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    WCN
    Earnings call· Dec 2024(Q4 FY24)

    Waste Connections, Inc. WCN

    Feb 13, 2025 Source

    Executive summary

    Waste Connections Q4 FY24 — Strong Operational Execution Drives Margin Expansion and Record M&A

    Waste Connections delivered a strong Q4 FY24, marked by double-digit revenue and adjusted EBITDA growth, driven by price-led organic growth and record acquisition activity. The company's focus on human capital led to significant improvements in employee retention and operational execution, positioning it for continued outsized margin expansion in 2025 despite commodity and FX headwinds. Strategic decisions, such as the Chiquita Canyon closure, reflect a commitment to profitable operations and value creation.

    Highlights

    5

    • Full-year 2024 revenue of $8.92 billion, up 11.2% YoY, exceeding expectations.

    • Full-year 2024 adjusted EBITDA of $2.902 billion, up 15% YoY, with margin up 100 bps to 32.5%.

    • Voluntary employee turnover declined by 50% in less than 2 years to below 13%.

    • Closed approximately $750 million in annualized revenue from 24 acquisitions in 2024.

    • Achieved 6.7% core price in Q4, with full-year solid waste core pricing of 7.1%.

    Concerns

    4

    • Chiquita Canyon landfill closure resulted in a $116.1 million write-down and $480.8 million increase in closure/post-closure liabilities.

    • Q4 margin was impacted by over 60 basis points due to sequential declines in commodities, RINs, and FX rates.

    • Q4 solid waste volumes were down 2.7%, excluding 0.5 point negative impact from Chiquita Canyon.

    • Incremental outlays for Chiquita Canyon ETLF totaled $224 million in 2024, exceeding original expectations.

    Guidance & targets

    21
    CategoryTargetConfidence
    Full-year Revenue
    $9.45B-$9.6B
    high materiality
    High
    Solid Waste Price + Volume
    4%-5%
    medium materiality
    High
    Solid Waste Pricing
    ~6%
    medium materiality
    High
    Acquisition Revenue Contribution
    ~3.5%
    medium materiality
    High
    Full-year Adjusted EBITDA
    $3.12B-$3.2B
    high materiality
    High
    Full-year Adjusted EBITDA Margin
    33%-33.3%
    high materiality
    High
    Full-year Adjusted Free Cash Flow
    $1.3B-$1.35B
    high materiality
    High
    Full-year Estimated CapEx
    $1.2B-$1.225B
    medium materiality
    High
    RNG Project Capital Outlays
    $100M-$150M
    medium materiality
    High
    Chiquita Canyon ETLF Outlays
    $100M-$150M
    medium materiality
    High
    Q1 Revenue
    $2.2B-$2.225B
    medium materiality
    High
    Q1 Adjusted EBITDA
    $700M-$710M
    medium materiality
    High
    Q1 Adjusted EBITDA Margin
    31.8%-31.9%
    medium materiality
    High
    Q1 Depreciation and Amortization
    ~13.4% of revenue
    low materiality
    High
    Q1 Interest Expense (net)
    ~$80M
    low materiality
    High
    Q1 Tax Rate
    ~23%
    low materiality
    High
    Adjusted Free Cash Flow Conversion Rate
    48%-50% of adjusted EBITDA or more
    high materiality
    High
    RNG Projects Online
    by 2026
    medium materiality
    High
    RNG Aggregate Capital Outlays
    approach $250M
    medium materiality
    High
    RNG Incremental EBITDA
    ~$200M
    medium materiality
    High
    Chiquita Canyon ETLF Outlays
    ~$50M
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Solid Waste
    Solid waste core pricing of 7.1% for FY24 and 6.7% in Q4. Q4 volumes were down 2.7%, excluding a 0.5 point negative impact from Chiquita Canyon. FY25 guidance for price plus volume is 4%-5%, with pricing around 6%.
    Core pricing: 7.1% (FY24)Core pricing: 6.7% (Q4)Volume: down 2.7% (Q4, excluding Chiquita)Volume: down 0.5% (Q4, Chiquita impact)Price + Volume: 4%-5% (FY25 guidance, excluding Chiquita)Pricing: ~6% (FY25 guidance)
    		————
    E&P Waste
    E&P Waste business saw continued growth, with a Q4 run rate approaching $150 million per quarter, primarily from rollover contributions from the Secure deal and other acquisitions.
    		approaching $150M per quarter run rate———

    Operational metrics

    25
    Voluntary employee turnover
    <13%down 50% in <2 years
    current

    Achieved multiyear lows for employee turnover, down over 1,000 basis points from 2022.

    Open employee positions
    3%-4%down >60%
    current

    Every region at or below targeted levels of 3% to 4%, down from 7.5%.

    Employee engagement scores
    continuous improvementfrom already high base
    2024

    2024 employee engagement scores showed continuous improvement from an already high base on record levels of employee participation.

    Adjusted EBITDA Margin (underlying)
    100 bpsup
    FY25

    Implies underlying margins up as much as 100 basis points, offsetting a 20-50 basis point drag from commodities, RINs, and FX.

    Debt to EBITDA ratio
    2.67xvirtually unaffected during 2024
    FY24 end

    Leverage was virtually unaffected during 2024, ending the year at 2.67x debt to EBITDA, despite outlays of $2.2 billion.

    Total liquidity
    $1B
    current

    Liquidity approaching $1 billion provides tremendous optionality for continued growth.

    Dividend growth CAGR
    14%
    last 15 years

    Continued to grow our dividend as we have every year, double digits and a 14% CAGR over the last 15 years.

    Normal Course Issuer Bid (NCIB) authorization
    up to 5%renewed
    current

    Renewed our NCIB, that normal cost issuer bid. So we have the flexibility to buy back up to 5% to preserve that optionality.

    Chiquita Canyon site costs write-down
    $116.1M
    Q4 FY24

    The write-down of $116.1 million in site costs due to the decision to close active waste disposal operations.

    Chiquita Canyon closure and post-closure liabilities adjustment
    $480.8Mincrease
    Q4 FY24

    An adjustment of $480.8 million to increase our closure and post closure liabilities.

    Chiquita Canyon ETLF outlays
    $224Moutpaced original expectations
    FY24

    Total 2024 outlays outpaced original expectations, primarily as a result of related regulatory, permitting, legal, consulting and other indirect costs.

    Chiquita Canyon ETLF outlays (expected)
    $100M-$150Mstep down
    FY25

    Expected to step down in subsequent periods to about $100 million to $150 million in '25.

    Chiquita Canyon ETLF outlays (expected)
    $50Mstep down
    FY26

    Expected to step down in subsequent periods... down to about $50 million in 2026.

    Capital expenditures (ordinary course)
    $1.056Bin line with expectations
    FY24

    Capital expenditures of $1.056 billion reflect ordinary course CapEx in line with expectations.

    RNG project spend (slower than expected)
    $60M
    FY24

    Slower-than-expected RNG project spend, totaling about $60 million.

    RNG project capital outlays (aggregate)
    $250M
    by 2026

    We continue to expect projects to be online by 2026 and expect aggregate capital outlays to approach $250 million before any benefit from investment tax credits.

    RNG project incremental EBITDA
    $200M
    FY27

    The bulk of them will be online during '26, and so you'll see it ramp during '26 for the full year in '27. And we said that's around $200 million in incremental EBITDA.

    Fuel and material surcharges impact
    -50 bps
    Q4 FY24

    Fuel and material surcharges were negative 50 basis points in the quarter on lower fuel costs.

    FX impact on revenue (per penny)
    $20M
    annual

    Every penny of FX, just translation is almost $20 million in revenue, and it's high flow-through, right? Because that's a 45% margin piece of the business.

    Internal cost inflation
    4.5%down from 8% (2 years ago)
    FY25

    Right about 4.5% is a good way to think about it... primarily led by the abating of the inflation in labor rates.

    Arrowhead Landfill daily tonnage
    7,000 tonnes/dayup from 2,500-2,700 tonnes/day
    current

    We are now at 7,000 tonnes a day pretty consistently, up from about 2,500-2,700 tonnes a day when acquired.

    Arrowhead Landfill daily tonnage (expected)
    8,000-9,000 tonnes/day
    FY25

    We believe as we come through 2025, we will get into that 8,000 to 9,000 tonne a day range.

    Arrowhead Landfill daily tonnage (long-term goal)
    10,000+ tonnes/day
    multi-year

    We believe long term, we will achieve 10,000 tonnes a day or more over a multiyear period.

    RINs value
    ~250bounced back from recent lows
    current

    RINs have already bounced back to about [250] and commodities have firmed up from recent lows.

    RINs locked value
    ~$3
    most of 2024

    We had a portion of our RINs locked for most of 2024 at around $3.

    Industry KPIs

    8
    MetricValueDetails
    Yield6%+%
    Volumedown 2.7%%
    Core price7.1%%
    EBITDA margin32.5%%
    Churn retention<13%%
    Safety turnover<13%%
    Price to cost spread150-200 bpsbps
    Recycling commodity impact>60 bpsbps

    Deals & partnerships

    2
    various private companiesAcquisitions in E&P Waste and across solid waste franchises and competitive markets, including internalization into disposal network, new market entries, and tuck-ins.$750M annualized revenue

    24 acquisitions closed in 2024, totaling approximately $750 million in annualized revenue.

    various private companiesAcquisitions across solid waste franchises and competitive markets.$75M annualized revenue

    Over $75 million in annualized revenue either closed or signed and expected to close during Q2 2025.

    Capital programs

    1
    RNG Facilities Development Programunderway$250M
    Period spend: $100M-$150M (FY25)
    Spent to date: $60M (FY24)

    Benefit: about a dozen R&D facilities; $200M incremental EBITDA (FY27)

    Sustainability-related projects include about a dozen R&D facilities with a variety of ownership structures. Expected to be online by 2026, with aggregate capital outlays approaching $250 million before any benefit from investment tax credits. $60 million spent in FY24, $100M-$150M budgeted for FY25. Expected to contribute $200 million in incremental EBITDA by FY27.

    Risks & headwinds

    4
    Chiquita Canyon Landfill Closure & ETLF CostsFY24-FY26

    $116.1M write-down, $480.8M increase in liabilities, $224M outlays in FY24, $100M-$150M expected in FY25, $50M in FY26.

    Mitigation: Redirected significant waste throughput to another landfill; pursuing strategies to mitigate impacts and costs; ETLF event is site-specific and nonrecurring.

    Commodity, RINs, and FX Rate DeclinesQ4 FY24, FY25

    >60 bps margin impact in Q4 FY24; 20-50 bps drag on FY25 underlying margins.

    Mitigation: RINs have bounced back; commodities have firmed up; hybrid ownership approach for RNG insulates from RIN volatility; opportunistic locking of RIN prices.

    Inflationary PressuresFY25

    Internal cost inflation at ~4.5% for FY25.

    Mitigation: Price-led organic growth strategy to maintain 150-200 bps spread over cost structure; abating labor inflation.

    Volume Declines from Strategic SheddingFY24, FY25

    Q4 solid waste volumes down 2.7% (ex-Chiquita); FY25 volumes expected down 1.5%-2.5% (incl-Chiquita).

    Mitigation: Focus on quality of revenue and margin expansion; redeploying capital into more profitable contracts.

    What to watch in Q1 FY25

    5

    Q1 2025 Adjusted EBITDA Margin

    Q1 FY25
    Current32.4% (Q4 FY24)
    Target31.8%-31.9%

    Why it matters

    Verifies the initial progress on margin expansion for the year, especially given commodity/FX headwinds🌐.

    Revenue in Q1 is estimated in the range of $2.2 billion to $2.225 billion, and adjusted EBITDA is estimated at $700 million to $710 million or 31.8% to 31.9% of revenue.

    Q&A highlights

    6

    Clarification on green CapEx spend for RNG projects and Chiquita Canyon outlays, and their impact on future FCF conversion.

    Confirmed RNG CapEx spend ($40M in '23, $60M in '24, $100M-$150M in '25) will largely sunset by '26. Chiquita outlays are expected to step down to $100M-$150M in '25, $50M in '26, and near zero by '27. Normalized FCF conversion is expected to revert to 48%-50% of adjusted EBITDA or more by '26, with additional benefits from RNG EBITDA in '27.

    “Yes. That's why we said this year, if you take what we've guided and you assume we didn't do RNG or have Chiquita, which you can't do. I understand, it would be $1.55 billion would be the 25% free cash flow or right at about 50% for -- and that is before RNG EBITDA contribution, as you just outlined.”

    asked by Tyler Brown · answered by Ronald Mittelstaedt

    3 min read7 chapters

    Detailed Narrative

    01

    Operational Excellence & Human Capital

    Waste Connections achieved multiyear lows in voluntary employee turnover, which declined by 50% in less than two years to below 13%, and reduced open employee positions by over 60% to 3-4%. This improved operational execution, safety statistics, and customer satisfaction, while reducing overtime and reliance on third-party services. The company's 2024 employee engagement scores also showed continuous improvement from an already high base.

    02

    Strategic Landfill Management (Chiquita Canyon)

    The company made the decision to close active waste disposal operations at Chiquita Canyon landfill as of year-end 2024 due to the imposition of tonnage limits and permitting issues. This strategic move, while not preferred long-term, was within contemplated outcomes, and a significant portion of the waste throughput has been successfully redirected to another landfill in Central California. The company will continue to manage the site, addressing the Elevated Temperature Landfill (ETLF) event and honoring closure commitments.

    03

    Record Acquisition Activity & Integration

    In 2024, Waste Connections closed 24 acquisitions, contributing approximately $750 million in annualized revenue. These deals spanned E&P Waste, solid waste franchises, new market entries, and tuck-ins. The company maintains a robust acquisition pipeline, with over $75 million in annualized revenue already closed or signed for Q1/Q2 2025, projecting a total 2025 acquisition contribution of over $300 million. This disciplined, relationship-driven approach focuses on market selection, risk profiles, and appropriate valuations.

    04

    Financial Performance & Margin Expansion Drivers

    The company delivered full-year 2024 adjusted EBITDA margin of 32.5%, up 100 basis points year-over-year, despite significant commodity, RINs, and FX declines in Q4. This margin expansion is attributed to price-led organic growth, strong operational execution, and improved employee retention. For 2025, adjusted EBITDA margin is guided to 33%-33.3%, representing 50-80 basis points of expansion, implying an underlying margin improvement of up to 100 basis points after accounting for commodity, RINs, and FX headwinds🌐.

    05

    Sustainability Investments & Innovation

    Waste Connections is actively investing in sustainability initiatives, including developing about a dozen Renewable Natural Gas (RNG) facilities expected online by 2026, with aggregate capital outlays approaching $250 million. The company is also working with partners on PFAS treatment solutions, introducing electric trucks in its new New York City franchise, and leveraging AI and robotics in recycling facilities and fleet operations to enhance productivity, safety, and revenue quality.

    06

    Strategic Volume Management & Economic Backdrop

    The company's solid waste volume trends reflect a conscious strategy of shedding unprofitable business (10-15% of acquired M&A revenue over 1-3 years) and a purposeful trade-off between price and volume to maintain a 150-200 basis point spread over internal cost inflation. Management noted a flat to almost negative economic environment for the past 2.5 years, impacting MSW, C&D, and special waste activity, which also contributes to volume dynamics.

    07

    Arrowhead Landfill Rail Logistics Expansion

    The Arrowhead landfill, acquired in August 2023, has significantly ramped up its daily waste intake from 2,500-2,700 tonnes to 7,000 tonnes, primarily by internalizing waste from Northeast operations. Volumes are projected to reach 8,000-9,000 tonnes/day in 2025, with a long-term goal of 10,000+ tonnes/day. This expansion is supported by a stable, long-term contract with Norfolk Southern, providing a reliable and cost-effective logistics runway for waste disposal.

    AI-generated summary of the company’s earnings call. Not investment advice.