Q1 2021 Waste Connections Inc Earnings Call
[music].
Please continue to just try and by your conference will begin momentarily. We thank you for your patience.
[music].
[music].
Okay.
Yeah.
Greetings and welcome to the waste connections first quarter 2021 earnings conference call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you of a question. Please press the one followed by the four on your telephone and Fred.
Any time during the conference you need to reach and operator. Please press Star Zero as a reminder of this conference is being recorded on Thursday April 29, 2021, I would now like to turn the conference over to worthy Chairman President and CEO. Please go ahead.
Terrific. Thank you operator and good morning.
I'd like to welcome everyone of this conference call to discuss our first quarter of 2021 results and provide a detailed outlook for the second quarter I'm joined this morning by Mary Anne Whitney Our CFO.
As noted in our earnings release strong solid waste pricing growth and accelerating solid waste volumes and increased resource recovery values drove better than expected first quarter results and an improving outlook for 2021.
These tail winds bolstered by strong solid waste pricing retention drove adjusted EBITDA margin in Q1 up 70 basis points higher than expected and up 80 basis points year over year.
Maryanne will discuss shortly a 210 basis points year over year solid waste margin improvement and Q1 more than offset drags primarily from lower E&P waste activity and <unk>.
Stock market related the FERC top margin swings.
Adjusted free cash flow was $290 million and the period.
Turning us the comfortably exceed our minimum of outlook of $950 million for the full year.
Solid waste activity accelerated as we exited the first quarter the.
Volume was up two 6% year over year and March in spite of of tough COVID-19 costs.
<unk> us for double digit solid waste price plus volume growth and the second quarter.
The covered commodity values also continues to improve.
We knew that our differentiated response to the COVID-19, pandemic will leave us well positioned as local economies reopen we are encouraged by the improving macro trends and our strong operating and financial performance as we anniversary of the onset of the pandemic.
COVID-19 related impacts to our business continued to abate, but most importantly, our commitment to and support of our employees and their families are unwavering.
Before we get into much more detail, let me turn the call over to Mary and our forward looking disclaimer and other housekeeping items.
Thank you Worthing and good morning, the disc.
And during today's call includes forward looking statements made pursuant to the safe Harbor provisions of the US Private Securities Litigation Reform Act of 1095, including forward looking information within the meaning of applicable Canadian Securities laws actual results could differ materially from those made in such forward looking statements due to various risks and.
<unk>.
Factors that could cause actual results to differ are disclosed both and the cautionary statement and are included in our April 28, the earnings release and in greater detail in waste connections filings with the U S Securities and Exchange Commission and the securities commissions or similar regulatory authorities and Canada U.
You should not place undue reliance on forward looking statements and there may be additional risks of which we are not presently aware or that we currently believe are immaterial, which could have an adverse impact on our business.
We make no commitment to revise or update any forward looking statements in order to reflect the events or circumstances that may change after today's date.
On the call, we will discuss non-GAAP measures such as adjusted EBITDA adjusted net income attributable to waste connections and both the dollar basis and per diluted share and adjusted free cash flow.
Please refer to our earnings release as per a reconciliation of such non-GAAP measures to the most comparable GAAP measures and.
Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations.
The company's net calculate these non-GAAP measures differently.
I will now turn the call back over to Jorge.
Thank you Marianne.
And the first quarter of solid waste pricing and volume growth both exceeded our expectations collectively up 100 basis points and the period in spite of the tough year over year comparisons from the strong start to 2020 and persisted up until the mid March of last year when the onset of the pandemic began to impact our results.
Core price and Q1 of four 5% plus about 30 basis points and fuel and material surcharges was above our outlook.
Q1 pricing range from two 7% and are mostly exclusive of western region to a range of 4% of five 5% and a more competitive regions a.
The pricing strength continues to reflect the differentiation of our market model and the consistency of our focus on execution and quality of revenue both of his volumes declined during the pandemic and as volumes have recovered.
Pricing growth is expected to increase sequentially to about four 5% and Q2.
Reported volume growth and Q1 was 80 basis points better than expected at negative three 2%.
Due to the faster than expected recovery and activity as local economies reopened.
As expected February volumes were impacted by the severe winter weather affecting operations in many markets, most notably in our southern region.
Adjusting for the weather related impacts and normalizing for the extra leap year day in 2020.
Q1 volumes improved sequentially by an estimated 110 basis points from Q4 and accelerated in the quarter and.
Volumes continue to be strongest and our western region.
Which was up three 8% year over year and Q1 similar to Q4.
The sequential volume improvements were driven mostly in our central and eastern regions on improving trends during the quarter.
Solid waste volume growth turned positive in March up two 6% on inflect, the landfill volumes roll off activity and commercial revenue and is expected to exceed 5% and Q2.
Looking at year over year results and the first quarter on the same store basis. We once again saw sequential improvements in all lines of business from the prior quarter.
Commercial collection revenue improved about 200 basis points sequentially to up 1% year over year with March revenue up 5%.
Roll off pulls per day increased sequentially by about 100 basis points, the down 3% year over year with the.
Revenue per pull up 1%.
<unk> pulls were up 4% year over year.
Landfill tons improved sequentially by 400 basis points and Q1, the down 1% year over year due to continued strength and the MSW tons up 2% along.
Along with sequential improvement and both C&D and special waste tons.
And March landfill tons were up 5% year over year, with MSW and CND tons, each up 8%.
Looking at Q1 volumes from recovered commodities.
And that is recycled commodities landfill gas and renewable energy credits or Rins.
Excluding acquisitions and collectively were up 55% year over year due to higher values for both recycled commodities and rins.
<unk> and a margin tailwind and the period of about 100 basis points.
Prices for OCC or old corrugated containers averaged about $108 per tonne and Q1 above the high end of our outlook and rens, mostly stayed in the range of $2 25 to $2 50.
And finally onto E&P waste activity we.
We reported $24 $7 million of E&P waste revenue and the first quarter in line with Q4 and our expectations.
Q1 should be our toughest year over year comparison for the year with E&P waste revenue down almost 60% and the period.
Looking at acquisition activity year to date, we've closed the handful of small tuck ins and four states.
We are encouraged by the cadence of acquisition dialogue and the high quality of potential acquisitions.
Of which suggest the potential for another outsized year of such activity.
Our pipeline and level of dialogue with privately held companies.
And with feel like record levels for us, which is no surprise given the strong recovery and these family owned businesses.
Potential seller lineage transition discussions.
And tax driven activity.
We remained well positioned not only for strong organic growth as economies reopen the potential of above average acquisition activity, but also for continuing increase in return of capital to shareholders.
To that and we've already been active and the terms of share buybacks with almost 1% of outstanding shares repurchase year to date, we would expect to maintain our established decade long practice of <unk>.
Double digit percentage annual per share dividend growth when we undertake our typical review and October.
Now I'd like to pass the call the Mary and to review more in depth the financial highlights of the first quarter and provide a detailed outlook for Q2 I will then wrap up before heading in the Q&A.
Thank you Worthing.
And the first quarter revenue was $1 396 billion about $26 million above our outlook due primarily to higher than expected solid waste growth and recovered commodity values revenue on a reported basis was up $44 million or three 2% and year over year inspite of the E&P waste activity.
And almost $35 million.
Acquisitions completed since a year ago period contributed about $43 $7 million of revenue and the quarter or about $40 5 million net of divestitures.
Adjusted EBITDA for Q1 as reconciled in our earnings release was $433 2 million about $18 million and 70 basis points above our outlook at 31% of revenue up 80 basis points year over year.
The underlying solid waste collection transfer and disposal of margin expanded by 110 basis points with as Worthing noted another 100 basis points benefit from recovered commodity.
This combined 210 basis points of margin expansion more than offset and 80 basis points drag from lower E&P waste activity of.
The 40 basis point impact from the stock market related deferred comp margin swings when comparing stock market of market performance and the two year over year periods and.
And the 10 basis points margin dilutive impact from acquisitions completed since the year ago period.
We delivered adjusted free cash flow of approximately $290 million or 28% and Q1, while maintaining the outside of working capital cushion. We had established as we exited 2020.
As such we are positioned to comfortably exceed our minimum full year adjusted free cash flow outlook of $950 million that we communicated in February.
I will now review our outlook for the second quarter of 2021 before I do we'd like to remind everyone. Once again and actual results may vary significantly based on risks and uncertainties outlined and our safe Harbor statements and filings we've made with the SEC and the securities commissions or similar regulatory authorities and Canada.
We encourage investors to review these factors carefully.
Our outlook assumes no significant change and underlying economic trends. It also excludes any impact from additional acquisitions that may close during the remainder of the year and expensing of transaction related items during the period.
Revenue in Q2 is estimated to be approximately $1 49 billion.
We expect solid waste price plus volume growth of approximately 10% and Q2 with volume growth of over 5%, reflecting the acceleration of activity that started in late Q1 and is continuing in April.
Recovered commodity values and E&P waste revenue are expected to remain in line with current levels.
Adjusted EBITDA in Q2, Q2 is estimated to be approximately $468 million or <unk> 31, four percentage of revenue up 120 basis points year over year.
Depreciation and amortization expense for the second quarter is estimated at about 13, 5% of revenue, including amortization of intangibles of about $32 6 million or <unk> <unk> per diluted share net of taxes.
Interest expense net of interest income and the estimated at approximately $42 million and finally, our effective tax rate in Q2 is estimated to be about 21, 5% subject to some variability.
And now let me turn the call back over to worthy for some final remarks before Q&A.
Thank you Mary Anne.
We're extremely pleased with our start to the year strong solid waste pricing growth accelerated and solid waste volumes and increased resource recovery values drove better than expected first quarter results and an improving outlook for 2021.
And we are well positioned to benefit from supportive factors and the macro environment include.
Including stronger than expected pricing growth and price retention given inflation levels.
Further improvement and recovered commodity values.
Increases in housing and infrastructure related activity plus volume growth from the ongoing reopening of COVID-19 impacted markets.
We are already seeing these benefits and the increased activity that began broadly in March and we anticipate communicating and increase to our full year outlook, when we announced Q2 results.
Before heading into the Q&A, we'd like to recognize and thank Don Slager.
He has over 40 years of commitment and leadership in this industry.
And with that we appreciate your time today and I'll now turn this call over to the operator to open the lines up for questions operator.
Thank you.
If you would like to register a question. Please press the one four on your telephone you will hear of Sweet home from technology of request.
Your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three one moment. Please for the first question.
Our first question comes from Walter <unk> with RBC capital markets. Please proceed.
Thanks, very much and thanks for taking my my question good morning, everyone. Thank.
Hey, good morning.
So speaking to the quarter trends I know you mentioned above 5% for Q2, when you look at your sequential here.
And in the weeks to start the quarter, how would that volume growth of.
Exceeding 5% compared to the.
And the quarter to date trends that Youre seeing right now.
Well try and say that what we're what we're describing for Q2 is pretty much in line with what we are seeing the continued improvement we're seeing in April and.
And what I'd say there is if we look at the trends in March and and really last year, the comp really not easing until late March right. What we saw of two 6% volume in March and you.
And so from there and you say of full year quarter increase would be over 5% just based on those trends and so I'd say, we're continuing to see the trends improve April steps include seeing trends where volumes are of rent landfill pulls and.
Landfill volumes and rollout of the polls, which were up mid single digits in the months of March we're seeing up mid double digits and the month of April again in line with how we would think about the whole quarter.
Yes.
At the word back to Atlanta of volumes.
Above pre COVID-19 levels and.
And when you start seeing mid teens and high teens increases and a month year over year, you see the kind of the snapback as economies reopen.
Okay, that's very encouraging and I.
I find that.
And when I look at your outlook and your decision not to increase guidance here.
I know.
Certainly you have only the only said it a couple of months ago, but given how encouraging it looks and your language around potentially doing that next quarter.
My question is whats, causing you to wait.
Is it the geographies you serve I know, Canada sitting here in Toronto are still and a pretty heavy lockdown is that what's keeping you back in terms of of increasing your guidance or is there any other factors at play here.
We don't believe and changing our guidance every other month.
Better to see the trends play out and July you'll see more of the economies reopen and let's not get into a quarter to quarter to quarter, but changing the guidance, but clearly if you look back.
Where we got of the year, we got of the year up 50 basis points overall of the margins here out of the gate up 80 basis.
Points, just from Q1 and guiding of 120 basis points from Q2, so put simply.
The 50 basis points of the full year is already and the bag through through mid year and so's.
The margins increase and the second half of year over year that'll be additive to the way, we guided margins for the full year and obviously with half of the year done and warehouse, Scott and Q3 on our on our Q2 call. So you'll have plenty enough visibility and the revenue. So we don't have to.
And I know a guessing game of ground revenue yes.
Yes that makes sense and.
So just to confirm Theres no regional disparity, that's causing you to that as being a drag on your results here were causing you any undue concern.
Nothing at all and so that and it gives you can tell by the tone and the release and the.
And on the call.
And if you step back even the way we guided Q2 <unk>.
Back above.
Where we were last unaffected COVID-19 unaffected quarter.
Q2 of <unk> 19, we looked at the second quarter comparisons and adjusted for acquisitions.
<unk> audit of solid total revenue basis above where we were in Q2 of <unk> 19, but with higher margins and that much more cash flow and was generated before and so the businesses as.
As we've said before kind of a totally different business more profitable higher cash flows as we exited the pandemic and youre seeing and the Q2 guide that's.
That's great to hear I appreciate the time.
Just one other point to elaborate on in terms of the regional differences I'd just make the point that if I look at the month of March.
And all regions improved and everyone, but for our eastern region actually turned positive and Easter and was only down nominally and that all regions were projecting to continue that sequential improvement Q1 to Q2, and we're not going to make of guests here about whether or not COVID-19 related revenue that has not yet return ever returns obviously is.
New York City, and some of the major metro areas and Canada.
Further end of their reopening of our eventually get back the reopening again.
Youll see that the incremental to us and again Thats why I think in July we're in a much better position to know how thats come back both of the trends look like for Q3.
Great I appreciate the added color. Thank you.
Yeah.
Our next question comes from Kevin Chiang with CIBC. Please proceed.
Okay. Thanks, Thanks for taking my question and congrats on the on a good quarter here.
And maybe if I could turn to your M&A comment with more than and Mary and it sounds like another outsides of here and.
And I'm just wondering incrementals, just given all the tax noise and the United States and the potential increase and the corporate tax rate specifically, just given the tax structure and you of being domiciled in Canada does that do you think that gives you the incremental advantage on M&A and universe.
And maybe some of the U S peers, who might you might share the full burden of that about potential tax increase.
This is not something that gets factored into and the evaluation of that your question I mean look the.
Clearly if you're if you're a private owner and Youre looking to get ahead of what could become.
The mid to high Fifty's percent capital gains rate and some states.
You are looking to get transactions done prior to year end.
And so with valuations at attractive levels with kind of the tax act so to speak of hanging over.
There is there is a lot of dialogue and activity and of push prior to year end and obviously the one thing that net.
<unk> also get concerned about is as areas, where you've got market overlaps and obviously <unk> seen some companies take over a year to get through the Doj and so for the specialty for transactions, where we have no market overlap.
Higher confidence level and not.
Having that process.
The impede the ability to get it done prior to year and so there are a lot of things that play, but our structure.
Of our structures structure does not come into play as we think about acquisitions.
Okay.
Paul.
And then yes.
Net of comment as well just not trying to debt.
Which small businesses come back and.
No.
Ultimately surviving the unprecedented I guess.
And when we find ourselves and but we've obviously seen a pretty strong reopening here, especially of especially in the U S. I'm just wondering as you think about the provisions you've taken for credit losses.
How is that playing out versus maybe what you would've assumed let's say nine months ago and terms of how the small businesses they are coming back, especially as.
The government support measures are removed.
And because it's the projects of the upside of it feels like it might be one and I looked at maybe the credit provisions the credit loss allowance of you took and the first quarter here.
Well again, I think the credit losses were a lot less than feared as the pandemic started because we were very proactive and and.
Ensuring that.
We weren't billing revenue that may not be collected and so we haven't really seen anywhere near the magnitude of the credit losses could have been because of way the way we've we've tightly managed.
And of revenues, we are recording and invoicing.
Okay, that's helpful and submit the the housekeeping question.
And some nice sequential improvement and trade and core price. Just just wondering is that just the timing of when price increases of of course is there anything else you'd point to there.
Now, we would say the Canada as with all of our regions have seen very strong pricing retention.
And yes.
And really has exceeded our expectations and we're certainly mindful of of the Lockdown and Canada, but our business has performed remarkably well in spite of that and really no change and how we think about pricing.
And again, Canada like all of our other regions delivered a little more price than we would've anticipated.
Great. Thanks for taking my questions.
Our next question comes from Jeff Goldstein with Morgan Stanley. Please proceed.
Hey, good morning, Thanks for taking my questions.
I was hoping for an update on the environment and some of your more competitive markets just given all of the dynamics around COVID-19 and the recovery beginning now or are you starting to see any less disciplined and the market when it comes to contract.
It doesn't appear so based on your results so far but just anything notable to call out on the competitive landscape.
Sure.
Really as we've said for the past few quarters, we've been impressed by how rational pricing has has continued to be in spite of the pandemic and I would say in fact on some residential beds I think people have seen the opportunity to push pricing higher.
And our disciplined and so there are that youre seeing again rationale behavior there you.
Always have your isolated incidents where there can be markets, where it's less so but I think if you did.
And look at the price that we reported in Q1 and the fact that retention is higher it's an indication of how rationale of the markets are.
Okay that makes sense and then I am curious are you seeing any changes to the labor force in terms of retention given last year at this time, the labor market was pretty soft and and really kept improving ever. Since then so have you seen anything meaningful that's worth calling out or just anything at all notable to mention around the labor force right now.
And let's say first and foremost.
You want to people you have right.
And to that and turnover improved again sequentially Q4 into Q1.
That said look as we've talked about this growth environment.
You put that growth environment on top of increased seasonal needs for labor and certain markets for yard waste and the typical increase and summer activity.
We are actively hiring right.
We hired more people and the month of March and then we had since the month and any month since September of 19.
And again, it's just being cognizant of as growth is occurring cognizant of hours of service and make sure you're managing that and maintaining work life balance for our folks.
Again, it's the increase and roll off activity.
It was.
And that's something whereas demand continues to increase you're putting more trucks and more people and trucks too.
And the cover it.
So no.
Labor is always.
As always and issue labor availability, it's going to get more acute.
The waste management mentioned the same thing for the <unk>.
Thing is for our companies and others is the stay proactive and ahead of that curve.
And it's as you know the.
It's not just about what you pay because we were very proactive last year and raising minimum wages to targeted and wages to $15 an hour and enel.
Other facility benefits and other things.
And that economic package the attractive, but it's also the culture of the company and most importantly leadership and.
So we want to make sure it's a great place for folks to work.
And pick us over other alternatives they might have.
Alright, I appreciate the color.
Our next question comes from Chris Murray with ATB capital markets. Please proceed.
Thanks folks good morning.
Maybe turning back to your free cash flow commentary in the quarter of the.
The conversion rate was pretty high north of 20, and I know we've had the construction in the past and I think where the sort of.
Caution when we have these quarters to maybe not get ahead of ourselves.
But I'm just starting to think about.
The inputs and whether or not the quality of your revenue has changed.
And any way over the over the last year and as we get reopening and maybe pick up some tailwind from E&P and recycling whether.
And whether or not we should be thinking.
Used to be maybe 17% to 18% conversion is going to be a bit higher.
Well I'll start and then and then two I think to your.
Your observation of our acknowledgment, Chris debt any individual quarter isn't necessarily the fairly and indicative of the whole year Euro reminder of the timing of of interest and tax payments and why Q1 as always and very strong quarter.
And that being said, we did emphasize that at working capital cushion that we had talked about being outsized at year and really didn't dissipate and didn't abate in Q1, and so what that suggest is the strength of the underlying free cash flow and toward the <unk> point about when.
We think about the full year and our ability to attain debt.
Level that we talked about in February we feel very comfortable talking about that and again as as you know we talk about conversion percentages of EBITDA for us to be converting north of 52% to 54% or so of EBITDA to free cash flow.
That is the quality of the button.
All of the company kind of thing or has attained.
The you pointed about is there of different quality of revenue coming out of the pandemic.
As I noted earlier again ex acquisitions.
And again backup of at or above where we were in Q2 of <unk> 19.
With higher margins and higher free cash flow generations, which shows you there has been a little improvement and the quality of revenue and.
And the profitability and cash flow of flowing from that as we come out of the pandemic.
Okay. That's helpful.
And then one other question for you I know <unk> and <unk>.
Canada, and the U S and spend some discussion about maybe going back and looking at greenhouse gas emissions and I know thats been changing back and forth with regulation, but how would you characterize.
Characterize.
Your thoughts around.
The land fill gas emissions and your approach to thinking about what youre doing today and what you might have to do in the future just to just to address any changes in regulation or any tightening of the.
Well, we would start by saying of course this is a highly regulated industry and.
And typically in incremental regulation and benefits well capitalized companies and we do a lot of things to make sure that we're performing at or above the standards that are out there and as you know we see it as an opportunity to continue utilizing the gas that's generated at our landfills.
And capturing that monetizing it and as we've all discussed in this environment its and <unk>.
Ideal time to be doing that but frankly, we've all been doing that and it's part of how we run our business and to the extent and we can do more and landfill gas projects. The high Btu gas project, that's just an incremental opportunity and.
And look I think us and and other companies.
Look we all try to reduce fugitive.
The emissions coming off the site that don't get captured and.
Net and we increased use of synthetic temporary synthetic apps.
So again reduce the migration of of gas out of the landfill other than what's been captured and so and.
And again as folks may read and our ESG report that we put out last year.
Reducing emissions and kind of released from the landfills as of the key priority of ours.
Alright, thanks for the time.
Our next question comes from Tyler Brown with Raymond James. Please proceed.
Hey, good morning, Hey, Tom.
<unk>.
Hey, worthy and so I think both waste and now you have talked about maybe slightly better pricing out of the gate.
Thank you mentioned it was retention I thought you tended to allocate churn towards volume and not price, but I don't really want to go down that rabbit hole here, but what lies.
And what lines or types of markets are you starting to see this and because I don't think its CPI, that's actually probably a slight negative. So is it really the competitive side and just any thoughts on the types of the lines that you are seeing that step up.
Right.
Obviously, therefore, it is the competitive markets.
It's not unusual for four.
And if a location.
May believe theyre going to price of deliver 4% price to put four 4% of prices, So and the street and expect some sort of rollbacks.
And the implementation for a piece of that price increase and again as I said before price retention is at its highest because we're not seeing the.
The amount of rollbacks, we've typically seen.
And so that's not of churn issue, that's just a retention of price.
Being stronger than in prior periods.
Yes, so right. That's the good clarification. So retention is more on rollbacks turns completely different so that's helpful.
Okay. So.
Maryann, you, obviously do a great job on bridging the margins of law.
All of it it's very helpful. So how do we think about the commodity benefits for the rest of the year. So I think you've got 100 basis points here in Q1, but if you were to baseline prices today, what would that be and Q2, three and four because if I'm not mistaken OCC prices were a little bit wacky last year I think the actually stepped up and Q2 came down and.
The back half.
That's exactly right Tyler and that's of great observation and that will impact the behavior of quarter over quarter or year over year and each quarter and to your point if I look at OCC, just starting there that it's the <unk>.
The comp in Q2, it's actually twice as high Q1 to two last year went from around $55, a ton and up to $110 of Pan the toughest comp in Q2, and then steps down over the course of the back half of the year.
And when not quite as volatile so that'll smooth it a little debt and if I look just at Q2, and and where we are even though recycled commodities and rins have stepped up Q1 to Q2 I think the impact would be similar in Q2 as it was in Q1.
Okay. So of 100 basis points from Q2's embedded in there and then any thoughts about the back half just based on the current baseline.
And it drives so much.
As Youll recall, we guided to 60 basis point benefit starting with ADT and Q1 and so let the suggests is at the current baseline that's a little better than that but it drops off over the course of the year.
Okay. That's helpful and then not to nitpick, but did the leap year last year. So it was that actually of margin helped this quarter was that like a 50 basis point helped the solid waste margins.
And so I think it was 30 to 40 and that was incorporated in our guide right because I think we all knew the leap year comparison was there and we guided in February.
Right, Okay, and just wanted to make sure I had that and then the last one here so worthy and it's interesting I think both you and waste management and frankly I've, even seen it out of some of my transports they've had a really slow start to the year on the Capex side. So I'm curious if you are having problems related to truck production issues with the SME.
The conductor shortage basically do you actually think youll be able to spend the full 625 this year.
But we will spend it.
Okay.
And we're already and the question will be of.
It is the mix shift a little bit I mean, obviously, we've had some opportunities to buy additional pieces of property.
We've already gone in and for additional yellow iron.
And commitments and and really get a head start on 22. This year, we're anticipating some trucks to ship out of this year into next year, just because of the timing of.
Of deliveries looking.
Some of them were to start today and put a new order and.
Chances are you'll get the chassis and early Q4, and you get and you get the youthful unit with the body sometime in Q2 of next year right and so clearly the lead times have stretched out.
But obviously we were ahead of this year's requirements because we've got a very early start last year and making our commitments for 'twenty one much like we've already done making our commitments for.
And for most of the 22.
Okay, So youll spend it alright.
And at the time, yes. Thank you.
Our next question comes from Jerry Revich with Goldman Sachs. Please proceed.
Hi, This is Adam EBIT on for Gary today, and congrats on a great quarter.
Was wondering if you could help me think about a potential to accelerate landfill gas development and put that in context of where you are today on that front.
Sure.
And as we've said.
For a while now.
We've got a handful of projects that we've been working on for four to five years by now.
The first one from the.
Excellent I should say of any size.
Likely come online in late 'twenty two early 'twenty three.
Beyond that one we've got three or four other ones.
Within the span of our of our sustainability report that we put out with our targets that we've laid out and.
And so.
I think the number of opportunities that we've talked about are.
Four to five and total that's not too dissimilar to what I heard coming out of waste management of the other day, but you've got to remember we have about a third of the number of sites as they have.
And so no.
We've got a great opportunity ahead of US these are.
The planning cycles take time, sometimes you're the timing that the launch of of a project based on permitting landfill permit expansion the conversations you're having with municipalities and so it's not clear cut as saying alright, let's go build one tomorrow and put a shovel in the ground right.
And again, yes, the economics are attractive at these levels, but you got to remember the economics are attractive at the low of brands over the past couple of years as well instead of of two or three year payback, maybe it would have been six or seven year payback, but even the six year payback is attractive at the lows that you saw of rents hit.
A year or two ago.
Okay. Thank you that color is really helpful. And then lastly can you help calibrate me on where from.
Commercial and.
Delta year on residential volume the R versus pre pandemic levels.
Well as we mentioned when we look at data points like our roll off pulls and our landfill tons, where you're at or about close to or in some cases exceeding where we were pre pandemic.
They have largely come back.
To the pre pandemic levels of commercial probably not quite the same a little slower because you don't get that that real time movement, but everything is trending positively yes. Most of the most recent full month.
Data for the commercial sales side, I mean, I think we're running about 140% of budget.
And so it just gives you a sense of what's happening on the small container side as well.
Great. Thanks, so much.
Our next question comes from Michael Hoffman with Stifel. Please proceed.
Hi, good morning, and thank you for taking the questions. So I start out with more of a comment.
And then you've been connections for 17 years, and and that 17 years, you've set of policy youre going to do guidance at the middle of the year and.
To be very clear you are standing by that policy.
Well look.
And we'll confirm that once the call ends right, you'll you won't hear anything from us yes.
The updated and our Q2 call, where obviously people can.
Think of genius, the knit together, what's going on and the margin side and what's going on the revenue exceedance and.
We'll have better insight on that and we'll do one update and.
In July.
For the balance of the year, which you've done for 17 years.
The people should read through and years, but it's been 18 years, but I'll give you. The COVID-19 was I guess, the non year of so I will skip over the year.
Yes.
And just the.
The frame this a little bit typically your first half of 48% of the full year EBITDA and the second half of 52 and current based on adding one or two together you're at 50% of the current guide so read through as you choose.
Yes, I mean, it's tough to know kind of the.
The sequencing of quarter to quarter of this year, just given the quirkiness of.
Of the pandemic and reopening and things like that but.
Look I mean, you saw the revenue beat relative to our expectations and Q1.
View of if you annualize just that Thats, what about 100 million of so and revenue and we will see if that still stays the same the case when we guide and in July and I would.
And the margin as I said before we guide of 50 basis points up for the full year, we're already at that point by mid year and.
And so there's likely margin upside suite of how we got it.
On inflation have your vendors have been able to push through any of it yet or is this something that probably shows up and the 2022 capital spending.
And it depends on the capital side.
And the trucks that we had as I talked earlier about getting a head start on the on the orders in 2020 for 2021, and we had already locked in.
Much of the pricing for the fleet debt.
That was and production this year, but the the extent that we put new orders and after the surcharges implemented those will be subject to that but the bulk of our capex lease from the fleet side this year.
We had the pricing already locked and ahead of that.
And in 2018, the industry saw three points of inflation happen real time.
And you, particularly led the way with and incremental open market pricing do you see any need to do that based on inflation issues or is the fact that your retention. So good you're covering it anyway.
If you look back I mean, we've talked about second half of last year, we talked about pricing being kind of 3.5% to 4% this year with the bias from 4% and here we.
You are sitting I would call it four 5% and so.
The way this year is playing out well.
We're already.
Attaining higher than expected pricing because in some cases, we're also anticipatory of.
Of the of some deflationary input inflation pressures out there some likely wage pressures because again, we started with.
Huge head start and wages last year, the way, we pushed up wages and other support for the field and.
So no to the extent that we continue to see and.
And increase above and beyond what we have currently anticipated and we are already anticipating above average wage pressures.
Obviously it suggests the market.
Is bearing and I mean look no further than the P&G or or other consumer product companies out of already telegraphed and.
And the eight or 10% price increase.
And their business.
This year and so again.
For the people looking for four and a half and say Wow, that's so attractive, but you start looking around the the landscape.
And.
That doesn't look so big anymore.
But I.
And also of note look.
And we're also cognizant of the power of volume when it comes to two margin flow through rate.
You can't just look at price and say, Hey, I can't I don't have the ability to recover and the volume youre seeing the high flow through and the recovery and we look no further than our western region, which is marrying and said had positive volume and Q1.
And just look at our.
And our 10-Q and see the the the region.
The margin performance year over year, and our Western region was up over 200 basis points and EBITDA margins again on the lowest price and so it's always not just about price.
It's about again quality of revenue.
And the flow through and the pricing of that flow through on incremental volumes.
And just to remind everybody of the lowest prices because of lot of that business is index. So.
The library.
A lagging basis and so.
And so obviously the inflation.
The increase was this year.
You'll you'll get the higher index pricing for next year.
And then.
And switching gears to the sort of guide for <unk>.
If I think about the mix between countries on volume.
Are you expecting kind of the turn positive one.
Off of the negative and one to two and then it would suggest even if it is marginally positive the U S will be nicely positive like 6%.
To get to a five and there are so.
So what we're expecting Michael of sequential improvement in all of our regions and I tend to think of the the more impacted regions being eastern and Canada, but it's still lagging the overall reported volume.
And just.
Of the top of my head just trying to remember if it actually is positive.
Positive Canada of positive in March.
So, yes, youre right and positive for the for the fall for the.
Our Q2 and that would be the expectation and taking a step back the strongest sequential improvement. We're expecting Q1 to Q2 is actually and those lagging markets and between the northeast of the U S.
And also in Canada.
And then.
And the market, that's doing renewable and neural gases and it's making a big deal about this opportunity and landfill gas.
And.
Just curious you all are delve eloping your own waste is going to develop its all and I expect that the others do too so.
Are they trying.
Horn in on something here is there an opportunity to maybe the offload some of the volatility by letting the and outside of the development and capture royalties how do you think about <unk>.
All of that and the mosaic of developing these projects.
Well again.
As you know.
Landfill gases and captured for a long time.
And going back and the old days.
Yeah look gases and capture it in many cases.
May of JV and already with a third party to come in.
Wanted to go back then the same call of the power plant and generate electricity right and so we had a revenue share agreement in place with with those folks and those so we already have the gas and those sites already committed to under contracts now and those contracts expire we have a chance to reevaluate either the revenue share or what we wanted to do with the gas right and.
So.
I'm not surprised that the number of opportunities when people talk about what can be done.
You are not hearing about 80, new plants can be built.
And for each company because so many projects have already been committed to.
And so its landfills, where you either have existing contracts waning or you've got landfills that are finally generating enough cash that it makes sense to to do the renewable plant.
And it's again this is not something new everyone's got a different portfolio, but obviously as the revenues increase and the value of the royalties and those locations increase.
So no.
It's not like again, let's go capture gas because it has value.
That's already and the system.
And and it puts us in context, you have a lot of landfill gas operations you have very few high Btu and it's the high Btu that is drawing all of this attention because that's where the rent income for the traditional.
Pull it off low beta you turned it into the electrons put it into the grid doesn't have a rent and play in it.
That's correct right. Okay. That's a good that's a good way to think about it right and that and that's the difference and everybody out of you pay attention and the free cash flow upside how much is going to be from operations and on solid waste versus resources.
We haven't broken out the different components, because again, even on resource recovery for instance, we're looking at building of new recycling facility that will break ground on there and.
Over the next few months and again, how do you allocate that capex to the just resource recovery right and so we look at it holistically.
With regards to where the cash flows coming from.
Okay.
And I start thanks.
Thank you.
Yeah.
And as a reminder to register a question. Please press the one four on your telephone.
Our next question comes from comes.
The Missouri with Jefferies. Please proceed.
Hey, Thanks, guys. This is actually Ryan gunning on per Hamzah.
Could you talk a little bit more about the ESG goals and the investment you highlighted and what might be misunderstood by some aggregators that you think other constituents like USD fund managers should be more aware of.
Sure happy to do so.
And I would say in general we're really encouraged by the amount of dialogue and focus there is on an ESG and the targets that we laid out in October and our update of sustainability report because we think that as not just for US that is the index for the industry as a whole the recognition of the fact that we're doing things like landfill gas.
The project in the ordinary course of business and we have been per year. It.
It's probably the single most misunderstood or underappreciated aspect of what landfills do and what we're already incentivized to monetize the capture worthy talked about increasing net capture those are all good things for us because they create more value and so we're I would say that is one aspect that that's probably less of <unk>.
<unk>.
And is now more appreciated so thats one of our goals.
And to your point with the increased debt biogas recovery by 40% and these are long term and 15 year goals.
The rate, increasing our resource recovery capacity and processing as Worthing mentioned, we look at those projects whether it's buying.
Recycling facilities, which we bought a couple of over the past couple of years.
And internalize more of our own recycling and.
And structured the business to be able to de risk that aspect of the business in terms of processing piece of that's a good thing for US is the company and we're happy to do you have more recycling capacity and provide that service for our customers, so increasing that and by 50% and then also increasing the processing of our <unk>.
Jade on site, where we talked about getting to 50% on site. We think that's the prudent thing to do it makes sense financially environmentally and getting trucks off the road trucking reshaped the third party facilities and at the risk that aspect of the business as we move forward. So those are the types of things we're doing.
Conjunction with also on the social side and the importance of safety.
And we've been focused on all of these things for years, we're happy to outline and talk about continuous improvement and our safety metrics.
And we think about the.
And employee engagement with our servant leadership scores and the importance of culture again, we're happy to describe them as being part of and ESG platform, we really view them as part of running and good business and things that we would be doing regardless of the focus on ESG and we applaud.
The sell side and getting out the message.
And when you say, what's misunderstood the aggregators, probably a lot because aggregators don't talk to us.
Got it. Thank you that's all Super helpful and then switching over to the.
And the E&P business into the different backdrop and the energy since you purchased that business can you just talk about like what.
The large margin impact is there and what the synergies of that asset or with the rest of the portfolio.
Yes look at the landfill price business right and we said it from day, one and we're not in the liquid side, we're not and the rig side top side I mean, we are a disposal oriented company and so we're.
And we pick the E&P waste out of <unk>.
Several of our traditional MSW sites as well and so.
From an operations standpoint, it's no different from moving people around between different types of landfills is no its no difference.
Liquid E&P dropped.
Last year, we're able to reload the gist.
Reassigned and.
And Ben and relocate.
Many folks from the E&P business the backfill openings.
And our landfill network and so no it's.
Again, as we've talked about it it's more just the landfills and think of it as a special waste stream that vector.
Swing, a little bit more of than others.
But no.
It's right down right down the center of the fairway with regards to.
Landfill and disposal.
Got it. Thank you guys so much.
Sure.
And.
Our next.
Comes from Stefan <unk> with J P. Morgan. Please proceed.
Hi, good morning, and I just wanted to follow up on that E&P question.
And I guess your guidance the same that you're expecting the E&P level to be in line with where things are currently.
I think rig counts have rig counts have been moving up.
And so I'm just wondering if there's been any green shoots and E&P waste activity and your business or you're expecting that to come through kind of media and the back half of this year.
Yes, we think it may come through and the back half of the year I mean, our guys are confident about that but we would never guide that I'd, rather see it happen.
Versus.
Versus provide that and any any sort of outlook and so.
So the volumes in the site are actually up.
But as we saw and the last downturn of the prior downturn the.
Price per ton is down we saw about the last downturn if you go back.
Several years ago, I think pricing compressed.
Some 15% 20%.
And we've seen the similar compression on that side.
And this latest downturn.
But and as the rigs continue to come online as more and more and more volume gets out there.
You see both the recovery of price.
And intersecting with that higher.
Coming into the site and so.
We expect an improvement the second half again, we would never of fact of that and our guidance. The the other important thing though is from a margin standpoint, as you know as we've guided in the business and and operated in this downturn, we're actually of profit business to margins that are at or above reported margins for the full company and so.
Our folks and very proactive at managing and this latest cycle.
Okay. Okay. That's helpful.
And I was just wondering if youre baking into your guidance and the cost coming back and now we've talked about labor and <unk>.
Any routing efficiency for product from Dr cost cuts that you made during the pandemic.
Are you baking any of that back and the second quarter, and maybe that's being offset by the benefits from recycling and prices.
On the margin front.
No when we think about margin expansion and in the underlying business, we would say that at some of those costs are coming back and we've had if you look at Q1, yes. There were so many line items that were down year over year as a percentage that helped to drive that margin expansion and there are some things that debt.
And are coming back in and one that we've talked about as medical expenses for instance, where we've seen that that run rate.
The decline those costs declined pretty dramatically during the pandemic and we've talked about for the past few quarters. They continued to come back. So Thats. One example, I would say there is some discretionary cost travel and meet inkjet a little debt that's coming back in and we look forward to those costs coming back and which is why when we talked about communicating our affiliate.
And your expectations, we said we've factored in some of those costs coming back and so we would expect that the increase over the course of the year.
Okay. Okay, great. Thank you.
Okay.
Our next question comes from Noah Kaye with Oppenheimer. Please proceed.
Thanks for taking the questions Worthing when you say the.
M&A pipeline and level of dialogue of privates feel like the record levels.
And we have the context of what M&A has meant for the company.
And its history I pay attention and so I want to spend a little bit more time on that if you don't mind.
The first is kind of to better understand.
And how you might think of the cadence of some of these M&A opportunities.
And getting signed over the course of the year does it feel kind of back half weighted do you think there'll be some considerations again around potential tax law changes that impact the timing of when they get done and <unk> versus <unk>, just what's your sense in terms of cadence for the year.
Yes, I mean, I think the cadence is consistent with what we said in February and earlier on the call today, which is it's a back half weighted from.
From a closing standpoint, which actually means.
More contribution rollover in the 2022 versus the Pep contributing this year, but again to your point.
The the <unk>.
Potential tax law changes, especially with regards to cap gains.
As a driver for folks to the.
Get the Q.
And so.
And again when I look at the the.
And the number of opportunities.
That would.
We continue to speak with what I see the conversion of those two letters of intent in order to get into diligence.
Again, it's just a continues to increase from month to month to month as you move through the year.
But again.
Look as we've always said, we will knock down our typical 125 and $175 million or so of acquired revenue to start chunking, it up to $2 5300 or 400.
You've got to get.
A handful of companies that are in the 50 plus million dollars range in order to start chunking up like that and so that's the.
The big swing is going to be and how many of those.
And ultimately do get done.
Versus the.
Good day.
And so again the range of of likely the possible is probably also as wide as it's ever been.
But of your confidence level at this point and some of those chunk gears getting done this year, where would you put it up.
Again.
I would never and we always say never assume we get deals done many of things can happen along the way right.
But clearly clearly things are quite active.
Maybe any question is easier to answer I think we've certainly seen over the past couple of years some of the larger deals and the space.
Take a longer time in terms of the regulatory process.
And do things like that.
Since you have a little bit of a different market footprint.
From peers can you just comment on how you might see that more or less impacting.
The pace of some of these deals.
And if you look at both the transactions I think the referring to those of our multi market multi state acquisitions, where given the who the acquirers were there were a natural overlap across.
The handful of states right and so the level of review.
And.
And it was was protracted but obviously if the COVID-19 on top of that.
And changes now of the Doj web change of administration.
And things just got dragged out and those cases and so.
And our bread and butter are doing and primarily doing against $20 million to $40 million revenue transactions Episodically.
The company is out of north of $100 million.
But and you step back those of those of <unk>.
Companies that are primarily and singular markets.
And single geographies and so and.
And in those cases, we've not overlap in those geographies right and so.
And from a Doj getting through the deal with the controlled the timing of how quickly they'll pick up of fall and review it but hopefully the process to get through the Doj is not as cumbersome is what I would call. These multistate larger multistate true.
<unk> that are the two larger peers did.
Okay, and I guess, just the last kind of related one around capital allocation flexibility, we've always thought M&A.
After the dividend was kind of the first and best use of capital.
For this company.
Yes.
And if there is not a meaningful increase and M&A or buybacks.
The leverage is going to be well below one.
It's historically been which is kind of of credit to the cash flow performance of the company.
So I guess in general we don't want a hold of it necessarily any specific leverage targets, but.
Might we see maybe a little bit lower leverage trend and than usual just to give yourself some flexibility.
Around the uncertainty of the timing of some of the deals closing is that a fair way to think about it as we look to the back half of the year.
No I mean, as we said on the call we've already repurchased about 1% of our shares this year and.
So do the math on net outlay.
And when you put debt on the dividend and on top of that and then you look at the the again, what I said, the the range of likely the possible as wide.
And when you go to the possible side.
Over $1 billion and outlay right and so on M&A and so yes. It's just it's a hard number to peg right now, but the good news is we can do all of the above.
Even if we sort of what's possible.
Which again low probability, but what's possible of leverage still probably doesn't even touch two five times on a net basis and.
So again, we've got great flexibility we're.
We're not trying to take leverage down near term and we've deployed a lot of capital return of capital of shareholders already and again the M&A outflows are still ahead of us and <unk>.
The cash is still building into this.
Great well, thanks, very much of the color take care of one.
Thank you.
Mr. Jackman there are no further questions at this time, please continue with the presentation or closing remarks.
Okay, well if there are no further questions and we.
Half of our entire management team. We appreciate your listening to and interest and the call today Maryanne and Joe boxer available today to answer any direct questions that we did not cover that we're allowed to answer one of the Reg FD Reg G and applicable securities laws in Canada.
You again, and we look forward to speaking with you at upcoming Investor conferences or on our next earnings call.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.
Okay.
Sure.
Okay.
Okay.
Sure.
Okay.
And.
And.
And.
Yes.
Yes.
And.
True.
[music].
Okay.
Okay.
Yes.
Hum.
And.
Sure.
Yes.
Yes.
[music].
And.
And then.
[music].
Okay.
Sure.
Sure.
And then.