Investment research report for WCN

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Waste Connections, Inc. (WCN) is a leading provider of non-hazardous waste collection, transfer, disposal, and resource recovery services in the United States and Canada. The company operates through five geographic solid waste segments and an exploration and production (E&P) waste treatment, recovery, and disposal segment.

Key Insights

  1. Operational Excellence and Pricing Power: WCN has demonstrated strong operational execution, enabling it to expand margins through disciplined pricing and cost management, despite inflationary pressures. The company’s focus on core pricing rather than surcharges has contributed to sustainable price increases.

  2. Disciplined Acquisition Strategy: Acquisitions have been a key growth driver for WCN, with the company maintaining an elevated pace of M&A activity while remaining selective and focused on strategic fit and long-term value creation.

  3. Sustainability Initiatives and Capital Allocation: WCN is making strategic investments in recycling facilities, renewable natural gas projects, and landfill gas-to-energy initiatives, aligning with long-term sustainability trends. The company maintains a balanced approach to capital allocation, investing in organic growth, acquisitions, and returning capital to shareholders.

  4. Resilience and Competitive Advantages: WCN’s decentralized operating model, focus on exclusive and secondary markets, and intentional culture of commitment and accountability have contributed to its resilience during challenging economic conditions. The company’s competitive advantages position it well for continued long-term value creation.

Back to Table of Contents

Valuation Analysis

PE ratio

  • Low: 13.861565538212083
  • Base: 55.01558782840425
  • High: 96.16961011859641

PB ratio

  • Low: 2.4097991742540694
  • Base: 3.807286499506686
  • High: 5.204773824759303

DPS Growth

  • Low: 12.68%
  • Med: 13.42%
  • High: 14.12%

FCF Growth

  • Low: 8.23%
  • Med: 11.98%
  • High: 14.85%

Value forecast by FCF

  • Low: 104.49
  • Med: 131.06
  • High: 156.32

Value forecast by DPS

  • Low: 136.78
  • Med: 143.14
  • High: 149.42

The price today for WCN is $173.05.

Price target for 18 months from now

  • Low: 160.96
  • Med: 163.78
  • High: 166.46

Price target for 4 years from now

  • Low: 140.81
  • Med: 148.32
  • High: 155.48

Price target for 10 years from now

  • Low: 92.46
  • Med: 111.23
  • High: 129.12

The net present value multiplier discounted at 10.22% the value of the stock is:
– Low: 0.53
– Med: 0.64
– High: 0.75

The upside/downside ratio is 0.45. Our rating is Strong Sell.

Back to Table of Contents

Industry and Competitors Analysis

Based on the information provided, WCN (Waste Connections, Inc.) operates in the waste management industry, providing non-hazardous waste collection, transfer, disposal, and resource recovery services in the United States and Canada. Its main competitors appear to be:

Waste Management, Inc. (WM)

A major player in the industry, offering similar waste management services across North America. With a much larger market cap and revenue, WM is likely the biggest competitor for WCN.

Republic Services, Inc. (RSG)

Another large waste management company providing environmental services in the United States, including collection, transfer, disposal, and recycling services.

GFL Environmental Inc. (GFL)

A diversified environmental services company operating in Canada and the United States, offering solid waste management, infrastructure and soil remediation, and liquid waste management services.

Clean Harbors, Inc. (CLH)

Provides environmental and industrial services, including hazardous and non-hazardous waste management, recycling, and disposal services.

Casella Waste Systems, Inc. (CWST)

A regional player focused on the northeastern United States, offering solid waste collection, transfer, disposal, and recycling services.

Other smaller competitors include Stericycle, Inc. (SRCL), Heritage-Crystal Clean, Inc. (HCCI), Harsco Corporation (HSC), and Montrose Environmental Group, Inc. (MEG), which offer more specialized waste management and environmental services.

In terms of competitive positioning, WCN appears to be one of the larger players in the industry, with a significant market cap and revenue. However, it is still smaller than the industry giants like Waste Management and Republic Services. WCN’s financial metrics, such as gross profit ratio, EBITDA ratio, and operating income ratio, are generally in line with or slightly better than some of its larger competitors, suggesting a relatively strong competitive position.

Back to Table of Contents

Chart of Competitors

"Chart of Competitors"

Back to Table of Contents

Financial Analysis

Financial Strength

The company has maintained a relatively stable and positive return on equity, assets, and capital employed over the years, indicating decent profitability. The current ratio is generally around 1 or below, suggesting the company may have a somewhat tight liquidity position. The debt/equity ratio has been gradually declining over time, moving towards a more conservative capital structure.

Potential for Growth

Revenue growth has been positive in most quarters, though it can fluctuate year-over-year. The company has been able to grow earnings per share and net income at a decent pace over the long run. Analyst estimates project continued revenue and earnings growth over the next several years.

Competitive Advantage

As a major waste management company, Waste Connections likely benefits from economies of scale and an extensive network of operations. The interest coverage ratio indicates the company can comfortably service its debt obligations.

Quality of Management

Consistent profitability metrics and a gradually improving balance sheet point to prudent management of the business. However, some fluctuations in growth rates could signal room for more consistent execution.

Shareholder Friendliness

The company pays a dividend, though the yield is relatively low. The payout ratio is reasonable, allowing for reinvestment into the business. Share buybacks do not appear to be a major use of capital.

Valuation

The price/earnings ratio has generally been in the 30-50x range, which is relatively high but may reflect growth expectations. The price/book ratio is also elevated, suggesting the market prices in solid future prospects. Analyst EPS estimates imply a forward P/E around 16-20x based on the current stock price.

In summary, Waste Connections appears to be a financially stable company with decent growth prospects, competitive strengths, and reasonable shareholder returns, though valuation seems relatively elevated versus historical norms. Continued execution on growth opportunities will likely be key for further stock appreciation.

Back to Table of Contents

Chart of Key Per Share Metrics

"Chart of Key Per Share Metrics"

Back to Table of Contents

Chart of Absolute Metrics

"Chart of Absolute Metrics"

Back to Table of Contents

Earnings Call Multi-Year Analysis

Pricing Power and Margin Expansion

Waste Connections has consistently demonstrated strong pricing power, allowing it to offset inflationary pressures and drive margin expansion year after year. The company’s focus on core pricing rather than surcharges makes these price increases more sustainable.

Disciplined Acquisition Strategy

Acquisitions have been a key growth driver for Waste Connections, with the company maintaining an elevated pace of M&A activity. However, they remain selective and disciplined in their approach, focused on strategic fit and long-term value creation.

Operational Excellence

Waste Connections attributes its success to an “intentional culture of commitment and accountability” that enables operational excellence. The company’s decentralized operating model and focus on exclusive/secondary markets have also contributed to its resilience during challenging economic conditions.

Sustainability Initiatives

The company is making strategic investments in recycling facilities, renewable natural gas projects, and landfill gas-to-energy initiatives. While still a relatively small part of the business, these investments align with long-term sustainability trends and can provide attractive returns.

Capital Allocation Discipline

Waste Connections maintains a balanced approach to capital allocation, investing in organic growth, acquisitions, and returning capital to shareholders through dividends and share repurchases. The company is willing to take on more leverage to fund value-accretive acquisitions.

Resilience and Recession Performance

The waste industry has historically performed well during economic downturns, and Waste Connections’ management expresses confidence in the company’s ability to navigate challenging environments, including prolonged inflation.

Overall, the key insights highlight Waste Connections’ strong competitive advantages, disciplined execution, and focus on long-term value creation through operational excellence, strategic growth initiatives, and prudent capital allocation – factors that should appeal to long-term investors.

Back to Table of Contents

Financial Statements Multi Year

Strong revenue growth

The company has experienced strong revenue growth, driven by pricing, acquisitions, and increased demand for services like E&P waste. Revenue grew 9-15% year-over-year across the periods analyzed.

Margin expansion

The company has achieved margin expansion through pricing actions and cost efficiencies, despite inflationary pressures. Operating margins expanded in most periods.

Disciplined capital allocation

The company has demonstrated disciplined capital allocation, focusing on strategic acquisitions to drive growth, investing in the business through capex, and returning capital to shareholders via dividends and share buybacks.

Robust free cash flow

The company has generated robust free cash flow, providing financial flexibility to fund growth investments and shareholder returns.

Manageable debt levels

The company has maintained manageable debt levels, with a focus on refinancing debt at favorable terms and maintaining an investment grade rating.

Diversification

The company’s diversification across geographic segments and into complementary service lines like E&P waste mitigates risks.

Shareholder returns

The company has demonstrated a commitment to shareholder returns through increasing dividends and active share repurchase programs.

Regulatory/legal risks

The company faces some regulatory/legal risks related to landfill operations and multiemployer pension obligations that require monitoring.

Overall, the analysis portrays Waste Connections as a well-run company generating profitable growth through smart capital allocation, with a solid financial position to support long-term value creation for investors.

Back to Table of Contents

Insider Trading Analysis

The CEO (MITTELSTAEDT RONALD J) and CFO (LITTLE JAMES) have been consistently selling shares over the past few years, indicating they may be reducing their exposure to the company. Other key executives like the COO (JACKMAN WORTHING) and EVPs (EDDIE DAVID, HANSEN ERIC, CRAFT JASON) have also been selling shares, though at a lower frequency compared to the CEO and CFO. Insider gifting and option/RSU vesting/exercises have been common, suggesting the company uses equity-based compensation extensively.

Recent Patterns (Last 6 Months)

The CEO, CFO, and other senior executives continued their selling activity, with the CEO and CFO selling thousands of shares. There were also several instances of executives receiving shares through vesting of restricted stock units and performance share units. The overall trend suggests insiders are taking some money off the table, potentially indicating they believe the stock is fairly valued or overvalued in the short-term.

Implications

The consistent selling by the CEO and CFO, along with other senior executives, could be a signal that they believe the stock is fairly valued or overvalued in the near-term. However, the ongoing equity-based compensation and vesting of awards suggest the insiders remain confident in the company’s long-term prospects. Investors should closely monitor the insider trading activity, as it may provide insights into management’s views on the company’s valuation and future performance.

Back to Table of Contents

Management Compensation Benchmark Analysis

Alignment with Shareholder Value Creation

The base salary portion of total compensation for WCN’s executives is relatively low, ranging from 5.8% to 22.6% across the reported years and executives. A significant portion of their total compensation comes from incentive plan compensation, which aligns the executives’ interests with creating long-term shareholder value.

Compensation Benchmarking

Compared to the other companies provided (Clean Harbors, Inc. and Casella Waste Systems, Inc.), WCN’s executives have a lower base salary percentage of total compensation. The average base salary percentage of total compensation for WCN executives is 23.56%, lower than the averages for Clean Harbors (47.20%) and Casella Waste Systems (38.41%).

Consistency in Compensation Structure

WCN has maintained a consistent compensation structure over the years, with a low base salary component and a higher emphasis on incentive-based compensation. This suggests that the company’s executive compensation is designed to motivate and reward the leadership team for achieving long-term performance goals that benefit shareholders.

In summary, the executive compensation structure of Waste Connections, Inc. appears to be well-aligned with creating long-term shareholder value, as evidenced by the relatively low base salary portion and the significant incentive-based compensation. This compensation approach is more favorable compared to the benchmarked companies, indicating that WCN’s leadership team is incentivized to drive the company’s long-term success.

Back to Table of Contents

Proxy Statement Analysis

Compensation Structure

Evaluate the different components of executive pay (base salary, annual incentives, long-term equity awards) and the performance metrics used to determine if they incentivize long-term value creation.

Long-Term Equity Incentives

Analyze the types of equity awards granted (e.g., stock options, RSUs, performance shares), their vesting schedules, and performance conditions to assess alignment with shareholder interests.

Clawback and Recoupment Policies

Review policies that allow the company to recoup compensation in cases of misconduct or financial restatements, ensuring accountability.

Stock Ownership Guidelines

Assess the stock ownership requirements for executives, as higher ownership can better align their interests with long-term shareholders.

Peer Group and Benchmarking

Evaluate the appropriateness of the peer group used for benchmarking executive pay and the company’s positioning relative to peers.

Shareholder Engagement and Say-on-Pay

Analyze shareholder feedback, including the results of the Say-on-Pay vote, to gauge alignment with long-term value creation.

By carefully reviewing these aspects, a long-term investor can assess the degree to which the executive compensation program is designed to drive sustainable, long-term performance and value growth for shareholders.

Back to Table of Contents

News Analysis

Positive Factors

  1. Strong financial performance: WCN has consistently beaten earnings and revenue estimates in recent quarters, indicating robust business growth.

  2. Acquisitions and expansion: The company has been actively pursuing strategic acquisitions to expand its operations and geographic footprint, which could drive future growth.

  3. Dividend increases: WCN has a track record of increasing its quarterly dividend, reflecting its commitment to returning value to shareholders and its financial strength.

  4. Favorable industry dynamics: The waste removal sector is viewed as relatively defensive and resilient, which could benefit WCN during economic uncertainties.

  5. Sustainability initiatives: WCN has announced emissions reduction targets and sustainability commitments, which could appeal to environmentally-conscious investors.

Potential Concerns

  1. Debt levels: While acquisitions fuel growth, some headlines mention debt levels, which could be a concern if not managed prudently.

  2. Foreign exchange risks: As a company with operations in Canada, WCN may face foreign exchange headwinds that could impact its financial performance.

Overall, the sentiment surrounding WCN appears to be generally positive, with analysts highlighting its growth prospects, dividend track record, and favorable industry dynamics. However, investors should also consider potential risks related to debt levels and foreign exchange fluctuations. As a long-term investor, it would be advisable to thoroughly research the company’s financials, competitive positioning, and growth strategies before making an investment decision.

Back to Table of Contents

Technical Indicators Analysis

Next Week Trading

The recent price action and technical indicators suggest a potential short-term pullback or consolidation in the next week. The 10-day RSI is in overbought territory, indicating the stock may be due for a correction. However, the overall trend remains bullish, with the 20-day TEMA, 20-day SMA, and 50-day SMA all trending higher. A trader may consider taking some profits or tightening stop-loss levels in the short term.

Resistance and Support Levels

The key resistance levels to watch are around $173-$174, which correspond to the recent highs. The 200-day SMA, currently around $152.88, could provide support if the stock pulls back. The 50-day SMA at $165.98 may also act as a support level.

Short-Term Investor

Short-term investors may want to monitor the stock closely and be prepared to take profits or adjust positions if the stock encounters resistance or shows signs of a pullback. The high RSI and overbought conditions suggest the potential for a near-term correction, so a cautious approach may be warranted.

Long-Term Investor

For long-term investors, the overall technical picture remains positive. The 20-day TEMA, 50-day SMA, and 200-day SMA are all trending higher, indicating a strong upward trajectory. The ADX is also above 25, suggesting a well-defined trend. As long as the stock maintains above the 200-day SMA, the long-term outlook remains bullish for long-term investors.

Back to Table of Contents

Chart of Valuation History

"Chart of Valuation History"

Back to Table of Contents

Financial Statements Annual

Financial Statements Annual 2024 Q2

Strong Financial Performance

Revenue grew to $8.17 billion in 2023, up from $7.21 billion in 2022, a 11.2% increase. Gross profit increased to $2.32 billion in 2023, up from $2.04 billion in 2022, with a gross profit margin of 28.4%. Operating income grew to $1.50 billion in 2023, up from $1.26 billion in 2022, with an operating income margin of 18.3%. Net income increased to $762.8 million in 2023, up from $835.7 million in 2022. The company generated strong free cash flow of $1.21 billion in 2023.

Debt and Liquidity Management

The company has a $2.5 billion credit facility, of which $2.09 million in debt issuance costs are capitalized. Total debt outstanding as of December 31, 2023 was $7.0 billion, with net debt of $6.92 billion. The company is in compliance with all applicable covenants in its credit agreements.

Shareholder Returns

The company paid $270.6 million in dividends in 2023, up from $243.0 million in 2022, reflecting an increase in the quarterly dividend. The company has a $500 million share repurchase program in place, but did not repurchase any shares in 2023.

Acquisition and Growth

The company completed several acquisitions in 2023, adding $465.1 million in goodwill to the balance sheet. Capital expenditures were $934.0 million in 2023, up from $912.7 million in 2022, supporting the company’s growth initiatives.

Contingencies and Risks

The company is involved in various legal proceedings, including a lawsuit related to odor issues at the Chiquita Canyon Landfill in California and notices of violation from the South Coast Air Quality Management District. The company participates in 17 multiemployer pension plans, which could result in withdrawal liabilities if the plans become underfunded.

Overall, the financial statements demonstrate Waste Connections’ strong financial position, operational performance, and commitment to shareholder returns, while also highlighting some legal and regulatory risks the company is managing.

Financial Statements Annual 2023 Q2

Income Statement

Revenue grew 17.2% year-over-year to $7.21 billion in 2022. Gross profit margin was 39.9% in 2022, up from 38.1% in 2021. Operating income margin was 17.2% in 2022, up from 15.9% in 2021. Net income margin was 11.6% in 2022, up from 10.0% in 2021. Earnings per share (diluted) was $3.11 in 2022, up from $2.36 in 2021.

Balance Sheet

Cash and short-term investments totaled $78.6 million as of December 31, 2022. Net property, plant and equipment was $7.14 billion as of December 31, 2022. Goodwill and intangible assets totaled $8.58 billion as of December 31, 2022. Total debt was $7.10 billion as of December 31, 2022, with net debt of $7.02 billion. Shareholders’ equity was $7.11 billion as of December 31, 2022.

Cash Flow

Net cash provided by operating activities was $2.02 billion in 2022. Capital expenditures were $912.7 million in 2022. Free cash flow (operating cash flow less capital expenditures) was $1.11 billion in 2022.

Overall, the financial statements show strong revenue growth, margin expansion, and healthy cash flow generation in 2022. The balance sheet remains solid with a manageable debt load and significant goodwill and intangible assets. These metrics suggest Waste Connections is well-positioned for continued growth and profitability.

Financial Statements Annual 2022 Q2

Consistent Revenue and Profitability Growth

The company has demonstrated steady growth in revenue, gross profit, EBITDA, and net income over the 3-year period from 2019 to 2021. This indicates the company has a strong and stable core business.

Disciplined Capital Allocation

The company has been actively managing its capital structure, repaying debt, and returning capital to shareholders through dividends and share repurchases. This suggests prudent financial management.

Diversified Operations

The company operates across five geographic solid waste segments, providing diversification and reducing reliance on any single market. This geographic diversification helps mitigate risks.

Acquisition-Driven Growth

The company has been actively acquiring businesses, with $985 million in acquisitions in 2021. This inorganic growth strategy supplements the company’s organic growth.

Solid Balance Sheet and Liquidity

The company maintains a strong balance sheet with $147 million in cash and short-term investments and $5.1 billion in total debt as of December 31, 2021. The company’s leverage ratio (net debt to EBITDA) of 2.7x is reasonable for the industry.

Commitment to Shareholder Returns

The company has a track record of increasing its quarterly cash dividend, and has an active share repurchase program, demonstrating a focus on returning capital to shareholders.

Regulatory and Environmental Risks

The company faces ongoing regulatory and environmental risks related to its landfill operations, which could result in increased costs or liabilities. Careful monitoring of these risks is important.

Overall, the financial statements indicate Waste Connections is a well-run, diversified waste management company with a strong market position, disciplined capital allocation, and a commitment to shareholder value creation – attributes that would be attractive to long-term investors.

Back to Table of Contents

Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Revenue Growth

Total revenues increased 9.1% to $2.07 billion for the three months ended March 31, 2024, compared to $1.90 billion in the prior year period. This was driven by price increases, contributions from acquisitions, and higher recycling commodity prices, partially offset by volume declines.

Margin Expansion

Operating income increased 16.6% to $366.8 million, with the operating income margin expanding 110 basis points to 17.7%. This was driven by the impact of price increases, cost management, and higher earnings from the company’s exploration and production (E&P) waste operations.

Acquisition Activity

The company acquired nine solid waste businesses and one E&P waste business during the first quarter of 2024, contributing $806 million in additional revenue. The company continues to execute on its strategy of growing through acquisitions.

Debt Refinancing

The company refinanced its existing credit facilities, entering into a new $3 billion revolving credit agreement with improved terms. It also issued $750 million of new 5.00% senior notes due 2034. These actions provide the company with enhanced financial flexibility.

Capital Allocation

The company paid $73.6 million in dividends during the quarter, reflecting a 12% increase in the quarterly dividend rate. The company also has $1.29 billion remaining under its current share repurchase authorization.

Segment Performance

The company’s geographic solid waste segments all reported year-over-year increases in revenue and EBITDA, with the Canada and Eastern segments seeing the largest margin expansions. The E&P waste segment also contributed higher earnings.

Overall, the financial results demonstrate Waste Connections’ ability to drive profitable growth through pricing, cost management, acquisitions, and diversification into the E&P waste market, while maintaining a strong balance sheet and returning capital to shareholders.

Financial Statements Quarterly 2024 Q1

Strong revenue growth

Waste Connections reported a 9.8% increase in revenues for the three months ended September 30, 2023 and a 12.1% increase for the nine months ended September 30, 2023. This was driven by price increases, contributions from acquisitions, and growth in the company’s E&P waste services.

Margin expansion

Despite inflationary pressures, Waste Connections was able to expand its operating margin, with cost of operations as a percentage of revenues decreasing 1.2 percentage points for the three months ended September 30, 2023 and 0.6 percentage points for the nine months ended September 30, 2023. This was driven by the impact of price increases, lower disposal and transportation costs, and operational efficiencies.

Disciplined capital allocation

Waste Connections made $573 million in acquisitions during the nine months ended September 30, 2023, funded primarily through debt. The company also paid $197 million in dividends and did not repurchase any shares during this period, demonstrating a focus on strategic growth and returning capital to shareholders.

Strong cash flow generation

Waste Connections generated $1.57 billion in net cash from operating activities during the nine months ended September 30, 2023, up $707 million from the prior year period. This allowed the company to fund capital expenditures of $616 million and still produce $969 million in adjusted free cash flow.

Manageable leverage

Waste Connections had $6.9 billion in total debt at September 30, 2023, with a weighted average interest rate of 6.43%. The company’s net debt to adjusted EBITDA ratio was 3.8x, which is within its target range and provides flexibility for future growth initiatives.

Overall, Waste Connections’ financial performance demonstrates the strength of its business model, disciplined capital allocation, and ability to navigate inflationary pressures. These factors position the company well for continued long-term growth and value creation for shareholders.

Financial Statements Quarterly 2023 Q4

Strong revenue growth

Revenues increased 11.3% and 13.3% for the three and six months ended June 30, 2023 respectively, driven by price increases, contributions from acquisitions, and increased demand for E&P waste services. This demonstrates the company’s ability to grow its business.

Margin pressure

While revenues grew, operating income margin decreased from 18.1% to 17.0% for the three months ended June 30, 2023 and from 17.4% to 16.8% for the six months ended June 30, 2023. This was primarily due to higher SG&A expenses, including executive separation costs, and increased depreciation and amortization from acquisitions. Maintaining margins will be important for long-term profitability.

Solid cash flow generation

The company generated $1.02 billion in net cash from operating activities in the first six months of 2023, up from $973.7 million in the prior year period. This strong cash flow provides financial flexibility for investments, acquisitions, and shareholder returns.

Disciplined capital allocation

The company made $394 million in capital expenditures in the first six months of 2023 and paid $131 million in dividends, demonstrating a balanced approach to investing in the business and returning capital to shareholders. The renewal of the share repurchase program also indicates a commitment to creating shareholder value.

Leverage management

The company had $6.8 billion in net debt at June 30, 2023, which appears manageable given the strong cash flow generation. Continued focus on reducing leverage through debt repayment and free cash flow generation will be important.

Integration of acquisitions

The company completed several acquisitions during the periods, which contributed to revenue growth but also increased costs. Successful integration of these acquisitions will be crucial for realizing synergies and maintaining margins.

Overall, the financial statements demonstrate Waste Connections’ ability to grow its business through price increases, acquisitions, and strong demand, while managing costs and capital allocation. Maintaining margins, integrating acquisitions, and prudently managing leverage will be key focus areas for long-term investors.

Financial Statements Quarterly 2023 Q3

Revenue growth

Total revenues increased 15.4% to $1.90 billion for the three months ended March 31, 2023, compared to $1.65 billion in the prior year period. This was driven by price increases, contributions from acquisitions, and higher demand for E&P waste services, partially offset by lower volumes in certain markets.

Profitability

Operating income increased 14.9% to $314.7 million, with an operating income margin of 16.5%. Adjusted EBITDA increased 12.9% to $566.9 million, with an adjusted EBITDA margin of 29.5%. The company was able to expand profitability through pricing actions and operational efficiencies, despite inflationary pressures on costs.

Acquisitions

The company acquired four non-hazardous solid waste businesses during the quarter, adding $132.6 million in incremental revenue. Acquisitions have been a key growth driver, contributing to both revenue and earnings expansion.

Cash flow

Net cash provided by operating activities was $442.4 million, up slightly from the prior year period. Adjusted free cash flow was $274.0 million, providing ample liquidity to fund capital expenditures, dividends, and potential future acquisitions.

Leverage

The company had $6.97 billion in total debt at March 31, 2023, with a weighted average interest rate of around 5.8%. The company’s leverage ratio remains manageable, providing financial flexibility to pursue growth opportunities.

Shareholder returns

The company paid $65.8 million in dividends during the quarter, reflecting a 10.6% increase in the quarterly dividend rate compared to the prior year period. The company also has an active share repurchase program in place.

Overall, the financial results demonstrate Waste Connections’ ability to generate strong profitability and cash flow through disciplined operational execution, strategic acquisitions, and effective capital allocation – positioning the company well for continued growth and shareholder value creation.

Back to Table of Contents

Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Margin Expansion

Waste Connections delivered strong margin expansion of 160 basis points in Q1, with the potential for further expansion throughout the year. This is driven by improvements in employee retention, safety trends, and rising commodity values.

Operational Efficiency

The company is focused on improving operational efficiency through initiatives like in-house driver academies and diesel technician training programs. This is expected to help with employee retention and cost management.

Acquisition Opportunities

Waste Connections sees a robust pipeline of solid waste acquisition opportunities across its regional footprint. The company is well-positioned financially to pursue M&A, which could be a significant driver of growth in 2024.

Regulatory Changes

The new PFAS regulations present both challenges and opportunities for the industry. While there may be some incremental costs, Waste Connections believes the changes could ultimately drive further consolidation and M&A activity.

Cautious Guidance

Despite the strong Q1 performance, Waste Connections is taking a cautious approach to updating its full-year guidance, preferring to wait until the Q2 earnings release to provide any updates.

Overall, Waste Connections appears to be well-positioned for continued operational and financial success, with a focus on improving efficiency, pursuing strategic acquisitions, and navigating regulatory changes. The company’s cautious approach to guidance updates suggests a prudent long-term mindset.

Earnings Call Analysis 2024 Q1

Operational Execution and Margin Expansion

Waste Connections delivered strong operational execution in 2023, with 200 basis points of adjusted EBITDA margin expansion in Q4 and 70 basis points for the full year. This was driven by solid waste organic growth, improvements in commodity-driven revenues, and disciplined cost management.

Turnover and Safety Improvements

The company made significant progress in reducing employee turnover and safety incident rates, which are now at multi-year lows. This is expected to provide further margin expansion opportunities in 2024.

Acquisition Growth

Waste Connections closed over $215 million in annualized revenue from 13 acquisitions in 2023 and expects over $325 million in acquisition contribution in 2024, with a robust pipeline of opportunities. The Secure Energy acquisition in Western Canada is expected to be accretive.

Sustainability Initiatives

The company is taking a balanced approach to sustainability projects, with plans to invest $200 million in RNG facilities to generate $200 million in EBITDA by 2026. This is not a major driver of the 34% EBITDA margin target.

Competitive Landscape

Waste Connections is not overly concerned about competition from peers focused on sustainability projects or private equity activity, as the company’s decentralized model and focus on suburban/rural markets differentiate it.

Cautious Guidance

The company provided detailed guidance for 2024, including expectations for continued margin expansion, but noted that actual results may vary significantly based on risks and uncertainties outlined in their filings.

Overall, the key insights highlight Waste Connections’ operational excellence, disciplined approach to growth, and focus on sustainable value creation, which position the company well for long-term success.

Earnings Call Analysis 2023 Q4

Operational Execution and Margin Expansion

Waste Connections delivered strong operational execution in Q3, driving adjusted EBITDA margin expansion of 140 basis points sequentially and 120 basis points year-over-year, despite $15 million in unforeseen headwinds. This demonstrates the company’s ability to drive margin improvement through pricing and cost control.

Landfill Issues

The company is facing two unique landfill issues – an elevated temperature event at one landfill in California and a slope failure at another landfill in Texas. These are characterized as unusual, site-specific and non-recurring in nature. The impacts are expected to be up to $20 million in Q4, but the company is working to resolve these issues.

Acquisition Activity and Pipeline

Waste Connections continues to see robust acquisition activity, with $170 million in annualized revenue closed year-to-date and an additional $80 million signed and expected to close by year-end or early 2024. The company has a strong pipeline of opportunities, including potential expansion on the West Coast.

Sustainability Initiatives

The company is making progress on its sustainability goals, including a 14% reduction in Scope 1 and 2 emissions in 2022 and plans to significantly expand its biogas recovery through new RNG facilities. These investments are expected to contribute $200 million in incremental annual EBITDA by 2026.

Employee Retention and Margin Tailwinds

Waste Connections is focused on improving employee retention, which has shown sequential improvement for four consecutive quarters. As retention improves, the company expects to see lagging benefits in the form of lower costs and risk, leading to further margin expansion opportunities in 2024 and beyond.

Preliminary 2024 Outlook

While not providing formal 2024 guidance, the company expects high single-digit adjusted EBITDA growth on mid-to-high single digit revenue growth, including price-led organic growth and acquisition contributions. This outlook excludes the potential impacts from the landfill issues in Q4 2023.

Overall, the key insights highlight Waste Connections’ operational excellence, disciplined approach to acquisitions, commitment to sustainability, and focus on human capital – all of which position the company for continued strong performance and margin expansion in the long-term.

Earnings Call Analysis 2023 Q3

Disciplined approach to growth and margin improvement

Waste Connections is intentionally shedding lower-quality accounts and municipal contracts to improve revenue quality and margins. This pruning of the portfolio is typical when integrating acquisitions and improving margins.

Acquisition strategy and integration

The Arrowhead Environmental acquisition provides a strategic disposal asset to integrate and optimize operations in the Northeast. Waste Connections expects continued M&A activity, with a robust pipeline and potential for additional rollover contribution in 2024. The focus is on value creation through disciplined capital allocation and consistency in market selection.

Operational efficiency and human capital

Waste Connections has made organizational changes to reinforce its decentralized operating model and maintain field-focused decision-making. The company is addressing employee retention challenges through various initiatives, including driver and technician training facilities. Waste Connections is also leveraging technology (cameras, telematics) to drive continuous improvement in safety and customer service.

Margin expansion outlook

Waste Connections expects to exit 2023 at around 32.5% adjusted EBITDA margin, with potential for further expansion in 2024. Normalized for recycled commodities, the margin could be well north of 33%. The company expects price-led organic growth to continue, driving underlying margin expansion.

Cautious approach to guidance and projections

Waste Connections remains cautious about providing long-term margin expansion targets, as there are factors outside their control that could impact it. The company emphasizes the importance of understanding the nuances in volume trends and not assuming all volume is good volume.

Overall, the key insights highlight Waste Connections’ disciplined approach to growth, operational efficiency, and margin expansion, while maintaining a cautious and transparent stance on long-term projections.

Earnings Call Analysis 2023 Q2

Pricing Power and Margin Expansion

Waste Connections has demonstrated strong pricing power, with total price of 11.8% in Q1, including about 80 basis points of fuel and materials surcharges. The company expects full year 2023 core pricing of around 9.5%, with over 85% of that already in place. This pricing power, combined with cost management, has allowed the company to deliver 110 basis points of underlying solid waste margin expansion in Q1.

Resilient Business Model

Waste Connections’ decentralized operating model and focus on exclusive and secondary markets has allowed it to be resilient in the face of economic headwinds. The company is seeing some moderation in activity levels but remains within its expected range of flat to negative 1% volume growth for the year.

Acquisition Opportunities

Waste Connections continues to see a robust pipeline of acquisition opportunities, with $45 million of annualized revenue closed year-to-date. The company remains disciplined in its approach, focusing on strategically attractive and appropriately priced solid waste acquisitions.

Sustainability Initiatives

The company is continuing to deploy a number of sustainability-related projects, including renewable natural gas (RNG) facilities, which are expected to contribute an incremental $200 million of EBITDA by 2026.

Balance Sheet Strength

Waste Connections’ strong balance sheet, with leverage below 2.9x, provides flexibility for debt repayment, shareholder returns, and continued investment in the business.

Overall, the key insights highlight Waste Connections’ ability to navigate economic conditions, maintain pricing power, and strategically invest in growth opportunities, all while maintaining a strong financial position. The company’s decentralized model and focus on exclusive and secondary markets appear to be key competitive advantages.

Earnings Call Analysis 2023 Q1

Operational Execution and Pricing Discipline

Waste Connections demonstrated strong operational execution in 2022, overcoming inflationary pressures and a 70% drop in recycled commodity values to drive adjusted EBITDA margin expansion. The company was able to achieve over 10% solid waste pricing, with 85% being core price.

Visibility and Momentum for 2023

The company’s performance in 2022 has provided a higher entry point and enhanced visibility for 2023, with expectations for double-digit top-line growth and adjusted EBITDA margin expansion. This momentum is supported by continued pricing discipline and acquisition activity.

Sustainability Investments

Waste Connections is making strategic investments in R&D facilities and recycling operations, which are expected to generate an incremental $200 million of EBITDA by 2026. These investments are integral to the company’s business and growth strategy.

Acquisition Activity

The company completed 24 acquisitions in 2022, totaling $640 million in annualized revenue. This robust acquisition activity has continued into 2023, with the potential for another outsized year of M&A.

Capital Allocation and Free Cash Flow

Waste Connections has a strong balance sheet and free cash flow profile, providing flexibility for continued investments in organic growth, sustainability projects, and acquisitions, while also increasing shareholder returns through dividends and share repurchases.

Overall, the key message is that Waste Connections has demonstrated resilience and operational excellence in a challenging environment, positioning the company for continued growth and value creation in the long term.

Earnings Call Analysis 2022 Q4

Pricing Power

Waste Connections has been able to drive strong pricing growth, with total price of 10.1% in Q3 led by 8.3% core pricing. This pricing power is expected to continue, with pricing in exclusive markets approaching 7% in 2023.

Margin Expansion

Despite headwinds from declining recycled commodity values, Waste Connections expects to overcome these through continued underlying margin expansion, driven by the elevated pricing levels. They believe they can expand margins even after accounting for the recycled commodity headwind.

Acquisition Growth

Waste Connections has seen robust acquisition activity, with $535 million in annualized revenue closed year-to-date and another $35 million expected by year-end. This provides over 4% rollover acquisition contribution for 2023, with potential to grow further.

Free Cash Flow Growth

Waste Connections expects double-digit percentage growth in adjusted free cash flow in 2023, driven by the pricing power, acquisition contributions, and ability to overcome inflationary pressures.

Sustainability Focus

Waste Connections continues to invest in sustainability-related projects and has expanded ESG-related disclosure, highlighting their commitment to environmental, employee, and community initiatives.

The key takeaway is that Waste Connections appears well-positioned for continued strong financial performance, driven by its pricing power, acquisition growth, and ability to manage inflationary pressures – all while maintaining a focus on sustainability. The company’s critical analysis of its own statements and the analyst questions provide confidence in the long-term outlook.

Earnings Call Analysis 2022 Q3

Pricing Power and Margin Expansion

Waste Connections has been able to implement significant price increases (8.8% in Q2) to offset inflationary pressures, with the potential for further margin expansion as inflation moderates. The company is focused on core pricing rather than relying heavily on surcharges, which makes the pricing more sustainable. Waste Connections expects double-digit revenue growth in 2023 driven by continued pricing strength and acquisitions.

Acquisition Activity

Acquisition activity has been very strong, with $470 million in annualized revenue signed to close so far this year, well above historical averages. The robust acquisition pipeline provides visibility into continued growth, with additional acquisitions expected to close later this year and early next year.

Cost Pressures and Operational Execution

Waste Connections has been able to effectively manage through labor constraints, supply chain challenges, and fuel cost increases by implementing pricing actions. The company believes cost pressures have peaked, and as they moderate, it provides an opportunity for further margin expansion.

Sustainability Initiatives

Waste Connections has several recycling and renewable gas projects under development, which are expected to provide attractive returns and further enhance the company’s sustainability profile.

Financial Strength and Capital Allocation

The company’s strong balance sheet and financial position provide flexibility to continue pursuing acquisitions and return capital to shareholders through dividend increases and share repurchases.

Overall, the key insights highlight Waste Connections’ pricing power, operational execution, growth opportunities, and financial discipline, which position the company well for long-term value creation.

Earnings Call Analysis 2022 Q2

Pricing Power and Margin Expansion

Waste Connections has demonstrated strong pricing power, with all-in price growth exceeding 8% in Q2 2022. This has allowed the company to expand underlying solid waste margins despite high inflation.

Resilient Business Model

The company’s decentralized operating structure and visibility on costs have enabled it to effectively navigate inflationary pressures. The management team expressed confidence in running the business through a prolonged inflationary environment.

Acquisition Activity

Waste Connections has maintained an elevated pace of acquisitions, closing $175 million in annualized revenue year-to-date. The company remains selective on deals and focused on long-term value creation.

E&P Waste Recovery

The company is seeing improving trends in its E&P (exploration and production) waste business, with revenue up 65% year-over-year in Q1. This segment provides an additional growth avenue.

Capital Allocation

Waste Connections has a strong balance sheet and is actively repurchasing shares. The company also plans to maintain its established practice of increasing the annual dividend.

Inflation Management

The company is closely monitoring leading indicators of inflation, including wages and third-party vendor costs. While some inflationary pressures may ease, Waste Connections is prepared to operate in a high inflation environment.

Overall, the call highlights Waste Connections’ ability to navigate challenging macroeconomic conditions, maintain pricing power, and continue executing on its strategic priorities. The company’s decentralized model, focus on long-term value creation, and strong financial position position it well for the future.

Earnings Call Analysis 2022 Q1

Intentional culture and execution

Waste Connections attributes its strong performance to an “intentional culture of commitment and accountability” that enabled it to excel despite challenges like inflation and supply chain issues.

Proactive pricing

The company has been proactive in raising prices, with price growth of around 6.5% expected in 2022 to offset elevated inflation of around 6%. This suggests the company is able to pass on cost increases.

Margin expansion

Despite inflationary pressures, the company has been able to expand adjusted EBITDA margins, with 70 basis points of expansion in 2021 and an expected 35 basis points in 2022 (excluding acquisitions).

Acquisition growth

Acquisitions have been a key driver, with $400 million in annualized revenues acquired in 2021 and another $100 million year-to-date in 2022. The company sees continued elevated acquisition activity ahead.

Sustainability investments

The company is making strategic investments in recycling facilities and renewable gas projects, aligning with its sustainability focus, though these represent a relatively small portion of the overall capital budget.

Capital allocation

The company maintains a balanced approach, investing in organic growth, acquisitions, and returning capital to shareholders through dividends and share repurchases. It is willing to take on more leverage to fund acquisitions.

Resilience in recessions

Management notes the waste industry tends to perform well in recessions, which could provide upside if the economy slows.

Overall, the key insights point to Waste Connections’ operational excellence, disciplined capital allocation, and ability to navigate challenging environments – factors that should appeal to long-term investors.

Earnings Call Analysis 2021 Q4

Pricing Power

Waste Connections has been proactive in implementing price increases to address inflationary pressures, with pricing expected to accelerate to 5.5-6% in 2022. This demonstrates their ability to pass through cost increases.

Margin Expansion

Despite inflationary headwinds, the company has been able to drive sequential and year-over-year margin expansion through disciplined pricing and operational efficiency. This suggests strong underlying profitability.

Acquisition Strategy

Waste Connections remains active on the M&A front, with a robust pipeline of potential deals. Their selective and disciplined approach to acquisitions is a positive for long-term value creation.

Capital Allocation

The company has been proactive in investing in fleet and equipment to stay ahead of supply chain challenges. They have also increased their dividend, signaling confidence in the business.

Sustainability Focus

Waste Connections is making investments in renewable fuel facilities and green recycling initiatives, aligning with long-term environmental trends.

Analyst Questions

The analysts’ questions suggest some skepticism around the sustainability of the company’s pricing power and margin expansion, which management addressed effectively. This indicates the market may be underappreciating Waste Connections’ ability to navigate the current environment.

Overall, the key insights point to a well-managed, operationally efficient business with a strong competitive position and a focus on long-term value creation – attributes that should appeal to a long-term investor.

Earnings Call Analysis 2021 Q3

Broad-based Strength Across the Business

Waste Connections reported strong Q2 results, with revenue and adjusted EBITDA up 17.5% and 23% respectively. This was driven by continued improvement in solid waste pricing, volume growth, and strength in recovered commodity values.

Margin Expansion in the Second Half of 2021

The company is well-positioned for continued margin expansion in the second half of 2021, as they have already implemented incremental price increases to offset wage and inflationary pressures. Full-year adjusted EBITDA margin guidance was raised to 31.4%, up 90 bps year-over-year.

Robust Acquisition Activity

Acquisition activity remains robust, with 14 acquisitions signed or closed year-to-date, representing $115 million in annualized revenue. The company sees continued elevated seller interest, particularly driven by potential tax changes, which could lead to outsized M&A in 2021.

Landfill Gas-to-Energy Investments

The company is investing in landfill gas-to-energy projects, with 3-5 high-BTU plants planned over the next few years. These investments are expected to generate attractive returns, with paybacks in the 3-year range.

Labor Constraints and Proactive Measures

While the company has seen some labor constraints impacting operations, they have been proactive in implementing supplemental wage adjustments to attract and retain talent. The impact on volumes has been minimal so far.

Focus on Quality of Revenue and Price Retention

The company remains focused on quality of revenue and price retention across markets. They are selective in their acquisition approach to ensure value creation for shareholders.

Overall, the company is executing well, raising its outlook, and positioning itself for continued growth through pricing, volume recovery, acquisitions, and landfill gas investments. The critical point is the company’s disciplined approach to managing costs and capital allocation.

Back to Table of Contents

The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.