Q1 2023 Waste Connections Inc Earnings Call

Speaker 1: I C and.

Speaker 2: Good day and welcome to the Waste Connections Q1 2023 earnings conference call. All participants will be in motion only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker 2: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your telephone keypad. To withdraw your question please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ron Middlesott, President and CEO . Please go ahead. Okay, thank you operator and good morning.

Speaker 3: executive chairman. I am pleased to have this opportunity to reconnect with so many of you that I have enjoyed working with over the years. I am joined this morning by Mary and Whitney, our CFO and several other members of our senior management team.

Speaker 3: Looking at Q1, record solid waste pricing growth, strong operational execution, and continuing acquisition activity provided a strong start to the year.

Speaker 3: While we recognized on our February earnings call that Q1 would be a difficult year over your comparison given the precipitous decline in resource recovery values during the second half of 22, results in the period were further affected by extraordinary weather-related impacts to solid waste roll-off activity and landfill volumes.

Speaker 3: particularly on the West Coast. Underlying adjusted EBITDA margins were in line with our expectations, but acquisitions completed since the year ago period were 30 points diluted to reported margins or more than 20 basis points higher than we had expected, given the disproportionate weather related impacts on the West Coast acquisitions.

Speaker 3: Continued visibility on pricing, improving trends in labor availability and retention, and recent normalization of weather patterns position us to deliver the full year outlook we provided in February .

Speaker 3: And as we also noted then, any additional acquisitions, reduction of inflationary pressures, or increases in values for recyclable commodities or renewable fuel from the low levels we seen since late last year, would provide upside to this outlook. No improvement in those values was factored into our outlook.

Speaker 3: Before we get into much more detail, let me turn the call over to Mary Ann for our forward-looking disclaimer and other housekeeping items.

Speaker 4: Thank you, Ron, and good morning. The 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.

Speaker 4: Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties.

Speaker 4: Factors that could cause actual results to differ are discussed both in the cautionary statement included in our April 26 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 in Canada. You should not place undue reliance on forward-looking statements as there may be additional risks to which re Defence

Speaker 4: adjusted EBITDA, adjusted net income attributable to waste connections on both the dollar basis and per-deluge chair, and adjusted pre-cash flow. Please refer to our earnings releases for a reconciliation of such non- GAAP measures to the most comparable GAAP measures .

Speaker 4: Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently.

Speaker 4: I will now turn the call back over to Rob.

Speaker 5: Rob. Thank you, Marianne.

Speaker 3: In the first quarter, we delivered solid waste price plus volume of 10.5%.

Speaker 3: Total price of 11.8%, including about 80 basis points of fuel and materials surcharges, range from about 8% in our mostly exclusive market western region up to 13.5% in our competitive markets. Our pricing strength continues to reflect the resilience of our market model.

Speaker 3: of local decision-making, driving operational execution, and accountability in our decentralized organization.

Speaker 3: Reported volume growth of negative 1.3% includes an estimated impact of about 50 basis points from the extreme weather events on the West Coast, including over a dozen atmospheric rivers which impacted our operating locations, primarily in California, and resulted in a slowdown in roll-off and landfill activity.

Speaker 3: The associated incremental volume drive was partially offset by increases in other markets, including in Florida on hurricane-related cleanup activity. The unsolid waste revenues played out largely as expected in Q1.

Speaker 3: Recycled commodities, landfill gas, and renewable energy credits, or RINs, collectively were down about 40% year over year.

Speaker 3: on commodity values that haven't moved materially off the bottoms established in late 2020-22. Similarly, E&P waste activity levels were as expected at 48 million.

Speaker 3: EMP waste revenue in the first quarter was down about 8% sequentially, reflecting what we would consider typical seasonality.

Speaker 3: Trend showed some improvement during the quarter, which should bring the quarterly revenue run rate back to about 50 million.

Speaker 3: trend showed some improvement during the quarter, which should bring the quarterly revenue run rate back to about $50 million. Now moving to acquisitions.

We remain well positioned for upside from increase recovered commodity values or reduced inflationary pressures and we look forward to providing any updates to our full year outlook as we typically do on our July call.

We appreciate your time today I will now turn this call over to the operator to open up the last for your questions about the quarter, our outlook or whatever is on your mind.

Operator.

Thank you.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Tyler Brown with Great. Jay. Please go ahead.

Hey, good morning, guys.

Good morning, Tyler.

So I just want to start with cost inflation. So I think last quarter, you guys talked about unit cost inflation, maybe a 6% to 7% embedded in the guidance. So first of all can you just talk about where maybe unit cost inflation is trending in Q1, but secondly can you talk more about how that's trending in some of those major buckets, you talked a little bit about.

Labour, but what about Oregon, maybe subcontractor hauling because it just feels.

I think there's some disinflation pressure building there.

I'm curious if you're starting to see that in any noticeable way.

Sure Tyler So why don't I start and then and then Ron can add some color to that so as you pointed out coming into the year, we talked about the expectation of cost inflation in that 6% to 7% and specifically we've talked about labor being a big component of that and then we were in kind of a 6% to 8%.

Increased environment, starting near closer to eight and we thought those pressures would abate somewhat and we are moving down to six over the course of the year, perhaps and the update to that is that I'd say, we're still at the high end of the range and we're not surprised by that the expectation would be that as we anniversary the outside increases we did last year.

See some of those pressures abate and of course, there's also the observation that some of those pressures more generally on labor as as Ron mentioned in his remarks, we're seeing improving trends and so you would look forward to over the next couple of quarters seeing those benefits realized in in the actual decrease in the pressures moving through the P&L.

With respect to third party costs, we've talked about the fact that the really outsized ones in prior periods included things like third party brokerage.

And disposal and I can say, we're seeing those pressures abate theres still above headline inflation numbers, but they're stepping down and taking some of that pressure off and when you look at our 110 basis points of underlying solid waste margin expansion. Those line items are a big component of that I would say Ron did you want to add to that yeah.

Tyler agree with everything Marianne said I mean, we are generally seeing some on at least a percentage basis some slowing of <unk>.

Cost inflation as Maryann mentioned look brokerage was up last year every quarter over the prior year quarter in the teens to 20% plus level.

It dropped down to being up about 10% on the nose. So almost half of what it was so it's still up but dropped by almost 50%.

The other issue, that's probably a little outsized right now.

Although supply chain is getting better without question, it's really still obviously not where it needs to be.

So taken delivery of a less trucks than is optimal at this point, but getting closer or outside repairs is wanting.

You know probably 50% to 60% higher than we would expect and that is indicative of major repairs.

On older equipment that scheduled for replacement that you're sending out because it's a it's a complicated component relative to typical inhouse repairs.

That will get continue to get better as well so and labor.

Although still elevated is running in that 6% to 8% increase range.

Some of that math comps, but that will continue to we believe continue to flatten out and decline as the year goes on.

Perfect. Okay lots of good detail in there. So it doesn't seem to really kind of shift gears here. It does seem kind of clear from my transports in your commentary, maybe about landfill tons and roll off polls.

The economy feels to be slowing Mike.

All it real time, I mean, I know you guys don't have heroic assumptions in the guide, but the economy does feel shaky does it feel like the lower end is more at play at this point on the volume front.

Well, yes.

Tyler we we've said that we expect this year to be back in February to effectively be flattish. We define that is between negative one in one so effectively flat.

If you if you look at this quarter and you take out weather would have been about <unk> eight so sort of near the lower end of that negative one word.

We look at give you some real time numbers, if we look at our as an example, our landfill volumes.

By month in the quarter.

January was up 2% February was up 3% March was down 3%.

That's how you get to.

What you got for the quarter flat effectively.

In April through the 26 days, we looked at this last night is tracking to be zero to 1% up. So you know was marching anomaly due to weather, particularly on the West Coast. We think it was you.

It does feel like it's slowing a little you know maybe in certain markets, but nothing.

Nothing certainly extreme that we've seen and again you look at roll off January .

1% February up 2% March down too.

April through 26 days back to approximately flat so.

Everything we're seeing in real time gave you. These numbers as backup tells us that we're in that sort of.

I'd call it flat to negative one maybe a little hair over with some special waste comps and that's what's that's what we've got it.

Okay, perfect and my last one here just real quickly maybe this one's for monday's call, but clearly M&A is a really important aspect of your story and always has been but this year was kind of unique in the fact that your prior head of corporate development and he retired I think he's going off into the hall of Fame, which is great you've moved into the CEO role you had been very instrumental in the west.

Coast acquisition success of last couple of years. So can you just talk about that corporate development team the bench, there and your confidence on that front moving forward. Thanks.

Absolutely yeah.

Long term head of business development did retire is going into hall of Fame as you noted and well deserved.

Rick was backfill by a long term internal executive of the company for 24 years, who has most recently been original vice president and prior to that divisional Vice President, but he started in the company when we founded it in M&A.

So he has a M&A background knows the industry very very intimately private players deal structure has a financial background as well his name's Phil revard.

And worthy and I were in sync on asking him to step in and replace Rick <unk>.

Below.

Hello, Phil and below Rick we've got a pretty robust very seasoned M&A group in the field. We've actually made two additions to that team in the latter half of 'twenty two to expand it.

So I feel from a team standpoint, whereas as solid as as we've been if not greater with greater coverage.

It's tough to replace someone would like Rick with his relationships, but we have his relationships and Rick still involved with us in assisting with those larger deals where he has relationships. So we haven't lost that.

Hum.

We feel real good about M&A.

M&A ebbs and flows as you know incredible year in 'twenty, two incredibly strong year in the second half of 'twenty, one coming off the pandemic sort of some pent up demand coming out of the pandemic where things were slowed.

But we're.

We're very confident in M&A and nothing has changed in that arena.

Excellent thanks, guys.

Our next question comes from Kevin Chiang with CIBC. Please go ahead.

Hi, good morning, Thanks for thanks for taking my question.

Maybe just turning to the.

There seems to be a lot of legislation I know the EPA has one on one or.

Commercial fleet emissions basically looking to accelerate the adoption of low or zero emission.

Vehicles.

Cross the board here, just wondering I know a lot of this is a proposal phases that I know, California is doing its own thing but.

This is a celebrated premiere fleet strategy in terms of pushing orangey or CMG or trying to electrify. The fleet just given some of the legislation you see coming through the pipeline here.

Yeah, well, Kevin as you said, there's a lot of legislation being discussed a lot of legislation currently being modified sort of a little back from where it was originally was let.

Let me start with this.

Generally speaking legislation and regulation is good for the well capitalized public companies, including Ourself and always has been for the last 20 plus years in this industry, while difficult to adopt we've got the balance sheet to do it to take advantage of it.

And it typically leads to improved pricing at a spread to the capital costs and expense of the legislation. So legislation does not concern us it levels the playing field.

With what with less well capitalized companies.

And it makes it a tougher playing field for them.

And it actually turns out into acquisition opportunities. So we liked the regulation as long as it's uniform federally or within existing states.

You know.

As you're seeing with a lot of legislation that comes out in a variety of areas related to the environment right. Now the legislation is a bit ahead of the product development to comply with that legislation.

And some of that is in its infancy some of that is.

Even if it was adopted today is decades from being able to get fleets fully converted well if you're talking about illustrates <unk> electric or hydrogen.

But you.

You know we were taken a close look at this obviously states where it is adopted already like California, well, that's an easy decision.

So.

We're keeping a close eye on it.

We have a balance sheet to deal with it and you know I would say on the margin. It does move the needle and how fast you transitioned to some of these are renewed.

Renewable type <unk>.

Products, both in our fleet as well as use at our landfill for certain treatments and other but it's not going to be in my mind, a needle mover either direction.

Okay.

That's very helpful. Maybe just a couple of them.

I guess, maybe nitpicky question, if I look at the Q2 guide Maryanne.

I have called the first half of the year. It implies little first half second half seasonality, Oh kind of 47% of EBITDA in the first half.

Historically, it's been about a point higher than that and I know, it's a small number but just because it's not just a function of just.

As you mentioned some of the inflationary pressures.

Decelerating to go through the back half of the year, so you'd get a little bit more earnings in the back half or is there something else you you'd called out here just just give it.

The Q2 guide versus maybe historical historical trends.

Sure Yeah, Yeah Fair question and happy to go through that Yeah, you're right you know when we take the thing about first half second half. There is there's always the impact of seasonality and certainly the way we guided for Q2, just an observation right upfront is that as we mentioned in our remarks, we look forward to seeing that seasonal ramp. So you know.

Arguably you could say, maybe we guided to a little less than a fulsome seasonal seasonal ramp and I think that would be a fair observation, but then more broadly when I think about what happens in the course of the factor of seasonality you typically see an increase sequentially of call. It 100 to 150 base.

At this point so are more just in a typical year and then add on top of that the impact of recycled commodities, which are another 150 basis points right. The headwind that starts in the first half of the year. The debate by the second half of the year, which would explain why you would have a little more of an outsized increase back half of the year.

Okay. Kevin This is Ron the other the other thing I would say about that.

You noted the 1% differential between first and second remember we just noted that there was about a 30 basis point drag 20 basis points more than we thought from the acquisition closed in.

In the last quarter.

As you know we did a lot of M&A last year M&A always almost always comes on at a dilutive margin or a nominally dilutive.

And it takes us.

468 months to get that to where we think it's going to be and that's going to be in the second half of this year.

Right, that's very helpful and it's been a great point there maybe just last one for me and then maybe another nitpicky question I noticed you're gonna change or.

I guess some of your segments here are they adding a new geographic region like I started here in the second second quarter.

I mean any read through is it just maybe one of the region's got too big or or is it a reflection of.

Maybe how you see some of the white space on the map here in terms of where you'd like to grow adding the mid south as a new a new reporting segment.

Sure.

I'd encourage you to think about it is the continuation of the strategy that served us so well and that's our decentralized approach.

And the recognition that given the amount of growth we've had and to your point. The expectation of continued growth that we want to have that same kind of visibility and so it's an acknowledgment that you're kind of you're re rack and reshuffle, the deck and and distribute the region's accordingly, and so that's the way to think about it.

Perfect. That's super helpful. Thank you very much and best of luck through the rest of the year.

Thank you Kevin.

Our next question comes from Sean Eastman with Keybanc capital markets. Please go ahead.

Hi, James Thanks for taking my questions.

Wanted to make sure.

The the message on that.

Elevated M&A dialogue.

How you see that translating into closed deals maybe over the next 12 to 24 months just considering obviously, we're coming off a very big 2022.

Yeah well.

Sean as I as I'm sure you know and and I would tell you you know elevated dialogue ultimately turns into increased closings. It takes some time.

Where we've got a lot of LOI in process right now.

I would tell you to think about these as sort of expecting things to more come through the late third early fourth quarter second half loaded because youre talking about a three to four month process from when you start executing LOI. So when you actually close.

Of course, there's always risk that we don't get some of those and that happens and we understand that but we will have a successful hit rate.

And we expect this to be.

At or above an average year as we've said.

You know how much time will tell.

Because sellers have a decision and that process, obviously, but we feel good about where we're sitting with what we've got communicating out there right now.

Okay very helpful. There and then.

Great to hear that the.

Labor availability retention trends continue to improve but.

I am curious about the kind of operational leadership level.

You know how the challenge of.

Turnover and retention has been at that level, how that's trended.

What.

What would be really curious to hear your perspective on that rod.

Yeah sure well look just to give you a couple of data points.

Q1 over Q4.

Turnover decreased by almost 10% 10 percentage points.

Number one and two are 10% not 10 percentage points excuse me.

And to open it open job requisitions that we're searching for dropped by about 6%. So those are both heading in the right direction still both well above our historical and our expectations, but you know how this works when you are.

Our frontline employees via drivers landfill operators maintenance personnel, what ends up happening to provide service quality as you are running routes longer.

At all levels at all locations, you are running supervisors and vehicles to complete routes rather than being able to supervise your.

We're running operations managers and dispatch stopped doing double duty on supervision and everything struggles when youre doing that a little more than normal.

Labor hours.

Safety reviews, more wear and tear on vehicles from longer.

Longer routes being run the normal so it's sort of a you know a spiral it's difficult as you unwind that spiral those things get better.

And so I would expect that doesn't happen overnight, but it will happen in time I would expect each of those things to get better our labor percentage, our safety results our maintenance results.

And therefore, our service quality in our sales and retention and ability to get new business.

So we've got a ways to go but it's better now in the first quarter than it was in the second third or fourth of last year.

Interesting stuff, thanks, Rod I'll turn it over.

Yeah.

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

Hi, This is Adam be this on for Jerry today, Thanks for taking my question.

First quarter margins of 29 eight in the second quarter guide of 38% on a seasonally adjusted basis looks to be around 34%.

First the outlook for the full year of 31.1% so that implies a pretty sharp ramp sequentially in the second half of the year compared to normal seasonality to hit your guidance is the original margin guidance is still on track and can you just help frame that sequential acceleration in margins.

The back half.

Sure. Thanks, Adam.

Yes Ted.

That that question first yes. The original guidance is intact as we said we've reaffirmed our full year guidance and that included our margin and the the walk from the first half to the second half just to reiterate as I described earlier it really is that two pronged impact of.

First of all seasonality and the acknowledgment that the way we guided Q2 has a more muted seasonality than we what we would typically see and we look forward to delivering Q2 <unk>.

And that said Theres, a 100 to 150 basis points or more just from seasonality alone as you think about margins and then overlay on top of that the easier comparison on recycled commodities, which began the year. The 150 basis point headwind and that a headwind fully abated since recycled commodity values haven't really moved.

At the year end numbers from last year and again. This is all before any upside from any of the factors. We've described like cost pressures abating to the extent those those macro trends, we're all observing as they make their way into the P&L or any improvement in commodity values incremental M&A.

Again as we've described.

Thanks, and you've laid out 10 landfill gas plants that are in development in the near term can you talk about the expected earnings ramp on those plants and what's the pipeline beyond the 15 to 20 landfill gas projects that you've outlined in totality should we be thinking about further opportunities down the line or is.

15 to 20 at the end of what's economically feasible.

Sure. So as you may recall on our last call. We described the portfolio of projects and we described an incremental $200 million in EBITDA in 2026, and although we didn't get specific about exactly how that layers in and exactly how that capex goes out to get comparable amount between 2022 and 2000.

25.

We said, there's one project coming online this year that we own and of course that it's a portfolio of projects about two thirds of them, we won't know and we will be getting a royalty and the other third will alone and so you know you could you could layer them in that you got a partial year benefit from one this year full year benefit from next year some.

Rental contributions from things coming on in 'twenty, four you might want to just stack them sort of layer cake them on but be at 200 million in EBITDA, Yeah, that's very high flow through from from the revenues so not dissimilar.

By 26 now beyond that you know I'd say, but let's get to 26 and we'll you know, we'll certainly update you in the meantime, our where we're excited as Ron said, we're committed to the development of this we like our portfolio approach and we will continue to explore opportunities going forward.

Thanks, so much.

Our next question comes from Michael Hoffman.

Stifel. Please go ahead.

Hey, Thank you very much welcome back Ron feels like Deja Vu moment to hear your voice again.

Yours as well.

The question I have about price is managing a spread.

We all know that this is going to settle as inflation comes in the rate of change subtle talk to us about that.

But the strategy and the controls and the discipline through the model down to the decentralized that why we have confidence in holding on to the spread.

As we settle into a new run rate of rate of change.

Well, let's start with what we've already committed to for the full year and the fact that we've guided to 95% core price and tell you we have 85% visibility on it meaning it's done or it's contractually stipulated are probably two or 300 basis points higher than what other people are talking.

And you're about to my knowledge and you know we've talked about the cost pressures in the business being in that 6% to 7%.

So you know as you know Michael the reason, we push that much harder on pricing part of it was the headwinds from recycled commodities and rens and that's just math that those pressures abate as we move through the year and so we focus on what is the underlying margin expansion in solid waste and we delivered about 110 basis points in <unk>.

Q1, So you know as we as we thought about the year coming into the year, we thought the greatest headwinds earliest in the year. So it's most important to have the highest reported price men and as to the extent any of those pressures abate and we've already talked about wages and the expectation that we go from the high end of the range of 8%.

Down to more like 6%. So I think that's your math on how the spread is maintained as you move through the year. Looking ahead of course, it'll be a function of what do inflationary pressures do as we move through the year and therefore, how much pricing do we need on the competitive side of the business knowing that the.

Contractual aside the CPI linked business the pis will be not dissimilar in 'twenty four to what we've seen in 23, just based on the CPI that we've already reported.

And Michael I would add to your the second part of your question just on the you know the the field responsibility our model et cetera.

Look as you know we believe this is truly a local business and thus our decentralized model has a P&L responsible manager in every market overlain by divisional P&L manager overlain by a regional P&L manager.

Because this business is so local all of them are our incentive wise quite heavily and compensation on the performance of that local market against metrics for that local market a large one being price.

And and margin so we drive this down to the local level.

Ill hold them accountable allow them responsibility to make different judgment, it's very different by market. Once one size doesn't fit all.

And you know in addition to our as Maryann outline a high percentage of our business being franchise and Theyre very predictable if you've got 42, 43% of your business that is contractually guaranteed which we do.

Which is very different than anyone else out there. It allows us to heavily focus on that 50, 657%. That's competitive so I think it's a difference in strategy into different in structure and that's what leads to quite a different spread relative to anyone else out there in price.

Thank you Hum the.

What is the right size of regional business.

To manage and you've got it.

I'm not surprised you're out of region, because you're growing and you grew up pretty significantly over the last few years, but what's the right regional size of business and therefore, when you get to 10 billion, we're probably going to have another region like shouldn't nobody should be surprised.

Yeah, well first off I think the way we thought through this and it's been in discussions for quite a period of time, Michael over the last couple of years and thinking through where we want to be we're trying to think five 710 years out what what's what's the flow looked like amongst regions in waste volumes, what's the what.

The regulatory environment within a geographic region and then what's the M&A opportunity within a geographic region. So that we're not redoing. These things every 234 years. So you know we've taken a real hard look at that.

And you know look the answer is it's a little different depending on how the geography is structured for waste what do I mean by that.

The franchise market checks are probably less day to day oversight from a regional level than a highly competitive market on the east coast or the southeast illustrative way. So we think that a rounding billion and a half to maybe up to 2 billion in the competitive.

Pes is a fair number we think that can be run higher than two and a half billion in the franchise component. So it is a little bit different and that's a conscious decision, but if you want to use a billion and a half to two as a fair number that's probably a good barometer.

Okay, Great and then the pace of M&A I mean, if you take the 45 million multiply it by four you're above average because of the average is $1 50, so that I mean, you're you're on a pace you don't guide.

M&A until it happens, but we're kind of on a pace of 180 right.

Yeah as you know we would tell you look as you know an average year is 150 I'm just using that.

Because it's probably a fair number of $1 50, 175, so we're already above the average your pace of and I as I said in my comments.

I think it is reasonable for us to expect an above average year, knowing what we know right now and what we've who we're talking to and what otherwise we have out there that's.

That's what should be expected, but having said that you know.

If we didn't do more and that's not the case it would be because we're being very disciplined in our approach.

And then our market selection.

And that should be what our investors expect from us so.

No.

That is not what I'm predicting but that would be the only reason is we're being disciplined on what we're doing.

But yes to answer your question we're above it.

And I think what it does is if we have that type of year, we're talking about and it's a little more it is more second half weighted it sets us up incredibly well for 24 to start with another large year of rollover just like this year did from the ending of 22, Okay. And then I wanted to I didn't I should have finished my question about price Mart.

Price spread and margin and I didn't I apologize so the.

Maryann you've laid this out but you know the recycling offsets and when we start to anniversary, but you also have a really healthy index prices.

<unk> second half 'twenty three first half 'twenty four so this momentum a margin.

Cars right into 'twenty four.

We're almost regardless of what else happens and then there's your own discipline around managing open market spread that then sustain its assuming the macro things all leveled out.

I know that was a mouthful, but.

Well, we should smooth out and getting a sustained period of margin improvement beginning in the second half for a while all else being equal.

Sure Joe So what we've said is it's a fair observation that pricing, we continue to get the lagging benefit from CPI linked market because remember we absorbed all of those costs when the spread went the other way in 2022, so we're benefiting from that in 'twenty, three and you're right mathematically.

It says we will get and that's as I mentioned before a similar number and not dissimilar. In 24, then the question becomes what's the environment and how much pressure is still need it right on the competitive book of business because as we've also said we look forward to not needing to do the outsized increases, but yes to answer your question well.

Very much focused on that and to the extent it takes longer for inflationary pressures to abate that would suggest that the same dynamic that we saw coming into this year with persist into next year, meaning it should get easier over the course of the year.

Michael one other one other thing on that again I'm sure. This is I know you're well aware of this so I say this is more for people who might not be as familiar look a lot of our CPI index business, particularly our franchise business is set off.

Government calendar year, which means it is priced in july's CPI of each year. So for this year 23, we're getting mostly last July and January one CPI, we will get for next year. This july's CPI in the next year. So it's still.

Elevated even though that CPI is coming down throughout the course of 'twenty three 'twenty four so yes. It supports exactly what you just said.

Got it and then.

Everybody wants to talk about projects on Orangey, but it's really about M. N V to you, but one of the things they tend to forget to ask you and you all have the best in class conversion of your total captured M. B you into beneficial use and the group you're at 60%.

So it.

So its not like Theres, a whole lot left to do other than upsell electricity into R&D, you've been doing this well.

Well, yeah, just yeah, I don't disagree with your characterization I think everyone's portfolio of landfills in the age and life of their landfills is different and we will continue to look forward to opportunities.

As we proceed and we've described that the ones that are at hand, and how we've approached them.

Michael I would say it a little bit differently and I agree with your comment on what Marianne said look.

We are very comfortable with the long term forward looking performance of our core solid waste business.

Standing up better than anything in the sector.

Our RMG is an upside not a not a bridge to get to our margin.

Right got it. Thank you for taking the questions look forward to seeing you in New Orleans.

You as well.

Our next question comes from Noah Kaye with Oppenheimer and company. Please go ahead.

Thanks, I'll just ask a couple of questions first a health check on the customer base you had strong performance on DSO. So customers were clearly paying their bills and you saw sticky price can you give us what the churn rate was in the quarter, what you've seen in April and we're in the business there might be increasing price volume trade offs.

Sure. So a fair observation, yes, we have continued to see dsos improve and I'd say that that's a combination of being proactive about it and that speaks to the power of a decentralized model, where you've got local controllers, taking responsibility for that and and yes, we we have not seen.

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Kind of degradation, which leads to increased issues on on that front and so we're encouraged by that.

I'm mindful of the fact that the overall economy is slowing down and it's something we pay close attention to so to your point.

About churn, we would acknowledge that in our price.

But we've reported in the volumes we've reported there is some price volume trade off there is some churn happening out there and I think the important thing is that the way. We view. It is it's an acceptable trade off and we're not surprised to see that tick up a little bit as we move through the quarter.

Okay, Thanks, and any way to quantify what that rate looks like currently and we have a benchmark.

Sure. So you know as you know in 40% of our business. We don't have any churn and then the other piece you know what it's typically running sort of in that mid to high single digits, where it might tick up a little bit. So overall if it says it's mid single digits, that's probably a fair way to think about it.

So that has helped the last question you know just around truck deliveries and obviously the quicker you can get those fresh trucks and the more it's helpful. For your for your Opex profile. What are you seeing on a rate of truck deliveries and your confidence in being able to spend the full year budget.

Sure well I you know we're confident we can spend the full year budget you know that that's I don't know that that's been an issue.

And we.

Have given them a lot more flexibility and what theyre able to do to take care of people as individuals and quite honestly, that's the essence of what our servant leadership model is about taking responsibility for the health and safety of our people at work and away from work. So you know you gotta be market competitive you got.

Make it a great place to work you got to give them an incentive to want to be there beyond the compensation and benefits.

And that really comes down to the relationships that our leaders can build with them as individuals on the frontline.

That's really the answer to that question and has been how we have focused on it for 18 years.

Okay. Thank you operator, if there are no further questions on behalf of our entire management team. We appreciate your listening to and interest in the call today Maryanne and Joe box are available today to answer any direct questions that we did not cover that we're allowed to answer under regulation FD Reg D. G.

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