Q4 2019 Earnings Call
Thank you for standing by and welcome to the waste management fourth quarter full year, 2019th earnings release Conference call.
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After the speaker's remarks, we'll be opening life for Q anyway.
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It it sounds like Flexroute did her into these programs over to Mr., Ed Ed Woo director of Investor Relations. Sir. Please go ahead.
Thank you Jay good morning, everyone and thank you for joining us for our fourth quarter 2019 earnings Conference call with me this morning, or Jim Fish, President and Chief Executive Officer, John Morris Executive Vice President and Chief operating Officer, and Divina ranking senior Vice President and Chief Financial Officer, you'll hear prepared comments from each of them today, Jim will cover a high level.
Financials I'll provide a strategic update John will cover an operating overview intervenor will cover the details of the financials.
Well, we get started please note that we have filed a form 8-K that this morning that include the earnings press release isn't available on our website at Www Dot W.M. Dot com the form 8-K, the press release and the scheduled to the press release conclude important information.
During the call you hear a forward looking statements, which are based on current expectations projections or opinions about future periods will also be providing our outlook for 2020.
This outlook does not include the impact of our planned acquisition of advanced disposal services incorporated which we may also refer to it adss.
Once we complete this acquisition we plan to provide an updated outlook.
All such statements are subject to risks and uncertainties that could cause actual results to differ materially somebody's risks and uncertainties are discussed in todays press release and in our filings with the FCC, including our most recent form 10-K.
Human John will discuss our results in areas of yield and volume, which unless otherwise stated or more specifically references to internal revenue growth or RG from yield or volume.
In addition, beginning in the fourth quarter of 2019, we updated our calculation of core price.
With advancements in technology, we collect additional transactional customer level data, which provides us improved clarity of the impact of our pricing activities.
While this has not changed the year over year core price performance result, the new measure reflects a more precise calculation in evaluation of our revenue change. Please refer to the press release tables, where we have provided two years, a quarterly core price data using the new methodology.
During the call Jim industry, and I will discuss our earnings per diluted share, which they may refer to as EPS or earnings per share and they'll also address operating EBITDA, which is income from operations before depreciation and amortization.
And the comparisons unless otherwise stated will be with the fourth quarter of 2018.
Net income Es operating EBITDA margin operating expense and SGN a expense results have been adjusted and projected 2020 measures are anticipated to be adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations, including cost incurred in connection.
With the pending acquisition of Adss.
In prior quarters the adjustment for Ats included the reduction of common stock repurchases from planned levels, we're no longer adjusting for this.
These adjusted measures in addition to free cash flow or non-GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at www Dot W.M. dotcom for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures and non-GAAP projections.
This call is being recorded and will be available 24 hours a day beginning approximately one PM eastern time today until five P.M. Eastern time on February 27.
To hear a replay of the call over the Internet access the waste matter website at Www Dot W.M. Dot com.
If you're a telephonic replay of the call dial 8558, Fivenine to 056 and at the Reservation code 9977 058.
Time sensitive information provided during today's call, which is occurring on February 13, 2020 may no longer be accurate at the time of a replay.
Any redistribution retransmission or rebroadcast of this call in any form without the express written consent waste management is prohibited.
Now I'll turn the call over to waste matters, President and CEO Jim fish.
Thanks, Ed and thank you all for joining us this morning.
We're proud of how waste management performed in 2019.
We continued our focus on optimizing our traditional solid waste business developing our people and investing in technology to better serve our customers and we're confident these are the right focus points to deliver long term growth for the company.
The results are evident in our full year topline growth, which was 3.6% despite a negative $318 million drag from commodity prices in our recycling line of business and a negative $23 million swing from the sale of renewable energy credits.
Landfill pricing was one of the bright spots in 2019 and is also a great example of what the waste management organization can achieve when we have a shared focus.
Together the team achieved our best ever full year landfill MSW pricing in 2019, as we exceeded 3% MSW yield in every quarter with each quarter, surpassing the previous one culminating in fourth quarter MSW yield of 4.5%.
We expect to continue to drive improved MSW pricing for the foreseeable future as our price increases keep pace with the increasing costs at our landfills.
But we won't just focused on MSW pricing.
We're pricing all our lines of business to ensure that we generate appropriate returns on invested capital, including our recycling and residential lines of business.
John will share more about our 2020 plans.
For those two areas.
The strong revenue growth that we generated in 2019 translated into robust operating EBITDA.
Our collection and disposal business saw operating EBITDA grow by 8.5% and operating EBITDA margin expand by 70 basis points.
Both of which were better than we expected when we gave guidance at the beginning of the year.
In 2019, our overall operating EBITDA grew by 4% despite lower than expected market prices for recycled commodities and renewed renewable energy credits.
We also produced $4.40 EPS in 2019.
We're forecasting another record year at operating EBITDA in 2020 with growth of 5.2% at the midpoint of our guidance range. We expect to achieve this growth from continued strong performance in our collection disposal business through a combination of price volume and cost controls.
Last quarter I spoke of a lack of visual lack of visibility in our special waste pipeline as we were seeing hesitation from some industrial customers in committing to the work.
I'm pleased to report that we're seeing more companies commit to event works so far in the first quarter and concerns of a recession around the industrial economy have mostly abated.
We've been awarded a large coal combustion residual remediation projects. Starting this spring with are well positioned asset network and expertise we have developed a strong reputation in managing all aspects of these clean closure projects.
We expect that our differentiated service offerings will result in additional jobs throughout this year.
Turning to free cash flow, we've said operating EBITDA is the best reflection of the health of our business and provides the foundation for generating free cash flow.
2019 was no exception as our robust operating EBITDA once again translated into exceptional free cash flow.
We allocated more than $1.1 billion of that free cash flow to shareholder returns growing our dividends for the 16th consecutive year.
We also spent $527 million on acquisitions.
An indicator of the active M&A environment, we're in.
And our ability to to complete transactions adds targeted returns.
Then I will discuss capital allocation in the year ahead, but suffice it to say that we expect to continue to reward our shareholders in 2020 by allocating a substantial portion of our free cash flow back to shareholders.
On the M&A front, obviously closing the advanced disposal acquisition is expected to be the highlight for the year.
We are expected we're excited as we near the close of this transaction.
And we have great confidence and the potential of the combined organization.
We anticipate that we will obtain antitrust regulatory approval by the end of March and close soon thereafter.
We've received a high level of interest from other companies in acquiring any potential businesses, we might be required to divest and we expect to complete the sale of any required divestitures. Shortly after the closure of our purchase that yes.
Our integration team has been working hard preparing for this close and the team has positioned.
To move quickly to integrate Ats operations and to achieve our targeted synergies.
Overall, the lead story at waste management and within the industry as a whole is one of consistency and predictability of earnings and cash flows, resulting an excellent returns to shareholders.
Divina will go through our guidance in detail, but we expect that consistency to continue into 2020, where we see a highly efficient customer and employee centric core engine driving a continuation of what we've seen for the past three to four years.
When you look at our annual financial results from 2017 to 2019 and now through our guidance for 2020, you will see revenue growth in the 3% to 4% range EBITDA growth in the four to five in a quarter percent range and cash from operations less capex in the 5% to 12% range all within the bands that Weve communicate.
But over the past three years.
The amazing part about our results is that we have had some challenges.
In parts of our business like recycling and renewable energy sales yet the core business continues to churn out earnings and cash at a strong pace.
This industry and this company in particular have been a model of strong predictable results.
With a very strong consumer segment of the economy and what appears to be a recovering industrial segments. So far in the new year, we're confident that this rock solid trends will continue.
Lastly, I want to thank all of our hardworking team members, who continue to make waste management, both a great place to work and a fantastic long term investment for our shareholders with that I'll turn the call over to John Indovina to discuss our results and our 2020 guidance in more detail.
Thanks, Jim and good morning, everyone. We had a strong finish to 2019 and are pleased with our full year performance. Our disciplined pricing programs are delivering great results, which is best demonstrated by our 2019 MSW yield of 3.8%, which is 160 basis basis point improvement over 2018.
We will continue to price are well positioned landfills to generate an appropriate return on invested capital in a rising cost environment more broadly in the collection and disposal business. We achieved 2019 yield of 2.8% the highest shield that we've seen in a decade as we look into 2020, you'll see our continued focus on pricing to overcome cost headwinds and to keep generating approach.
Great returns on invested capital.
What's impressive about these pricing results is that we were able to achieve this without compromising our volume results, we achieved 2.3% volume growth in 2019, which outpaced growth in a broader economy.
However, as we expected some but not all volume growth moderated in the fourth quarter. Both as a result of difficult comparisons to the fourth quarter of 2018, and the timing of special waste jobs. The good news in 2020 is shaping up to be another solid year for volume as Jim mentioned coal combustion residuals should be a benefit for us in 2020 as.
We have already been awarded a job start in April and there are additional jobs in the pipeline.
The strong consumer economy, and special waste pipeline combined with the positive trend in service increases exceeding service decreases gives us confidence that we'll have another good volume during 2020.
We plan to build upon our success in 2019, continuing to execute on our focus differentiation and continuous improvement strategies in the year ahead.
The team is focused on opportunities to continue improve and optimize our collection and disposal businesses.
We plan to improve ROI seen our residential line of business and improve our overall operating costs with am 100 focused on labor technology, helping to improve routing and maintenance service delivery optimization focused on repair and maintenance costs.
And our residential line of business, we have several initiatives underway ended improving profitability. This begins with the way we've been on municipal contracts.
Waste management has led the industry on return on invested capital and we're bringing an even greater attention to this metric in 2020, we're taking a hard look at each residential contract as it comes up for renewal and making sure that our bid prices in terms of service are keeping pace with cost inflation overtime and changing recycling dynamics Ross.
The leveraging the data we continue to aggregate VR onboard technology to improve routing and the efficiency of our drivers which results in improve service and reduce costs. We expect to see similar results in the residential business that we achieved in the commercial line of business with these tools.
More broadly in the collection business, we're improving efficiency and capturing savings through several efforts first am 100, or managing 100% of our drivers day allows us visibility into our drivers routes in real time to coach for improved efficiency and an enhanced view of customer profitability.
At our Investor Day last year, we said that a 1% increase in collection labor efficiency yields $25 million in savings and that we expect 75 million of total savings from and 100 by 2021.
We expect to capture the next $25 million of savings from and 100 in 2020. The other effort that will benefit our collection line of business is our maintenance service delivery optimization, we're emmis deal.
We expect to continue to lower maintenance costs as we did in the second half of 2019. This leads to improved operational performance by bringing increase standardization to our fleet as well as improved to maintenance processes.
These are just a few examples of the great work underway to further optimize our collection operations with the help of technology.
Turning to recycling, our recycling business performed well in light of further fourth quarter erosion and recycled commodity prices. Despite a 43% year over year decline in our blended average commodity price to about $37, our fourth quarter EPS contribution from recycling was only lower by two cents.
For the full year recycling commodity revenue declined $318 million yet the business generated operating EBITDA comparable to 2018, as we were able to to offset virtually all of the impact of commodity Klein with an increase in fee.
Our recycling performance demonstrates the success, we are having in restructuring our recycling contracts to a fee for service model.
We will also continue to make strides on improving our business through the use of technology and our Chicago more for the future we expect to be fully operational by the second quarter. This plan is designed to be capable of generating high quality material with technology through positive and intelligent starting to generate the end product our customers require.
Looking towards 2020, given the expected lower commodity price levels in the current environment, we expect a minimal impact on overall results from recycling with headwinds in the first half of the year.
And finally I want to give an update on all the work we're doing to prepare for the integration of advanced disposal as Jim mentioned, we are approaching the close of the transaction and the started the integration. We have developed the detailed plans and are prepared to start integration as soon as we close with the additional work that we have done since the third quarter, we're confident that we will be able to achieve.
Synergies in excess of $100 million, we laid out when we announced the acquisition.
We look forward to officially welcome the team into the W and family and with that I'll turn the call over to Divina to further discuss our financial results in 2020 outlook.
Thanks, John and good morning.
Our 2019 performance showcased the strong conversion of operating EBITDA from our collection and disposal businesses to cash.
Also our disciplined execution on managing working capital in the fourth quarter, our cash flow from operations exceeded $1 billion and grew more than 12% and full year cash flow from operations is almost $3.9 billion representing growth of almost 9%.
As I mentioned earlier in 2019, with our robust collection and disposal volume growth, we plan to increase capital expenditures for the year above our initial guidance of 1.75 billion dollar.
With cash flow from operations growth that also exceeded our plan. We knew we were well positioned to proactively increase our capital expenditures and still deliver on our free cash flow objective.
During the fourth quarter, we spent $286 million on capital expenditures and for the full year, we spent $1.818 billion.
Free cash flow in the fourth quarter was 756 million dollar and full year free cash flow with 2.105 billion dollar.
In 2019, the most significant contributor to our free cash flow growth was strong operating EBITDA and we also realized benefits from working capital that we expect to reverse in 2020 and lower than expected cash taxes.
In the fourth quarter, we used our free cash flow to pay $218 million in dividends.
For the full year, we returned $1.12 billion to shareholders comprised of $876 million and dividends and $248 million on share repurchases.
In 2019, our acquisitions totaled $527 million.
Our SDMA costs. There is a percentage of revenue were 10.3% for the full year, which was about 25 basis points higher than what we planned.
This difference is largely due to litigation and incentive compensation costs that were higher than expected.
We remain committed to a long term target of SDMA as a percentage of revenue of about 10%.
In 2019, we were effective and managing our baseline costs.
Very intentionally investing in technology and our people.
Investments, we made in 2019, and we'll continue to make in 2020 support our customer and growth objective as well as a member of the operational improvements that John discussed.
Late in 2019, we determined it was trading to making investments in our foundational finance human resources system.
These systems serve as a platform for almost everything we view and we have not upgraded this platform and almost 20 years.
And the fourth quarter our team started this multiyear effort you.
You will notice that we adjusted for these cost in our press release, and we will continue to adjust for the costs associated with this investment and a year ahead.
Our adjusted effective tax rate was 16.3% for the fourth quarter 2019, and 20.2% for the full year.
Our effective tax rate with lower in 2019 than we expected because we realized value from the fuel tax credits, we made an incremental investment and low income housing and we recognize some favorable adjustments when we finalized our tax returns for the prior year.
Our debt to EBITDA ratio measured based on our bank covenant with about 3.1 times at the end of the year.
While this measure is trending higher as we approach the adx closing it is within our targeted level and positions us well to continue to execute upon our long term capital allocation priority of growing the business and returning cash to our shareholders.
Moving to our 2020 outlet.
As a reminder, our revenue earnings and cash flow guidance does not include the anticipated impacts of acquiring Mds.
However, it is important to note that our free cash flow guidance does include an initial estimate of the incremental interest cost we will incur to the debt raised to fund the transaction.
We plan to update the remaining components of our outlet, including taxes in NPS following the close of the acquisition.
On a standalone basis, we expect 2020 operating EBITDA increased support $4.56 billion to $4.66 billion growing by 5.2% at the midpoint fueled by continued strong organic revenue growth.
To that end, we expect core price of 4% or greater yield of about 2.5% and collection and disposal and total company volume growth of approximately 1.5%.
We expect our strong earnings growth to drive free cash flow of between 2.15 in $2.25 billion.
We project capital expenditures to be between 1.7, then $1.8 billion. When you're ahead, which is a decrease in capital spending from 2019, so at or above our long term capital spend as a percentage of revenue target.
We've seen our capital investments pay off and so we plan to continue to invest above our long term average in 2020 with our focus is on the euro head on landfill, where volume growth is expected to remain strong and facility upgrade.
We remain committed to a capital allocation plan that maximizes long term value and total shareholder return.
By prioritizing organic and acquisition related growth dividends and share repurchases.
Given our focus on the integration of 80, yes, we expect second acquisition spending in 2020 to be lower than what we have seen the last few years and more in line with our historical target at 100 $200 million anyway.
We're pleased to be increasing our plan quarterly dividend dividend rate for the 17th consecutive year as announced in December.
And expect our dividend payments to be about $920 million in 2020.
Given this we currently project that excess free cash flow will be at least $1 billion in 2020.
We had prudently load our share repurchase activity and in anticipation at the advanced disposal acquisition.
With those steps in our ROE Beth robust growth our balance sheet is strong and we are well positioned to restart our share buyback program.
We plan to begin repurchasing shares in the first quarter and expect to allocate at least $1 billion to repurchasing our stock over the course of the year.
In summary, 2019 was the successful year for waste management, and we can't thank the waste management team and that for all their hard work.
2020 is that to be an outstanding year as we focus on execution.
Both on the fundamental strength and growth of our business and omni Ats integration.
With that day, let's open the lines for questions.
Treating them and necessary reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad. We direct question these past accounts.
Our first question comes from the line of Brian Maguire of Goldman Sachs. Your line is soup and.
Hi, good morning, everybody.
Regarding the first question just on the.
Just to some updated color on the Ats transaction.
And actually there was some enthusiasm that might be down a little bit sooner since I guess, maybe taking just a little bit longer just wondering if you could comment on how the the conversations are going and.
You know the remedy package or divestment package.
Kind of reception, you're getting in the market for that and.
Do you think that might go to one of 1% or maybe now we're in a situation, where we're going to be talking about multiple buyers for that.
So Brian what I would tell you is that we announced the deal on April 14. So we're just come we're not even at a year market as Jim mentioned in his prepared comments.
We're on a trajectory thing, we think to get clearance from DLJ right towards the end of the quarter and obviously, we're going to move to close quickly after that.
In terms of the divestiture package, what I can tell you is that we've had.
Really robust lineup of shooters.
You know kind of I said, it's kind of like the line around the block of folks who are interested in these assets. So as we progressed with our conversations with the Justice Department. We've obviously continue to move that process along at the same pace.
Okay and I just wanted to ask about your comments on the residential line of business.
Jim and John Thank you guys talked about how that's a focus area for 2020.
Some of these larger longer term contracts come up for renewal.
The volumes have been a little bit light in that part of the business.
And wondering if you could just kind of comment on where you where you see margins in that business today versus where they've been historically and.
What actions you're thinking about taking in 2020 to try and improve those margins.
Sure, Brian I think first and foremost obviously the recycling business a static on a knock on effect on residential and in my comments you heard me talk about that making sure that our pricing models keep up with what the cost inflation, we're seeing in the residential line of business that we're getting appropriate returns for their capital that we're deploying there.
And I would tell you that it's obviously the lowest of the three collection lines. So when we look at where we're going to direct our investments.
We're going to work to move those those margins up year over the next handful years.
Okay last one from me.
I apologize if I missed the do you guys quantify the impact to EBITDA if on the CNG, whether the fuel tax credit in in Fourq, you and I kind of what's embedded in the 2020 guidance for EBITDA.
Sure I'll cover, but the EBITDA impact on the cash flow impact so that fuel tax credit, which was recognized as a reduction to operating expenses was about $70 million in the year end, we project that it'll be a little below $40 million than a year ahead.
From a cash flow perspective, there were no cash flow benefits associated with that that's one of the working capital headwinds that we did I mention for 2020 are actually.
Created a headwind and working capital for us this year, because we recognize the earnings and.
As the free cash flow benefits in the year ahead that it's free cash flow benefits for both what we recognize in the piano this year and expect to recognize an appeal panel next year are a total of about $90 million.
Okay Brian.
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Go ahead go ahead.
Just to kind of 70 million I would all in Fourq, you're right because it just occurred late in the year right.
That's right yes.
Yes, so Brian Jim here.
I just to level set on EBITDA will that here.
For Q4 and for 2019, we had.
Quite a few puts and takes in Q4 the rolled into the final the final number and by the way that's not that uncommon for fourth quarter, but.
Some of those puts and takes would've been in your estimates.
Several would not have been so.
Obviously, the fuel tax credits that you just talked about on the positive side, the rins pricing recycling all of that.
Would have been in your numbers, we've talked about a lot of that.
But we also had a material true up of our 2021 LTI plan from stronger than expected total shareholder return and free cash flow and.
We had somewhat of a clearing of the Dax legal settlements and the total of those two.
It was almost $40 million for the quarter and that would not have been in your estimates you would have known about that it was included in our adjusted EBITDA. So we included those.
So just wanted to level set the there is some things in Q4 moving parts that we tended to have and many Q4's, but but some of them. We're not in would not have been in your estimates you would have known about those on the and that amount was approaching $40 million. So the good news, though is that really the underlying business, which I talked about in may.
In my remarks, the underlying business is super solid it Didnt waiver. It was strong last year and it's going to be strong in 2020.
Okay I appreciate the detail there I'll turn it over thanks.
Yes.
Thank you next question comes from the line of Cao one from Deutsche Bank.
Good morning, Thanks, taking my question.
Just focusing in on volumes down 40 basis points. This quarter was little bit lighter than I expected. Considering you guys are trending well above 2% for the year.
Just curious what kind of causes inflection this quarter and if theres anything notable.
And then how it performed relative to your expectations going into the quarter.
Sure. Let me give you a little bit color on Q4, and then some insight into volumes for early Q1 and for 2020.
As a whole first of all in Q4, our volume figure was indicative of a couple of things.
First we knew we had the the tough comps year over year due to the fire in northern California.
And that will continue through the first half of 2020.
Secondly, there we had a onetime settlement with the city of Los Angeles contract.
In our numbers in Q4 of 18 and that impacted volume or at least that impacted the at the comparability on a year over year basis without that.
In 2018 commercial would have been 2.1% positive instead of 1.5% and then the third thing for Q4, that's worth mentioning is that we saw $22 million decline in our renewable energy and energy services businesses and that hit the volume line. So that gives you some of the insight into Q4, here's here's the positive on on January.
First.
January has come out of the gates nicely, so even with tough comps.
Largely from the anniversary of the New York City contract commercial volume was a healthy 3.6 percents roll off was positive 2.8% resi was down 1.3% John's talked about that I mean, he and the ops teams are looking to to fix the margins in that business. So it's not surprising that it's down little bit and then landfill.
Transfers tons were up 1% and 4.7% respectively. So Thats January.
And then looking past January as we we will we talked about it but we've got that large co combustion residual remediation project and we have a big national account both of those will start in early Q2.
So even with the tough comps from the Northern California fires and New York City contract in the first half of the year. We're we're very comfortable with the 1.5% volume growth.
For 2020, with some organic growth and by the way with the backdrop of what appears to be up a pretty.
Pretty darn resilient overall economy.
Thats very helpful. Next question, just really on the guidance in terms of what assumptions are you, making in terms of pricing and values for recall recycled commodity values and then also though.
For the full year.
Yes.
For recycling listen, there's we finished the fourth quarter and right around a $37 per per ton number on average and I think it was about $44 for the full year.
Theres been some talk of a little bit an uptick in the early part of the year on FCC, but frankly, we don't have anything baked in in terms of.
Commodity uplift, what I will tell you, though as and when it when my prepared remarks, what's more important is that even though the total revenue impact was over $300 million for the organization for the full year were essentially flat I think we're down about $2 million in EBITDA. So we'll really focused on is the commodity price going to do what it's going to do but we're still working to make sure we can.
We need to evolve the model to a fee for service.
Model, where we can generate the right returns on margins and we're moving in that direction.
And on the RIN side, we were at effectively.
Kind of flat to where we finished the back half of 2019 in terms of setting our guidance for 2020, we did not take into account the significant at range that we saw in January and that we do have our eye on that and think that theres. Some potential value that can be created there on the recycling front I do think again.
Turning to talk about the fee for service model and while commodity prices as John mentioned, we projected to be flat. We do expect to continue to move forward with executing on that fee for service model and see some incremental revenue from that plan I mean, you're ahead.
Just a quick follow up if we if we assume rins pricing that the January levels.
Increase what kind of benefit do you think this would have.
EBITDA on annualized basis.
So so we've looked at I mean in the fourth quarter. We saw about an 86 cents per unit number and right now in 2020, we think it could be in the 110 to 120 range, but as you folks know that number's been all over the board has been a bit of a political football, but if it stays where it at 110 to 120 range, we're going to open our fourth R&D.
At this year, there could be probably $10 million to $15 million of upside if those rents hanging that range for the full year.
Yes, Thank you and good luck in the year.
Thanks, Thank you.
Thank you next question comes from the line of Shan Eastman of Keybanc. Your line is who can.
Hi, Jim Thanks for taking my questions.
I guess just from a high level I just wanted to kind of go back to the 5% to 7% EBITDA growth target you guys outlined at the analyst day last year.
Obviously 2020 guidance came out toward the low end to that and I assume maybe part of that is maybe the tough comp on California wildfire high margin revenues, but.
Just hoping to get some comments on how you're thinking about that longer term target and just kind of wire at the lower end in 2020.
Yes, I think you've nailed it I mean I think it is we do have tougher comps there with those wildfires and those.
Pretty much.
Turned off last year at the very end of July So we've got seven months of tough comps there.
So you can't predict whether something is something else that that comes up throughout the year, if something else did happen.
Whether it's a natural disaster or a big project that we don't anticipate then that would.
Helped offset that but for now we felt like 5.2% was.
Was a reasonable number within that within the the previously communicated range of five to seven.
As you say that the lower into that but but.
But we still feel Compton, that's that we'll get there and I think thats.
We do feel like we've got an economy that provides.
Pretty good.
Pretty good support for for hitting within that 5% to 7% range I think one when you see us get up towards seven is when you'll start to see a couple of these.
Headwinds that we've talked about for probably two years now.
Really starting to kind of recover fully and that means recycling.
That means some consistency in RIN pricing.
Then youll see us in the seven possibly even exceeding seven but with just solid waste you're talking about a five plus percent number that's probably double the overall ecom. It. It shows you how strong solid waste is.
Yes, Thats helpful. I guess the other interesting thing for me is that that 5% to 7% target kind of delta to buy to price volume backdrop and as we're looking at the 2020 outlook now, it's a 2.5% price 1.5% volume we've seen inherently more value.
Mobile to me and I, just wondered if if that two and a half one and a half is more.
But.
More accurate in terms of what we should be seeing VW am over over that targeted timeframe that three year timeframe.
I think the two and a half is probably a bit more reflective of what you might expect going forward. The one and a half as we said early in your question here reflects the tough comps.
So all things being equal in other words, the economy not being.
A big headwind of any Cai and then I would expect that normally we'd be closer to that 2% number that we've historically given but this year we have.
As we said the tough comp Liquefiers Theres also a tough comp within New York City contract and so the fire many are pretty contact together.
About that 50 basis point differential and so it's important to know that we've not backed off of the 2% long term volume outlook.
The one and a half is reflective of that tough comparison, yes. It shouldn't be surprising to you that were that we want to be a little bit conservative when we when we issue our guidance I mean, it's probably better to.
To under promise and over deliver than the opposite of so.
So I think we've got what we believe is very achievable guidance set for 2020.
And I guess is key takeaway here is that we're running at 2.5%, whereas you guys had a longer term outlook of 2% on the price, which I think is probably pretty notable.
Last question for me just trying to understand the SGN a line I think you have this 10%.
As you in a margin target I just wondered if that's a number we hit in.
2020 in.
Whether theres more opportunity to continue to move that down just around these technology investments.
Yes.
Starting to be more than offset by the savings and benefits from those investments.
I think.
When you look at 2019, Jim as mentioned earlier about those two items that were not planned for and certainly are not items that we expect to recur.
Those two items, if we adjust for those we would have delivered as soon as a percentage of revenue at 10% in the year and so.
We remain committed to that target over the long term and what you see in.
In addition to those two items or the impact.
The Ats integration planning work that we're doing.
We did adjust for those and we'll continue to adjust for those in the year ahead, and then my mention our energy Prize resource planning effort that we started in the fourth quarter. So those two items will elevate the level of recorded as DNA above 10% that when we call that is out and really focused on the fundamental investment.
And the organization.
From a technology perspective, you are actually it absolutely right things like investments in our call Center technology, where we should be able to serve our customer online rather than having then call into our call center to get information about their account. So are there are serviced well drive a reduction in SNA over the long term, but.
Right now what we see is that the incremental investment that dollar into technology and our people is going to you and position us to want to continue to maintain as soon as a percentage of revenue at 10% rather than allow it to tick down because we can get those investments are worthwhile and create incremental value for the long term.
Got it I appreciate the insight thank you very much.
You bet.
Thank you next question comes from the line of Tyler Brown, The Freeman James Your line is soup.
Hey, good morning.
Good morning, Tyler, Hey, Jim or John Big Picture question, but I want to come back to that 4.5% MSW yield print this quarter, the 3.8% for the year, which I felt like was if not the biggest one of the biggest stories of 2019, but it feels that there that there is real post collection pricing momentum.
And if we believe that pricing at the curb emanates from the landfill why wouldn't we expect this new call. It paradigm of landfill pricing really to set of stage for a prolonged positive pricing outlook on the collection side I would presume that over the long run core collection in core.
Post collection pricing really should equal out.
Well look Tyler I think one bit does kind of get the other buckets.
But as we've talked about landfill pricing for probably a decade, we've never really been able to establishing a consistency there and that I think you're absolutely right I think you pinpointed it.
And that is that it's one of the big stories for 29 painful for us.
That we were able to as I said in my remarks gets a strong NSW price number that is starting to approximate.
That cost structure that we've also talked about every quarter for the last two years I mean, we keep talking about how our cost structure is going up by 5% that MSW is going up by a one and we're finally getting to a point, where we're starting to two to close the gap there and so that's a big deal.
For us and we're starting to do it on a consistent basis I think our customers understand that things like leachate costs, which have been a a topic of discussion for two years here that leachate costs are going up and they're going up really on on a permanent basis.
That that labor costs continue to go up. So this is a it's a very big story, it's a it's a.
It's a story that Weve ultimately talked about for a long time, but never really been able to to nail down and now we're finally able to to say we feel like landfill pricing is is really here to stay a Tyler I would add to that we are equally is focused on the transfer station pricing as well as part of the post collection network.
You've heard us talk about pressure on subcontracting cost and whatnot. So when you look at it in particular that team. We're looking hard at what we're doing on the transfer side, we talked about residential I mean, if you look at our residential core price and yield it's going up it's progressing and we talked about by and there could be some volume pressure there, but I think if we're delivering better March.
Ones and better returns when you walk all the way through the network I think we'll we're comfortable with that well I think one last thing here at Tyler when when we talk about it's a little bit of an add on to what John said, there, but when you talk about margin improvement you might say well gosh, I mean, you're not even covering your costs increase there whats your land. So what do you so excited about.
I mean, I would tell you that that 45% is better than 1%. So while we may not be covering that costs increase which is kind of approaching 5% at the landfills. It's still is going to add to our margin. Similarly on the resi line of business, which is really the one collection line of business Thats seen margin degradation over a period of 510 years.
Fallen I don't know John almost in half over a period of 10 years that that line of business will also start to two should affect overall margins, even though we will not get back to where we were 10 years ago for quite some time. So while we are well a lot of this is really just cost recovery, it's cost recovery that we weren't doing.
In the past, so and we've got to get there now and I think consistently we're starting to show that.
So I hate to maybe Nit pick just to touch but in 19, you posted collection and disposal yield to eight.
Again, we talked about accelerating post collection. So why are you guys looking for a deceleration of collection and disposal yield in 2020 is that just conservatism.
Yes, I mean, I think a little bit of that is conservatism I mean, it's we've we've said all along that that we would be.
2% price, 2% volume.
2% was kind of the baseline so I would tell you the two and a half is if you want to think about it the way I just said it.
On the previous question, it's kind of almost a new baseline for yield which is an instead of two maybe we call it two and a half.
We're not ready to call it two way yet system. Okay. Okay, and then divina just a little bit I think implied in your guidance, you're looking for maybe a 40 basis point improvement in EBITDA margins in 2020, if my math is correct, but I was hoping that you could maybe parse out some of the drivers there so I wouldn't recycling.
In resins CNG tax credit.
The margin dilutive. So are you may be implying that kind of the core margin expansion is actually maybe more say 60 to 80 basis points or is my math all messed up.
No I think there your math is good on.
Those items that you mentioned certainly we do think that there's some dilution to margin although at some point that kind of flattens out from a margin perspective, because we're not projecting any meaningful growth in recycling, Iran and the euro had so the impact to market margin should be relatively flat, but your point on fuel tax credit.
That definitely will be dilutive to margin in the year ahead, the outlook for collection and disposal continues to be that 50 to 100 basis points that you are 60 to 80 that you mentioned is right in that range.
Jim John mentioned and 100, the focus on and as CEO for repair and maintenance and then one of the items that we've not mentioned yet today, but I think really is driving productivity from a margin perspective is our turnover our turnover improved about 150 basis point during the year and we think.
We can continue to March forward on those goals and objectives with the focus on people first that weight management.
Okay, and then Super quick modeling questions was the LTI true up in legal Ines unit.
That wasn't SDMA, yet and it was about $40 million.
Right, Okay, and then I think there's some movement going on in cash taxes, what would you expect that cash tax as a percentage of book this.
20.
Yes, so our cash tax payment. This year was lower we made that decision because of the fuel tax credit well. It Doesnt show up on the same line you from a cash perspective. It was something that we would see a benefit of in 2020, so we normalize that by reducing our Q4.
Cash tax payment on our federal return and.
So our cash taxes were about 67.5%.
In 2019, we're projecting that goes up to about 70% any are ahead.
Excellent okay. Thank you very much.
Thanks Tyler.
Thank you next question comes from the line of Michael Hoffman of stifle.
Thank you very much.
A couple housekeeping can we follow just a directional trend on the volume. So we are thinking about this correctly negative in one Q flat or slightly positive to incrementally positive three incrementally positive in four and Thats, how you get to the one and a half.
Yes, I'm not sure even based on on January I'm, not sure I'd say negative in.
Q1, I mean I went through the numbers for January that we've seen.
Today today, what they were pretty encouraging so.
I think.
You could end up with slightly positive in Q1 will see based on what happens in February and March obviously, but.
But the volume, particularly as we look at the commercial line of business.
Has been strong for for probably three years and it continues to be strong I think that is probably.
The best representation of the strength of the consumer economy, we talked about that at the end of Q3. So I would tell you I think commercial is certainly carrying today and.
Landfills been reasonably strong as well landfill has that those those tough comps.
You too.
Your your Capex comps on the fire volume so.
Unnecessary doesn't necessarily have as heavy burden from that regard in so I think thats why didn't comment earlier about the strength that we implemented January we don't expect Q1 to have adds significant.
Hill to climb with regard to that year over year comparison as Q2, I think Michael there was a little bit of kind of a gap between fires last year, because you had southern California that really impacted Q4 of 18. So we had tough comps in Q4 of 19, then there was a little bit of a law there and then youve.
You had the big Northern California fires and that really started coming to us more I think in February So January really wasn't impacted much at all by fire volume, but the fires the volume coming into our sites in northern California pretty much turned off completely at the very end of.
July.
All right. So what I'm hearing is maybe a zigzag of a zero positive one to slightly negative flattish in twoq to a little bit better in three and then better and four and Thats, how you get to the one five I think thats, probably right. Okay. Alright, just help some modeling so the founder some noise when things are reported.
Jim I listened carefully to your opening remarks, and you make a point of saying I think on important metric is operating EBITDA. So operating EBITDA is different than adjusted EBITDA I'm presuming that's.
Hearing that correctly.
No I mean, I'm sorry, I just it's just it's just the way we.
I call it a call it out but it's it is adjusted EBITDA, that's what I'm talking about is see adjusted number. Okay. So can you help us with.
Then divina whats the proximate dollar amount of adjustments you're assuming.
In the 2020 number versus what you actually produced in 2019.
We don't specifically predict what we think our adjustment will be in the year ahead, though one item that we do know about that I mentioned during my prepared remarks is the ERP system upgrade and we think that that adjustment could be up to $40 million in the year.
Okay. So that was a question.
Yes, you are piece typically tend to be long planning thing. So this feels abrupt.
Is it.
It's certainly not abroad.
Something that we've been talking about for some time, there was a bit of a fork in the road decision for us to make whether or not we wanted to do a technical more kind of maintenance oriented upgrade to the systems that we had or we wanted to make them more transformational change and with chambliss partnerships cnine viewed it as the right.
For us to make a transformational investments in our finance and HR systems, and so thats the past that we're starting to work down as you can appreciate this is a process that takes a lot of time and energy and support from all levels of the organization, including our board of directors and we worked through those processes and made a final to terminate.
Question about mid year and started to launch our process in the fourth quarter, Yes, Michael I, just want to add to that it might appear abrupt from a reporting standpoint, it's certainly not abrupt from a planning standpoint, I mean, we spent at least a year probably more like a year and a half.
Planning for this as she said going through you know an RFP process, we've we've dedicated people.
Within the organization to to really oversee to us and run it.
So and then when it comes to the reporting aspects.
This is really the first time, we've kind of called that out, but we went through a diligence process. We looked at what other companies have done at to see what the treatment has been and a little bit of both the probably more on the exclusion side, which is why we opted for that approach.
And that makes you feel better that.
It's not abrupt the planning is good.
Free cash just so I'm clear do I take $90 million for CNG credit out of the midpoint of the guidance is that what I'm supposed to do.
So when you will note.
You say I'm not sure I understood, what you're saying about.
Yes.
2020.
So our 2020 guide of 20 150 that 20 to 50 includes $90 million from the fuel tax credit.
At the midpoint, we expect to EBITDA growth could be about 225 million dollar.
Interest as I mentioned is going to be a headwind. So my free cash flow perspective in the your head because we've taken out.
400, sick or $4.5 billion of incremental debt and so that's a headwind of about $100 million in the year ahead cash taxes, we think will be another $115 million.
On a year over year basis, and then we have a working capital headwind that is about $75 million that will round out the guidance that still really drawing you back to the operating EBITDA.
Thanks, and and honing in on an expectation for $225 million of growth from operating EBITDA.
Thanks for reading My mind on the next question, which was the bridge so I appreciate that.
Help us understand.
What structural and what can change over time between a core of for on a reported a two and a half how that gap closes.
So again.
Hopeful that two and half isn't permanent that you get to improve that but can you talk about that.
Yes, the fundamental difference between core price of 4% in yield of two and a half is really related to churn and our churn was essentially flat in 2019, but we do see continued opportunity with regard to reducing churn as we drive a differentiated service offering.
LNG and improve our customer service both things, we think we're advancing and really positive ways. So as we can reduce our churn and we think theres, probably 150 basis points of room in that figure we can close the gap between the four in the two and a half.
And if I would say I'm, sorry, I would also say that we spoke.
Either in Q2 or three about some a little bit of friction with some national accounts that we should last year. The good news is is that we are actually.
Adding a couple of large national accounts here in the first half of the year and the reason I bring that up is churn aside what we're really trying to focus on making sure that the first days and our best they would that business. We've got the right margins going in and we've got the right rate setting mechanism built into the into those revenue books and so we're pleased with that I will tell you we looked at churn and also our.
Net customer base and net net Cnine number was up a pretty good that at the end of the year.
Yes, Michael and last thing in reference to your two year kind of pricing baseline question about 25% as I said Tyler I mean, it we are baseline was too and I think the this this is starting to give us some confidence that we can move that baseline up doesn't mean, we can't exceeded I mean, we obviously exceeded two in 2019, but.
We feel like were you were able to particularly as we think about.
The pricing at landfills and in residential where we've been lagging for so many years the ability to hit to move that baseline up by 50 basis points.
As we think.
Certainly achievable.
Okay.
That's what I thought I just wanted to withdraw it out and then back to advance disposal quickly.
Close it you've had this 12 months to plan I'm, assuming youve I'm, calling him green and yellow teams, but can you talk about some of what that planning looks like and what we can expect to see some whatever.
Tangible milestones that would come out that are result of your planning.
So so I would tell you Michael that our group on our side of the fence has been has been hard at work really since probably June building out the plans for integration.
Keep in mind advance is still a separate company until we close so our planning activities have really been on our side of the fence.
I will tell you that I think the first year I mean outlets I've said publicly privately that our goal day, one and really through probably day 30, or 60 is really just making sure we take care of the employees and we and we hang on to our customers and provide them the right service. So.
This is a long game for us we're going to move as quickly as we tend to achieve synergies, but we're going to do it with with people and customers.
As a priority, but it is why and divina talked about it in her script. It is why we've we're going to be pretty strict about M&A. This year within that's that hundred to 200 range because.
It's that is not lowering down to that to that range is not indicative of the lack of a robust market or whatever I think thats still there, but what I don't want to do is distract folks who are going to be working hard on ats integration to John's point and get them somehow.
Even if just mildly distracted by another acquisition. So we're going to that and we we really are going to be in that 100 to 200.
For the year now the only caveat to that would be let's say, we get we really have accelerated the integration work and the synergy work and we get to Q4, and we feel like Wow.
Most of that is done and something Pops up on our radar that just we can't pass up Okay. We'll talk about it at that point, but for now what we're setting an expectation that we're going to be.
Just going to be small.
Huckins throughout.
The year, and we will focus our attention on the integration work.
With Mds.
Well, you're doing five years or tuck ins in one year with Ats anyway.
Exactly.
So I mean by all to buy so I have done none of that Freaks me out other than.
Is there an accelerated level of deals just because everybody wakes up just size there might be a socialist selected the presidency in taxes are going up and they pull it all into 2020, you don't want to Miss some of that but.
Yes.
Get why you ought to focus on.
Yes, do I want to standing that Oneq I won't come out of the politics now but.
Hopefully hopefully I think breaks you out.
Well just women.
Sellers have to figure out what the after tax proceeds are going to be and if they think they're going to changing tax environment coming into 21, they move, thereby theyre selling into 20.
Yes.
Alright, alright. Thank you. Thank you appreciate it.
Yes.
Thank you next question comes from the line of has them as area of Jefferies. Your line is soup.
Good morning, Thank you.
My first question is just on 80, DSW any any thoughts as to.
Timeline to achieve the 100 million plus in synergy and and sort of costs to achieve those synergies any any framework to think about for us. Thank you.
Well Hamzah I would tell you that I think we've been pretty clear that we think for the balance of 2020 between integration and cost to achieve not not a ton of benefit in 2020, we expect that through the course at 2021, we're going to make up a good bit of ground and you'll start to see a lot of the the net benefit for the organization and.
My cost to achieve perspective, we're planning for cost to achieve that equal one years worth of full synergy realization.
That is exclusive of some of the transaction costs at our customary light payments to banks and things like that.
Got it very very helpful. And then aside from solid waste in recycling.
Could you frame for us how big.
Other businesses are for you today has a waste Medway site and is there to focus of growth.
Post DSW integration.
Yes, we can probably I'll take a shot at it quickly and then.
Med waste is quite small for us really I think we have a couple of locations maybe in Nevada and maybe in.
On the West coast, So med waste is small for us.
The energy services business has been.
It was a focal point for us and 29 team with the acquisition of Petro way so that business.
Essentially doubled that had been edits very very peak back in 2014 had been $250 million ish in revenue and it has fallen back to somewhere in the neighborhood of maybe 100 million in revenue and then of course, when we bought Petro waste that that.
Kind of doubled the size of its basically but it still is relatively small in comparison to the overall solid waste.
Big business that we have.
And then.
What was the IPO haz waste.
I would tell you hamzah, we've we've seen good growth really alone Yemen I corridor in.
Our hazardous waste business, we continue to make strategic investments in our facilities both around the Gulf coast of Pacific Northwest et cetera. So it's an important part of our business I would say if you were trying to look at it in terms of scale to 16 plus billion dollar revenue line I wouldn't call that necessarily material, but it is an important part of our business is part of.
Our differentiated services for our M&A customer base and we've got we've got a great team of folks who continue to run that business very well for us given I think that I think if you look at the growth engines. There I mean, they all have growth potential certainly.
But I would probably highlights.
Energy services, it's down I mean, you know and and but.
But I think that ends up being a growth business for us whether it is kind of traditional drill cuttings or whether its waters are or what have you that has potential to to be a growth business for us and then I think as John said, the M&A business for sure with coal combustion residuals.
Mentioned, the big contract that.
The residual the remediation contract that we that we won we think we have a couple of others.
That that we could win in 2020, so the pipeline that looks strong there and we feel like we've got.
Theres really a small group if not one company that can really do what what we do.
On handling.
A full solution for coal combustion residuals, so thats certainly a growth opportunity for us.
Great and just last question.
On landfill pricing.
Talked about sort of cost inflation, we've obviously seen landfill pricing step up the last few quarters, but it's been pretty low for a long time aside from the last few quarters.
Why why can't you resulted a lot more it does it take a long time to roll through your system.
You had referenced sort of cost sensation of 5%. So you know just give us a sense of you know is this sort of a gradual uplift for a reason or can you just push through higher price to cover the cost structure. Thanks.
I don't know I may not when I looked at historical MSW pricing at 1% and then the Q4 at four and a half.
Somewhat of a quadrupling their felt pretty good to me so.
Could it go higher look if our cost structure is 5% at a minimum I sure, we'd like to get the 5%, but but.
I'm happy with the progress we're making on it is not to say that that we can't get up to obviously fully cover that cost structure, but.
But I wanted to first and foremost I wanted to make sure that we could consistently do this we've never had any consistency and it.
And now with with 2019 and a bit of 2018, starting to really show consistent.
Consistency landfill pricing.
I'm happy with that so far and then we'll we'll address the number going forward.
Great. Thank you.
You bet.
Thank you next question comes from the line of Mark It will Scotia Scotiabank.
Hi, good morning, excuse me.
Maybe just first on the advanced transaction, just so unclear maybe just on the divestiture package the program.
So the deal closes then you'll have just unclear a finite sort of period of time to divest of whatever you need to sell or does it need to be sold before closes.
Well I mean, some of those details are still being worked out mark with the with the regulators.
But historically the industry has been allowed to a period of time post closing to be able to narrow down the divestiture package and obviously the suitors for those assets.
Okay and it sounds like.
Theres enough interest there that you're sort of not a disadvantage seller.
Meaning they always loser may listen I mean every I think everybody knows the history of advanced and how they grew to where they are.
The assets that are on the list right now are obviously, though the in very high demand that we think from as evidenced by the number of folks who book lined up to chat was about what I think their assets John that Thats had it not then for this acquisition would never have seen the light a day, yes I agree.
Okay.
Maybe just a follow up I guess I need to wait until pricing.
Resume that there is taking the incremental margin on the volume is the incremental margins pretty high. So there is I guess, some sort of upper limit to how much you can raise pricing if there is going to alternative.
Sort of place to dispose and again, if you're doing for an astronaut quite at the five but it feels like it could be a lot higher but again I assume there is sort of risk, losing some volume right.
Well certainly there's always.
Theres always theres always risk, losing volume I would tell you Mark we're not what I've been particularly happy with is that what our revenue management team is doing to align with the operating side and using some of the data and analytical tools. We have I think we're making much much better decisions and our field folks have a higher degree of confidence.
In terms of how our assets are positions, we do all their alternatives look like how do we make sure we're recovering cost covering transportation pressure et cetera, and I think thats part of what you're seeing is a higher degree of confidence our team has in the analytics and the tools that we use it to make those decisions you have that went well placed asset network I think.
The conversation because the understanding the next best alternative for the customer as one of the fundamental and had to this.
And our ability to execute Thats right right. I mean, your question is really about price elasticity and the thing is exactly right. It's something we talked about on Investor day. When you talk about having that really really well positioned landfill network, that's close to the city center that really.
Provides some protection against.
Price elasticity.
Right. So again, maybe there is no reason why you can be doing is north of five then based on that okay. That's helpful. Maybe just one last one then just on the ERP upgrade again I kind of these typically are they going to prove can be pretty big undertakings.
Just curious is sort of a timeline around that.
And the 40 million I think so you quoted is that a 2020 number or is that sort of life of project number.
Sure. So you're exactly right there are significant undertakings and Thats why we haven't taken this slightly weve planned quite well and ensure that the HR and finance teams are very well coordinated in our execution of the path forward in terms of the $40 million specifically that.
Our 2020 estimate and we do expect this project to go into 2022 based on our current projection at the time to standardize business processes and definitions in a way that positions us to implement the software.
Okay, and then maybe if I can ask last one on just on the the ran in the commodity.
The commodity price I.
I guess, there's tough comps as you think you mentioned the upside from the fee for service model. The RIN pricing has done a little better year to date I'm just thinking in the guide.
The assumption that are still sort of headwind for 2020 or is it sort of a net neutral sort of zero to EBITDA year over year.
Yes, Mark I would tell you would net neutral I think you heard in my prepared remarks, but theres been a little fluctuation in commodity pricing Q4 was obviously is soft this quarter. We feel confident we can make that up and that will be kind of net neutral it could be a bit of a tailwind, but we're kind of we're kind of stand neutral there and on the RIN pricing same thing I mean, those those rates today.
They are a little bit elevated from where they close the year out, but we're not banking on that because that obviously has demonstrated its ability to change overnight.
Right.
Okay. Thank you for taking my questions appreciate it.
Thanks Mark.
Thank you for your questions I'll be turning the call back to our speakers for closing remarks.
Alright, Thank you and so really just in closing I want to repeat something that I've said many times.
And that is that at this company and honestly in the industry as a whole were we truly are blessed to have the hardworking people that we have doing their jobs day in day outs.
To make this all possible, we're really here just reporting the great numbers that they produce produce everyday and so I just want to say thank you again to them. We're extremely grateful. Thank you all for joining us and enjoy the rest your week.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect have a great day.
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