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spk12: Good morning and welcome to the Waste Connections, Inc. Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ron Middlestad, President and CEO. Please go ahead.
spk10: Okay. Thank you, Operator, and good morning. I would like to welcome everyone to this conference call to discuss our second quarter results and updated outlook for 2023, as well as to provide a detailed outlook for the third quarter. I'm joined this morning by Mary Ann Whitney, our CFO. I'm also joined by Joe Box, our recently promoted Vice President of Investor Relations. Congratulations, Joe. As noted in our earnings release, we are extremely pleased by the strength of our operational execution during the quarter for a solid beat on revenue and adjusted EBITDA to deliver margins 30 basis points above our outlook. Solid waste core pricing growth of 9.8% positioned us to expand underlying solid waste collection, transfer, and disposal margins by 100 basis points in the period, largely overcoming the ongoing headwinds from year-over-year declines in recovered commodity values and continued inflationary pressures during the period. Our performance in the first half of 2023, along with recent acquisitions and reduced headwinds from fuel and other commodity-related impacts, positions us to increase our full-year outlook for adjusted EBITDA to approximately $2.525 billion, expanding our adjusted EBITDA margin to 31.5% for the full year up 40 basis points from our initial outlook and up 70 basis points as compared to the prior year. Most importantly, we are encouraged by improving trends in safety and employee retention as we double down on human capital in our decentralized operating model, including through the realignment of our organizational structure with the addition of a sixth region and refinements to our corporate operational structure. We look forward to driving outsized margin expansion in the second half of 2023 and into 2024. Before we get into much more detail, let me turn the call over to Mary Ann for our forward-looking disclaimer and other housekeeping items.
spk15: 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 in our August 2nd 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, they calculate these non-GAAP measures differently. I will now turn the call back over to Ron.
spk10: Okay. Thank you, Marianne. Looking at Q2, our results begin with price-led organic solid waste growth from core price of 9.8%, ranging from over 7% in our mostly exclusive market western region to between 9% and 12% in our competitive region. Total price of 9.1% includes a 70 basis point decline in fuel and material surcharges, reflecting lower diesel prices in the quarter as projected. Reported volume growth of negative 1.9% reflects a degree of intentional shedding of lesser quality accounts and purposeful non-renewals of certain municipal contracts, including in some cases at recently acquired operations where we've identified opportunities for improving revenue quality. We consider this pruning to be integral to our disciplined approach to growth and typical of the opportunities for margin improvement we see in acquisitions. Given the number of acquisitions over the past few years, this was fully anticipated. Our volumes also reflect a muted seasonal ramp in activity levels as we had anticipated, impacting collection, transfer, and disposal volumes. Most notably, special waste tons, a good barometer of the more cyclical and event-driven aspects of the business, were down 7% year-over-year on reduced or delayed project activity across most regions. However, in July, special waste volumes were up 9% year-over-year, a reminder of how lumpy these project volumes can be and why it's tough to generalize about broader volume trends based on improvements in special waste or other event business. Lastly, consistent with the constructive tradeoff between price and volume we've described in prior periods, we're making a conscious choice of up to one point of volume reduction to achieve our price objectives. We're very comfortable with the tradeoff, and our improving EBITDA margins reflect the benefit. Looking next at Q2 revenues from recovered commodities, that is recycled commodities, landfill gas, and renewable energy credits, or RENs, excluding acquisitions, Collectively, they were down about 40% year-over-year due to tough comparisons for values of both recycled commodities and RENs. OCC, or old corrugated containers, averaged about $75 per ton, and RENs averaged about $2.15 in Q2, starting lower and jumping to over $3 late in the quarter in response to a favorable EPA ruling establishing renewable volume obligations. We are encouraged by the EPA ruling given our portfolio of renewable natural gas facilities under development, which remains on track to deliver the projected 200 million in incremental annual EBITDA by 2026 from over a dozen RNG projects with a range of ownership structures. Those benefits begin later this year when three facilities are expected to be operational and should ramp in 2024 when we are projecting the majority of capital expenditures. Beyond these projects, we continuously evaluate additional opportunities, including as we complete acquisitions. Moving on to the subject of acquisitions, we recently closed on Arrowhead Environmental, a $100 million revenue integrated transportation and disposal network with rail access from multiple transfer locations on the East Coast to Arrowhead Landfill in Alabama. Operating locations include transload facilities in Connecticut, Massachusetts, New Jersey, and Florida, all of which feed into Arrowhead, a 1,400-acre MSW landfill serviced directly by rail. This important strategic addition provides enhanced internalization opportunities to our operations across the Northeast and has the potential both to reshape existing markets and to expand acquisition opportunities, given the internalization benefits afforded by leveraging the strategic disposal assets. In time, we expect this will be one of our most strategic assets in the company. This year is on track to once again be what we consider above average in terms of activity, as we have already closed acquisitions with over 160 million in annualized revenue. In addition, Dialog remains very active with a robust pipeline, all in solid ways, setting up the potential for additional rollover contribution into 2024 from many acquisitions completed later this year. Our focus remains, as always, on value creation and replicating the success achieved over 25 years through disciplined capital allocation and consistency in market selection, along with an intentional culture. In short, there is no change to our strategy. Our decentralized operating philosophy has been and continues to be a point of differentiation for Waste Connections, along with our servant leadership-oriented culture. To that end, we made a number of changes to reinforce this approach, both in the field and within our corporate operational organization serving the field. Among other things, we completed our segment realignment to accommodate continued growth across our footprint and maintain our field-focused, decentralized approach to decision-making and implementation. We expanded our regional structure through the addition of a fifth U.S. region we're calling the Mid-South. This serves to accommodate the growth we have enjoyed over the past several years, a portion of which was heavily concentrated in the eastern U.S., including our just announced acquisition of Arrowhead. With the addition of a regional office infrastructure in Charlotte, North Carolina, our region leadership team is well positioned to maintain the relationships with local operations, which we believe ultimately drive the results in our model. Moreover, this additional bandwidth sets us up for continued growth across our footprint as we look ahead to revenue of $10 billion and more. To that end, we also implemented leadership changes with an emphasis on coaching and developing our next generation of leaders as we position ourselves for the future. In conjunction with a purposeful evaluation of corporate resources to serve the field, we made some changes to the roles of certain of our long-tenured senior regional leaders to broaden their experiences and perspectives. While not necessarily significant from an outsider's point of view, these changes are expected to be impactful internally as they will influence the next generation of leaders to drive operating and financial results. These changes are also designed to streamline decision-making to support the field in two ways. First, to further enhance local autonomy on operational matters as appropriate. And second, to prioritize resource utilization from corporate support directed towards the achievement of the local objectives. We have always maintained that this is a local business, and regardless of our size, we are committed to ensuring that we are set up to manage it that way, as we believe human capital is critical to our success. To that end, we are also focused on addressing the challenges of employee retention in what we still see as a tight labor environment. As noted earlier, we are encouraged by the progress we have seen year to date, with voluntary turnover levels down 15% and open headcount requisitions down 25% from the peak seen during 22 and early 23. And we look forward to driving further improvements through a variety of approaches. We're adding resources. expanding our use of technology, and we're exploring alternative approaches to improving the flow of qualified candidates, including through driver and technician training facilities in which we have ownership interests or other involvement. Given the high correlation between retention and safety, we're mindful of the potential to accelerate improvements in safety incident rates along with retention. We're also leveraging the recent investments we've made in updated camera technology and telematics to drive continuous improvements in safety and customer service, including at our newest acquisitions where the opportunities are the greatest. And now I'd like to pass the call to Mary Ann to review more in depth the financial highlights of the second quarter and our increased outlook for 2023 and to provide a detailed outlook for Q3. I will then wrap up before heading into Q&A.
spk15: Thank you, Ron. In the second quarter, revenue of $2.021 billion was $21 million above our outlook and up $205 million or 11.3% year-over-year. Acquisitions completed since the year-ago period contributed about $122 million of revenue in the quarter or about $121 million net of divestitures. As Ron noted, core pricing was 9.8% in Q2 with the vast majority of pricing done for the year. As we've described in prior quarters, total pricing steps down on a reported basis over the course of the year as a result of the combined impact of negative fuel surcharges from improving diesel costs, the anniversarying of outsized price increases in 2022, and the typical cadence of seasonality on reported price. With respect to volumes, Ron already described the dynamics and the key drivers. Here are the stats looking at year-over-year results on the same store basis. Commercial revenue was up about 10% on pricing up about 11%. Daily roll-off polls were up nominally on rates per poll up about 7%. And landfill tons were down nominally on slavish MSW tons with special waste tons down 7%, as noted, and C&D tons up about 7%. Adjusted EBITDA for Q2 was reconciled in our earnings release, increased by 11% to $628.9 million, or 31.1% of revenue, 30 basis points above our margin guidance. Underlying solid waste margins expanded by 100 basis points year-over-year, largely offsetting 110 basis points in combined headwinds from tough year-over-year comparisons for recycled commodities, a 90 basis point drag, and RIMS, a 20 basis point drag. Other year-over-year margin drivers included 30 basis points combined benefits from higher E&P waste activity and acquisitions completed since the year-ago period, with offsets from a 30 basis point impact to deferred compensation related to stock market movements during the period. Our Q2 tax rate stepped up to 24.7% as a result of two factors. First, the impact of non-recurring executive severance payments, most of which were non-deductible. And second, higher foreign exchange rates for the Canadian dollar. Normalizing for the severance yields an adjusted rate of 23.6%. Year-to-date, we've delivered adjusted free cash flow of $630 million, or 16.1% of revenue, leaving us well-positioned to meet our full-year outlook for $1.225 billion in adjusted free cash flow. During the quarter, we opportunistically paid down about $240 million in debt, taking leverage down to 2.75 times debt to EBITDA and resulting in a mix of about 15% variable rate debt and a weighted average cost of about 3.8%. The strength of our balance sheet and free cash flow generation affords the flexibility to reinvest in our business and execute on our growth strategy while also returning capital to shareholders. including as we've demonstrated over the last dozen years through double-digit percentage per share annual increases to our cash dividend, which we will revisit again later this year. I will now review our updated outlook for the full year and provide our outlook for the third quarter of 2023. 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. Adjusted EBITDA for the full year is now estimated at approximately 2.525 billion, or about 31.5% of revenue, up $25 million and 40 basis points from our initial outlook, for a 70 basis point year-over-year increase in adjusted EBITDA margin for 2023. Our updated revenue outlook of approximately 8.025 billion, reflects a $35 million reduction in fuel and material surcharges related to declining fuel costs since providing our initial outlook in February. Net of this adjustment, our revenue outlook is up $10 million from February on updated value to recycle commodities and RINs, plus contributions from acquisitions completed since that time, with solid waste volumes reflecting Q2 trends. Our adjusted free cash flow outlook of $1.225 billion reflects an increase to net capital expenditures of $25 million. Said another way, we increased our outlook for adjusted cash flow from operations by $25 million in line with our EBITDA raise and took up capital expenditures as well. Turning next to our outlook for Q3. Revenue in Q3 is estimated to be approximately $2.06 billion. We expect core price of approximately 9% and total price plus volume of 5.5% to 6%. Recycled commodity values are projected in line with recent levels, down sequentially from Q2 on lower values for plastics, with RINs in the range of $2.50 to $3. Adjusted EBITDA in Q3 is estimated at approximately $670 million, or 32.5% of revenue. Depreciation and amortization expense for the third quarter is estimated at about 12.5% of revenue, including amortization of intangibles of about $39.5 million, or about 11 cents per diluted share net of taxes. Interest expense, net of interest income in Q3 is estimated at approximately $68 million. And finally, our effective tax rate in Q3 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.
spk10: Thank you, Mary Ann. Once again, we are extremely pleased by our results today and encouraged by the factors driving our increased margin outlook for the full year. particularly given the realities of ongoing inflationary impacts. As provided in our updated outlook for 2023 and the back half of the year, we are set to exit 2023 at close to 32.5% adjusted EBITDA margin as the jumping off point for 2024. Normalized for recycled commodities, this puts our adjusted EBITDA margin well north of 33%. And yes, this is our total company EBITDA margin not just solid waste. And it translates to year-over-year margin expansion of over 150 basis points in the back half of the year, demonstrating the power of price-led organic growth along with a disciplined approach to acquisitions and the avoidance of margin-dilutive activities away from that core strategy. Looking ahead, we anticipate another year of price-led organic solid waste growth, positioning us for underlying margin expansion in 2024 along with benefits from continued improvements in retention, abating inflationary pressures, and purposeful shedding. Moreover, ongoing acquisition activity, contributions from new RNG facilities, and improvements to commodity-driven revenue could potentially produce further growth, which we will lay out when we provide our formal outlook for 24 in February. I want to conclude by thanking our 23,000 employees whose dedication and hard work has driven our performance in the first half of the year and set us up for outside margin expansion in the second half. Their efforts and these results, including continuous improvement in our industry-leading safety metrics, once again validate our market selection strategy and the role of local decision-making in driving results. Our focus is on maintaining a strategy that has served us well, executing on our playbook, and delivering on our commitments. We 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. Operator.
spk12: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the key. To withdraw from the question queue, please press star then two. The first question is from Tony Kaplan of Morgan Stanley. Please go ahead. Thank you so much.
spk01: I wanted to start with the contracts that were shedded. You know, I guess first, any common themes between them? Were they in particular geographies or verticals? And is this sort of a, are we finished with the shedding or is there more to go? I'm just trying to think about volume over, I know you mentioned the negative 1%. Was that cumulative or incremental? Thanks.
spk10: Sure. Well, first off, Tony, the contracts that were shed are, you know, throughout our footprint. But I would say there was a greater amount in the eastern seaboard where we've had a lot of growth through M&A over the last three years. There were also some in the south, actually, that were still a continued part of our reviewing of contracts from the progressive transaction that we did seven plus years ago. The common theme was that these are municipal contracts that are low margin with, you know, or that we price to either make an acceptable margin return on capital or we're happy to let somebody else take. And often the volumes will still come to our landfill. So in our mind, it's a win-win. So no specific geography. You know, as far as, you know, your question regarding shedding, look, again, Anytime you are in a high M&A period, which we have been, as you know, for the last three plus years, doing over a billion dollars in M&A, you're going to have in private M&A transactions anywhere from 10 to 20 percent. So let's take an average of 15 of the revenue that you acquire. That is probably zero to negative margin. You know that going in and you identify that. And as those contracts come up, you work to reprice them or to exit them. So, you know, there has always been in our model, always for 25 years, intentional shedding. You're seeing it more now because of the large amount of M&A done over three years. And also you're in a flat, effectively a flat economy over the last year from a GDP standpoint. So you've got a little softer economy. So with a larger amount in M&A, you see a little bit more of it in the volume numbers. Again, so in a normalized economy, whatever that is, 2%, 3% GDP, and a slower acquisition pace, we're still doing it. You just don't see it on a quarter-in, quarter-out basis. So... I would expect that number to come down because we haven't done a billion dollars this year in M&A, but this is part of a normal running the business the way we do with a focus on returns. Again, I think if you look at the peers that have reported in the quarter who have also had some pretty heavy M&A over the last several years, you basically saw the exact same thing. As they acquire companies, they inherit the same situation. So that's really the story around municipal contracts.
spk15: And just the one thing I would add to that, Ron touched on a couple of the regions The other I would add would be Canada, where you saw purposeful shedding of certain residential to municipal contracts. And I mention that because to Ron's point about the impact of acquisitions, of course, that dates back to progressive from seven years ago. It tells you you're still refining the portfolio opportunistically as contracts still roll off multiple years after the acquisition is completed. And, you know, frankly, the other point I'd make is then follow the margin. Because if you look at our regional reporting in our queue, you'll see the margin improvement that really stands out in our eastern region in Canada, both of which we mentioned as having shedding going on.
spk10: Yeah. And lastly, Tony, I would say, obviously, as I mentioned, you have a number between 10 and 20% of that acquired revenue that you ultimately may reprice or shed. you know, you're not seeing that level of it. Why? Because there's also municipal contracts we're winning all along as well. So again, this is sort of a net number of that. And as Marianne said, you know, follow the margin because that tells you whether we're making the right decision on repricing or not.
spk01: Terrific. And for my follow-up, I wanted to go to the margin. So, you know, you mentioned second half and third quarter expected to be, you know, 32.5%. You know, even just staying at that level in 24 would be 100 basis points of expansion year over year over this year. Seems like a little bit higher than typical. And then you have inflation moderating and then maybe even some normal operating leverage on top of that. Like, I guess, why shouldn't we be modeling, you know, 100 basis plus even basis points of expansion for next year? What would be the factors to offset some of that? Or is that your expectation? Thanks.
spk10: Well, first off, remember, and I'm going to let Mary Ann take parts of this as well, Tony. First off, remember, the second half of the year is your seasonally higher margin period. So the second half of the year, Q3 being guidance of 32.5, if you do the math, I think, Q4 comes in around 32.3, so 32.4 blend. You're going to naturally have a step down in Q1 and Q2 seasonally. So your total margin isn't quite at 32.5 yet, as we have guided. This year is at 31.5. So you're somewhat below that as you enter. But, you know, look, I think it's too early yet to make any projections for next year's margin. We generally say, as you know, with price-led growth, we get around 30 to 40 basis points of margin expansion. Yes, I think the number will be north of that next year. I'm not ready to commit to what that will be. There's certainly a number of moving things. That also depends on the level of M&A over the balance of this year, because as you know, that can come in margin dilutive. So, you know, we want to be cautionary in what we're guiding to. But what we are saying is the second half of this year on a normalized basis, depending on what you want to assume for commodities, is at that 33 percent number. So, you know, I would be cautious telling you 100. I'm not saying that can't happen, but there are things outside our control which influence that.
spk15: I would just reiterate what Ron said, which is, of course, that we're not providing guidance right now. We think it's instructive to talk about the dynamics resulting in the sequential improvement we're expecting to see in the back half of the year. And, you know, the reality is we really haven't seen the cost pressures abate in the first half of the year. And that's part of what's setting up, you know, as the comps get easier on things like wage increases, et cetera, from last year, it sets up the back half of this year to be a little stronger. And then, of course, we'll comp that again next year. So that'll influence the cadence of margin expansion next year, which would be the other reason to be cautious about your jumping off point and going up from there.
spk11: Thanks a lot. The next question is from Sean Eastman of KeyBank Capital Markets.
spk12: Please go ahead.
spk00: Hi, team. Thanks for taking my questions. I just wanted to come back to the margins, the 33% comment, just for clarity. Is that where we're run rating on an annualized basis in the second half at sort of a longer-term average commodity input level? Just some clarity there would be helpful.
spk15: So I think the point we were trying to communicate was, as you exit the year at 32.5%, you say, look, commodities are really up about only 20% from where they exited last year, which was down 70% from the highs last July, right? So it says there's a long way to go to get back to last July's levels. And so that was Ron's point. Just later on, it's more than 50 basis points. It's probably 70 basis points. And so he's saying well north of 33%. if we're exiting at around 32 and a half.
spk00: Okay, understood. And then are there any sort of KPIs or margin enhancement targets that you could share or quantify around the big employee retention cultural programs that you're kicking off here, Ron? Sure.
spk10: Well, Sean, there's a number of things we look at, but as I've mentioned in previous investor meetings and analyst conferences, look, there is not some 100 basis point lever that we are missing here at Waste Connections. The company has always been a very cost-focused and well-run company, but With turnover where it has been, there is no question that there is up to 100 basis points that we can take out of our cost structure over the next 18 to 24 months in seven or eight line items as retention improves. As we drive, you know, turnover from what was in the mid-30% level down, I'm going to call that 10 points, so I'm into the mid-20% level, you're going to see seven or eight line items improve 10 to 15 basis points each. And that's going to come in labor. It's going to come in labor overtime. It's going to come in our variable account. It's going to come on our outside repairs. It's going to come in risk. It's going to come in SG&A. It comes in volumes. Because everything gets better when you're fully staffed and people's workloads are balanced and you're not running both your people and your equipment at max level. And so there's things we're looking at in each of those categories that we monitor. But the number one thing is, you know, as I said, just focus on turnovers. And as turnover comes down, you'll see these line items as a percentage of revenue continue to improve. And I think we'll demonstrate that throughout the balance of this year, and we'll demonstrate that throughout next year. So, you know, those are the things. And, Sean, you know, if you accept what I said, exiting the year at approaching 32.5% for the back half and normalizing commodities at getting us to north of 33, if I'm correct in that 100 basis points, that's how you triangulate to a 34% type EBITDA margin or above as we look out 18 to 24 months.
spk00: Very interesting and helpful. I'll turn it over. Thanks so much.
spk12: The next question is from Tyler Brown of Raymond James. Please go ahead.
spk03: Hey, good morning.
spk13: Morning, Tyler.
spk03: Hey, Ron. Curious if we could get some more details on the Arrowhead deal. This asset seems very interesting to me. I'm just curious if you can talk about how that fits in the Northeastern disposal strategy, and basically, does it give you more confidence in acquiring collection in that market or even other rail-serve transfer stations along the East Coast? And then, does this move have anything to do with Seneca? Basically, is it an alternative if that site were to shut down?
spk10: Sure. Let's attack the last part of that question first regarding Seneca. So first off, it has nothing to do with Seneca. Seneca is doing very well. We're very confident in our position and our expansion there. And no, no real change to that. You know, we have grown quite a bit along the eastern seaboard, as you know. And there was just really a need for to have incremental connectivity to disposal options to integrate many of those markets that up till now had been non-integrated. We have been looking at this for the last year and a half to two and had internally committed that we were going to be able to integrate the Eastern Seaboard. So to your first part of your question, absolutely, this opens up additional market opportunities for M&A. This opens up additional opportunities to integrate markets we have that are currently not integrated. And yes, this is an asset that's very strategic and we're very excited about. It's a large landfill, as we mentioned in the release, 1,300 acre MSW site. We're today, that asset is taking around 3,500 tons a day in, and we can handle in time you know, a multiple of that or more and have permitted capacity to do so for quite some period of time. So I think you'll continue to see us over ensuing quarters and in the next year talk about the development that we have planned. As you know, we try to think about these things in, you know, multi-years out, and that is how we are looking at this asset. It does open up other rail transfer options. from an acquisition standpoint. So, yes, it is very strategic in our mind.
spk03: Yeah, okay.
spk10: Very interesting.
spk03: And then, Marianne, just from a modeling perspective, just based on the acquisitions to date, how much contribution from M&A is kind of implied in the full-year guide?
spk15: Yes, for the full year, the original guide was about $360 million, and we're now at like $405 to $410 million. And then the rollover for next year is around 70.
spk03: Perfect. Okay. And then my last one here, Ron, this is a bigger picture question. So I think it's already been 100 days back in the seat. I know that you never really left, but you have been interfacing investors pretty actively. And I'm just curious what your impressions have been there with all the new investors. What do you think the market still seems to miss about you or the story, if anything?
spk10: Well, thanks, Tyler. It's 100 days today to answer your question. And I have appreciated getting back in touch with many investors who have known us, but a tremendous amount of investors who are newer to the industry and our story that I hadn't had the opportunity to meet. Look, I think the investment community is very well informed. We've got a very well followed from an analyst community space. And I think that all helps in transparency. But look, I think the thing that is, and I think it's topical and top of mind right now, is I think there's a misplaced and misunderstood issue regarding volumes. I think there's this conception that all volume is good volume. And that's just completely inaccurate. There's a lot of volume that structurally, the public companies shouldn't have. The public companies can't operate at 25 to 35% EBITDA margin with volumes that is intrinsically structurally low because of the nature of the market or the contract or the positioning in the market. So I don't think people should read into negative volumes as something that should be concerning whatsoever. It should be concerning if margins and cash flow are going the other direction. But if they're accreting, I think that tells you why people are doing it. So that would be the, you know, I would just reiterate that just because it's topical right now more than anything.
spk13: Okay. Good stuff. Thank you.
spk11: The next question is from Brian Bergmeier of Citi. Please go ahead.
spk02: Good morning. Thanks for taking the question. You know, your guide and your comments, you know, point to a fairly balanced capital allocation per year, and you increased CapEx guidance a little bit this quarter. Maybe just from a big picture perspective, can you expand on, you know, where you see the best returns for Waste Connections right now? And can you remind me what you think Waste Connections' optimal leverage points?
spk15: Sure. Start with leverage first. So, we feel very comfortable sitting in the two and a half to three times And, you know, what we like about that is it provides a lot of optionality. If there's an opportunity for a large outlay, which there isn't in the current environment, you'd take leverage higher. I mean, mathematically, it takes a lot to drive our leverage above three times, so it would have to be a really big deal, but it's nice to have optionality. And in the meantime, we maintain access to low-cost capital by retaining our investment grade rating. which we want to adhere to. So that's just one data point regarding leverage, and we sit right in the middle of that range at 275 right now. With respect to capital deployment and the best returns, if you think about with over a billion in free cash flow after paying a dividend, which has grown double digits for the last dozen years, We have a tremendous amount of flexibility to not only reinvest in the business, which is what most of our CapEx is. You know, across this industry, you're running 10%, 11% just in replacement capital and building out your landfills. And then, of course, we're also investing in, you know, opportunistically in projects like RNG, which, you know, when we think about the best returns, we'd say those are great returns. Certainly, we're in an environment where we can be opportunistic given tax credits. And so, you know, when we look ahead, next year will be a big year for CapEx. We mentioned that in the prepared remarks, about $120 million in CapEx is what we'd expect for R&G. And we'll continue to make those outlays opportunistically. But we're really not limited. And so that's why, you know, I started with where we sit on leveraged. and how much of our CapEx is reinvesting in the business, we feel really good about where we sit and continue to have a lot of optionality.
spk10: And Brian, I would just add that, and Marianne said it without stating it directly, look, our best return of discretionary capital is an appropriately priced strategic M&A that meets our market, our financial, and our operating criteria. I mean, that is how we have built the valuation we have over 25 years. That's how we'll continue to build it going forward. And so, you know, that's what I think you've seen from us and you'll continue to see from us.
spk14: Got it. Thanks for that detail.
spk02: If I can maybe just follow up on the M&A outlook. Can you just provide a little bit of detail on where your pipeline maybe stands right now? Would you say it's as full, less full, more full than it was maybe one or two years ago? I know you're targeting fairly kind of niche markets, but you've always been able to find deals. Just a little bit of detail on the pipeline and the outlook. I'll turn it over. Thank you.
spk10: Sure. Yeah, as you may or may not know, Brian, we obviously don't provide, for obviously sensitivity and proprietary reasons, any real great detail on the M&A pipeline. But what I will tell you is pipeline is very full. There's a lot of LOIs in an offer stage. There's a number of LOIs in a final negotiating stage. and we feel very comfortable about, as we look out over the next several quarters, what our M&A cadence will be. Look, relative to, I'm just using a year ago, a year and a quarter ago, we're lower than that in the pipeline, but you have to understand that was a very unique period. You were coming out of two years of a pandemic, coming off of hyperinflation, There was a number of, you had very low interest rates, a number of catalysts that made more than normal private sellers who had sort of pent up demand from the pandemic look at doing something with their business because they had been on the sidelines. So I think you have to look at, you know, sort of 22 as a little bit of an anomaly. So it'd be misleading to tell you our pipeline is equitable to where it was in 22. But relative to sort of historical norms, it is above those and continues to be. And it's a broad-based mix of collection and disposal, all solid waste opportunities across our footprint in both the U.S.
spk13: and Canada.
spk14: Makes sense. Thanks a lot for the detail. I'll turn it over.
spk12: The next question is from Michael Hoffman of Stiefel. Please go ahead.
spk05: Thank you very much. Can we talk about price and trend? So inferred in the four-year guidance is you're maintaining the 9.5. And if I follow the trend on restricted 7% and 2Q, Aren't we resetting at a higher number unrestricted in the second half, given 2022's inflation was 8.9? And so that sets up, you don't need a big reach on open market to hit the 9 that you're giving in the 3Q outlook. Am I thinking about that correctly?
spk15: The way I'd encourage you to think about it, Michael, is that coming into the year, we basically know what the price increases will be on the 40% of our business that you're referring to where there are those contract resets. And that's been factored into what we're communicating for our full year numbers. And most of those price increases, yes, there's some that reset in middle of the year and that influences those numbers, but the majority of our price increases more broadly happen early in the year. And so that really determines the overall number. There's a little movement over the course of the year. The bigger factor in driving the cadence on a reported basis, was as we mentioned in prepared remarks, you've got a few things happening. One is the rolling off of outside price increases that we did last year in the face of accelerating inflationary pressures earlier in the year. And then also just the math on the denominator getting bigger, which is why on a reported basis our core price steps down. And then, of course, you've got kind of the noise of the good news on fuel, having fuel surcharges come down. So that's how I'd encourage you to think about it. It's around seven in those contract, those CPI-linked markets. It doesn't move dramatically in the back half of the year. And, again, the denominator gets bigger, and so the number comes down a little bit.
spk05: Okay, fair enough. But you've trended ahead of your budget on open market. You've retained better.
spk15: Yeah.
spk05: So is there any –
spk15: We'd say pricing is playing out about as we expected, Michael. We feel really good about the visibility we had on pricing coming into the year. We said last quarter we already had about 85% of it locked up, done, or known, and so we're even above that now. So we'd encourage people that 9.5 is a pretty good number for the full year.
spk05: Okay. What's the – OCC at 75 in your model is – above RISD, which is at 50. So there's two questions here. What are you able to do differently than the underlying RISD? But more importantly, you made a comment that normal recycling. What OCC price equals normal when we think about normal recycling and margins?
spk15: Well, so a couple of things. I think we all talk about what we see in our book of business, which is influenced by geography and other dynamics. And so, you know, when we talk about lows of maybe $50, that might have been Lyft or Rizzi pricing in the high 30s. So it's tough to compare, but we're always running above. Now, I do think In addition, we benefit from doing some things to make sure we're maximizing the value of our commodities. By the way, we have a national marketing agreement where we're taking advantage of volumes and consolidating. And also, we're seeing the benefit of the improved quality coming out of our facilities where we're using robotics. And, you know, they're for decreasing contamination coming out the back end of recycling facilities. So I would say those influence what we communicate as what the numbers are. I think so it's all relative to expectations early in the year. And we're about 20% above where we were when we exited last year. And that's what's factored into what we've guided for for the full year.
spk10: Right. Michael, I would. Oh, go ahead, Brian. Sorry. Good. No, no. Yeah. I mean, everything Mary Ann said is spot on. I would tell you, you know, what do we think? We think somewhere in that 110 to 120 is sort of a you asked what is a normalized. I call that a normalized, you know, OCC pricing. And that's how you get to what we're saying. We're, you know, down year over year. Obviously, it peaked well above those numbers in the 160 to 200 range. So we're not saying that, but that's sort of what we're calling more normalized. And also, you have to recognize, Michael, so much of our commodities in our model comes off of one of the two coasts. I know most people do. But there you've got transportation advantages to markets that you don't have when you've got a lot of your volume in the Midwest and the South. And so that gives you some spread to the RISD pricing as well.
spk05: Okay. And then big improvement in labor turnover from year end to now. Your best in class periods were sub 20%. In the challenges of the current labor world, is that possible again?
spk10: Yeah, you know, I think it is, Michael. Obviously, that's a high goal, a high bar, but we're going to hold ourselves to that high bar. You know, I say I think certainly getting into the mid 20s. uh first and then working our way down uh from the mid-20s down to that 20 or below level is is the goal our goal is to get it into the mid-20s by the early part of next year or the mid part of next year uh and then work it down from there uh there's a lot of uh there's a lot of components that go along to that from from sourcing to onboarding to you know, supervision to equipment, to everything. There's just so many things that you have to fine-tune to get those numbers down a point at a time once you get down to that 23% number or so. But yes, it is achievable, and we're going to hold ourselves to that. I would also say, Michael, you know, what we really focus on is, look, if you're at 20% 3%, just pick a number. How much of that is involuntary versus voluntary? As long as that involuntary number is somewhere in that 40, 50% range, we're not as hung up on what turnover is because that means we're making proactive decisions, most likely about safety on employees who are not going to make it and are going to cause a bigger issue. You know, we could bring turnover reported down to, you know, 23% today if we backed off the involuntary. So you got to understand that as long as we're going to hold our standard to where almost half of that we're making proactive decisions, really that voluntary number is dropping to 10 to 13% when you get to 23%.
spk05: Got it. And then you've shared with us a couple of self-help things like twice volume, equals 30, 40 basis points. Labor spread over two years. This is what we just talked about. It's another 40, 50. What about repair and maintenance and fleet age and getting fleet replacement? What's that opportunity?
spk10: Yeah, I mean, that is clearly an opportunity, Michael, and that's a function of several things. Look, part of the turnover issue is also in technicians, and when you're down technicians, just use the same percentage, 20% to 25%, you're sending a lot of repairs outside that you don't have the manpower to do inside. Instead of something being a $10,000 to $12,000 internal cost, you're turning it into a $30,000 to $40,000 external repair. So when you're properly staffed, you're going to see improvements in repairs and maintenance, particularly outside repairs. You're also going to see less breakdown maintenance because you're more proactive on your PM maintenance. And breakdown maintenance is always two to three times more expensive than preventative maintenance. So, you know, look, I think there's a pick a number, a 20 to 40 basis point in the whole variable repair and maintenance equation between outside repairs and internal repairs. And that's also a function, Michael, of your CapEx replacement schedule happening on schedule, which is continuing to improve, but will probably continue to be delayed some units throughout probably mid to late 24 from what we're hearing from manufacturers at this point.
spk05: Okay. Thank you very much.
spk12: The next question is from Kevin Chang of CIBC. Please go ahead.
spk06: Hey, thanks for taking my question. Congratulations, Joe, on the new title there. Maybe if I could ask the arrowhead question this way. If I look at your segmented results, you know, your lower margin segments on the eastern and mid-south and the new mid-south segments that you started to disclose, does arrowhead dramatically change how you look at the profitability of those two segments over time? Does this asset help result in some convergence between those two segments versus what you see in some of the other markets?
spk10: Yeah. I mean, obviously, if you can integrate a market, Kevin, you're going to pick up that internalized margin on disposal that was going external. So it obviously is going to help improve the margin without question. It also, more importantly, improves your competitive positioning and sustainability of margins in a market area over a longer period of time. So that's why it is so important. You got to also remember, Kevin, when you look at this, that the Northeast in particular is always, for the most part, taken as a whole. going to be a lower margin profile business because of the pricing of disposal. You're talking about a market that is 80 to $130 a ton, pick 100, 110 as a midpoint, comparing that to a Midwest or a South that might be 30 to $45 a ton. So you've got an inflated revenue number because of disposal, in your collection system, in your revenue, and therefore attaining the same EBITDA margin is that much more difficult. So if you look at a company based in the Northeast, like Casella, you've seen a historically lower than someone not based in the Northeast public company margin, and that's a reflection of the market area as much as anything else. So, you know, are we going to raise the northeast margins to, you know, the Canadian or the west coast margins? Well, most likely not because it's not structurally possible. But it is structurally possible to raise it from where it is. And Arrowhead will absolutely help that.
spk06: That's great, Collar. And again, you kind of noted this in your previous response, just the constituents of what's in revenue impacts the segmented revenue in terms of the cost structure of those individual regions. But if I look at it simplistically with the new Mid-South segment, let's say you're running, at least if I look at the most recent quarter, roughly $100 million in revenue quarterly below maybe the second segment. smallest region in the U.S., excluding Canada here, so let's call it $400 million of annualized revenue. Is the argument or is the perception here that the Mid-South can grow to the size of some of your other U.S. segments, so that's kind of the opportunity in front of the Mid-South, whether it's through M&A or outsized organic growth, that you can close a gap from an overall top-line perspective here in Canada?
spk10: Yeah, good question, Kevin. So first off, let me explain how we think of our regional alignment. So we think about it not just in terms of revenue size. We think about it in terms of employee size. We think of it in terms of geography. and our ability to get within that geography, either over the road or via other mechanisms, because our regional staff has to travel and cover that. We think of it in terms of waste flows, how it flows within a geography. And then we think of it in terms of forward-looking M&A opportunity and growth. So you can't look at a region and say, well, this region's annualizing at a billion dollars and another one's at two billion, so they must think that region can go from one to two. That would be a misleading way to characterize the way to think about it because that is only one factor. We may have close to the same number of employees that are in a billion-to-billion-two region that are in a $2 billion region because of the price of disposal, because of other things. So we – and the Mid-South, if you look at Tennessee, Kentucky, Alabama, you know, more rural states, you're covering a lot of geography. And so you have more people. You also have a lot of more residential business. So you've got more people employed through that. So it's a complex way to tell you how we think about what goes within a region. Does the Mid-South have tremendous growth opportunities? Absolutely, we believe it does. Just look at those states. But should you think about it as getting to the size of the Southern or the Eastern region in time? That might be a little misleading.
spk06: That's a great call. Thank you very much, and congrats on a good quarter there.
spk12: The next question is from Jerry Revich of Goldman Sachs. Please go ahead.
spk08: Yes, hi. Good morning, everyone. Good morning, Jerry. Ron, I'm wondering if you talk about how much the Alabama acquisition expands your potential M&A pipeline with companies that fit the waste connections mold given how much that asset can be scaled.
spk10: Yeah, I mean, Jerry, again, it'd just be a guess, and I don't want to do that for you or anyone because I don't know that exactly. We don't know that exactly. But look, if you look at our Massachusetts and our Rhode Island market as an example, prior to yesterday's announcement, those were non-integrated markets for us. They are now integrated. We can take most of our mass and our Rhode Island market to the Arrowhead landfill through our network as of today. So, you know, that gives you an idea that there's opportunities within those states, surrounding states that we are not in and some we are in, where there's more M&A opportunity today than there was, you know, a few days ago. What that exact number is, is I don't know yet, Jerry. I think as we go forward in a couple of quarters and have greater understanding, we could give you something more clarified. But suffice it to say that it gives us opportunity that some of which we had passed on, okay, because we weren't sure if we could become integrated. Remember, our whole model is we're either going to be an exclusive market where we have a franchise or similar agreement, or we're going to try to create a de facto asset franchise through asset positioning within a market. And in a competitive market, if you are long-term disposal disadvantaged, you're not going to create that de facto asset franchise. So there were markets that we were sort of self-shutting out of consciously that we now can revisit. So that's how – why we say it is strategic.
spk08: Super. And can I probably just expand on the point of becoming – vertically integrated in the existing markets. I mean, in some of those areas, there's local disposal options that you're currently flowing through. They're just more efficient than shipping all the way to Alabama by rail. So can you just expand on that point in terms of the plan? So is this really taking a view of disposal capacity five years out in those markets? Can you just expand on that? Because I know you folks aren't running rail cars for practice. You want to make sure you're getting really good returns on those investments.
spk10: Yeah, absolutely, Jerry. And look, you know, we have not said this is going to, we're going to take all of our Northeast market to Arrowhead by any means. There are, you know, each of our markets within a market area are niches that some of them have local municipal disposal. Some of them are flowed to local municipal disposal. Therefore, we can't do anything. That's always going to go there. Some of them, disposal, it makes more sense economically and return basis to go there. We're going to look at that. But to your point in your comment, understand that many parts of the Northeast are an $80 to $130 market. Pick $100 as a midpoint just for conversation. You can move waste on rail a long ways at $100 a ton. So unless there's a contraction in disposal pricing along the Northeast, which we don't project, by the way, if it happened, it doesn't hurt us. That helps us on a collection basis. You're going to continue to see us move waste to where it makes the most economical return basis. And so we've taken a very hard look at this. You've got diminishing disposal capacity along the Northeast. You're going to continue to have an upward bias on price throughout the Northeast as disposal lives contract. So I think, if anything, you're going to see waste continue to move outside of the Northeast and longer distances.
spk08: Super. I appreciate the detail. Andron, can I truly just update us on how the landfill gas developments are tracking and, you know, as we think about when they start flowing through and obviously contributing to margins, any update on the timing and the cadence given the moving pieces in the industry, not only from project timing but getting EPA certified and, you know, other moving pieces that are essentially delaying some players in ramping up capacity utilization?
spk15: Yeah, Jerry, we'd say the update is our projects are on track. They're in line with our expectations. We said there were a couple that should be online by the end of this year that they would then layer in over the next couple of years. And we've talked about that $200 million in annual EBITDA by 26, and there's no change to that outlook.
spk14: Well done. Thank you.
spk12: The next question is from Noah Kay of Oppenheimer. Please go ahead.
spk16: Thanks for taking the questions and appreciate the thoughtful responses today. And I just want to do a little bit of housekeeping to clean these up. You know, first, just to level set on where we sit today on turnover and if you can disaggregate into voluntary versus involuntary.
spk10: Sure. I can do so. So we peaked in turnover at the end of Q4 of 22 at about 35%. We brought that down by the middle of Q2 to about 30. And we have decreased that further to just under 29% at the end of Q2. We are tracking below that as we head into Q3 of 23. And I would project that to be, you know, by the end of Q3, a point or two lower at the end of Q3 than where we ended Q2. We peaked at the End of Q4 of 22 at about 1,900 open positions or about 8% of headcount. We are currently, we ended June at about 1,200 open positions or about 5% of headcount. And I would project by Q3, we would get that into the 1,100 position. maybe just below range, getting that into the 4.5% range. A 4.5% is a very comfortable number. Optimal, in my mind, is 3.5%. You know, you're always going to have some. You're going to want some. That's your involuntary that you're making decisions on. But if we can get to that 3.5% open positions over the course of the next six, eight months, We'd be very happy. There's a material difference running seven, eight percent of open head count versus three and a half or four.
spk16: Very helpful. Thanks. And then just remind us how much you're spending this year in CapEx on RNG and new recycling facilities, and did that number change at all in the $25 million higher CapEx guide?
spk15: No change in the higher guide. So this year, total for 23, the expectation is around 45 million for RNG and another 25 for recycling facilities for a total of about 70. And I mentioned earlier, it steps up, the expectation is the RNG spending steps up in 24, probably 125 million, somewhere thereabouts.
spk16: Okay, so there's an $80 million step up on RNG and recycling. Is that kind of flattish for next year, or are those investments rolling off?
spk15: I think those are rolling off next year, or maybe a nominal amount in 2024.
spk16: Okay, so net-net, that's like a $55, $60 million increase in total capex above and beyond what you normally spend.
spk14: Yeah, that's terrible.
spk16: And then on Arrowhead, you know, look, I don't know if transformative is the right word, but this is extremely significant for your operations east of the Mississippi. And there are a lot of peers, you know, with northeast and east coast, you know, operations. I imagine this network would be valuable, too. So can you maybe just talk a little bit about how these assets came to you? You know, why Waste Connections?
spk10: Well, sure, we can certainly try. Obviously, somewhat of that rests in the answer from the sellers, but we can tell you what we understand. First off, these assets came to us because we went after these assets. This was not a shopped transaction. This was not a marketed or brokered or auctioned transaction. We began pursuing over a year, almost a year and a half ago, intimate discussions with the ownership. And we accelerated those throughout the course of this year, heading into Q2. So this was something that was targeted, sort of a rifle shot, I would say, by us. And it was proactively taken off the market by us in that manner. So that's how it happened. Why us? I think the sellers would tell you. Obviously, they felt there was a fair economic transaction, but I think they felt our ability to develop and really turn the entire network into their dream of what it can become. They had a high degree of confidence in our ability to execute on that. And I believe that's why they would tell you that they chose us, as well as what they felt was a cultural fit for their employees and their leadership who is staying with us. So I think those would be the major reasons.
spk13: Nice. Okay, thank you for the caller.
spk12: The next question is from Toby Summer of Truist. Please go ahead.
spk04: Thanks. I'm just wondering if you see the decline in open recs and voluntary turnover as attributable to sort of changes in the labor market, external market-related changes, or your own internal actions? I'm not sure if your internal actions have already yielded results or are sort of more on the come.
spk10: Yeah, I mean, that's a fair question, Toby. I would tell you that I think our internal actions are more on the come. I think we've had some impact But, you know, that would be misleading to take, you know, 50 percent or more of the credit internally. That would be inaccurate. I think as we get six months out from now, that will be much more impactful internally. And I do think it is a function of the labor market easing somewhat, although, you know, as we've said, that continues to remain tight. but definitely is not where it was in Q4 of last year or Q1 of this year. We've definitely seen that. So, you know, well, if I had to put a number, I'd, you know, say it's 75% the market, 25% us. I mean, I'm just estimating at that. But it's clearly, you know, more external than internal right now. That will pretty rapidly flip.
spk04: Great. I appreciate that, Colin. Just one other question on pricing, and then I'll be done. Do you expect the difference in relative price increase in your sort of West Coast markets versus competitive markets? Do you expect that spread to be relatively stable, or do you have an expectation for a widening or contracting in that difference?
spk15: Well, that certainly will be a function of where inflation ultimately settles out, which dictates real-time prices. or even forward looking what price increases happen in the competitive markets and influences that spread. And of course, in the CPI linked markets, it's a look back, right? So those dynamics will dictate that. You know, we know that we'll continue to get the benefit of higher CPI prints coming into this year in the pricing for next year as we look ahead in those CPI linked markets.
spk11: The next question is from Stephanie Yee of JP Morgan. Please go ahead.
spk09: Hi. Good morning. Thanks for all the color on the employee retention. I was wondering if you can provide some color on the customer side, just given the price increases that have been put forth and, yeah, what you're seeing from your customers from a retention standpoint.
spk10: Sure. Well, what I would tell you is that our retention continues to be good. We continue to hold sort of in that 85% plus of our price increases that we did early in the year. Anytime we can get into that range, it tells us our retention is good and that we haven't quote, exceeded the market, if you will. There are markets where, you know, that's not true, but overall it is. You know, customers, you know, they are experiencing, have experienced significant inflation in their business. And we tend to be a very small part of a business's and, of course, a household's monthly expenses. So, you know, although... 10%, 12% is a big number. When you're talking about it on a $30 residential bill or a $200 commercial bill, you're talking about smaller numbers, $3, $4 numbers on a residential a month or $15, $20 on a commercial bill. That pales in comparison to the increases that they get on their large expenses that are going up at that same 10%, 12%. So I would tell you customers are seeing input costs from all sectors that have been very high. And so we are, if you will, in line with what they're seeing from their service providers. So customers never want to see, which is understandable, their rates increase. And that always drives some tension in that relationship until you can get beyond the immediacy of it. And again, if you're providing service quality, then that makes the acceptance of that rate increase a lot easier. If you have service quality issues, then obviously a customer has a very legitimate reason to push back on your rate increase. So we have a heavy focus on service quality. That's a never-ending battle. But the better our service quality, again, a reason to drive down retention and turnover, improve retention and drive down turnover, the easier it is to retain price.
spk09: Okay, great. That's very helpful.
spk11: Thank you so much.
spk12: The next question is from Harold Antor of Jefferies. Please go ahead.
spk07: Hey, hello. This is Harlan for Stephanie Moore. Just wanted to ask if you could talk about any tech or software automation investments that the company may make in areas you think need attention as you look into the back office for the rest of the year.
spk10: Sure. It was a little hard to hear. I apologize. But I think your question was about investments in software the company is making in the back half of the year. And, you know, Harold, we have made an investment in our entire recruiting platform software that we brought online in July, which is a significant enhancement to what we had been doing up until then. And that is probably most significant. You know, we also have made significant investments in the telematics that are coming out of our truck system. for both real-time safety, productivity, and customer satisfaction. So, you know, but these are all, you know, the way we think about these, these are all normal course investments that we make year in and year out, sort of in a continuous improvement process. There is nothing that is significant that we're calling out in our expense or our CapEx about this. because it's just all normal course.
spk14: Thank you for the call.
spk12: This concludes our question and answer session. I would like to turn the conference back over to Ron Middlestaff for closing remarks.
spk10: Okay. 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 Ann and Joe are available today to answer any direct questions 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 seeing you at upcoming investor conferences or hearing from you on our next earnings call.
spk12: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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