Progressive Waste Solutions Ltd. Reports Results for the Three and Six Months Ended June 30, 2015
Strong Volume Growth of 3.0% Combined With Higher Price of 1.8%; Organic Growth and Cost Reduction Programs on Track to Support a Strong Second-Half 2015 Performance; 2015 Outlook Updated to Reflect Certain Costs Items; Annual Cash Dividend Increase of 6.3%; Board Authorizes Annual Share Repurchase Program of Up to 10 Million Shares
(firmenpresse) - TORONTO, ONTARIO -- (Marketwired) -- 07/30/15 -- Progressive Waste Solutions Ltd. (the "Company") (TSX: BIN)(NYSE: BIN) today reported its financial results for the three and six months ended June 30, 2015.
Second quarter highlights
Management Commentary
(All amounts are in United States ("U.S.") dollars, unless otherwise stated)
"We achieved strong top line performance in the second quarter, driven by encouraging volume growth of 3.0% as well as higher price of 1.8%," said Joseph Quarin, President and Chief Executive Officer, Progressive Waste Solutions Ltd. "Volume growth was the highest we have achieved since 2010, with improvement in our North, East and West regions, and across service lines, with the most notable increases in our commercial and residential collection lines and at our transfer stations and certain landfills. This demonstrates the effectiveness of our organic growth programs, as well as signs of a more supportive economic environment in the markets we serve."
Mr. Quarin continued, "Our operational excellence program is proceeding as expected, and we are pleased with the early indicators of improvement. We note that the impact of the flood in our Texas markets in the quarter resulted in higher expenses for disposal and labor, which obscured the results of some of our cost reduction efforts in our West region. We are updating our outlook for 2015 to reflect unanticipated operating costs of approximately $10 million in our West region, as well as previously reported one-time costs of approximately $4.5 million that we incurred in the first quarter. Excluding these year-to-date cost items, we are on track with our prior outlook and expect to achieve adjusted EBITDA(A) margins of approximately 28% in the second half of the year, as our organic growth and cost reduction programs take further hold."
"We are staying focused on generating cash and allocating capital to where it will earn the highest return," Mr. Quarin added. "We remain on target with the replacement capital expenditures in our 2015 plan. Municipal contract wins require an additional $10 million of growth capital this year, which is reflected in our updated outlook, but will contribute to earnings in 2016. We expect to exit this year with a foundation firmly in place for adjusted EBITDA(A) and free cash flow(B) growth in 2016, as we benefit from our operational excellence program and new municipal contracts. It is this expectation that gives us confidence in increasing returns to our shareholders and raising our cash dividend by more than 6.0%."
Three months ended June 30, 2015
Reported revenues decreased ($20.5) million or (4.0)% from $513.5 million in the second quarter of 2014 to $493.0 million in the second quarter of 2015. Expressed on a reportable basis, and assuming a FX rate of parity between the Canadian and U.S. dollar, revenues increased 0.6%. This increase was due in large part to a 1.8% increase in overall pricing and higher volumes of 3.0%, partially offset by net acquisitions (2.2%), and lower fuel surcharges.
Operating income was $48.2 million in the second quarter of 2015 versus $78.1 million in the second quarter of 2014. Net income was $37.1 million versus $40.9 million in the second quarters of 2015 and 2014, respectively.
Adjusted amounts
Adjusted EBITDA(A) was $120.3 million in the second quarter of 2015 versus $131.9 million posted in the same quarter a year ago. Adjusted operating EBIT(A) was $51.3 million or (35.6)% lower in the quarter compared to $79.8 million in the same period last year. Adjusted net income(A) was $32.1 million, or $0.29 per diluted share, compared to $47.2 million, or $0.41 per diluted share in the comparative period.
Six months ended June 30, 2015
For the six months ended June 30, 2015, reported revenues decreased ($30.1) million or (3.1)% from $983.3 million in 2014 to $953.2 million in 2015. Expressed on a reportable basis and at FX parity, revenues increased 1.3% on a comparative basis. The increase is due in large part to a 1.9% increase in overall pricing and higher volumes of 2.0%, partially offset by declines in fuel surcharges and net acquisitions.
For the six months ended June 30, operating income was $97.4 million in 2015 versus $119.4 million in 2014. Net income was $55.3 million versus $66.8 million for the six months ended June 30, 2015 and 2014, respectively.
Adjusted amounts
For the six months ended June 30, adjusted EBITDA(A) was $227.1 million or (7.2)% lower in 2015 versus the $244.7 million posted in 2014. Adjusted operating EBIT(A) was $103.4 million compared to the $122.4 million recorded last year. Adjusted net income(A) was $60.3 million, or $0.54 per diluted share, compared to $72.0 million, or $0.63 per diluted share in the same period last year.
2015 Outlook Update
The Company is updating its 2015 outlook in light of certain results realized through the second quarter this year, coupled with certain renewed expectations for the balance of 2015. Details for each of these updates are outlined in the Changes to assumptions and impact on 2015 guidance outlook section of this press release.
Our updated outlook for the fiscal year ended 2015 is as follows (in millions of U.S. dollars, except per share amounts, Canadian dollars ("C$") and where otherwise stated):
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.
Funded debt to EBITDA (as defined and calculated in accordance with our consolidated facility)
At June 30, 2015, the ratio of funded debt to EBITDA is 3.12 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 income in Canada. Based on our 2015 guidance outlook, if the U.S. dollar strengthens by one cent our reported revenues will decline by approximately $8,600. Adjusted EBITDA(A) is similarly impacted by approximately $2,800, assuming a strengthening U.S. dollar. The impact on adjusted net income(A) and free cash flow(B) for a similar change in FX rate, results in an approximately $1,000 decline for each. Should the U.S. dollar weaken by one cent, our reported revenues, adjusted EBITDA(A), adjusted net income(A) and free cash flow(B) will improve by amounts similar to those outlined above as a result of a strengthening U.S. dollar.
Quarterly dividend declared
The Company''s Board of Directors declared a quarterly dividend of $0.17 Canadian per share to shareholders of record on September 30, 2015. The dividend will be paid on October 15, 2015. The Company has designated these dividends as eligible dividends for the purposes of the Income Tax Act (Canada).
Definitions and Notes
(A) All references to "Adjusted EBITDA" in this document are to revenues less operating expense and SG&A, excluding certain SG&A expenses, on the 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 and landfill assets, interest on long-term debt, net foreign exchange gain or loss, net gain or loss on financial instruments, loss on extinguishment of debt, re-measurement gain on previously held equity investment, 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 sale of capital and landfill assets, net foreign exchange gain or loss, net gain or loss on financial instruments, loss on extinguishment of debt, re-measurement gain on previously held equity investment, 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, interest on long-term 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 amounts, payments made to certain senior management on their departure and other non-recurring expenses from time-to-time, including branding costs. 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 certain operating locations with our own, exiting certain property and building and office leases, employee severance, including legal costs related thereto, and employee relocation. 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) and is not indicative of our operating profitability.
Amortization - as a non-cash item amortization has no impact on the determination of free cash flow(B) and is not indicative of our operating profitability.
Net gain or loss on sale of capital and landfill assets - as a non-cash item the net gain or loss on sale of capital and landfill assets has no impact on the determination of free cash flow(B). In addition, the sale of capital and landfill assets does not reflect a primary operating activity and therefore represents a different class of income or expense than those included in adjusted EBITDA.
Interest on long-term debt - interest on long-term debt reflects our debt/equity mix, interest rates and borrowing position from time to time. Accordingly, interest on long-term debt 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) and is not indicative of our operating profitability.
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) and is not indicative of our operating profitability.
Loss on extinguishment of debt - as a non-cash item, loss on extinguishment is not indicative of our operating profitability and reflects a resulting charge from a change in our debt financing. Accordingly, it reflects our treasury/financing activities and represents a different class of expense than those included in adjusted EBITDA.
Re-measurement gain on previously held equity investment - as a non-cash item, the re-measurement gain on previously held equity investment has no impact on the determination of free cash flow(B) and is not indicative of our operating profitability.
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) and is not indicative of our operating profitability.
All references to "Adjusted EBITA" in this document represent Adjusted EBITDA after deducting amortization attributable to capital and landfill assets. All references to "Adjusted operating income or adjusted operating EBIT" in this document represent Adjusted EBITDA after adjusting for goodwill impairment, net gain or loss on the sale of capital and landfill 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, as applicable, net gain or loss on financial instruments, re-measurement gain on previously held equity investment, 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 is important for investors and is used by management to manage 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 are 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 adjusted 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.
© Rent, property taxes, insurance, utility, building maintenance and repair costs and other facility costs, collectively "facility costs", incurred at our operating locations have been reclassified from SG&A expense to operating expenses. Facility costs incurred by our corporate, region and area offices remain in SG&A expense. The reclassification better reflects these costs as costs of our operations and aligns the classification of these costs on a basis consistent with our peers. Prior period amounts have been reclassified to conform to the current period presentation and the reclassification had no impact on operating income and our results.
(D) Effective with the release of our first quarter 2015 results, we announced the reorganization of our regional management structure. Our previously reported U.S. northeast segment was joined by a portion of our previously reported U.S. south segment, and combined became our East segment. The remainder of our previously reported U.S. south segment was renamed our West segment. Our previously reported Canadian segment was renamed the North segment. These segment changes were made to align with our reorganized management structure. The objective of the reorganization was to satisfy our profitability and shareholder return goals outlined in our five year plan, which includes the optimization of our area management teams and the streamlining of certain corporate office functions. In connection with this reorganization, all previously reported segment amounts and discussions have been adjusted to conform to the current period segment information, comprising the North, East and West.
(E) We manage our capital and landfill spending based on the goods and services we receive in a particular period or year and our outlook is presented on a similar basis. Accordingly, to align our reporting of free cash flow(B) with our management of capital and landfill spending, we have adjusted our reported amounts of free cash flow(B) to include the working capital adjustment for both expenditures, thereby reflecting our receipt of capital and landfill assets in a reporting period. The prior period presentation of free cash flow(B) reflects this change and conforms with the current period presentation.
Guidance Outlook
Included in our press release for the fourth quarter and year ended December 31, 2014, issued February 26, 2015, was our outlook for the fiscal year ending December 31, 2015, including our 2015 outlook assumptions and factors. On July 30, 2015, we refined our guidance for the fiscal year ending December 31, 2015. Details of the changes to our assumptions and their impact on our 2015 guidance outlook are provided below.
Changes to assumptions and impact on 2015 guidance outlook
(All amounts are in thousands of U.S. dollars, unless otherwise stated)
Adjusted EBITDA(A) and Adjusted EBITDA(A) margin
Our outlook for adjusted EBITDA(A) has declined. Higher operating expenses due to the floods in Texas, coupled with higher costs of insurable risk and bad debt expense, are the principal contributors to higher operating expenses than we had originally anticipated for 2015. Accordingly, we expect to deliver adjusted EBITDA(A) of approximately $500,000 to $515,000 in 2015, which compares to our original expectation of $515,000 to $535,000, both of which are translated at eighty cents U.S. With no anticipated change to our revenue expectation for the year, we expect lower adjusted EBITDA(A) margins of approximately 26.0% to 26.5%.
Amortization expense, as a percentage of revenue
Our outlook for amortization expense declined 20 basis points from 14.4% to 14.2% of revenue. This reduction reflects a slower pace of capital receipt than we had originally expected for the first half of 2015.
Adjusted operating EBIT(A)
Adjusted operating EBIT(A) reflects lower adjusted EBITDA(A), partially offset by a decline in amortization expense. The reasons for each change are outlined above.
Interest on long-term debt
Our updated outlook reflects higher interest expense due to higher than anticipated borrowings in the first half of the year. Share repurchases slated for the back-half of the year were brought forward to the first half of 2015 and was the primary cause of higher than anticipated borrowings. Slightly higher borrowing rates also contributed to the year-to-date increase in interest expense compared to our expectations. Going forward, higher than expected debt levels will be offset by lower borrowing costs due to the June 30th amendment and restatement of our consolidated facility. Accordingly, we expect interest on long-term debt to increase by approximately $2,000 for the year.
Effective tax rate as a percentage of income before income tax expense
Based on our year-to-date results, our updated outlook reflects a lower expected effective tax rate for 2015. This change reflects proportionally higher income generated by our North segment than our original guidance outlook anticipated. Higher income generated in a lower tax jurisdiction results in a lower consolidated tax rate. In addition, we recognized a deferred tax recovery in connection with the amendment and restatement of our consolidated facility that wasn''t originally contemplated as well.
Cash taxes (expressed on an adjusted basis)
Based on our year-to-date results, our updated outlook reflects lower expected cash taxes for 2015. This change reflects lower expected withholding taxes since the financing of our share repurchases have been predominantly from Canadian source. In addition, lower state taxes due to the Texas floods in the second quarter this year have also reduced our expectations for cash taxes in 2015.
Adjusted net income(A) per diluted share
Adjusted net income(A) per diluted share reflects lower adjusted EBITDA(A), partially offset by lower amortization and lower income tax expense. The decline, expressed on a per share basis is about five and one half cents at the mid-point.
Free cash flow(B) and items impacting free cash flow(B)
We expect free cash flow(B) to be lower than originally predicted, due to higher operating costs, as outlined above, coupled with higher than expected capital and landfill expenditures which are outlined below. These amounts were partially offset by lower expected cash taxes.
Capital and landfill expenditures
We anticipate that capital and landfill expenditures will be higher than originally expected for 2015. The expectation for higher spending is largely attributable to higher growth capital spending. The purchase of a facility in our North segment for a new residential contract we commence servicing in January 2016, coupled with new capital to retain a residential collection contract in our East segment are the two primary contributors to higher capital and landfill spending than anticipated. We expect total capital and landfill expenditures to be about $10,000 higher in 2015 than the $240,000 we expected when we established our outlook for the year.
Expected annual cash dividend
In recognition of our continuing expectation for strong free cash flow(B), our expected annual dividend increased by Canadian four cents to Canadian sixty-eight cents effective September 30, 2015.
Other assumptions and factors
All other assumptions and factors remain unchanged and are consistent with those outlined in our February 26, 2015 press release.
Caution regarding forward looking statements
The Company''s 2015 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 Ltd., visit our website at .
Contacts:
Progressive Waste Solutions Ltd.
Chaya Cooperberg
VP, Investor Relations and Corporate Communications
(905) 532-7517
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