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By the numbers
Q2 net income: $209.2M
Down from $224.1 million in Q2 2022
Annualized revenue from 2023 solid waste acquisitions: $160M
Includes $100M from acquisition of Alabama-based Arrowhead, including its rail-served MSW landfill
- Economic outlook: “We are extremely pleased by the strength of our operational execution during the quarter,” CEO Ron Mittelstaedt said during the Q2 earnings call on Thursday. He attributed the success to positive solid waste core pricing growth of 9.8%, strategic “shedding” of solid waste accounts that weren’t performing and other factors that helped overcome industry-wide headwinds such as low recycled commodity values and inflation. If this economic picture continues through the rest of the year, the company could end 2023 with close to a 32.5% adjusted EBITDA margin, he said.
- Arrowhead acquisition: Waste Connections announced the acquisition of Arrowhead Environmental Holdings, a $100 million revenue deal that “will be one of our most strategic assets in the company,” he said. Arrowhead, described as the largest integrated waste-to-rail disposal network in the Northeast U.S., includes a 1,400 acre rail-served MSW landfill in Alabama that can take about 3,500 tons a day, Mittelstaedt said. It’s also served by multiple transload facilities in Connecticut, Massachusetts, New Jersey and Florida. The acquisition automatically opens Waste Connections up for opportunities to integrate markets it previously hadn’t, such as Massachusetts and Rhode Island, as well as open up numerous M&A opportunities, he said. Waste Connections had been pursuing Arrowhead for several years, he said.
- Other M&A activity: So far this year, Waste Connections has closed acquisitions with over $160 million in annualized solid waste revenue, and Mittelstaedt expects the rest of the year will be “above average” in terms of activity, with several solid waste deals representing “a broad base of collection and disposal” in the offer stage and others in negotiations, he said. Acquisitions completed since this time last year have contributed about $122 million in revenue in Q2, said CFO Mary Anne Whitney.
- Volume: Solid waste volume was down 1.9%, which Mittelstaedt said reflected “intentional shedding of lesser quality accounts” and the decision not to renew certain municipal contracts. Some of that shedding also came from recently-acquired operations. “We consider this pruning to be integral to our disciplined approach to growth,” he said. Special waste volumes were down 7% year over year due to “reduced or delayed” projects, he said.
- Employee retention: Waste Connections is working to improve its employee retention rate, which it sees as a way to also improve safety. Mittelstaedt expects about 1,100 open positions by Q3, which is about 4.5% of headcount. That’s down from a peak in 2022, when about 1,900 positions were open. The company aims to improve retention by investing in technology and by “exploring alternative approaches to improving the flow of qualified candidates, including through driver and technician training facilities,” he said.
- Revised outlook: Waste Connections has revised its outlook to reflect lower estimated revenue of $8.025 billion, down $25 million from its original outlook. That’s due mainly to a $35 million reduction in fuel and material surcharges because of lower fuel costs, Whitney said. Waste Connections now estimates it will spend $950 million on capital expenditures, $25 million more than previously expected. Adjusted EBITDA is estimated to be approximately $2.525 billion, up from $2.5 billion. Net income is estimated to be an $931.0 million.
