Republic Services Inc (RSG) 2011 Q2 法說會逐字稿

Good afternoon, and welcome to the second-quarter conference call for investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your hosts for this afternoon's call are Don Slager, President and CEO, Tod Holmes, CFO, and Ed Lang, Republic's Senior Vice President and Treasurer. Today's call is being recorded, and all participants are in a listen-only mode. There will be a question-and-answer session following Republic's summary of quarterly earnings.

(Operator Instructions)

At this time, it is my pleasure to turn the call over to Mr. Ed Lang. Good afternoon, Mr. Lang.

Thank you, Holly. Welcome, good afternoon, and thank you for joining us. This is Ed Lang, and I would like to welcome everyone to Republic Services' second-quarter 2011 conference call. Don Slager, our CEO, and Tod Holmes, our CFO, are joining me as we discuss our second-quarter performance. Before we get started, I would like to take a moment to remind everyone that some of the information that 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.

Additionally, 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 July 28, 2011. 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 express written consent of Republic Services is strictly prohibited. With that, I would like to turn the call over to Don.

Thanks, Ed. Based on our second-quarter performance, Republic Services is on track to achieve record levels of earnings and free cash flow. Financial and operational highlights include revenue of approximately $2.1 billion for the quarter. Total price growth in the quarter was 3.4%, with core price of 1%. We continue to utilize our ROI pricing tools to evaluate new opportunities and retain existing high-return business. We expect to achieve core price increases in the second half of this year in the range of 1% to 1.5%.

Volume has declined 1%. Although the economy is recovering slowly, we have 5 consecutive quarters of total collection-volume improvement. In fact, industrial hauls accelerated through the quarter and were year-over-year positive in both May and June. We expect our total volume performance to be flat to slightly positive by year-end. Our second quarter adjusted EPS was $0.49. I will update our 2011 financial guidance later in the call.

Our second quarter adjusted free cash flow was $162 million. Republic's Board has authorized a 10% increase in our quarterly dividend, effective with the October dividend payment. We repurchased 3.6 million shares in the second quarter for $115 million. We are on track to complete the existing authorization before the end of 2011. Since November 2010, we have repurchased over 10 million shares for approximately $30 million. We remain committed to an efficient cash utilization strategy, which includes increasing cash returns to our shareholders through share repurchase and dividends. Total cash returned to shareholders in the quarter was $191 million.

During the second quarter, we issued $1.85 billion of long-term debt at lower rates than maturing and call debt. We also renewed our bank facility for 5 years with no increase in the effective rate. We continue to take advantage of the low-rate environment to extend maturities and lower interest expense. We closed on $10 million in annual revenue from privatization contracts, including the city of Toledo, which we start servicing in the third quarter.

We have a pipeline of quality acquisition opportunities. During 2011, we have closed on transactions involving private companies that will improve our operating density and landfill volumes. These transactions will expand our EBITDA margins and return on invested capital. Our field organization continues to target profitable growth and effectively manage our cost structure.

We saw an 80 basis-point improvement in our commercial collection volumes, and industrial collection is flat year-over-year. All controllable operating costs were either flat or decreased as a percentage of revenue. SG&A was 9.6%, which represents a 20 basis-point improvement.

Our safety performance continues to improve, with our frequency rate down 13% year-over-year. I would like to thank our field operations for their continued success in executing our strategy of achieving profitable growth and maintaining a safe work environment for all of our people. Tod and Ed will now update our financial performance.

Thanks, Don. Second-quarter 2011 revenue, as Don indicated, was approximately $2.1 billion. The change in revenue from the prior period includes the following, core price growth of positive 1%. Second quarter price was in line with first quarter and also with our second-quarter expectations. All lines of business, as Don indicated, report positive price. Commercial and industrial were about positive 1%, with residential somewhat lower due to the continued lagging impact of prior year CPI.

Landfill MSW price was positive 2.3%, a slight improvement from the first quarter. Within that component of our business, our third-party, open-market landfill customers, where we are increasing price in the range of 4% to 5%. As I noted, second-quarter price was in line with our expectations. Since our price on index base contracts tends to lag, we were still impacted by lower CPI environments from 2009 and 2010, which have not fully anniversaried. Given the current CPI environment, we expect index base pricing to modestly improve in the second half of 2010, with further improvement throughout 2012 and into 2013.

Now let's talk about our commodity revenue increase of 1.3%. Commodity prices increased 22%, to an average price of $147 per ton in the current quarter, from $120 per ton in the prior year. Second quarter of recycling facility commodity volumes of 526,000 tons was up 13% from the prior year, and up 7% on a same-store basis. Our updated guidance assumes commodity prices remain at June levels for the remainder of the year.

Also, our fuel recovery fee increased by 1.1% due to higher diesel prices. The increase in fuel recovery fees relates, again, to increase in fuel cost. The average price per gallon of diesel increased to $4.01 in the second quarter of 2011, from $3.03 in the prior year, or an increase of 33%. Currently, the price of fuel is $3.95 per gallon. And again, our updated guidance assumes fuel prices will remain at June levels for the remainder of the year.

Turning to our volumes, our volumes were down 1% year-over-year. We do continue to see volume improvements in the collection lines of business. Second-quarter collection volume improved 30 basis points over the first quarter. Industrial volume is now flat year-over-year, and commercial volumes are only slightly negative. Landfill and transfer volumes were down 1.8% versus the prior year. This decline is due to year-over-year unfavorable MSW volume, along with less positive volume contribution from special waste than what we saw in the first quarter.

Although second-quarter MSW volume was negative, it has improved sequentially versus the first quarter by 210 basis points and is now in the low single-digit range on a year-over-year basis. And our second-quarter special-waste volume increased 2% versus a very strong prior-year comparison. We do believe that our 2011 volumes for special waste will replace or slightly exceed the volumes we received for the full-year 2010.

Turning our attention to second quarter year-over-year margins, second quarter 2011 adjusted EBITDA margin was 31.1%, compared to 31.3% in the prior year, a 20 basis-point decline. The impact of fuel cost increases, partially offset by an increase in related fuel recovery fee revenue, resulted in a net decrease in EBITDA margin of 80 basis points. Excluding this net impact of fuel, our margins actually would have increased 60 basis points and would have been 31.9% over the prior year. If fuel prices remain at current levels, we will continue to have a slight margin headwind for the balance of the year.

Other significant changes to margin include labor-related benefits. We have a 20 basis-point improvement, and that relates to productivity gains and all collection lines of business. Our transfer and disposal costs, we saw a 40-basis-point improvement, and this relates to decreased external disposal expense. This decrease is primarily due to our decision to divest of 3 New York City transfer stations, which had significantly lower disposal internalization than our average.

Turning to transportation and subcontract expenses, we saw a 50 basis-point improvement from redirecting waste streams within our transfer and disposal network, and also less transportation expense as a result of the expiration of our city of Toronto contract. While there's a significant favorable margin impact to this line item, the net impact to total margin is flat as the contract was at our total Company margins. An additional favorable impact is due to the transportation cost reductions associated with the divestiture of the New York City transfer stations that I previously mentioned.

Our landfill operating costs, we saw a 30 basis-point improvement, and this relates to lower landfill gas management costs. The cost decrease was due to ending a subcontract relationship at several sites and taking the work over more effectively internally. Our risk management costs, the 20 basis-point improvement here relates to reductions in premiums charged by third-party carriers, as well as an improvement in our claims experience. I would also add and remind everybody that we do a quarterly actuarial review, so we're not averaging our risk management costs throughout the year and guessing. We actually know what it is from an actuarial standpoint.

Next, our recycling cost of goods sold, the unfavorable 60 basis-points increase in expense relates to increased rebates to customers for volumes delivered to our recycling facilities. Cost of goods sold at our recycling facilities increased to an average of $48 per ton, from $38 in the prior year. Commodity revenue increases more than offset this increase in cost, and thus resulted in an increased spread of approximately $16 per ton. The net impact was a favorable 40 basis-point improvement in EBITDA margin.

And, finally, SG&A. SG&A expense, as Don indicated, was 9.6% of revenue. Now this compares to 9.8% in the prior year, excluding the cost to achieve synergies in the prior year. The 20 basis-point improvement relates primarily to the leverage benefit of holding our SG&A dollars flat, adding an increased overall revenue base. Republic remains very comfortable with SG&A expense of about 10%, and I would remind people this includes 20 basis points to 30 basis points of investments on an ongoing basis in our major initiatives.

Turning to DD&A, DD&A as a percentage of revenue was 10.9% in the current year, versus 11.3% in the prior year. The 40 basis-point improvement primarily relates to reductions in landfill amortization expense as a result of expansions approved during the quarter. DD&A is higher than capital expenditures as a percentage of revenue, due to the amortization of intangibles resulting from the merger in 2008.

Now I'll turn the call over to Ed. He's going to discuss interest expense, free cash flow, and our balance sheet.

Thanks, Tod. Q2 2011 interest expense of $111 million includes $18 million of non-cash amortization. As we continue to refinance our debt, the portion related to the Allied debt discount of $5 million will decline. On May 2, Republic issued $1.85 billion of long-term debt to refinance existing maturities. The newly issued debt consists of $700 million at 3.8%, due in 2018, $550 million at 4.75%, due in 2023, and $600 million at 5.7%, due in 2041.

In addition to the 2011 maturities, we retired the following existing debt. We called $600 million of Allied Waste North American notes, due in 2016, that had a coupon of 7.125%. We tendered $59 million of BFI debentures, due in 2021, that had a 9.25% coupon, and $183 million of BFI debentures, due in 2035, that had a coupon of 7.4%. Our EPS guidance provided in February included the favorable impact of refinancing this debt, but excluded any premiums paid or debt discounts written off in connection with early extinguishments.

Our annual run rate interest expense after the refinancing is approximately $430 million, of which $70 million is non-cash. Our refinancing activities since December of 2008, which have benefited from our investment-grade status, and a low-rate environment, have reduced annual interest expense by approximately $185 million. We will have additional refinancing opportunities in 2012.

I will now discuss free cash flow. Second-quarter adjusted free cash flow was $162 million, which consisted of cash provided by operating activities of $362 million, less property and equipment received of $219 million, plus proceeds from the sale of property of $9 million, plus merger-related expenditures net of tax of $1 million, plus divestiture-related tax payments of $9 million. Therefore, adjusted free cash flow is $162 million.

Now we'll talk about the balance sheet. At June 30, our accounts receivable balance was $872 million, and our days' sales outstanding was 38 days, or 25 days net of deferred revenue. Reported debt was approximately $7.3 billion at June 30, and excess credit availability under our bank facility was approximately $1.6 billion. I will now turn the call back to Don.

Thanks, Ed. Before we get to Q&A, I would like to update our guidance for 2011. We are reaffirming our adjusted EPS guidance of $1.86 to $1.89. This reflects earnings growth of approximately 10% compared to 2010. We expect adjusted free cash flow will be $875 million to $900 million.

We are maintaining this guidance, although we are increasing capital spending to take advantage of bonus depreciation. This increase is a pull-forward of 2012 truck capital. At our next board meeting in October, we expect our Board to approve a new share repurchase authorization for 2012. At this time, operator, I would like to open the call to questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

In the interest of time, we ask you limit yourself to one question and one follow-up question today.

(Operator Instructions)

One moment, please, for the first question. Hamzah Mazari, Credit Suisse.

This is Chris Parkins on behalf of Hamzah. Very quickly, on the pricing front. Can you comment on what you're seeing in terms of roll-backs and any further price discounting by regional players that you maybe didn't see in the first quarter? And then also how to think about pricing on a sequential basis in the back half?

I'll let Tod take the second half of that question on the sequential price for the second half. This is Don, by the way.

We have -- as we talked about on the first-quarter call, you know, we are seeing some pressure on the municipal contracts that are rolling through. We have done some price roll-backs, some extensions of business at flat rates to extend that business going forward. We have taken a very strong approach in protecting our current business, and when competitors are calling, we're fiercely defending that business. We've got a great business with good, strong margins and cash flow.

Job one at Republic is to protect the cash we have and then grow the cash from there. We have seen some competitive activity out there. It's probably not too unusual based on the fact that the economy has been as long and deep in a downward trend that it's been. We've -- we're holding our own, and we think there are better days ahead.

As far as pricing goes, we're still in the marketplace every month, effectively pricing our open-market business. As Todd said in his comments, our open-market MSW price in the landfill was forward between 4% and 5% in the quarter. So we're very actively in the market every month -- in the open market, raising prices, and very effectively defending our business accordingly.

On the second half, I would add to Don that if we look at our collection business, in all lines of our collection business on a unit basis, our revenue per unit is up. And as Don indicated, we're protecting both existing business with -- and keeping it at good returns -- and the business that we acquire is also at good returns. As Don said earlier, using our ROI pricing model.

If we look at the first half of the year, our pricing was about 1%. If we look at the second half of the year, what we're saying today is that we'll be a modest step-up in pricing, and we believe it's in the range of 1% to 1.5%. This is primarily coming from the higher CPI environment and the anniversarying of lower CPI from prior years. So as we look ahead to 2012, we would expect to see further step-ups to receive the items just inherent in their basic business.

Perfect. Thank you. And also on the volume front, could you just quickly remind us on any areas where you're seeing greater than expected volume losses, and whether or not you're seeing others gain share, or is it largely economic-driven? And then also, if there's any weather impact during the quarter?

I think that was three questions.

Sorry. My apologies.

That's fine.

I don't know that I would name any one area that we're losing share at any great pace or to any one person. We think that the larger companies tend to be more active in the pricing environment and trying to increase the returns on their business. We've seen more activity, frankly, from some of the small haulers who are living for today or looking for an exit strategy at some point in their business. That's probably not much different than it's been historically, in the waste business, you have had an economic downturn that has lasted very long, and you don't see organic growth in the market happening, and that causes some strange behavior at times. But we'll weather this storm and we'll continue to price, and we'll see our way through it.

Yes, and to your question, Chris, about weather, there really is no weather impact for us. There's been events that have occurred, whether it's flooding or tornados, but net-net it really hasn't impacted our business much one way or another. It comes back to what Don talked about with the economy being weak for so long.

Perfect. Thank you very much.

Say hi to Hamzah for us.

All right. Will do.

Scott Levine, JPMorgan.

I'm looking at the assumptions behind the guidance you initially provided in February. It looks like price, you guys are looking at 1%, 1.5% for the year is coming in line toward the lower end but within the range. Obviously recycle commodities are doing better than you guys initially expected.

You guys were initially looking at volumes being flat to slightly up. Should we assume after the first half of the year that it's a bit lower? Maybe you can comment with regard to your views on how the macro side of things has played out in the second quarter.

Yes, so we're still looking for volumes to be flat to slightly up, as we said. Pricing may be, like you said, a little softer but still in the range. And then as far as the economy goes, a bright spot, as I said in my notes, is five sequential quarters of volume improvement in the collection lines of business. So we're creeping forward in the right direction, maybe not as fast as we hoped at first, but directionally, we're still good.

And then a bright spot for us in Q2 was we gained some speed through the quarter in roll-off hauls, in units. And so May was a little softer, and then we kind of picked up some speed in June there at the end. So it -- we're looking for that to hold up us for us. We saw probably geographically a little more improvement in the south part of our Company than maybe we had expected, because for so long the South and the West had been weaker than the Midwest and the East. So the South is making a little bit of a comeback there.

Scott, I would add, when you look at the price and the volume side of the equation, the net result of what's happening there shows up in the margins. We've got strong margins. If it weren't for fuel, we would probably be at or above our target now. You could also make that against that commodity prices, but we're basically on track with where we thought we would be from a margin standpoint. Which I think indicates that the other components of pricing and volume components of our business, while it's a tough economy, are still pretty good.

Yes, and we've got a great operating team. They're out there really doing a good job controlling unit cost and getting productivity. So we're holding up pretty well.

Got it. Maybe to follow up on fuel, Tod, since you mentioned that. Can you remind us whether you have any hedges on or what your thoughts are maybe in terms of hedging out some of that exposure with energy prices remaining as high as they are?

Scott, this is Ed. We have a small amount of our fuel hedged in for 2011 and 2012, but it is less than 5% of our total exposure. And the average rate that we have for the hedge this year is $3.66. It's a little bit lower than that for the small amount that we have hedged in 2012.

We are looking at the energy markets, but unfortunately, given almost this day-to-day volatility in the pricing, it puts a -- makes the -- some of the costs of the hedging fairly expensive as far as the -- how it gets priced out because of the market volatility. But it is something we continue to look at, and we will try to be opportunistic if there is an opportunity for further hedging for 2012 and 2013.

In the meantime, the recovery fee works pretty well for us. We talked about that before. It's a natural hedge.

Understood. Thanks.

Al Kaschalk, Wedbush Securities.

Thank you. First, the easy question in my view. On special volumes, could you talk about last year, I may have missed what the event was, and then if it was also part of the Gulf, or --? And then this year, what are you seeing in terms of special volumes that may be helping to drive positive --?

We didn't have much from the Gulf issue last year in special waste, and we did have a couple of big jobs. We talked about the military base job on the West Coast, the pesticide-contaminated soil, then a large regulatory cleanup in --

We had a refinery in the Midwest in the second quarter, also, central region.

Right. That's right.

Al, if you were to look at last year's special waste volume, our second quarter, we had kind of a peak in special-waste volume activity, in the second quarter of last year. And then we had another -- and this was because of a refinery cleanup project in the Midwest, I think. And there were some other -- the other things that Don mentioned on the West Coast were also a factor.

And then in the fourth quarter, we had an even larger peak, and that was due to the Camp Pendleton in Southern California and Tronix, which was a clean-up EPA mandated in Las Vegas. So as we look at our volumes this year, I think the difference is we believe we will meet or exceed the total volumes for last year, but we're doing it with a broader base of smaller jobs, which is actually a good thing. It shows maybe the purse strings are loosening up a little bit with some of these companies, for some discretionary spending.

Right. Al, you know that special-waste volumes by quarter are always very lumpy. So you've got to walk through that, as Tod did. We feel pretty strong about the volume side of things and pricing's holding up well in special waste. So that does bode well for the economy, we think.

My follow-up, if I may, Don, given the so-called honeymoon is over six months into it, I wonder if you could take a step back and give us an update on the CEO chair there. And specifically maybe some of the markets you're doing your multi-year plan on. And how you're feeling about some of these goals you've set out, trying to stay away from the quarterly numbers for a second.

We feel really good about the goals for the year. We feel good about some of the major initiatives that we set out. A couple of them are maybe moving a little slower than we'd like, but we're just as committed to them as we've been. I think they have real value.

The organization is operating very well. The team -- we've got a top-quality team here, so all things are go, and I'm actually feeling pretty good about it.

I didn't know the honeymoon was over yet. Still enjoying the honeymoon. You kind of burst my bubble there, Al.

Could you comment on the industry segment of recycling and how you are evaluating that? Have you made any decisions in terms of whether you're accelerating or just progressing as prices remain high here --?

You know, what I would tell everyone is when you think about our Company, it's 243 marketplaces. Yes, we're in 40 states and Puerto Rico, and we're organized in four regions, 28 areas, but what's really important about the business is the 243 markets are all uniquely different. And so when we think about how we're going to improve the business on a day-to-day operating side, we think about how we do maintenance or how we do safety, or how we move toward automation. Those things are very similar everywhere, across those 243 markets.

But when you think about how we invest and grow the business, those markets are very uniquely different, and they're different because they're different competitors, different asset structure, different market dynamics, different regulations, and so forth. So as it relates to recycling, when we talk about the investments we're making in recycling, they're not everywhere because the tons aren't moving in the same way everywhere. So what we've done -- the team's done here is evaluated 243 markets. We've identified 25 markets, about 10%, and we think we need to develop more capability in and around recycling, because we think the market would benefit. And the customers are willing to pay for recycling. They're interested in recycling, so there is some customer demand.

What we've done in our original plan this year is we've set aside about $25 million to invest in about five markets to begin to move that business forward. And we may, by the end of the year, invest a little bit more than $25 million, but we're doing it very cautiously, if you will, making sure that we're learning along the way and how to do it best, and we prioritize the markets accordingly. We're excited about it. The team's actively involved in it, and we're convinced that in some of those markets, the ton is evolving, and there is more recycling and diversion possible. It's not happening very rapidly, but it's important for us to be in that space.

So we're trying to bring all the solutions we need to our customers through that. Kind of a long answer to your question, but we're engaged in it. We're excited about it. And it's right smack in the core of what we do. We look at it like we own the waste stream today, and we want to own it tomorrow, even as it changes.

Thanks a lot. Excellent quarter.

Thanks, Al.

Michael Hoffman, WSI.

Thank you very much, and nice job, and we'll be looking for the book-signing on how to run a garbage company. On the free cash flow, just so I'm clear, the $875 million to $900 million I realize is what you gave before, but the language of excluding legacy tax benefits, what do you think the up side is from that from that in the remainder of the year?

On that vein, there's a fair amount of working capital for use that swings to the second half. Where's the flexion up in the model on the cash from ops side that would create some upside to this outlook on free cash flow?

Again, we're comfortable with the $875 million to $900 million, and there's two offsetting items. We have a greater capital spend, because we're pulling forward some of the capital to capture bonus depreciation. There's a tax shelter associated with that.

Also, we've closed out some of our open tax issues, and so we're going to get a favorable benefit from our cash taxes. So those two are kind of neutral.

Now even though CapEx is going up, the cash taxes is going to offset that. You asked about the first-quarter working capital. Typically what happens is we end up with a fair bit of capital spend at the end of the year, which moves up our accounts payable. So you'll see a reversal from the first half to the second half of the year in working capital. And we're very, very comfortable with the cash flow guidance we've given, staying within that range, despite the fact that we're going to spend a little bit more this year with a pull-forward from [truck] capital.

Okay. And then the second question, so interest rates probably never be as low as they are today, probably in our business lifetime, and the group has -- other public companies has underperformed. And there's some pretty cheap valuations out there. Is there another big transaction in Republic's horizon?

Yes, Michael, we look at everything that's out there. And large and small, and we're doing a great job today, having successfully integrated two very large successful companies. We're very proud of the team and their ability. They're very good at what they do. And again, I think people would tell you that lot of folks thought it couldn't be done and I think we've really shined in the process.

We know we can integrate businesses. We're doing a good job on tuck-ins and bolt-downs. For a long time there, we were busy integrating the big business, and now we're re-engaged out there in small tuck-ins, and we're pretty excited about it. Our area presidents are bubbling up some really good local opportunities so we can fill out the missing pieces, if you will, in various markets. We're always open to ideas and looking at anything that's out in the market that fits our profile.

Very good. Congratulations on the quarter.

Thanks, Mike.

Corey Greendale, First Analysis.

Question. First, Scott Levine actually asked this question, but I wanted to clarify the answer. You still think that for the full year, volume will be at least flat?

For the full year, I think because of where we were in the first half of the year, the full-year number would be slightly negative.

Slightly negative. Okay.

Second half, again, we think we're going to exit the year positive.

Exit speed is important here. So we're moving through the year, and I think we're setting ourselves up a pretty good spot for 2012.

Understand. The second question I had is, I understand in terms of incremental returns that you're doing exactly the -- what makes sense in terms of pricing. From a bigger-picture perspective, I think there's been this thought that the -- taking a big-picture view, that from a game-theory perspective, that if you start to see larger companies be more aggressive in pricing downward, that that kind of obliges others to do the same, and you wind up in more of an aggressive negative pricing spiral. So can you speak philosophically about why you think we're not at the beginning stages of something like that occurring again?

Yes, I will talk to you about that. First take a look, and I'll just remind you, look at our EBITDA margins, 31% plus. I think that reflects a lot of things about our Company. One, certainly the asset base we have, and operating capability of our people, but we watch very keenly pricing and the return on our business.

And so we're pretty proud of that margin, and I think there are some folks that would like to have that. As far as pricing goes, again, there is no organic growth in the marketplace, and so, when you took your first economics class in high school it is sort of supply, demand. You get that, right? It's been really long, really deep. Some of the smaller folks out there in the marketplace get a little twitchy and doing some silly things and you can only stand by and watch that for so long.

There's a couple of things going on simultaneously at Republic Services, and we talked about this before. First, we are steadily, consistently, continuously pricing our business.

So in the open market, we are every month in the market pricing our business, in all lines of business, in the open market, in every geography in the Company. And we call that ratable pricing. We go through the year constantly levering up and down, if you will, depending on the market dynamic, but pricing consistently in the marketplace. We haven't stopped that practice.

When -- sometime last year, we started talking about defending the business more staunchly and we have a team out there using ROI tools, knowing what our cash costs are and defending a very good business space. We might have been more willing to walk away from some business two years before that. And then we start to defend business, save business at a lower rate in some cases, it's going to show up in our price metric, because we didn't lose the volume, we keep the volume at a lower price per unit, even though it's profitable. It has good cash flow associated with it.

As an owner of our business, you want us to do that. You want us to protect that cash flow, and we do it very well, probably better than we ever have. But that's going to show up in what we report as price. Right, Corey?

The third thing we're doing out there is we're selling, right? We're out there in the marketplace and we're looking for new opportunities as well. And we may -- we're going to compete vigorously with everybody in the marketplace, just like we always have.

And there are some markets where we're losing share to one or two smaller competitors, and we may be more aggressive in a couple of those cases, because we can't just stand idly by. So we have not changed our pricing strategy or focus. We have not changed our return focus. But we're simultaneously pricing, saving business, and competing in the marketplace.

Now, when you do all of the math of all the mix by type and line of business and geography, and the saving and the churn, that's putting some pressure on the price metric. But the activity and the philosophy and the strategy has not changed. But there's a lot of mix and math that causes the numbers to be what they are.

Now, full circle back to the first statement I made. Look at 31% EBITDA margin. That shows you that we're focused on doing the right things.

Every so often, we make a mistake and we maybe have some bad facts and maybe get a little lower here or there. Every so often, some other company does that. No different than it's ever been, but we haven't changed our tune.

And to the concern that you stated, I don't think we see a dramatic shift in the marketplace, at all. We view the marketplace as being fairly stable. It is just a question of a long, slow, flat economy.

Yes, I understand. And I'm sure you said all of that before, but I still think it is helpful to hear it all again. So thank you for that.

All right, Corey.

Bill Fisher, Raymond James.

Quickly, Tod, I think you mentioned the landfill lines are down 1.8%. Does that exclude Toronto? Do you know?

Yes, that would exclude Toronto.

Okay. And you mentioned some color on regional via roll-off, and the south was doing better. I was curious on some other markets like California, something that has been more down, if any of those are getting less bad, if you will, as you move through the quarter.

Yes, we're getting -- I'll use your term, Bill. We're getting less bad everywhere as it relates to volume. It's a broad brush. I just highlighted the south because they probably picked it up a little bit quicker than the other three.

Okay, great. Actually quickly, do you have -- debt as a tax rate or something for the second half that moves around a little bit?

Yes. We're expecting our second-half effective tax rate to be approximately 41%.

Perfect. Thank you.

Thank you. That is all the time we have for questions today. I'll now turn the call over to Mr. Don Slager for his closing remarks.

In closing -- Thanks, operator. I'd like to thanking the entire Republic team for their efforts and resulting performance in the second quarter. We remain as always focussed on the business fundamentals required for our continued success.

As a reminder, a recording of this call is available through August 5, 2011, by calling 203-369-1018. Additionally, 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 www.RepublicServices.com.

And finally, I want to remind that Republic's management team routinely participates in investor conferences. When presentations are scheduled, the dates and times are posted on our website, along with instructions for listening to the live webcast of the event. Thanks, everyone, for spending time with us today. Have a good evening.

Ladies and gentlemen, this concludes the Republic Services conference call for today. Thank you for participating. You may now disconnect.