Waste Connections Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 14, 2024

There are 13 speakers on the call.

Operator

Good morning, everyone, and welcome to the Waste Connections Inc. Q4 2023 Earnings Conference Call. All participants will be in a listen only mode. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Ron Mittelstaedt, President and CEO.

Operator

Sir, please go ahead.

Speaker 1

Okay. Thank you, operator, and good morning. I would like to welcome everyone to this conference call to discuss 4th quarter results and our outlook for both the Q1 and full year 2024. I'm joined this morning by Mary Anne Whitney, our CFO and several other members of senior management. As noted in our earnings release, Adjusted EBITDA margin expansion of 200 basis points in Q4 capped off a remarkable year for Waste Connections driven by solid execution and continued improvement in operating trends.

Speaker 1

Solid waste organic growth led by 8.7% core pricing was bolstered by improvements in commodity driven revenues during the quarter providing momentum for 20 acquisition activity also accelerated into year end as we announced the acquisition of the US225 million dollars revenue E and P waste disposal oriented assets of Secure Energy in Western Canada, which has closed as of February 1, bringing expected 2024 revenue contribution from acquisitions to approximately $325,000,000 with incremental dialogue Ongoing. Looking at our differentiated results during the full year 2023, we delivered 70 basis points adjusted EBITDA margin expansion after overcoming 60 basis points in headwinds from recovered commodity values to report an industry leading margin of 31.5%, Double digit growth in both revenue and adjusted EBITDA from price led organic solid waste growth and outside acquisition contribution, along with disciplined execution and focus on the quality of revenue, drove adjusted free cash flow of $1,224,000,000 or 15.3 percent of revenue, in line with our outlook. Both employee turnover and safety incident rates exited 2023 at multi year lows setting up 2024 for continued improvement in trends along with the opportunity for outsized margin Before we get into much more detail, let me turn the call over to Mary Anne for our forward looking disclaimer and other housekeeping items.

Speaker 2

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.

Speaker 2

Factors that could cause actual results to differ are discussed both in the cautionary statement included in our February 13 earnings release and in greater detail in Waste Connections' filings 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 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.

Speaker 2

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 may calculate these non GAAP measures differently. I will now turn the call back over to Ram.

Speaker 1

Thank you, Mary Anne. 2023 was a remarkable way A remarkable year, excuse me, in many ways, and we recognize that there were some unanticipated changes. What didn't change, however, was the dedication and accountability of our local teams, who consistently demonstrated their commitment to the customers and communities we have the privilege to serve. Similarly, we renewed our commitment to a decentralized operating philosophy and servant leadership culture, both of which have served to differentiate Waste Connections and drive industry leading results. As we have indicated, we are When adjusted EBITDA margins expanded to an average of 32.4 percent with Q4 margin expansion of 200 basis points year over year.

Speaker 1

During 2023, employee retention improved by over 20% with a reduction in open positions of over 40%. Most importantly, we also achieved a reduction of over 7% in safety incident rates with over 60% of our operating locations showing improvement or 0 safety related incidents during the year. Virtually all of this improvement occurred in Q3 and Q4, providing momentum into 2024. We delivered core pricing of 9.5 percent and expanded margins by 70 basis points to report adjusted EBITDA margin of 31 point 5% for the full year of 2023. Excluding 60 basis points margin drag from lower commodity values, Underlying margins expanded by 130 basis points during the year, reflecting our focus on revenue quality as well as the impact of abating cost pressures and the improving trends in retention and safety, all of which contributed to the accelerating margin expansion in the second half of twenty twenty three.

Speaker 1

Looking ahead, 2024 is set up for continued outsized margin expansion from reduced turnover and the unrealized cost benefits of improving risk along with moderating cost inflation. We delivered adjusted free cash flow of $1,224,000,000 in 23, converting over 48% of adjusted EBITDA to adjusted free cash flow, in line with the increased outlook we provided in August and more than overcoming unanticipated site specific closure related impacts at our Chiquita Canyon Landfill in Southern California. Regarding the elevated temperature landfill event or ETLF at Chiquita Canyon that we have described on our last earnings call in October, We are encouraged by our ongoing progress. We continue to work with the community and other stakeholders as we manage the ongoing impacts from the underground reaction occurring in a closed portion of our landfill, including the associated leachate generation. As indicated would be the case In the additional disclosure we provided in November, we reported an increase of approximately $160,000,000 to our landfill closure and post closure liabilities in Q4 to address and mitigate the ETLF impacts, which are site specific and non recurring in nature.

Speaker 1

During 2023, we incurred approximately $21,000,000 in related costs, slightly below our estimates due to the timing of outlays. Based on current engineering estimates and the projected timeline with the expectation for leachate generation rates to peak later this year, The outlays for 2024 are expected to be approximately $75,000,000 which is included in our outlook for adjusted free cash flow as Mary Anne will more fully describe. Looking next at acquisitions. In 2023, We closed over $215,000,000 in annualized revenue from 13 acquisitions with activity across our footprint of franchises and competitive markets, including integrated markets, new market entries and a number of tuck ins to existing operations. Additionally, on February 1, we closed the previously announced acquisition of Secure Energy's E and P waste disposal oriented asset divestitures in Western Canada.

Speaker 1

Together with the rollover contribution from deals completed during 2023, this already sets up expected 2024 acquisition contribution of over $325,000,000 with a robust pipeline of solid waste opportunities coming in ensuing quarters. On top of Secure, 2024 is set up for an outsized M and A year in our core solid waste business. Stay tuned for the next few quarters. Additionally, we are encouraged by recent movement in the franchise process in New York City, where we have been awarded the right to compete in 12 commercial zones plus citywide compactor service. We look forward to seeing continued progress this year beginning with a pilot project slated for Q4.

Speaker 1

As we've noted, Recent acquisition activity in the Northeast, including rail access to our Arrowhead landfill in Alabama, has created greater optionality for disposal in many markets expanded the potentially addressable market for acquisitions for us. That said, there is no change to our disciplined approach to acquisitions, Our focus on market selection, the risk profiles we accept and the valuations we determine to be appropriate. Ending 2023 with leverage With approximately 2.6 times debt to EBITDA and liquidity of over $1,500,000,000 our balance sheet strength and free cash flow profile provide flexibility For continuing elevated levels of investments in our organic solid waste growth story, along with renewable energy projects and solid waste acquisitions, while also increasing our return of capital to shareholders. To that end, during 2023, We increased our quarterly per share dividend by 11.8 percent to return over $270,000,000 to shareholders through dividends, And we invested approximately $1,700,000,000 in capital expenditures and acquisitions to reinvest in our business and position ourselves for future growth. And now I'd like to pass the call to Mary Anne to review more in-depth financial highlights of the Q4 and provide a detailed outlook for Q1 and full year 2024.

Speaker 1

I will then wrap up before heading into Q and A.

Speaker 2

Thank you, Ron. In the 4th quarter, revenue of $2,036,000,000 was up 100 and $66,000,000 or 8.9 percent year over year, bringing full year 2023 revenues to 8.022 and up 11.2% year over year. Acquisitions completed since the year ago period contributed about $53,000,000 of revenue in or about $51,000,000 net of divestitures, bringing full year net acquisition contribution to $407,000,000 Core pricing in Q4 was 8.7% and range from about 7% in our mostly exclusive market Western region to be between about 8.5% and over 10% in our competitive markets. Fuel and material surcharges were negative basis points in the quarter on lower fuel costs. Solid waste volumes in Q4 were down 2.3% and continue to reflect our shedding of poor quality revenues and the nonrenewal of municipal contracts, as well as a purposeful trade off price and volume in some markets.

Speaker 2

Additionally, in Q4, they reflect tough comparison to the prior year's hurricane related activity in Florida And in Texas, the diversion of waste from our Sea Breeze landfill, where we imposed temporary operating limitations while completing certain repairs. Those diversions concluded at the end of January. Looking at year over year results in the 4th quarter on a same store basis, Roll up pulls per day were about flat and total landfill tons were down about 1% with MSW flat, special waste up 2% and C and D waste down 9%, due primarily to last year's hurricane related volumes as noted. Adjusting for those impacts in Sea Breeze, total tons were up nominally year over year. Adjusted EBITDA for Q4 is reconciled in our earnings release was up 16.4% year over year to $656,000,000 or 32.2 percent of revenue and included an impact of about $5,000,000 from the waste diversion and repairs at Sea Breeze noted earlier.

Speaker 2

Excluding this 20 basis point impact, our adjusted EBITDA margin was up 220 basis points year over year, primarily from underlying solid waste margin expansion. As Ron noted earlier, our Q4 results reflect an adjustment of approximately $160,000,000 to increase our closure and post closure liabilities for the expected outlays to address the EPLF impacts at Chiquita Canyon projected primarily during 2023 to 2025. Therefore, while there was no impact to adjusted EBITDA, our 2023 adjusted free cash flow outlays for site specific operating capital outlays to address the ETLF impacts totaling over $21,000,000 In spite of those incremental outlays, our adjusted free cash flow of $1,224,000,000 or 15.3 percent of revenue was in line with our expectations for the year and reflects 48% conversion of adjusted EBITDA. Capital expenditures of $934,000,000 reflect a similar amount of fleet purchases slipping to 24 as we saw in the prior year. Additionally, they include about $40,000,000 associated with renewable natural gas or RNG facilities under development.

Speaker 2

As discussed on prior calls, our sustainability related projects include about a dozen RNG facilities, Strategic investments with a variety of ownership structures. Aggregate capital outlays through 2025 of approximately $200,000,000 are expected to generate an estimated $200,000,000 of incremental EBITDA by 2026 or about $1 of EBITDA per $1 of CapEx. The outlays for RNG projects step up in 2024 to approximately $150,000,000 which has been factored into our 2024 outlook, which I will now review along with our outlook for Q1, 2024. 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 and the securities commissions are similar regulatory authorities in Canada. We encourage investors to review these factors carefully.

Speaker 2

Our outlook assumes no change in the current economic environment. 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 the full year 2024. Revenue in 2024 is estimated to increase by over 9% to $8,750,000,000 For solid waste, we expect price plus volume of approximately 4.5% to 5.5%, driven by pricing of 6% to 7% on core pricing of about 7%. About $325,000,000 of estimated revenue in 2024 is from acquisitions closed to date and commodity driven revenues reflect values in line with recent levels, plus nominal contribution from RNG facilities expected to come online during 2024.

Speaker 2

Adjusted EBITDA in 2024 is reconciled in our earnings release is expected at approximately $2,860,000,000 or adjusted EBITDA margin of 32.7 percent, up 120 basis points year over year. Continued moderation in inflationary trends, additional acquisitions closed during the year or increases in the values for recovered commodities or an E and P would provide upside to our 2024 outlook. Depreciation and amortization expense in 2024 is estimated to be about 12 8% of revenue, including amortization of intangibles of about $172,000,000 or $0.49 per diluted share, net of taxes. Interest expense in 2024 is estimated at approximately $280,000,000 and our effective tax rate for 2024 is expected in the range of 23% to 23.5 percent with some quarter to quarter variability. Adjusted free cash flow in 2024 as reconciled in our earnings release is expected at approximately $1,200,000,000 on CapEx of approximately $1,150,000,000 including base CapEx of $1,000,000,000 plus $150,000,000 for RNG project development.

Speaker 2

As Ron noted earlier, our adjusted free cash flow outlook also reflects $75,000,000 for outlays associated with the Chiquita Canyon ETLF. Normalizing for the outlays for Chiquita and the RNG facilities, 2024 adjusted free cash flow of $1,425,000,000 reflects conversion of EBITDA of approximately 50%. This level is consistent with longer term trends and in line with our expectations for underlying growth in 2025. When we anticipate outlays for both RNG facilities and Chiquita closure will decline by $170,000,000 Incremental tax credits for RNG are not factored into our outlook and would therefore be additive. Similarly, Any restoration of bonus depreciation benefits on a retroactive or prospective basis, including through a tax bill currently under consideration would be additive to the outlook we have provided.

Speaker 2

Turning now to our outlook for Q1 2024. Revenue in Q1 is estimated to be approximately $2,050,000,000 on expected solid waste price plus volume growth of 3.5%, driven by pricing of about 7%. Volume expectations reflect about 1% in incremental temporary volume losses associated with the widespread weather driven closures during January across many markets, particularly on the West Coast. Adjusted EBITDA in Q1 is to be up 140 basis points year over year to 31.2 percent of revenue or approximately $640,000,000 Depreciation and amortization expense for the Q1 is estimated to be about 12.8% of revenue, including amortization of intangibles of about $40,000,000 or about $0.11 per diluted share net of taxes. Interest expense in Q1 net of interest income is estimated at approximately $76,000,000 and the tax rate for the first quarter is estimated at about 23%.

Speaker 2

And now let me turn the call back over to Ron for some final remarks before Q and A.

Speaker 1

Thank you, Mary Anne. We are extremely pleased by our 2023 results and our positioning for outsized growth in 2024. With 120 basis points of adjusted EBITDA margin expansion expected as a minimum, along with upside from continued improvement in recovered commodity values or inflationary pressures as well as any additional activity. We're well on our way towards exceeding The near term 34% EBITDA target we've discussed widely. 2023 was a year of renewal for With the return to our leadership roots to reinforce our decentralized operating model supported by a servant leadership driven culture, We doubled down on human capital, getting back to the basics that are fundamental to implementing the differentiated strategy that has driven our exemplary track record of value creation for 26 years.

Speaker 1

We enter 2024 with continued momentum and well positioned for outsized growth, along with a renewed commitment to sustaining the model that has set us apart. At Waste Connections, we recognize the importance of both relationships and results. Moreover, we believe that not only are they both achievable, but they are necessarily interrelated. We're proud of our results and applaud the local teams who embody the enduring operating values of the company. I want to conclude by thanking our 23,000 employees who work tirelessly to make us better every day.

Speaker 1

In addition, I'd like to officially welcome the approximately 300 employees who are now part of our R360 Canada team who previously were with Secure Energy. We also appreciate your time today, And I will now turn this call over to the operator to open up the lines for your questions. Operator?

Operator

Our first question today comes from Tyler Brown from Raymond James. Please go ahead with your question.

Speaker 3

Hey, good morning.

Speaker 1

Good morning, Tyler.

Speaker 3

Hey, Ron. Hey, Mary Anne, actually thank you for all the detail. But margins here both in Q4 and the outlook are quite strong. I was just hoping if you could maybe walk us through the 200 basis point improvement Q4 maybe walk through the expected improvement for 2024 as well. Just what kind of what some of those key pieces are?

Speaker 2

Sure. Happy to do so. So as I said in the prepared remarks, Q4 was primarily the underlying solid waste business. The way to think about it is about 75% of the improvement was there and the balance in hierarchy would be recycled commodities and then RINs and then a nominal contribution from E and P with a small from M and A. So that's Q4.

Speaker 2

And then looking at the full year, as we said, there were Three factors that would drive the opportunity for outsized margin expansion. The first one being the underlying business and the opportunity for outsized price cost spread and improving retention. And so about half of the 120 basis point margin expansion would be driven by the underlying business. And then the two other pieces would be the accretive benefit of acquisitions with the addition of Secure. So if you think 30 to 40 basis points including Secure and the other acquisitions, which have that mildly diluted impact And then the balance being the tailwinds from recycled commodities and RINs, which would be the smallest piece, but on the order of say 20 to 30 basis points.

Speaker 3

Okay. And then Ron, I appreciate the update on turnover and safety. So in that core improvement in 2024, are you assuming That, that turnover in safety remunerates to margins? It sounds like yes. Because I think you said last quarter, it takes a few months for that to kind of show up in the margins.

Speaker 3

I just want to be clear if that is in the expectation or not?

Speaker 1

Yes. So we've got to separate them a little bit, Tyler. So I would say that Certainly, turnover at this point is impacting our cost structure and we're starting to see favorably impacting our cost structure. We're starting to see some of the costs come out of the 100 basis points we've talked about in areas of labor, variable, other operating, etcetera. There is a lag effect on seeing the cost benefit from the risk reductions.

Speaker 1

So that actually is not factored into 2024. So as we continue to have risk reductions, we will get that benefit as we come through 'twenty four into 'twenty five, but that is not in the 'twenty four guidance. So this margin improvement is without seeing the benefit of that risk in the actuarial tables at this point.

Speaker 3

Excellent. Okay. That is very helpful. And then I know that there is a lot Moving around in free cash flow. That is very clear.

Speaker 3

Did Marianne, did you say that in 2023 you spent $40,000,000 on RNG? If I add that to the $150,000,000 that would imply that maybe your RNG spend next year will drop To something like $10,000,000 and then maybe to 0 in 2026?

Speaker 2

That's right. Yes. And that's right. The point I made, the $170,000,000 reduction between the two pieces where Chiquita steps down and the RNG steps down.

Speaker 3

Okay. And then my last one here. So it sounds like there's a nominal EBITDA contribution from RNG in 2024, but how will that schedule look in 2025 and 2026. And then Ron, sorry, just to be clear, when you talk about 34, Is that 34% margins, does that include any benefit from RNG?

Speaker 1

Okay. So let's tackle the first part of your question first. Let's start with 'twenty six. We said that for full year 'twenty six, we would achieve $200,000,000 of EBITDA on $200,000,000 of CapEx investment for RNG. A very nominal amount of that contribution, as you've noted, we only outlaid $40,000,000 in $23,000,000 in RNG.

Speaker 1

So a nominal amount of that will contribute in 2024. Use a number of $15,000,000 $20,000,000 of EBITDA for 2024. That will obviously with the CapEx spend in 2024 that will ramp some in 2025 and you'll start to see some more contribution. But the bulk of that doesn't come online till the end of the Q3 or so in 2025. That's why the largest amount is why the full amount is in 26.

Speaker 1

We also are going to be somewhat cautious In guiding RNG, as you are seeing across the board, you have to build headroom in these projects. These local utilities are extremely backed up. There are still supply chain issues for things like transformers, generators, etcetera that they need and they give us a commitment of X And 4 to 6 months later, we're still talking about a hookup. So you have to build a little headroom in there. So that's why I feel comfortable telling you full contribution by 'twenty six and with some more amount coming in 'twenty $5,000,000 then of course the $20,000,000 or so in $24,000,000 So that's a long way around the bend to say Very little to no RNG contribution in that 34%.

Speaker 1

That's why we said there are multiple ways to get there and none of them had RNG in it.

Speaker 3

Perfect. Yes. Thank you for the answer on the double question. Thank you, guys.

Operator

Our next question comes from Toni Kaplan from Morgan Stanley. Please go ahead with your question.

Speaker 4

Thanks so much. Pricing this quarter continued to be strong and you'll lock in most of it by April and you'll have cost inflation moderating. So as we look at margins through the year, should we look at it more as, sort of Better well, I guess, 1H is probably also helped by the safety and turnover benefits that you've been seeing. But like basically, you'll also see that inflation coming down through the end of the year. So I guess in terms of just trajectory of margins, what are your thoughts on that?

Speaker 2

Sure. So the way to think about it, Toni, is pretty similar margin expansion over the course of the year. We already given you Q1 at 140 basis points. We gave you 120 for the full year. But if you modeled in somewhere around 120 for each quarter, a little less obviously in 1 quarter, since we've given you a little more in one, It's the right way to think about it because just to the point you raised, you have a couple of different factors driving it, some of which will lag and some of which will get in the first half of the year.

Speaker 2

Instance, the tail from commodities is greater early than it will be later, but the ability to realize some of those savings and benefits from turnover, for instance, might be further back loaded. And so that's why I think about it as consistent margin expansion over the course of the year.

Speaker 4

Perfect. And then, I guess when you think about the labor turnover initiatives that you've been doing and you mentioned the turnover at multiyear lows. When you think about the rate continuing, are you benefiting from market conditions or is it the initiatives that you were putting in place last year or a combination of the 2 and just trying to get at sustainability of the labor turnover level? Thanks.

Speaker 1

Yes, sure, Tony. Well, so let's start with a little bit of a cadence. So coming out of 'twenty two, we As we came through into Q2 of 2023, that number dropped to about 30%. And as we came through the end of the year, that number dropped to about 27%. These are total turnover numbers And the voluntary turnover number reduced to about 17%.

Speaker 1

I would tell you that the up Through probably mid year, most of the help was the labor market improvement and sort of the second half of the year, Particularly the end of Q3 and Q4, the programs and changes we've made were the incremental part. So I would call it sort of fifty-fifty. Now as we go through 2024 and we plan to drive this number from 27% down to say 22% or below as we sit here from a year from now, That will be 100% driven by what we are doing. And so we've made We've made significant changes in how we onboard. We've made significant changes Sort of the 1st year experience of an employee, supervisor development, there's a whole litany of changes that we have made to improve voluntary turnover.

Speaker 1

We are always going to want to have about 10% to 12% involuntary turnover. That means we are being proactive on people who might not be the best fit, particularly with regard to safety. So to get to that 20%, 22% number over the next year or so, it's telling you that voluntary turnover will get down to 10% to 12%. And we feel very confident in achieving that number. We've been there before, But definitely, we still have some work to do.

Speaker 4

Super. Thanks so much. Congrats on the quarter.

Speaker 1

Thank you.

Operator

Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead with your question.

Speaker 5

Hi, this is Adam on for Jerry today. Thanks for taking my question. I believe Q1 margin guidance of 31.2% translates to margins down 100 basis points sequentially. If we just look at normal seasonality based off recent historical averages, it's usually around 9 basis points sequentially Q1 versus 4Q. Can you just help us understand the Puts and takes versus normal seasonality in Q1, I know weather was one item mentioned.

Speaker 2

Yes, I'd say that's where I would start. There are always idiosyncratic factors that drive the comparability across Quarters and also just keep in mind this is guidance as opposed to what we've reported. And so it's always a little more difficult to get granular to tell you what the specific drivers are, but weather is a factor as we said it's contributing to outsized negative volumes in the quarter. And so I would start there and just that's one consideration that would drive that difference.

Speaker 5

Okay, great. And I was just wondering if we could dive in a little further into the M and A pipeline from here. How active is the opportunity set in the Northeast specifically and what's a good way to think about potential allocation to M and A this year?

Speaker 1

Well, Adam, we never comment on anything that's not done or completed or provide any specifics on what's in our pipeline. And we don't have an allocation to M and A. We sort of have an unlimited finance capacity for M and A That meets our strategic and our financial guidelines. A historical strong year is $150,000,000 to $200,000,000 of acquired revenue. We've already done secure and that's $225,000,000 And in my comments, I said, on top of that, you can assume an outsized year on top of that.

Speaker 1

So it sort of implies that we would do comfortably $150,000,000 to $200,000,000 in acquired revenue minimally on top of secure. So that I think you can figure out from there what in your mind what an allocation would be based on historical valuations, etcetera.

Speaker 5

Great. Thanks so much.

Operator

Our next question comes from Noah Kaye from Oppenheimer. Please go ahead with your question.

Speaker 6

Hey, thanks. Hey, Ron, the New York commercial zoning strikes home for me literally since I'm in the first So as you move through that, I think you commented during prepared remarks that plus The Rail acquisitions seems to be expanding your addressable market opportunity in and around the Northeast. I was wondering if you could just expand on that a little bit and take us through in more detail, how both of those moving pieces increase your addressable opportunities?

Speaker 1

Well, what the New York City franchise opportunity provides is a number of things. I mean, number 1, it provides certainty and sustainability and projectability of the business model in and around New York City, which has had sort of an uncertain competitive footprint for decades. So it really changes the operating and financial metrics of that market for us where we have been more quiet, waiting for to see if this platform came through and, waiting to see whether we were successful in it and achieving it. So now that there's clarity, I think it produces growth opportunities both organically and acquisition wise in and around the market area, number 1. 2, the disposal capacity in the Northeast is constrained

Speaker 3

as everyone knows. We have

Speaker 1

some great assets, disposal assets trained as everyone knows. We have some great assets, disposal assets in New York and up and along the Eastern Seaboard, but we are Effectively at capacity in many of those assets. So we were shipping waste to 3rd party locations And we were not able to take incremental volumes into our sites. What the Arrowhead acquisition did for us is it allowed us to internalize volumes that were going to 3rd parties. It also allowed us to pull volumes out of our Northeastern facilities and attract and contract with new volumes at better pricing in the Northeast for us.

Speaker 1

So it did that. It also opened up M and A opportunities along the Eastern seaboard that we otherwise would not have looked at. We are not prone to go in particularly to a more urbanized market and acquire something that is non integratable. That's not part of our model. So this allowed us to achieve that.

Speaker 1

So it's done a number of things for us currently and forward looking.

Speaker 6

Great color. And then on RNG, Mary Anne, you said The guide does not include any benefit from ITC tax credit in 2024 that is just pure optionality. If treasury were to finalize guidance in a way that is consistent with the law, meaning Allowing companies to claim the credit on what is essentially the major pieces of equipment. What could that possibly do in terms of incremental cash tax benefits to the company? Is that something you've sized and feel comfortable sharing?

Speaker 2

Sure. Well, given the fact, Noah, that as you know, only a small percentage of our projects are we will own outright. In 2024, it's pretty nominal. It's about $10,000,000 in incremental benefit that we'd expect.

Speaker 6

And on the full portfolio once it's built out?

Speaker 2

That whole portfolio, I'm not in a position to give that yet. Just looking at what's qualifying equipment and what the actual outlays are for the projects we'll loan.

Speaker 6

All right. We'll stay tuned for that. Thank you very much.

Speaker 7

Yes. Sure.

Operator

Our next question comes from Kevin Chiang from CIBC. Please go ahead with your question.

Speaker 8

Hi. Thanks for taking my question. Maybe just on the well, congratulations on closing on the Secure deal. I know this came out through a competition bureau tribunal. My understanding is that Secure wasn't necessarily running these Tervita assets to their full capabilities.

Speaker 8

Just wondering how that might change under your ownership And the revenue guide you provided related to that acquisition, is that the run rate Secure Was achieving so any upside you'd see or is that the revenue you think you can achieve as you own these assets?

Speaker 1

Okay. A couple of pieces there, Kevin. So first off, there were 29 assets required to be divested by the tribunal, of which 22 were operating at the time of close. And I would say they were operating at full throttle. Is a very good operator and they had optimized the facility.

Speaker 1

So the 22 We're running up the 29. And the guidance we have provided for 24 in Secure includes those 22 facilities. There are 7 incremental facilities that we will be reopening over a period of time, perhaps some of those in 'twenty four, but certainly into 'twenty five. We're looking at that right now. That is not in what we have guided, okay?

Speaker 1

And we would not make those assumptions that that would be anything material in 2024, but it certainly could be incremental to 25 beyond. So that's how I think you should think of what is in the guidance and what is available beyond that.

Speaker 8

That's helpful. And then just maybe on to congratulations again On weighing the zones in New York, obviously there are a number of bidders that came up short here. Just wondering, does that create an M and A opportunity for you to maybe pick up assets in that market from haulers that might look at New York differently because they won fewer zones or maybe they win any zones after the bidding process?

Speaker 1

Well, I would say, Kevin, generally the answer is yes To everything you said, but it is a complex situation. So remember that while this is a franchise area, There are 3 non exclusive franchisees awarded to each zone. You certainly can Acquire, potentially acquire someone within zones you have or other zones. But first, you must get the city and the BIC, the business council's approval of such, and they have determine what their comfort is on reducing competitors in a zone. And then that could add a third competitor back if it was an overlapping zone.

Speaker 1

So there are a number of complexities. There are also caps on how many zones one can own right now. So they have to decide their comfort level if someone goes beyond that cap or do they then have to divest another zone or trade it. So it's a complex situation. But generally, I would say it improves our optionality and M and A opportunities in the city.

Speaker 8

Perfect. That's all my questions. Congrats on a strong end to the year there.

Speaker 1

Thank you very much.

Operator

Our next question comes from Brian Bergmeier from Citi. Please go ahead with your question.

Speaker 5

Good morning. Thank you for taking the question. I think on the last call, you talked about wage growth kind of moderating to maybe 6%, 6.5%, maybe the exit rate for 2023 being 5%, 5.5%. I'm just Wondering are those still good numbers? Is there any view on what that wage growth could look like in 2024?

Speaker 5

I'm just kind of be cognizant of kind of ongoing inflation, some changes in your portfolio versus that strong margin expansion that you did see in 4Q?

Speaker 2

Sure. So with respect to wage growth, you're right. We talked about in 2023 of the moderation from a starting point of about 8 percent coming into the year to the exit of about 6%, which is what we saw in Q4, I think, to one of your questions, that it did get to that level. So as we think about continued moderation and the non repeating of outsized increases or last year's level of increases, We would think about further moderation. And as we talk about underlying solid waste margin expansion, one of the drivers being cost moderation as we move through the year.

Speaker 2

So I think about it, we saw 8% to 6% in 2023, 6% Maybe the rate of slowing down slows and so maybe it's 6 to 5 or sub 5 as we move through the year. That's probably a realistic way to think about some of those cost moderating specifically wages.

Speaker 5

Got it. Got it. Thanks for that detail. And Can you just help size maybe the revenue impact from M and A in 1Q? I know the E and P deal closed mid quarter.

Speaker 5

I'm not sure if there's some seasonality to be mindful of. And then, just a smaller item, as you talked about Arrowhead maybe being slightly dilutive to margins at the beginning. Do you think that kind of flips to a slight positive in 2024, especially with this new New York City business?

Speaker 2

Sure. So with respect to the contribution from acquisitions in Q1 and how to think about that, about $65,000,000 in Q1 And you should think about some seasonality as we head into Q2 even for the E and P business. So It's a little different from the underlying business what drives the timing there. But so I would have overall acquisitions ramping a little bit as we move through the year and then dropping down toward the end of the year, just as we anniversary some coming online, but $65,000,000 for Q1 is a good way to think about it.

Speaker 1

And with regard to Arrowhead, I would tell you that as we move throughout 2024, you are correct that initially because of the rail component of transportation in the model, Arrowhead was nominally dilutive to margins. It will be accretive to margins by mid year as volumes continue to ramp there and as a Disproportionate amount of those volumes are our internal volumes. So you have an elimination, an intercompany elimination, which raises the margin profile of the asset relative to volumes coming 3rd party, which dilutes the margin profile of the assets. So there's semantics there that are important on the margin.

Speaker 5

Got it. Thanks a lot. I'll turn it over. Good luck in the quarter.

Speaker 1

Thank you.

Operator

Our next question comes from John Mazzoni from Wells Fargo. Please go ahead with your question.

Speaker 9

Good morning. Congratulations on the strong results. Maybe asked in a very different way, could you talk to the competitive backdrop with your focusing more on sustainability projects and more about kind of what changes you're expecting in terms of kind of markets Exzine 24, what you've seen or Exzine 23, excuse me, into 2024? And has there been any uptake from kind of sponsors? I think private equity dry powder is kind of in the $1,000,000,000,000 mark now, some kind of like say $4,000,000,000,000 But how do we balance kind of the competitive backdrop as well as frame that within the M and A commentary.

Speaker 9

Thanks.

Speaker 1

Okay. John, thanks. I think that's A complex question that you asked there was several parts. I'll try our best to answer it. So first off, look, Sustainability is core to what we do and quite honestly always has been.

Speaker 1

We have taken what I would consider a balanced approach, a moderated approach to RNG as a specific in sustainability. And as you've seen, we've said we'll do $200,000,000 in EBITDA for $200,000,000 in investment and that's for our initial 12 projects that we'll bring online fully by 2026. We have projects beyond that, okay, number 1, that we have not yet talked about and nor do we plan to for some period of time. We are not betting the entirety of our future on sustainability, okay? It is one aspect of our strategy and our growth strategy.

Speaker 1

We have ample to do in the core solid waste business from an organic and an M and A standpoint. And you're going to continue to see that happen throughout 20 for a 2025 beyond. Others because of various reasons have differential amounts focused on sustainability, some of that size and an inability to do as much M and A in the current HSR requirements. So there's great window of opportunity for us in that way. And those are excellent strategies for their companies as well.

Speaker 1

We are in a little bit different niche profile. As far as private equity, look, private equity has always been active in this space. Yes, maybe a little more so right now, just because there's more dollars in private equity than there are deals to do. So that yields more involvement. But To be very honest, we do not butt heads that often with private equity in our M and A platform.

Speaker 1

Most private equity is focused on urban America because they are able to consolidate large amounts of revenue in short periods of time and Flip it, which fits their model. We're only 15% urban. So, 85% of the time we're in suburban and rural America. That's Not a market strategy that $2,000,000 to $5,000,000 of deals at a time you can consolidate a lot of revenue. So we're not too negatively impacted by private equity.

Speaker 1

Ultimately, we also have the opportunity as private equity exits theirs to take a look at those platforms. Arrowhead was such a platform and we were successful there. We are not using or seeing private equity as an excuse for not being able to get deals done, okay. We've always competed against them and we'll continue to be successful doing so. They'll get their share, but we'll get ours and then some.

Speaker 1

So I believe that's what you were hinting at, But if I didn't address the core of your question, maybe you could clarify it for me.

Speaker 9

That's exactly what we were looking for. Great color. Thank you. And maybe a quick segue into kind of the 34% EBITDA margin target, it seems like you could come to that sooner than expected. Could you just help us kind of frame what the puts and takes are there and Anything we should be cognizant of as we model 24 and looking to kind of the back half of the year and the exit rate?

Speaker 9

Thanks.

Speaker 1

I'll take just a comment on that, John, and then I'll have Mary Anne provide more details. Look, If you look at our Q3, which granted is the best seasonal quarter of the year, we reported 32 point 5% EBITDA margin and we swallowed almost 50 basis points of headwinds that we didn't expect. But just take the 32.5% that we did. You heard Mary Anne say relatively balanced on the 120 basis points of margin improvement. Let's just say that it's $120,000,000 for Q3, well, now you're at $33,700,000 or above in Q3 of 24%.

Speaker 1

So that's what gives us confidence in achieving 34% in some of our orders throughout 'twenty four as we ramp into 'twenty five. It's the math on where we are. So with that, I'll let Mary Anne comment.

Speaker 2

Sure. I guess the other point, just the math behind it, if you look at the fact that we're guiding to 120 basis points Margin expansion in 2024, it says we're halfway there since we just delivered 31.5%. And so there are various ways to get there and Ran ran through But if you just look at 2024 as an example and the outsized margin expansion in the underlying business, it gives you a sense of What's possible? And so then the question just becomes not so much. Is it 34?

Speaker 2

It was never meant to be an endpoint. It was just illustrative of the ability to get back to prior peak margins and we feel now well positioned to do even north of that.

Speaker 9

Got it. Thank you. Congratulations again on the strong results.

Speaker 1

Thank you very much, John.

Operator

Our next question comes from Michael Hoffman from Stifel. Please go ahead with your question.

Speaker 7

Hey, happy Valentine's everybody.

Speaker 2

Thanks, Mike. We were going

Speaker 1

to start that way, but thank you.

Speaker 7

I thought you would, but okay. Anyway, so can we get back to operations for a minute and talk about fleet? Am I correct, you'd like to buy 10% of your direct fleet, your routed trucks, we've been below that. What do you think is the outcome in 2024? And correspondingly, how that sort of works its way through repair and maintenance cost?

Speaker 1

Yes. So first off, Michael, I think your first comment is about percentages is accurate. Look, I mean around. We've gotten approximately, if you look at 2022 and 2023, around 90%, maybe a hair below of our fleet in one way or another delivered. So we're running about 1 in 10 short, Okay.

Speaker 1

We are being told that that number should compress a little bit in 2024, but there will still be Some fleet push from 24% to 25%. We're being told that that should be closer to 5% to 8% than maybe 10 percent. So you see improvement. And then we're being told that it normalizes in 'twenty five. So we believe By 'twenty five, we'll be back on track with the normal fleet replacement.

Speaker 1

As far as the maintenance side, Look, the good news is it's in the numbers and it's in the guidance and it's not one of the key drivers to delivering 34%. Quite honestly, you don't want accelerated fleet at a time when your turnover is highest And you're doing the most damage to new equipment. So we wanted to bring turnover down quite dramatically before we focused on any sort of movement upwards in fleet replacement Because it's just not going to show up in the maintenance when you've got so many new employees. So it actually has been somewhat of a blessing To be honest. And we feel good about the timing of how the fleet will allocation will improve as we go through 'twenty four into 5.

Speaker 7

Okay. Switching gears to Arrowhead, it has a pretty big tons per day capacity, where are we in maximizing that utilization? You alluded in your comments, you've been redirecting your own volume. So what's the trend look like?

Speaker 1

Well, what I would tell you, Michael, so as you know, maybe not everyone does. Arrowhead has a 15,000 ton per day permit. When we acquired Arrowhead, it was Handling just under or around 3,000 tons a day, we have improved that by 35 or more already. I believe we will exit 24% at doubling where it was originally. And I think longer term, longer term is 25% into 26%.

Speaker 1

These things take some time. I think you'll see us approaching triple what we originally acquired it at.

Speaker 7

Okay. And then As you think about the Secure business, you're dependent on production. And if I remember correctly, even in COVID, the Canadian production didn't go down that low given all the disruption. So what's the sensitivity to shut ins? Help everybody get comfortable that this is really stable?

Speaker 1

Yes. So, as you said, Michael, I mean, the Canadian E and P market is very different than the U. S. Again, just to reiterate, the U. S, Our R360 business is about 80% drilling oriented, so it is highly sensitive to rig count and crude price.

Speaker 1

The Canadian market is really inverted, because they do not do a lot of fracking. So their market is 80% to 85% production oriented. We look back over a 5 year period during diligence at the assets we would be acquiring and Crude move, Western Canadian crude move from a high of about $80 a barrel to around 32. So that's a pretty significant swing. And revenue changed 8% peak to trough and EBITDA changed 12% peak to trough.

Speaker 1

So I think that shows the significant difference between oriented model and a drilling oriented model. And that's quite honestly one of the things we loved about the assets Is it derisked our combined portfolio

Operator

and brought it

Speaker 1

more to a fifty-fifty balance?

Speaker 7

Got it. And then, Canada, specifically Ontario, which you have a nice business is rolling out an EPR program. Were you one of the beneficiaries of their contract award?

Speaker 1

No. And we were that was Quite intentional, to be honest with you. So first off, let us say this. We think the EPR opportunities in Canada are nice opportunities, Okay. They are nice opportunities for providers whose business is predominantly a residential platform.

Speaker 1

We have purposely tacked away from since acquiring Progressive and have shed Most of the residential business in Canada purposely and we are much more of a commercial and disposal company in Canada. And that's reflective, you can see our segment margins in our filings And that is reflective of what we've done. If you look at that relative to our peers, our margins are almost double. So we're not looking to move heavily into the residential muni contract business in Canada, that business tends to be a 5 year type business. Those are very short term contracts.

Speaker 1

And if you have assets, particularly MRF assets that are Underutilized and you're able to add a relatively nominal amount of capital, those investments make a lot of sense. That's not our asset platform in Canada. So it really I think it's a great opportunity, but it's not an opportunity that we're really pursuing because of asset mix.

Speaker 7

Got it. Last one for me. So RNG comes with some incremental volatility potentially because of the credit. What is your strategy around defeasing that risk?

Speaker 2

Well, sure, Michael, as you know and for anyone who doesn't know, that's just fundamental to the way we approached RNG with the portfolio approach and the variety of ownership structures and the fact that we'll own outright about a third of the projects we ultimately participate in. So right there, that's one element of derisking. The other is hedging rents And we opportunistically put those hedges in place. We've done it in the past. So we'll that's how we think about it fundamentally, and that's the way to derisk it.

Speaker 9

Terrific. Thanks for taking the questions.

Speaker 1

Thank you, Michael. Sure.

Operator

Our next question comes from Walter Spracklin from RBC Capital Markets. Please go ahead with your

Speaker 10

Yes. Thanks very much. Good morning, everyone. I just wanted to 2 hopefully quick ones here. First on the rail The waste rail side, Ron, you alluded to it a number of times here on the call and especially when you did the deal.

Speaker 10

How much can you scale that up do you think if you were to the economics look appear to be quite attractive on this? To what extent, if fully utilized in every way, do you think you could scale this up? Or is this more surgical tactical type of option for you that won't really move the dial in your total numbers, but are nice on an incremental basis?

Speaker 1

So I've got to dissect it a little bit, Walter. So first off, as I mentioned earlier, That landfill has the capacity to take 15,000 tons a day. When we acquired it, it was taking 3,000. It was 20% utilized, if you will, right? And I mentioned that I thought by the time we exit 'twenty four, we'll double that, so that it would be 40% utilized and that as we come through 2025 and then 2026, we think we can get that up to 3x where we were.

Speaker 1

So in that scenario, 60% utilized. There really is no rail constraint on utilization. It's just A scalability issue. So look, in the size of our corpus, Is this going to be something that moves the needle 100 basis points on its own? No.

Speaker 1

And we've never said that. But Here is how it moves the needle. It moves the needle on what our growth can be M and A wise because of the market areas that we can now integrate that we never looked at before. So in that way, I do consider it a needle mover. Could it add a point or more in M and A growth per year for a while?

Speaker 1

I think it could. And I think the compounding of that is something. So that's where I'd say And that's one of the reasons I gave commentary that we're fairly bullish on the M and A environment for 2024 as we sit here 45 days into the year. So hopefully that gives you some color on our thoughts on that opportunity.

Speaker 10

Yes. That's great color, Ron. Appreciate that. And my second question here is on volume. I know I've had some inbounds on The negative volume that you've had in through the course of 2023 and the negative volume you're now projecting for 2024 and some are comparing that to your peers, which are in the positive territory.

Speaker 10

2 aspects, I know Mary and I have talked about this before, but wanted to flag it. There's not really an apples to oranges there is an apples to oranges compare there I think and perhaps you can elaborate on that. And then second is on how much of the volume is really purposeful shedding that you completed in 2023 that's just carrying forward to 2024 as opposed to a projection for a persistent negative volume outlook for your company?

Speaker 2

Sure. So happy to address those questions. So first of all, to your point, I do think that we different companies communicate both price and volume differently and ours is strictly solid waste volumes without the benefit of incremental RNG or recycling facilities coming online, which would be additive, I believe, to other people's volume calculation. So just with that as a starting point and then of course what also goes along with it is how we communicate price. And when some people talk about core price, it's not what they ultimately report, but it's what they put on the street.

Speaker 2

When we give you price, those are the numbers we expect to report. That's how we guide and that's we talk about with respect to price. So, necessarily or understandably, it means that the way we we're talking about price One way it's going to drive how we talk about volume. And so again, the calculations are probably a little different. But here's what we do know.

Speaker 2

We know that as we exited 2023, We had purposeful shedding. So if we were at a run rate of negative 2.5% volume, we said about a point of that is Purposeful shedding from contracts that we walked away from or rebid in such a way that we knew we wouldn't ultimately hold on to it and that was okay because they were poor quality revenue contracts or customers. Additionally, we've acknowledged that In our pricing strategy, we acknowledge that there's a price volume trade off, which we think is an acceptable trade off and we encourage people Look at where margins go when you make that trade off. And so if you look at our exit rate of about a point for each of those two things And then I'd say quarter specific drivers like difficult comparisons or weather would be additive to that. So then that's why as we said in Q1 coming in the exit rate was around 2.5%.

Speaker 2

And we know that we had not only tough comparisons in Q1 to last year because of hurricane related disposal, but we also have the weather we've already seen. And so that's how we think about coming into the year most negative in Q1 for that reason and that improving over the course of the year as we anniversary some of those purposeful losses.

Speaker 10

That's great color, Mary.

Speaker 1

And Walter, I would add, again, we talked about this on the last call. But so number 1, the purposeful shedding by us in our model is not new. We have done this for decades, okay. Others who are not really very active at this point in M and A don't have that in their model to do, okay? So that is a difference.

Speaker 1

When we are acquiring, use a number, $200,000,000 $300,000,000 a year of revenue year in, year out, year in, year out, some years double that, all of 'twenty two. We've said there's maybe 15% to 20% of private company revenue that when you acquire it, You know you're going to either price it to improve it or lose it. So the difference of why that shows up competitor in the nation who would be the greatest proxy for the economy on volume say it's 0% to 1%, And that's with RNG making up the 1%. So they said it was 0. That's what so if it's 0 organic volume growth at 0 to 1 and you do shedding, you're negative.

Speaker 1

It's just that simple.

Speaker 10

Yes. That makes total sense. No, I appreciate the time.

Operator

Our next question comes from James Shum from TD Cowen. Please go ahead with your question.

Speaker 11

Hey, good morning. Just high level question and you touched on it a little bit, but Historically, you haven't had a lot of exposure to recycling, maybe relative to your peers. But I'm wondering if that will change in the near future given recent advancements in technology or perhaps EPR legislation. And again, I mean, you touched on it in Canada, but maybe Talk about the U. S, if you

Speaker 3

could.

Speaker 1

Yes. Well, number 1, I think Part of it has been a model difference, James. As I mentioned, we have substantially less urban exposure than some of our larger peers in our model and a lot of recycling in the U. S. Has heard in the coastal areas, which tend to be more urbanized, okay?

Speaker 1

So we just have a little bit less exposure to it. There is no question that technology will aid and is making Recycling a better business model every day, every year and can produce some very acceptable returns with the right market and the right technology. So yes, you will See recycling over time grow as a percentage. There is also push for diversion legislation and recycling in many states that up to this point, there had not been as much of a push. So it will ultimately continue to develop and we're good with that.

Speaker 1

That extends life of our landfills, which are a non replicable asset. It limits the timing on capital for landfills, for expansion. So it's a process, it's evolutionary that we feel very comfortable with overall.

Speaker 2

And I would just add to that, James, that of course, increasing the recyclables we process ourselves is one of our sustainability objectives and we have been seeing growth every year and we've built 2 new facilities and you added The latest technology and have 50 robotics units in operation at our facilities and continue to make investments To Ron's point to make it an even better business and to derisk it for ourselves because it's a service we provide, but not in all cases do we use our own recycling facilities. And so we've been advancing and improving that.

Speaker 11

Okay, great. Thanks. And then I'm just wondering if Landfill costs will rise at your other 100 plus landfills in 2024 to prevent another ETLF. Like is there a change in strategy in the wake of events at the Chiquita landfill or should we not expect much change here?

Speaker 1

Well, number 1, I don't think you should expect an incremental or step change increase in costs on our landfills because of what's happened at Chiquita. What happened at Chiquita As we said, ETLFs are very, very rare. They are a natural Organic reaction that occurs under very unique circumstances. Can they happen elsewhere? They certainly can.

Speaker 1

But what I think is more important is what are we doing post Chiquita that we've learned that would help to minimize the impact earlier on relative if one were to occur. And so we have made some engineering protocol changes of some more centralized landfill well temperature monitoring On a more frequent basis, we have decided as that if we experience that, that We will drill wells to alleviate temperature earlier. And then as a company, Over 5 years ago, we stopped taking much of the material that we believe can cause ETLFs, which tend to be some sort of aluminum production material or untreated auto shredder fluff. So yes, there are things we are doing, but they are not things that you should see rippling through the P and L.

Speaker 11

Okay, great. Thanks for the answers guys. I appreciate it.

Speaker 2

Thank you.

Operator

Our next question comes from Stephanie Moore from Jefferies. Please go ahead with your question.

Speaker 12

Hi, good morning. Thank you.

Speaker 2

Thank you. Hi, Stephanie.

Speaker 12

I wanted to touch back on Some of the pricing color, I think outside of your index contracts, maybe if you could touch a little bit on how your conversations have been going with customers on pricing and maybe how this is compared to any prior years, that

Speaker 2

would be helpful. Thank you. Sure. I'd say that things are playing out really Pretty much as we've expected that coming into the year, we knew that we were coming off of 2 years of outsized price increases and we were looking forward to not needing that same level of pricing, right? Doing 9.5% in each of the last 2 years implied that In our competitive markets, those increases were well north of that and we talked about that 11%, 13%, 14%.

Speaker 2

So It's a relief to be down in more of the 7, 8.5 type of range on price increases. I'd say that in terms of those conversations, retention is pretty similar to historic levels. You come in kind of expecting that 85 percent type of level. We've had periods when there was hyperinflation where it was stickier than that. And I'd say we've reverted back to more normalized levels and that's the way those conversations are playing out.

Speaker 12

Great. That's helpful. And then maybe just to follow-up on some Prior questions on the Arrowhead deal. As you think about feature M and A, do you see similar opportunities, maybe similar to Arrowhead on the horizon, those that provide greater rail access or transfer footprint outside of your traditional core markets?

Speaker 1

Well, I would tell you, Stephanie, that Arrowhead was a unique asset. And we are not currently looking at anything that is analogous to it. But I will also say that look, as landfill prices continue to move upwards over time and airspace in markets contract. It is a natural modality that more waste will move by rail over time. And in geographies perhaps that it doesn't today.

Speaker 1

So I do believe that there will be opportunities for incremental Arrowhead type acquisitions, but I don't feel that that is imminent, but it will occur over time.

Speaker 12

Okay, got it. Thank you guys so much.

Operator

And our next question comes from Tobey Sommer from Securities. Please go ahead with your question.

Speaker 5

Yes. Hey, good morning. This is Jack Wilson on for Tobey. So specifically in 2024, there going to be any sort of quarters that are especially heavy with capital expenditures or given the Chiquita and RNG spend?

Speaker 2

No, there's nothing that stands out as being unique in any quarter. But just a reminder that Free cash flow generation in any year, the quarters can be lumpy for a variety of reasons outside of CapEx, for instance, interest and taxes. So, I wouldn't get too hung up on activity in 1 individual quarter.

Speaker 5

Okay. Thank you for that color there. And then sort of just in regards to the new wins in New York and sort of the intentional shedding, Does that change sort of your thinking around market exposure at all or sort of how you're waiting sort of franchise secondary and urban?

Speaker 2

No, I mean, we're opportunistic in terms of acquisition opportunities. As we always say, sellers drive the timing of deals. But as Ron said in his remarks, our strategy hasn't changed. We know the types of markets we're interested in. And a lot of these deals are the outcome of quarters or even years of dialogue.

Speaker 2

And so there's no change in thinking about that at all.

Speaker 5

Perfect. Thanks for the time.

Speaker 1

Thank you.

Operator

And ladies and gentlemen, With that being our final question today, I'd like to turn the floor back over to management for any closing remarks.

Speaker 1

Okay. Well, if there are no further questions, on behalf of our entire management team, we appreciate your listening to and interest in our call today. Mary Anne and Joe Box are available today to answer any direct questions that we did not cover that we are allowed to answer under Regulation FD, Reg G and applicable securities laws in Canada. Thank you again. We look forward to seeing you at upcoming investor conferences or on our next earnings call.

Operator

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Waste Connections Q4 2023
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