Greetings and welcome to the Waste Connections Second Quarter 2019 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, July 30, 2019.

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

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

In addition, we are pleased to also be joined by Ron Mittelstaedt. As announcement Friday, Ron has returned from his temporary leave of absence and assumed the role of Executive Chairman. We are extremely pleased to have him back and to have his join this morning.

Before discussing Q2 and updated outlook, I like to hand the call over to Ron for a few remarks about last week's announcement..

Okay, thank you, Worthing. First off, I'd like to thank our employees, everyone on today's call, and many others for the thousands of cards and expressions of support that my family and I have received over the past several months. I'm excited to be back and pleased I've been able to assume the role of Executive Chairman.

I remain committed to the company and as a continuing employee, look forward to assisting in several areas, including culture, strategy and acquisition. Exiting the day to day responsibilities as to provide sufficient time for me to continue to address health matters affecting my family.

No matter who you are, regardless of your profession or title, families should always come first. I look forward to continued success for the company under Worthing, who has been an integral part of the leadership team driving the success of Waste Connections for over 20 years.

When I kept early stepped aside earlier this year, Worthing assumed the role as our Principal Executive Officer, consistent with a management professional plan approved by our board.

He and our long tenured team did not miss the beat, continuing to execute our growth strategy and drive further improvements in safety, employee development and retention while moving the company forward in many areas. Our board has great confidence in him as our new CEO, and we believe that he is the right person to lead the company.

There's so much more I could say about our team and the opportunities ahead, but since this is an earnings call, I'll turn the call back over to Worthing..

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

As noted in our earnings release, solid waste pricing growth of over 5%, along with a sequential 200 basis points increase in solid waste volumes, drove underlying solid waste collection, transfer and disposal margin expansion of approximately 70 basis points in the quarter.

This helped offset a portion of the impact from lower than expected contributions from higher margin, commodity-related activities, primarily recycling and renewable fuels, and the dilutive margin impact of acquisitions completed since the prior year period.

Our team delivered on the commitments within their control, but the ongoing erosion in recycled commodity values and a precipitous drop in renewable fuel credits impacted overall results.

In spite of these commodity-related headwinds, we have already generated adjusted free cash flow of more than $500 million, putting us on track to meet our original expectation for underlying adjusted free cash flow for the full year.

As anticipated, we have already completed an outsized year of acquisition activity with almost half of the year still ahead of us, as we have closed approximately $160 million in total annualized revenue.

We are particularly pleased with the approximate 65% average reduction in safety-related incidents in the three largest acquisitions completed over the last several months, and we look forward to continued improvement, as we are accelerating the timing to automate the residential fleet in our largest acquired location.

In addition, new contract awards are trending above average and provide additional foundation for growth next year. Before we get into much more detail, let me turn the call over to Mary Anne for our forward-looking disclaimer and other housekeeping items..

Thank you, Worthing, and good morning. The discussion during today's call includes forward-looking statements made pursuant to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 including forward-looking information within the meaning of applicable Canadian securities laws.

Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties. Factors that could cause actual results to differ are discussed both in the cautionary statement on Page 3 of our July 29 earnings release and in greater detail in Waste Connections filings with the U.S.

Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada.

You should not place undue reliance on forward-looking statements and information as there may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business.

We make no commitments to revise or update any forward-looking statements and information in order to reflect events or circumstances that may change after today's date.

On the call, we will discuss non-GAAP measures such as adjusted EBITDA, adjusted net income attributable to Waste Connections on both a dollar basis and per diluted share and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP 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 will now turn the call back over to Worthing..

Thank you, Mary Anne. In the second quarter solid waste price plus volume growth was 6%. Total price of 5.2% exceeded the high end of our outlook for the quarter, it was in line with our Q1 pricing and up 100 basis points year-over-year.

Our pricing strength continues to reflect the rollover benefit of the additional price increases we implemented last year in response to accelerating cost pressures and lower recycled commodity value.

In Q2, our pricing range from approximately 3.4% that are more exclusive markets in the western region to an average of over 5.5% in our more competitive regions. Reported volume growth in Q2 was a positive 80 basis points increasing 200 basis points sequentially from Q1.

This step up was in spite of winter weather that persistent in certain marked all through April and even intimated.

Moreover, as expected reported volumes reflected about 50 basis points of negative volume drag for purposeful shedding of poor quality revenue, primarily the impact of the New York City Department of Sanitation Marine Terminal operations contract with a third party.

As noted on prior calls, we expect to fully anniversary the impact of shedding by the end of this year. Taking these impacts into consideration, we estimate the underlying volumes were up almost 1.5% in the period and we saw trends improved during the quarter as activity picked up with improving weather in many markets.

On the subject of increased volumes, we've also seen an above average success rate on municipal contract bids year-to-date, which will supplement underline volume growth in 2020, and in some cases, should position us for additional growth opportunities in certain markets, where we would not otherwise have a present.

We will have incremental CapEx this year associated with these wins with a P&L and cash flow benefits beginning next year.

Looking at year-over-year results in the second quarter by line of business on a same store basis, commercial collection revenue increased approximately 5.7%, primarily due to higher price, a portion of which was due to declines in recycle commodity values. Roll off revenue increased approximately 4.4% on higher pulls and higher revenue for pull.

In the U.S. pulls per day increased about 1% and revenue per pull was up about 4%. In Canada, pulls per day were about flat on an increase in revenue per pull of about 6%. Solid waste landfill tonnage increased about 6%, the strongest year-over-year increase we have reported since 2017, led by strength in both MSW and special waste.

MSW was up 6% on increases in all regions in the U.S. and also in Canada, led by both East Coast, most notably New York, and the West Coast in California.

Special waste was up 9% with increases in all regions except our central region, which includes Minnesota, Oklahoma and Colorado, where weather continues to be a factor driving a slower seasonal ramp in Q2. C&D tons were down about 1%, mostly on decline in Canada.

Recycling revenue excluding acquisitions was about $15 million in the second quarter, down $7.2 million year-over-year, or approximately 33%, which was lower than originally expected on continue deterioration pricing for fiber, including old corrugated containers or OCC.

OCC prices in Q2 averaged about $50 per ton, which was down 47% from the year ago period and down 36% sequentially from Q1. OCC prices exited Q2 at their lowest levels for the period, as a demand destruction from import restrictions in Asia has been further exacerbated by slowdown demand for cardboard from domestic mills.

The flow through from changes in recycling revenue was more punitive in Q2 than in product quarter, with detrimental margins well over 100%, due to the significant decrease in fiber values, and higher fees paid to third party, resulting in a combined year-over-year impact or approximately $10 million in EBITDA and about $0.03 per share in Q2.

OCC prices currently average about $45 per ton, down another 10% from Q2 and down about 50% from last year's average of $88 in the third quarter. Our current rates the full year impact of the decline in recycling is expected to total approximately $25 million to $30 million in revenue and $35 million to $40 million in EBITDA.

Compared to some of our peers, our more punitive near term impacts on recycling is primarily due to both the higher percentage of our collection business under franchise or other long term agreements and the small percentage of third party merchant recycling volumes represented [indiscernible].

About 70% of the volume delivered to our recycling facilities comes off our own trucks, 20% is with third party contracts, and only 10% is merchant buying from third parties, where we have the ability to and have implemented recycling fees similar to our peers.

Many of our franchise agreements, where we do have the ability to recover lower commodity values and higher costs, there can be a lag of up to 6 or 12 months and therefore in some cases, such recovery will continue into 2020.

We take a long term view to working with our customers through the seismic changes the industry has experienced in recycling, preferring not to close recycling facilities or claim forced majority to terminate contracts.

So for us, recovering the full impact on that 90% of recycling volumes takes both a multi-year approach increases collection pricing, which we proactively started last year and repricing contracts that is expire in future periods.

Landfill gasoline sales are also commodity driven, particularly the value of renewable identification numbers for rent, for which certain renewable gas sales qualify.

Since year end, due primarily to decrease demand for renewable energy credits, RIN prices have declined from about $1.60 to approximately $0.70 with most of the drop off occurring during Q2, resulting in a decrease of approximately $3 million or about $0.01 per share.

With RINs at current levels, we estimate that a full quarter impact would be approximately $5 million in EBITDA, or about one and a half cents per quarter in EPS during the remainder of the year.

Looking at E&P waste activity, we reported $64 million of E&P waste revenue in the second quarter, up about 6.5% year-over-year and up nominally from Q1 in spite of a small year-over-year sequential decrease in the Permian Basin.

These results reflect a modest contribution from our new E&P landfill in the Wyoming Powder basin, where activity continues to ramp after opening in late Q1. Given the 13% decrease in rig count in the U.S.

since year end, and an increasing focused on recurrence by many of our E&P customers, we do not expect the near term increase in the current run rate and continue to be selective as it moves forward on new project.

Looking at acquisition activity, we've already closed of what we will consider an above average amount of acquisitions for the year and continue to see an elevated amount of seller interest.

Year-to-date, our acquisitions totaled approximately 160 million in annualized revenue, including most recently a new integrated market in Texas, plus a significant expansion of our footprint we established last year, in addition, recently completed tuck-ins in California, Kentucky, New York, Texas and Quebec.

Now I'd like to pass the call to Mary Anne to review more in depth the financial highlights for the second quarter, provide a detailed outlook for Q3 and discuss our updated outlook for the year. I'll then wrap up before heading into Q&A..

an estimated 80 basis points resulting from the year-over-year decreasing commodity related revenue and an estimated 50 basis points impact from lower margin acquisitions completed since the year ago period.

Excluding these impacts, underlying adjusted EBITDA margins for solid waste collection transfer and disposal as a percentage of revenue was up approximately 50 basis points year-over-year.

In addition, and as expected, the year-over-year impact of our increased 401K match, which anniversaries at the end of the year was about 20 basis points in the period.

Fuel expense in Q2 was about 3.9% of revenue and we averaged approximately $2.66 per gallon for diesel in the quarter, which was down about $0.09 from the year ago period and up $0.07 sequentially from Q1 2019.

Depreciation and amortization expense for the second quarter was 13.7% of revenue, up 10 basis points year-over-year, due to a 15 basis point increase in amortization expenses associated with acquisitions completed since the year ago period.

Interest expense in the quarter increased $4.8 million over the prior year periods to $37.2 million, due to higher outstanding debt and increased interest rates as compared to the prior year period. Net of interest income from invested cash balances, interest expense increased $4.1 million year-over-year.

Debt outstanding at quarter end was about $4.1 billion, and our leverage ratio is defined in our credit agreement was about 2.3 times debt to EBITDA with cash balances of approximately $209 million. Our current weighted average cost of debt is approximately 3.5%, with about 90% of our debt as fixed rates.

Our effective tax rates for the second quarter was 21.1%. As we’ve noted on previous calls, the IRS released proposed regulations late last year associated with the Tax Act that could impact our current effective tax rate. The proposed regulations have yet to be finalized, but could impact our effective rate for 2019, beginning in the period enacted.

We believe any impact will be limited to the current year, with our effective tax rates returning to about 22% again in 2020. GAAP and adjusted net income per diluted share was $0.56 and $0.69 respectively in the second quarter. Adjusted net income in Q2 primarily excludes the impact of intangibles amortization, and other acquisition related items.

Adjusted free cash flow in the first half of the year was $503.9 million or 19.3% of revenue, putting us well on our way to meeting our original expectation for underlying adjusted free cash flow for the full year. I will now review our outlook for the third quarter 2019 and updated outlook for the full year.

Before I do, we’d like to remind everyone once again that actual results may vary significantly based on risks and uncertainties outlined in our safe harbor statement and filings we’ve made with the SEC and the Securities Commissions or others or similar regulatory authorities in Canada. We encourage investors to review these factors carefully.

Our outlook assumes no change in the current economic and operating environment. It also excludes any impact from additional acquisitions that may close during the remainder of the year, and extensive transaction related items during the period. Looking first at Q3. Revenue in Q3 is estimated to be approximately $1.405 billion.

We expect price growth for solid waste of approximately 5% in Q3, along with volume growth of approximately 50 basis points, which incorporates the estimated 50 basis points thread from the impact of the New York City Department of Sanitation, Marine Terminal operations contracts with a third party.

In addition, we expect revenue from E&P waste activity, they continue to range between $60 million and $65 million. Adjusted EBITDA in Q3 is estimated to be approximately 31.5% of revenue for about $442 million.

The margin impact from acquisitions completed since a year ago period is expected to be similar to Q2 at about 50 basis point and the commodity driven impacts are expected to be sequentially higher than in Q2. Depreciation and amortization expense for the third quarter is estimated to be about 13.5% of revenue.

Of that amount amortization of intangibles in the quarter is estimated to be about 31.5 million or $0.09 per diluted share net of taxes. Interest expense, net of interest income in Q3 is estimated to be approximately $36 million. Our effective tax rate in Q3 is estimated to be about 22%.

We estimate that the Q3 rate would increase to approximately 30.5% in the event that the proposed regulations as originally drafted are inactive during the period, which would result in an impact of approximately $0.07 per share in Q3. With the rate declining sequentially in Q4, and as notice earlier returning to about 22% in 2020.

Turning now to our updated outlook for the full year as provided and reconciled in our earnings release.

Revenue for 2019 is now estimated to be approximately $5.375 billion, up $65 million from our original outlook, due primarily to higher than anticipated contributions from acquisition, partially offset by greater than expected declines in recycling revenue and in the value of renewable energy credits from qualifying solid [ph] and gas sales.

Adjusted EBITDA for the full year is now estimated to be approximately $1.675 billion, or about 31.2% of revenue. We believe that this conservatively reflects the high decremental associated with the previously discussed decreases in commodity related activities.

Capital expenditures are now projected to be approximately $600 million, up from $575 million on an increase of approximately $35 million from the new contract wins, and higher acquisition related CapEx, partially offset by an approximate $10 million reduction in other areas.

Estimated underlying adjusted free cash flow remains in line with our original outlook of $950 million. But with about $35 million of incremental capital expenditures from recent contract awards and acquisitions, our updated estimated recorded adjusted free cash flow is $915 million, or approximately 17% of revenue, and 65% of EBITDA.

And now let me turn the call back over to Worthing, for some final remarks before Q&A..

Thank you, Mary Anne. And Ron, once again, welcome back. As noted in our released and discussed on this call, the underlying fundamentals of our solid waste business remain strong, we are extremely pleased with our year-to-date performance.

With especially like the command our team’s efforts to deliver on their commitments in terms of what they control and in implementing the changes necessary to further recover the now more punitive impacts of commodity related activity.

Improving trends and safety, including those noted at recent acquisitions, and turnover, which trended lower in Q2 are indicative of our local leadership accountability and the dedication of our 18,000 employees, who work tirelessly each and every day to drive our results.

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

We’ve already implemented a typical year – completed a typical year of acquisition activity, and we are well positioned for additional acquisition and organic growth opportunities, while maintaining flexibility to increase the return of capital to shareholders.

We anticipate announcing another double digit percentage increase in our annual – excuse me – in our quarterly cash dividend in October and we are completing the annual renewal of our normal course issuer bid, which authorizes the repurchase of up to 5% of our outstanding share. Appreciate your time today.

And I’ll now turn the call over to the operator to open up the lines for your questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes in line of Tyler Brown with Raymond James. Please proceed with your question..

Hey, good morning, guys..

Good morning, Tyler..

Hey, Ron, nice to hear from you. We continue to send our best to your way..

Thanks, Tyler..

Hey, Mary Anne. Yeah. So Mary Anne, I was hoping maybe bridge the original 1705 in EBITDA guidance today 1675 guidance. So it feels that maybe the core trends are actually a touch stronger, E&P seems to be pretty steady, M&A is actually a good guy, but then maybe OCC and rent prices are working against you particularly late in Q2.

But are those the key pieces and then if so, can you help maybe size the delta in those buckets, and again, maybe in the new guidance versus the old guidance?.

Sure. Glad to do so. And you did hit on the feedback Tyler. I would start with revenue to give context. So if you start with a 5310 of the original guidance, so the acquisition contributions about $100 million, and as you said the underlying business is doing a little better.

But you have offset from lower recycled commodity revenues about $30 million and the lower RIMs, the renewable energy credits have another 10 million to 15 million. So if you say again up 100 underlying strength a little better, and then back out the 35 million to 40 million in commodities, you get your 5375 at the revenue line.

And if you look at the incremental margin contribution from acquisitions in that 20% to 25%, and you look at the detrimental on those commodities coming off those more like 50 million, that's how you net down to down 30 to the 1675 from your 1705..

Okay, yep, no, that's perfect. That's very, very helpful. So Worthing, I do want to come back to some you talked about. So you noticed that the franchise nature of your business, so in recycling, there's a lag in your ability to maybe recoup some of the lower fiber prices.

But I think you noticed that there's going to be some pressure, obviously into the second half or maybe even into early 2020.

But longer term, so if commodity prices were to remain the same, would recycling actually be a positive EBITDA tailwind over time, even without a rebound and price as you readdress contract? Am I leading that the right way?.

Yeah, absolutely. I mean, if you look at what we've done in incremental pricing, which, as we talked about our prior calls, about a half a point, incremental related to recycling, that gives you a sense of how we're recouping majority of that direct collection business, you know, 50 basis points, as I'm around here, about $25 million.

And if you look at all impact of the last two years, you know, you'd get numbers approaching 120 million of EBITDA, once you exit this year comparing 17 to '19. So we're getting an incremental 25 million or so in pricing on the collection side of the business, what is telling you is this take us between four and five years to recoup that.

And to your point, that means upside, as we go year-to-year looking ahead..

Okay, okay. Yeah, no, that's very helpful. And then maybe some little behind on the rent.

But just at a high level, what exactly is driving this production and the rent pricing?.

When you have the – obviously it plays a major portion of it and the White House plays a portion of this as well. You know, refineries have been major buyers in the marketplace to offset emissions with refiners and need to blend fuels.

And refiners getting more and more exemptions from the EPA, as they've been lobbying to help their business because it's a very expensive line item at the refinery level. You've seen more exemptions being issued by the EPA, which has impacted and which is driven down near term price of the rents..

Okay, okay. I see. And my last one kind of related to that.

So it's a big picture on, if current rent prices remain, what would be that specific full year impact the EBITDA in full year '19 verses four year '18, if I was thinking about your bridge?.

Sure. So in our guidance, we had taken rents down slightly because we knew that they were down year-over-year. The incremental impact is about 15 million in the aggregate of 20 to 25..

20 to 25, okay. Thank you..

You bet..

Our next question comes in line of Brian Maguire with Goldman Sachs. Please proceed with your question..

Hey, good morning, everyone. And, Ron, great to hear you again. Worthing, just a question on the CapEx changes, I guess the additional 35 million, it's always great to win some new business. Seems like it's just more an issue of timing, spending the money today to get the earnings tomorrow.

Just, you know, just try and think about what benefit that might have on volume earning. Next year will be assume a typical sort of mid-teens pretax return on that capital.

And if that's the case, does that imply maybe 5 million of EBITDA, 20 million of sales and something like half of a point of volume improvement for next year from that alone?.

Yeah, you nailed it. But half a point in volume, if you more collection oriented, if you put an average collection margin on that you know, you're spot on and thinking about 25 million in revenue, 5 million to 6 million of EBITDA. And for that with the capital outlay, you're looking at, you know, roughly 5 to 6 times even for the capital outlay.

And obviously, that's a better return on capital, than paying higher multiples that on M&A..

Yeah, I guess another way to think of it, as if you had done M&A, then we wouldn't be talking about, you know, raising the capital or cutting the free cash flow. It's just a sort of a decision between which one is better.

And this one, clearly a better return than M&A?.

Yeah, absolutely. And if you look at just the overall, it's just there's an increased level of fitting activity, we're not changing how we did. But I look back over the past six or seven months, and we've submitted little over 70 proposal. And there's still about a third of those that are outstanding and waiting to hear from for the balance of year.

And now the other two thirds, we've won about half and we've missed about half. But the half that we've won what you're seeing more positive impact from..

And I know we're not talking about 2020 too much here, but if that's going to give you maybe a supplemental 40 or 50 basis points of volume improvement, and the underlying trends are a point and a half, we thinking about sort of the high end of that 1% to 2% volume growth ranges talked about historically?.

Yeah, definitely help move the needle within that range. That's right..

And just last on this.

Any early thoughts on 2020 CapEx, is this 600 million this range sort of normal for next year, or just some of the landfill spending come off, given the outlook there and maybe the 35 million doesn't recur next year?.

Yeah, if looking at the underlying volume vibrant thing, that 1% to 2%. Obviously, these wins move a little bit higher, but that's CapEx we're spending this year. You know, we'd always say, as a rule of thumb, think about an upcoming year about 10.5% of revenue. And as we get into February, we will refine that further..

Okay, appreciate it. Thanks..

Our next question comes from a line of Noah Kaye with Oppenheimer. Please proceed with your question..

Thanks very much. Good morning. You know, Worthing, I was just following up on the subject of the new contract. But, you know, as you say, you're not changing the way that you bid.

So just curious what in your view, driving this above average success rate? Does it have to do with, you know, your asset footprint changes, then you change in kind of the competitive dynamic that you see in the industry? Wondering if this is something more structural?.

No, look, I think maybe it's just the cycle of when these contracts are coming up for bid. Obviously, in some cases, there are relationship advantages, other cases, incumbents may have had service issues that have put them sideways with municipality, in other cases politics that have gone wrong against the incumbent.

Whatever the case may be, it just so happened that right now, you know, the stars have aligned to make this an outsized year. I would never assume that this kind of outside year continues year in year out, it's just episodic..

Okay, that's helpful. And then just to go back to your commentary earlier on some of the regional volume trends. So I would take it then that just based on the weather, the central region had a sort of a later than normal seasonal ramp because of that poor weather.

So does that – is that presumably provide some runway into 3Q? And I guess, you know, with that, and the rest of the commentary that you provided, you know, how should we think about kind of bias towards, you know, prior guidance for volume for the year?.

I mean it provides runway for Q3, but obviously, in the central region, especially in the states, we highlighted, such as a Minnesota as an example, or an Oklahoma or Colorado, obviously, you still have elements of special waste that exist in those markets that you typically see pronounced season ramping as you move through Q3.

But obviously, the timing of those whether they start as it or whether they get delayed, I mean, some of these projects, as you know, you can be waiting for them to start and you're sitting there waiting that scales for two months until they finally cross the scales, right.

And so while we're seeing a nice seasonal tone, I mean, the timing of when those projects come through the gate, across the scale, is going to really determine a look back, how much did it ramp..

I would echo that and just add that important to remember that last year, we had a stronger special waste quarter in Q3. So the comps are a little tougher, as well. So if you're thinking about year-over-year increases, like we saw this year, it gets a little tougher..

Okay, that's very helpful. If I could sneak one more in. You know, you mentioned some selectivity around, you know, further CapEx investments, and E&P, given the activity you're seeing.

But we've also had, I guess, a bit more consolidation, you know, maybe even a bit more rationalization in terms of disposal pricing, you know, these hopefully, that starts to come through. So how does that impact kind of your thoughts around you know, capital allocation? Just trying to understand..

Sure. I mean, it's thoughts, I've always really haven’t changed, right. I mean, as you know, we talked, we opened up a new landfill up in Wyoming, we talked about another investment we’re making to expand the services of one of our existing landfills in the Permian. That project got to come on later this year, early next.

We’re also looking at an additional landfill within the Permian. We’ve worked with the regulators for many years now, and just continuing to redesign that site to match the other realities of the current market, right.

I mean, it’s – you know if one doesn’t, if one has a choice of investing 10 to 15 in a site versus investing 25 to 30, I would always in this environment, wanting to take the lower side of that and make sure I’ve worked with regulators to do that. And so how we approach it from an asset positioning and serving our customers hasn’t changed.

Obviously, we want to be prudent however how much capital rolling out to address this going forward..

Very helpful. Thanks so much..

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

Thank you. And Ron, welcome back into the hot seat..

Thanks, Michael..

So I just, I am adding all the numbers up as fast as I can count them on my fingers and toes. And I think I’m looking at 12 months, July 1 to June 30 at 65 million headwind we’re dealing with between the recycling in the RIN credit a little bit more, and then half of it in the second half of 2019.

And there’s a tail, there’s a full quarter of it in 1Q and then there’s a tail in 2Q.

That’s right way to think about plotting all that out all things being equal?.

Well, if I like – I think we deal in terms of as of calendar year, not LTMs but obviously last year things for basis recycling overall with about $65 billion revenue impact.

This year in the same store basis, we’re on a glide path to do what about – What’s that?.

25 to 30..

Yeah, 25 to 30 total. I mean basically recycling as you know is down for us about 120 million or more of that two year period. And you put the decremental above that means EBITDA impact has been north of 120 million. So just leaving all thing, all those out of it.

If we look at the business, I mean you had assets back in ’16, if we could think about a five year trend where you think business could be in five years. And we talked about a 6 to 1 plan, if you remember that, that is going about a billion dollars of free cash flow by 2021.

Put simply adjusted for recycling, we would have done it this year, you know we’re two years earlier. And so now we’ve done the same math you’ve done but we do a calendar year not LTM..

Okay. So you’ve opened the window, I was going to ask next. Is the right way to – we’re not doing 20 guidance.

But the right way to think about ‘20 is, it starts with a billion as the free cash?.

Right, we’re helping with ’20 guidance..

But give us a place to – What’s that?.

We do this to everyone?.

I know, but have to try.

Your pipeline, what’s it looks like going into the second half as far as the opportunity to maybe something else gets added to the 160?.

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

And you would anticipate that there would be more closed and it’s just not in the guidance?.

We don’t guide what’s not closed, right, because I don’t control the timing of what we get done. But obviously, if we move into the year, I mean, anything that we’re in dialogue right now would end up very little to this calendar year, if we do close the most of that, is a rollover contribution for 2020 growth..

Okay. And then last question would be I guess some back into 2020. But your efforts to drive an incremental increase around the recycling side in open market plus what you can do an open market general, suggest 4.5, 5, the right way to think about how price to continues to trend one to two in volume. That’s the sort of way to think..

That’s the way we think about it..

Okay, great. Thank you so much..

Our next question comes from line of Derek Spronck with RBC. Please proceed with your question..

Okay. Good morning. And thank you for taking my questions. And good to have you back Ron..

Thanks Derek..

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

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

Would you say that your addressable market is built, I believe you’ve commented before around $3 billion, $3 billion to $4 billion a year addressable market. Is that be maintained and I know addressable market is in a black and white science.

But are you – can you open up your addressable market at all in the future? And if so, are some of your peers opening up their addressable market and are you starting to see a little bit of overlap around addressable market or potential acquisition an addressable market relative to your peers on a historical basis?.

Okay, look, our addressable market hasn’t changed. Obviously, as we go into new states and new parts of states, we can expand that addressable market. Look, our peers are getting transactions done that we’re not involved in because we don’t overlap them and their markets, both of the transactions we’re doing, 9 out of 10 are so sore so dialogue.

Without a doubt, though, you’ve got when you have banker involved, those are transactions that are better more wildly shopped. That’s why we rarely do transactions that bankers on the sell side. But you can also see some of our peers that are just diversifying away from solid waste and doing various in fund reserves.

So they don’t see us with those opportunities, right. So I think landscape has changed, clearly, it’s a frothy time from a dialogue standpoint. I think you’re seeing everyone benefit from that not just any one company in particular..

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

No..

Okay. Right. Thanks for taking my question..

Our next question comes in line of Sean Eastman with KeyBanc Capital Markets. Please proceed with your question..

Thanks very much. Ron, welcome back. And Worthing, big congrats on your CEO appointment. My first question is just on the price momentum. It sounds like recycling is kind of an incremental tailwind for price for the year.

So I’m just wondering, whether that means we can kind of look at this 5% that we’re trending to in 2019 and keep that as sort of a reasonable assumption for the year or whether, there’s some other puts and takes, we should keep it in consideration in terms of how that the pace of that price growth continues?.

Sure. And yes, the thing is the short answer, Sean. I think 5% is a fair way to think about it. And as you point out, we did as Worthing mentioned, we stay in the 5.2 that we reported this quarter, about 50 basis points of that is from the incremental we’ve gotten associated with recovering the decline in recycle commodities.

So the underlying price is around 4.5%, 50 basis points of recycling and 20 basis points of fuel surcharging. And that’s a fair way to think about it going forward..

Okay, thanks. And I thought maybe you guys could comment on the behavior you’re seeing from the smaller players in your market. I know around this time last year, sort of initial wave of recycled commodity price pressure kind of prompted some action from some of the more marginal players in the market.

And I’m just wondering if maybe this next wave of pressure potentially driving them to another breaking point, in terms of maybe rolling out some price increases are being more inclined to sell.

Any comments around that dynamic would be great?.

Sure. I mean, if you think they were impacted last year, the price is tightened this year. And so no, it’s the – we’re still seeing very good structural support for pricing the industry, right, lot of private they’ve been impacted by recycling and that’s gotten more punitive for them. Labors, the pressures have not abated.

Cost to move volumes, the landfills have not abated. And so really, if you saw last year, many privates doing double digit price increases in order to overcome that, that same pressures reemerge this year. And so, no, I think you’ve seen everyone in the industry report stronger price, because the underlying tone is better.

So our price retention, it’s been – it’s approaching 98% on price increases are putting on the street. And so it’s a structurally it continues to be a favorable environment, and put simply both needs to be pushing price in order to cover their costs..

Okay, that makes sense. Then last quick one for me is just on this RIM credit dynamic, the price of those have been – that move has been pretty eye popping. So I’m just wondering if – maybe it’s difficult to answer, but I’m wondering if you think we’ve found a floor here in the price for those RIM.

And whether there’s kind of a clear catalyst on the horizon for those prices to stabilize or potentially go back up?.

Yeah, look at $0.70 right now, we’re $0.70 away from the floor. I guess you pulling that way. But, no, look, obviously any – you got to see what’s happening in Washington, right. If there’s an administration change as an example, look, I go back a year or two RIM prices were in the mid 2s, not $0.70 for almost four times what they are right now.

And so I think as you see, the kind of the underlying tone in DC for clean energy for renewable credits, et cetera that are really set the tone for the marketplace and the clearing price with that..

Okay, thanks very much. Appreciate the time..

[Operator Instructions] Our next question comes to the line of Mark Neville with Scotiabank. Please proceed with your question..

Hey, good morning. I just want to follow-up on the recycling conversation. The 6 to 12 month lag on the pricing.

I guess I’m just curious, how negotiated is that process versus sort of how all America, easier I guess is it sort of to recapture some of that price?.

Well, depends on what type of contract we’re talking about. If it’s a return space contract, when you need the cost first and then go in for a rate increase. In the case of a contract that not returns based, it’s a negotiation with municipality. And municipalities have been receptive to understand the plight of what’s happening right now.

And if they want to encourage recycling, continue it. Right now, it costs more money. Then if we don’t get that success everywhere. But for instance, we just had another one jurisdiction, where we just, we’ve just started barring about a $200,000 a month weight on recycling, that we didn’t have before.

And that negotiation with the city will probably last between three and five months. It will probably recapture 70% or 80% of that by the time of negotiation is done, if not 100%. And so it really depends on the type of contract and where we’re at dialog with the city or the municipality..

Okay.

But so the way you’ve talked about it or guided or talk to us, it’s been 120 packs, sort of four to five years maybe to recapture that as you negotiate all this?.

Right, and last year with year one, this year is year two. I mean so, we’re two years into that four to five year journey..

Okay. And then so just other variable energy credits, there’s a few numbers thrown around, just want to make sure I’ve got it right.

It’s about – current levels, it’s about a $5 million per Q EBITDA impact? Is that right?.

That’s correct. Looking into the second half a year, that’s opted into our updated outlook..

Okay.

And in terms of against so just done the recycling, what price for those, have you assumed into the guidance, I am curious if there’s some risk to the number in the second half just at current levels?.

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

Yeah. Okay. And maybe just one last one that on the M&A.

Although 160 or 165 that you’ve acquired thus far, Mary Anne, I think you said about 100 million of that hits the P&L this year or 100 million that’s in the guide?.

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

Okay. Okay. Yeah, thanks. Thanks for taking my questions..

You bet..

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

Thank you. With no further questions, on behalf of our entire management team, we appreciate your listening the call today. Mary Anne and I are available today to answer any direct questions that we did not cover that we’re allowed to answer under Reg FD, Reg G and Applicable Securities Laws in Canada.

Thank you again, and we’ll look forward to speaking with you at upcoming investor conferences, or on a next earnings call..

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