Waste nections(US:WCN)2024-02-14 18:30Financial Data and Key Metrics Changes - Adjusted EBITDA margin expanded by 200 basis points in Q4 2023, reaching an industry-leading margin of 31.5% for the full year, with a 70 basis points increase year-over-year [4][5][13] - Revenue for Q4 was $2.036 billion, up 8.9% year-over-year, contributing to a full year revenue of $8.022 billion, which is an 11.2% increase [21][5] - Adjusted free cash flow for 2023 was $1.224 billion, representing 15.3% of revenue, with a conversion rate of over 48% of adjusted EBITDA [5][24] Business Line Data and Key Metrics Changes - Solid waste organic growth was driven by 8.7% core pricing, although solid waste volumes in Q4 decreased by 2.3% due to shedding poor quality revenues and non-renewal of municipal contracts [4][21] - Core pricing in Q4 ranged from about 7% in exclusive markets to over 10% in competitive markets [21] - Adjusted EBITDA for Q4 was $656 million, up 16.4% year-over-year, with an adjusted EBITDA margin of 32.2% [23] Market Data and Key Metrics Changes - The company closed over $215 million in annualized revenue from 13 acquisitions in 2023, with expectations for 2024 acquisition contributions to exceed $325 million [17][19] - The company is encouraged by recent developments in the New York City franchise process, having been awarded rights to compete in 12 commercial zones [18] Company Strategy and Development Direction - The company aims for continued outsized margin expansion in 2024, driven by reduced employee turnover and moderating cost inflation [14][33] - The focus remains on disciplined acquisition strategies, with a robust pipeline of solid waste opportunities anticipated in the coming quarters [17][18] - Sustainability projects, including renewable natural gas (RNG) facilities, are part of the growth strategy, with expected incremental EBITDA of $200 million by 2026 [25][75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning for growth in 2024, with expectations for adjusted EBITDA margin expansion and improved operational metrics [33][34] - The company noted that while there are risks and uncertainties, the outlook for 2024 assumes no significant changes in the current economic environment [26] Other Important Information - The company recorded a $160 million increase in landfill closure and post-closure liabilities related to the elevated temperature landfill event at Chiquita Canyon [15][24] - Capital expenditures for 2023 were approximately $1.7 billion, with a focus on organic growth and renewable energy projects [19] Q&A Session Summary Question: Can you walk us through the 200 basis point improvement for Q4 and the expected improvement for 2024? - Management indicated that 75% of the Q4 margin improvement came from the underlying solid waste business, with additional contributions from recycled commodities and RINs [37] Question: Are you assuming that turnover and safety improvements will impact margins in 2024? - Management clarified that while turnover is currently impacting cost structure positively, the benefits from risk reductions are not factored into the 2024 guidance [40] Question: What is the expected revenue impact from M&A in Q1? - Management estimated a contribution of about $65 million from acquisitions in Q1, with expectations for ramping contributions throughout the year [69] Question: How does the New York City franchise opportunity affect your addressable market? - Management noted that the franchise provides certainty and sustainability, allowing for organic growth and acquisition opportunities in the Northeast [57] Question: What is the outlook for wage growth in 2024? - Management expects wage growth to moderate further, potentially falling below 5% as cost pressures ease [68]