Republic Services Inc (RSG) — Q4 2019 Earnings Call Transcript

Thank you. I would like to welcome everyone to Republic Services' fourth quarter 2018 conference call. Don Slager, our CEO; Jon Vander Ark, our President; and Chuck Serianni, our CFO are joining me as we discuss our performance. I would like to take a moment to remind everyone that some of the information we discuss on today's call contains forward-looking statements, which involve risk and uncertainties and may materially differ from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. The material that we discuss today is time-sensitive. If in the future, you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is February 13, 2020. Please note that this call is the property of Republic Service, Inc. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited. I want to point out that our SEC filings, our earnings press release which includes GAAP reconciliation table and a discussion of business activities, along with the recording of this call, are all available on Republic's website at republicservices.com. I want to remind you that Republic's management team routinely participates in Investor Conferences. When events are scheduled, the date, time and presentations are posted on our website. With that, I would like to turn the call over to Don.

Thank you, Nicole. Good afternoon, everyone, and thanks for joining us. We are very pleased with our strong finish to 2019. The hard work, passion, and commitment from our 36,000 employees enabled us to outperform our upwardly revised EPS and free cash flow guidance despite continued headwinds from lowered recycled commodity prices. By successfully pricing in excess of cost inflation in 2019, we expanded underlying EBITDA margin by 70 basis points and generated over $1.2 billion of adjusted free cash flow. For the full year, we invested over $0.5 billion in acquisitions and returned the remaining cash flow to our shareholders through dividends and opportunistic share repurchases. We continue to believe that disciplined investment in acquisitions with attractive returns is the best use of free cash flow to increase long-term shareholder value. Our strong finish to 2019 sets us up for continued success in 2020. Given the underlying momentum in our business, we are well-positioned to deliver approximately 5% top-line revenue growth and nearly 6% EBITDA growth. On top of that, we are entering 2020 with one of the strongest acquisition pipelines we've seen in years. We will achieve our 2020 guidance by continuing to prioritize the safety of our people and communities above all else; attracting value-oriented customers to drive profitable volume growth; leveraging technology to empower our employees; increase connectivity with our customers; and drive operational excellence; and finally, continue to make disciplined acquisition investments to grow free cash flow and drive sustainable long-term value. These priorities represent the continued execution of our profitable growth through differentiation strategy. We believe our 2019 results clearly demonstrate the effectiveness of our strategy and our team's ability to consistently execute against it. For example, the most critical component to successfully executing our strategy is our people. We believe that an engaged and diverse workforce is the greatest indicator of our success. We know that our business units with higher employee engagement have fewer safety incidents, better customer service, and better financial performance. In 2019, we improved our overall employee engagement score by over 100 basis points to 86%, which is well above national norms and is high performing for the industry. We also reduced driver turnover by 130 basis points versus the prior year. Moreover, the team continued to receive notable national awards and recognition of the inclusive culture we are building here at Republic. These results reflect the cumulative benefit of the investments we've made in our people over the last decade. We will continue to invest in our people and culture which will further enhance our reputation as an employer of choice. Our strategy also includes investments to improve the customer experience, drive operational excellence, and enhance our leading market position. I'll turn the call over to Jon to walk you through our 2019 results in each of those strategic areas. Jon?

As Don mentioned, we've been investing in the customer experience for several years now. Having a passion for our customers is core to our strategy. We know by offering differentiated products, services, and experiences designed to meet our customers' wants and needs, we drive customer loyalty and increased willingness to pay. In 2019, we continued to invest in and enhance our customer-facing technology including our website and mobile app. We also attained our highest level of pricing in the last 10 years, while maintaining our industry-leading customer churn of 7%. Another key component of our strategy is delivering durable operational excellence. This enables us to deliver consistent high-quality service to our customers while lowering our operating costs. In 2019, we successfully managed our cost inflation and drove solid operating leverage in the business. We also began to roll out our new RISE platform to our dispatch operations. This new technology equips our dispatchers with more real-time routing information and enhanced data visualization tools. It also supports additional mobile and in-cab technology, which we will begin rolling out in our large container business later this year. Over time, this platform will further empower our employees, transform our operations improve productivity and increase connectivity with our customers. Additionally in 2019, we raised the bar with our latest long-term sustainability goals. These goals address our most critical sustainability risks and opportunities and are aligned with the United Nations Sustainable Development Goals. We believe each new goal has the potential to significantly benefit the environment and society while enhancing the foundation and profitability of our business over the long term. Finally, in 2019, we further strengthened our leading market position by strategically investing over $525 million in value-enhancing acquisitions. Through these investments, we increased our operating density in existing markets, entered new geographical markets, and increased the scale of our downstream environmental services offerings. As you can see the investments we've made over the years in our people, the customer experience, operational excellence, and our market position are delivering tangible results. They also provide a solid platform for continued growth in the business. Next, I'd like to discuss our fourth quarter operating performance. During the quarter, our pricing environment remained favorable, and we continued to price in excess of our cost inflation. Core price, which represents price increases to our same-store customers, net of rollbacks, was 4.8%. This included open market core price of 5.8% and restricted core price of 3.2%. Our restricted core price reflects the significant progress we've made in repricing and restructuring our municipal recycling collection contracts. Restricted core price also reflects the continued benefits of moving away from CPI-based pricing to an alternative pricing mechanism. To date, including both collection and disposal-related contracts, we've converted $780 million or 31% of our CPI-based book of business. This represents a $120 million increase over the prior year. Next, average yield for the quarter was 2.6%. Average yield measures the change in average price per unit and contemplates the impact of customer churn. Average yield was strongest in our small container collection and landfill MSW businesses. Small container average yield was 4.1% and landfill MSW average yield was 3.4%. This is the fourth straight quarter landfill MSW pricing has been greater than 3%. Looking forward in 2020, we expect average yield of approximately 3%. We will achieve this by continuing to focus on enhancing the customer experience and delivering superior service; partnering with our municipal recycling customers to build more durable economically sustainable recycling programs; and pricing our products and services to ensure we earn an appropriate return on our capital investment.

Thanks, Jon. Adjusted EPS for the full year was $3.34 and included a $0.06 net benefit associated with CNG tax credits. In December, CNG tax credits were enacted retroactively to 2018 and will be available through 2020. Our adjusted EBITDA margin for the full year was 28.3% and increased 30 basis points versus the prior year. This included underlying margin expansion of 70 basis points. This is partially offset by a 40 basis point headwind from lower recycled commodity prices. The CNG tax credit did not impact the year-over-year change in margin. Adjusted free cash flow for the full year was $1.2 billion. Adjusted free cash flow was favorable relative to our expectations, primarily due to lower cash taxes. Cash taxes were favorably impacted in the fourth quarter by acquisition-related bonus depreciation. At year-end leverage was 3 times and within our optimal range of 2.5 to 3 times. Next turning to our 2020 guidance. The current economic backdrop remains supportive of continued growth. Consumer sentiment is strong, unemployment is low, and housing starts are up year-over-year. Given this favorable backdrop for the year we expect total revenue growth of approximately 4.25% to 5% and adjusted EBITDA margin expansion of 20 to 40 basis points. We expect this level of margin expansion, despite approximately 30 basis points of headwind going into 2020. These headwinds include lower recycled commodity prices, a decrease in upstream environmental services revenues and an additional workday. Relative to our preliminary outlook, we increased our adjusted EPS guidance range by $0.02 to $3.48 to $3.53. The increase is due to a $0.04 benefit from CNG tax credits which is partially offset by an additional $0.02 headwind from our upstream environmental services business. We also increased our adjusted free cash flow guidance by $25 million to $1.175 billion to $1.225 billion. The increase is due to a $30 million benefit from CNG tax credits partially offset by an additional $5 million headwind from our upstream environmental services business. Keep in mind our adjusted free cash flow guidance for 2020 includes $100 million of CapEx associated with the reinvestment of tax reform savings. These funds represent continued investments in updated locker rooms, break rooms, training facilities and equipment for the benefit of our front-line employees. This $100 million capital investment will not reoccur in 2021. Normalizing for this capital investment, our free cash flow baseline exiting 2020 will be approximately $1.3 billion. With that operator I'd like to open the call to questions.

Good afternoon. Thank you. My first question is regarding the volume on commercial small containers. Do you anticipate that turning positive at some point? We've been trimming low-margin business for three years now. Do you have any thoughts on when we might see that positive inflection?

Yes, absolutely Hamzah you're right. We've been shedding some of that work. And while there'll always be a little bit of that work to shed because as we acquire companies, we find that the book of business, we don't value that when we pay for those companies. But we're certainly kind of at the bottom of that trend and you're going to see positive growth in that line of business.

And then just on the M&A sort of pipeline, how are you guys thinking about deal flow this year? Where the balance sheet leverage is at? I guess, there's a lot of private company revenue up for sale ahead of the election plus the ADSW divestitures. Any thoughts on how aggressive you want to be there?

Sure. This is Don. We – as I said in my remarks, we've got the most robust pipeline we've seen in years going into the year. And we spent over $0.5 billion in 2019. While our guide only has $200 million spend in it, I personally wouldn't be surprised if we matched or exceeded last year's performance. There's a good pipeline of really good companies, and we've got a really good team that is across the nation looking at deals. And as I always say, we look at everything, and we sort out what we're most attracted to. And we're out there talking to a lot of people. We've got a lot of interest right now. So we feel pretty confident. And as far as the leverage, when we talk about leverage being sort of sweet spot two and half to three, we have at times gone over three times leverage to buy really good cash flow. And as I said in my remarks, the very best use of our cash flow is to buy more good cash flow at the right multiple. So we could lever up a little bit and then we'll pay that debt down over time. As long as we're buying good cash flow, that's a good recipe for success.

Got you. And just last question and I'll turn it over. Just on SG&A, I realized there was sort of corporate function build-out at the company. And in your SG&A's run rate is higher than your largest competitor by a bit at least this quarter. Do you see that coming down? Is SG&A at peak levels today? Or does it go further up from here? Thank you.

Yeah. Hamzah, this is Chuck. And yeah, we do see SG&A trending down from here. I would say into 2020 we're projecting that it will be flat to slightly down.

And Hamzah, I'll add to that. We have done a great job of building really strong foundational capability within the business over the last several years. And we are at a good inflection point to leverage that scale. And believe me, we're having a lot of conversations about that. We've got a really good talented group of people here that frankly can run a bigger company without having to constantly add people and resources. So you're exactly right.

Great. Thank you very much. Have a good evening.

Hey, good afternoon. Just a follow-on question on the volume outlook, the volumes were down a little bit in 4Q but the guidance for 2020 implies about a 100 basis point pickup from where we were in kind of 4Q. So just wondering, where or what quarter we might expect to see that inflection to positive growth comps? And what kind of visibility do you have into that volume turning after a couple of years of it being down a little bit or kind of flattish?

Yeah. I think you'll see that in Q1. And please keep in mind volume and price are related. And we've had really, really strong pricing over the last couple of years in part because we think about returns at every level. When we acquire a company every customer we sell to, we want to have the appropriate return on the investment we make. And so that's caused us to shed some of that work as we've taken price up. We feel like we're off a really good base to price. And I think you're going to see that volume growth we're forecasting; you're going to see that consistent across the four quarters in 2020.

Yeah. Let me add to that. And we have a very consistent approach for price-volume. There's no zigging and zagging with our thinking on that. And so there's a lot of moving parts to this story. But as Jon said, everything has to contribute. And we feel like we're getting our fair share of organic growth, but we are doing some intentional things right to make sure that we're not doing this for practice.

Got it. And the 3% yield guidance for 2020 that would be I think the highest in over a decade for you guys. Is that – do you think that's a sustainable level going forward? Or should we just view this as sort of a one-year level given what's going on in recycling and the need to just kind of recoup that in other parts of the business?

Yeah – no. I think I'll see that as sustainable. And the reason is it's years in the making. It's not an event. We've always gotten that or above that in the open market part of the business and the drag excused me has been the CPI related part of the business. And we've worked very, very hard on alternative index and getting everybody to pay their fair share. And as you're seeing us continually push that the market is changing on that front. Those RFPs change and that is becoming the norm of the pricing index and a lot of those municipal contracts and when everybody contributes to pricing that allows us to sustain that 3% over time.

Yes. And let me add to that. We posted landfill pricing, really strong landfill pricing 3.4% MSW pricing as a backdrop. If you look at just the open market landfill and transfer pricing, pricing is actually 4.5% to 5.5%, right? So, in open market post-collection pricing is moving in the right direction as it should. That also provides sort of underlying economics that make the market more rational.

Thanks. Just a follow-up on the pricing theme thinking about the drivers for 2020. You mentioned tailwinds from reworking the muni contracts both with CPI migration to alternative index and then also recycling landfill just driving higher collection willingness to pay. That kind of covers most of your business lines. So, should we expect fairly broad-based improvement in yield across business lines? Any lines you would expect to be leaders on the yield front?

Yes, I mean small container is usually our flagship along with large container perm historically and I expect them to continue to lead the way. But I think the broader theme you're hearing is every part of the business needs to contribute, right? We don't just accept some people are not willing to pay their fair share, right? And to Don's point, it's got to start from the landfill right and that emanates into the collection side of the business. And when those two things work in the right direction, we get it across the board.

Sure. If housing starts continue to rise, it creates a supply and demand situation that drives prices higher. Our open-top business should also see improvement.

Makes sense. Perhaps a question on 2020 margins guidance for 20 to 40 bps expansion. It seems like recycling if I got your guide right is maybe 15 bps or so impact to margin. What are some of the other offsets that might offset solid waste margin expansion, dilutive acquisitions, the E&P softness CNG? I guess, just are there any other considerations we should keep in mind or is there some deceleration of margin expansion in solid waste?

No, so the headwinds that we faced in 2020 one is commodity prices about 10 basis points. I talked about the upstream environmental services that's about another 10 basis points of margin headwind that we face. And then I mentioned the extra workday that we have in 2020 that's another 10 basis points. Net all that out and what you end up with is about 50 to 70 basis points in underlying margin expansion just due to the base business.

Yes. Now remember commodity prices were still high in the first half of 2019. That's really what we're talking about. We think they've stabilized and they'll remain stable through the year. But we still have to sort of overcome that first half of 2019 where they were stronger.

And while we have that commodity price headwind we're taking pricing actions overall in recycling that more than offset that commodity price headwind.

Hey good afternoon. Thanks for taking my question. Congrats on the CDP Climate A List recognition. And obviously we're seeing a lot more interest in ESG investing here. Curious how you think Republic should be viewed from this lens. And maybe, what are some specific initiatives you're doing on this front? Further, just curious, are you seeing pressure from shareholders? And what particular metrics do you think they're focused on this?

Well, I'll let Jon give you some detail. But we've seen a lot more, I wouldn't say pressure, but interest from shareholders. ESG is on the tip of the tongue and top of mind of our investors today. Certainly, we spend a lot more time on these issues in the boardroom. We have a Corporate Responsibility and Sustainability Committee on our Board that spends significant time working with management on all of the goals we set, and initiatives we have in place. And so, ESG isn't going anywhere and we'll see more and more interest in it as time goes by. And of course, you can see just by the rating system, by the grades we get and then by the goals we've set how competitive we are? Jon?

Yes. And I think the more important thing is these aren't disconnected or these aren't just aspirations. These are deeply connected in our business. And we believe to be environmentally sustainable. You have to be economically sustainable. So, these are things that are great for the broader community as a whole, the smaller community and municipalities and they're going to be good for our business. So safety, for example, is one of our goals, right? Our number one priority right, we want all of our colleagues to go home after work every night, so a huge priority for us. By doing that, we also lower our risk expense and improve the profitability of the business. Our employee engagement by getting them more engaged we lower our turnover and lower the cost of operating the business, right? By adding to our recycling capacity, we meet our customers' need doing it in a sustainable business model where they're going to be willing to pay their fair share for those investments, right? Engaging our community and our national neighborhood promise right is a way that we give back to the community, but it entrenches us with our most important customers and allows us to maintain and extend those contracts over time.

Got you. And then just a quick one, I think you mentioned your average recycled commodity basket was $66 per ton here in Q4. Just kind of curious, what you're seeing in 1Q on the average basket there?

Yes. In the first quarter, it's a little bit higher right now, a few dollars higher, but not significantly different from our guidance level, which is at $65.

And I think the long-term outlook is that it's pretty flat all year.

Hey good afternoon. Chuck, congrats on the margin momentum here in 2019 which looks like it's expected to continue into 2020. But I was hoping if you could give us some help on the cadence of margin improvement as the year progresses? I mean I'm assuming you still have some dilutive impacts from recycling and the workday specifically in Q1. So, would Q1 margins maybe be down year-over-year or maybe more flat? And then they kind of build steam as the year progresses and then maybe a little bit of a tougher comp in Q4 given the CNG, is that the right way to think about it?

Yes. You're right about that, Tyler. So, a little bit more of a headwind in Q1. Keep in mind that that's where we have the additional workday, right? So you have that phenomenon in there. And Don already mentioned the fact that you've got the commodity price headwind that hits us in Q1. And then we accelerate from there to a good Q2 good Q3. And then Q4 right now we're thinking is going to be kind of flattish.

We start to get the rollover benefit of pricing and all the great work the team is doing on converting contracts to the right index to the fair share agreement. All those things are building speed sort of compound through time. The full pipeline when we first integrate these businesses, we don't see a lot of extra cash flow because of the integration cost. But as they get fully tucked in everything gets converted it builds right? So you'll see all that build return.

Okay. That's helpful. And then Don, so obviously you guys have done a really good job on the yield front. But if I look at the spread between core price and average yield, it actually continues to widen out. I think it's actually as wide as it's been in say five years. But I just curious if you could speak to why that is. It would indicate that either churn is picking up or the spread between new and lost business is widening. But I really don't get the sense that that's the case. So, I'm having a hard time squaring that.

Well, there's a lot of mix, right? And then again when we intentionally shed business we're shedding business that is a lower price per unit right? And we're intentional and unregrettable then that's just a change. So I'll tell you this, we have a pricing plan, of course. There's no doubt that we have a pricing group here that works very closely with all our field leaders. And we know what kind of pricing actions we're going to be taking throughout the year. And we have a pretty good feeling for what willingness to pay is in the markets. And then, it's just the power of the portfolio. We're number one or number two across these markets. We've got good penetration. The field team is doing a better job every month on customer experience and service. And that all drives willingness to pay. The team is doing a great job in educating customers on the way to recycle correctly and people are starting to buy in more, really willing to pay their fair share. I mean, all those things create pricing opportunity for us. So we're pretty confident in the direction we're headed and in the stability and the traction in pricing group.

Okay. And then, maybe my last question. I know this might seem odd after a long day of earnings, but I'm going to direct this to anyone. If I were to exclude your property insurance related to the landfills and focus only on your vehicular insurance, are you noticing any unusual inflation in your premiums, especially in the higher tiers of your insurance coverage?

Yes. What we're seeing Tyler and it's not just us, it's all of Corporate America right now. The insurance markets are really, really hard. They're really tight right now. And it has to do with a lot of the natural disasters that the insurance companies have been dealing with. Having said that, considering the fact that we are a Fortune 300 company, given our size and all that, we're able to mitigate those cost increases through other cost initiatives that we have within our system.

Okay. All right. That is very helpful actually. Thank you.

Thank you.

Hi, team. Compliments on closing out a strong year.

Thank you.

Thanks.

So just a quick housekeeping one from me first. Just on the CNG, you guys gave a pretty clear contribution number on EPS. But just curious on EBITDA for 4Q and for 2020, what's reflected on the CNG piece?

Yes. So EBITDA in 2019 in Q4 was $17 million of a benefit. And then we're expecting it to be similar to that in 2020.

Okay. Got it. That's helpful. And the flat to down 25 bps in environmental services, could you just help me frame kind of the upper and lower end there? I mean, in the prepared remarks you guys point to the upstream piece being the swing factor. But I'm just curious, is that just kind of drilling activity? Or is there something else that could frame the upper end or lower end?

Yes, the variance is primarily due to drilling activity. This could result in a negative impact ranging from 0 to 25 basis points.

Okay. And then on the five $25 million of acquisitions completed in 2019, how much of that was environmental services versus traditional solid waste?

Yes. The majority comprised solid waste and will likely continue to do so. As I mentioned earlier, we have a strong pipeline of high-quality companies. There are still many excellent business opportunities for us to evaluate, including consolidation, tuck-in, and bolt-on acquisitions, and potentially exploring a few new markets. Our focus will remain in these areas, but we expect to see significant opportunities as our core capabilities grow with key customers who want us to expand our services.

Got it. And last quick one from me. Can you just talk about the runway on the solar investment opportunity? Is the vision here longer term to start utilizing the cap to landfills with these solar build outs?

Well, I'll start and Chuck can add in. We have, as you know, quite a few closed landfills. So we've got a big real estate portfolio. And, yes, I mean ultimately, depending on the economics depending on the tax incentives, depending on the advancement of solar technology, of course, and the ability to connect to the grid, all those things are in flux. But just like you've seen advancements in EV, there'll probably be more advancements in solar that we can't even imagine today. But we're well positioned with a great deal of real estate. We've got good partners in the solar space. The investments we made have been great investments with good returns. And as the opportunity exists, we'll continue to do it. And we'd like to certainly see asset utilization in this new way from our landfills if that's possible. That's why we started down this road in the first place.

Yes, according to the current regulations, solar credits are beginning to phase out this year and will continue to do so over the next five years. There is ongoing discussion about whether they will be extended, similar to what occurred with CNG. However, as Don mentioned, this remains an excellent investment opportunity for us, particularly for our fully depreciated closed landfills.

Helpful. Appreciate the time. Thank you.

Thank you very much. In your prepared remarks, you mentioned the percentage of your contracts that have been shifted to alternative inflation targets. I’m curious if you could provide similar insights on how many of your contracts have transitioned to fee-for-service in the recycled segment and what your expectations are for that in the future. Thank you.

Yeah. So, on the processing side, a little further ahead on that front. So, we're over 50% on that side of the business. On the recycling collection side, we've got about 36% converted. And that's across a portfolio of 1,300 contracts, and we're not stopping. We continue to walk through City Hall and tell the message around a model that needs to be economically sustainable, to be environmentally sustainable over time. And I can tell you we're seeing momentum shift. First, it was trying to convince staff and now staff is saying to us, hey, listen we've got to work together to convince the electeds because they understand the issue and they have a strong desire to keep their recycling programs: one because it's the right thing to do; and second because the residents deeply want them to keep it. And we've got to work together to make it economically sustainable.

And besides the cost impact, what other pushback if any do you get?

Some of the volatility impact, right. There's the volatility aspect to recycling is the commodity prices. And historically, we've borne most of that and some cities say, well, I don't want to bear that either because I don't like the idea of moving residential recycling pricing month to month to month. And we've innovated together with them thinking about hey, let's get a price that's sustainable for residents over the cycle and do things like when commodities are up you can put that in an enterprise fund, right? And so you could take the volatility there. And when the buy prices are high that creates some upside to get the new fire truck, put in the new playground, and do things to enhance the community.

The discussion around contamination is becoming uncomfortable. We are placing significant emphasis on contamination levels, which can include items like glass. While glass is highly recyclable, it often holds little value, and in certain areas, the transportation costs to deliver glass to end users make the entire process inefficient. We need to engage in honest conversations with generators to determine if the material truly offers sustainable environmental value, or if we are merely expending additional resources without real benefit. Additionally, educating end users and consumers on how to manage waste properly is crucial. We have created tools and training to guide people on proper recycling practices. However, municipalities, consumers, and customers must also take responsibility for contamination, as we categorize materials that arrive with significant contamination as garbage. We are navigating this challenge, having constructive discussions about making recycling both sustainable and profitable for all parties involved, and we believe it is achievable.

Okay. Thanks so much. If I could just sneak in some quick modeling questions. What should we be expecting for depreciation and amortization, interest expense, and taxes for 2020? Thanks.

Yeah. We'll follow-up with you some time after the call.

Hey, guys. Thanks for taking the questions. Chuck, on the free cash flow, can we bridge to the exit run rate given there's some one-timers off the midpoint? So I think the midpoint is $1.17 billion, ex the CNG credit? What's the ratio exiting?

Yeah, Michael. So think about $1.2 billion kind of as the midpoint on the exit. We've got $100 million of tax reform capital included in that number as we had talked about, which doesn't rollover into 2021. So that's really how you get to that exit of $1.3 billion.

And what about...

In 2021, you would experience growth on top of that.

And isn't there some working capital timing? There's like $40 million of working capital timing that…

Yeah, there is Michael that we had talked about. $40 million of working capital timing but that is offset now by the $30 million of a benefit that we get associated with CNG.

Got it, okay. All right. So the exit rate is $1.3 billion and then you've got underlying growth greater than whatever your EBITDA growth is going to be?

Yeah, that's exactly right.

Yeah. And again this is based on the $200 million target for M&A.

Could you share what your year-end open market price was compared to restricted for 2019 in order to achieve your 2.8% yield? And I'd like to know what you anticipate those figures to be in order to reach 3% in 2020.

Michael, we don't have that detail in front of us. That's the quarterly amount and not the full year. But as you consider it, we should do something similar to what we did this year. In the first half of 2020, CPI is expected to be beneficial, but it will turn into a slight drawback later on. Overall, it should balance out for the year. So once again, think of core price and restricted price coming in quite similar to how they are currently.

Well, one of them has got to get better to get to 3% or churn is coming down?

We believe that the open market aspect is going to improve a little.

Hey guys. Regarding the 3% yield number, is that consistent throughout the year? Will we see an acceleration off this Q4 number, or will we just gradually build up to an average of 3% for the entire year?

Yeah. It's relatively evenly distributed throughout the year.

Okay. Chuck, did you mention that SG&A is expected to be flat or decreasing? Is that in relation to sales percentage or in absolute terms?

That's 100% of sales. That's as a percent of revenue.

I wanted to clarify something regarding the acquisitions you've completed. What is the revenue increase from those acquisitions, considering everything that has been finalized by the end of 2020?

Yeah, the rollover revenue benefit of $68 million.

Okay. Regarding the acquisitions you completed in 2019, could you discuss the overall impact we've observed with expanding multiples? I'm interested in your insights on what you've noticed in the private market regarding multiples for some of these businesses.

Yeah. Multiples are still very good. We will of course and have and we will continue to pay more for businesses that have infrastructure, that's critical permits that are impossible to replicate, those types of things. We discount purchase prices when there's a little bit too much temporary work or too much broker work. We don't pay for that. So, each deal is different. But on a blended basis, when you look at the whole portfolio of M&A that we're doing, we would tell you that multiples are still pretty stable.

Hi. Thanks for taking my follow-up. Did I hear you say that, so of the 1% contribution to sales growth in 2020 from acquisitions, which I guess would be $103 million. You've already got kind of $68 million of it completed from last year? Or are there some offsets from divestments in there? And I guess, like is there anything you've closed so far in 1Q that would kind of already get to that $103 million number?

Yeah. We said the $68 million is the right number. That's already included in our 1% growth guidance for 2020.

Yes. Some of those deals were deals we thought we'd close at year-end. And they just didn't get done. They rolled into the New Year.

Okay. But you're effectively kind of at almost two-thirds of the way through hitting that 1% number already?

Yes. Yes, that's right.

That's correct.

Okay. And then last one for me. Just I think some of the cost breakout you give, which are very helpful, looks like on the landfill side those costs were actually down for the first time in a while. I know it may have been a unusually high number a year ago. But I just wondered if you're finally seeing maybe a little bit of a light at the end of the tunnel or some leveling off of the inflationary pressure you've been seeing on the landfill side?

Yes, landfills are essential assets that are very difficult to permit. We take environmental compliance very seriously and adjust our pricing to cover inflation costs. We focus on both pricing and cost management, with a dedicated team that monitors all our landfills from a centralized perspective. Each month, we ensure that every aspect of the landfill is performing correctly, including leachate production and heat sources. By addressing minor issues promptly, we prevent them from escalating, which has significantly helped us manage costs over time.

Maintenance too is a good story.

And I think across the category, you're seeing that in labor. You're seeing that in maintenance. If you take out the commodity impact on the revenue right really, really good leverage on business on the cost side. And we feel that's a great foundation that takes us into 2020 which is helping drive that margin expansion.

Great. Thanks so much.

Thank you, Gary. You've done a great job for us today. In 2019 through the relentless efforts of our people working together at all levels of the company, we outperformed the financial goals we set at the beginning of the year. We achieved strong pricing and we expanded EBITDA margins, generated $1.2 billion of free cash flow, and invested over $500 billion in acquisitions. Our strong finish to 2019 sets us up for continued success in 2020. Given the underlying momentum in our business, we're well positioned to deliver approximately 5% top-line revenue growth and nearly 6% EBITDA growth. On top of that, we are entering 2020 with one of the strongest acquisition pipelines we've seen in years. We will achieve our 2020 guidance by pricing our products and services to ensure we earn an appropriate return. Partnering with our municipal recycling customers to build more durable economically sustainable recycling programs. Tightly managing our costs and increasing productivity through the rollout of our RISE platform as Jon described and leveraging the current momentum in our business from the investments we've made in our people, the customer experience, operational excellence, and our strong market position. As always, we will continue to manage the business to create long-term value for all of our stakeholders. I would like to thank everyone on the Republic team for their hard work, commitment, and dedication to operational excellence and of course creating the Republic way. Thank you for spending time with us today. Have a good evening and please be safe out there.