Waste Connections, Inc. (WCN) Q2 2019 Earnings Summary

Executive Summary

Q2 delivered solid top-line growth but mixed profitability: revenue rose 10.5% YoY to $1.370B on strong price and sequential volume, while adjusted EBITDA margin declined 80 bps YoY to 31.1% on recycling and renewable fuel credit (RIN) headwinds and acquisition mix dilution .
Versus the company’s Q2 guide, revenue modestly exceeded ($1.370B vs. ~$1.360B), but adjusted EBITDA missed ($425.3M vs. ~$434M) as commodity-sensitive lines underperformed despite underlying solid waste margin expansion .
Full‑year 2019 guidance was revised: revenue raised to ~$5.375B, but adjusted EBITDA lowered to ~$1.675B (31.2%); capex raised to ~$600M to fund new wins and accelerated fleet automation; adjusted FCF reduced to ~$915M .
Management highlighted strong price (+5%+) and sequential volume (+200 bps) as offsets to commodity/RIN pressures, and reiterated an active M&A cadence ($160M annualized YTD) and above-average new contract wins supporting 2020 .
Q3 2019 outlook: revenue ~$1.405B, adj. EBITDA ~$442M (~31.5% margin), price +5.0% and volume +0.5%; tax-rate sensitivity if IRS regulations are finalized (22% base; ~30.5% scenario) .

What Went Well and What Went Wrong

What Went Well
- Pricing power and sequential volume: “Solid waste pricing growth of over 5%, along with a sequential 200 basis points increase in solid waste volumes” drove ~70 bps underlying collection/transfer/disposal margin expansion in Q2 .
- Cash generation resiliency: YTD adjusted FCF of $503.9M (19.3% of revenue) and CFOA of $753.0M despite commodity headwinds .
- Commercial execution and M&A: ~$160M annualized revenue acquired YTD; new contract awards “trending above average” and accelerated fleet automation in a large acquired market (safety incidents reduced ~65% in the three largest recent deals) .
What Went Wrong
- Commodity headwinds: Ongoing erosion in recycled commodity values and a “precipitous drop in renewable fuel credits” pressured results and the adj. EBITDA margin (31.1% vs. 31.9% LY) .
- Mix dilution: Recently closed acquisitions had a dilutive margin impact vs. the prior year, contributing to the YoY margin compression .
- FY margin outlook cut: FY19 adjusted EBITDA reduced to ~$1.675B (31.2%) from ~$1.705B (32.1%), with capex raised ~$25M to ~$600M for contract wins/fleet automation; adjusted FCF revised to ~$915M .

Financial Results

Metric	Q4 2018	Q1 2019	Q2 2019
Revenue ($USD Billions)	$1.262	$1.245	$1.370
GAAP Diluted EPS ($)	$0.50	$0.48	$0.56
Adjusted EPS ($)	$0.63	$0.62	$0.69
Adjusted EBITDA ($USD Millions)	$397.187	$385.709	$425.284
Adjusted EBITDA Margin (%)	31.5%	31.0%	31.1%

Q2 actual vs Q2 guidance (company outlook provided April 25, 2019):

Item	Q2 2019 Guidance	Q2 2019 Actual	Result
Revenue ($USD Billions)	~$1.360	$1.370	— Beat
Adjusted EBITDA ($USD Millions)	~$434 (31.9%)	$425.284 (31.1%)	— Miss
Solid waste price growth (%)	4.5%–5.0%	Core price 5.0%	— At high end
Solid waste volume growth (%)	~0.0%–0.5%	0.8%	— Beat
Solid waste price + volume (%)	Implied 4.5%–5.5%	6.0%	— Beat

Revenue breakdown by line of business:

Category	Q2 2018 ($M)	% of Total	Q2 2019 ($M)	% of Total
Solid Waste Collection	$852.279	68.7%	$955.391	69.8%
Solid Waste Disposal and Transfer	$268.954	21.7%	$303.393	22.1%
Solid Waste Recycling	$22.005	1.8%	$16.325	1.2%
E&P Waste Treatment, Recovery & Disposal	$60.232	4.9%	$64.018	4.7%
Intermodal & Other	$36.498	2.9%	$30.512	2.2%
Total Reported Revenue	$1,239.968	100.0%	$1,369.639	100.0%

Geography – Segment EBITDA (Q2):

Segment	Q2 2018 ($M)	Q2 2019 ($M)
Eastern	$73.755	$85.048
Southern	$68.787	$74.511
Western	$81.175	$86.440
Central	$64.172	$74.506
Canada	$67.305	$67.664
E&P	$31.231	$33.433

KPIs and Operating Metrics (Q2 2019 unless noted):

KPI	Value
Solid waste internal growth – Core Price	5.0%
Solid waste internal growth – Surcharges	0.2%
Solid waste internal growth – Volume	0.8%
Solid waste internal growth – Recycling	(0.7%)
Solid waste internal growth – FX impact	(0.5%)
Solid waste internal growth – Total	4.8%
Internalization rate	55%
Days Sales Outstanding	44 (31 net of deferred revenue)
Debt to book capitalization	38%
Diluted shares outstanding	264,494,943
YTD Net cash provided by operating activities	$753.0M
YTD Adjusted free cash flow	$503.9M
Acquired annualized revenue YTD	~$160M
Cash dividend per share (quarter)	$0.16

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2019	~$5.310B	~$5.375B	Raised
Adjusted EBITDA (margin)	FY 2019	~$1.705B (32.1%)	~$1.675B (31.2%)	Lowered
Net income attributable to WCN	FY 2019	~$636M	~$573M	Lowered
Capital expenditures	FY 2019	~$575M	~$600M	Raised
Net cash from operating activities	FY 2019	~$1.525B	~$1.510B	Lowered
Adjusted free cash flow	FY 2019	~$950M	~$915M	Lowered
Effective tax rate (context)	FY 2019	~24%; potential 21.5%–26.5% range if IRS regs	~24%; midpoint of 21.5%–26.5% range reiterated	Maintained (risk range)
Revenue	Q3 2019	—	~$1.405B	New
Adjusted EBITDA (margin)	Q3 2019	—	~$442M (~31.5%)	New
Price/Volume (solid waste)	Q3 2019	—	Price ~5.0%; Volume ~0.5%	New
Tax rate (scenario)	Q3 2019	—	~22% base; ~30.5% if IRS regs enacted	New
Quarterly dividend	Ongoing	$0.16/share (recent)	$0.16/share in Q2	Maintained

Why changes: FY revenue raised on stronger solid waste fundamentals and M&A roll-over, but FY adj. EBITDA/margins lowered due to sustained recycling/RIN headwinds and acquisition mix; capex raised ~$35M for new contract awards and accelerated fleet automation, reducing FY adjusted FCF .

Earnings Call Themes & Trends

Topic	Q4 2018 (Prev‑2)	Q1 2019 (Prev‑1)	Q2 2019 (Current)	Trend
Pricing/Volume	Outlook embedded 4.5% price growth for 2019	Price >5% drove underlying margin expansion despite weather/recycling	Price >5% and +200 bps sequential volume; ~70 bps underlying solid waste margin expansion	Strengthening
Recycling commodity values	“Precipitous decline” in 2018 but offset by price/E&P	“Further declines” in recycled commodity values	“Ongoing erosion” pressured results/margin	Worsening
Renewable fuel credits (RINs)	—	—	“Precipitous drop” in RINs pressured results	New negative
Acquisitions cadence	~$360M annualized in 2018; ~$200M roll-over into 2019	~$100M annualized YTD signed/closed	~$160M annualized YTD closed	Elevated
Tax/regulatory	FY19 effective tax ~24%; range 21.5%–26.5% per IRS proposed regs	Q2 rate caveat if regs enacted	Q3 guide highlights 22% base; ~30.5% if regs enacted	Regulatory uncertainty persists
Safety/Automation	—	—	~65% safety incident reduction in three largest recent acquisitions; accelerate residential fleet automation	Positive ops
E&P waste	Improved exiting 2018	Solid contribution	E&P revenue up YoY to $64.0M	Improving

Sources: Company 8-Ks and 10-Q cited above.

Management Commentary

“Solid waste pricing growth of over 5%, along with a sequential 200 basis points increase in solid waste volumes, drove underlying solid waste collection, transfer and disposal margin expansion of approximately 70 basis points in the quarter… [but] ongoing erosion in recycled commodity values and a precipitous drop in renewable fuel credits impacted overall results” — Worthing F. Jackman, President & CEO .
“We have already completed an outsized year of acquisition activity… approximately $160 million in total annualized revenue… new contract awards are trending above average… require incremental capex in the current year, which… totals approximately $35 million, and will impact reported adjusted free cash flow” — Worthing F. Jackman .

Q&A Highlights

Tax rate sensitivity: Management highlighted Q3 effective tax ~22% but ~30.5% if IRS proposed regulations are enacted during the period, implying ~$0.07/share impact; FY19 framework continues to reflect a 21.5%–26.5% range risk band tied to potential IRS actions .
Capex and fleet automation: FY capex raised to ~$600M, including ~$35M incremental for new contract awards and accelerated residential fleet automation in a large acquired market .
Commodity headwinds clarification: Recycling commodity and RIN markets remained a notable drag in Q2, consistent with prior cautionary commentary embedded in guidance .
Outlook cadence: Q3 revenue ~$1.405B, adj. EBITDA ~$442M (~31.5%), with solid waste price +5.0% and volume +0.5%, indicating stable underlying momentum into 2H19 despite commodity pressures .

Note: We did not locate an internal transcript document; highlights incorporate management disclosures and the company’s filed Q3 outlook 8‑K (post‑call) . A public transcript is available here: MarketScreener (Jul 30, 2019) .

Estimates Context

Wall Street consensus (S&P Global) for Q2 2019 EPS and revenue was unavailable due to data access limits at the time of retrieval; as a result, we do not present vs‑consensus comparisons here. For transparency, we benchmarked actuals against the company’s own Q2 guidance (see table above) .

Key Takeaways for Investors

Core solid waste fundamentals remain robust (price >5%, sequential volume inflection), supporting underlying margin expansion that should reassert if/when commodity/RIN headwinds stabilize .
The FY mix of raised revenue but lowered adj. EBITDA/margin underscores the earnings sensitivity to recycling/RIN markets and recent acquisition dilution; monitor commodity prints and post-close integration to gauge margin recovery into 2H/2020 .
Elevated M&A cadence and “above average” new contract wins underpin 2020 growth visibility; near‑term tradeoff is higher 2019 capex (~~$600M) and lower adjusted FCF (~~$915M) to fund growth and automation .
Q3 guide signals steady execution (31.5% adj. EBITDA margin) with continued pricing/volume tailwinds; tax‑rate risk remains an external swing factor pending IRS rulemaking .
Safety and fleet automation benefits (incident reduction ~65% in key acquisitions) signal cultural and operational integration strength—an important underpinning for ongoing roll‑up strategy .
Dividend remains intact at $0.16/share per quarter, supported by strong CFOA and resilient FCF conversion through cycles .
Leadership transition completed ahead of Q2 (Worthing Jackman appointed CEO; Ron Mittelstaedt to Executive Chairman), with continuity benefits given Jackman’s long tenure and prior roles .

Sources for all data and quotes: Company 8‑Ks (results, outlooks, and leadership changes) and Q2 2019 10‑Q as cited throughout.