Waste Connections, Inc. (WCN)

WCN 
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Waste Connections, Inc. (WCN)

Q4 2011 Earnings Call

February 8, 2012 08:30 am ET

Executives

Ron Mittelstaedt – Chairman and Chief Executive Officer

Steve Bouck – President

Darrell Chambliss – Chief Operating Officer

Worthing Jackman – Chief Financial Officer

Analysts

Hamzah Mazari – Credit Suisse

Scott Levine – J. P. Morgan

Bill Fisher – Raymond James

Al Kaschalk – Wedbush

Michael Hoffman – Wunderlich

Tony Bancroft – Gabelli

Presentation

Operator

Good morning. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. Ron Mittelstaedt, Chairman and CEO. Please proceed.

Ron Mittelstaedt

Thank you, operator, and good morning. I’d like to welcome everyone to this conference call to discuss our fourth quarter 2011 results and provide a detailed outlook for the first quarter and full year 2012. I’m joined this morning in our new corporate office in The Woodlands, Texas by Steve Bouck, our President, Worthing Jackman, our CFO, and several other members of our senior management team.

We are extremely pleased with the results in the fourth quarter as stronger than expected pricing and special waste volumes, together with continuing tight cost controls, enable us to offset most of the revenue, margins and EPS impact from higher than expected declines in recycled commodity values.

We are also extremely pleased with our full year results in 2011. On a 14% increase in revenue, adjusted operating income before depreciation and amortization grew 15%. Adjusted EPS increased almost 20% and free cash flow per share increased more than 20%. Free cash flow as a percentage of revenue was almost 17% for the year. This strengthened free cash flow enabled us to deploy almost $500 million in acquisitions, share repurchases and dividends during 2011 while maintaining low two times leverage and plenty of capacity for additional growth opportunities.

Looking at 2012, we are pleased to affirm again today what we have said since our call in October. That is a combination of at least $80 million of acquisition rollover growth, expected core pricing growth at least equal to what we achieved in 2011, and relative stability in municipal solid waste volumes should position us well in the new year.

We’re also pleased that OCC prices are up about 10% from their November lows. Finally, we also believe the acquisition activity across the sector could remain strong over the next few years, potentially eclipsing the record levels we have experienced in three of the last four years. Before we get into much more detail, let me turn the call over to Worthing for our forward-looking disclaimer and other housekeeping items.

Worthing Jackman

Good morning. 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, including statements related to expected volume and pricing trends, including recycled commodity prices, contributions from closed acquisitions, potential acquisition activity, share repurchases, dividends, available borrowing capacity and anticipated capital expenditures, as well as our first quarter and full year 2011 outlook for financial results.

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.

Stockholders, 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 adjusted operating income before depreciation and amortization, adjusted earnings per share, and free cash flow. 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; other companies may calculate these non-GAAP measures differently.

I will now turn the call back over to Ron.

Ron Mittelstaedt

Thank you, Worthing. As noted earlier, we are extremely pleased with our performance in the fourth quarter. Revenue was $379.8 million, up 13% over the prior year period. Internal growth in the quarter was 3% broken down as follows: positive 3% from core price, positive 0.8% from surcharges, negative 0.8% from volume and 0% from recycling, intermodal and other services.

Net pricing, or core price plus surcharges exceeded expectations in the quarter, increasing sequentially to 3.8% from 3.5% in the prior quarter due to both higher core prices and surcharges.

Looking at 2012, we expect net pricing in the first quarter to be a little more than 3.5% and average about 3% for the full year, consistent with the outlook we provided on our October call. Core pricing will increase a bit sequentially in Q1, but surcharges are expected to contribute less to net pricing growth as we start to anniversary surcharges implemented last year.

As in prior years, we believe we have strong visibility on pricing for the full year and are not sitting here today having to place a bet on changes in CPI, economic trends or competitor behavior to deliver on our commitments. This visibility and predictability, along with comparatively higher core pricing, continue to be key differentiators of our strategy.

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