Republic Services Inc (RSG) 2016 Q3 法說會逐字稿

Good afternoon, and welcome to the Republic Services' third-quarter 2016 investor conference call. Republic Services is traded on the New York Stock Exchange under the symbol RSG.

(Operator Instructions)

Please note, this event is being recorded.

I would now like to turn the conference over to Brian DelGhiaccio, Senior Vice President of Finance. Please go ahead, sir.

Good afternoon and thank you for joining us. I would like to welcome everyone to Republic Services' third-quarter 2016 conference call. Don Slager, our CEO, and Chuck Serianni, our CFO, are joining me as we discuss our performance.

I would like to take a moment to remind everyone that some of the information we discuss on today's call contains forward-looking statements which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. The material that we discuss today is time-sensitive. If, in the future, you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is October 27, 2016.

Please note 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. 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.

Finally, I want to remind you that Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times, and presentations are posted on our website. With that, I would like to turn the call over to Don.

Thanks, Brian. Good afternoon, everyone. Thank you for being with us today.

Our third-quarter results continue to demonstrate the strength of our strategy of profitable growth through differentiation. Our solid performance resulted from simultaneously growing price and volume, higher recycle commodity prices, and continuing to execute our strategic initiatives. As expected, margins expanded in the third quarter, keeping us well-positioned to achieve our full-year EBITDA margin goal. Highlights of the quarter include adjusted EPS of $0.62, which exceeded our expectations. Our results were positively impacted by solid performance across our business and a lower tax rate. We now expect to exceed the upper end of our original guidance range. Adjusted free cash flow was $239 million during the quarter. We now expect to meet or exceed the upper end of our original guidance range.

Core price was 3.2%, and average yield was 2.1%. Average yield improved sequentially, even with a step-down in CPI-based pricing. We continue to see relatively higher average yield in our small-container commercial and large-container businesses. A majority of these customers are in open markets where we can leverage increases in demand for service, our enhance product offerings, and our digital platform.

Third-quarter volumes increased 60 basis points. We continue to see broad-based volume growth across our business, which was tempered by intentionally shedding certain volumes performed on behalf of brokers and municipal residential work that does not meet our return criteria. Adjusted EBITDA margin improved 80 basis points to 28.9% from 28.1% in the prior year. A favorable reduction in operating cost drove 20 basis points of margin expansion, and lower SG&A costs resulted in 60 basis points of margin expansion.

As part of our efficient capital allocation strategy, we returned $622 million total cash to our shareholders since the beginning of the year. This includes 6.5 million shares repurchased for $312 million. We remain on track to complete our goal of $400 million of share repurchases during 2016.

Regarding our revenue-enhancing and customer-facing initiatives, first, we now have approximately $375 million in annual revenue that has been converted to a waste-related index, or fixed-rate increase of 3% or more for the annual price adjustment. Second, approximately 1.7 million customers are enrolled in our customer portal and mobile app, up 50% from the prior year. These tools significantly enhance our customer interaction and connectivity. Third, we expanded our product offerings on our e-commerce platform. Customers can now purchase small-container, temporary large-container, and residential subscription services online. This technology addresses the evolving needs of our customers' buying preferences and provides a lower cost sales channel. And, finally, we opened our last customer resource center, located in Indianapolis. We continue to consolidate the customer service function from 100 different locations into 3 and expect the transition to be complete by the end of 2017.

Regarding our fleet base productivity and cost savings initiatives, 18% of our total fleet now operates on natural gas. 74% of our residential fleet is currently automated, and 90% of our total fleet has been certified under our one-fleet standardized maintenance program, up from 74% a year ago. The entire fleet will be certified by mid-2017.

As a result of our third-quarter performance and expectation that recycled commodity prices remain at current levels for the remainder of the year, we are raising our full-year financial guidance. Adjusting earnings per share is now expected to be in a range of $2.19 to $2.20, which is an increase from our original guidance of $2.13 to $2.17. Adjusted free cash flow is now expected to be $840 million to $850 million, which is an increase from our original guidance of $820 million to $840 million.

Chuck will now discuss our financial results. Chuck?

Thanks, Don.

Third-quarter 2016 revenue was approximately $2.4 billion, an increase of $65 million, or 2.8% over the prior year. This 2.8% increase in revenue includes internal growth of 2.5% and acquisitions of 30 basis points. The components of internal growth are as follows: first, total average yield grew 2.1% over the prior year. Average yield in the collection business was 2.6%, which includes 3.6% yield in the small-container commercial business, 2.3% yield in the large-container business, and 1.5% yield in the residential business. Average yield of the post-collection business was 1%, which includes landfill MSW of 1.7%. A majority of our third-party landfill MSW business is with municipal customers that have contracts containing price restrictions. Total price, which measures price increases less rollbacks, was 3.2%. Core price consisted of 4.3% in the open market and 1.4% in the restricted portion of our business.

Second, our total volumes increased 60 basis points. Volumes increased 30 basis points in the small-container business and 1% in the large-container business. As expected, volumes in the residential business declined 1.1%. Volume growth in the small-container business reflects a 60-basis-point impact from shedding certain work performed on behalf of brokers which we view as non-regrettable. Excluding these losses, small-container volumes would have grown approximately 1%. The decline in residential volumes resulted from not renewing certain contracts that fell below our return criteria. These losses were known and contemplated in our full-year guidance. The post-collection business, made up of third-party landfill and transfer station volumes, increased 2.5%. Landfill volumes consisted of growth in MSW of 1.9% and C&D of 13.4%, partially offset by a decline in special waste of 3.6%. The decline in special waste volume relates to two large, event-driven remediation jobs in the prior year that did not repeat.

Third, fuel recovery fees decreased 60 basis points. The change primarily relates to decline in the cost of fuel. The average price per gallon of diesel decreased to $2.38 in the third quarter from $2.63 in the prior year, a decrease of 9%. The current average diesel price is $2.48 per gallon. We recover approximately 80% of our total fuel cost through our fuel recovery fee program. Additionally, 20% of our diesel gallons are hedged using financial hedges. Next, energy services revenue decreased 30 basis points due to a decline in drilling activity. And, finally, commodity revenue increased 70 basis points. The increase in commodity revenue includes higher processing fees charged to third parties and an increase in recycled commodity prices. Excluding glass and organics, average commodity prices increased 12% to $133 per ton in the third quarter from $119 per ton in the prior year. Third-quarter total recycling volume of 655,000 tons was essentially flat with the prior year. Cost of goods sold was up 13% from an increase in rebates paid for recycled commodities.

Now, we will discuss changes in margin. Third-quarter adjusted EBITDA margin increased to 28.9% from 28.1% in the prior year. Of the 80 basis points of margin expansion, the impact from higher recycled commodity prices contributed 10 basis points. The remaining 70 basis points of margin expansion relates to, first, a 10-basis-point improvement in cost of operations resulting from price increases in excess of our cost inflations and realizing the benefit from our fleet-based initiatives. And, second, a 60-basis-point improvement in SG&A costs resulting from favorably settling a legal matter, price increases in excess of our cost inflation, and leveraging our fixed-cost structure while growing volumes. The favorable legal settlement reduced third-quarter SG&A costs by approximately 40 basis points, which more than offset legal charges recorded earlier this year. I want to remind you that we provide a detailed schedule of cost to operations and SG&A expenses in our 8-K filing.

Third-quarter 2016 interest expense was $89 million which includes $12 million of non-cash amortization. Both interest amounts exclude the refinancing charge. As discussed on our second-quarter call, we tendered and replaced [hard] coupon debt in early July. Associated with the refinancing, we incurred a $0.36 charge in the third quarter, which was recorded to loss and extinguishment of debt. The refinancing activity will save approximately $17 million in annual interest expense, or approximately $0.03 of EPS. Our adjusted effective tax rate was approximately 37%. The lower tax rate in the third quarter resulted in a $0.02 EPS benefit. Third-quarter adjusted free cash flow was $239 million, and year-to-date adjusted free cash flow was $576 million. After considering the timing of working capital, our year-to-date performance keeps us well-positioned to achieve our upwardly revised, full-year guidance.

Now, I will turn the call back to Don.

Thank you, Chuck.

Before closing, I would like to discuss the 2017 preliminary outlook we provided in our earnings release. We are currently midway through our annual planning process, and based on our initial reviews and assuming current business conditions, we project the following: adjusted earnings per share of $2.31 to $2.36 and adjusted free cash flow of $875 million to $900 million. Both performance metrics represent mid to high single-digit growth. Consistent with our prior practice, we will provide detailed guidance in February, 2017.

To conclude, we are very pleased with our third-quarter performance. As a result of continuing to focus on our strategy of profitable growth through differentiation, together with solid operational execution, we expanded margins by simultaneously growing price and volume, reducing costs, and leveraging our scale; delivered earnings and free cash flow growth, and improved return on invested capital; and increased cash returns to shareholders through a balanced mix of dividends and share repurchases. Through our focus on managing the business for the long term, we continue to create lasting shareholder value.

Before going to Q&A, I would like to discuss some recent events. In September, Republic was named to the gold standard of sustainability rankings and was the only company in our industry included in the Dow Jones Sustainability World Index. Our customers have told us that sustainability is important to them, and we believe that it drives profitability and long-term value creation. We are proud of our progress in this area, and the external recognition we have received is best in class.

With respect to Hurricane Matthew, we are happy to report that we made immediate contact with all Republic employees and all are safe. Our facilities and assets did not incur any material damage, and we were fully operational in all locations within days of the hurricane. We are committed to providing the high level of service required to address the needs of our customers.

At this time, operator, I would like to open the call to questions.

(Operator Instructions)

Corey Greendale, First Analysis Securities.

Thank you. This is Ken Wang on for Corey. Thanks for taking my question. So, just looking at the EPS beat for the quarter, it looks like part of it was driven by lower than expected other category expense within SG&A? Just wondering if you could speak a little bit more about what that was? What, in particular, drove that?

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

It was about a penny of EPS.

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

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

We also have some cost increases along the way as we take care of our people. We move all of our trucks to higher ground so that they are safe and sound. We do a lot of planning and work so that we can get right back to work. We put a lot of emphasis in on the front end so we can get right back to work and take advantage of some revenue as it comes in. But, our focus is employees, assets, and then hopefully a little bit of cleanup that we can do. But, net of net -- it is immaterial.

Okay, great. Thanks very much.

Hamzah Mazari, Macquarie Capital.

Good afternoon. Thank you.

I had a question on the volume environment. Don, how would you characterize that? Did you see normal seasonality? Are the US elections impacting special waste projects being pushed out? And, there is some noise given you are shedding low-margin business. So, just trying to get a sense of how we should think about just the underlying volume environment given some of these moving parts here?

Yes, sure. Let me back up a minute, Hamzah. Let's first focus on the preliminary outlook we gave you for 2017. Which really says that we think the ongoing trends -- underlying rational behavior in the business, underlying economy, the trajectory for the business is good in the next year. So, we're not seeing anything on a real true trending basis that has got us concerned. We think things are going to be fine.

On a localized basis, you mentioned impact of the election. We do see every four years when we get into this election cycle, some impacts to certain -- maybe major event jobs being pushed or delayed. I think we're seeing a little bit of that in special waste right now. Rolloff has been pretty solid for us.

We had a little lower growth in rolloff this quarter than last, but we also got higher price. So, we specifically went into the market because of demand and asked for a little more price in our open-top, temporary rolloff business. So, there's nothing there that has us concerned. And, again, I just point you to next year.

On the commercial side -- and, we've talked a lot about construction coming back. That's been our leading growth headline, but we saw in Q3 the first positive -- or the best positive sales growth year-over-year in our small container business in two years.

If you net out the losses-- the broker losses, which were intentional and non-regrettable, it was a really great quarter for us. And, that's on top of four out of the past five quarters in that business have had a 3.6% yield to boot. So, solid yield, solid growth, and again, shedding of business that doesn't have the right return is the right thing to do for us, and we are going to continue to do that.

Right. Very helpful, and then just a follow-up question. You mentioned 80 bps of margin expansion. There's some one-time items in there maybe around the legal matter you referenced. Is 30% still a short-term margin target to think of for you? Just trying to get a sense of normalized, annual margin expansion that we should be thinking about going forward?

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

We have got to see landfill growth continue. Remember, if not for the change in CPI and the falloff in recycling commodities that we saw in 2011, we would be at 31% margins today. So, those two things alone have really slowed us down. Those are the big headwinds we face.

We're spending a lot of time in reimagining the recycling business. We've closed facilities that do not meet the return criteria. We've invested in others that do. So, we're still committed to recycling for customers that are willing to pay. We've continued to make good decisions there.

We're converting more and more of our municipal business to a fair and reasonable price escalator. So, those things are going to continue over the next several years, and we think we will get back to 30%. We think this business can certainly handle that, and we think the structural nature of the industry will allow it.

Hamzah, I would say our third-quarter results reflect that, also. Hold aside the fact that about 10 basis points of our margin expansion during the quarter was the result of commodities. We talked about 40 basis points due to that legal reversal that we had. But, on top of that, you've got 10 basis points of leverage in the operating cost line. And, another 20 basis points of leverage in SG&A so we are starting to see all the fruits of our labor.

The preliminary outlook we gave you, Hamzah, includes ongoing positive growth, ongoing positive yield, and ongoing margin expansion in 2017.

Great. Thank you.

Noah Kaye, Oppenheimer & Company.

Thank you and congrats on the quarter. I'd like to just pick up right there on some of the internal levers for the margin expansion. You mentioned the consolidation of customer service. Can you help us understand how that and some of the other restructuring initiatives might be creating some of this leverage? Let's say, on the SG&A side, as well as on the operating costs side? Maybe just get into a little bit more detail on what's being done internally to help drive that expansion?

Yes, so that's a great question. First, remember when we first told you about the consolidation of the customer resource centers, we were doing that at the same time we were going through an organizational restructuring here by combining a couple of layers of management. Which -- that's complete, but we also said the net effect of that is not really going to be fully achieved until 2018. So, we won't see the full effect of the CRC consolidation until 2018. So, that's one of them.

There are ongoing improvements in the business all the time around productivity, around fleet. We expect our maintenance costs to moderate in Q4. We've been putting a lot of effort into building what I'd call the most reliable fleet in the industry.

That's our goal. We think that reliable fleet is going to continue to help us with driving employee turnover down, employee engagement up. Tech turnover down -- all of those other things. So, there's a lot of things going on in there that are worth basis points at a time. Remember, on the CapEx side, we're going to save $200 million as a one-time CapEx savings from the one-fleet initiative and an ongoing about $20 million to $25 million a year from aging the fleet very methodically. So, there's no one thing, and that's the issue. There's a lot of little things we have to do better across the whole enterprise, and I think that's what the results show.

That's very helpful. Thank you. Second question. I think you had signaled a target spend on M&A of around $100 million. I guess you spent about $30 million so far this year. How do you see the M&A landscape now?

Are things heating up? How do you feel about the near-term opportunity set? Do you think you will get close to that $100 million after all?

Yes, so first I wouldn't say that the M&A pipeline is heating up. We would say it's fairly consistent. We think we will spend near the $100 million this year. We're looking to spend that very intelligently.

So, it was very light on the front half of the year. We've got enough deals in process we think to, again, intelligently put that $100 million to work in the remainder of the year. We're going to continue to that. As far as the pipeline looking forward, our estimates for next year would include that $100 million, as well.

So, again, we are looking for the right companies. We're looking for companies that are in our -- again, tuck-in markets where we can tack them on to, bolt them on to existing operations. We're looking for good business with reoccurring revenue so were not buying junk. And, again, we're buying those things at about five times post-synergy EBITDA, so that's our outlook. We think we will have the opportunity to do that this year and next year, as well.

Okay. Thank you.

Al Kaschalk, Wedbush Securities.

Hello. This is Misha Levental on for Al.

In terms of your progress converting customers over to waste index and other fixed rates, could you maybe talk about your expected progress for next year? Should it be consistent to what we saw this year? Or, how do you see that tracking?

Well, it's a little hard to project that here because as you can probably appreciate it is a little bit lumpy. This is going to depend on timing of when certain contracts roll over, and it is going to depend on size. So, as we've said, we've started with smaller contracts and customers and moving into medium and larger. So, it will get a little more difficult as time goes, and we're also hoping to see that the market rationality will change along with us so we've kind of led this process.

Frankly, it has to continue to change because it's illogical for waste companies to enter into five- and seven-year agreements with a CPI that averages 1.5% when everyone in this industry will tell you that their cost increases average 2%. So, it's illogical that it would continue to be CPI-based. We're setting the tone for that.

We're starting to see certain market activity that would lead us to believe that it's being more and more well accepted by customers. So, we are just going to keep at it. We're not going to enter into agreements that have decreasing value over time. It's just going to be a work in progress, and we're going to have to just report as we go. Because as I said, it is a little bit lumpy based on size of contract and timing.

Great. And, as a follow-up, the strength of volume -- just really quick. Thanks for the broader 2017 guidance and maybe understanding that further detail will come in February. But, looking at volume versus this year, volume was better in the front half of the year, tailing down sequentially. Should we expect somewhat of a reverse trend or a similar trend into 2017? Or, what's the expectation there?

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

So, remember, when we came out in Q1 of this year, we came out with really strong volume numbers, and we warned everybody that it was a tough comp to last year. We let everybody know that the volume was going to trend down over the course of the year on a year-over-year basis. Let's not get confused about tough comps and year-over-year analysis.

We think the trends are solid. As I said in my earlier comments, we think the underlying fundamentals are strong. And, again, we gave you preliminary outlook for 2017, which includes positive volume, positive yield, and margin expansion which says that we believe our business is going to continue to improve. There is nothing on the horizon that makes us think otherwise.

Great. Thank you very much.

Michael Feniger, BofA Merrill Lynch.

Thanks. We saw the impact you laid out this quarter from walking away from some national accounts and brokerage business. I'm just curious, when we start thinking about 2017, can we see a similar headwind in 2017? Or, do you see less room to walk away from that type of business or less of a headwind because of that?

We're not giving 2017 guidance today. So, we'll start there.

Again, we've stepped out and committed to a strategy that frankly doesn't include enabling brokers. So, we don't think they're good for our business. We don't think they add value to our customers, and we're certainly not going to continue to basically provide services for brokers who basically won't pay us a proper return, and frankly, drive a wedge between us and our customers.

That model is underway. We are going to continue to work through it. We are partway through it. We think the underlying volume trends in the overall economy and with our products and our attention to quality and the improvement in our sales force, we will continue to reap the benefit of growth even as we shed business that is not profitable. So, overall, we are just not going to enter into agreements to do business for practice.

And, we're not going to enable competitors along the way. So, that's life as we see it at Republic Services. So, I hope all my team is listening. (laughter)

Makes sense. And, when we talk about the yield, and specifically, the price. The restricted pricing portion fell back again, obviously, because of CPI resets. I'm just curious, that 1.4%. Is that the bottom now? Or, is that actually going to step down again in Q4 and the first half of 2017?

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

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

Thanks.

Tyler Brown, Raymond James.

Hey, good afternoon.

Hey, Tyler. How are you?

Hey, good. Nice quarter. Chuck, I know the 2017 outlook is preliminary. It's obviously subject to refinement, but can you give us any sense of the magnitude of EBITDA margin expansion? Are you looking at closing in on 29%? Or, any color there?

We will give you a lot more color on that in February. Obviously, we -- as Don had mentioned, we think that 30% EBITDA margins is something that is achievable over a number of years. And, we're certainly going to progress towards that goal in 2017.

Okay. That's good. And then, just a quick housekeeping item. What should we expect for quarterly interest expense?

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

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

Yes. Let me pitch in on that last question, and then I'll talk to coal ash. Also, keep in mind, Tyler, that the impact of the low CPI that we saw in 2015 doesn't anniversary out until the second half of 2017, so that's going to be in our margin a little bit in 2017. And then, the full benefit, as I said earlier, of the customer resource center consolidation doesn't really hit until 2018.

If you asked every one of my team members about are we focused on 30% margins, they will tell you yes. We think the business can get there, and then we've got plans in place to negate some of these headwinds and overcome it. So, that's what we're thinking.

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

We still think coal ash is more of a 2018 story, and there will be a big event that occurs. And then, it's going to be a business decline. So, it's not a business that we are going to put a lot of effort into to be in that space long-term, but when we are situated geographically to take advantage of the volume, we certainly will. We've got capacity. We're well situated around the states where this stuff is generated. I think we will get our fair share as long as the pricing is reasonable.

Okay, cool. And then, Brian -- one quick question for Brian. Are you seeing any unusual inflation in your upper layers of insurance. Something I've actually been hearing quite a lot about from the truckers. Is there anything unusual going on there?

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

Okay, cool. Thank you.

Andrew Buscaglia, Credit Suisse.

Hello. Thanks for taking my questions. Don, can you expand -- what did you mean on the coal ash comment that longer term you don't see yourself having quite as much of a hand in that?

Well, I say this. Look, it's a business that there's going to be, over time, less and less electricity produced by coal plants, so this big cleanup that is going to occur from all the stockpile of coal ash will be an event that lasts a number of years. We will participate in that.

Again, remember, big generators are going to want to build monofills, so you're going to have to be -- make a big dedicated play to give up a portion of your landfill to handle their needs. We can do that. We certainly are prepared to do that. We're in conversations to do that today.

Over time, after all of the big cleanup is completed whether people do it onsite and they build their own landfills or whether we do it for them, over time, there is going to be a decreasing amount of coal ash generated in this country based on regulation and based on the cheap cost of natural gas.

So, there are people who think just a regulation change alone is going to bring coal back, but I'll tell you, with the cheap cost of natural gas, there's an economic decision there, right. So, we just have to wait and see.

And, again, we don't know yet how many of these producers are going to do it themselves. We think the well-capitalized ones will. Because again, they can build it into their capital base and they can make a return on it with their rate payers. The smaller, less well-capitalized players may not. But, I would sit here today and tell you that many of the generators don't really have a well thought-out plan yet.

And, remember, only one state so far has come out with rules. While the feds have passed the rules, only one state has passed rules. So, the reigning states have not yet. It's just still early. What's the stat? How many landfills do we have in the states that produce the stuff?

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

On that alone, I think we will play in the space. We'll let you know as it evolves. We don't think it is a 2017 story.

Okay, yes. Recycling -- I know it's about 9% of your sales. It's coming off it's lows. The commodities are up, and the tonnage seems to be up. How much of your 2017 guidance is predicated on improvements in recycling? Or, is that just icing on the cake if we see --?

As I said in my comments, our 2017 preliminary outlook is based on current trends in the business, which would mean current rates for sales of material.

Okay, got it. Thank you.

Michael Hoffman, Stifel.

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

Hello, Brian.

Hello, Brian.

Just on the SG&A benefit from the legal settlement, that 40 basis points? Is that an ongoing benefit, or was that a one-time thing that now reverses going forward? Or, are your legal fees just going to be lower now that it's settled.

That was a one-time benefit and what that did was negated a legal cost that we've incurred early in the year. But, that was one-time.

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

Yes, around 10.5 basis points, is what we are expecting.

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

That's more of a normal pace. More of the same. Our CapEx is pretty straightforward. We've got good visibility into the CapEx. There is nothing unusual that we are expecting in 2017.

We will continue to get benefit from methodically increasing the expected life of the fleet through the one-fleet initiative as we've done for the last couple years. That will continue now for a couple more years through that process, but just pretty consistent. That is one of the beauties of our business is very consistent cash flow. We've got a lot of our revenue under contract, and our CapEx draw is pretty consistent.

Great. Thank you.

At this time, there appear to be no further questions. Mr. Slager, I will turn the call back over to you for closing remarks.

Thank you, Denise. I would like to thank all Republic employees for their hard work, commitment, and dedication to operational excellence and creating the Republic way. Thank you, everyone, for spending time with us today. Have a good evening and be safe out there.

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