Republic Services Inc (RSG) — Q1 2020 Earnings Call Transcript

Thanks, Rachael. I would like to welcome everyone to Republic Services first quarter 2020 conference call. Don Slager, our CEO; Jon Vander Ark, our President; 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 contains forward-looking statements, which involves 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. 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 May 05, 2020. Please note that this call is the property of Republic Service, 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 a GAAP reconciliation table and a discussion of business activities, along with the recording of this call, are all available on Republic's website at republicservices.com. Finally, I want to remind you that Republic's management team routinely participates in Investor Conferences. When events are scheduled, the dates, times and presentations are posted on our website.

Thanks, Nicole. Good afternoon, everyone. Thank you for joining us. I hope you are well and taking care of yourselves. This is an unprecedented time for all of us. Before we discuss our results, I want to review the steps we are taking in response to the ongoing COVID-19 pandemic. Republic Services provides an essential service, and our team is working tirelessly to serve our customers and communities. I want to sincerely thank them for their efforts. The safety and well-being of our employees is our top priority. We are supporting them by providing all field employees with role-specific PPE and masks, implementing enhanced cleaning protocols, adjusting processes and physical spaces for proper social distancing, rebalancing workloads to minimize overtime, providing supplemental paid time off, and enhancing medical benefits to cover all COVID-related out-of-pocket costs. We are also finding innovative ways to keep our 36,000 employees engaged, motivated, and connected. Last month, we launched our $20 million Committed to Serve initiative to recognize our frontline employees while helping to support our small business customers and the communities we serve. We are providing weekly on-site meals to employees and have sent home weekly dinners for their families, purchased from our local small business customers. Additionally, we are giving $400 worth of gift cards to each frontline employee to assist them and their families, encouraging them to use these cards with our small business customers, thereby supporting our people and providing additional revenue to our customers. Lastly, we are donating $3 million to the Republic Services Charitable Foundation. The foundation, through its National Neighborhood Promise program, is focused on rebuilding, revitalizing, and restoring local communities. The $3 million will be used to fund the foundation's long-term non-profit partners that support local neighborhoods and small businesses as part of their mission. I am not surprised by our team's ability to mobilize quickly in a time of crisis. Over the past decade, we have invested in our business to advance our strategy and enhance long-term shareholder value. These investments include developing standardized processes, implementing innovative technology, consolidating customer service operations, and building a world-class procurement organization. Through these efforts, we have built a solid foundation and a more resilient business. These investments were key to our superior results in 2019 and our strong start in 2020. Importantly, these foundational improvements have made us more agile in navigating the current environment. For example, our investment in innovative routing and workforce planning tools has allowed us to quickly adjust our routes in response to changes in demand. Our investment in technology and collaboration tools enabled us to successfully transition around 6,000 of our employees to work-from-home in just days, without disrupting our customers or productivity. Our company was well-prepared for this situation. Our management and business continuity teams are experienced in navigating difficult times. During the great recession, we successfully adjusted our business to fluctuations in demand and maintained strong cash flow. Following tragic weather events, such as hurricanes Harvey and Maria, we were the first waste company back up and running in our markets. Today, our investments in people, processes, and technology have better equipped us to manage through this unprecedented time. Moving on, I would like to share some insights on what we are currently observing in the business. We started strong in January and February. In mid-March, some customers began to adjust their service by reducing the frequency of pickups or temporarily pausing service. These service decreases persisted into mid-April but have moderated since. In recent weeks, we have begun to see customers re-engage with us as they plan to reopen their businesses. Assuming these trends continue, we believe the worst is behind us and that volumes will sequentially improve from here. This outlook aligns with current GDP consensus estimates, which project a decline in the second quarter, followed by improvement in the third and fourth quarters. With this perspective, we anticipate generating over $1 billion in free cash flow in 2020. Lastly, before passing the call to Jon, I want to briefly discuss our approach to capital allocation. Despite the ongoing pandemic, our balanced strategy for capital allocation remains unchanged. We believe that disciplined investment in acquisitions with attractive returns is the best use of free cash flow to enhance long-term shareholder value. After investing in growth, we will continue to return our remaining cash to shareholders through dividends and share repurchases. In the first quarter, we invested over $60 million in acquisitions. Our deal pipeline remains strong, and conversations with potential sellers are ongoing.

Thanks, Don. Because we are an essential service provider, we have contingency plans in place to ensure continuity of service. As a result, we were well-prepared to face the challenges of the pandemic. Our priorities are simple and remain unchanged: put our people first, keep our facilities running smoothly, and take care of our customers. By doing so, we will continue to generate strong free cash flow and create long-term value for our stakeholders, including our people, customers, communities and shareholders. As Don discussed, we acted quickly to ensure our employees’ well-being. I'm immensely proud of how well all of our employees have adjusted to these changes. For example, our drivers have remained engaged and focused during this potentially distracting time. Attendance is at an all-time high, and April was our best safety month ever. Productivity and service reliability have also improved. In just three days, we transitioned 98% of our customer service representatives to work-from-home with no disruption to our service to customers. In fact, since moving to an at-home working environment, we've seen a meaningful increase in their productivity. Our first quarter results were strong, despite the headwind in March from the pandemic. We increased revenue 3.4% and expanded underlying EBITDA margin by 30 basis points. In the first quarter, average yield was 2.9% and volumes during the quarter increased 40 basis points. Excluding the benefit from an additional workday in the quarter versus the prior year, volumes decreased by 10 basis points. This included a 70 basis point increase in January and February, which was more than offset by a 1.8% decrease in March. In April, volumes decreased versus the prior year, but the magnitude and rate of change vary by line of business. Looking first at our small container business. In March, as shelter-in-place orders were implemented across the country, service decreases began to outpace service increases. Additionally, container weights started to decline. In April, total yards collected decreased by approximately 11% and container weight decreased by approximately 20%. It's important to note that in the last two weeks, trends have become more favorable. Container waste has started to increase and customers are beginning to resume service as they plan for reopening. In fact, last week, services increases fully offset services decreases. In response to these changes in demand, our local teams are leveraging existing tools and technology to adjust routes and rebalance the workload daily. Impressively, productivity in our small container business improved and over time was down approximately 45%, a true testament to the amazing work that our team is doing. Turning to our large container collection business. In April, recurring large container hauls decreased 19% versus the prior year. And temporary large container hauls decreased 14% versus the prior year. Given the decrease in demand, our teams effectively rebalanced the routes and reduced over time by approximately 50%. Next, turning to our residential collection business. In this line of business, we bill customers based on the container size and frequency of pickup rather than on the weight of the container. As a result, given we are continuing to operate as normal, the pandemic has had minimal impact on our revenue. However, as residents consume more at home and create more recycling and solid waste, our processing and disposal costs will increase. For the month of April, average container waste increased approximately 15% versus the prior year. Regarding our disposal business. In April, third-party tons decreased by approximately 20% and included a decrease in special waste of 34%, a decrease in C&D of 11% and a decrease in MSW of only 7%. Importantly, the rate of decline has begun to moderate and last week total landfill tons were only down 15% versus the prior year. Turning to recycling. During this crisis, we remain steadfast in our commitment to the environment. Thanks to the hard work and resourcefulness of our procurement and operations teams, I’m proud to report that we've been able to continue to operate our recycling processing centers across the country without any disruption. In a time like this, when e-commerce activity is increasing and the demand for fiber is increasing, it is more important than ever to keep our operations up and running safely. We've implemented social distancing and are providing necessary PPE to keep our people safe and our facilities operational. In those areas where employees are stationed less than 40 feet apart, we've installed plastic protective barriers to help keep them safe. Regarding our environmental services business. In April, U.S. rig counts and associated drilling activity continued to decrease sequentially from the first quarter. As a result, we expect revenues in the upstream E&P portion of our environmental services business to decrease sequentially. In the downstream portion of this business, we are also seeing headwinds, though not as severe. Downstream operators, including refineries and petrochemical companies usually benefit from lower crude prices providing a natural hedge to the volatility in the upstream portion of our business. However, given the unprecedented low demand for fuel, we expect utilization rates to come down and activity in the downstream portion of our business to decrease sequentially. Finally, turning to expense and CapEx. As we continue to operate during this uncertain time, we are adjusting our cost structure to align with real-time changes in volume. Importantly, we estimate approximately 60% of our total cost structure, including cost of operations, SG&A and depreciation and amortization is variable. We are closely managing these variable costs. For example, we've put labor management strategies in place to redistribute the workload. As a result, we've reduced total overtime hours by approximately 37%. We are also reducing discretionary spending such as travel and are scaling back on capital expenditures. For example, approximately 10% of our capital budget or a little over $100 million is for growth capital, which we will no longer need to spend this year. Additionally, as volumes decrease, the replacement cycle of our assets naturally extends. Therefore, we are intelligently scaling back our replacement capital to align with changes in demand including the construction of landfill airspace and the purchase of replacement trucks, containers, and equipment. Overall, we have been quickly adapting our operations based on changes in customer demand. As always, we will continue to manage the business for the long-term. We've been very nimble during this rapidly evolving period and we'll be equally ready as the economy begins to grow again. With that, I will now turn the call over to Chuck to discuss our first quarter results.

Thanks, Jon. In the first quarter, total revenue increased by 3.4%. This included average yields of 2.9% and volume growth of 40 basis points. Core price net of rollbacks was 5.2%. Adjusted EBITDA increased $24 million or 3.4% versus the prior year. Normalizing for an additional workday in the quarter, EBITDA increased 4.8%. Underlying EBITDA margins increased by 30 basis points. Adjusted free cash flow for the first quarter was $267 million and decreased by $82 million versus the prior year. This decrease in free cash flow was due to the timing of capital expenditures in cash taxes. Capital expenditures in the first quarter increased $74 million and cash taxes increased $25 million versus the prior year. Normalizing for these two items, free cash flow would have increased 4.9% versus the prior year. During this unprecedented time, our balance sheet remains strong, and we will continue to have ample liquidity of $1.9 billion. Looking forward, the impact of the pandemic on the U.S. economy remains uncertain, in particular, the pace and timing of the recovery. As a result, we have decided to suspend our detailed financial guidance for 2020. But as Don and Jon discussed, recent trends are encouraging. The rate of volume declines is slowing and we're beginning to see customers plan for reopening. Our employees have rapidly adjusted to new ways of working to stay safe and are as engaged as ever. Our operations teams are adjusting routes daily to maintain productivity and minimize costs. We're increasing customer loyalty by continuing to provide great service to our customers and investing in our communities. And finally, we are prudently managing spending while continuing to invest for the long term. Assuming these recent trends continue, we would still expect to generate over $1 billion of adjusted free cash flow in 2020. In closing, we mentioned numerous times the unprecedented nature of this global pandemic. But we are all facing a tremendous amount of uncertainty. One thing you can be certain of is the stability and resiliency of Republic Services. In my 20-plus year history with Republic, I've seen many ups and downs, from the great recession to the longest economic expansion in history. What I have learned is that the essential nature of our business doesn't change and what is our ability to generate strong, predictable free cash flow. Remember, the economic environment we're currently in is temporary. And when the economy returns to some level of normalcy, we will emerge stronger than ever. With that, operator, we'd like to open the call for questions.

My first question here is on pricing behavior. I know you gave some indication on April tendencies on volume. But can you elaborate a little bit on how pricing behavior among some of your competitors have changed as we've gone into the second quarter during the April period?

So, pricing, our pricing perspective remains consistent. We're continuing to invest in our employees and we're continuing price for the quality and committed work that we do with our customers. We have not seen any meaningful change in the market. Now, there's always pockets of behavior here and there, but that's true regardless of where we’re at in the economic cycle and again our policies and approaches have remained very consistent.

A follow-up question is regarding residential volume. You mentioned that we have observed an increase in volume compared to last year. Is there any opportunity to adjust your contracts moving forward to reflect this increase in volume? How challenging would that be? Could this be a potential change? Looking at the industry post-COVID, is this an area where your company and the industry as a whole could concentrate efforts regarding the pricing of residential contracts?

Certainly, it'll definitely be something we're talking about. And right now, as we've kind of come through into May, April has been all about kind of stabilizing the business, making sure that the service level, quality stays high, working with municipalities and any sort of scheduled changes that we need to accomplish. As we assess the additional tons that we have absorbed, we'll begin to talk to municipalities about what that means and look for some help. It's too early to tell yet. We'll give you more color on that once we get into reporting a second quarter.

The only other thing I'd add in that is we have a small number of programs that is based on weight; they’re bag programs, and the industry has also migrated away from those programs over the years because they're not easy for the consumer. Having one bin that they pull out to the curb, and having that automated has been safer for us, has been better for the consumer. And you've seen the industry move in that direction. And so whatever we do going forward, we want to make sure that it's still effortless for the customer.

Hey, so Jon, appreciate all the color on April. Very helpful. But if we were to aggregate it all together, is there any way you can just be a little more specific, just basically, what did total revenue do in April just for simplicity purposes?

Yes, well, unfortunately, Tyler, we will probably cover that in July when we talk about Q2. So we can't get into overall April trends. But I would reinforce that in most of the places we think we've seen the bottom and we're starting to see recovery. So it's been a really good sign. And also, I’d say that bottom has been a much higher floor than I think we initially expected on that front. So we're feeling pretty positive about the outlook.

Yes, yes, agree there. So Chuck, I know there's a ton of moving pieces, but is the best way to think about it that in aggregate, the decremental margins, let's say ex the commitment to serve should be around 40%. I know it's going to vary by line, specifically, collection versus landfill. But is that probably the best way to kind of think about it?

Yes, you're right, Tyler, that 40% is accurate.

Okay. Are you seeing any changes in cash collection? Is there an increase in bad debts? I believe you're anticipating that working capital will be a challenge this year. What do you think that working capital draw might look like?

Yes. So we're not seeing anything as of yet. As a matter of fact the DSO went down by half a day, year-over-year, so nothing here in the first quarter. We are thinking that DSO will trickle up during the year and that's already contemplated in our cash flow guidance for the year.

Okay, and then my last one, from a quick modeling perspective, are you guys still expecting about a 1% contribution from M&A? And would that be inclusive of possibly closing Santek?

Well, I think we said, we still expect to do about a 600, 650 of M&A this year, right? I think somewhere in that area, right? So you can do the math on that. It could be more. I mean we'll see how companies come through this pandemic, but the pipeline is full, our people are involved, Santek is on track. So, we will be good.

Yes. Just on that point, I think, obviously that deal is not closed yet. It's going through regulatory review. We typically wouldn't comment. But other people have put that out there, but we're confident we're going to close that deal in the second half of the year.

My first question is around volume. You've talked about volume stabilizing, services increase offset decreases last week. When we do sort of come back in terms of commercial volume coming back, do you see any structural changes, positive or negative in terms of the shape of the recovery for the waste space, given social distancing or any other things that you think sort of, we see sort of a U-shape recovery on the volume side, any thoughts just structurally post-COVID what to expect in terms of changes around your business?

Yes. Thanks, Hamzah. I think you'll see the pace of the recovery be differentiated based on geography and based on SIC code. So, you could imagine things like hospitality are going to be under pressure and that recovery is going to be a bit slower than manufacturing, which we're already seeing factories start to come back online and reopen and production ramp up. So again, we're going to see differences in that capacity as we go forward.

Got it. And just a follow-up question. Back in 2012, municipal residential was a weak spot due to budgetary constraints faced by municipalities. It's likely they are experiencing similar constraints again. Are you noticing this in your conversations with municipalities regarding municipal residential pricing, or has it not been an issue for you today?

No, Hamzah, we're not seeing that today, and obviously something we're looking into actively but don't anticipate any credit or collections issues on that side of the business. You know these are long cycle contracts. So, if there's any pressure, it would show up kind of years from now in a bid cycle. And as we've been holding line in that part of the business, making sure that we get a fair return for all the work that we do.

Yes, let me add to that. That was a much different situation too, right? So that was caused by housing but caused by property values crashing, caused by property taxes dropping. The tax base of these municipalities was under pressure. To your point, Hamzah, depending on how this thing bounces back. But if it is some type of a decent U-shape recovery, we're not going to see that kind of an issue, we don't believe.

I may have missed it, but appreciate all of the details on small container. I was just wondering if you could provide some more level of details regarding your large container business. How are trends throughout April, was the exit rate any better, any signs of improvement both on permanent and temporary?

On that we think we've absolutely found the bottom and that’s stabilized and starting to see kind of trends of recovery here. You could imagine a temporary, for example, construction shutdown. Seattle was shut down, reopened about 10 days ago, the Bay Area was shut down in construction, and that begins to ramp up. And we're seeing a number of places that are just going gangbusters. And to Jon's point, while construction was a huge weak spot in the last recession and downturn, I think this is going to turn out to be one of the brighter spots given the housing starts already were at a modest pace and commercial construction still is pretty strong. So, we feel pretty optimistic about that part of the business.

Just next one is on capital return. I know you're committed to the balanced approach. But just curious are you still targeting around the 400 million in share buybacks this year. Is there any change to kind of the dividend policy, I know typically you look to increase it in July, just any thoughts there?

Yes. No change to the dividend policy. We've been paying the dividend now for 18 years and that's not going to change. We always say that we would like to deploy our capital by purchasing EBITDA and Don mentioned that our pipeline is very robust right now, our acquisition pipeline. So looking for our capital to work by buying businesses to take advantage of what might be a pretty good opportunity right now. And then finally, returning the rest of the cash that we generate to the shareholders in the form of a share repurchase. So, our capital allocation strategy really hasn't changed.

I wanted to circle back to your commercial business. I don't know if you can parse this out for you, but even at a high level, this will be helpful. What percentage of your clients you think are just putting their service either on hold or reducing frequency, as opposed to those clients that might not come back?

I think we've seen there's three things going on. There's customers who have permanently closed, and we've seen very little of that, although in fairness still some shifting and sorting out as the economy starts to get some steam back in it. We're seeing customers who have temporarily suspended their service, as they have had shelter-in-place orders and they’ve had eventually temporarily closed their business. And then we've seen people who have decreased their service where restaurant will be a great example who doesn't have in-room dining but does have takeout. So they may have scaled back their service. We're seeing those customers who have temporarily paused their service come back online, and we're seeing now those service increases outpace service decreases in small container, which is a very positive by the way.

And then you mentioned some of the productivity improvements. You cited the reduction in overtime. Are you seeing anything else in terms of just greater route efficiency, fuel cost savings, any color on those areas would be helpful? Thanks.

Yes, certainly fuel cost savings is there as oil is at a very low historic level. I would say one of the reasons we've been successful in this environment and the productivity improved is all the hard work and the foundation that we’ve built. So, we've worked really, really hard to keep our people working and employed, and that meant everybody had to give up some overtime so everybody could get work and that means people picking up different routes and our different stops. And again, the customer service has improved, the productivity has improved. So real testament to our COO, Tim Stuart and the operating team for how they've done that with operations. And I'd also say this, we've benefited a bit from traffic, right, as people sheltered in place, traffic is down, especially in urban areas, our ability to get around and get to and back from the recycling side of the landfill has certainly improved.

But as Jon said in his comments, right, attendance is at an all time high. Safety, that’s our best safety month ever, and engagement is strong, right? And all those things will be benefits for us.

If I could just go back to the earlier question on price and just be more specific. Can you talk about the take rate that you saw on price increases? And any pushback that you might have gotten on price increases, as we went through the last couple of months? Did you lose any meaningful customers due to your pricing discipline? Just curious if you can put some more detail around that.

A very strong first quarter in pricing, again. Very consistent with our historic approach and making sure we get paid for the work we do. And have maintained that approach here in the last six, seven weeks, and have not seen meaningful levels of pullback on pricing. Now, our outlook anticipates some of that as people shift through their business as well. So I'm sure we'll see a little bit of that, but I don't anticipate large movements on that front.

And then you kind of kept your expectations on M&A intact for the year, you talked about the strong activity. I'm curious if this is obviously a different environment we're all in now versus a couple of months ago, maybe you could speak to if you’ve seen any change in behavior from potential sellers, or whether that's indicative of lesser or greater opportunity for now or the more medium term, and any maybe short-term air pocket to expect just from a diligence perspective? Can you give some color there would helpful.

Yes. I don't think it's a material change. Diligence, for deals we had near closing, diligence has been more difficult because we're not traveling, right? So we've had to maybe slow some of those things down and do some things remotely. That just requires a little bit of innovation. But as far as new opportunity goes, I think frankly, as we've said, there are a lot of really good companies out there that we'd like to look at and talk to, some of we already have in the pipeline, there may be some more that come to market. I think for the most part, companies have just been busy getting their businesses stabilized. Trying to figure this thing out. And as the market starts to come back, people will start to decide whether they’re still in this for the long-term or not. We know that we are, and we know we've got the balance sheet and the know-how to get it done. So we'll be here to have conversations if there are people who want to otherwise. So we think, it'll still be a good year for us in the M&A department.

Okay. Great. And if I could ask one more, the Committed to Serve $20 million initiative. I guess first I just want to commend you for this initiative and supporting your employees first. You called out I think about $3 million in business reduction costs from COVID-19 as an adjustment, safety equipment, cleaning. Does that kind of cost fall under this program? Should we think about the sort of $3 million a month being kind of the right level of spend on those things for the near-term, just kind of expectations for an elevated cost of doing business there?

Yes. So, the $3 million that we incurred during the first quarter were associated with just keeping our employees safe. The commitment to serve actually is a little bit different than that. That's helping the employees, but it's also helping the communities. So, how much we incurred these costs that we carved out in Q1 going forward, really depends on the duration of the pandemic, and how quickly the economy rebounds. It's a little bit too early to be able to forecast that at this point.

Most of those costs were one-time in nature. So, hundreds of thousands of masks we purchased. We talked about putting some structural changes into our hauling companies to promote social distancing, screening, et cetera. So, feel really good about that. We've already always used masks at our recycling centers. So, yes, we have a little more hand sanitizer spend going forward, certainly will for a long period of time. But that's not meaningful in the overall economics.

Could I get, Chuck, what the percent of your labor costs, you all are doing a very good job of giving line item costs and OpEx. And in 2019, what percent of that labor number was overtime?

It's about 15% Michael.

And when we think about how you've rolled that back, about half of that's come out. Is that what I sort of discerned through all of JVA's comments?

Yes. A little less than that, probably closer to 40%.

And keep in mind, Michael, not much came out in residential. Residential, we're working harder than ever. So, almost half in large container and small container.

Okay. Okay. That helps. And then it's terrific to hear this is a higher low than you thought it was going to be. You mentioned Jon that you were seeing less lost business, I'm trying to say this smoothly and I'm not sure I'm doing a very good job. How many customers do you think don't return in the commercial business percentage wise?

Small, I couldn't give you an absolute number or the percentage number. I think it will be small, Michael.

Small less than 10%.

It’s hard to forecast exactly what the shape of the recovery is, right? If we're in an L-shape recovery, which I don't think any of us are seeing in our side of the business, yes, it could be that number. But in a kind of a steady rebound here. But I would expect less, but it's hard to say yet.

Yes. So, we'll give you more information on that, Michael as we work our way through the year here. It really depends upon the duration of the downturn, how quickly we come back, right? We talked about the growth capital. The remaining capital is really replacement, and it just depends on the utilization of our assets, which includes landfills, right? Building additional landfills airspace, and that's all predicated upon tons that we're receiving into landfills. So, much more information to come here in Q2.

Yes. As you know, there are many moving parts. In April, the focus was on stabilizing the business and ensuring the safety of our team. May will center on maintaining enthusiasm and readiness for the return, and we're already seeing positive signs as Jon mentioned. There's optimism across all business lines and market sectors, with numerous success stories. If we had more time, we could share even more, but it's still early to identify trends. The challenge lies in the many variables at play. We can and will continue to make adjustments in capital expenditures and other spending areas. However, depending on how the return unfolds, we may still hit the lower end of our initial cash flow guidance, which is over $1 billion. We are making daily adjustments as needed. The leadership team convenes every day at 11:00 AM to review all available data and make decisions, a process that will continue under Jon's guidance. So far, this approach has proven effective. In July, we expect to have more data and trend information that will be more indicative, but our primary focus remains on cash flow, which is crucial for the business's stability.

First one from me just on labor, helpful color on the OT reductions. Just wondering if there's been any offsets there with any potential temporary increases for any employees and maybe just rounding it out with trends in retention, turnover, things like that would be helpful discussion?

Sure, maybe I'll start the secondary part of your question. So, retention is at an all time high. We have some natural attrition in the business of retirements and other things, but we don't have a lot of people leaving us for bigger, better opportunities, in part because we have done an extraordinary job of taking care of our people, which ties into the first part of your question. The Committed to Serve program was done for a few reasons. One, it was to honor and celebrate our frontline people, right? They perform an essential service and it's a noble purpose, and unfortunately, society doesn't do a great job of recognizing them all the time and this is their moment. This is our opportunity to elevate them and appropriately celebrate them. And then connecting that in with customers, right? Customers obviously are looking for some cost relief, what they really needed revenue and we're allowing our people and empowering our people to go support local small businesses that are our customers and when we do that we support the community. So, we think all of those things are connected and tied together.

And I'm just curious with OCC really spiking here. Does the typical sensitivity to EBITDA there hold, or are there nuances on the volume or operating costs that we should be considering as we kind of flow through the recycled commodity price movement we've been seeing?

Yes. I would just note that as we discuss our commodities basket, OCC represents about 25% of that basket. Also included are aluminum and plastics, the pricing for which has decreased. The sensitivity to heavy metals hasn't really changed. For our basket of goods, a $10 change over the year equates to about $0.03 in EPS.

Okay, helpful. And just last quick one from me. I'm just curious on the residential dynamic; you guys highlighted some specific numbers around container rate increases. I'm just curious if you're able to help us understand what that means for the margin profile you guys are getting on that business relative to normalized, this time last year say?

Yes. So because the disposal is going to be compressed a little bit, but we think it's a temporary issue. And we'll work our way out of it.

This is kind of asked earlier, I might have not heard properly. When a customer opens up, which sounds like you started to see at the end of the month, are they decreasing service levels and pickups versus where they were pre-COVID and are they asking for a relief on that price point? And on this topic, it may be too early, but Chuck, can we see small mom and pop start to get aggressive on that line of business when the economy opens back up?

Yes, we are noticing customers returning, but their service levels remain consistent with what they had before. There hasn't been any significant shift in terms of pricing expectations. Customers with existing contracts have been allowed to pause them temporarily due to the unique circumstances we are all facing, and they have expressed their gratitude for this flexibility. Their primary concern is not the cost of waste and recycling services, but rather the safe return of their employees and getting customers back into their establishments. While there is potential for some to be aggressive in pricing, especially in certain markets, it's too soon to determine if this will become a widespread trend, and we have not observed any notable increase in such activity in the past several weeks.

Okay, good to hear. And I might have misheard this comment, is the decremental EBITDA margins, do you think 40%, is that the total company, is that collection, disposal, both; in the April comment, I was hoping if you just flush that out for us?

Yes, that’s pretty entire company. So if you think about we're losing our volumes on the residential side of the business, right? It's on small container and on the landfill side, and those have the highest margins in the company. So the decremental margins are approximately 40%.

But Michael, keep in mind too, I mean we haven't fully closed the books for April. So, we're talking theoretically what that incremental margin will be. And we'll get more guidance kind of in the second quarter around all the numbers that we've been talking about here.

And just lastly, you mentioned the pipeline with M&A. Are you in active discussions? Are you seeing a recalibration of the multiples in that pipeline? So clearly, the trailing EBITDA gets a haircut post-COVID or in this new environment. I understand that portion. So I'm just curious if you think there's been a recalibration of just the multiples on net EBITDA or that potential future cash flow?

I'll start and let Jon finish. I would say, first it depends on the deal. It depends on the makeup of the revenue, right? So, yes, we're smart enough to look at that. But it depends on what is the makeup of the business.

Yes. So, our activity remains higher than ever. We're in continued dialogue and discussions. We are not snapping the chalk line on pricing those deals, but we're giving sellers an expectation of ranges. But we're waiting to sit through both things where the economy nets out and what the future demand profile is going to be for those assets. And then, over time, do multiple expectations come down because there's more willing sellers, because their life has changed and it might be a little tougher to run the business in this environment? We'll see.

And appreciate all the detail on trends in April with all the fluid situation here. And I know guidance has been pulled, it’s a very tough environment to be able to provide any. So, I appreciate given the sort of $1 billion free cash flow marker there. But I'm trying to just reconcile some sort of conflicting talent versus numbers. It seems like April's not as bad as we could have feared, but still obviously not immune to the environment. But really, I'm getting a lot of optimism out of you guys about the pace of the recovery, the ability to maybe even clip the low end of the original free cash range and it's great that sequentially and maybe on a week-over-week basis, things are starting to improve a little bit. But I guess sitting here, how can you have any confidence that we're going to get back to anything close to normal in the back half of the year? I guess, kind of embedded in the question is, there's no way you get to $1 billion kind of at the current run rate, right? I mean, you need a healthy kind of recovery in Q3 and Q4 to get there. So, is there's something you guys are seeing that we're missing that just would explain the heightened confidence to kind of get to whatever level you need to get to even talking about clip in the low end of the prior range?

Yes. Look, I'd say the obviously economic outlook broadly, there's still some uncertainty to it, right? And so, if we get into a double dip, right, because we have a reemergence at broad scale and have widespread sheltering in place in the fall, that would be a different scenario. But based on what we're seeing now, and based on we're kind of consensus is going in the macro environment that we're going to have a tough Q2 and start to see growth in Q3 and Q4, coupled with what we're seeing, which is again, relatively high floor to what some of the early predictions were and already seeing that flatten out and starting to see it move upward. I think those are all positive signs and that's what's embedded in our perspective.

For years, we have highlighted the strengths of the waste business during our discussions with the market. We consistently mention our top market position, holding the number one or two spot in 90% of our revenue. We stress the importance of being an essential service and that 80% of our customers are on some type of contract. In our small container and residential businesses, the average cost per household is generally under $35 a month, while small container costs are below $400. These expenses are manageable and not significant burdens on our customers' budgets, which contributes to the business's strength. Everyone needs our services, and the majority of our customers pay us in advance, allowing us to implement strong pricing strategies. A pricing increase of 4% to 5% or a 3% yield amounts to a relatively small dollar figure for any business. We have been able to demonstrate how we can adjust our cash flow and spending, even during challenging times, to generate solid free cash flow, maintain a strong balance sheet, and strategically manage our cash allocation. This has been evident during the economic downturn in 2001 and the Great Recession, and we are poised to prove it again. These truths may have been overlooked by some during the recent difficult weeks, but we will continue to adhere to this approach, consistent with our past messaging.

And would you tend to agree with you on all those points and just none of us have lived through this and the underlying assumption is that those businesses are coming back and continue to operate and that's kind to Michael's question earlier just seems like the big wildcard I think we'd all say. Just on OCC, the price has run up and I just wonder what you could say about volumes and how much of the move higher has been supply shock driven with the new collections from brick-and-mortar retail and establishments where there’s usually higher recovery rates and more consumers through the e-commerce channel and maybe lower recovery rates there. Just kind of really a supply shock driving it higher from what you can tell?

I mean keep in mind that we're still down slightly, right, because resi’s way up, commercial or small container is down, right. I mean, there's just less economic activity going on right now overall from the supply standpoint. And then obviously from the demand side, the demand signal out of the back door for second process centers, big pull for fiber, both to support e-commerce but also to support all of the Kleenex and paper towel and toilet paper and wipes and everything else you got some of those are just a pull forward of surge in demand. Some of those I would argue are more permanent. Wipes for example, paper towel. I think we're going to have an elevated level of demand for months or probably years to come.

Okay, and just last one from me, I can't remember if somebody already asked it, but just on the capital reallocation, thoughts on the share repo. I think you sound like you're still committed to do M&A although maybe the stuff that due diligence you can't travel. But on the share repo, so expecting to kind of continue at a similar pace or does the uncertainty out there maybe pull back a little bit on that?

Yes, so I would tell you, first of all our stock is a bargain today, right and we should be buying more of it. But with the uncertainty in the world right now, the prudent thing for us to do is conserve cash, right. So, Chuck talked about having plenty of cash on hand and having plenty of capacity in the revolver. That's the prudent thing for us to do at this moment. Of course, we'd much rather buy more businesses, do more M&A than buy your shares, that's still the best use of cash. So, we're going to take a little wait and see approach. And, as Chuck said, we've been paying dividends every quarter for 18 years. So while we don't have an exact dividend policy, we do have a practice that we've honored. So we think we're in a good position from a cash allocation perspective. We look at the intrinsic value of the company today. And if it weren't for some of the uncertainty around COVID-19, we'd be buying a little more of our stocks but we're just going to kind of take a wait and see approach.

Just one from me. Just wondering, as you hope your commercial customers restart here, I suspect a lot of them or some of them are probably facing more financial duress. How do you manage the counterparty risk during the event that they can't make it all the way through, are you changing payment terms at all, or like what are you doing to make sure that it doesn't become an elevated bad debt expense sometime down the road?

Yes, good question. So our perspective does anticipate some elevated bad debt expense that will inevitably be some customers who don't make it through that. I think that's obvious to everybody on the call. But we have a differentiated approach and a very thoughtful one. So customers with good credit ratings get a little bit of help through this, and we will extend terms to those customers. The longer they've been with us, obviously, we'll repay that loyalty to them, and help them get through this time. On that front, feel pretty good about our approach. We have trained all of our people, both in credit collections and all of our customer service representatives, on all those policies and also the approach; people are going through a very dramatic experience. And we start with a human-centered approach understanding what they're going through, working with them and getting to a good outcome; and we have long and loyal customers, over seven years our customers are with us. And so I'm pretty confident we're going to work through this together.

Thank you, Rachel. In closing, given the foundational investments we've made in the business, we've been operating from a position of strength and we will continue to do so through the recovery and beyond. Our diversified footprint across the broad mix of markets nationwide position us well to benefit at each stage of the recovery. We look forward to working together with our customers and our communities, as they resume operations. Once again, I'd like to thank all of the Republic employees for their ongoing hard work, commitment, and dedication to our customers and communities. Each of our employees truly embodies that Committed to Serve spirit. Have a good evening everyone and stay safe.