Ronald J. Mittelstaedt - Chairman & Chief Executive Officer Worthing F. Jackman - CFO, Executive VP & Head-Investor Relations.

Patrick Tyler Brown - Raymond James & Associates, Inc. Al Kaschalk - Wedbush Securities, Inc. Scott Justin Levine - Imperial Capital LLC Michael Hoffman - Stifel, Nicolaus & Co., Inc. Corey Greendale - First Analysis Securities Corp. Barbara Noverini - Morningstar Research Andrew E. Buscaglia - Credit Suisse Securities (USA) LLC (Broker) Joe G.

Box - KeyBanc Capital Markets, Inc. Tony Bancroft - Gabelli & Company.

Ladies and gentlemen, thank you for standing by and welcome to the Waste Connections Fourth Quarter 2015 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Tuesday, February 9, 2016.

I would now like to turn the conference over to Ron Mittelstaedt, Chairman of the Board and CEO. Please go ahead..

Okay. Thank you, operator, and good morning. I'd like to welcome everyone to this conference call to discuss our fourth quarter 2015 results and provide a detailed outlook for both the first quarter and full year 2016. Our outlook excludes any impact from our pending combination with Progressive Waste Solutions.

I'm joined this morning by Worthing Jackman, our CFO; Darrell Chambliss, our COO; and several other members of our senior management team.

As noted in our earnings release, favorable revenue trends and an approximate 180-basis point year-over-year margin expansion in solid waste drove exceptional results and an almost 50% conversion of EBITDA to free cash flow in 2015 and they are continuing to provide continued momentum into 2016.

Strong pricing growth and better than expected volumes that benefited solid waste in first nine months of the year continued in Q4, enabling us to once again exceed our expectations and our outlook for the quarter.

We look forward to completing the previously announced combination with Progressive Waste, integration planning meetings are well underway and we still expect the transaction will close during the second quarter.

Before we get into much more detail, let me turn the call over to Worthing for our forward-looking disclaimer and other housekeeping items..

Thank you, Ron, and good morning. Today's call is not intended and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy securities of Waste Connections or Progressive Waste Solutions. I'd like to call your attention to pages three through five of our February 8 earnings release.

These pages include disclaimers and notices regarding additional information about the combination with Progressive Waste and where to find it, and the participants in the solicitation of votes. Also the discussion during today's call will include forward-looking statements and actual results could differ materially from those made in the statements.

The factors that could cause actual results to differ are discussed both in the cautionary statement in those pages of our earnings release, and in greater detail in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.

There may be additional risks of which we're not presently aware of 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 in order to reflect events or circumstances that may change.

On the call, we will discuss non-GAAP measures such as adjusted EBITDA, adjusted net income, and adjusted net income per diluted share and free cash flow. Please refer to our earnings release for reconciliation of such non-GAAP measures to the most comparable GAAP measure.

Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently. I'll now turn the call back over to Ron..

Okay. Thank you, Worthing. In the fourth quarter, solid waste price and volume growth from the prior year period was 4.8% or 80 basis points above our expectations. Core pricing in the period was 2.9% year-over-year with total pricing growth, net of surcharge reductions of 2.4%.

Volume growth compared to the prior year period was 2.4% with both our Western and Eastern regions each reporting volume growth of over 3%. Increased solid waste collection activity continues to be a key driver to our strong volume growth.

Commercial revenue increased about 8% year-over-year in the period and roll-off revenue on a same-store basis grew 7% on higher pulls per day. Pulls per day increased 6.5% year-over-year in Q4. Roll-off pulls per day increased 8% in our Western region, 7% in our Eastern region, and 4.5% in our Central region from the year-ago period.

Solid waste landfill volumes on a tonnage basis increased 6% year-over-year in the fourth quarter. C&D tons increased 19% in the period, special waste tonnage grew 5%, and MSW tons were up 4% compared to the prior-year period. About 75% of our landfills reported higher MSW tons year-over-year for the period.

Recycling revenue was $11.4 million in the fourth quarter, down about $1.6 million or 12% year-over-year due to weaker recycled commodity values for plastics and metals and lower third-party volumes. Prices for OCC or old corrugated containers, averaged about $106 per ton during Q4, down 3% from the year-ago period and 4% sequentially from Q3.

OCC prices currently are around $95 per ton, up slightly compared to what we averaged in last year's first quarter. However, year-over-year revenue headwinds for recycling will persist in Q1 due to continued weakness in plastics and metal prices, which we expect to impact Q1 revenue by about $1 million.

Regarding E&P waste activity; we reported $43.1 million of E&P waste revenue in the fourth quarter or about 8% of total revenue and slightly below our outlook of about $45 million for the period.

In spite of the 25% drop in crude oil prices during the period, we delivered over 95% of our outlook for expected revenue for Q4 at 35% EBITDA margins, highlighting the strong margins in this segment despite lower volumes.

Same-stores revenue decreased about 55% on a more than 60% decline in average rig count in the basins where our E&P operations are located. Volumes in the period were down about 40% year-over-year and average price was down 15%, similar to the prior two quarters.

With the price of crude oil down another 20% since year end and continued rig count decreases over the last seven consecutive weeks, we now expect our E&P waste business to report approximately $150 million of revenue in 2016, down about 30% from 2015 with Q1 being the toughest comp.

This full year expectation reflects a $30 million decline from the $180 million run rate in October. But, as noted in our consolidated guidance, our full year EBITDA outlook remains within the preliminary range for 2016 that we provided in October and free cash flow expectations have actually increased slightly.

With our E&P CapEx in 2016 less than 5% of E&P waste-related revenue and E&P CapEx down an estimated $25 million year-over-year, our E&P waste business remains a very attractive cash flow generator with any remaining headwinds a fraction of what we had to overcome in 2015.

When crude oil prices ultimately cross $50 per barrel or $55 per barrel and drilling activity starts to recover, incremental margins from volume growth should initially exceed 75%. Our asset positioning should enable us to immediately benefit for many increases in such activity.

Moving on to our recently announced agreement to combine with Progressive Waste in a stock-for-stock transactions, we reiterate how excited we are to welcome Progressive Waste into the Waste Connections family and believe the combination will be quite compelling to our collective customers, employees, shareholders and other stakeholders.

As noted in our January 19th announcement, we anticipate the combined company will generate adjusted EBITDA between $1.25 billion and $1.3 billion, and deliver more than $625 million of adjusted free cash flow in year one, excluding any impact of any divestitures or asset swaps we may complete.

Approximately $50 million in SG&A cost savings are incorporated in these numbers, but additional contributions from operating and safety improvements in Progressive Waste U.S. operations over a two-year to three-year period are not included in these estimates nor the expected benefit of certain asset rationalizations in the first year after closing.

On a free cash flow per share basis, the combination should represent a more than 20% accretion in year one to the approximate $3 per share current Street estimate for Waste Connections.

The stock-for-stock transaction structure also enables us to maintain the strength and flexibility of our balance sheet necessary to maintain our capital allocation priorities.

Namely, to fund additional growth opportunities, increase our dividend annually and further increase the return of capital to stockholders through opportunistic buybacks of 2% to 3% of outstanding shares per year. As I previously noted, integration planning is well underway in both Canada and in the U.S. and we're very encouraged by early takeaways.

Closing is still anticipated to occur during the second quarter. And now, I'd like to pass the call to Worthing to review more in depth the financial highlights of the fourth quarter and provide a detailed outlook for Q1 and a full year 2016. I will then wrap up before we head into Q&A..

net cash provided by operating activities for the full year is estimated to be approximately 27% of revenue; and capital expenditures are estimated to be about $230 million. This results in free cash flow of about 16.6% of revenue, or about 40 basis points improvement over 2015.

Turning now to our outlook for Q1 2016, revenue in the first quarter is estimated to be approximately $515 million. Solid waste price and volume growth on a combined basis are expected to exceed 5% in Q1, which includes about a 40-basis point benefit to the year-over-year growth from the one extra day in February.

Recycling, intermodal and other growth is expected to be negative 20 basis points on slight reductions in recycling revenue that Ron previously discussed. Revenue from E&P waste activity is expected to be about $35 million, down almost 50% year-over-year.

Again, as a reminder, Q1 will be our toughest comp for E&P-related revenue as we did not see a meaningful decrease in E&P revenue in 2015 until Q2. Adjusted EBITDA for Q1 is estimated to be approximately $169 million or about 32.8% of revenue.

We estimate the extra day in February to be about a 40-basis point drag to comparative margins year-over-year. Depreciation and amortization expense for the first quarter is estimated to be about 13.3% of revenue, amortization of intangibles in the quarter is estimated to be about $7.6 million or almost $0.04 per diluted share.

Operating income for the first quarter is estimated to be approximately $100.5 million or about 19.5% of revenue. Interest expense in Q1 is estimated to be about $17 million, and our effective tax rate in Q1 is estimated to be about 39.2%. Non-controlling interest is expected to reduce net income by about $200,000 in the first quarter.

Finally, our fully diluted share count in Q1 is estimated to be about 123.3 million shares. And now, let me turn the call back over to Ron for some final remarks before Q&A..

Okay. Thank you, Worthing. 2015 was an exceptional year financially for Waste Connections, due to outperformance within solid waste and strong cash flow generation across all segments. Industry-leading solid waste organic growth, margins and an almost 50% conversion of EBITDA to free cash remain hallmarks of our differentiated market model.

And for stockholders, 2015 was our 12th consecutive year of positive returns. We're especially proud to note that with regards to safety, our industry-leading incident rate improved 6.5% year-over-year and 2015 was our ninth consecutive year of improvement in incident rates, with such rates down about 67% over that period.

In addition, less than 0.1% of our 4,700 drivers at year end were categorized as a potential higher risk profile, down from about 0.3% earlier in the year. This is a testament to the ownership of safety and coaching effectiveness by our local leaders in the field.

Whether it's operational excellence, financial results or community impact, leadership, culture, commitment and accountability matter.

We look forward to our pending combination with Progressive Waste and believe the attributes key to our success should continue to drive superior value creation for our stockholders as well as those of Progressive Waste. We appreciate your time today. And I will now turn this call over to the operator to open up the lines for your questions.

Operator?.

Thank you, sir. And our first question comes from Tyler Brown with Raymond James. Please proceed with your question..

Hey, good morning, guys..

Morning, Tyler..

Hey, Ron. So, thanks for all the color upfront. But can you give us a little more color on what is driving the special and C&D trends? If I look at my notes, it looks like you've had a couple of years of pretty robust trends.

I just want to make sure that there is not anything that we should be thinking about, like the lapping of maybe a big project or the New York C&D landfill, just anything to think about next year or 2017 that could change that trend?.

Yes....

I would say there is nothing notable on the special waste side like you – you called out the right thing on the C&D side. In early 2015, we opened a new C&D landfill up in the Hudson Valley, and that will anniversary itself, as we move through Q1 of this year..

Okay.

So, overall though the economic still feels pretty good at least in the waste world?.

Yes. Tyler, I mean, to your original question, I mean special waste is driven predominantly by speculative real estate development, both commercially and industrially.

It is usually contaminated site clean-up, and we get that throughout our footprint, of course, we have a large footprint, in the West where we get a lot of it, and the West Coast was sort of late to the recovery.

So they are still getting that, and we're not really seeing any change, what we're seeing increased dredging and other things amongst, on the West Coast and that's a large part of what we get. So the special waste looks consistent at this point in time. And then again the C&D is driven in large part by the housing increase that's happened.

And again sort of a disproportionate amount on the West Coast, although we noted our East Coast volumes were up over 3% as well.

So, housing continues to be strong, except for some softening in some of the oil patch related areas like Houston, outside of Denver, outside of Tulsa, but other than that, we're not seeing anything slow down other than related to oil..

Okay, great. Thank you. And then, Worthing, I just want to make sure, I understand the margin impact of the extra day.

So, is the big picture here that it effectively helps with internal growth, you get an extra day of volume, but the margin impact is really that you're just adding another day of cost without a "another day of revenue"?.

Right. In some of our streams, such as roll-off or landfills, you can get an extra day of revenue, but you're right, on the variable side, you got an extra day of labor and other variable costs that suppress margins.

So, it's about a 40-basis point estimated impact or benefit to the price and volume growth, and about a 40-basis point drag to reported margins..

Okay. Okay, that's good. And then maybe, Ron, my last one here. We all sit here at the anticipation about Progressive, that's clearly going to be your largest and probably your most complex deal from an integration perspective. And it sounds like you guys are doing a lot of work upfront to ensure a smooth transition, but I am curious about bandwidth.

Not so much from financial side, as this is a stock-for-stock deal, but more from a management side.

I mean should we think about 2016 as a year of integration or would you guys potentially pursue tuck-ins as well?.

Oh, well, first off on the bandwidth question, Tyler, I think the reality is between – there's very limited field overlap as you know. So, this deal is not one that is based on any field synergies whatsoever. Those synergies occur only at a sort of duplicative corporate level.

And so, we're going to be needing all the Progressive management along with all of our field management. And we'll see any bandwidth impact there. So, there would really be no reason for us to slow down our traditional tuck-in sort of $75 million on a standalone basis Waste Connections pipeline.

We've said that when we combine the two companies, it's reasonable to look at about $125 million a year in acquired revenue, about 3% on the top line as an estimate. And, again, I think you'll see that in 2016 between the two companies.

Obviously, you won't have a full year impact of the two companies together, but if you looked at them individually, I think you'd see that..

Okay, great. Thanks, guys..

Our next question comes from Al Kaschalk with Wedbush Securities. Please proceed with your question..

Good morning, guys..

Hey, Al..

Hey, Al..

Excellent year again. Appreciate that. Just a couple of clarification questions.

First on, Worthing, when you were talking about the notable increases in costs, the risk management piece struck me as a little bit high, but could you just clarify that when you adjust for the E&P, what that would have increased for the year and for the quarter?.

Well, it's more of an issue, while incident rates are down; it's more of a prior year increase in severity. So as some of the prior year claims develop, especially those, for instance, in California, you can get an out of period impact like this..

Right. Okay. Ron, I would like to maybe participate in that management meeting where the East region finally gets to pump their chest for a 7% growth on the fourth quarter.

Was that weather induced or how much of that would you say is maybe some turn in the economy?.

I think it was burning. It was mostly burning..

Feeling the burn. No. Remember, Al, on a volume growth basis, the East region was slightly over 3% in total, some lines of business were 6% to 7%, but overall the volume in the East was little over 3%..

Which was still very strong....

Yes..

...or second only through our West region which was approaching 3.5%, and, Al, it was, as you know, a relatively mild winter up until recently in the East, up until very recently in the last two weeks or three weeks, it was a mild winter, later on set in the fourth quarter.

So, things stayed strong, construction continued, and we really saw it across our – certainly the Carolinas were strong for us, and, as was Upstate New York, both of which are part of our Eastern region, as was Tennessee. So, all of those, it was pretty broad-based..

Great. Okay, very good. Then just on E&P, I appreciate the backdrop here and the tough comp in Q1.

Are there any indications, I guess, from your customer base that really in Q2, is it just more of a flat outlook in terms of starting on that quarter or is there a little bit of pickup that's expected, whether that be a slight increase in oil price or just a better comp from an acquisition or some type of growth?.

No, look, Al, you're really just cycling on about a $35 million revenue number in Q1.

Again, like we've said back in October, we thought it'd get worse before it got better; you're seeing probably we're at the low point here in Q1, because not only do you have the continued decline in activity, but also you have weather impact in some of those areas as well.

So, clearly, we do think it will recover a little bit in the second half of this year because obviously the $35 million on a run rate put you at $140 million for the full year. And so, a lot of folks out there still believe we might have some pickup as you kind of get into second half of this year and ramp into 2017.

But, we don't see any – there is nothing of note from an acquisition standpoint or anything else that's going to drive the numbers. I mean, you're just looking at comps that in last year in Q1, we did about $70 million of E&P revenue, and it cycled down to just over $50 million in Q2, that's why Q1 is the hardest comp..

All right. Okay. I appreciate it, good luck, guys..

Thanks, Al..

Our next question comes from Scott Levine with Imperial Capital. Please proceed with your question..

Hey, good morning, guys..

Hi..

Hey, good morning..

So, just to be clear with regard to my revisions to the 2016 outlook versus your preliminary, is this predominantly just factoring in the greater conservatism on E&P, bonus depreciation and maybe some adjustment to CapEx plans? Just want to get a better sense of whether the outlook for the core solid waste business is intact, strengthening, weakening, just looking for a little bit more detail there..

Yes. I'd say our solid waste is a little bit stronger. Obviously, Q4 was a good quarter and as we talked before about the momentum in the 2016, but I think the three things you identified with regards to resetting E&P for the continuous decline in crude since Q4, or since really since October of last year.

Obviously, bonus depreciation was passed in December, but you've seen it soak up most of that through expectations on higher CapEx, because we typically try to take advantage of that.

So, in a nutshell, you put all those together and you see the kind of consolidated revenue down just a little bit, but EBITDA within the band and free cash flow is slightly better..

Got it.

And then regarding the E&P business, maybe just a little bit more color on the individual basins and either how they've behaved or how you expect them to behave at least through this year, any noteworthy changes in view by major basin there?.

Yes. The trends we've seen through most of the last year just continued, obviously pricing stabilizes as you saw, because this was kind of a third straight quarter where year-over-year pricing was down just about 15% last year. And so while pricing has stabilized, it does become a volume game.

Obviously, we've had the most volume impact in basins like the Permian or Eagle Ford, given asset positioning. But as we've always called out, the Bakken has been the most competitive on price, given the competitive landscape up there. So I'd say that there is no appreciable change in trends by basin.

You've seen the impact of crude that was $50 a barrel back in October is now sitting at $29 a barrel..

Got it. One last one if I may, on capital allocation. So your tone suggests we should expect kind of a typical year and no real change to the traditional capital allocation program. You're pushing close to three times though, and it is a large deal. I just want to push you a little bit on that.

Is your expectation – it sounds like those factors really don't have any bearing with regard to your plans on capital allocation for this year in any way..

No, that's right. Whether it's pre-BIN or post-BIN, again you've got a balance sheet that's just under three times levered. You've got cash flow that's about 1/6 of outstanding principal, which is unmatched in the industry.

So you've got ultimate flexibility to fund, again a dividend program that averages about 20% of our free cash flow, traditional M&A activity. If you put the $125 million of estimated revenue that Ron talked about, that's about 30% at most of the free cash flow.

That still gives you 50% of free cash flow to use for either increased M&A activity or to repurchase shares on an opportunistic basis, and that would put in 2% to 3% of outstanding shares.

So, no, the capital allocation doesn't change pre and post deal because again the shape of the balance sheet and the strength of the free cash flow to outstanding debt remains very similar albeit just bigger numbers..

Got it. Thanks, Worthing..

Our next question comes from Michael Hoffman with Stifel. Please proceed with your question..

Thank you, all, for taking my questions, and, sorry for the scratchy voice. Hey, Ron, so the stock market is just wringing its hands thinking we're going into a recession.

When you look at every truck goes across the scale every day, what's the truck weight or the container weights telling you about the consumer?.

That they continue to be in pretty good shape. Obviously, the precipitous decline in crude over 2015, we know what that's done to the E&P business and our E&P business. But, the reality is that it's put a tremendous amount more discretionary income for many people, most everyone, and this is a consumer-centric business.

So the vast majority of our business is individual small businesses and individual households. That ultimately makes up 70%-plus of who pays us, and that 70%-plus are in better shape than they were a year ago. So we're just not seeing at this point any declines anywhere in the economy.

We're continuing to add routes in certain markets due to capacity issues. And I'd say we're nearing the point of "full recovery" from where things were declining, but still not quite there in some of our systems..

Okay.

So, on that vein, when you think about where you're adding capital – new incremental capital in the fleet, is it across front-end loader or automated side loader roll-off or is it concentrated? How do we think about that? And then could you contrast it on what you think you're seeing the private market do?.

Yes. Number one, I'd say that the majority of what we're doing from an incremental route is on the West Coast right now, where obviously we get 100% of the density that comes in.

So that is predominantly – tends to be automated side loader for residential and front loader for commercial, of course, roll-off is just determined by number of pulls and we just told you that was up 8% in the West Coast in the fourth quarter.

So, we're there, but we're still seeing it in our other two regions as well, those are more competitive regions and contracts. So, it takes a bit longer to build that density, but, again, across all systems, so I would tell you that it's a pretty broad-based, steady improvement. No real big spikes, but pretty broad-based and steady..

And then what do you think the private market's doing from adding capital or are they?.

I'm sorry you asked that question, I didn't answer, Michael. From what we know and what we hear in our discussions with truck manufacturers and chassis and body manufacturers that we talk to, and where we order from, their demand is very high from the private sector.

There is a long lead time right now to get a new – to get a build slot on a new vehicle, if you haven't already put one in. And that's coming as much from the private side as any of the public. So from what we're seeing, they're seeing the same thing..

So, would it be fair to suggest that the private side is at near capacity and that's helping the retained pricing as well?.

I would certainly tell you that on a historical basis, there is no question as the private side gets near – to use your word, near capacity, and of course that's a route-by-route issue, market-by-market that they – and as they have to take on incremental better lease payment, pricing for the publics amazingly tends to get better..

Okay.

Worthing, what's the cash tax rate in 2016 for standalone Waste Connections?.

Yes, probably close to about 85%..

Okay.

And then, Ron, if Rick Wojahn were holding a class on due diligence one-on-one for deals, what are the things you did that should give the market comfort on the due diligence at Progressive, like landfill inspections or collection operation inspection, what did you do that gives everybody comfort this integration is going to go okay?.

Well, I think, I mentioned earlier, Michael, in a comment, one of the things that's caused issues in larger deals in our space on a historical basis has been the multiple paid for the transaction reliance upon field synergies that were estimated. There are no field synergies estimated in this deal at all.

The synergies that were estimated were duplicative, overhead roles at a corporate level only and those were pretty straightforward and we did a lot of diligence on those ahead of time, and so we know what those are.

We've done a number of planning meetings with Progressive since then and confirmed everything we had confirmed at the beginning and perhaps than some.

So I would tell you that from just a pure numerical or financial standpoint, this wasn't a deal that was baked on a bunch of field synergies and targets that you've to get to for the model to make sense?.

We kept those as additional upside..

Yes, right, for the combined company's shareholders..

Okay..

Again, I would tell you that many times, I'm not saying in the last five years to 10 years, but on a historical basis, I joked when we did our call from New York that these are the kind of deals that used to start on Friday night and get announced on Monday. And USA of course was famous for that.

But this took quite a bit longer obviously, and this was a process that Progressive's board ran that we participated in. And there was a lot of due diligence done, I mean we looked at every landfills model, engineering model in depth and CapEx models in depth.

We looked at various financials, of course, varying in depth as well as tax structures very, very in depthly, review of their contracts, review of their historical reserves in a variety of areas for landfill and risks. So without giving you a laundry list, what I can tell you is that, this was something that was quite due diligence.

No deal was without risk and we would never say that. But that's also why we gave our first year guidance of a bandwidth of $1.25 billion to $1.3 billion of EBITDA is to protect against some of those uncertainties that we might not fully understood throughout the due diligence process.

Now, what we would tell everyone is, in due diligence on a deal like this, you look at the 20% of things that are going to make 80% to 90% of the issue, and that's what we focused on..

Okay. And then, on E&P, we had a conversation recently with a bunch of regional bank people and they've started shifting E&P loans into the critical status from January 15 maybe 5% of them are there now; the December 15 about 50% of those E&P type loans. So, you come into redetermination to the spring.

How do you think about your exposure to upstream companies that might face pretty compressive actions from their banks with regards to their balance sheets?.

Well, unlike the banks, we've been watching this now for almost two years, though, it's not kind of a semi-annual or once a year re-measurement. So, no, I think our guys have done a great job in, A, in collections, and, B, in managing their exposures to their customers..

All right.

And last swing from me that, I'm assuming, I should model the dividend policy going forward to the NewCo to look like the Waste Connections' dividend, 15% to 20% of free cash flow, if I'm modeling?.

Again, I think we've talked about before of a dividend being about 20% of our free cash flow out of the box, that's a good zip code. Again, we'll leave it to the – once the combination is finalized, leave it to the board to establish the official policy..

Great. Thank you so much..

Thanks, Michael..

Our next question comes from a Corey Greendale with First Analysis. Please proceed with your question..

Hey, good morning..

Hey, Corey..

Hey.

First question I had is the E&P impacts to the guidance and given the reduction in revenue, I would have expected more of an impact on EBITDA, so are you doing something to offset that, can you just talk a little bit about that?.

Well, it's whenever we get preliminary guidance, Corey, we know there's still three months of learning to go through and so we leave ourselves sufficient amount of cushion..

All right. Fair enough. And then I had a couple of questions about solid waste price.

So, core price actually accelerated sequentially in Q4 that's not the usual seasonal pattern, so, if you go back to market for more increases or is something happening with fuel surcharges, just what drove that?.

Yes, it's just a normal implementation. I mean some people get an early start on the Q1 price increases and it benefits Q4 a little bit. You'll see a little uptick Q4 to Q1 in both core price, but also in surcharge rollbacks such that net price will probably add or slightly better than what we did in Q4.

But again, you will see next year that our net price will peak in Q1 and they have kind of an expected same trends that we typically think about which means higher price in Q1 and it mathematically just reduces a little bit as you move through the year..

Yes, and, Corey, when you move some of the PIs up by a month or so and pick some of that up in December, remember, you're doing it on a seasonally lower revenue base. So that also explains just mathematically some of the incremental what it looks like on a margin basis – or excuse me, on a reported basis.

And to Worthing's point, I mean you see that even greater, because Q1 is your lowest seasonal quarter. So, it's not really that price per se is changing, it's that your denominator is changing..

All the way, the price came about where we expected for the period..

Okay. Understand. And then on the fuel surcharge, I think you're rolling more of that into core price, but it moved more in Q4 than it had been.

So, can you just help us to think about how changes in diesel prices will correlate with your fuel surcharge?.

Yes, again, it's just more of a timing issue as to what the comps look like. Again, we've not been a company that's focused on surcharges, compared to many others in the industry. So, again you'll see some just small numbers moving through the P&L on a rollback standpoint..

Yes. And it lags a bit – it lags at least a quarter, Corey, so that's more indicative of the larger drop sort of that happened throughout the third quarter that gets fully reflected in either a rollback or reduction of the surcharge or a conversion of a component of the surcharge to permanent price.

So, think of that as a backward looking indicator more than a forward..

Okay.

And last and I don't know if you will comment on this at this point, but how should we think about internal growth for the combined company, is the 4% to 4.5% reasonable for the whole company or how should we be thinking about that?.

Yes. Again, we've spoken with investors, Corey. I think our focus has been more on cash flow generation and the quality of that conversion of EBITDA to free cash flow, I would hope that cash flow growth exceeds EBITDA growth and EBITDA growth exceeds revenue growth.

Again, I think early on, we're looking at improving the quality of revenue and the EBITDA that it generates and minimize the amount of CapEx against that EBITDA that gets generated.

So again, I don't think we'll set organic growth targets right now for the combined company as we're more focused on initially improving the quality what's in the P&L and the free cash flow generation..

Understood. Thank you..

Our next question comes from Barbara Noverini with Morningstar. Please proceed with your question..

Hey, good morning..

Good morning, Barbara..

It appears that we're hearing a tale of two economies in North America lately and you've already touched on the strength of the consumer, but aside from the obvious oil and gas sector weakness, are you starting to see other pockets of the industrial economy weakening?.

First off, Barbara, we have very limited exposure to the industrial economy within all our business model that represents probably only about 3% of revenue or so. So, we're not a great proxy for anybody who wants to understand that economy. In that 3% of our revenue, we're really not seeing a decline in the U.S. so far in our model.

So, that's just something we're not seeing. I can't speak about anything more broadly than the 3% of revenue we have..

Okay. And then, I mean now that we've experienced several quarters of weakness in E&P.

Can you comment on the M&A landscape, are you starting to see more attractive valuations in this space now?.

Well, we're not, how do I best say it, not that we wouldn't look at acquiring something in the E&P space, if there was an asset we felt we needed and it was appropriately priced for $29 oil. But, in order for us to improve our E&P business, it's purely just a function of rig activity.

And we do not need any additional assets, we have comfortably the best position assets in this space with a very large lead over who is in second place. And it's all just a function of activity which is a function of oil plays. So, I'd never say never, but it's not something we're actively out look at right now..

All right, very good. Thanks very much..

Our next question comes from Andrew Buscaglia with Credit Suisse. Please proceed with your question..

Hey, guys, thanks for taking my question..

Sure..

Can you just comment on the free cash flow growth in 2016.

Can you just walk through the puts and takes again, just so we're clear, how you're getting that growing and specifically if you can comment on the working capital?.

Yes, look, I think you've seen us over time generate in that kind of 15.5% to 17% of revenue or range over the past several years and as we look at the upcoming year, obviously CapEx is down nominally year-over-year, as we've guided on a working capital standpoint, working capital is normally a slight benefit, as we look ahead to the CFFO.

So, I think you'll see cash flow from ops again go towards that upper end of what we've typically guided, being 27% of revenue and again the rest of it's just pure math..

Okay. And then can you just comment on, you haven't touched too much on recycling and intermodal in 2016.

I know we're expecting more headwinds in recycling, but can you just comment on specifically what you expect?.

Yes, both on recycling and intermodal, again recycling, the headwinds continue to abate, again last year, more of the headwinds were associated with OCC. OCC has now kind of anniversaried itself and we're about to anniversary kind of the weakness within metals and plastics, as well as third-party volume reductions.

And so, last year, you saw in some quarters about a $2.5 million reduction in revenue, you saw that be about $1.6 million or so in Q4, and now we're guiding to about $1 million.

And our outlook for OCC right now, as we think with $95 right now that we're getting that will probably firm up $3 to $5 as you kind of move through the balance of the quarter. That's not baked into the numbers, but we don't see much risk on OCC going down from this level, as you look in the near term.

So, again, headwinds around recycling continue to abate. It's nowhere near the amount of drag that was year-over-year that was felt last year. And intermodal, intermodal's running about all out. We started some contracts early last year that took a lockstep up in activity for that. We'll be anniversarying that this year.

Obviously the lower fuel surcharge that the railroads put on us gets passed on to our customers, and so you'll see revenue probably flat to down just a little bit based on the surcharge pass-throughs. But again, we're not expecting any increase in 2016 like we saw in 2015..

All right, great. That's helpful. And just one last one, I mean, I know, there's been some questions on the broader environment, and you guys not really seeing in the waste stream much risk here.

But what is the biggest risk you see in 2016 at this point? If the market's heading lower, what are some of the leading indicators you guys are looking at that would give you concern?.

Well, Andrew, on a historical basis, our sector has lagged a contraction in the economy by, to be honest, probably nine months to 18 months minimum. And of course, it's lagged coming out too.

But if you go back to the last contraction that occurred in 2008, 2009, people were talking about it in 2010 and everybody in our industry was still having strong volume and price. So it tends to lag. Now, there are two things that we look at very closely on a real-time basis, almost daily, that are real-time indicators.

And that are what are roll-off pulls per day throughout our system doing by geography, because that's a real-time indicator of on-demand activity; and what is going on in the C&D portion of our landfills throughout our network, because again that's a good indicator of construction activity, which as it comes down is a precursor generally to the economy contracting.

So we look at those two things. Those two things right now we just gave you on a real-time basis of the fourth quarter are very strong. Through the month of January, we're on target with our plan, which is supporting the guidance we gave today, so it continues to be so.

So those would be the things that if they started to reverse themselves, would tend to indicate that there's something going on in the economy that's more systemic..

All right, great. That's very helpful. Thanks..

Yep..

Our next question comes from Joe Box with KeyBanc. Please proceed with your question..

Hey, good morning, guys..

Hey, Joe. Good morning..

Worthing, can you just help us with the solid waste margin trajectory in 2016? One thing I want to be cognizant of is the timing of fuel benefits, especially relative to some of your higher cost hedges that are going to be rolling off.

If you could just help us square the cadence of margin expansion, I think that'd be helpful?.

Sure. Well, the high cost hedges that were in place last year expired at the end of last year. Now what's in place for the high cost hedges that we put in place last year that we managed at top mid-year last year that will weigh out of this year compared to market prices.

No, but if you look at Q1, fuel savings are about – between $1.5 million and $1.8 million. Again, that will work its way up just a little bit as you move through the year, given timing of some of the local fixed-price distribution contracts that rolled off last year and started benefiting this year.

And so you'll see probably about around a $7 million plus or minus benefit at current fuel prices from fuel year-over-year. So call that 35 basis points on a range of 30 basis points to 40 basis points. Away from fuel, we expect to see another kind of 20-basis point to 40-basis point improvement on kind of the aggregation of various line items.

So when you kind of add fuel to that, you're looking at anywhere from 50 basis points on the low end to about 75 basis points on the upper end in solid waste margin expansion on a year-over-year basis. How that flows through in any one quarter can vary. But on a full year basis, that's what we'd expect to see..

Okay, great. That's good color, thank you. And then, Ron, I think you mentioned earlier that you're starting to see some headwinds in geographies where there is oil exposure. I guess what I am trying to understand is what products you're seeing it in specifically.

Is it just related to C&D, are you starting to see it spill into commercial? And then, how isolated is it? Is it maybe on a county-by-county basis, or is it maybe even a little bit broader than that?.

Yes. First off, Joe, I would tell you that it is what I would consider very isolated. It tends to be in a county-by-county basis, to your point, and it tends to be really in one segment. It tends to be in high-end real estate and the construction thereabout.

So, in places outside of Houston, outside of Austin, in certain parts of Texas, where there tends to be concentrated oil wealth, you're seeing a reduction in construction activity in high-end real estate there. So that's a very small portion of our business.

Of course, you're seeing the same thing in a small market like Williston, North Dakota, where the Bakken – the largest city where the Bakken is, and you've seen that market go from over 80,000 to 90,000 oil-related jobs down to under 25,000 in a one-year period.

So when you take out 70% of the population that's going to hotels and restaurants and strip centers, it has a big impact. But that market's a $5 million to $10 million market for us. So it goes to $3 million to $7 million.

So it's just these are very isolated, they're in the scheme of things, they're rounding errors that you never see, but they do exist where there was a lot of oil concentration..

Got it. Thanks for the color, guys..

Yes..

Our next question comes from Charles Redding with BB&T Capital Markets. Please proceed with your question..

Hey, guys, good morning. This is Payne Porter (58:14) for Charles Redding..

Good morning..

Hey.

Just a quick question dealing with due diligence here, but kind of just looking at some of the preliminary meetings that you guys have had with the Progressive guys; have you identified any of the 10% to 15% of underperforming assets that you guys are looking to divest at this point? What is the priority there, are you looking at more U.S.-based assets or they're going to be Canadian-based assets, just any color that you can add on sort of those divestitures and swaps? Thanks, guys..

Sure, no problem. Well, first off, we identified through our due diligence before we ever went into a definitive agreement that there was 10% to 15% of the revenue in the combined company, all of which that was within the U.S. None....

It means about 15% to 20% of the U.S..

Right. None of the revenue in Canada. That was in one man or another inconsistent with our strategy of how we create value long-term in this space. And so, that tells you that that's $200 million to $300 million of revenue in the U.S.

We know what that revenue is, and post-closing, we will look to rationalize that, most likely in swaps, where it can help somebody adjacent to that revenue that is consistent with what they do. And they may have a piece of business that's more consistent with what we do throughout our network.

That would be the first priority and how we believe most of this will get handled. We have not had any of those discussions; that is not something that is proper to do or even legal to do pre-closing.

We have had a lot of inbound inquiries, we've told everybody the same thing that once things are closed and we understand the details of the business better than we do today, we'll sit down with people when appropriate, but, that won't happen until the transaction is closed..

I think these are markets that we've identified to us as strategic non-fits with our model. Obviously from a HSR standpoint, we're still undergoing that review and that dialog right now..

Sure. Thanks, guys, I really appreciate it..

Sure..

We have another question from Tony Bancroft with Gabelli & Company. Please proceed with your question..

Hey, good morning, gents..

Good morning, Tony..

Just to jump on the last question there, I know there wasn't any comment on the bin call regarding the New York City contract. But just since we're not going to hear from them this quarter, is there any update there? And is that somewhere – I know you just mentioned that you can't really discuss where you want to be, where you want to be.

But is New York City a place in general where you see yourself in the future? Is that somewhere you want to be, or is there anything you can add some color there?.

Sure, Tony. I mean some of it we can add some color, but some of it we can't. First off, Progressive is moving forward with the contract they have under negotiation with the Department of Sanitation in New York City, and I believe that it will be executed prior to the closing of our transaction. We know that contract, we've reviewed that contract.

I think the City and Progressive have done an enormous amount of work over the last six years to get what is an extremely comprehensive and well thought through document that works for both – contract that works for both sides. We're very supportive of that agreement and think it makes a lot of good long-term sense for the companies going forward.

And so that's where that's at and I think that's what you would hear if you talked to Dan Pio or somebody from Progressive. Secondly, I think there is a little misunderstanding in the market. And when we've talked to investors, we have clarified this as we've gone around and answered individual questions.

There is no interplay between Progressive's existing collection transfer and disposal operations in New York City and the New York City transfer and disposal contract. There is none. Those are two completely independent entities, completely independent decisions.

In other words, the waste that is picked up by Progressive today and go through their transfers to their landfill in Seneca Meadows, it will never go to the City's marine transfers that Progressive operates and vice versa. So it's completely independent and an autonomous decision that has no financial interplay with each other.

So, I want to make sure you or whoever is thinking about that contract understands that..

Thanks so much. I appreciate it..

We have no further phone questions at this time, sir..

Okay. Well, if there are no further questions, on behalf of our entire management team, we appreciate your listening to and interest in our call today. Worthing and Mary Anne Whitney are available today to answer any direct questions that we did not cover, that we are allowed to answer under Regulation FD and Regulation G. Thank you, again.

We look forward to speaking with you at upcoming investor conferences or on our next earnings call..

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines..