Waste Management Inc (WM) — Q1 2019 Earnings Call Transcript

Thank you, Lauren. Good morning, everyone, and thank you for joining us for our first quarter 2019 earnings conference call. With me this morning are Jim Fish, President and Chief Executive Officer; John Morris, Executive Vice President and Chief Operating Officer; and Devina Rankin, Senior Vice President and Chief Financial Officer. You'll hear prepared comments from each of them today. Jim Fish will cover high-level financials and provide a strategic update. John Morris will cover an operating overview. And Devina will cover the details of the financials. Before we get started, please note that we have filed the Form 8-K this morning that includes the earnings press release and is available on our website. The Form 8-K, the press release and the schedule to the press release include important information. During the call, you will hear forward-looking statements, which are based on current expectations, projections or opinions about future periods. Such statements are subject to the risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today's press release and in our filings with the SEC, including our most recent Form 10-K. Jim and Devina will discuss our results in the areas of yield and volume, which unless otherwise stated, are references to internal revenue growth or IRG from yield or volume. All first quarter volume results discussed are on a workday-adjusted basis. During the call, Jim and Devina will discuss our earnings per diluted share, which they may refer to as EPS or earnings per share, and then they will also address operating EBITDA, which is income from operations before depreciation and amortization, and operating EBITDA margin. Jim, John and Devina will also be discussing the planned acquisition of Advanced Disposal Services, Incorporated, which they may refer to as Advanced or ADS. Any comparisons unless otherwise stated will be with the first quarter of 2018. Net income, effective tax rate, EPS for the first quarter of 2019 have been adjusted and project that 2019 results are anticipated to be adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations. These adjusted measures in addition to free cash flow are non-GAAP measures. Please refer to the earnings press release notes and schedules for reconciliations to the most comparable GAAP measures and additional information about the use of non-GAAP measures and non-GAAP projections. To hear a replay of the call over the internet, access the Waste Management website. To hear a telephonic replay of the call, dial and enter reservation code. Time-sensitive information provided during today's call may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Waste Management is prohibited. Now I'll turn the call over to Waste Management's President and CEO, Jim Fish.

Thanks, Ed, and thank you all for joining us this morning. We're excited to share two good news stories this morning. Our excellent first quarter results that demonstrate continued strength in our business as well as the agreement we announced last week to acquire Advanced Disposal Services. The year is off to a great start with organic revenue growth of more than 6% in our collection and disposal business, translating into about a 7% increase in operating EBITDA in that business. But before diving further into the quarterly results, let me spend some time discussing the compelling, strategic and financial benefits we expect from the acquisition of ADS early next year. On April 15, we announced a definitive agreement to acquire all outstanding shares of ADS for $33.15 per share. The acquisition advances our growth strategy and aligns with our financial goals, including growth and earnings per share and margins and free cash flow. It will bring to Waste Management a high quality complementary asset network and customer base in both new and existing areas across the eastern half of the United States. We are joining two teams of dedicated employees who are passionate about managing the environmental needs of customers and communities with outstanding service and a commitment to safety. We expect to achieve more than $100 million in annual costs and capital expenditure synergies. We anticipate closing by the first quarter of 2020, subject to customary closing conditions including regulatory approvals. We're enthusiastic about this catalyst for long-term value creation for our shareholders in 2020 and beyond. We believe we can leverage the benefits of the investments we're making in technology and people to achieve enhanced efficiency across the ADS network in the coming years. ADS has talented and dedicated employees and we look forward to capitalizing on the strengths of both organizations. Moving onto our strong company performance, we remain focused on the execution of our 2019 plan and delivering the strong results we expect for this year. In the first quarter operating EBITDA was $987 million. We continue to believe that this is the best measure of the health and performance of the business and are pleased with this solid result. The growth and operating EBITDA is underpinned by impressive organic growth with core price of 5.8%, yield of 2.7% and volume of 4.1% in the collection and disposal business. Our operating EBITDA growth translated into excellent free cash flow of $431 million demonstrating the strength of the cash generating ability of the business. To enhance our performance, we're investing in the same areas that helped make us successful in 2018: our people, technology, asset network, and the customer. As we've mentioned in the past, we're opening our second state-of-the-art driver and technician training center, extending our commitment to providing centralized training for our drivers and technicians across the organization. Participating in this training not only helps improve retention, it helps make our employees safer. In the first quarter, we saw a meaningful reduction in safety incidents of drivers with less than a year of experience. Focusing on our onboarding process for new drivers is clearly paying off. We also made strides with respect to technologies. We launched a new online buying experience for U.S. commercial and industrial customers. This followed the rollout of a similar online tool for open market residential customers last fall. Engaging with our customers in their channel of choice helps differentiate our customer experiences and is driving measurable volume increases. In closing, our base business is delivering strong, reliable growth that puts us on track for another banner year. And we're very excited about the new platform for growth with the acquisition of ADS by early next year and the recent addition of Petro Waste in the Permian Basin. With that, I'll turn the call over to John to discuss our operational results for the quarter as well as initial integration planning for the ADS acquisition.

Thanks, Jim, and good morning everybody. We're pleased with our first quarter results as we continue to execute extremely well on our organic growth strategy. Our disciplined pricing programs have been driving consistently strong core price and yield results the last several years. In addition, we continue to execute on targeted growth of profitable volumes. This strategy has produced both industry-leading volumes, demonstrating that we can profitably grow by driving both price and volume. Our volumes grew 4.1% in the collection and disposal business during the first quarter, and much of that growth can be attributed to our focus on increasing service to existing customers and reducing churn by improving customer satisfaction. For the quarter, churn was 8.1%, a 150 basis point improvement from the prior year and the lowest churn we've seen in the last three years. Additionally, service increases outpaced service decreases again for the 21st consecutive quarter. Our customer focus has also helped us to selectively grow profitable volumes, including our strategic national account business. As you've heard us all say, improving our customer's experience is generating results. In the landfill line of business, our well-positioned assets continue to attract volumes and enable us to increase yield. Previously, we have discussed the importance of pushing pricing to cover post-collection cost increases and maintain returns, and we're pleased with our progress on that front. In fact, in the first quarter, we achieved the highest MSW yield in more than a decade at 3.4% and we did this while growing volumes, 5.8% versus 2.2% last year. A large portion of the volume increase relates to new customers in the Northeast as our well-positioned assets continue to attract incremental volumes. We've also talked in previous quarters about our strong special waste pipeline, and many of these projects are coming to fruition as we saw special waste volumes up more than 18% for the quarter. As mentioned last quarter, we're well-positioned to accept volumes from the wildfire cleanups in California. In the first quarter, volumes associated with the cleanup provided about $8 million of operating EBITDA. Overall, there was a negligible year-over-year impact to our first quarter volumes and our financials from natural disasters since we had hurricane and wildfire impacts in the first quarter last year as well. The cleanup activity is still ramping up in California, and we expect to continue to receive landfill volumes from the cleanups throughout the year, but it's still too early to estimate the impact of 2019 volumes, operating EBITDA and capital spending because of the uncertainty around timing. We expect to have additional information next quarter. During the first quarter, total operating cost as a percentage of revenue was in line with prior year at 62.2%. We did a good job of managing our cost as we had to overcome an 80 basis point headwind from the federal natural gas fuel credits not repeating. We still have opportunities for further improvement, particularly around maintenance and leachate management cost, and our team is focused on identifying and making these improvements as well as adjusting our price for rising third-party subcontractor cost. On the maintenance side, we continue to expand on maintenance initiatives, MSDO, to reduce downtime and improve costs. The results continue to be positive as we have seen our certified sites improve maintenance costs per unit by about 6% on a year-over-year basis. Looking to labor, our M100 program provides our frontline supervisors a view of each of their routes throughout the day. As a result, they can work to remove elements of a driver's day that are costing them efficiency. We're focusing on the commercial line of business first, and we are in the early stages of expanding the program to roll-off and eventually to residential. Turning to recycling, we performed well in the first quarter as a direct result of our ongoing fees for contamination, improving operating costs and restructuring municipal contracts. We have taken these intentional steps to improve our recycling business by passing through the increasing cost of processing and the cost of higher contamination rates to our customers, and our results demonstrate that. Although our blended average recycling commodity price fell 28% year-over-year, we increased our recycling operating EBITDA by $11 million from breakeven in the first quarter of 2018. We are still well below a typical operating EBITDA level and a normalized recycling commodity price environment, and as such, we remain focused on changing the business model for recycling with improved MRF technology and relationships with our customers that recoup processing costs and protect us from commodity price downside. We're pleased with our recycling team's efforts to improve the recycling line of business and continue to find the most sustainable markets for our customers' materials. We see in the remainder of 2019 pricing to be soft with some additional domestic mill capacity coming online later in the year. Despite these factors, we expect our overall business to continue to overcome any issues from recycling, putting us solidly on target to achieve our full-year guidance. Lastly, I want to briefly cover integration planning for the ADS acquisition. While the agreement is certainly exciting news, it's just the first step in bringing the two companies together. Over the coming months, we expect to assemble an integration planning team to determine how best to join our operations. Like our operations, the two companies' cultures are very complementary. We have a shared commitment to outstanding customer service, safety and operational excellence. Waste Management has a strong record of successfully integrating the assets we acquire, and we expect a smooth integration and transition process for this acquisition as well. We will be ready to execute as soon as the deal closes to capture the targeted synergies.

Thanks, John, and good morning, everyone. As both Jim and John have discussed, our first quarter results were strong, and they’ve been driven by organic revenue growth in our traditional solid waste business and our focus on controlling costs through operating efficiencies. In the first quarter of 2019, the conversion of earnings growth into incremental cash from operations was particularly strong. Our cash flow from operations was $890 million in the quarter and that's a 10% increase from the first quarter of 2018, which puts us well on our way to achieving our full-year target. During the first quarter, we spent $471 million on capital expenditures, an increase of $71 million from 2018. The increase in capital spending is related to the strong volume growth that our business continues to generate, particularly in the landfill line of business, and also some year-over-year differences in the timing of some of our spending. In the quarter, our business generated $431 million of free cash flow versus $423 million in the first quarter of 2018. Timing differences in capital expenditures muted our free cash flow growth for the quarter on a year-over-year basis, but we're confident that with our strong operating cash flow growth and disciplined approach to capital spending, we will deliver on our full-year free cash flow guidance. In the first quarter of 2019, we used our free cash flow to pay $223 million in dividends and repurchased $68 million of our stock. Share repurchases in the first quarter were less than our plan due in part to the nearly $400 million in acquisition spending in the quarter. That was primarily related to our previously announced acquisition of Petro Waste that closed in March. Our 2019 guidance considered $200 million to $400 million in acquisitions for the year, and so we have already achieved the high end of that targeted range. Turning to SG&A. For the first quarter, our SG&A cost as a percentage of revenue was 11.1% compared to 10.6% in the first quarter of 2018. Our planned investments in technology accounted for 30 basis points of this year-over-year increase. The remaining increase was due to a litigation reserve. In spite of the impact from this litigation reserve, we continue to target adjusted SG&A as a percentage of revenue of about 10% for the year. We are confident in the strength of our business. And as we announced last week, we fully expect to achieve the full year guidance we laid out in February before considering the impact of the ADS acquisition. As Jim and John have discussed, we are all very excited about the value that we will create for our stakeholders from this pending acquisition. I would like to review our 2019 capital allocation plans in light of the ADS acquisition and give you some insights to how we expect these plans to impact our 2019 outlook. In 2019, our free cash flow will be directed to dividends, payments, tuck-in acquisitions and share repurchases sufficient to offset dilution from stock-based compensation plans. As I mentioned earlier, we've already completed the high end of our acquisition guidance for the year. Our tuck-in acquisition pipeline continues to be strong, and we remain focused on pursuing valuable businesses in markets other than those where ADS operates. As a result, we will see free cash flow allocated towards tuck-in acquisitions exceed our initial range of $200 million to $400 million. We are, however, scaling back on our share repurchases from the planned levels and that will have about a $0.06 per share impact for the year. At the end of the first quarter, our debt-to-EBITDA ratio measured based on our bank covenants was 2.4x. We have a strong balance sheet today, and we expect to maintain a strong balance sheet and solid investment-grade credit profile with a pro forma leverage ratio within our targeted range of 2.75 to 3x after the acquisition. We're still in the early stages of determining our financing strategy for the acquisition, which makes it difficult to estimate the 2019 earnings and cash flow impact with the incremental debt needed to position us for closing. As we finalize those financing plans, we will provide additional details. The ADS acquisition will immediately enhance Waste Management's cash flow growth and support our commitment to grow total shareholder return. Long-term, our capital allocation strategy will not change. We will continue our commitment to our shareholders of allocating 40% to 50% of free cash flow to dividends. We will prioritize well-priced acquisitions and investments that bolster our long-term organic growth, and we will opportunistically repurchase shares. Our Waste Management team has worked hard to deliver a fantastic start to 2019. We have a lot of exciting things going on at Waste Management, and our team remains focused on delivering superior results. We're confident in the performance of our business and our ability to achieve our 2019 goals. With that, Lauren, let's open the line for questions.

Hey, good morning, guys.

Good morning, Tyler.

Good morning, Tyler.

Hey, congrats on the strong start to the year. I appreciate the core business is very solid, but Jim, Devina, I would like to start with the proposed ADS deal. We obviously haven't had a forum really to talk about it. But I was hoping you can talk about some of the mechanics of the deal, including, one, what is the termination fee if you do decide to walk away? And two, how does this $200 million, what I'm going to call divestiture cap work that's built into the agreement because frankly, the agreement isn't exactly the easiest thing to read.

We can appreciate and understand that the agreement's a lot to get through, but we really do think that that's the best source of information for those specific terms and conditions, and we point you back to that. But I would say is all of those terms and conditions were well negotiated and thought through in the process, and we've done a really good job of making sure that we're positioned well to move forward.

But specifically on the divestiture, again, I'm going to call it divestiture cap, if it's required to be over that, what would then happen? What would you be able to do or not do?

Tyler, this is John Morris. I mean, certainly we’re comfortable with the range that’s been published and is in the merger agreement. And I think the details of what the options are for both sides are best learned by reading the merger agreement.

Okay. And then on the $100 million of proposed synergies, is there any breakdown of how that would break down between G&A, OpEx and capital?

Tyler, this is John again. Yes, I mean, it's early innings for sure. But roughly, we estimate about 80% is going to come from the operational SG&A and interest buckets and about 20% will come out of the capital efficiency bucket.

Okay, great. And then maybe some mile markers that we should be looking for as this deal progresses. I would assume shareholder vote is next, then you’d go on to DOJ review. And then assuming passage, maybe we'd move off to close. Is that kind of how the process will work?

I think you've got the timing down. There's really three elements; obviously, ADS’ proxy filing, and obviously, the HSR process that's going to have to occur here in the coming months.

Okay. My last one here, so I want to switch over to recycling really quickly. You mentioned that it's up $11 million from breakeven despite commodity prices. I'm assuming the processing fee is driving that. Is that correct?

Yes. You broke up just for a second there, but yes, the processing fee is included in that for sure. We talked about, Tyler, the fact that this would be – back in February talked about the fact that this will be a tailwind for us this year. That didn't – we still think it's going to be a slight tailwind for us, but we didn't contemplate this significant drop off in commodity prices. With that said, I think we've done a great job of really passing this through. I mean, we can't bear all of this. As John said in his script, this is a breakeven for us last year. It's now an $11 million better than breakeven, which still there’s nothing to write home about, but we're in the process of passing that through in the form of these fees. And that's what's caused us to mitigate some of this in the first quarter.

We've also done a good job of managing the cost side of the equation, and we'll remain focused on ensuring that we're working through the contamination headwinds that we see on the inbound material to manage those more efficiently in our processes. And as John mentioned earlier, the focus on technology and the MRF line of business will be important to us, and we're continuing to advance those efforts.

Okay, yes.

Go ahead, go ahead.

Yes, go ahead. I’m sorry.

Just back on ADS for just a second, look, what I will say about this is we are very, very excited about this. This is really something that's – we haven't done in a period of 20 years a deal of this size. We can't say a whole lot about some of the details of it for obvious reasons, and as John said, will end up showing up in the background of the merger and will become public when they filed their proxy. But we just can't see a whole lot about it. We'll give details where we can, but suffice it to say, this is being looked at as being transformational. And the two companies are so complementary from a cultural standpoint that it really makes a ton of sense for us.

Right. Okay. And then just real quickly, but would you expect going back to recycling? Would you expect recycling to be a positive EBITDA contributor this year under the current circumstances?

Yes, year-over-year, I mean, certainly it’s going to be positive in total. Year-over-year, that's why I said we think it can still be a slight tailwind for us on a year-over-year basis from an EBITDA standpoint but it's also hard to tell because these commodity prices have become pretty difficult to predict. And with that 30% headwind on the commodity prices, we are exclusively reliant on our ability to reduce cost and pass this through in the form of fees.

Okay, all right. Thank you. I’m going to turn it over. Thanks.

Yes.

Good morning. Thank you. I realize you can't give a lot of details on ADSW, but maybe Jim, you could talk about why you're doing this deal now? I mean as we look back, ADSW IPO'd at $18. There was no real buyer when High Star was looking to sell this or exit. Your balance sheet was still very under-levered at that point. So maybe talk about what has changed? Why now versus when the stock was at $18 or pre-IPO?

Well, here's what I’d say, Hamzah. I mean, first of all, the transaction represents a really nice multiple for us to have. It's 11.6x ADS's 2018 EBITDA of $427 million. And after you take the $100 million in synergies into account, you're talking about something that's 9.4x their 2018 numbers. So it is compelling for us when we started looking at this several months back. The other thing I would say about it is strategically, it's such a nice fit for us. It's really, I'd say, we're looking at this as three million customers that we can bring in that we can add our focus on the customer, that we can add our focus on digital technology. All of that fits very nicely into our strategy and it's three million customers who honestly, whether it was organic customers, a lot more difficult to get three million organic customers than it is to pick them up through a great acquisition like this. But it is, in effect, the same end result, which is we bring our processes, we bring our technology, we bring our focus on the customer to a big batch of new customers.

That’s very helpful. And then maybe, I guess, you're having an Analyst Day on the 30th. I think the last time you did one was a decade plus ago. Maybe if you could preview sort of what we should expect there, what investors should expect?

Hamzah, this is Devina. We’re excited about the Investor Day. And certainly, something that was in the works before the announcement of the ADS acquisition. Our focus at Investor Day will be on the great things happening at Waste Management, the leadership team being sure that the investors have an opportunity to meet all of the members of Jim’s senior leadership team, hear about the operating efficiency work that we're doing, our focus on people first from a culture perspective and what that's doing to drive our customer focus and the customer-centric culture that we want this organization to continue to push forward. And then the financial results that are coming out of all of that great work that we've proven in the last several years but we really expect and are excited to see continue in the years to come.

Okay. And then just lastly, just a clarification question. On the volume side, the 3.6% volume, how much of that was sort of wildfires?

The wildfire impacts were actually very small. On a year-over-year basis, if you recall, Hamzah, we had fire and hurricane volumes in Q1 of 2018 as well. So we were virtually flat from a volume perspective as a result of natural disasters on a year-over-year basis.

Good morning. Thanks for taking the questions. First just make sure I understood this right, you're backing full year guidance but you're pausing share repurchases that hits you about $0.06. So should I read that as effectively you're not formally raising guidance, you're effectively raising net income guidance by 1% or 2%?

No. Let me clarify. Thanks for asking the question though. I didn't intend for that to be interpreted that way. What we're saying is we're confirming guidance without the impact of the ADS transaction and we view that $0.06 reduction in EPS specifically as ADS-specific because of the change in our capital allocation plans that we guided for the year. So we are sticking with core solid waste to EBITDA performance driving the EPS expectations aside from that $0.06 impact.

Okay, that’s very helpful. Thanks. And then I guess just a question looking at large mergers in the past history of the waste industry. It seems like a little bit of an elongated timetable for closing compared to some. Can you just talk about what's giving you reason to kind of give that timetable? Is it something in the regulatory environment or anything we should be thinking about?

No, I mean, it's recently been reported that DOJ is – DOJ approval process has been taking about 10 to 11 months to complete. With that said, each merger is different, and as waste mergers go, they're valued on a local basis so they present different issues for resolution. But the process seems to be taking 10 to 11 months based on what we've heard, and that's why we said we think it's going to be somewhere in that time frame. And with all of that said, I think what I would finish with is we will be working cooperatively with the DOJ to assist in this review of the transaction, and we'll do our best to expedite the process where we can.

Okay, that’s very helpful. Thank you. And then maybe just one last clarification question. You pointed to the $100 million of synergies, and that really looks like a cash flow number I guess because it's cost some CapEx. So just to understand, is that $100 million net of the interest that you're going to take the extra interest expense to finance this transaction because you’re going to have to take on some debt? Or is that independent?

No, not – that is independent. You're right, Noah. And as I mentioned earlier, we're still working through those financing plans. We're thinking about that $100 million more as an indication of our run rate synergies over the long-term and not providing information about capital structures specifically because those costs of the incremental debt is too early for us to specifically quantify.

Okay. Perfect. Thank you.

Hey good morning. This is Derrick Laton sitting in for Brian.

Hi Derrick.

While we're on the topic of the synergy capture there for the deal, just wanted to see if you guys could highlight if you have any sort of timeline that you might expect for that synergy capture, assuming that the deal closes as you expected?

Hey, this is John Morris. I think it's safe to assume that there is going to be some early dollars we’ll get but we are also early in the process here. I think it's going to take some time. We've got kind of a lot of woods to chop here between now and closing in order to kind of refine the timing of when the synergies are going to occur.

Okay, thanks for that. And then just to kind of circle back in recycling for a second. I think you said you're still expecting overall a tailwind for you year-over-year. I wonder if you can just maybe clarify what you have assumed in the reaffirm guidance there for recycling prices and your expectations there?

I think we said in February, I think, I said $30 million to $50 million or so we thought…

$20 million to $30 million.

Okay, sorry. So $20 million to $30 million is what I thought the tailwind would be in February. And as I mentioned earlier, we didn't contemplate this heavy downturn. So it's hard to say exactly what that will be for the remainder of the year. We do know that the fees are somewhat front-loaded because of the fact that last year, we started the implementation process for those fees. It's kind of mid-second quarter, April-ish, right around now. And so the comps, at least from a fee standpoint, become more difficult in the third quarter and then particularly in the fourth quarter. What happens with respect to comps in terms of the commodity prices is TBD. So it's a bit hard to pin down the number, but I think we're willing to say we think that there's certainly still a possibility of a tailwind. It's not going to be in that $20 million to $30 million range.

I would add to that, Jim. I mean, I think the comments of both you and Devina made is that we continue to make progress on the operating expense side, and we've referenced on the last call that we're looking at these contamination and other fees through kind of three phases. And we've done a nice job in Phase 1 and Phase 2. Phase 3 is still developing, which is really where about 60% of our volume comes from. That's single-stream volume that we're still continuing to address through Phase 3 through the municipal recycling contract.

And I have two kind of other comments on recycling. First of all, we said it for a number of quarters, and that is that it demonstrates how strongly our core operations are exclusive of recycling that we can continue quarter-after-quarter to have these really good results. In the face of – I mean, look, we're talking about 10-year lows from a commodity standpoint. So our – the rest of our business is really operating well. A lot of you have reported on that, and that is absolutely the case. The second thing I'll say is we're not just sitting back – here's what's going on in recycling. There's real extreme supply and demand imbalance, and we talked about China a lot so I won't go into details on that. But there is a really extreme supply and demand imbalance. So for us, we feel strategically it doesn't make sense for us to sit back and rely on the rest of the world literally to try and figure this out. So that's why we talked about it last quarter, maybe the quarter before, that we're building what we call a recycle plant of the future to address some of this downturn in the market on our own. So that recycle plant of the future that's going up in Chicago and will be starting to take materials sometime in Q3 or Q4. We believe will significantly reduce operating costs at that plant because the technology that we're putting in – a lot of optical technology in that plant. So we think it will be a very different plant in terms of operating cost. And that's part of our answer to try – trying to address this downturn in the business that really we don't have much control over and don’t have much view of when it will resolve itself. So we're going to try and fix something that we control on our own.

Great, that’s helpful. Thank you. And just one more really quick one for me, you have strong volume number in the quarter, I think you guys said the impact of natural disasters was effectively a net neutral with the first quarter of 2018. But wetter weather and weather impacts being a headwind in the quarter, just wonder if you could quantify, what headwinds you might have had there to your volume number in 1Q.

Yes. No, we looked at that. I think when we looked at weather kind of year-over-year, it was negligible between what happened last year in different regions versus this year, so we didn’t see a big impact on a year-over-year basis from weather. What I would tell you on the volume side though, and we commented that on the prepared remarks, is we continue to see obviously MSW volumes in our landfill be really strong. We had a really strong special waste quarter. And when we dug into that, we're seeing that across not one or two areas, but really seven or eight of our regions, which suggests a couple of things to us. One is the general overall economy, that's usually a bellwether for that. And then the pipelines we’ve talked about in the back half of last year and last quarter continued to produce this year. And I think overall, I think when we look at our volume for Q1 and trends; I think we're on pretty solid footing.

The one place that I do think that we saw some weather impact is actually on the operating cost line, where we saw whether it be efficiency impacts or in the leachate cost for the Northern part of our business as we had a wetter winter season this year. And so we do expect some moderation in some of those costs as we move throughout the year.

Great, that’s really helpful. Thank you.

You bet.

Hi, team. Thanks for taking my questions. I just wanted to start on ADS. I know it's early days, but you guys are highlighting a very complementary asset base there. But I was hoping you can maybe comment on the – compare and contrast the operating structure. It's my impression that Advanced operates considerably more decentralized relative to Waste Management. I'm just wondering kind of what challenges or opportunities that means from an integration perspective.

Well, I think – I'm not going to comment on their structure, but I would tell you that when we look at their portfolio of business and the work we've done thus far, I think what we find is a business and a set of assets that are very complementary to ours. As I mentioned in my prepared remarks, I mean, this is certainly a business in an industry that’s been very acquisitive, and we feel very confident in our ability to tuck in kind of this core business that is kind of down the middle of the fairway as Jim referred to it before.

One thing I will say just to check on John there is that we can't say about their structure, not so much their operating structure but that is the makeup of their lines of business is a little different than ours. They are kind of 80% collection, 20% landfill, and we're more like 65% collection, 35%. It's another factor that gives us confidence that we will certainly make it through this process and complete this by kind of the 10- to 12-month period.

Okay, that’s helpful. And then just as it relates to the guidance being intact, I just want to understand some of the moving pieces. So obviously, the commodity – recycled commodity price is kind of an incremental headwind relative to that $20 million to $30 million guidance earlier. So I'm just wondering exactly where the positive offset is. Is it kind of that strength in the special waste volume? Or is it a mixture of a lot of things? Some color there would be great.

Yes. And I would say it’s entirely the performance of our solid waste business, being led by the strong landfill volume, whether it’d be the 5.8% MSW volume that we spoke about or in the special waste pipeline, both the strength that we saw in Q1 and then our expectations for that strength to continue over the remainder of the year. The outperformance of solid waste in the quarter far exceeded the impacts of the negative commodity price drag in the recycling line of business. And so we’re optimistic that pattern will continue over the remainder of the year.

I would add, Devina. I mean, we called out a few headwinds we had on the post-collection side and M&R within the collection side. But outside of those, we're making progress. And I commented about what our OpEx was as a percentage of revenue in my prepared comments and some of the headwinds we overcame. So we're clearly making progress on the operating expense control side as well.

Okay, super helpful. And then just last quick one for me. So, obviously, you’ve really outsized volumes in the first quarter, and I believe you guys guided to a 2% volume growth outlook for the full year. So I'm wondering from this base here, like, what the big swing factors are to watch, is it really just that wildfire opportunity? Or is there some other volume growth elements we should be thinking about as we move through the year relative to that 2%?

Yes, I mean, I think that you've seen a couple of things. John has talked and touched on a few of them. John and Devina both with respect to special waste and landfill volumes being strong. We didn't touch on it, but by the way, when you look at 3.4%, yield at the MSW line, that also is impressive in and of itself. But on volume, in addition to those items that they mentioned, I mean, look, I think what you're seeing is that that technology, our focus on technology and our major emphasis on the customer, all of that is coming to roost in the form of strong volumes. The key is here are things like, are the data reporting tool that we've put into national accounts that's driving strong growth in our national accounts business at good margins. The focus on the customer has as driven the lowest churn number that we've seen in years at 8.1%. And again, John mentioned the strong special waste pipeline that's the highest number we've seen in quite some time. And all of that has been discussed in the past as being part of a good pipeline. But now it's actually showing up. By the way, I think that's actually a good sign. And I think he mentioned this, but I, that is somewhat of a barometer for the economy. These big companies look at those, that event type work as being somewhat discretionary and in a strong economy, they're more willing to spend those discretionary dollars in a very slow and weak economy. You oftentimes just see them trim back on those projects. So, I think that to the extent that that says anything about the economy in 2019, for the rest of the year and possibly into early 2020, I think it's a good sign.

Okay, thanks. And best of luck to the integration team.

Thank you.

Thank you.

Thanks so much. I'm sorry to go back to the recycling issue, but I guess the industry has been dealing with this for about a year and a half. Are you finding it easier to go back to your customers and ask them to focus or shift more to this fee-for-services model? Has it gotten easier over that timeframe?

Well, I think a couple of things. The fact that this has been a sustained situation, I think customers are understanding that there are real pressures that service providers are facing in order to continue to provide them not only recycling but sustainability services that they're looking for. I don't think it's ever easy to go back to a customer. And this was a good example to tell them that they're going to have to share more of the risk and pay more for the services. But I think as evidenced by what we referred to as these three phases, and we've been working through for the better part of a year, we're finding that with good messaging and communication with our customers, in giving them real feedback, real-time feedback. Jim mentioned some of the technology we're using, some of those technological advancements that we have to give our customers real feedback and give them an opportunity to address some of the behaviors of their employees or their constituent base to try and improve recycling.

Okay, appreciate that. And then if I could switch back to the ADS potential merger, you mentioned the potential synergies on the cost side and the capital structure, the capital expense side, excuse me, and the complimentary nature of the deal. I'm just wondering, are there any natural areas of overlap either geographically or end market focus?

Well, okay, here's what I would say about that. I mean, when you look at the two companies east of the Mississippi, there's a lot of dots on the map, but I think it's important to recognize that many of those dots are in these large markets where there is no shortage of competition whatsoever. So certainly there will be there is some overlap there just looking at a map. But there's a lot of we're in a lot of large markets, they are in a lot of large markets and there's a lot of competition in those markets.

Great. Thank you very much. In closing, I just want to say that we're really pleased with the efforts of this entire Waste Management team. For quarter after quarter, they do a fantastic job of focusing heavily on the customer and standing behind our commitment to our digital technology now and then executing on the overall strategy of continuous improvement and differentiation. This is truly a team effort and I think it really shows, and with that, I think we're very excited to add the Advanced folks to our team in the near future. Thank you all for joining us today and we'll talk soon.