Q2 2019 Earnings Call
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Greetings and welcome to the waste connections second quarter 2019 earnings conference call.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.
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Tuesday July Thirtyth 2019.
I would now like to turn the conference over to Worthing, Jackman President and CEO . Please go ahead.
Thank you and good morning.
I would like to welcome everyone to this conference call to discuss our second quarter, 2019 result, and updated outlook for the full year and to provide a detailed outlook for the third quarter.
I'm joined this morning by Maryann Whitney our CFO and several other members of our senior management team.
In addition, we're all pleased to also be joined by Ron Middle Staff.
As announced on Friday, Ron has returned from his temporary leave of absence.
And assumed the role of executive Chairman.
We're extremely pleased to have him back and to have them join us This morning.
Before discussing Q2, and our updated outlook I'd like to hand, the call over to Ron for a few remarks about last weeks announcement.
Okay. Thank you worthy.
First I'd like to thank our employees everyone on today's call and many others for the thousands of cards and expressions of support that my family and I have received over the past several months I am excited to be back Im pleased to have been able to assume the role of executive chairman.
I remain committed to the company and as a continuing employ look forward to assisting in several areas, including culture strategy and acquisitions.
Exiting the day to day responsibilities of CEO provide sufficient time for me to continue to address health matters affecting my family.
No matter, who you are regardless of your profession or title families should always come first.
I look forward to continued success for the company underwhelming, who has been an integral part of the leadership team driving the success of waste connections for over 20 years.
When I temporarily stepped aside earlier this year working assumed the role as our principal executive officer, consistent with a management succession plan approved by our board he and our long tenured team did not Miss a beat continuing to execute our growth strategy and drive further improvements in safety employee development and retention, while moving the company forward in many areas. Our board has great confidence in him as our new CEO and we believe that he is the right person to lead the company.
There is so much more I can say about our team and the opportunities ahead, but since this is an earnings call I'll turn the call back over to worthy.
Thank you Ron we've all had you and your family in our prayers over the past several months.
Great Avenue back and I appreciate all the support.
Now onto our latest results as noted in our earnings release solid waste pricing growth of over 5% along with the sequential 200 basis point increase in solid waste volumes drove underlying solid waste collection transfer and disposal margin expansion of approximately 70 basis points in the quarter.
This helped offset a portion of the impact from lower than expected contributions.
Higher margin commodity related activities, primarily recycling and renewable fuels.
And the dilutive margin impact of acquisitions completed since the prior year period.
Our team delivered on the commitments within their control, but the ongoing erosion recycled commodity values and a precipitous drop in the value of renewable fuel credits impacted overall results.
In spite of these commodity related headwinds, we have already generated adjusted free cash flow of more than $500 million, putting us on track to meet our original expectation for underlying adjusted free cash flow for the full year.
As anticipated we have already completed an outsized year of acquisition activity with almost half of the year still ahead of us as we have closed approximately $160 million in total annualized revenue.
We are particularly pleased with the approximate 65% average reduction in safety related incidents in the three largest acquisitions completed over the last several months and we look forward to continued improvement that we are accelerating the timing to automate the residential fleet in our largest acquired location.
In addition, new contract awards are trending above average and provide additional foundations for growth next year.
Before we get into much more detail, let me turn the call over to Maryann for our forward looking disclaimer and other housekeeping items.
Thank you Worthing and good morning.
The discussion during today's call includes forward looking statements made pursuant to the safe Harbor provisions of the U.S Private Securities Litigation Reform Act of 1995, including forward looking information with us.
Canadian Securities Law.
Actual results could differ material materially from the forward looking statements due to various risks and uncertainties.
Factors that could cause actual results to differ are discussed both in the cautionary statement on page three of our July 29 earnings release.
And in greater detail in waste connections filings with the US Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada.
You should not place undue reliance on forward looking statements and information as there may be additional risks of which we are not presently a winner.
We believe are material, which could have an adverse impact on Allison.
We make no commitment to revise or update any forward looking statements and information in order to reflect events or circumstances, but no change after today's date.
On the call, we will discuss non-GAAP measures such as adjusted EBITDA adjusted net income attributable to waste connections on both a dollar basis on a per diluted share and adjusted free cash flow. Please refer to our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measure.
Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently.
I will now turn the call back over to Mark.
Thank you Marianne.
In the second quarter solid waste price plus volume growth was 6%.
Total price of 5.2% exceeded the high end of our outlook for the quarter. It was in line with our Q1 pricing and up 100 basis points year over year.
Our pricing strength continues to reflect the rollover benefit of the additional price increases we implemented last year in response to accelerating cost pressures and lower recycled commodity values.
In Q2, our pricing range from approximately 3.4% that are more exclusive markets in the western region to an average of over 5.5% in our more competitive regions.
Reported volume growth in Q2 was a positive 80 basis points, increasing 200 basis points sequentially from Q1.
This step up was in spite of winter weather that persisted in certain markets well through April and even into May.
Moreover, as expected reported volumes reflect about 50 basis points of negative volume drag for purposeful shedding of poor quality revenue, primarily the impact of the New York City Department of sanitation Marine terminal operations contract with a third party.
As noted on prior calls we expect to fully anniversary the impact of shedding by the end of this year.
Taking these impacted into consideration we estimate that underlying volumes were up almost 1.5% in the period.
And we saw trends improved during the quarter as activity picks up with improving weather in many markets.
On the subject of increased volumes. We've also seen an above average success rate on municipal contract bids year to date, which will supplement underlying volume growth in 2020 and in some cases should position us for additional growth opportunities in certain markets, where we would not otherwise have a presence.
We will have incremental capex this year associated with these wins with the PNM and cash flow benefits beginning next year.
Looking at year over year results in the second quarter by line of business on a same store basis.
Commercial collection revenue increased approximately 5.7% primarily due to higher price.
A portion of which was due to declines in recycled commodity values.
Roll off revenue increased approximately 4.4% on higher pools and higher revenue for Paul.
In the US pulls per day increased about 1% and revenue per pull was up about 4%.
In Canada.
Pulls per day were about flat on an increase in revenue per pull of about 6%.
Solid waste landfill tonnage increased about 6% the strongest year over year increase we've reported since 2017.
Led by strength in both MSW and special waste.
MSW was up 6% on increases in all regions and in the US and also in Canada.
Led by both East Coast, most notably in New York, and the West Coast in California.
Special waste was up 9% with increases in all regions, except our central region, which includes Minnesota, Oklahoma, and Colorado, where weather continued to be a factor driving a slower seasonal ramp in Q2.
CMT CMD tons were down about 1%, mostly on decline in Canada.
Recycling revenue, excluding acquisitions was about $15 million in the second quarter down $7.2 million year over year or approximately 33%.
Which was lower than originally expected on continued deterioration in pricing for fiber.
Including Goldcorp painters Oro SEC.
Mostly see prices in Q2 averaged about $50 per ton, which was down 47% from the year ago period and down 36% sequentially from Q1.
Okay see prices exited Q2 at their lowest levels for the period as the demand destruction from import restrictions in Asia has been further exacerbated by a slowdown in demand for cardboard from domestic mills.
The flow through from changes in recycling revenue was more punitive in Q2 than in prior quarter.
With decremental margins well over 100% due to the significant decrease in fiber values and higher fees paid to third party recycling facilities, resulting in a combined year over year impact of approximately $10 million in EBITDA and about three cents per share in Q2.
Let's see prices currently average about $45 per ton down another 10% from Q2 and down about 50% from last year's average of $88 in the third quarter.
At current rates the full year impact of the decline in recycling is expected to total approximately 25 to 30 million in revenue.
And $35 million to $40 million in EBITDA.
Compared to some of our peers.
Our more punitive near term impact from recycling is primarily due to both a higher percentage of our collection business under franchise or other long term agreements and the small percentage of third party merchant recycling volumes represented our first.
About 70% of the volume delivered to our recycling facilities comes off our own trucks.
20% of some third parties and the contracts.
And only 10% as merchant volume from third parties, where we have the ability to and have implemented recycling fees similar to our peers.
In many of our franchise agreements, where we do have the ability to recover lower commodity values and higher costs. There can be a lag of up to six or 12 months and therefore in some cases such recovery will continue into 2020.
We take a long term view and to working with our customers through the seismic changes the industry have experienced and recycling.
Preferring not to close recycling facilities or claimed force majeure to terminate contracts so for us recovering the full impact on that 90% of recycling volumes.
Takes both a multiyear approached increased collection pricing, which we are which we proactively started last year and repricing contracts that expire in future periods.
Landfill gas oil sales are also commodity driven, particularly the value of renewable identification numbers or rins for which certain renewable gas sales qualified.
Since year end due primarily to decreased demand from new renewable energy credits RIN prices have declined from about $1.62 approximately 70 cents.
With most of the drop off occurring during Q2, resulting in a decrease of approximately $3 million at least 100 quarter or about one cents a share.
With Rins at current levels, we estimate that the fed a full quarter impact would be approximately $5 million in EBITDA or about one and a half cents per quarter and EPS during the remainder of the year.
Looking at MPC waste activity, we reported $64 million of BNP waste revenue in the second quarter up about 6.5% year over year and up nominally from Q1 in spite of a small year over year and sequential decrease in the Permian basin.
These results reflect a modest contribution from our new ERP landfill in the Wyoming powder Basin. We're activity continues to ramp after opening in late Q1.
Given the 13% decrease in rig count in the U.S since year end and an increasing focus on returns by many of our MP customers.
We do not expect a near term increase in the current run rate and continue to be selective as we move forward on new projects.
Looking at acquisition activity, we've already closed and what we will consider an above average amount of acquisitions for the year and continued to see an elevated amount of seller interest.
Year to date, our acquisitions totaled approximately 160 million in annualized revenue.
Including most recently, a new integrated market in Texas.
Plus a significant expansion of our footprint, we established last year in Rhode Island.
In addition, recently completed tuck ins in California, Kentucky, New York, Texas and Quebec.
Now I'd like to pass the call to Marianne to review more in depth. The financial highlights of the second quarter provided detailed outlook for Q3 and discuss our updated outlook for the year I will then wrap up before heading into Q and a.
Thank you welcome in the second quarter revenue was 1.37 billion about 10 million above our outlook and last 129.7 million or 10.5% over the prior year period.
Acquisitions completed since the year ago period contributed about $84.3 million of revenue in the quarter or about seven to 7.4 million net of divestitures.
Adjusted EBITDA for Q2 as reconciled in our earnings release was $425.3 million.
And this is consistent with the update we provided in early June .
What about 8.5 million below our original outlook for the period.
Due to the decline in commodity related revenues and the associated EBITDA impact.
Adjusted EBITDA as a percentage of revenue was 31.1% in Q2 down 80 basis points year over year due primarily to two factors and estimated 80 basis points, resulting from the year over year decrease in commodity related revenues.
As an estimated 50 basis points impact lower margin acquisitions completed since the year ago period.
Excluding these impacts underlying adjusted EBITDA margins for solid waste collection transfer and disposal as a percentage of revenue were up approximately 50 basis points year over year.
In addition, and as expected the year over year impact about increased four one k. match, which anniversaries at the end of the year was about 20 basis points from the period.
Fuel expense in Q2 was about 3.9% of revenue and we averaged approximately $2.66 per gallon for diesel in the quarter, which was down about nine cents from the year ago period and up seven cents actually from Q1 2019.
Depreciation and amortization expense for the second quarter was 13.7% of revenue up 10 basis points year over year due to a 15 basis point increase in amortization expenses associated with acquisitions completed since the year ago period.
Interest expense in the quarter increased 4.8 million over the prior year period to $37.2 million due to higher outstanding debt increased interest rates as compared to the prior year period.
Net of interest income from invested cash balances interest expense increased $4.1 million year over year.
Debt outstanding at quarter end was about 4.1 billion and our leverage ratio as defined in our credit agreement was about 2.3 times debt to EBITDA with cash balances of approximately 200 line model.
Our current weighted average cost of debt is approximately 3.5% with about 90% of our debt at fixed rates.
Our effective tax rate for the second quarter was 21.1% as we've noted on previous calls the IRS released proposed regulations late last year associated with the tax effect that could impact our current effective tax rate.
The proposed regulations have yet to be finalized, but could impact our effective rate for 2019, beginning in the period and while we believe any impact would be limited to the current year with our effective tax rate returning to about 22% again in 2012.
GAAP and adjusted net income per diluted share were 56 cents and 69 cents, respectively in the second quarter.
Adjusted net income in Q2, primarily excludes the impact of intangibles amortization and other acquisition related items.
Adjusted free cash flow in the first half of the year was 503.9 million or 19.3% of revenue, putting us well on our way to meeting our original expectation for underlying adjusted free cash flow for the full year.
I will now review our outlook for the third quarter 2019, and updated outlook for the full year 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 have made with the SEC and the securities commissions or others or similar regulatory authorities in Canada.
We encourage investors to review these factors carefully.
Our outlook assumes no change in the current economic and operating environment. It also excludes any impact from additional acquisitions that may close during the remainder of the year and expensing of transaction related items during.
Looking first at Q3.
Revenue in Q3 is estimated to be approximately 1.45 billion.
We expect price growth for solid waste of approximately 5% in Q3, along with volume growth of approximately 50 basis points.
Which incorporates the estimated 50 basis point drag from the impact of the New York City Department of sanitation Marine terminal operations contract with a third party.
In addition, we expect revenue from in key waste activity to continue to range between 60 million and $65 million.
Adjusted EBITDA on Q3 is estimated to be approximately 31.5% of revenue or about $442 million.
The margin impact from acquisitions completed since the year ago period is expected to be similar to Q2 at about 50 basis points.
And the commodity driven impacts are expected to be sequentially higher than in Q2.
Depreciation and amortization expense for the third quarter is estimated to be about 13.5% of revenue of that amount amortization of intangibles in the quarter is estimated to be about $31.5 million or nine cents per diluted share net of tax.
Interest expense net of interest income in Q3 is estimated to be approximately $36 million.
Our effective tax rate in Q3 is estimated to be about 22%.
We estimate that the Q3 rate would increase to approximately 30.5% in the event that the proposed regulations. As originally drafted are enacted during the period.
Which result, which would result in an impact of approximately seven cents per share in Q3.
With the rate declining sequentially in Q4, and as noted earlier returning to about 22% in 2020.
Turning now to our updated outlook for the full year as provided and reconciled in our earnings release.
Revenue for 2019 is now estimated to be approximately $5.375 billion up $65 million from our original outlook due primarily to higher than anticipated contributions from acquisitions, partially offset by greater than expected declines in recycling revenue and in the value of renewable energy credits from qualifying landfill gas sales.
Adjusted EBITDA for the full year is now estimated to be approximately 1.675 billion or about 31, 2% of revenue. We believe that this conservatively reflects the high decrementals associated with the previously discussed decreases in commodity related activities.
Capital expenditures are now projected to be approximately $600 million up from 575 million on an increase of approximately 35 million from the new contract wins and higher acquisition related capex, partially offset by an approximate $10 million reduction.
In other areas.
Estimated underlying adjusted free cash flow remains in line with our original outlook of $950 million, but with about $35 million of incremental capital expenditures from recent contract awards and acquisitions. Our updated estimated reported adjusted free cash flow is $915 million or approximately 17% of revenue and 55% of EBITDA.
And now let me turn the call back over to working for some final remarks before Q1 day.
Thank you Marianne and Ron once again.
As noted in our release and discussed on this call the underlying fundamentals of our solid waste business remains strong.
We are extremely pleased with our year to date performance.
We especially like to commend our team's efforts to deliver on their commitments in terms of what they control and an implementing the changes necessary to further recover the now more punitive impacts of commodity related activities.
Improving safety, we have proven trends and safety, including those noted at recent acquisitions and turnover, which trended lower in Q2.
Are indicative of our local leadership accountability and the dedication of our 18000 employees who've worked tirelessly each and every day to drive our results.
Strength in solid waste pricing positive volume trends and underlying EBITDA margin expansion in solid waste collection transfer and disposal position us well for the remainder of the year and as noted earlier underlying adjusted free cash flow was trended solidly on track to achieve our original $950 million outlook.
We've already implemented a typical year are completed a typical year of acquisition activity and we are well positioned for additional acquisition and organic growth opportunities, while maintaining flexibility to increase the return of capital to shareholders.
We anticipate announcing another double digit percentage increase in our annual excuse me in our quarterly cash dividend in October and we're completing the annual renewal of our normal course, issuer bid, which authorizes the repurchase of up to 5% of our outstanding shares.
I appreciate your time today and I'll now turn the call over to the operator to open up the lines for your questions operator.
Thank you.
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Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Hey, good morning, guys.
Hey morning, Tyler.
Hey, Ron Nice to hear from you we continue to send our best year way.
Thanks, Hey, Marianne, yes, so maryann I was hoping to maybe bridge the original 75 EBITDA.
Guidance to today's 16 75 guidance. So it feels that maybe the core trends are actually a touch stronger NP seems to be pretty steady M&A is actually a good guy, but then maybe LCC in RIN prices are working against you, particularly late into Q2, but are those the key pieces and then if so can you help maybe size the delta in those buckets again may be in the new guidance versus the old guidance.
Sure.
Glad to do so and you did hit on the key buckets, Tyler I would start with revenue to give context. So if you start with the 531 all of the original guidance or the acquisition contributions about $100 million and as you said the underlying business is doing a little better but you have offsets from lower recycled commodity revenue is about $30 million and the lower rins or renewable energy credits of another $10 million to $15 million. So if you say again up up 100 underlying strength, a little better and then back out those $35 million to $40 million in commodities you get your five through seven five at the revenue line and if you look at the incremental margin contribution from acquisitions in that 20% to 25% and you look at the Decrementals on those commodities coming off so it's more like $50 million. That's how you net down to down 30 to the 1675 from year 175.
Okay, Yes, no thats perfect Thats very very very helpful. So we're going to want to come back to some you talked about so you noted that the franchise nature of your business. So in recycling, there's a lag in your ability to maybe recoup some of the lower fiber prices, but.
I think you noted that there is going to be some pressure obviously into the second half, but maybe even into early 2020, but longer term. So if commodity prices were to remain the same would recycling actually be a positive EBITDA had a tailwind over time, even without a rebound in price as you re address contracts.
Reading that the right way.
Oh, absolutely I mean, if you look at what we.
What we've done in incremental pricing, which as we've talked about on prior calls about a half a point incremental related to recycling.
That gives you a sense of how we are recouping the majority of that for our collection business.
50 basis points is I'm going around here about $25 million and if you look at.
The all in impact over the last two years.
You'd get numbers approaching a $120 million of EBITDA. Once you exit this year comparing 17 to 19.
So if we're getting an incremental $25 million or so in pricing on the collection side of the business. What is telling you to take us between four and five years.
To to recoup that and to your point I mean its upside.
As we go year to year looking ahead.
Okay. Okay, Yes, no thats very helpful. And then maybe some a little behind on the Rins, but just at a high level what exactly is driving this reduction in the RIN pricing.
Well you've had the.
Obviously EPA plays a major portion of it and what about the White House plays a portion of this as well.
Refineries have been major buyers in the marketplace.
To offset emissions.
With refiners and need to blend fuels refineries getting more and more exemptions from the EPA has it been lobbying to help their business because it's a very expensive line item at the refinery level.
You've seen more exemptions being issued by the EPA.
Which has impacted span, which has driven down near term prices.
Of the Rins, Okay. Okay, I see and then maybe Matt My last one kind of related to that so just maybe a big picture on if current RIN prices remain what would be that specific full year impact to EBITDA in full year 19 versus full year 18, if I was thinking about your bridge.
Sure. So so in our guidance, we had taken winds down slightly because we knew that they were down year over year, the incremental impact is about $15 million in the aggregate, it's 20 to 25.
2025, Okay yep, okay. Thank you.
You bet.
Our next question comes from the line of Brian Maguire with Goldman Sachs. Please proceed with your question.
Hi, good morning, everyone and running great to hear you again.
More than just a question on the Capex changes.
I guess, the additional 35 million, it's always great to win some new business.
It seems like it's just more an issue of timing spending the money today to get the earnings Tomorrow.
Just just trying to think about what benefit that might have on on volumes earnings next year will be assuming typical sort of mid teens pretax return on that capital and.
If thats the case does that imply maybe 5 million of EBITDA 20 million of sales and something like half of a point of volume improvement for next year just from that alone.
Yes, you you about nailed it's about a half a point in volume it more collection oriented.
You put an average collection margin on that.
You're you're spot on I think in about $25 million in revenue five to 6 million of EBITDA.
For that with the capital outlay, you're looking at roughly five to six times EBITDA for the capital outlay.
And obviously, that's a that's a better return on capital than than paying higher multiples of that on on M&A.
Yes, I guess another way to think of it as if you had done M&A that we wouldn't be talking about.
Raising the Capex circuit and the free cash flow is just a sort of a decision between which one is better and this one clearly better return than M&A.
Absolutely and if you look at just the overall just as an increased level of bidding activity, we're not changing how we bid.
When I look back over the past six or seven months and Weve submitted a little over 70.
Proposals and there is still about a third of those that are outstanding and waiting to hear from for the balance of the year I know the other two thirds, we won about half and we missed about half but to have that we've won.
Just what you're seeing the more positive impact from.
Great and no we're not talking about 2020 too much yet but.
If that's going to give you maybe a supplemental 40 or 50 basis points of volume improvement in the underlying trend there a point and a half could we think be thinking about sort of the high end of that 1% to 2% volume growth range you talked about historically.
Yes, definitely helps move the needle within that range Thats right.
And just.
Last on this.
Any early thoughts on 2020 Capex is this 600 million.
This is range sort of.
A new normal for next year or does some of the landfill.
Spending come off given the outlook, there and maybe the 35 million doesn't recur next year.
Yes.
If you look at the underlying volume environment being in that 1% to 2%. Obviously these wins move a little bit higher but thats capex, we're spending this year.
We'd obviously as a rule of thumb to think about an upcoming years about 10.5%.
Revenue and as we get into February we'll refine that further.
Okay I appreciate it thanks.
Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Hi, Thanks, very much good morning.
Where there's just following up on the.
The subject of these new contract bids as you say, you're not changing the way that you bid. So just curious what's in your view driving this above average success rate.
Does it have to do with your asset footprint changes any change in kind of the competitive dynamics that you see in the industry. Just wondering if this is something more structural.
No look I think.
Maybe it's just the cycle of when these contracts are coming up for bid obviously there in some cases their relationship advantages in other cases incumbents may have had service issues that have put in sideways with the.
With Mr. Paliotti in other cases, it could be politics that have gone wrong against incumbent Rev. The case may be it just so happened that right. Now you know the stars are aligned to make this an outsized year I would never assume that this kind of outsized share continues yearend. Your route it's just episodic.
Okay. That's helpful. And then just to go back to.
Your commentary earlier on on some of the regional volume trends. So I would take it then that just based on the weather at the Central region had a sort of a leader and normal seasonal ramp because of that poor weather so does that.
For presume is that presumably provide some runway.
Into three Q.
And I guess with that and.
The rest of the commentary that you provided how should we think about kind of bias towards prior guidance for volume for the year.
Yes, I mean, it provides runway for Q3, but obviously in the central region, especially in the states, we highlighted such as a Minnesota as an example.
Or in Oklahoma, or Colorado, obviously, you still have elements of special waste.
That exist in those markets that you typically see a pronounced seasonal ramp and as you move through Q3, but obviously the timing of those whether they start as anticipated whether they get delayed I mean these some of these projects as you know you can be wait for them to start and you're sitting there waiting at scale for two months until they finally cross the scales right.
And so while we're seeing a nice.
Seasonal tone, I mean, the timing of when those projects.
Come through the gate.
Across the scales.
He is going to really determine to look back how much did it ram.
I would echo that and just add that important to remember that last year, we had a strong stronger special waste quarter in Q3. So the comps are a little tougher as well so if you're thinking about year over year increases like we saw this year I guess, a little tougher in Q3.
Okay. That's very helpful. If I could sneak one more in.
You mentioned.
Some selectivity around you know further capex investment in S&P, just given the activity you're seeing but of course, we've also had I guess a bit more cottons consolidation and maybe even a bit more rationalization.
In terms of disposal pricing.
At least hopefully that starts to come through so how does that impact kind of your thoughts around.
Capital allocation.
Just trying to understand kind of puts and takes here the thinking.
Sure I mean, it's a thoughts have always really haven't changed right I mean, as you know weve.
We.
Talk to Ray we opened up our new landfill up in Wyoming, we talked about another investment, we're making to expand the services at one of our existing landfills in the Permian that project ought to come on later this year or early next.
We're also looking at.
An additional.
Landfill within the Permian, we've worked with the regulators for for for many years now and just continuing to redesign that for that site.
To match the realities of the current market right I mean, it's.
It's yes.
One doesn't if one has a choice of investing 10 to 15 in the site versus investing 25 to 30 I would always in this environment when they take the lower side of that makes that work with regulators to do that.
And so how we approach it from a from an asset positioning and serving our customers hasn't changed.
Obviously, we want to be prudent Howard how much capital rolling out.
To address this going forward.
Very helpful. Thanks, so much.
And our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question.
Thank you and Ron welcome back into the hot seat.
[laughter] Thanks, Michael.
So I just.
Moving all the numbers up as fast as Mike I can count on my fingers and toes and I think I am looking at 12 months July one to July June 30 have $65 million ahead, when we're dealing with between the recycling in a RIN credit.
Little bit more and then half of it in the second half of <unk>.
19, and there's a tail there is a full quarter of a one two and then there is a tail into Q thats the right way to think about plotting all that out all things being equal.
Well, if I look I mean, we I think we feel in terms of end of calendar year is not.
That LTM, but obviously last year the same store basis recycling overall, it's about a $65 million revenue impact.
This year on a same store basis, we're on what we're on a glide path to do what about whats that 25 to 25 to 30 total.
Okay, great Yeah, I mean, basically recycling as you know is down.
For us about 120 million or more over that two year period.
Andy for the Decrementals above that.
Means EBITDA impact has been north of $120 million, So just leaving helping all else out of it.
Yes, we look at the business I mean you'd assets back in 16, if we could think about a five year trend, where you think the business could be in five years and we talked about was 61 plan. If you remember that the head is doing about $1 billion of free cash flow by 2021.
Put simply adjusted for recycling, we would have done it this year or two years earlier.
And so now we have done the same math, you've done, but we do a calendar year not LTM.
Okay. So you've opened the window I was going to ask next.
Is the right way to and again, we're not doing 20 guidance, but the right way to think about 20 is it starts with a billion is the free cash.
And when you might see how plants any guidance.
Okay. Thanks.
But given some place every land our feet.
What's that [laughter] you do this to everyone.
I know.
Hi know perhaps dry.
Deal pipeline, what's it look like going into the second half as far as the opportunity to have maybe something else gets added to the 160.
Yeah, we won't look as we said the seller activity in dialogue remains robust I would say there's nothing in the pipeline right now that's north of 50 or $60 million in revenue.
And so there is not one individual unum over but obviously if you do have knocked down a couple of these.
They all add up to nice rollover growth into a into 2020.
And you would anticipate that there would be more close is just on the guidance.
Well, we don't guide, what's not flows right because I don't control the timing of what we get done right timing.
But obviously as you move into the year I mean anything that we're in dialogue right now would end up contributing very little to this calendar year, if we do close it.
Most of it.
As a rollover contribution for 2020.
Okay, and then last question would be I guess, some back end of 2020, but.
Your efforts to drive an incremental increase around the recycling side, an open market plus what you can do an open market General suggests a four and a half five is the right way to think about how pricing continues to trend one to two and volume that's the sort of way to think.
That's the way we think about it.
Okay, great. Thank you so much.
Our next question comes from the line of Derek Spronck with RBC. Please proceed with your question.
Hey, good morning, Thank you for taking my questions and good to have you back Ron.
Hi, Gary.
Just my first question just could you provide a little bit more color around some of the acquisitions you did do this quarter, where they tuck ins any new markets are they more collection disposal heavy any color here, we get it.
Sure, we did a integrating new market in North Texas.
We did a sizable expansion into to our footprint in Rhode Island.
Yeah, I mean those are the two most notable ones from a revenue standpoint, and other than that we did several tuck ins in the various states and and one in Quebec as well.
In the period.
Would you say that your addressable.
Market is still I believe you've commented before around $3 billion at $3 billion to $4 billion as your addressable market.
Is that being maintained and.
I know addressable market isn't a black and white science, but.
Are you can you open up your addressable market at all in the future and if so are some of your peers opening up their addressable market and are you starting to see a little bit of overlap around addressable markets.
Or potential acquisition and addressable markets relative to your peers on a historical basis.
Our addressable market hasn't changed obviously as we go into new states and new parts assays, we can expand our addressable market.
Look our peers are getting transactions done that we're not involved in it because we don't overlap them in their markets.
Most of the transactions were doing.
Nine out of 10 or or or sole source sold dialogue.
Without a doubt, though you've got.
When you have banker involve those are transactions that are better more while they shop Thats why we rarely do transactions that bankers around the sell side of.
But but can you also see some of our peers that are just diversifying.
Away from solid waste and doing various and sundry services. So it's.
So they don't see us and those opportunities right.
So look I don't think the landscape has changed clearly.
It's a frothier the time from a dialogue standpoint, I think you're seeing everyone.
Benefit from that not just any one company in particular.
And.
Outside of the MP waste would you ever consider moving into as solar soil remediation or liquid waste.
No.
Okay, all right. Thanks for taking my question.
Our next question comes from the line of Sean Egan with Keybanc capital markets. Please proceed with your question.
Thanks, very much Ron welcome back and we're winning big Congrats on your CEO appointment.
Hi, My first question just on on the on the price momentum.
It sounds like recycling is kind of an incremental tailwind for price for the out year.
So im just wondering whether that means we can.
Kind of look at this 5% that we're trending to in 2019 and keep that as sort of a reasonable assumption for the out year or whether there is some other puts and takes we should keep in consideration in terms of how that the pace of that price growth continues.
Sure and and yes, I think it's a short short answer Sean I think 5% is a fair way to think about it and as you point out we did as Worthing mentioned, we say in the 5.2 that we reported this quarter about 50 basis points of that is from the incremental p. as we've gotten associated with recovering the decline in recycled commodities. So the underlying price is around 4.5% 50 basis points of recycling and 20 basis points of fuel surcharges and that's that's a fair way to think about it going forward.
Okay. Thanks, and I thought maybe you guys could comment on the behavior, you're seeing from the smaller players in your markets I know around this time last year, the sort of initial wave of recycled commodity price pressure kind of prompted some action from some of the more marginal players in the market.
And I'm just wondering if maybe this next wave of pressure.
Potentially driving them to another breaking point in terms of maybe rolling out some price increases are being more inclined to sell any comments around that dynamic would be great.
Sure I mean, if you think there were impacted last year.
You know the devices tightened this year.
And so notes see we're still seeing.
Very.
Good structural support for pricing this industry right.
Love the privates have been impacted by recycling and Thats got more punitive for them labor pressures have not abated.
Cost to move volumes to landfills have not abated and so really if you saw last year. Many prior to doing double digit price increases in order to overcome that that same pressure as re emerge this year.
And so no the I think you've seen everyone in the industry report stronger price because the underlying tone is better to look at our price retention, it's and that's approaching 98% on price increases are putting on the street and so its a structurally it's a it continues to be a favorable environment and put simply folks need to be pushing price in order to recover their cost.
Okay that makes sense and last quick one from me is just on this brand credit dynamic.
The price.
Of those rins that moves been pretty eye popping. So I'm just wondering if.
Maybe this is difficult to answer but I'm wondering if you think we've found a floor here in the price for those Rins and.
Whether there is kind of a clear catalyst on the horizon for those prices to stabilize or potentially go back up.
Yeah look at.
At 70 cents right now were 70 cents away from the floor I guess, you sort of look at it that way.
But.
No look obviously, you got to see what's happening in Washington REIT.
If you if you begin if theres an administration change as an example.
Look I go back a year or two rents prices were in the mid twos.
Not 70 cents or almost four times, what they are right now and so I think as you see.
You know the kind of the underlying tone in DC for clean energy for renewable credits et cetera that are really set the tone for the marketplace with a clearing price for that.
Okay. Thanks, very much I appreciate the time.
As a reminder to register for a question press the one for.
Our next question comes from the line of Mark Neville with Scotiabank. Please proceed with your question.
Hi, good morning.
I just want to follow up on the recycling conversation.
The six to 12 months lag.
On the pricing.
I guess I'm just curious how negotiated is that process versus sort of how automatic ROE easier I guess is it sort of to recapture some of that price.
Well it depends on what type of contract we're talking about a fix a returns based contract when you beat the cost first and then go in for a rate increase in the case of a contract that's not a returns based its a negotiation with municipalities.
And visibility.
I have been receptive to because they understand the plight of what's happening right now and if they want to encourage recycling continue it.
Right now it costs more money.
We don't get that success everywhere.
But for instance, some of we just had another one jurisdiction.
Where we just.
We've just started airing about a $200000 a month wait on recycling that we didnt have before and that negotiation with the city will probably last between three and five months and we'll probably recapture 70 or 80% of that.
By the time of negotiations done if not 100%.
And so it's a it really depends what type of contract and where we're at in dialogue with the city of visibility.
Okay, but sort of the way you do you have talked about it or guided or and talk to us. It's it's been 120 million impacts sort of four to five years, maybe to recapture that as you negotiate all this.
Right and last year was year one this year is here too.
And so we're two years into that four to five year journey.
Okay.
Okay, and then sort of just selling renewable energy credits. There is a few numbers thrown around I'm just I just want to make sure I've got it right.
It's a bit of at current levels, it's about a $5 million per Q EBITDA impact is that right.
That's correct, but second half are you looking at the second half of the year, Yeah, and that's factored into our updated outlook.
Okay and in terms of again sort of just on the recycling what what price for those who have you assumed into the guidance curious if there is some risk.
To the number in the second half just to current levels.
Sure. So it's about $45 a ton, which is where we're seeing pricing right now.
Hi, RCC.
Yeah, Yeah, okay.
And maybe just one last one then on the M&A.
Although 160 or 165 that you've acquired thus far.
Mary I think you said about a 100 million of that hits, the piano, unless you're 100 million thats in the guide.
That's correct in the current year, there's about 100 million so that implies as rollover contribution for 2020 of about $60 million.
Okay.
Okay.
Yes, thanks for taking my questions.
You bet.
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Mr. Jackman there are no further questions at this time I will turn the call back over to you.
Thank you.
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