on the high end at upward of $625 million – following a total of $634.4 million in 2019 that was well above expectations – "to allow for some cushion for the unknown," per Jackman. Likely uses include landfill infrastructure and post-M&A spending.
• Overall, Waste Connections is projecting 2020 revenue upward of $5.775 billion (excluding acquisitions) and strong numbers across multiple categories, including potentially $1 billion in free cash flow. After paying out $175.1 million in dividends last year – with no share repurchases – the company did not offer a specific projection on its 2020 plans.