Q4 2019 Earnings Call

and free cash flow guy

Despite continued headwinds from lowered recycled commodity prices by successfully pricing in excess of cost inflation in 2019. We expand it underlying ebitda. Margin by 70 basis points in generated over 1.2 billion dollars of adjusted free cash flow or the full year. We invested over half a billion dollars in Acquisitions and return the remaining cash flow to our shareholders through dividends and opportunistic share repurchases. We continue to believe that discipline investment acquisition with attractive returns is the best use of free cash flow to increase long-term shareholder value are strong finish to 2019 sets us up for continued success in 2020.

Given the underlying momentum in our business. We are well-positioned to deliver approximately 5% top line revenue growth in nearly 6% on top of that page answering twenty-twenty with one of the strongest acquisition pipelines. We've seen in years.

We Believe

Our 2020 guidance by continuing to prioritize the safety of our people and communities Above All Else attracting value-oriented customers to drive profitable volume growth leveraging technology to empower employee employees increase connectivity with our customers and drive operational excellence and finally continue to make discipline Aqueduct Investments to grow free cash flow and drive sustainable long-term value.

These priorities execution of our profitable growth through differentiation strategy. We believe our 2019 results clearly demonstrate the effectiveness of our strategies in our our team's ability to consistently execute against it. For example, the most critical component to successfully executing our strategy is our people. I believe that engaged and diverse Workforce is the greatest indicator of our success. We know that our business units with higher Employee Engagement have fewer safety incidents that our customer service in better financial performance in 2019. We improved our overall Employee Engagement score by over 100 basis points to 86% which is well worth of national norms, and it's high-performing for the industry. We also reduced driver turn over by 130 basis points versus the prior-year

moreover

The team continue to receive notable national awards and recognition of the inclusive culture. We are building here at Republic.

These results reflect the cumulative benefit of the Investments we've made in our people over the last decade.

We will continue to invest in our people and culture which will further enhance our reputation as an employer of choice. Our strategy also includes Investments to improve the customer experience with Drive operational excellence and enhance our leading Market position. I'll turn the call over to John to walk you through our 2019 results in each of those strategic areas name is Don mentioned. We've been investing in the customer experience for several years now having a passion for our customers is core to our strategy.

We Know by offering differentiated products services and experiences designed to meet our customers wants and needs we tried customer loyalty and increase willingness to pay May 2019, we continue to invest in and enhance our customer-facing technology including our website and mobile app

we all

So obtained our highest level of pricing in the last ten years while maintaining our industry-leading customer churn of 7%

Another key component of our strategy is delivering durable operational excellence this enables us to deliver consistent high-quality service to our customers while lowering your operating costs in 2019. We successfully managed our cost inflation and drove solid operating leverage in the business. We also began to roll out our new rides platform to our dispatch operations.

This new technology equips our dispatchers with more real-time routing information and enhance data visualization tools. It also supports additional mobile and end cap technology package, which we will begin rolling out in our large container business later this year.

Over time this platform will further Empower employees Transformer operations, improve productivity and increased connectivity with our customers.

Additionally in 2019. We raised the bar with our latest long-term sustainability goals. These goals address are most critical sustainability risks and opportunities and our life with the United Nations sustainable development goals We Believe each new goal has a potential to significantly benefit the environment and Society while enhancing the foundation and profitability of odd business over the long term.

Finally in 2019. We further strengthened our leading Market position by strategically investing over $525 million dollars in value enhancing acquisitions.

Through these Investments. We increased our operating density in existing markets enter new geographical markets and increase the scale of our Downstream Environmental Services offerings.

As you can see the Investments we've made over the years in our people the customer experience operational excellence and our Market position are delivering tangible results. They also provide a solid platform for continued growth in the business next. I'd like to discuss our fourth quarter operating performance during the quarter a pricing environment remain favorable and we continue to price in excess of our cost inflation core price which represents price increases to our same-store customers net of rollbacks was 4.8% off.

this included

Open market core price the 5.8% and restricted core price of 3.2%

I restricted core price reflects is significant progress. We've made in repricing and restructuring our Municipal recycling collection contracts.

Restricted car price also reflects the continued benefits of moving away from CPI based pricing to an alternative pricing mechanism to date including both collection and Disposal related contracts. We've converted $780 billion dollars or 31% of our CPI based book of business. This represents a $120 increase over the prior-year next average yield for the quarter was 2.6% average yield measures the change in average price per unit and contemplate the impact of customer turn.

Average yield was strongest in our small container collection and landfill MSW businesses.

Small container average yield was 4.1% and landfill MSW average yield was 3.4%

This is the fourth straight quarter landfill MSW pricing has been greater than 3% Looking forward in 2020. We expect average yield of approximately 3% off. We will achieve this by continue to focus on enhancing the customer experience and delivering Superior Service partnering with our Municipal recycling customers to build more durable economically sustainable recycling programs.

And pricing our products and services to ensure. We earn an appropriate return on our capital investment.

Turning to volume total volume and the quarter decreased twenty basis points versus the prior-year we continue to intentionally shed certain volumes, which we view as non regrettable losses off these included residential collection contracts that did not meet our return criteria and work performed on behalf of brokers in our small container business.

normal

Using for these non regrettable losses underlying volumes increased Thirty basis points.

On the collection side of the business large container volumes increased 80 basis points versus the prior-year and underlying small container volumes increased approximately 60 basis points off after normalizing for broker related lawsuits.

As expected residential collection volumes decreased 2.2% due to non regrettable contract losses.

On the disposal side of the business and the fourth quarter MSW volumes increased 40 basis points and C&D volumes increased 16% versus the prior-year.

As anticipated special waste volumes were relatively flat versus the prior-year.

Looking forward overall in 2020. We expect total volume growth of approximately seventy-five to a hundred basis points.

Turning to recycling in the fourth quarter. Our average commodity price per ton was $66. This represented a $6 sequential decrease from the third quarter and a $40 decrease versus the prior-year importantly we continue to make progress transforming recycling into a more durable economically sustainable business model in a result of the team's efforts are expected earnings sensitivity to changes in commodity prices has decreased by over 25%

every

I'll change in our average price per ton is now equal to approximately $0.03 of annual EPS or $13 of ebitda.

For purposes of our 2020 guidance. We're assuming commodity prices remain at Q4 levels of approximately $65 per ton.

This represents a decrease of $12 per ton versus 2019 and will result in an even a headwind of approximately $15.

any recovery and recycling commodity prices would be upside to our 2020 guidance next turn into our Environmental Services business in the fourth quarter us recounts an associate drilling activity continued to decline as expected revenues in the Upstream portion of our Environmental Services business decreased versus the prior-year off in the fourth quarter this resulted in a fifty basis point headwind to total revenue growth

Relative to our preliminary Outlook. We're now taking a more conservative view regarding drilling activity and are assuming it will remain lower for longer.

Finally turning the margins are adjusted ebitda. Margin in the fourth quarter was 28.8% and increased 140 basis points versus the prior-year.

This included a net benefit from CNG tax credits and sixty basis points and a headwind from lower commodity prices of fifty basis points after normalizing for these two items underlying ebitda margin expanded 130 basis points.

By effectively executing our operating plan. We successfully managed their cost inflation and drove operating leverage across nearly all cost categories with that. I will now turn the call over to suck to discuss our 2019 Financial results and twenty twenty guidance and greater detail. Thanks John adjusted EPS for the full year was $3.34. And in fact net benefit associated with CNG tax credits in December. CNG tax credits were enacted retroactively to 2018 and will be available through Thursday. Our adjusted ebitda. Margin for the 4 year was 28.3% and increased Thirty basis points versus the prior-year this included underlying an expansion of 70 basis points.

this is

Partially offset by a 40 basis point headwind from lower recycled commodity prices. The CNG tax credit did not impact the year over your change in margin.

I just a free cash flow for the full year was one point two billion dollars, but does the free cash flow was favorable relative to our expectations primarily hit the lower cash taxes income taxes were favorably impacted in the 4th quarter by acquisition-related bonus depreciation.

At year-end leverage was three times and within our optimal range of 2 and 1/2 to 3 times.

Next turning to our 2020 Guidance the current economic backdrop remained supportive of continued growth consumer sentiment is strong unemployment is Volvo and housing starts are up year-over-year give this favorable backdrop for the year. We expect total revenue growth approximately 4.25 to 5% off and adjusted ebitda. Margin expansion of 2240 basis points. We expect this level of warranty expansion despite approximately 30 basis points of headwind going to age twenty twenty. These headwinds include lower recycled commodity prices a decrease in Upstream Environmental Services revenues.

and in additional work

Okay.

Relatives are preliminary Outlook. We increased our adjusted EPS guidance range by $0.02 to $3.48. The $3.53. The issue is due to a $0.04 benefit from CNG tax credits, which is partially offset by an additional $0.02 headwind from our Upstream Environmental Services business month. We also increase our adjusted free cash flow guidance by twenty five million dollars to 1.175 to 1.2 to 5 billion dollars. The increase is due to age Thirty million dollar benefit from CNG tank credits partially offset by an additional $5 headwind from our Upstream Environmental Services business.

Keep in mind or adjusted free cash flow guides for 2020 includes a hundred million dollars of capex associated with no reinvestment of tax reform savings off these funds represent continued Investments and updated locker rooms break rooms training facilities and equipment for the benefit of our front-line employees wage hundred million dollar capital investment will not reoccur in twenty 21% normalizing for this capital investment are free cash flow Baseline exiting 20,000 will be approximately 1.3 billion dollars.

with that

Operator I'd like to open the call to questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone in the interest of time. We ask that you limit yourself to one question and one follow-up question today if your question has been answered and you would like to withdraw your request you may do so by pressing star two. If you are using a speaker phone, please pick up your handset before pressing the keys. Our first question comes from Hamza mazhar with Jeffries, please go ahead. Hey, good afternoon. Thank you. The the first question is just around the volume on Commercial small container. Do you see that sort of turning positive wage at some point? I guess we've been pruning low-margin business for three years. And so just any thoughts as any thoughts as when that in Flex positive,

Yeah, absolutely hum, so you're right.

Right, we've been you know shedding some of that work and well, you know, they'll always be a little bit of that work to shed because as we acquire companies, right we find that the book of business. We don't value that when we pay for those companies, but we certainly can have the bottom of that Trend and you're going to see positive growth in that line of business. Thank you. And then and then just on edge on the m&a sort of pipeline, how are you guys thinking about deal flow this year, you know where the balance sheet Leverage is that I guess there's a lot of a private company Revenue up for sale. I heard of the election plus the air DSW, you know any thoughts on you know, how aggressive you want to be there?

Sure, this is Don. We as I said in my remarks, we've got the most robust pipeline. We've seen a Year's going into the year and you know, we spent over half a billion dollars in nineteen months while you know, our guy you only has two hundred million spend in it. You know, I personally wouldn't be surprised if we matched or exceeded this last year's performance. There's a good pipeline of really good companies and we've got a really good team that is across the the nation looking at deals. And as I always say we look at everything and we sort out what I am most attracted to you know, and we're we're out there talking to a lot of people we've got a lot of interest right now. So we we feel pretty confident as far as the leverage and we talked about being, you know, sort of sweet spot, you know 2 and 1/2 to 3, we have at times, you know gone over three times leverage to buy really good cash flow. And as I said my remarks the very best job

Use of our cash flow is to buy.

More good cash flow at the right and throwing multiple so we could live her up a little bit and then we'll pay that debt down over time. But as long as we're buying good cash flow that that's that's a good recipe for Success month and just last question. I'll turn it over just just on sg&a. I realize it was, you know, sort of corporate function built out at the company and in your sg&a just you know, run rate is higher than you know, your largest competitor by a bird at least this quarter. Do you see that coming down is sg&a at Peak levels today or or does it go further up from here? Thank you. Yeah Honda. This is Chuck. And we do see sg&a trending down from here. I would say it's a 2020 work protecting. That'll be faxed to slightly down.

Okay, great. Thank you so much. And how is it that you know, we we have done a great job of building really strong foundational capability within the business over the last several years and we are at a good inflection point to to leverage that scale and and believe me. We're having a lot of conversations about that. We've got a really good talent a group of people here that correct can can run a bigger company without having to add constantly at people and resources. So you're you're exactly right.

Great. Thank you very much.

Have a have a good evening.

Next question is from Brian Maguire with Goldman Sachs, please go ahead. Hey, good afternoon. Just a follow-on question on the on the volume Outlook, you know the volumes were we're down a little bit in 4q, but the guidance for 2020 implies about a hundred basis points pick up from where we were in kind of four Q. So just wondering you know where or what we might expect to see that inflection to Positive Growth come and and what kind of visibility do you have into that that volume turning and after a couple of years of it being down better kind of flattish. Yeah. I think you'll see that in q1 and please, you know, keep mind volume and price are related and we've had really really strong pricing over the last couple of years in part because we think about returns at every level and we acquire company every customer we sell to we want to have the appropriate return on the investment we make and so that's caused us to you know, shed some of that work as we've owned. No,

In price up we feel like we're off a really good base to price and I think you're going to see that volume growth forecasts. You're going to see that consistent across the board.

Quarters and 20/20. Let me add to that and we we have a we have a very consistent approach for Price volume, you know, there's no zigging and zagging with our thinking on that and so there's a lot of moving parts off to to this story but is John said every Everything has to contribute and we feel like we're getting our fair share of organic growth, but we are doing some intentional things wage right to make sure that we're we're not doing this for practice.

Got it. And the the 3% yield guidance for 2020. That would be I think the highest in in over a decade for you guys if that I think that's a sustainable level going forward or should we just view this as as sort of a one one year level given what's gone on a recycling and the need to have a kind of recoup that another off the business. I think I would see that a sustainable and the reason it it's years in the making it's not an event. We've always gotten that or above that and the open market part of the business and the bag Thursday, excuse me has been the CPI related part of the business and we've worked very very hard on alternative index and getting everybody to pay their fair share. And as you're seeing us continually pushing that the market is changing on that front those RFP change and that is becoming the norm of the pricing index and a lot of those Municipal contracts and when everybody contributes to pricing that off,

I was just thinking that 3% over time. Yeah.

And let me let me add to that. You know, we posted landfill pricing and really strong landfill pricing. 3.4% MSW pricing is a backdrop. If you look at just the open market landfill and transfer pricing pricing is actually 4.5 to 5.5% Right? So when open market post collection pricing is dead in the right direction as it should that also provide sort of underlying economics that make the market more rational.

Okay, great. I'll turn it over. Thanks.

The next question is from Noah K with Oppenheimer, please go ahead thanks just to follow up on the pricing theme thinking about the driver's twenty-twenty. You mentioned Tailwinds from reworking them unique wage contracts both of the CPI migration to Alternative index and then also recycling landfill just driving higher collection willingness to pay that kind of covers most of your business lines. So should we expect fairly broad-based Improvement in yield across business lines any lines? You would expect to be leaders on the yield front. Yeah. I mean a small container is usually our Flagship along with, you know, large container perm historically not expected to continue leads away, but it can broaden Team you're hearing is every part of the business needs to contribute. We don't accept some people are not willing to pay their fair share, right and two. Point. It's got to start from the landfill right and that emanates into the collection side of the business and you know, when those two things were dead,

Right direction we get it across.

Yeah, sure. Look at me. Also, I mean housing starts housing starts remain up there. It's a supply-and-demand environment that that contributes Tire pricing, right? So we open top are open up cuz it should improve as well make sense. Perhaps a question on twenty-twenty margins guides for twenty and forty bits expansion. It seems like recycling if I got your guide right is maybe 15 months or so, uh impact a margin what are some of the overall other offsets that might offset Solid Waste margin expansion, you know dilute of Acquisitions the EMP softness CNG, I guess just just are there any other considerations? We should keep in mind or is there some deceleration of margin expansion in solid waste money? No. No, so they the headwinds that we face in 2021 is commodity prices about 10 basis points. I talked about the Upstream Environmental Services. That's about another 10 basis-point wage.

Uh margin headwind that we face and then I mentioned the extra work day that we have in 2020. That's another ten basis points that all that

And what you end up with is about 5270 basis points and underlying margin expansion just due to the base business. And now remember commodity prices. We're still high in the first half of nineteen. That's really what we're talking about. We think they've stabilized and they'll remain stable through the year, but we still have to sort of overcome that that first happened nineteen where they were stronger and while we have that commodity price side Thursday, we're taking pricing actions overall recycling that more than offset that commodity price Headland and so the Acquisitions you've done there cuz you did a lot this past year. They're off their margin neutral or emergent in Creative. That's right. Okay. Okay, you know if I could sneak one more in you mentioned in the prepared remarks of the technology lovers you're deploying, you know, of course this year in the large container cabs. I guess, you know without kind of giving the game away in what you're doing. Just how to think about some of the areas of focus there and what you see as the key benefits.

Yeah, broad-based. We start with a customer right? The first thing is to deliver an even better customer experience where ninety 9.9% reliable and our delivery. We want to think about a zero-defect environment. So how do we improve the club experience? How do we make the employee experience better? And they want to be dealing with a digital environment making easier for them to do their job and then we think we take some costs out of the business. We make it a productive or more efficient, right and we can get more pulls in this case into the large container system because we've got the tools available to do that. And so think about the size of our business office 5 million transactions add a five million pickup points a day and you know, you can get a little just incrementally better across five million pick up points right from from all the points just said, you know, there's there's leverage there.

Right. Thanks very much.

The next question is from Kyle white with Deutsche Bank, please go ahead.

Hey, good afternoon. Thanks. Take my question congrats on this TDP climate a list recognition. And obviously we're seeing a lot more interest in investing here curious how you think Republic should be viewed from this lens month and maybe what are some specific initiatives you're doing on this front further. Just curious. Are you seeing pressure from shareholders? And what particular metrics do you think they're focused on on this? Well could give you some detail but we've seen a lot more I wouldn't say pressure but interest from shareholders, right ESG is is on the tip of the time and the top of mine of of our our investors today, Certainly. We spend a lot more time on these issues in the boardroom, you know, we have a corporate responsibility sustainability committee on our board that spend significant time, uh, working with Management on all of the goals. We set in issues we have in place and so ESG isn't going anywhere and we'll we'll see more and more interest in it as time goes by and of course you can see just by the rep

Assisted by the grades we get and then by the golf we set how committed we are John. Yeah, and I think the more important thing is these aren't disconnected or these are just aspirations. These are deeply

Connected in our business and we believe to be you know, environmentally sustainable. You have to be economically sustainable. So these are things that are great for the broader Community as a whole the smaller community and five minutes of polities and they're going to be good for our business. So safety for example is one of our goals, right? We are number one priority, right? We want all of our colleagues to go home to work every night. So huge for us by doing that. We also lower-risk extent and improve the profitability of the business. I Employee Engagement by getting them more engaged. We lower our turnover and lower the cost of operating the business office by adding to our recycling capacity. We meet our customers need doing it in a sustainable business model where they're going to be willing to pay their fair share for those Investments engaging Arkham International neighborhood promise is a way that we give back to the community, but it entrenches us with our most important customers and allows us to maintain and extend those contracts over time.

Gotcha, and then just a quick one. I think you mentioned your your average recycle commodity basket was six six sixty six dollars per ton here in

Just kind of curious what you're seeing in 1 Q on the average basket there. Yeah. So one Q is it's a little bit higher right now a few dollars higher right now, but I'm not, you know, not significantly different than our guidance level which is at $65 and I think I think the long-term Outlook is that it's pretty flat all year. All right. Thank you. Good luck. Thanks. The next question is from Tyler Brown with Raymond James, please go ahead. Hey, good afternoon. Hey Chuck congrats on the birth of momentum here in nineteen, which looks like it's expected to continue continue into twenty-twenty. But I was hoping if you could give us some help on the Cadence of margin Improvement as the year progresses. I mean, I'm assuming you still have some diluted impacts from Recycling and the work day specifically in q1. So would q1 margins maybe be down year-over-year or maybe more flattie and then they kind of build strong.

The year progresses and it may be a little bit of a tougher, Thank you for Givin the CNG that the right way to think about it. You're right about that Tyler. So, you know a little bit more of a headwind in q1. Keep in mind that that's worth have the additional work day. Right? So you got death inomenon in there and done already mention the fact that you've got the commodity price said when that hits Us in q1 and then we accelerate their from their right, you know a good Q2 Q3 and then you know 2/4 right now we're thinking is going to be kind of flattish get the rollover benefit pricing and all the all the all the great work the teams doing on on converting contracts to the the right index to their fair share Arrangement. All those things are building speed and you know sort of compound through time, you know, the full pipe life, you know, when we first integrate these businesses, you know, we don't see a lot of extra cash flow because immigration costs but as they get fully tucked in and everything gets converted they build right. So you'll see all that bill Through Time.

That's helpful and they're done. So obviously you guys have done a really good job on the yield front.

But if I look at the spread between core price and average yield it actually continues to widen out. I think it's actually as wide as it's been and say five years, but I'm just curious if you could speak to one that is it would indicate that either turn is picking up or the spread between new and lots of businesses widening. But I really don't get the sense that that's the case. So I'm I'm having a hard time Square in that off. Well, there's a lot of mix right and then again when we intent when we intentionally shed business, we we shedding business that you know, that is lower price per unit right back and and we're attentional and and unregrettable then you know that that's just the change. So I'll tell you this, you know, we we have a pricing plan. Of course, there's no Tyler. We have a pricing group here that works package with all our field leaders and and we know what kind of pricing actions we're going to be taking throughout the year and we have a pretty good feeling for what willingness to pay is in the markets. Yep.

And then it's just you know, the power of the portfolio, you know, we're number one or number two across these markets. We've got good penetration, uh, you know, the the field teams doing a better job every month on on a customer experience in service and that all drives willingness to pay, you know, the teams doing a great job in educating customers on the way to recycle correctly and and people are certain age, you know buying more really willing to pay their fair share. I mean all those things create pricing opportunity for so we're pretty confident in in a direction we're headed and and in the stability and attraction and price of group home, okay? Okay, and then maybe my last one so I love maybe asking you guys a strange question after a long day of earnings, but and I'm going to go ahead and throw this out to any of you but if I was to set aside property insurance say related to the landfills and I just looked at your vehicular Insurance. Are you guys seeing any unusual inflation in your premiums particularly wage?

upper layers of your insurance Tower

Just it's it's you know, all of corporate America right now. The insurance markets are really really hard. They're really tight right now and that has to do with a lot of the natural disasters that the insurance companies are often have been dealing with how do you said that, you know considering the fact that we are a fortune 300 company, you know, given our size and all that we're able to mitigate those wage increases through other cost initiatives that we have within our system.

Okay. All right. That is very helpful. Actually, thank you. And of course, right we're still unsure, right? So, you know, we're really just talking about insurance. Yeah, it was yeah, I was looking at the edge of the upper layers of the tower. The next question is from Shawn Eastman with keybanc capital markets, please go ahead. Hi team complements John closing out a strong year, um thinks we can work. So just a quick housekeeping one for me first just on the CNG guys, uh gave a pretty clear contribution number on EPS, but just curious on eBay for four q and for 2020 what's reflected on the CNG. Peace?

yeah, so even in nineteen in Q4 was

$17 of a benefit. Yep, and and then we're expecting it to be similar to that in in 2020.

Okay, got it. That's helpful. And in the the flat to down twenty-five bits in Environmental Services. Could you just help me frame kind of the the upper and lower end their life. I mean in the in the prepared remarks you guys point to the Upstream peace being the the swing Factor, but I'm just curious, you know, is that just it just kind of drilling activity off, you know, there is there, you know something else that could frame the the upper end or lower end. It really is just drilling activity. That's that that's what's driving at various right now. So that's the you know, that can be anywhere like we said from zero to twenty five basis points of the negative. Okay, and then on the five twenty-five million of Acquisitions completed June 2019, how much are that was Environmental Services versus traditional solid waste?

You know what? We're seeing Tyler and I'm not

Yeah, the majority was was.

Solid waste and and frankly the majority will continue to be solid waste right? I mean there's I said in my remarks earlier, you know, there's there's a great pipeline of really good quality companies. There's still plenty of like a good business for us to look at it consolidate tucking in bolt on and even even maybe a few new markets that we can look at geographically. That's where that's where the public will continue to be. But you know, they'll be Thursday some great opportunities, you know, as our is our core capability expands with key customers who wants to do a few more things for

Got it. And last Quick one for me. Can you just talk about the runway on the solar investment opportunity is is the vision here longer term to start utilizing the birth capped landfills with these solar build-outs. Well, I'll start and Chuck and add-in. We we have as you know, quite a few closed landfills. So we got Thursday we going to be real estate portfolios. And yeah, so I mean ultimately depending on the economics depending on the tax incentives depending on the advancement of solar technology, of course in the ability to you know, connect to the grid all those things are in flux, but you know just like you've seen advancements and you know, they'll probably be more advancements and solar that we can't even imagine but we're well-positioned with a great deal of real estate. We've got good partners in the Solar space that the Investments we made have have have been great Investments with good returns, and yep.

You know as the opportunity exists will continue to do it and we'd like to certainly see SE utilization in this in this new way from our landfills if that's possible.

That's that's why we started down this road in the first place and according to the statutes right now, uh solar credits actually start to phase out I believe it's this year and I think if they pays over 5 year. Now, you know, they used to be right now whether or not they'll be extended summer to what happened with CNG. So but to Don's point that remains a great investment alternative for us and something that we would like to do on our fully depreciated closed landfills help. I appreciate the time. Thank you. Your next question is from Jeff silver with BMO Capital markets, Go ahead.

Thank you so much in your prepared remarks you talked about the percentage of your contract that you've shifted to Alternative alternate inflation targets. I'm just wondering if we can get the same kind of color. How much of your contracts have been shifted on the recycling cuz I have to feed for service. And what do you think that goes over time? Thanks.

Yeah, so on the processing side little further ahead on that front. So we're over 50% on that side of the business on the recycling collection side. We've got about 36% converted and that's across you know, portfolio 1300 contracts and we're not stopping we continue to walk through City Hall and tell the message around a model that needs to be economically sustainable to be environmentally sustainable over time and I can tell you we're seeing momentum shift first. It was trying to convince staff and you know now staff is saying I say listen, we've got to work together to convince the elected because they understand the issue and they have a strong desire to keep their recycling programs one because it's the right thing to do second because I'm deeply want them to keep it and we've got to work together to make it economically sustainable.

In besides the cost impact.

What other push back if any do you get?

What was the cost some of the volatility impact right there is the volatility aspect of recycling is a commodity prices and historically we've born most of that and some states have I don't want to you know, bear that either. I don't like the idea of moving residential recycling pricing month to month to month and we've innovated together with them and thinking about hey, let's get a price that sustainable for residents over the cycle and I should do things like when Commodities are up you could put that in an Enterprise fund right and so you can take the volatility there and when combined prices are high that creates them upside to, you know, get the new fire truck put in the new playground and do things to enhance the community. Yeah. The other thing that gets uncomfortable is just the discussion around the termination, right? So we use we focus greatly now on contamination levels and that could include just you know glass which is highly recyclable. But of course has no value and in some geographies the trucking costs to get glass to an end user just takes the whole thing upside down. So we got to have those

Honest discussions with with generators about whether the material really does have real sustainable environmental value at the end of the day or we just basically, you know burning more rubber and more fuel, you know to make ourselves feel good and then I just the contamination level.

You know educating, you know, the end-user the consumers know how to do it. Right? So again, you know, we've done a great deal of work in creating tools and training to point people to the right place to learn how to do it. Right but frankly municipalities consumers customers have to take responsibility for this contamination because you know, when they deliver a stuff that's you know, eighty percent of it if you call the garbage, right? So we're working through that. But so we're having great to John's Point great honest discussions about how we make recycling sustainable and profitable in good faith buddy, and we think we can do it. So we're well, thanks so much if I could just sneak in some some quick modeling questions. What should we be expecting for depreciation and amortization interest expense wage taxes for 2026.

Yeah, we'll follow up with you sometime after the call. Okay, will do. Thank you. The next question is from Michael Hoffman with Steve, please go ahead. Hey guys. Thanks for taking the questions check on the free cash flow. Can we bridge to the exit run rate? And there's someone timers off the midpoint. So I think the midpoints one 1000x the CNG credit. What's the price exiting?

Yeah, Michael, so, you know, um think about 1.2, you know billion dollars kind of as the the the midpoint on the edge that we've got a hundred million dollars of tax reform Capital included in that number as we had talked about which doesn't roll over into into 2021. So that's really how you get to that page one point three billion dollars. And what about what you'd have it grows on top of that and isn't there some isn't there some working capital timing there was like forty million or working a timing that is the reason that we had talked about forty million of working capital Tommy, but that is all set now by the 30 million dollars of a benefit that we get packed theater with CNG. Got it. Okay. All right. So the exit rate is 1/3 and then you've got underlying growth.

Greater than whatever your ebitda growth going to be. Yeah, that's exactly right. Yeah. And again, this is based on the $200 Target for m&a right off your could you share what your year-end for all of nineteen? The open market price was versus restricted to get to your four-year-old and a 19 and then I'd be curious what you think those look like to get to the three and twenty so you want to I'm sorry you went to respected open. So you're open market yield and you're restricted yield 4:19 for the full year. You gave us through the fourth quarter or maybe gave it for the year. I thought it was the fourth quarter. And then what do you think those people are to get to the 3% in guidance?

Like we don't have that detail in front of us have the quarterly amount but not the full year. But if you think about it, we should do some with the same of what we did this year you're going to have cpi-m is going to be a benefit in the first half of 2020, but it'll flip to a slight headwind. So for the year it kind of it'll wash its way out. So again think of of Court price and it's just kind of look at a lot like it does today one of them's got to get better to get the 3% or it turns coming down.

Yeah, yeah, it's probably it's going to be the open market pieces of it Michael. We think that that's going to get a little bit better. Okay, and then housekeeping question the 15 million of model had been from recycling doesn't give you any benefit for your continuing to work through the 55% that's processing and the 36% on contracts, right you could in fact offset some of that if you make some progress on the on the internet, you clarify Michael 15, it's just the commodity impact the actions that we already have, you know baked into the plan more than off that extent we make additional progress. That's just icing on top of that case.

Perfect.

Make additional progress. Yeah, I remember Michael's as we increase recycling collection pricing that flows through the you got it and and then one that's just subtly cuz there's a slightly different messaging around this from another player. And I think you have or have the same answer a hundred percent of your open market customer at your Murph has been real price, but you have some contracted work and that's why the aggregate Murph is fifty-five. So any open market customer has long since been more than life. Yeah. Yeah, and that's open market at the facilities that's open markets collection. All the open market recycling's been impressed.

Great, and then if I could how's the the progress in Plano in the context of Lessons Learned and is it going to be transferable into other operations? And as you think of money, you know recapitalisation through the fleet is have you been happy with what you're seeing that this is this we hit on something and this is something worth pushing in other places.

Yeah.

We were very happy. Obviously. It's a you know, it's a capex Optics trade-off, which is you know, we've got state-of-the-art equipment in there and it allows us to cut the labor about an half right in the overall and produce a cleaner product on the back end. So we think that's really attractive and get is you know, we always think about an anchor tenant and a community that's willing to partner with us back to do that and you know over time if you'll see continued investment as we go forward and build out that that product line terrific. Thanks a lot and I'll just make one comment this press release Thursday really useful the way it's been laid out. Thanks for doing that. You're welcome. Michael. Have a good day. I think you're at 6 questions in there now. Yeah, I know. Well everybody else got four or five I had to jump off. Okay. Yeah. The next question is from Michael furniture with Bank of America, please go ahead.

Hey guys, just on the 3% yield number. Is that truck? Is it like even through the year does it does it do we accelerate off this Q4 number or or just billed through the year to end up averaging through present for the full year is relatively even evenly distributed throughout the year.

Okay.

And then I think you made a comment about like two down. I that's on a percent a sales basis or is that an absolute basis hundred percent of sales as a percent of Revenue off? All right. All right, perfect. Yeah. I just want to clarify that and then just on the acquisition you guys have completed already. Like if if we just take that number. What's the revenue left on that is if you just with everything that's been completed by by year-end so far for for twenty twenty. Yeah, they're all over Revenue benefit of sixty-eight million dollars.

Okay, and then just on the acura's you guys completed in nineteen, is there any you know, obviously in the the overall sector we've seen multiples expand. I'm just curious if you kind of touch on a you know, you mentioned Don mentioned, you know leveraging up to buy good cash flow. I'm just curious if you kind of help us on what you've seen in the private Market with with multiples for some of these businesses and multiple jobs are still are still very good. You know, we we will force and have and will continue to you know, we pay more for businesses that you know have you know infrastructure is critical permits that are impossible to replicate, you know, those types of things, you know, we discount purchase prices, you know, when when you know, there's a little bit too much temporary work or two months of her work. We don't pay for that. So, you know each dealers different but on a blended basis when you look at the whole portfolio of m&a that we're doing we would tell you that multiple. Yep.

So pretty stable.

The next question is a follow-up from Brian Maguire with Goldman Sachs, please go ahead. Oh, yeah. Thanks for taking the follow-up. Did I hear you just say that so of the the 1% contribution to sales growth in 2020 from Acquisitions, which I guess would be a hundred and three million dollars. You've already got kind of sixty-eight of it completed from from last year or or there's some offsets investments in them. And I guess so like is there anything you've closed so far in 1 q that we kind of already get you out of that hundred three number? Yeah. We said the 16 million dollars is is the right number that's already included in our life percent growth guidance for 20 20. Some of those deals were deals. We thought we'd close a year end and they just didn't get done and they rolled into the rolled into the new year wage. But you're you're effectively kind of a almost two-thirds of the way through through heading that 1% number already. Is this, correct? Okay, and last one for me just I think yep.

breakout to give which are

Very helpful looks like on the landfill side those costs were actually down for the first time in a while and it was maybe was a unusually high number a year ago, but just wondered if you're finally seeing maybe a little bit of a life at the end of the tunnel or some, you know, leveling off of the inflationary pressure. You've been seeing on the landfill side.

Yes, and no listen landfills are you know important asset saddam's very very tough to permit and you know, we Environmental Compliance is something we take very very seriously own know and we price accordingly to more than cover our costs and inflation that being said we work on both sides of the equation not just pricing but also on the cost and we work very very diligently off and have an incredible team here that looks at all our landfills from a centralized basis and every month were monitoring every element of the landfill. Is it producing the right level of lead shade any elevated heat sources and we're getting in quickly and we're mitigating small problems. So that those small problems don't become big ones and that's really helped us mitigate our cost over to me and she was a great story. I think across the category you're seeing that in labor, you're seeing that maintenance if you take out the commodity impact on the revenue really really good leverage on the business and the cost side. We feel like that's a great Foundation that takes us into

Thank you.

20/20 which is helping drive that much.

expansion

All right. Great. Thanks so much.

At this time there appeared to be no further questions Mister Slater. I'll turn the call back over to you for closing remarks. You've got a great job for us today in 2019 through the Relentless efforts of our people working together at all levels of the company. We outperformed the financial goals. We've said at the beginning of the year, we achieve achieve strong pricing. We expanded ebitda margins generated one point two billion dollars of free cash flow and invest it over half a billion dollars in Acquisitions are strong finish to 2019 sets us up for continued success in twenty-twenty given the underlying momentum in our business. We are well-positioned to deliver approximately 5% top line revenue growth and nearly 6% ebitda growth on top of that. We are entering twenty-twenty with one of the strongest faith in pipelines. We've seen in years. We will achieve our 2020 guidance by pricing our products and services to ensure. We earn an appropriate return partnering with our Municipal received.

when customers to build more durable

Economically sustainable recycling programs tightly managing our costs and increasing productivity through the rollout of arise platform is John described leveraging the current momentum in our business from the Investments. We've made in our people the customer experience operational excellence and our strong Market position. As always we will continue to manage the business to create long-term value for all of our stakeholders. I would like to thank everyone on the Republic team for their hard work commitment and dedication to operational excellence, and of course creating the Republic way. Thank you for spending time with us today. Have a good evening and please be safe out there.

Ladies and gentlemen, this concludes the conference call. Thank you for attending you may now disconnect.

Dead dead dead dead.