Good afternoon, and welcome to the first quarter conference call for investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your hosts for this afternoon's call are Don Slager, President and CEO; Tod Holmes, CFO; and Ed Lang, Republic's Senior Vice President and Treasurer. Today's call is being recorded. [Operator Instructions] At this time, it is my pleasure to turn the call over to Mr. Ed Lang. Good afternoon, Mr. Lang.

Good afternoon. Thank you, Jacqueline. Welcome, and good afternoon, and thank you for joining us. This is Ed Lang, and I would like to welcome everyone to Republic Services' first quarter 2011 conference call. Don Slager, our CEO; and Tod Holmes, our CFO, are joining me as we discuss our first quarter performance. Before we get started, I would like to take a moment to remind everyone that some of the information that we discuss on today’s call contains forward looking statements, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. Additionally, the material that we discuss today is time sensitive. If in the future you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is April 28, 2011. Please note that this call is the property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited. With that, I would like to turn the call over to Don.

Thanks, Ed. Based on our first quarter performance, Republic Services is on track to achieve the financial guidance provided in February. Financial and operational highlights include revenue of approximately $2 billion for the quarter. Total price growth in the quarter was 2.6%, with core price of 1%. We secured core price increases across all lines of business and continued our focus on retaining existing business that generates appropriate returns. Volumes declined 0.7%, which is a sequential improvement of 40 basis points, including 110 basis point improvement in Collection. This is the fourth straight quarter of sequential volume improvement in the Collection business. Our first quarter adjusted EPS was $0.42. Our first quarter adjusted free cash flow was $273 million. We repurchased 5 million shares in the first quarter for $148 million. We are on track to complete the existing authorization before the end of 2011. We returned $225 million to our shareholders during the quarter. We remain committed to an efficient cash utilization strategy, which includes increasing cash returns to our shareholders through share repurchase and dividends. We recently closed a new 5 year $1.25 billion credit facility. Republic continues to extend debt maturities and lower interest costs. Moody's recently raised the outlook on our credit rating to positive. Republic is committed to a strategy of growing our business, improving return on capital, returning cash to shareholders and a strong credit profile. We recently purchased 2 recycling facilities in the Midwest to enhance our recycling capabilities. Our field organization continues to effectively manage our cost structure. All controllable costs remain flat or decreased as a percentage of revenue, including labor and maintenance expenses. We achieved year to year labor productivity gains in all Collection lines of business. We saw a reduction in frequency of insurance claims. Our accident and injury frequency improved by approximately 15% as compared to 2010. I would like to thank our field operations for their commitment to a high level of performance in all aspects of our business. Tod and Ed will now update our financial performance.

Thanks, Don. First quarter 2011 revenue, as Don indicated, was approximately $2 billion. Change in revenue from the prior period includes the following: First, our core price growth of 1%. In total, the Collection lines of business saw a core price increase of 1% with all lines of business reporting positive price increases in the first quarter. Our total disposal core price increased by 1.3%, which includes landfill MSW of 2.1%, which was partially offset by relatively lower priced event C&D and event special waste driven work. This level of pricing is in line with our expectations for the quarter. Since our price on index based contracts tends to lag, we are still impacted by lower CPI environment that occurred in 2009 and 2010. This has not yet anniversaried. In 2011, we expect core price of approximately 1% in the first half of the year and in a range of 1.5% to 2% in the second half of the year. Second, our commodity revenue increase of 1%. Commodity prices increased by 19% to an average price of $149 per ton in the current quarter from $125 per ton in the prior year. Q1 recycling facility commodity volume of 478,000 tons was up approximately 13% from the prior year and up 8% on a same store basis. As Don mentioned, we've recently purchased 2 recycling facilities. As a reminder, our 2011 guidance was based on December 2010 average commodity prices, which at that time was about $143 a ton. If prices hold at the current April levels of about $152 a ton, our EPS would increase for the year by about $0.02. Now for reference purposes, a $10 change per ton in commodity value equals about $0.02 of EPS, and that is net of the impact of rebates. Let me talk…

Thanks, Tod. Q1 2011 interest expense was $116 million, and that includes $22 million of noncash amortization. As we continue to refinance our debt, the portion related to the Allied debt discount of $9 million will decline. On April 20, we closed a new 5 year $1.25 billion credit facility. This new facility has a fully drawn cost equal to the facility being replaced. Republic has total bank market capacity of $2.5 billion that can be used for issuing letters of credit, short term borrowing and general corporate purposes. During Q2 of this year, we expect to refinance debt that matures throughout the year. As you remember, we started having debt maturities last November, and that'll continue through August. Notes due in May 2016 were called on April 15, and the notes that we offered to tender due in 2021 and 2035. Our EPS guidance provided in February included the favorable impact of refinancing this debt but excluded any premiums paid or debt discounts written off in connection with extinguishments. I will now discuss free cash flow. Q1 adjusted free cash flow was $273 million, which consisted of, first, cash provided by operating activities of $434 million less property and equipment received of $169 million plus proceeds from the sale of property of $7 million plus merger related expenditures net of tax of $1 million. And therefore, adjusted free cash flow is $273 million. At March 31, our accounts receivable balance was $840 million, and our days sales outstanding was 39 days or 24 days net of deferred revenue. Reported debt was approximately $6.8 billion at March 31, and excess credit availability under our bank facility was approximately $1.4 billion. I will now turn the call back to Don.

Thanks, Ed. Before we get to Q&A, I would like to make a few comments on our guidance and cash utilization plans. We are reaffirming the financial guidance provided on our February call, including adjusted EPS of $1.86 to $1.89, adjusted free cash flow of $875 million to $900 million, net capital spending of $735 million. At our next board meeting in July, we will review our dividend policy and expect to approve an increase of 5% to 10%. We have completed almost 50% of our current share repurchase authorization. Our board will authorize a new program at the October meeting to carry through 2012. At this time, operator, I would like to open the call for questions.

[Operator Instructions] Our first question comes from Michael Hoffman, Wunderlich Securities.

On the dividend, you are running at about 40-ish percent of your free cash today. And is there a feeling that you would want to drive that to a higher percentage, get to more 50/50? And if you were going into that direction, that would sort of auger closer to the 10% or maybe slightly more growth in the dividend?

Well, I think I said in my comments, Michael, we'll be talking about cash utilization strategy with the board in July as we always do every year, and we'll be looking at raising the dividend as we normally do, and we'll discuss all that cash utilization then and then again talk about share repurchase in October.

Okay. And then on the volume side, the 0.7% given the weather issues, it would suggest that you would've been at least flat maybe even positive, so it bodes well for structurally in the business broadly across the country. But having said that, are there still sort of pockets that we should be mindful of?

No, I think we're seeing pretty good volume consistent with our plan across the nation. We still have probably more economic softness in the south and the west, as we said before. It is a big highlight for us. We've seen now 4 quarters of sequential volume improvement in the Collection business. And while we did have a little weather, we chose not to really highlight it. We have weather all the time, probably a little more than we normally do, but we feel pretty good about where we're heading as far as our February guidance.

And our next question comes from Scott Levine of JPMorgan.

So with regard to your pricing, if you could talk it sounds like you're expecting a back ended year, and that is largely driven by inflation index pricing. If you could comment on pricing trends in the competitive side of the business and maybe any regional color with regard to areas of strength or weakness there.

Why don't I let Ed talk about CPI, and then I'll cover a little bit of the color.

Scott, it's pretty consistent with what we said in February. Keep in mind, during the first half of this year, we're still working through the lower CPI environment we saw in 2009 and into 2010. As we get to July 1 in the second half of the year, we'll anniversary out those lower CPI numbers, and then we'll see CPI numbers that reflect more the full year average for 2010, which was about 1.6%. So we will see kind of a lower CPI in the first half of the year, a step up to that mid 1% in the second half of the year. And then as we see CPI develop this year, and I know we've seen a few months here getting a little bit higher pushing above 2%, we really won't see that kind of blend into our numbers until the second half of '12. As we usually state, it takes about 12 or 18 months for that CPI trend to work its way into the average price. And as we discussed on the other call, Las Vegas is a very large market for us, and there's probably one that has a longer lag than others, but because of its size it doesn't impact the corporate average. And in Las Vegas, they use a calendar year CPI, and you get that price increase the following July 1. So therefore, on July 1 of '10, we actually had to roll back our pricing by 0.4%, which was the '09 CPI number. And then what will happen this July 1, we'll get a price increase of 1.6%, and that'll be your price increase for that marketplace starting July 1 of '11 through June 30 of '12, and then potentially we'll see that higher CPI pricing come into our numbers beginning July 1 of '12. And, Don, you want to talk about open market pricing?

Yes, sure. So remember, in the other part of the business is open market, and we have an internal process that we call RPM, which is just basically taking those old market customers and we spread them across 12 months and we review and accordingly adjust those customer prices at least annually. And so we had positive pricing across all lines of business in the quarter, and pricing in that arena is going well for us. And there's always pockets of pushback based on competitive behavior maybe locally or something along those lines, but no really change in what it's been. So we continue to review all of our pricing. Every customer gets reviewed annually. We continue to do that while we continue to defend our business and look for signs of life in the economy to grow our business. So all in all, I think the 1% pricing in the quarter was a pretty good number for us.

Got it. And as my follow up, maybe you mentioned some efficiency spend in the SG&A number. If you could talk a little bit about some of the areas that you see as offering maybe a little bit more near term promise in terms of cost takeout or productivity efficiency, what have you.

Well, we continue to gain productivity on the Collection side of the business in the labor and so forth with just improving routing, more automation. We've talked quite a bit about moving more of our residential fleet to automate it. That's worked well for us. On the SG&A side, we've got some additional resources deployed, working on some of these cost programs like we've talked about, our maintenance program, our national account initiative and some of those things. Right now, we're probably, again, as Tod said, having more cost than we are benefit. We'll start to see some benefits in '12. And by the end of '13, we'll see some real benefit from those programs, but we're going to carry a little SG&A between now and then.

Got it.

And our next question comes from Hamzah Mazari from Crédit Suisse.

First question is just on pricing. What are you pricing your landfills at right now? And how aggressive can you be if you do see strong seasonality at the end of May? And is there any low margin business still in your portfolio that you need to get rid of post merger, or that's done?

Yes. First, remember that on the landfill side, half of our landfill business, actually a little more than that, is index priced, right. I'm thinking specifically about the MSW because that's what really matters, and we talk about overall pricing. So half the business is index priced. Those are tied to contracts. They have term dates, and they follow that kind of CPI mentality, if you will, most of that just like Ed just described. So that's half. The other half is open market, a little less than that. So we have -- those projects [ph] come up periodically throughout the year, and we will continue to price those. I think in MSW this year, or the quarter, we had a little better than 2% price on MSW. We sort of would like to see that go a little higher. We had a little bit of volume defection in a couple of markets in landfill where we moved price to competitive MSW haulers in the marketplace. And we were not willing to give price concession, so we lost a little volume there. So we're going to continue to focus on the infrastructure and use the assets accordingly in the marketplace.

And just a follow up on...

I'm sorry. Hamzah, you asked about low margin work?

Yes, right.

We're through that. I mean that's we've I think that was sort of a battle cry probably 2 or 3 years ago, maybe probably 3 or 4 years ago now. And I wouldn't sit here today and tell you that we have much of that, if any. We've done a very effective job of pricing the business, of calling the business, and I think it shows up in our margins.

All right. And just a quick follow up on your acquisition pipeline. You've mentioned recently you want to make a bigger portion into recycling. Could you talk about what's in the pipeline there, and how big you plan to get within that segment?

Well, what we've done and the acquisition pipeline was bigger than just recycling. We talked about recycling infrastructure. We talked about some tuck in hauling acquisitions. So we gave you that acquisition number, and we also said that was probably primarily loaded toward the second half of the year before we started to see that. So we said we'd close, call it, $75 million of revenue this year. As it relates to recycling, some of those projects are developmental project, some would be acquisitions. So we've identified what we think are 25 markets across our 240 marketplaces that we need to fill some gaps in recycling where we don't have quite enough capability to meet the demand of our customers. And so we'll be looking to fill those gaps. Some of those could be with existing facilities that we have, that we just need to retrofit, add capacity. Some could be developing a whole new footprint or some could be an acquisition. So that's baked in our numbers. It's baked into our cash flow, and I think we've said we'd spend $25 million or so this year on developing some of that recycling infrastructure. Did I answer your question, Hamzah?

Yes, that's great.

And our next question comes from Jon Ellis from Bank of America Merrill Lynch.

First question. I wanted to talk a little bit about your pricing for the year. I think you mentioned in the first half you're expecting 1% core price, second half 1.5% to 2%. If my math is right about CPI and the escalator adjustments, it would suggest that almost all the difference between the first and second half of the year in terms of your guidance is a function of basically resets on contracts tied to CPI. Given that CPI is rising now and, Don, as you mentioned, most of your open market contracts are resetting throughout the year, why wouldn't we expect to see better open market pricing over the course of the year as well?

Well, you may. And again, one of the advantages, Jonathan, is with the way that we do pricing in those 12 buckets, as I described, as conditions change in the marketplace and as CPI ebbs and flows, it does give us flexibility across that part of our portfolio. So in the second half of the year where we're pricing those 6 buckets in those markets, we could be pricing a little stronger there depending on the market activity. Remember, we've always said that we're looking to get that spread over and above true inflation. And when our customers are seeing inflation in their business, when they're a little more comfortable with their business activity, they're a little less price sensitive, the market behavior changes a little bit, and it allows us a little more pricing strength. So we will meter that accordingly as the markets allow us to in the second half, and we'll wait and see.

Okay. So is it more of a sort of culminating, but it's fair to assume that your 1.5% to 2% we could [indiscernible] towards the high end of that range if CPI stays where it is right now. Okay. Second question, just on fuel. I'm trying to make sure I understand. I'd always been under the impression that you're surcharge program, although not covering 100% of your total fuel costs, was intended to cover 100% of incremental fuel costs. And it appears that there's an EPS drag. So can you talk a little bit about the surcharge program? And then also there's been some discussion recently in the market about how some companies are offering out new business without fuel surcharges on those contracts. Can you talk about whether you're seeing that in the market?

Yes. This is Tod. I'll answer the first part. Maybe Don can answer the market part. First of all, when you see fuel going up, it tends to lag, especially when you see a substantial ramp up in fuel. We've got a 1 month lag in the surcharge. So there's a little bit of an impact there that will stay with us for the full year unless it were to drop back down this year. So I guess we'll wait and see on that. In terms of our fuel surcharge, we do not get all of it dollar for dollar. Obviously, it's about 2/3 that we get, and we have obviously some franchise customers that are on that CPI based pricing, so the fuel surcharge isn't there. So we're not able to get the full dollar for dollar recovery.

The second answer to your question, Jonathan, we've always had that situation in the marketplace or where a smaller hauler might take the, what I call the Southwest Airlines approach of Bags Fly Free, no fees. I think our customers are pretty smart folks. I think they look at total cost to serve, and that's what we try to sell our customers is there's a total cost to service. We're not hiding behind our fees. We look at our fuel recovery fee as the fairest way to deal with our customer base so that when fuel goes up, it's a big part of our cost, they share in that cost increase. When fuel goes down, they get the benefit. And so it's a different sales approach than the guy who's selling no fees. The difference is when fuel spikes, that operator has to run around and bring more fuel price increases to the customer. We're touching the customer once annually. We've got the index working for us on fuel, and we think it's the fairest way to approach the customer. Remember, we've got 150 million gallons of fuel a year, and when fuel was up $0.50, we can't just kind of run around with our hair on fire trying to find $75 million. So it works pretty well for us. It's a built in hedge, if you will, and again, I just think we're always going to have somebody out there trying to market it a different way. We don't see that from bigger companies. We generally see it from the smaller folks.

Great.

And our next question comes from Al Kaschalk from Wedbush Securities.

Don, could you help us bridge the volume results in the quarter with the full year? I believe you had talked about flat to up modestly for the full year. And then we have some headwinds, I guess, with special waste. So given what happened in the quarter, and we certainly appreciate you not trying to hide behind weather like others have, but can you talk a little bit about what you foresee here on the volume side, whether that's a better than initially planned on special waste or just in the core business?

Yes. Again, we just gave you guys guidance like 9 weeks ago. So we're on plan. We're reaffirming the guidance, including the volume guidance. We may be a little further behind than we thought we would be at this point. As I said, there may be a little weather in there, although we're not going to call it out. We wait every year for this time of the year. We're kind of coming in to May and looking for that seasonality jump. And it's not May yet, but as we do every year, we look for that seasonality trend to work for us and kind of bridge us into the summer months and then carry us through into the late fall. And we don't see anything today that's going to change that, and we believe we'll come in on guidance as we said. And we'll give you an update in more detail on the second quarter call.

Okay. That's all I have.

And our next question is from Vance Edelson from Morgan Stanley.

I guess, first, just a clarification, do the recycling acquisitions fall under the $75 million that's been earmarked for bolt ons? Or is that a separate $25 million?

No, that would fall into acquisitions. We put those as acquisitions, yes.

Okay. So the $75 million, that's for bolt on acquisitions. Anything you do on the recycling front is not under the umbrella of the $75 million that's been earmarked? It's separate?

No. I think what we've talked about on the earnings call that in our capital expenditures for this year, we're about $20 million or $25 million for internal growth projects related to recycling, meaning building out or improving our existing infrastructure. And then we said there'd be $75 million to $100 million spent this year for just a broad category of acquisitions, which would include picking up some third party assets, as well as hauling assets or disposal or transfer station assets. So the $75 million to $100 million to be spent on acquisitions was really any type of revenue.

And anything we would book as an acquisition would come out of that bucket. When we talked about those 25 markets, if we can buy something that's in the market that fits our need to fill that gap, and we can buy it for the right price, we would buy versus build just because of speed to market and so forth. But if we're building it, developing it ourselves, it's coming out of that $25 million of CapEx.

Okay. More near term on the SG&A front. Between now and the end of the year, it sounds like recently SG&A was up on the investments in the programs guidance for the full year has it down to 10% of sales, so we'll need to see some sub 10% reading soon. So does this imply at all that the programs you've been spending on are about to be completed? Or is it more just that the benefits start to outweigh the costs?

Well, I think if you look at the revenue trends through the year, the second quarter and then the third quarter are the strongest quarters. So just the math as a percentage of revenue, it should come down. The dollars may not come down appreciably, although I would say we were working heavily on these projects late last year and the first part of this year. But that's not the key driver of that metric. It's probably more the revenue that's a key driver.

Yes, that's right.

Okay. And one follow up question on the cost side. Could you just update us on the CNG initiative? How many trucks this year and next? And is this right now helping you to offset those higher fuel costs out there?

Yes, I think last year, we spent about 20 was it 25% or so of our fleet buy was CNG, about the same, a little bit less this year. It could change a little bit as we go through the year depending on certain contracts. But we're not making a huge move there. What we've done, frankly, is we've made investments in some of our larger fleets in the appropriate markets on the fueling station and on introducing CNG vehicles. And we're going to, this year, basically fill out the routes in those facilities. So by example, if I had 100 truck facility last year I replaced 40 of the tracks to CNG, and the other 60 are still diesel, I built the CNG station. This year, we may go back in and basically replace those other 60 vehicles with CNG so we're getting the full benefit then, of that investment of the CNG station. Does that make sense?

It does.

So that's what we're doing. We've looked at -- we're right now creating our -- putting kind of finishing touches on our 5 year fleet plan that will really build out the next phases of automation and CNG investments, and we'll talk about that sometime later in the year, early next year.

Great. Keep up the good work.

And our next question comes from Corey Greendale from First Analysis.

Don, I was hoping I could ask you kind of a 30,000 foot view question, just looking back on the...

I'm afraid of heights, Corey.

All right. Well, then we'll go with 5,000 feet, whatever it takes.

Go ahead.

Looking back on the integration, and I know you've achieved and surpassed the synergy targets. But could you just talk about in terms of culture and in terms of best practices, to what extent would you say it is truly a homogenous company at this point? There is no legacy highlight in Republic anymore, how much would you say there's still opportunities to kind of streamline the culture and share best practices among the various operations?

Well, I would say, as far as from a social perspective, I would tell you that I think we're operating as one company today, and we've got a great deal of rapport and respect for each other and flying the same flag. So one of the reasons this acquisition works so well is that we were very serious, from the very beginning, Jim and I and Tod and the rest of the team, about putting together one team building the best of the best culture, and we did that. We spent a fair amount of time on the social issues and the culture through the process so that we did become one company very quickly. So I'd be kidding myself if I said we've got 30,000 employees, there's not somebody out there who would maybe rather fly a different flag today. But I would say those are the exceptions, and they're very, very minor exceptions. We have had regular meetings with our people. We had our second annual general management conference here in February where we brought in all of our general managers and area teams and region teams from across the country. We had our key decision makers from the corporate office there, and we had close to 500 people in one room talking about the road map going forward, what we've achieved and the plans, and I'll tell you it was a pretty good vibe in the room, and you could cut the excitement with a knife. So from a culture perspective, I would say we've done a great job bringing it together, and I think everyone is pretty pumped up about where we go from here. From a synergy perspective or best practice perspective, there is talk about the parking lot as we put the synergy goals together, we found some things that we'd like to do. We just said that the company can only change so much at once. And so we put them out in the parking lot. We've been dusting some of those things off and looking at those things today and how we can continue to improve the business. But none of them in and of themself are major needle movers, but there are things that are worth $1 million, things that are worth $0.5 million, and we're going to continue to shave those pennies off of our cost and improve the way we go to market. We're going to continue to build our service, customer service experience and those kind of things. So from here on out, it's just improving on what we've built. But I would tell you that the company flies one flag, and is pretty excited about the future today.

And then I just had one housekeeping question, which is it looks like the tax rate in Q1 came in a little lower than the 41.5% for the year that you had talked about. What do you expect for the rest of the year?

Yes, we had some state tax benefits I think in the first quarter that caused that to come in probably just over 39%. I think if you look at the full year tax rate, the full year tax rate would be about 41% and subsequent quarters would be probably in the 41.5% range still, maybe slightly less than that.

Great.

And our last question comes from Richard Skidmore of Goldman Sachs.

Just a couple of quick questions. First, could you just clarify your volume guidance? Does it include the impact of San Mateo and Toronto in terms of your, I think you've kind of guided to flattish volume for 2011?

Right. In our opening call where we gave guidance, we indicated that it excluded those 2 components. So excluding those 2 components, it's about 0% to 0.5% positive.

Okay. And then can you comment on what you're seeing in the roll off business, both your own roll off business and then third party in terms of volume trends, because I'm trying to understand better when you might start to see operating leverage come through at the landfill.

Yes, as we said, we've seen sequential improvement in volume across all lines of business. So every quarter, our roll off volume has improved over the past 4 quarters and probably 5 quarters or 6 quarters. So we've seen some positive activity in the industrial part of that roll off business and of course have seen no activity in the CNG part of that roll off business. So from a third party perspective, I think it's probably very similar. We obviously, you're right. I mean, the volume comes back to the landfill, it comes in at a very hard margin. We get great operating leverage there, and it's one of the great things about this business. It might be one of the great things about the story, is we've done such a great job managing cost out of the business as the volume declined and learned a lot about ourselves and our business and now we're going to use all that same hard work to manage our business on the way up. And we will expect to see some operating leverage as volumes return, but we don't control that, right. So we're just happy to see it when it occurs, and we're getting our fair share. So that's it in a nutshell.

Great.

That is all the time we have for questions today. I will now turn the call over to Mr. Don Slager for his closing remarks.

Thank you, Jacqueline. In closing, I would like to thank the entire Republic team for a solid first quarter performance. Our business remains strong, our market fundamentals are solid, and trends are improving. As a reminder, a recording of this call is available through May 5, 2011, by calling (203) 369 3404. Additionally, I want to point out that our SEC filings; our earnings press release, which includes GAAP reconciliation tables; and a discussion of business activities, along with a recording of this call are all available on Republic's website at republicservices.com. And finally, I want to remind you that Republic's management team routinely participates in investor conferences. When presentations are scheduled, the dates and times are posted on our website, along with instructions for listening to the live webcast of the event. Thank you for spending time with us today. Have a good evening.

Ladies and gentlemen, that concludes the Republic Services conference call for today. Thank you for participating. You may now disconnect.