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Waste Connections (NYSE:WCN)
Q2 2019 Earnings Call
Jul 30, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to the Waste Connections second-quarter 2019 earnings conference call. [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.

Worthing Jackman -- President and Chief Executive Officer

Thank you and good morning. I'd like to welcome everyone to the conference call to discuss our second-quarter 2019 results and updated outlook for the full year and to 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're all pleased also to be joined by Ron Mittelstaedt.

As announced on Friday, Ron is returned from his temporary leave of absence and assumed the role of executive chairman. We're extremely pleased to have him back and to have him join us this morning. Before discussing Q2 and our updated outlook, I'd like to hand the call over to Ron for a few remarks about last week's announcement.

Ron Mittelstaedt -- President and Chief Executive Officer

OK. Thank you, Worthing. First up, 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 to have 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 of CEO 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 temporarily stepped aside earlier this year, Worthing assumed the role as our principal executive officer, consistent with a management succession 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.

Worthing Jackman -- President and Chief Executive Officer

Thank you, Ron. 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 onto our latest results.

As noted in our earnings release, solid waste price and growth of over 5% along with a sequential 200-basis-point 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 option 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 in some prior-year period. Our team delivered on the commitment within their control, but the ongoing erosion in recycled commodity values and our precipitous drop in the value 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've 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.

Mary Anne Whitney -- Chief Financial Officer

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 29th earnings release and in greater detail in Waste Connections filings with the U.S. Securities and Exchange Commission and the securities commissions and 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 are not presently aware 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 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 the 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 measures. 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.

Worthing Jackman -- President and Chief Executive Officer

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, but 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% in our more exclusive markets in the Western region to an average of over 5.5% in our 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 persisted in certain markets both through April and even into May. Moreover, as expected, reported volumes reflected about 50 basis points of negative volume drag from 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 that 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 underlying 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 presence. We would have incremental capex this year associated with these wins with the 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 recycled commodity values. Roll-off revenue increased approximately 4.4% on higher pulls and higher revenue per 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 50%.

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 the 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 continue to be a factor driving the slower seasonal ramp in Q2.

C&D tons were down about 1%, mostly on a 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 continued deterioration in 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 the demand destruction from import restrictions in Asia has been further exacerbated by a slowdown in demand for cardboard from domestic mills.

The flow-through from changes in recycling revenue was more punitive in Q2 than in prior quarters with decremental margins well over 100% due to the significant decrease in fiber values and higher fees paid to third-party recycling facilities, resulting in a combined year-over-year impact of 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. At 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 from 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 as MRVs.

About 70% of the volume delivered to our recycling facilities comes off our own trucks, 20% is from third-parties in contracts and only 10% is merchant volume from third parties where we have the ability to and have implemented recycling fees similar to our peers. In 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 roughly six or 12 months. And therefore, in some cases, such recovery would continue into 2020. We take a long-term view into working with our customers through the seismic changes the industry have experienced in recycling, preferring not to close recycling facility or claim force majeure to terminate contracts.

So for us, recovering the full impact on that 90% of recycling volumes takes both a multiyear approach with increased collection pricing, which we are -- which we proactively started last year and repricing contract that expire in future periods. Landfill gas sales are also commodity-driven, particularly the value of renewable identification numbers or RINs, for which certain renewable gas sales qualify. Since year-end, due primarily to decreased 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 of EBITDA in the quarter 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 $0.015 per quarter in EPS during the remainder of the year.

Looking at the 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 and sequential decrease in the Permian basin. These results reflect a modest contribution from our new E&P landfill at 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 increase in focus on returns by many of our E&P customers, we do not expect a near-term increase in the current run rate and continue to be selective as we move forward on new project. Looking at acquisition activity, we've already closed of what we would consider an above-average amount of acquisition 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 Rhode Island. 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 of 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.

Mary Anne Whitney -- Chief Financial Officer

Thank you, Worthing. In the second quarter, revenue was $1.370 billion, about $10 million above our outlook and up $129.7 million or 10.5% over the prior-year period. Acquisitions completed since the year-ago period contributed about $84.3 million of revenue in the quarter or about $77.4 million net of divestitures. Adjusted EBITDA for Q2, as reconciled in our earnings release, was $425.3 million.

This is consistent with the update we've provided in the early June, but about $8.5 million below our original outlook for the period due to the decline in commodity-related revenues and the associated EBITDA impact. Adjusted EBITDA as a percentage of revenue was 31.1% in Q2, down 80 basis points year over year, due primarily to two factors: an estimated 80 basis points resulting from the year-over-year decrease in commodity-related revenues; 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, were up approximately 50 basis points year over year. In addition and as expected, the year-over-year impact of our increased 401(k) match, which anniversaries at the year 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 period to $37.2 million due to higher outstanding debt and increased interest rates as compared to the prior-year period. And 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, as 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 at fixed rates. Our effective tax rate for the second quarter was 21.1%. As we have 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.

So, 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 would be limited to the current year with our effective tax rate returning to about 22% again in 2020. GAAP and adjusted net income per diluted share were $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 expectations for underlying adjusted free cash flow for the full year. I will now review our outlook for the third quarter 2019, an updated outlook to the full year. Before I do, we would 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 other -- 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 expensing of transaction-related items during this period. Looking first at Q3, revenue in Q3 is estimated to be approximately $1.405 billion. We expect price gross for solid waste of approximately 5% in Q3, along with volume growth of approximately 50 basis points, which incorporates the estimated 50 basis point drag from the impact of the New York City Department of Sanitation marine terminal operations contract with the third-party.  In addition, we expect revenue from E&P waste activity to continue to range between $60 million and $65 million.

Adjusted EBITDA in Q3 is estimated to be approximately 31.5% of revenue or about $442 million. The margin impact from acquisitions completed since the year ago period is expected to be similar to Q2 at about 50 basis points and the commodities-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 a $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 regulation, as originally drafted, are enacted during the period, which result -- which would result in an impact of approximately $0.07 per share in Q3 with the rates declining sequentially in Q4, and as noted 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 acquisitions, partially offset by greater-than-expected declines in recycling revenue and in the value of renewable energy credits from qualifying landfill 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 decrements 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 adjustment of $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 55% of EBITDA. And now let me turn the call back over to Worthing for some final remarks before Q&A.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.

Tyler Brown -- Raymond James -- Analyst

Hey. Good morning, guys.

Ron Mittelstaedt -- President and Chief Executive Officer

Hey. Good morning, Tyler.

Tyler Brown -- Raymond James -- Analyst

Hey. Ron, nice to hear from you. We continue to send our best your way. So, Mary Anne, I was hoping maybe bridge the original $1.705 billion in EBITDA guidance with today's $1.675 billion 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 guide, but then maybe OCC and RIN prices are working against you, particularly late in the Q2. But are those the key pieces? And then if so, can you help maybe size the delta in those buckets, again, maybe in the new guidance versus the old guidance?

Mary Anne Whitney -- Chief Financial Officer

Sure. Glad to do so. And you did hit on the key buckets, Tyler. I will start with the revenue to give context.

So if you start with the $5.310 billion of the original guidance, the acquisition contribution is about $100 million and as you said, the underlying business is doing a little better, but you have offset from lower recycled commodity revenues of about $30 million and the lower RINs, the renewable energy credits of another $10 million to $15 million. And so if you say, again, up a $100 million, underlying strength a little better and then back out the $35 million to $40 million in commodities, you get your $5.375 billion at the revenue line. And I mean, if you look at the incremental margin contribution from acquisitions in that 20% to 25% and you look at the decrementals on those commodities coming out, so it's more like $50 million, that's how you net down to down $30 million to the $1.675 billion from your $1.705 billion.

Tyler Brown -- Raymond James -- Analyst

OK. Yes. No, that's perfect. I guess, that's very, very helpful.

So, Worthing, I do want to come back to something you talked about. So you noted 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 noted that there is going to be some pressure obviously under the second half, but 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 overtime even without a rebound in price as you readdress the contract? Am I beading that the right way?

Worthing Jackman -- President and Chief Executive Officer

Absolutely. So, I mean, if you look at what we've done in incremental pricing, which, as we talked about on prior calls, of about a half a point incrementals related to recycling that gives you a sense of how we are recouping majority of that through our collection business. 50 basis points is, I'm going to round here, about $25 million and if you look at the all-in impact over the last two years, you'd get numbers approaching a $120 million of EBITDA once you exit this year, comparing to '17 to '19. So if we're getting incremental $25 million-or-so in pricing on the collection side of the business, what it's telling you that it's going to take us between four and five years down to recoup that.

And to your point, I mean, to the upside, as we go year to year looking ahead.

Tyler Brown -- Raymond James -- Analyst

OK. OK. Yes -- no, that's very helpful. And then maybe somewhat a little behind on the RIN, but just at a high level, what exactly is driving this reduction in the RIN pricing?

Worthing Jackman -- President and Chief Executive Officer

Well, you have the -- obviously, EPA plays a major portion of it and what does not, the White House plays a portion of this is well. Refineries have been major buyers in the marketplace to offset emissions with refiners and nuclear plant fuels. As refiners getting more and more exemptions from the EPA as they have 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 has driven down the near-term price of the RINs.

Tyler Brown -- Raymond James -- Analyst

OK. OK. OK. I see.

And my last one kind of related to that, so just, Mary Anne, big picture, if current RIN prices remain, what would be that specific for your impact to EBITDA in full year '19 versus full year '18, if I was thinking about the year-over-year bridge?

Mary Anne Whitney -- Chief Financial Officer

Sure. So in our guidance, we had taken RINs down slightly because we knew that they were down year over year. I guess -- the incremental impact is about $15 million, in the aggregate, it's $20 million to $25 million.

Tyler Brown -- Raymond James -- Analyst

$20 million to $25 million, yes. OK. Thank you.

Ron Mittelstaedt -- President and Chief Executive Officer

You bet.

Operator

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

Brian Maguire -- Goldman Sachs -- Analyst

Hey. Good morning, everyone. And, Ron, great to hear you here again. Well 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 is just more an issue of timing, spending the money today to get the earnings tomorrow. So I was just trying to think about what benefit that might have on volumes? Earnings next year will be, assume, a typical sort of mid-teens pre-tax return on that capital. And I guess -- if that's the case, does that imply maybe $5 million for EBITDA, $20 million of sales and something like half of a point of volume improvement for next year just from that alone?

Worthing Jackman -- President and Chief Executive Officer

Yes, you bet, nailed it. About a half a point in volume, if you -- it's more collection-oriented. So if you put an average collection margin on that, you're spot on at thinking about $25 million in revenue, $5 million to $6 million of EBITDA. And for that, with the capital outlay, you're looking at roughly five times to six times EBITDA for the capital outlay.

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

Brian Maguire -- Goldman Sachs -- Analyst

Yes. And another way to think of it is if you had done M&A, then we wouldn't be talking about raising the capex or kind of the free cash flows. It's just sort of a decision between which one is better and this one -- yes, clearly a better return than any M&A?

Worthing Jackman -- President and Chief Executive Officer

Yes, absolutely. And if you look at just the overall -- it's just a -- there's an increased level of bidding activity. We are not changing how we bid. But if I look back over the past six or seven months, and we've submitted a little over 70 proposals.

And there's still about a third of those that are outstanding and we're waiting here from for the balance of the year. And of the other two-thirds, we won about half and we missed about half. But the half that we won is what you're seeing the more positive impact from.

Brian Maguire -- Goldman Sachs -- Analyst

Ron, I know we're not talking about 2020 too much yet, but if that's going to give you maybe a supplemental 40 or 50 basis points of volume improvement and the underlying trends are 0.5%. Could we be thinking about sort of the high end of that 1% to 2% of volume growth range you've talked about historically?

Worthing Jackman -- President and Chief Executive Officer

Yes, it definitely helps to move the needle within that range. That's right.

Brian Maguire -- Goldman Sachs -- Analyst

And just last on this, any early thoughts on 2020 capex? Is this $600 million -- is this range is sort of a new normal for next year or does some of the landfill spending come off the -- given the outlook there and maybe the $35 million doesn't recur next year?

Worthing Jackman -- President and Chief Executive Officer

Yes. And I mean, if you look at the underlying volume environment being in that 1% to 2%, obviously these wins move a little bit higher but that's capex spending this year. We're always capable of -- to think about an upcoming year of about 10.5% of revenue, and as we get into February, we'll refine that growth.

Brian Maguire -- Goldman Sachs -- Analyst

OK. Appreciate it. Thanks.

Operator

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

Noah Kaye -- Oppenheimer -- Analyst

Thanks very much. Good morning. Worthing, I'm just following up on the subject of these new contract bids. You're just saying you're not changing the way that you bid.

So just curious what's, in your view, driving this above-average success rate? And I guess, does it have to do with your asset footprint changes, any change in kind of the competitive dynamics that you see in the industry? And I'm just wondering if this is sometimes more structural.

Worthing Jackman -- President and Chief Executive Officer

No. Look, I think maybe it's just the cycle of when these contracts are coming out for bid. Obviously, they're -- in some cases, they have relationship advantages, in other cases, incumbents may have had service issues that have put them sideways with municipality. And in other cases, it could be politics that have gone wrong against the incumbents.

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

Noah Kaye -- Oppenheimer -- Analyst

OK. 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 and normal seasonal ramp because of that poor weather.

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

Worthing Jackman -- President and Chief Executive Officer

Yes. I mean, it provides runway for Q3, but obviously, in the Central region, especially in the states we highlighted, such as the Minnesota, as an example, or in Oklahoma or Colorado, obviously you still have elements of the special waste that exist in those markets that you typically see a pronounced seasonal ramp and as you move through Q3. But obviously the timing of those, whether they start as anticipated, whether they get delayed, I mean, these -- some of these projects, as you know, you can be waiting for them to start and you're sitting there awaiting upscales for two months until they've finally crossed 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 scales, is going to really determine to look back how much did it ramp.

Mary Anne Whitney -- Chief Financial Officer

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

Noah Kaye -- Oppenheimer -- Analyst

OK. That's very helpful. So, if I could sneak one more in. You mentioned some slow activity around further CapEx investment in E&P just given the activity you're seeing.

But of course, we've also had I guess a bit more consolidation, maybe even a bit more rationalization in terms of disposal pricing, this -- hopefully that starts to come through. So how does that impact kind of your thoughts around capital allocation? And just trying to understand the puts and takes that you're also thinking?

Worthing Jackman -- President and Chief Executive Officer

Sure. I mean, it's -- our thoughts, as always, really hasn't changed, right? I mean, as you know, we talked on regular for our new landfill up at Wyoming. We've talked about another investment we're making to expand the services at one of our existing landfills in the Permian. That project ought to come on later this year or early next.

And so -- we're also looking at 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 realities of the current market rate. I mean it's -- one doesn't -- one has a choice of investing $10 million to $15 million in a site versus investing $25 million to $30 million, I would always, in this environment -- I want to take the lower side of that and make that work with regulators to do that. I guess -- I mean so how we approach it from an asset positioning and serving our customers hasn't changed.

Obviously, we want to be prudent how we're -- how much capital we're laying out to address this going forward.

Noah Kaye -- Oppenheimer -- Analyst

Very helpful. Thanks so much.

Operator

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

Michael Hoffman -- Stifel Financial Corp. -- Analyst

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

Ron Mittelstaedt -- President and Chief Executive Officer

Thanks, Michael.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

So I just -- I'm 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 of headwind we're dealing with between recycling and the RIN credit, a little bit more. And then half of it in the second half of '19 and there's is a tail -- there's a full quarter of it, 1Q and then there's a tail in 2Q. Is that the right way to think about plotting all that out all things being equal?

Worthing Jackman -- President and Chief Executive Officer

Well, if I look at it, I mean, we -- I think we deal in terms of calendar years, not LTMs. But obviously last year, on the same-store basis, recycling overall was about $65 million revenue impact. This year on the same-store basis, we're on glide path to do what about -- what's that?

Mary Anne Whitney -- Chief Financial Officer

$25 million to $30 million.

Worthing Jackman -- President and Chief Executive Officer

Yes, $25 million to $30 million in total and --

Mary Anne Whitney -- Chief Financial Officer

[Inaudible] EBITDA [Inaudible]

Worthing Jackman -- President and Chief Executive Officer

Yes, I mean, basically, recycling, as you know, is down, for us, about $120 million or more over that two-year period and you put the decrementals above that means EBITDA impact is the north of $120 million. So just leaving all things -- all else out of it, if we look at the business, I mean you'd ask us back in '16, "Hey, if we could think about a five-year trend, where do you think the business could be in five years." And we talked about 621 plan, if you remember that. That had us doing about $1 billion of free cash flow by 2021. Put simply, adjusted for recycling, we would've done it this year, we're two years earlier.

And so that we've done the same math you've done, but we do it calendar year, not LTM.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. So you've opened the window I was going to ask next. Is the right way to -- and again, we're not doing '20 guidance, but the right way to think about '20 is it starts with the $1 billion as the free cash?

Worthing Jackman -- President and Chief Executive Officer

[Inaudible] guide.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

But given some place still [Inaudible] -- what's that?

Worthing Jackman -- President and Chief Executive Officer

You do this to everyone.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

I know. I know, but I have to try. Field pipeline, what's it look like going into the second half as far as the opportunity of maybe something else gets added to the $160 million.

Worthing Jackman -- President and Chief Executive Officer

Yes. We're -- look, as we said, the seller activity and dialogues 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 led up to nice rollover growth into 2020.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

And you would anticipate that there would be more closes. It's just not in the guidance.

Worthing Jackman -- President and Chief Executive Officer

Well, we don't guide what's not close, right? Because I don't control the timing of what we get done and the timing of what's done. But obviously, as you move into the year, I mean, anything that we're in dialogue right now, would end up contributing very little through this calendar year if we do close it and most of it is a rollover contribution for 2020 growth.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. And then last question would be I guess on the back end of 2020. But your efforts to drive an incremental increase around the recycling side in open market plus what you can do in open market general suggests a 4.5%, 5%. Is that the right way to think about how price continues to trend? 1% to 2% in volume, is that the sort of way to think?

Worthing Jackman -- President and Chief Executive Officer

That's the way we think about it.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. Great. Thank you so much.

Worthing Jackman -- President and Chief Executive Officer

OK.

Operator

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

Derek Spronck -- RBC Capital Markets -- Analyst

OK. Good morning. Thank you for taking my questions, and good to have you back, Ron.

Ron Mittelstaedt -- President and Chief Executive Officer

Thanks, Derek.

Derek Spronck -- RBC Capital Markets -- Analyst

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

Worthing Jackman -- President and Chief Executive Officer

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

Derek Spronck -- RBC Capital Markets -- Analyst

Would you say that your addressable market is still, I believe you've commented before, around $3 billion -- or $3 billion to $4 billion of your addressable market. Is that being maintained? And I know addressable market isn't 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 there addressable market? And are you starting to see a little bit of overlap around addressable market or potential acquisitions in addressable markets relative to your peers on a historical basis?

Worthing Jackman -- President and Chief Executive Officer

Look, our addressable market hasn't changed. Obviously, as we go into new states and new parts of states, we can expand our addressable market. And look, our peers are getting transactions done that we're not involved in because we don't overlap them in their markets. Both of the transactions we're doing, nine out of 10 are sole-sourced dialogue.

Without a doubt there, you've got -- when you have a banker involved, those are transactions that are more widely shopped that's why we rarely do transactions that bankers are on the sell-side of. But look, we -- and you also see some of peers that are just diversifying away from solid waste and doing various sundry services. So it's -- so they don't see us in those opportunities, right? So it's obviously the landscape has changed. Clearly, it's a frothier time from a dialogue standpoint.

I think you're seeing everyone benefit from that not just any one company in particular.

Derek Spronck -- RBC Capital Markets -- Analyst

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

Worthing Jackman -- President and Chief Executive Officer

No.

Derek Spronck -- RBC Capital Markets -- Analyst

OK. All right. Thanks for taking my question.

Operator

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

Sean Eastman -- KeyBanc Capital Markets -- Analyst

Thanks very much. Ron, welcome back. And, Worthing, congrats on your CEO appointment.

Worthing Jackman -- President and Chief Executive Officer

Thanks, Sean.

Sean Eastman -- KeyBanc Capital Markets -- Analyst

My first question is just on the price momentum. It sounds like recycling is kind of an incremental tailwind for price for the out-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 for the very reasonable assumption for the out-year or whether there's some other puts and takes we should keep into consideration in terms of how that -- the pace of that price growth continues?

Mary Anne Whitney -- Chief Financial Officer

Sure. And so, yes, I think 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 say and the 5.2% that we reported this quarter about 50 basis points of that is from the incremental PIs we've gotten associated with recovering the decline in recycled commodities.

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

Sean Eastman -- KeyBanc Capital Markets -- Analyst

OK. 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 around last year the sort of initial way the recycled commodity price pressure kind of prompted some action from some of the more marginal players in the market. And so, I'm just wondering if maybe this next wave of pressure is potentially driving them to another breaking point in terms of maybe rolling out some price increases or being more inclined to sell.

I guess -- any comments around that dynamic would be great.

Worthing Jackman -- President and Chief Executive Officer

Sure. I mean, so if you think that we impacted last year, the base is tightened this year. And so, no, it's the -- we're still seeing very good structural support for pricing in this industry, right? Lot of the privates have been impacted by recycling and that's gotten more punitive for them. Labor pressures have not abated, cost to move volumes, the landfills have not abated.

And so really if you saw last year, many privates were doing double-digit price increases in order to overcome that that same pressure has reemerged this year. And so, no, I think you've seen everyone in the industry report stronger price because the underlying tone is better. It feels our price retention has been -- is approaching 98% on price increases they're putting on the Street. And then so it's a -- structurally, it's a -- it continues to be a favorable environment.

And the -- put simply, folks need to be pushing price in order to recover that cost.

Sean Eastman -- KeyBanc Capital Markets -- Analyst

OK. That makes sense. And the last quick one for me is just on this RIN credit dynamic. The price of those RINs -- that move has been pretty eye-popping.

And so I'm just wondering if -- maybe this is difficult to answer, but I'm wondering if you think we've gone to floor here in the price for those RINs and whether there's kind of a clear catalyst on the horizon for those prices to stabilize or potentially go back up.

Worthing Jackman -- President and Chief Executive Officer

Yes. Look at $0.70 -- right now, we're $0.70 away from the floor. I guess, you could have looked at it that way. But -- no, look, obviously, you got to see what's happening in Washington, right? If you -- if there's an administration change, as an example, look, if I go back a year or two, RINs prices were in the mid-twos, not $0.70.

We're almost four times what we are right on. And so I think as you see kind of the underlying tone in D.C. for clean energy, for renewable credits, etc., that have really set the tone for the marketplace and the clearing price for that.

Sean Eastman -- KeyBanc Capital Markets -- Analyst

OK. Thanks very much. Appreciate the time.

Operator

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

Mark Neville -- Scotiabank -- Analyst

Hi. Good morning. I just want to follow up on the recycling conversation. The six to 12-month lag on the pricing, I guess, I'm just curious how negotiated is that process versus sort of how automatic? How easy, I guess, is it sort of to recapture some of that price?

Worthing Jackman -- President and Chief Executive Officer

Well, it depends on what type of contract we're talking about. If it's a returns-based contracts we need to eat the cost first and then go in for a rate increase. In the case of a contract that's not returns-based, it's a negotiation with the municipality. And municipalities have been receptive to -- because they understand the play of what's happening right now and as they want to encourage recycling and continue it, right now, it costs more money.

And so if we don't get that success everywhere, but, for instance, I mean, we just had another -- one jurisdiction where we then just started bearing 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. We'll probably recapture 70% or 80% of that by the time the negotiation is done, if not a 100%. And the -- so it's -- it really depends on what type of contract and where we're at in dialogue with the city or the municipality.

Mark Neville -- Scotiabank -- Analyst

OK. So the way you've talked about it or guided or you talked to us, it's been $120 million impact sort of a four to five years maybe to recapture that as you negotiate all this.

Worthing Jackman -- President and Chief Executive Officer

Right. And last year was year one, this year is year two. I mean so we're 2 years into that four- to five-year journey.

Mark Neville -- Scotiabank -- Analyst

OK.  OK. And then sort of just on the renewable energy credits, there's a few numbers thrown around. I just want to make sure I've got it right. It's about -- at current levels, it's about $5 million per Q EBITDA impact, is that right?

Mary Anne Whitney -- Chief Financial Officer

That's correct.

Worthing Jackman -- President and Chief Executive Officer

For second half of the year.

Mary Anne Whitney -- Chief Financial Officer

Sort of looking at the second half of the year and that's factored into our updated outlook.

Mark Neville -- Scotiabank -- Analyst

OK. And in terms of, again, sort of -- just on the recycling, what price for the OCC have you assumed into guidance? I'm just curious that there's some risks to the number in the second half just at the current levels?

Mary Anne Whitney -- Chief Financial Officer

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

Mark Neville -- Scotiabank -- Analyst

Yes. OK. And maybe just one last one that on the M&A. Of that $160 million or $165 million that you've acquired thus far, Mary, I think you said about $100 million of that hits the P&L this year or $100 million that's in the guide?

Mary Anne Whitney -- Chief Financial Officer

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

Mark Neville -- Scotiabank -- Analyst

OK. OK. Yes, thanks for taking my questions.

Worthing Jackman -- President and Chief Executive Officer

You bet.

Mary Anne Whitney -- Chief Financial Officer

Of course.

Operator

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

Worthing Jackman -- President and Chief Executive Officer

Thank you. Well, if there are no further questions, on behalf of our entire management team, we appreciate you listening to and interest in 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 security laws of Canada. Thank you, again, and I look forward to speaking with you at our upcoming investor conferences or on our next earnings call.

Duration: 52 minutes

Call participants:

Worthing Jackman -- President and Chief Executive Officer

Ron Mittelstaedt -- President and Chief Executive Officer

Mary Anne Whitney -- Chief Financial Officer

Tyler Brown -- Raymond James -- Analyst

Brian Maguire -- Goldman Sachs -- Analyst

Noah Kaye -- Oppenheimer -- Analyst

Michael Hoffman -- Stifel Financial Corp. -- Analyst

Derek Spronck -- RBC Capital Markets -- Analyst

Sean Eastman -- KeyBanc Capital Markets -- Analyst

Mark Neville -- Scotiabank -- Analyst

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