Q2 2024 Waste Connections Inc Earnings Call
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Good day and welcome to the waste connections, Inc. Second quarter 2024 earnings Conference call.
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I would now like to turn the conference over to Rod Little start President and CEO. Please go ahead Sir.
Rod Little: Thank you operator and good morning.
I would like to welcome everyone to this conference call to discuss our second quarter results and an updated outlook for 2024 and to provide a detailed outlook for the third quarter I'm joined this morning by Mary Anne Whitney Our CFO and several other members of our senior management.
As noted in our earnings release solid operational execution supplemented by incremental acquisitions and increased commodity values drove an across the board beat in the second quarter positioning us for an increase to our full year outlook.
Speaker Change: Revenue and adjusted EBITDA increased in the quarter by 11, 2% and 16, 4%, respectively as price led organic solid waste growth and 100 basis points sequential improvement in volume was augmented by accretive acquisitions. We are extremely pleased by the continued strength of our operational execution during the quarter, including.
Rod Little: Sequential improvement in employee retention as we maintain the strategy that has served to differentiate our results.
Rod Little: And which positions us for continued outsized growth given.
Rod Little: Given the strength of our performance in the first half of 2024, the momentum from continuing trends and contributions from recent acquisitions. We are raising our full year 2024 outlook to approximately 8.85 billion in revenue and approximately $2 9 billion and adjusted EBITDA or 32, 8% adjusted EBITDA.
Rod Little: <unk> margin exceeding our initial outlook and up 130 basis points as compared to the prior year.
Rod Little: 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.
Mary Anne Whitney: Thank you Ron and good morning.
Mary Anne 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 back like a bowl of Canadian Securities laws.
Mary Anne Whitney: Actual results could differ materially from those made in such forward looking statements due to various risks and uncertainties factor.
Mary Anne Whitney: Factors that could cause actual results to differ discussed both in the cautionary statement included in our July 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, you should not place undue reliance on forward looking statements as there may be additional risks.
Mary Anne Whitney: Of which we are not presently aware or that we currently believe are immaterial, which could have an adverse impact on our business.
Mary Anne 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 Anne 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. Please refer to our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measure management uses certain non-GAAP measures to evaluate and monitor.
Mary Anne Whitney: Financial performance of our operations other companies May calculate these non-GAAP measures differently.
Mary Anne Whitney: I will now turn the call back over to Ron.
Ron: Okay. Thank you Marianne.
Ron: Revenue growth of over 11% in the second quarter was driven primarily by core solid waste pricing up 7%, which range from over 5% and are mostly exclusive market western region to over 8% and our competitive market regions pricing is largely in place for the full year and continues to reflect the resilience of our market model with retention.
Ron: And in line with historical levels.
Ron: Reported solid waste volumes of negative two 8% in the quarter were up 100 basis points from Q1 and continued to reflect the ongoing purposeful shedding and price volume trade offs that we have discussed in previous quarters that sequential improvement was in line with our expectations. Despite a limited seasonal ramp impacting most notably special waste tons, which.
Ron: To reflect the more cyclical and event driven aspects of the business special waste tons were down 13% year over year in Q2 on reduced or delayed project activity across most regions and are now down 20% from 22 levels. A reminder of the cyclical sensitivity of these speculative and event driven waste streams.
Ron: Spite of these declines in underlying activity levels. We are encouraged by the pace of sequential improvement to reported volumes as we anniversary the purposeful shedding and non renewal of certain contracts during previous quarters any pick up in the macro environment to drive incremental activity levels would be additive to that improvement.
Ron: Beyond solid waste revenues also played out slightly better than expected in Q2 with recycled commodities landfill gas and renewable energy credits or Reds collectively up about 40% year over year.
Ron: Cycled commodity values were up around 20% from earlier this year on prices for OCC or old corrugated containers averaged about $140 per ton in Q2.
Ron: <unk> averaged slightly above $3 with higher values mitigating impacts from additional costs and delays in the commissioning and startup of the three renewable natural gas plants previously expected to commence operations. In Q2. These benefits are now expected to begin during Q3.
Ron: Along with better than expected financial results. We saw continued improvement in trends for employee retention in Q2 voluntary turnover once again stepped down sequentially now, marking our seventh consecutive quarter of improvement at below 15% voluntary turnover levels are now 35% below the peaks we saw during 'twenty.
Tony: Tony two with open positions down 45% from related highs from two years ago, the wide ranging benefits of reducing open positions included not only better safety incident rates, but also improved levels of service and customer satisfaction, along with employee engagement.
Ron: To that end as noted earlier this year, we've also expanded training, including through our two in house driver academies, where we will be actively engaging both new hires and existing employees along with our diesel technician school partnership offering and.
Ron: And emphasizing opportunities for family members of existing employees, we are already realizing the impact of these internal efforts on retention and continue to expect them to augment the improving dynamics, we've seen in employee recruiting resulting from additional resources and targeted efforts.
Ron: The changes put in place today, our investments to drive continued outside margin expansion from future savings and productivity and risk management, along with continued unexpected rolling savings across several areas, including labor maintenance and third party services.
Ron: We're also taking steps to address the evolving opportunities around P. Faas capture and removal leachate treatment with the introduction of technology through partnerships at several of our landfills consistent with our sustainability related priorities, we're positioning ourselves for decreased reliance on treatment by third parties as we develop and expand.
Ron: Our internal capabilities.
Ron: Moreover, we are actively pursuing other investments in technology focused on both customer experience and our operations, including the use of robotics at our recycling facilities and through machine learning applications using cameras and our trucks for safety service and sales opportunities, we see the benefits from these and other AI drove an apt.
Ron: Locations as opportunities to drive both growth and value creation.
Ron: On the subject of value creation, moving next acquisitions. Another key driver of our growth. We are positioned for a record year of private company acquisition activity in 2024, having already completed 18 acquisitions with over 500 million annualized revenue acquisitions. During the second quarter included multiple tuck in.
Ron: <unk> to existing markets as well as the strategic acquisition of state of the art recycling facilities in the Pacific Northwest furthering our sustainability related efforts and internalizing, our recyclables in that market.
Ron: In addition to the deals already closed this year, we have over $150 million in annualized revenue from solid waste acquisitions in franchise markets spread across multiple geographies that are under definitive agreement and expect it to close later this year to be clear. These have not been included in our updated full year 2024.
Ron: Our outlook.
Ron: Can you balance strength provides the flexibility to fund outsized acquisition activity, along with an increasing return of capital to shareholders. We continue to see high levels of seller interest and have a robust pipeline of solid waste opportunities across our footprint positioning us for over $700 million in acquired revenue by the end of 2024.
Ron: For which would set an all time annual record for us in private company acquired retro and to be clear. This is $700 million of acquired revenue and acquisition not 700 million in acquisition spend as it has recently been communicated by others.
Ron: With over 1% rollover contribution in 2020 five already in hand from acquisitions closed we are well purposes position for up to 3% or more rollover, including incremental contribution from other deals as well as those noted under definitive agreement and based on our ongoing elevated activity levels.
Ron: Clearly a great way to already be positioning for continued outside growth as we look ahead to 2025 and now I'd like to pass the call to Mary Anne to review more in depth. The financial highlights of the second quarter to review our increased full year 2020 for outlook and provide a detailed outlook for Q3 I will then wrap up before we head into Q.
Ron: Okay.
Mary Anne Whitney: Thank you Ron.
Mary Anne Whitney: Second quarter revenue of two point to four 8 billion was $23 million above the high end of our outlook due primarily to incremental acquisition contributions and higher recovered commodity values revenue on a reported basis was up 227 million or 11, 2% year over year acquisitions completed since a year ago period.
Mary Anne Whitney: <unk> about $123 million of revenue in the quarter or about $121 million net of divestitures.
Mary Anne Whitney: As Ron noted core pricing was 7% in Q2 with price stepping down sequentially as a result of the typical cadence of seasonality unrecorded cry he.
Speaker Change: He wasn't material surcharges of negative 20 basis points in the quarter, primarily reflect the benefit of improving diesel car.
Mary Anne Whitney: As Ron also noted volumes were down two 8% as expected up 100 basis point sequentially in spite of underlying volume decline.
Mary Anne Whitney: Here are the stopped looking at year over year results in Q2 on a same store basis.
Speaker Change: Daily roll off polls were down 3% driven by declines in all regions, except the western U S, where polls were up about 2% and daily landfill tons were down 2% on special waste activity down 13% year over year and down over 20% from 2022.
Speaker Change: Similarly, C&D tons were down 4% year over year, well MSW tons were up 3% in Q2, the declines in both special waste and C&D were most notable in our central and mid south regions.
Speaker Change: Adjusted EBITDA for Q2 as reconciled in our earnings release was $731 8 million up 16, 4% year over year and about $10 million above the high end of our outlook at 32, 6% of revenue our adjusted EBITDA margin was 10 basis points above our outlook and up 150 basis points year on.
Speaker Change: Per year, including about 20 basis point drag from the decline in special waste tons referenced earlier.
Speaker Change: <unk> for that impact underlying solid waste margins were up 80 to 90 basis points, reflecting benefits from reductions and certain third party costs as retention improves and some cost pressures abate.
Mary Anne Whitney: Other key margin contributors include combined commodity related impacts of 50 to 60 basis points and about 30 basis points benefit from acquisition.
Mary Anne Whitney: Net interest expense in the quarter of $78 4 million reflects the benefit of both our Q1 public offering of $750 million of senior notes in the U S and our 500 million Canadian dollar in NOG year old senior notes offering in Canada completed in June.
Mary Anne Whitney: Our current weighted average cost of debt is approximately 4% with an average tenure of about 10 years. We ended the quarter with debt outstanding of about $7 $71 billion about 13% of which was floating rate and liquidity of approximately 1.26 billion.
Mary Anne Whitney: In spite of acquisition outlays of 1.5 billion through Q2, our leverage ratio as defined in our credit facility declined in the quarter to 267 times debt to adjusted EBITDA.
Mary Anne Whitney: Our effective tax rate for the second quarter was 22, 6% slightly below our outlook and lower foreign exchange rate and finally year to date, we have delivered adjusted free cash flow of $727 4 million or 16, 8% of revenue up 15% year over year.
Mary Anne Whitney: I will now review our updated outlook for the full year and provide our outlook for the third 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 weighing.
Mary Anne Whitney: Encourage investors to review these factors carefully.
Mary Anne Whitney: Our outlook assumes no change in the current economic environment or 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 Anne Whitney: Looking first at our updated outlook for the full year as provided for it and reconciled in our earnings release.
Mary Anne Whitney: Revenue is now estimated at approximately 8.85 billion up $100 million from our initial outlook, primarily as a result of contributions from acquisitions completed since that time.
Speaker Change: David values for recycled commodities with volumes, reflecting recent trends.
Mary Anne Whitney: <unk> EBITDA for the full year is now estimated at approximately $2 9 billion or 32, 8% of revenue up $40 million and 10 basis points above our initial outlook for 130 basis point year over year increase in adjusted EBITDA margin for 2024.
Mary Anne Whitney: Our adjusted free cash outlook free cash flow outlook for 2024 remains unchanged at approximately $1.2 billion on Capex of approximately 1.15 billion.
Mary Anne Whitney: Turning next to our outlook for Q3.
Mary Anne Whitney: Revenue in Q3 is estimated to be in the range of 2.2 75 billion to $2 3 billion and adjusted EBITDA margin. In Q3 is estimated at approximately 33, 7% up 120 basis points year over year.
Mary Anne Whitney: Depreciation and amortization expense for the third quarter is estimated at approximately 12, 7% of revenue, including amortization of intangibles of about $44 million or 13 cents per diluted share net of taxes.
Mary Anne Whitney: Interest expense net of interest income is estimated at approximately $82 million for the third quarter and finally, our effective tax rate in Q3 is estimated at about 23, 5% subject to some variability.
Mary Anne Whitney: And now let me turn the call back over to Ron for some final remarks before Q&A.
Ron: Okay. Thank you Marianne.
Ron: We're extremely grateful to our teams for once again driving better than expected results, while prioritizing our most important assets our people and positioning ourselves for continued growth on double digit topline growth. We further expanded our already industry, leading margins during the quarter, while implementing and integrating record those miles of acquisition.
Mary Anne Whitney: Activity.
Mary Anne Whitney: And as indicated by our increased outlook for revenue adjusted EBITDA and EBITDA margin for the full year, we remain well positioned for continued outside margin expansion throughout 2024.
Mary Anne Whitney: In fact as provided in our updated outlook for 2024, our Q3 outlook reflects margins approaching the 34% threshold. We've referenced in recent quarters and that's in spite of a slower seasonal ramp thus far and ongoing cost pressures in many areas.
Mary Anne Whitney: Higher commodity values and record M&A activity driving better than expected results were off to a great start for 2024 and well positioned for continued success.
Speaker Change: And for those of you in New York City, you've probably seen our EV trucks in action picking up recyclables were excited to expand our presence across the city beginning with the first commercial pilot zone. This fall as well as additional expansion. We expect we will keep you posted on this and other developments. We appreciate your time today and I will now turn.
Speaker Change: This call over to the operator to open up the lines for your questions operator.
Speaker Change: Thank you.
Speaker Change: To ask a question. Please press star one on your telephone keypad.
Speaker Change: If your question has already been addressed I would like to remove yourself from the queue. Please press Star then two we do not see a pick up your handset before pressing the keys once again, ladies and gentlemen that started in one of your other questions and today's first question comes from Tyler Brown at Raymond James. Please go ahead.
Tyler Brown: Hey, good morning.
Tyler Brown: Good morning.
Tyler Brown: Hey, I just wanted to make sure I have it so what are kind of the expectations around volume in the second half is maybe Q3 still under pretty good pressure eases in Q4 as you anniversary that purposeful shedding or would Q4 also remain under pretty good pressure.
Speaker Change: Well Tyler if you think about the way we came into the year. Our expectation was that volumes would be most negative early in the year and sequentially improve as we anniversaried anniversaried, the shedding and the purposeful non renewal of contract. We also expected that there would be some contribution from underlying volume generation.
Speaker Change: Soils for speculative real estate development.
Speaker Change: Residential conduct.
Speaker Change: Commercially or industrial what we are seeing is that many municipalities across the U S.
Speaker Change: Are saying they are sort of cash strapped in their current budgets and are delaying the completion or the starting of their larger projects.
Speaker Change: Within their communities at some point that just in okay, and so theres a natural bounce back of that.
Speaker Change: And so we've seen these cycles before they're generally a year up to maybe year and a half long we feel like we've been in this sort of for the last 18 months.
Speaker Change: So I would I would concur with you that at some point in 'twenty five and certainly as we go into 2006 that should improve I would also note Tyler that we have historically seen in national election years presidential election years, we've seen sort of just a stall of activity as things.
Tyler Brown: Come on known leading up to an election, and then sort of a releasing of it at once the results are known.
Speaker Change: For all those reasons I would concur with that statement.
Speaker Change: And that's the point about headline CPI not necessarily capturing the reality of all the cost pressures that still continue.
Speaker Change: Okay perfect. Thank you guys so much.
Speaker Change: Thank you and our next question today comes from Kevin Chiang with CIBC. Please go ahead.
Kevin Chiang: Hi, good morning, Thanks for taking my question.
Kevin Chiang: You noted in the prepared remarks just.
Kevin Chiang: You still see strong seller interest, but I guess, if I look at maybe what's happening both in Canada and the U S.
Speaker Change: We did have a <unk>.
Speaker Change: Changing capital gains legislation up here, we also could I'm an election next year and obviously you guys are going through an election with.
Speaker Change: The potential change in administration later this year, just wondering if you're seeing any changes in that seller expectations are and maybe how sellers might be trying to time.
Speaker Change: Deals.
Speaker Change: Just based on what's happening both in Canada, and the U S.
Yes, well I mean, very intuitive question Kevin.
Speaker Change: So.
Speaker Change: Look we would tell you that historically and we do not believe this is any different.
Speaker Change: That as a.
Speaker Change: Potential increases in capital gains tax have a very material impact on seller psychology, and timing and as we as we currently know the former Trump tax cuts that were put in place are currently set to expire at the end of 'twenty five if theyre not acted on prior in either direction.
Speaker Change: So if there is.
Speaker Change: Depending on who wins in the U S and the presidential election and of course, the house and Senate.
Speaker Change: Is how should we think about the drivers of that is it accurate to say that underlying net price trends are the same or maybe a touch better and then I guess you have less help from commodities, maybe a little bit of dilution from M&A as that.
Speaker Change: Directionally accurate.
Speaker Change: Yes, that's the right way to think about it.
Speaker Change: When I think about what's different in the back half of the year than the first half of the year.
A couple of things the incremental deal contribution changes the mix a little bit I would say that that lack of special waste becomes more of a headwind so that implies that underlying solid waste continues to expand.
Speaker Change: Got it got it thanks for that detail and then.
Speaker Change: I was just wondering if maybe you can touch on just some of the acquisitions you made in the quarter.
If anything just kind of particularly noteworthy or these kind of focusing on the rural exclusive market. Their waste connections is in and are these all collection businesses.
Speaker Change: Thank you I'll turn it over.
Speaker Change: Yes, Thanks, Bob.
In the quarter, we had a variety of.
Speaker Change: The acquisitions close.
Speaker Change: Probably the largest was the.
Speaker Change: Ling facilities, we acquired in the Pacific Northwest.
Speaker Change: One was a company which had a.
Speaker Change: Our recycling facility just outside of Tacoma, and once I've just outside of Portland.
Speaker Change: We were one of the larger customers of both of those facilities. So it became an internalized recycling operation.
Speaker Change: Very important in these two states who have recently adopted ERP legislation.
Speaker Change: And.
Speaker Change: Very critical for us there with our very large footprint. So that was a very strategic transaction did a number of tuck ins throughout our footprint on the solid waste side. We also did a smaller.
Speaker Change: E&P deal in.
Speaker Change: In Canada in our our 360, Canada footprint to bolt onto the secure transaction that we had done in Q1 to continue to expand the presence there. So it was really you know.
Speaker Change: Well, we did deals throughout the U S and in Canada. So it was a very solid quarter and.
Speaker Change: And we signed some much larger deals yet to be closed that youll be hearing on next quarter's call.
Speaker Change: In both the west and the East Coast.
Speaker Change: Our franchise in nature so.
Speaker Change: That was part of the 150, we said was signed but not yet closed.
Speaker Change: Alright, Thank you and our next question today comes from Noah Kaye with Oppenheimer. Please go ahead.
Noah Duke Kaye: Thanks, I'll just pick up right there Ron.
Marianne: So think about the actual return profile for all these deals in aggregate I think your point well taken about looking at the revenue profile and then Marianne you mentioned some of the the the margin implications from what's already been been close but you know how.
Speaker Change: How do we think about the kind of returns that you're seeing now on these acquisitions, you've always had a pretty disciplined underwriting process.
Marianne: Her standardized.
Marianne: <unk>.
Speaker Change: Where are where are your returns penciling out these days on the acquisitions.
Speaker Change: And can you comment at all Directionally on multiples.
Marianne: Sure.
Speaker Change: Well first off let's start with the latter part of your question I would tell you that I think overall multiples have drifted down about one and a half to two turns over the last two plus quarters.
Marianne: So that's number one and of course that reflects.
Marianne: A rising cost of debt capital in large part for most private companies and public companies.
Marianne: Our returns no really have not changed I mean, and what I mean by that is look we don't look at an EBITDA multiple and EBITDA multiple is sort of an outcome of our return on invested capital model.
Marianne: We are looking for generally depending on the the risk the <unk>.
Marianne: <unk> and the risk of the of the investment on an acquisition, we're looking for an IRR between sort of 11, and 15% and we're looking for an NPV on on invested capital throughout the life of that transaction.
Marianne: Of net present value being not only positive but positive in relationship to the size and scope and the risk of the investment. So that's how we look at and then EBITDA multiples as an easy way to talk about it. So obviously asset quality margin necessary capex replacement capex investment risk permitting.
Marianne: Whereas all of those are looked at in the in the scope of the transaction determined what we think we can pay.
Marianne: And get the acceptable returns so I would say if anything that over time that will continue to improve and why do I say that because look we have 115 to 120 landfills.
Marianne: The ability to continue to acquire and develop landfills is is very difficult today relative to Gen 10, and 15 and 20 years ago.
Marianne: So you will see more collection and transfer as we develop the network of those landfills both in the U S and Canada going forward and that will bring the aggregate returns continue to give upward bias to the aggregate returns.
Ron: Very helpful. Ron.
Speaker Change: I wanted to touch briefly on the the RMG sustainability investments because while you mentioned the higher commodities is a tailwind it sounds like.
Ron: You know you along with the industries are seeing you know some timing startup delays. So can you just refresh us on the expected contribution from those.
Speaker Change: Incremental investments to EBITDA. This year, and then possibly how you see it for next year, because obviously this should be a lever to support <unk>.
Speaker Change: Margin expansion as they layer in over time.
Speaker Change: So no we had talked about an expectation of 15% to $20 million in contribution and in our revised guidance that was taken down by about $10 million with very high flow through and we mentioned that in Q2 in essence, we just had cost not you know not the benefit and so that mitigated some of the benefit from higher rent.
Speaker Change: And when we think more broadly about what's driving the delays in this case, it's really that the last mile. If you will it it it's the interconnect with electric utilities, and just getting the projects up and going so it's tough to generalize on project development and all the other projects, we have but what we do know is that across the industry. The project.
Speaker Change: Are taking longer and the costs are running higher and so we remain committed to the the plans that we have and we would say during 2026, we still expect those projects to come online that we've described the about $200 million in EBITDA contribution.
Speaker Change: So that's how we're thinking about it.
Speaker Change: And the other thing I would note, though is that while projects are running a little more expensive.
Speaker Change: That does not include in our analysis, the offset of ITC tax credits because we've never included that and that while it can create a timing mismatch between the project and that when you net that against the increase in Capex you should still be net about what we thought.
Speaker Change: Okay.
Speaker Change: All very helpful color and just to reflect back to make sure I get it still committed to the $200 million EBITDA.
Speaker Change: At least as a run rate by 26.
Speaker Change: Maybe just more of a ramp to get there as we move through the next year year and changed that a fair characterization.
Speaker Change: Yes, that's how we're thinking about it and to that point, we're still committed to spending the capital.
Speaker Change: Primarily this year, but maybe some will flow into next year.
Speaker Change: Okay.
Speaker Change: Very helpful. Thank you.
Speaker Change: Yes.
Speaker Change: And our next question today comes from Toni Kaplan with Morgan Stanley. Please go ahead.
Toni Michele Kaplan: Thanks, so much strong.
Toni Michele Kaplan: Strong free cash flow quarter, but it looks like you kept the guidance unchanged for now despite raising the EBITDA guide just anything that might warrant higher than normal spending or more than you thought before or or is this just conservatism and how should we think about potential sources of free cash flow upside for the year.
Toni Michele Kaplan: Yes.
Toni Michele Kaplan: Sure So Tony the reason for keeping free cash flow. The same in spite of the increased EBITDA would be that <unk> would be largely unchanged given the incremental interest expense associated with the $1 5 billion in acquisition outlays. We've already made so that's how we think about it the other observation would be we didn't.
Speaker Change: Adjusted Capex in spite of the fact that we did all of that M&A and very often or in some cases M&A can come along with the capex needs right upfront and so I actually think of it that there's underlying upside outperformance and we're absorbing those incremental that incremental capex and <unk>.
Toni Michele Kaplan: Not changing our free cash flow guidance at $1 2 billion.
Speaker Change: Yeah, Okay, great and I was hoping you could provide an update on any technology opportunities or productivity initiatives. I think you mentioned that cameras in the prepared remarks, but maybe expand on that opportunity or any other opportunities you think could move the needle for you.
Speaker Change: You know in the next year or so.
Speaker Change: Sure well, there's a number of them were working on Tony that.
Speaker Change: That effect that affect revenue that affect productivity that affects safety that effect.
Speaker Change: Murph productivity and quality, but just to touch on a few that we are definitely seeing in real time.
Speaker Change: We have.
Speaker Change: We are the largest user right now on a percentage basis certainly of robotics.
Speaker Change: And AI in our mergers we have just opened another mirth this quarter, meaning Q2 in Illinois that we completely rebuilt and with the use of both robotics and AI.
Speaker Change: Optical sorting and and that is you know taking down.
Speaker Change: Head count significantly in these merce drastically increasing productivity on a per tonne per hour basis tons per hour basis, and most importantly, improving.
Speaker Change: Quality material quality that we're producing and shipping to market quite dramatically.
Speaker Change: And so that as that is happening in real time, there are <unk>, where we have rebuilt and we went from 80 to 100 employees down into the high <unk> on the same or more volume with the use of robotics, and <unk> and air classifiers and optical sorting.
Speaker Change: We are looking at bringing another one online in.
Speaker Change: Early 'twenty five that is under development right now. So so that's an example camera technology new camera technology, we've had camera technology on our trucks for risk for ever but now using <unk>.
Speaker Change: Ah generative.
Speaker Change: Technology to measure commercial over loads in bends and create automatic billing for commercial customers that have a overloads rather than relying solely on driver interpretation.
Speaker Change: We believe that this is a very good opportunity for improvement of commercial revenue, which will be reflective in both volumes and price going forward as we come out of 'twenty four and go into 25, very large push for us going forward.
Speaker Change: Those are just two examples where using new routing technology that arouse allows a little literally routing on the fly as we.
Speaker Change: Our operating people come into a district in the morning, and recognize that they may have either vehicles or drivers down for some reason and they can reroute dynamically where before that was much more of a manual process. So those are three examples for you.
Speaker Change: Perfect. Thank you.
Speaker Change: Thank you and our next question today comes from Jerry Revich with Goldman Sachs. Please go ahead.
Jerry David Revich: Yes, hi, good morning, everyone.
Jerry David Revich: Morning, guys.
Jerry David Revich: Hi.
Jerry David Revich: I'm wondering if you have trouble you for an update on the northeast and a real development.
Speaker Change: How is the ramp going and can you give us an update on.
Speaker Change: When do you expect to be fully operational at full volume levels.
Jerry: Well sure Jerry so.
Speaker Change: A couple of updates so number one when we.
Jerry: So we are not quite at the first year anniversary of acquiring Arrowhead were a which is what you're referring to or what we refer to it as arrowhead that is the name of the landfill not the rail infrastructure, but.
Speaker Change: We're coming up or a little more than a month away from when we acquired that.
Speaker Change: And when we did it was just a little less than 3000 tonnes. A day. It was about 2700 tons. A day. We are now and we said that we would double it by the end of 'twenty four okay.
Speaker Change: Well here, we are at the July the midpoint in 'twenty four and we were at 6000 tonnes a day, so we have more than doubled it.
Speaker Change: There are days, where pushing 7000, plus right now, but we have more than doubled it in <unk>.
Speaker Change: Less than the time, we committed.
Speaker Change: Now the ultimately we have said that we believe we will get that site to 10000 tonnes a day plus and we have said that that will take into 2026.
Speaker Change: The sites permitted tonnage is 15000 tons a day.
Speaker Change: We're not saying that can never happen, but that is obviously somewhere down the horizon.
Speaker Change: So those have all been very positive most all of that incremental improvement from 2700 tons. A day to 6000 has been internal tons. So that's one reason you don't see revenue growth from it as great because it is not third party tons its internal.
Speaker Change: <unk> tons from our northeastern operations and so it gets eliminated in the accounting.
Speaker Change: So that and in the volume reports so that is that is one other thing to keep in mind.
Speaker Change: Those are all the positives on the negatives.
Speaker Change: And they were more short term Norfolk southern had been going through some I would just say some operating difficulties when they were going through some potential leadership upheaval during Q2 with an activist challenge.
Speaker Change: And that certainly affected their ability to deliver the all of our volumes on a regular basis that has improved and has as has gotten back to normal over the course of the last 30 to 40 days and we're more encouraged now than we've been about the ability to push through more volume we are putting down more track.
Speaker Change: At our arrowhead facility to be able to keep more take more volume in a day and store more cars. We are doing the same at our rail sites in the northeast.
Speaker Change: At our transfer facilities, so a lot going on with that right now.
Speaker Change: Okay Super Thank you.
Speaker Change: In terms of free cash flow conversion. Obviously these investments you mentioned that recycling upgrades, where the landfill gas investments as well.
Speaker Change: Can you just talk about the puts and takes around free cash flow conversion.
Speaker Change: Three years out once the landfill gas facilities are online.
Speaker Change: How much of the <unk>.
Speaker Change: Higher could your already strong free cash conversion move as you look at the puts and takes including.
Speaker Change: In addition et cetera.
Speaker Change: Sure.
Speaker Change: As we said when we gave our guidance at the beginning of this year. If you if you normalize the free cash flow. This year. It was closer to historical levels of that 48% to 50%. So we'd say that's the right way to think about it.
Speaker Change: Sort of underlying conversion and Thats in spite of the fact that we do have bonus depreciation sunsetting, a lesser until some other changes put in place.
Speaker Change: And so we still think thats the right way to think about recall that in our highest our peak years, it was 53% to 54%.
Speaker Change: Absent the benefits from bonus depreciation and outsized M&A in the.
Speaker Change: Fencing of qualifying equipment.
Speaker Change: The writing off so that was outsized benefit during that period.
Speaker Change: We don't see getting back to those levels in the current environment with the sunsetting of bonus depreciation, but certainly the 40% to 50 is the way we think about it on a more normalized basis.
Speaker Change: Averages and as we continue to there is no theoretical ceiling on conversion.
Speaker Change: Just like there is no theoretical.
Speaker Change: The ceiling on margins as we move margins up over time.
Speaker Change: And and all things staying even you will continue to see that conversion move up naturally over time.
Speaker Change: Super.
Speaker Change: Just one last one you spoke about to the automated.
Speaker Change: Our cameras.
Speaker Change: I think they're coming from.
Speaker Change: No.
Speaker Change: Supplier that just changed ownership. Please correct me if I'm wrong I'm wondering if you could just talk about you.
Speaker Change: Your views on that potential change in ownership and can you just talked about where you stand in receiving.
Speaker Change: Chuck.
Speaker Change: Deliveries today versus replacement levels, if you don't mind.
Speaker Change: Sure.
Speaker Change: I think the transaction youre referencing unless I'm wrong. Gerry is terex is acquisition of environmental solutions group from Dover.
Speaker Change: And if I, if I'm right in that assumption, yes, we are acquiring cameras and have for many years. Although this is a different technology on the AI.
Speaker Change: For commercial Overages, but yes that is through one of the ESG subsidiaries third eye.
Speaker Change: We've had a very long standing relationship with ESG on a number of their products as you know they've got seven or eight different product lines for solid waste from containers to two truck bodies too.
Speaker Change: Two.
Speaker Change:
Speaker Change: Safety technology onboard safety technology to compaction equipment.
Speaker Change: So we are a user of all of that as I said have had a very good relationship think very highly of the folks at ESG I think they've done a very nice job on their products and services as.
Speaker Change: As far as the transaction itself, we don't know much about it never had much interaction with Dover as apparent just.
Speaker Change: Dealt with ESG corporate and as I understand they're going to continue to be sort of a stand alone entity within terex.
Speaker Change: And I think they feel good about that from everything we've heard and as long as we continue to deal with the folks we have dealt with.
Speaker Change: It's excellent for both companies.
Speaker Change: Really excellent for ESG and for tariffs or getting a quality company.
Speaker Change: And we have some relationship with tariffs on some of our heavy equipment stuff in our field and so we know them not as well as we do ESG, but think highly of both of them.
Speaker Change: Super I appreciate it thank you.
Speaker Change: Thank you and our next question today comes from Tobey Sommer with true Securities. Please go ahead.
Jasper James Bibb: Hey, good morning, everyone. This is Jasper bibb on for Tobey I think you mentioned earlier price cost spreads still being elevated in 2025.
Jasper James Bibb: Based on your pricing visibility and what Youre seeing on the inflation side is there any way to frame.
Speaker Change: That spread is now and where do you think that might be in 2025.
Speaker Change: Sure. So the point I had made is that the wage pressures.
Speaker Change: The beta to the extent that might have otherwise been suggested by the lower CPI and that we were delivering the underlying margin expansion you know approaching 100 basis points in spite of that fact, and so in our view that creates opportunity ahead to the extent that those wage pressures, we expect would or should.
Speaker Change: <unk> continued to abate, we also acknowledge that yes that that price cost spread is something we'll be very mindful of as we think about what pricing as necessary. As we go into 2025, we certainly know that CPI linked markets would be expected to step down meaning the pricing.
Speaker Change: Increase in 25 would be lower than it is in 'twenty four and in those markets, we're getting a little over 5%. So those are the pieces that start informing us and of course, we will have better visibility on that by October when we typically start talking about the pieces of our guidance yes.
Speaker Change: Josh what I would say is look.
Speaker Change: For 20, plus years now our approach hasn't changed we target getting a 150 to 200 basis point spread minimally from relative to sort of the.
Speaker Change: Ongoing not only CPI, but what we believe our cost structure is doing which often reflects CPI, sometimes there are some minor dislocations.
Speaker Change: So you tell us what you think the CPI is and layer on 200 basis points and that's what we'll be likely targeting and achieving in our reported a net pricing next year.
Speaker Change: And that is at 200 basis points, that's just below to answer what we're getting right now and of course, we target, beating what we've what we out there when we guide. So we would tell you we would expect it to be relatively the same.
Speaker Change: Dollar amount maybe of a little different because CPI comes down, but the spread of price to cost should be about the same as current.
Speaker Change: Okay, all that makes sense and then.
Speaker Change: Hoping to get an update on the secure energy assets.
Speaker Change: How's the integration progress there or any expectations for the E&P waste business over the balance of the year.
Speaker Change: Sure well.
Speaker Change: First off.
Speaker Change: I appreciate the question because that gives me the opportunity to thank our our 360, Canada group.
Speaker Change: Our first real full quarter was Q2.
Speaker Change: Which we just came out of they had an exceptional quarter delivering.
Speaker Change: Delivering you know in both revenue and in EBITDA at or above our expectations. Our outstanding group of assets. There outstanding group of employees that we were fortunate to hire up there and that we have added two since then.
Speaker Change: Exceptional leadership team that we've developed up there.
Speaker Change: And they're performing very very well.
Speaker Change: We have not yet.
Speaker Change: Reopened any of the seven incremental E&P assets that came along with that transaction that were there.
Speaker Change: That were shuttered at the time.
Speaker Change: We're getting closer to reopening one of our first of those.
Speaker Change: And over time, we'll evaluate we think over time, probably four or five of those makes sense to reopen so that's some incremental opportunity there as I mentioned, we did a tuck in transaction in outs.
Speaker Change: Outside of the Alberta market.
Speaker Change: In the E&P space in Canada in Q2.
Speaker Change: Excellent company excellent leadership team that has joined our our 360, Canada team.
Speaker Change: So long way around the boat to tell you I think we're performing well, we're very pleased with the assets and asset quality.
Speaker Change: And and have an exceptional team in place to drive things up there.
Speaker Change: And the only thing I would add to that with respect to the E&P waste trends that we're seeing we also saw sequential improvement in the U S in that business and I would say that in spite of rig count continuing to decline.
Speaker Change: I'd point out that there is remediation activity that contributed to the Q2 beat of our expectation and we never assume that that continues because those are one off job.
Speaker Change: I appreciate the detail there thanks for taking the questions.
Speaker Change: Yes.
Speaker Change: Thank you and our next question today comes from James Schumm with Cowen. Please go ahead.
James Joseph Schumm: Hey, good morning, everyone.
Speaker Change: Yes.
James Joseph Schumm: There is a.
James Joseph Schumm: There's a third party survey, noting landfill pricing declined year over year with the exception of maybe the northeast I was just curious what do you think drove that and what's your expectation going forward.
Speaker Change: Hum.
Speaker Change: Number one I'm looking at James I'm, not aware of that survey. So I apologize I can tell you that is not the case for us.
Speaker Change: All.
Speaker Change: Three lines of disposal business price per unit increased.
Speaker Change: In 'twenty four.
Speaker Change: It was up almost 6% just under 6% between all three of our lines on price per ton basis year over year, So I'm not I'm not certain what that is.
Speaker Change: One thing that does affect that and it did hurt our volumes somewhat in Q1 more than in Q2.
Speaker Change: <unk> and <unk>.
Speaker Change: And this would be what I would guess is in the winter the incinerators on the eastern seaboard drop their price from the $100 a ton rate down as low as the teens to keep volume and attract volume and many landfills.
Speaker Change: The eastern Seaboard chased price down to keep volumes when that happen and that would be what I would guess it was we did not play that game.
Speaker Change: And that did have a volume effect, but but others did and I'm imagining that's what it is.
Speaker Change: Okay interesting. Thank you and Ron you mentioned cost pressures in many areas.
Speaker Change: Maryann you mentioned labor maybe.
Maryann: Labor expenses not.
Speaker Change: Declining are decelerating as fast as maybe you thought is there anything incremental.
Speaker Change: Is are you seeing anything on the repair and maintenance side are you seeing any.
Speaker Change: Reacceleration of inflation elsewhere, just just any color you could give there.
Maryann: No.
Speaker Change: Yes. The point, we were trying to make was that cost pressures haven't necessarily abated to the extent that headline numbers might suggest and so we are still seeing for instance, improving trends in things like third party maintenance costs in parts and materials those are.
Maryann: Getting better but there is still about.
Maryann: 3% for instance, headline numbers. So if that's your proxy for cost escalation, we're still north of that which is why our overall cost inflation is more like four 5% because it's driven by those higher numbers. We are seeing them improve theyre just not improving as quickly as we had expected and so when you think about our 80 to 90 basis.
Maryann: Points of underlying margin expansion. It tells you those retention related efforts withdrawn center 25 to 30 basis points are helping to decrease our reliance on third parties, whose costs aren't escalating quite as quickly as they were before but are still escalating.
Speaker Change: Okay, great. Thank you very much.
Southern <unk>: Thank you and our next question today comes from Southern <unk> with RBC capital markets. Please go ahead.
Speaker Change: Great. Thanks, and good morning, there was some discussion earlier around just the outlook for maybe some of the more cyclical volumes into the system and some of the shedding, but I guess, maybe if you sit back and look at a high level. If we think about the kind of moderation in volumes over the last one a while.
Speaker Change: More of that been macro versus shedding and as you look forward would a macro recovery mean bombs your direction will be positive even with some chatting just trying to think about and as we look at those two buckets is one more dominant in the volume story than the other in terms of the Shannon. Thank you.
Speaker Change: Yeah, I mean I.
Speaker Change: Very insightful question look.
Speaker Change: When we talk about special waste volumes as an example, being down in Q2, 20% relative to 'twenty. Two that's macro I mean that that is not any shedding whatsoever and that was.
Speaker Change: So you know that that certainly macro helps drive that roll off volume being down 3% in the quarter.
Speaker Change: That's construction and event oriented that's macro so to your question.
Speaker Change: As.
Speaker Change: A macro improvement would drive both of those positive very quickly and historically always has.
Speaker Change: Where do you see the shift the shedding the intentional shedding is generally in the commercial and residential lines of our business because when we're acquiring companies who have underperforming contracts as a part of what they do that's what we are sharing that and broker work that comes along with commercial.
Speaker Change: Business that we acquire we often end up shedding the all or a piece of that broker work. So.
Speaker Change: The greater macro economy, because again shedding is not anything new for west connections. We've done this forever. What you had in the past as you had a macro environment that gave enough underlying volume that you didn't see it in negative volume with <unk>.
Speaker Change: A real volume being closer to zero any sharing you do that's why it goes to a negative so that would be the answer.
Speaker Change: Okay, that's great color and then one of the.
Speaker Change: The topics, obviously out there that you'll probably hear a lot is.
Speaker Change: How do you control pricing as inflation had lower but I guess, if we think more specifically about the price cost spread.
Speaker Change: One line of thinking is as inflation that had lower the absolute level of pricing kind of move lower and maybe there's a better.
Speaker Change: Bill or stronger ability to maybe capture a bigger price cost spread because the absolute numbers are lower.
Speaker Change: From your seat how would you comment on that line of thinking Thats out there.
Speaker Change: You know not too.
Speaker Change: Disagree I would actually say, it's inverse of that and what I mean by that is it's easier and see this is why it's so critical to understand strategic differences and mix differences of business model because it is far easier to capture a greater.
Speaker Change: Price cost spread in a rising inflationary and a higher inflationary environment. Okay. It is harder and a lower inflationary environment.
Speaker Change: That I know that may seem a little counterintuitive, but look if your if people are seeing seven 8% I'm using that inflation.
Speaker Change: They expect 10 or 11% price they expect a two or 300 basis point differential if theyre seeing 3% getting that differential of 2% to 3% and go into six is much harder.
Speaker Change: It's much more of a perception issue with customers. So.
Speaker Change: It's just a percentage differential right once 20% differential or 30% and the other 50% differential and so that's why it's harder.
Speaker Change #100: That's why we like our business mix with low, 40% and franchise, where we get a guaranteed CPI or return, which allows us to focus our energy on that 60% that is competitive.
Speaker Change: Which tends to be more rural.
Speaker Change: It allows us to drive higher competitive market pricing there so.
Speaker Change: We're very comfortable the bottom line is there I think it is misplaced very misplaced for people to be saying pricing is decelerating no absolute dollar percentages decelerating the spread is all that really matters.
Speaker Change: And so that's what the focus should be not the not the.
Speaker Change: The total dollar the total percentage number.
Speaker Change #102: Great and if I could just squeeze in one little one is want to make sure I heard correctly earlier in the call. When you talked about some of the M&A. You undertook did you was it noted that some of the acquisitions were in new franchise markets.
Speaker Change #101: What we said is the $150 million in deals that had been signed but not yet closed those included franchise markets. So we're looking forward to closing them in.
Speaker Change: In the back half of the year.
Speaker Change #104: Great. Thanks very much.
Speaker Change: Thank you and our next question today comes from Brian Butler with Stifel. Please go ahead.
Brian Butler: Hey, good morning, most of my questions have been answered, but just two quick ones hopefully.
Brian Butler: R&D just wanted to clarify that $200 million of EBITDA, that's out there and maybe 2026.
Speaker Change #112: That assumption was kind of made with RIN prices closer to $2 is that correct and there is potentially some upside if rim stays for the next 24 months out at a higher level I just want to make sure we get that that assumption correct.
Speaker Change: Yeah, we actually that 200 million was made with rent pricing of $2 50 to $2 60, Bryan So no not $2. So there certainly is some upside at $3, but it's not 50% because it wasn't made it out the assumption wasn't made at $2 what we have.
Speaker Change #114: Said is that the investment thesis worked down to $2 without an ITC tax credit it worked below $2 with an ITC tax credit.
Speaker Change: So that may be a little bit of the confusion, but the 200 million was based on $2 50 to 260 <unk> stands for the question.
Speaker Change #115: Perfect. Thank you for that clarification, and then you talked about in partnership on P. Fast and obviously this is kind of bogey.
Speaker Change #105: Issue that's out there.
Speaker Change #106: How should we think about that that partnership and maybe from a management of reshape what that cost might look like out into the future. I mean, obviously, it's early days, but where is a good starting point.
Speaker Change: Well.
Speaker Change #108: It is early days, Brian I mean, I would say a couple of things number one.
Speaker Change #103: This type of federal regulation.
Speaker Change #103: It is uniform for at least all of the competitors we compete with.
Speaker Change #103: Has historically been a very positive development for our industry.
Speaker Change #103: The public companies have the capital depth to comply with the legislation and it is a pricing opportunity to recover not only the investment, but some incremental margin on top of that and so we don't view this opportunity any differently.
Speaker Change #109: As it is a different cost impact by market depending on.
Speaker Change #111: How much <unk>, you may have to treat and what levels. What's your outlet levels at our options are.
Speaker Change #119: So it's a bit of a logistics issue.
Speaker Change #111: But look somewhere between two and $10 million of capital at a landfill.
Speaker Change #109: We'll generally.
Speaker Change #109: Handel.
Speaker Change #103: Purchasing treatment units from a capital standpoint.
Speaker Change #103: And there's probably more in the $2 million to $4 million to be honest.
Speaker Change #103: And and that will allow you to use the technology to in effect solidify the P. Pause that is within your leachate, allowing.
Speaker Change #103: The solidified to go back into the landfill permanently encapsulated and the liquid to be treated at tw or an industrial wastewater treatment plant at no greater real cost than it was before.
Speaker Change #103:
Speaker Change #103: And you know that that's going to probably be at a two to a four a gallon type impact so.
Speaker Change #103: We will be pricing through this both the capital and the incremental operating cost.
Speaker Change #110: But it is early days as you've said.
Speaker Change #103: Yeah.
Speaker Change #103: Okay, great. Thanks for taking the questions.
Speaker Change #113: Thank you and our next question today comes from Timna Tanners with Wolfe Research. Please go ahead.
Timna Tanners: Yeah, Hey, good morning, I disconnect you quick ones and I think it'll be pretty.
Speaker Change #118: Pretty high level.
Timna Tanners: I wanted to just ask for any updated thoughts on I desire, if any to stray away from your.
Speaker Change #125: <unk> given a competitor doing Sally any updated thoughts there.
Speaker Change #113: You know Tim no I mean, well, yes updated thoughts no intention to do so look we have a we.
Speaker Change #122: We have for 27 years been what I call sort of a peer.
Speaker Change #116: Solid waste play.
Speaker Change #116: 12 years ago, we entered the E&P disposal business and.
Speaker Change #116: And with continued you know at one point that was 15% of our business. It's now five five to six with what we did earlier this year. So it's well less than it was back in 2012, but we see ample opportunity in the solid waste.
Speaker Change #116: Core solid waste and recycling side, and an arb E&P disposal on the treatment side and and we really see no reason I'd use your word stray from that at this point in time.
Speaker Change #116: We've got ample opportunity in front of us.
Speaker Change #116: And while we look at other things, we just have not found them to be attractive and and and.
Speaker Change #116: To all our alternative excuse me uses of capital so.
Speaker Change #120: I can't speak to what others are doing.
Speaker Change #120: I'm, assuming it makes great sense for them, but it's just not strategically something we're looking to do.
Speaker Change #121: Okay. That's helpful. And then similarly, I know in the past you've said the elections in politics are necessary and important for you all but.
Speaker Change #124: To me like President and.
Speaker Change #116: And.
Speaker Change #123: Try to deemphasize if you will in that even if nothing else and I'm. Just wondering does that change your strategy at all or is it too late to put that genie back in the lab.
Speaker Change #103: Well.
Speaker Change #131: Look I I don't know, who none of us know who will win the election and what they will ultimately do whether depending on what they say it could always be different anyway, but we have not by any means gone quote all in on EV.
Speaker Change #103: Doing it in markets that are asking us to or demanding us to.
Speaker Change #103: I'm asking in the bidding process to such as New York City has done in the parts of the franchising such as parts of California have done and we are complying or planning on complying.
Speaker Change #103: But.
Speaker Change #127: No I don't think that there's anything out there.
Speaker Change #103: <unk> was that.
Speaker Change #103: Irrespective of who wins the election and has control of Congress I don't think we've made any decisions solely based on one regulatory policy or another.
Speaker Change #103: These investment decisions are made based on strategic decision. They are made based on what's best environmentally and sustainability was and they are made with an economic focus on each return if something changes in any of those equations, we always reserve the right to back up some but.
Speaker Change #103: We're not seeing that from anything that were hearing on either side right now.
Speaker Change #128: Okay got it and then final one.
Speaker Change #132: Can you just remind us of what it would take to revisit the dividend at this point isn't just a question of alternative.
Speaker Change #130: And you know acquisition opportunities or just if you could remind us your thinking there.
Speaker Change #136: So I would remind you that since the initiation of the dividend in 2010, we've raised at double digits every year.
Speaker Change #130: On a per share basis.
Speaker Change #126: And we continue to think about.
Speaker Change #126: Looking at it every every year in Q3, and we have no differing expectations at this point in time.
Speaker Change #126: I'm, sorry, I misspoke I meant the buybacks I'm sorry about that.
Speaker Change #126: Oh, the buyback, yes, we'd say the same philosophy that we've always had which we view M&A as our highest and best use to drive incremental growth of course, it would be depending on valuation and strategic fit but that always comes first I've already mentioned our philosophy on the dividend. So what that implies is that in years, when we're not seeing an hour.
Speaker Change #126: The amount of M&A like we are this year, whereas we had said we've already had outlays of over $1 5 billion on deals and continue have more to do between now and year end nears.
Speaker Change #126: So when it is not like that there is certain it certainly could be ample free cash flow available and we would absolutely consider stepping up on the buyback opportunity Opportunistically. That's how we continue to think about it.
Speaker Change #140: Thank you.
Speaker Change #135: Thank you.
Speaker Change #134: Final question today comes from Scott Moore with Jefferies. Please go ahead.
Scott Moore: Hi, good morning, Thank you.
Scott Moore: I'll keep it to one quick one here most of it is a clarification question you talked about labor open positions being down I think you said about 40%.
Scott Moore: How much more is there to go on that Labor front and then as you think about maybe the reduction in open positions is it.
Speaker Change #138: If you can talk a little bit about it this is a function of better retention and lower turnover versus maybe.
Speaker Change #139: <unk> need for incremental labor, either did a productivity or maybe you're seeing.
Speaker Change #137: Other talent has kind of come in any color there. Thanks.
Scott Moore: Sure.
Speaker Change #133: Well, so first off when we really.
Speaker Change #133: Our open positions that was your question that peaked at about seven 2% back in in 'twenty to actually sort of the mid to the end of 'twenty two.
Speaker Change #133: That was the peak.
Scott Moore: We had traditionally.
Scott Moore: Pre pandemic, let's just use that we have traditionally always tried to run the company about three to maybe up to 4% open head count Okay.
Scott Moore: And that's sort of a sweet spot for us naturally that that brought us about 18% to 21% total turnover with about half of that being voluntary and half of it being in voluntary.
Scott Moore: Where we're being very proactive on potential usually.
Scott Moore: Unsafe driver activity.
Scott Moore: So you know we are now sitting right at about dead on 4%.
Scott Moore: Four of our six regions are under 4%.
Scott Moore: So we're getting closer to our target.
Scott Moore: This environment, we want to run this about three and a half to three 8% open head count would be sort of optimal.
Scott Moore: Reduced voluntary turnover from the mid 20% level like 25% down to 14, 6%.
Scott Moore: At our involuntary turnover is running around 11, and a half to 12.
Scott Moore: So we've probably got about another four points optimally to go on the voluntary wed like to get that down in that 10% to 11% level.
Scott Moore: We're comfortable with our involuntary where it is it will also naturally drop as everything stabilizes. So.
Scott Moore: We're getting closer is is the answer to your question. It is almost other than the mirth side that I commented on which is a small piece when I talked about robotics. It is all due to our conscious improvement in turnover.
Scott Moore: And versus.
Scott Moore: Productivity was your question.
Scott Moore: That is as you get fully staffed.
Scott Moore: Everywhere, then you are able to focus on incremental productivity improvements.
Scott Moore: And you do that both through incremental growth per route, which actually drives productivity the best without adding head count.
Scott Moore: But it has all been from the turnover improvement at this point to answer the question.
Speaker Change #142: Great. Thank you.
Speaker Change #141: Thank you.
Speaker Change #141: A question and answer session I would like to turn the conference back over to Mr. Scott for closing remarks.
Mr. Scott: Okay, 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 boxer available today to answer any direct questions that we did not cover that we're allowed to answer under regulation FD Reg G and applicable securities laws in Canada.
Mr. Scott: Thank you again, we look forward to connecting with you at upcoming Investor conferences or on our next earnings call.
Speaker Change #143: Thank you Sir This concludes today's conference call we thank.
Scott Moore: Thank you all for attending today's presentation.
Speaker Change #145: Now disconnect your lines and have a wonderful day.
Scott Moore: [music].