Good afternoon, and welcome to the Republic Services 4th Quarter 2019 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. All participants in today's call will be in listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to Nicole Giandinoto, Senior Vice President of Finance and Treasurer.
Please go ahead.
Thank you. I would like to welcome everyone to Republic Services' 4th quarter 2019 conference call. Don Slager, our CEO John Vander Ark, our President and Chuck Sirianni, 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 risks and uncertainties and may be materially different 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 Services 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 tables and a discussion of business activities, along with a recording of this call, are all available on Republic's Web site at republicservices.com.
I want to remind you that Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times 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 $1,200,000,000 of adjusted free cash flow.
For the full year, we invested over $500,000,000 in acquisitions and returned the remaining cash flow to our shareholders through dividends and opportunistic share repurchases. We continue to believe that disciplined investment 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 1 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 John to walk you through our 2019 results in each of those strategic areas. John?
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 $525,000,000 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 4th quarter operating performance.
During the quarter, our pricing environment remained favorable and we continue 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 re pricing 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 $780,000,000 or 31% of our CPI based book of business. This represents a $120,000,000 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 4th 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. Turning to volume.
Total volume in the quarter decreased 20 basis points versus the prior year. We continue to intentionally shed certain volumes, which we view as non regrettable losses. These included residential collection contracts that did not meet our return criteria and work performed on behalf of brokers in our small container Normalizing for these non regrettable losses underlying volumes increased 30 basis points. On the collection side of the business, large container volumes increased 80 basis points versus the prior year And underlying small container volumes increased approximately 60 basis points after normalizing for broker related losses. As expected, residential collection volumes decreased 2.2% due to non regrettable contract losses.
On the disposal side of the business, in the 4th quarter, MSW volumes increased 40 basis points and C and D volumes increased 16% versus the prior year. As anticipated, special waste volumes were relatively flat versus the prior year. Looking forward, overall in 2020, we expect total volume growth of approximately 75 basis points to 100 basis points. Turning to recycling. In the 4th quarter, our average commodity price per ton was $66 This represented a $6 sequential decrease from the 3rd quarter and a $40 per ton decrease versus the prior year.
Importantly, we continue to make progress transforming recycling into a more durable, economically sustainable business model. As a result of the team's efforts, our expected earnings sensitivity to changes in commodity prices has decreased by over 25%. Every $10 change in our average price per ton is now equal to approximately $0.03 of annual EPS or $13,000,000 of EBITDA. For purposes of our 2020 guidance, we're assuming commodity prices remain at Q4 levels of approximately $65 per ton. This represents a decrease of $12 per ton versus 20.19 and will result in an EBITDA headwind of approximately $15,000,000 Any recovery in recycling commodity prices would be upside to our 2020 guidance.
Next, turning to our Environmental Services In the Q4, U. S. Rig count and associated drilling activity continued to decline. As expected, revenues in the upstream portion of our Environmental Services business decreased versus the prior year. In the 4th quarter, this resulted in a 50 basis point headwind to total revenue growth.
Relative to our preliminary outlook, we're now taking a more conservative view regarding drilling activity and are assuming it will remain lower for longer. Finally, turning to margins. Our adjusted EBITDA margin in the 4th quarter was 28.8% and increased 140 basis points versus the prior year. This included a net benefit from CNG tax credits of 60 basis points and a headwind from lower commodity prices of 50 basis points. After normalizing for these two items, underlying EBITDA margin expanded 130 basis points.
By effectively executing our operating plan, we successfully managed our cost inflation and drove operating leverage across nearly all cost categories. With that, I'll now turn the call over to Chuck to discuss our 2019 financial results and 2020 guidance in greater detail.
Thanks, John. 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 $1,200,000,000 Adjusted free cash flow was favorable relative to our expectations, primarily due to lower cash taxes. Cash taxes were favorably impacted in the 4th quarter by acquisition related bonus depreciation. At year end, leverage was 3x and within our optimal range of 2.5x to 3x.
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 percent to 5 percent and adjusted EBITDA margin expansion of 20 basis points 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 point $2 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 $25,000,000 to 1.175 dollars to $1,225,000,000 The increase is due to a $30,000,000 benefit from CNG tax credits, partially offset by an additional $5,000,000 headwind from our upstream environmental services business. Keep in mind, our adjusted free cash flow guidance for 2020 includes $100,000,000 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 frontline employees.
This $100,000,000 capital investment will not reoccur in 2021. Normalizing for this capital investment, our free cash flow baseline exiting 2020 will be approximately $1,300,000,000 With that, operator, I'd like to open the call to questions.
Our first question comes from Hamzah Mazari with Jefferies. Please go ahead.
Hey, good afternoon. Thank you. The first question is just around the volume on commercial small container. Do you see that sort of turning positive at some point? I guess we've been pruning low margin business for 3 years.
And so just any thoughts as when that inflects positive?
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, right, we find that the book of business, we don't value that when we pay for those companies, but we've certainly kind of the bottom of that trend and you're going to see positive growth in that line of
business. Thank you. And then just on the M and A 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, Hans. 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 $500,000,000 in 'nineteen. While our guide only has $200,000,000 spend in it, I personally wouldn't be surprised if we matched or exceeded this 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, and we talk about leverage being sort of sweet spot, 2.5 to 3, we have at times gone over 3x 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. But as long as we're buying good cash flow, that's a good recipe for success.
Got you. And just last question, I'll turn it over. Just on SG and A, I realized there was sort of corporate function competitor by a bit, at least this quarter. Do you see that coming down? Is SG and A at peak levels today?
Or does it go further up from here? Thank you.
Yes, Hamzah, this is Chuck. And we do see SG and A trending down from here. I would say into 2020, we're projecting that it will be flat to slightly down.
Okay, great. Thank you so much.
And Hamz, 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 add constantly add people and resources. So you're exactly right.
Great. Thank you very much. Have a good evening.
The next question is from Brian Maguire with Goldman Sachs. Please go ahead.
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 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 comp 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?
Yes. 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 forecast, you're going to see that consistent across the 4 quarters of 2020.
Yes. Let me add to that. We have a very consistent approach with 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 John 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 1 year level given what's gone on in recycling and the need to kind of recoup that in other parts of the business?
Yes. No, I think I would 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 bag is the drag excuse 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 in 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 is a backdrop. If you look at just the open market landfill and transfer pricing, pricing is actually 4.5% to 5.5%, right. So when open market post collection pricing is moving in the right direction as it should, and also provides sort of underlying economics that make the market more rational.
Okay, great. I'll turn it over. Thanks.
The next question is from Noah Kaye with Oppenheimer. Please go ahead.
Thanks. Just to follow-up on the pricing theme, thinking about the drivers for 2020. You mentioned tailwinds from reworking them. You need contracts both with CPI migration to alternative index and then also recycling landfill, just driving higher collection willingness to pay. That kind of covers 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.
Yes, sure. Look, and also, I mean housing starts. If housing starts remain up, there's a supply and demand environment that contributes to higher pricing, right. So we've built OpenTop our OpenTop business should improve as well.
Makes sense. Perhaps a question on 2020 margins, the guides 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 and 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 face 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 work day 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 'nineteen. 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
twenty nineteen 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.
And so the acquisitions you've done there, you did a lot this past year, they're margin neutral or margin accretive?
That's right.
Okay. Okay. And if I could sneak one more in, you mentioned in the prepared remarks some of the technology levers you're deploying over the course of this year in the large container cabs. I guess without kind of giving the game away on what you're doing, just how to think about some of the areas of focus there and what you see as the key benefits?
Yes. Throughout the base, we start with the customer, right? The first thing is to deliver an even better customer experience. We're 99.9% reliable in our delivery. We want to think about a 0 defect environment.
So how do we improve the customer experience? How do we make the employee experience better? And they want to be dealing with a digital environment making easier for them to do their job. Then we think we take some cost out of the business. We make it more productive or more efficient, right?
And we can get more pulls in this case into the large container system because we've got the tools available to do that. Yes.
So think about the size of our business, 5,000,000 transactions a day, 5,000,000 pick points a day. And if you can get a little just incrementally better across 5,000,000 pickup points, right, from all the points John said, there's leverage there.
Great. Thanks very much.
The next question is from Kyle White with Deutsche Bank. Please go ahead.
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 John give you some detail, but we've seen a lot more, I wouldn't say pressure, but interest from shareholders, right? ESG is on the tip of the tongue and the top of mind of our investors today. Certainly, we spend a lot more time on these issues in the Board room. We have a Corporate Responsibility Sustainability Committee issues 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 set, how committed we are. John?
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?
We our number one priority, right, we want all of our colleagues to go home to work every night. So huge priority for us. By doing that, we also lower our risk expense and improve the profitability of the business. Employee engagement, by getting them more engaged, we lower our turnover and lower the cost of operating the business. 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.
Engaging our community and our national neighborhood promise 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. So 1Q is it's a little bit higher right now, a few dollars higher right now, but not significantly different than our guidance level, which is at $65
Yes. I think the long term outlook is that it's pretty flat all year.
All right. Thank you. Good luck in the year.
Thank you. Thanks.
The next question is from Tyler Brown with Raymond James. Please go ahead.
Hey, good afternoon.
Good afternoon, Tyler. Hi, Tyler.
Hey, 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 impact from recycling and the workday specifically in Q1. So would Q1 margins maybe be down year over year or maybe more flatty?
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 had the additional workday, right? So you've got 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 there from there, right, a good Q2, a good Q3. And then Q4 is right now we're thinking is going to be kind of flattish.
And then
we start to get the rollover benefit pricing and all the great work the team is doing on converting contracts to the right index, to the fair share arrangement. All those things are building speed and 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 integration costs. But as they get fully tucked in, everything gets converted, they build, right? So you'll see all that build through
time. 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 5 years. But I'm 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 lower price per unit, right? And again, we're intentional and regrettable, then that's just a change. So I'll tell you this, we have a pricing plan, of course, you know, Tyler, 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 1 or number 2 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. All those things create pricing opportunity for us. So we're pretty confident in the direction we're headed in and in the stability and attraction in the pricing group.
Okay. Okay. And then maybe my last one. So I love maybe asking you guys a strange question after a long day of earnings, but and I'm going to go ahead and throw this out to any of you. But if I was to set aside your property insurance, say related to the landfills and I just looked at your vehicular insurance, Are you guys seeing any unusual inflation in your premiums, particularly in the upper layers of your insurance tower?
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 that has to do with a lot of the national disasters that the insurance companies are 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.
And of course, right, we're self insured, right? So we're really just talking about insurance
question is from Sean Eastman with KeyBanc Capital Markets. Please go ahead.
Hi, team. Compliments on closing out a strong year.
Thank you. Thank you, Mark.
So just a quick housekeeping one for 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 and Q4 was $17,000,000 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 end, 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. It really is just drilling activity. That's what's driving that variance right now. So that's the that could be anywhere, like we said, from 0 to 25 basis points of a negative.
Okay. And then on the $525,000,000 of acquisitions completed in 2019, how much of that was environmental services versus traditional solid waste?
Yes. The majority was solid waste. And frankly, the majority will continue to be solid waste, right? I mean, as I said in my remarks earlier, there's a great pipeline of really good quality companies. There's still plenty of good business for us to look at and consolidate, tuck in and bolt on and even maybe in a few new markets that we can look at geographically.
That's where the focus will continue to be. But there'll be some great opportunities as our core capability expands with key customers who want us to do a few more things for.
Them. Got it. And last quick one for me. Can you just talk about the runway on the solar investment opportunity? Is the vision here longer term to start utilizing the capped 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 ED, there'll probably be more advancements in solar than 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 That's why we That's why we started down this road in the 1st place.
Yes. And according to the statutes right now, solar credits actually start to phase out. I believe it's this year, and I think if they phase out over a 5 year period, now there's debate right now whether or not they'll be extended similar to what happened with CNG. So but to Don's point, that remains a great investment alternative for us and something that we would like to do on our fully depreciated closed landfills. Helpful.
I appreciate the time. Thank you.
The next question is from Jeff Silber with BMO Capital Markets. Please go ahead.
Thank you so much. In your prepared remarks, you talked about the percentage of your contract that you've shifted to alternative alternate inflation targets. I'm just wondering if we can get the same kind of color on how much of your contracts have been shifted on the recycling side to feed for service and where do you think that goes over time? Thanks.
Yes. 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 portfolio of 1300 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 electives 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. 2nd, 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 cost some of
the volatility impact, right? There's the volatility aspect of 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 combined prices are high, that creates some upside to get the new fire truck, in the new playground and do things to enhance the community.
Yes. The other thing that gets uncomfortable is just the discussion around contamination, right? So we focus greatly now on contamination levels, and that could include just glass, which is highly recyclable but, of course, has no value. And in some geographies, the trucking cost to get glass to an end user just takes the whole thing upside down. So we've got to have those honest discussions with generators about whether the material really does have real sustainable environmental value at the end of the day or we just basically burning more rubber and more fuel to make ourselves feel good?
And then just the contamination level of educating the end users, the consumers on how to do it right. So again, we've done a great deal of work in creating tools and training to point people to the right place to learn how to do it right. But frankly, municipalities, consumers, customers have to take responsibility for this contamination because when they deliver us stuff that's 8% contaminated, we call it garbage, right? So we're working through that. But so we're having great, to John's point, great honest discussions about how we make recycling sustainable and profitable and good for everybody, and we think we can do it.
So we're well off of it.
Great. 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.
Yes, we'll follow-up with you sometime after the call.
Okay, will do. Thank you.
The next question is from Michael Hoffman with Stifel. Please go ahead.
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 117x the CNG credit. What's the bridge at exiting?
Yes, Michael. So think about $1,200,000,000 kind of as the midpoint on the exit. We've got $100,000,000 of tax reform capital included in that number as we had talked about, which doesn't roll over into 2021. So that's really how you get to that exit of $1,300,000,000
And what about
$40,000,000 And what about $40,000,000 In
'twenty one, you'd have the
growth on top of that.
And isn't there some working capital timing? There was like $40,000,000 of working capital timing that Yes,
there is Michael that we had talked about $40,000,000 of working capital timing, but that is offset now by the $30,000,000 of a benefit that we get associated with CNG.
Got it. Okay. All right. So the exit rate is 1.3% and then you've got underlying growth greater than whatever your EBITDA growth is going to be?
Yes, that's exactly right. Yes. And again, this
is based on the $200,000,000 target for M and A.
Right.
Could you share what your year end for all of 2019, the open market price was versus restricted to get to your 2.8 for yield in 2019? And then I'd be curious what you think those look like to get to the 3 in 2020?
So you want to I'm sorry, Mike, you want the restricted?
So your open market yield and your restricted yield for 2019 for the full year, you gave us for the Q4 or maybe you gave it for the year, I thought it was the 4th quarter. And then what do you think those pieces are to get to the 3% in guidance?
Michael, we don't have that detail in front of us, I mean, the quarterly amounts, but not the full year. But if you think about it, we should do somewhat the same of what we did this year. You're going to have CPI is going to be a benefit in the first half of twenty twenty, but it will flip to a slight headwind. So for the year, it kind of it will wash its way out. So again, think of core price and restricted price is kind of looking a lot like it does today.
Well, one of them has got
to get better to get to 3% or churn is coming down.
Yes. And it's probably it's going to be the open market piece of it, Michael. We think that that's going to get a little bit better.
Okay. And then housekeeping question. The $15,000,000 of modeled headwind from recycling doesn't give you any benefit for your continuing to work through the 55% that's MRF processing and the 36% on contracts, right? You could in fact offset some of that if you make some progress
the Yes. And just
to clarify, Michael, $15,000,000 is just the pure commodity impact. The actions that we already have baked into the plan more than offset that. The extent we make additional progress that's just icing on top of that cake. Perfect. And
we will make additional progress.
Yes. And remember, Michael, as we increase recycling collection pricing, that flows through the yield.
Got it. And then one just subtly because there's a slightly different messaging around this from another player and I think you have the same answer. 100% of your open market customer at your MRF has been repriced, but you have some contracted work and that's why the aggregate MRF is 55. Correct. Correct.
Yes. Any open market customer has long since bed repriced
more than a year ago.
Yes.
And that's open market at the facilities, that's open market collection, all the open market recycling has been priced.
Great. And then if I could, how's the progress in Plano in the MRF fleet, Have you been happy with what you're seeing that this is we've hit on something and this is something worth pushing in other places?
Yes. We were very happy. Obviously, it's a CapExOpEx trade off, which is we've got state
of the art equipment in there and
it allows us to cut
the labor about in half, right, in the overall process and produce a cleaner product on the back end. So we think that's really attractive and it is. We always think about an anchor tenant and a community that's willing to partner with us in order to do that. And over time, I think you'll see continued investment as we go forward and build out that product line.
Terrific. And one I'll just make one comment. This press release is really useful, the way it's been laid out. Thanks for doing that.
Yes. You're welcome, Michael. Have a good day.
I think you had
6 questions in there, Matt. Yes, I know.
Well, everybody else has 4 or 5. I had to jump in.
The next question is from Michael Feniger with Bank of America. Please go ahead.
Hey, guys. Just on the 3% yield number, is that Chuck, is that like even through the year? Do we accelerate off this Q4 number? Or do we just build through the year to end up averaging 3% for the full year?
Yes. It's relatively evenly distributed throughout the year. Okay.
And then Chuck, I think you made a comment about like SG and A flat to down. That's on a percent of sales basis or is that on an absolute basis?
That's on a percent of sales. That's as a percent of revenue.
All right. All right. Perfect. Yes, I just wanted
to clarify that. And then just on the acquisition you guys have completed already, like if we just take that number, what's the revenue lift on that? If you just with everything that's been completed by year end so far for 2020?
Yes. The rollover revenue benefit is $68,000,000
Okay. And then just on the acquisition you guys completed in 2019, is there any obviously in the overall sector we've seen multiples expand. I'm just curious if you could kind of touch on you mentioned Don mentioned you're leveraging up to buy good cash flow. I'm just curious if you could kind of help us on what you've seen in the private market with multiples for some of these businesses?
Yes. Multiples are still very good. We will, of course, and have and will continue to, we 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 and A that we're doing, we would tell you that multiples are still pretty stable.
Thank you.
The next question is a follow-up from Brian Maguire with Goldman Sachs. Please go ahead.
Hi, thanks for taking the 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 $103,000,000 You've already got kind of $68,000,000 of it completed from last year Or were there some offsets from divestments in there? And I guess so like is there anything you've closed so far in 1Q that we kind of already get you to that $103,000,000 number?
Yes. We said the $68,000,000 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 2 thirds of the way through hitting that 1% number already?
Yes. That's right. That's correct.
Okay. And last one for me, just I think some of the cost breakouts 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 maybe was an unusually high number a year ago. But just wondered if you're finally seeing maybe a little bit of a light at the tunnel or some leveling off of the inflationary pressure you've been seeing on the landfill side?
Yes and no. Listen, landfills are important assets, to Don's point, very, very tough to permit. And we environmental compliance is something we take very, very seriously. So and we price accordingly more than cover our cost of inflation. That being said, we work on both sides of the equation, not just pricing, but also on the cost.
And we work very, very diligently and have an incredible team here that looks at all our landfills from a centralized basis. And every month, we're monitoring every element of the landfill. Is it producing the right level of leachate, right, any elevated heat sources? And we're getting in quickly and we're mitigating small problems, so that those small problems don't become big ones. And that's really helped us mitigate our costs over time.
Maintenance too is a great 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, really, really good leverage on the business on the cost side. We feel like that's a great foundation that takes us into 2020, which is helping drive that margin expansion.
All right, great. Thanks so much.
At this time, there appear to be no further questions. Mr. Slater, I'll turn the call back over to you for closing remarks.
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, we expanded EBITDA margins, generated $1,200,000,000 of free cash flow and invested over $500,000,000 in acquisitions. Our strong finish to 20 19 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 1 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 John 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 our 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.
Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect.