Q1 2024 Waste Connections Inc Earnings Call
Yeah.
Good morning, everyone and welcome to the waste connections, Inc. Q1, 'twenty 'twenty four earnings conference call.
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At this time I'd like to turn the floor over to Ron Mittelstaedt, 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 first quarter results and to provide a detailed outlook for the second quarter I.
I'm joined this morning by Mary Anne Whitney, our CFO and several other members of our senior management.
We are extremely pleased by the strong start to the year driving better than expected operating and financial results, which along with recently completed acquisitions positions us well for the remainder of 2024.
Adjusted EBITDA margin expansion of 160 basis points to 31, 4% in the seasonally weakest quarter of the year puts us on track to exceed our industry, leading full year margin outlook of 32, 7% as continuing improvements in employee retention and safety trends along with rising commodity values.
Momentum for continued performance.
Before we get into much more detail, let me turn the call over to Mary Anne for our forward looking disclaimer as well as other housekeeping items.
Mary Whitney: You Ron and good morning.
Mary Whitney: 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.
Mary Whitney: Factors that could cause actual results to differ are discussed both in the cautionary statement included in our April 24th 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.
Mary Whitney: 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 debt.
Mary 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.
Mary Whitney: On the call, we will discuss non-GAAP measures such as adjusted EBITDA adjusted net income attributable to waste connections on both a dollar basis and per diluted share and adjusted free cash flow.
Mary Whitney: 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 differently.
Mary Whitney: I'll now turn the call back over to Ron.
Ron: Okay. Thank you Maryann as noted earlier, we are off to a great start in 2024 by any number of measures beginning with our financial results already set up for industry, leading outsized margin expansion during the year, we delivered a top to bottom beat in the quarter with adjusted EBITDA margin 20.
Mary Whitney: 20 basis points above our outlook and momentum for continued outperformance from a number of drivers and this was all achieved in spite of significant weather impact in January and early March.
Mary Whitney: Along with better than expected financial results. We saw continued improvement in trends for employee retention and most importantly safety.
Mary Whitney: In Q1 voluntary turnover once again stepped down sequentially, making the sixth consecutive quarter of improvement to levels, which are now 30% below the peaks we saw in late 'twenty two.
Mary Whitney: Similarly, we saw continued improvement in safety with incidence rates declining for the seventh consecutive month in fact during Q1, we achieved some of our best safety performance in years with monthly incentives down to three year lows in spite of the outsized growth from acquisitions during that period, we believe these.
Mary Whitney: <unk> reflect our commitment to a culture of accountability with an empowered and engaged employees.
Mary Whitney: To that end, we're excited about the steps we've taken to support employee growth and development with expanded training, including through our in house driver academies, the second of which will open this summer and our diesel technician school partnership offering.
Mary Whitney: We expect that these internal efforts will augment the improving dynamics, we've seen in employee recruiting resulting from additional resources and targeted efforts as noted previously the progress in retention and safety, we're seeing today positions us to unlock future benefits from improving cost and risk management, along with continued unexpected.
Mary Whitney: Growing savings across several areas, including labor maintenance and third party services all of which we are seeing in the financials today.
Mary Whitney: Moving back to our financial results, starting with organic solid waste growth in the first quarter, we delivered solid waste core pricing of seven 8% and to be clear our core price is what we actually retained not what was implemented which in other models gets reduced by churn to calculate.
Mary Whitney: Yield our price retention was in line with our expectations and continues to reflect the resilience of our market model.
Mary Whitney: Similarly reported volume growth of negative three 8% was in line with our expectations. Following extreme weather events, primarily during January which we believe impacted reported volumes by about 100 basis points beyond what we would consider typical levels of ongoing purposeful shedding.
Mary Whitney: Looking ahead to Q2, we would expect a sequential step up in reported volumes of about 100 basis points, assuming a typical seasonal ramp in activity.
Mary Whitney: And as a reminder, on volume calculations, our reported volumes are strictly solid waste volume changes not orangey N P recycled commodities or acquisitions until after we've owned them for 12 months companies calculate volumes differently and they may view them differently.
Mary Whitney: As discussed in previous quarters, our outsized growth over the past few years has created the opportunity for improving revenue quality and otherwise right sizing newly acquired locations depending on the market purposeful shedding and contract Nonrenewals may provide multiyear tailwind for margin expansion.
Mary Whitney: Along with improvements in asset utilization and operating efficiencies.
Mary Whitney: We look forward to similar opportunities from acquisitions that fit our strategy and meet our financial criteria as we maintain our focus on long term value creation.
Mary Whitney: We continue to see high levels of seller interest and have a robust pipeline of solid waste opportunities across our regional footprint.
Mary Whitney: As noted acquisition activity has already contributed to our strong start to the year with approximately $375 million in annualized revenue completed today.
Mary Whitney: In addition to the secure energy divestitures, we acquired in February we completed acquisitions of over $150 million in annualized solid waste revenue, including a new market entry, providing services to customers in Indiana and southern Michigan.
Mary Whitney: The strength of our financial position and free cash flow generation provide flexibility for continued acquisition outlays in 2024 for what could be one of our busiest years ever.
Mary Whitney: Along with continuing to increase our capital to shareholders.
Mary Whitney: Beyond M&A, we continue to make progress on our development of multiple renewable gas or RMG facilities, three of which are scheduled to be operational this year.
Mary Whitney: In spite of industry wide delays related to equipment and utility installations, we continue to anticipate an incremental $200 million of annual EBITDA beginning in 2026 from the projects in development on a commensurate capital outlay.
Mary Whitney: Noted previously 150 millions of that Capex will be deployed in 2024 and has been factored into our full year free cash flow outlook.
Mary Whitney: Now I'd like to pass the call to Mary Anne to review more in depth the financial highlights for the first quarter and provide a detailed outlook for Q2 I will then wrap up before heading into Q&A.
Mary Whitney: Thank you Ron.
Mary Whitney: In the first quarter revenue of 2.073 billion was about $23 million above our outlook due primarily to incremental acquisition contributions and higher recovered commodity values revenue on a reported basis was up 172 million or nine 1% year over year acquisitions.
Mary Whitney: <unk> completed since the year ago period contributed about $81 million of revenue in the quarter or about $78 million net of divestitures.
Mary Whitney: Total price of seven 1% reflected a reduction of about 70 basis points and fuel and material surcharges, primarily related to lower fuel rates we.
Mary Whitney: We have high visibility for full year 2020 for total price in the range of 6% to 7% with 75% of our core price either already in place or specified by contract as is pretty typical for us but at this point in the year.
Mary Whitney: Solid waste volume losses of three 8% in Q1 include about 1% from January storm related closures and other weather impacts that resulted in volume losses to varying degrees across all of our geographic regions.
Mary Whitney: Beyond the ongoing purposeful shedding and price volume trade off.
Mary Whitney: Looking at year over year results in the first quarter on a same store basis daily roll off polls were down 3% driven by outside declines in our most weather impacted markets in our mid south and eastern regions.
Mary Whitney: And daily landfill tons were down 6% on lower special waste activity in CND tons.
Mary Whitney: And which were down about 15% well.
Mary Whitney: MSW tons were flat in spite of the weather impacts noted.
Mary Whitney: Looking at special waste and C&D the year over year slowdown in Q1 was widespread but most notable in our central region, and Canada, both of which benefited from outsized activity in prior year periods.
Mary Whitney: We saw improving trends in both rollout pulls in MSW tons during the quarter beginning with January activity down high single digits due to severe weather and ending with March about flat or up nominally on a year over year basis and in our Western region. The best barometer of underlying activity given the nature of franchisees report.
Mary Whitney: Volumes were positive in Q1 in spite of the weather impact in January.
Mary Whitney: Beyond solid waste revenues played out slightly better than expected in Q1 with recycled commodities landfill gas and renewable energy credits or Rins collectively up about 50% year over year on recycled commodity values up around 15% from earlier this year.
Mary Whitney: Prices for OCC or old corrugated containers averaged about $130 per ton in Q1.
Mary Whitney: <unk> averaged about $3 10 accounts.
Mary Whitney: Adjusted EBITDA for Q1 as reconciled in our earnings release was $650 7 million up 14, 8% year over year and about $10 million above our outlook at 31, 4% of our revenue our adjusted EBITDA margin was up 160 basis points year over year and 12.
Mary Whitney: Eight basis points above our outlook.
Mary Whitney: These results include an estimated 40 basis point margin drag related primarily to the extreme weather related impacts noted therefore on a normalized basis margins were up 200 basis points year over year.
Mary Whitney: Net interest expense in the quarter increased by $10 $8 million over the prior year period to $76 4 million due to higher outstanding debt and increased interest rates as compared to the prior year period.
Mary Whitney: During Q1, we completed a public offering of $750 million of senior notes with proceeds directed to floating rate debt repayment, reducing borrowing costs by over 100 basis points. Our current weighted average cost of debt is approximately 4.15% with an average tenor of over 10 years, we end.
Mary Whitney: Did the quarter with debt outstanding of about seven 9 billion up 19% of which was floating rate liquidity of approximately $830 million and our leverage ratio as defined in our credit agreement was about two eight times debt to EBITDA.
Mary Whitney: Our effective tax rate for the first quarter was just under 21%. The Q1 rate as expected included a benefit to the provision related to excess tax benefits associated with equity based compensation. In addition, it reflected the impact of and an investment tax credit associated with an R&D facility expected to begin service during the year.
Mary Whitney: Which has about a 70 basis point benefit to our effective tax rate for 2024.
Mary Whitney: And finally, adjusted free cash flow of approximately $325 million was in line with our expectations and our full year outlook of $1 $2 billion. That's provided in February.
Mary Whitney: I will now review our outlook for the second quarter of 2024 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.
Mary Whitney: Kelly.
Mary Whitney: 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.
Mary Whitney: Revenue in Q2 is estimated to be in the range of 2.2 to 2.225 billion.
Mary Whitney: This includes solid waste price plus volume growth of approximately 4% from total price of 6.5% to 7% on core price of seven to seven 5% and volume down 2.5% to 3%.
Mary Whitney: Adjusted EBITDA margin in Q2 is estimated at approximately 32, 5%.
Mary Whitney: 140 basis points year over year.
Mary Whitney: Depreciation and amortization expense for the second quarter is estimated at approximately 12, 8% of revenue, including amortization of intangibles of about $44 million or <unk> 13 per diluted share net of taxes.
Mary Whitney: Interest expense in da Vinci income is estimated at approximately $82 million for the second quarter and finally, our effective tax rate in Q2 is estimated at about 23, 5% subject to some variability.
Mary Whitney: And now let me tell the turn the call back over to Ron for some final remarks before Q&A.
Ron: Thank you Marianne.
Ron: When I returned to the C. One year ago. This week I emphasized the importance of the decentralized operating model and culture of accountability that is served to drive differentiation differentiated results since our beginnings as a company.
Ron: Afflicting on the progress that has been achieved over the past 12 months I could not be prouder of our local teams. Although we've added to the playbook and made some organizational changes, we've mostly reinforced our vision and values and as we say doubling down on human capital.
Ron: And you've seen the results in our most important operating value as.
Ron: We recorded in March the lowest number of safety incidents that we've seen for three years in spite of adding over 3000 employees during that same period.
Ron: So I want to conclude by thanking our 23000 employees, who put safety first every day and his commitment to accountability is evident in not only what they say, but what they do as demonstrated by delivering such a strong start to 2024.
Ron: With solid waste pricing largely in place improving operating trends higher commodity values and the benefit of what could be a record year of M&A, we are well positioned.
Ron: That all said, we believe it's appropriate as in prior years to wait until our Q2 earnings release to consider updating our outlook for the full year.
Speaker Change: We appreciate your time today and I will now turn this call over to the operator to open up the lines for your questions operator.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session to ask a question you May press star and one on a touchtone telephone.
Operator: If you are using a speaker phone we do ask you. Please pick up your handset prior to pressing the keys to enjoy the best sound quality.
Operator: Draw your questions you May press star two.
Operator: At this time, we'll pause momentarily to assemble the roster.
Operator: And our first question today comes from Tyler Brown from Raymond James. Please go ahead with your question.
Tyler Brown: Hey, good morning, everyone.
Tyler Brown: Good morning, Tyler.
Tyler Brown: Hey, Brian Hey, I'm, obviously, you know margins were up 160 basis point, I mean, a great start for the year, particularly given the drag from weather, but I was just hoping we could get a little bit more detail maybe on some of the puts and takes in the quarter because I do assume that maybe fuel recycling M&A will all slight tailwind, but just any additional color would be helpful.
Tyler Brown: Yeah.
Brian: Sure Tyler so the way, we think about it as we said in the remarks thinking that it's 200 basis points, excluding those outsized impacts from weather, which resulted in lower volumes. So when I think about this 200 basis points I'd split it into two large buckets, one being commodity driven recycling and ramps being combined.
Brian: Close to about 100 basis points and the remainder the rest of the business. So that's really primarily underlying solid waste you do E&P was a good guy acquisitions are accretive.
Tyler Brown: And so in the aggregate that's another 100 basis points and within there youre seeing the benefits of that price cost spread and the improving trends on the operating side Brian.
Tyler Brown: For instance, when you look within wages, where we had said we'd been looking at the same employee increases that last year went from 8% to about 6% Youre down sub six between five 5% and 6% in Q1. So an example of where youre seeing that leverage from price cost and then similar.
Tyler Brown: Early on some of those third party costs as we bring down turnover and improve safety.
Speaker Change: Yeah excellent okay, Yeah, that's very core level, Oh, good improvement Hey, Ron I'm sure there's going to be some additional questions about this but maybe I'll just kind of kick it off the discussion about it but obviously the U S government EPA made some changes on the regulatory side on PFS in the last couple of weeks.
Speaker Change: It's just you know.
Ron: Hoping you could give us some high level thoughts about that broadly what it means for waste connections, but specifically I was wondering to get your thoughts on what this may mean for landfill leachate costs just in the near to intermediate term and what are the prospects to recoup any additional costs, whether it be operating or capital costs.
Tyler Brown: Sure.
Speaker Change: Well first off let me say that I think what transpired with the legislation was effectively totally as expected number. One. This is this is not some surprise to us or to the greater industry by any means.
Speaker Change: Number two I think stepped back.
Tyler Brown: Traditionally and we can point to several examples of this but traditionally uniforms, new incremental federal regulation such as this is very good.
Tyler Brown: In both the short and long term for the well capitalized public companies.
Tyler Brown: It has it creates a uniform playing field it creates a playing field, where those with the access to capital and the infrastructure to <unk>.
Tyler Brown: Advantage of it are able to do so and it creates a price opportunity that generally quite exceeds the cost to comply both operating and capital wise. It also traditionally has created sort of an M&A catalyst. So.
Tyler Brown: I don't think the public companies in any way.
Tyler Brown: Lot of flying that regulation and I I think you know from everything we're hearing there will be changes to the regulation or really a codification of the regulation further that gives the the intended of.
Tyler Brown: The intention of the regulation, which was not sort of be punitive to passive receivers such as landfills K landfills are passive receiver. It's taking this material as required by law and permit on behalf of the producers and the consumers of it. This legislation is really targeted if there was a.
Tyler Brown: Work at producers of the of the material not passive receivers. So I think youre going to see the language.
Tyler Brown: But the law amended and changed to reflect more of that so.
Tyler Brown: There's a lot as I said and I think the EPA has been very clear that they've said they've said that it is not meant to create a liability for those that are passive receivers and thats what.
Tyler Brown: Our landfills are so a long winded answer to you Tyler, but you know the the Devil is ultimately in the details of how this gets implemented were still ways from that.
Tyler Brown: Look there are there are relatively low cost.
Tyler Brown: Capital.
Tyler Brown: <unk> for treatment, such as phone fractionation and others for P. Pause that we are doing already proactively at several of our landfills over the last year and a half to two in anticipation of this so we have a good idea of what works and what May not air.
Tyler Brown: And what I would tell you is it's not going to really move the needle I don't think for the industry on the capital cost and it will present, an incremental pricing cost of price through it and recover it.
Speaker Change: At least I can speak for us on that.
Tyler Brown: You know as far as the cost of Leachate again, if you go with the capital. If you go with a low cost capital cost and do some onsite treatment Tyler.
Tyler Brown: It won't change the cost of leachate now there are some <unk> that may not opt to take it even even treated for for just you know fear and and but you know in most markets. There are options. If that does raise the cost of leachate again that will be a local pricing opportunity through that customer base.
Tyler Brown: There are less options. So I mean, it's a long winded answer, but I think that's how we holistically think about this yeah no perfect extremely good color very much appreciate it one quick housekeeping.
Maryann: Maryann what is it.
Maryann: Based on what we know today, what's the M&A benefit to 'twenty four revenue based on what we know as of right now.
Maryann: So when I think about the incremental deal activity that was done that would add $80 million to $90 million for the full year on top of what we already had which I think was 325 excellent.
Speaker Change: Perfect. Thank you.
Maryann: And our next question comes from <unk> Khan from RBC Capital markets. Please go ahead with your question.
Khan: Great. Thanks, very much just on the Q2 guidance that you provided around volume being down two 5% to 3% I was just hoping if you can maybe detail that out a little bit in terms of shedding versus some of the other factors. Please.
Khan: Yeah.
Khan: So I would say if anything you know what I think you should read into that as it suggests more margin opportunity.
Khan: That really reflects sort of an increased amount of M&A over the certainly already at the start of this year in the second half of last year.
Khan: So you know I would tell you that that's probably about 50 basis points more of the.
Khan: The increase which is basically all of that are based on the guidance.
Khan: And you know what we would expect you to see is roughly a 50 to 75 basis point incremental continuous improvement throughout this year 100 basis points just on weather as we said Q1 to Q2, and then continuing Q2 to three three to four stepping up another.
Khan: 50 to 75 basis points per quarter.
Khan: Again that can change a little bit due to incremental shedding.
Khan: But that that's really the delta.
Speaker Change: Okay, Great and then maybe just continuing the margin discussion from the last question.
Khan: We're looking at another I think 100, plus bps of margin improvement in Q2. It seems like the Q1 margin improvement was split between kind of core business and recycling rins et cetera.
Khan: Maybe just walk us through kind of the confidence around that 120 bps in Q2, what is that coming from maybe the split there and how much of a tailwind from sort of commodities and Rins are you baking into that improvement into the next quarter.
Speaker Change: Sure. So the way to think about it is that the greatest margin contribution from recycled commodities and rents would be in the first quarter with decreased over the course of the year all other things being equal just because the comparisons get tougher right. Because you had commodities ramp last year and so if by way of example, you started with 100 in Q.
Speaker Change: One you can see that stepping down to 60 or 50 basis points. In Q2. So that really tells you that the tail winds are coming from the underlying business and that is growing and as we said.
Speaker Change: Coming into the year, we had talked about that outsized opportunity between that price cost spread that I described we're already seeing in Q1, and we'd expect that to continue and also the operating leverage we're getting from those improving dynamics around retention and turnover, where we've said that.
Speaker Change: We'd see it in a number of different areas and as we've indicated we're starting to see that whether it's the relationship between overtime and straight time, even if we have more heads in place, but seeing overall improvement and the reduction or the slower growth in third party costs, providing some more margin expansion on things like outside repairs. So those are the types.
Speaker Change: The dynamics that would contribute to growing operating leverage as we move through the year and that's what gives us the conviction for Q2 is that we're already seeing it in the numbers in our operating statistics and we know that the dynamic is that the savings follow after you see those quarter after quarter.
Speaker Change: Improvement and one other thing I would note just you didn't ask it but just to get it even more granular.
Speaker Change: As you know we closed the secure.
Speaker Change: E&P transaction in the first quarter.
Speaker Change: We noted that it is margin accretive for the full year I would note that.
Speaker Change: Different than our solid waste business Q2 is actually the lowest seasonal quarter for revenue EBITDA and margin in that business due to the fall break up period that goes on in Canada from April through mid June so unlike our solid waste business.
Speaker Change: For Q1 is the seasonally weakest quarter.
Speaker Change: In that business Q2 is comfortably the seasonally weakest quarter. So the point being that is not what is driving margins in Q2. It is our underlying solid waste business.
Speaker Change: That's super helpful and maybe just a quick follow up Ron around your answer in the earlier question about the the new P fast regulation potentially adding to the M&A opportunity set.
Speaker Change: Presumably this is going to take a while to play out, but maybe from a philosophical perspective, how big.
Speaker Change: Of an addition could that be to the M&A side in terms of how many more folks could come to market and over what period of time do you think that plays out in terms of the benefit too.
Speaker Change: The larger acquirers.
Speaker Change: Yeah, well number one I would tell you it is too early to up.
Speaker Change: Understanding you're in all that.
Speaker Change: I think it depends on ultimately what the regulation is and you know how private folks depend decide excuse me to comply with it.
Speaker Change: Yo Yo obviously it has the most effect on disposal related assets are directly.
Speaker Change: And of course, there are far less of those today than there were in previous cycles of.
Speaker Change: Incremental federal regulation change, but without question. It has traditionally been a macro driver. It does take time for that to happen. So it's not something that's going to be a 24 or maybe even early 'twenty five thing, but over time. It it does it tends to drive M&A.
Speaker Change: Okay. Thanks, very much for the color.
Speaker Change: Our next question comes from Michael Hoffman from Stifel. Please go ahead with your question.
Michael Hoffman: Hi, good morning, and thanks for taking the questions.
Michael Hoffman: Brian How would you think about where open positions are versus year over year, and then sort of second to that is.
Michael Hoffman: At the point you get fully loaded with your in house training.
Michael Hoffman: How do you feel about how what's the proportion of your your fill rate will be driven by the things you actually own and control and the training.
Michael Hoffman: Okay.
Speaker Change: So Michael we have historically.
Speaker Change: Meaning for lets just call. It 15 20 years through various cycles, we've always targeted running the company at about a 3.5% to 4% open head count are.
Speaker Change: At all times given through some natural attrition of the and then of course involuntary turnover that we're being proactive on.
Speaker Change: At our worst time as we came through into 'twenty two into 'twenty. Three we actually peaked at approaching 7.5% open headcount positions, we have reduced that throughout 'twenty three to present to where we are now down right to about 4%, maybe even 3.9 on a run rate.
Speaker Change: Basis, So we're really at where we have historically run we have a few regions that are down in the 2.5% level.
Speaker Change: And you know and.
Speaker Change: We're very comfortable with that so you know we've reduced open head counts year over a year to date by 46%.
Speaker Change: Where it peaked we.
Speaker Change: We are now down to about 15.7% as of April one.
Speaker Change: With a target of getting to between 10 and 12 by.
Speaker Change: At year end and entering 25, so we're we're well more than halfway to our target from where we were 12 months ago.
Speaker Change: And now to the second part of your question I would say that our objective as we come through what we believe will be mid 'twenty five so quality year from this summer our objective is to get to sort of a third or more of those that we hire coming.
Speaker Change: Through our in house, what I'll call, our in house development and and academies.
Speaker Change: That would be the target.
Speaker Change: Now you know it could be more beyond that but that's our target one in three of getting to that.
Speaker Change: Okay, that's terrific and then.
Speaker Change: Everybody's going to wring their hands about P fast for a while until this all plays itself out but putting it in perspective.
Speaker Change: Tape cost or 1% to 2% of revenues when it's not.
Speaker Change: Five to 10.
Speaker Change: No, it's actually even lower Michael.
Speaker Change: One is a fair average it actually just below okay and the the treatment technologies that you mentioned I mean were 15 to 20 billion gallons of yearly Jake.
Speaker Change: The industry, it's five to 20 cents a gallon.
Speaker Change: The range, but the treatment technologies are inside that range. So it's not like you're quadrupling or whatever if you had to add those technologies to pretreat and take the P pass out before.
Speaker Change: No I mean, Michael I mean, there is you know as you know there is great variability in the size of landfills in the amount of leachate based on how old they are in and how much waste masses in place and of course, what the weather conditions are in that geography, but you know youre talking about $1 million to $4 million for the capital cost.
Speaker Change: To do treatment of most landfills in the U S.
Speaker Change: And that will then lower the leachate cost to what it is to that.
Speaker Change: Got it Okay and then my understanding in the Senate had a meeting about a month ago that proactively.
Speaker Change: Environmental Public works committee proactively sought to discuss what that intervention language should look like with a real objective of trying to get something passed in 2024.
Speaker Change: Are you hearing anything different from that.
Speaker Change: You know I've heard the same thing through industry Association Council and lobbyists are but I do not have any better information than that Michael okay. Great. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Kevin Chiang from CIBC. Please go ahead with your question.
Kevin Chiang: Okay. Thanks for taking my question and congrats on a good quarter here and start to the year.
Kevin Chiang: Maybe if I could just.
Kevin Chiang: Start with the margin outperformance.
Kevin Chiang: I look at your full year guide, which I know you have an updated.
Speaker Change: At this point in time.
Speaker Change: Full year 120 basis points.
Speaker Change: I think back to how we thought that would play to play through the year.
Speaker Change: Maybe a little bit outperformance in H, one maybe a little bit below the 120, <unk> broadly speaking pretty even throughout.
Speaker Change: Given the outperformance in each one should we think about Oklahoma clearing through H, two I know you're not officially updating your guy but anything.
Speaker Change: I guess, if anything you pushed back on that kind of simple math just given.
Speaker Change: H one performance.
Speaker Change: So so far.
Speaker Change: Sure. So so just check.
Speaker Change: Just reiterate or underscore what you've talked about in terms of what expectations. We laid out for the year, you're right. We said that it was pretty evenly distributed with our expectation for that 120 basis points margin expansion. We also said as I mentioned earlier that the contribution from recycled commodities and rents would be greatest are greater in the first half and in the beta.
Speaker Change: Over the course of the year. So I just just be mindful of the fact that as as we've noted some of the benefit in Q1 was from commodities and so the expectation would have to be that if if you're marking to market. Here. Then you would continue to have that benefit. The other thing to keep in mind is some of our outsized performance on the topline with M&A.
Speaker Change: And so as we continue to do M&A, which is typically a little dilutive.
Speaker Change: The typical collection company, we'd want you'd want to factor that into your expectations, which is why as we think about it updating in July is there considering taking a look at that in July as we always do.
Speaker Change: As appropriate given all those dynamics.
Speaker Change: That's helpful.
Speaker Change: And maybe just my second question.
Speaker Change: Maybe it's a bigger bigger.
Speaker Change: Bigger picture question on some of the in House development Youre doing as we've talked about a target of one third and I'm not sure. If you have enough granularity on this but I'd be interested in knowing.
Speaker Change: But you're pulling a lot of people are people move back and forth between.
Speaker Change: No.
Speaker Change: Was it working for the broader transportation sector, So no truck drivers and maintenance workers.
Speaker Change: And that field versus.
Speaker Change: I might answer the.
Speaker Change: <unk> sector.
Speaker Change: We were in the midst of a very long recession here. So I suspect that's a tailwind pool or people that are looking to.
Speaker Change: To join your firm I guess as you think about the great recession, eventually exit and just how much volatility you think that.
Speaker Change: It's too.
Speaker Change: I guess your in House development do you think it it ended up being pretty steady to upgrade cycle, just because you offer different work life balance or do you think it becomes more challenging.
Speaker Change: Freight economy starts.
Speaker Change: It starts to really move up here right.
Speaker Change: Sensation for long haul trucking becomes a little bit more favorable than it is today.
Speaker Change: Yeah, well, so let's take a step back Kevin I'll answer it in a little bit different way, but I think it will get to what you're asking.
Speaker Change: Hum.
Speaker Change: So traditionally for us and I would say most of the industry remember our largest too.
Speaker Change: Employee bases are of course, CDL drivers and diesel technician or mechanics.
Speaker Change: Yeah.
Speaker Change: When we have had as a company and an industry and opening for that we have sought to pursue somebody who is a CDL driver or somebody who is a certified diesel technician.
Speaker Change: Which means that we either have to find them unemployed or we have to fly it we have to steal them from another employer, usually by a better compensation and door.
Speaker Change: Structure for that.
Speaker Change: You know that in a tight economy is a vicious cycle.
Speaker Change: What we are doing by opening these academies that we are doing is we are actually pursuing a different type of employee.
Speaker Change: This is an employee who we are upskilling quite dramatically from where they are so we are not bringing in somebody who has a CDL into our CEO driving academies, we are not bringing someone in to our diesel technician partnership school for somebody that has a maintenance.
Speaker Change: Ground. So this is a longer approach it is a dynamic positive change to the impact of that type of employee.
Speaker Change: It is often an employee who has been with us for a period of time, So we know their character.
Speaker Change: That we are making an investment.
Speaker Change: We're also doing it from people on the on the outside so an example would be.
Speaker Change: Instead of hiring somebody with a CDL and taking them from another waste company or a trucking company. We're hiring someone who has been with home depot for two years as a forklift operator.
Speaker Change: That has a great track record in safety culture, but it's another 10 dollar on our opportunity if we can get them their CDL and it totally changes there their life and and I would say our commitment to us so.
Speaker Change: That's why it won't be 100% to my response to Michael Hoffman, but I think it will ultimately be a third so I'm less concerned as we go into a tight economy.
Speaker Change: If it if and when we do which of course, who will.
Speaker Change: With us having this approach to help buffer that it's another reason, we're actually doing it.
Speaker Change: That's great color. Thank you very much.
Speaker Change: Our next question comes from Noah Kaye from Oppenheimer. Please go ahead with your question.
Noah Kaye: Thanks, Ron.
Noah Kaye: Talked last quarter about <unk> 5 billion or so now fitting the market model for a mid day and you know the internalization opportunities around the north eastern.
Noah Kaye: Just given your comments around this year potentially being one of the busiest ever and in recognition of what you've done already I was wondering if we could get some more color either around the regional mix that you see those opportunities and.
Noah Kaye: And all those kind of the profile of the types of acquisitions, you're looking at.
Speaker Change: Sure well I would say first off no. The there is where we've got opportunities in all of our.
Speaker Change: Solid waste regions, we have five regions in the U S and one in Canada, as you know and and we have active.
Speaker Change: L O I's signed an discussions going and all of those regions. They are all what I would consider our traditional solid waste companies.
Speaker Change: Company's collection companies called integrated.
Speaker Change: Integrated companies companies with transfer stations et cetera.
Speaker Change: So you know I am not necessarily so.
Speaker Change: Saying, there's an incremental waiting to some geography or the other it's probably a little bit more in our competitive footprint right now of course, our competitive footprint is a little larger franchise.
Speaker Change: Franchise transactions and the exclusive models take a little longer although we have several signed as well.
Speaker Change: So it's pretty balanced which is what gives us the confidence to say that you know we.
Speaker Change: We have an opportunity yet, perhaps say a record year other than the year, we did a public merger.
Speaker Change: So.
Speaker Change: And this is this is as I said all core key solid waste business certainly we're focused on and are improving our utilization of our arrowhead asset.
Speaker Change: And incremental tonnage through that asset that we acquired in August of 'twenty. Three and then there are definitely transactions that that will boost that so.
Speaker Change: So you know that but but those can come from sort of the the mid south all the way up through the eastern seaboard. So.
Speaker Change: Yeah.
Speaker Change: It's a we have a busy plate a lot going on and I think over the next couple of quarters you know hopefully.
Speaker Change: Some of that will will become clearer for everyone.
Speaker Change: Okay. Thanks, Ron.
Speaker Change: I was just reflecting on on your comments to start the call about.
Speaker Change: Where were you in the business that you know.
Speaker Change: A year later since Youre coming back.
Speaker Change: And I guess the question is.
Speaker Change: <unk>.
Speaker Change: Too soon to declare victory, but you've made a lot of progress already on things like employee retention and turnover reduction.
Speaker Change: Where are your incremental focus areas at this point for operational improvements within the business.
Speaker Change: Well first off thank you.
Speaker Change: I would say all of our team our local teams in our regions have made the improvements.
Speaker Change: We just get to talk about them.
Speaker Change: But.
Speaker Change: You know look we're going to continue doing that you know when I first got back I I said I think on this call one year ago. This week.
Speaker Change: If you're going to follow one thing Paul follow turnover because it drives everything.
Speaker Change: Uh huh.
Speaker Change: It drives incremental improvement in.
Speaker Change: So that's going to continue to be a huge focus.
Speaker Change: And continuing to maintain.
Speaker Change: And drive down, particularly voluntary turnover.
Speaker Change: So that's the focus we have a huge focus on risk as you know we've always had a huge focus on price that's not going to change and as we.
Speaker Change: Continue to get.
Speaker Change: Call. It healthier in how we're performing are both operating wise and financially than we've got the ability to step on the pedal on growth.
Speaker Change: Both organically and Inorganically.
Speaker Change: And I would tell you that you know a year ago, we really couldn't afford to do that.
Speaker Change: Because we were just trying to get through the quarters with the amount of open positions et cetera, and that just puts a strain on the entire organization at every level. So.
Speaker Change: So the focus isn't going to change other than I think you'll continue to see you know those have more opportunity for growth.
Speaker Change: We've got you know we don't talk about it that's not our style. We've got all kinds of different things we're working on.
Speaker Change: Utilization of AI.
Speaker Change: In a number of different areas, but we don't come out put benchmarks to that.
Speaker Change: We'll let the margin talk about that when we when we complete them. So.
Speaker Change: Certainly we have room for technology improvement in our operating platform over the next several years.
Speaker Change: I appreciate that color. Thank you.
Speaker Change: Our next question comes from Brian Bird miles from Citi. Please go ahead with your question.
Bryan Burgmeier: Good morning, Thank you for taking the question.
Bryan Burgmeier: Ron I know, it's only been three months since you've closed the secure acquisition, but you know I think in the last call. You mentioned the company is running about 22 to 29 acquired facilities and some of them maybe come back on line this year.
Speaker Change: Is there any update there I guess I'm just curious what exactly is being assumed in guidance now.
Speaker Change: And if it's too soon to say I totally understand maybe thats, a better rate for July or October.
Ron: Yeah, Okay, well thanks, Brian.
Ron: So number one the guidance does not assume any incremental opening of those seven shut.
Speaker Change: <unk> facilities.
Speaker Change: I believe that prior to year end, we will open up to two of those I think we'll understand that better come July but I think we will open potentially two of the seven that are shuttered right now before year end or maybe right at year end. So.
Speaker Change: Maybe not contributing anything to 'twenty four but certainly some rollover into 25 and then we will evaluate continue to evaluate the other five of the seven.
Speaker Change: And you'll see various openings occur throughout 'twenty, five and into 26 I. Ultimately believe that we will probably open six of the seven that are incremental ones that we acquired.
Speaker Change: Got it got it thanks for that detail and last question for me, maybe just for Maryann and apologies if I missed this but could you remind us what your guidance is assuming right now for recycled commodity prices and RIN prices than where waste connections stood.
Speaker Change: With those items in <unk>. Thank you I'll turn it over.
Maryann: Sure Seth for one two OCC was $130 a ton of Rins averaged $3.10 you did see OCG tick up a little higher over the course of the quarter and it ended closer to 140. So we went out and we always mark to market. So basically the assumption is there around current levels.
Seth: What is included in the guidance for Q2.
Maryann: And our next question comes from Toni Kaplan from Morgan Stanley. Please go ahead with your question.
Maryann: Hi, guys. This is hilary on for Tony.
Hilary: Great quarter. Congrats was just wanted to talk about margin a little bit kind of going back to Kevin's question. It looks like you know with.
Speaker Change: With the rest of the year potentially being evenly distributed.
Hilary: Lastly reached 34% by the back half of the year. So just wondering you know what would need to happen for you guys to get to a threshold or what could hold you back.
Speaker Change: Well.
Speaker Change: First of all I'd say in the guidance, we gave for the full year, we acknowledge that in Q3, the seasonally strongest quarter, we would be approaching that those levels. Because if you just put a 120 basis points on top of it each of the four quarters I think that brought you up to.
Speaker Change: 33, <unk> right so.
Speaker Change: Basically we said we've outperformed as I noted some of that is commodities. Some of it is the underlying business and some as acquisition contribution and so those three variables I would say it will dictate.
Speaker Change: To which we get to that level or somewhere around there, but I don't disagree with your setup and if again if things play out in subsequent quarters. The way they did in Q1, meaning the outperformance we saw from all of those various drivers that certainly is in striking distance.
Speaker Change: Got it. Thank you and you know because the 34% is well within so I guess do you guys have another target in mind or anything that you guys are kind of reaching towards after that I know it might be a little early to comment on that though.
Speaker Change: Well, we never met for 34% to be a limiting factor. It's just almost more conversational because we've certainly been there before but as you may recall there is some telecom may recall, we said that before we had closed the secure transaction and we said that secure would be 50 basis points accretive to overall margins and so.
Speaker Change: I think that tells you we already have our site had set well north of 34% and I would also say Hillary that.
Speaker Change: You know remember that does not include $200 million of EBITDA from proposed and planned RMG facility openings in 26, our contribution that we've said.
Speaker Change: So.
Speaker Change: It also did not include that.
Speaker Change: Great. Thanks, and just lastly, I just want to know if you guys have an update regarding the New York City franchise process.
Speaker Change: Anything going on there or any updates.
Speaker Change: You know no no real updates.
Speaker Change: I mean everything is moving incrementally forward positive.
Speaker Change: We start September four.
Speaker Change: Fourth of whatever the day is right after labor day that Tuesday is the first operating day of that.
Speaker Change: The beta pilot for several of the zones that the city is going to run for 90 days basically till almost a year and.
Speaker Change: I would tell you. The other update is the city asked us awhile back to to demo some electric vehicles and we have taken delivery of some of those in the month of April.
Speaker Change: And have begun operating those.
Speaker Change: For the city to see how that works performance wise.
Speaker Change: In all areas.
Speaker Change: I mean these are just a little anecdotal updates, but those are really the updates right now.
Speaker Change: Oh, great. Thank you.
Speaker Change: Again by the New York demo that'd be great [laughter], but thanks, again, a great quarter.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead with your question.
Speaker Change: Hi, This is Adam on for Gary today I. Thank for taking my question.
Adam: Really strong M&A activity to date I was just hoping to better understand the makeup of our solid waste acquisitions year to date. So I think you referenced.
Adam: The acquisitions included a new market entry in Indiana, Michigan without one deal or multiple deals them how large.
Speaker Change: Of the 150 million did that represent just trying to understand the make up a little bit better. Thank you.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: Adam.
Adam: So the transaction, we acquired was a company out of Elkhart, Indiana.
Speaker Change: Which is in northern Indiana approaching the southern Michigan border name waste away.
Speaker Change: A phenomenal nearing third or third generation company.
Speaker Change: Really very very well known in our industry.
Speaker Change: Phenomenal family ownership.
Speaker Change: That was retiring.
Speaker Change: Had an incredible management team in place.
Speaker Change: That we have.
Speaker Change: Taken with us.
Speaker Change: And that represented.
Speaker Change: You know more than half of the total revenue.
Speaker Change: That incremental 150 that we reported a large acquisition.
Speaker Change: By any stretch it certainly in our platform.
Speaker Change: About 300 employees out of three locations.
Speaker Change: And I would tell you that and we are closed to that obviously in the quarter I would tell you that we are already in the process of closing our first acquisition in that area as well in the middle of Q2.
Speaker Change: Great I appreciate the color and then you folks have achieved a really strong improvement in employee retention and turnover over the last four quarters or so can you just update us on where we are and seeing the benefits of lower turnover flow through the cost structure, given there's a lag there.
Speaker Change: Sure. So what we've talked about is that there's an incremental 100 basis points associated with improvement in several different line items and as I mentioned earlier, we're starting to see those for instance in over time and at some of our third party costs like sub contracting business.
Speaker Change: And so if I if I were to think about it in terms of that 100 and the aggregate I'd say, we're down at that maybe in the 10 to 20 basis points of the improvement is what we've started to see of course, we know that there are pieces of it that will lag even longer most notably the cost of risk which is as we've described it.
Speaker Change: You can bring down your incidents in the current period, but you are still paying for incidents in prior periods and so we're not surprised but that certainly continues to be a headwind rather than a tailwind and anticipate that that takes multiple periods to start being recognized.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Tony Bancroft from.
Tony Bancroft: Kimco investors. Please go ahead with your question.
Tony Bancroft: Thanks, so much congratulations Ron and team on the great quarter, maybe is more of a long term question.
Tony Bancroft: <unk> made there.
Tony Bancroft: The large acquisition with a secure energy.
Tony Bancroft: I know that you look forward the traditional solid waste.
Speaker Change: Where your focus but any other opportunities there or maybe even longer term.
Speaker Change: The large regionals that they've always talked about.
Speaker Change: Is there ever going to be opportunity to do something more transformational there or how do or maybe even not municipal side have you seen anything incremental.
Speaker Change: It may be higher cost too.
Speaker Change: Two two.
Speaker Change: Towns and municipalities to transfer those to two private operators. Thanks Ron.
Speaker Change: Well.
Speaker Change: So, let's break that apart a little bit.
Speaker Change: So on the secured side.
Speaker Change: As you know we had been in the E&P business strongly since 2012 in the U S mostly on the drilling side.
Speaker Change: The beauty of the secure transaction. It was about the exact same size as what we had in the U S. But it was completely inverse it was 85% production.
Speaker Change: And so we like that balance and we like the size that the combination of those are and as we continue to grow our core solid waste that will become a smaller percentage just naturally in the company. However, having said that we have some incremental opportunities we believe in that.
Speaker Change: Space there are smaller.
Speaker Change: But they're nice and they're additive and and we will continue to pursue those as well.
Speaker Change: As we have over the last many years in the U S.
Speaker Change: Now we have the Canadian market to look at for this space as well as far as anything transformational Tony I mean look I guess you wouldn't you never say never because then you regret it if you do something but you know, it's just close to never as I as I think I can come in and saying.
Speaker Change: Look we are we are a core solid waste company. So that's what we are and that's what we want to be that's our competency.
Speaker Change: And we've got a lot of runway in that space.
Speaker Change: We know it well.
Speaker Change: And I think we know how to perform fairly well in it and.
Speaker Change: And that's going to be what we do for the indefinite and sustaining future.
Speaker Change: We'll look at things.
Speaker Change: And certainly if regulation or something drives local governments to look to exit certain things and those are good assets, absolutely we'll entertain that.
Speaker Change: This is a business as I said, we know well, but we're not looking to pivot into something differential due to lack of opportunity in our core business.
Speaker Change: It would only be because we thought it had similar characteristics.
Speaker Change: In terms of financial performance and defensibility.
Speaker Change: And in a growth opportunity and it was that if we saw that we'd take a hard look at it.
Speaker Change: Great answer thank you.
Speaker Change: Our next question comes from Tobey Sommer I'm curious Securities. Please go ahead with your question.
Tobey Sommer: Yeah, Hey, good morning uses Jack Wilson on for Tobey.
Tobey Sommer: Maybe dig into those weather headwinds, you're seeing in sort of what distinguished those from normal seasonal weather patterns.
Tobey Sommer: Sure.
Speaker Change: I'll start and I'll let.
Speaker Change: So.
Speaker Change: You know look at whether it's nothing new it occurs every year, whether we like it or not it occurs most harshly in the first quarter of course here in North America.
Speaker Change: But we had in January in both the West coast and parts of the what we call the mid south and the South East.
Speaker Change:
Speaker Change: A very extreme weather and in particularly very high.
Speaker Change: Very low frigid temperatures that shut down our ability to run we had markets that we could not operate in for one to two weeks at all facilities completely shuttered.
Speaker Change: Employees home.
Speaker Change: And nobody could.
Speaker Change: Could one because the department of transportation within those.
Speaker Change: States in areas such as Oregon is a great example.
Speaker Change: This allowed transportation that was not deemed you know.
Speaker Change: That is abnormal okay.
Speaker Change: We can handle cold weather, we can handle snow, but we'll work told by authorities that were not to be on the road.
Speaker Change: Not something we violate.
Speaker Change: Yeah.
Speaker Change: Alaska, we're the largest player in Alaska, and if you would think anywhere is used to.
Speaker Change: Significant whether it's Alaska.
Speaker Change: And we had over 60 inches of snow and a five day period, and Alaska shut down Alaska for 12 days that we could not run. So those are examples of what we're referring to.
Speaker Change: That the weather was prohibitive in that it just closed geographic areas.
Speaker Change: Okay. Thank you for that color there and then just one quick follow up if.
Speaker Change: If you do achieve that one third of sort of in house Upskilling.
Speaker Change: Roll sales is it possible to quantify sort of the margin impact that might have.
Speaker Change: No.
Speaker Change: I would say no.
Speaker Change: The answer is I don't think it is what I, what I would say is it's part of how we believe there is a 100 basis points plus as we've said and incremental margin improvement from these <unk>.
Speaker Change: Employee initiatives.
Speaker Change: And then I think Theres, just things that are too difficult to quantify.
Speaker Change: Your consistency of your service quality or ability to to to price and retain more price your ability to pursue event jobs, because you're fully staffed that right now you can't pursue theres just a lot of it.
Speaker Change: Those kinds of things and just the ability to have a stronger overall company because of our balance and everybody's life. So you.
Speaker Change: What that exact margin impact as I, we would only be guessing right now.
Speaker Change: Thank you very much.
Speaker Change: And our final question today comes from James Schumm from TD Cowen. Please go ahead with your question.
James Schumm: Hey, guys good morning.
James Schumm: Good morning, nice quarter nice quarter could you give an update on the Chiquita Canyon landfill.
James Schumm: How our expenses tracking relative to your expectations.
James Schumm: And do you expect to have the revised cost estimates higher perhaps due to relocation or other ancillary charges.
James Schumm: Yeah.
Speaker Change: So I would tell you that chiquita is tracking about.
Speaker Change: Where we would think at this point it may be a little ahead, but that's actually a good thing in a way because it means were perhaps making more headway a little faster than we had planned.
Speaker Change: We do believe right now that there that are that what we've.
Speaker Change: Presented an accrued in terms of the $160 million.
Speaker Change: Is.
Speaker Change: It's going to change or change significantly what we do just so youre aware and this is not something new we've done it every year for 26 years is.
Speaker Change: Once a year, we review our closure and post closure accruals based on engineering estimates and as we have told you. This is a closure costs to our ski landfill because it's in a closed section of the landfill. So we will review that costs once a year and and if there are changes to it we will we will.
Speaker Change: Make them if theyre material, we will communicate them, we don't expect they would be material. So.
Speaker Change: And that is not anything different than we do at every one of our landfills and have for 26 years. So it's just a it's a larger more public.
Speaker Change: Issue that is more known well known because of everything surrounding southern California and in this type of event, but.
Speaker Change: Takeda is tracking about where we are.
Speaker Change: We thought it would be at this point in time.
Speaker Change: Okay, great. Thanks, Ron and I recognize that we're only a few weeks into April but wanted to know how Q2 is tracking relative to normal seasonal expectations. Thus far is there any color you can provide there.
Speaker Change: As we said the way we guided it serves that sort of normal seasonal ramp.
Speaker Change: Marianne and Joe boxer available today to answer any direct questions that we did not cover that we're allowed to answer under regulation FD regulation G and applicable securities laws in Canada. Thank you again, we look forward to connecting with you at waste Expo upcoming investor conferences or on our next earnings call.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.