Republic Services Inc (RSG) 2017 Q2 法說會逐字稿

Good afternoon, and welcome to the Republic Services Second Quarter 2017 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 Nicole Giandinoto, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us. I would like to welcome everyone to Republic Services' Second Quarter 2017 Conference Call. Don Slager, our CEO; and Chuck Serianni, our CFO, are joining me as we discuss our performance.

I would like to take a moment to remind everyone that some of the information we discuss 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 the 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 rerecording of this conference call, you should be sensitive to the date of the original call, which is July 27, 2017.

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

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

And finally, I want to remind you that Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times and presentations are posted on our website.

With that, I would like to turn the call over to Don.

Thanks, Nicole. Good afternoon, everyone, and thank you for joining us. We built upon our strong start to the year and delivered another solid quarter. We achieved higher levels of pricing and volume growth, made continued progress on our multiyear initiatives and reported double-digit growth in earnings and free cash flow. We continue to see positive momentum in our business from the successful execution of our strategy and improvement in the fundamentals that impact our business, which was the premise for our 2017 business plan.

Highlights of the quarter include adjusted EPS was $0.61, an 11% increase over the prior year. EPS was positively impacted by strong growth in both price and volume and higher recycled commodity prices. Year-to-date adjusted free cash flow was $358 million and in line with our expectations. Year-to-date adjusted free cash flow per share was $1.05, an increase of approximately 8% over the prior year.

Adjusted EBITDA increased $42 million or 6% over the prior year. Adjusted EBITDA margin was 28%. Total revenue grow -- grew 7.5%, our highest level in over 8 years. Core price was 4.1%. Average yield was 2.5% and was strongest in our small container and large container businesses. The majority of these customers are in open markets, where we can leverage increases in demand for service, our enhanced product offerings and our digital platform. In our small container business, average yield was 4.2%, our highest level of pricing in over 7 years.

Second quarter volumes increased 1.9%. The volume growth was broad-based and was strongest in the event-driven portion of our disposal business. Year-to-date, we have invested $91 million in tuck-in acquisitions, which will improve our operating density and further strengthen our market positions. As part of our efficient capital allocation strategy, we have returned $454 million of cash to our shareholders since the beginning of the year. This included 3.8 million shares repurchased for approximately $237 million. Additionally, our board approved an 8% increase in our quarterly dividend. This is consistent with our historical practice of raising the dividend in the mid- to high single-digit range. The annualized dividend is now $1.38 per share.

Regarding our revenue-enhancing initiatives, we now have approximately $440 million in annual revenue that uses a waste-related index or fixed-rate increase of 3% or greater for the annual price adjustment. These waste indices are more clearly aligned with our cost structure and have historically run higher than CPI. Regarding our fleet-based productivity and cost savings initiatives, 19% of our fleet now operates on compressed natural gas, 75% of our residential fleet is automated, and our entire fleet is now certified under our One Fleet maintenance program. As a result of our standardized maintenance program, we have seen an improvement in cost per engine hour, greater fleet reliability, fewer unscheduled repairs and lower technician turnover. Additionally, we are in the process of extending the useful life of our fleet by 1 year, which will save us $200 million in capital expenditures. We've already realized over $100 million of savings and expect the remaining savings in the next 2 to 3 years.

Finally, I'd like to give you an update on the talent pillar of our strategy. We believe that an engaged, empowered and diverse team is another way we differentiate ourselves. We have been steadily building on our employee engagement and diversity and inclusion programs over the last several years in an effort to make Republic Services an employer of choice, one where the best people come to work. This year, we were named to the Forbes 2017 America's Best Employers list and the Ethisphere World's Most Ethical Companies list. And most recently, we received the Glassdoor Employees' Choice Award. The Forbes and Glassdoor awards are especially meaningful in that our employees from across the country are the ones who voted to put Republic on these lists. It is through our employees' collective voices that Republic's culture and company story is being shared and the true litmus test to the impact we are making here at Republic. Chuck will now discuss our financial results. Chuck?

Thanks, Don. Second quarter revenue was approximately $2.5 billion, an increase of $176 million or 7.5% over the prior year. This 7.5% increase in revenue includes internal growth of 7.2% and acquisitions of 30 basis points.

The components of internal growth are as follows. First, average yields increased 2.5%. Average yield in the collection business was 3.1%, which included 4.2% yield in the small container business, 3% yield in the large container business and 1.9% yield in the residential business. Average yield in the post-collection business was 80 basis points, which included landfill MSW of 1.8%. A majority of our third-party landfill MSW business is with municipal customers that have contracts containing pricing restrictions. Total core price, which measures price increases less rollbacks, was 4.1%. Core price consisted of 5.3% in the open market and 2.2% in the restricted portion of our business. Pricing in the restricted portion of our business benefited from an improved inflationary environment and our focus on earning an appropriate return on our contracts as they renew.

The second component of internal growth is total volume, which increased 1.9% over the prior year. Volumes in the collection business increased 40 basis points. This included a 1.9% increase in our large container business and a 50 basis point increase in our residential business, partially offset by a 90 basis point decrease in our small container business. Small container volumes included a 140 basis point impact from intentionally shedding certain work performed on behalf of brokers, which we view is non-regrettable. Excluding these losses, small container volumes would have increased 50 basis points.

Within our large container business, temporary C&D hauls were up 1.7%, and recurring hauls were up 1.9%. The post-collection business, made up of third-party landfill and transfer station volumes, increased 8.7%. Landfill volumes increased 8.4%, which included C&D of 17.5%, special waste of 15% and MSW of 1.1%.

The third component of internal growth is fuel recovery fees, which increased 60 basis points. The increase relates to a rise in the cost of fuel. The average price per gallon of diesel increased to $2.55 in the second quarter from $2.30 in the prior year, an increase of 11%. The current average diesel price is $2.51 per gallon.

The next component, energy services revenue, increased 70 basis points. The growth in energy services revenue is primarily due to an increase in drilling activity in the Permian Basin where we are well positioned.

And the final component of internal growth is commodity revenue, which increased 1.5%. The growth in commodity sales revenue primarily relates to the increase in recycled commodity prices. Excluding glass and organics, average commodity prices increased 35% to $157 per ton in the second quarter, from $116 per ton in the prior year. The average commodity price in June was approximately $160 per ton. Cost of goods sold for recycled commodities increased 49%, primarily due to an increase in rebates.

Now I'll discuss changes in margin. Second quarter adjusted EBITDA margin was 28%, which compares to 28.3% in the prior year. The change includes a 40 basis point increase in landfill operating costs. As discussed in the first quarter, we continue to see higher costs associated with the change in operating requirements at one of our sites. We also saw an increase in leachate volumes at a handful of our sites. These costs are temporary in nature, and we expect the higher landfill operating costs to abate over the next few quarters.

Excluding the increase in landfill operating costs, we had 10 basis points of margin expansion from strong pricing and volume growth, demonstrating the operating leverage in our business.

I want to remind you that we provide a detailed schedule of cost of operations and SG&A expenses in our 8-K filing.

Second quarter 2017 interest expense was $90 million, which included $11 million of noncash amortization. Our adjusted effective tax rate was 39.1%. We expect an effective tax rate of approximately 39.5% for the remainder of the year.

Year-to-date adjusted free cash flow was $358 million, which represents 6% growth over the prior year. We remain comfortable with our full year adjusted free cash flow guidance of $875 million to $900 million, which represents double-digit growth over the prior year after adjusting for the change in cash taxes.

Now I'll turn the call back to Don.

Thanks, Chuck. To conclude, we are pleased with our second quarter performance. Strong fundamentals together with solid operational execution resulted in 7.5% top line growth and double-digit growth in earnings and free cash flow. Given our solid performance in the first half of the year, we are increasing our full year EPS guidance range. We now expect adjusted earnings per share of $2.36 to $2.39, which is an increase from our original guidance range of $2.32 to $2.36.

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

(Operator Instructions) And our first question will come from Noah Kaye of Oppenheimer.

MSW volumes, just to start out, a little bit lagging as it has for several quarters now, kind of the growth in some of these other categories, C&D, special is very strong obviously this quarter. Can you just give us how to think about the trajectory of MSW going forward with the, of course, to the rest of the year? Is this kind of potentially growing at a lag to some of these other categories given your footprint at some higher growth areas of the country?

Well, think about this, right, we've always said that we're in a slow-growth business, right, depends on population growth, housing formation. And those dynamics are all pretty consistent and strong. We're still only at a sort of 1.2 million of household formation. There's room to grow as that gets back to some kind of a new norm. And remember, as we talked about, some of the volume impact is due to some of the loss in the broker business, which is an intentional strategic decision, right? And so we've seen very broad-based recovery, very broad-based volume across the entire book of business. So we feel pretty good about it. And again, we just raised our guidance, thinking -- saying that the first half performance is going to continue through the second half of the year.

Okay. And just thinking about the puts and takes of free cash flow for the rest of the year and maybe just focusing on the CapEx, how should we think about kind of the pace of CapEx spend over the course of the rest of the year?

Yes. So, so far, we spent 53% of our CapEx first half of the year. As we look at over the rest of the year, obviously, we had very strong volume growth first half of the year. And therefore, because of that, we may need to increase our capital spending to fund that growth. And that's why we haven't changed our free cash flow guidance.

Okay. Got it. And if I could just sneak one more in. Obviously, COGS went up significantly, resulting from the recycling rebates. Can you just tell us to what extent was recycling incremental or decremental to EBITDA margins in the quarter?

Yes, it was obviously accretive to the margins, but keep in mind that when you're talking about the COGS, that 20% of the tons that we handled are brokered by us. So if you actually exclude those volumes then, those brokered volumes, then our sale of materials and our COGS went up by a similar rate of approximately 30%.

Our next question will come from Corey Greendale with First Analysis.

This is Ken Wang on for Corey. I'm just wondering whether you can comment on the M&A environment, and specifically, any change in the quality of opportunities you're seeing? And what is your -- do you have recent deal multiples?

Well, as we reported, we spent $91 million in the first half the year. We started the goal with $100 million spend kind of in our sights. So we'll easily hit the $100 million target for the year. I would say the pipeline is full. As far as what we're spending on a deal, it's still pretty consistent with our historical sort of 4.5x to 5x EBITDA post synergies. So this gets a little lumpy. Occasionally, a bigger deal comes along. It's a lot of work to close a lot of smaller deals, but we feel good about the trajectory. So we're -- again, that's part of the guidance raise for the second half of the year.

And any thoughts on the -- on China's recent announcement that it will ban imports of certain waste materials like scrap plastics? Do you think this will have any effect on Republic?

Well, I don't have a crystal ball, but here's what I'll tell you. This is not the first time we've seen this kind of thing from China. We've been through this a number of times in our past. So we have a very high-quality pack that we make, whether it's fiber or plastics. We've never had an issue with quality rejection in our history. So even in times when supply and demand kind of shifts, we've never had a slowdown in shipping our materials. So we've got a really good track record. And then the fact is not all of our stuff goes to China, right? So really, only about 35% goes to China, and there's a lot more domestic capacity than people realize. And a great deal of our fiber specifically still remains domestic. And most of that China business is going from the West Coast ports, and again, those West Coast merch that we operate have a very, very strong track record in quality.

Our next question will come from Jeff Silber of BMO Capital.

I know you don't provide specific guidance beyond free cash flow and adjusted EPS. But I'm just curious, with the increase in your adjusted EPS guidance, where is that coming from? Is it more from a revenue perspective, more from a margin perspective, a mix? Any color would be great.

Yes. So obviously, we posted a very strong revenue first half of the year. So that's where that EPS guidance increase is coming from. And then that's being partially offset and what I had talked about earlier about the temporary increase that we're seeing in our landfill operating costs. So it's the net of those 2.

And in terms of that temporary increase in the landfill operating costs, when do you expect that to go away? Is that something we'll see over the course of this year, or is that something more over the course of the next year or so?

Yes, we say over the next few quarters. Most of that is going to take place this year.

The next question will come from Joe Box from KeyBanc Capital Markets.

So I just wanted to dig into the margin profile a little bit. Obviously, when the year started, you guys provided some commentary, and I get that things have certainly changed. But you laid out 28.5% to 28.7% EBITDA margins for '17. I certainly respect that recycling has flowed through at a lower rate here, but any commentary on how we should think about what's inherently baked into the guide for EBITDA margin in the back half of the year?

Yes. So when we look at the back half of the year, obviously, we're expecting expansion in the margins, and that's really coming from the strong revenue. At the same time, as I had talked about before though, these landfill costs are going to slowly abate. So we're going to have that headwind associated with also. So as we're looking at the margins, it's kind of longer term, we're thinking that we're going to be flat for the year. But if you take out the landfill operating costs, then that would get us right back to the 30 or 40 basis points of expansion that we had anticipated.

And then changing gears, on the SG&A front, obviously, the salary component was up about 12%. Can you just help us understand how the incentive comp flows through for the rest of the year?

Yes. So in terms of the incentive comp, keep in mind that we had an adjustment last year to incentive compensation that didn't repeat this year. And so obviously, our incentive is currently at levels that are consistent with our guidance for the rest of the year.

Our next question will come from Michael Feniger with Bank of America.

On the first part on the margin, I think you heard you say there was a 10 basis point expansion from strong pricing and volume growth when we take out the higher cost from the landfills. That still feels pretty low with what you're seeing at energy services and the volumes that are coming through. Is that something typical, the 10 basis points of it, is that typical at this point in the cycle? And then how should we think about the mix of the business as volumes are starting to grow and it's becoming a little bit more broad-based?

Yes. This is Don. Although you think about that, Chuck, I don't know that there is typical, right? What you're thinking, you said it, what about the mix, right? So there's geographic mix, there's line of business mix. You start digging through some of that. There's this difference between rising fuel cost net, there's the net between sale of goods and cost of goods. So those things impact the margins, right? So I don't think there is any typical. We're very confident in the business. Look at the $42 million of additional EBITDA we generated in the quarter year-over-year. And we're so confident we're going to raise the margin. We're still internally focused on pushing the margins to 30%. But we ought to run the business for the long term, and that's how we roll. So when it comes to dealing with some of these temporary costs, we got to take them head-on. We're going to deal with it. We're going to get it behind us. So again, I don't know that there's a typical answer. I don't think we can just frame it that easily.

Yes, yes. I think you could just drop the mic at that point and walk away.

Okay. There you go, Chuck.

And then just my second question. When you think about the volumes, how did that look through the quarter, and how is it shaping up so far in July?

Well, I think volumes are good. I mean, we're talking about 2% almost volume growth, right? And again, in the best of times, 2.5% is a strong performance. So we're bouncing off the 2. And that is including the broker business that we've chosen to move away from. So the team feels good about where we're at about the trends going into Q3. And again, we raised the guidance, which would indicate that confidence.

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

The -- your average yield is really impressive, up 2.5%. Then I think, if I remember comments from earlier, you expected it to maybe accelerate in the back half of the year as some of the CPI uptick that we saw a couple of months back starts to kick in. Is that still the expectation that we would see that start to accelerate in the back half of the year?

Yes, so what happened is that we actually saw some of that acceleration in Q2, and that's why we're able to point -- to post a restricted price of 2.2%. So those resets have already started to happen. In addition to that, as I had mentioned before, we were able to actually renegotiate some of our contracts in favorable terms, those restricted contracts. So we've got that coming through on the restricted price also. So as we look at for the rest of the year, we think that, that restricted price and yield, in general, is going to be pretty much flat to where it was in Q2.

Okay. And then just a modeling one on 3Q. I think there's one fewer work day. Maybe can you confirm that? And if so, what kind of an impact on margins or volume might you expect from that?

Yes, so there is one less work day, and obviously, that work day is included in our guidance.

Our next question will come from Hamzah Mazari from Macquarie Capital.

The first question is just on technology, maybe for Don. Where do you see the largest opportunity in your system? Is it on the customer side? Is it the route side? Is it the asset side? And sort of where are you guys in that process, early innings, mid-innings?

So I would say both customer and route side. So we're, I think, in the early innings of both. Certainly, we use computer software to route our trucks today. There's better software out there. We're looking at expanding our digital capability in the cab so that our driver's day becomes easier, so we can communicate more effectively with the driver, so we can build some more productivity in the system with digital, what we call digital operations. There's obviously work to be done to still connect the cab to the customer and our digital platform. You've seen some of the work we've done with our app and our MyResource application. So more and more customers are signing up to do business with us digitally, so that's a good thing. So we're going to continue to move down that road and be -- again, we want to be the provider of choice with our customers and make it easy to do business with us. And again, we wanted to try to find additional ways to build in some productivity with our driver base. And if we can connect the drivers with the customers, that's even a better thing. As far as assets, we watch what happens in the marketplace. So we've got our fleet team. They're very much involved in the dialogue around what's going on with vehicles and all this talk of autonomy and so forth, but -- so we'll be involved in the conversation, but I think that's something that is kind of premature. It's going to be a ways out there. I think there's going to be a lot of other industries who get automated and fully automated before the waste business does. But we are looking for ways to improve some parts of it while we still have an operator in the cab.

Great. And then just last question, I'll turn it over. Maybe for Chuck. Maybe just longer term, how should investors think about your operating leverage framework? What I mean by that is longer term on 7.5% revenue growth, what should margins be up, assuming mix gets better, assuming some of these temporary costs go away? Just maybe frame for investors how that operating leverage framework works. I realize Q2 is a little -- there's some abnormalcies, that I'm asking that, so...

Right. And what we had talked -- obviously, the revenue growth has been very, very strong, and commodities has been strong also. If you were to pull -- as I said, if you were to pull out these onetime landfill costs, we would have achieved kind of the high end of our guidance range in terms of our EBITDA margin growth year-over-year. As we look out into the future, as these costs abate, there's still nothing structural that we see that will keep us from getting back to 30% EBITDA margins that we had talked about. So that still demonstrates the leverage that we expect from this business. The other thing I would say also, Hamzah, is it's not just the EBITDA that we're focusing on, it's also the cash flow. And I had a very wise man tell me one time that you can't spend EBITDA, and we are focused on the cash. And keep in mind that the cash flow guidance that we gave this year is double digit when you adjust for the -- for cash taxes. So that's a very key metric for us also.

All right. That's helpful. That makes sense. Just a clarification question on -- did you guys have CNG tax credits that went away? Or was that impactful at all or not material?

Yes, it was impactful. Those credits went away this year. So we did not have those credits this year.

Our next question will come from Andrew Buscaglia from Crédit Suisse.

Just a quick one on your -- on that -- those higher costs that are impacting your margin. Why would that cost go away eventually? Like can you just give us some confidence or how to think about that, that that's not going to dampen these margins just beyond 3 quarters or 4 quarters, whatever you said, Chuck?

Yes, so this is Don. So we've got a handful of sites, landfill sites that have some increased leachate volumes that we're handling. That's part of it. We -- based on what we know about how those landfills operate, we think those will abate. We've got -- we had some unbudgeted heavy equipment repairs that rather than fool around with, we just decided to continue to run the business, right? So again, some of these costs are lumpy. But we're confident, based on our knowledge of the business and our local operating team's ability to run the sites, that these things will abate over the next few quarters.

Okay. And are there any contracts that you might have picked up recently that have higher costs associated with them? I know it sounds like it's on the landfill side, but could there be anything there?

No. There's really no costs that we have that are impacting those landfill operating costs that Don had talked about.

But again, we think about where the volume grows back to mix, right? So we had a 9.5% growth in our transfer station revenues, right? Transfer stations are generally viewed as kind of an extended gate in the landfill. We don't run a very -- a super-high operating margin or EBITDA margin at our transfer stations. Even though, again, they are profit centers, they don't run as high of a margin. So as I said, mix matters. Geographic mix and line of business mix and some of these other puts and takes, so it's not quite as clean as you'd like to think. The good news, right, and the underlying thing that everyone needs to remember is it's broad-based recovery, it's across all lines, it's across all areas of the business, $42 million of additional EBITDA. And as you know, we run the business for the long term, we've raised guidance, we're confident in free cash flow, raised our dividend. I'm pumped.

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

Don, so nice job on the labor line. I think it fell maybe 50 basis points. But I'm curious, can you talk a little bit about frontline driver availability? Are you guys seeing any outsized unit cost inflation there, difficulty in procuring drivers?

No. In fact, our driver turnover year-over-year is down, Tyler. And I talked in my prepared remarks about the talent pillar of our agenda, right, of our strategy. And we are very, very serious about becoming the best place to work, where the best people come to work. And we talk about how excited we are to receive the awards from Forbes and Glassdoor. Those are our real employees telling third parties that they like working for us, right? Our employee engagement scores are up year-over-year, all the things we do to genuinely make Republic a better place to be. Technician turnover is down. Part of that is One Fleet. Part of that is the overall engagement strategy. So look, we've got some markets that have an incredibly low turnover. We got a few that we still need to work through. But overall, net of net, we're pretty happy about there we're at, especially in a time when construction jobs are still growing, we're holding on to our people. So we feel pretty good about it. And by the way, maintenance costs look pretty good this quarter too, huh, Tyler?

I saw that. I did have a question on that. So yes, I'll stick with maintenance. So I think you posted 9 3, it's -- which is -- it's down year-over-year, but it's still maybe 100 basis points above where it was maybe a couple of years ago. So now that we're kind of through the One Fleet rollout, how should we think about that line over the next couple of years?

Yes, so here's the reality, right, so -- that we still have quite a few trucks that lived well over the first half of their life in a non-One Fleet environment. And they weren't really maintained maybe the way they should have been, and those trucks are going to have a higher operating cost than they should have if they had been maintained under our One Fleet umbrella. So over time, as we continue to introduce 1,000 new vehicles a year to the fleet and these 1,000 trucks roll off that were undermaintained or neglected, in some cases, we're going to see an improvement, right? So we're also going to continue to see fleet reliability and all the other stuff that comes from that as well, right? So it's going to continue to benefit us. And of course, there's also the CapEx savings that we'll see over time. And once we get through some of that, we're going to really put a finer point on this efficient frontier fleet, and we may be even able to age the fleet a little bit more at some point, right?

Okay. Okay. Good. And then, Chuck, so if I look at it, if feels like back half margins need to be maybe 100 basis points better than the first half. That's just very rough math. I get that the landfill operating cost of maybe 40 basis points will fall off, but what's the other 60 basis points? Is that just leverage? Or what are -- are there some other pieces there that we should think about?

Yes, so obviously, there's leverage there that we had talked about. We expect that we're going to continue to be able to grow that top line like we have. You've got the work day in Q3, which is a benefit for us also. So it's a combination of all those factors.

Chuck and I are still going to come to work on that day.

On that -- we are?

Yes. We're still going to come to work. Not 1 less work day for you, Chuck.

Okay. All right.

And our next question will come from Michael Hoffman with Stifel.

So on the capital spending side, where do you think the budget, which is 9 75 -- I'm not sure why that somebody said there weren't a whole lot of details on your guidance there. You've got a whole page of them in your 4Q press release. But you had 9 75 of property and equipment, net of proceeds. Where do you think that number goes?

Like I said, Michael, it could go up little bit because of the volume growth. And a little bit could go up by $5 million, $10 million, maybe in that range.

So $5 million, $10 million is the way to think about it. Okay.

Yes, somewhere in that range.

Okay. And then you had $30-some million in recycling in this quarter. And if 20% of it is brokered and the other 80% isn't, and you kind of assigned the 5% margins to the brokered piece and the 20% margin to the non-brokered piece and then you pull it out, your garbage business is doing like 28.6% margins. So net of -- I mean, so there is marginal leverage here, there is operating leverage here.

Absolutely. Absolutely. And Michael, it goes back to what we had said before, is that if you pull out, just pull out the landfill operating cost, you got 10 basis points of margin expansion during the quarter. And if you do that for the entire year, you've got 30 to 40 basis points of margin expansion. That's right on top of the guidance that we had given. So yes, the leverage is there.

So what's the cash hit for the incremental? Because here's the other problem, is that theoretically, your cash should maybe show a little more oomph than it is, but this 40 basis points is cash. It's not just -- so what's the cash hit from that 40 basis points? Because really, your guidance, you're 8 75 to 900, I get to add on free cash flow. I get to add that back too.

Yes, I mean, Michael, you can do the math. You can take the $2.5 billion of revenue times the 40 basis points in the quarter that we called out, 30 basis point in Q1, and that's all cash expense that's offsetting the strong revenue growth in the quarter.

And I should basically assume it's 40 for the whole year on roughly $9 billion of revenues?

Yes, 30, 30 to 40. Right.

Okay. So x that, what you think is non-recurring over time, even if I cut it in half, my free cash -- the baseline free cash of this kind of going into 2018 is north of $900 million nicely?

Yes. I mean, with the leverage, with the top line growth that we have right now, that's true. Right.

So again, we talked about several times on the call already, mix matters, right, and we are confident that the margins are expanding within the business. We've got some of these highlights, like recycling and fuel and some other things, that just net things out. But business is strong. The growth is good. Pricing is good. The operating team's doing a great job. We've got a couple of sort of near-term temporary and unusual things to take care of, and then we're just going to really, I think, end the year strong and move nicely into '18.

Right. So just finite detail around the sales, since you gave a 4.5% to 5% growth rate in February. Clearly, we're doing better than that. The 2Q price, hold that for the remainder of the year, the 1 -- 2Q volume, hold that for the rest of the year too?

No. Right now, we're saying that we're going to be at the high end of the range on the volume growth.

You're already through that.

Well, remember, you've got seasonality, right, so -- and you've got the special waste volumes also. The special waste volumes, like I had talked about, and the C&D volumes were both really high in the second quarter.

Yes. And those are seasonal for sure.

3Q though should be a good specialized quarter typically because it's the best...

Yes, Q3s, generally speaking, are our best quarters seasonally.

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, Allison. In closing, we will continue to manage the business, create long-term shareholder value and remain focused on executing our strategy of profitable growth through differentiation. I would like to thank all Republic employees for their hard work, commitment and dedication to operational excellence and creating in the Republic way. Thank you for spending time with us today. Have a good evening. And put that cell phone down when you get behind the wheel.

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