Q1 2024 Earnings Summary
- Significant margin expansion potential due to productivity gains from routing software, back-office efficiencies, and fleet automation, especially in acquired businesses. The company expects to save millions of dollars in operating costs each year, and has already seen labor costs in acquired businesses at 21% of revenue compared to 14% in the base business, highlighting the opportunity for improvement.
- Successful labor initiatives, including CDL and maintenance schools and marketing efforts, have led to a 20% reduction in turnover, significantly lowering the total number of open positions year-over-year, contributing to improved operational stability and efficiency.
- Strong pricing power and great stickiness of pricing programs, supported by differentiated service and high-quality service delivery, allowing the company to maintain or increase prices without significant pushback from clients, supporting revenue growth and margin expansion.
- Weaker-than-expected volumes impacting growth: The company experienced softer volumes than expected in Q1, with volumes down 2.8% in the Solid Waste line of business. They anticipate volumes to be down modestly in Q2, relying on volumes to recover in the second half to meet their guidance of flat to down 1% for the year. This dependence on future volume recovery may be challenging if market conditions do not improve.
- Supply chain challenges affecting fleet replacement: The company is facing a struggle in terms of delivery of vehicles for fleet replacements, impacting their ability to maintain and modernize their fleet. Despite proactive management and a 5-year fleet plan, they are "still a bit of a struggle in terms of delivery and getting all of the slots" needed for replacements, which could lead to increased maintenance costs and operational inefficiencies.
- Near-term volume pressures due to increased competition: Increased competition from new rail and transfer capacity coming online is leading to lower volumes in the near term, as some waste is being diverted out of the company's system. The company is choosing to allow some volumes, especially in construction and demolition waste, to leave the system, which could negatively impact revenues and profitability.
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Volume Outlook
Q: With lower volumes, how will volumes trend this year?
A: Despite softer volumes, we expect to meet our guidance of volumes being flat to down 1% in Solid Waste this year. Collection volumes are strong, and while C&D landfill volumes are temporarily down, we anticipate volumes will recover, being down modestly in Q2 and flat in the second half. -
Margin Expansion
Q: How will margins trend after strong Q1 expansion?
A: We started strong with a 150 basis point margin expansion in Q1. While Q2 may see a smaller sequential increase due to factors like landfill volumes, we feel confident in achieving our full-year EBITDA margin expansion guidance of 30 to 50 basis points. -
M&A Focus
Q: Are you pursuing new platforms or focusing on integration?
A: We are focusing on driving density and adjacencies through tuck-ins and adjacent acquisitions in our existing markets, not pursuing large new platforms. In the Mid-Atlantic market, we're looking at fully integrated collection, transfer, and recycling opportunities to grow our business. Our strategy is to create shareholder value by executing within our existing business model. -
Efficiency Initiatives
Q: How significant are gains from productivity initiatives?
A: We see significant opportunities from productivity gains in fleet automation, route optimization, and back-office efficiency. We're in the mid-innings of this process, especially with our acquisitions, and expect to continue reducing operating costs and improving returns. Our new CIO is rethinking our systems to shave G&A costs, having already reduced G&A by over 100 basis points in the last three years. -
Pricing Stickiness
Q: Is pricing sticking, any client pushback?
A: Our pricing initiatives are sticking well in the market, with customers accepting our pricing as we deliver high-quality service. We implemented about 75% of our pricing for the year in late December into January and have seen great acceptance. -
PFAS Regulations
Q: How do preliminary PFAS proposals affect you?
A: We welcome federal regulation on PFAS, as it clarifies that manufacturers are responsible, not passive receivers like landfills. We're proactive in addressing PFAS, with an RO plant in McKean that removes PFAS and a foam fractionation pilot program in Vermont achieving up to 98% removal of certain PFAS compounds. -
Labor and Hiring
Q: How are labor conditions and wage inflation?
A: Labor conditions are improving due to our investments in CDL and maintenance schools, reducing turnover by 20% annually and significantly lowering open positions. The market is helping, but we've significantly invested in marketing and facility improvements to attract and retain employees. -
Volume Strategy
Q: What's your strategy as volumes move due to pricing?
A: We remain disciplined, not chasing volumes, and focus on returns. While some volumes have decreased due to market dynamics, we expect capacity constraints to return as sites close, and we'll regain volumes over time. Our investment in McKean positions us competitively for long-term disposal capacity. -
Fleet Replacement
Q: How are fleet replacement rates improving?
A: Delivery of new vehicles remains a challenge, but we're managing through it and maintaining our fleet plan. Acquisitions like Twin Bridges have reduced our fleet's average age, and we've taken 14 routes off the road through efficiencies. -
Route Optimization
Q: Are efficiency initiatives in early or late stages?
A: We're in the mid-innings of our efficiency initiatives, with significant opportunities remaining, especially through recent acquisitions. We're further ahead in our core business but still have work to do.