Q2 2023 Waste Connections Inc Earnings Call

If you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two.

Good morning, and welcome to the waist connections and second quarter 2023 earnings Conference call, all participants will be and listen only mode.

You need assistance. Please signal conference specialist by pressing the star Q, followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May press sorry, then one on your Touchtone to withdrawal from your question can you. Please press Star then too. Please note. This event is being recorded I would now like to turn the conference over to you.

Note. This event is being recorded I would now like to turn the conference over to Ron Mills that President and CEO . Please go ahead.

Okay. Thank you operator and good morning.

I would like to welcome everyone to this conference call to discuss our second quarter results.

<unk> President and CEO . Please go ahead.

And updated outlook for 2023.

Okay. Thank you operator and good morning.

As well as to provide a detailed outlook for the third quarter I am joined this morning by Mary Anne Whitney Our CFO I'm also joined by Joe Box, Our recently promoted Vice President of Investor Relations Congratulations Joe.

I would like to walk him every one does this kind of a call to discuss our second quarter results.

And updated outlook for 2023.

As well as to provide a detailed outlook for the third quarter.

Joined this morning by Marianne Whitney are CFO I'm also joined by Joe Box Ah recently promoted Vice President of Industrial relations Congratulations Jo.

As noted in our earnings release, we are extremely pleased by the strength of our operational execution during the quarter for a solid beat on revenue and adjusted EBITDA to deliver margins 30 basis points above our outlook.

As noted in our earnings release, we are extremely pleased by the strength of our operational execution during the quarter for a solid beat on revenue and adjusted EBITDA to deliver margins 30 basis points above our outlook.

Solid waste core pricing growth of nine 8% positioned us to expand underlying solid waste collection transfer and disposal margins by 100 basis points in the period largely overcoming the ongoing headwinds from year over year declines in recovered commodity values and continued inflationary pressures during the period our perf.

Solid waste core pricing growth of 9.8% position dusk to expand underlying solid waste collection transfer and disposal margins by 100 basis points in the period largely overcoming the ongoing headwinds from year over year declines in the cupboard commodity values and continued inflationary pressures during the period.

<unk> in the first half of 2023, along with recent acquisitions and reduced headwinds from fuel and other commodity related impacts positions us to increase our full year outlook for adjusted EBITDA to approximately $2 $5 5 billion.

Our performance in the first half of 2023, along with recent acquisitions and reduced headwinds from fuel and other commodity related impacts positions us to increase our full year outlook for adjusted EBITDA to approximately 2.5 to 5 billion expanding our adjusted EBITDA margin to 31.5 per cent for the full year.

Spanning our adjusted EBITDA margin to 31, 5% for the full year up 40 basis points from our initial outlook and up 70 basis points as compared to the prior year.

Most importantly, we are encouraged by improving trends in safety and employee retention as we double down on human capital and our decentralized operating model, including through the realignment of our organizational structure with the addition of a six region and refinements to our corporate operational structure.

Up 40 basis points for my initial outlook and up 70 basis point as compared to the prior year.

Most importantly, we are encouraged by improving trends in safety and employee retention as we doubled down on human capital and are decentralized operating model, including through the realignment of organizational structure with the addition of a six the region and refinements to our corporate operational structure.

We look forward to driving outsized margin expansion in the second half of 2023 and into 2024 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.

We look forward to driving outsized margin expansion in the second half of 2023.

Thank you Ron and good morning, the discussion.

220, 24, before we get into much more detail, let me turn the call over to Marianne far forward looking disclaimer and other housekeeping items.

During today's call includes forward looking statements made pursuant to the safe Harbor provisions of the US Private Securities Litigation Reform Act of 1095, including forward.

Thank you Ron and good morning.

Forward looking information within the meaning of applicable Canadian securities laws actual results could differ materially from those made in such forward looking statements due to various risks and uncertainties factors.

Including forward looking information within the meaning of applicable Canadian securities lap actual results could differ materially from those maintenance such forward looking statements due to various risks and uncertainties.

Factors that could cause actual results to differ are discussed both in the cautionary statement in our August 2nd 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 of which we are not presently aware.

Factors that could cause actual results to differ I just got both in the cautionary statement in our August 2nd earnings release, and in greater detail and waste connections filing for the U S Securities and Exchange Commission and the Securities commissions are similar regulatory authorities in Canada, you should not place undue reliance on forward looking statements as there may be additional rest of which we are not presently aware.

Or that we currently believe are immaterial, which could have an adverse impact on our business. We make no commitment to revise or update any forward looking statements in order to reflect events or circumstances that may change after today's date.

Boy 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 refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures management uses certain non-GAAP measures to evaluate and <unk>.

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

What are the ongoing financial performance of our operations other companies that calculate these non-GAAP measures differently.

Use a certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations other companies. They calculate these non-GAAP measures differently.

I will now turn the call back over to Ron.

Okay. Thank you maryann.

Looking at Q2, our results begin with price led organic solid waste growth from core price of nine 8% ranging from over 7% and are mostly exclusive markets western region to between 9% and 12% and our competitive regions total price of nine 1% includes a 70 basis point decline.

I will now turn the call back over to Iraq [noise] Okay.

Okay. Thank you Mary Ann.

Looking at Q2 Ah results begin with price led organic solid waste growth from core price of 9.8%.

Ranging from over 7% and are mostly exclusive market Western region, two between nine and 12% that are competitive regions total price of 9.1% includes the 70 basis point decline in fuel material surcharges, reflecting lower diesel prices in the quarter as projected.

And fuel and material surcharges, reflecting lower diesel prices in the quarter as projected.

Reported volume growth of negative one 9% reflects a degree of intentional shedding of lesser quality accounts and purposeful non renewals of certain municipal contracts, including in some cases at recently acquired operations, where we've identified opportunities for improving revenue quality. We consider this pruning to be integral to our disc.

Ported volume growth of negative 1.9% reflects a degree intentional shedding of lesser quality accounts and purposeful nonrenewals, a certain municipal contracts, including in some cases. It recently acquired operations, where we've identified opportunities for improving revenue quality, we consider this pruning to be integral to our.

<unk> approach to growth and typical of the opportunities for margin improvement, we see in acquisitions, given the number of acquisitions over the past few years. This was fully anticipated.

<unk> to growth and typical with the opportunities for margin improvement, we see in acquisitions, given the number of acquisitions over the past few years. This was fully anticipated.

Our volumes also reflect a muted seasonal ramp in activity levels as we had anticipated impacting collection transfer and disposal volumes.

Most notably special waste tons, a good barometer of the more cyclical and event driven aspects of the business were down 7% year over year on reduced or delayed project activity across most regions. However in July special waste volumes were up 9% year over year our.

Our volumes also reflect a muted seasonal rats and activity level as we had anticipated impacting collection transfer and disposal volumes, most notably special waste tons of good barometer of the more cyclical an event driven aspects of the business, we're down 7% you over a year and reduced or delayed project activity.

A reminder of how these how lumpy. These project volumes can be and why it's tough to generalize about broader volume trends based on improvements in special waste or other event business.

Across most regions. However in July special waste volumes were up 9% year over year.

A reminder of how these how lumpy. These project volumes can be and why it's tough to generalize about broader volume trends based on improvements in special waist or other that business.

Lastly, consistent with the constructive tradeoff between price and volume. We've described in prior periods, we're making a conscious choice of up to one point of volume reduction to achieve our price objectives, we're very comfortable with the trade off and our improving EBITDA margins reflect the benefit.

Lastly, consistent with a constructive trade off between price and volume. We've described in prior periods, where making a conscious choice of up to one point of volume reduction to achieve our price objectives were very comfortable with the trade off and are improving EBITDA margins reflect the benefit.

Looking next at Q2 revenues from recovered commodities that is recycled commodities landfill gas and renewable energy credits or Rins.

Looking next queue to revenues from recovered commodities that is recycled commodities landfill gas and renewable energy credits or rent.

Excluding acquisitions collectively they were down about 40% year over year due to tough comparisons for values of both recycled commodities and rents.

Excluding acquisitions collectively they were down about 40 per cent you over a year due to tough comparisons for values are both recycled commodities and red.

OCC or old corrugated containers averaged about $75 per ton.

And <unk> averaged about $2.15 in.

Oh C C or old corrugated containers averaged about $75 per ton and.

In Q2.

Starting lower and jumping to over $3 late in the quarter in response to a favorable EPA ruling establishing renewable volume obligations.

<unk> averaged about $2.15 into too.

Starting lower and jumping tobar $3 late in the quarter in response to a favorable E. P. A ruling establishing renewable volume obligations.

We are encouraged by the EPA ruling given our portfolio of renewable natural gas facilities under development, which remains on track to deliver the projected $200 million in incremental annual EBITDA by 2026 from over a dozen RMG projects with a range of ownership structures.

We are encouraged by the E. P. A ruling given our portfolio of renewable natural gas facilities under development, which remains on track to deliver the projected 200 million and incremental annual EBITDA by 2026.

Those benefits begin later this year when three facilities are expected to be operational and should ramp in 2024, when we are projecting the majority of capital expenditures.

A dozen orangey projects with a range of ownership structures.

Those benefits begin later this year when three facilities are expected to be operational and should wrap in 2024, when we are projecting the majority capital expenditures.

Beyond these projects, we continuously evaluate additional opportunities, including as we complete acquisitions.

Moving onto the subject of acquisitions, we recently closed on Arrowhead environmental a $100 million revenue integrated transportation and disposal network with rail access from multiple transfers locations on the east coast to Arrowhead landfill in Alabama.

Beyond these projects, we continuously evaluate additional opportunities <unk>.

Including as we complete acquisitions.

Moving on to the subject of acquisitions.

We recently closed on Arrowhead environmental a 100 million dollar revenue integrated transportation and disposal network with rail access from multiple transfers locations on the east coast to Arrowhead landfill in Alabama.

Operating locations include Trans load facilities in Connecticut, Massachusetts, New Jersey, and Florida, all of which feed into Arrowhead.

<unk> thousand 500 acre MSW landfill serviced directly by rail. This important strategic addition provides enhanced internal is off internalization opportunities to our operations across the northeast and has the potential both to reshape existing markets and to expand acquisition opportunities given the internalization benefits.

Operating locations include Transload facilities in Connecticut, Massachusetts, New Jersey, and Florida, all of which feed into Arrowhead, a 1400 acre M. S. W. Landfill service directly by rail this.

This important strategic addition provides enhanced internal is off internalization opportunities to our operations across the northeast and has the potential both to reshape existing markets and to expand acquisition opportunities given the internalization benefits afforded by leveraging the strategic disposal asset.

That's afforded by leveraging the strategic disposal asset.

In time, we expect this will be one of our most strategic assets in the company.

This year is on track to once again be what we consider above average in terms of activity as we have already closed acquisitions with over $160 million in annualized revenue.

In time, we expect this will be one of our most strategic assets and the company.

This year was on track to once again be what we consider above average in terms of activity as we have already closed acquisitions with over 160 million an annualized revenue.

In addition dialogue remains very active with a robust pipeline all in solid waste setting up the potential for additional rollover contribution into 2024 for many acquisitions completed later this year.

In addition, dialog remains very active with a robust pipeline, all and solid waste setting up the potential for additional rollover contribution into 2024 for many acquisitions completed later this year.

Our focus remains as always on value creation and replicating the success achieved over 25 years through disciplined capital allocation and consistency in market selection.

Our focus remains is always on value creation and replicating the success achieved over 25 years to discipline capital allocation and consistency and market selection.

Along with an intentional culture.

In short there is no change to our strategy.

Our decentralized operating philosophy has been and continues to be a point of differentiation for waste connections along with our servant leadership oriented culture.

Along with an intentional culture.

In short there is no change to our strategy R.

Decentralize operating philosophy has been and continues to be a point of differentiation for waste connections along with our servant leadership oriented culture.

To that end, we made a number of changes to reinforce this approach both in the field and within our corporate operational organization, serving the field.

To that end, we made a number of changes to reinforce this approach both in the field and within our corporate operational organization, serving the field.

Among other things we completed our segment realignment to accommodate continued growth across our footprint and maintain our field focused decentralized approach to decision, making and implementation.

Among other things we completed our segment realignment to accommodate continued growth across our footprint and maintain our field focus decentralized approach to decision, making and implementation.

We expanded our regional structure through the addition of a fifth U S region, we're calling the mid South this serves to accommodate the growth we have enjoyed over the past several years a portion of which was heavily concentrated in the eastern U S, including our just announced acquisition of Arrowhead.

<unk> our regional structure through the addition of a fifth U S region, we're calling the mid South this serves to accommodate the growth we have enjoyed over the past several years a portion of which was heavily concentrated in the eastern U S. Including are just announced acquisition of Arrowhead.

With the addition of a regional office infrastructure in Charlotte North Carolina, Our region leadership team is well positioned to maintain the relationships with local operations, which we believe ultimately drive the results in our model.

With the addition of original office infrastructure in Charlotte North Carolina, originally it or ship team is well positioned to maintain the relationships with local operations, which we believe ultimately drive the results in our model.

Moreover, this additional bandwidth sets us up for continued growth across our footprint as we look ahead to revenue of $10 billion and more.

To that end, we also implemented leadership changes with an emphasis on coaching and developing our next generation of leaders as we position ourselves for the future.

Moreover, this additional bandwidth sets us up for continued growth across our footprint as we look ahead to revenue of 10 billion and more.

To that end, we also implemented leadership changes with an emphasis on coaching and developing our next generation of leaders as we position ourselves for the future.

In conjunction with a purposeful evaluation of corporate resources to serve the field. We made some changes to the rules of certain of our long tenured senior regional leaders to broaden their experiences and perspectives, while not necessarily significant from an outsider's point of view. These changes are expected to be impactful internally as they are.

In conjunction with a purpose full evaluation of corporate resources to serve the field. We made some changes to the rules of certain of our long tenured senior regional leaders to broaden their experiences and perspectives, while not necessarily significant from an outsider's point of view. These.

Will influence the next generation of leaders to drive operating and financial results.

These changes are also designed to streamline decision, making to support the field in two ways.

These changes are expected to be impactful internally as they will influence the next generation of leaders to drive operating and financial results.

To further enhance local autonomy on operational matters as appropriate.

These changes are also designed to streamline decision, making to support the field in two ways.

And second to prioritize resource utilization from corporate support directed towards the achievement of a local objectives we have.

First to further enhance local autonomy on operational matters as appropriate.

I've always maintained that this is a local business and regardless of our size. We are committed to ensuring that we are set up to manage it that way as we believe human capital is critical to our success.

And second to prioritize resource utilization from corporate support directed towards the achievement of the local objectives, we have.

Will always maintain that this is a local business and regardless of our size. We are committed to ensuring that we are set up to manage it that way as we believe human capital is critical to our success.

To that end, we're also focused on addressing the challenges of employee retention and what we still see as a tight labor environment.

As noted earlier, we are encouraged by the progress we have seen year to date with voluntary turnover levels down, 15% and open head count acquisitions down 25% from the peak seen during 'twenty two in early 'twenty three.

To that end. We are also focused on addressing the challenges of employee retention and what we still see there's a tight labor environment. As noted earlier, we encouraged by the progress we have senior today with voluntary turnover levels down, 15% and open head count requisitions down 25 per cent from the peak seen during.

And we look forward to driving further improvements through a variety of approaches.

We're adding resources expanding our use of technology and we're exploring alternative approaches to improving the flow of qualified candidates, including through driver and technician training facilities in which we have ownership interests or other involvement.

22 and early twenty-three.

And we look forward to driving further improvements through a variety of approaches.

We're adding resources expanding our use of technology and we're exploring alternative approaches to improving the flow of qualified candidates, including through driver and technician training facilities in which we have ownership interest or other involvement.

Given the high correlation between retention and safety, we're mindful of the potential to accelerate improvements in safety incident rates along with retention.

Given the high correlation between retention and safety, we're mindful of the potential to accelerate improvements in safety incident rates along with retention.

We're also leveraging the recent investments we've made in updated camera technology and telematics to drive continuous improvements in safety and customer service, including at our newest acquisitions, where the opportunities are the greatest.

We're also leveraging the recent investments we've made an updated camera technology and telematics to drive continuous improvements in safety and customer service, including at our newest acquisitions, where the opportunities are the greatest.

And now I'd like to pass the call to Mary Anne to review more in depth the financial highlights of the second quarter and our increased outlook for 2023 and to provide a detailed outlook for Q3, I will then wrap up before heading into Q&A.

And now I'd like to pass the call to Marianne to review more in depth the financial highlights of the second quarter and our increased outlook for 2023 and to provide a detailed outlook for Q3, I will then wrap up before heading into Q&A.

Thank you Ron.

In the second quarter revenue of $2 <unk> 1 billion was $21 million above our outlook and up $205 million or 11, 3% year over year.

Thank you Ron.

In the second quarter revenue of 2.021 billion was $21 million about that were outlook 205 million or 11.3% year over year Act.

Acquisitions completed since the year ago period contributed about $122 million of revenue in the quarter or about 121 million net of divestitures.

Acquisitions completed since a year ago period contributed about $122 million of revenue in the quarter or about 121 million net.

As Ron noted core pricing was nine 8% in Q2 with the vast majority of pricing done for the year as we've described in prior quarters total pricing steps down on a reported basis over the course of the year as a result of the combined impact.

The church.

Ron noted for pricing was 9.8% <unk> with the vast majority of pricing done for the year.

Negative fuel surcharges from improving diesel cost the anniversarying of outsized price increases in 2022, and the typical cadence of seasonality on reported price.

We've described in prior quarter's total pricing steps down on a reported basis over the course of the year as a result of the combined impact negative fuel surcharges from improving be it'll cost.

With respect to volumes Ron already described the dynamics and the key drivers here are the stats looking at year over year results on a same store basis commercial revenue was up about 10% on pricing up about 11% daily.

Or a string of outsize price increases in 2022, and the typical cadence seasonality unreported price.

With respect to volumes round already described the dynamics in the key drivers here are the stats looking at euro per year results on the same store basis <unk>.

Daily rollout pulse were up nominally on rates propel up about 7%.

Commercial revenue was up about 10% on pricing up about 11%.

And landfill tons were down nominally on flattish MSW tons with special waste tons down, 7% as noted and C&D tons up about 7%.

Daily rollout pulse for up nominally unraped propel up about 7%.

Landfill towns were down nominally on flattish MSW tons with special waste tons down, 7% as noted and C. N D <unk>.

Adjusted EBITDA for Q2 as reconciled in our earnings release increased by 11% to $628 9 million or 31, 1% of revenue 30 basis points above our margin guidance underlying solid waste margins expanded by 100 basis points year over year, largely offsetting 110 base.

About 7%.

Adjusted EBITDA for Q2 is reconciled in our earnings release increased by 11% to $628.9 million or 31.1% of revenue 30 basis points about our margin guidance.

This points in combined headwinds from tough year over year comparisons for recycled commodities, a 90 basis point drag and rents a 20 basis point drag.

Underlying solid waste margins expanded by 100 basis points here every year, largely offsetting 110 basis points and combined headwinds from top you over your comparisons for recycled commodities Ah 90 basis point drag and rent a 20 basis points track.

Other year over year margin drivers included 30 basis points combined benefits from higher E&P waste activity and acquisitions completed since the year ago period with us offsets from a 30 basis point impact to deferred compensation related to stock market movements during the period.

Other year over year margin drivers included 30 basis points combined benefits from higher E&P waste activity and acquisitions completed since a year ago period.

Our Q2 tax rate stepped up to 24, 7% as a result of two factors first the impact of nonrecurring executive severance payments most of which were non deductible and second higher current exchange rates for the Canadian dollar.

With us up that's from a 30 basis points impact to deferred compensation related to stock market movements during the period.

R Q2 tax rate stepped up to 24.7% as a result of two factors first the impact of nonrecurring executives severance payments most of which were non deductible and second higher current exchange rates for the Canadian dollar.

Normalizing for the severance yields an adjusted rate of 23, 6%.

Year to date, we've delivered adjusted free cash flow of $630 million or 16, 1% of revenue, leaving us well positioned to meet our full year outlook for one to two 5 billion in adjusted free cash flow.

Normalising for the separate Yeltsin adjusted rate of 23.6%.

You're to date, we've deliberated gesture free cash for $630 million or 16.1% of revenue, leaving us well positioned to meet our full year outlook for 1.225 billion and adjusted for Cashback.

During the quarter, we opportunistically paid down about $240 million in debt, taking leverage down to 275 times debt to EBITDA and resulting in a mix of about 15% variable rate debt and a weighted average cost of about three 8%.

During the quarter, we opportunistically paid down to about $240 million in debt, taking leveraged down to 2.75 times, EBITDA and resulting in a mixed up about 15% variable rate debt and.

The strength of our balance sheet and free free cash flow generation affords the flexibility to reinvest in our business and execute on our growth strategy. While also returning capital to shareholders, including as we've demonstrated over the last dozen years grew double digit percentage per share annual increases to our cash dividend, which we will revisit again.

And a weighted average cost of about 3.8%.

Strengthen our balance sheet and free Coke free cash flow generation affords the flexibility to reinvest in our business and execute on our growth strategy. While also returning capital shareholders, including as we demonstrated over the last dozen years three double digit percentage per share annual increases two hour cash dividend, which we will revisit again.

Again later this year.

I will now review our updated outlook for the full year and provide our outlook for the third quarter of 2023 before I do we'd like to remind everyone. Once again that actual results may vary significantly based on risks and uncertainties outlined in our safe Harbor statement and filings we've made with the SEC and the securities commissions or similar regulatory authorities in Canada.

Later this year.

I will now review our updated outlook for the full year and provide our outlook for the third quarter of 2023 before I do we'd like to remind everyone. Once again that actual results may vary significantly based on risks and uncertainties outlined in our state Parker statement and finalize we've made with the S. A C. In the securities commissions were similar regulatory authority.

We encourage investors to review these factors carefully.

Our outlook assumes no significant change in underlying economic trends and also excludes any ambac impact from additional acquisitions that may close during the remainder of the year and expensing of transaction related items during the period.

Canada, we encourage investors to review these factors carefully.

Our outlook assumes no significant change in underlying economic trends. It also excludes any them back impact from additional acquisitions that may closed during the remainder of the year and expensing of transaction related items during the period.

Looking first at our updated outlook for the full year as provided for and reconciled in our earnings release.

Adjusted EBITDA for the full year is now estimated at approximately 252 5 billion or about 31, 5% of revenue up $25 million and 40 basis points from our initial outlook for a 70 basis point year over year increase in adjusted EBITDA margin for 2012.

Looking first at our updated outlook for the full year as provided for in reconcile their earnings release.

Adjusted EBITDA for the full year is now estimated at approximately 2.5 to 5 billion or about 31.5% of revenue up $25 million and 40 basis points from our initial outlook for 70 basis point Euro per year increase in adjusted EBITDA margin for 2020.

<unk> three <unk>.

Our updated revenue outlook of approximately $8 <unk> 5 billion reflects a $35 million reduction in fuel and materials surcharges related to declining fuel costs since providing our initial outlook in February .

<unk>.

Are updated revenue outlook of approximately 8.025 billion reflects the 35 million dollar reduction in fuel and materials surcharges related to declining fuel costs since providing our initial outlook in February .

Net of this adjustment our revenue outlook is up $10 million in February .

The updated values for recycled commodities in Rins plus contributions from acquisitions completed since that time with solid waste volumes, reflecting Q2 trends.

This is jasmine our revenue outlook is up $10 million in February .

Updated value to recycle commodities and brands plus contributions from acquisitions completed since that time with solid waste volumes, reflecting two two trends.

Our adjusted free cash flow outlook of one to two 5 billion reflects an increase to net capital expenditures of $25 million set another way, we increased our outlook for adjusted free cash for adjusted cash flow from operations by $25 million in line with our EBITDA range and took a cap.

Alright, gestured free cash flow outlook of 1.225 billion reflection increased Jeanette capital expenditures of $25 million set another way, we increased our outlook for adjusted free cash for adjusted cash flow from operations by $25 million in line with our EBITDA Reyes and took up.

It'll expenditures as well.

Turning next to our outlook for Q3.

Revenue in Q3 is estimated to be approximately $2 <unk> 6 billion.

Capital expenditures as well.

Turning next to our outlook for two three.

We expect core price of approximately 9% and total price plus volume of five 5% to 6%.

Revenue in Q3 is estimated to be approximately 2.06 billion.

Recycled commodity values are projected in line with recent levels down sequentially from Q2 on lower values for plastics with returns in the range of $2 50 to $3.

We expect core price of approximately 9% in total price plus volume, a five and a half to six per cent.

Recycled commodity values are projected in line with recent levels down sequentially from Q2, and lower values for plastics with ranch in the range of 250 to $3.

Adjusted EBITDA in Q3 is estimated at approximately $670 million or 32, 5% of revenue.

Adjusted EBITDA in Q3 is an estimated at approximately $670 million or 32.5% up revenue.

Depreciation and amortization expense for the third quarter is estimated at about 12, 5% of revenue, including amortization of intangibles of about $39 5 million or about <unk> 11 per diluted share net of taxes.

Depreciation and amortization expense for the third quarter is estimated at about 12.5% of revenue, including amortization of intangibles of about $39.5 million or about 11 cents per diluted share net of taxes.

Interest expense net of interest income in Q3 is estimated at approximately $68 million and finally, our effective tax rate in Q3 is estimated at about 23, 5% subject to some variability.

Interest expense net of interest income in Q3 is estimated at approximately $68 million and finally, our effective tax rate in Q3 is estimated at about 23.5 per cent subject to some very Melanie.

And now let me turn the call back over to Ron for some final remarks before Q&A.

Thank you Marianne.

Once again, we are extremely pleased by our results to date and current and encouraged by the factors driving our increased margin outlook for the full year, particularly given the realities of ongoing inflationary impacts as provided in our updated outlook for 2023 and the back half of the year. We are set to exit 2023 at close.

And now let me turn to call back over to Ron for some final remarks support Q&A.

Thank you Marianne.

Once again, we are extremely pleased by our results today, and Kurt and encouraged by the factors driving or increased margin outlook for the full year, particularly given the realities of ongoing inflationary impacts as.

To 32, 5% adjusted EBITDA margin as the jumping off point for 2024.

Provided are updated outlook for 2023 and the back half of the year. We are set to exit 2023 at close to 32.5% adjusted EBITDA margin as the jumping off point for 2024.

Normalized for recycled commodities. This puts our adjusted EBITDA margin well north of 33% and yes. This is our total company EBITDA margin not just solid waste and.

Normalized for recycled commodities. This puts our adjusted EBITDA margin well north of 33 per cent and yes. This is our total company EBITDA margin not just solid waste and.

And it translates to year over year margin expansion of over 150 basis points in the back half of the year.

Demonstrating the power price led organic growth along with a disciplined approach to acquisitions and the avoidance of margin dilutive activities away from that core strategy.

And it translates to your over your margin expansion of over 150 basis points in the back half of the year.

Demonstrating the power price led organic growth along with a disciplined approach you acquisitions.

Looking ahead, we anticipate another year of price led organic solid waste growth positioning us for underlying margin expansion in 2024, along with benefits from continued improvements in retention.

<unk> a margin dilutive activities away from that core strategy.

Looking ahead.

Anticipate another your price led organic solid waste growth positioning us for underlying margin expansion in 2024, along with benefits from continued improvements and retention.

<unk> inflationary pressures and purposeful shedding.

Moreover, ongoing acquisition activity contributions from new R&D facilities and improvements to commodity driven revenue could potentially produce further growth, which we will lay out when we provide our formal outlook for 'twenty four in February .

Getting inflationary pressures and purposeful sharing.

Moreover, ongoing acquisition activity contributions from new Orangy facilities and improvements to commodity driven revenue could potentially produce further growth, which we will lay out when we provide our formal outlook for 24 in February .

I want to conclude by thanking our 23000 employees, whose dedication and hard work has driven our performance in the first half of the year and set us up for outside margin expansion in the second half.

I want to conclude by thanking are 23000 employees, whose dedication and hard work has driven our performance in the first half of the year and set us up for outside margin expansion in the second half thereof.

Their efforts and these results, including continuous improvement in our industry, leading safety metrics once again validate our market selection strategy and the wall of local decision, making and driving results.

Their efforts and these results, including continuous improvement in our industry, leading safety metrics once again validate our market selection strategy in the war.

Our focus is on maintaining a strategy that has served us well executing on our playbook and delivering on our commitments.

<unk> of local decision, making and driving results.

We appreciate your time today and with that I will now turn this call over to the operator to open up the lines for your questions operator.

Our focus is on pain, maintaining a strategy that has served as well executing on our playbook and delivering on our commitments.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the key to withdraw from the question queue. Please press Star then two.

We appreciate your time today and with that I will now turn this call to the operator to open up the lines for your questions operator.

We will now begin the question and answer session to ask a question you might <unk> one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.

First question is from Toni Kaplan of Morgan Stanley . Please go ahead. Thank.

Thank you so much I wanted to start with the contracts that were shattered I guess first any common themes between where them particular geographies or verticals.

Dropped from your question can you. Please press sorry, then too.

First question is from Tony Kathryn is Morgan Stanley . Please go ahead.

You so much I wanted to start with the contracts that were shattered Uhm you know I guess first any common themes between them, where they in particular geographies or for the calls and is this sort of it <unk>.

And is this sort of it or are we finished with the shedding or or is there more to go just trying to think about volume over I know you mentioned that the negative one 1% was that cumulative or or incremental thanks.

Are we finished with the shedding or or is there more to go just trying to think about volume over I know you mentioned the the negative one one per cent was that cumulative or or incremental thanks.

Sure.

Well first off Tony.

The contracts that watershed or throughout our footprint, but I would say there was a greater amount in the eastern seaboard, where we've had a lot of.

Sure.

Well first off Tony the contracts that war shed or you know throughout our footprint, but I would say there was a greater amount in the eastern seaboard, where we've had a lot of growth through M&A over the last three years. There were also some in the south actually that we're still a <unk>.

Growth through M&A over the last three years. There were also some in Lasalle actually that were still a continued part of our reviewing of contracts from the progressive transaction that we did seven plus years ago.

The common theme was that these are municipal contracts that are low margin with.

<unk> part of our reviewing a contract from the progressive transaction that we did seven plus years ago.

We price to either make an acceptable margin and return on capital or we're happy to let somebody else take and often the volumes will still come to our landfills. So in our mind, it's a win win.

The common theme was that these are municipal contracts that are are low margin with you know or that we price to either make an acceptable margin return on capital or more happy to let somebody else take and often the volumes will still come to our landfill. So in our mind, it's a win win.

So no no specific geography.

As far as.

Your question regarding shedding look.

Any time you are in a high M&A period, which we have been as you know for the last three plus years doing over $1 billion in M&A.

So no no specific geography, you know as far as you you know your question regarding sharing look.

Anytime you are in a high M&A period, which we have been as you know for the last three plus years doing over a billion dollars in M&A, you're gonna have in private M&A transactions anywhere from 10 to 20 per cent. So let's take an average of 15 of the revenue that you acquire.

You're going to have in private M&A transactions anywhere from 10% to 20%. So let's take an average of 15 of the revenue that you acquire that is probably zero to negative margin you know that going in and you identify that and as those contracts come up you work to re.

That is probably zero to negative margin, you know that going in and you identify that and as those contracts come up you work to replace them for the exit them. So you know there <unk> there has always been in our model always for 25 years intense.

Price them or exit them.

So.

There has always been in our model always for 25 years intentional shedding.

Youre seeing more now because of the large amount of M&A done over three years.

And also you're in a flat effectively a flat economy over the last year from a GDP standpoint.

<unk> sharing it's you're seeing more now because of the large amount of M&A done over three years and also you ran a flat effectively a flat economy over the last year from a G. D. P standpoint, so you've got a you know a little software economy, so with a larger amount of M&A.

So you've got a little softer economy, so with a larger amount of M&A, you see a little bit more of it in the volume numbers.

Again, so in a normalized economy, whatever that is 2% to 3% GDP.

You see a little bit more of it in the volume numbers again, so in a normalised economy, whatever that is two 3% G D P.

And in a slower acquisition pace, we're still doing it you just don't see it on a quarter in quarter out basis. So.

And and a slower acquisition pace, we're still doing it you just don't see it on a quarter and quarter out basis. So.

I would expect that that number to come down.

Because we haven't done a $1 billion this year in M&A.

But this is a.

You know I would expect that that number to calm down because we haven't done a billion dollars. This year and M&A, but this is a you know this is part of a normal running the business. The way we do with a focus on returns again I think if you look it appears.

This is part of our normal running the business the way, we do with a focus on returns again I think if you look it appears that are reported in the quarter.

You know who have also had some pretty heavy M&A over the last several years you basically saw the exact same thing.

That are reported in the quarter.

As they acquire companies they inherit the same you know.

You know and who also had some pretty heavy M&A over the last several years you basically solve the exact same thing they they acquire companies. They inherit the same the same situation. So that is that's really the story around municipal contracts and not just the one.

The same situation so.

That is that's really the story around municipal contracts.

Just the one thing I would add to that Ron touched on a couple of the regions. The other I would add would be Canada, where where you saw purposeful shedding of certain residential some municipal contracts and I mention that because to <unk> point about the impact of acquisitions of course that dates back to progressive from seven years ago. It tells you you're still refining.

One thing I would add to that Ron touched on a couple of the region.

I would add would be Canada, where where you stopped purpose for shedding a certain ah residential municipal contracts and I mention that because to ron's point about the impact of acquisitions of course that dates back to progressive from seven years ago. It tells you you're still refining the portfolio Opportunistically as contract still real.

The portfolio Opportunistically as contracts still roll up multiple years. After the acquisition is completed and frankly at the other point I'd make it then followed the margin because if you look at our regional reporting and in our Q, you'll see the margin improvement that really stands out in our eastern region and <unk>.

Multiple years after the acquisition is completed and frankly, the other point I'd make it then followed the margin because if you look at our regional reporting in in our queue, you'll see the margin improvement that really stands out in our eastern region in Canada, both of which we mentioned as having sharing going on.

Canada, both of which we mentioned as having shedding going on.

Yeah, and lastly, Tony I would say obviously is as I mentioned you have a number between 10 and 20% of that acquired revenue that you ultimately may reprice or shed.

Yeah, and lastly, Tony I would say, obviously as as I mentioned you have a number between 10.

Youre not seeing that level of it why because theres also municipal contracts, we're winning all along as well so.

10, and 20% of that acquired revenue that you ultimately may replies for shed you know you're not seeing that level of it why cause there was also municipal contracts were winning all along as well. So again. This is sort of a net number of that and and is Marianne said you know followed them.

Again, this is sort of a net number of that and as Maryann said.

Follow the margin because that tells you whether we're making the right decision on repricing or not.

Terrific and for my follow up I wanted to go to the margin so.

Margin because that that tells you whether we're making the right decision on repricing or not.

You know you mentioned.

Second half and third quarter are expected to be 32.5%.

Sure if Atkins and for my follow up I wanted to go to the margin. So you know you mentioned second half and and third quarter expect it to be you know 32, and a half per cent you know even just staying at that level in 24 would be hundred basis points of expansion you're over here.

Even just staying at that level in 'twenty four would be 100 basis points of expansion year over year over this year. It seems like all the higher than typical and then you have inflation moderating and then maybe even some normal operating leverage on top of that like I guess, why why shouldnt, we be modeling.

Moreover, this year it seems like all the higher than typical and then you have inflation moderating and then maybe even some normal operating leverage on top of that like I guess.

You know 100, plus even you know basis points of expansion for next year, what would be the factors to offset some of that or or is that your expectation.

<unk> why shouldn't we be modeling you know 100, plus even you know basis points of expansion for for next year, what what would be the factors to offset some of that or or is is that your expectation. Thanks.

Well first off remember and I'm going to let maryann take parts of this as well Tony first off remember the second half of the year is your seasonally higher margin period. So the second half of the year Q3 being guidance of 32, five if you do the math I think Q4 comes in around 32 three.

Well first off remember and I'm Gonna, let Marianne take parts of this as well Tony first off remember the second half of the year is your seasonally higher margin period. So the second half of the year, you know Q3 being guidance of 32, five if you do the math I think two four comes in around 32 three.

So 32 four blend.

Youre going to naturally have a step down in Q1.

And Q2 seasonally so your total margin isn't quite at 32, five yet as we have guided this year as at 31, five so youre somewhat below that as you enter but.

So 32, four blend you're gonna naturally have a step down in Q1.

And Q2 seasonally so your your total margin is it quiet at 32 five yet as we have guided this year at 31, five so you're you're somewhat below that as you enter but you know look I think it's too early yet to make any projections for next year's margin.

Look I think it's too early yet to make any projections for next year's margin. We generally say as you know with price led growth, we get around 30 to 40 basis points of margin expansion.

Yes, I think the number will be north of that next year, not not ready to commit to what that will be.

You know, we generally say as you know with price led growth we get around 30 to 40 basis points of margin expansion, Yes, I think the number will be north of that next year and not not ready to commit to what that will be the.

Theres certainly a number of moving things that also also depends on the level of M&A over the balance of this year because as you know that can come in margin dilutive. So we want to be cautionary and what we're guiding to but what we are saying is the second half of this year on a normalized basis it depending on what.

There's certainly a number of moving things that also also depends on the level of M&A over the balance of this year because as you know that can come in margin dilutive. So you know, we wanna be cautionary and what we're we're guiding too well, but what we are saying is the second half of this year on a normalized basis it depending on what.

Do you want to assume for commodities is at that 33% number.

No.

I would be cautious telling you 100, I'm, not saying that can't happen, but there are things outside our control which influence that.

You want to assume for commodities is.

Is that that 33 per cent number so yeah, I would be cautious telling you 100, I'm not saying that can't happen, but there are things outside our control which influence that.

Yes, and I'd just.

Reiterate what Rob said, which is of course that we're not providing guidance right. Now we think it's instructive to talk about the dynamics, resulting in the sequential improvement.

Yeah just.

Reiterate what Brian said, which is of course that we're not providing guidance right. Now we think it's instructive to talk about the dynamics, resulting in <unk>. The sequential improvement were expecting to see in the back half of the year and you know the reality is we really haven't seen the cost pressures debate in the first half of the year and.

You can see in the back half of the year and the reality is we really see havent seen the cost pressures abate in the first half of the year and Thats part of what setting up as the comps get easier on things like wage increases et cetera from last year. It sets up the back half of this year to be a little stronger and then of course, we'll comp that again.

That's part of what setting up the <unk>.

<unk> get easier on things like wage increases et cetera from last year. It sets up the back half of this year to be a little stronger and then of course will combat again next year. So that'll influence the kaden Kaden some margin expansion next year, which would be the other reason to be cautious about your jumping off point in going up from there.

Next year, so that will influence the cadence the cadence of margin expansion next year, which would be the other reason to be cautious about your jumping off point and going up from there.

Thanks, a lot.

The next question is from Sean Eastman of Keybanc capital markets. Please go ahead.

Thanks, a lot.

Hi team. Thanks for taking my questions I, just wanted to come back to the margins. The 33% comment just just for clarity is that where we're run rating on an annualized basis in the second half sort of a longer term average commodity input levels. Just just some clarity there would be.

The next question is from Sean Ethan Keybanc capital markets. Please go ahead.

Hi, James Thanks for taking my questions I, just wanted to come back to the margins. The the 33 per cent Con man just just for clarity is that where where run rating on an annualized basis in the second half sort of a longer term average commodity input levels. Just just some clarity there would be hell.

Paul.

So I think the.

Point, we were trying to communicate was as you exit the year at 32, 5% and you say look commodities are really up about only 20% from where they exited last year, which was down 70% from the highest last July right. So it says there's a long way to go to get back to last july's levels and so that was ron's point.

Paul.

So I think the <unk> the appointment of trying to communicate with as you exit the you're at 32.5% you say the commodities are really up about only 20% from where they exited last year, which was down 70% from the highest last July .

Layer on its more than 50 basis points is probably 70 basis points and so we are saying well north of 33, if we're exiting at around 32 and a half.

So it says there's a long way to go to get back to last july's levels and so that was ron's point just lay around it's more than 50 basis points, it's probably 70 basis points and so you're saying well north of 33, if we're exiting at around 32 and a half.

Okay understood and then and then are there any sort of kpis or margin enhancement targets that.

[noise], Okay understood and then and then are there any sort of K P eyes or margin enhancement targets that you could share or quantify around the you know the big employee retention culture.

That you could share or quantify around the big employee retention.

Cultural programs that you're kicking off here Ron.

Sure well.

Sean as I, there is a number of things we look at.

Cultural programs that you're taking off here Ron.

But as I've mentioned.

In previous Investor meetings.

Sure well Shawn as I, there's a number of things we look at but as I've mentioned in previous investor meetings, an analyst conferences look there there is not some hundred basis point lever that.

And analyst conferences.

Look there is not some 100 basis point.

A lever that we are missing here at waste connections.

The company has always been a very cost focused and well run company.

We are missing here at waist connections you know the company has always been a very cost focus and well one company, but with turnover where it had been is there is no question that there is up to 100 basis points.

But with turnover, where it has been.

Is there is no question that there is up to 100 basis points.

And that we can.

Take out of our cost structure.

Over the next 18 to 24 months in seven or eight line items as retention improves.

That we can take out of our cost structure over the next 18 to 24 months in seven or eight line items as retention improves as we drive you know turn over from the what was in the mid 30 per cent level down.

As we drive.

Turnover from what was in the mid 30% level down I'm going to call that 10 points. So I'm into the mid 20% level youre going to see seven or eight line items improved 10 to 15 basis points, each and and that is that's going to come in labor is going to come in late.

Gonna call that 10 point, so I'm into the mid 20 per cent level, you're gonna see seven or eight line items improve 10 to 15 basis points speech and and that is you know that's gonna come in labor, It's gonna come in labor over time, it's gonna come in our our variable account, it's gonna come on our outside repairs, it's gonna come and rich.

Over time, that's going to come in are our variable account, it's going to come on our outside repairs, it's going to come in risk, it's going to come in SG&A.

It comes in in volume.

Because everything gets better when you.

You're fully staffed.

Cause it's gonna come in SG&A It comes in and volume because everything gets better when you're fully staffed and and people's workloads or balance and you're not running both of your people and your equipment at Max level.

And People's workloads or balance.

And youre not running both your people and your equipment at Max level.

And so.

So there are things we're looking at in each of those categories that we monitor but the number one thing is as I've said just focus on turnover and as turnover comes down Youll see these line items as a percentage of revenue continue to improve.

And so so there's things we're looking at in each of those categories that we monitor but the number one thing is you know I as I said just focus on turtle.

And I think will demonstrate that throughout the balance of this year and we'll demonstrate that throughout throughout next year.

And its turnover comes down you'll see these line items as a percentage of revenue continued to improve.

So those are the things in Shanghai.

And I think will demonstrate that throughout the balance of this year and will demonstrate that throughout throughout next year. So you know those are the things and Sean I you know if if if you accept what I said exiting the year at approaching 32.5% for the back half and normalizing commodities that getting those.

If you accept what I said exiting the year at approaching 32, 5% for the back half and normalizing commodities that getting us to north of 33, if I'm correct in that 100 basis points. That's how you triangulate to a 34% type EBITDA margin or above in the.

As we look out 18 months to 24 months.

Very interesting and helpful I'll turn it over thanks, so much.

The next question is from Tyler Brown of Raymond James. Please go ahead.

Very interesting and help I'll turn it over thanks, so much.

Good morning.

Good morning, Tyler.

Ron I'm curious if we could get some more details on the Arrowhead deal. This asset it seems very interesting to me I'm just I'm curious if you can talk about how that fits in the north eastern disposal strategy and basically does it give you more confidence in acquiring collection in that market or even other rails or transportation.

The next question is from Tyler Brown Raymond James. Please go ahead.

Hey, good morning.

Hey, Ron curious, if we could get some more details on the arrowhead deal.

So it seems very interesting to me I'm just I'm curious if you can talk about how that fits in the northeastern disposal strategy and basically does it give you more confidence in acquiring collection in that market or even other <unk> transfer stations along the east Coast and then there's this move have anything to do with Seneca basically is.

Along the East Coast and then does this move had anything to do with Seneca basically is it an alternative that fight wouldn't shut down.

Sure let's attack the last part of that question for Rick.

Regarding Seneca So first off has nothing to do with Seneca Seneca is doing very well, we're very confident in our position and our expansion there.

An alternative that flight wouldn't shut down.

Sure let's attack the last part of that question for <unk> regarding Seneca. So first off has nothing to do with Seneca Seneca is doing very well, we're very confident in our our position and and our expansion there and and no no real change to that.

And no no real change to that.

We have grown quite a bit along the eastern seaboard as you know.

And.

It was just really a need to have incremental connectivity to disposal options to integrate many of those markets that up till now had been non energy credit we had been looking at this for the last year and a half two.

You know we have grown quite a bit along the eastern Seaboard is you know and was there was just really a need to have incremental connectivity to disposal options to integrate many of those markets that up till now had been <unk>. We've been looking at this for the last year and a half to two.

And had internally committed that we were going to be able to integrate the eastern seaboard. So to your first part of your question absolutely. This opens up additional market opportunities for M&A.

And had internally committed that we were going to be able to integrate the eastern seaboard. So to your first part of your question absolutely. This opens up additional market opportunities for M&A. This opens up additional opportunities to integrate markets. We have that are currently not integrated.

<unk> up additional opportunities to integrate markets. We have that are currently not integrated.

And.

Yes. So this is an asset that's very strategic and we're very excited about.

It's a large landfill as we mentioned in the release 3500 acre MSW site, where today that that asset is taking.

And <unk> yeah. So this is an asset that's very strategic and and we're very excited about you know it's it's a large landfill as we mentioned in the release 1300 acre MSW site. You know work today that that asset is taking you know around 3500 tons a day and.

<unk> 3500 tonnes a day in and we can handle in time.

A multiple of that or more and have permitted capacity to do so for quite some period of time. So I think youll continue to see us over ensuing quarters and into next year talk about the development that we have planned as you know we think of it we try to think about these things and in multi years out.

And you know we can handle in time, you know a multiple of that or more and have permitted capacity to do so for quite some period of time. So I think you'll continue to see us over in suing quarters and in the next year talk about the development that we have planned as you know we think of what we try to think about.

And that is how we are looking at this asset it does open up other rail transfer options.

These things and you know multiyears out and that is how we are looking at this asset. It does open up other rail transfer options form on acquisition standpoint. So yes. It is is very strategic in our mind.

From an acquisition standpoint.

So yes. It is it is very strategic in our mind.

Yeah Okay.

Interesting and then Marianne just from a modeling perspective, just based on the acquisitions to date, how much contribution from M&A is kind of implied in the full year guide.

Yeah, Okay, very interesting and then Marianne just from a modeling perspective, just based on the acquisitions today, how much contribution from M&A is kind of important before your guide.

For the full year.

The original guide was about $360 million and we're now like four or 5% to 410.

And then the rollover for next year is around 70.

That's for the full year, the original Guy, but it's about 360 million and we're now at like 405 to 410.

Okay. Okay, and then my last one here Ron just a bigger picture question. So I think it's already been 100 days back in to see.

And then the rollover for next year is around 70.

Perfect. Okay, and then my last one you wanted the bigger picture question sorry.

You never really left but you had been interfacing investors pretty actively and I'm just curious what's your impressions have been there with all the new investors. What do you think the market still seems to Miss about you are the story if anything.

So I think it's it's already been 100 days back and see.

That you never really left but you have been interfacing investors pretty actively and I'm just curious what your impressions have been there with all the new investors. What do you think the market is still seems to miss about you or the story if anything.

Well thanks Tyler.

It's 100 days today to answer your question.

<unk>.

And I have appreciated getting back in touch with many investors, who have known us, but a tremendous amount of investors who are newer to the industry and our story that I haven't had the opportunity to meet.

Well, Thanks, Tyler it's 100 days today to answer your question.

And I have appreciated getting back in touch with many investors, who have known us, but a tremendous amount of investors who are newer to the industry and and our story that I hadn't had the opportunity.

Look I think the investment community is very well informed we've got a very well followed from an analyst's community space.

And and I think that all helps and transparency, but look I think the thing that.

Look I think the investment community is very well informed we've got a a very well followed from an analyst community space and and I think that all helps and transparency, but look I think the thing that is and I think it's topical on top of mind right now is.

Is and I think it's topical and top of mind right now is.

I think theres, a misplaced and misunderstood issue regarding volumes.

I think theres. This conception that all volume is good volume and that's just completely inaccurate.

I I think there's a misplaced and misunderstood issue regarding volumes.

There is a lot of volume that structurally.

I I think there's this conception.

The public company shouldn't have a public companies can operate at 25% to 35% EBITDA margin with volume that is intrinsically.

Structurally low because of the nature of the market or the contract or the positioning in the market. So.

I think people should read into negative volumes is something that should be concerning whatsoever. It should be concerning if margins and cash flow are going the other direction, but with the recruiting.

I think that tells you why people are doing it so that would be the I would just reiterate that just because it's topical right now more than anything.

Okay. Good stuff. Thank you.

The next question is from Brian Birchmeier of Citi. Please go ahead.

Good morning, Thanks for taking the question.

Your guide and your comments.

Fairly balanced capital allocation for the year increased capex guidance this quarter.

Just from a big picture perspective can you expand on where you see the best returns for waste connections right now.

Can you remind me what you think.

Waste connections.

Please.

Sure.

Start with leverage first so we feel very comfortable sitting in the two and a half to three times range and what we like about that is it provides a lot of optionality. If there is if there is an opportunity for a large outlay, which there isn't in the current environment to take you take leverage higher and then mathematically it takes a lot to drive our leverage above <unk>.

Time, so it would have to be a really big deal, but it's nice to have optionality and in the meantime, we maintain access to low cost capital buffer raining, retaining our investment grade rating, which we wanted to a tier two so that's just one data point regarding leverage and we sit right in the middle of that range at two seven times right now with respect to capital.

<unk> deployment and the best returns if.

If you think about with over 1 billion in free cash flow after paying a dividend, which has grown double digits for the last dozen years, we have a tremendous amount of flexibility to not only reinvest in the business, which is what most of our capex is.

Across this industry you.

You're running 10 or 11% adjusting replacement capital and building out your landfill and then of course, we're also investing opportunistically in projects like RMG, which when we think about the best returns we'd say those are great returns certainly we're in an environment, where we can be opportunistic given tax.

And so when we look ahead next year will be a big year for Capex, we mentioned that in the prepared remarks about $120 million in Capex is what we'd expect for RMG and we'll continue to make those outlays opportunistically.

Really not limited and so that's why I started with where we sit on leverage and how much of our Capex is reinvesting in the business. We feel really good about where we're taking where we sit and continue to have a lot of optionality.

And Brian I would just add that and Maryann said, it without stating it directly.

Look our our best return.

Discretionary capital is in appropriately priced strategic M&A that meets our market, our financial and our operating criteria.

That is how we have built evaluation we have over 25 years, that's how we'll continue to build that going forward.

And so that's what I think you've seen from us and Youll continue to see from us.

Got it thanks for that detail and if I can.

Maybe just follow up on the M&A outlook.

Can you just provide a little bit of detail on where your pipeline stands right now would you say it's high school.

More than it was maybe one or two years ago.

Fairly niche markets, but you've always been able to find deals just a little bit of detail.

I'll turn it over thank you.

Sure Yeah edge, there may or may not know, Brian . We obviously don't provide for obviously sensitivity and proprietary reasons any real great detail on the M&A pipeline, but what I will tell you is.

Pipeline is very full theres a lot of.

<unk> in an offer stage, so there's a number of LOI.

A final negotiating stage and.

And we feel very comfortable about as we look out over the next.

Several quarters.

What our M&A cadence will be.

Look relative to I'm, just using a year ago, you're in a quarter ago.

We're lower than that in the pipeline, but you have to understand that was a very unique period. You had a you were coming out of two years of a pandemic.

Coming off of hyperinflation. There was a number of you had very low interest rates a number of catalysts that made more than normal private sellers, who had sort of pent up demand from the pandemic look at doing something with their business because they had been on the sidelines. So I think you have to look at.

'twenty two is a little bit of an anomaly.

So it would be it would be misleading to tell you our pipeline is equitable to where it was in 'twenty, two but relative to sort of historical norms is above those and continues to be.

So and it's a broad base mix of collection and disposal all solid waste opportunities.

Across our footprint in both the U S and Canada.

Makes sense. Thanks, a lot for the detail I'll turn it over.

The next question is from Michael Hoffman of Stifel. Please go ahead. Thank.

Thank you very much can we talk about price trends.

Trend so inferred in our full year guidance as youre, maintaining the nine and a half.

And if I follow the trend on restricted.

Two 7% in two two.

Are we resetting at a higher number on restricted in the second half given 2020 twos inflation was eight nine.

So that sets up.

You don't need a big reach on open market to hit the nine that you're giving in the two and the <unk> outlook.

Thinking about that correctly.

The way it I'd encourage you to think about it Michael is that coming into the year. We we basically know what the price increases will be on the 40% of our business that youre, referring to were there those contract resets and thats been factored into what we're communicating for our full year numbers and most of those price increases.

Yes, there are some that reset in mid in middle of the year and that influences those numbers, but the majority of our price increases more broadly happen early in the year and so that really determines the overall number there's a little movement over the course of the year the bigger factor in driving the cadence on a reported basis, whereas as we.

Mentioned in prepared remarks, you've got a few things happening one is that the rolling off of outside of price increases that we did last year in the face of accelerating inflationary pressures earlier in the year and then also just the math on the denominator getting bigger which is why on a reported basis, our core price step.

And then of course, you've got kind of the noise of the good news on fuel having fuel surcharges come down. So that's how I'd encourage you to think about it it's around seven in those contract CPI linked market. It doesn't move dramatically in the back half of the year and again, the denominator gets bigger and so the number comes.

Down a little bit.

Okay fair enough, but you have trended ahead of your budget on open market.

We've retained better.

So again.

Okay.

I think it's playing out about as we expected Michael we feel really good about the visibility we had on pricing coming into the year. We said last quarter, we already had about 85% of it locked up Don or known and so were even above that now so we'd encourage people that nine five is a pretty good number for the full year.

Okay.

What's the OCC, it's 75 in your model is.

<unk>, which is at 50 and there's so there's two questions here. What is what are you able to do differently than the underlying risky, but more importantly, you made a comment that normal recycling, what what OCC price equals normal when we think about normal recycling.

And margins.

Well so a couple of things I think we all talk about what we see in our book of business, which is influenced by geography. Another other dynamics and so when we talk about Lowe's of maybe $50 that might've been list or raise the pricing in the high thirty's. So its tough its tough to compare.

But we're always running above now I do think in addition, we benefit from doing some things to make sure. We're maximizing the value of our commodity is by the way and we have a national marketing agreement, where we're taking advantage of volumes and consolidating and also we're seeing the benefit of the improved <unk>.

<unk> coming out of our facilities, we're using robotics, and they're kirchberg decreasing contamination coming out the backend of recycling facilities. So I would say those influence what we communicate as what the numbers are I think so it's all relative to expectations early in the year.

We're about 20% above where we were when we exited last year and that's what's factored into what we've guided for for the full year.

Michael I would Oh go ahead, Brian Sorry go ahead, no no I, yeah, I mean, everything Maryann said is spot on I would tell you what do we think we think somewhere in that hundred 10 to 120 is sort of a you asked what is a normalized I'd call that a normalized OCC price.

<unk>.

And that's how you get to what we're saying we're down year over year, obviously, it peaked well above those numbers in the $1 60 to 200 range. So we're not saying that but we are but that's sort of what we're calling more normalized and also you have to recognize Michael so much of our <unk>.

<unk> in our model comes off of one of the two coasts I know most people to do but there you've got transportation advantages to markets that you don't have when you've got a lot of your volume in the Midwest and the south and so that gives you some spread to the wisdom pricing as well.

Okay, and then big improvement in labor turnover from year end to now once you're you're best in class periods, where sub 20% in the challenges of the current labor World.

Is that possible again.

Yeah.

I think it is Michael.

Obviously, that's a that's a high goal a high bar, but we're going to hold ourselves to that high bar.

I think certainly getting into the mid twenties.

First and then working our way down from the mid Twenty's down to that 20% or below level is the goal.

Our goal is to get it into the mid Twenty's by the early part of next year or the mid part of next year.

And then work it down from there.

There's a lot of.

There's a lot of components that go along to that from from sourcing to Onboarding too.

Supervision.

Two two equipment everything Theres just so many things that you have to fine tuned to get those numbers down a point at a time once you get down to that 23% number so but yes. It is achievable and we're going to we're going to hold ourselves to that I would also say Michael you know E.

What we really focus on is look if you're at 23% just pick a number how much of that is in voluntary versus voluntary as long as that involuntary number is somewhere in that 40%, 50% range, we're not as hung up on what turnover is because that means we're making proactive decisions.

Most likely about safety on employees, who are not going to make it and again cause a bigger issue.

We could bring turnover reported down to 23% today, if we backed off the involuntary.

So you got to understand that as long as we're going to hold our standard to where almost half of that we are making proactive decisions really that voluntary number is dropping to 10% to 13% when you get to 23%.

Got it and then you've shared with US a couple of self help things like price volume equals 30, or 40 basis points labor spread over two years is this what we just talked about it's another 40 50, what about repair and maintenance and fleet age and getting fleet replacement what's that opportunity.

Yeah, I mean that is clearly an opportunity Michael and Thats a function of several things look.

Part of the turnover issue is also in technicians and when Youre down technicians, just use the same percentage 20, 20% to 25% youre, sending a lot of repairs outside that you don't have the manpower to do inside instead of something being a 10% to $12000 internal cost youre, turning it into a 30% to four.

<unk> thousand dollars external repair so when youre properly staff youre going to youre going to see improvements in repairs and maintenance.

Particularly outside repairs, you're also going to see less breakdown maintenance.

Because you're more proactive on your P M maintenance.

And breakdown maintenance is always two to three times more expensive than preventative maintenance. So you know look I think there is a pick a number 20 to 40 basis points in the whole variable repair and maintenance equation between outside repairs and an internal repairs and that's all.

Also a function Michael of your Capex replacement schedule happening on schedule, which is continuing to improve but we will probably continue to be delayed some units throughout probably mid to late 'twenty four from what we're hearing from manufacturers at this point.

Okay. Thank you very much.

Yeah.

The next question is from Kevin Chiang of CIBC. Please go ahead.

Hey, Thanks, Thanks for taking my question Congratulations Joe on.

The new title there.

Maybe if I could ask.

A question this way if I look at your segmented results.

The lower margin segments or the eastern in itself.

Even if sub segments that you can start to disclose this it'll have dramatically changed how you look at the profitability of those two segments.

Tom.

Because as I said I.

Resulting from convergence between those two segments versus what you see.

Some of the other markets.

Yeah, I mean, obviously, if you can integrate a.

A market.

Kevin Youre going to pick up that internalized margin on disposal that was going external so it obviously is going to help improve the margin without question. It also more importantly improved your competitive positioning.

And sustainability of margins in our market area over a longer period of time. So that's why it is so important.

You got to also remember Kevin when you look at this that the northeast in particular is always for the most part taken as a whole going to be a lower margin profile business because of the pricing of disposal.

Talking about a market that is 80 to $130 a ton pick 100, 110 has a mid point comparing that to a mid west or south that might be 30 to $45 a ton.

So you've got an inflated revenue number because of disposal in your collection system in your revenue and therefore, obtaining the same EBITDA margin is that much more difficult. So if you look at company based in the northeast like seller you've seen historically.

Brickley lower then.

Someone not based in northeast public company margin and that's a reflection of the market area as much as anything else. So.

Are we going to raise the northeast margins to the Canadian or the West coast margins will most likely not because it's not structurally possible, but it is structurally possible to raise it from where it is and and Arrowhead will absolutely help that.

That's great color.

And again, you kind of noted that in your previous response.

Constituents.

Within revenue impacts of segmented revenue in terms of the cost structure of the individual regions.

If I looked at it.

Historically with the with the new mid so.

Segment, let's say you're running at least if I look at the most recent quarter roughly $100 million in revenue quarterly below.

The second.

Smallest region in the U S. Excluding Canada here, so let's call it $400 million.

Annualized revenue.

The argument or the cause.

The perception here that that the mid south and grow to the size of some of your other U S segment. So that's kind of the opportunity in front of them itself, whether it's through M&A or outsized organic growth that you can close the gap from what from a from an overall top line perspective here.

And we should see yes.

Yeah. So yeah. Good question, Kevin So first off let me, let me explain how we think of our regional alignment. Okay. So we think about it not just in terms of revenue size.

We think about it in terms of employee size, we do we think of it in terms of geography, and our ability to get within that geography, either over the road or.

Other mechanisms because our original staff has to travel and cover that we think of it in terms of waste flows how it flows within a geography and and and then we think of it in terms of forward looking M&A opportunity and growth. So you can't look at a region say well this region's annualizing at one <unk>.

And another ones at 2 billion. So they must think that region can go from one to two that would be a misleading way to characterize the way to think about it because that is only one factor we may have.

Close to the same number of employees.

That are in a billion to $1 two region that around a $2 billion region because of the price of disposal because of other things. So we and the mid South if you look at Tennessee, Kentucky, Alabama.

More rural States, you're covering a lot of geography.

And so you have more people. We also have a lot of more residential business. So you've got more people employed through that so it's a complex way to tell you. How we think about what goes within a region.

Does the mid south have tremendous growth opportunities absolutely. We believe it does just look at those states, but should you think about it is getting to the size of the southern or the.

The eastern region, and time that might be a little misleading.

That's a that's good color. Thank you very much in growth a good quarter there.

Okay.

The next question is from Jerry Revich Goldman Sachs. Please go ahead.

Yes, hi, good morning, everyone.

Good morning, I'm wondering if you could.

Ron Im wondering if you could talk about how much.

Alabama acquisition.

It expands your potential M&A pipeline with companies that fit the waste connections more given how much that can be scaled.

Yeah, I mean, Jerry again, it just be a gas and I would hate to I don't want to do that for you or anyone.

Because I don't know that exactly we don't know that exactly but look.

If you look at our Massachusetts, and Rhode Island market as an example.

Prior to <unk>.

Yesterday's announcement those were non integrated markets for us there.

They are now integrated.

We can take well most of our mass and our Rhode Island market to the Arrowhead landfill through our network as of today.

So you know that that gives you an idea that theres opportunities within those states surrounding states that we are not in.

And and some we are in.

Where there's more M&A opportunity today than there was a few days ago, what that exact number is I don't know yet Jerry.

I think as we go forward in a couple of quarters and have greater understanding we could give you something more clarified.

But suffice it to say that it gives us opportunity that some of which we had passed on okay. Because we weren't sure. If we could become integrated remember our whole model is it worried they're going to be an exclusive market, where we have a franchise or similar agreement or we're going to.

Try to create a de facto asset franchise through through asset positioning within a market and in a competitive market. If you are long term disposal disadvantaged youre.

Youre not going to create the fact, though asset franchise.

So there were markets that we were sort of self shutting or shutting out of consciously that we now can revisit so that's why we say it is strategic.

Super.

Can I just expand on the point of becoming vertically integrated in <unk>.

Markets and some of those areas.

Local disposal options.

You are currently flowing through there.

More efficient than shipping all the way to Alabama by rail. So can you just expand on that point in terms of.

The plants or is this really take your view.

Mozel capacity five years.

In those markets can you just expand on that because I know you folks aren't running railcars for practice you want to make sure you're getting really good returns on those investments.

Yeah, absolutely Gerry and look we have not said this is going to we're going to take all of our northeast market.

To arrowhead by any means there are there are each each of our markets within a market area are our niches that some of them have local municipal disposal. Some of them are flowed to local municipal disposal. Therefore, we cant do anything that's always going to go there.

Some of them.

<unk> it makes more sense economically and return basis to go there we're going to look at that but to your point in your comment.

Understand that many parts of the northeast or an 80 to $130 market pick a $100 at the midpoint just for conversation.

You can move waste on rail a long ways at $100 a ton.

Okay, so unless there's a contraction in disposal pricing.

Along the northeast, which we don't project by the way if it happened doesn't hurt us that helps us on a collection basis.

You're going to continue to see us move waste work makes the most economical return basis and so we've taken a very hard look at this you have got diminishing disposal capacity along the northeast Youre going to continue to have an upward bias on price throughout the throughout the northeast.

As as disposal lives contract.

I think if anything youre going to see ways to continue to move outside of the northeast and longer distances.

Super I appreciate the detail.

Charlie just to update us on how the landfill gas developments are tracking as we think about when they start flowing through and obviously contributing to margins.

Any update on the timing, indicating given the moving pieces in the industry not only from project timing, but getting EPA certified and other.

Other moving pieces that are.

Essentially delaying some players ramping up capacity utilization.

Yes, Jerry we say the update as our projects are on track. There you are in line with our expectations. We said there were a couple that should be online by the end of this year.

They would then layer in over the next couple of years, and we've talked about that $200 million in annual EBITDA by 26, and there is no change to that outlook.

Well done thank you.

The next question is from Noah Kaye of Oppenheimer. Please go ahead.

Thanks for taking the questions and appreciate the thoughtful responses today and I just wanted to do a little bit of housekeeping to clean these up.

First just to level set on where we sit today on turnover and if you can disaggregate into voluntary versus involuntary.

Sure I can do so.

So we peaked and turnover at the end of Q4 of 22 at about 35%, we brought that down by.

The middle of Q2 to about 30.

And we have decreased that further to just under 29% at the end of Q2.

We are tracking.

Below that as we head into Q3 of 'twenty, three and I would project that to be by the end of Q3, a point or two lower.

At the end of Q3 than where we ended Q2, we peaked.

Pete.

At the end of Q4 of 22 at about 1900 open positions or about 8% of head count.

We are currently we ended June at about 1200 open positions or about 5% of head count and I would project by Q3, we would get that into the 1100, maybe just below range getting that into the four 5%.

Range of four 5% is a very comfortable number optimal in my mind is three and a half.

You're always going to have some youre going to want some that's your involuntary that youre, making decisions on but if we can get to that three 5% open positions over the course of the next six to eight months.

We'd be very happy.

Cheerio difference running seven 8% of open head count versus $3 five for four.

Very helpful. Thanks, and then.

Just to remind us how much you're spending this year in capex on Orangey in new recycling facilities and did that number change at all in the $25 million higher Capex guidance.

No no change and the higher guide.

So this year.

It'll for 'twenty three the expectation is around $45 million for RMG and another 25 for our recycling facilities for a total of about seven days.

And I.

I mentioned earlier it steps up the expectation is the R&D spending stepped up in 'twenty four.

Probably $125 million somewhere thereabouts.

Okay.

80 million step up.

On our LNG and recycling is that kind of flattish for next year's or those investments rolling off.

I think those are rolling off next year.

We have nominal mountain in 'twenty four.

Okay. So net net that's like a you know.

$55 million to $60 million increase in total capex above and beyond what you normally spend.

Okay. That's helpful.

And then on Arrowhead look I I don't know if transformative is the right word but this is extremely significant for your operations east of the Mississippi and there are a lot of peers.

Northeast and East Coast.

Operations I imagine this network would be valuable to so can you maybe just talk a little bit about how how these assets came to you why waste connections.

Well.

Sure. We can certainly try obviously somewhat of that Russ and the answer from the sellers, but we can tell you what we what we understand.

First off.

These assets came to us because we went after both of these assets. This was not a shopped transaction. This was not a marketed or or brokered or auction transaction.

We began pursuing over a year almost a year and a half ago intimate discussions with the ownership and we accelerated those throughout the course of this year heading into Q2.

So this was something that was targeted.

A rifle shot I would say by us.

And it was proactively taken off the market by us.

In that manner.

So that's how it happened why us I think the sellers would tell you obviously they felt there was a fair economic transaction, but I think they felt our ability to develop and and really turn the entire network to their dream.

Of what it can become.

It was they had a high degree of confidence in our ability to execute on that and I believe that's why they would tell you that they chose us as well as what they felt was a was a cultural fit for their employees and their leadership, who is staying with us.

So I think those would be the major reasons.

Nice okay. Thank you for the color.

The next question is from Tobey Sommer of true. Please go ahead.

Thanks.

And if you see the decline in open reqs in vol.

Voluntary turnover as attributable to changes in the labor market external market related changes or your own internal action. So I'm not sure. If your internal actions have already yielded results or sort of more on the come.

Yeah. That's a fair question Tobey I would I would tell you that I think our internal actions are more on the comm I think we've had some impact but.

That would be misleading to take 50% or more of the credit internally that that would be inaccurate I think as we get six months out from now that will be much more impactful internally.

And I do think it is a function of the labor market easing somewhat although as we've said that that continues to remain tight.

But definitely is not where it was in Q4 of last year or Q1 of this year.

We've definitely seen that.

So well if I had to put a number I'd say, it's 75% the market, 25% us I mean, I'm just I'm just estimating at that but it's clearly more external than internal right now that will pretty rapidly flip.

Great.

Great that color.

Just one other question on pricing and then I'll be done do you expect the difference in relative price increase in your sort of.

West Coast markets versus competitive markets do you expect that spread to be relatively stable or do you have an expectation for a widening or contracting in that difference.

Well that certainly will be a function of where inflation ultimately settles out which dictates.

Real time, or leaving forward looking what price increases happen in the competitive markets and influences that spread and of course in the CPI linked markets. It's a look back right. So those dynamics will dictate that.

We know that we will continue to get the benefit of higher CPI trends coming into this year in the pricing for next year.

As we look ahead in those CPI linked markets.

The next question is from Stephanie <unk> of J P. Morgan. Please go ahead.

Hi, good morning.

For all the color on the employee retention I was wondering if he can provide some color on the customer side, just given the price increases that have been put forth and what youre seeing from your customers from a retention standpoint.

Sure.

Well.

What I would tell you is that our retention continues to be good.

We continue to hold sort of in that 85% plus.

Our.

Price increases that we did early in the year anytime we can get into that range were it tells us our retention is good and that we haven't.

Quote exceeded the market. If you will there are markets, where that's not true but overall it is.

<unk>.

Customers.

They are experiencing have experienced significant inflation in their business.

And we tend to be a very small part of our businesses and of course, our households monthly expenses.

So.

Although 10% to 12% is a big number when you were talking about it on a 30 dollar residential bill or a 200 dollar commercial bill you're talking about smaller numbers right for dollar numbers on a residential a month or $15 $20 on a commercial bill.

That pales in comparison to the increases that they get on their large expenses that are going up at that same 10, 12%. So I would tell you know customers are seeing input cost from all all sectors that had been very high.

And so we are.

If you will in line with what Theyre seeing from their service providers, so customers never want to see which is understandable their rates increase.

And that always drives some tension in that relationship until you can get beyond.

The immediacy of it and again, if you are providing service quality then that makes the acceptance of that rate increase a lot easier.

If you have service quality issues and obviously a customer is very legitimate reason too.

Pushback on your rate increase so we have a heavy focus on service quality.

It's a never ending battle.

But the better our service quality again, a reason to drive downward.

Retention and turnover improve retention and drive down turnover.

The easier it is to retain price.

Okay, Great. That's very helpful. Thank you so much.

The next question is from Harold and tour Jeffries. Please go ahead.

Hello. This is Jorge Alonso office stuff anymore, just wanted to ask.

If you could talk about any cargo software automation.

The company May make him or areas, you think need attention and we look at it.

The bulk of them for the rest of the year.

Yes.

Sure I think it was a little hard to understand too here I apologize, but I think your question was about investments in software the company is making.

And in the back half of the year.

And.

Harold we are.

We have made a an investment in our entire recruiting platform software that we brought online in July which is a significant enhancement to what we had been doing up until then and that is probably most significant we're also.

<unk> made significant investments in the telematics that are coming out of our truck.

Into for both real time safety productivity and customer satisfaction.

So.

But these are all.

The way we think about these these are all normal course investments that we make year end and year out sort of in a continuous improvement process. There is nothing.

That is significant that we're calling out in our expense or our capex about this because it's just all normal course.

Thank you for the color.

This concludes our question and answer session I would like to turn the conference back over to Ron Miller for closing remarks.

Okay. 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 are available today to answer any direct questions. We did not cover that we're allowed to answer under regulation FD regulation G and applicable securities laws.

Canada. Thank you again, we look forward to seeing you at upcoming Investor conferences or hearing from you on our next earnings call.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.