Q3 2023 Waste Connections Inc Earnings Call

Yes.

Good day and welcome to the waste connections, Inc. Third quarter 2023 earnings Conference call.

All participants will be in listen only mode.

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Today's event is being recorded.

I'd now like to turn the conference over to Ron Little start 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 third quarter results and to provide a detailed outlook for the fourth quarter as well as some early thoughts about 2024 I'm joined this morning by Mary Anne Whitney our CFO as well as other members of our leadership team.

As noted in our earnings release, we are extremely pleased by the durability of our financial and operating results in the quarter with momentum for continued outsized margin expansion.

Solid operational execution drove adjusted EBITDAR margin of 32, 5% in the third quarter as expected up about 140 basis points sequentially and up 120 basis points year over year in spite of over $15 million and unforeseen headwinds.

Moreover, normalizing for recycled commodity values from just over a year ago underlying adjusted EBITDA margin eclipsed 33% in the quarter and this is total company EBITDA margin not just solid waste.

During the quarter, we overcame elevated levels of risk related expenses and other lighting effects of higher employee turnover in prior periods as well as site specific incremental operating expenses at one of our landfills in California.

Expected Q4, and ongoing impact of this evolving landfill situations are currently being evaluated along with the recent short term development at a landfill in Texas and as such weren't anticipated in the full year outlook, we provided in August.

We expect to get more clarity going forward, but currently estimate the range of outcomes in Q4 to include impacts of up to $20 million to revenue adjusted EBITDA and adjusted free cash flow.

We remain encouraged by the pace of improvement in employee retention, which along with our differentiated strategy and execution should provide for above average underlying margin expansion in solid waste collection transfer and disposal in 2024.

On that basis, we should be positioned for high single digit adjusted EBITDA growth in 'twenty 'twenty four on mid to high single digit revenue growth, including approximately $150 million of revenue carryover from acquisitions signed or closed year to date with upside potential from additional acquisition activity and any further improved.

And commodity related activity.

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

Thank you Ron and good morning, the discussion during today's call includes forward looking statements made pursuant to the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995, including forward looking information within the meaning of applicable Canadian Securities laws actual results could differ materially from those made in such forward looking statements.

Due to various risks and uncertainties factors that could cause actual results to differ are discussed in the cautionary statement included in our October 20, <unk> 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 or.

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 the dollar basis and currently the chair and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measure management uses certain non-GAAP measures to evaluate.

And monitor the ongoing financial performance of our operations other companies may calculate these non-GAAP measures.

I will now turn the call back over to Rob.

Thank you Marianne.

We are extremely pleased by our operational execution in Q3 driving results largely as expected in spite of the incremental headwinds described earlier with an adjusted EBITDA margin accelerating to 32, 5% on continued price led organic growth and solid waste, reflecting our price cost spread of 250 basis points.

As mentioned earlier underlying adjusted EBITDA margin eclipsed 33% in the quarter, our commodity values of just over a year ago.

As noted additionally, we overcame over $15 million and unforeseen headwinds during the quarter, primarily in two areas first an increase of approximately $9 million to already inflated risks related expenses. This development was associated with prior period activity and reflects the higher safety incident rates that accompanied.

The increased employee turnover in recent years.

A reminder, that risk is a lagging indicator as claims developed while turnover as a leading indicator as we drive down turnover risk expense will improve along with claim frequency and severity.

Next we absorbed over $6 million and additional operating expenses at our Chiquita Canyon landfill in Southern California, where we are managing and working to resolve what is characterized as an elevated temperature landfill or E. T. L. S. A vet.

This refers to our reaction, resulting in the rapid breakdown of waste at elevated temperatures and this case occurring deep underground and an older portion of landfill involving non hazardous waste that was accepted and handled prior to our ownership of the site.

While there are currently no impact to ongoing waste acceptance at the site. The reaction has led to escalating amounts of leachate generation accompanied by odor impacts since.

Since communicating this across to the appropriate governing and regulatory bodies, we have been coordinating our efforts to address the odors handle the leachate and satisfy the concerns of various constituents of the.

The incremental costs in Q3, primarily included leachate treatment and disposal, along with engineering and monitoring costs. We expect these expenses to expand in Q4 to over 10 million primarily as a result of increased leachate generation beyond that we have determined that we are not yet currently in a position.

To estimate the ultimate impact or timing of resolution, we expect to have good clarity of timing and resolution by our February call.

The second landfill issue noted earlier, its more clearly define and more limited, but nonetheless expected to impact Q4 at our St. Mary's landfill in Texas, we experienced a slope failure at the end of the third quarter that has resulted in our shutting down the landfill and redirecting tonnes to alternative disposal sites, while we complete repairs and <unk>.

Site work the impact of lost revenue and increased expenses at this site in Q4 are expected to be in the range of $5 million to $10 million, depending on how quickly we're able to reopen the sites. We currently expect to reopen the site in mid December.

We consider both of these landfill issues to be unusual site specific and nonrecurring in nature, although deferring and differ in duration.

While historically, many analysts and investors may have adjusted for similar types of nonrecurring events by adding back the impacts. These are developing in real time, and we are not currently in a position to make a final determination.

We have not we have not included them in our outlook for Q4 or a preliminary thoughts for 'twenty 'twenty four but in the interest of transparency are providing the estimated range of potential outcomes. In Q4 to include impacts of up to $20 million to revenue adjusted EBITDA and adjusted free cash flow.

Returning to the strength of our operating and financial performance in Q3, we delivered core price of eight 8% and total price of 7.7, including a 110 basis point decline in fuel and material surcharges, primarily related to the decline in diesel prices.

Reported volume growth of negative one 9% on a day adjusted basis reflected the continued impact from intentional shedding as expected with recent acquisitions as described last quarter right sizing markets and improving revenue quality should be considered integral to a disciplined approach to acquisitions and there.

Therefore expected, especially given the magnitude of acquisition activity, we have enjoyed over the past few years.

Moving on to the topic of acquisitions, we continue to see above average levels of seller interest and its typical some activity getting pushed to year and today, we have about $170 million in annualized revenue closed with an additional $80 million already signed and in some cases awaiting regulatory concern.

Which are expected to close by year end or very early in 2024.

As such we have visibility for almost 2% and acquisition rollover contribution in 2024 with the potential for that amount to grow from additional transactions anticipated to sign or close by early next year.

Our pipeline remains quite robust across our footprint, including some opportunities to further expand our portfolio of west coast exclusive markets.

We continue to have capacity for outsized acquisition activity, while we fund our differentiated growth strategy.

Clothing, our sustainability related projects and expand our return to capital to shareholders to that end our board of directors authorized an 11.8% increase to our regular quarterly cash dividend, our 13th consecutive annual increase since the initiation of the dividend in 2012 2010 excuse.

While executing our growth strategy. We also demonstrated the ability to drive down emissions and show significant progress towards achievement of our sustainability related targets as highlighted in our recently released 20 twenty-three sustainability report.

In fact as further outlined in that update we saw a 14% reduction in scope, one and two emissions in 'twenty. Two in spite of outsized revenue growth, resulting in a 27% reduction in emissions intensity Mauro.

Moreover, we backed up that progress by doubling our targeted emissions reduction to 30%.

And have initiated the process of aligning our emissions reduction targets with the science based target initiative or S. E T I.

Our updated sustainability report also highlights our progress on the development of incremental capacity for recycling and renewable gas or RMG generation.

We increased our operational offsets by 8% in 2022, driven primarily by an 18% increase in recycling tons, bringing our annual total to over $2 million recycled tons.

And looking ahead, we are positioned to significantly expand our biogas recovery through the development of additional R&D facilities, including three new facilities expected to open in 2024.

Moreover, we continue to expect incremental annual EBITDA contribution of $200 million by 2026 from a comparable level of investment to that and including approximately $125 million to $150 million of capital outlays on R&D facilities anticipated in 2024.

We continue to pursue the development of other R&D projects, including at our most recent acquisitions, which we believe will be additive to them. These amounts as we look to 2026 and beyond.

<unk> investment in sustainability related projects, it's consistent with our objective of value creation for all stakeholders and along with enhanced disclosure and demonstrated progress indicative of our commitment to the environment and the communities we are truly privileged to serve.

And Additionally, we continue to invest in our most important asset our people and anticipate additional margin expansion opportunities from innovative approaches to further improve employee retention and engagement.

We are encouraged by the progress we have made in employee retention efforts in Q3 with voluntary turnover stepping down sequentially for the fourth consecutive quarter as compared to the peaks. We saw in 2022 voluntary turnover is now down over 20% and open position requisitions are down over 30%.

Forward to seeing these trends continue and supporting the efforts of our local leaders with resources to facilitate that progress.

We characterize our efforts as doubling down on human capital as we renew our focus on empowering leaders for success and our decentralized operating model.

Changes include revamping recruiting through upgraded technology offerings and more than doubling training focused on frontline employees. We've initiated a pilot program for our own training Academy for drivers and are coordinating efforts for a diesel technician school offering.

We're excited about our progress today, and we look forward to seeing continued improvement as we enter 2020 for when we should realize the lagging effects from improving retention rates during 2023, and then to 24.

As noted earlier, while we deliver industry, leading margins, we are still absorbing the residual effects of higher turnover in previous periods, which include elevated reliance on third party services as well as the increased overtime and associated equipment wear and tear but you ultimately have an impact on safety incident rates and the associated.

Cost of risk the good news is that the progress in retention, we're seeing today sets us up for future benefits from improving costs and risk labor and maintenance as the same cycle should play out and reverse one incident rates and severity decline along with turnover.

And now I'd like to pass the call to Mary Anne to review more in depth the financial highlights of the third quarter and to provide a detailed outlook for Q4.

I will then wrap up with some thoughts about 2024 before we head into Q&A.

Thank you Ron in.

In the third quarter revenue of two point no six 5 billion was above our outlook and up 185 million or nine 8% year over year.

Acquisitions completed since the year ago period contributed about $103 million of revenue in the quarter net of divestitures.

Pricing of eight 8% range from about six 5% in our primarily exclusive market Western region to a range of approximately 8% to 10% in our competitive regions ethics.

As expected core pricing stepped down sequentially from Q2 as a result of both the typical cadence from seasonality in reported price and the waning impact of outsized pricing activity from 2022 as compared to previous quarters.

The Q3 volume decline of one 9% on a day adjusted basis was in line with Q2, and similarly spread across residential collection with the non renewal of certain municipal contract commercial collection from opportunistic shedding of lower quality accounts, and then post collection and reduce trans.

For volumes directed to third party disposal outlets our most.

Impacted markets, where in our eastern region, where we have had outsized acquisition activity over the past few years.

Looking year over year at other lines of business roll off pulls per day were up about 1% on revenue per pull up about 6% and landfill tons were up 5% year over year, largely driven by higher special waste tightens up 17% with CND tons up 2% and MSW tons.

Up 1% the.

The increase in special waste activity in Q3, followed two down quarters and was the result of a few jobs either getting delayed from Q2 or likely pulled forward from Q4, a reminder of the event driven nature and inherent lumpiness of these projects through nine months special waste tons are up 1% year over year.

Year.

Moving to extra revenues from recovered commodities, excluding acquisitions recycled commodity revenues were down 27% year over year in Q3, and down 6% sequentially about as expected due to a sharp decline in the value plastics during the quarter par.

Partially offset by improvements in old corrugated containers, or OCC, which averaged $88 per ton.

Landfill gas sales were up 7% year over year in Q3, due primarily to higher renewable energy credits or rins, which averaged about $3.

And finally E&P waste activity, we reported another increase in E&P waste revenue to $59 million in the third quarter up 6% sequentially from Q2 and up 10% year over year.

Adjusted EBITDA for Q3 as reconciled in our earnings release increased by 14, 1% year over year to $671 2 million again above our outlook at.

At 32, 5% of revenue our adjusted EBITDA margin was up 140 basis points sequentially from Q2, and up 120 basis points year over year, all from solid waste as we delivered the outsize margin expansion that we projected in our updated outlook provided in August and.

As Ron noted that achievement was in spite of the $15 million in unforeseen cost headwinds overcome in Q3.

In fact underlying solid waste margins arguably expanded by 150 basis points year over year on a normalized basis as headwinds from the incremental landfill costs in Q3 accounted for about a 30 basis point drag to reported margins.

We then solid waste price led organic growth drove margin improvement across many areas.

Without site improvement in third party logistics and disposal and with offsets most notably from higher risk costs.

Beyond solid waste commodity impacts were a wash 20 basis point benefit from higher E&P waste activity plus another 20 basis points from lower fuel rates were offset by recycled commodity values, which although improving we're still a 40 basis point drag to margins.

Net interest expense of $66 $2 million reflects the weighted average cost of about 4% on a mix of approximately 80% fixed and 20% variable rate debt with an average tenor of over 10 years leverage remain unchanged in the quarter at about 275 times debt to EBITDA.

And our Q3 tax rate was slightly lower than expected at 21, 6% due primarily to the impact from lower foreign exchange rates for the Canadian dollar.

Year to date, we have delivered adjusted free cash flow of $969 $3 million or 16, 2% of revenue on track for our full year adjusted free cash flow outlook of one to two 5 billion, excluding the ongoing landfill impacts Ron outlined earlier.

I will now provide our outlook for the fourth 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.

We encourage investors to review these factors carefully.

Our outlook assumes no significant change in underlying economic trends. It also excludes any impact from additional acquisitions that may close during the remainder of the year and expensing of transaction related items during the period and finally it does not reflect the true landfill situations described earlier, which could result in impacts in the quarter of up to $20 million in revenue.

Adjusted EBITDA and adjusted free cash flow.

Revenue in Q4 is estimated to be approximately $2 4 billion we.

We expect core price was about 8.5% and total price plus volume of five 5% to 6%.

Cycle commodity values and rents are projected in line with recent levels and adjusted EBITDA. In Q4 is estimated at approximately 658 million or 32, 3% of revenue.

Depreciation and amortization expense for the fourth quarter is estimated at about 12, 6% of revenue, including amortization of intangibles of about $39 5 million or about <unk> 11 per diluted share net of taxes.

Interest expense net of interest income in Q4 is estimated at approximately $68 million and finally, our effective tax rate in Q4 is estimated at about 23% subject to some variability.

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

Operator: Good day, and welcome to the Waste Connections Inc. 3rd quarter 2023 yearning conference call. All participants will be in listen only mode. Should you need assistance, please signify conference specialists are pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question even press star than one on your telephone keypad. To withdraw your question, please press star than two. Please note today's event is being recorded.

Thank you Maryann.

Again, we're extremely pleased with our year to date performance and our positioning for 2024, particularly given the strength of execution throughout 2023, and the improving dynamics and employee retention.

Although we won't provide our formal outlook for 2024 until February we are able to expand on the early thoughts we provided in August assuming no change in the current economic environment.

We continue to have visibility for outsized adjusted EBITDA margin expansion, resulting in expected high single digit adjusted EBITDA growth in 2020 for unexpected mid to high single digit revenue growth, including price led organic growth and solid waste plus almost 2% from acquisition signed or closed thus far in <unk>.

Operator: I'd now like to send a conference over to Ronald Mittelstaedt, because we can see you. Please go ahead.

Ronald Mittelstaedt: Okay, thank you operator and good morning. I would like to welcome everyone to this conference call to discuss our third quarter results and to provide a detailed outlook for the fourth quarter, as well as some early thoughts about 2024. I'm joined this morning by Mary Ann Whitney, our CFO, as well as other members of our leadership team. As noted in our earnings release, we are extremely pleased by the durability of our financial and operating results in the quarter with momentum for continued outsized margin expansion.

<unk> thousand 23, with the potential for that amount to grow by early next year based on our current pipeline.

To the extent that we see further improvement in recycle commodity values or easing of inflationary pressures during the year those impacts along with additional acquisitions completed throughout the upcoming year would provide upside to these preliminary thoughts as would the benefit from R&D facilities coming online by 'twenty four.

Ronald Mittelstaedt: Solid operational execution, drove a just to the badar margin of 32.5% in the third quarter as expected, up about 140 basis points sequentially and up 120 basis points year over year. In spite of over 15 million in unforeseen headwinds more over normalizing for recycle commodity values from just over a year ago. Underlying adjusted EBITDA margin eclipse 33% in the quarter, and this is total company EBITDA margin, not just solid waste. During the quarter, we overcame elevated levels of risk related expenses and other lighting effects of higher employee turnover in prior periods, as well as site specific incremental operating expenses at one of our landfills in California.

Adjusted free cash flow conversion would be expected to remain in the current range of 45% to 50% of adjusted EBITDA, excluding the outlays for R&D projects described earlier.

We look forward to having better visibility on the tone of the economy, the pace of acquisitions expected commodity driven activity and the projected resolution timing of the landfill situation. When we provide our formal outlook in February.

As we continue to grow towards revenue of 10 billion and more we maintain that our decentralized operating philosophy and therefore, our people are our greatest differentiator our results to date and our outlook for 2024 are a reflection of their commitment and accomplishments.

Ronald Mittelstaedt: The expected Q4 and ongoing impact of this evolving landfill situation are currently being evaluated along with a recent shorter term development at a landfill in Texas, and as such weren't anticipated in the full year outlook we provided in August. We expect to get more clarity going forward, but currently estimate the range of outcomes in Q4 to include impacts of up to $20 million to revenue, adjusted EBITDA, and adjusted free cash flow. We remain encouraged by the pace of improvement in employee retention, which along with our differentiated strategy and execution should provide for above average underlying margin expansion and solid waste collection transfer in disposal in 2024.

We recently celebrated our 20 <unk> anniversary as a company and had the opportunity to be together as a team with our local leaders for the first time since the pandemic to renew the relationships that we know drive our results and to reinforce the vision and values that have guided waste connections since its inception safety integrity.

Accountability customer service servant leadership and being a great place to work in short, it's about both relationships and 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.

Thank you.

Ronald Mittelstaedt: On that basis, we should be positioned for high single digit adjusted EBITDA growth in 2024 on mid to high single digit revenue growth, including approximately 150 million of revenue carry over from acquisitions signed or closed year today, with upside potential from additional acquisition activity and any further improvement in commodity related activities.

Like to ask a question. Please press Star then one on your telephone keypad.

If your question has been addressed we would like to withdraw your question. Please press Star then two once again that's star then one if you have a question.

And today's first question comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Thank you so much very strong pricing quarter. Once again I was hoping you could maybe give some initial thoughts on pricing in 'twenty 'twenty four maybe just kind of ballpark you know how should we think about the trajectory would you expect sort of price to come down as inflation comes down.

Mary Ann Whitney: Before we get into much more detail, let me turn the call over to Mary Ann for a forward-looking disclaimer and other housekeeping items. Thank you, Ron, and good morning. The discussion during today's call includes forward-looking statements made pursuant to the safe harbor provisions of the U.S, private securities litigation reform act of 1995, including forward-looking information within the meaning of applicable Canadian securities. Law. Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties.

Or are you not really expecting too much of a drop at all thanks.

Sure. Thanks, Toni so in terms of pricing I would start with you'll recall that about 40% of our pricing at CPI linked and therefore theres that lagging.

Mary Ann Whitney: Factors that could cause actual results to differ discussed both in the cautionary statement included in our October 25th earnings release and in greater detail in Waste Connections' filings with the US Securities and Exchange Commission and the Securities Commission's 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 or that we currently believe are immaterial, which could have an adverse impact on our business.

Impact and so the the C. P. I you see this year, yeah informs us about how to think about what that pricing looks like for next year and then beyond that we think in terms of that spread to drive margin expansion and so and as Ron described the preliminary thoughts for 'twenty for saying mid to high <unk>.

You'll digits, including the 2% acquisition contribution sort of informed here's how we're thinking about price plus volume, making up the other piece to get you to that mid to high.

Mary Ann Whitney: 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-gap 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-gap measures to the most comparable gap measures. Management uses certain non-gap measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-gap measures differently.

And then in terms of the cadence during the year. The typical cadence Tony is that pricing on a reported basis is typically highest in the first quarter and steps down over the course of the year because of that the denominator growing and so yeah, but most of the pricing gets done early in the year. So we had good visibility by the time, we report Q1.

And Tony this is Ron.

No what we strive for continually has to be about 150 to 200 basis point spread to the C. P. I on a on a ongoing basis. So you know sort of whatever you would assume is the CPI for next year, if you're assuming that 3.5% to 4% I would add 150 to 200.

Ronald Mittelstaedt: I will now turn the call back over to Rob. Thank you, Marianne. We are extremely pleased by our operational execution in Q3, driving results largely as expected, in spite of the incremental headwinds described earlier, with an Adjusted EBITDA margin accelerating to 32.5% on continued price-led organic growth in solid ways, reflecting a price-cost spread of 250 basis points. As mentioned earlier, underlying Adjusted EBITDA margin eclipse 33% in the quarter at commodity values just over a year ago. As noted additionally, we overcame over 15 million in unforeseen headwinds during the quarter.

At this point, a plus to that assumption for the price as it is this quarter, we did 250 basis points better.

Then our cost spread but we certainly strive to be in that $1 50 to 200 at least on a regular basis.

Terrific very helpful.

I also wanted to ask you did a nice job describing the issues that you're seeing with the landfills are in California and Texas.

Ronald Mittelstaedt: Primarily in two areas. First, an increase of approximately 9 million to already inflated risk-related expenses. This development was associated with prior period activity and reflects the higher safety incident rates that accompanied the increased employee turnover in recent years. A reminder that risk is a lagging indicator as claims develop while turnover is a leading indicator. As we drive down turnover, risk expense will improve along with claim frequency and severity.

You talked about it being not recurring and site specific I was just wondering are there always issues like these but these are bigger so they have to be called out or is there. A reason why there are a couple of issues at the same time and you know just trying to figure out you know as we can.

Go forward, if if we're gonna see like some additional issues I know these are supposed to be sort of one.

One time, but you know maybe just talk about if anything has changed.

Ronald Mittelstaedt: Next, we absorbed over $6 million in additional operating expenses at our Chiquita Canyon landfill in Southern California. Where we are managing and working to resolve what is characterized as an elevated temperature landfill or ETLF event. This refers to a reaction resulting in the rapid breakdown of waste at elevated temperatures. In this case, occurring deep underground in an older portion of the landfill involving nonhazardous waste that was accepted and handled prior to our ownership of the site.

Sure. So first off I'm, Tony nothing whatsoever has changed first off we have well over 100 landfills in the company and in 26 years, we've never once at any of our landfill had one of these elevated temperature events.

Ronald Mittelstaedt: While there are currently no impacts to ongoing waste acceptance at the site, the reaction has led to escalating amounts of leachate generation accompanied by odor impacts. Since communicating this occurrence to the appropriate governing and regulatory bodies, we have been coordinating our efforts to address the odors, handle the leachate and satisfy the concerns of various constituents. The incremental costs in Q3 primarily included leachate treatment and disposal along with engineering and monitoring costs.

So that tells you how rare and how unique they are they definitely happened within the industry are you know what probably any given time, there's five or maybe 10 of these going on nationwide with various owners, but we have never had one before and so that is a unique.

It is also in southern California in Los Angeles, which makes it a little bit more complicated because of the density of the population.

So that's one the second one the Texas issue and these are completely unrelated and coincident, Illinois timing. The second one the Texas issue was a slope failure that was actually our error caused by Ah book caused by US we could have prevented that but we missed a few.

Ronald Mittelstaedt: We expect these expenses to expand in Q4 to over $10 million, primarily as a result of increased leachate generation. Beyond that, we have determined that we are not yet currently in a position to estimate the ultimate impact or timing of resolution.

Things and we have only had two of those out of over 100 landfills in 26 years, one about 14 years ago, and more smaller and we never needed to call it out or did call. It out. The other reason we've called out. These two is because there.

Ronald Mittelstaedt: We expect to have good clarity of timing and resolution by our February call. The second landfill issue noted earlier is more clearly defined and more limited but nonetheless expected to impact Q4. At our sea breeze landfill in Texas, we experience the slope failure at the end of the third quarter that is resulted in our shutting down the landfill and redirecting tons to alternative disposal sites while we complete repairs and site work.

Has been press coverage of these in the media and because of that we felt it would be inappropriate not to communicate it to investors and other listeners when it is in the press.

Ronald Mittelstaedt: The impact of loss revenue and increased expenses at this site in Q4 are expected to be in the range of 5 to 10 million. Depending on how quickly we are able to reopen the site, we currently expect to reopen the site in mid-December. We consider both of these lands the issues to be unusual sites specific and non-recurring in nature, although differing in different in duration. While historically many analysts and investors may have adjusted for similar types of non-recurring events by adding back the impacts, these are developing in real time and we are not currently in a position to make a final determination.

So that's how I would characterize these two as to why they you know many would add this back is because of their nonrecurring nature and we've really never had either of these before.

Super Thank you.

Thank you and our next question today comes from Kevin Chiang with CIBC. Please go ahead.

Hi, Thanks, Thanks for taking my question.

Morning, everyone.

I appreciate.

I guess, the uncertainty and how are you going to deal with some of these costs relate to the the landfill Bolton I guess, specifically in Q4, but if I look at Q3 and if I.

Ronald Mittelstaedt: We have not included them in our outlook for Q4 or our preliminary thoughts for 2024, but in the interest of transparency are providing the estimated range of potential outcomes in Q4 to include impacts of up to 20 million to revenue, adjust to the EBITDA and adjust free cash flow. Returning to the strength of our operating and financial performance in Q3, we delivered core price of 8.8% and total price of 7.7, including 110 basis point decline and fuel and material surcharges primarily related to the decline in diesel prices.

Maryann mentioned it if you if you back that out you saw solid waste margin expansion of about 150 basis points.

Does that change how you think about the launching point for 2024, excluding these issues or if we treat them as one time. It does feel like you're entering 'twenty, four maybe a little bit higher than that.

And then maybe what we would have thought a quarter ago I'm not sure if you agree with that.

Yeah, I mean, I think Kevin So number one it does not change how we think about the launching point you know look and it has been raised by you know some of your peers are in conversation look we we we beat our guidance in Q3 and EBITDA.

Ronald Mittelstaedt: Reported volume growth of negative 1.9% on a day adjusted basis reflected the continued impact from intentional shedding as expected with recent acquisitions. As described last quarter, right sizing markets and improving revenue quality should be considered integral to a discipline approach to acquisitions and therefore expected, especially given the magnitude of acquisition activity we have enjoyed over the past few years. Moving on to the topic of acquisitions, we continue to see above average levels of seller interest and is typical some activity getting pushed to year end.

And and we overcame $15 million, so we'd really be would've beat by $17 million. So some have said hey, you know this is up to $20 million. In Q4, you know why wouldn't you just not acknowledge that and you could probably beat it and you know what we would tell you is look we didn't expect.

Beat Q3 by $17 million in EBITDA, you know good things happen rough things happen, sometimes so we're being transparent on the rough things, we know and we do believe they're nonrecurring completely the taxes will be over in Q4 are the California will not be over in <unk>.

Ronald Mittelstaedt: Today we have about 170 million in annualized revenue closed with an additional 80 million already signed and in some cases awaiting regulatory concerns which are expected to close by a year end or very early in 2024. As such, we have visibility for almost 2% in acquisition, roll over contribution into 124, with the potential for that amount to grow from additional transactions anticipated to sign or close by early next year. Our pipeline remains quite robust across our footprint, including some opportunities to further expand our portfolio of West Coast exclusive markets. We continue to have capacity for outside acquisition activity while we fund our differentiated growth strategy, including our sustainability related projects and expand our return to capital to shareholders.

Q4, but we believe it is still will be nonrecurring and so no. We don't think of the launch off point or the jump off point is any different with these then we have which is why in our comments. We said we have you know outsize margin expansion look we are now up 200.

50 basis points between Q1, and Q3 and margin, Okay, and and you know we have just guided Q4 up substantially over last year's Q4. So the jump off point is clearly higher than our you know than was anticipated earlier in the year.

That's helpful.

And then you know when I think back to the second quarter call. You gave a lot of color on some of the stuff youre doing on on on addressing labor turnover and.

Ronald Mittelstaedt: To that end, our Board of Directors authorized an 11.1% increase to our regular quarterly cash dividend, our 13th consecutive annual increase since the initiation of the dividend in 2012, 2010. While executing our growth strategy, we also demonstrated the ability to drive down emissions and show significant progress towards achievement of our sustainability-related targets, as highlighted in our recently released 2023 Sustainability Report. In fact, as further outlined in that update, we saw 14% reduction in scope 1 and 2 emissions in 22 in spite of outside revenue growth, resulting in a 27% reduction in emissions intensity.

And I think one of the comments you did make was you know as you've got turnover lower.

That could yield about 100 basis points of margin improvement over the next call. It 18 to 24 months.

You called about $9 million of experienced costs that weren't expected in the third quarter does that change how you think about the margin opportunity that you laid out back on the second quarter, whether it's the magnitude of the margin improvement or maybe the timing of of realizing those.

No it really doesn't Tony.

Excuse me, Kevin I apologize, it really doesn't and here's why because in the $9 million of incremental risk expense.

That's really a one time issue on prior claims okay.

Ronald Mittelstaedt: Moreover, we backed up that progress by doubling our targeted emissions reduction to 30% and have initiated the process of aligning our emissions reduction targets with the Science-Based Target Initiative, or SBTI. Our updated Sustainability Report also highlights our progress on the development of incremental capacity for recycling and renewable gas, or RNG generation. We increased our operational offsets by 8% in 2022. Driven primarily by an 18% increase in recycling tons, bring our annual total to over 2 million recycled tons.

As a part of it is forward looking but the smallest part of it is forward looking so the reduction in turnover and the improvements in labor and risk and other areas will offset that will more than overcome that and we standby that that margin impact you know one of the reasons we re.

Reiterated hey, if you well you know we just had a year ago commodities were already north of 33% is to show you that with that 100 basis point improvement over a few years the 34% EBITDA margin visibility is is really pretty clear right now.

And the other thing I would add Kevin is to put some numbers around it when we think about the cost of risk and coming you know how it was playing out in 'twenty three and specifically in Q3, our expectation was that it was a headwind. It was just a greater headwind. So it ended up being a 90 basis point headwind to reported margins.

Ronald Mittelstaedt: And looking ahead, we are positioned to significantly expand our biogas recovery through development of additional RNG facilities, including three new facilities expected to open in 2024. Moreover, we continue to expect incremental annually of a dock contribution of 200 million by 2026 from a comparable level of investment to that end, including approximately 125 to 150 million of capital outlays on RNG facilities anticipated in 2024. We continue to pursue the development of other RNG projects, including at our most recent acquisitions, which we believe will be additive to these amounts as we look to 2026 and beyond.

We had expected it to be a 40 to 50 basis point. So my point is that has been a factor throughout 'twenty three but it is one of those examples of as turnover goes down lagging benefits that should accrue to us over 24, and 25 potentially that's one of the items that we would expect to improve.

That's great color I'll leave it there. Thank you very much and best of luck as you closer to the year here.

Thank you.

Ronald Mittelstaedt: Continued investment in sustainability related projects is consistent with our objective of value creation for our stakeholders and along with enhanced disclosure and demonstrated progress indicative of our commitment to the environment and the communities we are truly privileged to serve. And additionally, we continue to invest in our most important asset, our people, and anticipate additional margin expansion opportunities for innovative approaches to further improve employee retention and engagement, where encouraged by the progress we have made in employee retention efforts in Q3, with voluntary turnover stepping down sequentially for the fourth consecutive quarter.

And our next question today comes from Tobey Sommer with tourists Securities. Please go ahead.

Oh, Hey, good morning. This is Jasper bibb on for Tobey solve more solid waste margins. This quarter are obviously quite strong even with the unexpected costs also seems like cost inflation, particularly on the labor side is moderating a bit.

Was hoping to get your preliminary expectations for how we should think about those main unit cost markets tracking into 'twenty 'twenty four.

Sure. So I'll certainly start and welcome ramped input we look at a couple of key areas, one being wages and wages in 'twenty three coming into the year, we expected to be in the range of 6% to 8% the increases seen employee increases starting at eight and moderating maybe to that six or six 5% over the.

Ronald Mittelstaedt: As compared to the peaks we saw in 2022, voluntary turnover is now down over 20 percent and open position requisitions are down over 30 percent. We look forward to seeing these trends continue and supporting the efforts of our local leaders with resources to facilitate that progress. We characterize our efforts as doubling down on human capital as we renew our focus on empowering leaders for success and our decentralized operating model. Changes include revamping, recruiting through upgraded technology offerings, and more than doubling training focused on frontline employees.

Of course of the year and the update is that happening and so we're seeing those improvements are and in wages, particularly and then I'd say more broadly.

The inflation, we're seeing in that we've referred to in that price cost spread has stepped down over the course of the year from low double digits from over 10% to now more like 555%. So I'd say the trajectory first of all it's playing out as we expected because the expectation was that for instance on the wage front the outsized increase.

Ronald Mittelstaedt: We've initiated a pilot program for our own training academy for drivers and our coordinating efforts for a diesel technician school offering. We're excited about our progress today and we look forward to seeing continued improvement as we enter 2024 when we should realize the lagging effects from improving retention rights during 2023 and in to 24 As noted earlier while we deliver industry leading margins, we are still absorbing the residual effects of higher turnover in previous periods, which include elevated reliance on third party services, as well as the increased overtime and associated equipment wear and tear, which ultimately have an impact on safety incident rates and the associated costs of risks.

As we put in during the course of 'twenty, two we knew would anniversary over time and not need to be put in at the same level in 'twenty three so as we continue that trajectory should continue to moderate but.

Ronald Mittelstaedt: The good news is that the progress and retention we're seeing today sets us up for future benefits from improving costs and risk, labor and maintenance, as the same cycles should play out in reverse when incident rates and severity decline along with turnover.

But you know I think what we've proven is that being in that five to five 5% range that you should be we expect that that's what we would see and it's playing out largely as expected and.

And I would say Jasper that.

You know for 24, where we're seeing C. P I somewhere in that 3% to 4% range is what's being talked about or actually what's coming in now actually in the low 3% range I would expect wage L increases to be in that three and a half to four 5% range you know.

So stepping down somewhat obviously from the high level of CPI in 'twenty, three but that that would be sort of what I would expect for 'twenty force as we sit today.

Mary Ann Whitney: And now we'd like to pass the call to Maryanne to review more in depth the financial highlights of the third quarter and to provide a detailed outlook for Q4.

So it makes sense and then some of your peers have discussed.

Mary Ann Whitney: I will then wrap up with some thoughts about 2024 before we head into Q&A. Thank you, Ron. In the third quarter revenue of 2.065 billion was above our outlook and up 185 million or 9.8% year over year. Acquisitions completed since the year ago period contributed about 103 million of revenue in the quarter, net of debustiture. Core pricing of 8.8% range from about 6.5% in our primarily exclusive market Western region to a range of approximately 8% to 10% in our competitive regions.

Project delays on their way on field gas build out just hoping you could give some color on your experience getting these early projects off the ground that are you seeing any.

Do you have the timeline has moved to the right. It all there because of permitting or utility issues.

Yeah, well they are our peers are not alone.

You know the reality is is that.

The utility infrastructure for the most part in the country is not quite as ready as perhaps the producers like US already there is a significant delays in them getting transmission lines and interconnects ready and that is and that is pushing.

Mary Ann Whitney: As expected, core pricing stepped down sequentially from Q2 as a result of both the typical cadence of seasonality on reported price and the waning impact about size pricing activity from 2022 as compared to previous quarters. The Q3 volume decline of 1.9% on a day adjusted basis within line with Q2 and similarly spread across residential collection with the non renewal of certain municipal contracts. Commercial collection from opportunistic shedding of lower quality accounts and imposed collection in reduced transfer volumes directed to third party dispose of outlets.

Projects out you know, sometimes six to 12 months from our expectation and we are also seeing some supply chain for transformers generators and other components that are needed be delayed as well so still very good visibility on the projects.

We feel very comfortable with our 200 million by 'twenty six but can some projects moved three to nine months, yeah. They can and yes. They are and we are seeing that as well.

Mary Ann Whitney: Our most impacted markets were in our eastern region where we have had outside acquisition activity over the past few years. Looking year over year at other lines of business, roll off polls per day were up about 1% on revenue per poll up about 6%. And landfill tons were up 5% year over year largely driven by higher special waste tons up 17% with CND tons of 2% and MSW tons up 1%. The increase in special waste activity in Q3 followed two down quarters and was the result of a few jobs either getting delayed from Q2 or likely pulled forward from Q4, a reminder of the event driven nature and inherent lumpiness of these projects.

And that's one of the reasons as we think about our preliminary thoughts for 2000 and for the projects coming online. The three that we anticipate by early next year will be additive to anything we've talked about to 'twenty three 'twenty four.

Alright, that's super helpful. Thanks for taking the questions.

Of course, thank you.

And our next question comes from Michael Hoffman with Stifel. Please go ahead.

Hi, Good morning, Ron Marianne.

Just the 124 am I in the right neighborhood, if I go price six date volumes negative too.

And our fuel surcharge zero emanates too and that gets you to that sort of thing.

David is that mid to upper organic topline.

Top line, but the right way to think about it.

Mary Ann Whitney: Through nine months special waste tons are up 1% year over year. Moving next to revenues from recovered commodities, excluding acquisitions recycle commodity revenues were down 27% year over year in Q3 and down 6% sequentially about as expected due to a sharp decline in the value of plastic during the quarter. Partially offset by improvements in old cargated containers or OCC, which averaged $88 per ton. Landfill gas sales were up 7% year-over-year in Q3 due primarily to higher renewable energy credits or rims, which averaged about $3.

Clearly, what we've said implies price plus volume probably mid single digits right to get to the mid to high now. It is at six minus two is it is it five zero is at five Manhattan, Theres Theres moving pieces in there, but we expect volumes to continue.

To be negative and price needed to be more than that to get to that mid single digit range and Michael the way I. You know I think you should think of it again, probably price in that six to seven range volume in that negative one range up to negative too probably.

Mary Ann Whitney: And finally, E&P Waste Activity. We reported another increase in E&P waste revenue to $59 million in the third quarter, up 6% sequentially from Q2 and up 10% year-over-year. Adjusted EBITDAB for Q3 as reconciled in our earnings release increased by 14.1% year-over-year to 671.2 million, again above our outlook. At 32.5% of revenue, our adjusted EBITDAB margin was up 140 basis points sequentially from Q2 and up 120 basis points year-over-year. All from solid waste as we delivered the outside margin expansion that we projected in our updated outlook provided in August.

Starts a little higher just those comps and then improves throughout the year again, we don't have quite as many acquisitions. This year as we did coming out of 'twenty two into 'twenty three so there'll be less shedding. So I think you'd get to the same math, but there's just a little nuance on it.

Okay that helps a lot and then.

Maryann can you tell us what your year to date average commodity basket and year to date average RIN prices and then.

What is the current number so we can kind of figure out how to roll out into next year.

Sure so.

For OCC, we're trending for the full year to about $80 a ton.

Mary Ann Whitney: And as Ron noted, that achievement was in spite of the $15 million in unforeseen cost headwinds overcome in Q3. In fact, underlying solid waste margins arguably expanded by 150 basis points year-over-year on a normalized basis as headwinds from the pounded for about a 30 basis point drag to reported margins. Within solid waste, price-led organic growth drove margin improvement across many areas, with outsized improvement in third-party logistics and disposal, and with offsets most notably from higher risk costs.

And that's using Q4 being at current rates, which are closer to $100.

And then rent for the full year are trending to about 260, assuming Q4 is closer to $3. Okay.

Alright, that's very helpful and then.

Ron you've talked about the 34% getting getting the whole company back to 34% everything I've heard so far there's nothing that back to you off of that target and we're in the.

25, 2020, 2025 time zone.

Mary Ann Whitney: Beyond solid waste commodity impacts were a wash. 20 basis points benefit from higher E&P waste activity plus another 20 basis points from lower fuel rates were offset by recycled commodity values, which although improving were still a 40 basis point drag to margins. Net interest expense of $66.2 million reflects the weighted average cost of about 4% on a mix of approximately 80% 6% and 20% variable rate debt with an average 10 or above 10 years.

That's correct.

Yeah, I think you know and Michael I have said that we will get there I believe we will get there again, depending on I've also said that is with sort of a 21 level commodities. Okay. So with that caveat, but that is also without RMG.

Right, which is all tier one at this point.

Two to $3 range or we.

Can you remind us what your 2021 commodity basketball.

Mary Ann Whitney: Leverage remained unchanged in the quarter at about 2.75 times debt to eat it down. And our Q3 tax rate was slightly lower than expected at 21.6%, due primarily to the impact from lower foreign exchange rates for the Canadian dollar. Year-to-date, we have delivered adjusted free cash flow of $969.3 million or 16.2% of revenue. On track for our full year adjusted free cash flow outlook of $1.225 billion, excluding the ongoing landfill impacts run outlined earlier.

It was probably right at about Oh, well, we gave US one second and we can we're looking for that information. So we are going to be for the year Maryann just said, we'll exit the year at a blended 80, Michael will exit the year about.

So yeah. It was $1 50, and $1 50, so the basket was just a little lower.

So 'twenty 'twenty. One was 150 is that what you said.

That's right Yeah, you say your average Montana, Okay alright.

Mary Ann Whitney: I will now provide our outlook for the fourth 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 harbor statement, and filings we've made with the SEC and the Securities Commission's or similar regulatory parties in Canada. We encourage investors to review these factors carefully. Our outlook assumes no significant change in underlying economic trends. It also excludes any impact from additional acquisitions that may close during the remainder of the year and extensive transaction-related items during the period.

And then last one yeah, I mean I get it your experience when elevated temperatures as there is none because it hasn't happened to you you did mention that this has been something in the modern era of landfill design and we've been dealing with or whats the engineering department, saying about.

The long term outlook here does this do you actually reverse the temperature or stabilize it and therefore, that's what you're trying to get your hands around to talk to us about in February.

Yeah, No Michael you actually reverse the temperature as you reverse the temperature, which is what we're doing we've added significant number of wells in this late in the third quarter and so far through the fourth quarter, we have added over over 50, new wells.

Mary Ann Whitney: And finally, it does not reflect the two landfill situations described earlier, which could result in impacts in the quarter up to $20 million in revenue, adjusted EBITDA, and adjusted free cash. Schlow. Revenue in Q4 is estimated to be approximately 2.04 billion. We expect core price of about 8.5% and total price plus volume of 5.5 to 6%. Recycle commodity values and rents are projected in line with recent levels, and adjusted the ton Q4 is estimated at approximately 658 million or 32.3% of revenue. Depreciation and amortization expense for the fourth quarter is estimated at about 12.6% of revenue, including amortization of intangibles of about 39.5 million, or about 11 cents per diluted share, net of taxes.

Mary Ann Whitney: Interest expense, net of interest income in Q4 is estimated at approximately 68 million dollars, and finally our effective tax rate in Q4 is estimated at about 23% subject to some variability.

To pop out leachate and.

And gas and reverse the temperature as the temperature reverses and cools the reaction stops and the generation of water stops.

That that is the resolution.

And with it comes down the leachate management costs, which are you know running somewhere 10 to 15 cents a gallon. So it's a big number.

Yeah, they're actually 38 cents a gallon in L. A are Matt because where we're trucking it all off to a P. O T. W. Because of the magnitude right now we cannot recirculating when it comes down there's a parcel of land that we can re circulate during times of the year, but yes. It comes down dramatically Michael.

Okay. Thank you very much.

And our next question comes from Brian <unk> with Citi. Please go ahead.

Ronald Mittelstaedt: And now let me turn the call back over to Ron for some final remarks before Q&A. Thank you, Marianne. Again, we are extremely pleased with our year-to-date performance and our positioning for 2024, particularly given the strength of execution throughout 2023 and the improving dynamics in employee retention.

Good morning, Thank you for taking the question.

You may have alluded to this earlier.

Question I'm sorry.

But requeue.

Essentially in line with your guidance.

Unexpected costs.

Ronald Mittelstaedt: Although we won't provide our formal outlook for 2024 until February, we are able to expand on the early thoughts we provided in August, assuming no change in the current economic environment. We continue to have visibility for outsized, adjusted the bidon margin expansion, resulting in expected high single digits, adjusted the bidon growth in 2024, unexpected mid to high single digit revenue growth, including price-led, organic growth, and solid waste, plus almost 2% from acquisition signed or closed thus far in 2023.

What was maybe better than expected that allowed you to get back to you guys.

Is it possible to say what would be better is that what you said.

Yes, good 15 million and kind of.

So cross border, but you're still kind of met your guy what came in above your expectations.

Got it.

Sure.

I'd say, what we'd say is that it's really the execution that the delivery in Q3 and as I described the margin expansion comes from lots of small improvements within the P&L.

Ronald Mittelstaedt: With the potential for that amount to grow by early next year, based on our current pipeline. To the extent that we see further improvement in recycled commodity values or using of inflationary pressures during the year, those impacts, along with additional acquisitions, completed throughout the upcoming year, would provide upside to these preliminary thoughts. As would the benefit from R&G facilities coming online by 24. Adjusted free cash flow conversion would be expected to remain in the current range of 45 to 50% of adjusted EBITDA, excluding the outlays for R&G projects described earlier.

So within solid waste, we did a little better than expected and then I'd say arguably we had a little assist from E&P waste, which did step up sequentially in Q.

It's largely execution yeah.

And generally E&P does step down some in Q4, Brian. So you know that what might not be the same assist that it was in Q3.

You got a little assist from rens elevating at the end. So that you know of right now appears to be holding but we certainly can't project that too old.

Ronald Mittelstaedt: We look forward to having better visibility on the tone of the economy, the pace of acquisitions, expected commodity-driven activity, and the projected resolution timing of the landfill situation when we provide our formal outlook in February. As we continue to grow towards revenue of 10 billion and more, we maintain that our decentralized operating philosophy and therefore our people are our greatest differentiator. Our results today and our outlook for 2024 are a reflection of their commitments and accomplishments.

And then you know you have a as we said special waste was a little better than we had projected it was up in the Q in the quarter, whether or not that comes through in the fourth quarter, because you start to get into the winter weather that is so those are things, we're not projecting but and some are weather dependent are those are the kinds of things that.

Could make that come through.

Understood. Thanks for the detail.

Last question for me I was just wondering if you can provide an update.

Ronald Mittelstaedt: We recently celebrated our 26th anniversary as a company and had the opportunity to be together as a team with our local leaders for the first time since the pandemic to renew the relationships that we know drive our results and to reinforce the vision and values that have guided waste connections, since its inception. Safety, integrity, accountability, customer service, servant leadership, and being a great place to work. In short, it's about both relationships and results.

Truck order data.

From your peers.

Pretty positive and do you have a sense for.

Maybe what percent of your 'twenty three.

We're going to come in I mean.

And have you started to look out to 'twenty four.

Backlogs are good.

Thinking of expanding.

Yeah.

Our experience is a little bit different than at least our large public peer that may be due to their buying power because of their size, but.

Operator: 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? Thank you. If you would like to ask a question, please press star then one on your telephone keypad. If your question has been addressed to you'd like to withdraw your question, please press star then two. Once again, that star then one of you have a question.

We experience, we are being told and.

And we are planning that will get somewhere in the high eighty's to almost 90% of our chassis and our bodies. Therefore, the full units delivered this year, we expect somewhere in that 10% to 12% to push or roll into 'twenty four.

Toni Kaplan: And today's first question comes from Toni Kaplan with Morgan Stanley. Please go ahead. Thank you so much. Very strong pricing quarter once again. I was hoping you could maybe give some initial thoughts on pricing in 2024. Maybe just kind of ballpark. How should we think about the trajectory? Would you expect sort of price to come down as inflation comes down or are you not really expecting too much of a drop at all?

By the way that is a little less than what rolled into 'twenty three from 'twenty. Two so in that way it has improved but the manufacturers', particularly on the body side not the chassis side. The chassis side, we can get right now which is opposite of last year, but the manufacturers on the body side are still saying.

Toni Kaplan: Thanks. Sure. Thanks, Toni. So in terms of pricing, I'd start with your recall that about 40% of our pricing is CPI linked and therefore there's that lagging impact and so the CPI you see this year informs us about how to think about what that pricing looks like for next year. And then beyond that, we think in terms of that spread to drive margin expansion. And so as Ron described the preliminary thoughts for 24 saying mid to high single digits, including the 2% acquisition contribution sort of informs you as how we're thinking about price plus volume, making up the other piece to get you to that mid to high.

There should be some delays through 24 and it would be normalized in early to mid 'twenty five that that is what we're hearing and experiencing.

Got it thanks, a lot I'll turn it over.

And our next question comes from Tyler Brown of Raymond James. Please go ahead.

Good morning.

Hi, Good morning, Tyler Hey, Ron So I want to come back to turnover. So I think you guys gave some great statistics in the ESG report you talked about voluntary turnover I think in 'twenty two correct me, if I'm wrong, but it was circa 21% you mentioned here in recent quarters, you have improved but can you tell us where that is.

Number is today I think you said it was down 20%. So is it basically already back down to that mid to high teens kind of where we were pre COVID-19.

Toni Kaplan: And then in terms of the cadence during the year, the typical cadence Toni is that pricing on a reported basis is typically highest in the first quarter and steps down over the course of the year because of the denominator growing. And so most of the price and gets done early in the years, we have good visibility by the time we report to one.

Yeah, 17, four right now.

Okay, and so the whole idea here is that leads but the benefits are a bit lag. So that's what's really going to help us in 'twenty, four and likely off into 'twenty five.

Yeah. That's right you know our objective is to continue to drive that voluntary down further Oh, you know our involuntary meaning us making a proactive decision will run higher for a little while because we accepted a you know employees that we're probably a little more marginal then.

Ronald Mittelstaedt: And Toni, this is Ron. You know, what we strive for continually is to be about 150 to 200 basis point spread to the CPI on an ongoing basis. So sort of whatever you would assume is the CPI for next year. If you're assuming that's three and a half to four percent, I would add 150 to 200 basis points plus to that assumption for the price. As is this quarter, we did 250 basis points better than a cost spread, but we certainly strive to be in that 150 to 200 at least on a regular basis.

We would have otherwise and and and maybe a little more risk and so as voluntary comes down we'll be more active on the involuntary and then that will fall to as read as we re staff with a little bit more of a higher caliber employee in those so that that's how that will flow.

Perfect and I wanted to kind of come at the landfill devote developments here a little bit different way.

Ronald Mittelstaedt: I also wanted to ask you to do a nice job describing the issues that you're seeing with the landfills in California and Texas. And you know, you talked about it being not recurring and site specific. I was just wondering, are there always issues like these, but these are bigger so they have to be called out? Or is there a reason why there are a couple of issues at the same time, and you know, just trying to figure out, you know, as we go forward, if we're going to see like some additional issues.

So typically how long would it take to rectify that slope failure and typically how long does it take to remediate one of these elevated temperature events I mean, I appreciate maybe if you're somewhat new to some of it but I think I heard you said that the slope of that maybe is a one to two quarter issue, but the temperature remediation.

Could definitely take longer since its.

Yeah in Atlanta.

Yeah, we will try to try to provide you as much clarity as we have and our experience. So so the slope of that we will have remediated in the quarter. So that will be a under 90 day and when I say remediate.

Ronald Mittelstaedt: I know these are supposed to be sort of, you know, one time, but you know, maybe just talk about if anything has changed. Sure. So first off, Toni, nothing whatsoever has changed. First off, we have well over 100 landfills in the company and in 26 years, we've never once at any of our landfills had one of these elevated temperature events. So that tells you how rare and how unique they are. They definitely happen within the industry.

Remitting Salt, we will have the landfill reopened and the slope are stabilized and began back filling into a new area. So in that way. The event will be contained within the quarter. There will still be waste we have to relocate in the first quarter of next year, but that's not.

Really anything you would see that's just sort of using lateral aerospace and then we will go up later, so that one's relatively simplistic to do.

Ronald Mittelstaedt: Probably any given time, there's five or maybe ten of these going on nationwide with various owners. But we have never had one before. And so that is unique. It is also in Southern California and Los Angeles, which makes it a little bit more complicated because of the density of the population. So that's one. The second one, the Texas issue, and these are completely unrelated and coincidental and timing. The second one, the Texas issue was a slope failure.

And this was not a large failure there was no no equipment no personnel know anything involved. This was this was really a side slope failure with waste moving laterally some.

Just happened to be near our road, which is a one of the reasons we closed the site on a temporary basis.

Okay elevated the elevated temperature event is a little bit harder to.

Predict right now Tyler, but here's what I will tell you we've been monitoring this since March or April of this year as temperatures were rising we really didn't start seeing any significant generation of additional leachate or odors until really really August.

Ronald Mittelstaedt: That was actually our error caused by us. We could have prevented that, but we missed a few things. And we have only had two of those out of over 100 landfills in 26 years, one about 14 years ago, and smaller, and we never needed to call it out or did call it out. The other reason we've called out these two is because there has been press coverage of these in the media.

Is when that occurred and so now as we sit here at almost the end of October we believe that we're just probably about a month away from being at the fulcrum point and starting to come down in some of the.

Certainly at least the odor component the leachate will generation will go on for a while but I think we'll have a lot better we will have a lot better clarity in February you know these events. The these reactions can go on for some period of time so that.

Ronald Mittelstaedt: And because of that, we felt it would be inappropriate not to communicate it to investors and other listeners when it is in the press. So that's how I would characterize these two as to why they, you know, many would add these back is because of their non-recurring nature, and we've really never had either of these before.

Sort of think of it as you know.

It's going to go on it takes time for the temperature to come down as it comes down the leachate generation comes down as it comes down the older comes down and it just sort of content continues to diminish until it stops. So it's a matter of getting both the leachate and the methane out to slow the Ria.

Toni Kaplan: Super. Thank you.

Kevin Chen: And our next question today comes from Kevin Chen with CRBC. Please go ahead. Hi, thanks. Thanks for taking my question. Good morning, everyone. I appreciate, I guess the uncertainty in how you're going to deal with some of these costs related to the landfill, both in specifically Q4. But if I look at Q3 and if I, and Mary, I mentioned it, if you if you back that out, you know, you saw solid waste margin expansion of about 150 basis points, does that change how you think about the launching point for 2024, you know, including these issues or if we treat them as one time, it does feel like you're entering 24 maybe a little bit higher than maybe what we would have thought a quarter ago, not sure if you'd agree with that.

<unk> fully because it's just it's an organic reaction so.

But it should you know sort of peak at some point, we believe here in the first quarter or early next year.

Okay, Perfect and then Maryann couple modeling questions. So I may have missed it but what was the average commodity price in Q3.

So Q3 OCC average was.

$88.

Perfect and then I appreciate the margin walk was emanated dilutive I would've thought that arrowhead would be dilutive just given all the transportation revenue flowing there.

Kevin Chen: Yeah, I mean, I think Kevin show number one, it does not change how we think about the launching point, you know, look, and it has been raised by you, you know, some of your peers in conversation. Look, we beat our guidance in Q3 and EBITDA and we overcame 15 million. So we really beat would have beat by 17 million. So some have said, hey, you know, this is up to $20 million in Q4, you know, why wouldn't you just not acknowledge that and you could probably beat it.

Yeah. So M&A was not dilutive. It was came in in line in the aggregate and the aggregate yeah. There's a there's a nominal dilution.

You are correct on the margin for Arrowhead because of the transportation at this point or as we March forward that will reverse.

Okay. So we should expect some dilution.

I would tell you de minimus. It if it's 10 bps that you know that's probably a fair number.

Kevin Chen: And, you know, what, what we would tell you is, look, we didn't expect to be Q3 by $17 million in EBITDA, you know, good things happen, rough things happen sometimes. So we're being transparent on the rough things we know and we do believe they're non-recurring completely. The Texas will be over in Q4, the California will not be over in Q4, but we believe it is still will be non-recurring. And so, no, we don't think of the launch off point or the jump off point as any different with these than we had, which is why in our comments, we said we have, you know, outside's margin expansion.

Okay Perfect and then what is the revenue contribution in Q4 from M&A if I could.

$50 million.

Okay. Okay. Thank you got so much.

Thanks Tyler.

Thank you and our next question today comes from Noah Kaye with Oppenheimer. Please go ahead.

Hey, good morning, Thanks for taking the questions.

So I'm asking to to help clarify this by investors. So I just want to make sure. We're all clear. Please can you clarify that the outlook for 'twenty four is based off of the current FY2023 guidance, which does not include the 20 million potential impact for <unk>.

Kevin Chen: Look, we are now up 250 basis points between Q1 and Q3 and margin. And, you know, we have just guided Q4 up substantially over last year's Q4. So the jump off point is clearly higher than, you know, than it wasn't anticipated earlier in the year.

That's correct, that's consistent with the way we've approached it yes.

Alright, I appreciate that maybe.

Maybe if you can put some.

Color around the Orange capital Outlays, you said 125 to 150 million for 'twenty for you.

You had called out previously a total capex spend of 200 million through 26, so a make making sure there's no change there and the total expected spend.

Ronald Mittelstaedt: That's helpful. And then, you know, when I think back to the second quarter call, you gave a lot of color on some of the stuff you're doing on addressing labor turnover. And I think one of the comments you did make was, you know, as you get turnover lower, you know, that could yield about 100 basis points of margin improvement over the next call at 18 to 24 months. You called about 9 million of experience costs that weren't expected in the third quarter.

B remind us what youre tracking to spend in 2023.

And then maybe confirming the implication that you expect to be most of the way through that spending program exiting next year.

Sure. So for 'twenty, three maybe 35 or $40 million is the way to think about the spend.

Ronald Mittelstaedt: Does that change how you think about the margin opportunity? You know, that you laid out back on the second quarter, whether it's the magnitude of the margin improvement or maybe the timing of realizing those? No, it really doesn't, Toni, excuse me, Kevin, I apologize. It really doesn't, and here's why. Because in the $9 million of incremental risk expense, that's really a one-time issue on prior claims, okay? As a part of it is forward-looking, but the smallest part of it is forward-looking.

And so that tells you the vast majority of it is next year in 'twenty four.

Alright excellent.

Last question.

We've gotten this from folks that that the volumes associated with shedding seem higher relative to the level of M&A than perhaps you know if you look back four or five years in the past and wondering if that is a function of just a lot of the legacy contracts and these acquisitions Youre doing recently.

Under price for the inflationary environment is there is there something else we should read into and then really I guess the question is.

Ronald Mittelstaedt: So the reduction in turnover and the improvements in labor and risk and other areas will offset that, what more than overcome that, and we stand by that margin impact. You know, one of the reasons we reiterated, hey, if you, you know, we just had a year ago commodities, we're already north of 33% is to show you that with that hundred basis point improvement over a few years, the 34% in the margin visibility is really pretty clear right now.

At what point in the future would you expect the shedding associated with some of this M&A to start to abate.

Yeah, well first off.

No.

When when you're doing M&A, there's always going to be some level of shedding so because when you're when you're acquiring a private company that I'm just going to use as Scott $40 million of revenue that probably have somewhere between four and $8 million that is going to come up in a one to one.

Ronald Mittelstaedt: The other thing I would add is just to put some numbers around it. When we think about the cost of risk and coming, you know, how it was playing out in 23 and specifically in Q3, our expectation was that it was a headwind, it was just a greater headwind. So it ended up being a 90 basis point headwind to reported margins. We had expected it to be a 40 to 50 basis point.

Three year period that you're probably going to bid to lose or or keep out of margin that you want. So you know you start doing you start doing two for 500 million as we've done per year over the last several years 'twenty one 'twenty two specially.

Ronald Mittelstaedt: So my point is that has been a factor throughout 23, but it is one of those examples of as turnover goes down the lagging benefits that should accrue to us over 24 and 25 potentially. That's one of the items that we'd expect to improve.

A fairly large year already this year you know that's gonna go you're going to have some of that for a period of time.

We are still believe it or not we are still right sizing progressive way.

We acquired that in 16.

Kevin Chen: Oh, that's great color.

Kevin Chen: I'll leave it there. Thank you very much, and best of luck as you close at the year here. Thank you.

Several of the larger contracts in that we have lost in 'twenty three.

Toby Salmon: The next question today comes from Toby Salmon with tourist securities. Please go ahead. Hey, good morning.

Came out of progressive in both Canada, and Florida, and where they were 10 year agreements that we lived with Tel exploration and we bid them to read either keep them and make money or happily walk away and so you know obviously, we've only done one progressive overtime, so and that is up and you know that.

Jasper Bibb: This is Jasper Bedbon for Toby. Solid waste margins of quarter, obviously quite strong, even with the unexpected costs. Also seems like cost inflation, particularly on the labor side is moderating a bit, but was hoping to get your preliminary expectations for how we should think about those main unit cost buckets tracking into 2024.

I would tell you that type of shedding is effectively probably done from that that footprint, but there's got to be some you know we think of the negative volume as probably roughly about three quarters to a point related to shedding and about up to a point, maybe a little less.

Jasper Bibb: Sure, so certainly start and welcome rums input. We look at a couple of key areas, one being wages. And so wages in 23 coming into the year we expected to be in the range of 6 to 8%. The increases, same employee increases starting at 8 and moderating maybe to that 6 or 6 and a half percent over the course of the year. And the update is that's happening. And so we're seeing those improvements in wages particularly.

Jasper Bibb: And then I'd say more broadly that the inflation we're seeing and that we've referred to in that price cost spread has stepped down over the course of the year from low double digits from over 10% to now more like 5 and a half percent. So I'd say the trajectory, first of all it's playing out as we expected because the expectation was that for instance on the wage front the outsides increases we put in during the course of 22 we knew what anniversary over time and not need to be put in at the same level in 23.

For a conscious price volume trade off in competitive commercial market I mean that that's the way we think of that and obviously you know we have comfortably led the entire sector in 'twenty two emprise comfortably allowed it again in 'twenty, three and price and.

And we're happy to take that price volume.

Trade off as I think you're seeing it show up in the pace of the margin acceleration.

No. The other observation I would make an offer is that if the observation is hey, it looks like there's more shedding with these recent acquisitions I'd say no. We don't see a material difference I think what's different is that the underlying economy isn't generating more volumes and so it's more pronounced for ourselves and others in the industry.

Jasper Bibb: So as we continue that trajectory should continue to moderate but you know I think what we've proven is that being in that 5 to 5 and a half percent range that it should be you know we expect that's what we would see and it's playing out largely as expected. And I would say Jasper, that for 24, we're seeing CPI somewhere in that three to four percent range is what's being talked about or actually what's coming in now, actually in the low three percent range.

And so I think it's always going on but there's generally a base a positive volume to offset it.

Yep, that's great context, Thank you bill.

Okay.

Thank you and our next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Yes, hi, good morning, everyone.

Good morning, Jerry.

Right, Ron Maryann I Wonder if you could just talk about the margin trajectory.

Core business.

You folks are sequentially posted margins over a point better than normal seasonality you know the guidance excluding the noise.

Jasper Bibb: I would expect wage increases to be in that three and a half to four and a half percent range. So stepping down somewhat, obviously from the high level of CPI in 23, but that would be sort of what I would expect from 24 as we sit today. Makes it make sense.

Suggests another 60 basis points improvement versus normal in <unk> does that momentum continue into the first quarter or are we getting caught up on price.

Price cost.

From here or will you be at the appropriate run rate.

Ronald Mittelstaedt: And then some of your peers have discussed project the ways on their land filled gas, build out. Just hoping you could get some color in your experience getting these early projects off the ground. And are you seeing any of the timelines moved to the right at all there because of permitting or utility issues? Yeah, well, our peers are not alone. You know, the reality is that the utility infrastructure for the most part in the country is not quite as ready as perhaps the producers like us are ready.

Exiting <unk>.

Sure. So I'll start with just let you know keep in mind that Q3 is the seasonally strongest a margin contributor in the across the industry for ourselves and so that's important to put it in context to remember that's the starting point that you're going from right now so I'd say, there is normal seasonality which impacts.

The degree to which you know that impacts reported margins. We've also had the changing dynamics of recycled commodities in rands, which of course, where the big headwind going into the year, that's waning and becomes the tailwind. So I'd say within that context are we still encouraged by the trajectory of margins, yeah, and it's for the reasons.

Ronald Mittelstaedt: There is significant delays in them getting transmission lines and interconnects ready. And that is pushing projects out, you know, sometimes six to 12 months from expectation. And we are also seeing some supply chain for transformers, generators, and other components that are needed be delayed as well. So still very good visibility on the projects feel very comfortable with our 200 million by 26, but can some projects move three to nine months? Yeah, they can and yes, they are.

That we've described.

The opportunity for outsized price cost spread.

<unk> pointed to that as a driver of the potential for outsized margin expansion in 'twenty four and then the follow on benefits from the improving retention that we've described so no change in the way, we're thinking about those things and yes that is positive in terms of the trajectory.

And it sounds like good momentum is continuing into the first quarter just to be clear maryanne.

Or at least expect that the computer.

Ronald Mittelstaedt: And we are seeing that as well. And that's one of the reasons as we think about our preliminary thoughts for 24, the project coming online, the three that we anticipate by early next year will be additive to anything we've talked about for 24. Right, that's wonderful.

Yeah, no nothing we've seen what would depart from that as I said those tailwind on the commodities for instance are positive and we haven't seen any incremental cost pressures. So we're encouraged by the trends.

Okay Super.

In terms of you spoke to D. Three rents just you know mathematically given where pricing is now that's just 24 versus 23 will be about a $50 million tailwind of current spot prices.

Michael Hoffman: Thanks for taking the questions. Of course, thank you.

Michael Hoffman: And the next question today comes from Michael Hoffman with Steve Full. Please go ahead. Hi, good morning, Ron Marianne. Just a 24. Am I in the right neighborhood? If I go price six to eight volumes, negative two, and a fuel surcharge zero, M and H two, and I get you to that sort of six to eight is that mid upper organic top line. Is that the right way to think about it?

Given the supply issues, we've been talking about anything.

Michael Hoffman: So clearly, what we've said implies price plus volume probably mid single digits right to get to the mid to high. Now, is it six minus two? Is it is it five and zero? Is it five and have you know, there's there's moving pieces in there, but we expect volumes to continue to be negative and price needed to be more than that to get to that mid single digit range. And Michael, the way I, you know, I think you should think out of it.

Anything that would preclude you from realizing that benefit if the spot rate holds do you have any contracts in place and I just want to confirm it if spot prices do hold it would be additive to the guidance.

Michael Hoffman: Again, probably price and that six to seven range volume in that negative one range up to negative two probably starts a little higher just as comps and then improves throughout the year. Again, we don't have quite as many acquisitions this year as we did coming out of 22 into 23. So they'll be less shedding. So I think you get to the same math, but there's just a little nuance on it.

Preliminary outlook that you shared.

So a couple of things one when whenever the guidance, we've given is basically marking to market commodity values and so what we have said it continued movement in commodities would be upside along with the new projects coming online.

So we've already factored in some tailwind from from Rins as well its recycled commodities. The other comment Gerry would be I never think in terms of that spot price because as you know that's not indicative of where you actually sell brands even in the current environment, so rather than picking a point like 340, <unk> I'd say, we're probably in that range of $3.

To $3 25 is the way we've thought about it.

Got it. Thank you and can you just update us on the timing of Capex related to these projects are what are you expecting in 'twenty four.

25 on the projects, where you're putting capital to work.

Right, so that would be that $125 million to $150 million in capex associated with the R&D projects that we said well will impact 'twenty for that win.

Mary Ann Whitney: Okay, that helps a lot. And then Mary Ann, can you tell us what your year-to-date average commodity basket and year-to-date average rent prices? And then what is the current number so we can kind of figure out how to roll by it in the next year? Sure, so for OCC we're trending for the full year to about $80 a ton. And that's using Q4 being a current rate which are closer to $100. And then rent for the full year trending to about $260, assuming Q4 is closer to $3.

That's the vast majority of the $200 million in outlays that wed expect for all of those projects to generate that $200 million and EBITDA by 26.

Super.

Just a clarification the 200 million I believe when you had set the target D. Three RIN prices were in the low twos correct.

It gets you to fact check that for me. Please I think what we talked about was the five year average and so I think it's north of that $2 50 to $2 70.

Okay Super Thank you.

Thank you and our next question today comes from Stephanie more of Jefferies. Please go ahead.

Mary Ann Whitney: Okay, alright, that's very helpful. And then Ron, you've talked about the 34% getting the whole company back to 34%. Everything I've heard so far, there's nothing that backs you off of that target. And we're in the, you know, 2025, 2020, 2025 time zone. That's correct. I think, you know, and Michael, I have said that we will get there. I believe we will get there. Again, depending on, I've also said that is with sort of 21 level commodities.

Hi, guys. Appreciate the time I'll keep it to just the one here you talked a little bit about the volume environment and your own actions upsetting accounts, but could you maybe talk a little bit about the strength in the underlying environment, what you're seeing on both the commercial and residential side I know you called out specialty being stronger, but that can be kind of volatile, but would love to just get your overall.

All of you. Thanks.

Well I would tell you overall definitely that the economy is okay I wouldn't say it is by any way strong.

I would say, it's sort of a flattish environment.

From a from a growth standpoint.

Mary Ann Whitney: Okay. So with that caveat, but that is also without RNG. Right, which is all tailwind at this point, if we're staying in that $2 to $3 range. Are we, can you remind us what your 2021 commodity basket was? It was probably right at about, well, we give us one second and we can, we're looking for that information. So we are going to be for the year. Maryanne just said we'll exit the year at a blended 80, Michael will exit the year about. Yeah, 150 and 150. So the basket was just a little lower. So 2021 was 150. Is that what you said? That's right. Yeah. The average one.

You have pockets of strength I wouldn't really say, there's too many pockets of weakness just flatness and we looked at so year to date, our new business sales through our sales force activity is 102% of what it was year to date last year.

Michael Hoffman: Okay. All right.

So better than last year, but you know 2% a in terms of of new sales. So overall, our I would say you've seen a little improvement over 'twenty, two but really pretty flat.

And I think you know if you saw that in our comments that in Q3, you know roll off polls were up 1%.

Price on purple was up quite strong, but roll off polls were up 1%. So I think thats indicative with our footprint being as large as it is I think that's indicative of what's going on in the economy.

Ronald Mittelstaedt: And then last one. Yeah. I mean, I get at your experience on elevated temperatures. There is none because it hasn't happened to you. You did mention that this has been something in the modern era of landfill design we've been dealing with. What's the engineering department saying about the long term outlook here? Do you actually reverse the temperature or stabilize it? And therefore that's what you're trying to get your hands around to talk to us about in February?

And it's a it's sort of a little.

Appears to be a soft landing scenario.

But there are certainly you know no underlying real growth in the economy.

Not at this point or if some of the infrastructure spending occurs the way. It is planned to occur in 'twenty four 'twenty, five and I think that could certainly accelerate.

Ronald Mittelstaedt: Yeah, no, Michael, you actually reverse the temperature as you reverse the temperature, which is what we are doing. We've added significant number of wells in this late in the third quarter and so forth through the fourth quarter. We have added over over 50 new wells to pump out leachate and gas and reverse the temperature as the temperature reverses and cools. The reaction stops and the generation of water stops and that that is the resolution.

Development, what I'd add to that Stephanie it's just that that's not a material change from what we've been saying really for the past six quarters or so theres just not been a lot of movement.

Thank you. Thank you.

Thank you and today's final question comes from Stephanie you with J P. Morgan. Please go ahead.

Hi, good morning.

I was wondering if you can give us some color on what you're seeing in the M&A market I'm, just who you're coming up against the other strategic or financial players and how our valuation level.

And I'm, just any color on where you're doing the acquisitions, maybe the geography every type of business that you've been acquiring.

Ronald Mittelstaedt: And when it comes down, the lead trade management cost which are, you know, running somewhere 10, 15 cents a gallon, so it's a big number. Yeah, there are actually 38 cents a gallon in LA, because we're trucking it all off to POTW because of the magnitude right now. We cannot recirculate when it comes down. There's a partial of that that we can we can recirculate during times of the year, but yes, it comes down dramatically, Michael. Okay.

Well, let's start with the last one and easiest I mean, the geography is is throughout the U S and Canada.

Michael Hoffman: Thank you very much.

We've had a little more focus on the west coast over the last 18 months or so.

And of course, where we're acquiring are typical solid waste disposal collection and transfer.

Type companies.

Who do we compete with we obviously compete with the other public companies.

Brian Burgrenner: And the next question today comes from Brian Burgrenner with city. Please go ahead. Good morning. Thank you for taking the question. Ron, you may have alluded to this earlier on. I think I have a question. I'm sorry, but, you know, three, two, even that was essentially in line with your guidance. It's quite the unexpected. You know, the possible to say what was maybe better than expected. Is that allowed you to get back to your guys?

And we certainly compete with some Oh regional private equity backed companies and then private mom and pop companies are executing their own growth strategy.

So as.

As far as valuations, we've seen valuations probably over the last four months or so probably pull back about a turn to maybe two turns of EBITDA from where are they sort of peaked in I'd say late 'twenty two.

Brian Burgrenner: Is it possible to say what would be better? Is that what you said? Yeah, yeah, good, you know, 15 million and kind of all of that went to cost in the corner, but you still kind of met your guy. What made you come in above your expectations that met it out to your guy?

And you know, we would probably expect that to continue to tighten a little bit as as interest rates have continued to rise.

And and are expected to perhaps have another adjustment or so and and being in a relatively flat economic environment. So that that's that you know hopefully would would be the answer to those questions you had Stephanie.

Ronald Mittelstaedt: Sure. So I'd say, you know, what we'd say is it's really the execution, the delivery in Q3. And as I described, the margin extension comes from lots of small improvements within the PNL. And so within solid waste, we did a little better than expected. And then I say arguably we had a little assist for me in P weights, which did step up sequentially in Q3, largely execution and generally in P does step down some in Q4, Brian.

Yeah, no that is very helpful. Thank you.

And then just one follow up just on the and Thompson for share repurchases and I know you. When you do our issuer bid and but I guess just in terms of how you're thinking about M&A versus share repurchases. It sounds like M&A is still in your view, but that's in use of capital is that correct.

Ronald Mittelstaedt: So, you know, that might not be the same assist that it was in Q3. You know, you had a little assist from rims, elevating at the end. So that, you know, right now appears to be holding, but we certainly can't project that to hold. And then, you know, you have, as we said, special waste was a little better than we projected. It was up in the quarter, you know, whether or not that comes through in the fourth quarter because you start to get into the winter weather. You know, that is so those are things we're not projecting, but and some are weather dependent. Those are the kinds of things that could make that come through. Understood. Thanks for the details.

Well that may be changing rapidly, but yes.

Yes, no. It's clearly a M&A, it's still our best use of capital on any long term basis, and and how we should create the most value, but we clearly are how are opportunistic in the share repurchase and we'll continue to stay opportunistic in that way.

Okay sounds good. Thank you so much Brian.

Thank you and ladies and gentlemen. This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Brian Burgrenner: And last question to me, I'm just wondering if you think provide an update on truck orders, some of the data, some of the comments from your peers seems pretty positive. Do you have a center? Maybe what percent of your 23 years are going to come in this year? And if you start to look out the 24, it seems like backlogs are going to be shrinking or expanding. Yeah, you know, our experience is a little bit different than at least our large public peer.

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

So again, we look forward to seeing you at <unk>.

Coming investor conferences or hearing from you on our next earnings call.

Okay.

Brian Burgrenner: That may be due to their buying power because of their size. But, you know, we experience, we are being told and we are planning that we'll get somewhere in the high 80s to almost 90% of our chassis and bodies. Therefore, the full units delivered this year, we expect somewhere in that 10 to 12% to push or roll into 24. By the way, that is a little less than what rolled into 23 from 22.

Thank you ladies and gentlemen. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Brian Burgrenner: So in that way, it has improved, but the manufacturers, particularly on the body side, not the chassis side, the chassis side we can get right now, which is opposite of last year. But the manufacturers on the body side are still saying there should be some delays through 24 and it would be normalized in early to mid 25. That is what we're hearing and experience.

Ronald Mittelstaedt: [inaudible] Okay, perfect.

Mary Ann Whitney: And then Mary and a couple of modeling questions, so I may have missed it, but what was the average commodity price in Q3? So Q3, OCC average, 88 dollars. Perfect.

Mary Ann Whitney: And then I appreciate the margin walk, but was emanate diluted? I would have thought that arrowhead would be diluted, just given all the transportation revenue flowing there. Yeah, so emanate was not diluted. It was came in in line in the aggregate. Yeah, there's a nominal dilution. You are correct on the margin for arrowhead because of the transportation at this point, as we march forward, that will reverse. Okay, so we should expect some dilution. I would tell you, de minima, say, you know, if it's 10 bits, that, you know, that's probably a fair number. Okay, perfect.

Mary Ann Whitney: And then what is the revenue contribution in Q4 from M&A, if I could? 50 million dollars. Perfect. Okay, thank you guys so much. Thanks Tyler. Thank you.

Noah Kaye: And our next question today comes from Noah K with Oppenheimer. Please go ahead. Hey, good morning. Thanks for taking the questions. So I'm asking to help clarify this by investors. So I just want to make sure we're all clear.

Mary Ann Whitney: Please, can you clarify that the outlook for 24 is based off of the current FY23 guidance, which does not include the 20 million potential impact for 4Q. That's correct. That's consistent with the way we've approached it. Yes. All right, appreciate that.

Mary Ann Whitney: Maybe if you can put some color around the RNG capital outlays, you know, you said 125 to 150 million for 24, you would call that previously a total CapEx spend of 200 million through 26. So, A, making sure there's no change there in the total expected spend. B, remind us what you're tracking to spend in 2023. And then maybe confirming the implication that you expect to be most of the way through that spending program, make fitting next year. Sure. So for 23, maybe 35 or 40 million is the way to think about the spend. And so that tells you the vast majority of it is next year in 24. All right, excellent.

Ronald Mittelstaedt: Last question, we've gotten this from folks that the volumes associated with shedding seem higher relative to the level of M&A than perhaps, you know, if you look back for five years in the past. And wondering if that is a function of just a lot of the legacy contracts in these acquisitions, you're doing recently being underpriced for the inflationary environment. Is there is there something else we should read into? And then really I guess the question is, at what point in the future would you expect the shedding associated with some of this M&A to start to abate?

Ronald Mittelstaedt: Yeah, first off, no of the. When you're doing M&A, there's always going to be some level of shedding, because when you're acquiring a private company that I'm just going to use, it's got 40 million of revenue, they probably have somewhere between 4 and 8 million, that is going to come up in a 1-3 or a period that you're probably going to bid to lose or keep at a margin that you want.

Ronald Mittelstaedt: So, you start doing 200, 400, 500 million as we've done per year over the last several years, 21, 22 especially, a fairly large year already this year, that's going to, you're going to have some of that for a period of time. We are still, believe it or not, we are still right-sizing progressive. We acquired that in 16, several of the larger contracts that we have lost in 23 came out of progressive in both Canada and Florida, and there were 10 year agreements that we lived with till expiration, and we bid them to either keep them and make money or happily walk away.

Ronald Mittelstaedt: Obviously, we've only done one progressive over time, and that is, I would tell you, that type of shedding is effectively done from that footprint, but there's going to be some, we think of the negative volume as probably roughly about three quarters to a point related to shedding, and about up to a point, maybe a little less for a conscious price volume trade-off in competitive commercial markets, I mean, that's the way we think of that. And obviously, we have comfortably led the entire sector in 22 in price, comfortably led it again in 23 in price, and we are happy to take that price volume trade-off as I think you're seeing it show up in the pace of the margin acceleration.

Ronald Mittelstaedt: No, the other observation I would make an offer is that if the observation is, hey, it looks like there's more shedding with these recent acquisitions, I'd say, no, we don't see a material difference, I think what's different is that the underlying economy isn't generating more volumes, and so it's more pronounced for ourselves and others in the industry, and so I think it's always going on, but there's generally a base of positive volume to offset it.

Ronald Mittelstaedt: Yep, that's great context, thank you both.

Jerry Roberts: Thank you, the internex question is going to come from Jerry Roberts with Goldman Sachs, please go ahead. Yes, hi, good morning, everyone. Good morning, Jack.

Jerry Roberts: I'm wondering if Ron Marion, I want to just talk about the margin trajectory in the core business. You know, you folks are sequentially opposed to margins that were point better than normal humanity. You know, the guidance, excluding the noise, suggests another 60 basis points improvement versus normal in poor queue.

Mary Ann Whitney: Does that momentum continue into the first quarter, are we getting caught up on price cost from here, or will you be at the appropriate run rate exiting? for you. So I'll start with just keep in mind that Q3 is the seasonally strongest margin contributor in the across the industry for ourselves. And so that's important to put it in context. And remember, that's the starting point that you're going from right now. So I'd say there is normal seasonality which impacts a degree to which that impacts reported margins.

Mary Ann Whitney: We've also had the changing dynamics of recycled commodities and rents, which of course were the big headwind going into the year that's waning and becomes a tailwind. So I'd say within that context, are we still encouraged by the trajectory of margins? Yes. And it's for the reasons that we've described, you know, the opportunity for outside price cost spread. You know, we've pointed to that as a driver of the potential for outside margin expansion in 24. And then the follow on benefits from the improving retention that we've described. So no change in the way we're thinking about those things. And yes, that is positive in terms of the trajectory.

Mary Ann Whitney: And it sounds like the momentum is continuing to the first quarter just to be clear, Maryanne, or at least the expected to continue. Yeah, nothing we've seen with with depart from that. As I said, those tailwinds on the commodities for instance, are positive. And we haven't seen incremental cost pressures. So we're encouraged by the trends.

Mary Ann Whitney: Okay, super. And in terms of you spoke to D3 Rins, just, you know, mathematically given where pricing is now, that suggests 24 versus 23 will be, you know, about a 50 million dollar tailwind of current five prices. Hold, give them the supply issues we've been talking about. Anything that would preclude you from realizing that benefit of the spot rate holds it.

Mary Ann Whitney: Do you have any contracts in place? And I just want to confirm if spot prices do hold, it would be additive to the guidance or preliminary outlook that you shared. So a couple of things. One, whenever the guidance we've given is basically marking the market commodity values. And so what we've said is continued movement in commodities would be upside along with the new projects coming online. So we've already factored in some tailwinds from Rins as well as recycle commodities.

Mary Ann Whitney: The other comment, Jerry, would be, I never think in terms of that spot price, because as you know, that's not indicative of where you actually sell Rins even in the current environment. So rather than picking a point like 340, I'd say we're probably in that range of $3 to $3.25 is the way we've thought about it.

Mary Ann Whitney: Yeah, thank you. And can you just update us on the timing of CAPEX related to these projects? What are you expecting in 24 and 25 on the projects where you are putting capital to work? Right. So that would be that 125 to 150 million in CAPEX associated with the RNG projects that we said will impact 24. That when that's the vast majority of the 200 million in outlays that we'd expect for all those projects to generate that 200 million in EBITDA by 26.

Mary Ann Whitney: Super.

Mary Ann Whitney: And then just a clarification, the 200 million I believe when you had set that target, the three RIN prices were in the low twos, correct? Can I get you to fact check that for me, please? I think what we talked about was the five year average. And so I think it's north of that. That's 250 to 270.

Stephanie Moore: Thank you, and our next question today comes from Stephanie Moore, Jeffries, please go ahead. Hi, guys. I appreciate the time. It'll keep it to just the one here. You talked a little bit about the volume environment and your own actions with shedding accounts, but could you maybe talk a little bit about the strength in the underlying environment, what you're seeing on both the commercial and residential side. I know you called out specialty being stronger, but that can be kind of volatile.

Stephanie Moore: But let's just get your overall view. Thanks. Well, I would tell you overall, Stephanie, that the economy is okay. I wouldn't say it is by any way strong. I would say it's sort of a flatish environment from a from a growth standpoint. You have pockets of strength. I wouldn't really say there's too many pockets of weakness, just flatness. And we looked at, you know, so year to date our new business sales through our sales force activity is 102% of what it was year to date last year.

Stephanie Moore: So better than last year, but you know, 2% in terms of new sales. So overall, I would say you've seen a little improvement over 22, but really pretty flat. And I think you saw that in our comments that in Q3, you know, roll-off polls were up 1%. Price on purple was quite strong, but roll-off polls were up 1%. So I think that's indicative with our footprint being as large as it is.

Stephanie Moore: I think that's indicative of what's going on in the economy. And it's sort of appears to be a soft landing scenario, but there's certainly no underlying real growth in the economy. Not at this point. If some of the infrastructure spending occurs, the way it is planned to occur in 24 and 25. And I think that could certainly accelerate development. What I'd add to that, Stephanie, it's just that that's not a material change from what we've been saying really for the past six quarters or so. There's just not been a lot of movement.

Stephanie Moore: Thank you.

Stephanie Moore: And today's final question comes from Stephanie. You would take a few more again. Please go ahead.

Ronald Mittelstaedt: Hi, good morning. I was wondering if you can give us some color on what you're seeing in the M&A market. Just who you're coming up against is that other strategic for financial players and how our valuation levels funding. And just any color on where you're doing the acquisitions, maybe the geography or type of business that you've been acquiring. Well, start with the last one and easiest. I mean, the geography is throughout the US and Canada.

Ronald Mittelstaedt: You know, we've had a little more focus on the West Coast over the last 18 months or so. And of course, we're, you know, we're acquiring our typical solid waste disposal collection and transfer type companies. You know, who do we compete with? We obviously compete with, you know, the other public companies. And we certainly compete with some regional private equity back companies and then private mom and pop companies executing their own gross strategy.

Ronald Mittelstaedt: So, you know, as far as valuations, we've seen valuations probably over the last four months or so. Probably pull back about a turn to maybe two turns of EBITDA from where they sort of peaked in, I'd say, late 22. And, you know, we would probably expect that to continue to tighten a little bit as interest rates have continued to rise and are expected to perhaps have another adjustment or so and being in a relatively flat economic environment. So, hopefully it would be the answer to those questions you had. Yeah, no, that is very helpful. Thank you.

Ronald Mittelstaedt: And I was just one follow up just on the intention for share repartises. I know you renewed your issue of bid, but I guess just in terms of how you're thinking about M&A versus share repartises, it sounds like M&A is still in your view the best use of capital, is that correct? Well, that makes me changing rapidly, but yes, yes, no, it's clearly M&A is still our best use of capital on any long-term basis and how we should create the most value, but we clearly are opportunistic in the share repartises and will continue to stay opportunistic in that way. Okay, sounds good. Thank you so much, Ron.

Operator: Thank you, and ladies and gentlemen, this concludes the question of the interest session. I'd like to turn the conference back over to the management team for me closing the mark. Okay, thank you, operator. Well, if there are no further questions on behalf of our entire management team, we appreciate your listening to and interest in the call today. Mary Ann and Joe Box are available today to answer any direct questions we did not cover that we are allowed to answer under regulation FD, regulation G and applicable securities laws in Canada. Thank you again. We look forward to seeing you at upcoming investor conferences or hearing from you on our next earnings call.

Operator: Thank you, ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now describe your audience not the wonderful day.