Good day, and welcome to the Waste Connections Inc. Q3 2024 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Ronald J. Mittelstaedt, President and CEO. Please go ahead.

Thank you, operator, and good morning. I would like to welcome everyone to this conference call to discuss our third quarter results and to provide an update on our full year 2024 outlook, a detailed outlook for the fourth quarter, as well as some early thoughts about 2025. I'm joined this morning by Mary Anne Whitney, our CFO, and other members of our leadership team. As noted in our earnings release, we are extremely pleased by the strength of our operating and financial results in the period, positioning us for another increase to our full year 2024 outlook with momentum as we look ahead to 2025. Solid waste growth led by 6.8% core pricing was supplemented by incremental acquisition contributions and 90 basis points sequential improvement in solid waste volumes during the period to drive results above expectations. Solid operational execution enabled us to deliver an adjusted EBITDA margin of 33.7% in the third quarter, as we expected, up 120 basis points year-over-year, overcoming margin dilution from acquisitions closed during the quarter and initial storm-related impacts at quarter end. Our results also reflect continued progress in employee retention, with voluntary turnover improving for the eighth consecutive quarter, bringing multiyear reductions to over 40% as we continue to invest in our most important asset, our people. Further, we anticipate that our innovative approaches to drive continued improvement in employee engagement and retention should position us in 2025 for another year of above-average underlying margin expansion in solid waste collection, transfer, and disposal. 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 you, Ron, and good morning. 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 of applicable Canadian securities laws. Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties. Factors that could cause actual results to differ are discussed both in the cautionary statement included in our October 23 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 of which we are not presently aware or that we currently believe are immaterial, which could have an adverse impact on our business. 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. 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 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. I will now turn the call back over to Ron.

Okay. Thank you, Mary Anne. We are extremely pleased by our operational execution in Q3, driving financial results above expectations as we continue to see the benefits of our focus on quality of revenue and human capital, while also delivering a record year of private company acquisition activity. Beginning with solid waste organic growth, core pricing of 6.8% was in line with our expectations. Reported volumes stepped up sequentially by 90 basis points as we began to anniversary a portion of the purposeful shedding we referenced in previous periods and also as a result of more special waste activity, including some Q4 projects which were pulled forward to Q3. Additionally, our results reflect incremental acquisition contributions with better-than-expected performance from acquisitions we closed earlier in the year, plus the impact of transactions closed during Q3. Most notably, we acquired Royal Waste Services, one of the preeminent holders in New York City with best-in-class collection, transfer, and recycling facilities. Not to be confused with Royal Carting located further upstate, while waste is prominently located in New York City, where they were awarded five of the commercial zones as part of the Department of Sanitation's announced franchise system. As such, our acquisition of Royal Waste complements our already well-established operations in New York City, where we were originally awarded 12 commercial zones. We are now comfortably the largest and only fully-integrated player in New York City. On the subject of New York City and its transition to a franchise model, we are pleased to report that the initial phase is proceeding at or better than we expected. Based on our experience in September in the pilot zone, we believe that the opportunity for growth and operating efficiencies should exceed our initial expectations, particularly given our already well-established and now expanded footprint in the city. What we've recognized from the onset of this franchise process was the critical importance of the location of assets within the city and the advantages they provide. Additionally, we anticipated the benefit from the optionality that would be afforded by our strategic acquisition 14 months ago of the Arrowhead Landfill in Alabama, providing rail access from markets in the Northeast. With recent peak days running at over twice our initial 3,500 tons per day throughput, activity at Arrowhead is also exceeding plan and benefiting several of our Northeast markets, including New York City, as we work to optimize waste flows and disposal capacity utilization within our own network of facilities. Moreover, we continue to evaluate incremental acquisition opportunities in the East as a result of this important element in our integration strategy. The franchise model being rolled out in New York City has transformed what was already a very good market for us into one with outstanding long-term value creation potential. Getting back to the broader topic of acquisitions. As anticipated, we are on track for a record amount of private company acquisitions in 2024, our biggest year since our founding in 1997. To date, we have signed or closed over $700 million in annualized private company revenue. This includes solid waste franchises, new competitive markets, E&P waste facilities, and several tuck-ins of operations in or adjacent to our current footprint in solid waste. We continue to maintain our focus on solid waste with a proven market selection strategy and a track record for integrating and maximizing value. As we say, more important than completing acquisitions is their implementation, and as noted earlier, regarding Q3, we're pleased to see performance at our acquired operations above our expectations. Additionally, acquisitions completed in 2024 should provide for approximately 2% or more in acquisition rollover contribution in 2025 with the potential for that to grow from additional transactions in Q4 and next year. While maintaining capacity for outside of the acquisition activity, we continue to reinvest in the business and expand our return of capital to shareholders. As anticipated, the strength of our operating performance, free cash flow generation, and balance sheet positioned us for another double-digit increase to our quarterly cash dividend, demonstrating once again the compatibility of funding our differentiated growth strategy and acquisition activity, along with an increasing return of capital to shareholders. To that end, our Board of Directors authorized a 10.5% increase to our regular quarterly cash dividend, our 14th consecutive annual double-digit increase since the initiation of the dividend in 2010. While executing our growth strategy, we've demonstrated significant progress toward achievement of our sustainability-related targets, which are inextricably linked to our focus on value creation in our business as highlighted in our 2024 sustainability report being released today. In fact, with multiyear reductions of 40% in emissions intensity and 13% in absolute emission declines, our results demonstrate that outsized growth is compatible with the achievement of our long-term aspirational ESG targets. I'm particularly pleased by the notable momentum from reductions in voluntary turnover and the related impacts to safety-related metrics; both are showing ongoing improvement in 2024. In Q3, voluntary turnover was down for the eighth consecutive quarter for a total reduction of over 40% from the peak in 2022, and we have seen a corresponding reduction in open positions down over 50% in that period. Similarly, safety incident rates have shown continuous improvement, now down over 15% from 2022 levels as we reinforce our most important operating value and work every day to recognize and proactively address unsafe behaviors. Our updated sustainability report also highlights our progress on increasing resources recovered through both the processing of recyclables and the recovery and beneficial use of landfill gas through renewable natural gas or RNG generation. We continue to make progress toward the development of our portfolio of new RNG facilities expected online in 2026. Now I'd like to pass the call to Mary Anne to review more in-depth the financial highlights of the third quarter and to provide our updated full year 2024 outlook and a detailed outlook for Q4. I will then wrap up with some thoughts about 2025 before heading into Q&A.

Thank you, Ron. In the third quarter, revenue of $2.338 billion was above our outlook and up $274 million or 13.3% year-over-year. Acquisitions completed since the year-ago period contributed about $161 million of revenue in the quarter, net of divestitures. Core pricing of 6.8% ranged from over 5% in our primarily exclusive market Western region to up to approximately 7.5% in our competitive regions. Volumes improved sequentially by 90 basis points with gains across several geographies, most notably our Eastern region, where acquisition-related shedding and the nonrenewal of certain municipal contracts had impacted prior periods. Additionally, activity picked up in certain markets, most notably in our Western region, where total volumes were up 3% year-over-year, which would be a strong quarter even in a high-growth environment; this outsized increase was led by special waste activity, up 20% year-over-year in our Western region. Looking year-over-year at other lines of business, roll-off pulls per day were down 3% on revenue per pull up about 5%. September was the weakest month, down 5% year-over-year and reflected the initial impact of Hurricane Helene in several markets in Florida, Georgia, North Carolina, and Tennessee, and landfill tons were down nominally year-over-year on higher MSW tons, up 5%, offset by special waste down 10% and C&D tons down 6%. Special waste activity in Q3, while still down year-over-year, improved sequentially in what was the toughest comp from last year. This performance includes that outsized contribution from our Western region and reflects a few jobs getting pulled forward from Q4, a reminder of the event-driven nature and inherent lumpiness of these projects. Moving next to revenues from recovered commodities. Landfill gas sales were up 15% in Q3 due primarily to higher volumes and higher value for renewable energy credits, or RINs. Recycled commodity revenues were up 55% year-over-year ex-acquisitions but were down nominally on a sequential basis as prices weakened during the quarter. Moreover, since quarter end, commodity values have dropped by approximately 15% as a result of recent slowdowns associated with the port strike and weaker demand, with the potential for another 5% to 10% near-term reduction in Q4. Adjusted EBITDA for Q3, as reconciled in our earnings release, increased by 17.3% year-over-year to $787.4 million. At 33.7% of revenue, our adjusted EBITDA margin was up 110 basis points sequentially from Q2 and up 120 basis points year-over-year; this outsized margin expansion was in line with the increased expectations we provided in July and reflects outperformance in our core solid waste business, where we overcame both the drag from additional acquisition contributions coming on at diluted margins and incremental costs associated with hurricane preparation and related impacts. Net interest expense of $80.2 million reflects a weighted average cost of debt of just over 4% on a mix of approximately 82% fixed and 18% variable rate debt with an average tenor of almost 10 years. Leverage moved nominally in the quarter to about 2.7x debt-to-EBITDA. Our tax rate for Q3 was 23%, slightly lower than expected. And year-to-date adjusted free cash flow of $1.044 billion or 15.7% of revenue is on track for our full year adjusted free cash flow outlook of $1.2 billion. I will now provide an updated full year 2024 outlook and a detailed outlook for the fourth 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. We encourage investors to review these factors carefully. 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 year and expensing of transaction-related items during the period. Looking first at our updated outlook for the full year as provided for and reconciled in our earnings release. Revenue is now estimated at approximately $8.9 billion, up $150 million from our original outlook, and adjusted EBITDA for the full year is now estimated at approximately $2.91 billion, up $50 million from our original outlook. Adjusted EBITDA margin of 32.7% reflects a 120 basis point year-over-year increase for 2024 and adjusted free cash flow of $1.2 billion is in line with our original outlook. Looking next to Q4, revenue is estimated to be approximately $2.24 billion and adjusted EBITDA is estimated at approximately $740 million or 33% of revenue. Normalized for the sequential decline in commodity values, special waste timing, and incremental dilution from acquisitions completed during Q3, margin expansion is expected to be comparable to recent quarters. Depreciation and amortization expense for the fourth quarter is estimated at about 13.4% of revenue, including amortization of intangibles of about $55 million or about $0.15 per diluted share net of taxes. Interest expense, net of interest income in Q4, is estimated at approximately $82 million. And finally, our effective tax rate in Q4 is estimated at about 23.5%, subject to some variability. And now let me turn the call back over to Ron for some final remarks before Q&A.

Okay. Thank you, Mary Anne. Again, we are quite pleased that our financial results continue to track above the increased expectations we communicated in July, setting us up for another increase to our full year outlook to revenue of $8.9 billion and adjusted EBITDA of $2.91 billion. That puts our 2024 year-over-year growth at over 10% in revenue and over 15% in adjusted EBITDA. Additionally, we are encouraged by the ongoing improvements in employee retention and safety, which continue to provide for longer-term savings opportunities. We are also thrilled with the integration and performance of record levels of private company acquisition activity, positioning us for a strong start to 2025. Although not providing our formal outlook for 2025 until February, we are able to provide a high-level framework assuming no change in the current economic environment. On that basis, we should be positioned for high single-digit adjusted EBITDA growth in 2025, on expected mid- to high single-digit revenue growth, including price-led organic growth in solid waste plus approximately 2% revenue carryover from the record levels of private company acquisition activity expected to be completed in 2024, with the potential for that amount to grow depending on the pace of acquisitions. Additionally, to the extent that we see improvement in commodity values or easing of cost pressures during the year, those impacts would be additive to these preliminary thoughts. Adjusted free cash flow conversion would be expected to remain in the current range of 45% to 50% of adjusted EBITDA normalized for ongoing impacts of RNG-related CapEx and closure-related outlays. We look forward to having better visibility on the tone of the economy, including any implications from the upcoming election, as well as expected commodity-driven activity and hurricane-related impacts when we provide our formal outlook in February. I want to conclude by recognizing our 24,000 employees who embody our core values and drive our results; their actions speak louder than words and are a testament to the culture of accountability that we believe sets us apart. Specifically, I want to acknowledge the work of our teams to manage and address the challenges of recent severe weather, including two major hurricanes in the Southeast over a two-week period. I couldn't be prouder of their efforts to support our teams, putting safety and well-being first, while also providing essential services to public health and welfare under challenging conditions. Their commitment, as demonstrated by preparedness and diligence, exemplifies servant leadership and truly changes lives. We're humbled by the commitment of all our frontline employees who strive for excellence every day. We also appreciate your time today. And with that, I will now turn this call over to the operator to open up the lines for your questions.

And this morning's first question comes from Kevin Chiang with CIBC.

Hi, thanks for taking my question. Congrats on a good Q3 print there. Maybe if I could just start with the comments on the special waste. You saw some pull forward from Q4 into Q3. Just broadly speaking, are you seeing any, I guess, changes in customer activity related to the election? I'm wondering if some of this activity was pulled forward as maybe some people try to get some of this activity ahead of an election, I guess, in a couple of weeks here?

Good morning, Kevin. No, I don't think we'd say it's specifically related to elections. I mean, that can influence behavior more broadly, but we'd say specifically the projects we referenced, it was things that we had expected maybe they'd gotten delayed a couple of times and we had them pegged for Q4, and they actually got done in Q3. It's as simple as that. And it was primarily on the West Coast, as we mentioned.

Okay. That's helpful. And then, again, congrats on the Royal Waste deal. You noted you'll have, I guess, 17 zones in total. I believe when the commercial zone sort of initially pushed through and approved, I think the maximum is 15. So just wondering, does that require you to divest of any zones? Or I guess, because you acquired these other five through M&A that you can manage all 17 or you'll be allowed to oversee all 17 zones?

Yes. Kevin, okay. To clarify, number one, the cap on any individual company is 15, as you rightly pointed out. However, if there is overlap, that does not necessarily count as a new incremental zone. And there was overlap in some of the zones at Royal Waste in we had. It actually made us go to 16, and so there was one zone that we, in effect, are swapping out of because we would have been at 16 and that was part of the consent process with the BIC. So we are at the cap of 15 zones, not 17, and so that is how that works.

Thank you for the clarification there. And then maybe just last one for me, and I know this is tough to predict, but RIN prices have been north of $3 pretty consistently here. When I look at D3 pricing, it's basically at the upper end of where we've seen this trend over the past few years here. I guess the volume targets go out to 2025. Just wondering what your thoughts are as the EPA might reset these targets. Do you see risk to RIN pricing? Do you think they lower the volume targets in the next three-year batch? Just any, I guess, preliminary thoughts here as we head into 2025.

Sure. Well, as a reminder, RINs are a commodity; not only a commodity, they're subsidized, right? So there's inherent uncertainty which, from our perspective, really underscores the importance of the hybrid strategy we've chosen and taking the opportunity to hedge opportunistically, as we have this year at about $3 because there is an uncertainty. So we don't have a crystal ball any better than anyone else's. But as I said, I think the way we've approached RNG more broadly and mitigating the risk of movement in RINs through the structures and then opportunistic hedges is a way to address that uncertainty.

Thank you very much for taking my questions.

Thank you, Kevin.

Thank you. And the next question is from Noah Kaye with Oppenheimer.

Hi, thanks very much. I want to pick up on the comments around the outlook for cost inflation. I think in our seat looking at maybe a little bit hotter CPI and inflationary trends, a little bit of potential reacceleration, what are you seeing in the business around the current pace of unit cost inflation? And how does that inform your thinking about pricing as we get ready for next year?

Sure. What we are observing, Noah, is quite similar to what we have noticed in recent quarters. Specifically, cost inflation in our business remains in the 4% to 5% range, while wage inflation, which is crucial as labor is a primary driver of our metrics, is at the high end or even exceeding that range. This indicates to us that we will need to maintain a significant gap between our pricing and headline CPI as we plan for 2025.

Okay. Great. And then just a little bit of a housekeeping on, I guess, combination of 3Q and 4Q, Mary Anne, I think you mentioned that margin expansion in 4Q would be similar to the 120 bps directionally that you saw in 3Q, but for a couple of factors. So those aggregate factors, roughly around 30 to 40 bps of margin impact, the commodities, the storms and, I guess, a little bit more M&A. Is that the right way to think about it?

I would say it's probably even a bit higher than that because when we look at what underlying margins achieved in Q3, after adjusting for the factors we discussed, we actually delivered 34%. That's an increase of 150 basis points because we managed to counter the additional margin dilution. Commodities did weaken slightly in Q3, though not as much as the significant drop we experienced in Q4. Considering Q4, I would estimate that the overall factors you mentioned are even more substantial, closer to 60 basis points, which brings us back to that same level.

Very helpful. Thank you.

Thank you. And our next question comes from Jerry Revich with Goldman Sachs.

Hi. Good morning. This is Adam Bubes on for Jerry Revich. Wondering if you can just update us on how landfill gas investments are tracking. And how much is that set to contribute in 2024? What could be the possible incremental step-up next year?

Yes. The good news and the bad news here, Adam, is that we have brought on three new facilities in 2024, and a fourth is currently in the initiation phase for certification. We expect to have all four operational this year, although there have been delays in these projects, primarily related to logistics and permitting. However, they are progressing. The four facilities we are adding this year are among our smaller ones, so their impact on 2024 is minimal. The effect on 2025 will be slightly greater but still relatively low, as most of our larger projects will not commence until late 2025 and into 2026, with construction starting in 2025. We anticipate seeing some improvement in 2025 compared to 2024, a significant increase in 2026, and a full impact as we enter 2027 based on the run rate from 2026.

And then how should we be thinking about growth CapEx next year compared to 2024? And is there a potential for a free cash flow conversion inflection just on a higher margin base and as these landfill gas investments start to ramp?

We provided our preliminary framework. Typically, we offer detailed guidance in February, and we've mentioned that on a normalized basis, we expect the conversion to be similar at this time. I understand your question about whether there is an opportunity for those additional RNG contributions, as Ron indicated.

Obviously, Adam, the only thing I would add is, as I said, we have full contribution of the full year in '27 come as of RNG, meaning you're effectively done with your CapEx by the end of '26 on those. And at that point, you have the full EBITDA contribution and no real CapEx contribution, and that certainly is an inflection point to a higher level of conversion.

Great, thanks so much.

Thank you. And the next question comes from Tyler Brown with Raymond James.

Hi. Good morning.

Good morning, Tyler.

Mary Anne, real quick. I think you may have actually answered my question a second ago. But on the margin just in Q3, I think they were up 120 basis points, but it sounds like M&A and the storms were maybe 30 basis points of a drag. Is that right? Just basically getting to the fact that core margins were, let's call it, very, very solid this quarter.

Yes. What I'd say, 30 basis points for those two factors, you said. And then as I mentioned, there was some incremental weakness in commodities, which also influenced and the aggregate.

Okay. Great. Thanks. That's all I had.

Thank you. And the next question comes from Tobey Sommer with Truist Securities.

Hi. Good morning. This is Jasper on for Tobey. Just wanted to follow up on the prior question. How are you thinking about the core margin drivers in 2025 underlying your EBITDA growth expectation? I think the last year seeing pretty good price/cost spread. You also mentioned the ongoing decline in employee turnover. Do you see kind of those key margin drivers changing at all as we turn the calendar into '25?

No, we really don't. Basically, when we give those preliminary thoughts, and we say we should be positioned for above average underlying solid waste margin expansion is for just those reasons you described, that we'll be looking forward to having price-led organic growth, and we should continue to see some of those benefits from improving retention and safety metrics over the longer term. And so we believe that would impact '25. And that's the kind of color we'll be able to provide more of in February when we give our guidance.

Thanks. Understood. And then maybe following up on railways historically, I think Northeast has been your lowest margin geography. Do you see an opportunity to kind of more materially change that margin profile from the Northeast region over the next couple of years with New York ramping up and also your rail development?

Well, certainly, as Ron described, we think there's a lot of opportunity within the New York market, specifically in the benefits of the franchise model providing greater efficiencies and densities locally. One observation about the Northeast in general would be the disposal cost, the transfer and disposal costs, which influences total margins in any market. But that at a higher level is why you see slightly different dynamics in the Northeast than you do, say, in our central region or other regions where those dynamics are different.

Got it. Thanks for taking the questions.

Thank you. And that does conclude the Q&A session. So I'd like to turn the floor to Ronald Mittelstaedt for any closing comments.

Okay. Thank you. 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. Mary Anne and Joe Box are available today to answer any direct questions that we did not cover that we are allowed to answer under Regulation FD, Regulation G, and applicable securities laws in Canada. Thank you again. We look forward to connecting with you at upcoming investor conferences or on our next earnings call.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.