Volume Stabilization Outlook
Q: Can volumes stabilize into '25 or '26 after 3 years of negatives?
A: Management believes that volumes should improve by 2025 or 2026 after three years of negative volumes. They've experienced similar cycles before, typically lasting up to 1.5 years, and feel they've been in this downturn for the last 18 months. A rebound in housing and infrastructure spending, along with easing mortgage rates, could drive volumes higher. They also note that national election years can cause a temporary stall in activity, which then releases once results are known.

Labor Benefits and Margin Expansion
Q: How much of margin performance is due to labor benefits, and will benefits trickle into '25?
A: As employee turnover approaches targeted levels, management expects approximately 100 basis points of margin expansion from labor initiatives by 2025. So far, they've captured about 25 to 30 basis points, leaving 70 to 75 basis points yet to achieve. These improvements come from multiple areas including labor, overtime, and third-party repairs. They anticipate continued margin expansion in 2025 as wage pressures, currently above 5.5%, begin to subside.

Acquisition Returns and Multiples
Q: What returns are you seeing on acquisitions, and how are multiples trending?
A: Acquisition multiples have decreased by about 1.5 to 2 turns over the past two-plus quarters. The company targets an internal rate of return (IRR) between 11% and 15%, ensuring positive net present value (NPV) on invested capital. Factors such as asset quality, margin, necessary capital expenditure, and investment risk are all considered to determine acceptable returns.

RNG Investments and EBITDA Contribution
Q: What's the expected EBITDA contribution from RNG investments amid delays?
A: The expected EBITDA contribution from renewable natural gas (RNG) investments was reduced by about $10 million due to timing delays, with revised guidance reflecting this adjustment. Despite industry-wide delays and higher costs, management remains committed to their plans and still expects approximately $200 million in EBITDA contribution by 2026 as projects come online.

Price/Cost Spread and Pricing Strategy
Q: How do you view price/cost spread in lower inflation, and expectations for 2025?
A: Management finds it more challenging to maintain price/cost spreads in a lower inflation environment. They aim for a spread of 150 to 200 basis points above inflation. While absolute pricing percentages may decrease with lower CPI, they expect the spread between price and cost to remain similar to current levels in 2025, although achieving this may be harder due to customer perception.

Free Cash Flow Guidance Unchanged
Q: Why is free cash flow guidance unchanged despite raising EBITDA guidance?
A: Free cash flow guidance remains at $1.2 billion because the incremental interest expense from $1.5 billion in acquisition outlays offsets the EBITDA increase. Additionally, they didn't adjust capital expenditure guidance despite the M&A activity, absorbing incremental CapEx needs without changing free cash flow expectations.

Impact of Potential Capital Gains Tax Changes on M&A
Q: Are potential capital gains tax changes affecting seller expectations and deal timing?
A: Potential increases in capital gains tax rates significantly impact seller psychology and timing. If there's a belief that capital gains rates will rise after the 2025 expiration of current tax cuts, they anticipate accelerated seller activity in the back half of 2024 and throughout 2025 as sellers look to complete transactions before any increase.

Technology Initiatives and Productivity
Q: What technology opportunities could move the needle in the next year?
A: The company is expanding the use of robotics and artificial intelligence (AI) in material recovery facilities (MRFs), significantly reducing headcount and boosting productivity and material quality. In some upgraded MRFs, they've reduced staff from 80–100 employees down to the high 20s while handling equal or greater volumes. They're also implementing AI-driven camera technology for commercial overload detection, aiding revenue enhancement, and deploying dynamic routing technology to improve operational efficiency.

Integration of Secure Energy Assets and E&P Waste Outlook
Q: How is the integration of Secure Energy assets progressing, and what's the E&P waste outlook?
A: The Secure Energy assets performed exceptionally in their first full quarter, delivering revenue and EBITDA at or above expectations. While none of the seven shuttered energy and production (E&P) waste facilities have reopened yet, they're close to reopening one and may reopen four or five over time. They also observed sequential improvement in their U.S. E&P waste business despite declining rig counts, partly due to remediation projects, though they don't assume such one-off jobs will continue.

Northeast Rail Development and Volume Ramp
Q: What's the update on the Northeast rail development and volume ramp-up?
A: Since acquiring the Arrowhead landfill operating at about 2,700 tons per day, they've more than doubled volumes to 6,000 tons per day, ahead of schedule. They aim to reach over 10,000 tons per day by 2026, with the site's permitted capacity at 15,000 tons per day. Most of the volume increase has been from internal waste streams, which doesn't significantly impact reported revenue due to internal accounting. Improved operations at Norfolk Southern have also enhanced their ability to handle higher volumes.