Chaya Cooperberg - Vice President, Investor Relations and Corporate Communications Joseph Quarin - President and Chief Executive Officer Kevin Walbridge - Executive Vice President and Chief Operating Officer Ian Kidson - Executive Vice President and Chief Financial Officer.

Rupert Merer - National Bank Derek Spronck - RBC Capital Markets Joe Box - KeyBanc Scott Levine - Imperial Capital Bert Powell - BMO Michael Hoffman - Stifel Chris Murray - AltaCorp Capital.

Good morning. My name Tessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Progressive Waste Solutions second quarter 2015 earnings conference call. [Operator Instructions] Ms. Chaya Cooperberg, you may begin your conference..

Thank you. And thank you all for joining us today. With me on the call are Joe Quarin, President and Chief Executive Officer; Kevin Walbridge, Executive Vice President and Chief Operating Officer; and Ian Kidson, Executive Vice President and Chief Financial Officer.

We will be providing comments on our results for the three and six months ended June 30, 2015, and then we'll open the call up for Q&A. The slide deck referenced during this call is available on our website at progressivewaste.com. And before we get started, I'm going to read our Safe Harbor statement on Slide 2.

Our remarks and answers to your questions today may contain forward-looking information about future events or the company's future performance.

Although, forward-looking statements are based on what management believes are reasonable assumptions, the company cannot assure shareholders that actual results will be consistent with these forward-looking statements.

The company disclaims any intention or obligation to update or revise any forward-looking statements, resulting from new information, future events, or otherwise.

We also do not commit to continue reporting on items or issues that arise either during our presentation or in the discussion that will follow except as required by applicable securities laws. This information by its nature is subject to risks and uncertainties that may cause actual events or results to differ materially.

Please refer to the bottom of our news release for further information and to our second quarter MD&A and annual information form for a more complete description of the risks affecting our business and our industry.

On this call, we'll discuss non-GAAP measures, such as adjusted EBITDA, adjusted operating income or adjusted operating EBIT, adjusted net income, and free cash flow.

Again, refer to our news release for definitions of these non-GAAP measures and management uses non-GAAP measures to evaluate and monitor the ongoing performance of its operations and other companies may calculate these non-GAAP measures differently.

There's a telephone replay of this conference call and it's on until midnight on August 13, and you can get the details for that in our news release as well. And with that, I'll turn the call over Joe..

Thank you, Chaya, and good morning, everyone. I'll provide my views on our quarter and the progress that we're making on our strategic plan. Kevin is on the call to provide additional color on the quarter's performance, including the impact of the flood on our Texas operations.

Ian will then provide a review of our financial results and an update to our outlook for this year. To start, here are my top three observations on our second quarter. One, we achieved a very strong topline performance, driven by encouraging volume growth as well as higher price.

Two, our operational excellence program is proceeding well, and will set us up for a much stronger second half and entry into 2016. And three, we're staying focused on generating cash and maximizing the returns that we generate from it. Specifically, in the quarter we took the opportunity to unlock cash through re-pricing of our credit facility.

We returned $78 million to shareholders through share repurchases, and today we announced a 6.3% increase to our dividend. I'll review each of these observations in more detail. Let me start with our topline performance. Total revenues of $493 million were in line with our plan for the quarter.

Notwithstanding a drag on revenues resulting from our net divestitures, our revenues grew 0.4% when holding foreign exchange constant. Our core organic measures, volume and price increased 4.8%.

This growth more than offset the decline in fuel surcharge revenue of 1.4% and a decline in recycled commodity revenues of 0.6% compared to the second quarter of last year. Volume growth of 3% was the highest we've achieved since 2010.

It compares to a 0.2% decline in the same quarter a year ago and represents a sequential improvement of 200 basis points. Volumes improved in the north, east and west regions and across service lines, with the most notable increases coming from our commercial and residential collection lines and at our transfer stations and certain landfills.

On the disposal side, the special waste volumes in the north region that were delayed by the cold weather in the first quarter were largely recovered in the second quarter. On the collection side, it is encouraging to see the uptick in our commercial segment in particular.

We are adding small container yards from new business demand as well as responding to request for service increases. We're also encouraged by our solid pricing improvements. Consolidated price was up 1.8% in the quarter. The largest increase was in our commercial collection business, which improved by 3.3% over the same quarter a year ago.

Keep in mind that we report the change in average price, so the increase in price reflects us moving pricing higher even as we add volume, which is typically at a lower price. This performance gives us growing confidence in the fundamentals of the solid waste to operating environment as well as in our strategic plan for organic growth.

Our organic growth program was the first area of our strategic plan that we focused on. We added talented sales leadership, implemented sales management systems and training programs, and invested in custom tools for our sale teams. The sales group is delivering the meaningful results that we had expected.

Turning to the progress we are making on the rest of our operational excellence program. As those of you following our journey know well, this is all about our opportunity to become a best-in-class operator. We've transformed from a holding company of acquired waste assets into an operating company that leverages its size, scale and best practices.

This transformation requires the right playbook, but just as importantly the right team and structure to execute it. The reorganization that we announced last quarter was the final component of that plan. We realigned our three regions into the north, east and west, each managed by a Regional Vice President.

This regional split is more balanced, as you can see in our segment financial disclosure. This realignment better positions us to realize our strategic plan. We remain focused on all of our programs to reduce operating expenses, grow EBITDA margins and generate more free cash flow.

I'll let Kevin cover this in detail, but I am pleased with the progress we are making on our fleet conversion to automated and CNG trucks, as well as the other work we're doing to capture more fueled efficiencies through standardization.

On the subject of standardization, an area I'll briefly touch on is IT, as we've recently introduced two software systems that will contribute to our performance, starting in 2016. One is a fleet management system.

We started the rollout in January with a pilot in several markets and the implementation will be completed in the rest of our maintenance shop by the end of next year. We will be tracking, managing, and thereby reducing our maintenance cost with greater precision.

And these costs will then be captured in our new SaaS based financial management system, which went live on July 1. This system unifies all of our Peel logs, capital expenditure request, sub-ledgers and general ledger, each of which was in standalone legacy system previously.

We incurred rollout cost in the first half of this year, but this more efficient system will bring some cost settings, as we adjust to the new processes. From a system standpoint, we've done a lot of work over the past 24 months to catch up and integrate the backend of our business, so that we can operate as one company.

Finally, my third observation on the quarter is that we continued to demonstrate our commitment to disciplined capital allocation and returning cash to our shareholders. From the re-pricing of our credit facilities in this lower rate environment, we obtained an annualized interest expense savings of approximately $7 million.

We bought back and cancelled approximately 2.7 million shares in the period, bringing our share buyback year-to-date to 3.2 million shares, and reducing our outstanding share count to 109.3 million at the end of the second quarter. Combined with the payment of our quarterly dividend, we've returned more than $122 million to shareholders year-to-date.

And as we announced this morning, we are increasing our annual dividend by more than 6% to CAD0.68 per share or CAD0.17 per share quarterly. This increase is effective for holders of record on September 30, and reflects are continued confidence in our free cash flow profile.

Also we announced our Board authorized the renewal of our normal course issuer bid for the repurchase of up to 10 million shares, subject to TSX approval. We're moving ahead on our path to creating meaningful shareholder value. With that, I'm going to turn the call over to Kevin for deeper operating review of the quarter..

Thank you, Joe. I am satisfied with many aspects of our performance in the quarter. Our sales organization did a good job with our pricing programs and our new business activity was very solid. We expect this to accelerate, as our investments and sales take hold and the macro environment becomes more supportive.

In fact, in June, our commercial and industrial business recorded our highest net new business levels in at least three years. So we're winning more business than we lose, and we have more service increases than decreases. We've made progress on our other operational excellence programs in the quarter as well.

We added 44 automated trucks, 22 of which are CNG, bringing our total so far this year to 114 automated trucks, 32 of which are CNG. We also added 22 more CNG trucks to our commercial collection fleet and by the end of 2015 more than 15% of our routed vehicles will be CNG.

Our conversion to automated collection is allowing us to renew municipal contracts early and extend them longer. This means we can take more people off the backs of trucks and out of harms way faster or we can accelerate our automated conversion on attractive terms, we will look to do so. A good example of this is in Lee County in Southwest Florida.

We have the contract there for manual waste collection, and when the County put out the RFP, our bid included an all new automated collection system.

We hope that County recognize that automated collection was an opportunity for safer, cleaner and more effective service and they awarded us a seven year contract covering 47,000 homes, which starts in October of this year. Overall we are seeing a lot of positive throughout our operations.

In the quarter, both our north and east regions performed well and are benefitting from the organic growth and cost reduction programs. The results of our cost reduction efforts in the west region though were obscured by significant impacts of the flood in our Texas markets. So to give some color on the flood, it was the worst on the record for Texas.

Fortunately, our people stayed safe and we didn't lose any equipment or property. So those costs are one-time and isolated to the second quarter. Our Texas business represents about 14% of total revenues, so we had meaningful exposure to the flood. And we used third-party disposal in many of the areas, so we bore the higher disposal cost.

We reported adjusted EBITDA of about $35 million in our west region, which was roughly $10 million below our expectations. The direct and indirect cost of the flood represents most of this gap. More than one-third of the higher costs were related to disposal. Heavy rainfall significantly increased disposal weights.

For example, in our North Texas area commercial container weights were 8.7 pounds per yard over our budgeted expectations and in south Texas residential pounds per services were 5 pounds over a budget. We also had higher labor cost due to overtime hours on our collection routes and at disposal sites, as some were closed during the storms.

I'll add that roll-off revenue also came in lighter than expected due to the weather. We should have some catch up volumes as we see they recover in the third quarter. And all these higher costs represented a 600 basis point drag on adjusted EBITDA margins in the west, with margins of 21% versus our plan of 27%.

We expect to return to 27% margins there in Q3. Keep in mind that most of our new automated and C&G trucks in Q1 and Q2 went into our west region markets. So we've been focused on implementing the new fleet, which involves a lot of additional training and labor hours. The flooding event added labor cost to a labor-heavy quarter.

We look forward to getting back on track with our plan in Q3 and Q4 with our new leadership in the west region. And this year's front-loaded capital budget will start to deliver the cost benefits we expected for 2015. We continue to manage capital to our budget, convert our fleet our normal course replacement capital spend.

These trucks will improve our productivity, safety and cost performance and the pace of the rollout is proceeding as expected. With that, I'll now turn the call back to Joe..

Thanks, Kevin. We're confident that we have the right playbook and the team to deliver meaningful operational improvements. We're updating our outlook for 2015 to reflect the unanticipated costs in the first and second quarters, but are otherwise on track with the plan that we set out at the start of this year.

We continue to expect adjusted EBITDA margin expansion in the third and fourth quarters from our organic growth and cost reduction programs. Our updated guidance for 2015 still reflects our expectation for second half margins above 28% compared with below 24% in the first half.

We will exit 2015 with a foundation for strong EBITDA and free cash flow growth entering 2016, as we benefit from our operational excellence program and new municipal contracts. We will continue to direct cash to where we can obtain the highest returns.

After the payment of our dividend and maintaining our target leverage range, our priorities remain accretive acquisitions followed by share repurchases and debt repayment. With that, Ian will review the key Q2 variances and our updated outlook..

Thank you, Joe, and good morning everyone. As usual I'll reference the slide presentation available on our website throughout my comments. The average exchange rate in the quarter was around $0.81 for each Canadian dollar compared to nearly $0.92 in the same period a year ago.

As I have noted previously, foreign currency exchange has a translation impact on our reportable results, but very little operational impact. I will refer to constant currency for several comparisons in my discussion, which translates current period results at the prior-year exchange rate.

Starting on Slide 9, you can see consolidated revenues increased 0.4% on a constant currency basis. Foreign exchange was a drag of $22.7 million on reportable revenues of $493 million. This revenue reflects the divestiture of the Long Island assets at the end of February this year, partially offset by acquisitions.

The components of revenue growth are presented on an FX parity basis on Slide 10. We had a strong price and volume performance in both our Canadian and U.S. operations. In Canada, revenues from price improved 2.5%, while volume improvements delivered revenue growth of 3.7%, the best we have achieved in five years.

Revenue from our new natural gas plant at our Lachenaie landfill in Quebec contributed CAD4.4 million to revenues from volume and stronger landfill volumes contributed CAD4.1 million. In the U.S., price contributed a 1.4% improvement to revenues, while volume growth across every service line increased revenues by 2.6%.

Turning to Slide 11, I'll review revenue by segment, which please note it reflects our new reporting structure. Starting with the north segment, this region had revenue of nearly $175 million. On the surface, a decline of about 7% over last year, but on a constant currency basis, north segment revenues grew CAD10 million or 4.6%.

In our west region, revenue was nearly $166 million, up 9.5%. Of the $14.4 million improvement, two acquisitions that we completed in Texas late last year contributed approximately $12.5 million to the growth with the balance being organic.

In our east region, revenue was about $149 million, down 12.4% compared with a year-ago quarter, a decline of $21.1 million. Approximately, $24.5 million relate to the sale of the assets in Long Island coupled with the sale of a transfer station in Q2 last year.

Excluding these sales, east region revenues grew more than $3 million, notwithstanding lower fuel surcharges and commodity revenues of nearly $5 million. Operating expenses are outlined on Slide 12. Both the current and prior periods reflect the allocation of field facility cost from SG&A to operating expenses.

We believe that this change better aligns our classification of these costs with our peer group. For the second quarter, total operating expenses decreased from about $330 million to just under $320 million, with the decrease associated with a lower foreign exchange range and divestitures offset by increased operating costs in the west region.

Adjusted SG&A expense is detailed on Slide 13, and you can see it was up $1 million to around $53 million. As a percentage of revenue, adjusted SG&A was 10.7% versus 10.1% in the same quarter a year ago.

In addition, to the cost items mentioned above the impact of lower commodity revenues and fuel surcharges affected this relationship by about 20 basis points to the negative.

SG&A also incorporates the implementation cost of our new financial reporting system in the quarter and some non-recurring items such as professional fees related to the New York City long-term plan in the east region. On a consolidated basis, we expect SG&A expense this year to be in the range of 11% of revenues and decline in 2016.

Moving to adjusted EBITDA and margins on Slide 14, you can see that the total company adjusted EBITDA was $120.3 million, about $10 million below our budget for the quarter and as discussed principally reflects the impact of the Texas flood. Adjusted EBITDA margins in the quarter were 24.4% compared to 25.7% last year.

In the north region, adjusted EBITDA margins were 35.2% compared with 33.8% last year and are back to our historical averages in the mid-30s. We continue to expect margins to increase in the second half of this year as we benefit from the full contribution of a gas plant and other operational improvements.

In the west region, adjusted EBITDA margins were 21% for the quarter compared with 26.8% last year. As Kevin detailed, our [technical difficulty] segment to be back on track at around 27% in the third quarter and to surpass 28% in the fourth quarter as we continue to reduce our labor costs and benefit from the new fleet rollout in these markets.

In the east region, adjusted EBITDA margins in the first quarter were 21.7% compared with 23.5% last year. We see margins in Q3 and Q4 in the 25% range, which is a good margin level to model going forward for this region. Q2 was light due to the SG&A items I already mentioned.

For the full year, we are adjusting our EBITDA guidance lower to reflect roughly $10 million of higher cost in the west region in the second quarter and the one-time cost items we have already discussed in our first quarter call being the $3 million insurance accrual and $1.5 million of bad debt.

Given these items, we expect our adjusted EBITDA to be between $500 million and $515 million this year. As Joe said in his comments, we expect consolidated adjusted EBITDA margins in the second half of the year to be above 28% with Q4 margin higher than Q3. Now, turning to Slide 15. Amortization declined approximately 3.6%.

Net of foreign exchange, amortization was essentially flat and represented 14.1% of revenue. For 2015, we now expect amortization to come in at about 14.2% of revenues. Interest expense in the second quarter, shown on Slide 16, was about $15.6 million.

At the end of the quarter, we had roughly $1 billion drawn on our revolving credit facility and total long-term debt of $1.58 billion. Total funded debt-to-EBITDA was 3.12x at June 30, and reflects the timing of our share repurchases combined with the lower than expected EBITDA in the quarter.

As Joe mentioned, we took the opportunity to re-price our $2.35 billion credit facility in the quarter. The amended credit facility held the available revolver constant at US$1.85 billion, but replaced the existing US$500 million term loan B with a term loan A. Moving to taxes on slide 17.

Our effective tax rate for the quarter was approximately 12.3% on a reported basis. Cash taxes were $7.5 million for the quarter. The low tax rate reflects an isolated deferred tax recovery in Canada and a higher proportional mix of income subject to tax derived from our lower tax paying jurisdiction being Canada.

For 2015, we now expect cash taxes of around $30 million versus $35 million previously. And we are reducing our expected effective tax rate to approximately 22% versus 25% previously. On an adjusted basis, net income for the quarter was $32 million or $0.29 per diluted share versus about $47 million or $0.41 per diluted share a year ago.

In the current quarter, changes in net income incorporate our operating performance, but this is partially offset by lower income tax expense. We also had higher restructuring expenses and a loss recorded on debt extinguishment. Lower gains on capital and landfill asset sales were offset by higher gains on financial instruments.

For 2015, we are reducing our net income per share guidance range by approximately $0.05, which reflects all of the items I've just mentioned. I'll now turn to capital expenditures on Slide 19. Total replacement capital in the quarter was $58.9 million versus $50 million in the year-ago quarter and growth capital was $21.8 million.

Keep in mind that the timing of our CapEx program this year is front-end loaded. Therefore, you can see, free cash flow on Slide 20 was $18.5 million in the current quarter versus $57 million a year ago.

Lower free cash flow in the quarter reflects a lower EBITDA and lower proceeds from the sale of capital and landfill assets, which were a significant contributor in 2014. Our outlook for free cash flow this year has been updated to $165 million to $180 million from $190 million to $205 million.

Slide 21 shows the updates to our outlook that I have previously mentioned. And I will note that our outlook still reflects an $0.80 exchange range for the Canadian to U.S. dollar, as we did at the start of the year. However, the Canadian dollar has weakened in the past few weeks and is now around $0.77.

Given the current currency volatility and wide range of foreign exchange forecasts, we have decided to continue providing our sensitivity to a $0.01 move and it's shown on Slide 29 of the presentation, instead of adjusting our outlook at this time. That brings me to the end of my comments. I'll turn the call back over to you, Joe..

Thanks, Ian. In summary, it was an encouraging quarter in many respects, particularly in our volume and price performance and the advancement of our operational excellence program. Our north and east regions are on track to deliver to plan for this year and we're confident that the west region will be back on track in the second half.

We will maintain our focus on cash generation and allocation of capital to create value for our shareholders. I'll now turn the call over to the operator to start the Q&A..

[Operator Instructions] Your first question comes from the line of Rupert Merer from National Bank..

So you had great volume growth in Canada in the quarter. You mentioned some landfill growth from Lachenaie and some specialty waste.

Can you talk a little about the specialty waste volumes and how much support that gave to the quarter? And then also maybe a little more color on where you saw strengths or weakness across Canada, geographically?.

Rupert, I'm going to answer that one. A lot of the special waste volume came, it really got a jump start in the year. There was a project over in Ottawa that ended up on our Navan landfill, and our team did a great job of bringing that in and really getting that done as a project there in the community.

It also looks like that project will continue into the second half of the year, but not as robustly. And then as season picks up, we get more volume into the Lachenaie site and our Ridge, which are our two large landfills in Canada. So Navan gave us a bit of a jumpstart, in Ottawa and that's where that existed..

So then just a follow-up. Just looking forward, how sustainable is that number? The results from Lachenaie expected to be consistent going forward.

And are you seeing any weakness on the horizon in Western Canada?.

We don't. When you look at our landfill volumes, as you know Lachenaie and the Ridge and our Navan landfill have annual caps. We don't see any risks in that, getting to those caps, just all timing and volume, so that all works itself out.

As far as Western Canada, we keep a close eye on what's going on with volumes in Alberta, and we continue to see growth in our business. I think our sales execution plans are working well there. I haven't really seen softness in the economy.

Again, we're primarily a commercial-based company there, so the small container work is our bread and butter out west and we haven't seen softness there..

Your next question comes from the line of Derek Spronck from RBC Capital Markets..

The volume growth of 3% in Q2, a very strong number, a lot of it in the north.

How much of that was catch up volume from Q1 due to the late spring cleaning start?.

Derek, I don't have an exact number for you, but really it's a blend. What we experience up in Canada is all of our landfills, as Kevin mentioned, they've got caps. And so depending on the spring/fall, you get volume shifts that typically will go between Q1 and Q2.

We were affected in the first quarter, both Lachenaie; in particular Lachenaie with half-load season, and we often catch up late in the year. So we get special waste in Canada every year. And the timing really does move quarter-to-quarter. So I don't think it move the needle a lot, because quite honestly the Ridge is really ramping up now.

So it's really more of a volume shift between landfills as opposed to volume shifting into the quarter..

Just one more quickly for me. The CapEx this year is effectively front-end loaded with your truck purchases and getting ready for the Peel contract.

Do you still expect CapEx to come down in 2016? And any indications where that might land?.

We've been actively working on that, putting our CapEx plan. But I think the answer to that is, yes. We have obviously some timing issues with Peel, as that [ph] contract's January 1 and we're receiving trucks end of Q3, beginning in Q4. But we're working on that now and we do see it coming down right now.

We have enough gas, CNG plants in place really to take our 2016 truck deliveries. So we'll probably forego a new facility in '16 there, so that's on some, and we also have our CapEx in '15, you've got some lag in CapEx related to Lachenaie gas plant that doesn't reoccur as well as some thing at few of our landfill.

So yes, I see it coming down, coming to the tail-end of, I'll call, some project capital that is in our numbers that no longer will be there..

Do you think you could hit that 10% or lower of revenue of your total CapEx spend next year?.

Derek, can we hit replacement cap of 8.5 to 9, yes. The overall capital spend will be driven by growth. And as we mentioned, we are converting some contracts and stuff like that. But in a normal year, with fairly sort of that mid to lower-mid single-digit organic growth, yes, I think that's a reasonable target..

Your next question comes from the line of Joe Box from KeyBanc..

Ian, a question for you on the east margins and maybe how you go from the 21.7% up to 25% in the back half. It sounds like this quarter margins were somewhat depressed because of SG&A. But my sense is some of those cost could potentially linger based on what you guided for SG&A.

So can you maybe just help us bridge the gap between that 21.7% and 25%?.

Sure. It was a combination of a couple of things. One is we had higher SG&A, as I mentioned, and that was related to professional fees over the settlement, relatively minor, but of a lawsuit there. And we completed an extensive driver training program that we ran in the back across the entire company and that's now behind us, Joe.

We had a settlement with City of Miami, is that right, Kevin?.

I believe, that's right..

Of an audit. And we also had, it was about $1 million of some bumpy yellow iron maintenance. And those numbers alone take us up within touching range..

So where we've been trending maybe through July has been closer to that 25%?.

Yes..

And then I just want to switch gears real quick on the west margins. If we were to x out the $10 million of both direct and indirect flood expense, you did about 27% EBITDA margins. That's flattish versus last year.

So I guess with fuel being a tailwind and some of the operational improvements there, can you just talk about why we didn't see more margin expansion in that market?.

When you look at it, I think you've got a couple of things. One, the two acquisitions we did we're still integrating those. In fact, our major reroutes in our Dallas market, as we bought a fairly significant piece of business there, just got completed.

So there are some of that that's in there that they will be very accretive overtime, but they're dilutive in the period. So we think we're going move back to the 27% on a run rate, and then you'll do see us march steadily from there as we get other things in place moving there. But everything is on track, no real worries over there.

It's just a matter of continued executing. You'll see us [technical difficulty] in that margin..

Your next question comes from the line of Scott Levine from Imperial Capital..

So a little bit more elaboration on the IT initiatives, maybe a little quantification of how much you see that costing this year and kind of was that factored in to the budget at the beginning of year? And could you offer up, I think you said, Joe, implemented by the end of '16, but any thoughts around what the financial impact that will be there from an OpEx or a CapEx standpoint or is it too early to tell?.

Let me answer that, because I don't want Joe telling you how much we're gong to save. First of all, yes, it was factored into our budget. We haven't called it out, because we can't call out everything. You guys always get mad at us, when we start calling a long list of stuff out. The cost is -- I don't know how specific I actually want to get.

So I'm thinking as I'm talking. But the cost is less than $5 million for the year and it was in the order of $1 million to $2 million for the quarter. Its cloud based. So it's not a big upfront purchase. It's pay as you play. And the implementation, as Joe mentioned, went live July 1.

So it will be an exciting time in the next day or two, as we go through our first close. But we are extremely happy with the implementation to date. It is a game changer for the way that we will be able to run our operations at the district level and manage our information flows. We're as a management team very excited to get this in place.

There will be some ability. We will have an ability to revisit a lot of the processes, businesses processes that we have and do expect to have some savings on the information processing side. We won't see those this year, because we're taking it a step at a time. But yes, we do expect to see some next year.

I'm just not ready to talk about how much at this point..

And then as a follow-up maybe on the eastern region, which I believe now includes Florida. Is there a remarkably different margin -- I know you don't like to break the regions out.

But is it dramatically different than the remainder of the eastern region? And maybe a little bit more color with regard to external conditions in the eastern region, and are they supportive of you guys, given that mid-20s are better and are things firming up in the former northeast region?.

The answer on the margin side in the East is when you get into local long haul markets, where we're hauling the waste and you had a lot of transportation cost, it becomes margin dilutive. So it does take those margins and more to the mid-20s and the high-20s.

So the profile when you look out into our northeast segment of that, which we had before obviously going to Seneca, a lot of that waste is driven by that as well as the waste we haul into Pennsylvania. There is some of that in Florida. South Florida ends up in one of our landfills, south of Orlando. So there are some similar profiles.

But when you look at the overall margins, that mid-20s should be where we end up and where we go there. And as we do grow the business and we diversify in that northeast in that whole segment is where we're direct hauling our disposal and controlling that transportation expense.

That will be margin accretive versus the more long haul volumes becomes, I'll call that, mid-20s margin type volume instead of the high-20s..

Your next question comes from the line of Bert Powell from BMO..

Joe, your peers seem to be indicating that price expectations in the M&A side of things seem to be getting a little bit more realistic. It seems like things are heating up there a bit.

Can you talk about what you're seeing and how you're thinking about M&A? And you've kind of put in for a normal course issuer bid at $10 million, but just wondering if you can give us a sense of how that's looking for you guys?.

On the M&A front, we've been fairly active in reviewing a lot of opportunities. We know we're going to be able to close a couple here in the third quarter. It all comes down to us. It's all about cash on cash returns.

So in terms of valuation, how to put it, when we look at a deal, we're looking at the cash flow that's going to come out of it and what kind of returns that we can expect to generate. So we are seeing probably some higher quality companies come to market and so we can reconcile the valuation with sort of expectations.

Where it gets a lot more challenging is we get no basis for price expectation, so the discussions end pretty quickly. But yes, I think the environment is starting to improve in terms of expectations versus what we're able to get to. And part of that is also our confidence in the economic outlook, especially in the U.S.

So we are seeing that strengthening and it's giving us a little bit of confidence on their model building..

And just, Kevin, there seems to be some commentary around on recycling. I know it's not as big a percentage of your business as maybe some of your peers, but certainly there looks to be some conversations happening in the industry to try and get paid for that, to try and mitigate some of the headwinds that everybody is feeling on that side.

Just wondering, if you can just give us any thoughts about how progress is approaching that or what your thoughts are on that front, Kevin?.

We're taking some more approach, and we've been working with the number of our customers, primarily municipalities and governmental agencies to look at our contracts. We have one that we're very cautiously optimistic that we've got a good opportunity to get some adjustments with one of our major contracts.

And so they've been very positive in working with us. We've also worked with others. We have four, five key MRFs that really drives that we have been actively working on it.

We've seen some success as well as controlling some of our owned behaviors in the facilities to look at the mix of materials we're making, try to look at our cost structure to manage around some of these commodity events that are occurring, but we have had cooperation, and like everybody else, we want to make sure that we're getting the returns from our recycling business regardless of the commodities markets..

Your next question comes from the line of Michael Hoffman from Stifel..

When I look at margins, if I adjust in 2Q for $10 million, whether I look at it as a gross cost of goods sold level or at adjusted EBITDA level? Cost of goods sold there is about a 130 basis points delta between year-over-year less and then adjusted EBITDA, it's about 70.

How much drag was recycling and how much plus was fuel in those two numbers?.

Ian?.

Yes..

He's trying to get his numbers out here..

I'm going to have to actually think hard about this one. It will be detailed in the MD&A, if I trip, Michael, but commodity prices have been challenging, as you know, this year for everybody. And if you looked on a year-over-year basis, we were off I think about $4.5 million on commodity revenue.

And what was the second part, sorry?.

Fuel? So did fuels come down in this?.

Fuel came down, but so did fuel surcharge. And if you look at our net benefit between a drop in our vehicle operating costs and what happened in fuel surcharge, the net benefit was less than $2 million..

One of the things up here, Michael, up in Canada we've had the two offsetting events happening. A, diesel prices are going down, which is positive. But then up here, we've got the FX going the other way. And because diesel is priced in U.S.

dollars at the pump, we actually don't see as much of a benefit and our agile fuel pricing has been going up recently contrary to what you would expect, and that's been communicated quite a bit and reported on. So we don't get the same benefit up on the Canadian side, which is where the bulk of our fuel surcharges are..

One quick note is, Michael, we have 100 trucks, 100 CNG trucks that started fueling late in Q2. And we're going to start to see that benefit flow over the rest of the year. So those, the vehicle operating cost that I mentioned, they were all encompassing fuel cost, not just diesel..

And then New York City, a big company south of the border suggested that you all were in a dialog with the city on the contract on their call.

So could you give us an update on where we are in the New York City bid progress? And if it doesn't go your way, what's the plan B?.

So yes, I will confirm that there are discussions going on. We've been at this a long time, but beyond that we actually have transfer stations in the city and so we've always got that relationship going on, but yes, we are in discussions with the city. I can't comment. There is no contract.

So until I don't have it in place, I'm just not going to say anything. Plan B, there really is no plan B right now, because we're working to try to get plan A over the finish line..

Michael, as far as the plan B, I mean there are facilities still has some steady volume that flows into it, so it will be, I'll call, business as usual. It would just be an additional project, if we succeeded in that. But it wouldn't change the dynamic of the way we run the business..

Well, just to ticket that a little bit, there is 1,200 tons going into Seneca today, that's one of those rolling three-year contracts, if somebody else gets it, that 12 leads?.

And that's a percentage of the volume there, but it's not the majority of the volume, so Seneca is still the high volume landfill, with or without that 1,200 tons, and there is other opportunities as well..

Your last question comes from the line of Chris Murray from AltaCorp Capital..

Just a couple of quick questions. Thinking about the floods in Texas, I appreciate that it's a one-time thing, but does it change your thinking about your asset mix that you're going to need down there? I think you're a little bit landfill-wide, if I think about that area of the world.

Is that something that you've gone back, and now that you're sort of through it that you think about maybe you got to readjust the asset mix?.

We think about it all the time. And I don't know about adjusting the asset mix, but when you are depended on other disposal, whether it's other privates or public entities, you have that exposure. The other thing in that business, we are very heavy in Texas.

Lot of communities that were impacted, and we in our contract are responsible to take their wastes that they put out, and so it's not all commercial, it's residential as well, so that is lumpiness when you're a heavy residential, commercial supplier of services. As far as, would we like to have more landfills in Texas; absolutely.

And when the opportunities present themselves we look at it as well as looking at our transfer station infrastructure to move more waste into our sites. Obviously, those things don't happen overnight. We continue to look at that as a strategy, but I wouldn't say it changed our view. We've always had that view and we try to get that done where we can..

And then maybe for Ian, you just announced a new credit facility, so a couple of parts to this question. One, I think if I look at the rates sort of the old facility to the new facility, should we think about just your interest cost backing down about 0.25 point as we move forward.

And then the other thing, just I've got a second part just to talk about taxes that kind of leads into this, when you put in the facility the last time, it gave some opportunities to do some stuff with your tax rates.

Any opportunities with this renewal or are they basically the same thing moving forward?.

I'll start with the second half of that. The renewal of the facility will have no impact on our corporate or tax positions. It's to all intents and purposes replacing what we had.

It did have a minor impact on our tax rates for the quarter, but that's not structural, that's just happenstance and was function of the timings or the triggering, if you will, of capital gains and losses, which took place because we cancelled the credit facility, which is an external relationship, but didn't change any of our internal relationships.

And on the rate change, the savings this year in the next 12 months, assuming interest rates don't change dramatically, it will be in the order of about $7 million..

And then just thinking forward, I mean you did adjust your guidance on tax for the full year being down. I think that's probably as a result of this. But if we move into '16 thinking about kind of the 25% target, rate is about the right place to be..

Yes, I'd agree with that..

There are no further questions at this time. I'll turn the call back over to Mr. Quarin. End of Q&A.

So thank you everyone for joining us today. And we look forward to reporting the results of our third quarter to you at the end of October..

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