Good afternoon and welcome to the Republic Services Second Quarter 2020 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 a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions.

[Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Giandinoto, Senior Vice President of Business Transformation and Communications.

Nicole?.

Hi. I would like to welcome everyone to Republic Services second quarter 2020 conference call. Don Slager, our CEO; Jon Vander Ark, our President; and Brian DelGhiaccio, our CFO are joining me as we discuss our performance.

I would like to take a moment to remind everyone that some of the information we discuss on today's call contains forward-looking statements, which involves risk and uncertainties and maybe materially differ 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 August 05, 2020. Please note that this call is the property of Republic Service, Inc.

Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited.

I want to point out that our SEC filings, our earnings press release, which includes GAAP reconciliation table and a discussion of business activities, along with the recording of this call, are all available on Republic's website at republicservices.com.

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're extremely pleased with our second quarter results, which clearly demonstrate the resiliency of our business, the power of our operating model and the strength of our cash flow.

We delivered strong results in the second quarter by leveraging the solid foundation we built over the last decade. During the quarter we increased adjusted earnings per share, delivered double-digit growth and adjusted free cash flow and expanded adjusted EBITDA margin 170 basis points to 29.6%.

I'm proud of the results the team delivered and truly inspired by their dedication to the Republic way. Our leaders are working tirelessly to keep our people safe, adjust our operations to changing demand and ensure consistent, reliable service to our customers.

Our front-line employees continue to show every day for customers and each other and our support personnel quickly adjusted to new way of working. It was the collective effort of all 36,000 employees that delivered these results. Our economic outlook is positive. Since April, total volume has increased month-over-month through July.

In our small container business, we are seeing a similar volume trend. Additionally, container weights increased sequentially through July indicating steady improvement in consumption and economic activity.

As always, we are running our business for the long-term and continue to make investments to enhance the customer experience, improve the efficiency of our operations and strengthen our market position. These investments will position us well for future growth.

In the second quarter, we continue to effectively allocate capital by investing in value creating acquisitions and returning excess cash to shareholders. Year-to-today we've invested $124 million in acquisitions to further enhance our market position and grow free cash flow.

Our deal pipeline continues to be strong and we remain on track to invest $600 million to $650 million in acquisitions this year. In July, our board approved a 5% increase in the quarterly dividend.

The consistent growth in the dividend demonstrates the stability and predictability of our cash flows as well as our confidence in delivering future cash flow growth and year-to-today we've returned $99 million to our shareholders through share repurchases and have approximately $600 million remaining on our share repurchase authorization.

We now have greater clarity on how the pandemic impacts our business and how we can continue to adjust operations and effectively manage spending. As a result, we are reinstating our full year adjusted free cash flow guidance. We expect to generate adjusted free cash flow of $1.1 billion to $1.175 billion.

Our ability to achieve the low-end of our original free cash flow guidance, demonstrates the tenacity of our team, the flexibility of our operating model and the strength and stability of our free cash flow. As an essential service provider, we play a critical role in our communities.

This starts by providing uninterrupted service regardless of the circumstances and being a responsible and ethical partner in the community. This quarter we were recognized for our efforts and were named to 3BL Media's 100 Best Corporate Citizens list for the first time.

For this list, 1,000 of the largest US public companies were evaluated and ranked based on transparency and performance across 141 environmental, social and governance factors.

Lastly, we recently published our 2019 sustainability report, which highlights the progress we are making on our most significant opportunities to positively impact our customers, employees, communities, shareholders and the environment. I would encourage you to give it a look, it's a great read. Now call over to Jon..

Thanks Don. In the second quarter, we remain focused on our priorities putting our people first, keeping our facilities running smoothly and taking care of our customers. By staying focused on these priorities, we successfully executed our plan and delivered strong financial and operational results.

These results clearly demonstrate we're well-positioned to come out of this pandemic stronger and better than before. As expected, revenue decreased in the quarter due to customer's temporarily suspending or reducing service levels. Volume decreased 7.4% versus the prior year.

The volume decline was steepest in April and sequentially improved throughout the quarter. In April, total volume decreased 10.2%. In Just, volume improved to a 5.4% decline versus the prior year. The decline in volume and pace of recovery varies by line of business and by market.

Landfill special waste volume was impacted the most, decreasing 17% versus the prior year. Special waste volumes were down 22% in April and in June were down 13%. The decrease in special waste volume was primarily due to jobs being deferred, not canceled and the pipeline remained strong.

In the second quarter, landfill MSW volume decreased 3.5% and landfill C&D volume was essentially flat. Second quarter small container volume decreased by 8.8%. In April, small container volume was down 10.5%. By June volume sequentially improved 300 basis points and was down 7.5% versus the prior year.

Second quarter large container volume decreased 12.4%. In April, large container volume was down 17.3% and by June volume was down 7.2% versus the prior year. We expect volume to continue to recover over the remainder of the year. During the quarter we weigh contractual terms to support our customers in their time of need.

We made pausing and resuming service simple and easy. We waived late fees and offered flexible payment plans to our most loyal customers in need of assistance. Our results demonstrate that customers appreciate our efforts and value our service. Our net promoter score increased nine point from the prior year and we maintained our customer churn of 7%.

Additionally, we successfully executed our pricing program to cover our cost and inflation. This enabled us to continue to deliver the essential services we provide while being mindful of the challenges our customers faced. Total core price was 4.7%. This included open market pricing of 5.5% and restricted pricing of 3.4%.

Core price represents price increases to our same-store customers net of rollbacks. Average yield was 2.5%. Average yields measures the changes -- the change in average price per unit and taken into account the impact of customer churn.

Thanks for the team's relentless efforts, we effectively managed our cost and expanded adjusted EBITDA margin a 170 basis point versus the prior year. Due to our investments in innovative routing and workforce planning tools, we were able to quickly adjust our routes for changes in demand.

This enabled us to reduce over time by 25% versus the prior year and increase productivity across our entire collection business. For example, in our large container line of business, productivity improved approximately 230 basis points. Throughout the quarter our drivers remain engaged and focused.

Attendance remained at all-time high and turnover was at multiyear lows. We all decreased safety-related expenses by 19% or 13 basis point of revenue -- 30 basis points of revenue compared to the prior year. We achieved the best safety performance in the company's history, reducing safety incidences by approximately 20% versus the prior year.

During the quarter, we continue to partner with our municipal customers and discuss the impact of COVID on our business. In the second quarter, residential weights were up 10.1% versus the prior year. Weights tapered down during the quarter and by June, residential weights were up 7.6% versus the prior year.

We also continue to renegotiate contracts with favorable pricing terms. We now have $850 million of annual revenue or 34% of our CPI based book of business tied to a waste index or a fixed rate increase of 3% or greater. Next, turning to environmental services, during the quarter, environmental services revenue decreased 26% from the prior year.

This was primarily due to a decrease in drilling activity and a delay of in-plant project work. The decrease in environmental services revenue resulted in a 90 basis point headwind to total revenue growth. We expect this headwind to continue in the second half of the year.

Turning to recycling, during the second quarter, recycled commodity prices increased 29% to $101 per ton compared to $78 per ton in the prior year. The benefit from higher cycle commodity prices was partially offset by 11% decrease in inbound recycling volume.

Finally, preliminary results for July indicate total revenue increased approximately 1.5% from June. We typically see July revenue increase from June due to seasonality. Total revenue in July was down approximately 3% from the prior year. For reference purposes, total revenue in June was down 3.5% from the prior year.

With that, I will now to the call over to Brian..

Thanks Jon. Year-to-date adjusted free cash flow was $743 million an increase of approximately 20% over the prior year. Free cash flow growth was driven by an improvement in working capital, which was partially offset by a $51 million increase in capital expenditures when compared to the prior year.

The increase in capital expenditures demonstrates our commitment to invest throughout the pandemic, which will protect and improve the long-term health of our business. The contribution from working capital includes a one-day improvement in DSL, a two-day improvement in DPO and a $35 million payroll tax deferral under the Cares Act.

We expect a total payroll tax deferral of approximately $100 million in 2020, which will flip over the next two years. To date cash collections have remained strong. We believe our DSO performance reflects our customer's willingness to pay with a high quality service we provide and the essential nature of our business.

We expect the working capital benefit from DSO and DPO to anniversary in the second half of the year since we saw improvement in these metrics in the latter part of 2019.

With respect to EBITDA margin, the 170 basis points of expansion over the prior year included 110 basis points of improvement from favorable net fuel and higher recycled commodity price and 60 basis points of improvement in the underlying business. The business absorbed $31 million of COVID-related costs during the quarter.

These costs related to the investment made in our commitment-to-serve initiative to recognize our front-line employees and support our small business customers, additional PPE and enhanced facility cleaning to help keep our people safe and supplemental paid time off and enhanced medical benefits for employees and their families.

EBITDA margin expansion resulted from reducing operating and SG&A cost by a combined $151 million or 8%. This completely offset the $151 million or 5.8% decline in revenue. Most of the cost reductions resulted from effective cost management that positively impacted nearly all P&L line items.

Our focus on cost control will enable us to gain leverage on volume growth as demand returns. Some of the cost improvement resulted from macroeconomic factors that positively impacted results.

For example, transfer and disposal costs were down 80 basis points compared to the prior year, primarily due to lower container weights in our small container business. Container weights were at their lowest level in April and progressively got heavier throughout the quarter.

While we are not providing specific EBITDA margin guidance, we expect second half margin to be at or slightly above the second half of last year. This would result in full year margin expansion. During the quarter, total debt decreased to $8.7 billion and total liquidity increased to $2.3 billion.

Interest expense in the second quarter was $92 million and included $16 million of non-cash amortization. Our leverage ratio was approximately three times.. Our adjusted effective tax rate in the second quarter was 24.1% and in line with our expectations.

Finally, as Don mentioned, we are reinstating full year adjusted free cash flow guidance of $1.1 billion $1.175 billion. This guidance assumes continued gradual improvement in economic activity through the remainder of the year. And with that operator, I'd like to open the call to questions..

[Operator instructions] Our first question will come from Walter Spracklin with RBC Capital Markets. Please go ahead..

I guess I would like to start with that great color you gave in July on down 3% and then down 3.5% the month before.

If you're seeing that trend and take into consideration seasonality, is there anything to suggest that you wouldn't be into positive growth territory year-over-year by the end of the year?.

As we said right, we have a positive outlook on the trend right and we feel good about a couple of things. One, residential weight increases have stabilized right and now small container weights are resuming right.

So again strength of American business, consumption rates, the consumer we think is getting stronger, people are adjusting to a new way of doing things, you see that all around you right. So we've a very positive outlook.

Exactly when it will go positive, we can't put our finger on that and so the guidance we give is around cash flow which we think is strong.

We chose in April, we thought we know saw a scenario we can catch by the end of range and now we're telling you we're even more confident than that and all the trends are positive and Jon gave you a lot of great trends on cost management and CapEx and people paying their bills the whole nine yards so to speak.

So when it goes positive we'll have more full year in the next quarter and hopefully that will be another good news story we can share with everybody..

Absolutely trends are certainly in the right direction here but I guess now looking out a little further, I am not asking for guidance here, but just conceptually, you did a great job of managing costs on the way down so that margin expansion in fact occurred.

Is there anything to suggest that as volume comes back through the rest of the year, you look out to 2021 and assuming we have hopefully knock on wood here, we have a macro situation with a lot more normalcy to it, is it not out of the question that margin enhancement here as volumes come back, could be quite substantial given how well you were able to in fact improve margins on the way down..

Let me give you a couple of thoughts there. So there were certainly some macroeconomic benefits that we realized. In the second quarter we kind of talked about that.

So for example some of the things we saw around container weight, we would expect those to -- those benefits I would say to moderate as we look forward, but I'd say that being said, we do expect to be more profitable as we look for, we've learned things about ourselves on how we can operate differently, one within cost of operations as well as within SG&A and we would expect those benefits to accrue to the P&L in future periods..

Right like Jon mentioned, safety is a bright spot, employee engagement is at all-time high. We expect that to continue. We're still doing great work to take care of our front-line people.

But look the acquisition pipeline being full we're talking about tuck-ins obviously we're tucking in into current markets that's a margin enhancement in and of its own.

We talk about running business for the long term and sort of the depths of COVID, we were busy adapting to new wave of doing business, but we're back at long-term planning in the business. Jon and his team are still rolling out the RISE platform across the organization, the digital tools. We're well underway there.

So we're back at it and all of those things are going to be margin enhancers as we go forward. So there's a lot of good news we'll be talking about here as we get ahead this next couple of quarters off..

Our next question will come from Tyler Brown with Raymond James. Please go ahead..

Hey Jon, so I know there's been a lot of chatter out there about rural versus large urban market. I think you guys are about a third, a third, a third rural franchise and urban.

You gave some great color in aggregate on volume trends but is there any way you could kind of bifurcate urban versus maybe those small-market if even anecdotally, just basically is there a big difference going on in those different types of markets?.

It's very geographic to your point Tyler.

We've looked at a lot of productivity data and circumstance to understand, we love traffic obviously, we're more efficient in getting the recycling in the garbage off the ground and surprisingly we're seeing pretty steady trend across both rural and urban markets and you think you get a much bigger advantage in urban markets and we're seeing kind of the same advantage across all of those markets which to Brian's earlier point gives us some confidence that some of the cost that we've captured on the way down, we're going to keep that on the way back in those productivity improvements and I wouldn’t -- again we haven’t -- we're not releasing this data, but I haven’t seen dramatic differences between urban, suburban and rural right in terms of the activity levels in volume..

That's extremely helpful. Hey Brian just a quick clarification on CapEx. So I think coming into this year, you guys were looking for some heightened spend I think on breakthroughs and such. I think that's stemmed all the way back from the tax bill.

First off, is that's the case and did you make that spend and number two, I know 2021 is a long way away, but should we be thinking about that incremental spend peeling off in '21?.

Yeah so Tyler of the original $100 million that we were spending it's probably going to be $60 million. So $40 million of that will roll into 2021..

Okay. That's very helpful. And then just my last one here if I can, so Don you were reiterated that you plan to spend $650 million. I think you’ve done I think you said $125 million year-to-date or so.

Is the preponderance of that $0.5 billion sitting in one property, are there more kind of multiple sizable deals out there?.

Yeah, there is one big deal out there right that we've talked about but there are some others. Again I continue to say look there are a number of really nice companies out there well run and good markets, good people getting to a place in their life cycle where talking those makes sense. We're engaged in some other good conversations.

So we've a lot of confidence in the pipeline, but there is one big deal out there that will carry forward for that..

I think one of the bright spots for this is when we explode down pricing deals right in the decline here I understand what demand was going to happen.

We never stopped conversation and our acquisition pipeline remains very robust, very active and we now are starting to write deals with sellers as we've got a lot more confident in our outlook and there's and feel really confident going forward for the rest of this year and next year in terms of that one..

Our next question will come from Hamzah Mazari with Jefferies. Please go ahead..

Hey good afternoon. First of all congratulations Brian on the CFO role.

My first question is you talked about second-half margins being slightly above last year and I realize you even have some costs that come back into the system as container weights get heavier etcetera, but maybe could you talk about what you see as sort of permanent cost saves during COVID-19 anything sort of structurally that you think you can take out of your business whether it be realistic footprint or maybe there's other stuff that maybe you can talk about that may be more permanent in nature?.

Yeah I'll give you three Hamzah, real estate is certainly one of them and we're reevaluating what roles should always be in the office, what roles can be permanently at home and what roles will have some flexibility to them and therefore we capture real estate savings on the ones that home or the ones that are flexible.

I think travel is another one, the tools that we use to work remotely, we have spent far more connected and efficient than we expected. There will be roles, there is a role for travel going forward.

So operating completely virtual is not a norm that we'll have but we'll certainly be spending less on T&E as we go forward, as we kind of think about that's both worlds.

And then just in terms of labor productivity, I think our ability to flex labor and move people cross-train, move people across different lines of business has allowed us to serve customers really well as well as manage cost the same time and we'll certainly carry some of those forward as we recover from the pandemic..

And then just on pricing, I know a lot of the pricing is already locked in, in Q1 and I'm not asking you to comment on your competitor, but they had much lower average yield and maybe we're giving more price relief. Could you just maybe talk about how you were able to keep pricing pretty steady as well as in the face of really down volume.

Maybe just talk about your pricing tools and how you see pricing build up for the balance of the year or you expect it to be pretty consistent..

Yeah. So we look at a range of options. Obviously, they're given with an unprecedented event and definitely want to be empathetic to customers who were their businesses were changing dramatically. So as I talked about, we let people break contracts to suspend service.

And were in constant communication with them about when they could come back at a time that was right for them. We were flexible on payment terms with some of our customers and certainly offered that too many more, that didn't take us up on it, and then spent a lot of time and energy on committed reserve.

So we put money in the hands of our frontline people to serve our customers.

So our philosophy was that customers while they maybe need a little cost relief, what they really needed is customers and revenue, when we got our local teams engaged and energized to power our small business customers through a very difficult time and got a lot of positive feedback from our customers on that front and listen, we are out there every day in a tough environment, picking up the recycling and the garbage and doing a hard job and our customers are noticing it, and they're paying us a fair price for the hard work that we're doing.

So I think that's the primary reason we've been able to sustain it. And going forward, I think we see more of the same obviously, there's some puts and takes in terms of year-over-year and some fees that might change year-over-year, but the philosophy is not changing. And we expect a strong pricing performance in the second half..

Look, they’re paying us a fair price, and they're paying us on time. And I think to Jon's point, I think they value the service, and rewarding us for the hard work and the effort our frontline people are putting out so..

Got you. And I just have a last clarification question. That's very helpful. The $600 million to $650 million in M&A, is that a new normal going forward for you guys, it used to be a lot smaller, but you're seeing your peers do a lot more transactions.

And so has the philosophy changed at all? Or this is just sort of a time where you're just seeing much more in the pipeline, and then it goes back to sort of a normalized, I think it was, maybe it was $300 million of annual deals used to do?.

Well, I think, even Jon just said, with the pipeline, not only strong for the remainder of the year, the $600 million to $650 million range, we've given what we think is strong into next year.

So do I have an outlook for the next 10 years, I don't, but I would tell you just based on where we are, in this point of history again, there's a lot of great companies out there.

We know where they are, who they are, we have ongoing conversations, we think that a sort of a robust pipeline of deals and a continued appetite for good deals, good companies is going to be somewhat of a regular diet for us, at least into the future here, we can see and certainly, we have the appetite, we have the ability and the team continues to demonstrate their ability to very efficiently integrate these things.

And after we get everything up to start a company standard really turn into cash flow on that, we think that generate. And as we look back at the deals we've done, we've got a high degree of confidence in what they've delivered. So we know that, we're paying the right price for deals and making the right assumptions on the way in.

So it gives us all more competence to keep ongoing..

Great, thank you so much..

Our next question will come from Brian Maguire with Goldman Sachs. Please go ahead..

Hi, good afternoon. And like everybody's congratulations on the nice quarter, solid job managing the cost there..

Thank you, Brian..

Just on the -- back on the margin outlook.

There's one thing I'm trying to reconcile is 2Q is the worst for volumes down 7.5% or so and the best for year-over-year margin and volumes are getting better on a year-over-year comp basis for the rest of the year, it sounds like but the margin gains aren't getting there quite as good as it, is that really as simple as a recycling fuel kind of contribution sort of going away and maybe a little bit from a higher container weight or other some other puts and takes, some factors in there?.

Yes, I would sit there and say it's what you just mentioned quite honestly. So from where fuel prices are right now, we think sequentially that steps down about 40 basis points. So starting with our 29.6 in the second quarter, there would be a sequential decline of 40 basis points. And then commodity prices would be another 20, right.

So you're already down 60 basis points just with those two, and I talked about the container weight, right. And we saw those lighter by 20% in April, and actually by July, that's down to about 6%. So that benefit that we enjoyed in the second quarter, we don't expect that to repeat at the same level, going forward.

But quite honestly, while it's a near-term cost headwind, it's actually a good sign, right. It's a really good sign for the health of our small business customer..

And Brian, the other thing to keep in mind, if you recall when the CNG tax credit was passed, we recognized two years worth of benefits in the fourth quarter of 2019. And so that is giving us a headwind for example, in the fourth quarter of 50 basis point headwinds. So about call it 30 for the second half..

Yes, so that's something we have to overcome..

Got it, so we’re talking about our second half margin, it is cumulative number, so your 3Q could be quite a bit better, but 4Q will have that unique headwind like?.

Yes, which is just a timing thing..

Yes, thanks.

And then, just a question on capital reallocation with the outlook being a little bit better and be able to get back to providing guidance? Do you think we get back to buying shares back more periodically, like the closure around beforehand? Or is it a little too early to be thinking about reopening that window?.

Look as I said, we've got $600 million remaining on the authorization, we continue to look at the intrinsic value of the business. Again, we look at that based on our three-year outlook and our three-year plan, right. So we're looking at real actionable plan against what, how we think the stock will perform.

You look at our track record, we've always taken a balanced approach with that intrinsic mindset. At the same time, we've said look we will flex buyback based on opportunity in the market as it relates to M&A and maintain the optimal leverage ratio of call it right around three times and so all those things are in play. We've got a lot of flexibility.

We got a lot of dry powder. We've got a lot of capability. So we're in a good place. And if the market allows it and we see an opportunity, we'll buy opportunistically just as we have. And frankly, I think we'd beat the market year-in and year-out. So the balanced approach won't change.

But we'll continue to look to put our money to work and return to shareholder is the best way that we can, we think we do it as efficiently as anybody..

Okay and just last one for me, just back on the pricing outlook, it sounds like we saw a little bit of a step down in the year-over-year growth rate, which was expected I think just as the year progresses, the comps get a little bit tougher on a year-over-year basis.

Should we just expect a little bit more gradual depletion in that line item?.

Yes, it’s gradual. Again, there's some timing things year-over-year. So some of our fees are impacted by fuel declines. There's a year-over-year decline on that, but our core pricing philosophy is not changing. We want to send a fair price with the hard work that we do, and customers reward and value that and pay us..

Got you. Thanks Jon. All right, congrats again. Have a great quarter..

Thanks Brian..

Our next question will come from Kyle White with Deutsche Bank. Please go ahead..

Hey, good afternoon.

Thanks for taking the question, hey Jon, thank you for the details regarding how borrowings progressed through the quarter and the details on total revenue in July, but curious if you could kind of give similar level of details on how borrowings were in July by line of business, how a small container and roll-off and such?.

No, we're not giving that level of detail on July.

But steady recovery across that, and I would say that we have a little bit of a geographic headwind that we've had to overcome as the COVID cases initially started out in the Northeast and we're heavily impacted, or we have a lighter footprint, the heavier caseload in the last couple of months has been in the South and Southwest.

So Florida, Georgia, Texas, Arizona, California, we have significant market positions in all of those markets. And yet we're still seeing volumes recover. So that gives us a lot of optimism. But the outlook is positive. There's still uncertainty of course, there's going to be puts and takes across different geographies.

And week-to-week, we're running the business for the long-term, but we feel like we certainly far more than exceeded the floor, and we're on our way to a nice day recovery..

I think in Jon's prepared remarks, he mentioned seasonality, right. So we actually are seeing some seasonality in the business. And so with all that Jon just mentioned overcoming what's happening out there again, that leads us to our positive outlook..

Got you, that's helpful and apologies if I missed this and appreciate the free cash flow guidance provided, but did you provide any other kind of moving parts there? What do you expect the CapEx for the full-year, what about working capital?.

Yes, we actually in our guidance, we provided the various components including, what we expect from a cash from operations as well as our CapEx. So you can actually see the various components in our 8-K filing. If you kind of take the midpoint of the range though, what we're kind of thinking, it's approximately $1.1 billion of CapEx..

And the only thing I will add about, our CapEx plan is naturally pulls back when we don't have the volume, 10% of our annual CapEx typically is for volume growth.

And we're not seeing that growth, we're naturally not going to spend that CapEx, what we see decline in some of our replacement schedules for trucks naturally push out, we're still investing in the business. We're still working on projects, still investing in our digital operations platform which is rise and run the business for the long-term.

So the team's done a great job in the face of a pandemic, not just working the quarter but working for our multi-year plan..

Again it just reiterates the flexibility we have in the business model, when these things happen, we've got the ability to flex very quickly and still produce the cash flow and meet our obligations. So again, I think it’s the great outcome of a lot of great work from the team.

But again, it just really shines right light and conversely, the business model is..

And Kyle as I mentioned, the midpoint of right around $1.1 billion, the range is $1.075 billion to $1.15 billion..

Perfect, thanks. I’ll turn it over..

Our next question will come from Sean Eastman with KeyBanc Capital Markets. Please go ahead. Sean, your line maybe muted on your end..

Hey, sorry about that guys. I'm at my mom's house. So just kind of keep it quiet. So guys really impressive job. Congratulations. I just wanted to ask sort of a higher level question. I mean post-COVID it does seem like we could see pockets of population growth in pretty different parts of the country, relative to what we've seen over the last many years.

So I'm just wondering, whether that or anything else sort of in the post-COVID world is changing, how you guys are prioritizing or focusing your capital investment dollars or M&A dollars. And any thoughts there would be great..

So look, our strategy around market position hasn't changed, right. We strive to be number one or number two in the markets we serve, we strive to be vertically integrated. And again, the results you see there are result of decades of building around that pillar of our strategy. We want to get in front of the growth, right.

We want to be where people are. And so when you think about the Sunbelt that we talked about from Portland, Seattle, Washington, down the coast across Texas, up into the Carolinas, and all the little pockets that people are moving into hotspots like Nashville, right, we're there.

We've got a great business mix, a great business portfolio of urban centers which sort of picks-up some of the growth around sort of the urbanization trend. We've got a great business position in secondary markets, right. And so look, you won't see especially winder in the markets. We're not in and do startups, just because they're hotspots for people.

But if we can take a number one or number two position in an adjacent market that we're not in currently but next door or brand new market, we'll do that. And we've done that, we've done that over the last couple of years, you've seen us go into some, some new secondary markets because we were able to take a nice position.

So again, we've got a great pipeline, we've got a great M&A team, a great leader in that group. And again, we've got the balance sheet to continue to grow that way.

Great thing about our business, again as population grows, as business formation grows around that, we're very well situated with our portfolio and the fact that we're East and West and North and South kind of insulates us when they're sort of micro pockets of bad news, right.

So while there may be a couple of cities right now where the epidemic still on the upswing where plenty of cities where the numbers are going the other way, and so we're getting that balanced benefit. So again, that's the strength of the portfolio, the power of the portfolio.

And so one thing that will change in our outlook is just as Jon said, I mean, we've learned a lot on how we can work a little differently. And we're taking all those lessons to heart, that will make us better. It'll make us even more attractive company to work for. It'll make our employees even more engaged. It'll make us leaner.

But it won't change our outlook on how we grow. And again, I think we're very well situated for all of that..

Yes, that makes sense. Good answer. And next, I just wanted to give Brian the floor. I mean, congrats on the CFO role.

Just curious, over the next 12 months, where you think you're going to be spending the biggest chunk of your time from an operational perspective, what's the big priority as you come into the big seat here?.

Well, look, I mean I think the traditional role of the CFO, when you just think about making sure that we have good quality financials, I mean going to be spending obviously my time on that, but even more so when you think about me keeping right the IT department and when we think about our investments in technology, how they're enabling things like our platform, how they're doing things, quite honestly, even on the SG&A and when we think about modernizing our core systems, that's where I'm going to be spending the majority of my time, just to make sure that we set ourselves up well for future growth and enhance profitability..

Got it. I appreciate the time and nice work again..

Okay, thanks..

Thank you..

Our next question will come from David Manthey with Baird. Please go ahead..

Thank you. Good afternoon, everyone. On the call, you mentioned that you're questioning your own real estate footprint.

I'm wondering do you have an opinion on the near-term outlook for commercial construction in general and how that might influence your business into 2021?.

Not a strong one given the uncertainty, only that construction has held up pretty well, right if you think about right? If you had you at C&D tons into our landfill or we printed a pretty strong quarter there. And I think in many markets construction has been the bright spot and everything else was shut down and people are sheltering in place.

In most markets construction had an exemption. And really strong obviously on the residential side, right construction, probably a lot of current projects getting finished, but we're still seeing new activity in market, so probably too early to tell in terms of the longer-term outlook..

Yes, one thing I would add to that is I’m hearing a lot of people talk about, how they'll use space differently, not necessarily having less space, but having more open space and having more space between cubicles and I know for us for a long time, we need more office space, so we went from the 10 by 8 cubicle to the 8 by 8 cubicle to the 6 by 6 cubicle and just to sort of squeeze people in.

So I've heard that from a number of companies that they're going to use this opportunity to maybe maintain some of the space they have and just make it more wide open, more, more sunlight for their people, more meeting space that's required that kind of thing and just to appeal to the next generation of workforce, so I think that's going to be true for a lot of people..

Okay, thank you. And then D&A and tax rate expectations for the full-year 2020. If you didn't give those and then somewhat related the July revenue, month-to-month increase of 1.5.

Do you just tell us what the normal seasonality ranges from June to July?.

That's a pretty typical of what we say..

Okay, yes..

And then as far as tax rate goes, our assumptions haven't changed from the original guidance that we provided. So we're looking for the full-year’s adjusted effective tax rate of 21%. And then just keep in mind, we also have a tax related non-cash dollar charge that shows up below operating income.

We expect that charge to be about $110 million and waited to the fourth quarter..

All right, thank you..

Our next question will come from Michael Hoffman with Stifel. Please go ahead..

Thanks. Hi, Don, Jon, Bill welcome back..

Hi, Michael..

Hi, Michael..

I'd like to tease out the free cash flow outlook as they lay the pieces out and I think about your typical ratios like you've been tracking at 40%, 42% conversion ratio, your cash flow from ops are 22%, 23% of revenues just sort of teasing all those pieces together to try and figure out what was going on, it feels like this should be better than 11 to 175.

So what's our headwinds in the second half, you gave a couple of them earlier, to take if only to give about $4 million of incremental free cash to be at the midpoint?.

Yeah Michael, let me give you a couple of numbers here right. So I talked about in my prepared remarks that we expect the working capital benefit to flip in the second half of the year and quite honestly that's just because we saw really strong DSO and DPO performance in the second half of 2019.

So it's not expect that we expect those to step down in the current year. It's just going to anniversary. So we no longer enjoy that working capital benefit in the second half. The real big deal is the cash taxes.

So when you take a look at what we expect to spend in cash taxes in the second half, it's over $100 million more than what we spent in the first half.

The other thing I'll just point out is just because we had some refunds in the prior year, we would expect cash taxes to at least $100 million more on a full-year basis than in 2019 and just to your final point, cash tax as a percent of provision was about 12% last year, this year we're expecting to be about 70%..

17% or 70%?.

70%.

Hey Michael did we mentioned that we reinstated our original free cash flow guidance?.

I know the original guidance is actually $100 million on the upper end, on the higher end. So it feels like maybe that's not actually out of reach..

Well look, nothing is ever out of reach.

How's that?.

Are the ratios I talked about still consistent kind of 40% to 42% of EBITDA or 22% to 23% of cash flow from ops as a present to revenues? Is that the way to think about thing?.

Yeah that's fair and again I think the big impact theirs is just going to be cash taxes with what you're seeing at that 50-plus conversion that we're seeing in the first half versus what a more normalized rate would be..

Got it and just to close on the acquisition type text $450 million, so that leaves to $200 million to do tuck-in that's kind of what you've spent consistently for decades is $200 million tuck in..

Yeah I don't know your question unless you're just emphatically agreeing with me but….

I just feel like there is some confusion and I'm like there is not any confusion..

Look back through all the years you've known us, we have a really good track record of telling what we're going to do and then doing what we say and we wouldn't tell you what we're telling you if we didn’t have a pretty good handle on it right.

So we're very committed to growing through acquisitions but I can't say enough about the team that we have in place. The person leads that team, the amount of time that we spent talking about it and the amount of great companies that we see out there.

So we're in that game and we're going to continue to make intelligent investments in growing our business, expanding our business that way and that's going to be, we'll be right in the hunt along with anyone else and hopefully because of relationships because of our style, because of our ability to get things done we'll get more than our fair share..

Our next question will come from Michael Feniger with Bank of America. Please go ahead/.

And Don if you could take a step back for very long time, there was the goal for public to get back to its prior peak margins in that 30% to 31% range, it's been out there for a while and some investors were frustrated, they didn't know if the maintenance and one fleet these initiatives were actually going to benefit.

I think put up this quarter and I know that like Brian said it's macroeconomic driven, but focusing on retainer weights, but Don maybe you can kind of talk about how you think about those margin targets? We haven’t heard about that in a while.

The maintenance expenses seem like it's really under control this quarter landfill cost, I am just curious how you view this quarter in the context of getting and what you guys talk about the market on a full year basis this year in the context of those prior peak margins?.

Sure let me start by stating that the 30% margin goal is still very much in our minds and very, very real. There are two main things that have sort of in our nemesis there.

One was the CPI escalator built into all of our contracts for decades that we've been overcoming and John mentioned in his remarks the great progress that the team has made in moving away from that archaic element of our contract into something that is more relevant and the teams are doing a great job there.

And so that's just another way of showing that once remind something we move the needle, we move the market. We did that with the recovery fee, we're doing it now with alternative index and then the other thing that's our nemesis is recycling right and again we have really put a stake in the ground here.

We talk about recycling measure we're second 2.0, the team has made an incredible improvement in progress in moving off all the old way of pricing and sharing in the risk and getting that risk appropriately balanced and that's more to come.

So not only are we getting it done with our customers, because our customers value what we do and are willing to pay and understand the fairness of it, but the market is moving right.

We're seeing that become more and more of a norm because it's just common sense to do it that way and so again and as that -- as those two things continue to shift as we close the gaps on that alternative index and on the recycling sharing arrangement, those by themselves go a long way toward getting us to 30%.

Now just those two things and again if you look at the progress just trend them out in and the team is fighting hard and Jon is committed his eye and to get that done and believes that he will.

Now again on top of that again some of things, some of the learings through COVID-19, some of the way we think about how we'll move forward and some of the -- pudding those learings to work the way we work differently remote working even the I think we can maintain some of our safety performance and some of our productivity performance as Jon said, the teams is committed to do that.

Now to layer in rights, the teams has been hard at work getting that put into the business and we've got a great percentage of it implement and that's just the first phase and then this is going to be the gift that keeps on giving right.

Once we get sort of digitized there and we get the initial benefits then it's going to be one chapter after another of new opportunity that, that will present to us right and so look there are a lot of great supplement horizon.

You can't take all that obviously into the remainder of 2020, but as we get further along as we always do, and I told with the preliminary outlook and that we'll share some of those details with you in as the world starts to settle down too right. Then we'll start sharing some of that in February next year.

But we think the outlook is very bright and 30% margin is very much in our minds and very reasonable goal in our perception..

And just lastly, over the years your volumes were a little lighter than your peers and you guys were shutting business, there were talks about non-regrettable losses. Is your book of business now higher quality than it was a few years ago to help get through a time like that.

You guys haven’t talked about those non-regrettable losses in a while, but I'm just curious if you could help us with the context you guys going through that process and where that leaves you now in this tough backdrop. Thanks Don..

Yeah we spend a lot of time understanding the customer. Not all customers are equal and they are all going to have the same need. So we specifically put a lot of time and energy targeting customers that are willing to pay and willing to stay.

Loyalty is a big part of our strategy and where we invest our time and energy and to your point, we had some optimization across the portfolio and a little bit of that will happen all the time as we acquire some more top gains bits and pieces of that business but we feel very, very good about our portfolio.

In terms of customers who are willing to pay at all levels from initial subscription all the way up to national accounts and everybody has got to pay their fair share. We feel really good about the progress we've made..

Our next question will come from Henry Chien with BMO. Please go ahead..

Have, good afternoon thanks for squeezing me in.

I just wanted to dig in a little bad and ask you about the pricing dynamic it's been very strong and yeah I was a bit curious if you could talk a little bit more about what's driving that and how much of that is structural supply shortage, if you will willing in disposal capacity and how much of it is like what you're saying before and just proving more value to your customers and what that is that's keeping that price at a pretty solid rate?.

For sure let's start with this notion of being an essential service right.

We really are an essential service and with all the work we've done as John just mentioned to understand customers what they want, what they value, what do they want to pay for, that reliability is top of mind right and just like when you go to turn the faucet you expect the water to come out and you go to flip the light switch, you expect the lights to come on, when you roll the cart to the street, you expect it to be gone that same day within the same window of time.

The work we've been doing operationally with one fleet -- fleet helpfully reliability is paying dividends today. The work we've done around a workforce planning and our employee engagement and route readiness, all those things right are coming to bear today.

Employee engagement now it makes us safer but it makes our entire organization think about how we better serve the customer right. And so we got about NPS going up towards the nine points or very much wired around that.

So when we think we have a service that is valued by our customers, when we show up the way we do with that relentless attitude to get the job done and then we do that even in a difficult time, we feel like we can continue to price through that event and we did that and our customers rewarded us for our hard work.

If you back all the way up to the macro right, you have a rational environment out there, when you think about the cost of disposal, the limited amount of ample space even though we have a lot of years ahead of us, it's more and more difficult to get that space permitted and so on.

All those things continue to play into just a strong environment and I am really encouraged when we think about and we talk about this for the call, the strength of American business and the business mentality of people all the way back, the strengthen of the free market, not to get too patriotic, but the American spirit right.

When we see our own people showing up every day that's happening in other companies as well, that happening in other businesses, that happening with our customers and people have a much more positive outlook I think in the world than what you read in the headlines right. And we're seeing right here in our numbers.

We're seeing it right here in the consumption, in the waste generation rates, our story tells a different story than what you might read if you just read the newspaper.

So look that strength on the business model and our pricing tools and the way our field leaders work with our pricing meters here and that what we do is really important and has value and what I am telling you like the digital tools will further enhance that relationship. We're going to connect cabs to customers.

We're going to further improve the quality of the product and that's going to give us continued pricing power as we move ahead..

[Operator instructions] Our next question will come from Noah Kaye with Oppenheimer. Please go ahead..

Don, you mentioned a couple of times the digital investment in RISE, you started to roll that out last year and at least just the initial folks is really about really about improving effect efficacy and real-time routing information and data visualization.

You mentioned that you had implemented a fair amount of that in pandemic, then the pandemic hit and first I would imagine the new variables into the mix to your operations and test that pipeline. So how does it perform? What impact did it make or benefit that you see.

How does that experience and form your current your digitalization plans going forward..

Yeah it performed well just through from a plumbing standpoint, right. The IT team did an incredible job that everything right we move people around and included the right platform right operating without a hitch. So the technical side of it operated very well and the performance side operated well to capacity.

One those that had it implemented already, used it to really reconfigure the operations, right? As weight got heavy on residential and there was more demand there, and then things got contained or constricted in small container, large container, we were able to optimize routes in a great way and then the deployment itself back to your cost of what goes away.

Our deployment was a typically hand to hand combat model where we would go out and spend a couple of weeks, working shoulder to shoulder. COVID didn’t allow us to do that. So we've deployed those things entirely remotely. We did stop the pace.

We kept going and the performance in a remote deployment has been on par, the deployment and the in person deployment. So as we think about continue to put tablets in the cab and all the further ways of digital operations, our ability to do that both from a cost and a steep standpoint improves and that's a great learning coming out go..

Look when you think about that from a change management perspective, we've gone from sort of push to pull right, the things that we're producing here are value added in the minds of our frontline leaders and they're anxious to get those tools in their hands.

So they're very willing and able to implement that but they're pulling that capability and so I am hopeful that our speed to change, the more and more we do these things, our speed of change can actually increase as well..

That's great color and maybe just one more and you mentioned that a couple times here, the progress on moving the CPI book of business to an alternative pricing mechanism, now if I go back three years, you basically do you want to double your revenue exposure to an alternative index, but just given that you're highlighting that as one of the keys to continue move the margin profile up, can you share with us any targets a benchmark that you're really hoping to get to say over the next couple of years, how you want investors judge that progress and frankly how does what's happening now the current environment impact that?.

We haven’t actually shared the absolute goal and look I would just ask you to look at the progress we've made as a testament to the ability to do it.

There are a lot of factors, when contracts come due, the size of contracts and just the pace of change, the dynamic of the market, all those things are variables to get to work through but I'll tell you that again we're committed, we see the market moving and we're going to stand here every quarter and tell you about the progress we're making and you can hold us for that..

Yeah I think the progress we've made during this pandemic is a good indication of our result and commitment.

Because our municipal sales team is pretty busy at City hall because we still have some customers from a recycling standpoint that we need to get into a different risk in relationship with, still some work to do on alternative index, obviously.

And as more people work from home and we're are going to envision probably being a little heavier those initial contracts completed, we're going to have a dialogue about getting pace of the work we do and that's going to be a very important piece. Again fairness is on our side.

All we're trying to do is get paid for the work we do and we've got a pretty good track record when that's the argument our customers working with us. That's great and again that's upside..

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, Grant. In closing, we are very pleased with our second quarter performance and we're well positioned as volume continues to recover. Despite volume declines, we grew earnings, delivered double-digit free cash flow, expanded adjusted EBITDA margins.

We also reinstated full year adjusted free cash flow guidance, which includes the low-end of our original 2020 guidance range and then we mentioned that we raised our dividend for 16 years straight.

That's a lovely stat.\ Once again, I'd like to thank all Republic employees for their ongoing hard work, commitment and indication to our customers and communities each of our employees truly embodies the committed to serve spirit. Have a good evening and stay safe..