Good afternoon, ladies and gentlemen, and welcome to the Republic Services First Quarter 2019 Investor Conference Call. Republic Services is traded on The New York Stock Exchange under the symbol RSG. All participants in today's call will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. At this time, I would like to turn the conference over to Nicole Giandinoto, Senior Vice President of Investor Relations and Treasurer. Please go ahead.

Good afternoon, and thank you for joining us. I would like to welcome everyone to Republic Services' first quarter 2019 conference call. Don Slager, our President and CEO; Jon Vander Ark, our COO; and Chuck Serianni, our CFO are joining me as we discuss our performance. I would like to take a moment to remind everyone that some of the information we discuss on today's call contain forward-looking statements, which involve risks and uncertainties and maybe materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. 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 25, 2019. 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. I want to point out that our SEC filings; our earnings press release which includes the GAAP reconciliation table; and the discussion of business activities along with the recording of this call are all available on Republic's website at republicservices.com. I want to remind you that Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, time and presentations are posted on our website. Finally, I'd like to point out that in our 8-K filing we've included the table that reflects changes in average yield and volume as a percentage of total revenue by line of business. With that, I would like to turn the call over to Don.

Thanks, Nicole. Good afternoon, everyone and thank you for joining us. We are very pleased with our strong start to the year. We continue to realize the benefits of executing our strategy of profitable growth through differentiation, which includes strengthening our market position, attracting and retaining the best people, enhancing the customer experience to increase willingness to pay, and leveraging our scale and technology to drive additional efficiencies in our business. As a result in the first quarter, both earnings and free cash flow are in line with our expectations. Through strong pricing, we were able to offset a $0.01 headwind from lower-than-anticipated recycle commodity prices. For the full year, we are reaffirming our adjusted EPS and adjusted free cash flow guidance, assuming current economic conditions continue. The strong momentum in our business will enable us to offset the additional $0.06 headwind from lower-than-anticipated recycling commodity prices. In the first quarter, we continued our balanced approach to capital allocation to increase long-term shareholder value. We invested $86 million in acquisitions. We sustained this momentum into the second quarter and have invested an additional $56 million for a total of $142 million of investment to date. This puts us on track to outpace our original acquisition guidance of $200 million. We now expect to invest approximately $300 million for the full year. During the quarter, we also returned $233 million to shareholders through dividends and share repurchases. I'll now turn the call over to Jon to discuss our first quarter operating performance. Jon?

Thanks, Don. The pricing environment in the first quarter was strong. Total core price was 4.7% and average yield was 2.9% our highest pricing level in nearly a decade. We achieved this pricing, while also sustaining our all-time low customer defection rate below 7%. The progress we are making on key initiatives is contributing to our ability to increase prices and retain customers. First, we continue to focus on providing superior service to our customers and making it easier for them to do business with us. Next, we are successfully converting customers from CPI based pricing to a waste related index or fixed rate increase of 3% or greater. These waste indices are more closely aligned with our cost structure and continue to run higher than CPI. To date, $685 million of our $2.5 billion book of business has been converted. Finally, we continue to discuss the true cost of recycling with our municipal collection customers as we renegotiate contracts. To date, we've secured price increases from approximately 21% of our municipal collection customers. In terms of dollars we have now reprised approximately 17% of our municipal recycling collection revenue. Turning to volume. As anticipated total volume in the first quarter decreased 1.5% versus the prior year. We faced several known volume headwinds in the quarter. These included a difficult special waste comp in the prior year, continued shedding of work performed on behalf of brokers and non-regrettable contract losses in the residential collection business. Excluding these items, underlying volume growth was 60 basis points and in line with our expectations. Next, our recycling processing and commodity sales revenue continued to experience downward pressure from further declines in recycled commodity prices. In the first quarter, our average recycled commodity price per ton decreased 17% to $93 down from $112 per…

Thanks Jon. First quarter revenue was approximately $2.5 billion, an increase of $43 million or 1.8% over the prior year. Revenue growth was primarily driven by strong pricing across our collection, disposal and recycling processing businesses. Adjusted EBITDA was $699 million, and adjusted free cash flow was $349 million, both in line with our expectations. Adjusted EBITDA margin in the first quarter was 28.3% in line with our full year guidance of 28.3% to 28.5%. As expected EBITDA margin decreased 50 basis points versus the prior year due to known headwinds. These headwinds included the expiration of C&D tax credits and a decrease in high-margin special waste volume due to the anniversary of a large event-driven project. We also continued to maintain our strong liquidity position and leverage within our optimal range of two and a half to three times. As of the end of the first quarter, we had $8.5 billion of debt outstanding and $1.7 billion of additional borrowing capacity available under our credit facilities. Interest expense in the first quarter was $100 million and included $11 million of non-cash amortization. In the first quarter tax related expense was a $0.01 headwind relative to expectations. The headwind was primarily due to higher-than-anticipated non-cash charges of $12 million, partially offset by a lower effective tax rate of 25%. For the full year, we continue to expect non-cash charges of $60 million and an effective tax rate of approximately 24% consistent with our original guidance. Finally, as Don mentioned, we are reaffirming our 2019 adjusted EPS guidance of $3.23 to $3.28 and our adjusted free cash flow guidance of $1.125 billion to $1.175 billion, despite a $0.07 headwind from lower-than-anticipated recycled commodity prices. For purposes of reaffirming guidance, we've assumed recycled commodity prices remain at current levels for the remainder of the year. At this time, operator, I'd like to open the call to questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And your first question today will be from Tyler Brown of Raymond James. Please go ahead.

Hi. Good afternoon.

Hi, Tyler. Good afternoon.

Hey, Congrats on the 2.9% yield. It seems like the acceleration was maybe a little faster than we were expecting. I was just curious if you could talk about a couple of things or initiatives that kind of allowed you to get to that 3% range so quickly. And just as a point of clarification, the 2.9% yield, is that exclusive of the 35 basis point yield held from the processing fee?

Yes. Tyler, its Don. It's a great catch, yes. The 2.9% excludes RPC. And so again, a great quarter in pricing. It underpins a couple of things. One, strong economy. As we've always said, when there's good organic growth in the market, pricing is better. Certainly, that's one thing. Two, our tools, the team now has been using our capture tools and our -- a part of the selling message now for a couple of years, when Jon introduced those a couple of years ago, so those are well underway. Overall, rational backdrop competitively. We're really focused besides the RPC on recycling, we're really focused on extending contracts and changing contracts in and around recycling and Jon mentioned a lot of that in his prepared remarks. So it's a good backdrop. It's a good economic backdrop and we expect that to continue.

Okay. Very helpful. And then Chuck, I don't want to be super nitpicky here, but why is there such a large adjustment to free cash this quarter? I mean, it looks like there's maybe a $90 million adjustment versus say $30 million last year. I mean, normally, it's not a huge number, but this quarter really stood out. What was going on there?

Yes. Adjustment to free cash flow, you're talking about in the non-GAAP, correct?

Yes.

Yes, I've got to take a look at it Tyler.

Maybe -- yes.

Tyler, well, I think what you're -- I don't know if this is what you're looking at, because I don't see a huge adjustment going from cash flow to adjusted free cash flow, but perhaps in the CapEx line you're seeing…

Yes, that's exactly where it is Nicole. Yes, you're right there.

Yes. That is just the timing of payments. So, basically, when we manage CapEx, we manage it on CapEx received, because that's easy for our business to understand. We budget that way. That's how we think about it. And then -- so basically, what happens is we took receipt of a lot of equipment, and then those will be paid in the next quarter. So you'll see it as a cash outflow in the statement cash flow in Q2.

Okay. Okay. That's helpful.

And then look…

Yes, sorry.

Yeah, I was just going to say, it has -- it just has to do with the timing of the receipt of the trucks and this is adjustment that we make is no different than the adjustment that we make every quarter.

Okay. And then likewise why are you adding back this $12 million loss from unconsolidated equity method investments? I mean, it looks like it's below the line in the P&L. It's just -- I'm just curious on that as well.

So Tyler, we -- the loss on unconsolidated equity method is really a tax-related item. So if you're looking at EBITDA, you want to add that back. Plus it is non-cash, so you want to add that back and when you adjust that free cash flow, you subtract down for cash taxes.

Okay.

We're really actually paying the tax liability.

Okay. That is helpful. And then just lastly, maybe as we think about the EBITDA margins. So I think they were down maybe 50 basis points, but that's actually a bit better than we were expecting. But Chuck, I was wondering if you could quantify some of those big moving items such as the CNG tax credit, maybe recycling, maybe special waste.

Yes. So the CNG tax credit was negative 60 basis points. At special waste, we talked about that. That was a negative 50 basis points. But then we had 60 basis points positive from just the solid waste business. The interesting thing here is that the recycling processing and sale of materials that was flat year-over-year, so that speaks to all of the efforts that we've put into place not just last year, but the efforts that continued here in Q1.

Okay. Thank you very much. Thanks.

Thanks Tyler.

The next question will be from Noah Kaye of Oppenheimer. Please go ahead.

Hey good afternoon and thanks for the breakout in the filing of yield and volume trends by line of business. And just looking at that really strong volume in MSW again 6.5%. Maybe you can comment on any specific pockets of strength what you're seeing there?

Go ahead Jon.

Yes. We think it's broad -- it's broad-based. It's no individual side. It's not onetime events. We're getting some third-party volume that we didn't get last year. And we're seeing strong growth from current customers, so very positive turn.

Yes. I think overall again across the board nationally and as we've always pointed out right, when special waste is strong, when C&D is strong. That's just a continued good positive outlook for us for the economy.

Okay. Turning to M&A, you just -- the good activity so far in the year expectations for a higher spend than you guided. Can you just talk about kind of the factors behind that? Because obviously we've heard from some of the peers today, you're not alone that there is more spending across the board. But just what kind of environment are you seeing for deal activity that is making you go forward? And I assume your spending is still primarily weighted to tuck-ins, but just if you could clarify kind of the mix of your pipeline.

Sure. So one, we've always said that deal flow can be a little lumpy, right? It really depends on where these businesses are in their business life cycle. So if they have accummed larger deals that can drive the number here and there. We're seeing now for a number of quarters that the pipeline is robust and this is just sort of proof positive that it remains robust. We've had a couple of deals here lately that were maybe a little larger than our average. That's helping drive that. But we still have -- having spent almost $150 million year-to-date, we think we'll obviously -- we think we'll do $300 million for the full year. And that could go up a little bit depending on sort of timing right? So we are well positioned with our team. We've got great relationships with sellers. And there are just frankly a lot of really attractive companies right now who are coming to a place in their life cycle who are thinking about monetizing their life's work et cetera et cetera. So we don't force deals. We don't do bad deals. We don't chase deals. We're looking still at companies that have a really high-quality revenue base, meaning a large percentage of reoccurring revenue, revenue under contract, small container business, permanent contractor roll-up business. We've been very selective and hats off to the deal team to our development group. And I think it's just that we're in a good place in time where maybe generationally people need self updates. I don't think there's any one driver we've seen that's tax related or anything like that. We're going to continue to -- to consolidate the business. That's how we've built Republic. We'll continue to be in the hunt for good deals.

Yes. That makes sense. If I could just sneak one related on, the potential obviously for divestitures out of the WMA -- the WMA merger, I mean who knows how large that is, but if you could just talk about what you see as maybe the opportunity there. It will obviously be a new source of targets and kind of how you see the overlap or potential fit with your footprint.

Well sure. I'll leave it to the team of the big green company to determine what they think they're going to have to put up for sale based on the divestiture or markets don't fit or whatever issued by the DOJ. We will be glad to be looking at opportunity there if there is any. We'll be looking at opportunity that could fit into our markets. Again, you've read all the deal points. So again, we will look for good opportunity to buy good companies, good cash flow at the right multiple and at the right return. So -- our general stance in this business is we look at everything and then we -- we're very intentional about what we go forward on.

Okay. Thanks so much.

The next question will be from Hamzah Mazari of Macquarie Capital. Please go ahead.

Hi. Good afternoon. My first question is just on MSW landfill pricing. Maybe if you could comment whether you think there's more opportunity there. It seems like the 3% number on pretty strong volume is much higher than you've seen in the last couple of quarters. I think your largest competitor had a similar MSW landfill number on pricing. Is this the beginning of investors beginning to -- see landfill pricing, beginning to see more momentum than we've seen historically?

Well let me start. I'll let Jon give you some color. You have heard me say many times that -- these landfills are very expensive to own. They're very difficult to develop. You own them in the perpetuity. Every single time -- we bury someone's ton of waste, we're taking the risk, if you will and owning it and selling that real estate forever. These assets are nearly impossible to replicate and I have been very vocal about the fact that they frankly have not held up their end of pricing in the marketplace over the past several years. We're certainly evaluating the costs of running landfill. We have some higher costs related to leachate that we have to pass-through to customers. I think part of that is what you're seeing. And I think I'd like to believe what you said Hamzah that this is the beginning of land to landfill and the infrastructure -- finally getting some traction on price that it deserves and frankly needs to offset some of the future of costs related to owning people's waste forever and ever. Jon, what do you think?

Yes. I think, we've been exhibiting a lot of price leadership on this for a long time. And I can tell you we're looking at every ton that comes into every one of our landfills and understanding what is the true cost of that and ensuring that we are getting a fair return to Don's point for taking up that real estate forever and you'll continue to see I think a positive trend in that direction.

Good. Got it. And then just on your adjusted volume number of 60 bps. It seems like that there's a massive disparity with your largest competitor that reported 3% adjusted. I mean if you go back historically the volume differential on an apples-to-apples clean number adjusting for comps is pretty big. They talked about technology investments and customer emphasis driving that. I'm just curious is it just asset footprint? Are you just earlier in your technology spend? Or are you just sort of walking away from more business? Just any thoughts as to -- what are your thoughts on the volume side? Can you drive more volume? Or is this just sort of your focus is elsewhere or maybe the technology spend, maybe gets better and drives more volume?

Yes. So a couple of things I'd point to you Hamzah. The first thing is that the 60 basis points is muted by the fact that we had one less work day. So if you include that in the mix and the volume growth is usually 1.1%. So more consistent -- with our historic average. The other thing I would point to you, if you look at the temporary large container business, the volumes there were muted also but that's because we took this as an opportunity to further price those volumes. We felt like there was more pricing available in that line of business. And obviously, we were able to achieve that with price of 4.2%. So we always see this price/volume as a balance and we've always had a very balanced approach to price/volume as you're well aware of. And we'll continue to maintain that balanced approach going into the future.

Yes, Hamzah look, we're digging deep into the recycling book of business. We are raising prices effectively. We're also going to be walking away from some business here and there. This task can be kind of lumpy when you lose a large RISI contract or something that is meeting returns. Winning and losing a national account can have a big impact. As Chuck said we always try to find this right balance with price and volume and where is the price elasticity. We would tell you, we think we're getting generally speaking our fair share of growth and it will kind of ebb and flow a little bit with mix, but I would read more into that if I were you.

Yes, got you. Just last question. I'll turn it over. I'm just trying to understand sort of Republic's strategy on large acquisitions. Progressive Waste Republic didn't participate. ADSW Republic didn't participate. Is it just sort of DOJ issues? Is it valuation? Is it that the board just wants 100% return of cash and no leverage? Just any sort of big picture thoughts on how we should view that?

Okay, let me start with this and you heard me say it probably many times, but in almost every situation there's a natural buyer, right? So when you have a willing seller, there tends to be a natural buyer. There’s certain things that fit better with other companies. It might be somebody has a leg up in more landfill internalization. It might be complementary, other infrastructure or the need to pay a little bit more for a permit that you couldn't get on your own or landfill space you couldn't achieve or develop. All those things kind of weigh into our situation. I would tell you, I think we're getting the deals we want. You brought up Progressive. I mean, there was a clear-case financial buyer there because of the inversion that was able to take place. We would not have been able to do an inversion in that situation because of our size. And so if we were to got down to an absolute auction and that deal going to the highest bidder, I think frankly the same company that bought, it would have bought it because of the advantage and the inversion. So those are just real facts. We look at everything I said a minute ago, so you can take that comment and then imagine that we also look at ADS and some really good assets, good leadership team, some really interesting things there. It may just come down to in the end a better fit for the current company that is engaged in bringing that deal together. So I don't have anything bad to say about the assets of the business. I would focus back to the fact that we are going to put $300 million to work this year where we've got a full pipeline and we are looking at deals and we're going to continue to drive value for shareholders through a balanced approach of cash allocation. And that's a combination of buying good cash flow at the right multiple, i.e. acquisitions, developing current assets, expanding landfills, developing -- spending CapEx on our current fleet and technology as well as the obvious buying back our stock at the right price and dividend. And our dividend CAGR has been a very consistent 8% over the last several years. So we factor all that in and that's what I can tell you. I think we've got great opportunity ahead of us to continue to consolidate our fair share of this business and you'll see us do that. And into another question, there's an opportunity to pick up some pieces that don't fit or are mandated divestitures in this process will -- we certainly think will be at the table there as well.

Great. Thank you.

The next question will be from Brian Maguire of Goldman Sachs. Please go ahead.

Hi, good afternoon.

Hi, Brian.

I just wanted to make sure I understood some of the components in the reiterated guidance as it relates to recycling and a couple of other things. It sounds like the impact from lower recycled prices is going to be about a $0.07 headwind and you incurred $0.01 in the first quarter and you've got $0.06 still out in front of you. And if that's the case, just trying to understand what the offsets are to keep the guidance unchanged. I think it sounds like the upside M&A is a partial contributor to that. But then will the balance of that just be a more favorable outlook in the core business essentially?

Well, it's not really M&A because frankly the cost of integration sort of tends to outweigh the benefit of integration in the first six to eight months. So, the upside of M&A really isn't going to make us get a lot of benefit this year. It really drives a ton of benefit next year when we get the rollover from that. It really is more the underlying strength of the business. Its cost as Jon said. Jon leads the operating core of the business. He and his team has done a great job on labor costs, on maintenance, on labor efficiency productivity. He said turnovers kicked down a couple of points here. That speaks to an opportunity that will continue through the year. Pricing strength, all the work that Jon mentioned in and around recycling itself right? So, the headwind is coming from recycling but we got busy. I would tell you that Republic was sort of the tip of the spear in the marketplace when it came to attacking the recycling issue, so we've got rollover benefits from what we did last year. And Jon and the team and the sales organization have gone -- have turned right run right into the fight this year on. So, Jon you want to talk about a couple of things you're doing this year that are going to offset?

Yes. So, on recycling we had $12 million of pricing actions our annualized pricing actions in the first quarter built off the back of $55 million last year and we're not stopping. We are literally going through all 1,100 of our municipal recycling contracts and we are asking for a fair model right? That one that has -- shares the risk and the volatility and that we get paid a fair return for what we do. And some customers say no at first and that's not stopping us. We're continuing to have that dialogue. And just like what we've done over time in the alternative index, we will make progress over time as we continue to represent the case because the facts are on our side. All we're asking is for a fair model and to be an environmental partner with us over time.

Okay, that's clear. It makes sense. Just wanted to come back to the question on sort of volume and the different moving pieces in there. So, they're down 15. It sounds like 50 bps of that is just the calendar, so it's probably down one as a better representation there. I'm just wondering if you could break out the components to that as far as the special waste comp the intentional shedding of business and any weather-related impact that you maybe saw in there.

Yes, let me start with this and Chuck you can spread the numbers out. The business the solid waste business grows with population growth that drives housing formation that drives business formation. That is still the reality of where solid waste generation comes from. So, good ongoing economics job growth, wage growth all the rest they are good for volume growth. But the general reality is that volume is going to grow 1% to 2%. You might have a few periods of time where you can push it to 2.5% or 3%, but I will tell you that if you're thinking a 3% volume growth is sustainable, you're probably giving up price, right? And so you're probably growing your business with some big chunks of volume that may not be able to sustain price long term and that's our view. And so we don't spend a lot of time chasing trophy accounts that have low margin. We don't -- while we have a nice little national accounts portfolio they are sort of a mid-sized national accounts and not these mega accounts that frankly never give you pricing leverage or opportunity to expanding your margins that's why. So, we're going to generally live kind of in that 1% to 2% volume growth ebbing and flowing with the economy. And when Chuck gets -- nets it all out there for you in a minute you're going to see that we're kind of right in that 1% to 2% volume growth which is kind of the sweet spot and getting pricing and getting customers who will accept pricing in the future because the fact is nobody in this business can offset inflation through efficiencies alone. I mean people are better according their businesses in that. So, again that's the real scoop. That's frankly what you should be putting in your model. Chuck?

Yes, so, we talked about total volume decline of 1.5%. Like we said the 0.5 point -- 50 basis point of that is the work day. But then you've got 210 basis points associated with special waste and non-regrettable losses. So you net all that out, then you can see that we did have good growth in line with our historical average on the volume side.

And so, does it sounds like much impact from weather that you guys saw?

No. It was -- the impact from weather was pretty minor. Maybe it was 10 basis points, but it looks pretty minor.

Okay. And last one, just kind of related. Will the one fewer work day sort of reverse out in the third quarter, or some time later in the year?

Yes, it reverses in the third quarter.

Okay. That’s what I thought. Okay. Thanks very much.

The next question will be from Sean Eastman of Keybanc Capital Markets. Please go ahead.

Hi, team. The first question is just on recycling. It's great to see such great things happening in the core business and helping to offset some of those headwinds there. But just in light of all these price actions and continuing those dialogues through the year, is there -- relative to what's in the annual filing from 2018, is there an updated sensitivity we should be thinking about as it relates to potential further moves in that recycling commodity price basket?

No. We're still at $0.04 of EPS impact for $10 decline in our basket of commodities and that's an annualized number. But as we continue to make progress on all the various initiatives associated with recycling, our expectation is that sensitivity will go down.

Okay. That makes sense. And then, it's great to see the leverage on the maintenance and labor lines. I just wondered, how much more juice we have there on that leverage and that One Fleet program and some of the labor programs? What inning are we in terms of driving those efficiencies and still seeing that into the future?

Well, again, I'll start and I'll let Jon give you a little bit of color. Look, we're -- as he said in his remarks, we're seeing the benefits of the One Fleet initiative. We are kind of past One Fleet 1.0 and we're moving into the sort of next phase of really using all the data we have and understanding what the real life cycle of the fleet. Jon's got some great ideas. Look, what I always tell you guys is, there's way more going on here than we talk about, right because there's a lot of good technology we're working on, there's a lot of sort of phase two and three things up our sleeves. We tend not to talk to you about them until we're ready to put them in a model, ready to put them in the guide. But Jon, can you give a little bit of color?

Yes. On maintenance costs, we're fighting underlying inflation of parts cost on an increasingly sophisticated vehicles, so we're doing a great job of maintaining that on the maintenance side. On the labor cost side, we're going through routing efficiencies, using technology and certainly it's technology customer of our vehicles, but lots of initiatives lots of effort underway there to understand it. We want to service, but first of all we want to be safe. We want to service the customer and pick them up every time, but then we want to do that efficiently. And lots of efforts underway to figure out how we do that, and showing some real progress in fleet market.

Okay. Thanks. Then the last one for me. This could be totally not material, but I just keep seeing headlines on this Rainbow business you guys own. Something about some potential turnover in that one of their big contracts and then also some class-action suit around that purchase. So just wondering is there anything there or just noise?

Well, here's the thing, right? One of the great things about owning a portfolio, right, is that it ebbs and flows, right? And so one economy, one market may be booming or another may be dragging. Weather might be 50 degrees below in Chicago, but the sun is shining in Florida. It's the same as it relates to the sort of the lumpiness of business. We have several hundred million dollars a year of municipal contracts that come to term and we have to renegotiate. In the midst of all that, there are certain political issues and so on and so on and so forth. We've built this business through acquisitions. And when you buy companies, you have to sort of work out sort of some legacy issues and part of that is we're going through. What we don't do is, we don't, on this call or in any time, speaks specifically to any one contract or any one issue, because we've got this portfolio. I would tell you this, these kind of things really are no different than the kind of things we dealt with last year or the year before that or 20 years ago, right? It's just part of what we do for a living. And so we do win some we do lose along the way, but overall the strength of the portfolio and the mix carries today. So we're working around the clock with a lot of customers right now to find new solutions overcome recycling issues and deal with some of the legacy stuff that just sometimes we inherit along the way. So that's all I'm giving you on that one.

I appreciate it. Understood. Thanks very much for the time.

The next question will be from Michael Feniger of Bank of America Merrill Lynch. Please go ahead.

Yeah. Thanks guys for taking my question. I may have missed this. Why is – I know it's just one quarter but why is cash from ops down year-over-year?

Yeah. It's really just a timing issue, Michael. We – it's the timing of maybe the timing of working capital and including the timing of CapEx. Once again for the entire year we're right on our guidance in terms of our free cash flow.

Sounds good. And Chuck is there any reason why margins should not sequentially step up in Q2 and Q3?

Yes. We're expecting that margins to continue to increase obviously over the course of the rest of the year. And that's right in line with our guidance of up 30 to 50 basis points of EBITDA margin expansion.

Got it. And then – did you – or was there any change in trend in April? Did you actually see underlying volumes potentially maybe pick up as we started Q2? And on the opportunity you mentioned on the temp business where you're pushing price, did you still see that momentum where you reported a really strong open price number. I mean, is there any reason why that number should decelerate from here?

Well, I'll take the first half and then I'll let Jon talk about what's going on in temp volume. What was the first part of the question?

What we've seen in April.

Oh, April volume. Yeah, so we're not really talking about April right? We're talking about Q1. Look, when we reaffirmed guidance, right? We are reaffirming guidance based on all the underlying great work that the team's done in the quarter. Certainly, we're taking it into consideration what we're seeing in April, but we don't generally give commentary on it other than we want to give you a little bit of color in and around what we've closed to date on the M&A front. But the real time for us when we're talking about seasonality is May. We've got to kind of get May in the books for us to really just kind of compare year-over-year seasonality. But by the very fact that we are reaffirming guidance with such confidence, I think would tell you that we feel really good about what we're seeing in the business on this very day.

Yeah. I would just say from the underlying demand, we see strong demand in large – across most of our markets. And we have the tools to look at the price/volume trade-off and try to make those on a daily basis, and again as we see demand come in and we make those trade-offs. And really we're looking at maximizing return on our assets. We're not looking to buy more assets to take low-margin work.

Thank you.

The next question will be from Michael Hoffman of Stifel. Please go ahead.

Hey, gang. Thanks for taking the questions. Nice Q.

Thanks, Michael.

Thanks, Michael.

The $142 million spend what did you get for it in revenues?

So in total that's about $55 million in annualized revenue Michael.

And how do I think about the margin of that?

It's kind of – I would say that it's probably just a little bit higher than the company average.

Okay. That helps.

But again, Michael just to put a comment on that. As Jon mentioned, sometimes there's a little bit of implementation and integration costs upfront, so we'll grow into that margin that Chuck mentioned, but it's not right out of the gate accretive overall to the company margin.

Yeah. No, I got it. It just helps to do the modeling. And then back on this whole volume question everybody wants to focus on. I mean I would think all day long, you would take lots of price and very little volume, because you get so much more leverage. But more importantly, if I look at the data you did give us, and if I remember correctly your landfill business is predominantly -- the third party volume is predominantly municipal contracts. So to get a 0.3% price and 6.5% volume from that one the pricing is pretty powerful because it's indexed business, so you've driven a lot of leverage there. But volume is huge telling you the underlying kind of economy is just in great shape. Am I correct?

Yeah. On top of that, and somebody else on the call brought up, is landfill pricing is starting to get traction, because it's been a little bit flattish more than maybe you would expect with the consolidation. So I think that's really the good news. But you're right we don't have a lot of third party volume that makes up a big percentage.

Yeah. I'd also say Mike you're seeing the fruits of our efforts around purchasing CPI come up. So its contracts and the fruit of our alternative index work. We didn't just work on municipal collection contracts. We certainly worked on MSW contracts as well.

Right. So..,

On your earlier point, right? I mean every time we dig our profitability by customer, by call, by route, by point of business, right? And you're right I mean that each one of these things has to carry its own weight. And we're going to continue to work through the business the way we've always had. Just talking about landfill, I mean we're slicing and dicing every stream. Jon mentioned it earlier, at the landfill and making sure that everything carries the appropriate return.

Okay. That helps. And then Chuck, when you gave -- earlier you said CNG is a negative 60 and special waste is negative 50. That wasn't at the EBITDA line. But does that just -- if I step that up to gross OpEx, that's just a straight carry through because those are all operating related?

Yes, they are Michael. That's right.

So when I look at 61 versus 60.5, that's the waterfall I'm building? Okay.

Yeah, that's right.

Okay. And then directionally on gross margin, I know you don't give this, but can you talk about the trend of the three sort of major lines of business solid waste, recycling E&P year-over-year? Directionally, what was happening in the trend in the gross margin?

Yeah. The gross margins are all trending positive, Michael. And you would think that that would be the case right? We're once again working back into the guidance that we gave for EBITDA margin expansion, 30 to 50 basis points for the year.

So on all three businesses, its positive even recycling? I have a thought recycling might have been flat.

Yeah, but it went slightly positive. But keep in mind, all of the initiatives that we've put into place, once again back in the 2018 and here again in 2019. So we are starting to see the benefits associated with those initiatives. And that's once again why we were able to offset the recycling and processing headwind here in Q1.

If you think about that in context of what we've accomplished so far in the getting this headwind from recycling if you will, and think about how the benefits of that will roll into next year. Let's just say let's just hope for a minute that commodity prices stay where they are and don't get worse. Let's hope for a minute that these other mills come online in the U.S. and that has a positive impact. Let's hope for a minute that our long-term view of recycling holds up, right? That population growth and emerging economies and middle-class and all blah, blah, blah is all going to be right. And we've already offset sort of the current headwind. If we combine all the efforts that the team has put into place, it really sets us up pretty well for next year as well right, as these things anniversary and we just build on the momentum and as we shift the model. And again the operating leaders Jon, and the sales organization is doing a great job, and customers one by one by one are coming to the realization of what has happened here. Wouldn't you say, Jon?

Absolutely.

Right. So let me follow on with that. If you took the current run rate of revenues on an $85 commodity book, what should the profitability of that be in an absolute dollar opportunity?

How about this? How about we stick with Q1? And how about we stick with our guidance for 2019, Michael? We're going to meet our guidance. We're going to meet our cash flow guidance, and we're going to be, if not one of the leaders, the leader in turning this recycling business around and making it sustainable for customers, we being a great environmental partner. And as we get more and more traction through the year, we'll be talking in October about how it sets us up for 2020, but it will be a good story.

Well, okay, fair enough. It was much of a higher-level question of, it's a big number when you fix this, some it might take two or three years, but it's a big number.

It's a big number. It will be fixed. The underlying issue is customers want to do this. We'll just have to help them do it right.

Right.

And it's going to be good story -- and it will be a good growth story for Republic Services.

Right. Last question Chuck. Your cash flow from operations was 22% of revenues, which is terrific in the context of the expectation for the year. So maybe the dollars are down, but the percent of revenue is a very good number.

Yes, that's right, Michael.

Okay. Yeah, all right. Okay.

And Michael just to add a point for your model. So if you look at the CapEx spend in Q1 relative to our capital guide, it was less than 20% for our full year guide. So Q1 is a really strong cash flow quarter for us and that might trickle down a little bit for the remainder of the year and as this kind of timing goes through the year.

Got it. Thanks very much.

Thanks Michael.

The next question will be from Jeff Silber of BMO Capital Markets. Please go ahead.

Hi, guys. It's Henry Chien calling for Jeff. Thanks for squeezing me in. I have a follow-up question on your M&A plans and just the additional capital. I'm just curious if the type of deals that you're looking at if it's still in terms of the tuck-insurance, if it's still for the solid waste business or you're considering anything adjacent to that.

Okay. Well, look the majority of our spend is always solid waste. The majority is frankly leans toward collection by definition tuck-in. There aren't -- frankly, we're pretty well situated with infrastructure throughout the company or countries so we're not spending a lot of dollars just to work in these last several years on infrastructure. But when we do obviously that brings -- the prices they go up just a little bit. But tuck-ins by their very nature are in our core space and in our current geographies. We have had a little good fortune in some good opportunities that are in adjacent geographies, but in the solid waste core space so that is another place that we do grow and intend to grow. But that's where we're spending most of our time. We've got some good opportunities in and around the E&P space. We'll continue to look at those. That's a good business for us, high-margin business for us. But again for a long, long time, we'll be making most of what we make here out of running a solid waste business very well and that's where most of this is coming from today.

Got it. Okay. Great. Thanks so much.

And at this time, there appear to be no further questions. Mr. Slager, I'll turn the call back over to you for closing remarks.

Thank you so much Denise. In closing, we are extremely pleased with our first quarter performance. Solid waste fundamentals remain strong in the current economic backdrop is supportive of continued growth. Given our team's relentless focus on operational execution and the passion they have for our customers, we are reaffirming our full year financial guidance. Finally, I would like to extend a heartfelt thank you to the men and women of Republic Services. As a result of their collective efforts, we remain to the world's Most Ethical Companies list by Ethisphere for the third year in a row, as well as Barron's 100 Most Sustainable U.S. Companies list for the second consecutive year. Every day our 36,000 employees come to work to serve our 14 million customers. They do this safely. They complete five million pickups per day with a 99.9% reliability. Thank you for spending time with us today. Have a good evening and be safe out there.

Thank you sir. Ladies and gentlemen, the conference has concluded. Thank you for attending this presentation. And at this time, you may disconnect your lines.