Casella Waste Systems Inc (CWST) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Casella Waste Systems, Incorporated, Q3 2016 call. At this time, all participants are in a listen-only mode. (Operator Instructions)

As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Mr. Joe Fusco. You may begin.

Thank you for joining us this morning, and welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems, Ed Johnson, our President and Chief Operating Officer; and Ned Coletta, our Senior Vice President and Chief Financial Officer.

Today we will be discussing our 2016 third-quarter results. These results were released yesterday afternoon along with a brief review of those results and an update on the Company's activities and business environment. We will be answering your questions as well.

But first, as you know, I must remind everyone that various remarks that we may make about the Company's future expectations, plans, and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report, on Form 10-K, which is on file with the SEC.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today.

Also, during this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, to the extent that they are available without unreasonable effort, are available in the appendix to our investor slide presentation, which is available in the Investor section of our website at ir.casella.com.

I'm Joe Fusco, and I approve this message.

With that, I'll turn it over to John Casella, who will begin today's discussion.

Thanks, Joe, and good morning, everyone. Welcome to our third quarter 2016 call.

We're obviously very pleased with our third-quarter results. As reported in yesterday's press release, our revenues for the third quarter were $151.1 million, up 3.4% from last year.

Adjusted EBITDA $37.1 million, up 12.2% from last year, and adjusted EBITDA margins were at 24.6, up 190 basis points from last year. Highest margins in six years.

Year to date, we're well ahead of our plan due to the strong pricing, operating efficiency programs, and continued execution against our key strategic initiatives.

As such, we have increased our adjusted EBITDA and free cash flow guidance ranges for the year and indicated that we would be at the high end of our revenue guidance range.

Ned will go deeper into the numbers in a moment. But first I'd like to recognize that these strong results are tangible evidence to our commitment and continued execution against our key strategies.

Our continued success and consistently improving results are a testament to our dedicated team and the process and discipline we have established throughout the organization to focus time and capital resources on the key drivers of our business.

In early 2013, we laid out a comprehensive strategy to improve our financial and operating performance. Pursuant to that plan, we have refocused the Company, while simplifying our business structure.

We have reduced risk exposure by either divesting or closing operations that did not fit within this strategy. And we have refocused Management's attention and capital resources on our core operations and strategic business initiatives.

Given our progress and success executing against the plan, in August 2015, we refreshed our comprehensive strategic plan and outlined for investors financial targets for 2018.

This plan focuses on increasing landfill returns, driving additional profitability within our collection operations, creating incremental value through resource solutions, and reducing financial and operational risk while improving our balance sheet.

We are confident that our enhanced process, discipline, and continued focus on key operating strategies will further drive improved performance and increase free cash flow, enabling us to continue to delever our balance sheet.

In the third quarter, our operating income in the disposal line of business, which represents the first of our [three] strategies, increasing landfill returns, was up 16.3%, with margins up 205 basis points, as pricing offset slightly lower volume.

As expected, our volumes in the disposal line of business were down 3.1% in the third quarter, as the planned diversion at the Southbridge landfill reduced volumes into this site, and energy-related waste streams were down in the Marcellus Shale region.

While we expect these specific volume headwinds to persist into 2017, until we anniversary tough comparables, all other landfill volumes were up 103,000 tons or 10.3% year over year, with strong volume trends in the eastern region and C&D volumes, which were up 15.1% and heightened activity.

Disposal capacity continues to tighten in the Northeast market, as permanent site closures are reducing capacity, and stronger economic and construction activities are driving higher volume.

Given the supply-and-demand imbalance, we're able to successfully advance 2.7% price at our landfills in the third quarter, our strongest pricing in the last five years.

We believe that this positive pricing backdrop will continue into the future, as additional site closures are expected over the next several years.

And as we roll off multiyear contracts, we expect to advance pricing in excess of PPI on a larger percentage of our book of business.

On me landfill development side, we've had several significant permitting successes in 2016, including an annual permit increase at our Hyland landfill from 312,000 tons per year to [465,000] tons per year, a 13-year airspace expansion at our Ontario County landfill, and a 14-year airspace expansion and annual permit increase from 180,000 tons per year to 417,000 tons per year of MSW at our Chemung County landfill.

Underlying the success of each of these key permitting activities is our deep commitment to develop and run our facilities to the highest environmental standards, while maintaining strong partnerships with our host communities.

This has been our recipe for success in the development of long-term environmental assets in the challenging northeastern environment.

We're currently working on several other key landfill permitting and development projects, including our expansion efforts at the Juniper Ridge and Southbridge landfills.

We are permitting to expand the state-owned Juniper Ridge landfill by roughly nine million cubic yards, to extend the life of the site to match our long-term operating and lease agreement that goes through 2033.

We continue to make slow, but steady progress in advancing our permit activities.

For the next landfill [stall] at Southbridge, we have intentionally slowed volumes to the site by roughly 33% in 2016, to give our team additional time to complete permitting activities over the next three years.

We currently have permitting capacity through 2019. Further, we have been working with key community leaders in Southbridge to define the long-term strategy for the next stages of development of the site.

Second strategic initiative, improving profitability from our hauling operations. Our focus here is on core blocking and tackling. Namely, focused on pricing programs, broad optimization, and fleet standardization.

Operating income in the collection line of business was up 24.5%, with margins up 320 basis points, as pricing and operating efficiency drove results.

Within the context of this rapidly improving marketplace, we have continued to advance hauling prices in the residential and commercial lines of business, with only limited price rollback.

In the third quarter, combined residential and commercial collection pricing growth was 4.2%.

On the operating side, we continued to advance a number of key initiatives to further improve our operating costs in the collection line of business.

In the third quarter, we improved our collection cost of operations as a percentage of revenue 255 basis points year over year. This improvement is being driven by our pricing program, coupled with positive cost impact from our five-year fleet plan, maintenance initiative, improved fleet routing, and efforts to swap or divest underperforming routes.

Resource solutions, third strategy. Moving into the third strategy, incremental value through resource solutions, here we differentiate ourselves in the marketplace by offering value-added resource services.

These solutions range from our first customer solutions group, which provides professional services to large industrial customers who are, [again], it's business that is the leader in organics processing and disposal in the northeast to our market leading recycling business.

While recycling commodity prices are up 16% sequentially from the second quarter to the third quarter, our average commodity revenue per ton is still roughly 40% below multiyear high experienced back in 2011.

However, despite recycling prices being 40% below multiyear high, our third-quarter operating income margins and returns were almost at the same level.

These results are a clear indication of how we have effectively reshaped the recycling business model to generate an appropriate return on our infrastructure investments to all market cycles.

This effort has included the implementation of higher [tipping] fees at our recycling facilities and the introduction of our sustainability recycling adjustment fee, or our SRA fee.

Balance sheet and risk, we also continue to make substantial improvement in our balance sheet in reducing operational and financial risk.

On October 17th, we completed the refinancing of our senior subordinated notes and revolver with a new credit facility and term loan B. This is a very favorable transaction for our shareholders, which will create substantial value through reduced cash interest cost and improved financial flexibility.

We are well positioned for the future and committed to a disciplined capital investment strategy with free cash flow primarily used to repay debt or, in select instances, we may consider small tuck-in acquisitions and growth investments within our core operation.

We continue to execute extremely well against the strategic plan that we laid out in August of 2015, to improve our financial and operating performance. At all levels of the organization, we're devoted to operational blocking and tackling, with a focus on pricing strategies at the local level, improving our operational efficiencies and disciplined capital allocation.

We believe these actions will further improve the Company's performance and allow us to continue to delever the balance sheet going forward.

With that, I'll turn it over to Ned to take us through the financials.

Thanks, John. Revenues in the third quarter of 2016, were $151.1 million, up $4.9 million, or 3.4% year over year.

Solid waste revenues were up $2.3 million, or 2.1% year over year, with higher collection and disposal pricing and the rolled over impact from the acquisition at three transfer stations in the second quarter, partially offset by lower solid waste volume.

Revenues in the collection line of business were up $2 million year over year, with price up 3.7% and volumes down 0.5%.

Pricing was up 4.2% in our residential and commercial lines of business in the third quarter. We also advanced pricing 2.6% in the roll-off line of business. However, volumes were down slightly in this line of business as we continue to focus on price over volume.

Revenues in the disposal line of business were up $0.2 million year over year, or $200,000 year over year, with landfill and transfer revenues up $1.3 million, while transportation revenues were down $1.1 million.

Transportation revenues are typically at lower margins and represent mainly pass-through transportation costs associated with transportation and disposal contract, or, as we say, T&D contract.

We increased third-party reported landfill pricing by 2.7% year over year in the third quarter, with landfill prices up 3.6% in the eastern region, as we continued to capitalize on the tightening disposal market.

We have also begun to advance landfill pricing in the western region, with landfill pricing up 2.1%, with particular strength in the construction and demolition materials segment.

We expect the same positive pricing trends to continue through the rest of 2016, and into 2017.

Our total landfill volumes were 1.2 million tons in the third quarter, up slightly year over year.

As John said, during the third quarter, we continued to ramp down volumes at the Southbridge landfill, with volumes down roughly 70,000 tons.

Further, we continued to experience headwinds in the Marcellus region, as volumes associated with natural gas drilling activities were down roughly 27,000 tons year over year.

Excluding these two impacts, our volumes were actually up 103,000 tons year over year, or 10.3%.

Recycling revenues were up $1.7 million year over year, in the third quarter, with the improvement driven by higher commodity pricing.

Average commodity revenue per ton was up 21.1% year over year, with higher fiber pricing, but this is actually partially offset by lower plastics and metals pricing in the quarter.

Organics revenues were up $0.5 million year over year in the third quarter on higher volumes, as our team continued to source new streams of biosolids in the ever-tightening northeast disposal market.

Our customer solutions revenues were up $0.5 million year over year in the third quarter, with continued growth in the industrial services business unit.

Adjusted EBITDA was $37.1 million in the quarter, up $4 million year over year, with margins improving 190 basis points to 24.6%.

So, with revenue up $4.9 million and adjusted EBITDA up $4 million, that gave us a flow-through impact of roughly 82%.

This is direct evidence of our success in shedding less profitable volumes or low margin volumes, while at the same time we're securing price increases and cutting operational costs.

Solid waste adjusted EBITDA was $33.9 million in the quarter, up $3.6 million year over year in the quarter. We achieved 11.9% adjusted EBITDA growth on 2.1% revenue growth.

Solid waste adjusted EBITDA margins were 30.1%, up 265 basis points year over year in the third quarter. This reflects strong pricing coupled with cost efficiency.

Lower fuel cost benefited margins by roughly 50 basis points in the period, while increased recycling tipping fees were a 15 basis point headwind.

Netting these two factors, we had about 35 basis points of tailwind, a small piece of the 265 basis point margin improvement.

Hauling adjusted EBITDA was up $2.3 million year over year, with margins expanding 255 basis points.

And disposal adjusted EBITDA was up $1.6 million year over year, with margins expanding close to 200 basis points.

Recycling adjusted EBITDA was $2.6 million in the quarter, up $.2 million year over year, with the improvement mainly driven by higher commodity prices, coupled with processing, operational improvement.

Adjusted EBITDA was slightly down in the other segment, as higher G&A cost, mainly driven through higher incentive comp accruals.

Cost of operations in the quarter was down $900,000, or 280 basis points year over year.

General and administrative costs, as I said earlier, were up $1.3 million year over year, with all of this increase driven by higher incentive compensation accruals on better performance.

Moving on, as John mentioned, on October 17th, we refinanced our ABL revolver due 2020, and our 7.75% senior subordinated notes due 2019, with a new $160 million revolving credit facility, and $350 million term loan B.

We had great timing and great execution with this transaction, and we achieved a very good outcome for our shareholders.

Leading up to this transaction, we have received a ratings upgrade from Moody's from a corporate family rating of B-3 to B-2. This helped affirm our continuing progress at improving our operating results and reducing leverage.

The term loan B was significantly oversubscribed, and we were able to price it at 99.5% of the principal amount, with an interest rate of LIBOR plus 300 basis points, with a 1% floor.

In addition, we added a rate step-down for the term loan B, where the interest rate will drop to LIBOR plus 275 basis points when our consolidated net leverage ratio drops to 3.75 times or less.

The revolver is initially priced at LIBOR plus 300 basis points, with a price increment based on our consolidated net leverage ratio.

We believe this transaction positions us very well to continue to execute against the strategic plan by reducing our cash interest cost by $11 million a year.

It also improves our financial flexibility. The term loan B is prepayable at par, which allows us to continue to delever the balance sheet. And we extended our debt maturity.

As of September 30th, 2016, our consolidated net leverage ratio, as defined by our new credit facility, was 4.23 times. This is down 1.19 times in just 21 months. We're doing a great job taking leverage [out of the] business.

Pro forma for the refinancing, our leverage clicks up a little bit. If you look at it pro forma for September 30th, it would have been 4.41 times.

We do expect to record a loss and debt extinguishment of approximately $13.6 million during the fourth quarter, associated with call premium on the redemption of the sub. notes, the write-off of deferred financing cost, and a unamortized original issue discount on those sub. notes, along with certain other transaction costs.

We do remain focused on driving leverage down. We are targeting a leverage level of 3.25 to 3.75 times by the end of 2018.

As expected in the third quarter, given our operational working capital seasonality, normalized free cash flow was $5.1 million, and $14.9 million year to date.

As stated in our press release yesterday afternoon, given our strong pricing and cost efficiency execution year to date, and our increased visibility into the remainder of the year, we have increased our adjusted EBITDA and normalized free cash flow guidance ranges for the year, and we expect our revenue to be towards the upper end of our previously announced range.

We increased our adjusted EBITDA guidance for the third time this year, to a range of $116 million to $118 million. Original guidance that we first went out with back in March, was for $111 million to $115 million.

We also increased our normalized free cash flow guidance from the previous range of $20 million to $24 million, to a new range of $22 million to $25 million.

As we announced in late September, given the refinancing, we shifted our free cash flow guidance this year to a normalized free cash flow guidance range to eliminate cash interest timing differences related to the refinancing of the sub. notes.

Previously, interest was due on the sub. notes on February 15th, and August 15th, each year. As such, in our plan for the year, we had assumed we would accrue interest from August 15th to December 31st, and then pay this cash interest on February 15th, 2017.

However, as part of the refinancing, we had to pay $6.8 million of accrued cash interest on October 17th, when we issued the redemption notice for the bonds. This was not an increase in cash interest cost, merely a change in timing.

So with the normalized free cash flow metric, this will give an apples-to-apples view of free cash flow for the year.

And with that, I'll turn it over to Ed.

Thanks, Ned. Good morning, everyone. We had a great quarter, and I certainly want to congratulate our operating teams on their success. As we go through our budgeting process for 2017, our focus now is on how we continue to improve. So I thought I would spend a little time today talking about some of the initiatives and focus areas.

But first and foremost, we need to celebrate our successes. We did a little research, and this was the best quarter on both an EBITDA and net income from continuing operations basis in 10 years, the furthest we could look back without doing a lot of accounting work.

Our service has improved, our pricing dynamics have improved, and the operational improvements from a well thought out fleet improvement plan, have all contributed to the success.

Add to this our highly successful strategy of demanding a return on investment on our recycling assets, and educating the customers that this is a value-added service worth the cost.

It's amazing what can be accomplished when you determine and focus on your core activities.

We are fundamentally a much better company and poised for the next leg up.

So what are we looking at for operational improvements going forward?

Let me start with the landfill operation. This is a business where the cost of developing the sites and building new cells has become more and more expensive, and the markets are just now starting to accept improved pricing.

Our focus is to get an adequate return on the investments we have made and continue to make, and we will do this by continuing to improve our price management and the efficiency of our placement and compaction activities at each site.

Understanding the core of this business is very important to getting financial improvement. So I thought I'd explain a few fundamentals on how the business model works and how our costs are generated and profits are made.

Of course, we have environmental regulatory and engineering challenges to address every day. And this is the rising cost of entry.

Over the past [few] years, we have made substantial improvements in all three areas and have solid teams in place to help us develop future airspace in the best economic way, while protecting the environment.

But the simple core of the business model, once you have the airspace, is selling capacity on a per-ton basis to fill space that is built on a per-cubic yard basis.

So the variables are price per ton and the ultimate cubic yards required to landfill those tons.

Sounds simple, but it gets a little more complicated when you realize that not all material coming in is the same and operational approaches to compacting this material can greatly affect future cash flows, which translates into the timing of building cells.

So there are two key components to our strategy going forward, a differentiated pricing model and operational improvements designed to increase compaction.

Differentiated pricing compensates for the differences in material, and prevents non-dense or poorly compactable material from coming in too cheaply.

As Ned mentioned, we approved our disposal pricing by 2.7% in the third quarter, and most of this came from general market conditions, but differentiated pricing will play a bigger role as we move forward.

The second component is our compaction equipment and technology. We have a long-term heavy equipment plan designed to put the most effective compaction equipment at each site, minimize any unplanned downtime of that equipment, and minimize our long-term cost.

We are also introducing improved technologies to assure the operators are as effective as possible in meeting our compaction goals and that we can better measure our performance.

The collection operations are a little easier to understand, and we've talked about the key factors at length on prior calls.

We continue to focus on the fleet plan, which calls for standardizing equipment at the division level and increasing automation where possible.

On improving the effectiveness of our maintenance shops to minimize both downtime and cost, pricing and customer profitability management, and, most importantly, having strong management teams at every location and developing young talent for the future.

Safety and service remain our top priorities. And as long as we stay focused on these, we believe we will continue to enjoy a favorable pricing environment in most of our markets next year.

Recycling is a great story for us. We may be the only ones in the industry that are getting an adequate return on our investment in this line of business, during a difficult time in the commodity market.

But how do we get continued improvement? So this business is not just about charging an appropriate price for processing, i.e., a tip fee, our results are also affected by improving the effectiveness of our processing.

We can command premium pricing for cleaner material, and minimizing the variable cost per ton process. Every year the management team provides us with ways to improve both effectiveness and efficiency, with incremental improvements to our technology supported by strong IRRs, which we track, and we track the results and prove out the investment the following year.

This coming year is no exception, as they have already come up with the recommendations, and they look promising.

Other areas of the business are also looking forward to continued improvement, which remains our theme internally, with organic and customer resource solutions both looking at ways to capitalize in improving markets in the northeast, focusing primarily on driving volume to our landfills, material processing facilities, and to our collection operation.

Administratively, we continue to invest in improvements to our processes and systems to do things more efficiently.

So we had a great quarter, but there remains plenty of room for improvement. We feel we have outstanding operational management in place throughout the Company, with a culture of positive engagement that generates a great deal of internal excitement and drive to continue the process.

With that, I would like to turn it over to the operator for the Q&A session.

Thank you. (Operator Instructions) Corey Greendale with First Analysis.

Congratulations on the nice quarter and all the continued progress. So first of all, I just wanted --

Thanks.

-- to ask about the near-term guidance. So just stating a mathematical fact, the EBITDA guidance now for the full year implies kind of a not insubstantial step down in EBITDA from Q4 of last year. I know that it was a relatively easy weather quarter last year.

But can you give us anything else we should be thinking about that would drive EBITDA down year over year in Q4?

Yes, Corey. We have put out conservative estimates for Q4. It does reflect EBITDA going down year over year for the guidance range.

We do this for two reasons. One, which you just stated, we had really great weather in the northeast in Q4 of 2015. It was sunny. It was dry. Construction continued. We didn't have operational challenges from ice, snow, the normal stuff. So we believe that was an easier comp.

Also, our landfill sites ran very strong this summer into early fall. And we're governed by annual permits at our sites. So we're essentially ramping down a bit in tons as we get to the remainder of the year.

But there's nothing off track with our pricing programs, our operational programs. Everything's tracking exactly as it has been, and we're very confident in those elements of the quarter.

And in terms of that, the point about the landfills, obviously, that's something you can't control. You've had a good year to date. But can you help us think about that a little bit, the year-over-year impact of having to ramp down at the landfills, how much that would hit EBITDA from last year?

Yes. So it's all blended together in our model where we're looking at sensitivity. So we don't have a number to give on that. But we will be ramping down tonnages.

And, as you know, incremental tons at landfills have very high margins. So as much as half of that Delta is due to that ramp down.

Okay. And then on a similar note, just given the $11 million in cash interest savings, sort of mathematically it would look like it would be pretty tough for you not to hit the 2018 free cash flow target in 2017.

Maybe part of the answer to this is what Ed was talking about, some of the initiatives.

But what should we be thinking about in terms of [it]? Could there be some substantial ramp up in CapEx for kind of temporary reasons that would offset so that we should not expect you to hit the 2018 range in 2017?

Yes. You and I have this conversation right after we announced our refinancing. We're working on capital budgeting right now. And we have a range of opportunities in our business to put a little bit more money to work to accelerate either, say our fleet plan, we've won a couple new contracts, and we didn't mention this earlier, but in early September, we won three new large municipal contracts in Massachusetts, that we'll put a little capital to work in. That will be a great growth opportunity for us.

So I think we're still working on budgeting for the year, that's why we didn't give any perspective for next year.

But generally, our perspective is, yes, we want to pay down more debt. But we're also looking to put a little bit more money to work in a business that had high return.

Okay. And then on the point about residential, you broke out the price by different lines of business. But I think you aggregated residential and commercial.

Just curious what's happening in residential specifically and if you're seeing more competitive pressures there.

Give me won second. So --

Our residential price was 4.3%, and our commercial price was 4.2%. They're right on top of each other.

We typically get a little bit more from a residential business, but Ed's running some very effective pricing programs in the commercial line of business, and we're seeing some of those. But that's (inaudible) we've seen in a couple of years.

Okay. And just one more housekeeping, then I'll turn it over. If you want to discuss this off line, Ned, that's fine.

But as you get to a point where you're sort of, it looks like sustainably net income positive, how should we be thinking about GAAP taxes?

And I assume it's going to be quite awhile before you're paying cash taxes. But thoughts on that as well.

Yes, I need to look at the model a bit. But from our standpoint, we have close to $80 million net operating loss. So we will not be a cash taxpayer until, say 2021 maybe, give or take a little bit.

We have a large valuation allowance that will reverse at some point in time. So there would be a large tickup in net income in a period. When we expect that to happen, we'll give some guidance on that.

As far as kind of coming into next year, I've got to look at the models a bit and see where we'll be.

Great. Not a problem.

Ned, it'll be a number of years before we're going to be a taxpayer.

Yes, understood. Again, nice work, and thanks for the help.

Thanks, Corey.

Thank you.

Tyler Brown with Raymond James.

Great quarter. Fantastic job on the execution. But, Ned, I've got to ask you. So when you guys laid out your goals back last year, you had talked about kind of pro rata growth in 2016, 2017, 2018, to get to that high 20 EBITDA, high $120 million EBITDA range.

But given the really good traction this year, my guess is, again, this is my guess, that you guys would be tracking towards the low end of that range in 2017.

But how should we start to think about the ultimate end game here? I mean, was that just a rung on the ladder or should we still be thinking about that range for 2018?

Yes. I think we made a pretty unusual step as a company last summer, when we gave three-year guidance. And it was something we felt necessary to do. We were in the proxy contest, and we wanted shareholders to see what we were seeing and our Board was seeing, and where some of our programs were.

And it's not really our intention to roll the 2018 plan each year, to roll it forward.

As you said, we're tracking really well against it, and there's some opportunity to beat it.

But we sat around the table and discussed it. So today, we're not going to keep on updating that plan. That's not really our game plan.

But you can see how well we've achieved against it the first year, that the interest savings are a bit better than we expected. So we're in a great trajectory to hit that plan.

Okay. No, very, very helpful. And it's just quickly for modeling purposes, what is a good quarterly interest run rate post the refi? And how much of that will be cash versus non-cash, if any non-cash?

This'll take a second, Tyler.

Sure. I'm thinking maybe $8 million or so a quarter.

So cash interest, the run rate is $6 million a quarter run rate.

Okay.

About $24 million for the year, $23 million to $24-ish million range.

And income statement interest is looking at about 27.5-ish, 27, 28.

Okay. All right. Great. And then just real quick again on the incentive comp, what are you guys looking for on that accrual? Is it going to be like a 120% of normal or any color there on the incentive comp for this year?

So the vast majority of our managers in our Company are incentivized through economic value added. So as they prove [EPA] year over year, they get a share of that.

And many of those managers are tracking very well against their bonus targets for the year.

The senior management team is targeted on free cash flow and EBIT goals for the year, and we're tracking very well against those. Those goals were established really building off the 2018 plan last year. And we're tracking towards -- very well today against this target.

Okay. That's helpful. And then, John, I don't want to spill the pot here, but I am curious if I'm simply confused.

But what exactly is going on in the main waste market? How do you guys kind of envision yourself as a part of that, call it waste ecosystem in 2018 and beyond?

With regard to -- from what perspective?

Well, just with --

Fiberight?

Yes, with Fiberight and --

Potential development?

Yes.

Well, I mean, I think that we, with the expansion that we're -- our amended permit in expansion is under review right now, which is nine million cubic yards, which takes us out to the end of the ONL agreement with the state of Maine, to 2033.

I mean, I think that there's -- the Fiberight technology is new technology. It's certainly potentially going to be in the market.

Keep in mind that we have very limited amount of MSW that's going to our Juniper Ridge facility today. We're limited by about, I think it's about 80,000, approximately 80,000 tons.

So there's a tremendous amount of waste. There's over 300,000 tons of waste that's currently going to the [Burke] facility.

So we believe that we should be the beneficiary of some portion of that. But again, we're going through the permitting currently. There's going to be fairly significant disruption in 2018. And I think that we'll play a role in terms of providing services out into the future for some of those communities.

Okay. No, that's very helpful. And just lastly on Southbridge, so I think I heard you correctly that you're expecting that, is that 70,000 tons down this year?

That's correct, or 33%.

And so you're license is good through 2019, at today's run rate?

At today's run rate, we'll make it to 2019, not necessarily end of 2019. Somewhere in beginning to mid-2019, with current capacity.

Okay. Good.

And in all likelihood, too, Tyler, we're probably going to move it down again this year even more than what we did in 2016, we're going to move it down in 2017 as well, to give ourselves a bit more flexibility from a timing standpoint with regard to permit.

Okay. That answered my question. All right. Thank you.

Joe Box with KeyBanc Capital.

So just on the landfill pricing, I just want to confirm on the landfill pricing side, are you actually getting price increases pushed through or are we seeing maybe a little bit of a favorable mix issue as you guys flow control some of your landfills?

And then two, I'm curious, have you guys seen any impact from a more [disciplined] player in your western region? Sound like you got a nice increase in that market.

I think that we're clearly seeing a more disciplined player in the market. I think that there's -- it is very clear in terms of what the strategy is. I think they've been very clear about that strategy.

I think that we're seeing very good pricing, particularly on the C&D side in the western region. So all in all, we're beginning to see positive impacts in terms of the marketplace, both from a pricing standpoint, and also just overall discipline in the market.

And those statistics I gave earlier, Joe, those were not average price statistics. They were actual price statistics. So there's no mix component there.

So the 2.7% meant on a same customer, same service, that's what we increased price year over year.

So if you think about this, upwards of 60% to 70% of our book of business is contracted. And many landfill contracts have [CPI-like] increases. So on the uncontracted [bonds] or spot contracts, we're being much more aggressive than that level.

Sure. Okay. Great. I appreciate that. That's helpful. And then, Ned, just curious, obviously you guys give an adjusted EBITDA guide back in September when you kind of introduced the debt refi.

So I'm curious, what was maybe the difference between what you saw back then and what you see today to drive the increase again on the (inaudible)?

Yes, we beat our numbers in September. So that was really the drive, where we were probably maybe even being a little bit too conservative.

It's somewhat atypical to adjust guidance in a quarter. We're going out to market securities. We're doing the refinancing. And we wanted to get adequate information to public investors on the term loan about where our performance was and where we expect it to be for the year. And we ended up doing even a little better in September than we thought.

Okay. Got it. The recycling business is actually getting a little bit better. I guess I'm curious, are we at the where you're starting to share in profit with some of your customers or are we at the point where it's turning profitable, but, yet, it's not hitting some of those thresholds where you actually have to share with the customer? Any color would be helpful.

I think the way to look at it is, basically what's happened, Joe, is with the SRA fee, the SRA fee, because commodity prices have come back, and, again, keep in mind, they're not back to -- they're still 40% below where they were a couple years ago.

But prices have come back, which means that our fee has gone down and will continue to go down. If pricing continues to improve, then the SRA fee will continue to go down and could go to zero.

Okay. Got it. That's it for me.

Michael Hoffman with Stifel.

On Southbridge, a couple questions with regards to that. My memory serves the permit's currently about 405,000 a year. So of that 405,000, how much do you actually have to play with at your discretion to be able to manage the timing of this permitting process?

Well, we pushed out about 60,000 to 70,000 tons in 2016. And we'll probably push out more next year to give ourselves more flexibility from a permitting standpoint. So I mean, do you have a specific number?

We're running about 315,000 tons a day (inaudible).

Yes.

About 315,000.

Yes. About 300 now. We may move down a little bit more next year, Michael, to give ourselves more time.

So, basically there's about 300 that's under contract and got a 100 to play with in your Q third [200]?

No, I wouldn't characterize it that way. I think that what we've done is to push down. I think we can push down more, to the extent that we wanted to.

Okay. There's a pretty good host fee there, isn't there, into the community?

Very positive host fee, yes.

So while I get the political backdrop of the previous governor wanted to go to zero landfill and all of that, and the current governor's favorable and all of the people who showed up who don't even belong to the community.

But that host fee's a big deal to the community. So it would be a pretty meaningful political negative if for somehow this --

It really would, obviously. We're a very big contributor to the overall budget for the community. We are a very big participant. So it's very meaningful. And so, clearly, it would be very difficult without the facility for the town, for sure.

Okay. So switching gears from that for a second, and Ned, [talking], I get potentially modifying the 2018 target.

But think about it a different way, the 2018 target was to establish a basis for credibility around your efforts to generate cash and delever.

Now that you've refinanced into the term B, how do I think about the pace of the delever?

The pace, we've been hitting at a pretty fast pace over the last year, Michael. So we haven't finished our budgeting for 2017. But we do have another leg here. As we talked about earlier, we have lower cash interest cost, that they're lower than we expected in that plan.

Yes. And nothing's really changed, Michael. I mean, the vast majority of our free cash flow is going to go to pay down debt. And the great job that Ned and the finance team did on the financing allows us to pay that debt down with the term loan B.

So the vast majority of our free cash flow is going to go to making sure that we meet or exceed our 2018 plan.

Well, the track you're on, it looks like you'll be below three times sometime in, or at least exiting 2017.

I don't think we'll quite get below three times spend. So, we could [stop for] a little bit of leverage with the refinancing.

So we ended Q3 at 4.3 times. And with the refinancing and all the various fees and [cost thing], we're actually at 4.4.

So we've been deleveraging at a pace of about 0.9 turns or so, a year. So that puts us into the mid-threes or maybe high threes in 2017, if you're just [pro rata'ing] through.

But, so we're running a little bit ahead of our plan. But we're still very committed to deleveraging and will, as John said, focus free cash flow in that area.

Okay. That's very helpful. And then underlying -- I have a question in the context of on a same-store basis, the vast majority of your business is showing some nominal level of [buy-in growth] in the collection side. Is that an accurate statement?

Yes. But one of the things we really focused on, Michael, is moving away from customers where we weren't making a profit or a decent margin.

So we've improved the quality of our revenue versus focusing on the revenue growth. That is a major driving piece.

Of the volume, yes, I get that.

Yes.

But that's what I was asking basically. If I stripped away, you force the term, you're either going to pay me good margin or I don't want to service you, all of the rest of the business is showing positive volumes?

It depends on the market. So in our growth areas in the east, we're having positive volume growth. In the upstate New York markets, less volume growth.

But still on a positive -- it's slightly positive.

Yes, slightly positive.

Not negative, certainly.

Right.

But not as positive as we were seeing in some markets.

And then we also have a landfill. If you X out Marcellus and the Southbridge, we are very positive. We're up [10].

Still up 100,000 tons.

Yes.

Yes.

Yes.

Right. And if I focused just on MSW in those, between both your own trucks and the third-party, it's still flat. I'm teasing out here, while the growth of the economy is slow and the consumerism is slow, there's still positive trends that are translating into volume through your business model?

That's correct.

Okay. All right.

Yes.

And then in your current price that you report, the 2.3, I think about transitioning into 2017 and beyond. Are there any one-time fee numbers that you anniversaried that to think about it in the context of what you're reporting? Or asked differently and more specifically, should we be comfortable that you're at positive 2% for the first (inaudible)?

Yes. There's about 40 basis points in that number today related to the SRA case, that's still giving a little bit. We've anniversaried almost every customer that's gone on.

And so there's fee, but there's still a tiny bit in that number. But the run rate's generally good.

And the full anniversary of that 40 happens by when?

It happens in Q1 2017.

1Q 2017, okay. All right. So if we were to see something in a one seven to one nine price drop, we're not supposed to get alarmed, oh, my gosh, you're giving up price? That's the underlying normal rate, unless you've improved your quarter going into that?

Yes.

That's fair. That's fair.

That's fair.

Okay.

We haven't finished our budgeting for 2017, and we're working on strategies in markets and working through our book of business, so.

Fair enough. But we also shouldn't interpret your pricing is going down. That's the underlying base rate, and you're continually trying to walk it up?

Yes.

That's correct. Yes.

Okay. All right. That's what I was looking for. Thanks.

(Operator Instructions) And I'm showing no further questions at this time. I would like to turn the call back over to John Casella for closing remarks.

Thank you. Thanks everyone for your attention this morning. We look forward to discussing our fourth-quarter earnings with you in early March 2017. Have a great day everyone. Thanks.

Ladies who generally, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great.