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 any 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.
As a reminder, this conference is being recorded Thursday October 29, two.
2020.
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 our 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 increase recovered commodity values.
<unk> better than expected results in the third quarter and provide incremental momentum going forward.
We believe our strong operating results financial performance and frontline support continued to differentiate waste connections during this year's unprecedented health economic and social challenges.
Higher margin flow through from improving revenue during the quarter provide a better than expected adjusted EBITDA margin and adjusted free cash flow generation.
Adjusted EBITDA as a percentage of revenue in the period was approximately 40 basis points above our outlook in spite of 30 basis points higher than expected discretionary frontline in incentive compensation cost impact in the quarter.
Which resulted from our more than $35 million commitment in incremental costs, primarily directed discretionary supplemental pay for frontline employees.
Solid waste margins expanded by almost 200 basis points compared to the year ago period with collection transfer and disposal accounting for 80% of that increase.
Moreover year to date, adjusted free cash flow of $778 million or 19.2% of revenue increased year over year, putting us firmly on track to exceed the adjusted free cash flow outlook for the full year that we communicated in August.
Positioning us for double digit growth in adjusted free cash flow in 2021.
Before we get into much more detail, let me turn the call over to Maryann for a forward looking disclaimer and other housekeeping items.
Thank you Worthing and good morning.
<unk> to put to Waifs connections on both the dollar basis and per diluted chair and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable gap measure.
Management use a 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 two worthy. Thank you Maria.
We are extremely pleased for our performance in the third quarter bizarre results reflect both resilience of our solid waste business and the accountability of our over 18000 employees, who have stepped up during such a challenging year.
Better than expected 390 basis points sequential solid waste volume improvement in Q3 as compared to cute too drove strong results in the period.
The rates of recovery and solid waste revenue largely reflect the extent to which the reopening process is 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 peso 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 you had experienced the greatest impacts from Covid.
With Canada, showing 750 basis points sequential improvement in our eastern region, which includes the north issue 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 reduce service.
Had reached out for the resumption of service or increase in frequency.
Up from 53% and 42% respectively at the end of Q too.
Not surprisingly the most impact of regions accounted for the majority of the Q3 increase as the less effective markets had already led the commercial revenue recovery, we saw in queue too.
And the rate of growth in those markets have sent slow in many cases, hitting a near term plateau in the range of 60% to 65% revenue recovery levels.
While is shaping peso recovery may vary by region, a market our focus on quality of revenue and cost control has been consistent as.
As evidenced by the strong underlying solid waste margin expansion during the third quarter in spite of about 80 basis points, an additional discretionary frontline and etcetera compensation costs.
We are well on the way to meeting our commitment come over $35 million this year and incremental employee support primarily directed a supplemental pay for our frontline employees.
Our safety focus sermon leadership, driven culture is guided waste connections response to this year's unprecedented health economic and social challenges.
And that response has resulted in higher engagement lower voluntary turnover and improve safety.
Providing for execution at a high level.
Our safety related incident rates continue to decline, even as economies reopen and volumes return.
Such that we are seeing incident right levels at multiyear lows.
These improvements have been augmented by a more than 20% reduction in voluntary turnover year to date as another benefit of a more stable experienced workforce is fewer incidents and accidents.
And we were excited to further improve on these trends as we complete our fleetwide 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 a support of our local communities are detailed in our 2020 sustainability report released earlier this week, which includes long term aspirational targets and our commitment of over $500 million over a 15 year period for investments to meet her.
[noise] exceed our targets.
These investments primarily focused on reducing emissions, increasing resource recovery of both recyclable commodities in biogas.
Reducing reliance on off site disposal for leachate incur.
Increasing employee engagement and further improving our industry leading safety performance.
And wastes connections sustainability initiatives have always been integral to and consistent with our strategy and focus on long term value creation for our shareholders.
Such the investments will be undertaken in the ordinary course of business with attractive Roy 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 Covid related constraints.
In fact, the pace of activity is increased over the past few months year.
Year to date, we have signed her clothes 16 acquisitions in 11 states in the US in one province in Canada totaling approximately 135 million an annualized revenue.
They include as noted last quarter, a new market collection transfer a recycling company with about $40 million annualized revenue and more recently another new market collection that transfer company with about $25 million, an annualized revenue both of which are on track to close mid queue for.
Dialogue remained as active as we've seen in years, especially with some tax driven sellers interested in getting deals close by year end.
Are strong operating performance free cash flow generation, a balance sheet strength positioned us for a double digit percentage increase in our quarterly cash dividend.
Has announced yesterday, our board of directors authorized at 10.8% increase in a regular quarterly cash dividend or 10th consecutive double digit percentage increase since initiating the dividend in 2010.
Still are doing it remains in less than 25% of adjusted free cash flow.
That level, coupled with liquidity of over $2 billion and leverage of about two three times net debt to EBITDA provides tremendous flexibility to fund both continued outside its acquisition activity and opportunistic share repurchases.
Al elect path to call to Marianne to review more in depth the financial highlights of the third quarter and provide a detailed outlook for Q4.
Then wrap up and provide some early thoughts on 2021 before heading into Q&A.
Thank you for anything in.
In the third quarter revenue was 139 billion for about $20 million above our outlet in better than expected.
During the period and higher recovered commodity value.
Revenue on a recorded basis was down $22 million or 1.6% year after year <unk> waste activity down 43 million year operating year.
Acquisitions completed since the year ago period contributed about 47 1 million of revenue in the quarter for about 44.2 million net of divestitures.
Solid waste type test volume growth and his chain store basis in Q3 was negative 2%.
Reflecting an improvement of 330 basis points from cute chin and ranging from positive to 6% and are mostly exclusive west coast markets to negative for 5% to 5% an hour most covid impacted eastern and Canada region.
Pricing growth overall, <unk> was three 7%, including core price at 4.1%, partially offset by a 40 basis point reduction in surcharges pricing range from two 6% to an hour more exclusive markets in the western region to an average of over 4% an hour more competitive.
Dick regions.
Celebrate volume growth in Q3 was down five 7% ranging from flat value in our western region to down approximately 9% an hour most impacted regents in the northeast U S and Canada as we have noted our volumes likely reflect the patient sheet of shutdown and reopening activity across town.
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 seven 6% in queue to improve by over 500 basis points to down approximately 2.5% in Q3.
Excluding the most impacted markets in the northeast and Canada commercial collection revenue was up about 30 basis points here every year.
Rohloff revenue decreased approximately 8% on pulls down about 7% year over year in revenue propelled down about 1% on lower wage.
This compares to revenue and pulls down, 13% and 12%, respectively and cute too.
Solid waste landfill average price per ton increased 4% year over year on revenue down about 2% on the same store basis as total tons declined about 6% year over year about 400 basis points better. Thank you too.
Q3, MSW attempts were down about 3% special wastes was down 9% and sandy was down 12%.
Looking at E&P waste activity, we reported 23 6 million at E&P waste revenue in the third quarter down about 64% year over year in line with our expectations on reduced trailing activity, which appears shutdown bottom around current levels with big counts up nominally in recent weeks.
Looking at Q3 revenues farmers recovered commodities that is recycled commodities landfill gas and renewable energy credits or <unk> <unk>.
Excluding acquisitions in the aggregate they were up about 25% year over year due to both higher and.
And higher recycled commodity revenues due to strong fibre values.
Adjusted EBITDA for Q3 amps reconciled in our earnings release push 432.6 million about $13 million above our outlets due to higher revenue and stronger flowed through from returning disposal and commercial collection volumes as well as higher recovered commodity values.
Just did ebitdas a percentage of revenue was 31, 1% into three about 40 basis points above our outlook and down 30 basis points here every year.
A 190 basis point year over year improvement in solid waste, including a 30 basis points benefit from recycling and <unk> was more than offset by a 130 basis point drag from lower E&P waste activity and ADP basis point impact from discretionary covid related frontline an incentive.
Comp.
Another 10 basis points from the margin dilutive impact of acquisitions completed since the year ago period.
Fuel expense in Q3 was about three 4% of revenue down about 40 basis points euro per year on pure gallon lower rates and his TNG credit about $900000.
We averaged approximately $2.33 per gallon for diesel in the quarter down about 10% or 27 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.
And adjusted net income per diluted share with 72 cents in the third quarter.
Adjusted net income in Q3, primarily excludes intangibles amortization another 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 a year over year in spite of lower EBIDTA, 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 outsize conversion of adjusted EBITDA to adjusted free cash flow, we are well on our way to exceed the following year outlet for adjusted free cash flow of $805 million to $835 million that we communicated in August.
That outstanding quarter and remained at about 4.7 billion as worthy noted total available liquidity remote remains over 2 billion, including cash balances at $859 million.
Our leverage ratio is defined an hour credit agreement was about two seven times debt to EBITDA and on a net debt basis, our leverage remained at around two three times debt to EBITDA at the end of Q3.
Our current weighted average cost of that is approximately three 3% with essentially all of our debt at fixed rates.
I will now review our outlook to the fourth quarter of 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 filing sweet made with the SEC and the securities commissions are similar regulatory authorities in Canada, we encourage investors.
To review these factors carefully.
Our outlook since no significant change an underlying economic trends. It also excludes any impact from additional acquisitions that may closed during the remainder of the year and expensing of transaction related items during the period.
Revenue in queue for is estimated to be approximately 133 5 billion.
We expect solid waste price of approximately 4% and volumes of approximately negative 6%.
Although we haven't 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 and E&P waste Tremaine similar to Q3.
Adjusted EBITDA in queue for is estimated to be approximately $400 million for about 30% of revenue, which would be down 80 basis points on a reported basis and down just 30 basis points euro per year adjusted for the 50 basis point benefit from TNG in 2019.
Which results come the two year catch up and CMG credits in that period.
Our outlook cautiously assumes that certain cough, such as medical which was down 30 basis points as a percentage of revenue in Q3 become headwinds in queue for in the event that differed or discretionary individual spending patterns should change.
[noise] 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 Texas.
Interest expense net of interest and come in queue for is estimated to be approximately 40 million.
And finally, our effective tax rate in queue for is estimated to be at about 25%.
And now let me turn the call back over to where things for some final remarks before Q&A.
Thank you Mary M. Again, we were extremely pleased with a year to date performance, particularly given the challenge of projecting the business and managing through Covid driven uncertainties.
Would you have been amplified by the headwinds of high margin Decrementals from lower E&P way waste activity, a negative solid waste volumes instead.
In spite of it all we are continually raise the bar and consistently beaten our expectations are two three results in queue for outlook would put us about $60 million of revenue $25 million and adjusted EBITDA and 20 basis points and adjusted EBITDA margin.
The full your outlook, we provided in August without the benefit of expected incremental acquisition contribution and with strong free cash flow conversion.
And this evolving environment, our employees that remained 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 for the way our team is supported our frontline and their families and delivered on their commitments to drive these results.
<unk> always maintained that awaits connections, it's our people who are our greatest differentiator and this year has made that all the more important and a parent.
Cause we look ahead, we expect to emerge from this challenging period better position financially with tremendous flexibility with respect to capital allocation.
And operationally with.
Good how are operating leverage and solid waste and both safety related incidents involuntary turnover levels already achieved multiyear lows.
We expect to expand reported margins in 2021 and capitalize on additional growth opportunities.
Moreover, given the strength of a year to do to just the free cash flow, we are well positioned for double digit percentage growth and adjusted free cash flow and 2021.
Although we won't provide formal outlook for 2021 until next February where it 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 starter the pandemic.
Price, let organic growth and high flow through from improving volumes should drive underlying margin expansion in solid waste collection transfer and disposal in spite of a hopeful return of certain discretionary expenses that we either reduced or eliminated this year do the pandemic.
Or the normalization of other expenses that decline as a result of the shutdowns.
In addition, depending on the level of activity between now and your room, 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 unexpected acquisition contribution A&P waste activity and recovered commodity driven revenue in February when we provide a formula look 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 and 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 questions.
Hey, good morning, everybody.
Good morning.
Hey worthy so thanks for the details about the recovery. It feels like things are you know kind of on track here and I appreciate that that's 68% of the paused commercial customers have returned.
And maybe you guys gave this figure a couple of 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 it structurally gone or do you still feel like there's.
Some of that will come back.
Yeah. So proud of your questions. So where are we tracker, obviously, where we have a sales force that we can track account by account an account by account recovery and the and the payouts for that that probably accounts for about 80% of our commercial business cause obviously in markets, where we have franchises. We do not have salespeople, we have a hug.
And so that accounts for about 80% or so of the commercial activity.
It's hard to say with regards to those that have not returned yet we definitely assume.
That you know, there's some permanently closed shops right and it's it's hard to see hard to anticipate our project that.
Those shops reopening a returning.
So this is a new jumping off point, perhaps there's incremental positive volume growth next year you through another stimulus plan those shops try to get recharged and reopened but without a doubt there'll be casualties in small business as a result of the pandemic.
We're not gonna sit here and project that percentage recovery and that because to your point I think some of that's probably gone.
And Tyler just to follow up on that I would say that we continue to believe that customer cancellation statistics aren't a good barometer, because we continue to not Tim material difference euro per year, and therefore and toward things point, we know that they're they're cancellations coming.
Okay. Yeah, no. That's very helpful. And then Marianne. So just you know obviously margins were very good this quarter particular decor level and I think you mentioned it right at the at the table and I just want to make sure. It's clear. So in Q3 health care was was actually a tailwind we didn't see that actually shipped over to a headwind, but you are expecting it.
As a headwind presumably in Q4, and then probably into 21.
Yeah, It's Tyler.
A fair way to characterize it we had talked about the fact that in queue to it was a nice tailwind and we said that we expected that as people started getting out more you know this would be one of those costs that went away as a result of shutdowns right. So it impacted eight here and we thought that that would behavior would begin to normalize over time.
And what I'd say.
Q3 versus queue to some of those costs came back that he continued to be a tailwind and yes, specifically I mentioned that you know if you're thinking about sequentially Y as in the margin the underlying margin expansion of solid waste in our projections are outlook for queue for less than Q3 that would be an example of what we're factoring in.
To the extent that were wrong and it doesn't come back as much as we thought it would continue to be a tailwind and cheap for.
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 and costs you guys talked about expanding solid waste margin so that into 21, despite all of the.
[noise] synchronic things travel right health care things like Covid supplemental comp kind of maybe easing but is there any way to kind of just frame for us what we're kind of thinking next year from a solid waste margin perspective is out of 50 basis points or just any any just high level thoughts there.
Yeah. Good question, because we were clear in our script that we expect reported margins to expand next year.
And to the extent that E&P, just remained flat year over year or even a cart. If it brings the current run rates, even without obviously provides I could provide a 40 or 50 basis point headwind to reported more just next year and so for us to say that reported margins are expanding to your point it means of solid waste margins.
I expect it to expand north of 50 basis points next year.
Okay. Okay very help I'm just lost a quick modeling question. So Marianne just based on the deals signed her clothes just from a modeling perspective right now based on everything how much acquired revenue should we think about 21.
Garces, if you think about 90 95 million in 21, and the cadence being kind of five quarter 30, 30, 15 15 is a fairway a 2015 is a fair way to think about it and.
Hi, I'm, calling there'll be some additional things are likely get done this year that'll be added for you with that as we get formal guidance in February.
Okay, Alright, well, thank you very much.
<unk>.
And our next question comes from the line of Kyle White with Deutsche Bank. Please proceed with your question.
Pardon me Mister White your line is open.
I'm, sorry, Mister Kyle White could you. Please check them you function on your phone.
I'm sorry, Sir we are unable to hear you will 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, you're good morning.
I'm Gonna ask the morning, Joe questions.
Alright, I just wanted to ask the recovery question a little different so just looking at the piece here volumes were down 5.7 per cent in the corner or which is better than you thought but also in line with I know when you were disclosed in July easily imply insurance and been flat and then now your guidance for four Q is is a similar number so I guess just.
Bigger picture is it do we need a vaccine or 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 Anniversarying as we said all along the pandemic right I mean will.
The pandemic started getting numbers in the middle of March Uhm, and so once we get through to one and we fully anniversary the the effects of the pandemic volume should start turning positive and cute too that's not dependent on a vaccine that's not dependent on a stimulus.
That's just math.
Because if you look at the rate of recovery since the lows of cute to our revenue run right and and every metric is much stronger than what was reported in queue to this year and so just running flat to current the current levels of activity produces positive volumes beginning of cute too.
To the extent that the economy reopens because of.
A vaccine or because of the stimulus plan.
<unk> some some juice to the to the activity. That's just further improvements and reported volumes meet him in that year.
Okay, that's helpful and.
And then if I could say hoping for some.
But it is map.
No I appreciate it.
And then I was just hoping for some more color on the temporary rohloff site, especially around housing and it's bad at all has impacted the improvement down a per sandwich I think was about a 500 basis points acceleration just given what we're seeing kind of in the strength of the housing market and what we're hearing around continued supply constraints there.
Where are you seeing any type of benefit do you think I could continue just just what are you seeing on temporary Ross Alley.
So I said to your point, we did see nice sequential improvement enroll 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 with strongest and it was in Canada by way of example, where you had the.
The 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 would say that was as much a factor if not more than for instance that the housing number is getting a little better.
The other thing that stands out as I just think in general are the best volumes. We continue to see her on the West coast, where I'd say that over 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 a few different factors that I think are driving that sequential improvement.
Yes, I know it feels like this has been a dog year with regards to to remembering things, but uhm recall when the when the shutdowns happened in queue to not every not every state or shutdowns construction as well right Uhm, Washington for instance was a state that shut down the construction as part.
The pandemic and so you saw a great large snapback in Q3 sequentially Q2, two three in Washington, Canada. The same way, we look at Ontario, or Quebec, especially would shut down construction activity as part of the closures aunt Mary Ann's point that those reopens, obviously, you have a snapback sequential improvement to to to Q3 in that area.
Well.
Alright, 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 humbug jafar speaking push push on you said I just wanted to turn the question over to Williams.
So last quarter, we talked about a month see William trend I was just curious if <unk>. If you could give us more color on September and we've seen this D overnight. There's some trend this here, but as being it remains to be seen I was just curious if you could think of ways connection has been benefits.
<unk> from this dynamic with such a significant amount of lightning driven by secondary market and whether you think this could be a nice tailwind for the business in the coming years.
Well the first in the secondary markets you know as we laid out in the in the script.
You know a lot of those markets were not as heavily impacted and Covid and we're kinda early to recovery to recover what most of what they had lost in two two and that was a big contributor to cute choose uplift.
We still continue to see volume strength in those marketplaces and and many of those markets. We expect positive volume essentially in queue for and so you know while most of those afflicted that flat volume year over year and two three that continued momentum could turn positive in queue for.
With regards to the current trends.
You know again I think we laid out in our in our outlook that we still expect volume declines to be about 6% will probably running a little bit better than that as we sit here today, but is Marianne pointed out. It's it's important to stay cautious as you as you look ahead, given the winter season that we're entering into and so obviously, if the trends that we see right malcontent.
You through the balance of the quarter, we should set ourselves up for you know a nice repeat on the top line with regards to to revenue reported versus expectations.
Got it. Thank you and then just level setting on the Eminem environment clearly they election and policy is a big label. So just as we look out into 2021, and so I need to I need to do what are the primary watch planes. There in terms of other me see greater or less than normal acquisition activity for Wisconsin.
Or you know if you look at.
It looked at this year I mean look that in spite of pandemic. This will be an above average here in total revenue activity for us and what I would call in an average year a typical year with regards to the number of transactions this year will get.
Probably three or four transactions done in that you know 25, or 40 million range will probably get a dozen or more huckins done as well.
So it'll be doing kind of 16 to 20 or so transactions I'd call. It a typical year, which is again remarkable given the backdrop that we were in I say that is a set up because.
We've also set a lot of our transactions or or or uhm lineage transition driven.
You know those will continue to to influence.
You know the sale of of companies and 21 it beyond Uhm, obviously exhaustion can also lead to folks desire to sell me, it's tougher and tougher to.
Oh stop running a business before the pandemic give him any constraints in the pandemics, maybe even more magnified for many for many operators. So exhausted and 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 tax dialogue in 21, if if if you tax law changes in 21 is a retroactive or not you know like.
Like.
Trump period in the first two years two years it gets after form in place so that do they get it done or twenty-two which my crowd people they get fieldstone of 21.
Certain but look what drives our typical transactions with second third or fourth generation type businesses is lineage transition and we expect to have an activity continue beyond this year.
Got it. Thank you very much congratulations on the accident <unk>.
Thank you.
And our next question comes from the line of Mark novel with Scotiabank. Please proceed with your question.
Hi, good morning, Thanks for taking my first.
The morning first great quarter, nine generally great job mentioned through the Panda 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 just curious and the markets that were sort of first it open are you still seeing sort of month over month, we go for weeks or sequential improvement to Nepal recovery or is there a certain markets, where you're you're sort of finally sort of hitting a feeling in that.
Like a similar type question to the markets that are slower to open or re clothing like you're in Montreal, just sort of curious sort of how normal triage specifics is generally how much sort of room.
Uhm upward as a report you sort of get to sort of a more normalizer <unk> to where the the other markets maybe.
Sure So happy happy to cover that Mark So what we said was that in the aggregate the recovery of revenue in the commercial markets. We track is about 57% and I would break that into the the ones that you described had come back more quickly and more less impacted so the less impacted markets are in.
The mid sixties about between 60, and 65% recovered as contrasted with what we would describe as some more impacted Canada. The northeast U S are in the low fifties. So that's the delta 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 scene.
That slowed down and and in those 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 we talked about the sequential improvement in Canada for instance, being 750 basis points over.
We're all volumes and the east or Eastern region 600 basis points. You contrast that will pay a 300 basis point improvement in in a place like the west coast or or southern region.
Look at individual markets, some place like Toronto, which cute through queue to head about 30% recovery is now and that low to mid fifties. So perfect example of one of those impacted markets coming back strong in queue tree and I'd contrast that with for instance, north Texas in a place.
Like Dallas, where 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 telling because that's what we've been seeing over the past few months.
Okay. That's that's super helpful. I'm, sorry D in those markets and a little below 64, 60, $65 Uhm is there still.
Maybe just just answer your question is we're still sort of sequential broods happening there 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 scariest markets within those buckets 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 the mid thirties and so it's our fastest growing market right now alright, so great place [laughter] smaller base.
Yeah, there's still absolutely opportunity, we're just talking at high level 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.
Well the week to reach friends for instance, in New York City are quite notable it's interesting to see how the city is starting back home.
Okay.
Okay. Thanks, Uhm I got the baby just have the free cash then for 2021, Uhm I Gotta know you'd like to sort of talk greed customers over time. They also low fifties I used to be much better when we sort of 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 exactly where do you think the conversion of all set just.
You know just anything you want us to keep in mind War Mauling Oh, that's your freak out.
Yeah.
Yeah like I think we've been consistent throughout the third quarter laying out our expectations about 2021.
And that's been you know to put a marker at 950 million and just lay out an expectation that we ought to do 950 or better for the full year.
And to get you back into that and that's that's what we're talking about double digit growth.
And free cash flow year to year.
Okay I'm, sorry, just one last one where do you mentioned some deals in queue for the books after clothes and thank you put some numbers Ramos I just didn't catch them.
Well I think Marianne put the numbers around the quarterly expectations for next year based on the 135 million, we've got soccer clothes.
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 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 cyber clothes and what we think will get done will.
Will likely go into 2021 with 2% 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.
Good morning. Thank you. My question is largely around share buyback is there a reason why you're an art buying back more stock and why I ask is you know historically when the company hired to get all average just slightly above average at my new years I.
I think you're still bark box shock at the same time in size because your leverage is the lowest it's been in history, you're sitting on a lot of cash free cashflows growing double digits and and it looks like you know acquisitions on all gonna be as big as 2018 and 19.
Even if you look out 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 parts or or what you're thinking.
Sure look we were active earlier this year and buying Microsoft we always used the word opportunistic with regards to the timing of but when we do things because I'd also like to maintain flexibility for growth opportunities that come along uhm. What can you tell me who's gonna win the presidential elections, you tell me, what's gonna happen to pass laws next year, you tell me what's gonna happen.
The stock market as a result of that.
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 I'm a prop it up into early next year and then with the if the realities of the tax law change that could be hard.
That could create opportunity opportunities to buy the stock back [laughter].
You know we tried to play the long road here, we try to to look ahead at that you know expectations around the stock market's and you know I'd rather be patient and by right. Then just be a willy nilly by or at any price.
Got it and then my other question is is just around E. S. G M 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'll do renewable land.
<unk> and recycling, but but how do you view landfills as part of the E equation do you do you think they're misunder start by by the E. S. G community and that they're sort of bad for the environment, you know any thoughts as to the E where you rank bear what you can.
Do better there.
Sure I think where we can all do better is just continue to to be more upfront, yeah and more visible.
Look a lot of things that we talked about and are you a street 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 type of strict hygiene and regulatory environment around waste disposal uhm up with 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.
Renewable energy source.
And you see some many of our efforts around increasing investments within biogas facilities now that our landfills are getting more of a chore and and gas generative enough to do that.
So by all means I mean landfills, that's it you're right. It does they do have pet names and bad connotations. Many communities. Many okay. So what communities that weren't there [laughter] well the landfills were built and built themselves up next to landfills, but uhm look it's a double edged thing with the scarcity landfills turns into pricing opportunities within many markets.
Because it is a scarce resources and ever increasing increasingly higher cost to operate landfills and the bill that landfills and that will drive our pricing 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 we opportunities there are tremendous.
And the returns on those kinds of investments more poorly.
<unk> 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 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 downcycled for waste I, you know I'm at a high level wish lags going into a downturn lags coming out.
It doesn't look 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 is 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 welcome declined temporary activity.
A commercial stay strong this is a decline that hit commercial so would it be the way. It was <unk> is almost tracking the way the macro economy has been hitting G. D. P has been hit meaning.
You have a temporary side of the businesses still remain I guess, a little more resilient than what we saw as a quick contraction and commercial.
But commercialism recovers is very sticky uhm and so is that recovers and you see the high margin flow through.
Yeah that will continue to benefit this industry, but to your other point the cost structure is different and you know and that's I think that's a statement that can be said about most businesses across multiple industries.
How we accepted.
How we did things how we travel what we spend money on et cetera has changed.
And so I.
I don't see all of those costs really ever coming back fully under the end of 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 but you know clearly is economy.
Reopens as people get more comfortable being together based on changes in the pandemic 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, we're bowling's in the fourth quarter and maybe specifically.
I appreciate the conservatism just given all that we don't know and and some of the bold boxing.
And the reopening of some of these economies like here in Canada, and I suspect in some parts of the U S.
That changed how you think about maybe your bad debt assumptions as you go through the winter season, you know just anecdotally can or Toronto and a lot of small businesses have been pretty clear that if they have to get through another shutdown that they probably don't make it through the other side of this throw winter throw throw talk with your Susan I was wondering how you look at your bed that's.
Over the next quarter or two.
Sure. So so interestingly they Kevin we talked about bad that last quarter as being one of one of the cost if you will of Covid and it's actually come down this quarter and it's actually closer to one more normalized right for us and we've talked about dsos coming down as well.
You know a portion of that would be E&P of course deal and it's also solid way. It's what we're finding is that as customers come back they're paying US right. So we're seeing the recovery of volumes 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 I would say is artificially low and so that's why we're not taking in more recovery and we think it's prudent at this point to kind of think in terms of current levels remain.
Ending the same so I'm not expecting any big bad 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 from Baghdad.
Okay.
The Muslim extent sounds very prudent today.
Yep, so variety position for that and it's not as bad as as we think again, that's that'll be upset.
Maybe my second question here and I think Mark Mark Mark was asking you 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 free cash flow of guidance I guess you confirm it from the outlook you provided last quarter.
It's about 52% of EBITDA, if you're talking about ahead of that through through your to date, if you're getting good flow through even with the challenges at the M. P.
I asked this question May have a different way do you think you can get back to like a mid 50 per cent.
Free cash flow conversion of EBITDA, even within N P sitting worth 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 Walter model like a consistent 55%, obviously things could change as you look ahead.
It would be tax law changes in the U S around bonus depreciation as those went off and twenty-three uhm 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.
<unk> went 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 the 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 maybe just one housekeeping question for me Needless to Marianne.
<unk>, maybe surprising tomorrow 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. You noted that you saw on two three or is there anything anything unique that happened to Canada and send the third quarter.
That's a good point <unk> you did see that increase which went counter to right. The rest of that Crazy movement, which is playing out as we expected right that it's stepping out in Canada. You have some pieces that were pushed out last quarter that got implemented in queue tree and so that's why you saw that it dropped a little lower in queue to then we.
Otherwise plan and came back a little in Q3, a conscious decision to defer those price increases.
Liked that makes a ton of sense that thanks. So that's all my questions with a quarter.
Uh-huh.
And our next question comes from the line of Chris Murray with a T. B capital markets. Please proceed with your question.
Oh. Thanks, Good morning folks you want everything just thinking about acquisitions, you know historically, you've always talked about acquisitions being kind of 3% to 4% of revenue as you go onto 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 large numbers or was it just there's something around the the acquisition pacing how much of that was impacted by Covid This year and.
Is it something that we should be thinking about 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 marked down a bit pointed at 125 to 150, even anything will do the balance of ear will push that to the upper under higher.
Going into a year or 2% growth obviously, what we don't have that number yet is everything we get that out of 2021, which will be adequate because at 2%.
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 up 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 kind of a 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 the average you're being that 125 to 150 and a percentage topline will be what it is.
Okay. So just just thinking 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 gonna <unk> yeah.
Well, if they don't honest for that but you know I looked at the upside.
Sure sure going back to your yes, G report, you know and and sort of your thoughts around five.
500 million and spending you know one of the things that I know, we've certainly been discussing with clients as in the change of administration, probably you know like we saw in the change of 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 and written credits and even uhm vehicles and shifting there and you know certainly California's mentioned 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 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 look here for Ya 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 Rois. Then then the rearview mirror right and so.
We're very bullish.
On that and that's obviously you you you mentioned the change of administration I.
I mean, we know what this <unk>. This current administration is has how that's influenced our 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 should go up dramatically.
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 submit all of our weight limits on route. This appointment with regards to battery life and so what's the limit or there was even though state regulations of past for instance, in California, the limit or is still the manufacturing capacity right.
And so you know many of the of the of the units you see people talk about R. E V chassis, uhm, but not electric bodies.
And you know the future should be a combination of the both of both of those so does a full E V product uhm. So all we can do is make sure we're beta testing and position to know how those fleets behave.
Make sure the route miles a proven make sure the maintenance cost reductions so our as promised to make sure that the the cost of the big by the cost of the unit is has the payback or more importantly in markets can we put it in the right place to make sure that we don't have stranded capital. So what can I think we're well positioned for all of the above.
We tried to lay that out in our standard 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, as you pointed out.
And so now we feel we feel quite good about how.
How were laying out our money expected returns and more importantly, you know when it goes with regards to to broadening sustainability initiatives.
And Chris just to add one.
<unk> said about that landfill gas or 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 planning to do a number of these conversations are.
Years already years old right. I mean, this is something that you just wake up and say Hey, let's do this this is we've been at this for over quite some time.
Yeah, no that that was actually my point is like a it's kind of nice to everybody says, let's go Green tomorrow, but it it takes some time to get done right. So and you worry about the technology and how recently introduced before you plant.
Alright, Thank you guys <unk>.
I think we'll probably one of the largest robotic orders and again for a recycling facilities.
So your point, we didn't run in that version 1.0, [laughter] you know be way to perversion 2.0, 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 that would that kind of appointment.
Thanks, a lot.
Okay.
And our next question comes from the line of Michael Hoffman with Stifle. Please proceed with your question.
Hi gang some day one of these say somebody's actually pronounce the name of the firm right.
Free cash flow her name back to that.
You've given guidance at eight O five to 835 for this year 778, now it's Oh five to 835, 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 you've already plugged for guidance still opinion and my eyes. Your guidance are at the top end of it so the expectation would be.
Everybody should be prepared for the conversion rate and <unk> going to be.
Even 50 per cent it'll be less 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 position to exceed the eight O five to 835, 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 more outflows in queue for yeah right. Yeah, just apply for <unk>.
The upper end of the 50% to 52% range to our our year to date EBITDA plus our guidance 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 you even getting credit for exceeding that number of this year. So prepay everything you can pull for capital spending so to that and what is your.
Revise view of cash flow 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 queue for this other cashbox payment to do a middle of December the sides of that's hard to determine cause obviously is if that yellow orange and fleet comes in that'll increase of our appreciation acquisitions, if they get done prior to that date 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 wanna 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 just use 10% of them at 865 is the starting number.
Uhm, but I'm also curious like why not pre pay 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.
<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.
I'm, sorry, I didn't mean to interrupt I was going to say, yes, I mean, that's just the way I would characterize the volume side and and as as you'll recall in kind of a typical year for us pricing the cadences that on a reported basis. It always starts out high in queue wanting decreases over the course of the year just really relating to.
The size of the denominator and the timing of our price increases which sent in the majority of which are put in early in the year. That's mostly in Q1, so 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 than that might be a fairway to think about the kittens for next.
<unk> and to your point volumes are negative in in Q1 turned positive with the easiest comping cute 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 of the year.
Okay and then.
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 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 could absorb it very gradually.
Where are we looking at or something like that but just more compressed based on the level of recovered.
It stops here.
And accordingly, you're just the business model how to do it faster, but you'll just set like you did oh wait the 13 improve productivity dramatically 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 I, usually use revenue not customer base, but revenue uhm.
And again you know you look at right now you can see what 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 their 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.
Alright, 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 the cost structure. 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 is historically driven new business formation.
So I get it thoroughly blood 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 a on.
On a relative basis worth a million 4 million a four and a half started 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.
The three hour drive away from where you're currently living as you've seen you know increase population settlements of resettlement some near term.
You know, we we have been saying storefronts over right I mean, it's 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 formations 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 you ever been roller enroll their kids at school are doing for about from a from a far away place them again.
Again, the economic activity, followed those people has fallen and benefit local businesses.
But there's a little bit I hope there.
It depends on where you live [laughter] alright, I suppose that's true.
Right. Thank you very much.
Sure.
And our next question comes from the line of Walter Spratlin with our B C capital markets. Please proceed with your question.
Thanks, very much good morning, everyone.
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 both in 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 both in residential commercial.
Racing discussions really altered in terms of getting them through for whatever reason is the term changing it all versus what what happened before and then third is the structure of the contract much different I know you were making an effort to to move.
Shall over to a volume base versus per household is there any other examples of real changes in in the contract in its nature.
In recent contract negotiations versus what you would have done prior to Covid.
Okay approach the contract negotiations rollover reflect the period in which they're being negotiate it uhm 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 what the central workers and you've seen what we've done for our frontline that's rising labor costs, obviously right now we're mindful of of of the the ship that's occurred already occur into iron.
Loads within the residential that's impacting those residential contracts.
<unk>, you've seen the increasing cost uhm to handle more contaminated waste streams within the recycling outside 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.
<unk> it looks 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 you know 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 it's being asked for today versus what was running.
Under the current contract if you have to switch over fleet makes me, even more expensive and so no the dialogue as dynamic. It's it's reflective of the times. We're in right now and you'll see 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 the C. P. I I'd say one of the biggest areas that.
We do well in is competing for accounts that had been fully serviced.
And 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 and give us a good reputation in those markets and and provide opportunities for our sales force to take advantage of that and and gained sure where possible.
That's a great color for my second question here, just turning a little bit too trends you you've you've highlighted a number of things that are cause for optimism and I I really hope that you know the reopening continues recovery continues but I'm see you know obviously with the new case counts in many jurors.
Addictions 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 schools obviously.
Our our <unk> our opening now despite higher case count then when they close as 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.
Or you know I'd say, we haven't seen it yet in fact October likely will play out a little better than weird originally expected him to your point in other words, we haven't seen a rollover and that but certainly the way we have guidance quarter. We have assumed that there may be some you know that's prudent estate cautious as.
We as we look 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 that as.
Looking here at all the media about Covid fatigue, or pandemic fatigue, and you know.
Alright, 3000, plus employees needs to stay vigilant.
And have and they're operating procedures.
That test stations on a daily basis with regards to you know their L. With regards shown up and working because.
Look at your seeing increases in in in positive throughout many markets understand you know if.
For every one person on my test positive if they're at the office meeting your throughout the operating location.
You know that if that impact other people with through contact race.
And you know we have some markets, where you see things Popeye.
Two or three people that my Popeye you know my cause of quarantine of a number higher than that which makes operations.
That much more challenging for a local folks in the.
The best thing we can do is remain vigilant reminder, folks about operating procedures don't get don't get Covid fatigue don't get tired of relax your standards because I do think the next couple of months two to three months uhm.
It will be.
You know what will 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 10 minutes will still say about 99%, but 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 and it's the one followed by the four.
<unk> 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, which is and you've got obviously this 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.
<unk> performance and too cute I think your comments at the time in some cases, you know activity bounce back so quickly in certain markets that you can really have time to put in structural cost changes. If we do go into a second lockdown what might you do differently or how do you think you'll be better position to handle it.
Okay.
The best way to prepare for any restrictions as security people.
And look we just announced the thank you bonus an appreciation bonus ahead of the holidays for 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 a cough a supplemental wages that we've gone through the year emergency.
The wages for to keep people.
Fully compensated even if they have to stay home for quarantine or childcare to take care of a family member et cetera.
Raising the minimum wage to $15 from a target standpoint to to help those that that may be below it to get up to that level. 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 bye <unk>.
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 commitments their help post on your health or welfare.
Look at our people want to serve their communities.
And to do that they need to be physician to to to stay healthy.
To to stay financially sound.
And certainly that's the way we're looking at the the next to the challenge you. The next two to three months stay ahead of it.
And your support don't dull.
<unk>.
And no. It just to follow up you made reference to the fact that the nice incremental.
<unk> came back and and the commentary around not having structurally really changed 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 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 impacted clearly not that we're looking for this but in the more impacted markets. That's for you to make the change it and you you actually make.
And so clearly if that wasn't 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 do it up.
<unk> virtual investor conferences or on our next door on 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.
[music].