Welcome to the Waste Connections Third Quarter 2019 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded Tuesday, October 29, 2019. I would now like to turn the conference over to Worthing Jackman, President and CEO.
Please go ahead.
Okay. Thank you, operator, and good morning, everyone. I'd like to welcome everyone to this conference call to discuss our Q3 2019 results and provide a detailed outlook for the Q4 as well as some early thoughts on 2020. I'm joined this morning, the morning of Game 6, Go Astros, by Mary Anne Whitney, our CFO and several other members of our senior management team. As noted in our earnings release, strong organic growth in solid waste a sequential increase in E and P waste activity enabled us to deliver better than expected results in the period.
Continued price led solid waste growth and a slight pull forward of special waste activity drove underlying margin expansion in solid waste collection, transfer and disposal of an estimated 60 basis points in the quarter. More importantly, adjusted free cash flow of $763,000,000 year to date or 18.9 percent of revenue and up almost 13 percent year over year puts us firmly on track to meet or exceed the adjusted free cash flow outlook for the full year that we communicated in July. Relatively consistent solid waste organic growth plus the contribution from acquisitions closed year to date already sets us up for overall revenue growth in the mid to high single digits and underlying margin expansion in solid waste collection transfer and disposal in the upcoming year with additional expected continuing above average acquisition activity and any potential improvement in commodity related activities providing further growth. Moving into much more detail, let me turn the call over to Mary Anne for our forward looking disclaimer and other housekeeping items.
Thank you, Rick, 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 October 28 earnings release and in greater detail in Waste Connections filings with the U. S. Securities and Exchange Commission and the Securities Commission or similar regulatory authorities in Canada. You should not place undue reliance on forward looking statements and information as there may be additional risks of which we are not presently aware or that we currently believe are immaterial, which could have an adverse impact on our business. We make no 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 a dollar basis and per diluted share and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non GAAP measures to the most comparable GAAP measure. Management uses certain non GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non GAAP measures differently. I will now turn the call back over to Worthing.
Thank you, Mary Anne. In the Q3, solid waste price plus volume growth was 6.1%. Total price of 5.2% slightly exceeded our outlook for the quarter with the strength once again reflecting additional price increases implemented in 2018 2019 to address accelerating cost pressures and provide through collection pricing further recovery of the much discussed seismic change in the recycling market. Pricing in Q3 ranged from about 3.5% in our more exclusive markets Western region to over 5.5% in our more competitive market regions. We reported our strongest quarterly volume results in over 2 years in Q3 with volume growth better than expected at positive 90 basis points due primarily to an outsized quarter of special waste activity.
Some of that landfill activity had been expected to incur in Q4 when comparisons are tougher and therefore it doesn't change our outlook with respect to full year volumes. Looking at year over year results by line of business on a same store basis in the Q3, commercial collection revenue increased approximately 6% with the majority related to price increases, a portion of which were due to structural changes in the recycling market. Looking at scheduled commercial business, which includes small and large container activity, net new business has increased in each quarter year to date. In addition, have outstripped service decreases in each quarter this year. Roll off revenue increased approximately 7%.
In the U. S, pulls per day increased 2.3% and revenue per pull was up 2.9%. In Canada, pulls per day increased by about 4% and revenue per pull increased about 2.5%. Solid waste landfill tonnage increased about 5% on increases in both MSW up about 6% and special waste up 10%, while C and D tons were down 4% year over year. MSW tons were up in most regions led by markets in our Western and Southern regions.
Special waste volumes were up across all of our solid regions in the U. S. With notable activity in several states including California, Florida, Illinois, Missouri and Minnesota. C and D tons by way of contrast were down in every region except our southern region due in some markets to tough year over year comparisons. Recycling revenue excluding acquisitions was almost $13,000,000 in the 3rd quarter, down $9,500,000 year over year or approximately 43 percent and down about 15% sequentially from Q2.
Old corrugated containers or OCC prices in Q3 averaged about $43 per ton, slightly lower than expected, down 51% from the year ago period. We believe that the flow through from changes in recycling revenue in the Q3 was slightly worse than in Q2 with decremental margins of approximately 150% due to the combination of lower fiber values and higher third party processing costs, which increased sequentially in the quarter, resulting in an impact of approximately $14,000,000 in EBITDA or 80 basis points to reported margins and $0.04 per share of EPS in Q3. OCC and mixed paper prices appear to have stabilized for the time being, which we had expected given increased demand from certain domestic mills converted to allow for the use of recovered fiber as feedstock. Given capacity additions year to date and looking ahead into 2020, there are a number of additional mills and conversion scheduled to come online, which could increase demand for recycled fiber feedstock by over 1,000,000 tons. Landfill gas revenue decreased approximately $7,000,000 or 40% year over year due primarily to the lower value of renewable energy credits or RINs for which certain gas sales qualify.
The average RIN price in Q3 was about $0.69 down 47% sequentially from Q2 and down 68% year over year with the high flow through on the decline in revenue resulting in a 35 basis point impact to reported EBITDA margins and approximately $0.02 per share of EPS. Looking at E and P waste activity, in the Q3 we reported 66,400,000 of E and P waste revenue, our highest such quarterly revenue in over 2 years, up 4% sequentially in spite of continued declines in rig count during the quarter, which are now down 23% since year end 2018. Our quarterly results have held up year to date in spite of those declines due to our asset positioning and diversity of basins, including the Louisiana Gulf of Mexico where the rig count decline has not been as pronounced. That said, we believe near term E and P waste activity peaked in August as it has since moderated to a run rate of approximately $60,000,000 per quarter. Given the typical seasonal decline in E and P activity in Q4 and moderation in the pace of activity we have seen over the past 2 months, we are cautious in our outlook and continue to be selective on new project developments.
In fact, we made a determination in Q3 to forego any future development efforts associated with a landfill in the Bakken for which we held the permit. And regarding the 2 remaining landfill projects in the Permian that we have discussed on previous calls, we continue to move forward with construction on one of them and are holding off on the other for now. Regarding the materials processing and recovery technology expansion at an existing Permian facility, as noted in prior updates, we continue to expect that to be online by year end. Looking at acquisition activity, we've already closed what we would consider an above average amount of acquired revenue in 2019 and acquisition dialogue has continued to increase over the past few months. Since our earnings call in July, we have extended offers totaling over 6 $100,000,000 in outlays, a portion of which could be completed by year end.
In fact, we could potentially double our already completed $160,000,000 in annualized acquired revenue by year end or early next year. Starting 2020 off with above average contributions from acquisitions along with a continuing robust pipeline for further activity. In addition, we closed on the acquisition of a greenfield solid waste landfill project in the period for which the final permit was received by the sellers. This landfill which should be operational by early 2021 improves our asset positioning in a legacy progressive waste collection only market where we currently utilize a 3rd party disposal site. Finally, as announced yesterday, our Board of Directors authorized a 15 6% increase in our regularly quarterly cash dividend, our 9th consecutive double digit percentage increase since commencing the dividend in 2010.
In spite of these increases, our dividend remains at about 20% of our expected annual adjusted free cash flow, providing tremendous flexibility to fund expected above average acquisition activity in the near term and increases in return of capital to shareholders over the long term, including opportunistic share repurchases. To that end, in August, we announced the annual renewal of our normal course issuer bid, which authorizes the repurchase of up to 5% of our outstanding shares. Now I'd like to pass the call to Mary Anne to review more in-depth the financial highlights of the Q3 and provide a detailed outlook for Q4. I will then wrap up with a few early thoughts on 2020 before heading into Q and A.
Thank you, Worthing. In the 3rd quarter, revenue was $1,412,000,000 up $131,300,000 or 10.3 percent over the prior year period and about $7,000,000 above our outlook for the quarter. Acquisitions completed since the year ago period contributed $82,800,000 of revenue in the quarter or $77,100,000 net of divestitures. Adjusted EBITDA for Q3 as reconciled in our earnings release was $443,600,000 or $1,600,000 above our outlook for the period and up $26,800,000 year over year. Adjusted EBITDA as a percentage of revenue was 31.4% in Q3, down 110 basis points year over year due primarily to 2 factors, an estimated 115 basis points impact resulting from the year over year decrease in commodity related recycling and landfill gas revenues noted earlier and an estimated 55 basis points impact from lower margin acquisitions completed since the year ago period.
The underlying adjusted EBITDA margin for solid waste collection transfer and disposal revenue was up an estimated 60 basis points year over year. Moreover, as noted in prior quarters, these results include about a 20 basis point impact from our increased 401 match, which will anniversary at year end. Fuel expense in Q3 was about 3.8% of revenue and we averaged approximately $2.61 for diesel in the quarter, which was down about $0.11 from the year ago period and down about $0.05 sequentially from Q2. Depreciation and amortization expense for the Q3 was 13.4 percent of revenue, down 30 basis points year over year and about 10 basis points below our outlook on higher than expected revenue in the period. Interest expense in the quarter increased by $4,700,000 over the prior year period to $36,800,000 due to the combination of higher total borrowings and higher interest rates as compared to the prior year period.
Including higher interest income from invested cash balances, net interest expense increased by $4,100,000 in the period to 34,700,000 Debt outstanding at quarter end was about $4,000,000,000 about 90% of which was fixed rate and our weighted average cost of debt was approximately 3.5%. Our leverage ratio as defined in our credit agreement declined nominally in the quarter to less than 2.3 times debt to EBITDA. Our effective tax rate for the Q3 was 21.2 percent, slightly lower than expected. As we've noted on previous calls, the IRS released proposed regulations late last year associated with the Tax Act that could impact our current effective tax rate. The proposed regulations still have yet to be finalized, but could impact our effective tax rate in the period enacted.
We believe that if enacted in Q4, any impact would be limited to the current year with our effective tax rate returning to about 22% in 2020. GAAP and adjusted net income per diluted share were $0.60 and $0.73 respectively in the Q3. Adjusted net income in Q3 primarily excludes the impact of intangibles amortization and other acquisition related items. Adjusted free cash flow in the 1st 9 months of the year was $762,900,000 or 18.9 percent of revenue, up 12.9% year over year. I will now review our outlook for the Q4 2019.
Before I do, we'd like to remind everyone once again that actual results may vary significantly based on risks and uncertainties outlined in our Safe Harbor statement and filings we've made with the SEC and the Securities Commissions or similar regulatory authority from 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 or divestitures that may close during the remainder of the year and expensing of transaction related items during the period. Revenue in Q4 is estimated to range from $1,335,000,000 to $1,345,000,000 with the range due primarily to our cautiousness around special waste and E and P waste activity.
We expect price growth for solid waste to remain around 5 reflects a reduction in landfill volumes due to lower visibility on special waste jobs and tougher comps. Relative to our run rate as of our July call, this outlook reflects an approximate $5,000,000 decrease in potential special waste volumes and an approximately $5,000,000 to $10,000,000 reduction in potential E and P waste activity. Adjusted EBITDA in Q4 is estimated at approximately 405,000,000 dollars The margin impact from lower margin acquisitions completed since the year ago period is expected to be approximately 45 basis points and the commodity driven impacts from recycling and RINs are expected to be similar to Q3. High decrementals associated with an anticipated year over year decline in special waste and E and P waste activity also impact the period. Depreciation and amortization expense for the 4th quarter is estimated to be about 13.8% revenue.
Of that amount, amortization of intangibles in the quarter is estimated to be about $32,000,000 or over $0.09 per diluted share net of taxes. Interest expense net of interest income in Q4 is estimated to be approximately 34,500,000 dollars And finally, our effective tax rate in Q4 is estimated to be about 21.5%. We estimate that the Q4 rate would increase to approximately 35% in the event that the proposed regulation as originally drafted were to be enacted during the period, which would result in an impact of approximately $0.10 per share in Q4 with the rate declining back to approximately 22% in 2020. And now let me turn the call back over to Worthing for some final remarks before Q and A.
Thank you, Mary Anne. We're extremely pleased with our year to date performance, particularly given the ongoing high margin headwinds from commodity related activities. With our year to date adjusted free cash flow up almost 13% year over year, we are firmly on track to meet or exceed the updated full year adjusted free cash flow outlook we provided in July. We just announced another double digit percentage increase of our regularly quarterly cash dividend and remain well positioned for potential significant increase in acquisition outlays later this quarter or early next year. Although we won't provide our formal outlook for 2020 until next February, we're able to provide some early thoughts assuming no change in the current economic environment.
In summary, we believe that we could enter 2020 in a similar position to the start of 2019 when we provided our outlook this past February, at which time we had approximately 200,000,000 in revenue contribution in place from acquisitions plus the potential for additional contribution from an active pipeline. Similarly, on organic growth, we believe that we remain in a price led solid waste organic growth range of between 4% 6%, which should continue to drive underlying margin expansion in solid waste collection, transfer and disposal in the upcoming year. Price is expected to remain around 5% and our volume should reflect underlying trends in the macro economy. We are mindful of the protracted nature of the economic recovery, which has driven increasingly challenging year over year volume comparisons, and therefore, we believe it is prudent to remain guarded in our outlook for volume growth. All in, this could result in a potential top line growth for 2020 of between 8% 10% from solid waste organic growth and acquisition contribution that could already be in place early in the New Year.
At current recycled commodity and landfill gas values, the 2020 headwinds would be less than half of what we experienced in 2019 with any recovery in such values reducing that impact. We expect to have better visibility on the tone of the economy and expected acquisition contribution, E and P waste activity and commodity driven revenue in February when we provide our formal outlook for the upcoming year. We appreciate your time today. I'll now turn this call over to the operator to open up the lines for your questions. Operator?
Thank And our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Hey, good morning, everyone.
Hey, good morning, Tyler.
Hey Worthing, so I appreciate the color on the landfill tonnage. But I was wondering how pricing has been trending at the landfills, specifically MSW landfill pricing, it just feels like there's some industry wide momentum there?
Yes, obviously the pricing varies by region in the country, right? Some regions are seeing what I would call 2x the average. So our average right now is running about 3%. And in some parts of the country, you see that running as high as 5% or 6%.
Okay. That's great. And then just I'm a little unclear on the landfill purchase. So will there be some CapEx associated with that landfill build out in 2020? And then would it be an EBITDA contributor in 'twenty one?
Is that the right way to think about it?
Yes. First, I agree with the confusion around it because in the old days that was treated as an acquisition outlay, but GAAP changed in 2018 to require us to book it as CapEx for acquisition.
So while the nomenclature has changed,
the purpose of the outlay was acquisition. So while the nomenclature has changed, the purpose of the outlay was to acquire a new landfill. We'll commence construction of that in the second half of next year. We'll probably spend about $5,000,000 or so in the calendar year next year and a little bit the following year to get it going. We expect that to be up and running the first half of twenty twenty one.
Okay. That's very helpful. And then Mary Anne, so I appreciate the color on 2020, but to put a finer point on it, just based on the M and A that you've done to date, how should we place mark the rollover benefit to revenue next year from M and A?
Sure. So on the M and A done to date, the $160,000,000 acquired revenue in 2019, it's about a 1% rollover into next year, so about $55,000,000 and that's primarily about 2 thirds of it in Q1 with the balance in Q2. So the drag to margins is about 10 basis points.
Right. Okay, great. And then just a few baseline the commodities where they are today in the RIN prices, would that be maybe a collective $25,000,000 drag to EBITDA next year? Is that too much or too little?
No, that's a good way to think about it. I'd say about $20,000,000 in revenue and about $25,000,000 in EBITDA.
For the combination of recycling and RINs?
That's correct. Okay. And again, heavily weighted in the first half of the year.
Right, right. Okay. All right. I appreciate the time. Thanks.
And our next question comes from the line of Sean Eastman with KeyBanc Capital Markets. Please proceed with your question.
Hi, team. Thanks for taking my questions. First one for me is just on the E and P side. You guys have provided this $55,000,000 to $60,000,000 quarterly revenue run rate for the 4th quarter, I believe you said. I'm just wondering how we're looking into 2020 relative to that run rate.
I guess just assuming rig counts don't continue to dribble down, is that kind of a number that should be sustainable into next year?
Yes. I mean we're we may be settling into that $55 to $60 if crude stays around that $55 to $57 barrel. I've always thought we were 1 missile away from crude hitting 80, but 2 dozen missiles fly a few months ago and crude went down. So it's hard to call the trajectory of crude oil these days, but we do seem to be in that $55,000,000 to $60,000,000 range for the time being.
And then maybe what's the EBITDA implication around moving down into that $55,000,000 to 60 run rate on the revenue into next year?
Sure. Well, Sean, as you know, it's very high incrementals and therefore decrementals in E and P, the way to think about it would be about a 70% EBITDA impact.
Okay, thanks. Okay. And then on the acquisition contribution, I think you guys said you could get to an 8% to 10% top line all in by the time you give formal guidance in 4Q. I think you guys have pretty much got 1% acquisition growth locked in for next year at this point. So I'm just wondering maybe if you can parse out that 8% to 10% a little bit between the organic piece and acquisitions and maybe between price and volume.
As much color as you wanted to give would be great.
Sure. As we said, we're in a 5% type of range on price. And again, absent any other changes, we don't see why it wouldn't be similar to that. And then as you know, we our volumes will reflect the tone of the underlying economy and activity levels as we've said. And so we consider ourselves in the band of call it plus and minus 1 there, gets you the 4% to 6% organic growth rate that we talk about.
So that's what's implied by that. On top of that, as you said, we have 1% rollover contributions from acquisitions already in place. So that implies, as Worthing said, if we came into the year similar to last year, we could see another 3% in acquisition contribution potentially as we enter the year. We'll certainly know more in February, Sean, when we give our formal guidance.
Yes. But as we also said in our prepared remarks, there's a higher probability that would be in place by the time we give our guidance in February. So in any additional acquisition activity for the remainder of the year, which is most of the year, will provide further upside to that.
Okay. Thanks very much. Appreciate it.
And our next question comes from the line of Michael Hoffman with Stifel.
On free cash flow, am I thinking about this correctly? So you're reaffirming the $915,000,000 but it includes $35,000,000 for a contract win. So the base run rate is $950,000,000 So I think about your next year is starting on a 950 and then whatever the opportunity is?
That's the way to do the math on the baseline year. That's right.
Okay. And then I get the noise around the RINs and recycling and the prudence on E and P. And then technically you gave new guidance at 1,675,000,000 dollars for EBITDA and now we're looking at probably 1,660,000,000 is sort of the way to think of the year based on the Q4?
Well, if you look at the if you take into the context of the entire half of the year, second half of the year, yes, that would be on that guided EBITDA that's 1% to 1.5% below the guided EBITDA implied guided EBITDA in the second half of the year. And obviously, you've seen us beat prior quarters this year. And so to the extent we beat this current outlook, you see us close the gap that you're inferring.
Okay. And then what is it that you can do around pricing that gives confidence to the market that 5% is a sustainable number? What how everybody remember what it is you can do about your business and why 5% is a good number?
Well, first thing I'd point to is the fact that within our exclusive market model, there alone we're printing 3.5%, right? And that's a market where you have effectively no churn and 100% stickiness. And so just right off the bat right there, we report a kind of comparably better pricing than our peers just in that exclusive market portion. If you look at our competitive market portion, you have a very high percentage of that being rollover contribution from what we've already done year to date in 2019. And so that puts you probably 70% 60% to 70% on the way to delivering all the price between our exclusive markets as well as the rollover before the year even starts.
And majority of the balance of what we do, we do early in the year. And so by the time we get to a February call, more likely 80%, 85% of what we're going to do for the full year is already done. And with remaining pricing for the year, at least that's scheduled based on when contracts rollover or adjust. And obviously, you've seen us in prior years to the extent that something surprises us and we have to go out and get it. You've seen our folks with a discipline and the focus on execution to go and get it.
We're not anticipating much of a seismic change in price and to the extent you saw us go to 5.2% in most recent quarter. So we've been holding serve around that 5% now for the past almost 2 years.
Okay. Thank you on that. And then on volume, you made a point of drawing out some specific data about trends in commercial, which I think are important that if you're getting service interval upgrades, that's an underlying volume driver. You pointed out the MSW strength. So when you talk about a negative one to positive one for the Q4 or for next year as a range, underlying MSW is still stable and in line with the economy indicative of what you said in your small container business and the variability is around C and D and special waste is what I'm assuming?
I think you just answered your own question. That's right. I mean, that's what the data shows us and that's what we called out for Q3.
Okay. I just want to make sure that the market is not grasping a hold of a possible negative volume going, oh my gosh, there's an economic indicator here when underlying MSW, which is driven by the consumer
stable. Right. But we're always cautious. Look, we were cautious about the trajectory of the economy, but we were 4 5 years into the recovery. Now we're 8 years into the recovery and I cautious this hasn't changed.
I mean we just we believe it's always prudent to run a business not assuming certain growth factors. And if we do get those growth factors, let that all be upside.
Okay. Thanks for taking my questions.
Sure.
And our next question comes from the line of Derek Spronck with RBC. Please proceed.
Okay. Thank you for taking my questions. Pricing in Canada at 6.6% was pretty strong, U. S. 4.8%.
Any differences in the 2 regional dynamics there?
I'd say in Canada, we're through what I would call kind of re pricing the book that we inherited 3 years ago. I would certainly expect the pricing strength in Canada to moderate somewhat as we look at the upcoming year. It's similar to what we see in the competitive markets within the U. S. Which would move that pricing closer to 5%.
Again, hats off to our guys for making the effort over the past 3 years for really getting the quality of revenue in line with the cost structure and the capital needs of the business.
Okay. And acquisition multiples, are you seeing any movement around seller expectations around the acquisition multiples they're looking for?
Well, I think we've been consistent over the past couple of years saying without a doubt multiples have moved up about a turn to a turn and a half. And so if high quality acquisitions, whether it be franchise or larger integrated, we're running 2 3 years ago in that 8 to 8.5 times range. When you look at the quality of the assets that are now being bought because many purchasers have been reinvesting and many sellers have been reinvesting at a high clip in their business. So the quality of assets has moved multiples up for those companies that do have high quality assets about a half a turn. I'd say tax law changes probably moved it up another turn as well.
And so that gets you that kind of 10 times plus or minus half turn for high quality operations. Tuck ins really no change in that marketplace. Those still run between 4 and 6 times. So the overall multiple that we'll pay on any kind of portfolio of outlays really dependent upon the profile of what's done in the year.
Okay, that's helpful.
Folks, it's hard to deliver meaningful value creation as you see multiples creep much higher than that. And so you get kind of indifferent on buying back stock relative to outlays above those kind of multiples.
And just a couple more quickly for me. There was another $12,000,000 impairment charge, maybe provide a little color on that. And then special waste, maybe talk a little bit about the visibility you have and why you think it was a bit of a pull forward here in the Q3? Thanks.
Sure. So starting with the impairment charges, as you note, Derek, as Worthing said in his prepared remarks, we had we decided to forego the opportunity to continue pursuing an E and P project in the Bakken. So that was the majority of that write off. That was a permit we had held for a while and made the determination not to move forward on it in the quarter. So that's the impairment.
And then to your question on special waste, as you know, special waste can be lumpy. It's market dependent. We saw several markets in Q3 where you had outsized special waste that may have been pent up from earlier in the year. When you come through a few quarters like that where you don't see additional projects backfilling, you that's when you few when we look at tougher comps year over year in several markets, and as I said, just having come through some increases in activity in those markets. But Worthing mentioned, included in the Midwest, in Minneapolis and the Colorado market where we've had strong waste for several quarters, we're just cautious entering Q4 until we see the additional activity come.
And our next question comes from the line of Brian Maguire with Goldman Sachs. Please proceed with your question.
Hey, good morning, everyone.
Hey, good morning.
I was hoping to get an update on the progress on onboarding some of those new contract wins you talked about last quarter. I know you spent some CapEx on it this year. Just wondered on how that progress is going? And would you still expect that to be I think you talked about a 40 to 50 basis point benefit for volumes next year. Would that number be additive to the comments you made earlier about kind of the overall volumes next year being in line with the overall economy.
Is that those new business wins added into that or is that kind of included in that volume comment?
Yes, that's first off looking at next year. When we say overall 4% to 6% and organic growth being price plus volume with 5% of that being price. The good news is, to your point, you're right, we're already spotted 40 or 50 basis points of volume growth because of those contract wins. And so kind of that encourages me to think that we're at the midpoint or better of that 4% to 6% range. But again, we're not in 2020 yet.
One of the contracts that's in that, we're in the startup period right now on that. Again, our folks in that marketplace have done a fantastic job going from no presence in the market and a cold start to getting the trucks, getting the containers, on boarding a whole new set of employees and successfully rolling out that contract. And the Q1 is always the most challenging quarter in that, so we're cautious about that. But I'd tell you, when that thing turned on, our guys did a phenomenal job in our marketplace. And so you're already seeing the benefit of one of those starting off here in Q4.
Okay, great. And I appreciate the color on volume and pricing for 2020. Any thoughts on where cost deflation might go or maybe kind of an exit rate as we're leaving 2019 on cost inflation?
We're still seeing first of all, I'd say the all in wage escalation in 2020 should not be as heavy as we're seeing in 2019 because part of the wage escalations we're seeing in 19 is our 100% match in the 401 ks, right? And that's been about 20 basis points drag on the overall margins of the company this year as it went to 100% match this year on 401 contributions. But if you strip that away for a second because that'll be a tailwind in 2020 on the actual wage escalations alone, there's still it can be ranging between 3% 6% depending upon the profile of the position within the company or the region of the country it's operating in. So barring unless something changes in the macro that or an immigration law, which I don't expect next year, I don't see any foreseeable change in the pressures on wages themselves.
Okay. Just last one for me. Based on the comments about the acquisitions being like a 55 basis point drag on margins, it looks like those acquisitions are coming in at about a 23.5 percent EBITDA margin. Assuming that sounds about right, is that sort of representative of what we should expect on acquisitions in the current environment? And are the deals you're doing today any different or better or worse than the deals you've done historically?
Yes, it really depends on the profile. First off, you're right on what we've bought because the vast majority of what's in the current numbers is collection oriented. And as you know, collection can run-in that 22% to 25% range depending upon the part of the country. In some parts of the country, collection only can run 30% plus. So it also depends on where we're getting those collection deals done.
As Mary Anne said, we're already going through the year with about 1% top line growth on deals done to date. That's about 10 basis point drag as you look at next year's numbers from a margin standpoint. The pipeline right now is across the board. There is collection only that runs in the low to mid-20s. There are some integrateds that run 30 plus.
There are some collection only that runs 30 plus as well. And so I guess it's not uncommon though as you think about acquisitions in general or acquisitions that come in at margins that are lower than our integrated profile. And we generally move those margins up a little bit over time. But the entry, it's hard to bring a 24% company to a 31% company, right? Maybe a 24% becomes 26% in 2 or 3 years.
But again, the impact on margins next year will depend on the profile of what we announced in February.
All right.
Thanks for the color. No stress.
And our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Thanks. Hey Worthing, just to follow-up on that last point. You gave good color on the acquisition in there, right, in terms of potential acquired revenues. I imagine this is a fairly diversified mix that you have the $600,000,000 in offers out to?
Yes. I mean, you've got companies as small as $10,000,000 to 15,000,000 dollars excluding a couple of small traditional tuck ins. You've got some new market entries that are $30,000,000 to $40,000,000 and a couple of them that we're looking at that are potentially larger than that. But nothing like an American that's $180,000,000 or $200,000,000 in revenue that we're looking at right now. And again, that look, we talk about things that we're looking at.
Obviously, we don't control anything that's happening with advanced disposal and so nothing we talked about from a pipeline or from anything else like that whatever include anything around advance.
Yes. Thanks for clarifying that for us. And then that kind of feeds into this question around capital allocation. You mentioned it earlier, but I think even if you continue to spend this robust level on M and A that you're talking about, your leverage is still going to be kind of on the lower end of what been historically. And I know you're not really constrained or dictated by leverage, but at what point do you feel it's going to make sense to at least resume some share buybacks, just given your comments earlier?
Sure. We've been consistent over the past couple of years noting that we thought 2017 through 2020 would be periods of outsized M and A activity. And obviously, it's uncertain how much we lay out, but we've been laying out in some cases $1,000,000,000 a year. And so we feel fortunate in that we're able to make those outlays and still drive leverage lower, number 1. Number 2, it's still not clear to us whether spend $500,000,000 in the next 12 months or spend $1,500,000,000 in the next 12 months.
And so we like the flexibility we have around deploying our capital for appropriately priced and strategically consistent M and A. That remains no different. Obviously, we recognize that stock markets don't always go up into the right. I mean, there's even chatter this morning of the old what happens if the Fed doesn't increase or decrease rates this coming week and what does that mean in the stock market. And so by the way, it's just put simply, it means that we like to step in and buy our stock when there's blood on the screen and stocks dislocate and we'll just be patient around that.
We are the ultimate long term holder of our stock and we can pick our spots around that. But we do agree as we say in the press release and in our prepared remarks that you'll see us increase the return of capital to shareholders and that will be through our optimistic share repurchases. And obviously at our low leverage, we can easily spend $1,000,000,000 to $1,500,000,000 on acquisitions and still spend $1,000,000,000 plus on stock repurchase if we wanted to and stay comfortably within any leverage targets that we have. So we're very fortunate in our flexibility.
Yes. Thanks very much for the color.
And our next question comes from Mark Neville with Scotiabank. Please proceed with your question.
Hey, good morning. I apologize, I just there was a few numbers I'd missed. I mean, I think you hit on a few in the prior question, but in terms of the M and A outlay, there was I think you said 600,000,000 dollars of potential or outlays or offers made currently, which if hits would be sort of 3% revenue accretive for next year. Do I have those numbers right?
Right. What we said was already in place about a 1 Okay. And
Okay. And that's tied to the $600,000,000 which again diversified mix and none of the advance in there?
That's correct.
Yes, okay. Maybe just on the margin for next year, again, you've said underlying expansion. So when I think about it, a 20 basis point sort of bump from the absence of the 401 match, 10 basis point hit from rollover of M and A. So you start at 10 and you add whatever you get sort of pricing volume sort of land wherever we may land. So is that again, that's how to think about it?
Sure. That's a fair way to think about it. And I remind you that, for instance, in Q3, we said the underlying margins in solid waste collection transfer and disposal were up about 60 basis points. Then of course, you'd want to layer in whatever your view is on RINs and recycled commodities and what that does at current levels or whether whatever you're forecasting. And then of course your E and P expectations would also impact margins.
But those are the pieces, yes.
And the recycling this quarter was an 80 basis point hit?
That's correct. Remember, as we said that it's not only the decrease in the revenue associated with the sale of recycled commodities, but then we actually have incremental expenses on top of that associated with third party fees and the cost to get rid of some of the commodities. And that's why you saw the decrementals of about 150% on that $9,000,000 or $10,000,000 decrease year over year in recycled commodities.
And we said that next year, the headwind is less than half of that for the full year, which means it's probably all of that for the first half of the year or thereabouts because of the rollover. And then assuming zero drag in the second half of the year, it was slightly positive.
Okay. I
mean, maybe I can go
back and check my numbers, but like what would be sort of the half sort of headwind? What would be sort of the anticipated full year hit this year from sort of recycling
from the RINs?
If I were just to look at recycling and RINs at current levels, the headwind for next year is about $20,000,000 to 25,000,000 So that's revenue and EBITDA. Again, the EBITDA being a little worse than the revenue as I described.
And this year's headwind was more than twice that?
That's correct.
Okay. And sorry, I also missed the Q4 adjusted EBITDA guide.
That's $405,000,000
Okay. All
right. Thank you for taking my questions.
Sure.
And Mr. Jackman, there are no other questions at this time. I'll turn the call back over to you.
Terrific. Well, if there are no further questions, on behalf of our entire management team, we appreciate your 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 the applicable securities laws in Canada. We thank you again for your interest and we look forward to speaking with you at an upcoming investor conference or on our next earnings call. Thank you.
Thank you. That does conclude the call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.