Waste nections(US:WCN)2022-08-03 15:08Financial Data and Key Metrics Changes - Revenue for Q2 2022 was $1.816 billion, exceeding the outlook by approximately $30 million and up $282 million or 18.4% year-over-year [29] - Adjusted EBITDA for Q2 was $567 million, about $10 million above the outlook and up $82 million or 16.9% year-over-year, with an adjusted EBITDA margin of 31.2% [30] - Year-to-date adjusted free cash flow was over $638 million, representing 18.4% of revenue, up 9% year-over-year despite a 36% increase in capital expenditures [32] Business Line Data and Key Metrics Changes - Commercial collection revenue increased by about 14% year-over-year, primarily due to pricing [17] - Roll-off revenue rose by about 11%, with revenue per pull up approximately 8.5% [17] - E&P waste revenue reached $50.4 million in Q2, up 24% sequentially and 62% year-over-year, driven by increased drilling activity [23] Market Data and Key Metrics Changes - Solid waste pricing growth was 8.8% in Q2, up from 7.2% in the previous quarter, with total pricing ranging from almost 5% in exclusive markets to between 9.5% and 10.5% in competitive regions [14] - Recovered commodities revenue increased by about 14% year-over-year, attributed to higher values for recycled commodities and RINs [19] - Commodity values showed some weakening late in the quarter, with average prices for OCC at about $158 per ton and RINs averaging about $320 [20] Company Strategy and Development Direction - The company is focused on disciplined capital allocation and market selection to drive value creation, with a robust pipeline for acquisitions expected to close later this year and early next [26][27] - The strategy includes a strong emphasis on core pricing, which is expected to lead to margin expansion as inflationary pressures abate [15][43] - Sustainability initiatives include the development of greenfield recycling facilities and renewable gas facilities, expected to be completed by late 2023 [21][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving double-digit revenue growth in 2023, supported by solid waste pricing strength and contributions from acquisitions [6][43] - The company anticipates that inflationary pressures have peaked and will moderate, allowing for improved pricing and margin expansion [48][51] - Management highlighted the importance of maintaining a focus on core pricing to navigate the current economic challenges [96] Other Important Information - The company has closed 12 acquisitions year-to-date with annualized revenue of approximately $245 million, significantly above average levels [24] - The balance sheet remains strong with a leverage ratio of about 2.5x on a net debt-to-EBITDA basis, providing flexibility for continued acquisition activity [26] - The company plans to increase its cash dividend by a double-digit percentage later this year [26] Q&A Session Summary Question: Can you provide confidence around pricing for next year? - Management indicated that they are positioned for at least 5% pricing growth in 2023 without additional actions, with expectations that inflationary pressures will moderate [47][48] Question: What trends are being observed in the cost structure? - Management noted that cost pressures have peaked, and pricing has been implemented to recover these costs, with expectations of regular inflation moving forward [49][51] Question: How is pricing categorized internally? - The company focuses on core pricing, with 85% of reported pricing being core, while a small portion is attributed to fuel and material surcharges [59][60] Question: What is the outlook for M&A activity? - The pace of M&A activity remains strong, with a robust pipeline and continued interest from high-quality private company sellers [83][84] Question: How are inflationary pressures impacting margins? - Management expects margin expansion opportunities as inflation decreases, with a focus on core pricing to drive profitability [73][92]