Good day, ladies and gentlemen. And welcome to The Casella Waste Systems Inc Q4 2018 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions]. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference Mr. Joe Fusco, Mr. Fusco, you may begin..

Thank you for joining us this morning and welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Ed Johnson, our President and Chief Operating Officer; Ned Coletta; our Senior Vice President and Chief Financial Officer; and Jason Mead, our Director of Finance.

Today, we'll be discussing our 2018 fourth quarter and full year results. These results were released yesterday and along with a brief review of those results and an update on the company's activities and business environment, we will be answering your questions as well.

But first, as you know I must remind everyone that various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by those forward-looking statements. As a result of various important factors, including those discussed in the Risk Factors section of our most recent Annual Report on Form 10-K, which is on file with the SEC.

And in addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as if any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change.

These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today. Also, during this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures to the extent they are available without a reasonable effort, are available in the appendix to our investor slide presentation, which is available in the Investor section of our Web site at ir.casella.com under the heading events and presentations.

With that, I'll turn it over to John Casella..

Thanks Joe. Good morning everyone. We’re pleased with our fourth quarter results and our results for fiscal year 2018. 2018 was an exciting year in which we continued to execute well against our key strategies and our 2021 plan.

We meaningfully grew the business through 10 acquisitions with $77 million in annualized revenue, opportunistically refinanced our credit facility, successfully implemented our new ERP system and in January of 2019, we completed an equity offering with $100 million in proceeds.

Pulling all those off as we did with the true team effort and all in all we positioned ourselves very well for 2019 and beyond. Our 2018 execution is [Technical Difficulty] as reported yesterday. For the year, we grew revenue over 10%. We grew normalized free cash flow by over 21%. We drove down our consolidated net leverage ratio down to 3.62 times.

And we increased adjusted EBITDA of $9 million. This is particularly impressive given that during the same period, we experience an $8 million adjusted EBITDA headwind from recycling. So the rest of the business improved by $17 million, which highlights the strength and performance within our solid waste, customers solutions and organic businesses.

Fiscal year 2018 results beat our guidance ranges that we increased in the third quarter for revenues and normalized free cash flow, while we were within our revised guidance range for adjusted EBITDA, so great accomplishment for the entire team.

Looking out over the next several years, we are well-positioned to drive additional shareholder value into the business. Given the strength of our cash flow growth our robust acquisition activity to-date, we are on track to outpace our normalized free cash flow growth targets set as part of our 2021 plan.

We’re increasing our normalized free cash flow target range for fiscal year 2021 to between $65 million to $70 million, or roughly 10% to 15% per year of growth. In 2019, we remain focused on executing against our 2021 plan.

The five key strategies are consistent with the plan as announced in August of 2017, which includes increasing landfill returns, improving collection profitability, creating incremental value through resource solutions and using technology to drive growth and efficiencies in addition to allocating capital for strategic growth.

Our first strategy and 2021 plan is increasing landfill returns. We continue to enhance returns through price execution, operational programs, sourcing new volumes at higher prices and our efforts to advance key permits. In 2018, we increased the average landfill price per ton by 6.5% at the same time, increased landfill tons year-over-year.

The pricing landscape in the northeast is favorable and should continue to be for some time given the continued disposal capacity constraints. As we advanced pricing on existing volumes and replaced lower price waste streams with higher price volumes, we continued to blend up our overall pricing as we improved returns.

Given how dynamic the North East market is we have been moving disposal contractor to short-terms to allow us to adjust pricing more appropriately as the market changes.

Aside from pricing, we are positioned well to further leverage our excess annual landfill capacity as more waste move from east to west coupled with internalization value of our reset and targeted acquisitions. Our efforts will continue in regard to expanding permitted landfill capacity to meet the disposal demands of the North East.

We look forward to our ongoing success here as we work through one of the most challenging regulatory and political environments in the country.

Most of our sites have over 15 years of permitted capacity, and we've made good progress advancing key permitting activities, such as the expansion received in the third quarter related to Clayton County landfill, increasing the annual capacity from 175,000 tons a year to 250,000 tons per year.

Our second strategy in 2021 plan is driving further profitability within our hauling business. Ed will run through some additional details but we continue to outperform and execute well against our pricing strategies and operational strategies.

In the quarter, collection price was up 5.6% year-over-year, which reflects our focus on discipline and nimble programs and enabled us to outpace tightened disposal recycling and labor costs inflation. We expect to continue advance strong pricing in 2019.

Our risk mitigated SRA fee and E&E programs again worked well to offset the recycling commodity pressures and higher fuel costs during the fourth quarter. Even as these fees have escalated given the market conditions, we have experienced limited customer churn or price rollback.

Our teams also continued to do an excellent job in integrating acquisitions, which is an important part of driving high free cash flow growth and additional shareholder value. The third strategy into 2021 plan is creating incremental value through resource solutions.

We continued to advance profitable growth in our customer solutions and organic businesses, while the recycling business was a headwind for 2018. As I mentioned recycling was an $8 million adjusted EBITDA drag on the year, and negatively impacted margins.

Recycling commodity prices were down through the year and we also incurred higher processing and transportation costs as we have to slowdown the lines to improve quality along with some materials into new end market.

On a positive note, the fourth quarter recycling adjuster EBITDA was up nearly $800,000 year-over-year even with our ACR per ton down approximately 18%. This is reflective of our continued focus on our risk mitigation programs, such as our SRAC where we fully recovered higher recycling costs across the solar waste operations in the quarter.

We continued to refine contracts that allow us to offtake commodity risk and pass through higher processing costs through higher tip fees to our third party volumes. Our expectation for 2019 is that recycling will provide the tailwind even if commodity prices stay at these low levels as several of the largest third-party contracts reset.

Our customer solutions team performed exceptionally well this year with adjusted EBITDA growth of approximately 78% and margin improvement of over 250 basis points as they've continued to capture share of wallet for major industrial customers across our franchise area.

The fourth strategy and 2021 plan is using technology to drive profitable efficient growth. In 2018 we further advanced and refined our long-term technology plan. We are pleased with the early progress we've made against this strategy which notably includes successful implementation of our new NetSuite ERP program.

Our technology plan is focused on driving profitable revenue growth, improving how we interact with and sell to our customers and improving operating and back office efficiencies. We’re currently focused on improving sales and customer service through process additional function of our CRM.

Moving to the final strategy of 2021, which is allocating capital to balance de-levering was smart growth. We executed very well against this strategy in 2018. As part of our 2021 plan, we outlined a goal to acquire or develop $20 million to $40 million per year of the annualized revenue.

In 2018, we outpaced this target acquiring $77 million of annualized revenue through a disciplined approach. With the recent equity offering and our ability to continue to grow free cash flow organically, our balance sheet is well-positioned to continue to opportunistically grow the business.

We believe that we have the potential to outperform again in 2019 based on the strength of our near-term deal pipeline.

We believe there's an opportunity to acquire over $400 million of revenue that overlay our existing operations or that is adjacent strategic markets, since guiding to continue to have significant opportunity over the top of the existing operations in the northeast.

In 2019, we also continued to further integrate our acquisitions completed in 2018 to advance operational and back office synergies. We are particularly excited about our new market entry into Rochester where we acquired four businesses during 2018 with most recent purchase of Al's Maintenance in December.

Rochester is a major population center located near three of our New York landfills, and we look forward to leveraging our ability to vertically integrate volumes and to better consolidate our Rochester operations.

One area that is not specifically outlined in our 2021 plan but is very important to our continued long-term success underlies all of our initiatives is our focus on further building our team, and creating the culture that has made us successful.

With the help of human resources team, we initiated implementation of a career path program for maintenance technicians and drivers.

Putting career pass in place is critically important as we go out into the future, so that those individuals when they come into the company have a clear understanding of how they can advance within Casella and increase their value to the company and their ability to provide for their families.

Career path program incentivize key roles to enhance both their skills by giving our employees a measurable and transparent path to advancement. While we’re still in the early innings of this initiative, we are starting to see the benefits.

And overtime believe that the program will improve employee satisfaction and help reduce turnover and ultimately to higher productivity, lower safety and very excited about the program and the addition of Kelley Robinson to our team from an HR standpoint.

Wrapping up, as reflected in our guidance, our 2019 plan is tracking well against our 2021 plan, and displays continued execution of our key strategies with the goal of driving additional shareholder value.

We expect continued strength in solid waste, robust acquisition pipeline and recycling tailwinds with the reset of several contracts at the end of '18 and early '19. And with that, I will turn it over to Ned..

Thanks John. Revenues in the fourth quarter were $174.7 million, up $23.5 million or 15.5% year-over-year with roughly $13.4 million of increase driven by acquisition activity.

Solid waste revenues were up $17.9 million or 16% year-over-year as a percentage of solid waste revenues with price up 4.5%, volumes flat or volumes 0.5% excluding the business interruption during the period.

Revenues in the collection line of business were up $15.3 million year-over-year with price up 5.6% across all lines of business, volumes flat, risks recovery fees up $1.6 million and acquisitions up $9.9 million.

Our disciplined pricing strategy has been working very well, balancing customer retention with new business growth with appropriate levels of pricing to offset the building inflation across many aspects of our operations.

Revenues in the disposal line of business were up $3.2 million year-over-year with the growth driven by strong pricing, $3.5 million of acquisition activity and higher landfill volumes. This was partially offset by lower transfer station volumes and the closure of the Southbridge landfill in early November.

Disposal volumes were negatively impacted by $600,000 during the quarter due to a business interruption at a transfer station that we were rebuilding after a fire forced us to close the facility in late June. The Southbridge landfill closure resulted in $1.8 million decline in disposal revenues during the period.

As we discussed last quarter, we had to slow times at our landfills in the fourth quarter to ensure that we did not exceed our annual permit [Indiscernible] sites. Economic activity remains very strong across the region and landfills and waste to energy facilities were mainly at capacity in 2018.

This tightness in the market gives a great pricing backdrop coming into 2019. We increased our reported landfill pricing by 3.7% year-over-year and importantly, we increased our average price per ton at the landfills by 5.6% as we improved the mix of our customers and volumes during the period.

Recycling revenues were down $1.5 million year-over-year with $2.3 million lower commodity pricing, $700,000 lower volumes, partially offset by $1.4 million of higher third party tipping fees. This doesn’t include the higher intercompany processing fees that we charged for ourselves.

Average commodity revenue per ton or as we say ACR was down $15 per ton or 18% year-over-year in the quarter on lower fiber pricing. Our average commodity revenue per ton through was up 5% from the third quarter to the fourth quarter and we conservatively model commodity prices to stay relatively flat at current levels throughout fiscal year 2019.

Organic revenues were up $4 million year-over-year and higher volumes, mainly associated with the new two-year sludge T&D contract. And customer solutions revenues were up $3.2 million year-over-year due to several new multi-site retail customers and continued strong growth in our industrial services business.

Adoption of ASC 606 revenue recognition guidance reduced our reported revenues and reduced our cost of ops by roughly $1.5 million during the fourth quarter as compared to how we would have historically booked these transactions. This is the last quarter we'll have this comparison.

This change did benefit our margins by roughly 15 basis points in the quarter. Adjusted EBITDA was $33.8 million in the quarter, up $3.6 million or 12% year-over-year with margins slightly down during the period.

Solid waste adjusted EBITDA was $31.9 million in the quarter, up $2.5 million year-over-year with strong pricing and acquisition activity driving the year-over-year growth, partially offset by higher direct costs, transportation and third-party disposal and $1.9 million of lower adjusted EBITDA at our Southbridge landfill due to the closure in early November.

Increased intercompany recycling tipping fees were fully recovered during the period by the higher SRA fees and increased fuel costs year-over-year was fully recovered by our floating energy and environmental fee. Solid waste adjusted EBITDA margins were 24.5%, down year-over-year.

Our margins were negatively impacted during the quarter, mainly due to higher third-party transportation and higher third party disposal costs as we are forced to spend more money, moving weight out of our landfills to the third party sites as Southbridge closed and many of our landfills are very close to annual permits and we have to shift tons around in November and December.

This trend will mitigate as we move into January, or has mitigated into January and February. Recycling adjusted EBITDA was up $700,000 year-over-year with lower commodity prices and lower volumes, offset by $3.2 million of higher tipping fees and lower rebates during the period.

As commodity prices improved sequentially from the third to fourth quarter, our trailing cost recovery fees and our trailing revenue share contracts verified fully recovered lower commodity prices.

Adjusted EBITDA was $700,000 in other segment, up $400,000 year-over-year with very strong performance in the customer solutions business with adjusted EBITDA up $700,000 year-over-year.

Cost of ops was up $17.5 million year-over-year with roughly $10 million of the increase driven by acquisition activity and most to the remainder driven by higher third-party transportation and disposal costs.

G&A costs were up $1.7 million a year, but down but 90 basis points as a percentage of revenues as we began to gain leverage from the acquisition activity in our five-year technology plan.

Depreciation and amortization costs were up $3.1 million year-over-year, mainly due to higher depreciation on trucks and equipment related to our five-year fleet in Yellow Iron plant and acquisition activity during the period. The fourth quarter included several unique items.

We took $15.8 million Southbridge landfill closure charge, which included $8.7 million contract settlement charge for the settlement of litigation with the town of Southbridge. We also trued up our closer accrual with $6 million charge to reflect changes in engineering estimates for the capping and closure of the site.

And we incurred $1.1 million of legal and transaction costs associated with Southbridge during the period. We took $1.1 million impairment charge with an consolidate investment in recycle rewards. This investment dates back over 10 plus years to go in impairment was not contemplated when we preannounced results on January 22nd.

We incurred $900,000 of expense from acquisition activity from other items during the quarter. On a very positive note, we reevaluated our tax strategy in 2018 due to U.S.

tax reform, and we're able to take advantage of bonus depreciation to offset nearly all of our federal tax liabilities during the year, while still preserving our federal net operating losses for future use. We began the year with approximately $110 million of federal NOLs and we ended the year with $113 million of NOL.

We expect to utilize the same strategy in 2019. Our normalized free cash flow was $47.1 million in 2018, up 21.3% from the same period last year.

The increase was driven by improved operating performance, partially offset by reduction of cash flows from changes in our assets and liabilities and offset by higher capital expenditures due to higher spend on revenue growth. As of December 31, 2018, our consolidated net leverage ratio was 3.62 times, which is down 1.8 times since December 31, 2014.

Our total debt net was $555.2 million, which is up close to $58 million year-over-year. Our debt was up mainly in acquisition activity and the refinancing of our senior secured debt and tax exempt debt during 2018. On January 25th, we complete an offering of 3.565 million shares of Class A common stock and generated net proceeds of $100.9 million.

Pro forma for the equity offering, our consolidated net leverage ratio would have been 2.96 times on December 31, 2018 and pro forma our availability in a revolver and cash position gave us availability of roughly $212.3 million. Pro forma for the deal we have roughly 67% of our debt at fixed positions today.

As Scott mentioned, we believe our capital structure is in a great position, and will allow us to execute our strategy to grow through smart investments and acquisitions in 2019.

As stated in our press release yesterday afternoon, we announced our guidance for 2019 by estimating results in the following ranges; revenues between $710 million and $725 million or up 8.6% at the midpoint between; adjusted EBITDA between $152 million and $156 million or up 11.6% at the midpoint; and normalized free cash flow between $51 million and $55 million or up 12.6% at the midpoint.

Please note that we did file a corrective press release last night to fix an error in the normalized free cash flow reconciliation for our 2019 guidance. The correct guidance range is $51 million to $55 million as stated in the press release text.

We have included an incorrect estimate related to planned expenditures for the Southbridge landfill closure and Potsdam remediation expected to be complete in 2019. The 2019 budget includes roughly 5.5% revenue growth from the rollover impact of acquisitions completed during fiscal year '18.

However, our 2019 budget does not include the impact from any acquisitions that have yet to be completed.

We expect our adjusted EBITDA growth to be driven by the following factors in 2019; we expect our collection business to be up $6 million to $7 million, driven by 3.5% to 4% price, partially offset by wage and disposal inflation; we expect $8 million headwind from the Southbridge landfill closure during 2019; all other disposals like landfills and transfer stations, we expect to be up $7 million to $9 million, driven by 3.5% to 4.5% price and some volume growth as well; we expect a tailwind from recycling, which is really exciting with recycling up $5 million to $6 million; we expect $8 million to $10 million, a rollover benefit from acquisitions already completed in 2018; and we expect about $4 million to $6 million of other headwinds in the business, including some headwind from rental gas energy and some increases in G&A.

Overall, we expect EBITDA to be up 10% to 13% year-over-year with roughly 50 basis points from margin expansion. In conclusion, we’re tracking really well against our 2021 strategic plan, and we’re excited about what's in front of us in 2019. And with that, I will hand it over to Ed..

Thanks Ned. Good morning everyone. 2018 was a significant transitional year for the company. After years of focus on operational improvements, strengthening our daily process and discipline and driving performance to acceptable levels, 2018 became a year to refocus on growth. We exceeded our expectations.

But before I get into the details of our transformation, let me walk through the cost of ops results for the quarter. Our consolidated cost of ops as a percentage of revenue was up 70 basis points in the quarter versus the same quarter last year.

Recycling and our other non-solid waste business had only a minor effect on this percentage in Q4, but we are starting to anniversary the commodity price drops of the years ago. Recycling has become a processing for a fee type business now, so we expect financial performance going forward to be more stable.

Focusing on our solid waste business components. Our collection operations generated a little over 47% of our revenue in the quarter. Cost of ops as a percentage of revenue increased from the same quarter last year by about 41 basis points.

On last quarter's call, I mentioned that acquisitions can affect your metrics during the transition period and certainly that's the case here. Factoring out the acquisitions to get to a same base basis, our cost of ops improved by 40 basis points. As we assimilate the acquisitions, they will come in line with our existing operations.

Our disposal segment includes landfill operations and transfer station operations. The landfills generated 13.3% of our revenue and the transfer stations, which are effectively disengaged for the landfills produced another 10%.

The landfills by themselves had another great quarter, driven by strong pricing 3.7% and on an even stronger average price per ton improvement of 5.6%. And our costs were about flat. However, our cost on the transfer fees has increased, particularly the transportation costs.

Combining the two, we still improved cost of ops as a percentage of revenue by about 40 basis points. So pricing is strong enough to cover and we expect that to continue. Now, I would like to get back to the growth opportunity and comment on some of the things we're doing to ensure success in some of the ancillary benefits of growth.

First the opportunity, our industry, particularly in the northeast faced many challenges over the past 10 years.

There were equipment issues resulting from new emission standards; recycling commodity risk residing with the collection companies, increasing disposal shortage; driver and mechanic shortages and a touch regulatory environment, just to name a few. As we overcame these challenges, we found our smaller competitors have continued to struggle.

We offer opportunities for the owners, the owners' families in the business and their employees to join a company with a great reputation and a strong culture with positive values. And the ability to solve their business challenges while taking their investment off the table, more like mergers than acquisitions.

Since it became apparent in our market that we were back in the game, our pipeline of potential deals has expanded exponentially. The resulting opportunity for growth through acquisitions is coming at the perfect time for us. Our shift is in order.

Yes, we have everyday challenges just like everyone else, but we have processes in place to handle them, and more importantly, people in place with the decision-making skills needed to meet those challenges.

We have not talked much in the past about our management development activities, but the leadership programs at Casella, which were in place long before I arrived here are up and running strong. And we continue to develop the decision-makers that will lead the company in the future and that are now providing bench streams for our growth.

Over the past year, we've added a few key resources, primarily through promotion and back filling to assure that we not only grow through acquisitions but we are successful in integrating these operations and realizing the synergies that make the strategy successful.

We also continued to improve our systems and processes and over time the integration process will become easier and easier. The growth strategy also enhances our ability to attract and retain talent.

Our culture with continuous improvement not only applies for processes but to our people as well and growth provides opportunities to learn and to advance in the company. I'm not only talking about management and our driver and mechanic carrier path programs provide direct training and advancement opportunities at the very core of our business.

So with those few comments, I would like to turn it back to the operator now to start the question-and-answer session..

[Operator Instructions] Our first question comes from Tyler Brown of Raymond James. You may proceed with your question..

Ned, super helpful on the EBITDA bridge, one clarification though on the negative $8 million from Southbridge.

Is that net of redirecting ways or is there a possibility to soften that number either this year or over time?.

Yes, there is a possibility overtime. If you look at all other disposal sites being up $7 million to $9 million with about 3.5% to 4.5% of price and then some disposal volume growth, some of that growth is going to come from our own tons.

About two years ago, we got a permit increase at our Chemung landfill from 200,000 tons a year to 437,000 tons a year. And then in late 2018, we got a permit increase at our Clinton landfill from 75,000 tons a year to 250,000 tons a year.

We've actually held back some of this capacity for this day to come where we would be also redirect some of our volumes from Southbridge out to New York State to take care of our customers. Not all this is going to go there, some of it's going to stay in Massachusetts is going to third-party sites.

So there is a little bit of that in our landfills from Southbridge. We are spending more money though transporting that waste out to New York State. We are driving some additional hires third-party volumes to Chemung and Clinton in the year as we access that additional capacity coming online.

Longer-term as we work through permitting at North Country, there is probably even more of an opportunity to drive value integrating a few more Massachusetts times into that site as well..

A quick verification on the free cash side, so I know when the normalized free cash flow you exclude the $12.5 million on the land closure the remediation expenditures. You have that back.

But will that expenditure flow through cash from ops and will that largely go away in 2020?.

So I was running long on my script, so I decided to just hold back. The net cash flow provided by operating activities noted in our guidance is pretty flat year-over-year. And the reason is because we’re taking down current accruals for landfill capping closure, the remediation at Potsdam.

All those reside as liabilities in our forecast for our budget for 2019 that cash goes out the door as we complete those activities. So net cash provided by operating activities is really skewed in the year by close to 12.5% to $13 million through these activities. And this is going to be a big year at Southbridge.

After we get through this initial tapping and the big year of closure, we will come to a point where we spend $5 million or $6 a year, the year after and then they'll drop to a couple million dollars for the year or two after that. Potsdam is a site that was acquired in the late 90s.

We've been working with the EPA from probably 15 years where this is -- unfortunately part of this site we acquired had a old metals business, and there were some remediation efforts that need to happen. And it’s taken this long along with our partners, Niagara Mohawk and Alcoa to come to a conclusion with the EPA to have a remediation plan.

And we believe that work will finally take place in 2019 to cleanup that site appropriately. So that’s appropriately accrued, but it's been a short-term accrual over the last year that will reverse out and hit our free cash flow. That’s a pretty large swing and that’s why we’re calling that out as non-routine..

And then same type of question on the $8.5 million of added CapEx, will that abate also going forward or should we expect that to continued M&A?.

So a good bit of that associate with M&A, we really as we buy businesses, we of course have pro formas for a multiyear period of time looking at the entire fleet and other capital needs of where replacements need to come.

But in the first six months to a year of an acquisition, we're really focused on integrating it with our business and there might be some facility changes, equipment upgrades, you name it. And there is heightening level of CapEx. And we really view that in many ways as part of the purchase price to get the assets integrated. So we are calling that out.

And you will see, as we do acquisitions, maybe we should give a little bit more visibility as well as what's coming in the near term..

And then interesting commentary on the NOLs, but at this point when would you expect to become a meaningful cash taxpayer?.

So bonus depreciation stays at 100% through 2022. And what’s interesting is we’re getting a double benefit, because as we acquire businesses, especially through asset and acquisitions, we're taking 100% bonus depreciation on their assets as well, and everything we’re buying except for landfill assets.

So we fill that over 100% of our pretax income in 2018 through bonus depreciation. Bonus depreciation stays at 100% through 2022 then drops to 80% and it comes down over the next five-year. So tax loss stays the same. Our NOLs just take us out through 2024 or even later with our current planning where we’re not going to be a meaningful cash tax payer..

And then my last question here for John. On the M&A side, you guys obviously have a lot of powder on the balance sheet. You talked about exceeding the $20 billion to $40 billion target.

But curious should we still expect to see small one-sie, two-sies, or could there be something more midi, I guess in the acquisition pipeline?.

I think you'll continue to see the smaller activity. I think that there are a few opportunities similar to what we did in Rochester, other markets that are within our footprint that we're not in prior that could be a little bit more meaningful than $8 million or $10 million acquisition.

But you’re really going to see more of the same as opposed to anything really different from an acquisition standpoint..

Thank you. And our next question comes from Michael Hoffman of Stifel. You may proceed with your question..

City of Boston, if I have my data right is in a rebating mode of all three major contracts, collection, the disposal, the recycling.

So this has multiparts to it; one, can you share your current direct exposure; two, what do you think happens to the disposal price versus the last round? If memory serves, the last round was in the low 70s plus cost escalators; and the third part of that is if this comes out with number with a 90 handle on it.

How’s that trickle through for you? Is it as obvious if we ended at 80 and they go to 90, and that's 12% increase.

Do you get to raise all your prices 12%?.

So the only direct exposure we have right now to City of Boston contract is on the recycling side. And we've been talking for the last year about a few contract where we’re upside down.

One was with independent where we [Technical Difficulty] dollars on that one that we reset that on January 1st to current market rates, and it will be a pickup of almost $2 million a year on that one contract. And then stepping contract we're underwater on with the City of Boston. We did bid on that contract.

It’s in process right now and we stayed to make money and to reduce our risk profile. So we feel pretty positive about that, some of the competitors in the market….

With the swing on the Boston contract….

Yes, if we win at current rates, it will be about $3 million a year swing, positive swing for us. And that will be awarded for July 1st. So we could take up about half a year on that. So some of that really is in our numbers for the year of our recycling why it's improving year-over-year even through we’re modeling commodities to be flat.

The City of Boston several people did bid on the trash, including republic, small parts of Covanta on all of that and we look greater on small parts today. And there is some visibility yesterday on the bids coming from the market. It really won’t impact us. Our ways doesn’t flow through the city of Boston.

We’re not holding for the residential customers in the City of Boston either. But it will be a market signal that's pretty important..

And do you think it's right a t90 bucks?.

So the bids, they're anywhere from mid 80s to mid 90s, the best we can tell..

And is it fair to say that we're ending it somewhere of high 70s, low 80, so whichever one wins, let's say the midpoint $90. Does that percent change? Can you do that type of percent change just radically across your network? Because that sets the direct call number and then the rolling number going out to you.

So if you have a $5 number somewhere, can you raise it 10%, could you raise it $5 bucks?.

So if you look at our price increases, those on the hauling side and on the disposal side. They are really very blended numbers. If you get on to the hood, they might range from anywhere 0% or 1% or 2% increase is all the way up to 15%, 20% increase, because there are number of contracts that reside in that book of business.

So if you look at any one of our landfills as customers are rolling off contracts depending upon how long ago they entered those contracts, they could be seeing a 10% increase, a 20% increase or more depending on where they sit and where the other advantages are n the market.

John, you said in your script we’re entering in very short-term agreement right now..

I think there is no question they are going to see double-digit inflation in Massachusetts market. I don’t think there is question about it. It’s also a lot of pressure from transportation standpoint as well..

Second question for me, we've watched you meaningfully improve the cash conversion of the model. And I think because of your mix of other revenues, which are lower margin part of the right way to think about this is the percent of EBITDA. So what’s the probability you could get to 40% or better cash conversion? You’re in the 30s now.

And what's it take to do it and how long would it take it?.

So our free cash flow as a percentage of revenue is slightly dilutive to our organics business, in many ways has a lot of brokerage components and our customer solutions business has a large degree of brokerage revenue.

So our revenues are grossed up and our direct costs are grossed up, so it's a little bit less margin flowing through those businesses, but nice cash conversion as you laid out. So looking at free cash flow as a percentage of EBITDA is important.

And as we've said, we've got a game plan over the next several years to add over 200 basis points to that conversion rate, we're working hard at that. The pathway to get it into the 40s is a little further out. We haven't laid that out for investors.

But if you look at the numbers we laid out yesterday evening $65 million to $70 million free cash flow by 2021 that gets us to -- I’m not sure if I've got a percentage of in front of me, Jason, but that gets us more into the high 30s….

Yes, high 30s….

It's pretty close to 40%. So we’re in a trajectory. It is something we’re very focused on, Michael..

And last one for me, what's the probability that you can drive SG&A to 12% and will not work you and your finance team to death. But what’s the probability you can get to 12%..

So we do have a multiyear plan on the technology side. We’re quite inefficient today in the back office. And no fault of anyone, it's a solid waste business, its complex, every customer got a different pricing structure, its different billing structures there is a lot going on. And we have a lot of paper that moves in all elements of our business.

So we made the first step with the ERP implementation in 2018 with NetSuite. I would like to say where we are today a year later is we’re just about as efficient we were beforehand. We've got a lot of work, especially on the digitization side of taking paper, taking approval steps, taking manual intervention out over the work.

We will be very focused on that over the next year plus. The side business where we really start to gain more leverage is when we upgrade our billing, work order management and routing systems, both on the G&A side and on the operating side. We are six months into product selection process on that side.

And remarkably, there is not a lot of amazing solutions out there for the solid waste business. There are a lot of people who have built solutions for small like HVAC type businesses where you have maybe 10 service calls in a day. But service management solutions with 400, 500, 800 stops in a day are not out there as much.

So we’re still evaluating next steps for there and it is part of our management plan to take 75 to 100 basis points out by 2021. And there is no reason to stop if we can get more and more efficient, and we will gain some scale as well.

You saw it in 2018 with the acquisition work, we expect in 2019 where we’re not adding people at the same pace as revenues..

I think Ned and the finance team, Michael, did a great job of getting us to a new platform with NetSuite in the cloud. We've been on it now for six months, the transition is full. But we’re starting now, will be starting to bring out and bring in the efficiencies of moving to that platform from a platform that we've been on for 35 years.

I think the execution on-time on budget in terms of getting to NetSuite in the cloud and getting to the next generation of software was really well done.

But we haven't gotten the efficiencies it will take probably this next year to really get additional efficiencies from the ERP program to say nothing of stepping into a new program from a routing and billing perspective. I think we’re moving to the future very rapidly.

And I think most importantly, we're going to be a lot easier for our customers to do business with when we get that implementation, the five-year technology plan implemented. I think it's going to bring a lot of productivity and efficiency to the organization, and we’re at the beginning stages of that.

First thing we had to do is getting on the new platform. And that’s really exciting because we’re going to have one database for the entire company and that's a real step in the right direction..

Thank you. And our next question from Sean Eastman from KeyBanc Capital. You may proceed with your question..

I just wanted to start on the acquisition pipeline. I’m just trying to get a sense for the potential this year. I know you guys said that you will do above the original target. But just wondering how we should be thinking about that $77 million you guys added in 2018. Was that really an outsized number or does this pipeline turn it's course….

I think it's clear to say that there was a bit of pent up demand. It was a first year we get started and we got a little bit of activity out in front. But I mean I think that we've said that we've got -- we’re tracking with LOIs for the upper end of the range around $40 million right now that we're working on. We've got good visibility.

So we think that we’re going to be certainly at or target from acquisition standpoint, but necessarily say that we’re going to repeat '18, but certainly we are going to be at the upper end. And that's where we are in terms of the visibility with LOIs that we're working on right now..

But based off of where [Indiscernible] a bit, I think it would be fair to say integrations more important than getting the deal done in many ways. So Ed talked about people earlier and adding a few key resources and making sure we get the work done on integration.

So we’re running on a few deals right now, jogging on in a few others, making sure we get integration work done from 2018 acquisition..

So to my next question, you guys did speak to it in the prepared remarks. But just wondering how to think about the challenge ahead on integration considering '18 came in so much above the initial expectations.

Maybe just a bit more color on the teams that are in place and some of the measures there to get the synergies?.

It's really exciting. I mean, one of things that we've done is we've added some talent from an accounting standpoint, particularly in the western region with Dennis Pantano and Michael Stehman. We've added an additional regional controller there, gives Michael little bit more opportunity to help on the integration side. He was the regional controller.

Now, we brought in another controller to free up Michael from an integration standpoint as well as Dennis. And we brought in some new talent from a controller standpoint for that market. We've done some things from an operating standpoint additional support there with Ed from an operating standpoint with Sean.

So I think as we identify those areas that we need additional resources, we are executing on that and putting additional talent in place to make sure that we integrate those businesses appropriately, quickly and get the integration behind us as quickly as we can..

And typically in integration, we’re talking something into existing business. Within months you’re running pretty close to efficiency and six to 12 months you’re all the way there. Rochester, we’re putting forth standalone businesses together, so lot of logistics there.

And as we laid out -- as we did these acquisitions, it's going to be a year and half to we're fully integrate and up and going in that market, so lot of work, tons of opportunity as well for us..

And actually going to be over a couple year period of time in that some of the existing disposal contracts don’t roll off for another year and half. So we won’t be able to internalize some of that waste until probably two years out. But that’s all incorporated into our plan, incorporated into the performance that’s how we performed it.

So no surprises there at all. But it will take a little bit more time as Ned said with regard to the full integration of the Rochester market. So a little more complex than a normal tuck-in into an existing facility there, we’re taking four businesses and putting them together..

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Mr. Fusco for any further remarks..

I would like to turn the thank you over to John for closing remarks..

Thanks everybody for your attention this morning. We look forward to discussing our first quarter 2019 earnings with all of you in early May. Thanks everyone have a great day..

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. And you may all disconnect. Everyone have a wonderful day..