Q3 2020 Waste Connections Inc Earnings Call
Greetings and welcome to the waste connections third quarter 2020 earnings conference call.
During the presentation, all participants will be in listen only mode.
Your words, we will conduct a question and answer session at.
At that time, if you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Thursday October 29th Twentytwenty.
I would now like to turn the conference over to Worthing, Jackman President and CEO. Please go ahead.
Right. Thank you operator and good morning.
I'd like to welcome everyone to this conference call to discuss our third quarter results and the outlook for Q4 and to provide some early thoughts for 2021.
I'm joined this morning safely distance by Maryann Whitney our CFO.
As noted in our earnings release sequential improvement in solid waste volumes and increased recovered commodity values.
<unk> better than expected results in the third quarter and provide incremental momentum going forward.
In other housekeeping items.
It fluctuates connections on both a dollar basis and per diluted share and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures.
Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently.
I will now turn the call back over to Worthing. Thank you Marianne we're extremely pleased by our performance in the third quarter is our results reflect both the resilience of our solid waste business and the accountability of our over 18000 employees, who have stepped up during such a challenging year.
The better than expected 390 basis points sequential solid waste volume improvement in Q3 as compared to Q2 drove strong results in the period.
The rates of recovery in solid waste revenue largely reflect the extent to which the reopening process has affected economic activity levels. Following slowdowns due to the closure restrictions or requirements in effect since the onset of the COVID-19 pandemic.
The shape and pace of recovery of lost revenue continues to vary by geography market size and customer mix.
The volume improvement we saw in Q3 was most pronounced in regions, which had experienced the greatest impacts from covance.
With Canada, showing 750 basis points sequential improvement in our eastern region, which includes the northeast us up approximately 600 basis points sequentially.
In the aggregate through Q3.
About 68% of solid waste commercial customers and 57% of associated revenue in competitive markets. We track that had suspended or reduced service had reached out for the resumption of service or increase in frequency.
Up from 53% and 42% respectively at the end of Q2.
Year to date as another benefit of a more stable experienced workforce is fewer incidents and accidents.
And we are excited to further improve on these trends as we complete our fleet wide rollout of the next generation of onboard camera technology that incorporates machine vision and AI.
Our commitment to the health welfare and development of our employees environmental stewardship and the support of our local communities are detailed in our 2020 sustainability report released earlier this week, which includes long term aspirationally targets and our commitment of over $500 million over a 15 year period.
For investments to meet or exceed our targets.
These investments primarily focused on reducing emissions, increasing resource recovery of both recycled commodities and biogas.
Reducing reliance on Offsite disposal for Leach eight.
Increasing employee engagement and further improving our industry leading safety performance.
And waste connections sustainability initiatives have always been integral to and consistent with our strategy and focus on long term value creation for our shareholders.
As such the investments will be undertaken in the ordinary course of business with attractive ROI expectations and are not additive to what we consider to be typical capital expenditures.
Looking at acquisitions, we're on pace for another solid year of activity in spite of co good related constraints in.
In fact, the pace of activity has increased over the past few months year.
Year to date, we have signed or closed 16 acquisitions in 11 states in the us and one province in Canada totaling approximately $135 million in annualized revenue.
They include as noted last quarter and the market collection transfer and recycling company with about $40 million in annualized revenue and more recently, another new market collection and transfer company with about $25 million in annualized revenue both of which are on track to close mid Q4.
Dialogue remains as active as we've seen in years, especially with some tax driven sellers interested in getting deals closed by year end.
Our strong operating performance free cash flow generation and balance sheet strength positions us for a double digit percentage increase in our quarterly cash dividends.
As announced yesterday, our board of directors authorized a 10.8% increase in our regular quarterly cash dividend, our 10th consecutive double digit percentage increase since initiating the dividend in 2010.
Still our dividend remains at less than 25% of adjusted free cash flow.
That level, coupled with liquidity of over $2 billion and leverage of about 2.3 times net debt to EBITDA provides tremendous flexibility to fund both continued outsized acquisition activity and opportunistic share repurchases.
Now I'd like to pass the call to Marianne to review more in depth the financial highlights of the third quarter and provide a detailed outlook for Q4.
I will then wrap up and provide some early thoughts on 2021 before heading into Q in AG.
Thank you where I think.
In the third quarter revenue was 1.39 billion or about $20 million above our outlook on better than expected solid waste volumes during the period and higher recovered commodity value.
Revenue on a reported basis was down $22 million or 1.6% year over year plenty in key waste activity down 43 million year over year.
Acquisitions completed since the year ago period contributed about $47.1 million of revenue in the quarter or about $44.2 million net of divestitures. So.
Solid waste price plus volume growth on a same store basis in Q3 was negative 2%, reflecting an improvement of 330 basis points from Q2, and ranging from positive, 2.6% and our mostly exclusive west coast markets to negative 4.5% to 5% and our most coded.
Tactic eastern <unk> and Canada regions.
Pricing growth overall in Q3 was 3.7%, including core price of 4.1%, partially offset by a 40 basis point reduction in surcharges pricing range from 2.6% and our more exclusive markets in the western region to an average of over 4% in our more competitive.
Okay.
Solid waste volume growth in Q3 was down 5.7% ranging from flat volumes in our western region to down approximately 9% and our most impacted regions in the northeast Us and Canada.
As we have noted our volumes largely reflect the pace in shape of shutdown and reopening activity across our markets, which varies and depends on geography size and customer mix in each market.
Looking at year over year results in the periods on a same store basis, we saw sequential improvement in Q3 from Q2 in solid waste in every line of business.
Commercial collection revenue, which was down 7.6% in Q2 improved by over 500 basis points to down approximately 2.5% in Q3.
Excluding the most impacted markets in the northeast in Canada commercial collection revenue was up about 30 basis points year over year.
Roll off revenue decreased approximately 8% on poles down about 7% year over year and revenue per pull down about 1% on lower weight.
This compares to revenue and pulls down 13% and 12% respectively in Q2.
Solid waste landfill average price per ton increased 4% year over year on revenue down about 2% on a same store basis as total tons declined about 6% year over year about 400 basis points better than Q2.
Q3, MSW tons were down about 3% special waste was down 9% and CND was down 12%.
Looking at the NP waste activity, we reported $23.6 million at and T. waste revenue in the third quarter down about 64% year over year in line with our expectations on reduced drilling activity, which appears to have found bottom around current levels with rig counts up nominally in recent weeks.
Looking at Q3 revenues farmers recovered commodities that is recycle commodities landfill gas and renewable energy credits or Rins X.
Excluding acquisitions in the aggregate they were up about 25% year over year due to both higher rents and higher recycle commodity revenues due to strong fiber value.
Adjusted EBITDA for Q3 as reconciled in our earnings release was 432.6 million about $13 million above our outlook due to higher revenue and stronger flow through from returning disposal in commercial collection volumes as well as higher recovered commodity values.
Adjusted EBITDA as a percentage of revenue was 31.1% in Q3 about 40 basis points above our outlook and down 30 basis points year over year.
A 190 basis point year over year improvement in solid waste, including a 30 basis point benefit from recycling and Rins was more than offset by a 130 basis point drag from lower MP waste activity and 80 basis point impact from discretionary co bid related frontline in incentive comp.
Plus another 10 basis points from the margin dilutive impact of acquisitions completed since the year ago period.
Fuel expense in Q3 was about 3.4% of revenue down about 40 basis points year over year on pure dollar lower rates and CNG credit of about $900000.
We averaged approximately $2.33 per gallon for diesel in the quarter down about 10% or 27 cents from the year ago period.
Our effective tax rate for the third quarter was 17.6% slightly lower than expected.
GAAP net income per diluted share was 60 cents and adjusted net income per diluted share was 72 cents in the third quarter.
Adjusted net income in Q3, primarily excludes intangibles amortization and other acquisition related items.
Year to date, adjusted free cash flow of $778.4 million or 19.2% of revenue and 63% of adjusted EBITDA was up $15.5 million year over year in spite of lower EBITDA, given the benefits of working capital including reduced Dsos.
And the deferral of payroll taxes as provided for by the cares Act as noted earlier, given our outsized conversion of adjusted EBITDA to adjusted free cash flow, we are well on our way to exceed the full year outlook for adjusted free cash flow of 805 million to $835 million that we communicated in August.
Debt outstanding at quarter end remained at about $4.7 billion as Worthing noted total available liquidity remote remains over $2 billion, including cash balances of $859 million.
Our leverage ratio as defined in our credit agreement was about 2.7 times debt to EBITDA and on a net debt basis, our leverage remains at around 2.3 times debt to EBITDA at the end of Q3.
Our current weighted average cost of debt is approximately 3.3% with essentially all of our debt at fixed rates.
I will now review our outlook for the fourth quarter 2020, before I do we'd like to remind everyone. Once again that actual results may vary significantly based on risks and uncertainties outlined in our safe Harbor statement and filings we've made with the SEC and the securities commissions or similar regulatory authorities in Canada, we encourage investors.
To review these factors carefully.
Our outlook assumes no significant change in underlying economic trends. It also excludes any impact from additional acquisitions that may close during the remainder of the year and expensing of transaction related items during the period.
Revenue in Q4 is estimated to be approximately $1.335 billion.
We expect solid waste price of approximately 4% and volumes of approximately negative 6%.
Although we havent seen a weakening in volumes, we think it's appropriate to remain cautious as we have throughout the pandemic given concerns about additional shutdowns or other restrictions potentially being imposed especially as we head into the winter months.
In addition, we expect revenue from both resource recovery activities any NP waste remains similar to Q3.
Adjusted EBITDA in Q4 is estimated to be approximately 400 million or about 30% of revenue.
Which would be down 80 basis points on a reported basis and down just 30 basis points year over year adjusted for the 50 basis point benefit from CNG in 2019, which resulted from the two year catch up in CNG credits in that period.
Our outlook cautiously assumes that certain costs, such as medical which was down 30 basis points as a percentage of revenue in Q3 become headwinds in Q4 in the event that deferred or discretionary individual spending patterns should change.
Depreciation and amortization expense for the fourth quarter is estimated to be about 13.8% of revenue of that amount amortization of intangibles in the quarter is estimated to be about $32.5 million or about nine cents per diluted share net of taxes.
Interest expense net of interest income in Q4 is estimated to be approximately $40 million.
And finally, our effective tax rate in Q4 is estimated to be about 20.5%.
And now let me turn the call back over to working for some final remarks before Q anyway.
Thank you Marianne again, we are extremely pleased with our year to date performance, particularly given the challenge of projecting the business and managing through Cobra driven uncertainties.
Which have been amplified by the headwinds of high margin decrementals from lowering MP way waste activity and negative solid waste volumes and.
In spite of it all we have continually to raise the bar and consistently beating our expectations. Our Q3 results in Q4 outlook would put us about $60 million of revenue $25 million and adjusted EBITDA and 20 basis points and adjusted EBITDA margin above the full year outlook, we provide.
Got it in August without the benefit of expected incremental acquisition contribution and with the strong free cash flow conversion.
In this evolving environment, our employees that remain focused on controlling what they can with an uncompromising commitment to protecting the health and safety of their colleagues, providing the highest level of customer service and supporting the communities we have the privilege to serve.
I'd like to reiterate how incredibly proud I am of the way our team has supported our frontline and their families and delivered on their commitments to drive these results.
We've always maintained that a waste connections. It's our people who are our greatest differentiator and this year has made that all the more important and apparent.
As we look ahead, we expect to emerge from this challenging period better positioned financially with tremendous flexibility with respect to capital allocation and operationally willpower.
With higher operating leverage and solid waste and both safety related incidents and voluntary turnover levels already achieving multi year lows.
We expect to expand reported margins in 2021 and capitalize on additional growth opportunities.
Moreover, given the strength of our year to date adjusted free cash flow, we are well positioned for double digit percentage growth and adjusted free cash flow in 2021.
Although we will provide formal outlook for 2021 until next February Ray will provide some early thoughts assuming no change in the current economic environment.
In summary, we believe 2021 likely sets up for solid waste price price growth to range between three and a half and 4%.
With volumes expected to turn positive after we anniversary the start of the pandemic.
Price lower organic growth and high flow through from improving volumes should drive underlying margin expansion and solid waste collection transfer and disposal in spite of the hopeful return of certain discretionary expenses that we either reduced or eliminated this year through the pandemic.
Or the normalization of other expenses have declined as a result of the shutdowns.
In addition, depending on the level of activity between now and year end, we could enter 2021 with more than 2% revenue growth in place from completed acquisitions.
We would expect to have better visibility on the tone of the economy and expected acquisition contribution BMP waste activity and recovered commodity driven revenue in February when we provide our formal outlook for the upcoming year.
We appreciate your time today and I will now turn this call over to the operator to open the lines up for your questions operator.
Thank you if you would like to register a question. Please press the one followed by the four on your telephone you will hear a three tone prompt to acknowledge your request. If your question has been answered that you would like to withdraw your registration. Please press the one.
Followed by the three.
One moment please for the first question.
And our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Hey, good morning, everybody.
Good morning.
Hey worthy so thanks for the details about the recovery.
It feels like things are kind.
Right on track here and I appreciate that that 68% of the paused commercial customers have returned.
And maybe you guys gave this figure a couple quarters ago, but what percent of the commercial book is that applicable to and at this point based on the intelligence that you have how do you feel about that last 30% is that structurally gone or do you still feel like there's.
Some of that will come back.
Yes, so to your question, so where we track. It obviously is where we have a sales force that we can track account by account an account by account recovery, even though the payouts for that that probably accounts for about 80% of our commercial business. We've obviously in markets, where we have.
Franchises, we do not have salespeople, we have 100% the business.
And so that accounts for about 80% or so the commercial activity.
Look it's hard to say with regards to those that have not returned Jeff we've definitely assume that you know.
There are some permanently close shops right.
And it's it's hard to see hard to anticipate our project.
That those shops reopening that returning.
So this is a new jumping off point, perhaps there is an incremental positive volume growth next year, if through another stimulus plan those shops try to get recharged and reopened but without a doubt there will be casualties in small business as a result of the pandemic and.
We're not going to sit here and project a percentage recovery on that because to your point I think some of Thats terms are gone.
And Tyler just to follow up on that I would say that we continue to believe that customer cancellation statistics arent a good barometer, because we continue to not see a material difference year over year, and therefore untoward things point, we know that there there are cancellations coming.
Okay. Yeah, no. That's very helpful. And then Marianne So just you know.
Obviously margins were very good this quarter, particularly the core level and I think you mentioned it right at the at the tail and just want to make sure. Its clear. So in Q3 health care was was actually a tailwind we didnt see that actually shipped over to a headwind, but you are expecting it as a headwind presumably in Q4, and then probably into 21.
Yes, Thats, a fair way to characterize it we had talked about the fact that in Q2.
It was a nice tailwind and we said that we expected that as people started getting out more I knew this would be one of those costs that went away as a result of shutdowns rightfully impacted easier and we thought that that would behavior would begin to normalize over time and what I'd say is Q3 versus Q2 some of those cost came back.
But it continues to be a tailwind and yes, specifically I mentioned that if you're thinking about sequentially why is the margin the underlying margin expansion in solid waste in our projection for our outlook for Q4 less than Q3 that would be an example of what we're factoring in to the extent that were wrong and it doesnt come.
Back as much as we thought it would continue to be a tailwind in Q4.
Okay. Okay and then so this is a conceptual question you guys talked about it a little bit 2020 has been very bizarre on many fronts. I think we can all agree on that but particularly with all of the movement in costs you guys talked about expanding solid waste margins so that into 21, despite all of the.
Sink Cradic things travel right health care things like Covitz supplemental comp kind of maybe easing but is there any way to kind of just frame for us what were kind of thinking next year from a solid waste margin perspective is that 50 basis points or just any any just high level thoughts there.
Yes. Good question, because we were clear in our script that we expect reported margins to expand next year.
And to the extent that MP, just remained flat year over year.
Our EBITDA Carl if a raise the current run rates even more.
I mean that obviously provides our could provide a 40 or 50 basis point headwind to reported margins next year and so for us to say that reported margins are expanding to your point of view the solid waste margins are expected to expand north of 50 basis points next year.
Okay. Okay very helpful. Just last quick modeling question. So maryann just based on the deals signed or closed just from a modeling perspective right now based on everything how much acquired revenue should we think about in 21.
Our so if you think about 90 $95 million in 21, and the cadence being kind of by quarter 30 30.
15, 15 is a fairway our 2015 is a fair way to think about it and.
And then call there will be some additional fees likely get done this year that will be added pressure to that as we give formal guidance in February okay.
Okay, all right well, thank you very much.
For.
And our next question comes from the line of Kyle White with Deutsche Bank. Please proceed with your question.
Pardon me Mr. White your line is open.
I'm, sorry, Mr. Kyle White could you. Please check the mute function on your phone.
I'm sorry, Sir we're unable to hear you well move onto the next question.
And our next question comes from the line of Jeff Goldstein with Morgan Stanley. Please proceed with your question.
Hey, good morning.
I'm going to ask good morning, guys question just.
Hi, I just wanted to ask a recovery question a little different so just looking at the pace year volumes were down 5.7% in the quarter, which is better than you thought but also in line with I know when you had disclosed in July basically implying trends have been flat and then now your guidance for Fourq you. It is a similar number so.
It's just kind of bigger picture is it do we need a vaccine are you looking for additional maybe stimulus post election, just like what do we need here really to get volumes moving towards flat again.
Yeah, well again I think it's the anniversary as we said all along of the pandemic right I mean, we will deploy.
The pandemic started getting numbers.
Middle of March.
And so once we get through Q1, and we fully anniversary.
The effects of the pandemic volume should start turning positive in Q2, that's not dependent on a vaccine thats not.
Depending on the stimulus that's.
Thats just math.
Because if you look at the rate of recovery since the lows of Q2, our revenue run rate and in every metric is much stronger than what was reported in Q2 of this year and so just running flat to current the current levels of activity produces positive volumes beginning in Q2.
Now to the extent that the economy reopens because of.
A vaccine or because of stimulus plan.
Some some juice to the to the activity the matters further improvements and reported volumes to me in that year.
Okay, that's helpful and.
And then if I could say is looking for some type of the math, but it is Matt.
No I appreciate it.
And then I was just hoping for some more color on the temporary roll off side, especially around housing and it's bad at all has impacted the improvement down 8%, which I think was about a 500 basis points.
Acceleration.
Given where we are seeing kind of the strength of the housing market and lower hearing around continued supply constraints. There or are you seeing any type of benefit do you think it can continue just just what are you seeing on temporary roll off early.
So our aseptic to your point, we did see nice sequential improvement in roll off I'd say that yes, certainly that the housing can be a factor on that there is also just the reopening and I look at for instance, where that sequential improvement was strongest and it was in Canada by way of example, where you have the.
A whole holistic shutdowns of economies and there is arguably some pent up demand when they turn things back on and we saw construction projects that had been put on hold get restarted and so I'd say that was as much a factor if not more than for instance that the housing numbers getting a little better I'd say the other thing that.
Stands out as I just think in general are the best volumes, we continue to see around the west coast, where I'd say that for the past few quarters. We have seen that that return of housing did help those numbers. So it's a it's a factor but it's one of the two different factors that I think are driving that sequential improvements.
Yes, I know it feels like this has been a dog here with regards to two remembering things but.
Recall when the when the shutdowns happened in Q2, not every not every state or shutdown construction as well right.
Washington for instance was a state that shutdown construction as part of a pandemic and so you saw rates for large snap back in Q3 sequentially Q2 to Q3 in Washington, Canada. The same way, we looked in Ontario, and Quebec, especially would shut down construction activity as part of the closures and to marry EPS point as those reopens obviously.
Have a snap back sequential improvement in Q2 to Q3 in that area as well.
All right I appreciate the color.
And our next question comes from the line of Sean Eastman with Keybanc. Please proceed with your question.
Hi, This is humberto Jennifer speaking push push honestly I just wanted to turn modestly in order to volumes.
So last quarter, we talked about a month the volume trend I was just curious.
If you could give us more color on September and you've seen the d. overnight this trend.
This year, but.
But as being.
It remains to be seen I was just curious if you could think of ways connection has been benefitting from the dynamic with such a significant amount of volume driven by secondary market.
Whether you think this could be a nice tailwind for the visits in the coming years.
Well at first in the secondary markets as we laid out in the in the script.
One of those markets were not as heavily impacted encoded.
And we're kind of early to recovery to recover what most of what they had lost in Q2 and that was a big contributor to Q twos.
Uplift.
We still continue to see volume strength in those marketplaces and in many of those markets. We expect positive volume potentially in Q4.
And so you know while most those afflicted at flat volume year over year in Q3 that continued momentum could turn positive in Q4.
With regards to the current trends.
Again, I think we laid out in our in our outlook that we still expect volume declines to be about 6%.
Uhm, you know the sale of of companies and 21 and beyond Uhm, obviously exhaustion can also lead to folks desire to sell me, it's tougher and tougher to those.
It was tough for running a business before the pandemic give him any constraints in the Pandemics made that even more you know magnified for many for many operator. So exhaustion can also lead to that obviously tax driven transactions as well that's driven some people to come off the sidelines this year and get some things done and to the extent that you know the.
The tax dialogue in 21, if it if it tax law changes in 21 is a retroactive or not you know do they like and the Trump dot period in the first two years to two years to get tax reform in place. So that did they get it done at 22, which my proud people they get feels done at 21, it's uncertain, but.
What drives our typical transactions with second third and fourth generation type businesses is lineage transition and we expect to him an activity continue beyond this year.
Got it. Thank you very much congratulations index Glen.
Thank you.
And our next question comes from the line of Mark Neville with Scotiabank. Please proceed with your question.
Hi, good morning, Thanks for taking Washington first.
The morning first great quarter, nine generally great job mentioned through the pen dot so good on Ya.
Maybe just going back to the recovery can I I apologize if you touched on some of these points, but it's just from a high level I'm just curious in in the markets that were sort of first it open are you still seeing sort of month over month week over a week sort of sequential improvement in the ballroom recovery or is there a certain markets, where you're you're sort of finally sort of hitting a feeling and then.
Like a similar type question to the markets that are slower to open or re clothing like you're in Montreal, I'll, just sort of curious sort of how well not much else specific just generally how much sort of room.
Uhm upward as a report you sort of get to sort of a more normalizer serve to where the yeah. The market's maybe.
So.
Happy happy to cover that March so what we said with that in the aggregate the recovery and for Avenue in the commercial markets, we check into about 57% and then we break that into the the ones that you describe <unk> had come back more quickly and more or less impact instead of less impacted markets are in the low to mid sixties about between.
60, and 65% of our coverage as contrasted with what we would describe it some more and package Canada. The northeast you ask are in the low fifties. So that's the doubts so we're seeing that remains between those two buckets. If you will and to your question about that the rate of recovery, we've absolutely seen that slowed down and and in there.
Less impacted markets and that is worthy described in his remarks that really what led the queue to recovery, where those markets and what led to three more impacted it's we talked about the sequential improvement in Canada for instance, being 750 basis points overall volumes and the east.
Our eastern region 600 basis points. You contrast that will pay a 300 basis point improvement in in a place like the the west coaster or southern region.
Look at you know individual markets, some place like Toronto, which cute through Q too had about 30% recovery is now and that low to mid fifties. So perfect example of one of those impacted markets coming back you know a strong in Q3 and I'd contrast that with for instance, north Texas in a place.
Like Dallas went through to Chew they were already back to the low to mid fifties and now they're back to the low to mid sixties again in line with the average we're seeing in those markets. So I think that speaks to the flattening and again, we don't we don't know where the ceiling as we describe it as a near term flat showing because that's what we've been seeing over the past few months.
Okay. That's that's super helpful. Sorry, B in those markets and have the the low 64 60 65, Dallas the guys are still.
Maybe just just answer the question those are still sort of sequential prunes happening or is it really just leveled off.
<unk>.
Again tend to be clear I mean, we saw it throughout two three and there's still opportunity.
Because you have various markets within those buckets and and for instance, New York City.
I talk about this hey, these impacted markets are on average around back 50, 55% sure did is still in the mid 30 S. So it's our fastest growing market right now [laughter] alright, so great place [laughter] smaller base.
Yeah, there's still absolutely opportunity, we're just talking and high level and and what we're seeing that.
Yeah, No I appreciate that against is pretty fluid. So again, I don't want to get to to be able to I. Appreciate all that maybe just on the on the free Casper next to your Oh, sorry go ahead.
The week to reach friends for instance, in New York City or are quite notable it's interesting to see how the city is turning it back on.
Okay. Okay.
Okay. Thanks, Uhm I got this maybe just have the free cash them for 2021.
I kinda know you'd like to sort of talk free cash conversion over time. They also low fifties oh should be much better when we sorta think about next year is there any sort of discreet or certainly did you want to point odor and maybe you don't Wanna give us some exactly when and where do you think the conversion of all set just something you know just anything you want us to keep in mind more modeling Oh, that's your freak out.
Alright.
Yeah like I think we've been consistent you know throughout the third quarter laying out our expectations about 2021, and and that's been you know to put a marker is 950 million and just lay out an expectation that we ought to do 950 or better for the full year and and to get you back into that and that's that's what we're talking about double digit growth.
And free cashflow year to year.
Okay I'm, sorry, just one last one where do you mentioned some deals and cute worth it looks at the clothes and I think he put some numbers around those I just didn't catch them.
Well I think Marianne put the numbers around the quarterly expectations for next year based on the hundred 35 million with gas on your clothes.
And what I've said is there anything that we do which we should get a few more things done this year would be added to it to that and that we would leave that expectation and those numbers in in February but in the aggregate. What we said is that if you look at what we've signed her clothes and what we think will get done you know will likely go into 2021 with two <unk>.
Your set top line growth already in hand from emanate.
Yeah, Yeah, Thanks, again, and again for a job.
Thanks.
And our next question comes from the line of <unk>, Missouri with Jeffries. Please proceed with your question.
Hey, good morning. Thank you. My my question is largely around share buyback is there a reason why you're on aren't buying back more stock and why ask is you know historically when the company hired to get all average just slightly above average how many years I I I.
Thank you still bark box shock at the same time in size because you leverage is the lowest it's been in history, you're sitting on a lot of cash free cashflows growing double digit and and it looks like you know acquisitions on all gonna be as big as 2018 or 19, even if you'd look.
You know 2020 years almost on 20th 21 is a big question Mark I doubt it'll be as high as 2019 or 18, unless you say otherwise. So just just any of us there any high level thoughts or or what you're thinking.
Sure look we were active earlier this year and buying Microsoft we always use the word opportunistic with regards to the timing of the when we do things cause I'd also like to maintain flexibility for growth opportunities that come along but yeah. You tell me who's gonna win the presidential election, you tell me, what's gonna happen to pass laws next year, you tell me what's.
Gonna happen in the stock market as a result of that uhm, but a lot of folks as you know talk about a sugar high of a stimulus gets done which will flow through the stock market and make profit up into early next year and then with the if the realities of the tax law change that could be harsh.
That could create opportunity opportunities to buy the stock back [laughter] you know we tried to play the long road here Uhm, we try to to look ahead at that you know expectations around the stock markets.
And you know I'd, rather be patient and and by right.
And just be a willy nilly by or at any price.
Got it got it and then my other question is is just around E S G and and and I I I actually want to ask about the E rather than the S and the G.
And I know you put out your sustainability report, but <unk> I know you do renewable landfill gas and and recycling, but but how do you view landfills as part of the E equation do you do you think they're misunder stirred by by the E. S. G community and that they're sort of bad for the <unk>.
<unk> you know any thoughts as to the E where you rank there what you can do better there.
So I think what we can all do better is just continue to to be more upfront and more visible.
Look a lot of things that we talked about it and are you a student report things we've been doing it for 20 plus years, we've just stay below the radar screen in and telling our story.
With regards to landfill look landfills you tell me first off I mean look at other economies without you know the the type of strict hygiene and regulatory environment around waste disposal Uhm I'll put what we do in the us up against any other economy in landfills play a big part of that.
But landfills are also a big biogas generator and renewable energy source man you see some many of our efforts around increasing investments within biogas facilities now that our landfills, we're getting more of a chore and and gas generative enough to do that uhm. So by all means I mean landfills that's.
You're right. It does they do have pet names and bad connotations many communities.
Okay. So what communities that weren't there when the landfills were built and built themselves up next the landfills, but uhm look it's a double edged thing with the scarcity landfills turns in the pricing opportunities within many markets because it is a scarce resources in ever increasing increasingly higher cost to operate lamp bills and the build out landfills and that will drive <unk>.
Missing landfills, but again, it's it's it's source for renewable energy is one that will become better understood. If we tell the story right because of the opportunities there are tremendous and the returns on those kinds of investments more importantly.
Are incredible Lucky S. T doesn't mean, you throw you should go and throw away money and dilute returns.
We're talking about or opportunities and running the good business that not only are good for the E. As you say, but also a good for the P&L too.
Got it and last question I'll turn it over you know we talked a lot about commercial volume just <unk>. How do you think this cycle is different than past down cycles for waste I I I, you know in order to high level waste lags going into a downturn lags coming out it it does.
<unk> looked like it's lagging coming out today, and so that may be a difference I don't know maybe the cost structure is different because because you know some of what you alluded to a little bit on the margin performance. This quarter, just any thoughts as to how this cycle, it's different for waste and you know prior cycles.
Alright. Thank you almost answered your own question and that prior cycles were were more what's that with them decline temporary activity.
A commercial stay strong this is a decline that hit commercial uhm. So the wait was hit is almost tracking the way the macro economy has been hitting G. D. P has been hit meaning.
You know the temporary side of the businesses still remain I guess, a little more resilient than what we saw as a quick contraction and commercial but.
But commercialism recovers is very sticky uhm and so is that recovers and you see the high margin flow through yeah that would continue to benefit this industry, but to your other point the cost structure is different and.
No. That's I think that's a statement that can be said about most businesses across multiple industries uhm.
How we accepted.
How we did things how we travel what we spend money on et cetera has changed.
And so you know the I.
I don't see all those costs really ever coming back fully into the into the P&L, because we will be doing things differently. We still want we still pine for the days that we're together that we're having big parties that we're spending a lot of the bar so to speak Uhm, but you know clearly is economy.
Reopens as people get more comfortable being together based on changes in the pandemic, our vaccines et cetera.
It's still hard to see that the the shape of how we do things as it gets back to where it was pre pandemic and decorate the different cost structure in our female and others.
Got it thank you.
And our next question comes from the line of Kevin Chang with C. I B C. Please proceed with your question.
Hi, the morning, where the Marianne congrats on a good quarter there, maybe if I could just dig into somebody or assumptions I guess for balleys in the fourth quarter and maybe specifically.
I appreciate the conservatism just just given all that we don't know and some of the box and.
And they'll be openings with some of these economies like here in Canada, and I suspected and parts of the U S.
Change how you think about maybe your bad that assumption that you'd get through the winter season. You know just anecdotally can <unk> you know a lot of small businesses have been pretty clear that it that they get through another shutdown that they probably don't make it through the other side of this throw <unk> throw a throw a talk with your season I just wonder how <unk>, how you're looking at your bed that's.
Over the next quarter or two.
Sure. So so interestingly they Kevin we we talked about bad that last quarter as being one of one of the cost and if you will of Covid and it's actually come down this quarter and it's actually closer to one more normalised rate for at and we've talked about dsos coming down as well.
You know a portion of that would be M. P of course, and it's also solid way. It's what we're finding is that S customers come back they're paying right. So we're seeing the recovery Italians coincidental with that is a reduction in bad debt. So that's encouraging and to your point about.
Those customers, who aren't going to come back as I said earlier, we're not we're mindful of the fact that cancellation relate rates are are still what advocates artificially low and so that's why we're not taking any more recovery and we think it's prudent at this point. So you kind of think in terms of current levels remain.
Being the same so I'm not expecting any big that that come back, but I'm not expecting it to get materially worse from here at this point, we've been cautious in how we positioned ourselves for for potential deterioration some bad that.
Okay <unk>.
Oh that makes sense sounds very prudent today.
Yeah. So we're already position for that and it's not as bad as as we think again, that's that'll be upset.
My second question here and I think Mark <unk>, Mark was asking about the free cash flow. If I just take <unk> will exceed it just based on your comments today, but if I look at your your free cash flow.
Guidance I guess, you a confirmation from the outlook you provided last quarter.
It's about 52% of EBITDA, if you're talking while ahead of that through through year to date, you'll be getting good flow through even with the challenges at the M. P. If I'd ask this question may be different like do you think you can get back to the mid 50 per cent free cashflow conversion of EBITDA, even within piece sitting with that today, just given how strong your conversion has been.
Through through a very challenging you already.
Yeah, well look we've we've always said you know <unk> 450 to 52 love us in the years, we do 55 right.
So I would never model a a you know do a longterm model like a consistent 55%, obviously things could change as you look ahead, whether it be tax law changes in the U S around bonus depreciation as those wean off and twenty-three changes in tax rates, obviously could could influence out a little bit as well so.
Look, we still comfortable and that longer term view of 50% to 52% even without E&P coming back obviously to your point of view M. P comes but that's another potential boost in a tailwind to get that are as well but.
Uhm look were already well positioned to do the upper end of that are better. This year that is still leaps and bounds ahead of our peers and end of the year is that we do have a 52%.
You know, we'll just we'll we'll take that enjoy it.
For sure and maybe just one housekeeping question for me and Needless to Marianne.
<unk>, maybe surprised that Tonight I didn't notice the core price sequentially did improve.
In Canada I'm, just wondering if if that's just a reflection of that sharp volume rebound. You. You. You noted that you saw on two three or was there anything anything unique that happened to Canada and send the third quarter.
For playing Kevin <unk> you did see that includes switch went counter to right <unk> the rest of that movement.
Movement, which is playing out as we expected right that is stepping gash in Canada. You have some pieces that were pushed out last quarter that got implemented and cute tree and so that's why you saw that it dropped a little lower in queue to then we would've otherwise plan and came back a little in Q3. It was a conscious decision to defer those price increases.
Perfect that makes a ton of sense that thanks. So that's all my questions quite quarter.
Okay.
And our next question comes from the line of Chris Murray with a T. B capital markets. Please proceed with your question.
Yeah. Thank you good morning folks thinking about acquisitions, you know historically, you've always talked about acquisitions being kind of 3% to 4% of revenue as you go into the next year, you know you're kind of calling up to this year I guess, maybe it's restart thinking about.
The next couple of years.
Is it a function of kind of a law of large numbers or was it just there's something around the the acquisition pacing you know how much of that was impacted by Covid. This year and you know is it something that we should be thinking about you know getting back to that number. So I'm just trying to maybe frame it over how how to think about you know acquisition growth over the next couple of years.
Sure no we've typically.
You know, we look at typical year and think in terms of $125 million to $150 million required revenue right Uhm and that right. There is I'm, just going around 2% to 3% or so of of growth in a year. If you look at this year again, we're knocking down we've already knocked down the mid pointed at 125 to 150, maybe.
Who would do the balance of ear will push that to the upper under higher going into a year at 2% growth. Obviously, what we don't have that number yet is everything we get that out of 2021, which will be adequate for that super set.
And so you look we're not chasing a growth rate to your other point, obviously as the as the business Rose Uhm, a typical year 125 to 150 will be a slightly lower percentage as time passes.
But without a doubt you episodically see larger transactions, you know $50 million to $100 million type revenue transactions into the mix that individually can push that 2% to 3%, so something like 3% to 4% right.
And so we've seen that you're in you're out the past few years, but we always think in terms of an average you're being that 125 to 150 and a percentage topline will be what it is.
Okay. So just just think about that as a base number in terms of what you're what you're kind of looking for for growth. That's fair enough and then just going back to Ya.
Well, if they don't honest for that but you know I'll, let that be upside.
Sure sure going back to your yes, you report and and sort of your thoughts around.
$500 million and spending you know one of the things that I know, we've certainly been discussing with clients as in the changes of administration, probably you know like we saw and the change in the last administration you know different things happened written pricing certainly moved around what changes in regulation and I know, it's hard to to try to figure out where this goes but certainly if you think about.
<unk>, you know things like gas capture Uhm, and written credits and even uhm vehicles and shifting there and you know certainly California's Meacham had made some disclosure <unk>, but wanted to get off you know any sort of fossil fuel type powered vehicles in the next few years.
You know, what's the feasibility of your ability to either accelerate or pivot into some of those technologies or you can I guess, what I'm curious about is you know it still seems like early days or do you think that the maturity of the technology is more than just a science projects at this point.
No luck with you to some of your observations with regards for instance, the gas I'm getting a maturing of our landfill network.
Creates more opportunities looking ahead for biogas capture investments with very attractive are wise. Then then the rearview mirror right and so we're very bullish on that and that's obviously a you you mentioned the change of administration.
We know what this <unk>. This current administration has has and how that influences are female with regards to the value of gas price things like that if the changing administration happens and you know their platform.
You know the value of those of that kind of line of business. It should go up dramatically.
Uhm with regards to E V look we've already taken delivery of our first full E V. A truck obviously, we're beta testing it we expect that to to meet all of our weight limits on route distance limits with regards to battery life.
And so let the limit or there was even though state regulations of past for instance, in California, the limit or is still the manufacturing capacity right uhm and so many of the of the of the units you see people talk about R. E V chassis, uhm, but not electric bodies mm mm.
And you know the Fisher should be a combination of the both of both of those so does a full easy product.
So all we can do is make sure we're beta testing and position to know how those fleets behave make sure. The route models are proven make sure the maintenance cost reductions are as promised to make sure that the the cost of the cost of the unit is has to pay back or more importantly and market.
Can we put it in the right place to make sure that we don't have stranded capital. So looking I think we're well positioned for all the above we tried to lay that out and are still gonna be able to report I think this industry is very well positioned with regards to to the opportunities that lay ahead with Ah if there's a change in administration for instance, I should point out.
And so now we feel we feel quite good about how.
How were laying out our money expected returns and more importantly.
What it does with regards to to broaden sustainability initiatives.
And Chris just to add one print or anything said about that the landfill gas biogas project, it's not as though we need to pivot or accelerated something we're actually we have a number of projects on the drawing board and I are in conversation about <unk>. So to your point, if there's a more favorable environment. It just means you probably move forward more quickly and things that were already.
I need to do a number of these conversations are years already years old right. I mean, this isn't something that you just wake up and say Hey, let's do this this is we've been at this for all of our quite some time.
Yeah, I know that that was actually my point is like a kind of nice to everybody says, let's go Green tomorrow, but it it takes some time to get done right, So and I and you worry about the technology and how recently introduced before you apply it.
Alright. Thanks, guys will look we just put I think we'll probably one of the largest robotic orders and again for a recycling facility.
To your point, we didn't run in that version 1.0 wait.
Wait a aversion to point Oh or later.
To make sure the technology is proven and we can get you know the kind of the payback that we're looking for in that would that kind of a <unk>.
Thanks, a lot.
Okay.
And our next question comes from the line of Michael Hoffman with Stifle. Please proceed with your question Hey.
Hey gang some day one of these say somebody's actually can pronounce the name of the firm right.
Free cash flow pardon him back to that.
You've given guidance at eight O five to 835 for this year 778, now it's 058 45, if I recall correctly did not include the benefit of 40 million from the cares Act.
What did I understand your comment correctly, Marianne 778 has it in it.
From a reported standpoint.
At the moment yeah that's.
That's.
That's correct Michael Okay. So what if I give you guys still being in my your guidance are at the top end of it so the expectation would be.
Everybody should be prepared for the conversion rate and <unk> wasn't going to be.
Even 50 per cent it'll be last because you've got a lot of cash outflow things plan for fourth quarter.
That's a fair way to think about it Michael Yeah that would be the math behind still achieving.
He said, we're positioned to exceed the eight O five to 835, but yeah. So if you take the high end or just above that and use that conversion rate. It would absolutely <unk> be below what we've demonstrated our ability to do this year, which says we are paying out you more outflows in queue for yeah right. Yeah, just apply sent the upper end of the 52.
52% range too are are your date EBITDA plus are guided Q4, EBITDA and you'll get a number above the 835 that was the private upper end of our of our original range.
Right and and you've always talked about worthy and yeah.
What are even getting credit for exceeding that number this year. So prepay everything you can pull for capital spending so to that and what is your.
Revise view of cashflow from ops in capital spending for 2020.
Well, you'll it really depends on what we can take delivery of I mean, we've already put another 20 million of orders out there for fleet and yellow or we're trying to take advantage of of some units that fit our specs that are still sitting on some lots out there.
If we can get that in there you know that'll be kind of a good a nice head start to the outlays for 2021.
Obviously taxes go up in in in queue for there's another cashbox payment to do a middle of December the sides of that's hard to determine cause obviously is if that yellow warning and flea comes in that'll increase the bonus depreciation acquisitions, if they get done prior to that they that increases the.
The deductibility of acquired Capex and so there are a lot of moving components in this thing, but what we know is that to your point, we can manage where we want to come out year and based on the flexibility that we have it's it's a better it's better conversation to have been asking could you make your number [laughter] yeah, no I get that I just.
You know you've given us a double digit improvement year over year 950, if I'd just your 10% I'm at 865 is the starting number.
But I'm also curious like why not prepay that cares act instead of just having this.
Lingering around in the numbers for two years.
We have a lot of flexibility do a lot of things Michael.
Not.
<unk> <unk> you you were very clear about telegraphing for the market in 2020, how to think about the cadence.
Price and volume trends and I know you don't have a guidance out but is there anything.
That should be noted about how to think about cadence for 21 for instance, when he was ugly and volume but to choose positive. So the first half kind of nets itself out and then the second half positive is that the right way to think about it and then price.
Sorry go ahead.
Okay, I didn't mean to interrupt I was going to say yeah. I mean, that's just the way I would characterize the volume side and and as as yoga call in kind of a typical year for us pricing the cadences that on a reported base. It it always starts at high and Chew wanting decreases over the course of the air just really relating to.
The size of the denominator and the timing of our price increases, which setting the majority of which I put in early in the year. That's mostly in Q1. So you know that the 3.5% to 4% that worthy talked about for price next year just started at the at the high end there and work your way down to the lower end that might be a fair way to think about the the kittens for next.
<unk> and to your point volumes are negative in in Q1 turned positive with the easiest comping too too great and then you see that that you know to the extent, there's any reopening or improvement nor positive items in the back half the beer.
Okay, and then I am unless about the volume than I am sort of the total number customer on the commercial side.
Do I recollect correctly that in a great recession, if you'd take the Oh eight through say 13 before the housing cycle recovered.
That the last number of customers was approaching 5% and yeah that happened over a very long time and you can absorb it very gradually.
Are we looking at or something like that but just more compressed based on the level of recovered.
If it stops here.
And accordingly, you're just the business model have to do it faster, but you'll just it like you did oh eight to 13 improve productivity dramatically you got a lot more pricing and so on and so forth.
Well the adjustments already in place and I think you see the strength of the the flow through in the shape of the cost structure by just even at the current levels with 65% or so the customers that have reached out and about 55 or more percent of the revenue.
You see at 200 basis point margin improvement year over year. So yeah, I think the the performance is already there to see you write that in the in the great recession. It was about a 5% loss in revenue Uhm I I, usually use revenue not customer base, but revenue.
And again you know you look at right now you can see <unk>, you'll see the stats what we gave for this year.
Look the recovery, that's plateaued right now, but for some markets I was still expanding that's the jumping off point for for any further recovery within our customer base, but.
You know we've already kind of adjust that are adapted the shape of a business based on the reality. So we currently have we're not waiting to adjust to shape.
Right and and that's what I was a private T set out poorly is the point being is there anything that happens from this point forward. Your is fine tuning you don't have to take another big swing.
To account for if that group number comes back.
Well because of the shape of a structure of the cost stripes. The business has already been adjusted for that's why you see as revenue comes back such a high flow through right.
One of the correlations in the business has been a good household formation has historically driven new business formation.
So I get it's early but in places where it's.
It's healthier so maybe some of the secondary market places like that where the longer than a cycle are you seeing any empty storefront starting to sit backfill is there because housing is very strong on.
On a relative basis worth a million for nine a four and a half start so it's a pretty healthy number.
Yeah, where where you've had what I would call. The the pandemic migration. So to speak of you know out of some more densely populated areas into some more rural the three hour drive away from where you're currently living.
As you see you know increase the population settlements or resettlement. Some near term you know, we we have been saying storefront. So right I mean, it's a they're following the people that following the money.
But it's it's a tough thing to say as a broad statement that that you know business formation is gonna follow household formation in general because right now.
Most of the household formations are just folks people moving from one home to another and deciding to whenever you can roller enroll their kids at school or do it for about from a from a far away place them again.
Again, the economic activity, followed those people has fallen and benefit local businesses.
Okay, but there's a little bit of hope there.
It depends on where you live [laughter].
That's true alright, thank you very much.
<unk>.
And our next question comes from the line of Walter Spratlin with our B C capital markets. Please proceed with your question.
Yeah, Thanks, very much good morning, everyone.
<unk>.
I'd like to start here with the contract and and you you. We've gone through seven months now since Covid started and you've negotiated a number of contracts go from the commercial and residential side. Since then and one thing I was wondering if you could tell us a little bit about the key differences between the contract negotiated.
Since then and what would have been negotiated before and if you could touch on a little bit and in both in residential commercial.
Is pricing discussions really altered in terms of getting them through for whatever reason is the term changing at all.
Versus what what happened before and then third is a structure of the contract much different I know you were making an effort to to move residential over to a volume base versus per household is there any other examples of real changes in in the contract in its nature in in recent.
Contract negotiations versus what you would have done prior to Covid.
Okay approach the contract negotiations relevant reflect the period in which they're being negotiated and those that are that are being negotiated.
Right now obviously recognize that labor costs are going up despite record unemployment you know as it is with the central workers and you're seeing what we've done for our frontline that's rising labor costs, obviously right now we're mindful of of of you know the the ship that's occurred already occur into higher.
Loads within the residential that's impacting those residential contracts, obviously, you've seen the increasing cost uhm to handle more contaminated waste streams within the recycling.
A side of the business and so the the the cost of recycling has gone up in many of the contracts that are up for renegotiation were originally done back when China was still open and the cost and the profile and shake with like the business is fundamentally different.
And so long way of saying that many of the contracts that that you know are are getting renegotiated our discuss now uhm. The cost structure is fundamentally different then the where it might've been seven or 10 years ago.
You know the type of fleet that that is being asked for today versus what was running under the current contract. If you have to switch over fleet makes it even more expensive and so.
The dialogue is dynamic if it's reflective other times, we're in right now and you've seen in many cases, you know easily double digit increases in in pricing because of those those inputs.
Commercial right now I mean that that dialogue hasn't changed you see the strength of the price that we have right now and especially the spread to see P. I I'd say one of the biggest areas that.
We do well in is competing for accounts that have been totally service.
And you know, we see those opportunities across multiple markets.
And again, that's a tip of the hat to to all of our frontline folks that you know.
Show up every day and service to their accounts and and give us a good reputation in those markets and and provide opportunities for I'll salesforce take advantage of that and and gain shareware possible.
That's a great color for my second question here, just turning a little bit too trends that you you've you've highlighted a number of things that are cause for optimism and I I really hope that the reopening continues recovery continues but see you know obviously with the new case counts in many jurisdictions.
<unk> going up higher than they were when everything was shut down are you seeing any indications of policy change that would reverse some of those gains in certain jurisdictions that might if they continue and others in the same type of trend.
Result in Ah Ah Backpedaled here in terms of the reopening any risk of that in your view from what you're seeing right up into the.
Kind of the day to day right up to the minute kind of kind of indications and I know or is there things that are are different I mean schools obviously.
Our our <unk> our opening now despite higher case count then when they close it just we've understood things a little bit better about how this all works and we're taking a different approach than we did back in March.
Sure I'd say, we haven't seen it yet in fact October likely will play out a little better than we'd originally expected him to your point in other words, we haven't seen a rollover and that but certainly the way we have guided the quarter Uhm. We have assumed that there may be some you know that's prudent to stay cautious as.
We as he looks ahead into November and December we just haven't seen it yet the numbers I'd say the biggest right now it's more operational as I think about what what you know what that worries me, but what we're mindful of in that as well.
Here at all of the media about Covid fatigue, or pandemic fatigue, and you know our our 18000 plus employees needs to stay vigilant and have and they're operating procedures in there at test stations on a daily basis with regards to you know their L. With regards shown up in.
Working because.
Look at your seeing increases in in in positive throughout many markets understand you know if you know for every one person at my test positive if they're at the office meeting with the wrapper operating location.
You know that if that impact other people withdrew contact race.
Uhm and.
Some markets, where you see things pop up you know.
Two or three people that my you know my caused the quarantine of a number higher than that which makes operations.
Much more challenging for our local folks and.
The best thing we can do is remain vigilant reminds our folks about operating procedures don't get don't get Covid fatigue don't get tired they'll relax your standards because I do think the next couple of months two to three months.
It will be.
Yeah, we'll we'll be pretty widespread and you've seen the numbers already popping. So as long as we continue to do what we know how to do our folks will be safe and and you know 10 minutes will still stay about 99%, but it.
It it's a constant reminded her of people to stay vigilant throughout this.
Makes a lot of sense. Thanks, thanks, very much for the <unk> color worthy is always.
And as a reminder, if you'd like to register for a question I just need one followed by the for our next question comes from the line of Nowhere K with Oppenheimer. Please proceed with your question.
Good morning, and thanks for taking all of the questions here today. So I'll just keep mine to one and it follows right up on Walter's Uhm, which is and you've got.
<unk> the risk of a rising cases, again and what that might mean in terms of slow down and activity or potential lockdowns and so the question is you know you had very strong margin performance into cute I can you comment at the time in some cases, you know activity bounce back so quickly in certain markets that you didn't really have time to put in struck.
Shall cost changes if we do go into a second lockdown what might you do differently or how do you think there'll be better position to handle it.
Okay.
The best way to prepare for any restrictions as like 30 people.
And like we just announced the thank you bonus an appreciation bonus ahead of the holidays for our people. That's you know $800 for for more than 90% of the frontline. If you joined US more recently it may just be $400, but nonetheless, it's you lay that on top of supplemental wages that we've gone through the year.
Jesse wages for to keep people.
Fully compensated even if they have to stay home for quarantine or childcare to take care of family member et cetera.
Raising the minimum wage to $15 from a target standpoint to to help those that may be below it to get up to that level. Uhm. You know these are all things that you've gotta do to position our people to strengthen their their mental forward it to for the challenges that way ahead and.
And by getting ahead of the fat with a thank you bonus ahead of holidays. We felt that was another way to show of support to get people steeled. So to speak for for what's ahead and so if you focus on your people and you strengthen their commitment their help focus on your health or welfare look or.
People want to serve their communities.
And to do that they need to be physician to stay healthy.
To to stay financially sound and certainly that's the way we're looking at the the next to the Challenger. The next two to three months stay ahead of it.
And your support don't so don't leg.
And now I just.
You made reference to the fact that the ninth Incrementals as designs came back in and the commentary around not having structurally really change the business. That's actually a good time, what it meant is that there is such a small reduction in volume that there really wasn't the need or the opportunities that another way to do so.
Something like a reroute so it's not as though it's an issue of not being prepared the good news is most of the market's warrant that impact it clearly not that we're looking for this but in more impacted markets and that's going to do to make the change it and you can actually make.
And so clearly if that was the scenario we would approach it the same way we have this time around.
My sense. Thank you both.
Thank you.
And Mister Jackman there are no further questions at this time I will turn the call back to you. Please continue with your presentation or closing remarks.
Thank you Jason again, if there are no further questions on behalf of our entire management team. We appreciate your listening to an interesting to call today Maryanne and I are available today to answering direct questions that we do not cover that we're able and allowed to answer <unk>. The Red G. R applicable securities laws in Canada. Thank you again, we look forward to speaking to you at all.
Being virtual investor conferences or on our next door in this call today.
Stay safe and help me.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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