Casella Waste Systems - Earnings Call - Q3 2017
November 2, 2017
Transcript
Speaker 0
Good morning, ladies and gentlemen, and welcome to Casella Waste Systems, Inc. QT twenty seventeen Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host, Mr. Joe Fusco. Please begin.
Speaker 1
Thank you for joining us this morning, and welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems Ed Johnson, our President and Chief Operating Officer and Ned Coletta, our Senior Vice President and Chief Financial Officer. Today, we will be discussing our twenty seventeen third quarter results. These results were released yesterday afternoon, Along with a brief review of those results and an update on the company's activities and business environment, we will be answering your questions as well. But first, as you know, I must remind everyone that various remarks that we may make about the company's future expectations, plans and prospects constitute forward looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by those forward looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10 ks, which is on file with the SEC. In addition, any forward looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward looking statements should not be relied upon as representing our views as of any date subsequent to today. Also during this call, we will be referring to non GAAP financial measures.
These non GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non GAAP financial measures to the most directly comparable GAAP measures to the extent they are available without unreasonable effort are available in the appendix to our investor slide presentation, which is available in the Investors section of our website at casella.com. And with that, I'll turn it over to John Casella, who will begin today's discussion.
Speaker 2
Thanks, Joe, and good morning, everyone. We're very happy with our third quarter results. As reported in our press release, our revenues for the quarter were up 6% from last year. Adjusted EBITDA for the quarter was up $2,400,000 from last year. And our year to date normalized free cash flow was up $19,500,000 from last year.
In addition, we accomplished two exciting financial milestones in our third quarter. Our adjusted EBITDA was one of the highest quarterly amounts in the company's history and we reduced our debt leverage down to 3.71 times, which gets our leverage below the 3.7 times 3.75 times threshold that was our last remaining goal as part of our 2018 plan. And is also the interest rate step down threshold for our Term Loan B reducing our interest rate by another 25 basis points, which will save us almost $900,000 per year in interest costs. We drove year over year improvement through our strong pricing execution, our operating efficiency programs and continued strong overall execution against our key strategic initiatives. These gains were partially offset by headwinds in the recycling business due to China's National Swart Program, which has negatively impacted paper and cardboard prices and caused us to increase sorting and quality control labor to meet emerging lower contamination standards.
We've done a great job over the last several years building a series of programs to help mitigate commodity risk in the recycling business. These programs include our revenue share contracts that share commodity revenues above a threshold with our customers or below the threshold our customers pay dollar for dollar processing fee. Our net average commodity rate formula that allows us to pass back increased cost to sell commodities, including higher labor or equipment costs to meet new quality standards and our floating sustainability recycling adjustment or SRA fee that works like a fuel surcharge for our hauling customers where the SRA fee goes up when commodity prices drop to ensure that our customers are covering the true cost to recycle. Our risk programs generally work on a trailing one month basis. The rapidly falling commodity prices from July to October, our risk mitigation programs have under recovered during this period.
However, as commodity prices stabilize, our programs will work to cover off the majority of the potential impact of lower commodity prices. Given the current commodity markets for every $10 per ton move in average commodity prices, our operating income would move by roughly $800,000 per year. Over the last week, we have seen mixed paper and OCC prices increased by 30% to 40%. And we expect materials to begin moving to China again in the near future, which should drive prices higher. The goal now is to further improve our quality of recycled fiber products.
Over the last several years, our team has been focused in executing a long term strategy that we first announced back to the Street in 2013, which we then refreshed in August 2015 when we laid out our 2018 financial targets. As of September 30, we have now achieved all of the financial targets that we established back in 2015, roughly one year ahead of plan. This is a great accomplishment by our team. We've achieved most of the foundational goals focused on blocking and tackling in our core operation, pricing strategy and sales execution, operational efficiencies, upgrading our fleet, reducing recycling risk, improving capital discipline and reducing leverage. Underlying these underlying each of these efforts was our focus on driving enhanced process and discipline, ensuring that we had the right people in the right roles, the right accountability and the right compensation programs to align success.
Today, we have a focused company with a strengthened foundation and an exceptional team. In early August, we outlined the next leg of our strategy with our new 2021 plan. With the 2021 plan, we have adjusted our strategic focus and provided a financial framework to guide our decision making and strategy. Our core strategies have been working exceptionally well, and we plan to continue to focus in these three key areas: increasing landfill returns, driving additional profitability within our collection operations and creating incremental value through resource solutions. In addition, we've introduced two new areas of focus: reducing G and A cost and improving efficiencies and allocating capital to balance delevering with smart growth.
We have set a goal to reduce our G and A cost by 75 to 100 basis points as a percentage of revenue by 2021 And more importantly, to reorganize our resources and invest intelligently to drive long term profitable growth. Over the last two years, we have been slowly but surely ramping up our efforts to improve our IT systems and technology platform, drive our sales force effectiveness and increase back office efficiencies. We've already taken a number of steps in these areas, including the adoption of a five year technology plan focused on improving our core financial and operating systems. We have successfully implemented the Microsoft Dynamics CRM system and we are in the process of implementing Oracle NetSuite ERP platform under a fixed price implementation contract. We believe that we are in a unique position to grow our free cash flow at between 1015% per year, given our size, our nimbleness and the range of opportunities in our pipeline.
Over the last three years, we have allocated almost all of our excess cash flows to paying down debt, while focusing on efforts to refinance high cost debt to lower our interest costs. We are now in a position where we have dramatically lowered our interest rates and we have reduced our debt leverage to 3.71 times. As such, we've adjusted our capital allocation strategy to focus from a sole focus on repaying debt to a balanced approach where we will continue to focus on reducing leverage, but we will also selectively pursue acquisitions and strategic growth investments within our core operations. Over the last several months, we've begun to reinvigorate our acquisition and development pipeline and internal resources. We believe that there is over $500,000,000 of acquisition opportunity in our Northeast markets that could be direct tuck ins with our existing operations or could be strategically integrated with our assets.
We've developed and implemented an acquisition and development framework to align strategy, financial returns and to focus resources on key targets. We are focused on acquisitions that will generate returns well above our cost of capital, enhance our vertical integration, drive operational and G and A synergies, will either be immediately delevering or have a fast path to recognize synergies and cash flows to delever. Year to date, we have completed three hauling acquisitions for a total purchase price of $6,300,000 at roughly three times EBITDA multiples after operating synergies. Wrapping up, the financial framework for our newly adopted 2021 plan is as follows: organic revenue growth targeted 3% to 4% per year, including the headwind from the closure of Southbridge over the next two years We have targeted $20,000,000 to $40,000,000 of acquisitions or development activity per year. We expect this activity to ramp up over a period of time and we don't plan to budget it.
Acquisitions or development activity will be opportunistic and will be strictly and we will strictly adhere to disciplined capital return hurdles and process. Normalized free cash flow growth of 10% to 15% per year with a baseline target of generating more than $50,000,000 per year of normalized cash flow by 2021. Total leverage targeted between three and three point two five times bank debt to bank EBITDA. And with that, I'll turn it over to Ned.
Speaker 3
Thanks, John. Now on to the quarter. Revenues in the third quarter were $160,300,000 up $9,100,000 or 6% year over year. Solid waste revenues were up 6100000.0% year over year with higher collection disposal pricing, higher solid waste volumes and the rollover impact from acquisitions of $1,300,000 during the period. Revenues in the collection line of business were up $4,500,000 year over year with price up 3.3% and volumes up 1.6%.
Pricing was up 3.4% in our residential and commercial lines of business and roll off pricing was up 3.3%. We experienced volume growth in the commercial residential and roll off collection lines of business with the residential line of business being positively impacted by the onboarding of four new municipal contracts in the last year. Roll off was positively impacted as we saw some Q2 activity shift to Q3 after unusually rainy spring. Revenues were up $1,500,000 in the disposal line of business year over year with both positive pricing and volumes. We increased our reported landfill pricing by 3% year over year and more importantly, we increased the average price per ton at the landfills by 5.3% as we improved the mix of our customers and volumes.
We increased our average price per ton by 8.6% in our Western Region as we continue to pivot strategy to focus on advancing pricing versus capacity utilization. Our total landfill volumes were 1,200,000 tons, up 1.2% year over year. We continue to ramp down tons at the Southbridge Landfill in the quarter and we continue to trade higher pricing at our sites for volumes. Recycling revenues were up $1,900,000 year over year with higher commodity pricing and volumes partially offset by lower tipping or processing fees. Average commodity revenue per ton or ACR as we say was up 22% year over year and higher fiber, PET and metals pricing.
However, commodity prices were down roughly 50% from July to October with the majority of this decline driven by lower paper and cardboard pricing as China has drastically reduced purchases, increased quality standards. Organics revenues were down $600,000 year over year on lower volumes as land application and product sales were down. Customer solutions revenues were up $1,700,000 year over year due to several new multi site retail customers and continued growth in the Industrial Services segment. Adjusted EBITDA was $39,500,000 in the quarter, up $2,400,000 year over year with margins up 10 basis points to 24.7%. Solid waste adjusted EBITDA was $36,300,000 in the quarter, up $2,400,000 year over year with strong pricing, higher volumes coupled with cost efficiencies, partially offset by $700,000 higher landfill leachate processing expenses.
Leachate expense was up 73% year over year on the abnormally high rainfalls we had early in the quarter. Solid waste adjusted EBITDA margins were 30.6%, up 50 basis points year over year. Recycling adjusted EBITDA was $1,700,000 in the quarter. This was down $900,000 year over year with the decline driven by two factors. We had about $700,000 higher labor costs as we added sorters and quality control personnel at our MRFs in an effort to meet the tighter quality standards as the global commodities markets reacted to China's actions to reduce allowable contamination and recycle commodity sales.
And two, while our commodity prices were up year over year, our risk mitigation programs are reset each month based on a trailing one month net commodity price. This includes our revenue shares, our rebates, processing fees and our calling SRA fee. Typically, the one month lag isn't material, but with a significant sequential decline to commodity prices from July to October, we experienced a headwind in the quarter as we shared revenues with customers based on last month's higher commodity rates, while we sold commodities for far lower rates. As John said, as markets begin to stabilize, we'll see our returns improve in the recycling business. It will offset the majority of the lower commodity prices.
Adjusted EBITDA was $1,500,000 in other segments in the quarter, up $900,000 year over year with the increase driven by improved performance in the Customer Solutions Group and changes in intercompany management fees. Cost of operations was up $5,100,000 year over year, but down 55 basis points as a percentage of revenue with increasing costs mainly driven by higher recycling commodity material prices on higher commodity prices year over year, higher direct labor costs driven by the recycling business, the higher leachate costs we discussed and also on our volume growth as we brought on new hauling customers where we had higher disposal and transportation costs. General and administrative costs were up $2,000,000 year over year. This increase was driven by 1,100,000 higher equity compensation accruals and slightly higher bonus accruals. Our normalized free cash flow was $20,900,000 in the quarter as compared to $5,100,000 from last year.
This improvement was driven by higher operating results and by 12,800,000 of lower cash outflows associated with changes in assets and liabilities year over year. Dollars 6,900,000.0 of this positive variance was driven by changes in our interest accrual year over year. As you may recall, last year with our senior subordinated notes, we paid interest two times per year on February 15 and on August 15. As such, last year we had a significant interest accrual reduction during our third quarter With the refinancing of the senior subordinated debt to Term Loan B in October 2016, our interest rate our interest is now primarily paid on a monthly basis, which in turn has normalized our accrual from month to month in 2017. Our normalized free cash flow is $34,400,000 year to date, up $19,500,000 from last year.
This improvement was driven by improved operating performance and $14,300,000 of lower cash interest costs, partially offset by slightly higher capital expenditures and lower proceeds from the sale of property and equipment. As John mentioned, as of September 30, our consolidated net leverage ratio was at 3.71 times. This is down 1.71 times since December 3134. Reducing our leverage ratio to below 3.75 times is important for two reasons. As John said, this is the last financial target to achieve in our 2018 plan.
We're very excited about that. And two, our Term Loan B interest rate drops by 25 basis points to LIBOR plus two fifty basis points. This is going to save us roughly another $900,000 per year of cash interest costs. As stated in our press release yesterday, we've outperformed our budget year to date with higher than projected solid waste pricing and operating performance. We expect these same positive solid waste operating trends that continue through our fourth quarter.
However, we remain cautious about the near term headwinds from lower recycling commodity prices. Our average commodity revenue per ton has dropped approximately 40% from September to October. And while we have mature risk programs in place, these programs mainly offset risk on a trailing one month basis. As such, we expect the recycling adjusted EBITDA to decline about $1,000,000 to $2,000,000 year over year in the fourth quarter. Despite this negative headwind, we have raised our revenue, adjusted EBITDA and normalized free cash flow guidance ranges for the fiscal year as we outlined in our press release.
And with that, I'll turn it over to Ed.
Speaker 2
Thanks, Ned. Good morning, everyone. As Ned laid out, we finished the quarter ahead of plan. As you can see in the numbers, we are enjoying a strengthening economic environment with good pricing dynamics, good demand for roll off and other services and a tightening disposal market that benefits our unique and irreplaceable asset base. Last quarter, we were talking about the excessive rain, which affects roll off activity and our leachate costs and landfill construction schedules.
And we were also talking about an unusual uptick in our healthcare costs. I'm happy to say that these things normalized, precipitation went back to normal and our healthcare costs returned to the actuarial trend lines and we had a very strong quarter. Cost of ops improved another 55 basis points as compared to the third quarter last year, that's three forty basis points from the same quarter the year before last, despite our recycling cost of ops jumping up over five percent due to the extreme volatility in commodity prices. This improvement was led by a strong performance in our collection line of business, which improved cost of ops by 158 basis points on strong price and our ability to hold the line on labor and maintenance costs and from our disposal operations where we experienced 152 basis point improvement driven both by price and actual reductions in labor and maintenance costs. Collection price was up 3.3% with a 1.6% volume increase, while disposal pricing was up 3.5% on the reported basis.
The average price per ton received at the landfills was up 5.3% on flat volumes. There's been a lot of focus on the market disruption for recycling commodities caused by China's attempts to improve the quality of materials they are willing to accept. As a major market participant in the Northeast, we've led the industry with our SRA fee, price adjustment mechanisms and our municipal contracts and with agile tipping fee structure for third party haulers that utilize our MRFs. So we effectively passed the commodity price risk to the consumer. Although this is a good risk mitigation system, it is not perfectly matched as material taken in one month is sold on yellow sheet pricing the next month.
So rapid rising prices temporarily benefit us and rapid declining prices go against us. This hurt us in September and will probably hurt us in October, but in the long run the system is pretty effective. So now we are in budget season with a cost of ops improvement of over 100 basis points year to date. We're continuing to improve, but there are plenty of opportunities ahead. For our disposal sites, the focus is on airspace utilization, improving turn times for our customers and more efficient life of asset planning for our heavy equipment.
This means better compaction through standardized practices and operating training and the continued upgrading of our compaction equipment to the larger units. Improving turn times is accomplished through better expansion planning and sell build schedules where we are making a lot of progress and through creative operational solutions available at some of the sites. On the collection side, we are still focused on the fundamentals, increased automation, improved routing and more effective live dispatching for our roll off services. We are also implementing better training and career development structures for our drivers and mechanics, offering them a path to improve their position over time, reducing costly turnover and improving labor efficiency and safety. In the recycling area, the focus is on product quality through both processing technology and customer education.
So another good quarter, and we look forward to continued progress. With that, I'd like to turn it back to John. I think, operator, we'll open it up for questions.
Speaker 0
And your first question comes from the line of Corey Greendale with Fist Analysis. Your line is open.
Speaker 4
Good morning, everyone.
Speaker 2
Good morning, Cory.
Speaker 4
Congratulations, really nice job again. So just you might have hit on a couple of these things, I just want to make sure I'm understanding that. Ned, I
Speaker 3
think you talked about the
Speaker 4
lower EBITDA year over year in the recycling business. Can you just again, why was EBITDA down in I understand why it's going to be down in Q4. Why was it down in Q3?
Speaker 3
Yes. So two different things really happened in Q3. One, we started to add a lot more labor to our processing facilities to ensure that we could meet emerging quality standards. So our labor costs were up $700,000 year over year in the third quarter. These new standards from China were really put out in the July timeframe.
And in order to continue to move materials domestically and internationally, we wanted to clean up the quality further of our materials and start to move towards that standard. The second is year over year commodity prices are almost less relevant than the sequential commodity prices, because as we described, we're almost always paying our customers or charging our customers based on last month's rates. So as prices decline very, very rapidly, we can get a bit behind. Now our programs work well over an average number of months, but over a singular month or a rapidly declining period, we can get behind. So on those two factors, that's where we got hit year over year on EBITDA in the recycling business.
We'll see the same thing in Q4. As I said, we expect $1,000,000 to $2,000,000 of negative variance in the recycling business in Q4. It kind of depends on what happens here over the next couple of weeks. October, we know we have a negative variance year over year. As John mentioned, recycling prices are beginning to go up and stabilize and there's a lot of unknowns still here.
Speaker 2
I think the other thing with regard to the quality issues, our quality was pretty high quality material that we were selling and we're bringing that quality down even more. So if we were at say 3% or 4% residue, we want to bring it down lower I'm sorry, contamination lower. We're trying to bring it down even lower. I think that the quality standards that have been set by China are not going to be met by anyone. So I think that there's the potential that that's going to have to change.
But nonetheless, we're as Ned said, additional labor to increase quality standards from a position of pretty strong position in terms of the quality that we were selling into the marketplace currently.
Speaker 4
A follow-up, I think you're probably trying to limit the number of questions here, but the $700,000 from higher labor, was that a full quarter impact? And should we assume there's something like that every quarter until that anniversaries?
Speaker 3
Yes and no. I don't want this to be too confusing. But John talked about our three risk mitigation programs. One is our revenue share where we share revenues above a threshold. So we look at our fully loaded processing costs in a facility.
Above that threshold, we share revenues with our customers. We also increase profitability. Below that, we actually get paid dollar for dollar processing fees. We of course have the SRA fee that's off taking risk for our calling customers. But we also have one other risk mitigation program and it's what we call our net ACR.
So we adjust our commodity revenue price that we sell based upon any changes in the market to meet quality standards. And this can be higher labor, higher equipment costs. So as the marketplace has changed and standards are changing, we are now adjusting our net ACR to reflect those changes. So while in the period our labor costs were up and we under recovered on that higher labor costs, we expect our labor yes, we still expect our labor costs to be up next year, but we're actually pushing that back to all of our customers in higher tipping fees.
Speaker 2
I think the real unknown at this point in time Corey is where that standard is going to settle out probably the
Speaker 3
maybe the easiest way to kind of say this is, if everything stayed exactly the same as October for the next year and we saw that 40% drop from September to October, we'd see about a $3,000,000 headwind year over year to operating income.
Speaker 4
Perfect. I will turn it over. Thank you.
Speaker 0
And your next question comes from the line of Tyler Brown of Raymond James. Your line is open.
Speaker 5
Hey, good morning, Good morning, Tyler. Nice quarter. Hey, Ned, quick yes, sure. Ned, quick question on incentive comp. So I think this is the second year in a row where we've had the heightened incentive and equity comp, which is great.
I mean, you guys have been beating budget. I'm sure it's great for internal morale. But I'm just curious, what's the delta between the current incentive comp accrual and maybe what would be a normal 100% accrual?
Speaker 3
Yes. So we're tracking to about 87%, 88% right now in calendar year 2017. On the cash incentive comp, we did about 90% last year. There's a few things going on in the numbers. If you just take out any changes in cash bonus or equity compensation year over year, our G and A costs were up $700,000 year over year or down 10 basis points as a percentage of revenue.
So you are right, changes in the timing and the expected amounts of incentive comp are skewing the overall G and A numbers a little bit. But overall, there's not a huge change. In the quarter, one of the reasons that comp G and A was up a bit really had to do with equity compensation expense. As you may know, our Board adopted a program two years ago where more of our compensation was at risk, especially on long term incentive comp. We moved away from just a time vested RSU program to a performance share program, where 75% of our stock is in performance share units.
And we trued up our long term models in the third quarter to reflect our projected performance for 2018 and 2019. As such, we had some true up to equity expense in the quarter that caused our equity incentive comp expense to go up roughly $1,100,000 year over year in the quarter. One other kind of small factor is happening here. We have some great initiatives in the back office right now in IT systems and the like, and we've got a little double counting that's happening. We've had to ramp up some resources.
We've got double paying for some software licenses and whatnot. But we're on schedule, on budget with our NetSuite implementation. And over the next couple of years, these are going to be investments to help us to reduce our costs.
Speaker 5
Okay. So on that, I'm a little unclear on the G and A side. So when you talk about 75 to 100 basis points, what is the base that you're comping that off of? Is it 13%? Or is it 13.3%?
Or what's the number?
Speaker 3
Yes. So we did 13.3% last year. We'll probably come out around there 13.2% or so. So we want to reduce that by 75 to 100 basis points.
Speaker 5
Okay. All right. That's helpful. And then I'm a little confused sorry, go ahead.
Speaker 3
Sorry. We're not planning to make that based on incentive comp changes or whatnot. We're planning to make that goal based upon fundamental changes in our back office.
Speaker 5
Right. Okay. And then I'm a little confused on the free cash flow. So I think year to date, you're at 34,500,000.0 Your guidance is effectively at the midpoint for 35,500,000.0 What am I missing? Are you really guiding to $1,000,000 of free cash in Q4?
And if so, is that just conservatism? Or is it a working capital? Or what's the delta there?
Speaker 3
Yes. So it's two things. One, it's CapEx just changes in timing year over year in CapEx. We're looking at we have a really big landfill construction year this year. We're building at eight out of 10 landfills.
So we expect our CapEx to be $16,000,000 or so in the fourth quarter. So that's part of it. And part of it is working capital. So this will be the last year that we have this problem, 2017. But if you think about it, when we used to have the subnotes, we build accruals in two quarters and reduce accruals, cash interest accruals.
And this year, we're paying flat each quarter cash interest. So our comparisons change because you're always looking at changes of assets and liabilities as compared to a previous year. So we have this yo yoing effect. In our second quarter, we had about a negative $7,000,000 working capital hit due to the interest accrual in the third quarter. We had a positive $7,000,000 impact in the fourth quarter.
We'll have that headwind as well. So when you normalize this out for a year, you're okay. But this yo yoing that's happening has been skewing the quarter slightly. It won't happen next year though. So those are the big issues really.
Speaker 5
Okay. Okay. Now that's very helpful. And then maybe my last one here, John. Thanks for the color on the M and A pipeline.
But I'm curious, has the cadence of incoming calls or just deals that you've seen come across your desk really pick up in the last maybe quarter or so since you made your announcements? And then how should we think about that M and A activity? Do we should we expect it to pick up here in short order? Is it maybe too hard to tell? Or is it more of an 2018 story?
Just anything there would
Speaker 3
be Thank
Speaker 2
think it's more of an twenty eighteen story. We're gearing up now. We've obviously put the structure in place. Historically, over the last four or five years, there hasn't been a real focus on it. So we've kind of reorganized that whole process just to make sure that we have got the right kind of discipline in terms of our due diligence, everything that we need to do to be really proficient in terms of the acquisition.
So it's going to I think it's going to be more of an twenty eighteen story, but we're beginning to see activity. I think it's fair to say, Tyler, that we're seeing there's pressure from a disposal inflation standpoint to third party haulers. There's also inflation from a recycling standpoint. So I think that we're beginning to see activity. I think once we start being more active from a deal flow standpoint, it's going to bring momentum to that whole aspect of our strategy.
Speaker 6
Right.
Speaker 5
Okay. That's great. I really appreciate it. Nice quarter.
Speaker 2
Thank you. Thank you. So, beat and raise. And
Speaker 0
your next question comes from the line of Brian Butler of Stifel. Your line is open.
Speaker 6
Hi, good morning. Thanks for taking the questions.
Speaker 2
Hey, Brian. How are you?
Speaker 3
Hey, Brian.
Speaker 6
Doing good. I think Corey asked most of my recycling questions, but I just wanted to follow-up on one or two. When you talk about price being down 40% kind of over the last month or so, what does that translate on an average commodity dollar basis, like on a per ton? So I can kind of like trace it back to that sensitivity of $10,000,000 move equal to 800,000
Speaker 3
Yes. So we saw our ACR down by about $40 a ton as well. From about September, we were a little bit over $100 and we're a little bit over 60 right now.
Speaker 6
Okay. That's good. And then on the split or I guess the floors, can you talk about just kind of on average how much above the floors you are? I don't know if that's a number you have, but and then think about how do you share that going on the up and down? I mean, I guess the sensitivity kind of is there, but I just wonder if you just put a little bit more color on that.
Speaker 3
So we are now below the floors on all of our contracts, and we're in a position where we're charging customers. So it's always a little bit hard for us to answer the question of what does a $10 move in commodity price mean to you because it really depends on what the starting and ending prices are. So if you think about it, if we have a threshold price of say $80 a ton, for our threshold, when we're above that, we typically are sharing say $0.50 on the dollar with the customer and keeping $0.50 profitability. So if our prices are $100 and they drop to $80 that first $20 is pretty painful. I mean, we're losing $0.50 on the dollar to the bottom line.
But when you fall below to $0.80 we then start charging a dollar for dollar tipping fee. So we almost flatten out and we eliminate much of our risk. Now this isn't 100% across our portfolio. We have one larger customer who doesn't share that downside. That contract rolls over in 2019, so it's hitting our downside.
And as we talked about, our programs lag. But they're pretty well situated. As we look out to next year with our current program, we're estimating that we'll cover off 85 plus percent of the risk.
Speaker 6
Okay. And last one on just the volume growth was strong this quarter. When you think about going into the fourth quarter in 2018, can you just kind of update what the kind of headwind from Southbridge is in the quarter? Because I mean, think we were looking for a little less volume, but on the expectations that Southbridge was a headwind, but maybe it's just less going forward.
Speaker 3
Yes. It's interesting. If you look at our volumes in the quarter, there is one thing we probably didn't do a great job guiding to as we won a few new municipal contracts and they rolled on. So our collection line of business, we had great growth there, 1.6%. You break it down, front load, are slightly positive.
The roll off, we're a couple of percent positive. Part of this is probably some Q2 work showing up in Q3 with the rain. And in the rear load line of business, we are very positive. We had four new contracts at comp year over year, a great contract win in July with York, Maine. So we had some good movement there.
On the disposal side of the business, we actually did slightly positive overall, but we were up about 11 in our Western Region and down about 11% in our Eastern Region as Southbridge ramped down. So things are getting tight in the Northeast. Waste is moving further distances. And as you know, we've got about 900,000 tonnes a year of excess capacity at our landfills, mainly out of Western New York and Pennsylvania. It was all about price over the last year.
We've been slowly metering in some volumes. But as Massachusetts and the Eastern part of our franchise gets tighter, we have the opportunity to move more tons out west at the price points we want. You're starting to see some of that into the numbers right now.
Speaker 2
I think it's also important to recognize that price in the Western Region still hasn't gotten back to levels of where it was in 02/2010 wait, 02/2010 before the collapse of the financial markets and the economy. So we still have quite a bit of runway from a price standpoint in our view over the next three or four years.
Speaker 6
Okay, great.
Speaker 2
Thank you. You're welcome.
Speaker 0
Your next question comes from the line of Jordan Gregoire of Federated Investors. Please go ahead. Your line is open.
Speaker 6
Hey guys. Thanks for the call today.
Speaker 3
Hi, Jordan.
Speaker 6
Hey. Just one quick question. Do you guys have offhand the interest coverage ratio for ninethirty for your credit facility requirement?
Speaker 3
Yes. Give me one second. And we'll have this in our Q that will be put out later today as well. Interest coverage ratio at Q3 was 5.68 times against a minimum ratio of 2.5 times.
Speaker 6
All right. Perfect. Thanks guys.
Speaker 3
Thank you.
Speaker 2
You're welcome.
Speaker 0
I am showing no further questions at this time. I would like to turn the call back over for closing remarks to Mr. John Mascora. Please go ahead.
Speaker 2
Thanks for your attention this morning. We look forward to discuss our fourth quarter twenty seventeen earnings and our 2018 guidance with you in early March twenty eighteen. Thanks everyone. Have a great day.
Speaker 0
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may now all disconnect.