Good afternoon, and welcome to the Republic Services' Third Quarter 2016 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 Brian DelGhiaccio, Senior Vice President of Finance. Please go ahead, sir..

Good afternoon, and thank you for joining us. I would like to welcome everyone to Republic Services' third quarter 2016 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 on today's call contains forward-looking statements, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations.

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 October 27, 2016. 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, Brian. Good afternoon, everyone, and thank you for being with us today. Our third quarter results continue to demonstrate the strength of our strategy, a profitable growth through differentiation.

Our solid performance resulted from simultaneously growing price and volume, higher recycled commodity prices, and continuing to execute our strategic initiatives. As expected, margins expanded in the third quarter, keeping us well-positioned to achieve our full year EBITDA margin goal.

Highlights of the quarter include adjusted EPS of $0.62, which exceeded our expectations. Our results were positively impacted by solid performance across our business and a lower tax rate. We now expect to exceed the upper end of our original guidance range.

Adjusted free cash flow was $239 million during the quarter; we now expect to meet or exceed the upper end of our original guidance range. Core price was 3.2% and average yield was 2.1%. Average yield improved sequentially even with a step-down in CPI-based pricing.

We continue to see relatively higher average yield in our small container commercial and large container businesses. A 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. Third quarter volumes increased 60 basis points.

We continue to see broad-based volume growth across our business, which was tempered by intentionally shedding certain volumes performed on behalf of brokers and municipal residential work that does not meet our return criteria. Adjusted EBITDA margin improved 80 basis points to 28.9% from 28.1% in the prior year.

A favorable reduction in operating cost drove 20 basis points of margin expansion and lower SG&A costs resulted in 60 basis points of margin expansion. As part of our efficient capital allocation strategy, we returned $622 million total cash to our shareholders since the beginning of the year.

This includes 6.5 million shares repurchased for $312 million. We remain on track to complete our goal of $400 million of share repurchases during 2016.

Regarding our revenue enhancing and customer-facing initiatives, first, we now have approximately $375 million in annual revenue that has been converted to a waste-related index or fixed rate increase of 3% or more for the annual price adjustment.

Second, approximately 1.7 million customers are enrolled in our customer portal and mobile app, up 50% from the prior year. These tools significantly enhance our customer interaction and connectivity. Third, we expanded our product offerings on our e-commerce platform.

Customers can now purchase small container, temporary large container and residential subscription services online. This technology addresses the evolving needs of our customers' buying preferences and provides a lower cost sales channel. And finally, we opened our last customer resource center, located in Indianapolis.

We continue to consolidate the customer service function from 100 different locations into three and expect the transition to be complete by the end of 2017. Regarding our fleet-based productivity and cost savings initiatives, 18% of our total fleet now operates on natural gas.

74% of our residential fleet is currently automated, and 90% of our total fleet has been certified under our One Fleet standardized maintenance program, up from 74% a year ago. The entire fleet will be certified by mid-2017.

As a result of our third quarter performance and expectation that recycled commodity prices remain at current levels for the remainder of the year, we are raising our full-year financial guidance. Adjusted earnings per share is now expected to be in a range of $2.19 to $2.20, which is an increase from our original guidance of $2.13 to $2.17.

Adjusted free cash flow is now expected to be $840 million to $850 million, which is an increase from our original guidance of $820 million to $840 million. Chuck will now discuss our financial results.

Chuck?.

Thanks, Don. Third quarter 2016 revenue was approximately $2.4 billion, an increase of $65 million, or 2.8% over the prior year. This 2.8% increase in revenue includes internal growth of 2.5% and acquisitions of 30 basis points. The components of internal growth are as follows.

First, total average yield grew 2.1% over the prior year; average yield in the collection business was 2.6%, which includes 3.6% yield in the small container commercial business, 2.3% yield in the large container business, and 1.5% yield in the residential business.

Average yield in the post-collection business was 1%, which includes landfill MSW of 1.7%. A majority of our third-party landfill MSW business is with municipal customers that have contracts containing price restrictions. Total price, which measures price increases less rollbacks, was 3.2%.

Core price consisted of 4.3% in the open market and 1.4% in the restricted portion of our business. Second, our total volumes increased 60 basis points. Volumes increased 30 basis points in the small container business, and 1% in the large container business. As expected volumes in the residential business declined 1.1%.

Volume growth in the small container business reflects a 60 basis point impact from shedding certain work performed on behalf of brokers, which we view as non-regrettable. Excluding these losses, small container volumes would have grown approximately 1%.

The decline in residential volumes resulted from not renewing certain contracts that fell below our return criteria. These losses were known and contemplated in our full-year guidance. The post-collection business made up of third-party landfill and transfer station volumes increased 2.5%.

Landfill volumes consisted of growth in MSW of 1.9%, and C&D of 13.4%, partially offset by decline in special waste of 3.6%. The decline in special waste volume relates to two large event-driven remediation jobs in the prior year that did not repeat. Third, fuel recovery fees decreased 60 basis points.

The change primarily relates to decline in the cost of fuel. The average price per gallon of diesel decreased to $2.38 in the third quarter from $2.63 in the prior year, a decrease of 9%. The current average diesel price is $2.48 per gallon. We recover approximately 80% of our total fuel cost through our fuel recovery fee program.

Additionally 20% of our diesel gallons are hedged using financial hedges. Next, energy services revenue decreased 30 basis points due to decline in drilling activity. And finally, commodity revenue increased 70 basis points.

The increase in commodity revenue includes higher processing fees charged to third-parties, and an increase in recycled commodity prices. Excluding glass and organics, average commodity prices increased 12% to $133 per ton in the third quarter from $119 per ton in the prior year.

Third quarter total recycling volume of 655,000 tons was essentially flat with the prior year. Cost of goods sold was up 13% from an increase in rebates paid for recycled commodities. Now, I will discuss changes in margin. Third quarter adjusted EBITDA margin increased to 28.9%, from 28.1% in the prior year.

Of the 80 basis points of margin expansion, the impact from higher recycled commodity prices contributed 10 basis points. The remaining 70 basis points of margin expansion relates to.

First, a 10 basis point improvement in cost of operations resulting from price increases in excess of our cost inflation and realizing the benefit from our fleet-based initiatives and second, a 60 basis point improvement in SG&A costs resulting from favorably settling a legal matter, price increases in excess of our cost inflation and leveraging our fixed cost structure while growing volumes.

The favorable legal settlement reduced third quarter SG&A cost by approximately 40 basis points, which more than offset legal charges recorded earlier this year. I want to remind you that we provide a detailed schedule of cost of operations and SG&A expenses in our 8-K filing.

Third quarter 2016 interest expense was $89 million, which includes $12 million of non-cash amortization, both interest amounts exclude the refinancing charge. As discussed on our second quarter call, we tendered and replaced hard coupon debt in early July.

Associated with refinancing, we incurred a $0.36 charge in the third quarter, which was recorded for loss on extinguishment of debt. The refinancing activity will save approximately $17 million in annual interest expense or approximately $0.03 of EPS.

Our adjusted effective tax rate was approximately 37%, the lower tax rate in the third quarter resulted in a $0.02 EPS benefit. Third quarter adjusted free cash flow was $239 million and year-to-date adjusted free cash flow was $576 million.

After considering the timing of working capital, our year-to-date performance keeps us well-positioned to achieve our upwardly revised full-year guidance. Now, I will turn the call back to Don..

Adjusted earnings per share of $2.31 to $2.36; and adjusted free cash flow of $875 million to $900 million. Both performance metrics represent mid to high single-digit growth. Consistent with our prior practice, we will provide detailed guidance in February 2017.

To conclude, we are very pleased with our third quarter performance, as a result of continuing to focus on our strategy of profitable growth through differentiation, together with solid operational execution, we expanded margins by simultaneously growing price and volume, reducing costs and leveraging our scale, delivered earnings and free cash flow growth and improved return on invested capital and increased cash returns to shareholders through a balanced mix of dividends and share repurchases.

Through our focus on managing the business for the long-term, we continue to create lasting shareholder value. Before going to Q&A, I'd like to discuss some recent events. In September, Republic was named to the gold standard of sustainability rankings, and was the only company in our industry included in the Dow Jones Sustainability World Index.

Our customers have told us that sustainability is important to them, and we believe that it drives profitability and long-term value creation. We are proud of our progress in this area and the external recognition we've received is best-in-class.

With respect to Hurricane Matthew, we're happy to report that we made immediate contact with all Republic employees and all are safe. Our facilities and assets did not incur any material damage and we were fully operational in all locations within days of the hurricane.

We are committed to providing the high level of service required to address the needs of our customers. At this time, operator, I would like to open the call to questions..

Thank you, Mr. Slager. Your first question will come from Corey Greendale of First Analysis. Please go ahead..

Thank you. This is Ken Wang on for Corey. Thanks for taking my question. So, just looking at the EPS beat for the quarter, it looks like part of it was driven by lower than expected other category expense within SG&A.

Just wondering if you could speak a little bit more about what that was, what in particular drove that?.

Yeah. We had a legal settlement during the quarter that benefited us in the SG&A line by about 40 basis points..

There is about $0.01 of EPS..

Okay. Great. Thanks.

And then just on Hurricane Matthew, was there any revenue effect during the quarter?.

No, not really – negligible. When these things occur, what will happen is, you will have some business closings that are a decrease in revenue, but then you'll also have some cleanup effect, that is an increase and then at some point, maybe some ongoing construction, debris hauling that impacts the business.

We also have some cost increases along the way as we take care of our people. We move all of our trucks to higher ground so that they are safe and sound. We do a lot of planning and work so that we can get right back to work.

So we put a lot of emphasis in on the front-end, so we can get right back to work and take advantage of some revenue as it comes in, but our focus is employees, assets and then hopefully a little bit of cleanup that we can do, but net of net it's immaterial..

Okay. Great. Thank you very much..

And your next question will be from Hamzah Mazari of Macquarie Capital. Please go ahead. Hamzah Mazari - Macquarie Capital (USA), Inc. Good afternoon. Thank you. Just had a question on the volume environment, Don, how would you characterize that? Did you see sort of normal seasonality, are the U.S.

elections impacting special waste projects being pushed out? And there is some noise, given you are shutting low margin business. So just trying to get a sense of how you – how we should think about just the underlying volume environment given some of these moving parts here..

Yeah. Sure. Let me back up a minute, Hamzah, let's first focus on the preliminary outlook we gave you for 2017, which really says that we think the ongoing trends, underlying rational behavior in the business, underlying economy and the trajectory for the business is good into next year.

So we're not seeing anything on a real true trending basis that's got us concerned, we think things are going to be fine. On a localized basis, you mentioned impact of the election, yeah, we do see every four years when we get into this election cycle, some impacts to certain maybe major event jobs being pushed or delayed.

I think we're seeing a little bit of that in special waste, right now. Roll-off has been pretty solid for us. We had a little lower growth in roll-off this quarter than last, but we also got higher price. So, we specifically went into the market, because of demand, and asked for a little more price in our open-top temporary roll-off business.

So, there is nothing there that has us concerned. And again, I'd just point you to next year. On the commercial side, we've talked a lot about construction coming back that's been our leading growth headline, but we saw in Q3, the first positive or I'd say, the best positive sales growth year-over-year in our small container business in two years.

And if you net out the losses – the broker losses, which were intentional and non-regrettable, it was a really great quarter for us. And that's on top of four out of the past five quarters in that business have had a 3.6% yield to boot.

So a solid yield, solid growth and again, shutting a business that's – that doesn't have the right return is the right thing to do for us. And we're going to continue to do that. Hamzah Mazari - Macquarie Capital (USA), Inc. Right. Very helpful.

And then just a follow-up question, you mentioned 80 bps of margin expansion, there's some one-time items in there, may be around the legal matter you referenced.

Is 30% still a short-term margin target to think of for you guys? Just trying to get a sense of normalized annual margin expansion that we should be thinking about going forward?.

Yeah. Well, I guess, it depends on your definition of short-term, Hamzah. For us, we think 30% EBITDA margin is certainly within our grasp, some things have to go right for us. We got to see continued growth in our best lines of business like small container, which we saw in Q3, we got to see landfill growth continue.

Remember, if not for the change in CPI in the fall-off in recycling commodities that we saw following 2011, we'd be at 31% margins today.

So, those two things alone have really slowed us down, those are the big headwinds we face, we're spending a lot of time in reimagining the recycling business, we've closed our facilities that don't meet the return criteria. We've invested in others that do, so, we're still committed to recycling for customers, that are willing to pay.

We've continued to make good decisions there, we're converting more and more of our municipal business to a fair and reasonable price escalator.

So, those things are going to continue over the next several years and we think we'll get back to 30%, we think this business can certainly handle that, and we think that sort of the structural nature of the industry will allow it. So....

Hamzah, I'd say that our third quarter results reflects that also, holding aside the fact that about 10 basis points of our margin expansion during the quarter was the result of commodities, we talked about 40 basis points due to that legal reversal that we had.

But on top of that, you've got 10 basis points of leverage in the operating cost line and another 20 basis points of leverage in SG&A. So, we're starting to see all the fruits of our labor..

The preliminary outlook we gave you, Hamzah, includes ongoing positive growth, ongoing positive yield and ongoing margin expansion in 2017. Hamzah Mazari - Macquarie Capital (USA), Inc. Great. Thank you..

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

Thank you and congrats on the quarter. I'd like to just pick up right there on some of the internal levers for the margin expansion.

You mentioned the consolidation of customer service, can you kind of help us understand how that and some of the other restructuring initiatives might be creating some of this leverage, let's say, on the SG&A side, as well as in the operating cost side.

Maybe just get into a little bit more detail on what's being done internally to help drive that expansion? Thanks..

Yeah. So, that's great question. So, first remember, when we first told you about the consolidation of the Customer Resource Centers, we were doing that at the same time we were going through an organizational restructuring here, by combining a couple layers of management, which that's complete.

But we also said, the net effect of that is not really going to be fully achieved till 2018, right. So, we won't see the full effect of the CRC consolidation until 2018. So, that's one of them. There are ongoing improvements in the business all the time around productivity, around fleet.

We expect our maintenance cost to moderate in Q4, we're putting a lot of effort into building what I call the most reliable fleet in the industry that's our goal. We think that reliable fleets going to continue to help us with driving employee turnover down, employee engagement up, tech turnover down, all those other things.

And so, there is a lot of things going on in there that are worth sort of basis points at a time. Remember on the CapEx side, we're going to save $200 million as a one-time CapEx savings from the One Fleet initiative and an ongoing about $20 million, $25 million a year from aging the fleet very methodically.

So, there is no one thing and that's the issue, there is a lot of little things we got to do better across the whole enterprise and I think that's what the result show..

That's very helpful. Thank you. Second question, I think you'd signaled a target spend on M&A of around $100 million, I guess you spent about $30 million so far this year.

How do you see the M&A landscape now? Are things heating up? How do you feel about kind of the near-term opportunities set? Do you think you'll get close to that $100 million after all?.

Yeah. So first I wouldn't say that the M&A pipeline is heating up, we would say that's fairly consistent. We think we will spend you know near the $100 million this year. We're looking to spend that very intelligently. So, it was very light in the front half of the year.

We've got enough deals in process, we think to – again intelligently put that $100 million to work in the remainder of the year. So, we're going to continue to do that, as far as the pipeline looking forward, our estimates for next year would include that $100 million as well. So, again we're looking for the right companies.

We're looking for the companies that are in our again tuck-in market where we can just basically tack them on to, built them on to existing operations. We're looking for good business with reoccurring revenue, right. So we're not buying junk. And again we're buying those things at about five times post synergy EBITDA. So, that's our outlook.

We think we'll have the opportunity to do that this year and next year, as well..

Okay. Thank you..

The next question will come from Al Kaschalk of Wedbush Securities. Please go ahead..

Hi, guys. This is Misha Levental on for Al. In terms of your progress converting customers over to waste – waste index and other fixed rates.

Could you maybe talk about your expected progress for next year, should it be kind of consistent to what we saw this year or how do you guys see that tracking?.

Well it's a little hard to project that here, because as you can probably appreciate it's a little bit lumpy right. This is going to depend on timing of when certain contracts roll over and it's going to depend on size. So as we've said, we've started with smaller contracts and customers and moving into medium and larger.

So it will get a little more difficult as time goes and we're also hoping to see that the market rationality will change along with us. So we've kind of led this process.

Frankly, it has to continue to change because it's illogical for waste companies to enter into five year and seven year agreements with a CPI that averages 1.5%, when everyone in this industry will tell you that their cost increases, average to.

So it's a logical that it would continue to be CPI based, we're setting the tone for that, we're starting to see certain market activity that would lead us to believe that it's being more and more well accepted by customers. So we're just going to keep at it. We're not going to enter into new agreements that have decreasing value over time.

So it's just going to be work in progress, and we're going to have to just report as we go, because as I said, it's a little bit lumpy based on size of contract and timing..

Great. And as a follow-up, the strength of volume is really quick. Thanks for the broader 2017 guidance and maybe understanding that further detail will come in February, but looking at volume versus this year, volume was better kind of in the front half of the year, kind of tailing down sequentially.

Should we expect somewhat of a reverse trend or a similar trend in 2017, or what's the expectation there?.

We're looking at volume growth to be relatively consistent from what we saw in 2016. And we'll give you more guidance on that in February..

Yeah. So remember when we came out in Q1 of this year, we came out with really strong volume numbers and we warned everybody that it was a tough comp to last year. And we let everybody know that the volume was going to trend down over through the course of the year on a year-over-year basis.

So, let's not get confused about tough comps and year-over-year analysis. We think the trends are solid, as I said in my earlier comments, we think the underlying fundamentals are strong.

And again, we gave you preliminary outlook for 2017, which includes positive volume, positive yield and margin expansion, which is – again says that we believe our businesses are going to continue to improve and there's nothing on the horizon that makes us think otherwise..

Great. Thank you very much..

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

Yeah. Thanks, guys. We saw the impact you laid out this quarter from walking away from some national accounts and brokerage business.

I'm just curious when we start thinking about 2017, I mean, could we see a similar headwind in 2017? Or do you see less room to walk away from that type of business or less of a headwind because of that?.

Well, we're not giving 2017 guidance today, so we'll start there. Again, we are – we've stepped out and committed to a strategy that frankly doesn't include enabling brokers.

And so, we don't think they are good for our business, we don't think they add value to our customers, and we're certainly not going to continue to basically provide services for brokers who basically won't pay us a proper return and frankly drive a wedge between us and our customers.

So that model is underway, we're going to continue to work through it, we are part-way through it. We think the underlying volume trends in the overall economy and with our products and our attention to quality and the improvement in our sales force, we'll continue to reap the benefit of growth even as we shed business that's not profitable.

So overall, we are just not going to enter into agreements to do business for practice, and we are not going to enable competitors along the way. So that's life as we see it at Republic Services. So, I hope all my team is listening..

Makes sense. And when we talk about the yield and specifically the price, the restricted pricing portion, you know, fell back again obviously because of CPI resets.

I'm just curious, that 1.4%, is that the bottom now or is that actually going to step-down again in Q4 and the first half of 2017?.

That should be close to the bottom. We would expect that to be close to the bottom..

But I think the other thing to remember too is that you saw the step-up in the open market such that actually the overall yield actually improved sequentially, right. So we were able to more than overcome that step-down in CPI-based pricing, which is exactly what we thought we were going to do..

Thanks, guys..

And the next question will come from Tyler Brown of Raymond James. Please go ahead..

Hey, good afternoon, guys..

Hi Tyler.

How are you?.

Hey, good. Nice quarter. Hey Chuck, I know the 2017 outlook is preliminary, it's obviously subject to refinement.

But can you give us any sense of the magnitude of EBITDA margin expansion? I mean, are you guys looking at closing in on 29%, or any color there?.

You know, we'll give you a lot more color on that in February, obviously we – as Don had mentioned, we think that 30% EBITDA margins is something that is achievable over a number of years and we are certainly going to progress towards that goal in 2017..

Okay. Okay. That's good.

And then just a quick housekeeping item, what should we expect for quarterly interest expense?.

Well, I think you saw, Tyler, if you take a look at the quarterly interest expense that we talked about, which was $89 million or so total with $12 million of non-cash amortization, that's reflective of a full quarter post our transaction, so you can probably extrapolate that and get pretty close..

Okay.

And then Don, any updates on the coal ash side?.

Yeah. Let me pitch in on that last question, and then I'll let Al (33:58) talk to coal ash. Also keep in mind Tyler that the impact of the low CPI that we saw in 2015, that's anniversary out of the second half of 2017, that's going to be in our margin little bit in 2017.

And then, the full benefits as I said earlier of the Customer Resource Center consolidation, that's really get till 2018, but if you ask every one of my team members about, are we focused on 30% margins, they'll tell you, yeah, we think the business can get there and then we've got plans in place to negate some of these headwinds and overcome it, so that's what we're thinking.

On coal ash, there is not a lot of activity from our perspective, the couple of contracts that have been let, we weren't well-positioned geographically for those and they went really cheap. I'm frankly disappointed to see how cheaply they went. We still think coal ash is more of a 2018 story.

And there'll be a big event that occurs and then it's going to be a business decline.

So, it's not a business that we're going to put a lot of effort into to be in that space long-term, but we are situated geographically to take advantage of the volume, we certainly will, we got capacity, we're well situated around the states where this stuff is generated. And I think we'll get our fair share as long as the pricing is reasonable..

Okay. Cool. And then Brian, one quick question actually for Brian.

Are you seeing any unusual inflation in your upper layers of insurance, something I've actually been hearing quite a lot about from the truckers, is there anything unusual going on there?.

No, I mean when we take a look at how we've been able to renew our policies, I would say it's a relatively normal cost inflation. So we haven't seen anything abnormal to date..

Okay, cool. Thank you, guys..

The next question will come from Andrew Buscaglia of Credit Suisse. Please go ahead. Andrew E. Buscaglia - Credit Suisse Securities (USA) LLC (Broker) Hey, guys. Thanks for taking my question.

And Don, can you expand, what did you mean on that coal ash comment that longer-term you guys don't see yourselves having quite as much of a hand in that?.

Well, I'd say this, look I mean it's a business that the – there's going to be over time less and less electricity produced by coal plants. So this big cleanup that's going to occur from all the stockpile of coal ash will be an event that lasts a number of years. Andrew E. Buscaglia - Credit Suisse Securities (USA) LLC (Broker) All right..

We will participate in that. Again remember, big generators are going to want to build monofills. So you're going to have to be – make a big dedicated play to give up a portion of your landfill to handle their needs.

We can do that, we certainly are prepared to do that, we're in conversations to do that today, but over time after all the big cleanup is completed, whether people do it on site and they build their own landfills or whether we do it for them, over time there is going to be a decreasing amount of coal ash generated in this country based on regulation and based on the cheap cost of natural gas.

So there are people who think just a regulation change alone is going to bring coal back, but I'll tell you with the cheap cost of natural gas that's – there is an economic decision there, right. So, we just have to wait and see. And again, we don't know yet how many of these producers are going do it themselves.

We think that well-capitalized ones will, because again they can build it into their capital base, and they can make a return on it with their – with the rate payers. The smaller, less well-capitalized players may not. But I would sit here today and tell you that many of their generators don't really have a well-thought-out plan yet. Andrew E.

Buscaglia - Credit Suisse Securities (USA) LLC (Broker) Okay..

And remember, only one state so far has come out with rules. And while the Feds have passed the rules, only one state has passed rules, so the remaining states have not yet. So it's just still early.

So what's the stat, how many landfills do we have in the states that produce this stuff?.

About 10 states produce about 50% of the coal ash, and we've got over half our landfills in those states, we're very well-positioned..

So on that alone, I think we'll play in this space, but we'll let you know as it evolves, it's just – we don't think it's a 2017 story. Andrew E. Buscaglia - Credit Suisse Securities (USA) LLC (Broker) Okay. Yeah. And recycling, I know that it's about 9% of your sales. It's coming off at lows, the commodities are up and the tonnage seems to be up.

How much of your 2017 guidance is predicated on improvements in recycling or is that just the icing on the cake if we see....

Yeah. Well, as I said in my comments, our 2017 preliminary outlook is based on current trends in the business, which would mean current rates for... Andrew E. Buscaglia - Credit Suisse Securities (USA) LLC (Broker) Okay..

... sales of material. Andrew E. Buscaglia - Credit Suisse Securities (USA) LLC (Broker) Okay. Got it. Thank you..

Great..

And the next question will come from Michael Hoffman of Stifel. Please go ahead..

Good afternoon. This is actually Brian in for Michael. Thank you for taking my questions..

Hi, Brian..

Hi, Brian..

First one, just on the SG&A benefit from the legal settlement, that 40 basis points.

Is that an ongoing benefit or was that a one-time thing that now reverses going forward or your legal fee is just going to be lower now that it's settled?.

That was a one-time benefit and what that did, was negated a legal cost that we've incurred earlier in the year, so that – but that was one time..

Okay. So we should think about SG&A going back to some normalized level and not that 40 basis been pulled out in the future..

Yeah. Around 10.5% is what we are expecting..

Okay. And then, just second follow-up on the 2017 preliminary guidance, not to try to get more out of it, but when you think about the CapEx, was there anything unusual in that 2017 or is that more just kind of normal pace that we've seen in kind of the 2016..

Yeah. That's more of a normal pace, more of the same. Our CapEx is pretty straightforward, we've got good visibility into the CapEx, there's nothing unusual that we're expecting in 2017..

We'll continue to get benefit from methodically increasing the expected life of the fleet, through the One Fleet initiative as we've done for the last couple of years so that will continue now for couple of more years through that process, but just pretty consistent, that's one of the beauties of our business is, very consistent cash flow.

We got a lot of our revenue under contract. Our CapEx draws is pretty consistent..

Great. Thank you..

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

Thank you, Denise. 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, everyone for spending time with us today. Have a good evening and be safe out there..

Ladies and gentlemen, this concludes today's conference call. Thank you for attending. You may now disconnect your lines..