Waste Connections, Inc. Q3 FY2024 earnings call

• Solid waste organic growth: Core pricing of 6.8%, volumes up 90 basis points due to anniversary of purposeful shedding and special waste activity pull-forward. - Acquisitions: Record private company acquisition activity in 2024, with $700 million+ in annualized private company revenue signed/closed. Acquired Royal Waste Services, complementing New York City operations. - Employee retention: Voluntary turnover improved for eighth consecutive quarter, down over 40% from peak in 2022. - Sustainability: Progress on emissions intensity, safety incident rates, RNG facilities development, and resources recovered through recyclables and landfill gas.

In the third quarter, the solid waste segment was a key driver. Revenue was $2.338 billion, up 13.3% year-over-year. Core pricing in solid waste was 6.8%. Acquisitions contributed about $161 million of revenue in the quarter. Volumes improved sequentially by 90 basis points. Adjusted EBITDA margin for the solid waste segment was 33.7% in Q3, up 120 basis points year-over-year, driven by solid operational execution overcoming margin dilution from acquisitions and storm impacts.

• Full year 2024: Revenue estimated at ~$8.9 billion (up $150 million from original outlook), adjusted EBITDA ~$2.91 billion (up $50 million from original outlook), adjusted free cash flow $1.2 billion. - Q4 2024: Revenue estimated at ~$2.24 billion, adjusted EBITDA ~$740 million (33% of revenue), margin expansion comparable to recent quarters but affected by commodity values, special waste timing, and acquisition dilution. - 2025: Anticipates high single-digit adjusted EBITDA growth, mid-to-high single-digit revenue growth including price-led organic growth and acquisition carryover, with adjusted free cash flow conversion expected in 45%-50% range of adjusted EBITDA.

• Economic trends: Uncertainties in underlying economic conditions affecting business performance. - Commodity price fluctuations: Impact on revenues from recovered commodities. - M&A integration: Challenges in integrating acquired operations and potential margin dilution. - Regulatory uncertainties: Potential changes in regulation affecting operations and M&A pace.

Q: Any relation between special waste pull forward and elections?

A: Mary Anne Whitney said it wasn't specifically related to elections, just projects that were delayed and moved from Q4 to Q3.

Q: Royal Waste deal and zone cap?

A: Ron Mittelstaedt clarified they are at the cap of 15 zones, with one zone swapped out due to overlap.

Q: RIN prices and volume targets?

A: Mary Anne Whitney noted RINs are a subsidized commodity with uncertainty, and Waste Connections uses a hybrid strategy with opportunistic hedging.

Q: Cost inflation and pricing for 2025?

A: Mary Anne Whitney said cost inflation is in 4%-5% range, wage inflation higher, requiring outsized spread between price and CPI for 2025.

Q: Margin expansion factors in Q4?

A: Mary Anne Whitney explained Q4 margin expansion factors include commodities, storms, and M&A, with aggregate impact closer to 60 basis points.

Q: Chiquita cleanup progress?

A: Ron Mittelstaedt provided updates on Chiquita's reaction well drilling, submersible pumps, leachate levels, and cap completion progress.

Q: M&A focus and ROIC?

A: Ron Mittelstaedt stated focus on core solid waste opportunities, evaluating opportunities strategically with IRR/ROIC model.

Q: Storms and cleanup opportunities?

A: Ron Mittelstaedt mentioned potential incremental revenue from hurricanes like Hurricane Ian, but too early to quantify for recent hurricanes.

Q: E&P business integration?

A: Ron Mittelstaedt said E&P business is performing well, with R360 Canada integration better than expected and bolt-on acquisitions.

Q: Turnover and M&A integration?

A: Ron Mittelstaedt discussed turnover reduction and decentralized M&A integration with local management teams to avoid cultural dilution.

Q: Churn rates and price increases?

A: Ron Mittelstaedt said churn rates are improving, back to pre-2020 levels, with retention of price increases north of 85%-90%.

Q: Arrowhead landfill impact on Northeast pricing?

A: Ron Mittelstaedt said Arrowhead volumes have de minimis impact on Northeast pricing, as it's internalizing own volume.

Q: Macro and volume perspectives for 2025?

A: Mary Anne Whitney said volume recovery depends on shedding and contract nonrenewal, to be detailed in February guidance.

Q: Election impact on waste industry?

A: Ron Mittelstaedt said not overly concerned about election outcome, with potential benefits from either regulatory scenario.

Q: 2025 margin expansion?

A: Ron Mittelstaedt said underlying margin expansion in 2025 should be close to 2024 levels, but reported margin may be lower due to headwinds like commodities and M&A dilution.

Q: M&A shedding impact?

A: Ron Mittelstaedt said shedding is a function of macro economy, expected to continue but likely to decrease over time.

Q: Service intervals trend?

A: Ron Mittelstaedt said service interval trends are improving, less of a headwind than previous quarters.

Q: Core margin drivers in 2025?

A: Mary Anne Whitney said core margin drivers like price-led growth, retention, and safety will continue to impact 2025, to be detailed in February guidance.

Q: Northeast margin profile?

A: Mary Anne Whitney mentioned opportunities in New York's franchise model but noted different disposal cost dynamics in the Northeast affecting margins.