Good afternoon, and welcome to the Republic Services First Quarter 2017 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. Please note this event is being recorded. I would now like to turn the conference over to Nicole Giandinoto, Vice President of Investor Relations.

Good afternoon, and thank you for joining us. I would like to welcome everyone to Republic Services first quarter 2017 conference call. Don Slager, our CEO; 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 in today's call contains forward-looking statements, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. 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 27, 2017. 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 GAAP reconciliation tables and a discussion of business activities along with the recording of this call, are all available on Republic's website at republicservices.com. And finally, I want to remind you that Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times and presentations are posted on our website. 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 pleased with our first quarter results, which were in line with our expectations and keep us on track to achieve our full-year financial guidance. We continue to realize the benefits of executing our strategy of profitable growth through differentiation, which is designed to profitably grow our business, generate consistent earnings and free cash flow growth and improve return on invested capital. For the first quarter, adjusted EPS was $0.55 and adjusted free cash flow was $240 million, both representing double-digit growth over the prior year. EBITDA margin was 27.4%. Core price was 4.1%, our highest level in over five years. Average yield was 2.3% and was strongest in our small container and large container businesses. The majority of these customers are in open markets, where we can leverage increases in demand for service, our enhanced product offerings and our digital platform. In our small container business, average yield was 3.8%, our highest level of pricing in over seven years. First quarter volumes increased 1%. Volume growth was in line with our expectations and was broad-based across the majority of our markets. Volumes continued to be strong in the event-driven portion of our business, which tends to be a leading indicator for future volume growth. And as expected, residential volumes turned positive as we anniversary the impact of contracts not renewed. During the quarter, we invested $55 million in tuck-in acquisitions. And we returned $218 million of cash to our shareholders through dividends and share repurchases. This included 1.8 million shares repurchased for approximately $110 million. Regarding our revenue enhancing initiatives, we are now approximately have $425 million in annual revenue that uses a waste-related index or a fixed-rate increase of 3% or greater for the annual price adjustment. These waste indices are more closely aligned with our cost structure and have historically run higher than CPI. Regarding our fleet-based productivity and cost savings initiatives, 18% of our fleet now operates on compressed natural gas, 75% of our residential fleet is currently automated and 96% of our total fleet has now been certified under our OneFleet maintenance program. The entire fleet will be certified by the end of the second quarter. Before turning the call over to Chuck, I would like to congratulate the Republic team for being recognized by Ethisphere as one of the world's most ethical companies. Our commitment to fostering a strong ethical culture, conducting our business with the highest levels of integrity and developing sustainable practices to enhance long-term value creation enabled us to be named to this elite list. I'll now turn the call over to Chuck to discuss our financial results. Chuck?

Thanks, Don. First quarter revenue was approximately $2.4 billion, an increase of $144 million or 6.4% over the prior year. This 6.4% increase in revenue includes internal growth of 6.2% and acquisitions of 20 basis points. The components of internal growth are as follows. First, average yield increased 2.3%, average yield in the collection business was 2.9%, which includes 3.8% yield in the small container business, 2.8% yield in the large container business and 1.8% yield in the residential business. Average yield in the post-collection business was 70 basis points, which includes landfill MSW of 1.9%. A majority of our third-party landfill MSW business is with municipal customers that have contracts containing pricing restrictions. Total core price, which measures price increases less rollbacks, was 4.1%. Core price consisted of 5.5% in the open market and 1.9% in the restricted portion of our business. The second component of internal growth is total volume, which increased 1% over the prior year. Volumes increased 1.8% in our large container business and 30 basis points in our residential business. As expected, volumes decreased 70 basis points in our small container business. Small container volumes included a 130-basis-point impact from intentionally shedding certain work performed on behalf of brokers, which we view as non-regrettable. Excluding these losses, small container volumes would have increased 60 basis points. The post-collection business, made up of third-party landfill and transfer station volumes, increased 3.5%. Landfill volume increased 2.8%, which included C&D of 17.1% and special waste of 1.1%. MSW volumes were flat versus the prior year. The third component of internal growth is fuel recovery fees, which increased 40 basis points. The increase relates to a rise in the cost of fuel. The average price per gallon of diesel increased to $2.57 in the first quarter from $2.08 in…

Thanks, Chuck. To conclude, strong fundamentals, together with solid operational execution, resulted in 6% top line growth and double-digit growth in both earnings and free cash flow. As anticipated, the current economic environment continues to be favorable for the business, and we're on track to achieve our full-year goals. We will continue to deliver on our promises to our key stakeholders including our customers, communities, employees and shareholders. At this time, operator, we'd like to open the call to questions.

We will now begin the question-and-answer session. Your first question comes from Brian Maguire at Goldman Sachs.

Hey, good afternoon.

Hi, Brian.

Nice pickup from the trend you had been on the last couple of quarters up 1%, but it was a little bit lower than some of the peers. I think you talked about some of the business you shed at the small container commercial. I just wondered if you could maybe give us a sense of what the volumes would have been without that, and maybe more of a cleaner number then, and when we would expect to anniversary some of that activity.

Yeah. So, couple of things on that. The first thing is that the weather did have an impact on our MSW volumes coming into our landfill. So, we posted, as I said, flat volume growth on MSW, but if you take into consideration of weather that volume growth would have been closer to 1.4%. So, overall, I think that the impact of weather and maybe some contracts that we shed may have had a 30-basis-point-or-so impact on our overall volume growth.

Yeah. And let me add to that. On the small container business specifically, that's just a strategic decision that we've made to not continue to do business with brokers and that broker volume to us that loss is non-regrettable. Our perspective is that brokers don't add any real value to customers. Customers should be doing business with us directly. A strategic decision we've made, and we've been shedding some of that business now for several quarters. We got little ways to go. But otherwise, if you subtract that, to your point, Brian, the underlying economic growth is strong. We're getting good price and getting our fair share growth in the business.

Okay. Great. As a follow-up, the margins were a little bit lower than what we were expecting. It sounds like maybe a little bit lower than what you're expecting too is some of the rains and landfill cost that you had there. Just wondering if you expect any of that to carry through into 2Q or if you think those costs were kind of episodic just to the period.

Yeah. So, the cost that we talked about really related to Q1, especially as it relates to the heavy rains. We're still optimistic of regarding the margin expansion this year. If we look at kind of expectations for the rest of the year, keep in mind that net queue, although there was a headwind for us in Q1 that's going to be a tailwind for us starting in Q2. We do get the step up in CPI as we had talked about that's effective in the second half of the year. And we're going to continue to see benefits from our OneFleet maintenance program, which will be fully rolled out in July 1 of this year. So, we feel optimistic in terms of being able to achieve expansion in EBITDA margins this year.

Okay. Thanks very much.

The next question is from Mike Feniger at Bank of America.

Hey, guys. Yeah. Thanks for...

Hello, Mike.

Hey, Mike.

Hey, guys. Thanks for taking my question. On the guide for the margin, it's good that you still expect margin expansion, but are we still sticking in that 20 to 40-basis-point range for the year?

Yeah, we are. I mean, that's still what we're looking at for this year. Remember, the headwinds, we knew that the margin expansion would be more a back-half loaded just because of the fuel and because of some of the other costs that we're looking at the frontend of the year. And also keep in mind that CPI price increase that we get together with the OneFleet maintenance program, so we knew that it would be back-half loaded. So, right now, Mike, we're right on track.

That's great.

Yes. We've got these temporary landfill operating costs that Chuck spoke of, look we don't like these weather as an excuse, in general, we don't, but when you got landfills that close for several days at a time and we had a couple facilities in the western part of the U.S. that didn't pull trucks out for five, six days that really does impact your overall operations. So, these are just couple of basis points. We're going to get back to it. And again, these other tailwinds that Chuck described are real, and that's going to come through in the second half.

That's great. And just to think about the mix of the business, I'm just curious you're seeing energy services up, recycling prices have been higher. Does the profitability on the waste mix, does it start to move more to being margin accretive, and do you expect that to show up in the back half?

Yeah. So, we saw some of that, right, Mike, in the first quarter. Right? So, the extent that we had more revenue coming in from our E&P business and our revenue coming in from commodities, we saw some of that actually in Q1. And you strip away the noise that we had in terms of the landfill operating costs and the heavy rains, you actually saw the margin expansion, partly due, to your point, to the mix of business.

Yeah. And right. We're seeing growth now across all lines of business. Right? We saw growth in residential. We saw growth in small container, net of the broker loss, so on and so forth. So, we're seeing a broader based recovery. And again, we're seeing in all geographies. So, the macro is in good shape. The momentum is there in the business.

Thanks, guys.

The next question is from Hamzah Mazari at Macquarie. Hamzah Mazari - Macquarie Capital (USA), Inc. Good afternoon. Thank you. The first question is just around how much capacity do you guys have in the current demand environment? What I mean by that is, one of your competitors had said that they began adding routes in many markets in the nation on the commercial side for the first time since their downturn. And you referenced your business is picking up. Just curious how much capacity you have on the ground. Have you been adding routes already? Just if you could frame that for us, where you guys are at.

We have added some routes, Hamzah, in the few markets. Some markets have little more capacity than others, because they were impacted more deeply by the downturn, but I think it's a mix bag. We're also very, very focused on compliance of hours of service and all those other areas of the business. So, we're employing new route tools as well, and getting more precise in and around our really route standard. So, we're going to continue to pickup productivity in the business while we're also expanding the business. So, there's no one answer that fits every market. Everyone is kind of in a different state on the continuum. But I wouldn't say that we're at capacity across the board. And as you know, small container business that the new stuffs soaking pretty easily so to speak in that business. And that's one of the reasons our tuck-in strategy work so well, because we can very often buy a four, five truck company and take trucks off the street. So that alone speaks to the fact that we've got capacity in the system. Hamzah Mazari - Macquarie Capital (USA), Inc. Right. And then you had referenced brokers, do you have a sense of how big brokers are as a percent of the market and has that gone down over time or is that going up? I know Waste Management had bought Oakleaf and that wasn't the great deal, but just a sense of how big is the market for brokers. And clearly, you have some non-regrettable losses that you're still working through and that's strategic and I understand that, but just trying to get a sense of the brokerage business. Thank you.

So, I don't think brokers are playing a bigger role in the business. When Oakleaf was sold to Waste Management, we said, hey, someone is going to fill that vacuum, somebody always does. Our position again is that brokers don't really offer any real value or advantage to customers. We believe we should be owning that customer interface directly with all of our capabilities, the breadth of our products and all of our digital tools, the customers will be better served dealing directly with us and not through a broker. So that's the decision we made, we're going to maintain it. We don't see the business going other way or the trends going the other way. Frankly at the same time, we're improving our capabilities for customers around sustainability, around filling their needs about being selling them solutions that they need, giving them the reporting they need. So, some of the things that brokers used to sell above and beyond are things that we can all do ourselves now, and we're not done yet, right. So, our products continue to improve. Our product catalog continues to expand. And so, little by little we think there's less and less need for brokers in the business and the market, and we think that's frankly the trend. Hamzah Mazari - Macquarie Capital (USA), Inc. Great. Thank you, Don.

Next question is from Al Kaschalk at Wedbush Securities.

Good afternoon, guys.

Hi, Al.

Hi, Al.

And Nicole.

Hi, Al.

A little more color on the operating landfill cost. I think it was a 30-basis-point headwind. Is that includes 20 basis points from the heavy rains or is there something else that maybe you can help just articulate further what that occurred in the quarter?

Yeah. So, there is 30 basis points associated with the landfill operating costs. And then, an additional 20 basis points associated with the heavy rains. So, the landfill operating costs really relate to one landfill, and it has to do with intermediate cover and some other enhancements that we're making to start an operating process at that landfill.

And some of those costs we just kind of pulled forward into Q1 from later parts in the year where they were budgeted.

Okay. Is this the Midwest landfill?

No. It's not. This is actually a landfill in California.

Okay. Well, there is a Midwest in the California too. Anyhow, secondly, and this is more, I guess, you have concentrated or invested where you're able to get returns, and it's related to recycling. I think overall, you say there is about a $0.03, $0.04 headwind for a $10-change. You got commodities that have come down here sharply. I guess my point is, I'm just trying to ask from a business and operating prospective, is that the right – your commitment to that business and the impact it has on your operations, correct, as I thought it also had further impact, greater impact one way or the other based on the dollar change (23:56). So, in other words, the contract changes you may have made or processing fees of – are those revisions showing up, and that's why maybe there wasn't as much leverage in the model in the quarter, based on...

Yeah. So, we've updated the market on the sensitivity as it's changed. It used to be greater than it is, right. So that sensitivity has decreased. Our focus on the business remains. In other words, we've continued to migrate our agreements with customers who deliver material to our facilities in a more fair sort of cost sharing arrangement. So, a good portion of those contracts have already been converted. We're working with municipalities to convert the collection portion of contracts to more – again, a fair cost sharing arrangements, that work is going to continue. And we're going to continue to invest in the recycle business, to your point Al, where it makes sense with the right terms and an equitable contract. And meanwhile, we've still shuttered MRFs at our recycling facilities that didn't return an adequate return on capital, so that's all going to continue. So, we still think it's a good business, where we have good partners, specifically municipal partners who want to be forward-thinking in their sustainability plans, but as you heard me say, you can't have sustainability without profitability. So that's our view. And we think as we continue to work toward fair sharing arrangements that the volatility and the exposure will continue to come down. Having said that, we will also probably be giving up a little bit of the upside along the way, but we will have insulated the business from the volatile downturn. So that's still the right way to run the business we think, but it's going to just happen one step at a time.

Yeah. And we're still early on in the process, Al. We've got about 50% of our processing contracts currently converted over to this processing fee, but the majority of the material that we handle right now, we actually collect on behalf of municipalities, those are covered under longer term contracts. So, it's going to take us a little while longer to cycle through those contracts. But we'll continue to keep you updated in terms of the changes and the sensitivity analysis that we do relative to the price of commodities.

Yeah. And as it relates to the overall price of commodities now, they started out strong at the beginning of the year, they came down in the end of March and now April, but we think frankly they're, for the long-term, for the full year they're still going to be at or slightly above the rate that we guided to.

Okay. And that rate is what?

$140 per ton.

Okay. And finally just to clean-up, how many cents were benefiting the quarter from recycling?

So, recycling was actually a $0.01 benefit during the quarter, but at the same time, we had a $0.01 negative associated with fuel, with net fuel. So, if you remember last year, we called out a lag benefit that we received in Q1. So, year-over-year there's actually a $0.01 benefit from fuel. So those two kind of net out.

Right. Thanks a lot guys, and good luck.

Thanks, Al.

Thanks, Al.

The next question is from Sean Egan at KeyBanc Capital Markets.

Hey. Good evening, everyone.

Hey, Sean.

Hi, Sean.

I just wanted to touch on OneFleet. Now that you guys are almost completely rolled out, can you help us understand maybe what proportion of the benefits that you've seen from the program either through the P&L or the cash flow statement? Just trying to understand the tail after you are fully implemented, if we continue to see benefits for another 6, 12 months as the program matures or if we're kind of through our total savings.

Yeah. So, I'll start out by just emphatically saying that we haven't seen all the benefits from OneFleet yet. Okay. So, let's talk OneFleet from a couple different views. The first being CapEx, one of the benefits of OneFleet is to extend the useful life of the fleet, which means aging the fleet a year, which is a onetime $200 million savings, we're about halfway through that. We'll save yet another $200 million from what we've saved so far, so that'll happen this year. And then there's an ongoing tail, in other words, if you maintain your fleet to now an older age indefinitely, there is a $20 million, $25 million a year savings every year from doing that. So, that's the gift that keeps on giving with OneFleet. That's on the CapEx side. But that's real cash, that's happening, we're seeing that. On the operating side, the goal of OneFleet, right, is to maintain the fleet to be the most safe and efficient reliable fleets you can have. That doesn't mean the youngest fleet, right, it means, maintaining these trucks to high standard throughout their life. So, in the divisions, the business units that have had OneFleet in place the longest, they've seen the greatest benefit in their operating metrics. Fleet availability, engine hour cost and all the other things that we measured, the handful of key metrics we measured in OneFleet. Every one of our divisions has a maintenance dashboard where they follow and closely track their metrics related to OneFleet and our maintenance staff here at the headquarters works with them directly to put extra emphasis on those divisions that need additional health and support. So, we know the things are working. We know the divisions that I've been on the longest have had the best results and the divisions that I just put on last year who're still in the certification process are still working through some of the bumps. So, this is a big, big undertaking. We're still very convinced, it was the right thing to do, and we're seeing the benefits. And now, we're going to really work hard to find an efficient frontier of our fleet, and we're going to start seeing other benefits from having the most reliable fleet in the industry. That's going to start showing up in areas like drive a morale and turnover. In fact, our driver turnover is found year-over-year. Our employee engagement score is up year-over-year. All these other metrics that we measure point positively to some of the things, some of the underlying fundamental things we're doing. So, I could go on and on about OneFleet, but I won't because we only have an hour. So, we're glad we did it. We're almost through the certification process. And then, we'll have some time and capacity to tackle another initiative to be the inflator.

Great. Thank you for all that. And then secondly, I know you alluded to the conversions or the progress that you've made on conversions to a mega water sewer trash index or an alternate to CPI. Can you maybe help us understand the split between collection and disposal within those contracts and maybe kind of give your comments a little towards the disposal side?

Well, I would tell you most of that is collection, right. But, as you know, we don't have a great deal of third-party competitive volume at our landfills, because have consistently raised prices on MSW at our landfill and a lot of that other volume has sort of found other homes. But most of the MSW volume at our landfills that's not coming in on our own trucks, comes from municipalities, and to your point, those volumes are tied to some kind of a CPI escalator. But we are working those just like we're working the other collection contracts, moving to an index that makes sense. And so, I'll say this, most of the more recent conversions have been with the water sewer trash, and/or fixed via 3% to 4%, because we think that's fair and equitable, and we've still been able to sell that to customers as fair and equitable, and we continue to make progress, and we're not giving up. Even though CPI is improving, to Chuck's point earlier, we're going to start to see some benefit from an improved CPI environment, certainly come through at the end of the year. We're going to continue to push to an index that makes sense. And meanwhile, we'll take advantage of an improving CPI environment if that continues for us as well. So, it's a best of all for us.

Great. Thank you very much.

The next question is from Michael Hoffman at Stifel.

Thank you, Nicole, John and Chuck for taking my call.

Hi, Michael.

Hi, Michael.

Hi, Michael.

How are you? Let's talk about cash flow. And sort of how do you get from here to there to $900 million, you've got heck of a start, but help us walk through the flows, if you will, to the remainder of the year, given the conditions in recycling E&P and the seasonal trends that could or couldn't happen. How does that all play out to get to the $900 million?

Well, like you said, Michael, I think that we're already off to a very good start. And some of that has to do with the timing of CapEx. That can be a little bit lumpy. But we're seeing very strong operating results, obviously we've got very strong EBITDA and that's manifesting itself in our free cash flow. So, we feel very confident with our guidance that we gave relative to our cash flow for the year.

Okay. Great. How are you going to get there? Talk to me about how do you get there.

I think it's execution with the rest of our plan, right, Michael. So, we said that we would get double-digit growth in earnings, EPS, this year and in free cash flow. And we demonstrated in Q1. We've actually got that in Q1. And so, it's continuing the blocking and tackling. And also it's the tailwinds that I had talked about, right. So, it's the net fuel, it's the CPI, it's the OneFleet, it's all of those coming together, and that's going to produce the cash flow for the year. And like I said, we're confident right now that we're going to be able to hit our guidance.

Yeah. So, Michael, this is Don. You've been around a long time. I mean, that is a complement. You know that it's never about one quarter. And this frankly is a very good quarter. This quarter is right on top of our operating plan, it's right on top the guidance we provided. We've got a lot of momentum in the business. We talk about the best pricing in years, it's not just this quarter that started at the end of last year. We talked about the momentum in volume, shifting deposit volume in all lines of business. That's a trend, it's not just a quarter. We talk about the fact that we're still only at a 1.2 million household starts, and we still haven't hit sort of the 25 to 50-year average. So, there's still growth to come in that business. And we had a couple of things that touches in Q1, a couple of things we didn't expect. So, we make some decisions ourselves to pull some cost forward. That's just running the business, because we don't run the business just for the quarter, and you know that, right. So, we've got ongoing strength in pricing. We've got a great sales force that's pulling their way, and we're getting our fair share of growth. And we're using our pricing tools to get the best customers at the best price. Price per unit for new sales is up. All those things are going to continue, right. We've got improving metrics in areas like safety and turnover and NPS. And of the gazillion metrics that we track many of them are moving in the right direction, right, but it's a game of inches. So, we're going to continue to do those things. We've got as Chuck said, these tailwinds. We've got the net fuel flipping in our favor in the second half. We got CPI coming back. We've got some of these other, what we call, temporary costs of sighting. That's how we get there. It's just good old fashion execution, getting our fair share of the growth, getting better around service delivery, getting better around customer acquisition, getting better around safety and we're going to continue investing in the business. We're not going to get there by taking the CapEx holiday. We're not going to get there by not covering our landfills. We're not going to get there by taking shortcuts. We're going to get there by running the business for the long-term, making the business better and better, and all those things are well on their way. So, we expect to have a solid Q2 and a solid year. We've said, look, we're reaffirming our guidance. And we expect that we're going to achieve toward the higher end of the EPS guidance. And I think there's a lot of confidence in that statement. So, what else do you want to know?

So, when I look at it in the data you give us, so you gave us cash flow from ops ranges and then you subtract out your PP&E received plus divestitures. There is a pretty healthy ramp and to get the cash flow from ops number to get to the $900 million. And that has to come with operating leverage. I mean, there's no other way to make that up. I mean, there's not monster working capital savings. So, I think what I was getting after is that, if I get the seasonal trend normal, nothing unusual 2Q, 3Q. Given what you've done with your cost, I should see something in and around $1.86 billion in cash flow from ops. You spend what you're going to spend. There's your $900 million.

Right, Michael. And just come back down to the operating leverage that you had talked about. That's what's going to drive the free cash flow, that's what's going to drive the margin expansion. Absolutely. That's baked into the numbers and that's what was baked into our guidance.

But it's not – you're not doing this through working capital. This is operating leverage to the income statement, I managed to pick a negative working capital and turn it into a source.

That's exactly right.

Yeah. We're not taking shortcuts. There's no smoke and mirrors. It's good old fashion run of the business. You got all these benefits of these initiatives layering in, you got the momentum builds. Again, every new unit, every new ton comes in at a higher margin. You got to arrest a few cost along the way. You got to hit your productivity goals, which we have set for the team. Everybody has goals in the organization, right. So all that has to happen, but that should be a phase to do and that's what we see happening in Q1, net of a couple of anomalies and a couple things that we kind of do our-self here. But as I said, the momentum is there, we're reaffirming the guidance, it's really good quarter here. But we don't have our feet up on the table celebrating, as soon as we hang up the phone, we're going to go right back to work.

Okay. Fair enough. So, on the landfill side, if my memory serves, a disproportionate amount of your landfill comes on your truck, you don't take that much third-party.

Well, we take third-party but most of our third-party is MSW tied to municipal, which is price restricted. Right. So...

In that third-party, what was the trend there on the year-over-year volume?

Well, are you talking about on the MSW coming in third-party?

Yeah.

Yeah. The MSW was kind of flattish, but then you look at the C&D was very, very strong with 17.1% as I had mentioned. And that's coming off of a 17.8% last year. So, very strong on the advent pieces that were coming into the landfill.

So, what I'm trying to get out a little bit is, you had good frontend loader growth volume wise in your own business, but your third-party MSW, which is really residential side loaders, but it's MSW. So it's still the consumer is flat, I'm trying to reconcile that. How many will live with that?

Yeah. You keep in mind that those MSW volumes that we had talked about were impacted by the weather. And if you strip that weather out, they were closer to an increase of 1.4%.

But still it's not monster growth, it's not 5%, 6%. So, we generally feel that landfill growth should be fairly consistent, third-party landfill growth should be fairly consistent with the growth that we have in our core hauling business. They tend to flow with each other. And that's our view of the world. Now, the only thing that sort of changes that is, when we're reporting price volume in aggregate, it really is a revenue calculation, right? And so, we get – there's only a little bit of noise when you compare the two based on container weights or a container is 100% full and those kind of things, because as you know as people continue to provide or want more service increases, it takes a while before you actually can convert that to revenue, so there's some of that noise in the system. But we still think it's, on a macro basis, a very broad based recovery. It's not spiking. It's not happening in any big way. It's just happening a little at a time.

Yeah. I think the recovery is very metered, because that's the nature of the housing recovery.

Yeah.

And what I was trying to get a feel for is, are you seeing a commercial business growth that's a combination of housing driving new business and your existing group business, walking up service intervals. And a corollary to that would be, it's the consumer everywhere. And so, your third-party volume into your landfill, all those numbers, there is a relationship to them.

Yeah. I think all of those things are very well balanced and consistent with what we've seen in our business, in our markets, in our collection of assets, historically. At least over the last several quarters, as we've seen a more pronounced recovery from the dark days we've seen in the past. So, I think it's very correlated. Again, other companies that may report may have a different set of assets. Some companies have a bigger landfill concentration. Some companies have businesses north of the border. Some companies have landfills in markets where they're not particularly integrated. We don't have any of that, right. So, we're more of a vertically integrated business across 240 markets. So, our business behaves a certain way. But there's nothing we're seeing in the trend, in the macro that has us worried. We think there's more to come. We think you look at our positive trends in price and volume, they're not just the quarter, but they're sequential, and the same thing is happening within the business. When I talk about operating metrics we track there, they're improving, right. And we're only doing $100 million of tuck-in a year. So, we're not spending $300 million, $400 million, $500 million, $1 billion on acquisitions. So, we look a little different, right. But the business is performing well. And we're talking double-digit free cash flow growth and double-digit EPS growth, Michael. And that's frankly something we hadn't seen in number of years. So, I would say, strong performance for these assets. And again as I said, more to come, because the trends are and the momentum is in the business.

Okay. Thank you for taking my questions.

You bet.

See you Tuesday.

Okay.

The next question is from Corey Greendale, First Analysis.

Hey, good afternoon.

Hey, Corey.

Hi, Corey.

Hey. So, just a couple questions. And apologies if this is treading back over some things you touched on a little bit already, but just to sort of set future expectations. Don, you mentioned on the broker business there's still some more to go. Can you just give us a sense how much of your revenue now consists of work you're doing for brokers?

Yeah. I don't know if we've given you the exact number, but I think we'll be through it probably sometime next year. Okay? It'll sort of trickle its way out between now and the end of next year.

Okay. And then on the volume point, I totally get different mixes and I understand the weather impact, but I think just to put a finer point on one thing, I think one question we're going to be getting is just sort of the comp between your MSW volume growth and Waste's MSW growth. And I realize you can't really address specifically other companies, but any thoughts on why, because presumably they would have been hit by weather also, why the delta between the kind of flattish for you and the 7%-ish that they got?

Yeah. One thing I would point out is that, we're coming off a very hard comp on the MSW side of 4.7%. And I'm not sure what they reported last year, what kind of comp they're coming off of. So that might have something to do with it.

Okay. I don't recall. I'll check.

Yeah. And again, we're not paying as much attention to what they're saying as what we're doing. So...

Yeah. No, I totally get it. And you're running your own business and the business is going well, just in terms of – I think it's a question people looking at both companies will ask. Last question I had is just, Chuck, as far as on the cost side, one thing that – not to overemphasize 30 basis points, but the increase in the labor under SG&A was a little higher than I expected. I think it was up about 11% year-over-year. Is that the trend we should expect for the rest of the year?

No, that really has to do with our customer resource centers that we're in the process of opening. That'll be done by the end of this year. So, our expectation is that salaries will come down as a percentage of revenue for the rest of the year.

Because of cost savings or you're saying there's some implementation costs you're incurring now.

Yeah. That's right, Corey. It's an implementation cost. That's exactly right.

Think about duplicate staffing levels and having to employ more people in the overlap and all the rest of it.

Got it. And remind me when should we start to see the savings coming in?

So, it's next year is what we had said that you'll see a full run rate of savings associated with the CRCs.

At the beginning of 2018?

Yeah. Starting in the beginning of 2018.

Perfect. All right. Thanks.

You're welcome.

The next question is from Noah Kaye at Oppenheimer.

Good afternoon, Don, Chuck and Nicole. Thanks so much for taking the questions. Maybe if we could start with the dynamic around core price versus average yield. Suddenly when you've got both numbers moving in a positive direction, it sets a strong start. But if I look at the gap between core price and average yield, which is a metric that you talked to, it did increase somewhat in the quarter since you're getting 4.1% price. I think that delta was about 1.8%, I guess. Do we make of this that some of your recent initiatives around pricing and price capture are starting to take stronger route? And how do we think about the stickiness of some of the core price increases?

Yeah. So, let me just address the churn a little bit. So, we saw a slight increase in the churn sequentially, and that really had to do with a supplemental revenue imitative that we had in place in 2016 that we ended up anniversarying. And we knew that that was coming. And that's why we were very focused in on going out with additional pricing actions, which help push our yield up over the 2% level. So, that might be some of what you're seeing right now. And certainly that's what you're seeing in terms of the core price that we've been able to push out in the open market.

Right. To your point, the tools are fully deployed, the adoption rate is high, people are using the tools. Our selling rate for new sales is up. So, we're selling new business on a per unit basis at a higher rate this year than we were last year. The tools are designed to do that. Customer retention stay strong at 93%. So, all those other metrics are good shape. And again it sometimes the benefits of these things showed slowly, but they continue to provide benefit and they'll continue that through the year.

Okay. That's very helpful. And then there's been a lot of discussion of the different components of volume. I guess if we just backup, thus far, we've seen normal seasonality in the second quarter.

Yeah. Second quarter, means, it seems fine to us. Really we usually wait to really talk about seasonality until the quarter's completed, because it's really May-June where that really comes to roost, probably a little bit too early to tell. The frost is – there's still chance of frost in the Midwest kind of thing. And I know that because I'm doing a little construction project there and they keep complaining that there might be frost in the ground that's why they can't get things done. So, anyways, we get to the seasonality question through sort of mid-May and into June, and we'll give you an update on the Q2 call.

Okay. I appreciate that. Thanks. And then maybe if I could just finish up and try to get at this MSW versus C&D maybe from a slightly different angle. If you have double-digit increases in C&D, and as you've always framed this, housing starts and construction, should presage over time an increase in the higher margin MSW type volumes. Do you think that you just have some footprints in relatively younger markets or higher growth markets, and that is going to take a bit more time for those MSW growth rates to catch up. Could that be a possibility?

Well, I don't know that we slice it quite that finally. We talk about the various types of markets we're in. It's a pretty good balance of urban centers and secondary markets, and 25% of our business is in franchise market. So, it's pretty balanced portfolio. So, we don't spend a lot of time analyzing that, because I don't think it really does us a lot of good help from the business. So, I'm sorry, I can't provide you the insight. Overall, we look more, market-by-market, how we make investments, how we deploy sales force and products, and how all of our markets contributing. And the good news to that answer is, all the markets are really doing pretty well. We get a really broad-based recovery here. It really is, as I've shared talking about with Michael Hoffman, I think it's taking a lot longer for us to see the benefit of small container growth in this recovery. We had hoped and thought we would see it sooner than we did, but we've been seeing it. And net of this broker issue we're working through, we've got decent growth there too. So, when all lines of businesses are contributing, including your higher margin, things start to make a difference for you on the margin and that's what we're going to begin to see here now in the second half of the year.

Right. Thanks very much for the color and see you at WasteExpo.

Thanks, Noah.

Thank you.

The next question is from Tyler Brown at Raymond James.

Hey. Good afternoon, guys.

Hey, Tyler.

Hi, Tyler.

Hey, Chuck. Just to be clear, so the landfill operating cost headwinds, they sunset at the end of Q2?

Yes. That's right.

Okay. And then, was the lack of the CNG tax credit a notable drag?

It was a drag. That's part of that drag that we called out that $0.01 of EPS, about 50 basis points at that, that was all part of it.

Okay. Okay.

But the big piece of it was the fuel like that, the benefit that we received last year for it.

Okay. Okay. And so, my last question here is, just, if CPI is set to help us here in the back half, I mean, it seems that the open market is very rational. It seems like churn is lower stable. Why wouldn't yields be better than the 2%, 3% here in the back half?

Well, we're not there yet, right? Historically, when CPI is nor normal or in that sort of 2%, 3% range, open market pricing is better, historically. So, we're certainly thinking about how we will go to market and will think about what the market bears and allows, and will be evaluating competitive behavior and all the rest of it. It's too early to tell, but historically, yes CPI is up, open market pricing is up as well. So, we'll just see what happens.

And we'll update our guidance as we always do in July.

Yeah.

Sure. Okay. All right. It's been a long day. Thanks.

All right. Thank you.

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, Amy. In closing, we'll continue to manage the business to create long-term value and remain focused on executing our strategy of profitable growth with differentiation. I would like to thank all Republic employees for their hard work, commitment and dedication to operational excellence and creating the Republic way. Thank you for spending time with us today. Have a good evening, and be safe out there.

Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect.