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Edited Transcript of WCN.TO earnings conference call or presentation 30-Jul-19 12:30pm GMT

Q2 2019 Waste Connections Inc Earnings Call

CONCORD Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Waste Connections Inc earnings conference call or presentation Tuesday, July 30, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mary Anne Whitney

Waste Connections, Inc. - Senior VP & CFO

* Ronald J. Mittelstaedt

Waste Connections, Inc. - Executive Chairman

* Worthing F. Jackman

Waste Connections, Inc. - President, CEO & Director

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Conference Call Participants

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* Brian P. Maguire

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Derek Spronck

RBC Capital Markets, LLC, Research Division - Analyst

* Mark Neville

Scotiabank Global Banking and Markets, Research Division - Analyst

* Michael Edward Hoffman

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research

* Noah Duke Kaye

Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst

* Patrick Tyler Brown

Raymond James & Associates, Inc., Research Division - MD

* Sean D. Eastman

KeyBanc Capital Markets Inc., Research Division - Associate

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Presentation

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Operator [1]

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Greetings and welcome to the Waste Connections Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded, Tuesday, July 30, 2019.

I would now like to turn the conference over to Worthing Jackman, President and CEO. Please go ahead.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [2]

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Thank you, and good morning. I'd like to welcome everyone to the conference call to discuss our second quarter 2019 results and updated outlook for the full year and to provide a detailed outlook for the third quarter. I'm joined this morning by Mary Anne Whitney, our CFO; and several other members of our senior management team.

In addition, we're all pleased to also be joined by Ron Mittelstaedt. As announced on Friday, Ron is 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 him 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 week's announcement.

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Ronald J. Mittelstaedt, Waste Connections, Inc. - Executive Chairman [3]

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Okay. Thank you, Worthing. First off, 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'm excited to be back and pleased to have been able to assume the role of Executive Chairman. I remain committed to the company and as a continuing employee look forward to assisting in several areas including culture, strategy and acquisition.

Exiting the day-to-day responsibilities of CEO provides sufficient time for me to continue to address health matters affecting my family. No matter who you are, regardless of your profession or title, family should always come first. I look forward to continued success for the company under Worthing, 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, Worthing 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 the 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's so much more I could say about our team and the opportunities ahead, but since this is an earnings call, I'll turn the call back over to Worthing.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [4]

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Thank you, Ron. We've all had you and your family in our prayers over the past several months. It's great having you back, and I appreciate all the support.

Now onto our latest results. As noted in our earnings release, solid waste price and growth of over 5% along with a 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 an option of the impact from lower-than-expected contributions from 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 commitment within their control, but the ongoing erosion in recycled commodity value and a precipitous drop in the value 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've 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're particularly pleased with the approximate 65% average reduction in safety-related incidents in the 3 largest acquisitions completed over the last several months, and we look forward to continued improvement as 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 foundation for growth next year. Before we get into much more detail, let me turn the call over to Mary Anne, for our forward-looking disclaimer and other housekeeping items.

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [5]

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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 within the meaning of applicable Canadian securities laws. Actual results could differ materially from those made in such 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 3 of our July 29 earnings release and in greater detail in Waste Connections filings with the U.S. 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 are not presently aware or that we currently believe are immaterial, which could have an adverse impact on our business.

We make no commitment to revise or update any forward-looking statements and information in order to reflect events or circumstances that may 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 and per diluted share and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently.

I will now turn the call back over to Worthing.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [6]

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Thank you, Mary Anne. 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 value.

In Q2, our pricing ranged from approximately 3.4% in our more exclusive markets in the Western region to an average of over 5.5% in our 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 reflected about 50 basis points of negative volume drag from 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 impacts 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 picked 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 P&L 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 pulls and higher revenue per pull.

In the U.S., 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 50%. Solid Waste landfill tonnage increased about 6%, the strongest year-over-year increase we have reported since 2017, led by strength in both MSW and special waste.

MSW was up 6% on increases in all regions in the U.S. and also in Canada, led by both the East Coast, most notably 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 the slower seasonal ramp in Q2.

C&D 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 old corrugated containers or OCC.

OCC prices in Q2 averaged about $50 per ton, which was down 47% from the year ago period and down 36% sequentially from Q1. OCC 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 quarters 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 $0.03 per share in Q2. OCC 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 million to $30 million in revenue and $35 million to $40 million in EBITDA. Compared to some of our peers, our more punitive near-term impacts from recycling is primarily due to both the higher percentage of our collection business under franchise or other long-term agreements and the small percentage of third-party merchant recycling volumes represented as MRVs.

About 70% of the volume delivered to our recycling facilities comes off our own trucks, 20% is from third parties under contracts and only 10% is 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 6 or 12 months and, therefore, in some cases, such recovery would continue into 2020.

We take a long-term view into working with our customers through the seismic changes the industry have experienced in recycling, preferring not to close recycling facility or claim force majeure to terminate contracts. So for us, recovering the full impact on that 90% of recycling volumes takes both a multiyear approach to increased collection pricing, which we are -- which we proactively started last year and repricing contracts that expire in future periods.

Landfill gas sales are also commodity-driven, particularly the value of renewable identification numbers or RINs, for which certain renewable gas sales qualify. Since year-end, due primarily to decreased demand for renewable energy credits, RIN prices have declined from about $1.60 to approximately $0.70 with most of the drop-off occurring during Q2, resulting in a decrease of approximately $3 million of EBITDA in the quarter or about $0.01 per share. With RINs at current levels, we estimate that a full quarter impact would be approximately $5 million of EBITDA or about $0.015 per quarter in EPS during the remainder of the year.

Looking at the E&P waste activity. We reported $64 million of E&P 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 E&P landfill at the Wyoming Powder Basin, where 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 E&P 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 project.

Looking at acquisition activity, we've already closed on what we would consider an above-average amount of acquisition for the year and continue 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 Mary Anne, to review more in depth the financial highlights of second quarter, provide a detailed outlook for Q3 and discuss our updated outlook for the year. I'll then wrap up before heading into Q&A.

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [7]

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Thank you, Worthing. In the second quarter, revenue was $1.370 billion, about $10 million above our outlook and up $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 $77.4 million net of divestitures.

Adjusted EBITDA for Q2, as reconciled in our earnings release, was $425.3 million. This is consistent with the update we've provided in early June, but 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 2 factors: an estimated 80 basis points resulting from the year-over-year decrease in commodity-related revenues; and an estimated 50 basis points impact from 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 of our increased 401(k) match, which anniversaries at the year of the year, was about 20 basis points in 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 $0.09 from the year ago period and up $0.07 sequentially 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 and 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 2.3x debt-to-EBITDA with cash balances of approximately $209 million.

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 have noted on previous calls, the IRS released proposed regulations late last year associated with the Tax Act 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 enacted. We believe, any impact would be limited to the current year with our effective tax rate returning to about 22% again in 2020.

GAAP and adjusted net income per diluted share were $0.56 and $0.69, 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 expectations for underlying adjusted free cash flow for the full year.

I will now review our outlook for the third quarter 2019, an updated outlook to the full year. Before I do, we would like to remind everyone, once again, that actual results may vary significantly based on risks and uncertainties outlined in our safe harbor statement and filings we've made with the SEC and the securities commissions or other -- 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 this period.

Looking first at Q3. Revenue in Q3 is estimated to be approximately $1.405 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 E&P waste activity to continue to range between $60 million and $65 million. Adjusted EBITDA in 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 commodities-driven impact 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 a $0.09 per diluted share net of taxes.

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 regulation, as originally drafted, are enacted during the period, which result -- which would result in an impact of approximately $0.07 per share in Q3 with the rates 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 recorded 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 Worthing, for some final remarks before Q&A.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [8]

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Thank you, Mary Anne, and Ron, once again, welcome back. As noted in our release and discussed on this call, the underlying fundamentals of our solid waste business remain strong, and we are extremely pleased with our year-to-date performance. We'd especially like to commend our team's effort to deliver on their commitment in terms of what they control and in implementing the changes necessary to further recover the now more punitive impacts of commodity-related activity. Improving safety -- improving trends in 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 18,000 employees, who work tireless each and every day to drive our results.

Strength in solid waste pricing, positive volume trends and underlying EBITDA margin expansion and solid waste collection, transfer and disposal position us well for the remainder of the year. And as noted earlier, underlying adjusted free cash flow has trended solidly on track to achieve our original $950 million outlook for the full year.

We've already implemented a typical year -- or 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 on capital to shareholders.

We anticipate and now see another double-digit percentage increase in our annual -- excuse me, our quarterly cash dividend in October, and we are 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?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Tyler Brown with Raymond James.

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Patrick Tyler Brown, Raymond James & Associates, Inc., Research Division - MD [2]

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Ron, nice to hear from you. We continue to send our best your way. So Mary Anne, I was hoping maybe bridge the original $1.705 billion in EBITDA guidance with today's $1.675 billion guidance. So it feels that maybe the core trends are actually a touch stronger, E&P seems to be pretty steady, M&A is actually a good guy, but then maybe OCC and RIN prices are working against you, particularly late in the Q2. But are those the key pieces? And then if so, can you help maybe size the delta in those buckets, again, maybe in the new guidance versus the old guidance?

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [3]

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Sure. Glad to do so. And you did hit on the key buckets, Tyler. I would start with the revenue to give context. So if you start with the $5.310 billion of the original guidance, so the acquisition contribution is about $100 million. And as you said, the underlying business is doing a little better, but you have offsets from lower recycled commodity revenues of about $30 million and the lower RINs, the renewable energy credits of another $10 million to $15 million. So if you say, again, up a $100 million, underlying strength a little better and then back out the $35 million to $40 million in commodities, you get your $5.375 billion 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 out, so it's more like $50 million, that's how you net down to down $30 million to the $1.675 billion from your $1.705 billion.

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Patrick Tyler Brown, Raymond James & Associates, Inc., Research Division - MD [4]

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Okay. Yes. No, that's perfect. That's very, very helpful. So Worthing, I do want to come back to something 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 tailwind overtime even without a rebound in price as you readdress contract? Am I reading that the right way?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [5]

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Absolutely. I mean if you look at what we've done in incremental pricing, which, as we talked about on prior calls, of about a half a point incrementals related to recycling that gives you a sense of how we are recouping the majority of that through our collection business. 50 basis points is, I'm going to round here, about $25 million and if you look at the all-in impact over the last 2 years, you'd get numbers approaching a $120 million of EBITDA once you exit this year, comparing to '17 to '19. So if we're getting an incremental $25 million-or-so in pricing on the collection side of the business, what it's telling you is it's going to take us between 4 and 5 years down to recoup that. And to your point, that means it's upside as we go year-to-year looking ahead.

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Patrick Tyler Brown, Raymond James & Associates, Inc., Research Division - MD [6]

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Okay. Okay. Yes. No, that's very helpful. And then maybe -- so I'm a little behind on the RIN, but just at a high level, what exactly is driving this reduction in the RIN pricing?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [7]

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Well, you've had the -- obviously, EPA plays a major portion of it and what goes on to White House plays a portion of this is well. Refineries have been major buyers in the marketplace to offset emissions with refiners and need-to-blend fuels. As refiners getting more and more exemptions from the EPA, as they have 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 [demand], which has driven down the near-term price of the RINs.

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Patrick Tyler Brown, Raymond James & Associates, Inc., Research Division - MD [8]

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Okay, okay. Okay. I see. And my last one kind of related to that. So just, Mary Anne, big picture, 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 the year-over-year bridge?

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [9]

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Sure. So in our guidance, we had taken RINs 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 million to $25 million.

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Operator [10]

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Our next question comes from the line of Brian Maguire with Goldman Sachs.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [11]

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Ron, great to hear you here again. Worthing just a question on the CapEx changes. I guess the additional $35 million, it's always great to win some new business. Seems like it is just more an issue of timing, spending the money today to get the earnings tomorrow. I was just trying to think about what benefit that might have on volumes. Earnings next year will be, assume, a typical sort of mid-teens pretax return on that capital. And if that's the case, does that imply maybe $5 million for EBITDA, $20 million of sales and something like half of a point of volume improvement for next year just from that alone?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [12]

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Yes, you about nailed it. About a half a point in volume, if you -- it's more collection-oriented. So if you put an average collection margin on that, you're spot on at thinking about $25 million in revenue, $5 million to $6 million of EBITDA. And for that, with the capital outlay, you're looking at roughly 5x to 6x EBITDA for the capital outlay. And obviously that's a better return on capital than paying higher multiples of that on M&A.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [13]

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Yes. And I guess another way to think of it is if you had done M&A, then we wouldn't be talking about raising the CapEx or cutting the free cash flows. It's just sort of a decision between which one is better and this one -- yes, clearly a better return than a M&A?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [14]

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Yes, absolutely. And if you look at just the overall -- it's just a -- there's an increased level of bidding activity. We are not changing how we bid. But I look back over the past 6 or 7 months, and we've submitted a little over 70 proposals. And there's still about 1/3 of those that are outstanding that we're waiting here from for the balance of the year. And of the other 2/3, we won about half and we missed about half. But the half that we won is what you're seeing the more positive impact from.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [15]

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And I know 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 and the underlying trends are 0.5%, could we be thinking about sort of the high end of that 1% to 2% in volume growth range you've talked about historically?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [16]

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Yes. It definitely helps to move the needle within that range. That's right.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [17]

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And just last on this. Any early thoughts on 2020 CapEx? Is this $600 million -- is this 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?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [18]

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Yes. I mean if you look at the underlying volume environment being in that 1% to 2%, and obviously, these wins move it a little bit higher but that's CapEx we're spending this year. We'd always say it's a rule of thumb to think about an upcoming year of about 10.5% of revenue, and as we get into February, we'll refine that further.

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Operator [19]

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Our next question comes from the line of Noah Kaye with Oppenheimer.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [20]

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Worthing, I'm just following up on the subject of these new contract bids. As you say, you're not changing the way that you bid. So just curious what, 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? I'm just wondering if this is something more structural.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [21]

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No. Look, I think, maybe it's just the cycle of when these contracts are coming up for bid. Obviously, they're -- in some cases, they're relationship advantages, in other cases, incumbents may have had service issues that have put them sideways with municipality. In other cases it could be politics that have gone wrong against the incumbent. Whatever the case may be, it's just so happened that right now the stars have aligned to make this an outsized year. I would never assume that this kind of outsized year continues year in, year out, it's just episodic.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [22]

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Okay. That's helpful. And then just to go back to your commentary earlier on some of the regional volume trends. So I would take it then that just based on the weather, the Central region had a sort of a later than normal seasonal ramp because of that poor weather. So does that presumably provide some runway into 3Q? 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 the volume for the year?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [23]

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Yes. I mean it provides runway for Q3, but obviously, in the Central region, especially in the states we highlighted, such as in Minnesota, as an example, or in Oklahoma or Colorado, obviously you still have elements of the 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 waiting for them to start and you're sitting there waiting at the scales for 2 months until they've finally crossed 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, is going to really determine a look back how much did it ramp.

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [24]

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I would echo that and just add that, important to remember that last year we had a 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 it gets a little tougher in Q3.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [25]

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Okay. That's very helpful. If I could sneak one more in. You mentioned some slow activity around further CapEx investment in E&P just given the activity you're seeing. But of course, we've also had I guess a bit more consolidation, maybe even a bit more rationalization in terms of disposal pricing. Just hopefully, that starts to come through. So how does that impact kind of your thoughts around capital allocation? Just trying to understand the puts and takes here of the thinking.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [26]

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Sure. I mean it's -- our thoughts have as always -- really haven't changed, right? I mean, as you know, we talked (inaudible) we opened up our new landfill up in Wyoming. We've 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 many years now and just continuing to redesign that site to match the realities of the current market, right? I mean it's -- one doesn't -- if one has a choice of investing $10 million to $15 million in a site versus investing $25 million to $30 million, I would always, in this environment, want to take the lower side of that and make sure I've work with regulators to do that.

And so how we approach it from an asset positioning and serving our customers hasn't changed. Obviously, we want to be prudent how we're -- how much in capital we're laying out to address this going forward.

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Operator [27]

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Our next question comes from the line of Michael Hoffman with Stifel.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [28]

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And Ron, welcome back into the hot seat.

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Ronald J. Mittelstaedt, Waste Connections, Inc. - Executive Chairman [29]

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Thanks, Michael.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [30]

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So I just -- I'm adding all the numbers up as fast as I can count them on my fingers and toes. And I think I'm looking at 12 months July 1 to June 30, about $65 million of headwind we're dealing with between the recycling and RIN credit, a little bit more and then half of it in the second half of '19. And there's is a tail -- there's a full quarter of it, 1Q and then there's a tail in 2Q, if that's the right way to think about plotting all that out all things being equal.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [31]

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Well if I'd like to maybe -- I think we deal in terms of calendar years, not LTMs. But obviously last year, on a same-store basis, recycling overall was about $65 million revenue impact. This year on a same-store basis, we're on glide path to do what about -- what's that?

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [32]

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$25 million to $30 million.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [33]

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Yes, $25 million to $30 million total, and so...

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [34]

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And of course, these are…

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [35]

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Yes, I mean basically, recycling as you know is down for us about $120 million or more of that 2-year period and you put the decrementals above that, means the EBITDA impact is the north of $120 million. So just leaving all things -- all else out of it, if we look at the business, I mean you'd ask us back in '16, "Hey, if we could think about a 5-year trend, where you think the business could be in 5 years?" And we talked about 621 plan if you remember that. That had us doing about $1 billion of free cash flow by 2021. Put simply, adjusted for recycling, we would've done it this year or 2 years earlier. And so no, we've done the same math you've done, but we do it calendar year, not LTM.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [36]

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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 the $1 billion as the free cash?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [37]

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Well, you're right, we're not doing '20 guidance.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [38]

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Okay. But give us a place to land our feet? What's that?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [39]

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You do this to everyone.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [40]

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I know. I know, but I have to try. Field pipeline, what's it look like going into the second half as far as the opportunity of maybe something else gets added to the $160 million?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [41]

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Yes. We're -- look, as we said, the seller activity and dialogue remains robust. I'd say there's nothing in the pipeline right now that's north of $50 million or $60 million in revenue. And so there's not one individual needle mover, but obviously, if you do knock down a couple of these, they all add up to nice rollover growth into 2020.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [42]

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And you would anticipate that there would be more closed, it's just not in the guidance.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [43]

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Well, we don't guide what's not closed, right? Because I don't control the timing of what we get done or the timing of when it's done. But obviously, as you move into the year, I mean, anything that we're in dialogue right now, would end up contributing very little through this calendar year if we do close it and most of it is a rollover contribution for 2020 growth.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [44]

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Okay. And then last question would be -- and I guess I'm back into 2020. But your efforts to drive an incremental increase around the recycling side in open market plus what you can do in open market general, suggests a 4.5% to 5% is the right way to think about how price continues to trend, 1% to 2% in volume. That's the sort of way to think.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [45]

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That's the way we think about it.

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Operator [46]

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Our next question comes from the line of Derek Spronck with RBC.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [47]

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Good to have you back, Ron.

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Ronald J. Mittelstaedt, Waste Connections, Inc. - Executive Chairman [48]

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Thanks, Derek.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [49]

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Just my first question. Just if -- could you provide a little bit more color around some of the acquisitions you did do this quarter? Were they tuck-ins, any new market, are they more collection/disposal heavy? Any color would be...

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [50]

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Sure. We did an integrated new market in North Texas. We did a sizable expansion to our footprint in Rhode Island. Those were the 2 most notable ones from a revenue standpoint. And other than that, we did several tuck-ins in the various states and 1 in Quebec as well in the period.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [51]

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Would you say that your addressable market is still, I believe you've commented before, around $3 billion -- or $3 billion to $4 billion of 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 market or potential acquisitions in addressable markets relative to your peers on a historical basis?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [52]

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Look, our addressable market hasn't changed. Obviously, as we go into new states and new parts of states, we can expand that addressable market. Look, our peers are getting transactions done that we're not involved in because we don't overlap them in their markets. Most of the transactions we're doing, 9 out of 10 sole source, sole dialogue. Without a doubt though, you've got -- when you have a banker involved, those are transactions that are more widely shopped. That's why we rarely do transactions that bankers are on the sell-side of. But look -- and you also see some of peers that are just diversifying away from solid waste and doing various and sundry services.

So they don't see us in those opportunities, right? So look, I don't think the landscape has changed. Clearly, it's a frothier time from a dialogue standpoint. I think you're seeing everyone benefit from that, not just any one company in particular.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [53]

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But outside of the E&P waste, would you ever consider moving into a soil remediation or liquid waste?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [54]

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No.

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Operator [55]

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Our next question comes from the line of Sean Eastman with KeyBanc Capital Markets.

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Sean D. Eastman, KeyBanc Capital Markets Inc., Research Division - Associate [56]

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Ron, welcome back, and Worthing, many congrats on your CEO appointment.

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Ronald J. Mittelstaedt, Waste Connections, Inc. - Executive Chairman [57]

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Thanks, Sean.

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Sean D. Eastman, KeyBanc Capital Markets Inc., Research Division - Associate [58]

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My first question is just on the price momentum. It sounds like recycling is kind of an incremental tailwind for price for the out-year. So I'm 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's some other puts and takes we should keep into consideration in terms of how that -- the pace of that price growth continues.

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [59]

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Sure. And yes, I think is the 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 PIs 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 a fair way to think about it going forward.

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Sean D. Eastman, KeyBanc Capital Markets Inc., Research Division - Associate [60]

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Okay. And I thought maybe you guys could comment on the behavior you're seeing from the smaller players in your market. I know around this time around 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 is potentially driving them to another breaking point in terms of maybe rolling out some price increases or being more inclined to sell. Any comments around that dynamic would be great.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [61]

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Sure. I mean if you think that they were impacted last year, the vice has tightened this year. And so no, it's the -- we're still seeing very good structural support for pricing in this industry, right? A lot of the privates have been impacted by recycling and that's gotten 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 privates were doing double-digit price increases in order to overcome that, that same pressure has reemerged this year. And so no, I think you've seen everyone in the industry report stronger price because the underlying tone is better. I told you our price retention has been -- it's approaching 98% on price increases we're putting on the Street. And so it's 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.

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Sean D. Eastman, KeyBanc Capital Markets Inc., Research Division - Associate [62]

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Okay. That makes sense. And the last quick one for me is just on this RIN credit dynamic. The price of those RINs, that move has 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's kind of a clear catalyst on the horizon for those prices to stabilize or potentially go back up.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [63]

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Yes. Look at $0.70 -- right now, we're $0.70 away from the floor. I guess, you could look at it that way. But -- no, look, obviously, any -- you got to see what's happening in Washington, right? If you -- if there's an administration change, as an example -- look, I go back a year or 2, RINs prices were in the mid-2s, not $0.70. We were almost 4x what we are right on. And so I think as you see kind of the underlying tone in D.C. for clean energy, for renewable credits, et cetera, that have really set the tone for the marketplace and the clearing price for that.

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Operator [64]

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(Operator Instructions) Our next question comes from the line of Mark Neville with Scotiabank.

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Mark Neville, Scotiabank Global Banking and Markets, Research Division - Analyst [65]

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I just want to follow up on the recycling conversation. The 6- to 12-month lag on the pricing, I guess I'm just curious, how negotiated is that process versus sort of how automatic? Or how easy, I guess, is it to sort of to recapture some of that price?

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [66]

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Well it depends on what type of contract we're talking about. If it's a returns-based contract, we need to eat the cost first and then go in for a rate increase. In the case of a contract that's not returns-based, it's a negotiation with the municipality. And municipalities have been receptive to -- because they understand the plight of what's happening right now and if they want to encourage recycling and continue it, right now, it costs more money. And we don't get that success everywhere, but, for instance, I mean we just had another -- one jurisdiction where we've just started bearing about a $200,000 a month weight on recycling that we didn't have before and that negotiation with the city will probably last between 3 and 5 months. And we'll probably recapture 70% or 80% of that by the time the negotiation is done, if not a 100%. And so it's -- it really depends on what type of contract and where we're at in dialogue with the city or the municipality.

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Mark Neville, Scotiabank Global Banking and Markets, Research Division - Analyst [67]

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Okay. But so the way you've talked about it or guided, or you talked to us, it's been $120 million impact sort of a 4 to 5 years maybe to recapture that as you negotiate all this.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [68]

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Right. And last year was year 1, this year is year 2. And so we're 2 years into that 4- to 5-year journey.

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Mark Neville, Scotiabank Global Banking and Markets, Research Division - Analyst [69]

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Okay. Okay. And then sort of just on the renewable energy credits, there's a few numbers thrown around. I just want to make sure I've got it right. It's about -- at current levels, it's about $5 million per Q EBITDA impact, is that right?

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [70]

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That's correct.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [71]

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But second half of the year.

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [72]

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It starts looking at the second half of the year and that's factored into our updated outlook.

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Mark Neville, Scotiabank Global Banking and Markets, Research Division - Analyst [73]

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And in terms of -- again, sorry just on the recycling. What price for the OCC have you assumed into guidance? I'm just curious that there's some risk to the number in the second half just at current levels.

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [74]

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Sure. So it's about $45 a ton, which is where we're seeing pricing right now for OCC.

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Mark Neville, Scotiabank Global Banking and Markets, Research Division - Analyst [75]

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Yes. Okay. And maybe just one last one then on the M&A. Of that $160 million or $165 million that you've acquired thus far, Mary, I think you said about $100 million of that hits the P&L this year or $100 million of that's in the guide?

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Mary Anne Whitney, Waste Connections, Inc. - Senior VP & CFO [76]

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That's correct. In the current year, there's about $100 million, so that implies this rollover contribution for 2020 of about $60 million.

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Operator [77]

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(Operator Instructions) Mr. Jackman, there are no further questions at this time. I will turn the call back over to you.

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Worthing F. Jackman, Waste Connections, Inc. - President, CEO & Director [78]

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Thank you. Well, if there are no further questions, on behalf of our entire management team, we appreciate your listening to and interest in the call today. Mary Anne and I are available today to answer any direct questions that we did not cover, that we're allowed to answer under Reg FD, Reg G and applicable securities laws in Canada. Thank you, again, and we look forward to speaking with you upcoming investor conferences or on our next earnings call.

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Operator [79]

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That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.