Waste Connections, Inc. (WCN) Q4 2012 Earnings Report, Transcript and Summary

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Progressive Waste Solutions Limited Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you. Ms. Chaya Cooperberg, Vice President of Investor Relations, you may begin your conference.

Thank you, Melissa, and thank you, everyone, for joining us today. With me on the call are Joe Quarin, Vice Chairman and Chief Executive Officer; and Ian Kidson, Vice President and Chief Financial Officer. They'll be providing comments on our results for the 3 and 12 months ended December 31, 2012, and then we will open the call up for Q&A. [Operator Instructions] Supplemental slides to accompany this call are available on our website at www.progressivewaste.com. Please note that we expect our MD&A and financial statements to be filed on Tuesday, February 19. Before we get started, I will read our Safe Harbor statement. Our remarks and answers to your questions today may contain forward-looking information about future events or the company's future performance. Although forward-looking statements are based on what management believes to be reasonable assumptions, the company cannot assure shareholders that actual results will be consistent with these forward-looking statements. The company disclaims any intention or obligation to update or revise any forward-looking statements resulting from new information, future events or otherwise. We also do not commit to continue reporting on items or issues that either arise during our presentation or in the discussion that will follow, except as required by applicable securities laws. This information, by its nature, is subject to risks and uncertainties that may cause actual events or results to differ materially. We ask you to refer to the bottom of our news release this morning for further information and to our previous filings for a more complete description of the risks affecting our business and our industry. On this call, we will discuss non-GAAP measures such as adjusted operating income, adjusted EBITDA, adjusted net income and free cash flow. Please refer to our news release for our definitions of these non-GAAP measures. We use these non-GAAP measures to evaluate and monitor the ongoing performance of the company's operations, and other companies may calculate these non-GAAP measures differently. We do have a telephone replay of this call available until midnight on February 28, and all of the details for the replay are available in our press release. And with that, I will now turn the call over to Joe.

Thank you, and good morning, everyone. I appreciate you joining us today for a discussion of our fourth quarter and full year results as well as our outlook for 2013. 1 year ago, when I started as CEO of Progressive Waste Solutions, I set out 2 priorities: one, focus on execution within our operations; and two, invest our free cash flow with the goal of improving our return on invested capital. On both fronts, we had made progress. But we also have a long way to go. Based on our achievements in 2012, I see even greater opportunity for continued improvement ahead of us. I will begin by reviewing our progress in the year as well as the most recent quarter. And then Ian will review our results and our outlook for 2013 in detail. I have 3 high-level observations in our performance in the year, which demonstrate our progress and our top priorities. First, throughout 2012, our core business of solid waste collection, transfer and disposal demonstrated resilience led by strength in our Canadian segment and areas of our U.S. segment. The largely recurring revenue in our core business, combined with contributions from acquisitions, softened the year-over-year impact of a nearly $30 million decline in revenues from lower recycled commodity prices. We increased our total revenues by 3.1% to nearly $1.9 billion despite the commodities headwind. On a consolidated basis, we delivered core price growth of 1.4%, reflecting price improvements in every collection service line, transfer stations and stable pricing at our landfills. Consolidated volumes decreased [ph] 1.2%, as we expected, reflecting the challenging waste volume environment that existed in the U.S. Northeast and in Central Canada throughout the year. And for the year, adjusted EBITDA was $519.7 million, which is at the high end of the range we provided in October. A second observation on our performance in 2012 is that our plan for our U.S. Northeast operations is well under way. We brought in new local management to oversee several key districts. And in December, we welcomed the new Region Vice President to lead the operations. We have reviewed and continued to closely monitor our cost structure and, more importantly, reinforced our pricing discipline. We improved the EBITDA margin during 2012 and expect to continue to see the benefit of our actions throughout 2013. As we have said before, our U.S. Northeast plan requires acquisitions that give us more transfer and collection assets to control more volume for internalization at our landfills. We executed on this plan in 2012, completing 5 acquisitions during the year. These acquisitions added collection and transfer assets in New York that will deliver volumes to our Seneca Meadows landfill. And in and around Baltimore and Washington, we also added collection and transfer assets that will increase internalization at our Blueridge Landfill in Southern Pennsylvania. This, in turn, will allow us to reroute other volumes to our other 2 landfills in the region. As we improve our asset portfolio in the U.S. Northeast over the next 12 to 24 months and increase our internalization, we also expect EBITDA margins to gradually improve on a comparative basis. I will note that we expect the margin in this segment to be below 20% in the first quarter of 2013 as we work on integrating our recent acquisitions, 2 of which were lower-margin transfer stations acquired at the end of 2012. Lower commodity prices routed to the first quarter of 2012 will also have a comparative impact. A third observation on our performance in 2012 is that our strengthened network of assets positions us well for growth in 2013 and beyond. We completed 19 tuck-in acquisitions last year, including 7 in the fourth quarter, which will contribute about $138 million in rollover revenue to 2013. The largest of these acquisitions was Choice Environmental. It is tracking in line with our expectations. These are high-quality collection and transfer assets in areas of Florida, where we have existing operations that are highly levered to an economic recovery. As we integrate these assets, we expect to benefit from the integration of routes into our operations as well as realize SG&A and landfill internalization synergies. In 2012, we also won several municipal contracts that will build our book of visible revenue and earnings for 2013 and provide some offset to contracts that concluded during 2012. Now I'll highlight some areas of our performance in the quarter and our objectives going forward. We closed the year with positive momentum. Revenue in the fourth quarter was $495.8 million, an increase of 8.4% over the prior year period. This included a $4 million quarter-over-quarter impact from lower recycled commodity prices. Adjusted EBITDA in the fourth quarter was $133.7 million. Excluding the $4 million decline in recycled commodity prices compared with the same period a year ago, as well as the impact of FX, adjusted EBITDA would have increased to $135.7 million. Free cash flow in the quarter, excluding the $12.3 million spent on infrastructure projects, was nearly $49 million or about 9.9% of revenue. The components of our consolidated gross revenue growth for the fourth quarter are as follows. Positive 1.2% from core price. By country, core price in the U.S. increased 1%, and core price in Canada increased 1.5%. Fuel surcharges were up 0.3%, representing a 0.6% increase in the U.S. and a 0.1% increase in Canada. The decline in recycled commodity pricing resulted in a reduction to our gross revenues of 1%, representing declines of 0.6% in the U.S. and 1.6% in Canada. Volume was positive 2% in the U.S., declined 2.6% in Canada, as we spoke to in our October call and which I'll speak to further in a moment. On a consolidated basis, volume was slightly positive, 0.1%, in the quarter. And acquisitions contributed to gross revenue growth in both Canada and the U.S. at -- by 6.4% on a consolidated basis. The consolidated core price improvement of 1.2% is consistent with our expectations for the quarter. Price was up for our consolidated collection, transfer and disposal services. In particular, I'll note that price in our U.S. Northeast segment was up in every collection line of business but flat in our combined transfer and landfill businesses. In 2013, on a consolidated basis, we plan to deliver core price growth of between 1% and 1.5%. This increase assumes no change in the current economic environment. It is a target driven by the predictability and resiliency of our base business. Our positive U.S. volume of 2% in the fourth quarter primarily reflects the impact of the Superstorm Sandy cleanup in the U.S. Northeast. Our U.S. volumes would have been flat to slightly positive without the impact of Sandy. In the weeks following the storm, our team mobilized quickly and supported all of the affected communities we are in. We brought in drivers, trucks and containers from other areas to help with cleanup volumes as well as extending the operating hours at our facilities. We are proud of how our people pulled together to help make a difference for the communities we serve during such a difficult time. I'll note, though, that other landfills closer to the cleanup sites soon started taking in the majority of the cleanup volumes. We are not building any additional Sandy-related volume into our outlook for 2013 as we simply do not have that visibility. And given that the event that will not repeat in the fourth quarter of this year, we expect Sandy to be a headwind to reported volume when we comp against it. Therefore, expect U.S. volume in 2013 to stay flat to slightly positive. As we noted on our October call, volumes in Canada are lower due to municipal contract losses in Edmonton, Winnipeg and Ottawa. These contracts combined -- these contracts, combined with the temporary closure of our Toronto transfer station, accounted for approximately 210 basis points of the 2.6% volume decline in the quarter. In addition, severe winter conditions in the western part of the country late in the quarter delayed some special waste volumes at our Calgary landfill, and this accounted for approximately 100 basis points of the volume decline. We have seen a much higher level of special waste activity at this site over the past 6 weeks as weather conditions have improved. Excluding these items, volume in Canada would have been positive in the fourth quarter. As we noted on our third quarter call, in 2013, volume in Canada will be negative year-over-year as a result of the lost contracts as well as the scheduled closure of our Calgary landfill at the end of June. Our new municipal contract in Surrey, British Columbia, which started in the fourth quarter of 2012, and the contract in Simcoe County, Ontario, which begins early in Q2 of this year, will offset some of this impact. The Toronto transfer station will reopen this summer to help drive more volumes to our Ridge Landfill where we received a permit expansion in 2012. If we exclude the municipal contract [indiscernible] and the midyear closure of our Calgary landfill to look at volume on a continuing operating basis, we expect volume in Canada in 2013 to also be flat to slightly positive. As with our outlook for core price, our volume expectations assume no material economic recovery with North American GDP growth of 1% to 2% this year. If the broader economy improves, along with an increase in residential fixed investment, especially in large urban markets, we will benefit from incremental roll-off in commercial collection volumes given our exposure to higher-growth, open markets that are most levered to a recovery. As I noted earlier, revenues we received for recycled commodities decreased $4 million in the fourth quarter with the same period a year ago. Looking at OCC as a benchmark for recycled fiber pricing, the average official board market price weighted for our regions was approximately $94 per tonne in the quarter. This compares to an average of approximately $91 in the third quarter for a difference of $3 on a sequential basis. While the OBM [ph] reported prices for OCC ticked higher in November and December, this primarily reflected the regions closer to export terminals. Because of our locations, we had only a marginal lift to revenue and EBITDA relative to our expectations for the quarter. In 2013, our outlook assumes the OBM [ph] price per OCC tonne in our regions to equal the average for 2012, which is about $10 higher than January's price per OCC tonne. As I said at the start of the call, one of my 2 top priorities is the disciplined deployment of free cash flow to generate the highest available returns. With our largely recurring and predictable core business and the cash that they generate, we were able to return more than $129.1 million to shareholders in 2012 in the form of share repurchases and dividends. We spent about $308 million on strategic, tuck-in acquisitions and another $26 million on infrastructure projects that we expect to generate very attractive returns once completed. In 2013, we expect to generate between $200 million and $215 million of free cash flow after our normal replacement and growth CapEx requirements. Of this, we will invest $40 million to $45 million on our previously announced infrastructure projects with most of the spend going towards the natural gas generation plant at our Lachenaie landfill near Montréal. While we will be opportunistic on acquisitions and share repurchases during the year, we intend to direct excess cash to reduce our leverage and to the payment of our dividend. In 2013, our priorities remain a focus on operational execution in the field and the allocation of our growing free cash flow to improve our return on invested capital. I will now turn the call over to Ian for a more detailed review of our financials as well as our outlook. Ian?

Thank you, Joe, and good morning, everyone. I'll start today with a review of the key variances on our income statement and other items of note in the quarter and move on then to provide our outlook for 2013. As Joe noted, our consolidated revenues increased 8.4% to $495.8 million in the fourth quarter. Reported revenues in all 3 of our regional segments increased as a result of acquisitions as well as improvements in core pricing. In the U.S., our South segment revenues grew 8.8%, and our Northeast region revenues grew 10.3% quarter-over-quarter. Reported revenues in Canada increased 7.2%, which included a foreign exchange contribution of $6.3 million or 3.1%. Total operating expenses in the quarter increased about $32 million to $305.2 million due primarily to acquisition growth. As a percentage of revenues, operating expenses increased to 61.6% or about 180 basis points. Approximately 50 of the 180-basis-point increase is due to lower recycled commodity pricing. The balance is due to acquisitions along with higher fuel costs in the U.S. Northeast that we were unable to fully pass through to our customers and higher labor and operating costs from Superstorm Sandy cleanup volumes. I will also note that in 2013, operating costs will reflect approximately $3.5 million of additional expense related to the re-branding of 3 markets to the Progressive Waste Solutions identity. Although most of our re-branding to the Progressive name is occurring through the normal course replacement cycle, we are fast-tracking 3 markets that we have grown into by way of acquisition and at which it makes the most sense to immediately establish a unified brand identity. Consolidated SG&A expense increased 2.8% to $59.8 million but declined about 60 basis points as a percentage of revenue to 12.1%. SG&A increased quarter-over-quarter largely due to acquisitions but also benefited from lower bonus accruals and lower LTIP expense. We also had lower management succession costs relative to the fourth quarter last year. Keep in mind that in the second half of 2013, we do expect SG&A expense to reflect an additional $7.8 million assuming full accruals in our incentive compensation plans this year. Amortization expense in the quarter of $71.8 million was up compared with the same period a year ago due to 2 factors: first, acquisitions we completed late in the fourth quarter increased intangible and capital amortization; second, Superstorm Sandy resulted in higher-than-anticipated landfill volumes in our Northeast segment, which led to higher landfill asset amortization. As a percentage of revenues, amortization expense was 14.5%, which was slightly higher than our expectation for the quarter and moved our full year amortization expense nearly 25 basis points above the outlook that we've provided in October. For 2013, we expect amortization expense to be approximately 14.4%. I will note that consensus expectations for 2013 appear to be showing amortization expense at 14.2% of revenues, and this should be adjusted higher to reflect our recent acquisitions. Interest expense in the fourth quarter was $14.5 million, which was in line with our expectations. And based on current debt outstanding, we expect interest expense in 2013 of approximately $64 million. At the end of the year, $1.05 billion was drawn on the revolving credit facility. Our total funded debt-to-EBITDA ratio was 3.14x, reflecting the significant number of acquisitions we completed in 2012 and, in particular, the 7 that we completed in the fourth quarter. As Joe mentioned earlier, we do have plans to reduce our leverage in 2013 and bring it closer to the upper end of our target leverage range of 2.3x to 2.7x. On an adjusted net income basis, our effective tax rate was about 40% in the quarter. Now note that we incurred a $2 million out-of-period tax expense in the quarter. In 2013, we continue to expect our effective tax rate to be approximately 40%. The 40% tax rate reflects that we expect to generate a greater portion of our net income in the U.S. due to acquisitions we completed last year, while income in Canada will be slightly lower due to the Calgary landfill closure. With the higher effective tax rate in the U.S. versus Canada, this change in income mix results in a higher combined effective tax rate. I will note that consensus expectations for 2013 appear to reflect a tax rate of 38%, and this should be adjusted higher. Cash taxes were approximately $11 million in the fourth quarter, in line with our expectations. And for 2013, we expect cash taxes to be between $52 million and $54 million. This reflects cash taxes in Canada, in which we are fully taxable; withholding taxes paid on dividends between our Canadian and U.S. companies within our corporate structure; and state and local taxes in the U.S. We expect our net operating loss carryforwards in the U.S. to continue to shield income throughout the second quarter of 2014. As a management team, we are focused on identifying strategies to reduce our effective tax rate as a corporation in future years, particularly as we begin to draw down our net operating loss carryforwards in the U.S. On an adjusted basis, net income for the quarter was $28.2 million or $0.24 per share. The impact of lower recycled commodity pricing reduced net income per share by about $0.02 quarter-over-quarter. In addition, higher cash taxes and the timing of certain acquisitions acted to reduce our earnings per share by about $0.03 relative to the outlook that we provided. I'll now turn to capital expenditures. Our replacement capital in the fourth quarter was $35.3 million, and growth capital was $37.6 million for a total of $72.9 million. As Joe indicated earlier, we also invested growth capital in several infrastructure projects, ending nearly $12.3 million in the quarter primarily on the natural gas projects at Lachenaie. In 2013, we anticipate replacement and growth CapEx to be between $210 million and $220 million with an additional $40 million to $45 million related to infrastructure project capital. Replacement capital will be about $17 to $18 higher than 2012 primarily because we have higher spending for construction at several landfills and utility relocation at our Seneca Meadows Landfill. In addition, we have identified certain redundant properties that we expect to divest this year, and this is reflected in our CapEx guidance. Growth capital for the year will be about $10 million above last year's levels for costs related to new municipal contracts that we have starting this year. We've identified many of the components of our outlook for 2013. But before I summarize our guidance for the year, I will outline some of the assumptions we are using and point out a couple of specific items, which will be important as you develop your models for 2013 and 2014. First, our guidance assumes parity between the U.S. and Canadian dollar. It also assumes no change in the current economic environment with an average recycled commodity price for the year which is equal to our average price for 2012. I'll remind everyone that recycled commodity prices began a steep decline in the second quarter of 2012. They were much higher in the first half of the year. In the first quarter of 2012, our weighted price per tonne of OCC was $120, whereas in January of 2013, our price sits at $95. Although it is not our practice to provide quarterly guidance, please note that the first and second quarters this year will have tougher commodity comps. Based on current volumes, a $10 change in the price of an average basket of our commodities results in an approximately $8 million change to revenues and a $0.04 change to net income per share on an annual basis. I will also add that as you are all aware, the closure of our Calgary landfill is scheduled for June this year. Although we will be shifting internal volumes to our Coronation landfill, we will also be incurring some higher transportation costs as a result. In addition, there will be a third-party volume impact in Western Canada. On an annualized basis, the EBITDA impact of the Calgary closure is about $18 million. But it will reduce EBITDA in the second half of 2013 by $11 million, as special waste volumes are typically back-end loaded at the site. So our guidance for 2013 is as follows: revenue is estimated to be $2 billion to $2.02 billion, representing an increase of 5.4% to 6.5%. This growth reflects the rollover impact of acquisitions we completed in 2012, net change to municipal contracts we service, the midyear closure of our Calgary landfill, as well as our expectations for organic improvement. We expect organic growth of 1% to 1.5%, represented by higher core price with volume flat to slightly positive. We project adjusted EBITDA to be $545 million to $555 million. Amortization expense as a percentage of revenue is projected to be approximately 14.4%. Our normal course replacement and growth capital expenditures are estimated to be $210 million to $220 million plus an additional $40 million to $45 million of capital investments in internal project infrastructure. The effective tax rate is estimated to be approximately 40% of adjusted net income before taxes. And cash taxes are projected to be $52 million to $54 million. Adjusted net income per diluted share is forecast to be $1.02 to $1.06 per share. And finally, free cash flow is estimated to be $200 million to $215 million, excluding additional internal infrastructure investment. Including spending on infrastructure projects, free cash flow is estimated to be $160 million to $170 million. That wraps up my comments. And I'll now turn it over back to Joe.

Thank you, Ian. We have a great degree of confidence in our outlook for 2013 given the predictability and visibility of our core business. With our exposure to markets that are highly populated and our strong position within those markets, we are levered to benefit from any broader economic recovery as well. We are excited at both the opportunities we believe we have to deploy our growing free cash flow levels to improve our return on invested capital over time. And that remains top of mind, all of us, as we enter 2013. Operator, you can now open the call for questions.

[Operator Instructions] Your first question comes from the line of Derek Spronck from Royal Bank of Canada.

Internal projects, is the spend and the revenue list back-end or front-end weighted in 2013? And in aggregate, will they be a lift to current EBITDA margins?

Yes, they will be a lift to overall margins, in particular going into '14, which is when we will complete the gas project. In terms of the spend, it's going to be more back-end loaded, but there will be spending in the first couple of quarters as well. But just the ramp-up of the project, I think, is going to be probably more of a 40-60 in terms of first half, second half.

And do you expect some more spend on internal projects in '14? Or should they be largely complete by then, by 2013?

Yes, the -- most of the existing will be complete. There could be a little bit of a shift between Q4 and Q1 just due to timing of the equipment delivery. But we're not expecting anything significant. And as we get closer to the end of the year, we'll try and provide that visibility. And a lot of it is contingent on the actual delivery of the capital on these projects. So by the end of the year, we should be down to just having one significant project outstanding.

Okay. And on the U.S. Northeast, if -- so taking your current asset base and macro expectations, where do you see your U.S. Northeast internalization rates headed by the end of the year here?

Great question. So as you know, we've -- we laid out a plan for our U.S. Northeast at the beginning of last year. We identified the opportunities to improve our asset balance in the area. And clearly, the better your assets, the more options you have to run different strategies. So we're quite happy with the acquisitions we have and the management team we have in place. And our target is to get over 50% internalization once we get all of the integration completed. And then also, we're looking to improved margins throughout the year towards the end of -- so by the end of the year, we hope to get to a year-over-year at least equal to, if not better, margin performance and then continuous improvement after that.

[Operator Instructions] Your next question comes from the line of Hamzah Mazari from Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: The first question is just on your Canadian business, it seems like pricing is a bit lower there. You've had some loss contracts. Could you talk about at a high level the competitive dynamic within the Canadian business and how that may be shifting from earlier in the year when you had some momentum? Any color there would be helpful.

Sure, thanks. On a high level, there's really nothing changing in the Canadian business. It's really just a mix that's affecting the overall price. Our pricing programs remain intact. In fact, we've improved execution of our pricing discipline in Canada. We are putting through pricing. We talked about the economy or the economic headwinds, if you want to call them that, in Central Canada. That is providing a little more competitive environment. But aside from that, nothing really has changed up here. It remains a strong market. The economy overall is doing quite well, and we remain confident in the outlook for continued pricing growth in 2013. Hamzah Mazari - Crédit Suisse AG, Research Division: Great. And just a follow-up question on the U.S. Northeast. Could you give us a sense again at a high level of what inning are we in, in your strategy to build critical mass? Are we halfway there? Are we in the fourth inning here? And then how much capital do you have to invest to essentially fix the business?

Yes, thanks, Hamzah. As I had mentioned, we do believe that having the right asset gives you the options to run different strategies. And that really became amplified when we lost the Department of Sanitation contract in late 2011. So I'd say we're definitely halfway through the game here. A lot of it has come down to execution. Once you have the asset, it gives you more and more options to efficiently direct your volumes. So you try to minimize the cost structure. And with the new management team in place, we need to allow some time to kind of ferret all that out. So we feel very confident that we're not out there looking for a bunch of new acquisitions in the Northeast. We are working to get the integration done on all of these. With Superstorm Sandy, it was a little disruptive in terms of availability of the long-haul trailers, ones that can carry the heavier payloads, et cetera. But that's all going to shake out here, and we're very confident that by the end of the first quarter, we'll have a pretty good hand on the integration of all of these assets.

Your next question comes from the line of Joe Box from KeyBanc.

Can you just talk to the timing of rerouting some of those volumes in the Northeast? And maybe just give us a sense of where Seneca utilization is currently at and then maybe where it can go once you reroute all of the acquired waste you're expecting to move.

Sure. Our plan is to have everything done by the end of the first quarter and have all the rerouting completed by then. So, I mean, that's a plan we're working on. In terms of Seneca, they were -- there were some opportunity for some volume lift, but we're not going to blow [ph] it and aggressively change the volume. And we're going to remain disciplined on the pricing. And as we -- we believe that's going to be more accretive and a better return on capital. So I think there is some, but it's not going to be a material lift to overall. It's really all going to be about operational execution.

Got you, got you. And just a clarification for Ian. I think you said the EBITDA impact from the Calgary shutdown is expected to be about $18 million. Is that just from shutting down the facility? Or does that also incorporate the headwind from additional third-party hauling costs? Just any other impacts on the collection business.

It's -- $18 million is an annualized number. Ian said it was a little over $11 million for '13. And that's an all-in cost of the transportation to redirect coupled with the decline in the volume. And the reason it's more back-end loaded is we do get more special waste volumes historically at that site in the first half of the year.

Your next question comes from the line of Kevin Chiang from CIBC.

Just a quick clarification point. Given where recycled pricing is today, and you said it was $95 in January, but given the average price you've provided in guidance of $106, can you just provide some, I guess, color on your certainty or your confidence that it looks like you expect pricing to move up call it 10% to 15% as the year progresses? Is that all on the back on an improving outlook for the commodity? Or are there things that you can do specifically to drive that average pricing higher?

The outlook that we provided is all tied to the research that we have done in terms of the board market prices. And when we did our plans for the year, so far, between Q4 and Q1, everything has acted as we expect it to act. So that gives us the confidence that commodity prices will continue to increase gradually throughout the year. That is the expectation out there, and that's really the basis for our optimism. So far, we are on plan with where we thought we would be when we developed our 2013 plan. So it's really just, I think, industry -- it's consistent with what the industry outlook is.

Kevin, just one last final comment is projecting commodity pricing is a bit of a muds game. But if you look at what the industry, we see and other outlooks are showing, we're actually significantly below their forecasts. And as Joe said, what we've seen year-to-date is consistent with where we thought we'd be.

Okay. And so it sounds like -- if I read through it, it sounds like more recently then. It sounds like pricing, worse, has kind of flat-lined here. So you haven't really seen any downward trend in pricing through Q4 and into Q1. Is that the read-through as well?

Well, no. I mean, it's been -- it certainly hasn't bounced tremendously. But in Q3 last year, we were at $91, Q4 at $94 and year-to-date, we're in the $95, $96 range.

Okay. And just my second question. Given the outlook for U.S. housing seems to be decidedly more positive looking on to 2013, 2014, can you, I guess, speak at a high level in terms of the opportunities for Progressive if that -- if those volumes do materialize as well as the construction spending and industrial volumes that do materialize from that? Can you speak to maybe opportunities for Progressive and if you've built any of that into your forecast over the near to medium term here?

Sure, I'll take the last question first. And we have not factored in an uptick in housing. We're not that good at forecasting that. But I can tell you that we believe we're well positioned in the markets that we're in. These are all markets that should do well once housing does rebound. Regionally, especially in the U.S., I guess you can really separate it into 3 distinct areas. You're South region, excluding Florida. So Texas, Louisiana in that area is performing well. Economically, again, the energy industry is continuing to influence that, and I think that we are seeing positive movement in terms of housing. It's not at the level where it's going to be a big needle mover, but it will be a positive contributor. If you get to Florida, Florida is still pretty flat year-over-year. We saw a little higher performance in the third quarter. Fourth quarter has really been pretty static. So I think it's going to be more of a which market will improve, but we fundamentally believe long term in Florida and the outlook for that improvement. I know prices are up quite significantly in the State of Florida, and I think that's probably a leading indicator. And then in the Northeast, unfortunately because of Sandy, I think there's going to be reconstruction activity that will take place. And again, we are a lag to all of that activity. So right now, a lot of our increase is tied to -- for moving the debris, but I think there's going to be several years of work to try and reconstruct some of those communities. And so we feel quite good about where we're positioned, but it's been -- a lot of people really believe that you need to get well in excess of 1 million housing starts to really start to move the needle significantly out for the industry.

Your next question comes from the line of Brian Butler from Wunderlich Securities.

First question. On impact of Sandy, you got a little -- you got a nice bump on the revenue side. Can you give a little color on what that impact was on the EBITDA margins in the fourth quarter?

Sure. So the contribution from Sandy was a little over a couple of million dollars on the EBITDA side of things. And offsetting that, we had a couple of others or onetime items or the softness of the special waste in Western Canada. So we had a bit of an offset there. But it was a couple of million dollars. The biggest driver behind that was just all the overtime, all of the people that we had to bring in. It was higher cost just to get it out to the landfills. The -- if you understand or you're familiar with cleanups of this type, it's harder to get high payloads. So consequently, when you start looking at just the transportation cost per tonne and everything else, it does tend to be a little bit higher. But it was about $8 million of revenue, a little over a couple of million dollars of contribution to EBITDA.

Okay, great. And then when you think about looking at -- on your return on invested capital trends and the investments you've made in the Northeast, so looking into 2013, how do you see those trends? Is that picking up quickly? Or is there going to be a bit of a delay before we start to see that on the return on invested capital side?

I think it's going to be a slight delay. And I say slight delay, a quarter or so. But we're already starting to see some improvements. And as we get these integrations done, the ROIC that we expect will start to come through. And then it's really the rebalancing. Again, having the right assets gives you a lot more options on how you can optimize your cost structure and then run various strategies, and our team is very focused up there, doing a great job. Our volumes are up year-over-year even x Sandy. Our pricing is up in all lines of business. It's flat on the post-collection side. So we're executing on our plans the way we want to, and we just had to make sure that we had the right assets so that we could also control our own destiny.

Okay. So going forward, though, the trend should be positive. There's no slight dip, I mean, any...

Yes, well, Q1, yes, the -- there is an asset mix change, right? You got -- we have some more transfer stations we added late in the year. So we expect the first quarter, as I indicated in my comments, to be below 20%. But for the year, we expect to at least average out consistent with this year with a positive bias.

Okay. And I'll sneak one last one in. Do you guys have a debt leverage target you're looking at for paying down debt?

Well, we have consistently communicated 2.3 to 2.7 turns. We're just over 3 now. There is no specific target, but we absolutely are cognizant of what we've communicated to people and to the rating agencies and our lenders. So yes, that's a...

[Operator Instructions] Your next question comes from the line of Neil Forster from Deutsche Bank.

Actually from Scotiabank, but -- I just wanted to follow up on Hamzah's question on mix impacting pricing in Canada. I'm wondering if you can elaborate a little bit on that.

It -- like I said, it's the mix of business. And we had some contracts, new contracts, that came online. There were some national accounts. They typically be -- are slightly lower price. Also, some of the contracts that we lost. You got the impact of the special waste. So it's really a blend of all of that mixed together. Our actual pricing out of the customer remains quite strong, well in excess of 3% pricing -- price increases that we've put out there. So it's just the overall mix. And then your transfer station pricing was not as high, a part of it impacted by the Toronto facility. So it's just the overall mix of the business.

That's helpful. And then I'm just wondering what you're seeing on the special waste side right now and what your expectations for that or that you have baked in your guidance. I see that New York has once again postponed a decision on frac-ing. So I'm just wondering if you're baking in anything for that into your outlook.

No, we've had no -- none of that baked into our 2013 outlook, anything related to New York state frac-ing. The special waste that we are seeing is really just normal year-over-year. It is -- as we said, out in Western Canada, a lot of it is influenced just by the weather. And then as you move everywhere else, there's really no change. No Sandy impact has been factored into our outlook. And as we've said, the Calgary guys typically get more of their special waste late in the year. So it's really just a normal year-over-year environment. We remain confident that the jobs will continue to come out. But the Northeast right now, you -- as we've talked in previous quarters, we do some government-funded jobs that are a little more sporadic, but it is being offset right now through some of this cleanup. And now, you go down South, the projects are pretty sporadic. When there are industrial cleanups, it really comes down to when someone's willing to spend the money. And it feels like there's a little more optimism out there in terms of the economy. We got the election behind us, you got the fiscal cliff, or at least one of them, behind us. So people are feeling a little bit better, and we are seeing -- we are in discussions about some of these projects getting on the board.

Again, you're not like you were baking into your outlook in 2012 for your U.S. Northeast special waste? You're not doing that this year on some of your projects?

No, we're baking in basically right now just what the -- we're just baking in what's on the board. We're pretty consistent with what we've had in the past. We talk with our people, and they give us guidance in terms of what their visibility is, and that's what we bake into our forecast. We -- beyond that, we're not that good at predicting.

And if I could sneak just a quick housekeeping question in here. You mentioned the revenue contribution of acquisitions completed in 2012 at $200 million. Can you give us the number for what the acquisitions that were completed just in Q4 are expected to contribute?

Yes. I don't have an exact number right now. But essentially, we have the $200 million annualized. $138 million is the rollover, all in. Here we have it. It is...

Just over $100 million.

Your next question comes from the line of Rupert Merer from National Bank Financial.

Can you remind me? What's your plan for the Calgary market and how you might recover the operations going forward?

Sure. We -- as part of our 2012 development, we actually have built a new facility in Calgary. That was opened in December, well attended by lots of the local politicians and we're quite proud of it actually. It is a new hauling company transfer station and recycling facility. It is open and ready to be able to allow us to internalize the volume and take it to our Coronation Landfill. So the impact will be some higher costs just in transportation to be able to get it there. And longer term, we are still working on alternate disposal options.

Okay. And in terms of longer term, how long might it be before you could come up with another option?

I don't want to get into too many details. But typically, projects like this will take anywhere from 2 to 4 years.

Great. And then just one final one. You talked a little about efficiency improvement already. Now it sounds like it's mostly a 2014 story. When you look at your expectations for EBITDA in 2013, what sort of efficiency improvements are you baking in?

Well, our model very much remains the same in terms of driving local market strategy, always looking to move price and then volume, make sure that we improve our productivity in order to be more efficient. So we've got all of that factored into this year. We've also got the synergies on the acquisitions that are well under way in terms of the integrations moving ahead. And so there's actually quite a bit of improvement that we're factoring in. We're going to aggressively work on making sure our local execution is topnotch, any opportunity we can use such as there are tools out there that allows you to try to recalibrate your routing that gives you more productivity improvement. Our whole focus going forward in terms of operations is make sure that we're as efficient as possible with our capital and that's driving the return on capital.

Your next question comes from the line of Adam Thalhimer from BB&T Capital Markets. Adam R. Thalhimer - BB&T Capital Markets, Research Division: I did just want to ask, though, about the -- can you talk a little bit about your acquisition outlook for 2013? You're very active in 2012, but you did mention that leverage is a little higher than you would like it. So what can we expect for '13 acquisitions?

So in our guidance, we have not factored in any acquisitions. And right now, given we're integrating all the acquisitions that we completed late in the year, we are working to -- given that we're -- so a lot of acquisitions closed late in the year, especially with all the tax changes that happened. So we feel that in the first half of the year, there's probably not going to be a lot of opportunities. People that actually wanted to get the deals done worked very quickly to try and get them done at the end of last year. That's what we're seeing. We've got a pipeline that we continue to actively speak with some of these targets. And once they're interested, we'll work efficiently, but it's going to be a very disciplined approach, making sure that they are accretive. And so if you want to think through anything, probably somewhere between $50 million and $100 million this year. It will definitely be less than last year. Last year, we guided $100 million to $150 million. And if you take out Choice, we're probably a little bit ahead of that. I think a lot of it was driven by the changes to the tax laws. So this year, I would expect it to be lower.

Your next question comes from the line of Chris Bowes from Canaccord Genuity.

Just one question. It's fairly high level because everyone's talking about it. I wonder if you could talk about maybe sequestration and what it does to your expectations, particularly for special waste volumes and maybe what you've baked into your guidance.

Chris, you're the first to ask me that question on sequestration. Really for us, we have baked none of that into our guidance. We are -- we're not heavily active in taking a lot of that drilling waste. A lot of our special waste is industrial cleanup jobs. So we don't expect to be heavily impacted at this juncture. We've got one small landfill that's in Western Canada that does take drilling waste, but we're not expecting it to be a significant impact on us either way.

Your next question comes from the line of Damir Gunja from TD Securities.

Just a high-level question on margins, I guess EBITDA margins. You're obviously working hard to glean some efficiency and integrate your assets. Maybe looking out a couple of years and maybe a more normal economic environment with a little bit of operating leverage, just wondering if you can comment on what sort of EBITDA margin range the sort of the assets you have now could be capable of producing.

Sure. Thanks, Damir. So our execution is all anchored around our local market strategies. We're always looking to drive more revenue into our existing assets, drive our revenue per hour. Obviously, you got to be very cost efficient when you do that. And we're going to continue to execute on that basis. The levers, moving price, that means you're riding volume, which will be easier if the economy starts to pick up certainly. So looking out, you're looking at our Canadian margins, they're north of 35%. We're not expecting any significant change on the Canadian side. Our U.S. South is just under 30%. In fact, if you looked at the year-over-year margins, excluding commodities for the company, it would have been about 28%. So our goal is to get back over 30%, and I think a lot of it will be tied to our continued improvement in the Northeast, integrating these assets. And then that's going to be the most significant contributor while we continue to execute in all of our other areas and perform the way we know we can perform.

If there are no more questions, we'll hand back over to Joe Quarin for closing remarks.

Thank you, everyone, for joining us on the call today. And we will look forward to reporting back to you in April when our first quarter results will be available. Have a good day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.