Progressive Waste Solutions Ltd. Reports Results for the Three and Nine Months Ended September 30, 2015
Performance in line with preliminary announcement; Strong volume growth of 2.1% combined with higher price of 1.7%; Adjusted EBITDA(A) margin expansion in North and East regions; Taking actions to restore higher operating margins in the West region; Committed to targets established in the Company's five-year strategic plan
(firmenpresse) - TORONTO, ONTARIO -- (Marketwired) -- 10/30/15 -- Progressive Waste Solutions Ltd. (the "Company") (NYSE: BIN) (TSX: BIN) today reported its financial results for the three and nine months ended September 30, 2015.
Third quarter highlights
Management Commentary
(All amounts are in United States ("U.S.") dollars, unless otherwise stated)
"The results of our third quarter are in line with our preliminary announcement on October 19, and reflect a strong sales performance across our Company and adjusted EBITDA(A) margins in our North and East regions, as the benefits of our operational excellence program emerge," said Joseph Quarin, President and Chief Executive Officer, Progressive Waste Solutions Ltd. "We experienced the highest revenue growth in our West region, through contributions from acquisitions as well as organic improvements in price and volume, particularly in the commercial collection segment. However, as we reported with our preliminary results earlier this month, labor and repair and maintenance costs were higher than we anticipated in this region, more than offsetting the revenue gains."
Mr. Quarin continued, "Our North and East regions demonstrate the underlying strength in our business. We are investing in our fleet in the West region to bring it in line with our maintenance standards and strengthen its operational foundation. As we announced last week, we plan to spend an incremental $4 million on repair and maintenance in the West region in the fourth quarter. This will increase fleet reliability, reduce labor turnover and overtime hours, and improve safety in this region within the next six to nine months. Our recently installed regional leadership group and maintenance management team are taking actions to aggressively address the issues we have identified with our trucks and labor resources, setting the region on a path to achieving higher operating margins. No additional capital is required to address these issues. We remain confident in our ability to create meaningful value for shareholders by delivering on the goals established in our five-year strategic plan to significantly expand adjusted EBITDA(A) margins, reduce capital expenditures and increase free cash flow(B) as a percentage of revenue, and improve return on invested capital. In addition, the expected extension of our U.S. tax loss carryforwards will benefit free cash flow(B) for an additional two years."
"As announced on October 19, our 2015 outlook has been updated to reflect the higher operating costs in the third quarter as well as our expectations for the fourth quarter of 2015," Mr. Quarin said. "The updated outlook also reflects the actions we are taking in our West region as well as a more cautious view of special waste volumes in parts of our western Canadian operations and some costs related to a new municipal contract start-up."
Three months ended September 30, 2015
Reported revenues decreased ($32.6) million or (6.3)% from $521.2 million in the third quarter of 2014 to $488.5 million in the third quarter of 2015. Expressed on a reportable basis, and assuming a FX rate of parity between the Canadian and U.S. dollar, revenues increased 0.3%. This increase was due in large part to a 1.7% increase in overall pricing and higher volumes of 2.1%, partially offset by net acquisitions (2.0%), and lower fuel surcharges (1.2%).
Operating income was $59.9 million in the third quarter of 2015 versus $65.5 million in the third quarter of 2014. Net income was $22.9 million versus $40.8 million in the third quarters of 2015 and 2014, respectively.
Adjusted amounts
Adjusted EBITDA(A) was $127.2 million in the third quarter of 2015 versus $139.8 million posted in the same quarter a year ago. Adjusted operating EBIT(A) was $62.4 million or (8.6)% lower in the quarter compared to $68.3 million in the same period last year. Adjusted net income(A) was $37.7 million, or $0.35 per diluted share, compared to $41.2 million, or $0.36 per diluted share in the comparative period.
Nine months ended September 30, 2015
For the nine months ended September 30, 2015, reported revenues decreased ($62.7) million or (4.2)% from $1,504.4 million in 2014 to $1,441.7 million in 2015. Expressed on a reportable basis and at FX parity, revenues increased 1.0% on a comparative basis. The increase is due in large part to a 1.8% increase in overall pricing and higher volumes of 2.1%, partially offset by declines in fuel surcharges (1.2%) and net acquisitions (1.1%).
For the nine months ended September 30, operating income was $157.3 million in 2015 versus $184.9 million in 2014. Net income was $78.2 million versus $107.6 million for the nine months ended September 30, 2015 and 2014, respectively.
Adjusted amounts
For the nine months ended September 30, adjusted EBITDA(A) was $354.3 million or (7.9)% lower in 2015 versus the $384.6 million posted in 2014. Adjusted operating EBIT(A) was $165.8 million compared to the $190.7 million recorded last year. Adjusted net income(A) was $98.0 million, or $0.88 per diluted share, compared to $113.2 million, or $0.98 per diluted share in the same period last year.
Expected Extension of U.S. Tax Loss Carryforwards
The Company''s U.S. business continues to utilize loss carryforwards which are available to offset income otherwise subject to tax. Based on the current rate of utilization and expected performance of its U.S. business, the Company expects that these carryforward losses will extend through 2018, from the previous estimate of the fourth quarter of 2016. The rate of use however, is subject to the actual performance of our U.S. business. Once these carryforward losses are fully utilized, current income tax expense will increase significantly.
2015 Outlook Update
The Company is updating its 2015 outlook in light of certain results realized through the third quarter this year, coupled with certain renewed expectations for the balance of 2015. Details for each of these updates are outlined in the Changes to assumptions and impact on 2015 guidance outlook section of this press release.
Our updated outlook for the fiscal year ended 2015 is as follows (in millions of U.S. dollars, except per share amounts, Canadian dollars ("C$") and where otherwise stated):
Free cash flow(B)
Purpose and objective
The purpose of presenting this non-GAAP measure is to provide readers with an additional measure of our value and liquidity. We use this non-GAAP measure to assess our performance relative to our peers and to assess the availability of funds for growth investment, share repurchases, debt repayment or dividend increases.
Free cash flow(B) - adjusted EBITDA(A) approach
We typically calculate free cash flow(B) using an operations approach which reflects how we manage the business and our free cash flow(B).
Funded debt to EBITDA (as defined and calculated in accordance with our consolidated facility)
At September 30, 2015, the ratio of funded debt to EBITDA is 3.03 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 similar amounts.
Quarterly dividend declared
The Company''s Board of Directors declared a quarterly dividend of $0.17 Canadian per share payable to shareholders of record on December 31, 2015. The dividend will be paid on January 15, 2016. 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, 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 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 debt 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.
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 for, as applicable, net gain or loss on financial instruments, re-measurement gain on previously held equity investment, loss on extinguishment of debt 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 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. All press releases are available at and . Our updated outlook provided on July 30, 2015 has been further refined for the fiscal year ending December 31, 2015.
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. In the third quarter this year, we incurred higher employee training and onboarding costs and higher overtime hours due to a shortage of vehicle operators and equipment downtime. We expect to correct these issues over the next six to nine months. We also expect to see softer volumes in our western Canadian operations in the fourth quarter of this year and incur start-up costs in our East segment for a new residential contract win. For these reasons, we expect to deliver adjusted EBITDA(A) of approximately $480,000 to $485,000 in 2015, which compares to our updated second quarter outlook of $500,000 to $515,000 for 2015, both of which are translated at eighty cents U.S. With no change to our revenue expectation for the year, we expect lower adjusted EBITDA(A) margins of just under 25%.
Amortization expense, as a percentage of revenue
Our outlook for amortization expense declined 40 basis points from 14.2% to 13.8% of revenue. This reduction reflects a slower pace of capital receipt than we had originally expected for 2015, coupled with softer volumes in the last quarter this year for our western Canadian operations, including lower landfill volumes, and lower landfill amortization resulting from the year-to-date mix of volumes received across our sites, partially offset by higher amortization expense resulting from acquisitions completed in the year.
Adjusted operating EBIT(A)
Adjusted operating EBIT(A) reflects lower adjusted EBITDA(A), partially offset by a decline in amortization expense and the inclusion of gains on sale of capital and landfill assets, which includes the gain we realized on the disposal of our Long Island, New York operations. The change in adjusted EBITDA(A) and amortization expense are outlined above.
Interest on long-term debt
Our updated outlook reflects interest expense we expect to incur on borrowings made for an acquisition completed October 1, 2015, for cash consideration of approximately $109,500. In addition, our expectation for a weaker operating performance will result in higher debt levels, which we further expect will contribute to higher interest expense in 2015.
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 the mix of income generated by our Canadian and U.S. operations relative to our updated second quarter guidance outlook.
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 due to share repurchases being financed from Canadian source, coupled with a weaker fourth quarter outlook for our operations in western Canada due to economic softness.
Adjusted net income(A) per diluted share
Adjusted net income(A) per diluted share reflects lower adjusted EBITDA(A), partially offset by lower amortization, higher gains on the sale of capital and landfill assets, lower amortization expense and lower income tax expense. Each of these changes is outlined above.
Free cash flow(B) and items impacting free cash flow(B)
We expect free cash flow(B) to be lower than expected, due to higher operating and interest costs, outlined above, partially offset by lower cash taxes.
Other assumptions and factors
All other assumptions and factors remain unchanged and are consistent with those outlined in our July 30, 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 .
Management will hold a conference call on Friday, October 30, 2015, at 8:30 a.m. (ET) to discuss results for the three and nine months ended September 30, 2015. Participants may listen to the call by dialing 1-888-300-0053, conference ID 49756725, at approximately 8:20 a.m. (ET). International or local callers should dial 647-427-3420. 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 Friday, November 13, 2015, at midnight, and can be accessed by dialing 1-855-859-2056, conference ID 49756725. 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
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