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Edited Transcript of ADSW earnings conference call or presentation 24-Feb-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Advanced Disposal Services Inc Earnings Call

Feb 25, 2017 (Thomson StreetEvents) -- Edited Transcript of Advanced Disposal Services Inc earnings conference call or presentation Friday, February 24, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew Nelson

Advanced Disposal Services Inc. - VP of FInance and IR

* Richard Burke

Advanced Disposal Services Inc. - CEO

* Steve Carn

Advanced Disposal Services Inc. - CFO

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Conference Call Participants

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* Hamzah Mazari

Macquarie Capital - Analyst

* Corey Greendale

First Analysis - Analyst

* Michael Hoffman

Stifel Nicolaus - Analyst

* Noah Kaye

Oppenheimer & Co. - Analyst

* Kyle White

Deutsche Bank - Analyst

* Andrew Buscaglia

Credit Suisse - Analyst

* Michael Finnigan

BofA Merrill Lynch - Analyst

* Jon Windham

Barclays Capital - Analyst

* Steven Fisher

UBS - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Christina and I will be your conference operator today. At this time I would like to welcome everyone to the Advanced Disposal Q4 2016 conference call.

(Operator Instructions)

Thank you. Matthew Nelson, Vice President of Finance and Investor Relations, you may begin your conference.

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Matthew Nelson, Advanced Disposal Services Inc. - VP of FInance and IR [2]

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Good morning, everyone. We would like to welcome you to the Advanced Disposal Q4 2016 earnings call. With me today is Richard Burke, our CEO; Steve Carn, our CFO, and other members of senior management.

We issued our press release yesterday with our results, and trust that you have had the chance to review it. If you need a copy of the release, you may find it on our website or at www.sec.gov.

In today's earnings release and during the conference call, we are providing adjusted financial information including adjusted EBITDA, adjusted free cash flow, and adjusted net income. All of which are defined in our press release, and exclude certain items that management believes are not indicative of our results of operations.

This information is provided to enable you to make meaningful comparisons of the Company's operating performance between years and to view the Company's business from the same perspective as management. The earnings release contains exhibits that reconcile the differences between the non-GAAP measures and the comparable financial measures calculated in accordance with US GAAP.

Before we begin, I need to make certain cautionary remarks about forward-looking information. The matters discussed in the teleconference may contain certain forward-looking information intended to qualify for the Safe Harbor's from liability established within the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events.

Any such statements are based upon current expectations and current economic conditions, and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in those forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our financial filings with the Securities and Exchange Commission.

This call is being recorded and will be available two hours after the conclusion of the call for 30 days. Time sensitive information provided during today's call may no longer be accurate at the time of the replay.

Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Advanced Disposal is prohibited. I would now like to turn the call over to our CEO, Richard Burke.

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Richard Burke, Advanced Disposal Services Inc. - CEO [3]

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Thanks, Matt. Good morning, and I want to thank everyone for joining us today.

Fourth-quarter 2016 capped off a transformational year for Advanced Disposal that has strengthened our Company's financial footing and positioned us well to generate significant free cash flow improvement in 2017. Looking at our fourth quarter results, I am pleased today to report adjusted EBITDA of $107.7 million, which represents an increase of $6.2 million versus prior year.

Adjusted EBITDA margins were also very strong at 30.6% or 160 basis point improvement versus fourth-quarter 2015. Let me take you through some of the highlights of the quarter and then Steve will provide some additional detail.

Starting with the top line. Revenue increased 70 basis points in the fourth quarter. This was led by average yield of 2.7% which is our best quarterly pricing performance of the year.

CPI linked contracts that reset at lower levels continued to provide some headwind, but that is beginning to moderate. For full-year 2016, the CPI inflator was on average 1.3%, while contracts that reset in Q4 had an average CPI inflator of 1.8%. Continued price discipline and our previously announced environmental fee increase that began in Q3, were both key drivers in the price growth.

Top line growth also benefited 100 basis points in the fourth quarter from the net impact of acquisitions as we continue our strategy of strengthening our existing markets through tuck in acquisitions.

Turning to volume. Organic volume declined 2.4% on a workday adjusted basis with municipal residential contracts and shale volume being the key drivers. We're off to a good start for municipal contracts in 2017, with some recent wins including Polk County, Florida, where will service over 60,000 homes beginning in October 2017. Given the timing of contract start dates, though, we would expect to see continued headwind for residential volume through at least the first half of 2017.

Moving to expenses. The team remains committed to working safely, managing controllable costs, and helping to ensure that pricing gains fall through to the bottom line. While we did see some headwinds from higher net fuel costs, which are largely out of our control; we were able to achieve productivity gains that kept other cost lines below inflation, including some safety-related savings. This resulted in operating expenses, excluding accretion for the quarter, being under 60% as a percentage of revenue. Overall, our core business during the fourth quarter performed well and as we expected.

Looking at the full year, we made imported changes to our capital structure and began a new chapter in our Company's history. These changes include: a $280 million investment by CPPIB in August; completing our IPO in October, which would including our underwriters option to issue 15% additional shares of common stock, resulted in us raising nearly $375 million of net proceeds; reducing our leverage by nearly a full term during 2016 to 4.8 times; achieving rating upgrades by both S&P and Moody's; and completely refinancing our debt capital structure in November, which when coupled with the debt repayment from the IPO, will save the Company over $30 million in cash interest payments annually.

Our focus as a Company is to generate ever improving free cash flow over the long run and the capital structure changes we put in place in 2016 set us up nicely to achieve strong free cash flow growth in 2017. In addition to strengthening our balance sheet, we were also able to deliver improvements in our core operations.

Here are some of the full-year highlights. We generated average pricing yield of 2.2% which underscores our continued commitment to following a disciplined pricing approach, even in a low inflation environment. We achieved meaningful improvements in both accident severity and Worker's Compensation which yielded $3.5 million of savings and Worker's Compensation expense year-over-year as we live out our service first-safety always culture.

We made prudent investments in our assets to enhance productivity and reduce our carbon footprint, including increasing the percentage of our routed vehicles utilizing C&G, from 11% in 2014 to 16% in 2015 and now 19% in 2016. And we followed our strategy of managing our remaining landfill capacity by achieving a year-over-year increase in our total and deed permitted airspace. This increase -- increased the remaining life of our average landfill to 38 years.

Together, these changes drove strong financial results with adjusted EBITDA improving to $411.1 million and adjusted EBITDA margins growing 70 basis points to 29.3% for the full-year 2016.

We have also now achieved three consecutive quarters of adjusted EBITDA margins over 30%. I would note that we would not expect adjusted EBITDA margin to continue at that level in Q1 2017 as historically Q1 is our lowest margin quarter of the year. This is driven by weather and seasonal volume trends that impact both productivity and disposal volumes. Less than one-third of our disposal tons in 2016 were from our southern region.

As we look towards 2017, we plan to continue to execute on the strategy we've laid out to our stakeholders. It starts with market selection, where we will continue to focus on vertically integrated operations in secondary markets, primary markets where we have strong asset base, and disposal neutral markets.

Our recent acquisition of CGS Services is a perfect example of our targeted market selection. This represents a new vertically integrated market entry for us located southeast of Indianapolis.

We expect this transaction will yield approximately $25 million additional revenue over the 11 month period we own it in 2017. We will use this new platform to pursue additional tuck in acquisitions, municipal contracts, and organic density selling; which will build route density and increase disposal volume to our new landfill.

The previously mentioned Polk County contract win is a good example of a disposal market entry -- excuse me -- The previously mentioned Polk County contract win is a good example of a disposal neutral market entry with a municipal contract at its core, that we can build a commercial and industrial book of business around while leveraging the SG&A costs associated with the municipal contract.

While the timing of acquisitions vary year-to-year, we will continue to focus on closing additional opportunities throughout 2017 that strengthen our competitive position in target markets. In addition to market selection, our team is committed to improving its core operations and enhancing free cash flow.

Part of that strategy is to continue to focus on making it easier for our customers to do business with us. We are investing in regional customer care centers that we believe over time will improve the customer experience, reduce defection, and help drive sales growth.

We also are working on a number of online tools, both for existing customers and prospective customers, that will enable them to do business with us when most convenient for them. By executing on this strategy, we expect in 2017 to generate revenue between $1.45 billion and $1.475 billion and adjusted EBITDA between $423 million and $433 million. These gains coupled with managing capital in a disciplined manner, we expect will generate adjusted free cash flow between $121 million and $141 million that will be used to close accretive acquisitions and repay debt.

Before I turn the call over to Steve to provide a more detailed review of our financial results and additional information around our forward-looking guidance, I want to address an incident that occurred at one of our landfills. On February 8, we experienced a waste slide at one of the cells at our Greentree Landfill in Kersey, Pennsylvania, that resulted in the fatality of one of our team members. Our thoughts and prayers continue to be with his friends and family and we are working closely with authorities and regulatory agencies as we investigate this incident. The financial impact of this incident is unknown at this time, and as a result, has not been included in our forward-looking guidance.

With that, I will now turn the call over to Steve.

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Steve Carn, Advanced Disposal Services Inc. - CFO [4]

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Thanks, Richard, and good morning. Revenue for the fourth-quarter of 2016 increased $2.4 million to $352 million, from $349.6 million for the fourth-quarter of 2015.

Adjusted net income increased $11.7 million to $17.2 million from adjusted net income of $5.5 million for the fourth-quarter 2015. Adjusted EBITDA for the fourth quarter increased $6.2 million year-over-year or 6.1% to $107.7 million, achieving 30.6% adjusted EBITDA margin, which increased 160 basis points over the prior year due to strong pricing, tuck ins, and business rationalization.

We achieved strong average price yield of 2.7% for the quarter, up 40 basis points sequentially from Q3 and 50 basis points over the prior year. We achieved open market price yields of 3.9% and 80 basis point price yield on our municipal residential business, which increased 40 basis points sequentially from Q3, as we are starting to see some positive impact of higher CPI as contracts reset.

We achieved 3.9% average price yield in the commercial and roll off lines of business, driven by base price increases and increased environmental fees. Average price yield increased 2.6% in our disposal business, led by MSW and slightly improved special waste pricing, with C&D remaining flat.

Organic volume growth adjusted for one less work day was negative 2.4% for the quarter, with 130 basis points due to several lost residential contracts primarily in the Midwest, and 70 basis points from lower shale collection volume in Pennsylvania. The balance of the volume decreased due to softer MSW and C&D volume in our Midwest and East regions, offset by an increased MSW and special waste volumes in our South regions.

The negative volume improved 80 basis points sequentially from Q3 as we start to cycle through the municipal contract losses and non-regrettable losses from our earlier business rationalization strategy. The one less work day in Q4 2016, accounts for 60 basis points of the overall total volume decrease of 3% for the quarter.

Acquisitions added 150 basis points to volume growth but were partially offset by a 50 basis point reduction from divestitures. Revenue from FY16 was $1.405 billion, compared to $1.396 billion in 2015, achieving adjusted EBITDA of $411.1 million, an increase of $11.1 million from the prior year with adjusted EBITDA margin of 29.3% representing 70 basis point margin improvement over the prior year.

Adjusted EBITDA for the quarter increased $6.2 million or 6.1% to $107.7 million compared to $101.5 million in the prior year. We achieved adjusted EBITDA margin in the quarter of 30.6% compared to 29% in the prior year, reflecting a 160 basis point increase in the margin year-over-year.

The increase in adjusted EBITDA margin is due to the following: 160 basis point improvement in core operations driven by disciplined pricing and our focus on actively managing controllable cost; 10 basis points for acquisitions net of divestitures; 30 basis points from one less work day in the quarter compared to the prior-year quarter, offset by 40 basis points due to increased diesel cost, which were somewhat offset by fuel surcharge revenue, but there is a lag in the recovery due to the quarterly and monthly advanced billings.

Reviewing the results of operations, we achieved operating income of $43.2 million during the quarter, an increase of $18.2 million over the prior year quarter. Strong pricing and productivity gains and lower depreciation amortization, where the driving force of the increase in operating income. We have provided detailed schedules of our cost of operations and SG&A expenses in our 8-K filing.

Our cost of operations, excluding accretion expense, as a percentage of revenue was 59.6% compared to 60.4% in the prior year quarter. The 80 basis point decrease in operating expenses is primarily due to transfer and disposal cost benefiting from increased internalization, lower labor costs benefiting from lower worker's compensation accruals, partially offset by increased fuel costs.

Diesel fuel prices have increased 6% from $2.07 per gallon in Q4 2015 compared to $2.20 in Q4 2016. SG&A expenses, as a percentage of revenue, were 10.6% compared to 12.1% in the prior year quarter. SG&A decreased due to reduced professional fees associated with the internal control evaluation and implementation and IPO preparation related costs.

Depreciation, depletion and amortization was 16.3% of revenue compared to 18.4% in the prior year, positively impacted in the quarter due to an increase in deemed permitted expansion airspace at several of our landfills. And favorable adjustments of $5.3 million that were recognized in the fourth-quarter of 2016, relative to asset retirement obligations.

As a reminder, our D&A is approximately 6% higher, due to the impacted GAAP purchase accounting on the legacy business. However, it has no impact on free cash flow generation.

Full-year cash flow from operations was $237 million or 16.9% of revenue. Cash flow from operations decreased 60 basis points year-over-year as a percentage of revenue, primarily due to additional capital market costs in the current year, significant improvement in DSO in 2015, and higher bonus payouts in 2016 for 2015 performance achievements.

The Company expended $171 million for the year for CapEx or 12.2% as a percentage of revenue, a 70 basis point reduction from the prior year as a percentage of revenue. Replacement maintenance CapEx was $120.7 million or 8.6% of revenue, which is in line with our target of 8.5% to 9.5% for replacement maintenance CapEx. Growth CapEx was $21.5 million or 1.5% of revenue and infrastructure CapEx was $28.8 million or 2.1% of revenue; primarily related to the completion of our consolidated billing and collection facility, expansion of two maintenance facilities that were driven by volume growth and landfill expansion and property.

We generated 2016 adjusted free cash flow of $94 million, excluding realized losses on fuel hedges compared to $102.1 million in 2015 which benefited from the one-time networking capital improvement resulting from decreased DSO and increased DPO. The Company estimates approximately $30 million in cash interest cost savings in 2017 versus 2016; as a result of the IPO proceeds used to pay down debt and lower interest costs related to the Company refinance of the Company's debt in late 2016. In addition, at December 31, 2016, the Company had approximately $476 million of gross net operating loss carry forwards which will be utilized to offset cash tax payments into the future.

Total funded debt at December 31, 2016 was $1.963 billion with approximately $258 million of revolver availability. During the quarter, interest expense was $27.5 million with cash paid interest of $44 million. We reduced our leverage almost a full-term from 5.7 times at the end of 2015, to 4.8 times at year-end 2016.

I will now review our outlook for the full-year 2017. Before I do, I would like to remind everyone once again, that actual results may vary significantly based on the risk and uncertainties outlined in our Safe Harbor statement and our various SEC filings. We encourage investors to review these factors carefully.

Our outlook assumes no change in the current economic and operating environment. The outlook for 2017 includes the impact from the recent acquisition of a vertically integrated operation in Indiana, and a new municipal contract award for residential collection of 65,000 homes in Polk County, Florida, that begins October 1, 2017. But excludes any additional acquisitions or significant municipal contract awards that may occur during the year along with acquisition related integration and transaction cost and new municipal contract startup cost and any cost related to the recent waste slide at Greentree Landfill.

Looking first, at full-year 2017, revenue is estimated to be between $1.45 billion and $1.475 billion. Adjusted EBITDA in 2017, estimated to be between $423 million and $433 million and cash flow from operations, estimated to be between $292 million and $321 million and adjusted free cash flow estimated to be between $121 million and $141 million. We are providing additional components that have impact on cash flow from operations and adjusted free cash flow.

Capital expenditures are estimated between $171 million to $180 million and expenditures for closure, post closure between $24 million and $30 million. Net interest expense in 2017 is estimated to be between $95 million and $102 million with cash paid interest in the range of $86 million to $93 million.

Our effective tax rate for the year is estimated to be 40% with cash taxes between $3 million and $7 million as the company continues to utilize the gross net operating loss carry forwards to offset taxable income. Total shares outstanding are estimated to be between $89 million to $90 million.

I want to remind everyone of the seasonality of our business. Given the significant assets in the Midwest and East regions, with Q1 having the lowest margin and free cash flow contribution of the four quarters. In addition, we have seen some headwinds in Q1 2017 related to an increase in diesel fuel prices, as our fuel surcharge recovery program lags, an increase in fuel cost.

Discontinuation of C&T credits, softness in volumes compared to last year, where we saw 2016 volumes pull from Q2 into Q1, acquisition and integration costs from our most recent acquisition, impact of lower shale volumes on a year-over-year basis, and the extra work day in the prior year quarter. These headwinds have been factored into our 2017 full-year outlook that we have provided. We will now open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Your first question comes from Hamzah Mazari, Macquarie Capital. Your line is open.

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Hamzah Mazari, Macquarie Capital - Analyst [2]

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Good morning. Thanks for taking my question. Just had a question on the 2017 guide.

Do you have a sense of what you are assuming on price volume, recycling? Just any underlying assumptions around the 2017 revenue guidance?

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Steve Carn, Advanced Disposal Services Inc. - CFO [3]

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Yes, Hamzah, this is Steve. Good morning.

On our revenue guidance we are expecting somewhere between 3.2% and 5%. There is an amount in there baked in for the CTS acquisition.

As you know, we have seen strong pricing for Q4 of 2016 at 2.7%. We will anniversary an environmental fee in Q3 of 2017, so there will be some tough comps as we get into the back half of the year, but we should get some benefit as CPI continues to increase.

It will be a little less in the first half of 2017 as 62% of our municipal contracts renew in the back half of 2017 with it weighted to Q4, so that will be some pricing pick up, but we won't see that until the back half of 2017. On the volume basis, you will start to see us cycle through the negative volume.

We'll start to do that as we get through 1H-17 and then we should see some positive volumes as we get into the back half of 2017 from a price volume. But there is a lot of noise this year just because of the cycling of the lost contracts and the non-regrettable losses.

And then just the timing of the increase in CPI related to the 62% of the contracts that reset in the back half of 2017 and then just for the overall, a little tough comp coming off of 2016.

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Hamzah Mazari, Macquarie Capital - Analyst [4]

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Great. Very helpful. Then could you give us a sense of, when do you think CapEx normalizes for you guys?

I know there is infrastructure of CapEx given where you guys are in the lifecycle of your landfills, the majority of the landfills. When do you think CapEx gets to be a more normalized run rate like 10% of sales or is that a couple of years out or just any sense of that?

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Steve Carn, Advanced Disposal Services Inc. - CFO [5]

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Hamzah, I think if you look at the components of it. We are in that 8.5% to 9.5% of replacement CapEx which includes sale, fleet, containers.

Where we are going to be a little on the top end of the line is our 1% to 2% on the growth. Then just because of where we are in the lifecycle of our assets, we are still building out a fair amount of infrastructure because of our young life landfills, so that CapEx is always kind of front loaded earlier in the life of those landfills.

In addition, we are starting to outgrow our secondary market maintenance facilities and hauling operations. We're having to extend those -- expand those, so those are all positive, but they are long-term spend.

For us, we are going to have a little bit more on the infrastructures spend, compared to our peers potentially, but we still think that 10% to 12% is the right target to maintain a safe operating fleet in that seven-year average age.

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Hamzah Mazari, Macquarie Capital - Analyst [6]

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Great. Just last question and then I will turn it over.

Do you guys have any sense of -- if you could just update us where the leverage is at right now? And any sense of -- I know it is low visibility, but any sense of how interest rate deductibility rules may change or how that may be offset by bonus depreciation? Any thoughts you guys have on impact of corporate tax reform, whenever that happens later this year, or how are you positioned for that? Thank you.

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Steve Carn, Advanced Disposal Services Inc. - CFO [7]

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Yes. That is a good question. As far as the leverage goes, we were at 4.8 at the end of 2016.

Naturally we can take about 0.5 turn out of leverage and we will do that through a combination of accretive tuck in acquisitions and paying down debt. As far as the tax legislation changes -- in the near-term we have significant gross net operating losses that shield most of our federal tax.

I think it is too early to try to put any numbers around or think about what the -- final in the tax law changes. I think for us, it is more wait and see what they do with that.

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Richard Burke, Advanced Disposal Services Inc. - CEO [8]

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I would say -- Hamzah this is Richard. Thanks for the question.

On the M&A side, though, on the seller side, lower corporate taxes could create a bubble of opportunities here. For M&A deals, if the seller can get higher net gains, you could have a theory that there is a window here of four years to sell your company, possibly, where you will get a higher net gain.

We think overall, while lower corporate taxes with our NOL might not show up in our numbers, we think that could help us on the M&A side to close more deals.

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Hamzah Mazari, Macquarie Capital - Analyst [9]

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Got you. Thanks so much.

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Operator [10]

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Your next question comes from Corey Greendale from First Analysis. Your line is open.

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Corey Greendale, First Analysis - Analyst [11]

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Hey. Good morning.

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Steve Carn, Advanced Disposal Services Inc. - CFO [12]

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Good morning, Corey.

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Corey Greendale, First Analysis - Analyst [13]

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A couple of questions. First of all, in terms of the guidance.

Can you just remind me how much of your changes in fuel costs are covered -- I just know the timing difference but adjusting for timing, are you 100% covered with your surcharge program?

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Steve Carn, Advanced Disposal Services Inc. - CFO [14]

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It is about 60% that we can recover. Then on the municipal, which is about 26% of our revenue, that recovery we get in the annual CPI reset, so that is a bit longer lag.

But we are seeing on the near-term, the commercial and landfill lag in that diesel fuel compared to the billing increase in that fuel surcharge fees.

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Corey Greendale, First Analysis - Analyst [15]

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And, Steve, can you estimate -- I think the guidance, if you look at the midpoint, calls for adjusted EBITDA margins to be about flat, but 2016, how much of a drag fuel you are assuming in that guidance?

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Steve Carn, Advanced Disposal Services Inc. - CFO [16]

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We assumed a little bit of drag in that. There might be a little offset if commodity prices come up, but the acquisition we did is probably net neutral to margins just because of the integration and start up costs around that.

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Corey Greendale, First Analysis - Analyst [17]

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Okay. I'm assuming with your mix, that fuel will be the dominant impact as opposed to commodity prices Is that right?

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Steve Carn, Advanced Disposal Services Inc. - CFO [18]

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That is correct, yes.

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Corey Greendale, First Analysis - Analyst [19]

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Okay. Then on the price, just so we know how to model anniversary can you give us a sense of how much the yield in Q4 was driven by the environmental fee?

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Steve Carn, Advanced Disposal Services Inc. - CFO [20]

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We looked at it (inaudible) and with price, but for Q4, we had 2.7% average yield. There's probably 90 basis points of that was from the environmental fee.

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Corey Greendale, First Analysis - Analyst [21]

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Okay. Then sorry if I missed this, I was scribbling quickly, but did you give a sense of within the 2017 guidance what you are assuming on GAAP and cash interest?

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Steve Carn, Advanced Disposal Services Inc. - CFO [22]

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Yes. We provided both the GAAP tax expense and then what we believe we'll pay in cash taxes.

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Corey Greendale, First Analysis - Analyst [23]

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The interest, I'm sorry.

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Steve Carn, Advanced Disposal Services Inc. - CFO [24]

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What was that again? Interest? Yes.

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Corey Greendale, First Analysis - Analyst [25]

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I'm sorry but you said tax, so could you repeat that?

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Steve Carn, Advanced Disposal Services Inc. - CFO [26]

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I meant interest -- cost. We gave GAAP interest expense range and we also provided the cash paid of that, because of the amortization of the financing costs that are going to roll through 2017.

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Corey Greendale, First Analysis - Analyst [27]

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I will get it from you off-line. (multiple speakers)

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Steve Carn, Advanced Disposal Services Inc. - CFO [28]

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The GAAP number was a range of $95 million to $102 million and cash was $86 million to $93 million.

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Corey Greendale, First Analysis - Analyst [29]

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Okay. And then just one clarification. I thought when you were giving the guidance you said Q1 is the weakest quarter from a free cash flow perspective.

I don't know if I heard that right. (inaudible) that Q4 has been the weakest. Can you clarify what you expect for 2017?

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Steve Carn, Advanced Disposal Services Inc. - CFO [30]

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Yes. I think from the standpoint of lower volumes and -- this timing of CapEx, our CapEx is a little bit more weighted this year to maybe Q1. Then the real weighting is, really the majority of it for 2017 is in that Q2, Q3. So that has some impact on it.

And then just the recent acquisition we did. We are going to put some CapEx into the Caldwell acquisition, so that is a little bit of the reason why an increase in CapEx from what you may have modeled.

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Corey Greendale, First Analysis - Analyst [31]

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Okay. That helps. And I appreciate the thoughts on deleveraging.

Just in terms of how we should think about it? Give a sense of, likely use of free cash flow, the split between acquisitions and that direct debt pay down?

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Richard Burke, Advanced Disposal Services Inc. - CEO [32]

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We'll be opportunistic around that, Corey. It will be wherever we can create the best shareholder value.

If there is a deal out there that is accretive, we will weight towards the deal to grow our business and to grow our platform. If we don't have that deal, then we will pay down debt.

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Corey Greendale, First Analysis - Analyst [33]

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Got it. Great. Thanks very much.

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Steve Carn, Advanced Disposal Services Inc. - CFO [34]

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Thank you.

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Operator [35]

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Your next question comes from Michael Hoffman from Stifel. Your line is open.

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Michael Hoffman, Stifel Nicolaus - Analyst [36]

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Hi, Richard and Steve, thank you for taking my questions.

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Steve Carn, Advanced Disposal Services Inc. - CFO [37]

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Good morning.

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Michael Hoffman, Stifel Nicolaus - Analyst [38]

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Good morning. Can we dig into the volume story?

If we strip away the noise of all the negatives that are nonrecurring and talk about the pattern of volume through your businesses. How would you describe that in the collection markets and disposal and MSW versus C&D and special waste?

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Steve Carn, Advanced Disposal Services Inc. - CFO [39]

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Let me just give you some color around the adjusted 2.4% negative volume we saw in Q4 2016. So 130 basis point of that was residential contracts and 70 basis points from shale. Then what we did see, is a little slight dip in some commercial and some roll off.

We have some tough comps on a year-over-year basis in our East region and then C&D and MSW had some tough comps on the C&D side and that was about 40 basis points.

Solid waste core was only negative about 40 basis points on a year-over-year basis but if I look back at Q4 2015, we were up C&D times 14 basis year-over-year. We were down on a tons basis, C&D tons in Q4 of 2016 of 7% and that was primarily in our East region, Pennsylvania because of some weather related issues.

But on a year-over-year basis, total 2016, we were up 5% C&D tons year-over-year, so there is a little bit of noise around the tough comp from 4Q 2015 over 4Q 2016.

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Michael Hoffman, Stifel Nicolaus - Analyst [40]

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Okay. The number I would care even more about is MSW trends because that is better margins on a sustainable basis. What is the trend of your MSW X ex- all the things that went away on a same-store basis, what's the MSW trend?

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Steve Carn, Advanced Disposal Services Inc. - CFO [41]

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What we saw is a relatively flat 4Q 2016, so on a tonnage basis, on a year-over-year, 2015 to 2016 Q4, we were down 1% but for the year, we were up 3% on MSW tons.

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Richard Burke, Advanced Disposal Services Inc. - CEO [42]

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And if you pull price into that on MSW tons, we were up about 2% for the year and about 2.6% for the quarter.

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Michael Hoffman, Stifel Nicolaus - Analyst [43]

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On MSW?

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Steve Carn, Advanced Disposal Services Inc. - CFO [44]

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On total -- landfill tons. We saw better pricing on the MSW side on the landfill.

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Michael Hoffman, Stifel Nicolaus - Analyst [45]

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Okay, and then I have a density question for you and I am going to use a car analogy, so bear with me. But as I think of your business before you start to drive better density, it's sort of the gearbox of a Volkswagen Bug and you're trying to get to the gearbox of a Porsche. Where am I in that transition between the four -- the three regions?

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Richard Burke, Advanced Disposal Services Inc. - CEO [46]

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I like a Volkswagen Bug.

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Michael Hoffman, Stifel Nicolaus - Analyst [47]

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I do too. I had one in college, but a really loose gearbox compared to a Porsche.

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Richard Burke, Advanced Disposal Services Inc. - CEO [48]

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I think right now we are probably a Toyota Camry.

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Michael Hoffman, Stifel Nicolaus - Analyst [49]

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That is an automatic though.

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Richard Burke, Advanced Disposal Services Inc. - CEO [50]

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I'm sticking with your thought. Look, I think we have made strides from where we are, and we are pleased with the strides, but we are not satisfied. I think there's still a ways to go to get to a Porsche. And that's (multiple speakers)

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Michael Hoffman, Stifel Nicolaus - Analyst [51]

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That is opportunity. How much of that has to be can be done organically versus has to be done with deals?

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Richard Burke, Advanced Disposal Services Inc. - CEO [52]

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That is a good question, and it is a difficult one to answer.

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Steve Carn, Advanced Disposal Services Inc. - CFO [53]

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I think it is by market.

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Richard Burke, Advanced Disposal Services Inc. - CEO [54]

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I think it is by market, Michael. We are still at a size where we run this thing by market.

Some markets where you are the one or two player, it is going to be price. Some markets where you are striving to be the one or two player, it is going to be a mix of price and volume and maybe weight more towards volume.

And then like a Polk County that I talked about in my prepared comments, that is a new market entry disposal neutral. So you come in and you get that long-term disposal sticky agreement, seven-year contract, three to renew and then you build commercial around it.

That is going to be weighted much more towards volume over the short-term then price. We still look at this market by market because of our size.

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Michael Hoffman, Stifel Nicolaus - Analyst [55]

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Okay. If I take my observation, i.e. your middle innings, now moving back to baseball, and depending on whether it is Central -- Southeast or Midwest, your combination of deals price and organic growth around new market -- new business lines?

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Richard Burke, Advanced Disposal Services Inc. - CEO [56]

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What inning are we in?

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Michael Hoffman, Stifel Nicolaus - Analyst [57]

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I was saying middle innings.

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Richard Burke, Advanced Disposal Services Inc. - CEO [58]

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Late four or early five.

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Michael Hoffman, Stifel Nicolaus - Analyst [59]

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Okay. And then on capital spending, you did allude to this Steve, that it's up versus expectations and is all of that -- because -- most of us had about $165 million, so we are $171 million now to $180 million. Is all of that incremental is growth?

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Steve Carn, Advanced Disposal Services Inc. - CFO [60]

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Some of it is related to replacing some of the fleet with Caldwell, so there is $5 million there. And then there is additional CapEx because we think we will see some municipal wins this year. And the fact of the matter is when you do that you don't have full year of revenue when you are comparing CapEx spend in a year, to your full-year revenue on a run rate basis.

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Michael Hoffman, Stifel Nicolaus - Analyst [61]

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Okay, so that is growth, though? You bought Caldwell and you got to upgrade the fleet.

That is a growth thing. Polk County is growth.

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Steve Carn, Advanced Disposal Services Inc. - CFO [62]

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Michael, I think we'll be right in that 8.5% to 9.5% range on our replacement maintenance, in that range.

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Michael Hoffman, Stifel Nicolaus - Analyst [63]

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Okay, but what (multiple speakers)

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Richard Burke, Advanced Disposal Services Inc. - CEO [64]

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Michael, on landfill capital, I'll just kick in, talk about infrastructure for a second. Look, because we have these young life landfills, with a lot of life and a lot of capacity around these landfills, we're still in the early stages.

We are going back to baseball. We are in the top of the second, on the landfills and we are still putting in gas systems and leach collection systems and that type of infrastructure that's required of a more mature base, so that adds to our infrastructure costs on that.

Now the offset to that is, we only have five closed landfills and three of those are C&D, so we don't have the closed landfill drag. It is not so much of a CapEx, but it still shows up in free cash flow for others, that some of our peers have, but we have it more on the front end on the capital.

And also, as you are building out the footprint of these long life landfills, in the early second inning, we are building base, we're building foundation. Foundation is more expensive to construct than going high.

Going high is cheap, building the foundations where you spend all your money in the development of these landfills. I just want to get that out, because that does influence our overall capital spend.

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Michael Hoffman, Stifel Nicolaus - Analyst [65]

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Okay. Fair enough.

And then two last ones. How much of the fuel is hedged appropriately in 2017 versus not hedged?

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Steve Carn, Advanced Disposal Services Inc. - CFO [66]

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We don't have any financial derivatives around fuel. We feel the fuel recovery program; we get 60% recovery on an increase in fuel and then the balance of the 26% of our revenue, we get at an annual reset on our municipal index price business. That we are fairly hedged with that natural hedge program.

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Richard Burke, Advanced Disposal Services Inc. - CEO [67]

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One other thing I would add to fuel, that I would ask you to think about is, we have enjoyed C&G credits the last couple of years. They have been about $1.6 million in value for us on C&G credits.

At the current stage as we stand, those credits don't exist in 2017. So that's a bit of a headwind we factored it in but that is a bit of a headwind on the fuel line, as well as the rising diesel prices.

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Michael Hoffman, Stifel Nicolaus - Analyst [68]

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Okay, but if I'm -- 60 plus 26 is 86 so what's the other 14?

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Richard Burke, Advanced Disposal Services Inc. - CEO [69]

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(multiple speakers) free with the market so that is our exposure.

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Michael Hoffman, Stifel Nicolaus - Analyst [70]

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Okay, and then the CGS deal is a single deal, is about as big as you did in all the deals, in prior years, so do I have any room left?

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Richard Burke, Advanced Disposal Services Inc. - CEO [71]

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Yes, sir. Our target at the beginning of the year was around $30 million to $50 million in acquired revenue.

Since we've closed CGS at about $25 million, we would like to think we are going to be in that $35 million and up range, to the top of our range. We have really robust pipeline of tuck in acquisitions that we hopefully will be able to close between now and the end of the year.

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Michael Hoffman, Stifel Nicolaus - Analyst [72]

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Great. Thanks for taking my questions.

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Richard Burke, Advanced Disposal Services Inc. - CEO [73]

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Thanks, Michael.

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Operator [74]

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Next question comes from Noah Kaye from Oppenheimer & Company. Your line is open.

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Noah Kaye, Oppenheimer & Co. - Analyst [75]

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Thanks, good morning Rick and Steve. Good to be with you, congratulations on the transformation and on the year.

If I could just follow up on some of the previous questions on the margin? With the cost containment that you have done over the last couple of years and then you talked about the puts and takes of the fuel headwinds.

I guess as we start to look beyond 2017 more broadly, how should we about incremental margins in the business, particularly as you start to capture some of the benefits of the portfolio rationalizations?

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Richard Burke, Advanced Disposal Services Inc. - CEO [76]

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Yes. Thanks for the question. Good question.

I think a little bit of history here helps us with margins. First of all, let me say, we are pleased with the progress we've made around the margins, 70 basis point improvement, 29.3% is a nice margin.

We're pleased, but we're absolutely not satisfied to stop there. But a little bit of a history.

When we put the Company together in late 2012, early 2013, we were about 25% margin company. Through market rationalization, the strategy of getting into the three markets we like.

Secondary, vertically, integrated. Primary where we have strong asset base integrated and disposal neutral; by doing that, that's been a big part.

Selling off what didn't make sense and improving what didn't -- what needed to fit into the model. We have been able to have the low hanging fruit to pick it from 25% to move it up.

At the same time, being able to do the cost controls that we talked about as well as restructuring our SG&A and streamlining our organization to put less bureaucracy and management decisions closer. All those things have taking us from 25% to 29.3% plus pricing above CPI.

That is how we get where we are. Now that we have worked our way through that, we will continue to push but it will be about pricing above CPI, it will be about continuing -- we are grinders so to continue to grind on cost, moving more to automation, moving more to C&G.

Driving productivity, driving the safety culture through the company in order to reduce those costs and then growing that top line revenue without having a material increase to SG&A as part of it. That is how we'll continue to step this up from 29.3% up.

It will not be as meteoric probably as it has been. It will be more glacial now, but we are not satisfied at 29.3%. We can drive this Company higher.

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Noah Kaye, Oppenheimer & Co. - Analyst [77]

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Okay, congratulations on the Polk County win, and you talked to some of the other muni-contracts that you are looking at and bidding on, seeming fairly optimistic there? Can you maybe give us a flavor of what the cadence should be for the bidding and the wins updates on those contracts over the course of the year?

In other words, when you expect to have greater visibility into winning those contracts and perhaps even if any of those are potentially incremental to 2017 versus more of an 2018 story?

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Steve Carn, Advanced Disposal Services Inc. - CFO [78]

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There is a decent pipeline in 2017 compared to other years. There is nothing unique about 2017 other than it's the timing of when these things are coming to bid.

We think we have opportunities in these contracts we don't currently service, and we will look at them to determine the best fits for us and where we think we would like to pick up some of those contracts.

I think -- historically we have been in that 20% range on a successful and then it offsets the attrition that you have on your renewals. We do have growth in the guidance for 2017 on some municipal volume coming off the contracts that we shedded in late 2015, early 2016.

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Richard Burke, Advanced Disposal Services Inc. - CEO [79]

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Another thing I would add, to drive the municipal opportunity back to your margin question is, we don't win these contracts, and I daresay no one wins these contracts at 29% EBITDA. When you win them, they are going to be lower and over time you are going to do -- you are going to grow your commercial industrial base and leverage off of that SG&A and maybe you are going to do a couple tuck in acquisitions, and again drive off that SG&A.

But we look at these municipal contracts, especially these disposal neutral contracts, as an opportunity to get a new beach head, if you will, or a new market entry (technical difficulty). If you think about a strip mall, it is like the Walmart in a strip mall. It is the anchor tenant and then we can grow the other business around it and the combination of all that generates a market that would be more in line with the margins that we're looking for.

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Noah Kaye, Oppenheimer & Co. - Analyst [80]

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Thanks for that color. I guess the last one, you commented before, Richard, around the potential benefits of tax reform with respect to supporting more robust M&A transaction environment and certainly peers have commented to the same.

My question is, how do you think about, or how should we think about right now, your current pipeline and your current activity level relative to the past? Is that having any impact, and just on an absolute basis, how would you characterize the activity level right now?

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Richard Burke, Advanced Disposal Services Inc. - CEO [81]

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I'm not sure that the tax is yet until they really happen. At this point it is just a talking point, right?

It is not a reaction. The seller's not going to see it if they close next week, but it is another arrow in the quiver to use when you are sitting with the seller about the potential.

Our pipeline is good. It is robust.

It is a combination weighted more heavily towards tuck ins, than new market entries, like Caldwell, but nevertheless a pretty good pipeline. We would say that $30 million to $50 million of acquired revenue is sort of our expectation with our current platform and we feel good about being able to achieve that.

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Noah Kaye, Oppenheimer & Co. - Analyst [82]

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Okay, terrific. Thanks so much.

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Operator [83]

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Your next question comes from Kyle White from Deutsche Bank. Your line is open.

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Kyle White, Deutsche Bank - Analyst [84]

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Thanks for taking my question. Good morning, guys and congrats on the quarter and congrats on the year.

Steve, just a quick question. Did you give a full-year average diluted share guidance of, I think I heard it as $89 million to $90 million?

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Steve Carn, Advanced Disposal Services Inc. - CFO [85]

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Yes, we gave you the share count, so that you could better dial in the EPS calculations.

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Kyle White, Deutsche Bank - Analyst [86]

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Okay. Is this an indication of a secondary happening after the lockup period or what is that?

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Steve Carn, Advanced Disposal Services Inc. - CFO [87]

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That will be related to potential exercise of options.

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Kyle White, Deutsche Bank - Analyst [88]

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Okay, great. And next question, if I can get your thoughts on recycling volumes and just prices of commodities like OCC increasing. What kind of impact do you think this is going to have for 2017?

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Steve Carn, Advanced Disposal Services Inc. - CFO [89]

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For us, recycling is down to about 1.2% of our revenue, it is a smaller piece and we're talking just about the sale of the recyclable commodities. It is larger than that, when you factor in what we get paid for the collection, but we have our risk factors and -- a $10 change in fiber for us, would be about $2.4 million in revenue and we drop about 70% of that to the bottom line. So that would be kind of our impact around fiber OCC pricing.

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Kyle White, Deutsche Bank - Analyst [90]

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Okay, and then just an update on the consolidation of your customer care centers and initiatives you are doing there. Where exactly are you at in this process and the training? Are you beginning to see any impact on better retention rates from this or anything?

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Richard Burke, Advanced Disposal Services Inc. - CEO [91]

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Yes. Good question. About 60% of the calls we take as a company, are now going through the call centers, we still have about 40% out.

We are about two-thirds of the way through the process. A couple of things that we are seeing.

One, we're seeing our close ratios of new business up considerably, over taking local cost. We also are selling at a higher price through there.

We've also consolidated in late third quarter and early fourth quarter, our billing and collections now into one area. That is making the ease of billing and when we bill and we expect to see some improvement in our DSO as part of this. But it also makes the ease of pushing price increases on a consistent basis out to the field more controlled because we're doing it in one location, not in 92.

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Kyle White, Deutsche Bank - Analyst [92]

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Got you, thank you, and my last question is just, is it fair to assume flat working cap, what's the other cash guidance [you gave]?

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Steve Carn, Advanced Disposal Services Inc. - CFO [93]

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That would be fair. We have consolidated our billing collection operations, so we have a little bit of an uptick in Q4, headwind around DSO, but we think we will get that back in 2017.

Then like always, we're always looking at productivity improvements, and one of those productivity improvements to the accounting and finance side is to try an improve networking capital. So we'll continue to grind and try to make improvements throughout 2017.

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Kyle White, Deutsche Bank - Analyst [94]

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All right, thank you and good luck in 2017.

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Steve Carn, Advanced Disposal Services Inc. - CFO [95]

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Thank you.

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Operator [96]

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Your next question comes from Andrew Buscaglia from Credit Suisse. Your line is open.

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Andrew Buscaglia, Credit Suisse - Analyst [97]

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Hey, guys. Congrats on the good quarter.

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Steve Carn, Advanced Disposal Services Inc. - CFO [98]

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Thank you.

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Andrew Buscaglia, Credit Suisse - Analyst [99]

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Can you talk about, you have done three quarters in a row now above 30%, done a good job there. Do you see Q1 you are going to have this seasonal decline, did you see the decline maybe less in order of magnitude then you have previous years given how you guys have executed pretty well here?

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Steve Carn, Advanced Disposal Services Inc. - CFO [100]

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I think Q1 of 2017 will have a little bit more headwind, because Q1 of 2016 we saw decreasing fuel prices, so that fuel surcharge revenue started to fall off in Q1 2017. We're going to see an increase as we get later in the quarter around that fuel surcharge revenue.

There is a lag, that will be more of an effect on the full-year 2017. What we will see is the disconnect between the lag in Q1 around fuel costs, that will impact the margins a little bit if you are looking year-over-year 2016 to 2017.

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Richard Burke, Advanced Disposal Services Inc. - CEO [101]

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The other thing, Andrew, is last year we saw some special waste projects that were Q2 get pulled into Q1, so they came back. And if you remember our ramp up from 1 to 2 on volume wasn't that drastic and that was the pull back. We are not -- to date -- we're not seeing that pullback of Q2 projects into Q1 like we did last year.

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Andrew Buscaglia, Credit Suisse - Analyst [102]

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Okay.

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Richard Burke, Advanced Disposal Services Inc. - CEO [103]

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On the full-year it will balance, but 72% of our volume, disposal volume is either in upper Midwest or Pennsylvania landfill, first quarter is always a challenge for us.

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Andrew Buscaglia, Credit Suisse - Analyst [104]

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And your valuings will be, they're going to be negative probably through Q2?

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Steve Carn, Advanced Disposal Services Inc. - CFO [105]

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In the front half, as we cycle through the shedding of the business we did in 2016. Most of that cycling occurs and as we get some of this municipal organic growth, some of it is more back half weighted when the contracts start. You will see some negative line growth for the first half and you'll see it moderate and we'll see more positive growth in the back half of 2017.

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Richard Burke, Advanced Disposal Services Inc. - CEO [106]

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Just to reiterate on the negative volume, the majority of that was non-regrettable strategic losses. These were, by and large municipal contracts that either required to be recapitalized in order to get the proper return on invested capital or the margins -- or we weren't internalizing the volume and we were a hauler only, so it didn't fit into our three markets where we operate, our market selection strategy.

While we are cycling through those non-regrettable losses, we are seeing in hands cash flows and improved margins because -- in part because of that strategy.

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Andrew Buscaglia, Credit Suisse - Analyst [107]

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Right, okay, and then I know last year, I know shale, first of all I know it is a small percentage of revenue but just remind us where we stand with that? It still packed quite a punch last year. Do think that could help you guys? I think you called that out as further headwind, but maybe if things turn here, that could be net neutral or positive?

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Steve Carn, Advanced Disposal Services Inc. - CFO [108]

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Yes, shale for year-to-date 2016 is about $9.4 million, less than $2 million of EBITDA. I think we're at our thrall but that is thrall is more in the back half of 2016 so we'll see a little bit of headwind around shale on 1H of 2017. We have not yet seen significant rig count increases in the Marcellus [Channels] sections.

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Andrew Buscaglia, Credit Suisse - Analyst [109]

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Marcellus is really where we are focused?

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Steve Carn, Advanced Disposal Services Inc. - CFO [110]

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Yes.

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Richard Burke, Advanced Disposal Services Inc. - CEO [111]

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Marcellus, all of our shale -- it is more -- it is not wet contracts, it is not wet, it more natural gas, it's all Marcellus shale.

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Andrew Buscaglia, Credit Suisse - Analyst [112]

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Okay.

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Richard Burke, Advanced Disposal Services Inc. - CEO [113]

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Again, we didn't buy anything in the EMP waste, all we did was modify two existing MSW landfills to be able to take that waste and then use our existing rolloff structure to make some of those pulls, this was -- E&P was nice when it was running at [$20 million].

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Andrew Buscaglia, Credit Suisse - Analyst [114]

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Okay. All right. That is it for me.

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Operator [115]

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Your next question comes from Michael Finnigan from Bank of America Merrill Lynch. Your line is open.

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Michael Finnigan, BofA Merrill Lynch - Analyst [116]

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Hey, guys. Thanks for taking my questions.

Just, on the strong pricing in the fourth quarter, I think you mentioned volumes turning positive potentially in the second half of this year. How should we think about the dynamic between strong pricing versus volume growth?

With CPI rising, is there potentially a trade-off you guys are thinking of between open pricing in volumes, trying to get that growth?

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Steve Carn, Advanced Disposal Services Inc. - CFO [117]

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As you build volume, it always puts pressure on your top line pricing and then you have pretty tough comps because of what we achieved in 2016. Certainly as CPI continues to go well north of 2% and remains there in the year.

That is a tailwind you start to get where you start to push your open market pricing even higher than what we have seen maybe in 2016, to the street, but it all depends. And then the timing of the resets that we have with regards to our index pricing again, 62% of our municipal contracts renew in the back half of the year with 38% of those renewing in Q4.

The CPI will be more of a benefit in the back half and then into 2018 if it continues to increase and we get in north of that 2% range. And then we will continue to drive volume where it makes sense and through density in our outputs on our sales side.

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Michael Finnigan, BofA Merrill Lynch - Analyst [118]

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Great, and over the last two years you guys have really worked on repositioning the portfolio, rationalizing some businesses. Are we now at the end of that process and we're just now cycling through some decisions of last year?

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Richard Burke, Advanced Disposal Services Inc. - CEO [119]

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Yes, sir. We are fairly close.

We will always look at our bottom 10%, but the heavy lifting that we've done, you think about, when we put the Company together, the first thing we looked was markets, right? We went through markets and really focused on what markets we wanted to be in to fit the strategy and made those decisions.

Those were big decisions in 2013 and 2014. 2015 and 2016 was more granular where we said okay we are pleased with this market, it works the way we want to work, now let's look at the contracts that make up that market and let's make sure we are getting the proper return on invested capital in those markets.

That was the project that was taking taken on in 2015 and came into 2016, and that is what we are now cycling through. The big part of the revamping of the portfolio is behind us.

We will always continue to look as opportunities come up to make sure we're getting the right return, and bidding the right return, but the big ticket items have been done.

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Michael Finnigan, BofA Merrill Lynch - Analyst [120]

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Okay, that makes sense. Then I was hoping you could give us is a little bit more background on the recent acquisition? I think you mentioned some new territory that you identified and you plan to build around. What goes into that decision of maybe going into a new territory rather than maybe putting capital to build out one of your existing territories?

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Richard Burke, Advanced Disposal Services Inc. - CEO [121]

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Good question. From a strategy standpoint, we favor the secondary markets where we could get a vertically integrated operation, where we have the disposal, the collection, and transfer and recycling capabilities if that's in the marketplace.

An opportunity like Caldwell hit -- checked all the boxes. That it had everything we were looking for, vertically integrated operation, 1,400 ton landfill, 25 years of permitted capacity with the ability to double that, so from that standpoint it made perfect sense.

But we also looked at the potential in the market. What we saw there were an ability to do a few more tuck ins that we could bring in and densify those routes over time.

We also saw municipal contracts within the footprint there that we didn't have, that over time we could bid on and win and make that part. We saw the ability to buy a platform that we could continue to grow and to get it up to margins similar to what we see in vertically integrated secondary markets.

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Michael Finnigan, BofA Merrill Lynch - Analyst [122]

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That makes sense, and just lastly, I know that you guys went through some detail on the fourth quarter with special waste and C&D and I realize there were some tough comps there. How was that market trending in January and February? Have you seen -- is there any noise really around the election or post election any acceleration or any noise in the pipeline there?

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Richard Burke, Advanced Disposal Services Inc. - CEO [123]

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There is a lot of discussion around projects. The pipelines look good.

Again, our disposal network is really weighted more towards the Midwest and Northeast, not a lot of special waste projects. While I know it has been a fairly mild winter so far, still not a lot of projects get slated for the winter months in many of our markets, but as far as the pipeline around special projects it looks similar to 2016 but it looks pretty good.

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Michael Finnigan, BofA Merrill Lynch - Analyst [124]

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That's great. Thanks, guys.

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Richard Burke, Advanced Disposal Services Inc. - CEO [125]

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Thank you.

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Operator [126]

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Your next question comes from Jon Windham from Barclays. Your line is open.

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Jon Windham, Barclays Capital - Analyst [127]

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Good morning, guys. I'll keep this quick, we have already covered a lot of ground.

Maybe if I could get you to comment on your existing footprint around Polk County, one, and then two, my understanding is that, that is a contract where the incumbent player didn't participate in the bid to renew and might consider that a non-regrettable loss on their part.

What do you think you guys can come in and maybe do it a little different and make a little bit better returns? In the quarter? Thank you.

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Richard Burke, Advanced Disposal Services Inc. - CEO [128]

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As far as Polk County, we have base of operation in Orlando, north of that, and on the south side, we have long-term municipal contract there that we are just in the second year of a 10 year deal. With the growth pattern coming south of Disney and the growth pattern moving that way, when we look at growth opportunities, we see Polk County as a growing County.

It has become, it continues to become, a bedroom community to the south side of Orlando. We see great potential there.

We see a robust commercial and industrial base growing up around these communities, so for us to be able to go in and get the municipal contract and make that our anchor tenant and then with the ability to grow the industrial and commercial around it, we think it's a good way to link that market with our existing Orlando market.

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Jon Windham, Barclays Capital - Analyst [129]

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Thanks, Richard.

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Richard Burke, Advanced Disposal Services Inc. - CEO [130]

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Thank you, sir.

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Operator [131]

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Your next question comes from Steven Fisher from UBS. Your line is open.

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Steven Fisher, UBS - Analyst [132]

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Thanks, good morning. Sorry to come back to the volumes here, but outside of the non-regrettable volume losses, can you talk about how the rest of the volumes compared to your expectations?

I know there is a number of moving pieces, but it seems like the volumes might've been a little bit softer than you have been thinking. You are able to offset it with M&A and it sounds like there will be more M&A but the how are the rest of the volumes compared to your expectations?

And if I missed it, what was your volume expectation for the full year? I know you got weaker in the first half, better in the second half but what's the overall number for the year?

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Steve Carn, Advanced Disposal Services Inc. - CFO [133]

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For 2016?

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Steven Fisher, UBS - Analyst [134]

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For 2017.

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Steve Carn, Advanced Disposal Services Inc. - CFO [135]

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For 2017? Again, I think we have given that indication on what we think can grow our revenue and that 3% to 5%, it will be balanced as we think about both price and volume as we cycle through the rollover, the negative volume through the 1H 2017 and it will start to moderate and turn positive in the back half of 2017.

Again, there will be some tough comps around price particularly the environmental fee component as an anniversary in Q3 of 2017. Again, we look at this as of push and pull, quarter-by-quarter but over a longer period of time, we will try to gravitate to that 2% price, 2% organic volume and 1% to 2% deals. And it will be lumpy quarter-to-quarter depending on some of the initiatives and certainly the initiatives we took in shedding the unprofitable business makes the organic volume appeared to be optically a little bit less.

But it was all margin focused on creating additional free cash flow and margin for the business. We will continue to look at our markets on a market-to-market basis and which markets we can push price, and get good pricing, certainly a higher CPI will help us in that and there is markets in secondary where we continue to build out our volume include tuck in acquisitions that will help with that volume, not only from an organic standpoint, but from an acquired standpoint.

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Steven Fisher, UBS - Analyst [136]

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Okay, and then related to your cost management, you mentioned a number of initiatives. Which do you expect to have the biggest positive impact in 2017?

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Richard Burke, Advanced Disposal Services Inc. - CEO [137]

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I would love to say safety. That's the one we're putting an awful lot of focus around.

Our safety always part of our mission as we always have, but continuing to drive out risky behaviors and some of the tools we are using, drive cam in the trucks, snapshot scores, things that are leading indicators instead of lagging indicators to help us take risks out before they become accident or injury, so hard focus on that.

Continuing focus around productivity, whether that be like in the situation of Caldwell where everything was a manual rear loader, making some changes in different markets that moves us more toward automation where we can reduce headcount and be more efficient on collections. Those are the two big areas that we are really focused on.

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Steven Fisher, UBS - Analyst [138]

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Okay, and then just lastly. I know there's some sensitivity here, but can you talk about when you might know what's the waste slide situation might mean and what the process is here?

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Richard Burke, Advanced Disposal Services Inc. - CEO [139]

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The process here is, we brought in an independent third-party engineering firm that is doing a root cause analysis and then another engineering firm that is going to provide estimates on what needs to happen in order to put it back. We're also negotiating with OSHA, as you can imagine and the Pennsylvania DEP.

Offsetting that, we're also negotiating with our insurance companies and the different insurance policies that we have around it. It is hard to say a date for all of that to come together to give you a number. Our commitment to you, as it has been to everybody, is if it is material when we know, we will share the information.

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Steven Fisher, UBS - Analyst [140]

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Terrific. Thanks a lot, guys.

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Steve Carn, Advanced Disposal Services Inc. - CFO [141]

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Thank you.

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Operator [142]

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At this time we turn the call back over to the presenters.

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Richard Burke, Advanced Disposal Services Inc. - CEO [143]

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Thank you very much for the questions. We are excited with the transition we have made to becoming a public company and the values that have brought us to this point will be the same values that will guide us as we move forward.

By focusing on market selection, profitable organic growth, accretive acquisitions, pricing discipline, managing costs, we expect to continue to drive ever improving free cash flows. We believe these efforts coupled with the continued focus on working capital improvements and being good stewards of the cash flow we generate, will lead to value creation for our shareholders.

I would like to thank the Advanced Disposal Team for their hard work and dedication as we all live out our mission of every day driven to deliver, service first and safety always. Thanks folks and have a good weekend.

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Operator [144]

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This concludes today's conference call. You may now disconnect.