Q1 2025 Waste Connections Inc Earnings Call
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Speaker Change: Good day and welcome to the Waste Connections Q1 2025 earnings call. All participants will be in listen-only mode. Should you need assistance, please signally conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to Ron Mittelstaat, President and CEO . Please go ahead.
Okay, thank you operator, and good morning.
Speaker Change: 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'm joining this morning by Mary Ann Whitney, our CFO , and several other members of our senior management.
Speaker Change: As noted in our earnings release, we're extremely pleased by the strong start to 2025 as price-led, organic solid waste growth and continued acquisition activity drove a top to bottom beat in the quarter, positioning us well for the full year.
Speaker Change: Exemplary Operational Execution, Supported Core Solid Waste Pricing of 6.9% and drove better than expected results as we overcame incremental volume weakness from protracted weather events across many markets to exceed our outlook and deliver a justice even down margin of 32%.
Speaker Change: Our industry-leading results are indicative of the durability of our unique approach to market selection, our decentralized operating model, and the resulting projectability from our commitment to excellence. [inaudible]
Speaker Change: To that end, we also saw continued improvement in employee retention for the 10th consecutive quarter, along with record safety performance during the period. Before we get into much more detail, let me turn the call over to Mary Ann for our forward-looking disclaimer and other housekeeping items.
Thank you Ron and good morning.
Mary Ann: 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 1995
Mary Ann: 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 Ann: Factors that could cause actual results to differ and discuss both in the cautionary statement in our April 20th Ernie's release, and in greater detail in Waste Connections filing to the U.S. Securities and Exchange Commission and the Securities Commission's are similar regulatory authorities in Canada.
Mary Ann: You should not say some do reliance on forward-looking statements as there may be additional risks of which we are not presently aware or that we currently believe are immaterial, which could have an adverse impact on our business.
Mary Ann: 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 Ann: 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 pre-cash flow.
Mary Ann: Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations other companies may calculate these non-GAAP measures differently
Ron Mittelstadt: I will now turn the call back over to Ron. Okay, thank you, Marianne.
Ron Mittelstadt: We're off to a great start in 2025 and many respects, including pricing, employee retention and safety performance
Ron Mittelstadt: and Acquisition Integration, all driving better than expected revenue and adjusting the bidon in the quarter.
Ron Mittelstadt: We delivered margins of 32% during the seasonally weakest quarter, in what would argue would be characterized as an uncertain macro environment, further complicated by extreme weather and many markets, and without any relief from commodities or effects.
Ron Mittelstadt: Set another way, we're delivering on multiple fronts, starting with price-led organic solid waste growth. In the first quarter, core pricing was up sequentially to 6.9% and exceeded our outlook on the strength of pricing retention.
Ron Mittelstadt: Volume, down 2.8% was in line with recent quarters in spite of incremental impacts from weather-related events that were most pronounced in February and followed by a pickup in March .
Ron Mittelstadt: To the inevitable question about how our business may have been affected by concerns about tariffs or other geopolitical elements impacting expectations or the economy more broadly.
Ron Mittelstadt: As is evidenced by our Q1 results, we didn't see any note where the impacts, including with respect to solid waste organic growth. In fact, we were impressed by favorable trends in volumes and pricing, both of which increased sequentially in the quarter normalized for outside weather impacts. [inaudible]
Ron Mittelstadt: Today, we have seen no incremental capital or expense increases associated with tariffs.
Ron Mittelstadt: Moreover, we were and continue to be impressed by the quality of execution from our local leaders and further advances in key operating trends [inaudible]
Ron Mittelstadt: Notably, Q1 marked our 10th consecutive quarter of improvement employee retention, with voluntary turnover down another 60 basis point sequentially in Q1 to below 12 percent and down over 50 percent from our peak.
Ron Mittelstadt: At less than 12% our voluntary turnover is within our targeted range with momentum for further improvement.
Ron Mittelstadt: Additionally, corresponding reductions in employee openings are allowing us to optimize staffing levels and focus on quality
Ron Mittelstadt: We would argue that voluntary turnover is the single most important metric to determine a company's overall health [inaudible]
Ron Mittelstadt: As we have indicated would be the case, the benefits from improved employee engagement are spread throughout the P&L and position us for continued growth and margin expansion.
Ron Mittelstadt: We are seeing real-time benefits in reduced overtime, less reliance on third-party services and lower vehicle wear and tear, as well as improved employee morale and engagement.
Ron Mittelstadt: that is translating to higher customer satisfaction levels as seen in sales, pricing retention, and M&A integration, which is noted earlier are ahead of plan for 2025.
Ron Mittelstadt: Most importantly, we see the value of employee engagement and safety, our number one operating value, and key performance indicator. Not only have we seen continuous improvement in company-wide incident rates over the past two years, but we have now achieved historic low levels. [inaudible] We have now achieved historic low levels. We have now achieved historic low levels. We have now achieved historic low levels.
Ron Mittelstadt: That is, we are experiencing safety incident rates that are lower than any other time in the company's history with dramatically more employees and vehicles.
Ron Mittelstadt: While acquiring and integrating in recent years record levels of acquisitions, which typically come on at much higher incident rates, we have also driven down the number of safety related incidents across our expanding footprint. We're going to have a quick break.
Ron Mittelstadt: Reducing your over your incident counts by as much as 40% in recent months.
Ron Mittelstadt: This outsize improvement will unlock incremental cost savings in future periods from the lagging benefits of reduced severity and incidence, which continue to be headwinds being absorbed in the current period based on our prior year's performance.
Ron Mittelstadt: Along with these achievements, our acquisition activity continues at outside levels [inaudible]
Ron Mittelstadt: With annualized revenues closed today at already over 125 million, including a strategic state-of-the-art recycling facility in New Jersey to complement our growing New York City commercial collection franchise business discussed the past several quarters.
Ron Mittelstadt: Already approaching in four months what we used to consider an average year, we're on pace for another busy year with high levels of seller interest across our footprint. We're on pace for another busy year with high levels of seller interest across our footprint.
Ron Mittelstadt: We should be well passed an average emanate year by the midpoint of this year.
Ron Mittelstadt: At debt to EBITDA leverage of 2.3 times, we remain well-positioned for continued acquisition outlays in 2025, and more importantly, their successful integration to drive value creation.
Ron Mittelstadt: The strength of our balance sheet and the consistency of our results provide tremendous optionality to execute on our growth strategy along with increasing return of capital to shareholders.
Ron Mittelstadt: And we're extremely proud to report our recent receipt of a rating upgrade from Moody's ratings, 283, reflecting that track record and providing even greater support for our continued growth.
Speaker Change: Now I'd like to pass the call to Marianne to review more in depth, the financial highlights in the first quarter and provide a detailed outlook for Q2. I will then wrap up before heading into Q&A.
Thank you, Ron.
Mary Ann: In the first quarter, revenue of $2.228 billion with above the high end of our outlook and up $155 million or $7.5% year-over-year. Adjusting for foreign exchange impacts from the decline in the Canadian dollar, year-over-year revenue was up 8.4%.
Mary Ann: Contributions from acquisitions, netted vestitures and operations closed since the year ago period, totaled 112 million in the quarter [inaudible]
Mary Ann: As Ron noted, solid waste organic growth was led by 6.9% core price, which ranged from about 4.5% in our mostly exclusive market western region to over 8.5% in our competitive markets.
Mary Ann: Total price of 6.7% reflected a reduction of about 20 basis points in fuel and material surcharges primarily related to lower fuel rates.
Mary Ann: With over 75% of our price increases already in place or contractually provided for, we have high visibility for full year, 2025, core pricing of at least 6%
Mary Ann: Looking next at Solid Waste Volumes, which, on a reported basis, are normalized for the impact of one less day in the quarter and our closing of Jackie the Kenyan Landsphile at year end, 2024.
Mary Ann: Q1 volumes of negative 2.8 percent were in line with Q4, including 50 basis points attributable to outsized weather events, most notably in February , that contributed to reported volume losses to varying degrees across all of our regions, except our western region.
Mary Ann: volumes also reflect ongoing purposeful shedding and non-renewal of poor quality contracts from acquisitions in recent years, similar to prior periods
Mary Ann: Look at your results in the first quarter on the same store day-adjusted basis.
Mary Ann: Roll-up polls were down 2% due primarily to February weather impacts, most notably to markets in the south and southeastern US. In fact, excluding February , polls were about flat year over year.
Mary Ann: Landtiltons were up 1%. Higher MSW tons of 2% and increased special waste tons of 6% were partially offset by weaker C&D tons down 6%.
Mary Ann: Increases in special waste activity reflect some benefits from an easy comparison to last year, and we're broad-based across a number of smaller jobs in most of our regions, except our central region.
Mary Ann: Looking at landfill tonnage by month, similar to roll-off activity, February was the only negative month, otherwise tons were up 4 to 5% year-over-year
Mary Ann: Beyond solid waste, revenues played out largely as expected in Q1, with values for cardboard or OCC and renewable energy credits or rims, both down about 20% year over year and stable at those levels during the quarter, with offsets from increases and other commodities.
Mary Ann: In Q1, prices for OCC averaged about $105 per tonne, and Ren's averaged about $2.45, with little movement in either thus far in Q2.
Mary Ann: And finally, E&P Waste Activity was about flat year over year, adjusted for acquisitions. With some declines associated with decreased rig counts in certain basins in the US
Mary Ann: Offset by Drilling activity in other U.S. basins and production oriented activity in Canada.
Mary Ann: Adjusted EBITDAQ for Q1, as reconciled in our earnings release, was 712.2 million, up 9.5% year over year. At 32% of revenue, our Adjusted EBITDAM margin was above our outlook and up 60 basis points year over year.
Mary Ann: This increase was driven primarily by underlying solid waste margin expansion of 70 basis points, which along with 20 basis points net benefit from accretive acquisitions offset by closed operations
Mary Ann: Moore then overcame a combined 30 basis point margin drag from lower commodity driven revenues and FX.
Mary Ann: Net interest expense of 79.1 million reflects the weighted average cost of approximately 4% on quarter and debt outstanding of about 8.4 billion, with a tenor of about nine years and a mix of 80 to 20 fixed to floating rate debt.
Mary Ann: The quidity was approximately $570 million, and our leverage ratio, as defined in our revolving credit agreement, and is noted by Ron, was about 2.73 times debt to EBITDAX.
Mary Ann: Our effective tax rate for the first quarter was 22.8% about as expected, and finally adjusted pre-cash flow with $332.1 million was in line with our expectations and our full year outlook of 1.3 to 1.35 billion as provided in February .
Mary Ann: I will now review our outlook for the second quarter of 2025. Before I do, we'd like to remind everyone once again for the first time.
Mary Ann: 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 Securities Commission's or similar regulatory authorities in Canada. We encourage investors to review these factors carefully.
Mary Ann: 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 second quarter and dispensing of transaction-related items during the period.
Mary Ann: Revenue in Q2 is estimated to be in the range of 2.375 billion to 2.4 billion dollars. Adjusted EBADAM Margin in Q2 is estimated at approximately 32.7%.
Mary Ann: Depreciation and amortization expense for the second quarter is estimated at approximately 13.1% of revenue, including amortization of intangibles of about $50 million or 14 cents per diluted share, nest of taxes.
Mary Ann: Interest expense and that of interest income is estimated to approximately $82 million, and finally our effective tax rating Q2 is estimated at about 24.5% subject to some variability.
Ron Mittelstadt: And now, let me turn the call back over to Ron for some final remarks before Q&A.
Thank you, Marianne.
Ron Mittelstadt: Our strong start to the year evaluates the discipline approach to growth and value creation that we have employed since our founding [inaudible]
Ron Mittelstadt: with Solid Waste pricing largely in place, and another busy start to acquisition activity. We are well positioned to build on that success in 2025, particularly given the benefits of employee engagement we're seeing today, which should continue to crew to us in 2025 and beyond.
Ron Mittelstadt: Looking at our outlook for the full year 2025 and acknowledging the broader macroeconomic uncertainty in the current environment as noted, we have thus far not seen significant changes to trends and activity or costs that would alter the outlook for 2025 that we provided in February .
Ron Mittelstadt: On that basis, we are reiterating our full-year 2025 outlook for revenue, Adjustity Badaugh, and Adjusted Free Cash Flow, while acknowledging that uncertainty.
Ron Mittelstadt: Of course, we will continue to monitor trends as tariffs and other drivers may impact our results And we intend to review and provide any updates to our full year 2025 outlook in conjunction with our Q2 earnings release [inaudible]
Ron Mittelstadt: Regardless of the macro environment, we'll continue to focus on those aspects of the business that we can influence and position ourselves to address and mitigate the impacts outside of our control.
Ron Mittelstadt: To that end, we're most grateful for the commitment of our 24,000 employees who drive these outcomes, while putting safety first and making waste connections such a great place to work.
Speaker Change: We appreciate your time today. I will now turn the call over to the operator to open up the lines for your questions. Operator?
Speaker Change: We will now begin the question-and-answer session to ask a question you may press star than one on your touch-tone phone. If you're using a speaker phone, please pick up your hand set before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star and then two Our first question comes from Tyler Brown with Raymond James, please go ahead
Hey, good morning guys.
Two more in Tyler.
Speaker Change: Hey, Ron, thank you for all the color on the tariffs, but in a similar vein, the financial markets are obviously up and down, interest rates are moving
Speaker Change: And I think the HSR process got a little more difficult, maybe in the past month or so, so...
Speaker Change: Number one, can you just talk about how those HSR changes do or don't affect you regarding M&A and two? It doesn't sound like it but is this uncertainty in the market having any material impact and getting deals over the line and closing them? [inaudible]
Go.
Speaker Change: Thanks, Tyler. So, first off, I'm sure many on the call are aware that the HSR filing...
Speaker Change: Application process and timing changed effective February 8th of 2025. The process, the application became, you know, probably three to four times, more...
Speaker Change: Lengthy, and the cost to prepare became probably three to five times [inaudible]
More expensive.
Speaker Change: The FTC and the DOJ are now saying that, you know, typical deals that might get reviewed in a 30-60-day process
Speaker Change: People should now expect more like a 90-150-day process, so it is expected to lengthen out those bills that require HSR.
Speaker Change: Now having said that, listeners should understand that 99% of our deals do not require an H.S.R. filing.
Speaker Change: because we are acquiring smaller, privately held companies almost exclusively under $125 million in purchase price.
Speaker Change: And so we have very, very few HSR filings. In fact, we currently have no deals slated for HSR filings and we have not had any year to date.
Speaker Change: So I am not looking for any delays in any of our M&A, but I can understand how if you're acquiring public companies or doing very large transactions, there could be a slowing due to the change in the HSR process this past February .
Speaker Change: Interesting. Okay, very, very helpful. Maryann, just so I have it, but the 2.8 volume decline, that excludes the workday impact, right? Was that maybe something like 40 or 60 basis points, give or take? Okay.
Marianne: That's right, Tyler. It's about 60 basis points, should be that one day in the quarter.
Speaker Change: Okay, but it does include the 50 basis points from weather so if you kind of look at it somewhat cleaned up I mean maybe the rate of volume declines actually improved a bit sequentially if you take out you know weather and you know Chiquita's obviously taken out in the workday. Thank you very much.
Speaker Change: That's correct, and that's the point, you know, I think, you know, Ron made that not only did we see sequential improvement in price but we saw it in volumes when you normalize for that and that two, three would be lower than most of the quarters last year except one where we had really lumpy outside special waste contributions.
Speaker Change: Okay, and then Ron just on Wantle puns. I know those are probably your most...
Ron Mittelstadt: kind of real-time indicator if you will. I know you gave the monthly through March, but anything in April since all of this seemed to happen in April . Does anything month to date on the landfill times? [inaudible]
Ron Mittelstadt: Yeah, I can provide that actually received it last night on our Flash Tyler, so the last four week average total tons are up 4.5% and year-to-date they are up exactly 3%
Ron Mittelstadt: Okay, excellent. My last one here. I just thought I was very interested in the comments about incidents that I think you said record lows.
Ron Mittelstadt: I know that not having an accident is good in real time, but it does take a while for it to show up in insurance premiums case. Maybe give us some color there. Thank you guys.
Speaker Change: Yeah, sure, Tyler. All right, multiple parts to that question. I'll try to answer. So first off, what is driving that is culture? Number one, more than technology. We have had a very robust onboard technology for a very long period of time. We have used onboard cameras for over 20 years now. And of course, they have improved and the amount of views are improved. But our coaching effectiveness on risky drivers has improved.
Speaker Change: We can improve a company wide to approaching 90% of all incidents that are detected on a daily basis via our technology and that is a dramatic improvement. Thank you very much.
for us, it's a huge cultural focus for us.
Speaker Change: To give you a perspective, I mean, we would typically, two years ago, in the month of March, we had about 400 and some incidents, which can be as little as tapping a mailbox, so let me clarify that. And in the month, this year, in the month of March, we were in the 200s with dramatically more vehicles on the road. [inaudible]
Speaker Change: and employees. So I would tell you that technology is part of it, but I would tell you it's 90% behavioral change through coaching and that's a cultural issue for us.
Speaker Change: As far as the insurance market, you are right. Safety is a leading indicator or incidence is a leading indicator of performance, but risk insurance is a lagging indicator.
Speaker Change: So we reset our premiums every August to September with third party for our umbrella coverages on our risk for both workers comp and third party liability.
Speaker Change: And, you know, your severity in the prior two years really determines what's happening in your forward period [inaudible]
Speaker Change: So, you know, last August , we priced our insurance for the 25 calendar year and that was based on the 23 and part of 24 performance.
Speaker Change: And that performance was not as good, we did have some serious...
Speaker Change: A losses in that period, and so that risk premium went up quite dramatically. In fact, our five-year Kagger on insurance premium is about a 17-day-teen percent increase per year.
Speaker Change: We are projecting with our current performance, if we hold that and continue this line, we'll begin dropping with the renewal this September . So we think we will start seeing some benefit in the P&L from our current performance throughout 26.
Speaker Change: The only other thing that I would add to that is that one observation, as Ron said, claims take multiple years to develop, and so as we describe it, the risk is actually a lagging indicator, and that's what we tried to describe. The one observation would be if that lag is a little longer arguably coming out of the pandemic when you had a couple things happen, you had a whole slowdown in the processing of claims, therefore the development. But then you also had outsized in place.
Speaker Change: and so that has prolonged seeing the benefit in our P&L from our perspective. And as Ron said, we're looking forward to seeing that in the years ahead.
Yeah, perfect, great colors usual, thank you.
Thank you. Bye.
Karnak Gupta: And the next question comes from Konark Gupta with Scotia Bank. Please go ahead.
Karnak Gupta: Hi, this is Ellie Filling into Konark. Good morning, everyone. Thanks for taking more questions.
Karnak Gupta: Just one question, are you seeing any meaningful changes in the R&G landscape, be it demand or pricing or competition due to a more pro-carbon administration?
Karnak Gupta: I would say that we really haven't but if you think about where we are in the process of developing new facilities, bringing them online and existing facilities, we basically are, you know, this is a year of cat-backs and the new facilities will be coming online in late 26th.
Karnak Gupta: And so we might not be the best indicator of anything real-time that might be developing there, but what I can say is for the existing facilities we have as we noted in our remarks.
Karnak Gupta: that RINs are made very stable in that kind of 245 type of level. And we've seen them there really since the initial drop-off right after the election and the adjustment to the RBO last year, but they've pretty much stabilized at current levels for most of Q1, and we haven't seen any change in Q2 to date.
That's our talk. Thank you. That's all my questions.
Thank you.
Speaker Change: And the next question comes from Jerry Revich with Goldman Sachs. Please go ahead.
Hi, good morning. This is Adam on for Jerry. Jerry.
Speaker Change: A really strong core price of 6.9% and it seems pretty robust in context of the guide.
Speaker Change: Initially put out of around 6%. Has your price claims changed at all since the start of the year? And it sounds like some of that have been driven by pricing retention? Are you seeing any change in pricing retention trends year-to-year or sequentially?
Speaker Change: So number one, nothing has changed, Adam. I think we originally got it that our price guidance was six to six and a half percent. It was the range that we thought we would target for the full year. Remember, Q1, because of a lower seasonal denominator, weather wise, and seasonality is always sort of the highest point of your price, and then it will step down sequentially. It doesn't step down. It's just that the denominator is the highest point of your price guidance, and then it will step down.
Speaker Change: Senator in the math changes. So it gives that appearance that the price is already input for the year. So no, there has been no change. I would tell you that the retention of the price has been better so far your date than at this point last year or in 23.
So that I think is very favorable overall.
Speaker Change: I think we've been a little more surgical about it or we're certainly attempting to be and I think that is helping somewhat too. I also believe our staffing levels and being fully staffed the way we are helps is assisting both in our service quality as well as our customer service response.
Speaker Change: So, you know, it all sort of feeds holistically to why we would hopefully retain more of that price So that's really, but there has been no change in our approach from the beginning of the year [inaudible]
Speaker Change: And then can you remind us how many different suppliers you use for your truck fleet? And it sounds like your visibility on a capital is pretty locked in there for the year. But can you just update us on conversations you're having with suppliers in context of terra-related inflation?
Speaker Change: Yeah, so first off, we use, I mean, we predominantly use about four chassis manufacturers and, you know, four or so body manufacturers. Obviously depends on the, you know, the type of the fleet, meaning, front load, rear load, side load, etc.
Speaker Change: So, you know, Ford for, as of today, we only have 10 remaining chassis for 25 to be built that could even potentially be subjective to tariffs.
Speaker Change: And we're being told that there is up to perhaps a $3,500 per chassis. So when we say there's virtually no exposure, that's what we mean by that.
Speaker Change: Body wise, we have not, as of yet been told by a manufacturer, there will be any incremental tariffs or impacts to that. Now, so we really have no concern about tariffs for our 25 CapEx.
Speaker Change: to speak of. Now, that could certainly change for 26, depending on what transpires with tariffs, and what is included and excluded. But for this year, we do not have any impacts, and we are not hearing any. [inaudible]
Speaker Change: On the part side, we are making a move in some of our locations where some of our parts were coming from various countries that would be subjected to tariffs. We are moving some of that parts inventory to domestic American manufacturers to avoid any potential there.
Great, thanks so much.
Speaker Change: And the next question comes from Trevor Romeo with William Blair. Please go ahead.
Thank you. Morning. I really appreciate you taking a question.
Speaker Change: The first one I had was on the incremental M&A that you've kind of announced this quarter. I think you specifically called out the state of the art recycling facility in New Jersey. Just wondering if you could talk about that asset a little bit more, you know, why was it up for sale, why did it look attractive to you from a strategic perspective, any more color on that would be great. Thank you very much.
Sure!
Happy to, Trevor.
Speaker Change: So the asset was a very large, as I said, steady the art built within the last finish.
Speaker Change: being built within the last 24 months, facility in the Hoboken, New Jersey area, just outside New York City. As you know, we have a very large presence in New York City and they've been awarded 12 of the franchise areas in the city. [inaudible]
Speaker Change: That will be rolled out over the course of the next two to three years and have just been started rolling out at the end of 24. Along with that becomes a large amount of recycling.
Speaker Change: Recycling that we're doing today and that we will need to be doing [inaudible]
This facility can process up to 20,000 tons per month [inaudible]
Speaker Change: So a quarter of a million tons a year. It is a highly, highly automated facility, as I said, state of the art using AI technology from an optical sorting, from an air classification, etc. The facility is processing about 13 to 14,000 tons a month right now as it speaks and we have not begun to bring any of ours into it.
Speaker Change: So, a multi-generational company, very well-known company that had been in business in the New Jersey area for 70 plus years.
Speaker Change: had actually had a facility fire several years ago, about three and a half years ago, and they ended up rebuilding this state of the art facility. So, a company that we would have been tracking for many years.
Speaker Change: and as we continued to grow there and knew we needed incremental processing after we acquired the Royal Waste Transaction last year, we had been working on this. The Royal Waste Transaction in New York City came along in Queens with a fantastic recycling facility as well, but we are literally bursting at the seams at that facility and needed incremental processing capacity to continue our expansion in New York City. The Royal Waste Transaction in New York City came along with a fantastic recycling facility and needed incremental processing capacity to continue our expansion in New York City.
Speaker Change: Okay, thank you very much. That's great color. And then maybe one for Mary Ann, I guess on the Q2 guidance, I think the margins of 32.7, if I heard you right, I think that's maybe a little less year over your expansion than what you've kind of seen lately. So are there any kind of headwinds to margin you call on in Q2, or could you just kind of talk through some of the upside or downside to that Q2 margin? Yeah.
Sure, important to keep in mind.
Speaker Change: really the drivers of last year's margins and the impact the commodities and acquisitions.
Speaker Change: Have Unreported Margins, and so when I think about what changes year over year in Q2 versus Q1, there's about 40 basis points more drag in Q2.
Speaker Change: specifically from the fact that for commodities Q2 was the highest level last year, and so the headwind is greater, and then you have less benefit . . .
Speaker Change: from the role over impact of acquisitions. Last year, of course, you had the benefit of secure, and that dissipates over the course of this year, and that becomes a drag. So think of it as 40 basis points different, and that gets you very close to the year over year margin. We just demonstrated in Q1.
Okay, that'll make sense. Thank you very much.
Thank you.
Tony Kaplan: And the next question comes from Toni Kaplan with Morgan Stanley . Please go ahead.
Speaker Change: Hi, good morning. This is Yeehoo to Selverman on for Toni Kaplan. Just a quick question on margins. What is your expectation embedded in the guides regarding inflation? Like, how should we think about margins in 2025 if let's say inflation lingers rather than moderate? Great.
Speaker Change: Yeah, so you're coming into the year. We certainly were mindful of the fact that CPI prints were lower, but we think in terms of our own cost inflation and not so much headline inflation as what's driving our the pricing and how we think about that.
Speaker Change: So, you know, as we said, we're delivering 6% core price and what we would say is that our cost inflation is running in the four to four and a half percent, so that comfortably gives you that 150 basis point.
spread between costs and price. [inaudible]
that we typically look for, more think in terms of. [inaudible]
Speaker Change: and certainly feel very comfortable because what we've seen in terms of our major cost pressures led by labor specifically is that those pressures have mitigated and so that spread is actually widening. So if in your example, if things were to pick up a little, we would absorb it with the pricing we've already done.
Speaker Change: Great, and just one more question regarding volume. So especially given the slowdown series recently that I've become more rampant, can you remind us which areas would get hit the most or impacted the most both negatively and potentially positively during the slowdown?
Speaker Change: Sure, so if you think about what is the most cyclically exposed piece of the Solid Waste business, that would be the roll-off side of collection, so construction-lovered, and then of course construction and demolition debris at our landfills. To give you some context, in the aggregate, it's about 10% about our revenue, which is more cyclically exposed.
Speaker Change: And on the collection side, the way that you adjust to that is you dynamically adjust. That is a point-to-point business. It's not route-based, so you have the opportunity. [inaudible]
Speaker Change: to, it's not only the lowest margin piece of the collection business, but you're able to dynamically adjust to activity levels. And so that's where you would expect to see it primarily in those areas.
Great. Thank you
Speaker Change: And the next question comes from James Schumm with TD Kaplan. Please go ahead. Good morning guys, thanks for taking my questions. Maybe...
Speaker Change: You priced at 6.9% in the first quarter, your inflation is 4.5%. The spread looks a lot wider here.
James Shum: Was there any thoughts to raising the 2025 guidance? Are you being a little conservative because we're so early in the year and the macro is uncertain? But it seems like that's spread. You've got a lot of wiggle room there. Can you just talk to that a little bit? [inaudible]
James Shum: door, happy to address that, and important to clarify. So, coming into any year, our reported price
Ron Mittelstadt: As Ron made reference to earlier, it would typically be highest in Q1 and that's really just a function of the math of how you calculate the dollar contribution from price [inaudible]
Ron Mittelstadt: As the denominator gets bigger over the course of the year.
Ron Mittelstadt: So one shouldn't generalize from 6.9% in Q1. We said it's a little better than expected and it gives us incremental conviction on 6% plus pricing for the full year. But you should fully expect that number on a reported basis to step down over the course of the year. So that tells you that you step down from 6.9 to numbers that are lower than that and optically you go below 6 as you move through the year to average 6.
Ron Mittelstadt: So that's all in line with our expectations, retention a little better in Q1.
So that's the math on reported pricing. Thank you.
Ron Mittelstadt: The second point regarding adjusting our outlook after what we've described is a very strong Q1.
Ron Mittelstadt: The short answer is, we typically don't review our outlook until the midpoint of the year when we have two quarters under our belt. If you think about it, we give quarterly guidance, so we give a lot of information each quarter, and even though Ron did take the opportunity to reiterate the full year, that was really within the context of recognizing the macro uncertainty that was impacting other people's view of their numbers for the full year. So what-
Ron Mittelstadt: What people should expect is, as is customary, we will make the adjustments reflecting any of the changes we've seen whether they're acquisitions or commodity values or other things that impact the full year, we'll do that in July We'll see you next time.
Ron Mittelstadt: Got it. Great. Thanks for that. Maybe I could squeeze two more quick ones in if possible. Well, what?
Speaker Change: The volume progression throughout the year. Can you give us a sense of how that trends and maybe what the exit rate is?
Speaker Change: And then lastly, FGNA was up 13% year over year in the first quarter, just curious what's driving that and what are your expectations for the rest of the year?
Speaker Change: So starting with the FGNA, first you need to normalize for the expensing of acquisition related expenses that we adjust for and so that comes out of FGNA. I think that was almost 13 million in the quarter and that was up two or three million from last year. So that's one observation. And then the other would just be that sometimes there's lumpy moves and one of them is incentive comp. And so it's a good thing when it increases your numbers in a current year. And so that's it.
to the single largest increase would be there. [inaudible]
Speaker Change: And then, yeah, with regard to the volume progression, James, so as we pointed out on the call, I think it will be normalized.
Speaker Change: For Weather, you would see that the Ant-Anne at Chiquita, which we have said we have normalized for, which we closed on January 1. You would be at about a negative 2.3 in that range. About a hundred basis points of that is conscious price.
Speaker Change: volume trade-off, and so that will continue, we will continue to make that trade-off, and then about a hundred business points of that is contracts that we have shed.
Speaker Change: So again, that will continue because those those contracts have been have been canceled by us or not renewed to begin.
Speaker Change: So that puts you at about a negative two as a starting point. So the Delta to that will be, you know, what happens in special waste and what happens in C&D?
Speaker Change: which are somewhat, as you know, economically driven. If those are, you know, as we said in the first quarter, the special waste was up.
Speaker Change: C&D was down a little, taken together they were about flat, so if that continues to improve then you will eat away against that negative 2% number if that were to decrease because of economic activity it would get a little worse. But there is nothing going on within that other than those two things.
Speaker Change: As we have said, we have been effectively, and I say we, I mean the economic environment in a flat, no growth economic environment for 10 consecutive quarters now [inaudible]
Speaker Change: Roll-off polls have been plus one to two percent, down one to two percent, landfill volumes have been plus one to two percent, down one to two percent, for ten straight quarters now [inaudible]
Speaker Change: We're covering 45 states and seven provinces in Canada with over 10 million customers. If volumes there, we get it. It's just that simple. We've just spent in a no-growth environment. I know the government would report close to 2% GDP, but if you take out federal government spending. We're doing.
It's negative.
We don't do business with the federal government.
Speaker Change: So, when volume happens in the economy, we will have it.
Speaker Change: Okay, great. Well, that's very helpful, guys. Thank you very much.
Sabahat Khan: And the next question comes from Sabahat Khan with RBC Capital Markets. Please go ahead.
Sabahat Khan: Great, thanks for the good morning. Maybe just following along that line of commentary, you know, Rhonda, and you both hear some comments around the special ways. Maybe we can just...
Sabahat Khan: Help us think through, you know, what are some of the leading indicators you might be keeping an eye on to see where the special ways some of the more CND cyclical units might be trending on?
Sabahat Khan: You know, within this flat environment, volume is a menu called flat to a negative at one point in a typical economic cycle with those turned materially negative just based on the, you know, your history with the company next.
Sabahat Khan: Yeah, go ahead Mary. So, you know, I'd start by just the observation that. Let's go ahead Mary.
Sabahat Khan: Special Ways in CNB, can be very lumpy, right, so that the main driver of volumes...
Sabahat Khan: is of course MSW, which as we said was up 2%. We made the point that special waste was up 6%, the first quarter last year was down 15%. The lumpiness.
Sabahat Khan: So when we think about what the leading indicators are, the signs that special waste jobs are coming, or maybe why they aren't, or maybe why there's weakness, sometimes it can be things like interest rates staying higher for longer, which discovers, for instance, speculative real estate development, which would lead to clearing a site, which is what we would describe as special waste when soil jobs come to the landfill. In the current environment, in one particular market, I can think of where there's been a slowdown, [inaudible]
Sabahat Khan: It's that the state money that would go to those projects hasn't been authorized because a budget hasn't been passed So it can be dynamics like that that slow down job [inaudible]
Sabahat Khan: What we've observed today is that there haven't been the really big, the outsized infrastructure types of jobs [inaudible]
Sabahat Khan: Instead, there have been smaller jobs spread across several markets that contributed, for instance, to the 6% increase year over year And similarly on the C&D side where it's down, it wasn't one big job It was several smaller jobs that didn't repeat so small decreases across several markets So those are just some observations about what we're seeing and so really what needs to change for the pickup is more an economic activity pickup And as Ron said, which we just,
Sabahat Khan: You guys really happen to see him? Yeah, and I would add, you know, we did a review with our field.
of our regional locations last Thursday.
Sabahat Khan: And we are not seeing a decrease in backlog of jobs that are in the pipeline to be released.
Sabahat Khan: In fact, it is actually quite robust. What we're seeing is a delay in some cases of the starting of the jobs. And that is a state and local government reacting in large part to uncertainty at the federal level. And so they are just holding back in many cases right now. I think waiting for greater clarity on what's going to transpire. You know, from a regulatory enforcement standpoint, as an example from a budgetary
Sabahat Khan: Stampoint as another example. So, you know, we're not, we're not seeing anything underlying that says there's anything unhealthy going on out there, but they're definitely uncertainty is leading to delays. That's what I would say.
Sabahat Khan: Great, that's great color, and then maybe just one quick follow-up on that. How do you think about given the lumpy nature of that business at times, just managing the cost, how do you think about labor versus just other fixed costs in that business, and how nimble could some of those cost be just through the cycle, just some perspective on that, please?
Sabahat Khan: Well, I mean, I think I would point to this quarter. I mean, you know, we delivered in the seasonally weakest quarter, a 32% adjusted EBITDA margin.
Sabahat Khan: and I don't know that we noted it in the call, but Labor was down approaching 50 basis points from prior to your period as a percentage of revenue. So we are managing it, I think very closely. Our field does an exceptional job of managing all expense lines, Labor included as a percentage of net revenue, which is how we look at the business. [inaudible]
Sabahat Khan: and so that's a dynamic thing that we are doing on a daily basis at every one of our locations. You know, the special waste business, as you were asking the question, you know, that's a landfill business, so it's a high fixed cost, low variable cost business.
Sabahat Khan: So, it certainly is somewhat volume dependent, but I don't think you will find us in any environment, hiding behind expense management or lack of expense management as an area of margin concern. That's not how we run the business and we will deliver on the margin irrespective of what's transpiring in the revenue line.
Speaker Change: Thanks very much, and I'm just one quick last one, I guess, at a high level I know what I think over the last couple of years a lot of progressive volumes still were being shed. Maybe is there any larger chunks remaining from past acquisitions, or would you say it's more sort of...
Speaker Change: You know, just a run rate, shedding that will happen. I just want to get perspective on that aspect of the volleyball he thinks.
Thank you. Bye.
Speaker Change: Yeah, first off, I would tell you that, I believe, finally.
Speaker Change: that the shutting from volumes that we did not want to renew from progressive is actually finally very close to done. The largest contract that was remaining, we gave up or did not renew October 1 of 24.
Speaker Change: So that is part of what's in the negative volume right now, that will anniversary September 30th of this year And that was the largest one I know remaining there that we did not renew Yeah, yeah.
Speaker Change: Now, we have had a very busy M&A for the last three to four years, as you are aware, certainly at least last three years. And so there is some remain, there is some shedding that goes with that, but it is not nearly as large a piece as some of the stuff that we had consciously not renewed from the press of transaction we did in 16. Thank you very much.
Great, thanks very much for the call.
Speaker Change: And the next question comes from Noah Kaye with Oppenheimer & Company. Please go ahead.
Good morning, thanks for taking the questions.
Speaker Change: Sort of a housekeeping question that then plays into the 2Q Outlook. You know, Marianne, I think you would called out on the margin bridge for 2Q, you know, being up 10 bits. Just a greater headwinds, sequentially from commodities.
Speaker Change: So that's about, you know, mid-single digits versus recycling, you know, OCC prices being down close to 20% as you said. So just trying to understand that the disconnect there might have thought the cycling would be down more more, um...
Speaker Change: And kind of what you're sort of expecting for 2Q, I guess the other component of that is Rin. So they just help us understand what we saw on the quarter on the recycling side and how we should be thinking about 2Q.
Speaker Change: A great question, Noah. So in Q1, while OCC was down 20%, you had other commodities which were up year over year, for instance, other grades of Biber.
and plastics and metals.
Speaker Change: And so that mitigated the year-over-year impact. Now that was in line with our expectations but the overall margin had been that that created year-over-year was only about ten basis points.
Speaker Change: So I look at that, I look at Rins which were effectively no impact again because not because of Rins but for instance natural gas was up here over a year and so that offset
The margin headwind there.
And so when I look ahead Q2 versus Q1...
Speaker Change: There are incremental headwinds since I don't have those same dynamics and the comp is harder because OCC increased by 10 basis points last year between Q1 and Q2. So those are the dynamics that I was referring to that create the incremental headwinds on the commodity driven piece of the business.
Okay.
Speaker Change: That makes sense, thanks. And then, you know, Ron had mentioned M&A being potentially at the midpoint of the year already above kind of historical at or above historical average for everyone's reference. I assume that's still kind of roughly in the $200 million range.
Speaker Change: Maybe talk a little bit about Ronnick, you alluded to the size before when we talked about HSR, but just talk a little bit about the mix of the OTC, you know, potentially coming into the business.
Thank you.
Speaker Change: Sure, yeah, and to clarify, as you did, Noah, yeah, I was referring to that 200 was sort of a historically average year, and that I expected us to be already at that number by the midpoint of the year. You are correct, that is what I was referencing.
Speaker Change: So obviously this would be well north of a historically average year.
Speaker Change: Our mix of deals is across the board. We have deals going on in all five of our U.S. regions and our Canadian region. It is a mix of historical, consistent, solid waste deals.
Speaker Change: This is nothing outside of its circle-solid ways. There are a few smaller E&P deals in there in both Canada and the United States.
in the Permian as well.
Speaker Change: to our filings, but I am not expecting those to close by mid-year. So that's what the mix is.
Speaker Change: If you think about it, Noah, since 125 is already done, this implies, you know, somewhere in the order of, you know, maybe it's 50 to 100 million gets done between now and July . That's how you get to the, hey, we'll be at an average rate by the time we report Q2. That's right.
Thanks so much, I'll turn it over
Brian Bergmaier: And the next question comes from Bryan Burgmeier with City. Please go ahead.
Brian Bergmaier: Good morning. Thank you for taking the question. Maybe just following up on some of the volume questions from earlier. Can you just remind us, you know, about how much visibility you typically have into the special waste or kind of event-driven?
Brian Bergmaier: Sposal Pipeline, you know, would you say, you know, two Q projects are kind of like locked in at this point or projects, you know, kind of being added or moved right up until the last minute. Just trying to think about how that pipeline kind of evolves as the macro environment changes this year.
Brian Bergmaier: So, Brian , I'd say in a typical year we would talk in terms of 90 days. We typically, as Ron said, we're talking to all of our regions at any point we're looking at the quarter, we have good disability and we'd say this year that's a little stretched out, right? Because we've seen these delays that Ron referred to.
Brian Bergmaier: Yeah, and I would also say that Bryan, that it's important to understand that...
Um...
Speaker Change: Special Waste comes in all different types and sizes. You have special waste that comes from manufacturing and industrial production. I mean, that's a very predictable waste stream because it's a byproduct of their operations. You know, that is probably 60 to 70% of the special waste that we get, and that is very projectible and recurring. [inaudible]
The event driven special ways.
Speaker Change: is the larger projects that are, as Mary Ann alluded to earlier, they are infrastructure developed. That's where you're tearing up roads, you're taking down bridges, you're taking down and rebuilding a stadium, you're cleaning up real estate for speculative development. So let's go ahead and see what we're going to do.
Speaker Change: That obviously is a little less predictable on the timing. You know it's going to happen because people pull permits, they're permitting these projects for years in advance.
Speaker Change: and then they've get, and then they have a window to complete the next phase of that permitting, but that window can be a couple years long [inaudible]
Speaker Change: So, you know, the start and finish dates are a little more speculative in that piece, but that's probably about 30% of what we reference as special waste [inaudible]
Speaker Change: So if you look at special ways as a total for the company, well less than 10% of total revenue, you know, and then you say that 30% of that 10% has, you're talking about a couple two to three percent that really has quote, I'm a, you know, less visibility in it.
Speaker Change: Got it, got it, thanks for that detail. And then just the last question for me, just on kind of Chiquita Tannion.
Speaker Change: I guess first, you know, are we still kind of using that 100-150 million cost estimate for this year? And then second, you know, can you maybe just provide sort of a general update on the status there? Are you, you know, satisfied with the progress you're making on the ETLF, with temperatures, you know, odor complaints, etc. Just sort of a general update on Chiquita. And thanks, I'll turn it over.
Speaker Change: Yeah, you know, first off to your first party of question. We do believe that that 100 to 150 million is the right bandwidth for the projected outlay for this year to answer your question. That starts higher in the beginning of the year because of the timing to the what we believe was the peak of the reaction, which was probably the late third or only fourth quarter of last year and volume levels, production levels of Leach 8 have come down by
Speaker Change: about 30 percent almost from that peak, so that would track with that.
Speaker Change: And to answer your question, yes. Everything we see from an engineering, an environmental monitoring, both internally and through third party experts shows that the reaction is contained and stable. We have completely sealed the area with approximately 50 acres of synthetic. Thank you.
Speaker Change: to contain odor, odor complaints are down over 90% from their peak.
Speaker Change: and the volumes produced from the reaction are down, as I mentioned earlier, probably about 30% from their peak of sort of last July through September .
Speaker Change: So we continue to be believed that it is moving in the trajectory that was expected when this began.
Speaker Change: And our next question comes from Stephanie Moore with Jeffries. Please go ahead.
Hi, good morning. Thank you
I wanted to
Speaker Change: Good morning. I wanted to circle back on maybe the potential deregulation questions. If you could maybe touch on potential to see some changes that the EPA and what this can mean for regulations as it relates to PFAS and any other land still related regulations that you have dealt with over the last couple of years. Thanks.
Speaker Change: Well, first off, I would say, Stephanie, that obviously it's relatively recent, and we have not seen
Speaker Change: Decrease in regulation at this point through the EPA, that would affect our business or bring any material changed to our business from a reduction, if you will, in regulation.
Speaker Change: As you may know, the EPA is expected, you know, perhaps by June to clarify their position on PFAS. They have not done so. There has been some discussions by staff within the EPA. The industry has taken the position. And the EPA has taken the position overall that the industry is a passive receiver. And so that is, I think, an important.
Speaker Change: Extension and one we believe and hope we'll stay at that and have reason to believe it will stay at that from conversations with the administration but you know as far but we are prepared to and are handling PFAS we we have been beta testing multiple technologies for the last actually two plus years at multiple of our sites.
Speaker Change: We have installed them at multiple of our sites. They work very efficiently to I'm going to use the word solidify PFAS and then that solidification can be landfilled.
Speaker Change: So whatever the outcome of the EPA's regulation is, we are not overly concerned. We have the technology, the technology exists out there to fully comply with whatever they may do. And again, if they take a more aggressive stance, we see this as advantageous for the public companies who have the ability to comply and the ability to pass on a greater price.
Speaker Change: than the cost of the compliance for that. So, it is, you know, it's an opportunity either direction in our mind.
Speaker Change: Absolutely, and then just one follow-up. If you could provide an update on your arrowhead landfill, maybe ramping an update on the ramping of the rail shipments to that site, and then maybe that appetite for bringing external volumes to the location. Thank you.
Speaker Change: Sir, yeah, as I'm sure you and others who follow us, we acquired the airhood side as you know in August of 23, so we...
Speaker Change: Anniversary to this past August . When we acquired it, that site was doing about 2,700 tons a day through a series of three intermodal transfer networks along the eastern seaboard in Massachusetts, Connecticut, and New Jersey.
Speaker Change: We now have that up on peak days to 7,500 to 8,000 tons a day. You know, those would be peak days that happen in the peak period sort of in that.
Speaker Change: August to September timeframe, down a little seasonally from that at this time of the year. But we will approach two million tons there this year. And we believe as we come through 26.
Speaker Change: And beyond, that number will push quite north of that two million tons per year, which would get you closer to that 9,000 plus tons a day.
Speaker Change: So it is ramping. A large part of that has been internal redirection of waste from sites that we have on the eastern seaboard so that we can open up those sites under the permitted caps to third party volumes. And so we can open up those sites under the permitted caps to third party volumes.
Speaker Change: And the last part of your question, our appetite for third party volumes at Arrowhead is very high and we are actively out there pursuing that through the Intermodal Networks along the Eastern Seaboard.
Speaker Change: Again, in the meantime, Stephanie, what you see is the increase in internalization, which you saw in our numbers and the benefits and third party disposal on brokerage costs. So, you know, it's a very strategic purpose will move to internalize more of our tons.
Great, thank you guys very much.
Speaker Change: And the next question comes from Tyler Brown with Raymond James. Please go ahead.
Tyler Brown: So I think last quarter you said that we should model about 300 million in incremental M&A in 25. I think at that time you would close 75 million.
Speaker Change: and now you've closed 125 million of annualized reps. But I also think, if I think back, you also said that some of the deals...
Speaker Change: that were under LOI that had not been closed. We're in that 300 million, if I'm not mistaken. So basically my question.
Speaker Change: is given the incremental $50 million, should we change that $300 million number? Sorry for all the numbers, I know that's risky on a call but...
Any color there?
Speaker Change: No problem. You know, if you added about 25 to 30 million, that would probably cover the incremental. When I think about what the increase was during the quarter in Q1, it was I think $8 million. So that's probably a fair way to think about it and you'll realize that.
Speaker Change: Okay, and then you, you added M&A versus Chiquita today on the call.
Speaker Change: So sorry, just to clarify, should we think about the 300 million? Okay, let's begin.
Speaker Change: Net of Chiquita, or those two separate numbers? No, fair question, think about it. Think of the separate numbers, so the number for acquisitions that of investigators is 129 and Chiquita was 17.
Okay. Okay. Okay.
Yeah, perfect. Thank you for the clarification. Thanks
I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Ron Mittelstaedt for any closing remarks.
Speaker Change: 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.
Speaker Change: Marianne and Joe Box are available today to answer any direct questions that we did not cover that we were allowed to answer under Regulation FD, Regulation G, and applicable securities laws in Canada.
Speaker Change: Thank you again and we look forward to connecting with you at Waste Expo Upcoming Investor Conferences or on our next earnings call.