Greetings and welcome to the Waste Connections’ Fourth Quarter 2020 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, February 18, 2021. I would now like to turn the conference over to Worthing Jackman, President and CEO. Please go ahead.

Thank you, operator and good morning everyone. I would like to welcome everyone to this conference call to discuss our fourth quarter results and outlook for both the first quarter and full year 2021. I'm joined this morning by Mary Anne Whitney, our CFO. As noted in our earnings release, Q4 capped off a remarkable year for Waste Connections culminating in a solid beat in the period and providing a higher entry point into 2021. A more than 250 basis points higher-than-expected improvement in solid waste volumes and increased values for recycled commodities and renewable fuels drove adjusted EBITDA margins 50 basis points above expectations for the quarter. Moreover, we converted over 50% of adjusted EBITDA to adjusted free cash flow in the year, while positioning ourselves for double-digit percentage growth in adjusted free cash flow to at least $950 million in 2021. With expected solid waste pricing plus volume growth of 5% and increasing recycling of renewable fuels values, 2021 is already positioned for continued topline growth, and a 50-basis-point margin expansion with additional upside from any further reopening activity, recovery in the economy, or acquisitions completed during the year. Although our outlook for the year does not include any benefit from further reopening activity, we are pleased to note that last week was the first weekly increase in revenue we have seen from COVID-impacted customers in several weeks. Before we get into much more detail, let me turn the call over to Mary Anne for our forward-looking disclaimer and other house-keeping items.

Thank you, Worthing and good morning. The discussion during today's call includes forward-looking statements made pursuant to the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995, including forward-looking information within the meaning of applicable Canadian Security Laws. Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties. Factors that could cause actual results to differ are discussed both in the cautionary statement included in our February 17th 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 as there may be additional risks of which we are not presently aware or that we currently believe are immaterial, which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change after today’s date. On the call, we will discuss non-GAAP measures such as adjusted EBITDA, adjusted net income attributable to Waste Connections on both a dollar basis and per diluted share, and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently. I will now turn the call back over to Worthing.

Thank you, Mary Anne. We are extremely pleased with our strong operating and financial performance in Q4 and throughout 2020, in spite of the impacts from the COVID-19 pandemic. We often note our belief that culture, values, and human capital are our greatest assets and instrumental in delivering differentiated results. This belief guided our response early on to the pandemic, which focused on reducing employee concerns regarding income, healthcare, and family obligations in order to provide continuity of service and a bit of normalcy for our customers, reduce voluntary turnover, and further improve safety performance. We spent over $35 million in 2020 for discretionary employee support, primarily for supplemental wages to all of our front-line employees, whether union or non-union, remote or in person, and including temporary employees as well as a thank you bonus late in the year. Voluntary turnover ultimately declined 18% in 2020, safety-related incident rates decreased 12%, with over 60% of our operating locations either posting zero safety-related incidents or driving year-over-year improvements and our total recordable injury rate ended at less than half the industry average. Looking at solid waste organic growth, price of 4.3% played out as expected in 2020 with combined price plus volume growth turning positive in Q4 for the first quarterly period since the onset of the pandemic on continued pricing strength plus a higher than expected 260 basis points of sequential volume improvement. As a reminder, from the Q2 lows of about negative 10%, solid waste volumes recovered to about negative 6% in Q3 and further improved to about negative 3% in Q4. This progression reflected the continuous recovery and activity we have seen since the depths of the pandemic and sets us up for positive reported volumes in 2021 beginning in Q2 even without the benefit of any further…

Thank you Worthing. In the fourth quarter revenue was 1.398 billion, about $63 million above our outlook due to higher than expected solid waste volumes and recycling and renewable fuel values, as well as about $12 million from acquisitions closed during the quarter. Revenue on a reported basis was up $36 million or 2.7% year-over-year in spite of E&P waste activity down 37 million year-over-year. Acquisitions completed since the year ago period contributed about 56.5 million of revenue in the quarter or about 52.7 million net of divestitures. Core pricing Q4 of 4.3% less about 50 basis points in fuel and material surcharges was in line with our expectations. Pricing range from about 2.7% in our mostly exclusive market western region to between 3.9% and 4.3% in our competitive markets. As Worthing noted solid waste volumes improved by 260 basis points sequentially in Q4 to negative 3.1%. Volumes improved in all of our regions, led by our mostly exclusive Western region where volumes were positive 3.7% on strong underlying activity in many markets, improving landfill tons and roll off activity. Elsewhere in the U.S., volumes range from about negative 2% in our southern region to down about 8% in our most impacted Northeast U.S. markets, which were hardest hit by the pandemic and remain slowest to reopen. As we have noted throughout the pandemic, our volumes largely reflect the pace and shape of shutdown and re-opening activity across our markets. Relative weakness has generally persisted in those markets hardest hit by COVID-19 and related restrictions. That said, Canada's recovery has thus far outpaced its reopening activity, with volume losses cut from about 9% in Q3 to about 4.5% in Q4 on strong disposal volume. Looking at year-over-year results in the fourth quarter on a same store basis, we once again…

Thank you, Mary Anne. The strength of our results in 2020 and expectations for 2021 reflect our purposeful culture and differentiated strategy. Moreover they are a testament to the tireless efforts of our dedicated essential workers. We are extremely grateful for our employees’ efforts to drive not only outsized financial performance during this challenging period, but operational excellence as well, as they honor commitments to our customers, communities, and each other. Operational excellence is also evident in our progress towards achieving our ESV targets, including as noted earlier, further improvements in safety and employee retention. We also see it in employee engagement through improving server leadership scores as we see it in the thousands of expressions of gratitude from our customers and the communities we have a privilege to serve. I want to once again express my personal gratitude. The support of our customers, the partnerships we share with our communities, and especially for the commitment and vigilance of our 19,000 employees who have made 2020 a success by any measure and positioned us for continued growth and success in 2021 and beyond. We appreciate your time today. I will now turn this call over to the operator to open up the lines for your questions.

[Operator Instructions]. Our first question comes from the line of Walter Spracklin with RBC Capital Markets. Please go ahead.

Hey, thanks very much. Good morning, everyone.

Hi, good morning, Walter.

So I want to start with the volume guide here. Obviously, you're assuming the conditions stay in place so I hope that's conservative for all of us. But when you look at your first quarter here, I look at what you guided to for your fourth quarter when you were trending kind of 5.8%. You indicated negative 5.8%, your indicating was improving, but you guided to 6% down. Here if I hear you correctly, you're now guiding -- you did 3.1, you say it's improving, but you're guiding to negative 4%. Just trying to get a sense of whether there's some inherent conservatism built in as early as the first quarter, I would have thought that your conservatism was mainly on the H2 expectations, but it does look like there's a little bit of an expectation built into your guidance for perhaps a deterioration here in the first quarter, I just wanted to square that off?

Thanks Walter, I'll start and hand it over to Mary Anne. As we have pointed out in the script, and it may have been lost. When you look at just the impact of leap year last year compared to this year, right, we said that was also about a 50-basis-point impact to volumes. The weather impact alone we've assumed is 50 to 70 basis points of impacted volumes in the period as well. And so, if you just look at the weather impact and leap year, that's over 100 basis points impact to the 4%. Another way of saying we probably would have got it between 2.5% to 3% down had it not been for the weather this week as well as obviously normalizing for the leap year.

OK, so it's really relating to those and nothing else. Okay, moving on to the mix…

In the script that the trends continue to improve since year-end.

Right, right. In terms of your guidance for full year revenue, I was wondering if you could give us a little bit of color particularly around mix and how that's playing out for the year and disaggregating between volume and price within that, your core price and volume, but particularly around what you expect the magnitude of the mix impact for the year built into your guidance?

Sure, so we said 5% price plus volume, but you've seen us delivering around 4% price, so you could easily break that down to be about 4% and about 1%, could be a little more than that on price. Right out of the gate, what I can say is the stickiness has been good. We've been pleased with what we're seeing and feel as with other years, we're set up to do a little -- to deliver a little better than what we expected or talked about. So, I'd say that's a fair way to think about it Walter, is 4% and 1%.

So, no impact from mix there that's embedded in your 4% guide?

Yeah, that's correct.

Okay.

So that obviously Walter, the big -- the upside then if you're trying to look forward while it might be modest above the 4% of price, it’s probably more so on the volume side, right. If more COVID impacted revenue comes back, if GDP really hits 5%, if Washington passes a 1.9 trillion stimulus package, I mean there's so many variables that can drive the 1% notably higher. But let's see how this thing plays out before we all commit to that.

Makes sense. Appreciate the time.

Our next question comes from the line of Tyler Brown with Raymond James. Please go ahead.

Hey, good morning everyone.

Hey, good morning Tyler.

Hey, Worthing. So I want to comment on the volume guide a little bit different. So, I just want to make sure it's clear. So you're taking basically a snapshot of today and simply rolling that forward, right?

That's correct.

Okay. So you talked about 40% of the commercial customers that have paused, haven't returned. So, if I just played around with the scenarios, so we don't have all the numbers, but at a high level if say just half of those eventually came back, what would that maybe add to volume, would that be something like 100 basis points just alone?

So, it's absolutely right. I mean, it's about 100 million or so revenue in the markets that we track that have not come back due to the COVID impact. And so, if half of that came back, that's 50 million. Again, that's about 1% increase in volume activity and the flow through from that is somewhere in that 40% to 50% range given the attractive incrementals as that comes back.

Right. Right. And that doesn't even include if roll off pulls or even new resi subscriptions, anything else kind of comes back in?

Yeah, for the explosive expectations around GDP for the year, or again whatever stimulus that's coming off the sideline etcetera from consumers, that's right.

Okay, perfect. That's very, very helpful. So Mary Anne, so thank you so much for unpacking the 50 basis points of overall expansion. But I've got to say, I'm a little unclear on COVID cost specifically. So, I think you said the COVID costs will be a 30-basis-point headwind year-over-year in 2021, is that -- did I hear that correctly?

So what I mean is that -- the point we are trying to make Tyler was that there will be ongoing COVID costs which amounts to about 30 basis points of an impact. So expenses that continue will lower year-over-year as compared to what we put into the -- in 2020. The point is we're going to continue supporting our employees and we've assumed that there's a 30 basis point impact related to that. And again, to the extent that that's not necessary because these other things happen, the reopening, the reduction in cases, then those costs would be.

Okay, okay, thank you for clearing that up for me. And then just my last one here, so to be -- you talked a little bit about the weather in Q1, so maybe you've already answered this question a little bit, but you're expecting some volume and you are kind of baking in the volume and the costs that could come from this kind of winter blast if you will, that is basically in the Q1? [Multiple Speakers]. Okay, okay, I know it's going -- I know it'll be a long call, so I am going to go ahead and pass it on. Thank you.

Thank you.

Our next question comes from the line of Jeff Goldstein with Morgan Stanley. Please go ahead.

Hey, good morning.

Hey, good morning.

So it sounds like special waste and C&D is still providing meaningful drag. I think you mentioned mid-teens on both in the quarter. So I'm just curious what you're hearing and seeing from customers in these markets and how you're thinking about growth there in 2021?

Well, right now it's just a question of anniversarying the death of the pandemic. This will be the last quarter where we would see these kind of declines in those two streams. With some geographies we still see quite a bit of strength in special ways. But in others it can be episodic. And so I think, again, getting through the Q1 print and anniversarying the pandemic will change those percents.

Yeah, to Worthing’s point I'd remind folks that you look back to last year in Q1, in spite of the fact that the pandemic ultimately impacted numbers in March. Special waste was up 17% year-over-year. So just the comp in and of itself was going to be difficult and then layer of pandemic on top of it.

Okay, fair enough. And then excuse me, I just want to ask an ESG question specifically around the 500 million of investment you call that in your sustainability report towards meeting your 15-year target. Just how this 500 million flows through the model over the long-term, does it cap margins in any way, and how much is incremental to what you were investing prior to this announcement, just overall how should we think about the financial impact of the investment?

Sure, if you take that 500 million for instance and just divide it by that 15-year period or so, obviously you get to a number of about 35 million or so a year, which on a 625 million spend right now that's just part of our normal ongoing course of making the -- making prudent investments, driving the returns, and everything we've always done has been consistent with these -- with our ESG priorities and targets. It's just that we haven't really packaged it from a communications standpoint, which is what we're doing now. And if you look at it from a margin standpoint, what we will deploy over the next three to five years will likely have a 25 million or more benefit, incremental benefit to the EBITDA alone. And so again, these are the right investments that are consistent with what we've done in the past. And again, everything we also do have an element of returns based analysis with it.

Understood. Thanks for the color.

Our next question comes from the line of Kyle White with Deutsche Bank. Please go ahead.

Hey, good morning. Hope everyone's doing well. On the service assumptions -- service assumptions or increases in frequency on commercial collection that had previously been a reduced service, can you give a bit more color as to why you think that didn’t improve much from 3Q and do you have a sense of how many commercial customers might be permanently closed?

So, with respect to your observation that it didn't improve Q3 to Q4, what we would say is that we were kind of braced for the possibility that there would be deterioration, because if you kind of wind back to October when we were looking at that, we are on the verge of some surges reemerging and some renewed lockdown activity, which of course we all saw in Q4. And so our observation is, in spite of those renewed restrictions, particularly interestingly on the West Coast and Canada, you've seen the business holds up. So the recovery is basically in line with where it was in Q3. And I would say the other thing to remember is I think that tells part of the story and in addition to that, you have the markets which aren’t competitive markets, so the exclusive markets as I mentioned, the West Coast but also you have the other lines of business like roll off pulls and landfill tons. And we made the observation that we saw municipal solid waste tons, which as you know account for 55% to 60% of the landfill tons that improved sequentially by 500 basis points Q3 to Q4. So I think you have these other drivers which show sequential volume improvement. And then to your question regarding customers who are permanently out of the equation, as we've said in prior periods what's interesting is if I look at cancellation rates, there's no discernable difference this year versus prior years, which leads us to believe that that's not the full story, which is why we think it's appropriate to view things the way we have, which is to say, hey, we'll give you guidance. That assumes it gets no better from here and we'll communicate what those numbers are as Worthing described, getting a point back from exiting the year down 3%. Some percentage will come back and we're not in a position to guess what doesn't come back.

I mean, you are talking restaurants, office buildings, staffing up again, tourism increasing, schools reopening, arenas refilling. I mean, there's a whole element of revenue that's missing right now that will be dependent upon how the economy reopens and the timing of that.

Yeah, that makes sense and then return to shareholders, you seem to suggest that repurchases will be kind of a bigger portion this year, which makes sense considering your leverage. Do you have a target for how much in buybacks do you want to complete this year or maybe perhaps a minimum leverage target that you don't want to go below, that you view as kind of suboptimal from a capital structure standpoint?

So we're very comfortable where we sit, we like the flexibility, that leverage that this 2.5 to 3 times gives us. And it will be less about having it being driven by that but we just want to continue to be opportunistic, which is what we've demonstrated. We've already done thus far this year and again, we look for those opportunities to present themselves throughout the year. So there's not a specific target but as we said, the expectation is and the intent is to increase that year-over-year.

That makes sense. Good luck in the year.

Thank you.

Our next question comes from the line of Hamzah Mazari with Jefferies. Please go ahead.

Hey, good. Good morning. Thank you. My question is on M&A, both sort of short-term and long-term. Maybe 2021 do you sort of expect this year to be like last year, are there any LOI signed sort of so far, I know last year was sort of above average but below average relative to what you were doing in the sector and then just long term, your overlap is pretty low with others, do you foresee another mega merger in the space as it relates to you, you've obviously integrated assets that are large, like Progressive Waste pretty well so just any color around short-term and then much longer-term M&A would be helpful?

For the short term, Hamzah as we said, the dialogue continues to be elevated. We think an average year 125 to 150 in acquired revenue. We're positioned to meet or exceed that. Now, the timing of that might be a little different given some of the stuff that we thought may have closed in Q1 of this year, got done prior to the end of last year. And so you likely see more activity in the second half of this year versus the first half of this year with regards to that number. But again, what's been driving sellers in the past continues to drive seller dialogue right now. I'd say the majority -- there are a couple of acquisitions that are above that 50 million or 75 million range that we're looking at. But, the predominant of the deals we look at, as you know, historically, is in kind of that 10 million to 30 million range with a few higher than that on average. But so that pace of activity, that profile of what we find attractive and value creative hasn't changed. With regards to larger deals, never say never but clearly when you look at the experience that waste management and advance had with DOJ and going through that protractive period, when you look at other companies that have been hung up in second reviews for what you would think of the even smaller transactions, they never say never about large combinations, but we all recognize that the -- you better be making prudent assumptions with regards to what you're going to get on the way out of those things, right. But, again there's nothing on the horizon right now as we look at it that's made them moving like that.

Got it. And, just my follow-up question, just on Canada, the strong disposal activity that you saw, that you referenced sort of outpacing reopening activity there, what's the sustainability of that disposal activity as you look into 2021? Thank you.

Well, we are seeing that trend continue into 2021 Hamzah. In fact, as Mary Anne talked about reopening activity in some of the COVID impacted markets, Calgary and Montreal were two of those top three with New York City being number one in that recovery. And so, despite the veracity of the lockdowns in Canada, we still see the business holding up very well. And as the lockdowns unwind, we'll see that rebound even further.

Great, thanks so much.

Our next question comes from the line of Kevin Chiang with CIBC. Please go ahead.

Thanks. Thanks for taking my questions. Hopefully everyone's staying warm given the storm.

We are warm given our houses are flooded. We are first in fights and our sheet rocks on the floor. But other than that going on.

You are experiencing a little bit of Canadian winter, I guess down in --. Maybe if I can ask about how you think about the longer-term cost of risk for waste connections, you've always had a competitive advantage there, but when I look at your turnover this year, a voluntary turnover that is, you saw a pretty significant decline, you've done some stuff on the hourly wage rate, you're introducing new technology into the fleet and I guess you have a longer term target of a lower incident rate I think of 25% is in your sustainability report, just wondering if I roll that all together what does that mean for the cost of risk for you as you look out maybe 5 to 10 years from now?

You know, that's -- I would be just crystal balling it and slagging it and I say that because what you find is when you get to as low level as we are right now, meaning, frequency of incidents and our TRIR, look some companies have long-term targets to get to TRIR that's 35% higher than where we're at right now. And so I say that because when you get to certain low levels of frequency, that includes people hitting us too, right. It gets harder and harder on a frequency standpoint to continue to move the needle as notably as we've done over the past 15 plus years, right. And so, yes, we hold ourselves accountable to further improvement. In that we are making the investments on the capital side. Obviously we've always said it's more about human behavior than it is about technology, right. It's how humans use that technology and coach for improvement for instance. So like without a doubt, like we are jumping off point now is probably around that 1.2% to 1.4% of costs right now from a risk standpoint. We'll drive frequency down lower, that'll help severity as well. But I think the cost push against that to be honest with you Kevin is, as you may know, the insurance industry continues to drive up premiums for whatever risk you ask them to take above retention levels. And obviously, always the risk of one or two incidents over time that might be severe and expose yourself to litigation in the U.S. But long way of saying look, we've got to continue to drive improvement. We're making the investments, holding ourselves accountable. Well if we just look at it alone, I think 5% of our locations last year had over 25% of the incidents. And so making a focused effort on those 5% of the locations that are that much above average. In risk, that's where we really see the greatest improvements on a year-over-year basis is getting everyone to where we want them to be, especially getting the outliers to show that kind of dramatic improvement that we expect.

That's helpful. And maybe just a clarification question, maybe on the back of Hamzah’s question on Canada, maybe I was surprised to hear that the recovery -- it sounds like the recovery in Canada is outpacing maybe what you're seeing in the U.S. Northeast when I think of both regions being kind of at the more severe and in terms of lockdown measures that governments have imposed. If I just compare those two markets, is there something happening in Canada specifically or maybe something happening or not happening in the U.S. Northeast that's resulting in our performance in Canada, I guess, looking over the past quarter or two?

Yeah, it's likely just the lower jumping off point [Multiple Speakers] where we look at the dollar improvement just last week for instance, a dollar basis on a weekly improvement with I think the Calgary was probably 70% of what the dollar improvement was up in New York and Montreal was probably close to 50% of a dollar improvement up in New York. And so it's just a better jumping off months.

The other observation I would make is that we saw the improvement in roll off, which started in Q3. So there could be that construction driven elements. Pre-pandemic there was strength in certain markets, like in Quebec for instance, we had noted that and we saw that kick right back in once restrictions were lifted. So I'd say the other aspect is maybe some of the restrictions are a little different market-to-market.

Well, that makes sense. That makes sense, that's it for me. Stay safe and warm everybody.

Thank you.

Our next question comes from the line of Noah Kaye with Oppenheimer. Please go ahead.

Hey, thanks. And first I just want to echo what others have said. I hope, everyone's family and customers are safe during the polar vortex. And you come out of this as painlessly as possible. First question, just around the free cash flow trajectory. You outperformed the guide this year, and you did so despite building what appears to be a really outsized working capital cushion heading into 2021. You kind of left the 950 million free cash flow bogey unchanged for 2021. So, can you call out any free cash flow headwinds or one-time items that we might want to think about in 2021, anything that might lap or reset in 2022 and if we want to touch on CARES Act or any other considerations we should be thinking about?

Sure, thanks, Noah. And I can appreciate your observation that it feels like we left ourselves the opportunity to do better than 950 and of course the guide is at least 950 million. And to your point, as we've communicated throughout 2020, and again today, we did position ourselves that way you saw the reduction in payables for instance as we exited the year. And the fact that we said CAPEX was about $25 million higher than we had anticipated. And we still delivered the free cash flow better than the high end of our range. To your point regarding things that are unique to 2021 versus 2020, you're right. The observation that the CARES Act benefits, right that we all enjoyed in 2020, you then have payroll taxes kick back in 2021 and you retake 50% of what you're able to defer. So the math for us that was a little over 40 million is what the deferral was. And so that returns in 2021 plus half of the repayment, so about 20 million. And of course, that's already factored into the at least 950 million that we've communicated.

Yeah. You're looking at the declining payables, but look we typically rolled in every year with the cushion. So if you just take Mary Anne’s 60 million or 65 million of the reversal of CARES and of course the payroll taxes and paying it this year, and net that against that 140 or so, that gives you what about net of 80 million of cushion. That's not a common for us to have anywhere between 60 million and a 100 million of cushion going into any one year.

Yep. Great. I'm going to yield the floor. Thanks very much.

Our next question comes from the line of Michael Hoffman with Stifel. Please go ahead.

Hey, Worthing and Mary Anne, thanks for the questions. We're now having your weather up here, you can have it back. I wanted to go back to service intervals for a second. So you clarified the progression 3Q into 4Q. How are you thinking about service intervals when I look at the guidance or is the assumption is it just no headwind, neither good or bad, it's a net neutral and therefore that also offers an opportunity, so will that be answering your question for you? Go ahead.

That’s right.

Okay. So there are four, housing has always helped create new business formation when it's above a certain level and we're running at 300,000 starts above a five-year average. So that's a -- there's a potential for you build enough houses, you exhaust the infrastructure, I need another drugstore or things like that. It back fills the empty storefront. That's all upside potentially?

That's right, because what we said is that, look, we're not going to predict the timing or the magnitude of the improvement in the economy or the timing or the inflection point of the recovery from COVID. And so when we communicate 5% combined price plus volume, what we're saying is that that's the business we know we have today.

Okay. That's perfect. So, we have a backdrop of maybe this housing cycle could be a benefit into the year as well, and then incremental margins, so classically in my tenure, we've always talked about sort of 40% and it's been just kind of a statement of 40%. Is it fair we're entering this year with a little bit of juice there because you were able to use the pandemic as a laser focus to drive a little incremental productivity, that combination of time wait and come out of it with just a slightly better incremental. It feels like that in your solid waste margins when I look at what you did in 4Q, that the incremental was slightly better than a long-term trend?

Yeah. I mean, if it's primarily resulting from recovery and commercial and recovery and disposal tons, you're absolutely right. Those are the two highest incrementals with regards to solid waste and that's why you've seen above average incrementals on the returning revenue from COVID.

And some of its structural too because you've lowered the absolute cost in all of the model?

Well, that's just [Multiple Speaker] you know that. We start spending bar tabs again, we'll put that clause back in.

Yup, yup, okay. I have to remember this is a drinking company that has a garbage problem. Inflation, can you remind us why garbage loves inflation?

Sorry, we had trouble hearing the end of your question.

Can you remind us why the garbage industry loves inflation?

Well, like as you know…

I get questions about this all the time and I just want them to hear it from you, why you love inflation?

Well it's -- but we don't like runaway inflation, right. That's not good for anyone, but if you look over time, we'll typically average 150 basis points or more over CPI. And so as CPI comes back up, that'll help pricing. Obviously looking at the cost structure you got leverage going through the cost structure, it is not everything inflates at that rate within the P&L. Obviously some things like labor have been moving higher than that recently, meaning recently over the past few years. And so that won't, I don't see that stopping. But obviously with labor being about 20% of cost as a percent of revenue, obviously getting that spread to CPI on the top line, provides a lot more coverage what moves through the middle and creates higher opportunities for margin expansion through the P&L. Now what you also see obviously is the cost of CAPEX goes up too, right. Let's not lose sight of that. Just this year alone, you're seeing against cost of steel increases and the cost of kind of resin increases that are hitting total prices. And so, yeah, you get benefits in the P&L but also understand that there's some unit costs inflation within CAPEX as well. And so it doesn’t all flow through the cash flow, but a good chunk of that does.

And the one thing I would add to that, Michael of course is the reminder that inflation helps on pricing. What matters at the end of the day is if you're pricing is fixed, right. And so you want to market a model that allows you to retain the price and deliver that 150 basis points spread to CPI that were being described, which we demonstrated through the great recession, through expansion, we have demonstrated, we have done that.

Okay. Thank you very much.

Thank you.

Our next question comes from the line of Stephanie Yee with J.P. Morgan. Please go ahead.

Hi, I just want to ask about kind of your longer-term margins, whether you think there's room for it to step up to maybe like the mid-30s, I'm talking about EBITDA margins, because we saw solid waste underlying margins expand 90 basis points in 2020, and then you're assuming 60 basis points in 2021. I guess how much of that do you think is a lower cost structure that you're able to operate at because of some of the cost efficiencies that you gained during the pandemic or do you think we need some of those recycling prices or E&P to pick up, to really move towards kind of higher 30s type of margins?

Sure, you've got a handful of things as you know that influence it. As Mary Anne pointed out already, it is just a 30.5% we reported in 2020, it had a total of 150 basis points, right just from the change in E&P waste activity and the discretionary costs we put in for COVID. Now assuming the pandemic wanes the quick mark back up to recover that gets you back to the 32 as a jumping off point for last year and then you put the 50 basis point expansion on this year. Obviously the March is already there to the mid 32s as you do the walk. And over time, we always talk about a 20 to 40 basis point assumed expansion of margins given that spread to CPI. And so you could see a multi-year walk, assuming E&P comes back to the levels we had last year, you got the year-to-year margin improvements. And obviously [indiscernible] commodity values move higher with an inflation expectation, that also has very high incrementals and the flow through. And so to get anywhere near like the 34% plus or minus range, everything's got to be working for you both price, the tons in our landfills from E&P waste activity coming back, as well as recovery commodity values of moving it forward. What you don't see much anymore is that is the kind of margin dilutive impact from acquisitions because again the denominator so big for the base business that we have that even if we're doing 150 million to 200 million of revenue per year, that is very negligible impact on reported margin. So that’s why it is less notable.

Okay, great. Thanks for painting that picture for us. And also this is kind of a bigger picture question as well. If we were to get an infrastructure bill passed, can you just talk about qualitatively how that might impact your business?

Sure. So, to the extent there were to be an infrastructure bill that would be expected to impact volumes of course, right. So you'd see it in development projects, things like special waste and C&D activity, and you see it in overall economic growth that would be fueled by that infrastructure bill. And so we would benefit also on the hallway side. So, certainly would be a boost for the industry and including ourselves on volumes.

Okay, great. Thank you.

[Operator Instructions]. For our next question comes from the line of Sean Eastman with KeyBanc. Please go ahead.

Hi team, compliments on closing out the year strong. I just wanted to dig in on the COVID-19 related costs. I mean, the magnitudes both in 2020 and what you've included in the 2021 guidance really stands out. And, I guess the question is; one, does the nature of those costs change going into 2021; and two, I mean there has to be a payback around what you guys are spending there, so if you could just talk about how that percolates through and what that does for the business, that'd be helpful?

Sure. I mean, look we don't do this because of a payback. We do it because it's the right thing to do, right. You look at what we did last year early on in recognizing our folks as essential workers that have to show up every day versus stay secluded. And that warrants supplemental wages, right. That warranted basically unlimited wage support for folks that couldn't work because of they had a loved one that was impacted or if they contact race or they tested positive that wasn't their fault. And so, last year we had people that got several weeks of pay based on just a sequencing of issues that befell them. And that was millions of dollars, right in just what I call waste support on top of it just because of the impact of the pandemic. Obviously, as the year wore on, we put a thank you bonus in the fall, because once again, as they power through it, we knew that the infection rates and the toughest time in the pandemic would be December, January. And so we got ahead of that mentally with folks and put a Panky bonus out there before Thanksgiving, heading into the holidays to really to steal them mentally, to be prepared for what was about to hit him. And we were right. I mean, as you guys, everyone knows that that third wave that hit over holiday season was unprecedented in the span of the pandemic. With many times infection rates five and six times, and our folks powered through it. And so, we look at again wage support that continues. Obviously you look in January. We're probably spending 250,000 a week on wage support for folks that were isolated for one reason or another. That's important. Again, this --…

Okay, great. That's helpful. I'll leave it there. Thanks very much.

Our next question comes from the line of Mark Neville with Scotiabank, please proceed.

Hey, good morning. Thanks for taking the questions and hope you're staying safe as well. Maybe just a couple points of clarification. First just on the recycled commodity values and the RINS and what's baked into the guide. So when you say you assume that current levels, is that Q4 or sort of where we're trending in Q1?

The current levels, well basically where we've been trending in Q1, as we mentioned we see some pick up. They picked up over the course of the quarter and we're around a $100 or $105 per ton on OCC and you've seen RINS in that 225 to 250 range.

Okay. Okay. And then I guess on the E&P, I guess the similar type question again, I assume it's sort of relative to Q4 maybe where we're at now, but is there again with the I guess the increase in the commodity price, oil price, what are your sort of thoughts around that business improved for the year?

So our assumption at this point, and what's included in our guidance is that we stay at the, essentially the current run rate. So that would imply it's around $25 million per quarter, a $100 million for the year with no assumed pick up as some other people have speculated that there will be a pickup in the back half of the year that has not been factored into anything we've communicated.

Okay, but I guess with WTI north of 60 have you sort of any noticeable improvements or is it just too soon?

No, we really haven’t and we'd say it's too soon. I mean, you've seen rig count up, you've seen WTI increasing, and as we said it firmed up in Q4, but nothing material since then. No.

Okay. And maybe just on the ESG front, again in Canada we have a carbon tax policy and I guess when you think about these things, something that's recoverable, is it sort of a headwind to you, is there -- would it require sort of a bigger investment across your network in bio gas or does it create opportunities for M&A, sort of how you think about sort of these things and just in general? Thanks.

Well, there's a lot of false start and there's a lot to unpack in that question, because there are many differences here. So with regards to carbon taxes that we may incur, those will pass through. With regards to opportunities for us, obviously with regards to the bio gas and renewable fuel side, there were opportunities. I mean, we're looking right now at building our second large gas plant in Canada. Our hope with them, we've worked on that for many years. I would hope within two to three years, that's easily online. And you'll see the economic benefit of that flowing through the P&L. So there's a lot of different things that we're doing both in tax that's being imposed upon us, that's been passed through. Obviously the investment opportunities that we laid out a part of our ESG and $500 million commitment over the span of those targets.

And the one thing I would add to that Mark is that when we look at what's required in Canada, we -- no change to our operations or anything we need to do. It could impact others and so could level the playing field in a way that helps us.

Great. Okay, thanks again for taking the questions.

I'm showing no further questions at this time. I'll turn the call back over to the presenters.

If there are no further questions, on behalf of our entire management team we appreciate your listening to and interest in the call today. Mary Anne and I are available today to answer any direct questions that we did not cover, that we're allowed to answer under regulation FD, Reg-G and applicable securities laws in Canada. Thank you again. Look forward to speaking with you at an upcoming virtual investor conferences or our next earnings call. Thank you.

Thank you. That does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines.