Q3 2019 Earnings Call

October 29, 2019

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Operator: Thank you for standing by. The conference will begin momentarily. We thank you for your patience and ask that you please remain online. Welcome to the Waste Connections Q3 2019 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Tuesday, 29 October 2019. I would now turn the conference over to Worthing Jackman, President and Chief Executive Officer. Please go ahead.

Well.

But anytime during the conference you nutrition operator, Please press star zero.

As a reminder, this conference is being recorded Tuesday October 29 2019.

I would never truly converts over to Worthing Jackman President and CEO . Please go ahead.

Worthing Jackman: Okay. Thank you, operator, and good morning, everyone. I'd like to welcome everyone to this conference call to discuss our Q3 2019 results and provide a detailed outlook for Q4 as well as some early thoughts on 2020. I'm joined this morning, the morning of game 6, go Astros, by Mary Anne Whitney, our CFO, and several other members of our senior management team. As noted in our earnings release, strong organic growth in solid waste and a sequential increase in E&P waste activity enabled us to deliver better than expected results in the period. Continued price-led solid waste growth and a slight pull forward of special waste activity drove underlying margin expansion in solid waste collection, transfer, and disposal of an estimated 60 basis points in the quarter.

Okay. Thank you operator, and good morning, everyone.

I'd like to walk every one of this conference call to discuss our third quarter 2019 results. It provided detailed outlook for the fourth quarter as well some early thoughts on 2020.

I'm joined this morning, the morning of games six glass rose.

Marianne Whitney our CFO and several other members of our senior management team.

As noted earnings release strong organic growth and solid waste had a sequential increase in <unk> waste activity enabled us to deliver better than expected results in the period.

Continued price lets always growth and a slight pull forward of special waste activity drove underlying margin expansion and solid waste collection transfer and disposal of an estimated 60 basis points in the quarter.

Worthing Jackman: More importantly, adjusted free cash flow of $763 million year to date or 18.9% of revenue and up almost 13% year-over-year, puts us firmly on track to meet or exceed the adjusted free cash flow outlook for the full year that we communicated in July. Relatively consistent solid waste organic growth, plus the contribution from acquisitions closed year to date, already sets us up for overall revenue growth in the mid to high single digits and underlying margin expansion in solid waste collection, transfer, and disposal in the upcoming year, with additional expected continuing above average acquisition activity and any potential improvement in commodity-related activities providing further growth. 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.

More importantly, adjusted free cash flow of 763 million year to date.

18.9% of revenue went up almost 13% year over year put to firmly on track to meet or exceed the adjusted free cash flow outlook for the full year that we communicated in July .

[noise] relatively consistent solid waste organic growth plus the contribution from acquisitions close yesterday already sets us up for overall revenue growth in the mid to high single digits, an underlying margin expansion and solid waste collection transfer and disposal in the upcoming here.

This will expect to continue the above average acquisition activity and any potential improvement commodity related activities, providing further growth.

Well go to much more detail, let me turn the call over to Marianne for forward looking disclaimer and other housekeeping.

Mary Anne Whitney: Thank you, Worthing, 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 on page 3 of our 28 October earnings release and in greater detail in Waste Connections's filings with the U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada.

Thank you would think and good morning.

A discussion during today's call include forward looking statements made pursuant to the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act 1995.

Putting forward looking information within the meaning of applicable applicable Canadian securities lot [noise].

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 or discussed both in the cautionary statement on page three of our October 28 earnings release.

And in greater detail in waste connections filing with the U.S. Securities and Exchange Commission and the Securities Commission or similar regulatory authorities in Canada.

Mary Anne Whitney: You should not place undue reliance on forward-looking statements and information 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 and information 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 the 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 measure. 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.

You should not place undue reliance on forward looking statements and information as there maybe additional risks of which we're 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 and information in order to reflect reflect events or circumstances that may change after today's date.

On the call, we'll discuss non-GAAP measures such as adjusted EBITDA adjusted net income attributable to waste connections on both the 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 measure management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operation.

Their companies May calculate these non-GAAP measures differently.

Mary Anne Whitney: I will now turn the call back over to Worthing.

I will now turn the call back over to working.

Worthing Jackman: Thank you, Marianne. In Q3, solid waste price plus volume growth was 6.1%. Total price of 5.2% slightly exceeded our outlook for the quarter, with the strength once again reflecting additional price increases implemented in 2018 and 2019 to address accelerating cost pressures and provide, through collection pricing, further recovery of the much-discussed seismic change in the recycling market. Pricing in Q3 ranged from about 3.5% in our more exclusive markets, Western region, to over 5.5% in our more competitive market regions. We reported our strongest quarterly volume results in over two years in Q3, with volume growth better than expected at +90 basis points due primarily to an outsized quarter of special waste activity.

Thank you Marianne.

In the third quarter solid waste price plus volume growth was 6.1%.

Total price, so 5.2% slightly exceeded our outlook for the quarter with the strength with the strength once again, reflecting additional price increases implemented in 2018 at 2019 to address accelerating cost pressures and provide through collection pricing.

Further recovery of the much discuss seismic change in the recycling market.

Pricing in Q3 range from about 3.5% and are more exclusive markets western region to over 5% and I'm more competitive market regions.

We reported our strongest quarterly volume results in over two years in Q3 with volume growth better than expected positive 90 basis points due primarily to an outsize quarter special waste activity.

Worthing Jackman: Some of that landfill activity had been expected to incur in Q4, when comparisons are tougher, and therefore it doesn't change our outlook with respect to full year volumes. Looking at year-over-year results by line of business on a same-store basis in Q3, commercial collection revenue increased approximately 6%, with the majority related to price increases, a portion of which were due to structural changes in the recycling market. Looking at scheduled commercial business, which includes small and large container activity, net new business has increased in each quarter year to date. In addition, service increases have outstripped service decreases in each quarter this year. Roll-off revenue increased approximately 7%. In the US, pulls per day increased 2.3%, and revenue per pull was up 2.9%.

Well the Atlanta collectivity had been expected to incur in Q4, what comparisons are tougher.

Therefore doesn't change our outlook with respect to full year volumes.

Looking at year over year results by line of business on a same store basis in the third quarter.

Commercial collection revenue increased approximately 6%.

The majority of laser price increase and price increases a portion of which were due to structural changes in recycling market.

Looking at scheduled commercial business, which includes small and large container activity net new business has increased in each quarter year to date. In addition service increases if outstrip service decreases in each quarter this year.

Roll off revenue increased approximately 7%.

In the U.S. pulls per day increased 2.3% revenue purple was up 2.9%.

Worthing Jackman: In Canada, pulls per day increased by about 4%, and revenue per pull increased about 2.5%. Solid waste landfill tonnage increased about 5% on increases in both MSW, up about 6%, and special waste, up 10%, while C&D tons were down 4% year over year. MSW tons were up in most regions, led by markets in our Western and Southern regions. Special waste volumes were up across all of our solid waste regions in the US, with notable activity in several states, including California, Florida, Illinois, Missouri, and Minnesota. C&D tons, by way of contrast, were down in every region except our Southern region, due in some markets to tough year-over-year comparisons.

Got it pulls per day increased by about 4%.

Revenue per pull increased about 2.5%.

Solid waste landfill tonnage increased about 5% on increases in both MSW up about 6%.

And special waste up 10%, well CMV tons were down 4% year over year.

MSW tons were up in most regions led by markets and our western and southern regions special waste volumes were up across all of our saw the waste regions in the U.S. with notable notable activity in several states, including California, Florida, Illinois, Missouri in Minnesota.

C and D ponds by way of contrast.

Were down in every region, except our southern region due in some markets to tough year over year comparisons.

Recycling revenue, excluding acquisitions was almost $13 million, the third quarter down nine and a half million dollars year over year or approximately 43% and down about 15% sequentially from Q2.

Worthing Jackman: Recycling revenue, excluding acquisitions, was almost $13 million in Q3, down $9.5 million year over year, or approximately 43%, and down about 15% sequentially from Q2. Old corrugated containers, or OCC prices, in Q3 averaged about $43 per ton, slightly lower than expected, down 51% from the year ago period. We believe that the flow-through from changes in recycling revenue in Q3 was slightly worse than in Q2, with decremental margins of approximately 150% due to the combination of lower fiber values and higher third-party processing costs, which increased sequentially in the quarter, resulting in an impact of approximately $14 million in EBITDA or 80 basis points to reported margins and $0.04 per share of EPS in Q3.

Old corrugated containers or LCC prices in Q3 averaged about $43 per tonne slightly lower than expected down to 51% from a year ago period.

We believe that the flow through from changes in recycling revenue. The third quarter was slightly worse than in Q2 with decremental margins or approximately 150% due to the combination of lower fiber values and higher third party processing costs, which increased sequentially in the quarter, resulting in the impact of approximately 14 million EBITDA.

Or 80 basis points to reported margins and four cents per share of EPS for Q3.

Worthing Jackman: OCC and mixed paper prices appear to have stabilized for the time being, which we had expected given increased demand from certain domestic mills converted to allow for the use of recovered fiber as feedstock. Given capacity additions year to date and looking ahead into 2020, there are a number of additional mills and conversions scheduled to come online, which could increase demand for recycled fiber feedstock by over 1 million tons. Landfill gas revenue decreased approximately $7 million or 40% year-over-year due primarily to the lower value of renewable energy credits or RINs for which certain gas sales qualify.

Oh Cc and mix paper prices appear to have stabilized for the time being which we had expected given increased demand from certain domestic mills converted to allow for the use of recovered fiber as feedstock.

Given capacity additions year to date and looking headed into 2020.

There are a number of additional mills and conversion scheduled to come online, which could increase demand for recycled fiber feedstock by over 1 billion tons.

Landfill gas revenue decreased approximately $7 million or 40% year over year due primarily to the lower value of renewable energy credits or rins for what certain gas sales qualified.

Worthing Jackman: The average RIN price in Q3 was about $0.69, down 47% sequentially from Q2 and down 68% year over year, with a high flow through on the decline in revenue resulting in a 35 basis point impact to reported EBITDA margins and approximately $0.02 per share of EPS. Looking at E&P waste activity. In Q3, we reported $66.4 million of E&P waste revenue, our highest such quarterly revenue in over two years, up 4% sequentially in spite of continued declines in rig count during the quarter, which are now down 23% since year-end 2018. Our quarterly results have held up year to date in spite of those declines due to our asset positioning and diversity of basins, including the Louisiana Gulf of Mexico, where the rig count decline has not been as pronounced.

The average RIN price in Q3 was about 69 cents down 47% sequentially from Q2 and down 68% year over year with a high flow through on the decline in revenue, resulting in a 35 basis point impact to reported EBITDA margins at approximately two cents per share of bps.

Looking at S&P waste activity.

The third quarter, we reported 66.4 million of BMP waste revenue, our highest such quarterly revenue in over two years up 4% sequentially. In spite of continued declines in rig count during the quarter, which are now down 23% since year end 2018.

Our quarterly results have held up year to date in spite of those declines due to our asset positioning and diversity of basins, including the Louisiana Gulf of Mexico, where the rig count decline has not been as pronounced.

Worthing Jackman: That said, we believe near-term E&P waste activity peaked in August, as it has since moderated to a run rate of approximately $60 million per quarter. Given the typical seasonal decline in E&P activity in Q4 and moderation in the pace of activity we have seen over the past two months, we are cautious in our outlook and continue to be selective on new project developments. In fact, we made a determination in Q3 to forgo any future development efforts associated with the landfill in the Bakken for which we held a permit. Regarding the two remaining landfill projects in the Permian that we have discussed on previous calls, we continue to move forward with construction on one of them and are holding off on the other for now.

That said, we believe near term DLP waste activity peaked in August .

Is it a sense moderated to a run rate of approximately $60 million per quarter.

Given the typical seasonal decline in the MP activity in Q4 and moderation the pace of activity we've seen over the past two months, we're cautious and our outlook and continued to be selective on the project development.

In fact, we made a determination in Q3 to forgo any future development efforts associated with a landfill in the Bakken for which we held the permit.

Regarding the two remaining landfill projects in the Permian that we have discussed on previous calls we continue to move forward with construction on one of them at are holding off on the other for now.

Worthing Jackman: Regarding the materials processing and recovery technology expansion at an existing Permian facility, as noted in prior updates, we continue to expect that to be online by year-end. Looking at acquisition activity. We've already closed what we would consider an above average amount of acquired revenue in 2019, and acquisition dialogue has continued to increase over the past few months. Since our earnings call in July, we have extended offers totaling over $600 million in outlays, a portion of which could be completed by year-end. In fact, we could potentially double our already completed $160 million in annualized acquired revenue by year-end or early next year, starting 2020 off with above-average contributions from acquisitions, along with a continuing robust pipeline for further activity.

Regarding the materials processing and recovery technology expansion at an existing firming facility as noted in prior updates we continue to expect that to be online by yearend.

Looking at acquisition activity, we've already close what we would consider an above average amount of acquired revenue in 2019 and acquisition dialogue has continued to increase over the past few months.

Since our earnings call in July we have extended offers totaling over $600 million and outlays, a portion of which could be completed by year end.

In fact, we could potentially double our already completed 160 million in annualized acquired revenue by year end or early next year.

Starting 2020 off with above average contribution from acquisitions, along with the continuing robust pipeline for further activity.

Worthing Jackman: In addition, we closed on the acquisition of a greenfield solid waste landfill project in the period for which the final permit was received by the sellers. This landfill, which should be operational by early 2021, improves our asset positioning in a legacy Progressive Waste collection-only market, where we currently utilize a third-party disposal site. Finally, as announced yesterday, our board of directors authorized a 15.6% increase in our regular quarterly cash dividend, our ninth consecutive double-digit percentage increase since commencing the dividend in 2010. In spite of these increases, our dividend remains at about 20% of our expected annual adjusted free cash flow, providing tremendous flexibility to fund expected above-average acquisition activity in the near term and increases in return of capital to shareholders over the long term, including opportunistic share repurchases.

In addition, we closed on the acquisition of a Greenfield solid waste landfill project in the period for what's the final permit was received by the sellers.

This landfill should be operational by early 2021, it proves our asset positioning in the legacy progressive waste collection only market.

Where we currently utilized a third party disposal site.

Finally, as announced yesterday, our board of directors authorized at 15.6% increase in our regular quarterly cash dividend, our ninth consecutive double digit percentage increase since commencing the dividend in 2010.

In spite of these increases our dividend remains at about 20% of our expected annual adjusted free cash flow, providing tremendous flexibility to fund expected above average acquisition activity in the near term and increases in a return of capital to shareholders over the long term, including opportunistic share repurchases.

Worthing Jackman: To that end, in August, we announced the annual renewal of our normal course issuer bid, which authorizes the repurchase of up to 5% of our outstanding shares. Now I'd like to pass the call to Mary Anne to review more in depth the financial highlights of Q3 and provide a detailed outlook for Q4. I will then wrap up with a few early thoughts on 2020 before heading into Q&A.

To that end in August we announced the annual renewal of our normal course, issuer bid, which authorizes the repurchase of up to 5% of our outstanding shares.

Now I'd like to pass the call the Marianne to review more in depth the financial highlights of the third quarter and provided detailed outlook for Q4.

Ill, then wrap up with a few early thoughts on 2020 before heading into Q1 day.

Mary Anne Whitney: Thank you, Worthing. In Q3, revenue was $1.412 billion, up $131.3 million, or 10.3% over the prior year period and about $7 million above our outlook for the quarter. Acquisitions completed since the year-ago period contributed $82.8 million of revenue in the quarter, or $77.1 million net of divestitures. Adjusted EBITDA for Q3, as reconciled in our earnings release, was $443.6 million, or $1.6 million above our outlook for the period and up $26.8 million year over year.

Thank you waiting.

In the third quarter revenue was 1.412 billion up 131.3 million, 10.3% over the prior year period, and about 7 million above our outlook for the quarter acquisitions completed since a year ago period contributed 82.8 million of revenue in the quarter or 77.1.

Million net of divestitures.

Adjusted EBITDA for Q3 as reconciled in our earnings release was 443.6 million or 1.6 million above our outlook for the period and up 26.8 million year over year.

Mary Anne Whitney: Adjusted EBITDA as a percentage of revenue was 31.4% in Q3, down 110 basis points year-over-year, due primarily to two factors, an estimated 115 basis points impact resulting from the year-over-year decrease in commodity-related recycling and landfill gas revenues noted earlier, and an estimated 55 basis points impact from lower-margin acquisitions completed since the year-ago period. The underlying adjusted EBITDA margin for solid waste collection, transfer, and disposal revenue was up an estimated 60 basis points year-over-year. Moreover, as noted in prior quarters, these results include about a 20 basis point impact from our increased 401K match, which will anniversary at year-end.

Adjusted EBITDA as a percentage of revenue was 31.4% in Q3 down 110 basis points year over year due primarily to two factors.

An estimated 115 basis points impact, resulting from the year over year decrease in commodity related recycling and landfill gas revenues noted earlier.

As an estimated 55 basis points impact from lower margin acquisitions completed since a year ago period.

The underlying adjusted EBITDA margin for solid waste collection transferred disposal revenue was up and estimated 60 basis points year over year.

Moreover, as noted in prior quarters. These results include about a 20 basis point impact from our increased far one can match, which will anniversary at year end.

Mary Anne Whitney: Fuel expense in Q3 was about 3.8% of revenue, and we averaged approximately $2.61 for diesel in the quarter, which was down about $0.11 from the year-ago period and down about $0.05 sequentially from Q2. Depreciation and amortization expense for Q3 was 13.4% of revenue, down 30 basis points year over year, and about 10 basis points below our outlook on higher-than-expected revenue in the period. Interest expense in the quarter increased by $4.7 million over the prior year period to $36.8 million due to the combination of higher total borrowings and higher interest rates as compared to the prior year period. Including higher interest income from invested cash balances, net interest expense increased by $4.1 million in the period to $34.7 million.

Fuel expense in Q3 was about 3.8% of revenue and we averaged approximately $2.61 for diesel in the quarter, which was down about 11 cents from a year ago period and down about five cents sequentially from Q2.

Depreciation and amortization expense for the third quarter was 13.4% of revenue down 30 basis points year over year, and about 10 basis points below our outlook on higher than expected revenue in the period.

Interest expense in the quarter increased by 4.7 million over the prior year period to 36.8 million due to the combination of higher total borrowings and higher interest rates as compared to the prior year period.

Including higher interest income from invested cash balances net interest expense increased by 4.1 million in the period to 34.7 million.

Mary Anne Whitney: Debt outstanding at quarter end was about $4.4 billion, about 90% of which was fixed rate, and our weighted average cost of debt was approximately 3.5%. Our leverage ratio, as defined in our credit agreement, declined nominally in the quarter to less than 2.3x debt to EBITDA. Our effective tax rate for Q3 was 21.2%, slightly lower than expected. As we've noted on previous calls, the IRS released proposed regulations late last year associated with the Tax Act that could impact our current effective tax rate. The proposed regulations still have yet to be finalized, but could impact our effective tax rate in the period enacted. We believe that if enacted in Q4, any impact would be limited to the current year, with our effective tax rate returning to about 22% in 2020.

Outstanding at quarter end was about 44 billion about 90% of which was fixed rate and our weighted average cost of debt was approximately 3.5%.

Leverage ratio as defined in our credit agreement decline nominally in the quarter to less than 2.3 times debt to EBITDA.

Our effective tax rate for the third quarter was 21.2%.

Certainly lower than expected as we've noted on previous calls the IRS release proposed regulations late last year associated with the tax act that could impact our current effective tax rate.

Proposed regulation still have yet to be finalized, but could impact our effective tax rate in the period enacted we believe that if enacted in Q4 any impact will be limited to the current year with our effective tax rate returning to about 22% in 2020.

Mary Anne Whitney: GAAP and adjusted net income per diluted share were $0.60 and $0.73 respectively in Q3. Adjusted net income in Q3 primarily excludes the impact of intangibles amortization and other acquisition-related items. Adjusted free cash flow in the first nine months of the year was $762.9 million, or 18.9% of revenue, up 12.9% year-over-year. I will now review our outlook for Q4 2019. 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 change in the current economic and operating environment.

GAAP and adjusted net income per diluted share were 60 cents to 73 cents respectively. In the third quarter. Adjusted net income in Q3, primarily excludes the impact of intangibles amortization and other acquisition related items.

Adjusted free cash flow in the first nine months of the year was 762.9 million or 18.9% of revenue up 12.9% year over year.

I will now review our outlook for the fourth quarter 2019, 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 but the FCC and securities commissions are similar regulatory authority from Canada, we encourage investors to review the.

Factors carefully.

Our outlook assumes no change in the current economic and operating environment. It also excludes any impact from additional acquisitions or divestitures that may close during the remainder of the year and expensive transaction related items during the period.

Mary Anne Whitney: It also excludes any impact from additional acquisitions or divestitures that may close during the remainder of the year and expensing of transaction-related items during the period. Revenue in Q4 is estimated to range from $1.335 to 1.345 billion, with the range due primarily to our cautiousness around special waste and E&P waste activity. We expect price growth for solid waste to remain around 5% in Q4, with volume down between 1% and 1.5%. We expect revenue from E&P waste activity in the range of $55 to 60 million. The expected decline in volumes primarily reflects a reduction in landfill volumes due to lower visibility on special waste jobs and tougher comps.

Revenue in Q4 is estimated to range from 1.335 billion to 1.345 billion with the range due primarily to our cautiousness around special waste any MP waste activity.

We expect price growth for solid ways to remain around 5% in Q4.

The volume down between 1% and wanted to half percent.

And we expect revenue from BNP waste activity in the range of 55 million to $60 million.

We expect a decline in volumes, primarily reflects a reduction in landfill volumes due to lower visibility on special waste job and tougher comp.

Mary Anne Whitney: Relative to our run rate as of our July call, this outlook reflects an approximate $5 million decrease in potential special waste volumes and an approximately $5 to 10 million reduction in potential E&P waste activity. Adjusted EBITDA in Q4 is estimated at approximately $405 million. The margin impact from lower margin acquisitions completed since the year-ago period is expected to be approximately 45 basis points, and the commodity-driven impacts from recycling and RINs are expected to be similar to Q3. High decrementals associated with an anticipated year-over-year decline in special waste and E&P waste activity also impact the period. Depreciation and amortization expense for Q4 is estimated to be about 13.8% of revenue.

Relative to our run rate as of our July call. This outlook reflects an approximately an approximate $5 million decrease in potential special waste volumes.

An approximately five to 10 million dollar reduction in potential NP waste activity.

Adjusted EBITDA in Q4 is estimated at approximately 405 million.

Margin impact from lower margin acquisitions completed since a year ago period is expected to be approximately 45 basis points.

And the commodity driven impacts from recycling and Rins are expected to be similar to Q3.

Hi, Decrementals associated with an anticipated year over year decline in special waste and be in key waste activity also impact.

Depreciation and amortization expense for the fourth quarter is estimated to be about 13.8% of revenue.

Mary Anne Whitney: Of that amount, amortization of intangibles in the quarter is estimated to be about $32 million, or over $0.09 per diluted share net of taxes. Interest expense, net of interest income in Q4 is estimated to be approximately $34.5 million. Finally, our effective tax rate in Q4 is estimated to be about 21.5%. We estimate that the Q4 rate would increase to approximately 35% in the event that the proposed regulations, as originally drafted, were to be enacted during the period, which would result in an impact of approximately $0.10 per share in Q4, with the rate declining back to approximately 22% in 2020. Now, let me turn the call back over to Worthing for some final remarks before Q&A.

That amount amortization of intangibles in the quarter is estimated to be about 32 million or over nine cents per diluted share net of taxes.

Interest expense net of interest income in Q4 is estimated to be approximately 34.5 million.

And finally, our effective tax rate in Q4 is estimated to be about 21.5%. We estimate that the Q4 rate would increase to approximately 35% in the event that the proposed regulations. As originally drafted were to be enacted during the period, which would result in an impact of approximately 10 cents per se.

Share in Q4 with the rate declining back to approximately 22% in 2020.

And now let me turn the call back over to working for some final remarks before Q1 day.

Worthing Jackman: Thank you, Mary Anne. We're extremely pleased with our year-to-date performance, particularly given the ongoing high-margin headwinds from commodity-related activities. With our year-to-date adjusted free cash flow up almost 13% year-over-year, we are firmly on track to meet or exceed the updated full-year adjusted free cash flow outlook we provided in July. We just announced another double-digit percentage increase of our regularly quarterly cash dividend and remain well positioned for potential significant increase in acquisition outlays later this quarter or early next year. Although we won't provide our formal outlook for 2020 until next February, we're able to provide some early thoughts, assuming no change in the current economic environment.

Thank you Mary Anne.

We're extremely pleased with our year to date performance, particularly given the ongoing high margin headwinds from commodity related activities.

With a year to date adjusted free cash flow up almost 13% year over year, we're firmly on track to meet or exceed the updated full year adjusted free cash outlook, we provided in July .

We just announced another double digit percentage increase about regularly quarterly cash dividend and remain well positioned for potential significant increase in acquisition outlays later this quarter or early next year.

Although we won't provide a formal outlook for 2020 until next February .

To provide some early thoughts assuming no change in the current economic environment.

Worthing Jackman: In summary, we believe that we could enter 2020 in a similar position to the start of 2019 when we provided our outlook this past February, at which time we had approximately $200 million in revenue contribution in place from acquisitions, plus the potential for additional contribution from an active pipeline. Similarly, on organic growth, we believe that we remain in a price-led solid waste organic growth range of between 4% and 6%, which should continue to drive underlying margin expansion in solid waste collection, transfer, and disposal in the upcoming year. Price is expected to remain around 5%, and our volume should reflect underlying trends in the macro economy.

In summary, we believe that we could enter 2020 in a similar position to the start of 2019, when we provided our outlook. This past February .

Each time, we had approximately 200 million in revenue contribution in place from acquisitions plus the potential for additional contribution from an active pipeline.

Similarly on organic growth, we believe that we remain at a price led solid waste organic growth range of between four and 6%.

What should continue to drive underlying margin expansion and solid waste collection transfer and disposal in the upcoming year.

Price is expected to remain around 5% at our volumes should reflect underlying trends in the macro.

Economy.

Worthing Jackman: We are mindful of the protracted nature of the economic recovery, which has driven increasingly challenging year-over-year volume comparisons, and therefore, we believe it is prudent to remain guarded in our outlook for volume growth. All in, this could result in a potential top-line growth for 2020 of between 8% and 10% from solid waste organic growth and acquisition contribution that could already be in place early in the new year. At current recycled commodity and landfill gas values, the 2020 headwinds would be less than half of what we experienced in 2019, with any recovery in such values reducing that impact. We expect to have better visibility on the tone of the economy and expected acquisition contribution, E&P waste activity, and commodity-driven revenue in February, when we provide our formal outlook for the upcoming year.

We are mindful of the protracted nature of the economic recovery, which has driven increasingly challenging year over year volume comparisons.

Therefore, we believe it as prudent to remain guarded in our outlook for volume growth.

All in this could result in a potential topline growth for 2020 between 8% and 10% from solid waste organic growth and acquisition contribution that could already be in place early in the new year.

Current recycled commodity landfill gas values.

The 2020 headwinds would be less than half of what we experienced in 2019 with any recovery in such values reducing that effects.

We expect better visibility on the tone of the economy and expected acquisition contribution DMP waste activity and commodity driven revenue in February when we provide a formal outlook for the upcoming year.

Worthing Jackman: We appreciate your time today. I'll now turn this call over to the operator to open up the lines for your questions. Operator?

We appreciate your time today I'll now turn this call over to the operator to open up the lines for your questions operator.

Operator: Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Again, to register for a question, press the one four on your telephone. One moment for the first question. Our first question comes to the line of Tyler Brown with Raymond James. Please proceed with your question.

Thank you if you would like to register a question. Please press the one followed by the four on your telephone.

Here three term prompt to acknowledge your request. If you question has been answered and you would like to dry registration. Please press star one followed by the Street.

Again to register for question Presto, one for on your telephone one moment for the first question.

And our first question comes line of Tyler Brown with Raymond James. Please proceed with your question.

Tyler Brown: Hey, good morning, everyone.

Hey, good morning, everyone.

Worthing Jackman: Hey, good morning, Tyler.

Hey, good morning Teller.

Mary Anne Whitney: Tyler.

Tyler Brown: Hey, Worthing. I appreciate the color on the landfill tonnage, but I was wondering how pricing has been trending at the landfill, specifically MSW landfill pricing. It just feels like there's some industry-wide momentum there.

Mary Anne Whitney: Tyler.

Hey, Worthington so I appreciate the color on the landfill tonnage.

But I was wondering how pricing has been trending at the landfill, specifically MSW landfill pricing just feels like there's some industry wide momentum there.

Worthing Jackman: Yeah, obviously the pricing varies by region in the country, right? Some regions are seeing what I would call 2x the average. Our average right now is running about 3%, and in some parts of the country, you see that running as high as 5% or 6%.

Yes, obviously, the pricing varies by region in the country right.

Some reasons are seeing what I would call two X. The average our average right now is running about 3% and.

And in some parts of the country, you see that running as high as five or 6%.

Tyler Brown: Okay. Oh, that's great. Just I'm a little unclear on the landfill purchase. Will there be some CapEx associated with that landfill build-out in 2020? Would it be an EBITDA contributor in 2021? Is that the right way to think about it?

Okay. That's great and then just I'm a little unclear on the landfill purchase so will there be some capex associated with that landfill build out in 2020, and then would it be an EBITDA contributor and 21 is that's right wouldn't think about it.

Worthing Jackman: Yeah. First, I agree with the confusion around it because, you know, in the old days, you know, that was treated as an acquisition outlay, but GAAP changed in 2018 to require us to book it as CapEx for acquisitions. While the nomenclature has changed, you know, the purpose of the outlay was to acquire a new landfill. We'll commence construction of that in the H2 of next year. We'll probably spend about $5 million or so in the calendar next year and a little bit the following year to get it going. We expect that to be up and running the H1 of 2021.

Yes, I agree with the confusing about around that because the old days.

That was treated as an acquisition outlay, but gap changed.

2018 to require us to book it as Capex for acquisition, so while the nomenclature is changed.

The purpose of the outlay was to acquire new landfill will commence construction of that and the second half of next year, we'll probably spend about 5 million or so and the calendar year next year and a little bit the following year to get a goal and we expect that to be up and running the first half of 2021.

Tyler Brown: Okay. That's very helpful. Then Mary Anne, you know, I appreciate the color on 2020, but to put a finer point on it, just based on the M&A that you've done to date, how should we placemark the rollover benefit to revenue next year from M&A?

Okay. That's a that's very helpful in that Marianne. So I appreciate the color on 2020, but to put a finer point on it just based on the M&A that you've done today, how should we placemark the rollover benefit to revenue next year from M&A.

Mary Anne Whitney: Sure. On the M&A done to date, the $160 million acquired revenue in 2019, it's about a 1% rollover into next year, so about $55 million, and that's primarily about two-thirds of it in Q1 with the balance in Q2. The drag, you know, the drag to margins is about 10 basis points.

Sure. So on the M&A done to date, the $160 million acquired revenue in 2019, it's about a 1% rollover into next year. So about 55 million and that's probably not about two thirds of it in Q1 with the balance in Q2, so the drag that the drag to margins is about 10 basis points.

Tyler Brown: Right. Okay, great. Just if you baseline the commodities where they are today and the RIN prices, would that be maybe a collective $25 million drag to EBITDA next year, or is that too much or too little?

Okay, Great and then I'll just a few baseline the commodities where they are today in the RIN prices would that be maybe a collective $25 million drag to EBITDA next year is that too much of two level.

Tyler Brown: No, that's a good way to think about it. I'd say about $20 million in revenue and about $25 million in EBITDA.

That's a good way to think about it I'd say about 20 million a revenue in about 25 million EBITDA for the combination of recycling and and Rins that's correct.

Worthing Jackman: For the combination of recycling and RINs.

Mary Anne Whitney: That's correct.

Tyler Brown: Okay.

Tyler Brown: Most of that.

Tyler Brown: Again, heavily weighted in H1 of the year.

Most of any.

Weighted more heavily weighted in the first half of the year.

Tyler Brown: Right. Okay. All right, I appreciate the time. Thanks.

Right right. Okay, Alright appreciate the time thanks.

And our next question comes line of Sean Eastman with Keybanc capital markets. Please proceed with your question.

Operator: Our next question comes from the line of Sean Eastman with KeyBanc Capital Markets. Please proceed with your question.

Sean Eastman: Hi, team. Thanks for taking my questions. First one for me is just on the E&P side. You guys have provided this $55 to 60 million quarterly revenue run rate for the Q4, I believe you said. I'm just wondering how we're looking into 2020 relative to that run rate. You know, I guess just assuming rig counts don't continue to dribble down, is that kind of a number that should be sustainable into next year?

Hi, Tim Thanks for taking my questions first one for me just on the MP side.

As it provided this 55 to 60 million quarterly revenue run rate for the fourth quarter. I believe you said I'm just wondering how are looking into 2020 relative to that run rate.

Yes, I guess, just assuming rig counts down continued to triple down is that kind of a number that should be sustainable into next year.

Worthing Jackman: Yeah. I mean, we may be settling into that 55 to 60 if crude stays around that $55 to $57 dollar barrel. You know, I've always thought we were one missile away from crude hitting 80, but 24 missiles fired a few months ago and crude went down. It's hard to call the trajectory of crude oil these days. We do seem to be in that 55 to 60 million range for the time being.

Yes, I mean, where where we may be settling into that 55 to 60 of if crude todays around that 55 to $57 barrel, yes, I've always thought we were one missile away from crude hitting 80, but what two dozen vessels slide a few months ago and crude went down so it's hard to call the trajectory of crude oil these days, but.

We do seem to be in that 55 to 60 million range for the time being.

And then maybe.

Sean Eastman: You know, maybe with, you know, what's the EBITDA implication around moving down into that 55 to 60 run rate on the revenue into next year?

What's the EBITDA implication around moving down into that 55 to 60.

On rate on the revenue into next year.

Mary Anne Whitney: Sure. Well, Sean, as you know, the very high incrementals and therefore decrementals in E&P. The way to think about it would be about a 70%, you know, EBITDA impact.

Sure well, Sean as you know very high Incrementals that and therefore, decrementals any NP the way to think about it would be about a 70%.

EBITDA impact.

Okay. Thanks.

Sean Eastman: Okay, thanks. On the acquisition contribution, I think you guys said you could get to an 8% to 10% top line all in by the time you give formal guidance in Q4. I think you guys have pretty much got 1% acquisition growth locked in for next year at this point. I'm just wondering, you know, maybe if you can parse out that 8% to 10% a little bit between the organic piece and the acquisitions, and maybe between price and volume. You know, as much color as you're willing to give would be great.

Okay, and then on the acquisition contribution I think you guys said.

You can get to an 8% to 10% topline all and by the time you give formal guidance in fourq.

I think.

You guys are pretty much got 1% acquisition growth locked in for next year at this point Im just wondering maybe you can parse out that 8% to 10% a little bit between the organic piece and.

Acquisitions, and maybe between price and volume as much color as you want to give would be great.

Mary Anne Whitney: Sure. You know, as we said, we're in a 5% type of range on price. You know, again, absent any other changes, we don't see why it wouldn't be similar to that. As you know, our volumes will reflect the tone of the underlying economy and activity levels, as we've said. You know, we consider ourselves in the band of, you know, call it ±1 there, gets you the 4% to 6% organic growth rate that we talk about. That's what's implied by that. On top of that, as you said, we have 1% rollover contributions from acquisitions already in place.

Sure.

As we as we said we were in a 5% type of range on price and again absent any other changes we don't see why wouldn't be similar to that and then as you know we are volumes will reflect the tone of the underlying economy and activity levels. As we said so we consider ourselves in the back.

And ill call, it plus or minus one they're getting the 4% to 6% organic growth.

Rate that we talk about Thats whats implied by that on top of that as you said, we have 1% rollover contributions from acquisitions already in place so that implies as wouldn't instead, we came into the year similar to last year, we could see another 3% and acquisition contribution contribution potentially as we enter the year, we'll certainly no.

Mary Anne Whitney: That implies, as Worthing said, if we came into the year similar to last year, we could see another 3% in acquisition contribution potentially as we enter the year. We'll certainly know more in February, Sean, when we give our formal guidance.

Warrant February Sean let me give our formal guidance, but as we also said on the in our prepared remarks.

Worthing Jackman: Yeah. As we also said in our prepared remarks, there's a high probability that would be in place by the time we give our guidance in February. Any additional acquisition activity for the remainder of the year, which is most of the year, will provide further upside to that.

Probability that would be in place by the time, we give our guides in February so going any additional acquisition activity for the remainder of the year, which is mostly a year will provide further upside to that.

Okay. Thanks very much appreciate it.

Sean Eastman: Okay. Thanks very much. I appreciate it.

And our next question comes fun of Michael Hoffman with Stifel. Please proceed with your question.

Operator: Our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question.

Michael Hoffman: Thank you very much for taking the questions. On free cash flow, am I thinking about this correctly? You're reaffirming the $915 million, but it includes $35 million for a contract win. The base run rate is $950 million. I think about your next year as starting on a $950 million and then whatever the opportunity is.

Thank you very much for taking the questions on free cash flow.

My thinking about this correctly, so you're reaffirming the 915, but it includes 35 million for.

Contract win.

So the base run rate is 950, so I think about your next year is starting on a 950 and then whatever the opportunities.

Worthing Jackman: That's the way to do the math on the baseline year. That's right.

That's that's the way to do the math on the on the baseline year that's right.

Worthing Jackman: That's the way to do the math on the baseline year. That's right.

Michael Hoffman: Okay. I get the noise around the RINs, recycling, and the prudence on E&P. Technically, you gave new guidance at $1.675 billion for EBITDA, and now we're looking at probably $1.660 billion is sort of the way to think of the year based on the Q4.

Okay.

And then.

I get the noise around.

Rins and recycling and the Prudence on MP and technically you gave new guidance beyond 675 for EBITDA and now we're looking at probably a billion 660 is sort of the way to think of the year based on the fourth quarter.

Michael Hoffman: Well, if you take it in the context of the entire H2, yeah, that would be on that guided EBITDA. That's, you know, 1 to 1.5% below the guided EBITDA, implied guided EBITDA H2. Obviously, you've seen us beat prior quarters this year. To the extent we beat this current outlook, you see us close the gap that you're inferring.

Well if you look at the taken in the context for the entire half of year second half a year.

Yes that would be on on that guided EBITDA. That's one on one one and half percent below the guided EBITDA implied guidance second half a year and obviously you've seen us be prior quarters. This year and so to the extent we'd be this killing outlook you see us close the gap that you refer okay and then.

Michael Hoffman: Okay. What is it that you can do around pricing gives confidence to the market that 5% is a sustainable number? What, help everybody remember what it is you can do about your business and why 5%'s a good number.

What does.

You can do.

Around pricing, then I'll give us confidence the market that 5% as a sustainable number what would now everybody remember why that is you can do about your business and why 5%. It's a good number.

Michael Hoffman: Well, the first thing I'd point to is the fact that within our exclusive market model, there alone, you know, we're printing 3.5%, right? That's a market where you have effectively no churn and 100% stickiness. Just right off the bat right there, you know, we're reporting kind of comparably better pricing than our peers just in that exclusive market portion. You look at our competitive market portion, you have a very high percentage of that being rollover contribution from what we've already done year to date in 2019. That puts you know, probably 70%, 60% to 70% on the way to delivering all the price between our exclusive markets as well as the rollover before the year even starts.

Firstly I'd point to is the fact that within our exclusive market model. There alone. We are printing three and a half reset right. That's a market where you have effectively no churn of 100% sticking those and so just right off the bat right there.

You were reporter kind of comparatively better pricing than our peers, just an exclusive market portion.

You look at competitive market portion you have a very high percentage that being rollover contribution from what we've already done year to date in 2019, and so that puts you probably 70%, 60% to 70% on the way to delivering all the price between us and some markets as well as the rollover before the year even starts.

Worthing Jackman: The majority of the balance of what we do, we do early in the year. By the time we get to a February call, you know, more likely 80-85% of what we're gonna do for the full year is already done, and with remaining pricing for the year, at least that's scheduled, based on contracts, rollover or adjust. Obviously, you've seen us in prior years to the extent that something surprises us, and we have to go out and get it. You've seen our folks with the discipline, and the focus on execution to go and get it. We're not at, you know, we're not anticipating much of a seismic change in price to the extent, you know, you saw us go to 5.2% the most recent quarter.

The majority of a balance what we do we do early in the year and so that's how we get to a February call.

More likely 80, 85% of what we're going to do for the full years already done.

And with remaining pricing for the year Elisa schedule.

Based on contracts rollover or adjust and obviously you've seen us in prior years to the extent that something surprises us and we have to go together you've seen our folks with a discipline.

And the focus on execution to go and get it.

We're not it we're not anticipating what sort of a seismic change in pricing that excess.

We you saw US go to 5.2% the most recent quarter.

Worthing Jackman: You know, we've been holding serve around that 5% now for the past almost two years.

So we've been holding serve around that 5% now for the past almost two years.

Michael Hoffman: Okay. Thank you on that. Then on volume, you made a point of drawing out some specific data about trends in commercial, which I think are important, that if you're getting service interval upgrades, that's an underlying volume driver. You pointed out the MSW strength. When you talk about a -1 to +1 for the Q4 or for next year as a range, underlying MSW is still stable and in line with the economy, indicative of what you said in your small container business, and the variability is around C&D and special waste, which is what I'm assuming.

Okay. Thank you in that and then on volume you made a point of drawing out some specific data about trends in commercial which I think are important that if you're getting service interval upgrades. That's an underlying volume driver your pointed out the MSW strength.

So the when when you talk about a negative one to positive one for the fourth quarter or for next year as a range underlying MSW still stable and lot.

For the economy.

Indicative of what you said in your small container business in the variability is around CND and special waste is what I'm assuming.

Worthing Jackman: Well, I think you just answered your own question. That's right. I mean, that's what the data shows us, and that's what we called out for Q3.

I think you just answered your question that's right.

That's the data shows us and Thats, what we called out for Q3.

Michael Hoffman: Okay. I just wanna make sure that the market's not grasping a hold of a possible negative volume and going, "Oh my gosh, there's an economic indicator here," when underlying MSW, which is driven by the consumer, is stable.

Okay, I just want to make sure the market started grasping hold of the possible negative I'm going Oh, My gosh, there's an economic indicator here when underlying MSW, which is driven by the consumer stable.

Worthing Jackman: Right. You know, look, we're always cautious. Look, we were cautious about the trajectory of the economy when we were 4 and 5 years into the recovery. Now we're 8 years into the recovery, and our cautiousness hasn't changed. I mean, we just believe it's always prudent to run a business not assuming certain growth factors. If we do get those growth factors, let that all be upside.

Right, but what we're always cautious what we're cautious about the trajectory of economy, where we were four and five years into the into the recovery now rigors of the recovery in our cost. This hasnt changed we just we believe it's always prudent.

To run a business not assuming certain growth factors and if we do get those growth factors what that I'll be upside.

Michael Hoffman: Okay. Thanks for taking my questions.

Okay. Thanks for taking my questions.

Worthing Jackman: Sure.

Sure.

As a reminder to register for a question press the one for on your telephone and our next question comes lineup Derek Spronck with RBC. Please proceed.

Operator: As a reminder, to register for a question, press star one on your telephone. Our next question comes from the line of Derek Spronck with RBC. Please proceed.

Derek Spronck: Okay. Thank you for taking my questions. Worthing, pricing in Canada at 6.6% was pretty strong, US 4.8%. Any differences in the two regional dynamics there?

Okay. Thank you for taking my questions.

Where the pricing than Canada at 6.6%.

I was pretty strong us 4.8% any any differences in the two regional dynamics there.

Worthing Jackman: You know, I'd say in Canada, you know, we're through what I would call kind of repricing the book that we inherited three years ago. I would certainly expect the pricing strength in Canada to moderate somewhat as we look at the upcoming year. You know, similar to what we've seen in the competitive markets within the US, which would move that pricing closer to 5%. Again, hats off to our guys for making the effort over the past three years for really getting the quality of revenue in line with the cost structure and the capital needs of the business.

Yes, I'd say candidates.

Through.

What I would call kind of replacing the book that we inherited three years ago.

I would certainly expect the pricing strength in Canada to moderate somewhat as we look at the upcoming year.

Similar to what we're seeing the competitive markets within the U.S. was.

Moved up pricing closer to 5%.

Again.

I thought through our guys for making the effort over the past three years.

For really getting the quality of revenue would lie with the cost structure and the capital needs of the business.

Derek Spronck: Okay. Acquisition multiples, are you seeing any movement on or around seller expectations, around the acquisition multiples they're looking for?

Okay and acquisition multiples.

Are you seeing any movement around seller expectations around the acquisition multiples are they're looking for.

Worthing Jackman: Well, look, I think we've been consistent over the past couple years saying, without a doubt, multiples have moved up, you know, about a turn to a turn and a half. If high-quality acquisitions, whether it be franchise or larger integrated, were running, you know, two and three years ago in that 8 to 8.5x range. When you look at the quality of the assets that are now being bought because many sellers have been reinvesting at a high clip in their business. The quality of assets has moved multiples up for those companies that do have high-quality assets, about half a turn. I'd say tax law change has probably moved it up another turn as well.

Well I think we've been consistent over the past couple of years, saying without a doubt multiples have moved up.

About a turn the return of happen so.

Hi quality acquisitions.

The franchise a larger integrated.

We're running two and three years ago in that 8.5 times range. When you look at the quality of the assets that are now being.

Being bought because many purchasers have been invested reinvesting make sellers have been reinvesting at a high clip of their business. So the quality of assets has moved multiples up for those companies that do have high quality assets about a half a turn I'd say tax law changes probably moved it up another turn as well and so that gets you that kind of 10 times.

Worthing Jackman: That gets you that kind of 10x ±0.5 turn for high-quality operations. You know, tuck-ins, really no change in that marketplace. Those still run between 4x and 6x. The overall multiple, you know, that we'll pay on any kind of portfolio of outlays really is dependent upon, you know, the profile of what's done in the year.

Plus or minus a half turn for high quality.

Operations.

Tuck ins really no change in that marketplace. Those full run between four and six times. So the overall multiple year that will pay on any kind of portfolio of outlays really is dependent upon the profile of what's done a year.

Derek Spronck: Yeah. Okay. That's helpful.

Okay, that's helpful and it folks that it's hard to deliver meaningful value creation.

Worthing Jackman: You know, folks, it's hard to deliver meaningful value creation, you know, as you see, multiples creep much higher than that. You know, you get kind of indifferent on buying back stock, relative to outlays above those kind of multiples.

As you see.

Multiples creep.

Much higher than that and so you guys kind of in different on buying back stock.

Relative to two outlays above those kind of multiples.

Well that's good color. Thanks worthy and just couple of more quickly from me there was about 12 million impairment charge maybe.

Derek Spronck: We had a good color. Thanks, Worthing. Just a couple more quickly for me. There was another $12 million impairment charge. Maybe provide a little color on that. Then special waste, maybe talk a little bit about the visibility you have and why you think it was a bit of a pull forward here, in Q3. Thanks.

Provide a little color on that and then special waste.

Maybe talk a little bit about the visibility you have and why you think it was a bit of a pull forward here.

The third quarter. Thanks, sure so starting with the impairment charge as as you know Derrick as living said in his prepared remarks, we had we decided to forgo the opportunity to continue pursuing any NP project in the Bakken. So that was the majority of that write off that was a permit we had held for a while ended.

Mary Anne Whitney: Sure. Starting with the impairment charges, as you note, Derek, as Worthing said in his prepared remarks, we decided to forgo the opportunity to continue pursuing an E&P project in the Bakken. That was the majority of that write-off. That was a permit we had held for a while, and it made the determination not to move forward on it in the quarter. That's the impairment. To your question on special waste. As you know, special waste can be lumpy. It's market dependent. We saw several markets in Q3 where you had outsized activity. You know, in Q2, we talked about outsized special waste that may have been pent up from earlier in the year.

The determination not to move forward on in the quarter. So thats the impairment and then to your question on special waste as you know special waste can be lumpy its market dependent we said several markets in Q3, where you had outsized activity in Q2, we talked about outside special ways that may have been pent up from earlier in the year when you come.

Mary Anne Whitney: When you come through a few quarters like that, where you don't see additional projects backfilling, that's when you tend to be more cautious, and that's what we're facing right now. When we look at tougher comps year over year in several markets, and as I said, just having come through some, you know, increases in activity in those markets that Worthing mentioned, included in the Midwest, Minneapolis, and the Colorado market, where we've had strong special waste for several quarters. We're just cautious entering Q4 until we see the additional activity come.

Through a few quarters like that where you don't see additional projects Backfilling.

Yeah, that's when you tend to be more cautious and that's what we're facing right now and so when we look at tougher comps year over year in several markets and as I said, just having come through some some.

Increases in activity in those markets that were they mentioned included in the Midwest in Minneapolis, and the Colorado market, where we've had strong special waste for several quarters. We're just cautious entering Q4 until we see the additional activity come.

Derek Spronck: Okay. Makes sense. Thanks, Worthing, and thanks, Mary Anne. I'll turn it over.

Okay makes sense, thanks, where they make Randy I'll turn it over.

Mary Anne Whitney: Sure.

Sure.

Your next question comes one of Brian Maguire with Goldman Sachs. Please proceed your question.

Operator: Our next question comes from Brian Maguire with Goldman Sachs. Please proceed with your question.

Brian Maguire: Hey, good morning, everyone.

Hi, good morning, everyone.

Worthing Jackman: Hey, good morning.

Mary Anne Whitney: Good morning.

Brian Maguire: Worthing, I was hoping to get an update on the progress on onboarding some of those new contract wins you talked about last quarter. I know you spent some CapEx on it this year. Just wondered on how that progress is going, and would you still expect that to be, I think you talked about a 40 to 50 basis point benefit for volumes next year. Would that number be additive to the comments you made earlier about kind of the overall volumes next year, you know, being in line with the overall economy? Is that, you know, those new business wins additive to that, or is that kind of included in that volume comment?

Good morning.

When I was hoping to get an update on.

Progress on Onboarding Onboarding some of those new contract wins, you talked about last quarter I know you spend some capex on.

This year just.

I wondered on how that progress is going on which is still expect that to be I think you talked about a 40 to 50 basis point.

Benefit for volumes next year would that number be additive to the comments you made earlier about kind of the overall volumes next year, yes big in line with the the overall economy is that.

Business wins additive to that or is that kind of included in that volume comments.

Worthing Jackman: Yeah, that's first off, looking at next year, when we say overall 4% to 6% and organic growth, meaning price plus volume, with 5 of that being price, the good news is, to your point, you're right. We're already spotted, you know, 40 or 50 basis points of volume growth because of those contract wins. Kind of that encourages me to think that, you know, we're at the midpoint or better of that 4% to 6% range. Again, we're not in 2020 yet. You know, one of the contracts that that's in that we're in the startup period right now on that.

Thats a first off looking into next year, when we say overall, 4% to 6% and.

Organic growth new price plus volume with five of that being price. The good news is to your point, you're right. We're already spotted 40 or 50 basis points of volume growth because of those contract wins and so that encourages me to think that right at the midpoint of better of that 4% to 6% range, but again, we're not in 2020 yet.

One of the contracts that that's in that.

We're in the startup period right now on that.

Worthing Jackman: You know, again, our folks in that marketplace have done a fantastic job going from no presence in the market and a cold start to getting the trucks, getting the containers, onboarding, you know, a whole new set of employees, and successfully rolling out that contract. You know, the Q1 is always the most challenging quarter in that, so we're cautious about that. I'd tell you, yeah, when that thing turned on, our guys did a phenomenal job in that marketplace, and so you're already seeing the benefit of one of those starting off here in Q4.

You know again, our folks that marketplace.

Fantastic job going from no presence in the market and a cold start to get in the trucks getting the containers onboarding.

All new set of employees and successfully rolling out that contract and.

The first quarter is always most challenging quarter and thats over cautious about that but I'd say.

With that being turned on our guys did a phenomenal job in the marketplace and so you're already seeing the benefit of one of those starting off here in Q4.

Brian Maguire: Okay, great. I appreciate the color on volume and pricing for 2020. Any thoughts on where cost inflation might go or maybe kind of an exit rate as we're leaving 2019 on cost inflation?

Okay great.

And I appreciate the color on on volume and pricing for 2020, any thoughts on where cost deflation mico or or maybe kind of an exit rate as we're leaving 2019 on cost inflation.

Worthing Jackman: You know, we're still seeing. First of all, I'd say the all-in wage escalation in 2020 should not be as heavy as we're seeing in 2019, because part of the wage escalation we're seeing in 2019 is our 100% match in the 401(k), right? That's been about 20 basis points drag on the overall margins of the company this year as we went to a 100% match this year on 401(k) contributions. If you strip that away for a second, because that'll be a tailwind in 2020, on the actual wage escalations alone, you know, they're still, you know, can be ranging between 3% and 6%, depending upon, you know, the profile, the position within the company or the region of the country it's operating in.

We're still seeing.

First I'd say the old in wage escalation in 2020 should not be is as heavy as we're seeing in 2019, because part of the wage escalators. We're seeing the 2018 as our is a 100% mentioned before one k. right and that was that's been about 20 basis point drag on the overall margins of the company. This year as went to 100% match this year.

On the four one k. contributions, but if you strip that away for a second because that will be a tailwind in 2020 or the actual wage escalations alone, yes, theres still can be ranging between three and 6% depending upon.

The profile of a position within the company or the region of the country its operating in.

Worthing Jackman: Barring, you know, unless something changes in the macro that, you know, or an immigration law, which I don't expect next year, you know, I don't see any perceivable change in the pressures on wages themselves.

The borrowing.

Something changes in the macro that.

You know or on immigration law, which I don't expect next year.

I don't see any foreseeable change in the in the pressures on wages themselves.

Okay last one from me.

Brian Maguire: Okay. Just last one from me. You know, based on the comments about the acquisitions being like a 55 basis point drag on margins, it looks like those acquisitions are coming in at about a 23.5% EBITDA margin. Assuming that sounds about right, is that sort of representative of what we should expect on acquisitions in the current environment? And are the deals you're doing today any different or better or worse than the deals you've done historically?

Based on the comments about the acquisitions being like a 55 basis point drag on margins. It looks like does acquisitions are coming in at about a 23.5% EBITDA margin.

Assuming that sounds about right is that sort of representative of what we should expect on acquisitions in the current environment.

And our the deals you're doing today, any different or better or worse than the deals you've done historically.

Worthing Jackman: Yeah, it really depends on the profile. First off, you're right on what we've bought because the vast majority of what's in the current numbers is collection-oriented. As you know, collection can run in that 22% to 25% range, depending upon the county, part of the country. In some parts of the country, collection only can run 30%+. It also depends on where we're getting those collection deals done. As Mary Anne said, we already go into the year with about 1% top line growth on deals done to date. That's about 10 basis points drag as you look at next year's numbers from a margin standpoint. The pipeline right now is across the board. There's collection only that runs in the low to mid-twenties.

Yes really depends on the profile first off you're right on what we bought because the vast majority.

What's in the current numbers is collection oriented and as you know collection can run in that 20% to 25% range, depending upon the conch part of the country in some parts of the country Fluxional. The can run up 30% plus so it also depends on where we're getting those collection deals done.

You know as Mary Anne said, we're already go into the year with about 1% topline growth on deals done today, that's about 10 basis point drag as you look at next year's numbers from a margin standpoint.

The pipeline right now is across the board.

No. There is theres collection only that runs in the low to mid twenties, there's some integrateds that that run 30, plus there. So collection only that runs 30 plus as well.

Worthing Jackman: There are some integrateds that run 30+. There's some collection only that runs 30+ as well. Again, it's not uncommon, though, as you think about acquisitions in general or acquisitions that come in at margins that are lower than our integrated profile. We generally move those margins up a little bit over time. You know, the entry, it's hard to bring a 24% company to a 31% company, right? Maybe a 24 becomes 26 in 2 or 3 years. You know, again, the impact on margins next year will depend on the profile of what we announce in February.

So I guess not uncommon those you think about acquisitions in general for acquisitions to come in at margins that are lower than that our integrated profile.

And we generally move those margins up a little bit overtime.

But the entry it's hard to bring a 24% company to a 31% company right, maybe a 24 becomes 26 in two or three years.

But.

Again, the impact on margins next year will depend on a pro follow what we announced in February .

Brian Maguire: All right. Thanks for the color. Go Astros.

Alright, thanks for the color Ghost Rose.

And our next question comes one of Noah Kaye with Oppenheimer. Please proceed with the question.

Operator: Our next question comes from Noah Kaye with Oppenheimer. Please proceed with your question.

Noah Kaye: Thanks. Hey, Worthing, just to follow up on that last point, you gave good color on the acquisition pipeline. Just so we understand, no super large targets, I would imagine in there, right? In terms of, you know, potential acquired revenues. I imagine this is a fairly diversified mix that you have the $600 million in offers out to.

Thanks, Hey, where than just a follow up on that last point you gave good color on the acquisition pipeline, but just so we understand.

Yeah, no super large targets I would imagine in there right in terms of.

Potential acquired revenues imagine this is a fairly.

Diversified mix that you have the 600 million and offers out too.

Worthing Jackman: Yeah, I mean, you've got, you know, companies as small as, you know, $10 to 15 million, excluding a couple of small traditional tuck-ins. You've got some new market entries that are $30 to 40 million. And, you know, a couple of them that we're looking at that are potentially larger than that. But nothing, you know, like an American Disposal Services that's $200 million, $180 or 200 million in revenue, that we're looking at right now. And again, you know, we talk about things that we're looking at, obviously, we don't control anything that's happening with Advanced Disposal Services, and so nothing we talked about from a pipeline or from anything else like that would ever include anything around Advanced Disposal Services.

Yes, maybe you've got.

Companies those as small as you know 10 to 15 million.

Excluding a couple of small traditional tuck ins you've got some new market entries that are 30 to 40 million.

And.

A couple of that we're looking at that are potentially larger than that.

But nothing.

Nothing like at American, that's 200 million 180, or 200 million in revenue.

We're looking at right now and again.

Well look and we talk about things that we're looking at.

Obviously.

We don't control everything that's happening with the advance disposal and so nothing we talked about pipeline or for moving up like that whatever include anything around advanced.

Noah Kaye: Yep. Yep, thanks for clarifying that for us. And then that kind of feeds into this question around capital allocation. You mentioned it earlier, but you know, I think even if you continue to spend this robust level on M&A that you're talking about, you know, your leverage is still gonna be kind of on the lower end of what it's been historically. I know you're not really constrained or dictated by leverage, but you know, at what point do you feel it's gonna make sense to, you know, at least resume some share buybacks, just kind of given your comments earlier?

Yes.

Thanks for clarifying that for us.

Then that kind of feeds into this question around capital allocation you mentioned it earlier, but I.

I think even if you continue to spend this robust level on M&A that you're talking about your leverage is still going to be kind of on the lower end of what it's been historically and I know you're not really constrained are dictated by leverage but.

At what point do you feel it's going to make sense to at least resume some share buybacks.

Just given your comments earlier.

Worthing Jackman: Sure. We've been consistent over the past couple of years noting that we thought 2017 through 2020 would be periods of outsized M&A activity. Obviously, it's uncertain how much we lay out, but you know, we've been laying out, in some cases, $1 billion a year. We feel fortunate in that we're able to make those outlays and still drive leverage lower, number one. Number two, you know, it's still not clear to us whether we spend half a $1 billion in the next twelve months or spend $1.5 billion in the next twelve months. We like the flexibility we have around deploying our capital for appropriately priced and strategically consistent M&A, and that remains no different. Obviously, we recognize that stock markets don't always go up and to the right.

Okay consistent.

Over the past couple of years, noting that we thought 17 through 20 would be periods of outsized M&A activity.

And obviously, it's uncertain how much we layout, but we've been laying out some cases $1 billion a year.

And so we feel fortunate in that we're able to make those outlays and still drive leverage lower number one number two you know, it's still not clear to us whether we spend so half a billion in the next 12 months or spend a 1 billion and a half of the next 12 months and so we as we'd like to flexibility we have.

Around deploying our capital for appropriately price and strategically consistent M&A.

Remains no different obviously, we recognize that stock markets don't always go up into the right.

Worthing Jackman: I mean, there's even chatter this morning of the old, what happens if the Fed doesn't increase or decrease rates this coming week, and what does that mean in the stock market? By the way, it just, put simply, it means that, you know, we like to step in and buy our stock when there's blood on the screen and, you know, stocks dislocate. You know, we'll just be patient around that. We're the ultimate long-term holder of our stock, and we can pick our spots around that. We do agree, as we say in the press release and in our prepared remarks, that you'll see us increase the return of capital to shareholders, and that will be through opportunistic share repurchases.

I mean as even shadow this morning of the old what happens if the fed does it increase or decrease rates this coming week and what does that mean of the stock market and so.

So by the way, it's just put simply it means that.

We'd like step in and by our stock when those blood on the screen and.

And you know spots dislocate.

And we'll just be patient around that we were the ultimate long term holder of our stock and we can pick our spots around that but we do agree as we say in the press release and in our prepared remarks that you'll see us increase.

Pick up most shareholders and that will be through opportunistic share repurchases and obviously at our at our leverage we can easily spend a billion dollars 1 billion, an add on acquisitions and still spend 1 billion plus on stock repurchase if we wanted to say comfortably within any leverage targets that we have so we were very fortunate enough flexibility.

Worthing Jackman: Obviously, at our low leverage, we can easily spend $1 billion to $1.5 billion on acquisitions and still spend $1 billion plus on stock repurchase if we wanted to and stay comfortably within any leverage targets that we have. We're very fortunate in our flexibility.

Yes.

Noah Kaye: Yeah. Thanks very much for the color.

Thanks, very much the color.

As a reminder to register for question, Chris The one followed by the four on your telephone and our next question comes left Mark level or Scotia Bank. Please proceed with your question.

Operator: As a reminder, to register for a question, press 1 followed by 4 on your telephone. Our next question comes from Mark Neville with Scotiabank. Please proceed with your question.

Mark Neville: Hey, good morning. I apologize, there was a few numbers I'd missed. I mean, I think you hit on a few in the prior question, but in terms of the M&A outlay, there was, I think you said $600 million of potential or outlays or offers made currently, which if hit would be sort of 3% revenue accretive for next year. Do I have those numbers right?

Hi, good morning.

I apologize I just as it was a few numbers I'd missed I mean, I think you hit on a shoe in the prior question but.

In terms of the M&A outlay. There was I think you said 600 million.

Potential.

Or laser offers made currently.

Which if it hits would be sort of 3% revenue accretive for next year, which I have those on me right.

Right, what we said which was already in place about a 1% rollover contribution from deals that we close.

Mary Anne Whitney: Right. What we said was there's already in place about a 1% rollover contribution from deals that we closed.

Mark Neville: Right.

Mary Anne Whitney: We said there's a potential for that much more. That's the right way to think about it, yes.

And we said that the potential for that much more that's the right way to think about it yes.

Mark Neville: Okay, that's tied to the $600 million, which again, a diversified mix and none of the Advanced in there.

Okay, and Thats tied to the 600 million, which again a diversified mix another the advance in there.

Mary Anne Whitney: That's correct.

Mark Neville: ...in terms of the pipeline. Yeah, okay. Okay. Maybe just on the margin for next year, again, you've said underlying expansion. When I think about it, a 20 basis points sort of bump from the absence of the 401 match, 10 basis points hit from rollover of M&A. You start at 10, and you add whatever you get, sort of pricing volume, sort of land wherever we may land. Is that, again, that's how to think about it?

That's correct the pipeline yeah, okay. Okay.

Maybe just on the margin for next year again, you as you've said.

Underlying expansion, so when thinking about it.

20 basis point sort of bumps in the absence of the for a one match 10 basis points hit from roller of M&A to start a 10, new added whatever you get sort of pricing volume sort of lands, where we may last so is that again thats how to think about it.

Mary Anne Whitney: Sure, that's a fair way to think about it. I'd remind you that, for instance, in Q3, we said the underlying margins in solid waste collection, transfer, and disposal were up about 60 basis points. Of course, you'd wanna layer in whatever your view is on RINs and recycled commodities and, you know.

Sure that's a fair way to think about it and I remind you that for instance in Q3, we said the underlying.

Regions and solid waste collection transfer and disposal were up about 60 basis points.

And then of course you'd want to layer in whatever your view is on Rins and recycle commodities and what that does at current levels or whether you're in whatever you're forecasting and then of course European T. expectations would also impact margins, but those are the guys that yes.

Mark Neville: Okay

Mary Anne Whitney: ...what that does at current levels or whether you're, whatever you're forecasting. Then, of course, your E&P expectations would also impact margins.

Mark Neville: Okay.

Mary Anne Whitney: Those are the pieces, yeah.

Mark Neville: Yeah. The recycling this quarter was an 80 basis points hit?

And the recycling this quarter was an 80 basis point head.

Mary Anne Whitney: That's correct. Remember, as we said, that it's not only the decrease in the revenue associated with the sale of recycled commodities, but then we actually have incremental expenses on top of that associated with third-party fees and the cost to get rid of some of the commodities. That's why you saw the decrementals of about 150% on that $9 million or $10 million decrease year over year in recycled commodities.

That's correct remember as we said that it's not only the decrease in the revenue associated with the sale of recycled commodity, but then we actually actually an incremental expenses on top of that associated with third party fees on the cost to get rid of some of the commodities and that's why you said the decrementals of about 150% on that nine.

In our 10 million decrease year over year in recycled commodity and we said that next year. The headwind is less than half of that for the full year, which means it's probably all of that for the first half of the or thereabouts because of the rollover.

Worthing Jackman: We said that next year, the headwind is less than half of that for the full year, which means it's probably all of that for the H1 or thereabout because of the rollover, and then, you know, assuming zero drag in the H2 to a slightly positive.

And you know assuming zero drag in the second half of the year to a slightly slightly positive.

Mark Neville: Okay. I mean, maybe I can go back and check my numbers, but like what would be sort of, again, the half sort of headwind? What would be sort of the anticipated full year hit this year for from sort of recycling and the RINs?

Okay, I mean, I can go back and check my numbers really what would be sort of the half sort of headwind what would be sort of the anticipated full year should this year far from sort of recycling.

On the Rins.

Mary Anne Whitney: If I were just to look at recycling and RINs at current levels, the headwind for next year is about $20 to 25 million. That's revenue and EBITDA, again the EBITDA being a little worse than the revenue as I described.

So if I would just to look at recycling and Rins at current level. The headwind for next year is about 20 to 25 million. So thats revenue and EBITDA again, the EBITDA being a little worse on the revenue as I described and this years had when it was more than twice the best practice.

Mark Neville: Right.

Worthing Jackman: This year's headwind was more than twice that.

Mary Anne Whitney: That's correct.

Mark Neville: Okay, sorry, I also missed the Q4 adjusted EBITDA guide.

Im sorry, I also missed the Q4 adjusted EBITDA Guide.

That's 405 million okay.

Mary Anne Whitney: That's $405 million.

Mark Neville: Okay. All right. Thank you for taking my questions.

Alright, thanks for taking my questions.

Worthing Jackman: Sure.

Sure.

And Mr. Jackman there are no other questions at this time I'll turn the call back over to you.

Operator: Mr. Jackman, there are no other questions at this time. I'll turn the call back over to you.

Worthing Jackman: Terrific. Well, 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 Anne and I are available today to answer any direct questions that we did not cover that we're allowed to answer under Regulation FD, Reg G, and the applicable securities laws in Canada. We thank you again for your interest, and we look forward to speaking with you at an upcoming investor conference or on our next earnings call. Thank you.

Terrific work there are no further questions on behalf of our entire management team. We appreciate your listening to and interest in the in the call today, Marianne and I are available today to answer any direct questions that we did not cover that were allowed to answer other Reg FD Reg G and the applicable securities laws in Canada. We thank you again for your interest and we'll look forward to speaking with you.

You had an upcoming Investor conference or next earnings call.

Thank you.

Thank you that does conclude the call for today, we thank you for your participation and lastly, please disconnect your lines have a great.

Operator: Thank you. That does conclude the call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.

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