Q1 2021 Waste Connections Inc Earnings Call

Please continue to stand by your conference will begin momentarily we thank you for your patience.

[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 have a question. Please press the one followed by the four on your telephone.

If at any time during the conference you need to reach and operator, Please press star zero.

As a reminder, this conference is being recorded on Thursday April 29, 2021, I would now like to turn the conference over to worthy Jackman President and CEO. Please go ahead.

Terrific. Thank you operator and good morning.

I'd like to welcome everyone to this conference call to discuss our first quarter 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.

And as 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 stock market related deferred comp margin swings.

Adjusted free cash flow was $290 million and the period positioning us to comfortably exceed our minimum outlook of $950 million for the full year.

Solid waste activity accelerated as we exited the first quarter with volumes up two 6% year over year and March in spite of a tough COVID-19 cost positioning us for double digit solid waste price plus volume growth and the second quarter.

Covered commodity values also continues to improve.

We knew that our differentiated response to the COVID-19, pandemic will leave us well positioned us local economies reopen we are encouraged by the improving macro trends and our strong operating and financial performance as we anniversary 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 Anne for our forward looking disclaimer and other housekeeping items.

Thank you Worthing and good morning for discussion during today's call includes forward looking statements made pursuant to the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995, including forward looking information within the meaning of applicable Canadian Securities laws.

For our results could differ materially from those made and such forward looking statements due to various risks and uncertainties.

Factors that could cause actual results to differ or disclose both and the cautionary statement and our included in our April 'twenty 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, you should not place undue reliance on forward looking statements that there may be.

Additional risks for 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 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 on both a dollar basis and per diluted share and adjusted free cash flow. Please.

Please refer to our earnings release us for a reconciliation of such non-GAAP measures for the most comparable GAAP measures.

Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance and our operations. Other companies may calculate these non-GAAP measures differently.

I will now turn the call back over to Jorge.

Marianne and.

The first quarter 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 for 2020 and persisted up until mid March of last year. When the onset of the pandemic began to impact our results.

Core price and Q1 of four 5% us about 30 basis points and fuel and material surcharges was above our outlook.

Q1 pricing range from two 7% and are mostly exclusive western region to a range of four to a five 5% and a more competitive regions.

Our pricing strength continues to reflect the differentiation of our market model and the consistency of our focus on execution and quality of revenue.

And as 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 into quarter and.

Volumes continue to be strongest and our western region.

Which was up three 8% year over year and Q1 similar to Q4.

Sequential volume improvements were driven mostly in our central and eastern regions on improving trends during the quarter.

All other waste volume growth turned positive in March up two 6% on inflict 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 a 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 down 3% year over year.

Revenue per pull up 1% March pools were up 4% year over year.

Landfill tons improved sequentially by 400 basis points and Q1 that day.

And 1% year over year due to continued strength and MSW tons up 2%.

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 about 55% year over year.

Due to higher values for both recycled commodities and Rins.

All thing 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.

And 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 their 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 a handful of small tuck ins and for states.

We are encouraged by the cadence of acquisition dialogue and the high quality and 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 what feels 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 and potential above average acquisition activity, but also for continuing increase and returning capital to shareholders.

Did 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.

<unk> digit percentage annual per share dividend growth and we undertake our typical review and October.

Now I'd like to pass the call to Mary Anne to review more in depth for financial highlights for the first quarter and provide a detailed outlook for Q2 I will then wrap up before heading into Q&A.

Thank you Worthing.

And the first quarter revenue was one 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% year over year in spite of E&P waste activity.

And almost $35 million acquisitions.

<unk> completed since a year ago period contributed about $43 7 million of revenue and the quarter for about $45 million net of divestitures.

Adjusted EBITDA for Q1 as reconciled in our earnings release was $433 2 million and about $18 million and 70 basis points above our outlook at 31% of revenue up 80 basis points year over year.

Underlying solid waste collection transfer and disposal margin expanded by 110 basis points with as Worthing noted another 100 basis points benefit from recovered commodities.

This combined 210 basis points margin expansion more than offset and 80 basis points drag from lower E&P waste activity.

And 40 basis points impact and stock market related deferred comp margin swings when comparing stock Margaret and market performance and the two year over year periods and.

And at 10 basis points margin dilutive impact from acquisitions completed since the year ago period.

We delivered adjusted free cash flow of approximately 290 million for 28% and Q1, while maintaining the outsized working capital cushion we have established as we exited 2020.

As such we are positioned to comfortably exceed our minimum full year adjusted free cash flow outlook of $915 million, 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 statement 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 and 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 149 billion.

We expect solid waste price plus volume growth of approximately 10% and Q2 with volume growth of over 5%, reflecting the acceleration 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 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 five percentage of revenue, including amortization of intangibles of about $32 6 million for nine cents per diluted share net of taxes.

Interest expense net of interest income is 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 wording for some final remarks before Q&A.

Thank you Mary Anne.

And we're extremely pleased with our start for 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.

We are well positioned to benefit from supportive factors and the macro environment.

Including stronger than expected price and growth in 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 for COVID-19 impacted markets.

We are already seeing these benefits and increased activity for that began broadly in March and we anticipate communicating and increase to our full year outlook, when we announced Q2 results.

Before heading into Q&A, we'd like to recognize and thank Don Slager for us over 40 years of commitment and leadership in this industry and with.

And 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 star one for on your telephone you will hear us threefold from technology or request for 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.

Alright, thanks, very much and thanks for taking my question good morning, everyone.

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.

Exceeding 5% compared to the.

And the quarter to date trends that Youre seeing right now.

Walter I would say that what we're what we're describing for Q2 is pretty much in line with what we're 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 comps really not easing until late March right. What we saw us to 6% volume in March and you go from there and you say a full year quarter increase would be over 5%.

And just based on those trends and so I'd say, we're continuing to see the trends improve April stats include seeing trends, where volumes are rent landfill pulls and landfill volumes and rollout pools, which were up mid single digits in the month of March were seeing up mid double.

Digits in the month of April again in line with how we would think about the whole quarter.

And we're back well if you went back to Atlanta volumes above pre COVID-19 levels and.

And when you start seeing mid teens and high teens increases at a moment year over year Youll see the kind of a snapback as economies reopen.

Okay, that's very encouraging and I.

Find it so when I look at your outlook and your decision not to increase guidance here.

I know.

And certainly you've only you only said it a couple 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, and we're 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.

It's better to see the trends play out in July and you'll see more of the economies reopen and let's not get into a quarter to quarter to quarter by changing our guidance, but clearly if you look back.

Where we got at the year, we guided the year up 50 basis points overall and margins here, we are out of the gate.

80 basis points, just in Q1, and guiding 120 basis points and Q2, so put simply.

50 basis points for the full year is already and the bag through through mid year and so's.

And as margins increase and the second half year over year that'll be additive to the way, we guided margins for the full year and <unk>.

Lee with half the year done and warehouse guiding Q3 on us 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 ground revenue yes.

Yes that makes sense and and so just to confirm there is no regional disparity, that's causing you to that as being a drag on your results here were causing you any undue concern.

And nothing at all and so that because you can tell by the tone and the release and the.

And on the call.

If you step back even the way we guided Q2.

We're back above.

And where we were last unaffected COVID-19 unaffected quarter.

Was Q2 of <unk> 19, when you're looking at the second quarter comparisons and adjusted for acquisitions, where backlog of solid total revenue basis above where we were in Q2 of 19, but with higher margins and that much more cash flow.

And was generated before and so the businesses are.

As we 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 for our eastern region actually turned positive and eastern 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 a guess here, but whether or not COVID-19 related revenue that has not yet returned ever returns obviously us.

New York City, and some other major metro areas and Canada.

Further into their reopening are eventually get back for reopening again.

And you'll see that be incremental to us and again Thats why I think in July were at a much better position to know how thats come back and what the trends look like for 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 other good quarter here.

And maybe if I could turn to your M&A comment more than Mary and it sounds like another outsized here and I'm just wondering incrementally just given all the tax noise and the United States and the potential increase and the corporate tax rate specifically just given your tax structure and you being domiciled in Canada does that do you think that gives me and Inc.

For mental advantage on M&A and University.

And maybe some other U S peers, who might who might bear the full burden of that about potential tax increase.

It's not something that gets factored into and the evaluation of that your question and I mean look the.

Clearly if you're if you're a private owner and Youre looking to get ahead of what could become.

Mid to high Fifty's percent capital gains rate and some states.

Youre looking to get the transactions done prior to year end.

And so with valuations at attractive levels with kind of the tax act so to speak hanging over.

There is there is a lot of dialogue and activity and a per.

<unk> prior to year end and obviously, the one thing that.

And that puts US also get concerned about us is 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 us, especially for transactions, where we have no market overlap.

Higher confidence level and not having that process.

Impede the ability to get it done prior to year and so there are a lot of things that play, but our structure.

And our structures structure does not come into play as we think about acquisitions.

Okay.

That's helpful.

And then.

And you made a comment as well just not trying to guess.

Small businesses come back and.

Ultimately surviving this unprecedented environment, we find ourselves and but you've obviously seen a pretty strong reopening here, especially especially in the U S. And 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 these small businesses are coming back, especially us as government support measures are removed.

It's a project to the upside if it feels like it might be when I looked at it maybe the credit provision for credit loss allowance does he took and the first quarter here.

Well again, I think the credit losses were a lot less than than feared.

And that started because we were very proactive and ensuring that we.

We weren't billing revenue that may not be collected and so we haven't really seen anywhere near the magnitude of what credit losses could have been because of way the way we've we've tightly managed.

Revenues, we are recording and invoicing.

Okay. That's helpful and for me just a housekeeping question.

Sorry, and nice sequential improvement and Canadian core price. Just just wondering is that just the timing of when price increases for pushed through or was there anything else you would point to there.

Now, we would say that that Canada as with all of our regions have seen very strong pricing retention.

And that.

It really has exceeded our expectations and we're certainly mindful 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.

But again, Canada like all of our other regions delivered a little more price than we would've anticipated.

Great. Thank you 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 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 bids it.

It doesn't appear so based on your results so far but just anything notable to call out on the competitive landscape.

Sure you 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 <unk>.

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 just look at the price that we reported in Q1 and the fact that retention is higher it's an indication of how rationale.

And the markets are.

Okay that makes sense and then I am curious if youre seeing any changes to the labor force in terms of retention given last year at this time, the labor market was pretty soft, but it 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 for us right now.

Well I'd say first and foremost.

And you wanted to people you have right and.

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 a typical increase and summer activity.

We are actively hiring right.

We hired more people and the month of March.

And then we had sense for months and any month since September of 19.

And again, it's it's us 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 roll off activity.

And that's something whereas demand continues to increase you're putting more trucks and more people and trucks.

To cover it.

So no.

Labor is always the.

And I'm always an issue labor availability and it's going.

And get more acute I think waste management mentioned the same thing for <unk>.

One thing is for our companies and and others is to stay proactive and ahead of that curve.

And it's as you know to us.

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 another facility benefits and other things that make that economic package for 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.

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.

Can you maybe turning back to your free cash flow commentary in the quarter.

The conversion rate was pretty high you know us north of 20, and I and I know we've had this construction in the past and I think worthy.

Caution when we have these quarters to maybe not get ahead of ourselves.

But I'm just trying to think about and.

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 and maybe pick up some tailwind from E&P and and recycling.

Or not we should be thinking.

And used to be maybe 17% to 18% conversion is going to be a bit higher.

Well I'll start and then and then Troy Thanks for your <unk>.

Observed Asia, and our acknowledgment, Chris that any individual quarter isn't necessarily set a fairly and indicative of the whole year Euro reminder of the timing of interest and tax payments and why Q1 as always and very strong quarter.

That being said, we did emphasize that at that 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 to <unk> point about when we think about the full year and our ability.

To attain that.

Level that we talked about in February we feel very comfortable talking about that and again us as you know we talk about conversion percentages of EBITDA for us to be converting you know north of $52 54 per cent or so of EBITDA to free cash flow.

That is a quality that that and no.

One other company kind of thing or has attained.

To your point about is there a different quality of revenue coming out of the pandemic.

As I noted earlier again ex acquisitions.

And again back at or above where we were in Q2 of 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 the profitability and cash flow flowing from that as we've come out of the pandemic.

Okay. That's helpful.

And then one other question for you I know, both in Canada, and the us and spend some discussion about maybe going back and looking at greenhouse gas emissions and and I know thats been changing back and forth with regulation, but how would you characterize.

And your thoughts around.

And so gas emissions and your approach to thinking about what youre doing today, and what you might have to do and the future just to just to address any changes in regulation or any tightening of it.

Well, we would start by saying of course this is a highly regulated industry and typically incremental regulation 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.

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.

It's an 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.

Look I think us and and other companies.

Look we all try to reduce fugitive.

Emissions coming off the site that don't get captured and.

And we increased use of synthetic temporary synthetic apps.

So again reduce the migration of gas out of landfill other than what's being 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 a 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.

Hey, Tyler.

Hey, worthy and so I think both waste and now you have talked about maybe slightly better pricing out of the gate.

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 in or what lines or types of markets are you starting to see this and because I don't think it's CPI, that's actually probably a slight negative so is it really the competitive side and.

Just any thoughts on the types of lines that youre seeing that step up.

Right.

Obviously, therefore, it is a competitive market.

Look it's not unusual for for.

For location.

May believe theyre going to price to deliver 4% price to put for 4% prices, So and the street and expect some sort of rollbacks.

On the implementation.

For a piece of that price increase and again as we said before price retention is that it's high is because we're not seeing the day.

Net of Rollbacks, we've typically seen.

And so that's not a churn issue and Thats, just a retention of price.

And being stronger than in prior periods.

Yeah. So right that's a good clarification, so retentions more on rollbacks turns completely different so that's helpful.

Okay. So.

And you obviously do a great job on bridging the margins I love. 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 for because if I'm not mistaken.

<unk> prices were a little bit wacky last year, I think they actually stepped up and Q2 came down and the back half.

That's exactly right, Tyler and that and Thats, a great observation and that will impact the behavior 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 toughest comp in Q2, it's actually twice as high Q1 to two last year went for around $55 a ton.

The $110 a tonne so toughest comp in Q2, and then steps down over the course for the back half of the year.

And 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 100 basis points and Q2's embedded in there and then any thoughts about the back half just based on the current baseline.

So it drives Thomas Yeah, and you'll recall, we guided to 60 basis point benefit starting with eight in Q1 and so what that suggests is at the current baseline that's a little better than that but it drops off over the course of the year. Okay. Okay. That's all helpful. And then not to nitpick, but did the leap year last year.

So was that actually a margin help this quarter was that like a 50 basis point helps us 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.

Okay, and just wanted to make sure I had that and then the last one here.

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.

I'm curious if you are having problems related to truck production issues with the semi conductor shortage basically do you actually think youll be able to spend the full 625 this year.

But we will spend it.

That would force.

And you've already and the question will be us.

It is a 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.

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.

Deliveries like if you.

And one where 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 and next year right and.

So clearly the lead times have stretched out.

But obviously, we were ahead and this year's requirements because we've got a very early start last year and make our commitments for 'twenty one much like we've already done and making our commitments for.

And for most of 'twenty two.

Okay, So youll spend it alright.

And at a time yeah. Thank you.

Our next question comes from Jerry Revich with Goldman Sachs. Please proceed.

Hi, This is Adam EBIT on for Jerry 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 for the next one I should say of any size.

Well likely come online in late 'twenty, two early 'twenty three and we've got.

Beyond that one we've got three or for other ones.

And that are within the span of our of our sustainability report that we put out with our targets that we've laid out and so you know.

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 and the other day, but you got to remember we have about a third of the number of sites that they have.

And so now we.

We've got a great opportunity ahead of US these are.

Planning cycles take time, sometimes your timing for launch of a project based on permitting landfill permit expansion and conversations you're having with municipalities and so it's not clear cut us, 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 lower brands over the past couple of years as well instead of a two to three year payback and maybe it would have been six or seven year payback, but even a six year payback is attractive at the lows that you saw rins hit.

A year or two ago.

Okay. Thank you that color is really helpful. And then lastly can you help calibrate me on where commercial and industrial and residential volume they are versus pre pandemic levels.

Well as we mentioned when we look at and 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. So they've largely come back to.

And to those pre pandemic levels and commercial probably not quite the same a little slower because you don't get that real time movement, but everything is trending positively atmos 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 set a policy you're gonna do guidance at the middle of the year and to be very clear you're standing by that policy.

Well.

We will confirm that wants us call ends right, you'll you won't hear anything from US, yes, and updated and our Q2 call for obviously people can it doesn't.

Take a genius to knit together, what's going on and the margin side and what's called and the revenue Exceedance and we'll have better insight on that and we will do one update and.

In July.

For the balance of the year, which you've done for 17 years.

People should read through and years, but it's been 18 years, but I'll give you. The COVID-19 was I guess, a non year. So we will keep COVID-19 here.

Yes.

And just to.

I'll frame this a little bit typically your first half was 48 per cent of the full year EBITDA and the second half of 52 and based on adding one or two together you're at 50% of the current guide so read through as you choose.

Yeah, I mean, it's tough to know kind of the.

And the sequencing quarter to quarter. This year, just given the quirkiness of of the pandemic.

<unk> and reopening and things like that but.

Look I mean, you saw the revenue beat relative to their expectations and Q1.

If you have if you annualize just that that's what about $100 million or so and revenue and we will see if that still stays as is the case when we guide and in July and August.

And the margins as I said before we've we guided for 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 to to how we got it.

On inflation have your vendors and been able to push through any of it yet or is this something that probably shows up and the 2022 capital spending.

It depends on the capital side.

And the trucks and we had as I talked earlier about getting a head start on day on the orders in 2020 for 2020 one.

We had already locked in.

Much of the pricing for the fleet.

That was and production this year, but to the extent that we put new orders and after the surcharges got implemented those will be subject to that but for the bulk of our capex at least and the fleet side this year.

We had the pricing already locked and ahead of us.

And in 2018, the industry saw three points of inflation happen real time and.

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.

Well, if you look back I mean, we talked about.

Second half of last year, we talked about pricing being kind of 3.5% to 4% this year with a bias for 4%.

And here, we are sitting I would call it four 5% and so you know the.

The way this year is playing out.

And already.

Painting higher than expected pricing because in some cases, we're also anticipatory of Av.

Of some deflationary and pump placement pressures out there some likely wage pressures because again, we started with.

A huge head start on 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 an increase above and beyond what we have currently anticipated and were already anticipating above average wage pressures.

Obviously it suggests the market.

And as bearing it I mean look no further than a P&G or for other consumer product companies that have already telegraphed and.

Eight or 10% price increase.

And their business.

This year and so again its for people looking for for and a half and say Wow, that's so attractive, but you start looking around at the landscape.

And.

That doesn't look so big anymore.

But.

And also of note.

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 and ability to recover and our volume youre seeing the high flow through and the recovery and we look no further than our western region, which as Maryann said had positive volume and Q1.

Just look at our.

And our 10-Q and see the the region.

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 is always not just about price.

It's about quality of revenue.

And the flow through and the pricing of that flow through on incremental volumes.

And just to remind everybody the lowest prices because a lot of that business is index. So.

Glad for it.

Lagging basis and so.

Obviously, you have inflation.

And <unk> increases this year.

Youll get higher index pricing for next year.

And then.

And switching gears to the to the guide for <unk>.

If I think about the mix between countries on volumes.

Are you expecting Canada turn positive one.

Off of a negative and one to two and then it would suggest even if it was marginally positive U S will be nicely positive like 6%.

To get to a five and two or so.

What we're expecting Michael us sequential improvement in all of our regions and I tend to think of the more impacted regions being eastern and Canada, but it's still lagging the overall reported volume.

And just.

At the top of my head just trying to remember if it actually is positive.

Positive, Canada are positive and March yeah.

So, yes, youre right positive price for the fall for the full.

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 us.

And also in Canada.

Okay and then.

Back in the market, that's doing renewable and numerable gases, and it's making a big deal about this opportunity and landfill gas.

Hum.

And I'm just curious you all are delve eloping your own and a waste is going to develop its own and I expect for the others do too so.

Are they trying.

To horn in on something here is there an opportunity maybe to offload some of the volatility by letting and then and outside or develop it 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.

And.

Going back and the old days.

Yeah look gases and capture it in many cases.

We may have JV it already with a third party to come in who wanted to go back then the same call a 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.

Other the other revenue share or what we wanted to do with the gas right and so so.

I'm not surprised that the number of opportunities when people talk about what can be done youre not hearing about 80, new plants can be built.

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 gas that it makes sense to do a renewable plant.

Again, this is not something new and everyone's got a different portfolio, but obviously as the revenue is increasing the value of the royalties and those locations increase.

So no it's.

It's not like again, so let's go capture gas.

Because it has value.

And that's already and the system.

And and to put 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 comes for the traditional.

Pull it off low beta you turned it into electrons and put it into the grid doesn't have a rent and play in it.

Correct right. Okay. That's a good that's a good way to think about it right and then and that's the difference and everybody out of you pay attention, Okay, and net free cash flow upside how much it's going to be from operations and on solid waste versus resources.

We haven't broken out the different components because.

And even on resource recovery for instance, we're looking at building a new recycling facility that will break ground on there and.

Probably over the next few months and again, how do you allocate that capex to just resource recovery right and so we look at it holistically with regards to where the cash flows coming from.

Hey.

And I start thanks, Thank you.

For you.

Yeah.

As a reminder to register a question. Please press the one for on your telephone.

Our next question comes from comes a Missouri with Jefferies. Please proceed.

Hey, Thanks, guys. This is actually Ryan <unk> on for Hamzah.

Could you talk a little bit more about the ESG goals and the investment you highlighted.

What might be misunderstood by some aggregators that you think other constituents like USD fundamentals, there 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 NAV.

And the targets that we laid out in October and our updated sustainability report because we think that as a non.

And just for us, but as the index for the industry as a whole day.

The recognition of the fact that we're doing things like landfill gas projects in the ordinary course of business and we have been for years.

And is probably the single most misunderstood or underappreciated aspect of what landfills do and what we're already incentivized to monetize to 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 depreciation.

<unk> was and is now more appreciated so that's one of our goals.

To your point with the increase that biogas for recovery by 40% and these are long term and 15 year goals and other ways of increasing our resource with cash.

Operating capacity and processing as worthy mentioned, yeah, we look at those projects whether it's buying.

Recycling facilities, which we bought a couple of over the past couple of years.

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 fees. So that's a good thing for us as a 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 Lee.

Jade on site, where we talked about getting it to 50% on site. We think that's a prudent thing to do it makes sense financially environmentally getting trucks off the road trucking leachate for third party facilities and a derisked that aspect of the business as we move forward. So those are the types of things we're doing in conjunction with us.

On the social side and the importance and safety.

And we've been focused on all of these things for years, we're happy to outline them and talk about continuous improvement and our safety metrics.

We think about.

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 sales side and getting out the message.

When you say, what's misunderstood the aggregators and probably a lot because aggregators don't talk to us.

Got it. Thank you that's all Super helpful and then switching over to Les and.

And the E&P business and the different backdrop for the energy since you purchased that business.

Just talk about like what.

A large margin impact is there and what the synergy of that asset or with the rest of the portfolio.

Yes look it's a 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 think E&P waste that several of our traditional MSW sites as well and so.

From an operation 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.

Reassign and.

And and relocate.

Many folks from the E&P business to backfill openings.

And our landfill network and so no it's.

Again, as we talked about it it's more just the landfills and think of it as a special waste stream that that could swing a little bit more than others.

But no.

It's right down right down to south of the fairway with regards to landfill and disposal.

Got it. Thank you guys so much.

Sure.

Our next question comes from Stefan <unk> with J P. Morgan. Please proceed.

Hi, good morning, and.

I just wanted to follow up on that question.

And I guess your guidance and saying that you're expecting <unk> levels to be in line with where things are currently.

I think Greg counts have rig counts have been moving up and so.

And I'm, just wondering if you're seeing any green shoots and E&P waste activity and your business or you're expecting that to come through kind of maybe in 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 the prior downturn.

<unk> per ton.

Is down we saw about us.

And the last downturn, if you go back.

Several years ago, I think pricing compressed.

Some 15 or 20%.

And we've seen a similar compression on that side and.

And this latest downturn.

But and as rigs continue to come online as more and more and more volume gets out there.

Both the recovery of price.

<unk> with that higher.

And coming into the site and so.

We expect an improvement and second half again, we would never fact for that our guidance and the other important thing, though is from a margin standpoint as you as we've guided in the business and and operated in this downturn.

Actually brought the business to margins that are at or above our reported margins for the full company and so.

And if our folks have been very proactive at managing and this latest cycle.

Okay. Okay. That's helpful.

And I was just wondering if you're baking into your guidance I mean cash coming back and now we've talked about labor and.

And just any routing efficiency for products for 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 benefits for recycling and prices.

And the margin front.

No when we think about margin expansion and in the underlying business. We would say that some of those costs are coming back and we've had if you look at Q1. 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 are coming back in and one that we've talked about us medical expenses for instance, where we've seen that that run rate which day.

Decline those costs declined pretty dramatically during the pandemic and we've talked about it for the past few quarters. They continued to come back. So Thats. One example, I would say there is some discretionary cost travel and meetings here a little bit that's coming back in and we look forward to those costs coming back and which is why when we talked about communicating our full year.

Expectations, We said, we've factored in some of those costs coming back and so we'd expect that to 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.

And then when you say, the M&A pipeline and level of dialogue with privates feel like they're at record levels and.

And we have the context of what M&A is meant for this 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.

First kind of to better understand.

And how you might think of the cadence of some of these M&A opportunities.

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 and 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 what we said in February and earlier on the call today, which is look it's a back half weighted from.

From a closing standpoint, which actually means.

More contribution rollover into 2022 versus Pep contributing this year, but again to your point.

The <unk>.

Potential tax law changes, especially with regards to cap gains.

As a driver for folks to get the Q.

And so.

And again when I look at the.

And the number of opportunities.

That.

And 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 and month to month to month as you move through the year.

But again.

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.

Got to get.

A handful of companies that are and that 50 plus million dollars range in order to start chunking up like that.

And so thats the big swing is going to be and how many of those.

Ultimately do get done first.

<unk> and don't get done.

And so again the range of of likelihood of possible is probably also as wide as it's ever been.

And your confidence level at this point and some of those chunk gears getting done this year, where would you put it up.

Again.

And I would never and we always say never assume we get deals done and there's many things can happen along the way right.

But clearly clearly things are quite active.

And maybe any question that's 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 and.

Terms of the regulatory.

S Doj review and things like that.

Okay.

Since you have a little bit of a different market footprint than some peers can you just comment on how you might see that you know more or less impacting.

The pace and some of these deals.

And if you look at both the transactions I think you were referring to those are multi market multi state acquisitions.

Given the who the acquirers were there were a natural overlap across the.

The handful of states right and so the level of review.

And was protracted.

And you for COVID-19 on top of that and.

And change is now at the Doj Web change administration.

Things just got dragged out and.

And those cases and so.

And our bread and butter.

Our doing primarily doing against $20 million to $40 million revenue transactions Episodically.

And companies that are north of $100 million.

But if you step back those of those of us.

Companies that are primarily and singular markets.

And singular geographies and so and <unk>.

Cases, we've not overlap in those geographies right and so it's from a Doj getting through the deal that we don't control 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 transactions that are larger.

Peers did.

Okay, and it gives us the Alaska kind of related one around capital allocation flexibility.

We thought M&A.

After the dividend was going into first and best use of capital for.

This company.

Yeah.

If there is not a meaningful increase and M&A or buybacks.

The leverage is going to be well below what is historically been which is kind of a credit to the cash flow performance for the company.

So I guess in.

General and we don't want a whole does it necessarily any specific leverage target but.

Might we see maybe a little bit lower leverage trend than usual just to give yourself some flexibility.

Around the uncertainty of the timing and some of these deals closing is that a fair way to think about it as we look for the back half of the year.

No I mean us as we said on the call we've already repurchased about 1% of our shares this year and.

So for them and do the math on net outlay.

When you put that with the dividend and on top of that and then you look at the again when I said the range of likely possible as wide.

And when you go to the possible side.

It's over 1 billion and outlay, right and so and 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 did what's possible.

Once again, a low probability, but what's possible and 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 to shareholders to already and again. The M&A outflows are still ahead of us and again cash is still building into this.

Great well, thanks very much for the color. Thank you everyone.

Thank you.

Mr. Jackman there are no further questions at this time. Please continue with your presentation for closing remarks.

Okay, well if there are no further questions on behalf 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 under Reg FD Reg G and applicable securities laws in Canada.

For 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.

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