Ladies and gentlemen, thank you for standing by and welcome to the Waste Connections Third Quarter 2017 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Thursday, October 26, 2017. I would now like to move the conference over to Ronald Mittelstaedt, Chairman of the Board and CEO. Please go ahead, sir.

Okay. Good morning. I'd like to welcome everyone to this conference call to discuss our third quarter 2017 results and provide both a detailed outlook for the fourth quarter and some early thoughts on 2018. I am joined this morning by Worthing Jackman, our CFO, and several other members of our senior management team. As noted in our earnings release, continued strength across all lines of business enable us to once again exceed our outlook for the third quarter. Adjusted EBITDA, as a percent of revenue in the quarter, expanded 100 basis points year-over-year as expected, in spite of the impact from two hurricanes. This is especially noteworthy in light of the dilutive margin acquisitions completed since the year-ago period. Most importantly, adjusted free cash flow remains notably strong at $640 million year-to-date or 17.7% of revenue and 55.8% of adjusted EBITDA. Our divestiture program is mostly behind us now, after we completed a multi-market swap with Republic Services in early September. We announced another double-digit increase in our regular quarterly cash dividend, and we remain well positioned to fund expected above-average acquisition activity in the near term, while continuing to increase our return of capital to shareholders. Before we get into much more detail, let me turn the call over to Worthing for our forward-looking disclaimer and other housekeeping items.

Thank you, Ron, and good morning. The discussion during today's call includes forward-looking statements made pursuant to the Safe Harbors provisions of the U.S. Private Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of applicable Canadian securities laws. Actual results could differ materially from those made in such forward-looking statements and information due to various risks and uncertainties. Factors that could cause actual results to differ are discussed both in the cautionary statement beginning on page 2 of our October 25 earnings release and in greater detail in Waste Connections filings with the U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada. You should not place undue reliance on forward-looking statements and information, as there may be additional risks, of which we are not presently aware of or that we currently believe are immaterial which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements and information in order to reflect events or circumstances that may change after today's date. On the call, we will discuss non-GAAP measures such as adjusted EBITDA, adjusted net income attributable to Waste Connections on both a dollar basis and per share, and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measure. Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently. I will now turn the call back over to Ron.

Okay. Thanks, In the third quarter, solid waste price plus volume growth was 3.8%, exceeding our 3% to 3.5% outlook for the quarter primarily due to better-than- expected volume growth. This is the first full quarter for incorporating the contribution from operations acquired in the Progressive Waste acquisition within reported price and volume growth. As discussed on previous calls, we estimate the shedding of low quality and unsafe-to-service revenue across the former Progressive Waste footprint should be at least a 1% drag to reported volume growth in the near term. This reflects a purposeful price-volume trade-off to improve the quality of revenue, and as a result, margins and free cash flow in these acquired markets. As expected, pricing came in above prior quarters at 3.3%, our highest reported price increase in over five years. On a same-store basis, commercial collection revenue increased about 3% and roll- off increased about 6% in Q3 from the prior year period. Roll-off pulls per day increased 1%, driven primarily by our Western and Eastern regions, which more than offset declines in other regions, primarily related to the purposeful shedding of lower quality revenue. Solid waste landfill tonnage in Q3 on a same-store basis increased 6% over the prior year. MSW tons rose 5%, special waste tons increased 19% and C&D tons decline 8%, predominantly due to limitations under the new conditional use permit at our Chiquita Canyon Landfill in Southern California, the purposeful shedding of poorly priced roll-off activity and tough comps in a few markets. Recycling revenue, excluding acquisitions, was about $37 million in the third quarter, up about $8 million or 28% year-over-year due to higher commodity values for fiber. Prices for OCC, or old corrugated containers, averaged about $184 per ton during Q3, up 50% from the year ago period, and…

Thank you Ron. In the third quarter, revenue was $1.206 billion, up $121.6 million over the prior year period and $21 million above our outlook for the period. Acquisitions completed since a year ago period contributed about $60 million of revenue in the quarter, or about $40 million net of divestitures. Adjusted EBITDA for Q3, as reconciled in our earnings release, was $393.4 million or about $7 million above our outlook for the period, due to higher-than-expected revenue. Adjusted EBITDA as a percentage of revenue was 32.6% consistent with our margin Year-over-year, our adjusted EBITDA margin reported for the third quarter increased by 100 basis points. Underlying margin expansion of over 150 basis points, estimated to be driven equally by solid waste and E&P waste, was partially offset by the dilutive impact of comparably lower margin acquisitions completed since a year ago period and limitations under the new conditional use permit at our Chiquita Canyon Landfill, which took effect August 01. Fuel expense in Q3 was about 3.7% of revenue and we averaged approximately $2.51 per gallon for diesel in the quarter, which was up about $0.18 and $0.04 per gallon, respectively, from the year ago period, and sequentially from Q2. Depreciation and amortization expense for the third quarter was 13.6% of revenue, down 50 basis points year-over-year and in line with our outlook. Interest expense in the quarter increased $4.9 million over the prior year period to $32.5 million, due to higher average outstanding debt balances and higher interest rates as compared to the prior year period. Net of interest income, interest expense increased $3.4 million year-over-year. Debt outstanding at quarter end was about $3.9 billion and our leverage ratio, as defined in our credit agreement, was about 2.6 times debt to EBITDA. Our effective tax rate for the…

Okay, thank you Worthing. Again we are extremely pleased with the underlying fundamentals, margin expansion and free cash flow generation in our business. Our year-to-date results, combined with our Q4 outlook, puts us on track to meet or exceed the increased full year outlook we communicated in July, in spite of the recent significant deterioration in recycled fiber value. We just announced another double-digit percentage increase of our regular quarterly cash dividend, and we remain well positioned for a potential significant increase in acquisition outlays later this quarter or early next year, which will this quarter or early next year, which will have a nicely positive impact to 2018's revenue and EBITDA. Although we won't provide our formal outlook for 2018 until next February, we're able to provide some early thoughts, assuming no change in the current economic environment or additional acquisitions. In summary, we believe we've already positioned for at least a 50 basis point expansion in adjusted EBITDA margins in 2018, even if recent lower recycled fiber values persist. Any recovery in recycled fiber values or further increase in E&P waste activity could provide additional margin upside. We expect to have better visibility on this expected margin expansion, acquisition outlays and recycled fiber values in February when we provide our formal outlook for the upcoming year. We appreciate your time today. I will now turn this call over to the operator to open up the lines for your questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Hamzah Mazari from Macquarie Bank. Please go ahead your line is open.

Hi guys good morning. This is Mario filling in for Hamzah. Quick question regarding the mix of business. Could you update us on what percentage of your mix is franchise today? And do you think you can keep that mix consistent or stable even by doing more acquisitions?

Yeah, today Mario today the franchise or what we consider exclusive business, or long-term contract business is about 42% to 43% of revenue, and it has been very consistent at that since the close of the Progressive transaction almost 18 months ago. Of course, in this quarter, we closed a franchise operation in Alaska. So that moves that number just a little bit up. But if we look at our global acquisition opportunities, it is pretty well balanced between 40% and 45% in exclusive markets and 55% in the balance. So over time, if our track record remains what it has, we should stay in that 40% to 43%, 44% band, exclusive.

Okay, thank you. And just a quick follow-up. Could you give us a sense of what your M&A pipeline looks like in Canada versus the U.S.? And where you think tax reform is still a catalyst for private company deals to happen?

Well sure the predominant amount -- the vast majority of our M&A pipeline is in the U.S. versus Canada. Of course, today, our business is about 13% to 14% in Canada and 86%, 87% in the U.S. And we would tell you that our pipeline of acquisitions is greater than that percentage in the U.S. and a little less in Canada. So we expect that percentage to stay about the same or climb a little bit in the U.S. over time. Yes, we definitely feel that tax reform, depending on what it looks like, if it comes out as it has been at least advertised, we definitely believe that is a catalyst to M&A activity for a whole host of reasons, and we believe that as we said, if that occurs over the next 2.5 to 3 years before there is a next national election, that that would likely set up a lot of M&A activity between now and then.

Perfect thank you.

Thank you. And our next question comes from the line of Tyler Brown from Raymond James. Please go ahead your line is open.

Hey Ron, so we continue to hear a lot about a very tight craft labor market, we're really seeing it acutely on the commercial driver side. I was just hoping if you guys could talk about two major cost buckets specifically. So frontline labor and also the third-party subcontracted linehaul. Can you talk about where you expect maybe unit cost inflation for those buckets, but maybe specifically unit cost inflation for next year?

Sure, let's see Tyler, as you appropriately pointed out, the entire labor market, both skilled and unskilled, obviously more so in skilled, is extremely, extremely tight, and it tends to be pretty uniform across the country. I would tell you, having said that, that view it as probably tightest in the South and the Southeast at this point, where we're seeing the most growth in the market areas, just organic growth, housing growth, et cetera. And then second, along the West Coast. It is a little less tight in the Midwest and parts of the East – parts of the East. And it remains a continuous challenge. It's a No. 1 issue that we spend time on at all times is recruiting and retention of employees. And as far as unit cost inflation, we are looking at – we're looking next year at probably around 2.4% to 2.5% all-in cost inflation. There are obviously components and markets that are higher than that. We're seeing wage increases in certain markets between 3% and 6%. That's offset in other places, what – substantially less than that. But all in, we feel very comfortable in that – little less than 2.5% overall.

Okay, so not materially different than what you've experienced?

No not materially different, barring any change that would be up around 20 basis points to 30 basis points year-over-year, with a vast majority of that being in labor.

It is how we are seeing that same pressure this year. So really next year is a repeat of what we're seeing this year.

Okay, and then may be just on the margin side. So I think maybe a year or two ago, you guys had maybe talked about, post Progressive, as we get out to 2018, being in that 33% EBITDA margin range for solid waste, which I think you're not quite maybe guiding to that for sketch out next year. But as we look ahead, do you think that, that number becomes more of an asymptote or do you think that that's maybe more just a rung on the ladder?

Oh, there you go again, we go looking for another word, Tyler.

So what we say Tyler, we are not providing any specific, but we just commented that we believe that we are at least 50 basis points up year-over-year. We approached 32% this year in 2017, which is where we said we would be at the end of 2018 when we did the Progressive merger. So we are over a year ahead. So that takes you to somewhere in the 32%, 32.5% in 2018 based on what we said today. And we have said that is in current commodity pricing, which is fairly the 50 basis points dilutive right now to where we were 60 days ago. So even if you go back to that recycled commodity pricing environment, you would be at 33% before 2018.

And add back the impact of dilutive margin acquisitions completed since then

But even so, we did those in the beginning of the year. So in my mind, that's basically where we thought, which is about 33% adjusted for that – only that issue. And And to your question, I do view it as a rung on the ladder. I mean there's nothing magical to 33% illustratively, is a cap on our margin in this economic environment and we would continue to see a 30 basis points to 50 basis point sort of EBITDA margin expansion really any artificial ceiling that's out there. If we're able to get 2.5% to 3% price, we're getting better than that. If we are able to have positive volume growth and we're able to manage our costs at 3% or less, you are going to get margin expansion on a year-in year-out basis.

Okay very good. And Then maybe just one quick last one. I am a bit dense on this, but assuming no additional M&A and that the divestitures and swaps that you've announced are all that you do, let's just say that, in 2018 how much M&A revenue will roll over? Will that only be maybe $10 million, and then how much should we expect million, and then how much should we expect the divestiture to work against revenue in 2018?

right now the acquisition rollover, as you sit here today is about $15 million, because obviously the Groot transaction was in the full year results this year and we've done very smaller acquisitions since then. The divestitures would take away probably about $35 million to maybe $40 million if you look at next year, based on the timing. That's assuming the final divestiture gets done as we anticipate before the end of this year.

Okay. So assuming that last divestiture -- yes, sorry, go ahead.

And again that's assuming nothing closes between now and year-end, which we would tell you, as we sit here today, that that is unlikely that nothing closes. So there would be certainly incremental rollover above the $10 million, but that is what the rollover is today.

Okay, perfect. All right, thanks, guys.

Thank you. And our next question comes from the line of Brian Maguire from Goldman Sachs. Please go ahead. Your line is open.

Hey, good morning, guys.

Good morning, Brian.

Good morning.

Just a couple of questions on the EBITDA margin outlook. I think earlier you have guided for the full year to be 31.7% on EBITDA margin and I think you, in the press release, comment you're kind of reiterating the full year guide. Did that imply a 4Q number kind of around that 37.1%, is that what I heard from you Worthing?

Well, the guide – remember, we've guided revenue, we guided EBITDA and we guided free cash flow. The margin you decided is just EBITDA divided by revenue, but you got to focus on the dollar EBITDA. If you want to get back to the 31.7%, you would add back the $10 million impact of recycling in the period that would get you to the 31.7%. But again, what we're focused on is the $1.45 billion of EBITDA at a minimum for the full year.

Okay got it. It sounds like it's – we're getting to that $1.45 billion a little bit of a different way than originally expected, maybe a little bit higher revenue, slightly lower margin. And then just looking out to 2018, Ron, and your comments on the 50 basis point increase. Just wanted to understand, does that include any of the potentially dilutive margin acquisitions that you've got on the pipeline and maybe you can just speak to what some of the factors are that could drive that expansion, given all the headwinds you talked about, like Chiquita Canyon and the recycling price headwinds that you've got?

Yes. Well, first off, it does not include the impact of any margin – any margin impact of any acquisitions we've not yet closed in that, positive or negative. Now the reality is most acquisitions come on at margins lower than our corporate average. It does, however, Brian, include the rollover impact of the dilutive margin of the Chiquita Canyon permit, that because we already know what that obviously is, and have factored that in. And it also includes the dilutive margin impact of commodities staying at where they are right now. So those are both – so despite both of those and between the two of those, those are well more than a 50 basis point drive. So really we are saying there was a 100 basis point margin expansion on a – on the base company heading into 2018 prior to the change in the last six weeks in commodity prices and the finalization of the new Chiquita Canyon permit. I would – if you look at acquisitions and you look at that we did a massive acquisition this year, massive in our model called Groot, and we did it at the beginning of the year and it was dilutive to our margin. You've seen us increase margin this year 100 basis points, despite overcoming over a 40 basis point across-the-platform margin dilution from Groot in the beginning of the year. So it's a long way to tell you that we do the 50 basis points right now next year as sort of a floor and what margin expansion should look like and we would do that with – even with pretty material acquisitions coming in.

Is it safe to say that some of the positive offsets of the swaps you are doing which seems like they are margin accretive and then some of the pricing actions in the BIN portfolio?

Absolutely. I mean, we've dropped revenue, as we said, by a net of $100 million to $120 million and increased the EBITDA on the lower revenue by – through the swap and an improvement by $50 million. I mean, that's up 20 to 30 margin basis point expansion right there through the divestitures.

Brian one thing I'd add is, I'll just comment on our margins. Obviously, this year – even going into this year we have all along said, this is the year where you focus on EBITDA dollars and free cash flow dollars, because it was hard to predict the timing of the divestiture program. The fact that this remained in divestiture of $30 million staying in our portfolio through an entire fourth quarter, in other words, it gets you more revenue in the reported number, but it ends up being dilutive to reported margins, because we're holding on to very low margin business for an extra three months in the current year.

Okay. That's a good point. Thanks. Just one last one for me. I apologizes if you already talked about it, but just was wondering if you could size the impact of the hurricane costs in the current quarter. I know I think you said you don't expect any volume pickup in 4Q from it, but just wondered if you could speak to why you wouldn't expect any volume pickup, either in the Houston or Florida areas from the hurricanes? Thanks.

Yes. Well, I mean, first the second part of your question. I mean we have seen volume pick up in both South Texas and Houston market and Florida, and we certainly didn't mean to imply that we haven't. We're just saying that when you look at it in the overall scheme of the entire company's portfolio, a $10 million to $15 million movement in revenue in a period doesn't materially move numbers. You're talking about less than 10 basis points of movement. So that is why we're not – we're definitely didn't say we didn't get it, because we have.

Yes, because if you add up the cost, and the way we estimate the cost is between $3 million and $4 million of incremental cost in the quarter and some incremental activity on the top line, likely offset a little over half of that in the period. To Ron's point about the drag, it's a drag on margins probably between 10 basis points and 15 basis points in the period. It's probably a boost of 15 basis points or 20 basis points on the volume side. So it's not a material movement on the top line. And again, that's mostly behind us as we look at the benefit.

Okay, fair enough. Thanks a lot.

Yes.

Thank you. And our next question comes from the line of Derek Spronck with RBC Capital Markets. Please go ahead. Your line is open.

Good morning. Just wanted to commend the job you did managing through the hurricanes and taking care of your employees through that situation.

Thank you.

Just in terms of the M&A market, how rational is it right now, both from sellers expectations, as well as from the buyer? How aggressive are the buyers right now, including that private equity?

Well, I would say, as we said in a few previous calls Derek that you've seen some movement over the last couple of years as you've had sustained a very low interest rate and there is a benefit, in part to the capital structure of companies. Because of that you've seen some movement by about one to, in some cases, up to two turns of EBITDA being paid by the buyers, whether they are public companies or private companies or private equity. I would tell you that we don't really look at what other people are paying, we look at what we can pay. It's down on a return on capital and an NPV basis of the discounted cash flows. So I have not seen a material movement. Certainly buyers expectations have become, I would call it. inflated. You got a lot of small boutique investment bank firms, as well as largers, running around, touting public company multiple as a way to lower potential fees from private sellers. And so they let them know what us and others are trading at, and then those sellers end up disappointed when that doesn't come to fruition. And then we have to go through a prolonged negotiation. There's reasons we trade at what we do and there is reasons that private companies aren't worth those kind of multiples. But, be that as it may, we would tell you that we are seeing more discussions leading to more letters of intent. So obviously, to do that, we are closing the gap between sellers and buyers in a negotiated fashion to get to binding letters of intent on structure and valuation. So despite whatever rumors you hear out there, or that are real, we're able as a seller looking to do something and it's in our market area, we're usually able to figure something out.

Okay, that's great color. Thanks, Ron. Just 1 more for me. When you look at your free cash flow conversion rates and as a percentage of revenue, 18% this quarter, year-to-date over 17%, EBITDA conversion well over 55%. Are you able to continue to improve it? Like are we walking up from like the 15% of revenue more on a sustainable basis, or are they are going to be lumpy on a quarterly basis due to the CapEx timing? But – or are you actually able to continue to improve this conversion ratio that seems to be coming in higher than expectations on a fairly regular basis?

Yes, again, Derek, we've talked in the past, you've got timing of things that move in and out in certain quarters. Some quarters have higher cash flow generation due to a lack of cash tax payments in the period, the way those are timed. Other quarters have lower cash conversion characteristics because of nature and timing of CapEx. So if you look at our full year guidance, to remind you, we guided about $750 million of cash flow, $1.45 billion of EBITDA, that's almost a 52% conversion for the full year. Q4 has higher CapEx in it, based on the timing, really on the manufacturing side, of when the manufacturers on the trucking side could get the trucks to us, based on certain issues within their manufacturing line. So there is a higher amount of fleet coming in Q4, that's just a timing issue. Don't try to walk the conversion ratio up above 52%, because what we said over time is our cash tax to GAAP accrual rises, you likely see that over multi-year period approach 50% versus the 52% that we're doing right now. On a percentage of revenue, this year it will be about what – 16.5% or so, and that's a better area to focus on, assuming EBITDA margins stay where they are. If EBITDA margins creep up, you'll see that percentage of revenue creep up as well as we continue to convert 50% or better.

Okay, that’s great. Thanks.

Thank you. [Operator Instructions] Our next question comes from the line of Joe Box from KeyBanc Capital Markets. Please go ahead. Your line is open.

Hey, good morning.

Hey, good morning, Joe.

Good morning, Joe.

So obviously Groot was margin dilutive just by nature of where it came in at in the beginning of the year. Can you maybe just talk about where you're at in the process of internalizing that waste, how the new asset swap fits in, and how should we – we should think about the margin profile here as we start to migrate into 2018?

Sure. Well, you see, as we said at the time of closing, Groot being a large transfer and – a large collection transfer and recycling company, was not integrated on their own, they were in the 20% to 25% margin range on an EBITDA basis as a private company. When we acquired them, we obviously owned a couple of landfills in North Central Illinois. We were able to internalize certain of the Groot volume in year one. That ramps up in year two. So we move the margin profile closer to that 25% to 28% on an integrated basis with that. Then through the swaps that we are able to complete with Republic Services, we picked up incremental revenue and transfer capacity that allowed us to internalize a greater amount throughout 2018 and 2019 of Groot's volume through transfers we picked up in the Republic Services swap, plus lab synergies and overhead synergies in that market area. So when you come through 2018 and you get into 2019 and we're able to fully internalize things, you will see we will have moved Groot up from, call it the low 20% level to the low 30% level. So about an 800 basis point to a 1,000 basis point improvement on that platform over about a 24 to 30 month period. And certainly the Republic Services swap we are able to do and picking up incremental transfer capacity from them, as well as some very, very nice contracts, excellent facilities, excellent assets and employee base, that is all additive. So it was something we are very pleased to do. That swap worked the way a swap should, which is at one and one equal more than two for both parties. Republic had substantial asset infrastructure and key assets in parts of Texas and Louisiana that they picked up and I'm sure the one and one equals three for them as well, and that's how a swap should work when it goes right.

Got it. Perfect. That's good color. Thanks. And I know it doesn't get talked about often, but your Intermodal and Other segment, it does seem like it's put up nice revenue growth over the last year. Can you maybe just give the outlook there as we start to really run up against tougher comps?

Yes, you might be looking at the line of Intermodal and Other. I mean there is a handful of things. Intermodal is up nominally this year, probably in that 1% to 2% range. Obviously, within the Other basket, you also have landfill gas sales and again the value of landfill gas and green credits has risen year-over-year. So that's predominantly a big driver of that increase in Other as well.

Okay, great. All right, thanks guys.

Thank you. Our next question comes from the line of Michael Hoffman with Stifel. Please go ahead. Your line is open.

Thank you all for taking my questions and good morning.

Good morning, Michael.

So given the breadth of questions now, I have to figure out that we about asking this next round. But free cash flow conversion, you get asked a lot about that, we should continue to assume its 50% to 55%, that's the right way to think about it?

Yes. Well, I think we'd say is that 50% to 52%. We've never gone aside of 55% and that's a full year number. Obviously in any one quarter, or couple of quarters, you can get a number higher than the 52%, but the full year is not 55%.

Fair enough. And then capital spending this year is still $460 million or will you expect it to go up?

$460 million is still a good number.

So 10% of revs, 10% for next year is a good place to start?

That's a good place to start.

All right. And then five years into this recovery, how would you now frame the state of solid waste when you think about it though your line items, like in front-end loader, where are we in addition of adding routes, is it an accelerating condition, is stable but continuous service interval changes, things of that nature. Can you frame that for us in the context of the state of the business?

Sure. Michael, I think the way you said it regarding commercial, where you said stable and continuing to improve, meaning the pace of improvement of having to add routes has stabilized. It's not on quite a steeper trajectory as it was say three to four quarters ago. We are continuing to add routes, due to new growth and new business, that's happening throughout many markets again and really very broadly based. We're seeing that in all our solid waste region in the U.S. As we reported, we're continuing to see incremental growth in the roll-off business. We don't provide it, but we're continuing to see incremental increase in house counts on the residential side as well. So we would tell you improvement continues in all the business lines, stable, manageable, a little flatter, just because you are cycling on higher denominators, as you said as we're in the fifth year or sixth year in this recovery.

And housing has been a big catalyst for the activity levels and we've hit a pause in sort of the housing starts this year. To the degree that you look at special waste and that's dirt moving, doing site prep, can you read through on your outlook on special waste and say housing looks like it will pick up again at a little slower rate of growth, but slow growth in 2018?

Yes. What I would say, Michael, is that the housing growth, while your words were that it may have slowed some aggregately, and while that may be true, I would argue that, that is again more pocketed. We're continuing to see robust housing growth in most of the West Coast. We're continuing to see robust housing growth from Texas through Florida. We're continuing to see robust housing growth in the Eastern Seaboards, particularly the Southeastern Seaboard the Carolinas, up, up. So where we see a cooling a bit is in some of the Rocky Mountain area and in the Upper Midwest. And so we would tell you it's geographically not widespread whatsoever.

Okay, that’s very helpful. Thank you for taking my questions.

Thank you. And our next question comes from the line of Noah Kaye from Oppenheimer. Please go ahead. Your line is open.

Thank you so much, good morning. Maybe just I'll start with E&P. Obviously you're not at the run rates that you were before the day – fall in oil prices. But the revenue growth year-over-year has been impressive. As you think about the business going into next year, in the past you talked about your very high flow-through incremental margins on growth. So how is the business size now and what would the incremental margins look like on any kind of growth in E&P at this point? Understanding you are not predicting that, just wanted to understand what the margin profile might look like.

Yes, as you know, in any landfill-based business, the incrementals are quite high as we've said for E&P. They could run as high as 70% and 80%. It also depends on – to the extent that you see more growth, does that require kind of expanding the cost structure at various facilities. I mean, we've been able to ramp the business, mostly due to the increase in the Permian. So as that growth comes through, certainly in the number of facilities, you get the higher end of a flow through initially. To the extent that drilling activity expands and we bring back additional ships without the facilities that initial incremental flow through won't be as high. But right now, again, you'll see us – we are in that 45% to 50% margin range on an overall basis in E&P. That's up nicely year-over-year, because of the incremental flow through on the revenue growth. At this stage of the game, we're probably cycling in that run rate of 200 to 210 on that business and let's see where crude goes next year, to see if we can see additional growth in that business.

Great, thanks for the color. And then just to clarify, you talked about – in some line items you gave C&D volumes down 8%. I think you called out both Chiquita Canyon and a couple of other headwinds. What would – if we take some of those factors out, I guess it ties probably back into Ron's color on housing starts and housing environment. I mean, what does sort of normalized C&D activity look like? Is it sort of kind of continuing on, because I don't think comps last year were as difficult in these spaces as it would have been for, say, MSW?

Yes, we had, as we called out – you're correct, we called out three issues that were – predominantly contributed to this. They were the new permit at Chiquita Canyon. So first and foremost, that was the largest factor. And secondly, we commented on the shredding of – a purposeful shredding of low margin business, that will be the second largest factor. That one obviously goes away in time, because we finished that.

As well as Chiquita, when you anniversary…

As well as Chiquita when you anniversary. But that was the second largest. But we did have a couple of markets where we had tough comps and again those were good thing last year and they make it more difficult this year. So it is a little misleading to look at that number and say, is the business down. Well, the business really – well, in a reported basis, it is down because of the first two. The third one is really just a comp issue. So to answer your question, we would tell you that the C&D business is probably right now for us about flat on a normal basis. Could that be up a couple 2%, 3% next quarter or down a couple, 2%? It could, but I think at this number, this was sort of a one-time, because of the newness of the permit.

Okay, that's helpful. And then maybe just last on recycling. Maybe it would just be helpful to understand, obviously we don't – way too early to make a call on what prices will look like in 2018. But I would like to understand how it's actually impacting the business. You sell fiber. You then have maybe obviously some other products as well, but are you having to make investments in quality, or sorting to meet with new compliance requirements? Is that something you've anticipated at all for 2018, or is it really just kind of waiting to see how the markets shake out before making any investment decisions?

Yes, it was a little above, Noah. I mean the reality is, is that we are constantly in our annual budgeting process, we are constantly making upgrade – capital upgrade and operating upgrade decisions to recycling facilities based on ever-evolving quality standards, not just from China, but from mills domestically and elsewhere. And so that's sort of a continuous improvement process. So there's nothing step change that we're planning on doing in 2018. There are some things that are at some very specific locations, based on what the throughput and the product quality looks like coming out of there. On a real-time basis, look, there are markets. Well, you've seen some pretty drastic changes. I will give you an example, a market like the State of Oregon, which has very robust recycling requirements. They are mandated, there are legislated. There are fiscal or financial penalties attached. The State of Oregon has authorized, in certain cases in the last week, the landfilling of comingled recyclables, where there doesn't exist a market to move the products any longer, such as certain types of plastics and fibers. So that's a pretty large step from a very green recycling progressive state and that was done after their the DEQ did a very deep investigation of what the real opportunities are to move this product, and they are stepping back what people are going to be able to recycle. So you're seeing different things go on, on a very dynamic basis by state and local market and so we're adjusting to that. So it's one reason you don't go out and make a large recycling investment in this kind of environment when the commodity is just that, a commodity. And you've got to make sure that before doing that, you know what the playing field for that revenue stream looks like.

Great. Thank you so much.

Thank you. [Operator Instructions] Our next question comes from the line of Corey Greendale from First Analysis. Please go ahead. Your line is open.

Hi, good morning.

Hey, good morning, Corey.

First I just had a couple of housekeeping things. Is the $460 million still a good number for CapEx for the full year?

Yes.

Good. And then for the 2018 EBITDA margin thought you gave, are you assuming – I think Worthing you said that the E&P is like $200-ish million run to or a little bit above. Is that how you're assuming for 2018 in that 50 basis point margin improvement guidance?

Yes, it's just a rollover of the current activity, because as we've said, to the extent that E&P activity increases further or recycling fiber prices improve further from here, that's upside to the margin outlook for next year.

Good. And the 30 bp to 40 bp negative impact from Chiquita, is that above what we should assume going forward every quarter until it anniversaries?

Yes, it will run through July.

Okay. And sort of a different topic, Ron, on the – interesting to hear that the M&A pipeline is robust enough that you may use most of your, or a good chunk of your cash balance. And I understand that the – in general, the margin profile, the acquisition is lower than the corporate average. But I was hoping you might be able to comment a little more on – just to set expectations on kind of the nature of what you're looking at, how much it would be, like a really large opportunity versus a bunch of small ones and the margin profile of that stuff in the near-term pipeline?

Sure. Well, again, let's frame what is large in our market model, so that we – in case people haven't followed us a long time. Again, remember in our model, which is predominantly focused on either exclusive markets or secondary suburban type markets, a large transaction is $20 million to $40 million in revenue. So an extremely large transaction is something that looks more like $75 million to $200 million of revenue, like we did in the Groot case. Remember Groot was the third largest transaction we'd ever done. And so what I would tell you is that in that pipeline, there is a company or two that looks about like a Groot and we hope to maybe get one of those done. There are several companies that we would consider large in our traditional platform of $20 million to $40 million, integrated operations, new market opportunities, lots of growth opportunities to build out for multiple years around it. And then there are quite a few tuck-in transactions, ranging from $0.5 million to $5 million in revenue. So you've got some in each of those baskets. And again, we've said that we would hope to deploy, we've got about – I am rounding, about $0.5 billion of cash sitting on the balance sheet today and building. We would hope that number will be north of $600 million by the end of Q4 or so, and we would hope to deploy a decent amount of that and perhaps more than that if we get all the things done we're working on, by the end of the Q1-ish time frame. Some by the end of this year and others by the end of Q1 time frame.

Great. Well, good luck getting that done. Thanks for detail. I’ll turn it over.

Thank you. And our final question comes from the line of Kevin Chiang from CIBC. Please go ahead. Your line is open.

Hi, thanks for taking my question. Maybe just to clarify on the comments just made. When you get through this pipeline here, which seems very elevated on M&A, do you assume that you get back to that normalized $150 million of acquired revenue annually and implications for the buyback moving forward after you execute on these deals, or do you think this pipeline remains robust for the foreseeable future here?

Well. Kevin, I think that's somewhat depends on – to an extent what happens with tax reform. But having said that as I've recently said publicly in some other forum, that I actually don't think it matters that much, because here is the reality. There is a lot of pent-up M&A that has been awaiting tax change, that if tax change happens, and you're going to see elevated activity, because those people believe that there could be a two to three year window before tax change goes the other way again. And if it doesn't change and it is killed, you are also going to see elevated activity, because they know it's as good as it's going to get, and it's only going to get worse. So you're going to see elevated activity either way, in my opinion, in the next two to three years. I believe it will be because of the first, and that we will have some sort of tax change and we've been in a, albeit, slow growth but a steady growth environment, people's businesses have recovered. And so a lot of things set up for that to occur.

That's a great color. I am just wondering – and last one for me, does FX at all play a role in how you think about M&A. If the Canadian dollar is CAD0.10 lower than it is now, does it make a Canadian acquisition more appetizing for you as you use your stronger currency, or does that not play a role at all?

That does not play a role.

It does not play a role. We sort of normalized – I mean, obviously if you can pick your spot on FX, that's great, but we sort of look at a normalized 10-year evolving conversion and where that averages. So it takes out spikes and valleys.

Alright. You called the bottom on the Canadian dollar with the BIN acquisitions. So, I guess I'll leave it there. Congrats on a good quarter.

Sometimes better luck even good.

Thank you. And there are no further questions on the phone line at this time.

Okay. Well, if there are no further questions, on behalf of our entire management team, we appreciate your listening to and interest in our call today. Both Worthing and Mary are with me, are available today to answer any direct questions that we did not cover, that we are allowed to answer under Regulation FD and Regulation G. Thank you again. We look forward to speaking with you at upcoming investor conferences or on our next earnings call.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your lines.