Greetings, and welcome to the Waste Connections Second Quarter 2019 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded, Tuesday, July 30, 2019. I would now like to turn the conference over to Worthing Jackman, President and CEO.
Please go ahead.
Thank you, and good morning. I'd like to welcome everyone to this conference call to discuss our Q2 2019 results and updated outlook for the full year and to provide a detailed outlook for the Q3. I'm joined this morning by Mary Anne Whitney, our CFO and several other members of our senior management team. In addition, we're all pleased to also be joined by Ron Mittelstaedt. As announced on Friday, Ron has returned from his temporary leave of absence and assumed the role of Executive Chairman.
We're extremely pleased to have him back and to have him join us this morning. Before discussing Q2 and our updated outlook, I'd like to hand the call over to Ron for a few remarks about last week's announcement.
Okay. Thank you, Worthing. First off, I'd like to thank our employees, everyone on today's call and many others for the thousands of cards and expressions of support that my family and I have received over the past several months. I'm excited to be back and pleased to have been able to assume the role of Executive Chairman. I remain committed to the company and as a continuing employee look forward to assisting in several areas including culture, strategy and acquisition.
Exiting the day to day responsibilities of CEO provides sufficient time for me to continue to address health matters affecting my family. No matter who you are, regardless of your profession or title, families should always come first. I look forward to continued success for the company under Worthing, who has been an integral part of the leadership team driving the success of Waste Connections for over 20 years. When I temporarily stepped aside earlier this year, Worthing assumed the role as our principal executive officer consistent with the management succession plan approved by our board. He and our long tenured team did not miss a beat, continuing to execute our growth strategy and drive further improvements in safety, employee development and retention while moving the company forward in many areas.
Our Board has great confidence in him as our new CEO and we believe that he is the right person to lead the company. There's so much more I could say about our team and the opportunities ahead, but since this is an earnings call, I'll turn the call back over to Werner.
Thank you, Ron. We've all had you and your family in our prayers over the past several months. It's great having you back and I appreciate all the support. Now on to our latest results. As noted in our earnings release, solid waste pricing growth of over 5%, along with a sequential 200 basis point increase in solid waste volumes drove underlying solid waste collection, transfer and disposal margin expansion of approximately 70 basis points in the quarter.
This helped offset a portion of the impact from lower than expected contributions from higher margin commodity related activities, primarily recycling and renewable fuels, and the dilutive margin impact recycled commodity value and a precipitous drop in the value of renewable fuel credits impacted overall results. In spite of these commodity related headwinds, we have already generated adjusted free cash flow of more than $500,000,000 putting us on track to meet our original expectation for underlying adjusted free cash flow for the full year. As anticipated, we've already completed an outsized year of acquisition activity with almost half of the year still ahead of us as we have closed approximately $160,000,000 in total annualized revenue. We are particularly pleased with the approximate 65 percent average reduction in safety related incidents in the 3 largest acquisitions completed over the last several months and we look forward to continued improvement as we are accelerating the timing to automate the residential fleet in our largest acquired location. In addition, new contract awards are trending above average and provide additional foundations for growth next year.
Before we get into much more detail, let me turn the call over to Mary Anne for our forward looking disclaimer and other housekeeping items.
Thank you, Worthing, and good morning. The discussion during today's call includes forward looking statements made pursuant to the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995, including forward looking information within the most accessible Canadian securities laws. Actual results could differ materially from those latest forward looking statements due to various risks and uncertainties.
Factors that could cause actual results to differ are discussed both in the cautionary statement on Page 3 of our July 29 earnings release and in greater detail in Waste Connections' filings with the U. S. Securities and Exchange Commission and the Securities Commission for 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 but 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 Ward.
Thank you, Mary Anne. In the Q2, solid waste price plus volume growth was 6%. Total price of 5.2% exceeded the high end of our outlook for the quarter. It was in line with our Q1 pricing and up 100 basis points year over year. Our pricing strength continues to reflect the rollover benefit of the additional price increases we implemented last year in response to accelerating cost pressures and lower recycled commodity value.
In Q2, our pricing ranged from approximately 3.4% in our more exclusive markets in the Western region to an average of over 5.5% in our more competitive regions. Reported volume growth in Q2 was a positive 80 basis points, increasing 200 basis points sequentially from Q1. This step up was in spite of winter weather that persisted in certain markets well through April and even into May. Moreover, as expected, reported volumes reflect about 50 basis points of negative volume drag from purposeful shedding of poor quality revenue, primarily the impact of the New York City Department of Sanitation Marine Terminal operations contract with a third party. As noted on prior calls, we expect to fully anniversary the impact of shedding by the end of this year.
Taking these impacts into consideration, we estimate that underlying volumes were up almost 1.5% in the period and we saw trends improve during the quarter as activity picked up with improving weather in many markets. On the subject of increased volumes, we've also seen an above average success rate on municipal contract bids year to date, which will supplement underlying volume growth in 2020 and in some cases should position us for additional growth opportunities in certain markets where we would not otherwise have a presence. We will have incremental CapEx this year associated with these wins with the P and L and cash flow benefits beginning next year. Looking at year over year results in the Q2 by line of business on a same store basis, commercial collection revenue increased approximately 5.7 percent primarily due to higher price, a portion of which was due to declines in recycled commodity guidance. Roll off revenue increased approximately 4.4% on higher pulls and higher revenue per pull.
In the U. S, pulls per day increased about 1% and revenue per pull was up about 4%. In Canada, pulls per day were about flat on an increase in revenue per pull of about 6%. Solid waste landfill tonnage increased about 6%, the strongest year over year increase we have reported since 2017, led by strength in both MSW and special waste. MSW was up 6% on increases in all regions in the U.
S. And also in Canada, led by both the East Coast, most notably New York, and the West Coast in California. Special waste was up 9% with increases in all regions except our central region, which includes Minnesota, Oklahoma and Colorado, where weather continues to be a factor driving the slower seasonal ramp in Q2. C and D tons were down about 1% mostly on a decline in Canada. Recycling revenue excluding acquisitions was about $15,000,000 in the 2nd quarter, down $7,200,000 year over year or approximately 33%, which was lower than originally expected on continued deterioration in pricing for fiber including old cord containers or OCC.
OCC prices in Q2 averaged about $50 per ton, which was down 47% from the year ago period and down 36% sequentially from Q1. OCC prices exited Q2 at their lowest levels for the period as the demand destruction from import restrictions in Asia has been further exacerbated by a slowdown in demand for cardboard from domestic mills. The flow through from changes in recycling revenue was more punitive in Q2 than in prior quarter, with decremental margins well over 100% due to the significant decrease in fiber values and higher fees paid to 3rd party recycling facilities, resulting in a combined year over year impact of approximately dollars 1,000,000 in EBITDA and about $0.03 per share in Q2. OCC prices currently average about $45 per ton, down another 10% from Q2 and down about 50% from last year's average of $88 in the 3rd quarter. At current rates, the full year impact of the decline in recycling is expected to total approximately $25,000,000 to $30,000,000 in revenue and $35,000,000 to $40,000,000 in EBITDA.
Compared to some of our peers, our more punitive near term impact from recycling merchant recycling volumes represented in our MRR. About 70% of the volume delivered to our recycling facilities comes off our own trucks. 20% is from third parties on the contracts and only 10% is merchant volume from third parties where we have the ability to and have implemented recycling fees similar to our peers. In many of our franchise agreements where we do have the ability to recover lower commodity values and higher costs, there can be a lag above the 6 or 12 months and therefore in some cases such recovery will continue into 2020. We take a long term view to working with our customers through the seismic changes the industry has experienced in recycling, preferring not to close recycling facilities or claim force majeure to terminate contracts.
So for us, recovering the full impact on that 90% of recycling volumes takes both a multi year approach to increase collection pricing, which we proactively started last year, and repricing contracts that expire in future periods. Landfill Gasoil sales are also commodity driven, particularly the value of Renewable Identification Numbers or RINs for which certain renewable gas sales qualify. Since year end due primarily to decreased demand for renewable energy credits, RIN prices have declined from about $1.60 to approximately $0.70 with most of the drop off occurring during Q2, resulting in a decrease of approximately $3,000,000 of EBITDA on the quarter or about $0.01 per share. With RINs at current levels, we estimate that a full quarter impact would be approximately $5,000,000 in EBITDA or about $0.015 per quarter in EPS during the remainder of the year. Looking at E and P waste activity, we reported $64,000,000 of E and P Waste revenue in the 2nd quarter, up about 6.5% year over year and up nominally from Q1 in spite of a small year over year sequential decrease in the Permian Basin.
These results reflect the modest contribution from our new E and P landfill in the Wyoming Powder Basin where activity continues to ramp after opening in late Q1. Given the 13% decrease in rig count in the U. S. Since year end and an increasing focus on returns by many of our E and P customers, we do not expect a near term increase in the current run rate and continue to be selective as we move forward on new projects. Looking at acquisition activity, we've already closed what we will consider an above average amount of acquisitions for the year and continue to see an elevated amount of seller interest.
Year to date, our acquisitions total approximately $160,000,000 in annualized revenue, including most recently a new integrated market in Texas, plus a significant expansion of our footprint we established last year in Rhode Island. In addition, recently completed tuck ins in California, Kentucky, New York, Texas and Quebec. Now I'd like to pass the call to Mary Anne to review more in-depth the financial highlights of the Q2, provide a detailed outlook for Q3 and discuss our updated outlook for the year. I'll then wrap up before heading into Q and A.
Thank you, Worthing. In the Q2, revenue was $1,370,000,000 about $10,000,000 above our outlook and up $129,700,000 or 10.5 percent over the prior year period. Acquisitions completed since the year ago period contributed about $84,300,000 of revenue in the quarter or about $77,400,000 net of divestitures. Adjusted EBITDA for Q2 as reconciled in our earnings release was $425,300,000 This is consistent with the update we provided in early June, but about $8,500,000 below our original outlook for the period due to the decline in commodity related revenues and the associated EBITDA impact. Adjusted EBITDA as a percentage of revenue was 31.1% in Q2, down 80 basis points year over year due primarily to 2 factors, an estimated 80 basis points resulting from the year over year decrease in commodity related revenue and an estimated 50 basis points impact from lower margin acquisitions completed since the year ago period.
Excluding these impacts, underlying adjusted EBITDA margins for solid waste collection, transfer and disposal as a percentage of revenue were up approximately 50 basis points year over year. In addition and as expected, the year over year impact of our increased 401 match, which anniversaries at the end of the year, was about 20 basis points in the period. Fuel expense in Q2 was about 3.9% of revenue and we averaged approximately $2.66 per gallon for diesel in the quarter, which was down about $0.09 from the year ago period and up $0.07 potentially from Q1 2019. Depreciation and amortization expense for the 2nd quarter was 13.7 percent of revenue, up 10 basis points year over year due to a 15 basis point increase in amortization expenses associated with acquisitions completed since the year ago period. Interest expense in the quarter increased $4,800,000 over the prior year period to $37,200,000 due to higher outstanding debt and increased interest rates as compared to the prior year period.
Net of interest income from invested cash balances, interest expense increase of $4,100,000 year over year. Debt outstanding at quarter end was about $4,100,000,000 dollars and our leverage ratio is defined in our credit agreement was about 2.3 times debt to EBITDA with cash balances of approximately 209,000,000 dollars Our current weighted average cost of debt is approximately 3.5 percent with about 90% of our debt at fixed rates. Our effective tax rate for the 2nd quarter was 21.1%. As we have noted on previous calls, the IRS released proposed regulations late last year associated with the Tax Act that could impact our current effective tax rate. The proposed regulations have yet to be finalized, but could impact our effective rate for 2019 beginning in the period enacted.
We believe any impact would be limited to the current year with our effective tax rate returning to about 22% again in 2020. GAAP and adjusted net and adjusted net income per diluted share were $0.56 $0.69 respectively, in the second quarter. Adjusted net income in Q2 primarily excludes the impact of intangibles amortization and other acquisition related items. Adjusted free cash flow in the first half of the year was $503,900,000 or 19.3 percent of revenue, putting us well on our way to meeting our original expectation for underlying adjusted free cash flow for the full year. I will now review our outlook for the Q3 2019 and updated outlook for the full year.
Before I do, we'd like to remind everyone once again that actual results may vary significantly based on risks and uncertainties outlined in our Safe Harbor statements and filings we've made with the SEC and the Securities Commissions or other or similar regulatory authorities in Canada. We encourage investors to review these factors carefully. Our outlook assumes no change in the current economic and operating environment. It also excludes any impact from additional acquisitions that may close during the remainder of the year and expensing of transaction related items during this period. Looking first at Q3, revenue in Q3 is estimated to be approximately 1,405,000,000 We expect price growth for solid waste of approximately 5% in Q3 along with volume growth of approximately 50 basis points, which incorporates the estimated 50 basis point drag from the impact of the New York City Department of Sanitation marine terminal operations contract with a third party.
In addition, we expect revenue from E and P waste activity to continue to range between $60,000,000 $65,000,000 Adjusted EBITDA in Q3 is estimated to be approximately 31.5 percent of revenue or about $442,000,000 The margin impact from acquisitions completed since the year ago period is expected to be similar to Q2 at about 50 basis points and the commodities driven impacts are expected to be sequentially higher than in Q2. Depreciation and amortization expense for the 3rd quarter is estimated to be about 13.5 percent of revenue. Of that amount, amortization of intangibles in the quarter is estimated to be about $31,500,000 or $0.09 per diluted share net of tax. Interest expense net of interest income in Q3 is estimated to be approximately $36,000,000 Our effective tax rate in Q3 is estimated to be about 22%. We estimate that the Q3 rate would increase to approximately 30.5% in the event that the proposed regulation as originally drafted are enacted during the period, which would result in an impact of approximately $0.07 per share in Q3.
With the rate declining sequentially in Q4 and as noted earlier, returning to about 22% in 2020. Turning now to our updated outlook for the full year as provided and reconciled in our earnings release. Revenue for 2019 is now estimated to be approximately $5,375,000,000 up $65,000,000 from our original outlook due primarily to higher than anticipated contributions from acquisitions, partially offset by greater than expected declines in recycling revenue and in the value of renewable energy credits from qualifying landfill gas sales. Adjusted EBITDA for the full year is now estimated to be approximately $1,675,000,000 or about 31.2 percent of revenue. We believe that this conservatively reflects the high decrementals associated with the previously discussed decreases in commodity related activities.
Capital expenditures are now projected to be approximately $600,000,000 up from $575,000,000 dollars on an increase of approximately $35,000,000 from the new contract wins and higher acquisition related CapEx, partially offset by an approximate $10,000,000 reduction in other areas. Estimated underlying adjusted free cash flow remains in line with our original outlook of $950,000,000 but with about $35,000,000 of incremental capital expenditures from recent contract awards and acquisitions, our updated estimated reported adjusted free cash flow is $915,000,000 or approximately 17% of revenue and 55% of EBITDA. And now let me turn the call back over to Worthing for some final remarks before Q and A.
Thank you, Mary Anne. And Ron, once again, welcome back. As noted in our release and discussed on this call, the underlying fundamentals of our solid waste business remain strong and we are extremely pleased with our year to date performance. We'd especially like to commend our team's effort to deliver on their commitments in terms of what they control and in implementing the changes necessary to further recover the now more punitive impacts of commodity related activities. Improving trends in safety, including those noted at recent acquisitions and turnover, which trended lower in Q2, are indicative of our local leadership accountability and the dedication of our 18,000 employees who work tireless each and every day to drive our results.
Strength in solid waste pricing, positive volume trends and underlying EBITDA margin expansion in solid waste collection, transfer and disposal position us well for the remainder of the year. And as noted earlier, underlying adjusted free cash flow has trended solidly on track to achieve our original $950,000,000 outlook for the full year. We've already implemented a typical year or completed a typical year of acquisition activity, and we are well positioned for additional acquisition and organic growth opportunities while maintaining flexibility to increase the return of capital to shareholders. We anticipate announcing another double digit percentage increase in our annual excuse me, in our quarterly cash dividend in October and we are completing the annual renewal of our normal course issuer bid, which authorizes a repurchase of up to 5% of our outstanding share. We appreciate your time today.
And I'll now turn the call over to the operator to open up the lines for your questions. Operator?
Thank Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Hey, good morning, guys.
Hey, good morning, Tyler.
Hey, Ron. Nice to hear from you. We continue to send our best your way. Mariann. So, Mariann, I was hoping to maybe bridge the original $17.05 in EBITDA guidance to today's $16.75 guidance.
So, it feels that maybe the core trends are actually a touch stronger. E and P seems to be pretty steady. M and A is actually a good guy, but then maybe OCC and RIN prices are working against you, particularly late into Q2. But are those the key pieces? And then if so, can you help maybe size the delta in those buckets, again, maybe in the new guidance versus the old guidance?
Sure. Glad to do so. And you did hit on the key buckets, Tyler. I would start with revenue to give context. So if you start with the 5,310 of the original guidance, so the acquisition contribution is about 100,000,000 dollars And as you said, the underlying business is doing a little better, but you have offset from lower recycled commodity revenues of about 30,000,000 and the lower RIMs, the renewable energy credits of another 10,000,000 to 15,000,000.
So if you say again up 100, underlying strength a little better and then back out those 35,000,000 to 40,000,000 in commodities, you get your 5,375,000,000 at the revenue line. And if you look at the incremental margin contribution from acquisitions in that 20% to 25%, and you look at the decrementals on those commodities coming off those more like $50,000,000 that's how you net down to down $30,000,000 to the $16,750,000,000 from your $17,05,000,000 Okay.
Yes. No, that's perfect. That's very, very helpful. So Worthing, I just want to come back to something you talked about. So you noted that the franchise nature of your business, so in recycling there's a lag in your ability to maybe recoup some of the lower fiber prices.
But I think you noted that there's going to be some pressure obviously into the second half, but maybe even into early 2020. But longer term, So if commodity prices were to remain the same, would recycling actually be a positive EBITDA tailwind over time even without a rebound in price as you readdress contracts? Am I reading that the right way?
Absolutely. I mean if you look at what we've done in incremental pricing, which as we talked about on prior calls of about a half a point incremental related to recycling, that gives you a sense of how we are recouping majority of that through our collection business. 50 basis points is around here about $25,000,000 And if you look at the all in impact of the last 2 years, you'd get numbers approaching $120,000,000 of EBITDA once you exit this year, comparing 'seventeen to 'nineteen. So if we're getting an incremental $25,000,000 or so in pricing on the collection side of the business, what it's telling you is it takes us between 4 5 years to recoup that. And to your point, that means it's upside as we go year to year looking ahead.
Okay. Okay. Yes. No, that's very helpful. And then maybe some a little behind on the RIN, but just at a high level, what exactly is driving this reduction in the RIN pricing?
Well, you've had the obviously EPA plays a major portion of it and what goes on to White House plays a portion of this as well. Refineries have been major buyers in the marketplace to offset emissions with refiners and need to blend fuels. And refiners getting more and more exemptions from the EPA as they've been lobbying to help their business because it's a very expensive line item at the refinery level. You've seen more exemptions being issued by the EPA, which has impacted demand, which has driven down near term price of the rents.
Okay, okay. I see. And then maybe my last one kind of related to that. So just Mary, a big picture on if current rent prices remain, what would be that specific full year impact to EBITDA in full year 2019 versus full year '18, if I was thinking about a year over year bridge?
Sure. So in our guidance, we had taken RINs down slightly because we knew that they were down year over year. The incremental impact was about $15,000,000 in the aggregate of $20,000,000 to 25
dollars $20,000,000 to $25,000,000 Okay. Thank you.
You bet.
Our next question comes from the line of Brian Maguire with Goldman Sachs.
Ron, great to hear you again. Worthing, just a question on the CapEx changes. I guess the additional $35,000,000 it's always great to win some new business. It seems like it's just more an issue of timing, spending the money today to get the earnings tomorrow. Just trying to think about what benefit that might have on volumes earnings next year will be assume a typical sort of mid teens pretax return on that capital.
And if that's the case, does that imply maybe $5,000,000 of EBITDA, dollars 20,000,000 of sales and something like 0.5 point of volume improvement for next year just from that alone?
Yes, you about nailed it. About half a point volume, if you're more collection oriented. So if you put an average collection margin on that, you're spot on at thinking about $25,000,000 in revenue, dollars 5,000,000 to $6,000,000 of EBITDA and for that with the capital outlay, you're looking at roughly 5 to 6 times EBITDA for the capital outlay. And obviously, that's a better return on capital than paying higher multiples net on M and A.
And I guess another way to think of it is if you had done M and A then we wouldn't be talking about raising the CapEx or cutting the free cash flow. It's just sort of a decision between which one is better and this one clearly a better return than the M and A?
Yes, absolutely. And if you look at just the overall, it's just an increased level of bidding activity. We're not changing how we bid. But I look back over the past 6 or 7 months, and we've submitted a little over 70 proposals and there's still about a third of those that are outstanding and waiting to hear from for the balance of the year And of the other 2 thirds, we've won about half and we've missed about half. But the half that we've won is what you're seeing a more positive impact from.
Great. And I know we're not talking about 2020 too much yet, but if that's going to give you maybe a supplemental 40 or 50 basis points of volume improvement and the underlying trends are 1.5%, could we be thinking about sort of the high end of that 1% to 2% volume growth range you talked about historically?
Yes, definitely helped move the needle within that range. That's right.
And just last on this, any early thoughts on 2020 CapEx? Is this $600,000,000 is this range sort of a new normal for next year or does some of the landfill spending come off given the outlook there and maybe the $35,000,000 doesn't recur next year?
Yes, I mean, if you look at the underlying volume environment being that 1% to 2%, obviously these wins move a little bit higher, but that's CapEx we're spending this year. We'd always say as a rule of thumb to think about an upcoming year, it's about 10.5% of revenue. And as we get into February, we'll refine that program.
Okay. I appreciate it. Thanks.
Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Thanks very much. Good morning. One thing I guess just following up on the subject of these new contracted, As you said, you're not changing the way that you bid. So just curious what's in your view driving this above average success rate? Does it have to do with your asset footprint changes, any change in kind of the competitive dynamics that you see in the industry?
Just wondering if this is something more structural?
No. Look, I think maybe it's just the cycle of when these contracts are coming up for bid. Obviously, they're in some cases, they're relationship advantages. In other cases, incumbents may have had service issues that have put them sideways with the municipality. In other cases, it could be politics that have gone wrong against the incumbent.
Wherever the case may be, it just so happened that right now, the stars have aligned to make this an outsized year. I would never assume that this kind of outsized year continues year in, year out. It's just episodic.
Okay. That's helpful. And then just to go back to your commentary earlier on some of the regional volume trends. So I would take it then that just based on the weather, the central region had a sort of a later than normal seasonal ramp because of that poor weather. So does that presumably provide some runway into 3Q?
And I guess with that and the rest of the commentary that you provided, how should we think about kind of bias towards prior guidance for volume for the year?
Yes, I mean, it provides runway for Q3, but obviously in the central region, especially in the states we highlighted, such as the Minnesota as an example, or in Oklahoma or Colorado, obviously you still have elements of special waste that exist in those markets that you typically see a pronounced seasonal ramp in as you move through Q3. But obviously, the timing of those, whether they start as anticipated, whether they get delayed, I mean, some of these projects, as you know, you can be waiting for them to start and you're sitting there waiting at the scales for 2 months until they finally cross the scales, right? And so while we're seeing a nice seasonal tone, I mean, the timing of when those projects come through the gate across the scales is going to really determine to look back how much did it ramp.
I would echo that and just add that important to remember that last year we had a stronger special waste quarter in Q3, so the comps are a little tougher as well. So if you're thinking about year over year increases like we saw this year, it gets a little tougher in Q3.
Okay. That's very helpful. If I could sneak one more in. You mentioned some selectivity around further CapEx investments in E and P, just given the activity you're seeing. But of course, we've also had, I guess, a bit more consolidation, maybe even a bit more rationalization in terms of disposal pricing, at least hopefully that starts to come through.
So how does that impact kind of your thoughts around capital allocation? Just trying to understand kind of the puts and takes here of the thinking.
Sure. I mean, it's our thoughts have always really haven't changed, right. I mean, as you know, we talked already, we opened up our new landfill up in Wyoming. We talked about another investment we're making to expand the services at one of our existing landfills in the Permian. That project ought to come on later this year, early next.
We're also looking at an additional landfill within the Permian. We've worked with the regulators for many years now and just continuing to redesign that site to match the realities of the current market, right. I mean, it's one doesn't if one has a choice of investing 10 to 15 in a site versus investing 25 to 30, I would always in this environment want to take the lower side of that and make sure I work with regulators to do that. And so how do we approach it from an asset positioning and serving our customers has changed. Obviously, we want to be prudent how much capital we're laying out to address this going forward.
Our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question.
Thank you. And Ron, welcome back into the hot seat.
Thanks, Michael.
So I just I'm adding all the numbers up as fast as my I can count them on my fingers and toes. And I think I'm looking at 12 months, July 1 to June 30, about $65,000,000 a headwind we're dealing with between the recycling and the RIN credit, a little bit more and then half of it in the second half of 'nineteen and there's a tail there's a full quarter of it in 1Q and then there's a tail in 2Q. That's the right way to think about plotting all that out all things being equal?
Well, if I look, I mean, we I think we deal in terms of calendar years, not LTMs. But obviously, last year, on the same store basis, recycling overall was about $65,000,000 revenue impact. This year on a same store basis we're on a glide path to do what about what's that?
25 to 30.
Yes, 25 to 30 total.
And it could be a bit downgraded.
Yes, I
mean, basically recycling, as you know, is down for us about $120,000,000 or more over that 2 year period. And you put the decrementals above that, it means the EBITDA impact has been north of $120,000,000 So just leaving all things all else out of it. If we look at the business, I mean you had asked us back in 'sixteen, hey, if we could think about a 5 year trend where you think the business could be in 5 years and we talked about a 621 plan if you remember that. They had us doing about $1,000,000,000 of free cash flow by 2021. Put simply adjusted for recycling we would have done it this year or 2 years earlier.
And so then we've done the same math you've done, but we do a calendar year in that LPM.
Okay. So you've opened the window I was going to ask next, is the right way to indicate we're not doing 'twenty guidance, but the right way to think about 'twenty is it starts with $1,000,000,000 as the free cash.
We're the right way
to help.
It's 20 guidance.
But give us a place to land or beat what's that? You do this to everyone.
I know.
I know. Perhaps try. Deal pipeline, what's it look like going into the second half as far as the opportunity of maybe something else gets added to the 160?
Yes. Look, as we said, the seller activity and dialogue remains robust. I'd say there's nothing in the pipeline right now that's north of $50,000,000 or $60,000,000 in revenue. And so there's not one individual unit mover, but obviously, if you do knock down a couple of these, they all add up to nice rollover growth into 2020.
And you would anticipate that there would be more closes, it's just not in the guidance?
Well, we don't guide what's not closed.
Right.
Because I don't control the timing of what we get done and the timing when it's done. But obviously, as you move into the year, I mean, anything that we're in dialogue right now would end up contributing very little through this calendar year if we do close it. And most of it is a rollover contribution for 2020 growth.
Okay. And then last question would be, I guess, coming back into 2020, but your efforts to drive an incremental increase around the recycling side in open market plus what you can do in open market general suggests a 4.5, 5 is the right way to think about how price continues to trend 1 to 2 in volume. That's the sort of way to think.
That's the way we think about it.
Okay, great. Thank you so much.
Our next question comes from the line of Derek Spronck with RBC. Please proceed with your question.
Okay. Good morning and thank you for taking my questions and good to have you back, Ron.
Thanks, Derek.
Just my first question, just could you provide a little bit more color around some of the acquisitions you did do this quarter? Were they tuck ins? Any new market? Are they more collection disposal heavy? Any color?
Sure. We did a integrated new market in North Texas. We did a sizable expansion to our footprint in Rhode Island. I mean, those were the 2 most notable ones from a revenue standpoint. Other than that, we did several tuck ins in the various states and one in Quebec as well in the period.
Would you say that your addressable market is still, I believe you've commented before around $3,000,000,000 or $3,000,000,000 to $4,000,000,000 as your addressable market. Is that being maintained? And I know addressable market isn't a black and white science, but are you can you open up your addressable market at all in the future? And if so, are some of your peers opening up their addressable market? And are you starting to see a little bit of overlap around addressable markets or potential acquisition and addressable markets relative to your peers on a historical basis?
Look, our addressable market hasn't changed. Obviously, as we go into new states and new parts of states, we can expand that addressable market. Look, our peers are getting transactions done that we're not involved in because we don't overlap them in their markets. When you have banker involved, those are transactions that are more when you have banker involved, those are transactions that are more widely shopped. That's why we rarely do transactions that bankers are on the sell side of.
But look, and you also see some of our peers that are just diversifying away from solid waste and doing various and sundry services. So they don't see us in those opportunities, right. So I don't think the landscape has changed. Clearly, it's a frothy year at the time from a dialogue standpoint. I think you're seeing everyone benefit from that, not just any one company in particular.
Outside of the E and P waste, would you ever consider moving into a soil remediation or liquid waste?
No. Okay.
All right. Thanks for taking my question.
Our next question comes from the line of Sean Eastman with KeyBanc Capital Markets. Please proceed with your question.
Thanks very much. Ron, welcome back and worthy big congrats on your CEO appointment. My first question is just on the price momentum. It sounds like recycling is kind of an incremental tailwind for price for the out year. So I'm just wondering whether that means we can kind of look at this 5% that we're trending to in 2019 and keep that as sort of a reasonable assumption for the out year or whether there's some other puts and takes we should keep it in consideration in terms of how the pace of that price growth continues?
Sure. And yes, I think it's the short answer, Sean. I think 5% is a fair way to think about it. And as you point out, we did, as Worthing mentioned, we'd say in the 5.2% that we reported this quarter, about 50 basis points of that is from the incremental PIs we've gotten associated with recovering the decline in recycled commodity. So the underlying price is around 4.5%, 50 basis points of recycling and 20 basis points of fuel surcharges.
And that's a fair way to think about it going forward.
Okay, thanks. And I thought maybe you guys could comment on the behavior you're seeing from the smaller players in your market. I know around this time last year, the sort of initial wave of recycled commodity price pressure kind of prompted some action from some of the more marginal players in the market. And I'm just wondering if maybe this next wave of pressure is potentially driving them to another breaking point in terms of maybe rolling out some price increases or being more inclined to sell? Any comments around that dynamic would be
great. Sure.
I mean,
if you think they were impacted last year, the devices tightened this year. And so, no, it's the we're still seeing very good structural support for pricing this industry, right. A lot of the privates have been impacted by recycling and that's gotten more punitive for them. Labor pressures have not abated, cost to move volumes to landfills have not abated. And so really if you saw last year, many privates are doing double digit price increases in order to overcome that, that same pressure has reemerged this year.
And so, I think you've seen everyone in the industry report stronger price because the underlying tone is better. If you look at our price retention, it's in, it's approaching 98% on price increases we're putting on the street. And so it's structurally it continues to be a favorable environment. And put simply, folks need to be pushing price in order to recover their costs.
Okay, that makes sense. And last quick one for me is just on this RIN credit dynamic. The price of those RINs, that move has been pretty eye popping. So I'm just wondering if maybe it's difficult to answer, but I'm wondering if you think we've found a floor here in the price for those RINs and whether there's kind of a clear catalyst on the horizon for those prices to stabilize or potentially go back up?
Yes, look at $0.70 right now, we're $0.70 away from the floor. I guess you could look at it that way. But no, look, obviously any you got to see what's happening in Washington, right? If you if there's an administration change, as an example, look, I go back a year or 2, rents prices were in the mid-2s, not $0.70 or almost 4 times what they are right now. And so I think as you see, the kind of the underlying tone in D.
C. For clean energy, for renewable credits, etcetera, that will really set the tone for the marketplace and the clearing price of that.
Okay. Thanks very much. Appreciate the time.
Our next question comes from the line of Mark Neville with Scotiabank. Please proceed with your question.
Hi, good morning. I just want to follow-up on the recycling conversation. The 6 to 12 month lag on the pricing, I guess I'm just curious how negotiated is that process versus sort of how automatic or how easy I guess is it sort of to recapture some of that price?
Well, it depends on what type of contract we're talking about. If it's a returns based contract, we need to meet the cost first and then go in for a rate increase. In the case of a contract that's not returns based, it's a negotiation with the municipality. And municipalities have been receptive to the understand the plight of what's happening right now and if they want to encourage recycling and continue it, right now it costs more money. We don't get that success everywhere.
But for instance, I mean, we just had another one jurisdiction where we just started airing about a $200,000 a month wait on recycling that we didn't have before and that negotiation with the city will probably last between 3 5 months and we'll probably recapture 70% or 80% of that by the time the negotiation is done, if not 100%. And so it really depends on the type of contract and where we're at in dialogue with the city or the municipality.
Okay. But so the way you've talked about it or guided or talked to us, it's been $120,000,000 impact, sort of 4 to 5 years maybe to recapture that as you negotiate all this?
Right. And last year was year 1. This year is year 2. And so we're 2 years into that 4 to 5 year journey.
Okay. And then sorry, just on the renewable energy cards, there's a few numbers thrown around. I just want to make sure I've got it right. At current levels, it's about a $5,000,000 per Q EBITDA impact. Is that right?
That's correct.
The second half of the year.
Looking at the second half of the year. Yes. And that's factored into our updated outlook.
Okay. And in terms of, again, sort of just on the recycling, what price for the OCC have you assumed into the guidance? Curious that there's some risk to the number in the second half, just at current levels.
Sure. So it's about $45 ton, which is where we're seeing pricing right now for OCC.
Yes. Okay. And maybe just one last one then on the M and A. Of that $160,000,000 or $165,000,000 that you've acquired thus far, Mary, I think you said about $100,000,000 of hits the P and L this year or $100,000,000 of that's in the guide?
That's correct. In the current year, there's about $100,000,000 so that implies this rollover contribution for 2020 of about $60,000,000
Okay. Okay. Yeah, thanks for taking my questions.
You bet.
Mr. Jackman, there are no further questions at this time. I will turn the call back over to you.
Thank you. Well, if there are no further questions, on behalf of our entire management team, we appreciate your listening to and listening to the call today.
Mary Anne
and I are available today to answer any direct questions that we've not covered that we're allowed to answer under Reg FD, Reg G and applicable securities laws. Thank you again, and we look forward to speaking with you at upcoming investor conferences or on our next earnings call.
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.