Waste Connections, Inc. (WCN)

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Waste Connections, Inc. (WCN)

Q2 2009 Earnings Call

July 22, 2009 8:30 am ET


Ronald J. Mittelstaedt – Chairman & Chief Executive Officer

Worthing F. Jackman – Executive Vice President & Chief Financial Officer


Michael E. Hoffman – Wunderlich Securities, Inc.

Hamzah Mazari – Credit Suisse

Scott Levine – JPMorgan

William Fisher – Raymond James

Corey Greendale – First Analysis

Nicole DeLabla – Deutsche Bank

Jonathan Ellis – Merrill Lynch

Bradley Meeks – Morningstar



Good day, ladies and gentlemen, and welcome to the second quarter 2009 Waste Connections earnings conference call. My name is Becky, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ron Mittelstaedt. Please proceed.

Ronald J. Mittelstaedt

Okay. Thank you, operator, and good morning. I would like to welcome everyone to our conference call to discuss the second quarter 2009 results and provide our detailed outlook for the third quarter. I’m joined this morning by Darrell Chambliss, our COO; Worthing Jackman, our CFO and several other members of our senior management team.

Steve Bouck, our President is traveling today and he is dialed-in remotely. The second quarter provided three months of solid performance, which is quite a turnaround following two quarters of unprecedented volatility and top line erosion late last year and earlier this year. We were encouraged to see volumes in the quarter slightly ahead, exceed our expectations, pricing remains strong and contribution from our recent acquisitions beat our initial expectations.

In looking at the quarter, we exceeded our outlook for both revenue and margin, completed the RSG divestiture transactions, agreed to acquire the largest privately-owned franchise solid waste services provider in Oregon, received IRS approval for a change in landfill depreciation method for our tax books, came through this period of record growth with still the strongest balance sheet in our sector and resumed our stock purchase program late in the quarter following the Russell Index rebalancing.

Before we get into a more detailed discussion on these and other topics, let me turn the call over to Worthing for our forward-looking disclaimer and other housekeeping items.

Worthing F. Jackman

Thank you, Ron, and good morning everyone. We must inform everyone listening that certain matters discussed in this conference call are forward-looking statements intended to qualify for the Safe Harbors from liability established by the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to various risks and uncertainties, which could cause actual results to differ materially from those currently anticipated. These risks and uncertainties are set forth in the company’s periodic filings with the Securities and Exchange Commission. Shareholders, potential investors and other participants are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

The forward-looking statements made herein are made only as of the date of this conference call and the company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

On the call, we will discuss non-GAAP measures such as operating income before depreciation, amortization and accretion, free cash flow and adjusted earnings. Please refer to our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measure. Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. And other companies may calculate these non-GAAP measures differently.

As discussed at length, during our February and April conference calls and as highlighted again in our earnings release. We remind investors and listeners of the three changes in GAAP effective this quarter that impact year-to-year comparisons and the presentation of our financials. These changes require us to expense acquisition related costs that previously have been included as an element of purchase price and capitalized as such transactions.

To record a non-cash interest expense, equal to the difference between the cash coupon in our convertible notes and the estimated non-convertible borrowing rate back to the time of the issuance of these notes. And finally, to rename minority interest as non-controlling interest, and change the presentation of such interest on our income statement and balance sheet.

With that behind us, let me turn the call back over to Ron.

Ronald J. Mittelstaedt

Okay. Thank you, Worthing. We are extremely pleased with our results in the quarter. Revenue was $302.8 million up 13.4% over the prior year period, driven by a 21.8% increase from acquisition activity.

Organic growth was a negative 8.4% broken down as follows: a positive 5.1% core price, a negative 2.4% from surcharges, a negative 7.2% volume and a negative 3.9% for recycling, intermodal and other services.

Core pricing declined sequentially as expected from 5.8% in Q1 for two reasons. First almost all our price increases are completed in Q1. And second, we comp a higher revenue period in the prior year. However, for the full year, it continues to play out as expected and remains on track to average close to 5%.

On a reported basis, core pricing will decline further in the second half of the year, as we comp even higher revenue quarters in the year ago period. Surcharges in selected markets related to changes in certain costs such as fuel, declined 2.4% in Q2, due primarily to lower fuel prices.

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