Waste nections(US:WCN)2020-08-07 20:49Financial Data and Key Metrics Changes - Revenue for Q2 2020 was $1.306 billion, down $64 million or 4.7% year-over-year, with almost half of the decline attributed to lower E&P waste activity [21][25] - Adjusted EBITDA for Q2 was $394.3 million, about $21 million above preliminary expectations, with an adjusted EBITDA margin of 30.2%, down 90 basis points year-over-year [26][27] - Cash collections improved with a 10% reduction in Days Sales Outstanding (DSOs) year-to-date, and adjusted free cash flow for the first half of the year was $494.6 million, or 18.6% of revenue [13][28] Business Line Data and Key Metrics Changes - Solid waste price plus volume growth on a same-store basis in Q2 was negative 5.3%, with declines ranging from flat in West Coast markets to negative 11% to 13% in the most impacted Eastern and Canadian regions [21][22] - E&P waste revenue was reported at $35.5 million in Q2, down about 45% year-over-year, leading to a noncash impairment charge of $417 million for long-lived E&P waste assets [25][26] - Solid waste landfill average price per ton increased 5% year-over-year, although revenue was down about 5% on a same-store basis due to a 10% decline in total tons [24] Market Data and Key Metrics Changes - By the end of Q2, approximately 53% of solid waste commercial customers that had suspended or reduced service had reached out for resumption, up from 12% in early May [11] - Solid waste volumes improved sequentially by about 300 basis points in July compared to Q2, with July revenue down about 1.9% year-over-year [15][16] - The recovery in less impacted markets, such as Texas and Florida, showed no material change despite rising COVID-19 cases, with recovery rates around 65% to 70% [72] Company Strategy and Development Direction - The company remains focused on cost control and quality of revenue as volumes return, with a commitment to community support and employee welfare during the pandemic [12][13] - The company is on pace for another solid year of acquisition activity, having closed acquisitions totaling approximately $60 million in annualized revenue year-to-date [14] - The company anticipates a revenue outlook of $5.325 billion for 2020, down about 1% year-over-year, with adjusted EBITDA of $1.61 billion [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's preparedness and execution during the pandemic, which positions it well for recovery [4][5] - The trajectory of recovery is considered unpredictable due to potential COVID-19 outbreaks and additional closure requirements, but management is encouraged by the demonstrated projectability of the business [17] - The company plans to increase capital expenditures to $550 million for the full year as business recovers [18] Other Important Information - The company has returned over $200 million to shareholders through share repurchases and dividends year-to-date, with an anticipated double-digit percentage increase in cash dividends in October [19] - The effective tax rate for Q2 was 41.1%, impacted by a $27.4 million tax item from 2019, with an underlying tax rate of approximately 21.5% [27] Q&A Session Summary Question: Pricing dynamics between Canada and the U.S. - Management indicated that pricing in Canada is expected to converge with U.S. pricing over time as they work through the book from previous transactions [36][37] Question: E&P revenue run rate and cost management. - Management noted that E&P margins are still positive despite declines, and the segment has been consolidated into the Southern region for efficiency [39] Question: Free cash flow guidance for the second half of the year. - Management explained that the lower free cash flow guidance is due to higher cash taxes and interest expenses in the second half, along with a conservative approach to long-term planning [42][43] Question: Recovery momentum and potential headwinds. - Management acknowledged that while recovery has plateaued, there is still potential for further upside as more impacted markets recover [48] Question: M&A activity and competitive landscape. - Management emphasized a disciplined approach to M&A, focusing on market selection and asset positioning, while noting potential increased competition in the market [50] Question: Employee welfare and costs during the pandemic. - Management highlighted the importance of servant leadership and support for frontline employees, including supplemental wages and community support initiatives [54][55] Question: Solid waste margin guidance for Q3 and Q4. - Management indicated an expected underlying solid waste margin expansion of around 70 basis points in Q3, despite COVID-related costs and acquisition impacts [56]