美國廢棄物管理公司 (WM) 2015 Q2 法說會逐字稿

Good morning. My name is Genesha and I will be your conference operator today. At this time, I would like to welcome everyone to the second-quarter 2015 earnings release conference call. (Operator Instructions).

I would now like to turn the call over to Mr. Ed Egl, Director of Investor Relations. Thank you, Mr. Egl. You may begin your conference.

Thank you, Genesha. Good morning, everyone, and thank you for joining us for our second-quarter 2015 earnings conference call. With me this morning are David Steiner, President and Chief Executive Officer; Jim Fish, Executive Vice President and Chief Financial Officer; and Jim Trevathan, Executive Vice President and Chief Operating Officer.

Before we get started, please note that we have filed a Form 8-K this morning that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, the press release, and the schedules to the press release include important information.

During the call, you will hear forward-looking statements which are based on current expectations, projections, or opinions about future periods. Such statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today's press release and in our filings with the SEC, including our most recent Form 10-K.

David and Jim will discuss our results in the areas of yield and volume, which otherwise stated are more specifically references to internal revenue growth, or IRG, from yield or volume. Additionally, any comparisons unless otherwise stated will be with the second quarter of 2014.

During the call, David and Jim will discuss our earnings per diluted share, which they may refer to as EPS or earnings per share. David and Jim will also address operating EBITDA and operating EBITDA margin, as defined in the earnings press release.

EPS, effective tax rate, income from operations, income from operations margin, operating EBITDA, operating EBITDA margin, operating costs, operating costs as a percent of revenue, SG&A, and SG&A as a percent of revenue results as discussed during the call have been adjusted and EPS projections are anticipated to be adjusted to enhance comparability or exclude items that management believes do not reflect our fundamental business performance or results of operations.

Specifically for comparative purposes, the second quarter of 2014 results have been adjusted to exclude certain amounts attributed to divested operations. These adjusted measures, in addition to free cash flow, are non-GAAP measures. Please refer to the earnings press release footnote and schedules, which can be found on the Company's website at www.wm.com, for reconciliations to the most comparable GAAP measures and additional information about the use of non-GAAP measures.

This call is being recorded and will be available 24 hours a day beginning at approximately 1 PM Eastern Time today until 5 PM Eastern Time on August 6. To hear a replay of the call over the Internet, access the Waste Management website at www.wm.com. To hear a telephonic replay of the call, dial 855-859-2056 and enter reservation code 64809894.

Time-sensitive information provided during today's call, which is occurring on July 23, 2015, may no longer be accurate at the time of a replay. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed written consent of Waste Management is prohibited.

Now I will turn the call over to the Waste Management's President and CEO, David Steiner.

Thanks, Ed. Good morning from Houston.

Our strong second-quarter results reflect our continued commitment to disciplined core price growth and cost controls, combined with improving volumes, all positive trends that we expect to continue throughout the second half of the year.

In the second quarter, we earned $0.67 per share, an increase of almost 16% from the second quarter of 2014 after excluding the earnings from divested businesses and assets. Our net income, operating income and margin, operating EBITDA and margin, and earnings per diluted share all improved when compared to the second quarter of 2014, despite year-over-year headwinds of $0.03 per diluted share from lower recycling commodity prices and the unfavorable impact of foreign-currency fluctuations.

We also saw our business generate significant cash, as our cash provided by operating activities increased 47% and our free cash flow grew 30%.

We are pleased with these results and we expect the positive momentum to continue to build through 2015 and into 2016.

Our pricing programs continue to be a part of our earnings growth and margin expansion, and our strategy remains the same -- continue our focus on core price, while selectively adding the right new volumes. For the second quarter, our collection and disposal core price was 4.1% and yield was 1.7%. Year to date through June, core price was 4.3%, which exceeded our 2015 core price target of 3.8%, and yield was 1.9%.

As we've said in the past, core price is a better indicator of true pricing activities because mix issues can affect our yield results, as we saw in the second quarter. It's bottom-line dollars that count and core price reflects the bottom-line impact from pricing, so while we said that yield would be around 2% for the year, we are not concerned with a slight drop in yield as the absolute dollars to the bottom line from pricing remain on track and our core price remains robust.

Over the last six quarters, core price has been consistently over 4%. In the second quarter, we saw core price improve 10 basis points from the second quarter of 2014. When compared to the second quarter of 2014, core price in the industrial line was 8.6%. In the commercial line, it was 5.8%; 2.1% in our residential line; and 2.3% in our landfill line.

As we saw in the first quarter, core price continues to drive margin expansion, as our traditional solid waste business operating EBITDA margin increased 40 basis points.

So pricing efforts are right on track and we expect that to continue in an improving volume market.

With respect to volumes, we look at our traditional solid waste business volumes, which excludes recycling and non-unit or non-solid waste revenues. Our traditional solid waste business declined 0.6% in the second quarter of 2015 versus a decline of 2.3% in the second quarter of 2014, a 170 basis-point year-over-year improvement and a 60 basis-point sequential improvement from the 1.2% decline in the first quarter of 2015.

Overall volumes, which includes recycling and those non-solid waste volumes, declined 1.3% in the second quarter, compared to the negative 3% reported in the first quarter of 2015, a sequential improvement of 170 basis points.

Although overall volumes continue to be negative, we saw some positive signs in the second quarter. In our industrial line of business, we had very strong new business pricing, yet volume was 270 basis points improved year over year, improving from negative 2.7% to flat in the second quarter 2015, which reflects a robust market.

We also saw the rate of decline in our commercial line of business improve again as the rate of loss in commercial volumes improved 280 basis points compared to the second quarter of 2014 and 60 basis points sequentially, from a negative 2.8% in the first quarter of 2015 to a negative 2.2% in the second quarter of 2015. And the momentum improved throughout the quarter, with June showing better volumes than April or May. We also saw service increases exceed decreases in the quarter.

Finally, new business in our commercial and industrial lines combined exceeded lost business for the first time in three years.

So we are predicting a dramatic and fast turn to positive volumes, but we continue to see the light at the end of the volume tunnel and would expect volumes to strengthen through the rest of 2015 and into 2016.

Turning to recycling, as you have heard us say many times, the current recycling model is broken and we and the entire industry need to fix it. We have seen progress in our recycling operations, but the issues are complex and there is not an overnight fix. We're also working together with our customers, vendors, and industry groups and we have made progress as we are finding some acceptance for better contract terms and higher fees to offset the higher processing costs that we are experiencing.

We're working with customers and municipalities on educating the public on what and how to recycle to bring down contamination levels and on the true cost of recycling. We and our entire industry realize that recycling is the right thing for our customers and the environment. We need to make sure that it's not only the right thing to do, but it's also a sustainable business.

Moving to current results from our recycling operations, in the second quarter we had a $0.02 decline in earnings per share compared to the second quarter of 2014. This decline is due to the more than 13% drop in average commodity prices for the quarter and a 5.7% decline in volumes associated with contractual losses as we shed unprofitable volumes.

Our recycling employees continue to perform at high levels working to reduce operating costs. In the second quarter, operating costs continued to improve as we saw an 8% improvement in operating cost per ton compared to 2014. We expect to continue to see improvements in the second half of the year, but low commodity prices will continue to be a challenge.

With respect to the deployment of our free cash flow from operations and our Wheelabrator divestiture, we will continue to seek a balanced approach to buying solid waste businesses, repurchasing shares, and maintaining a strong yield through our dividend.

With respect to acquisitions, we believe that in 2015 we can execute agreements to add an additional $50 million to $75 million of operating EBITDA. We would likely close those acquisitions in 2016.

In the second quarter, we repurchased $300 million of our outstanding shares and we will repurchase an additional $300 million in the third quarter. Because I had a 10b5-1 trading plan in place, in the second quarter I personally purchased $2 million worth of Waste Management shares. In the fourth quarter, we will determine if we have additional acquisition candidates likely to occur or if we want to deploy cash to repurchase shares. And, of course, we will continue to maintain a strong dividend and a strong balance sheet.

In conclusion, we are pleased with the strong results through the first half of 2015. When we combine the first-half results with our outlook for continued price and cost-control discipline and improving volumes, we are confident that we can achieve our full-year guidance.

We now expect that our 2015 adjusted earnings per diluted share should be at the high end of our previously announced guidance of between $2.48 and $2.55 per share, despite negative headwinds to diluted earnings per share of between $0.07 and $0.10 from recycling operations and about $0.04 from the impact of foreign-currency translation adjustments. We also expect to achieve the upper end of our free cash flow guidance of between $1.4 billion and $1.5 billion.

So, the year is playing out pretty much as we expected, but our people are doing what they need to do to offset the recycling and currency headwinds. Their efforts have been extraordinary, and on behalf of the entire senior leadership team, we thank them for their excellence.

I will now turn the call over to Jim to discuss our second-quarter results in more detail.

Thank you, David. In the second quarter of 2015, our focus on reducing SG&A costs continues to bear fruit. Overall, SG&A costs declined $31 million compared to the second quarter of 2014. When you adjust 2014 for the operations that we divested, our year-over-year SG&A cost improvement was $18 million, consistent with our expectations for savings from our reorganization.

As a percent of revenue, SG&A costs were 9.7%, an improvement of 40 basis points compared to the second quarter of 2014. With the strong results in the first half of 2015, we expect to achieve our full-year SG&A goals of reducing SG&A costs by $60 million.

Turning to cash flow for the second quarter, net cash provided by operating activities was $816 million, compared to $555 million in the second quarter of 2014, an improvement of $261 million, with a reduction in cash taxes accounting for $216 million of the increase.

Free cash flow was $579 million in the second quarter of 2015, an increase of $245 million when excluding free cash flow from operations divested in 2014. Our capital expenditures for the quarter were $296 million, $88 million more than the second quarter of 2014, as a portion of our expected increased fleet spend occurred in the second quarter.

Excluding the cash tax benefit, free cash flow grew almost 9% compared to the second quarter of 2014, despite an increase in capital spending. Given the level of expenditures in the first half of 2015, we expect capital expenditures to be at the high end of our guidance range of $1.2 billion to $1.3 billion. Despite that, free cash flow for 2015 is also expected to be at the high end of our guidance range of between $1.4 billion and $1.5 billion.

Second-quarter revenues were $3.3 billion. We saw a $54 million increase in revenues from acquisitions and a $34 million increase in our traditional solid waste business. The overall revenue decline stemmed from a $193 million decline from divestitures, a $59 million decline from lower recycling revenues, $45 million in lower fuel surcharge revenues, and $27 million in foreign-currency fluctuations.

Looking at internal revenue growth in the second quarter, our collection and disposal core price was 4.1%, with total volumes declining 1.3%. This led to total Company income from operations growing $12 million, operating income margin expanding 60 basis points, operating EBITDA growing $11 million, and operating EBITDA margin growing 80 basis points.

These results are strong, and that much more encouraging when you consider about $30 million in benefits we realized in the second quarter of 2014 that did not repeat in 2015.

Our collection lines of business continue to see the benefit of the price/volume trade-off. As David said, our internal core -- our industrial core price was 8.6%, our commercial core price was 5.8%, and residential achieved 2.1% core price.

In addition to the continued strong momentum in pricing, we saw some positive momentum in volume.

Commercial volumes were down 2.2% in the second quarter of 2015 versus a decline of 5% in 2014, a 280 basis-point improvement. Industrial volumes improved 270 basis points from a negative 2.7% in the second quarter of 2014 to flat in 2015. And outside of energy services, our industrial volumes were positive.

Residential volume declined 3.6% in the second quarter of 2015 versus a decline of 3.8% in 2014. The residential line of business remains competitive and we remain focused on retaining and growing where our return on investment is accretive to shareholders.

This core price in volume led to income from operations growing more than $3 million and margin expanding 30 basis points, and operating EBITDA growing more than $8 million and margin expanding 70 basis points.

In the landfill line of business, we saw the benefits of both positive volume and positive core price in the second quarter. We saw same-store average MSW rates increase year over year for the ninth consecutive quarter, up 1.4% from Q2 2014. Combined special waste and revenue-generating cover volumes were a positive 4.3%. MSW volumes grew by 7.2% and C&D volume grew 7.3%.

Total landfill volumes increased 3.2%. This led to income from operations growing $9 million and operating margin grew 70 basis points. Operating EBITDA grew $16 million and margin expanded 140 basis points.

Moving to operating expenses, as a percent of revenue operating costs improved 60 basis points to 63.6%. Lower diesel costs and lower recycling commodity rebates to our customers improved by $68 million. Labor and related benefits improved $21 million when compared to the second quarter of 2014 as we continue to see the improvement of our service delivery optimization program.

These savings were partially offset by increased disposal costs related to our improved volumes and an increase in risk management costs. Overall, operating cost improved $56 million in the second quarter after adjusting for the divestitures.

Finally, looking at our other financial metrics, at the end of the second quarter our debt to total capital ratio was 62.7% and our weighted average cost of debt is 4.4%. The floating-rate portion of our total debt portfolio was 9% at the end of the quarter.

In the second quarter, we repurchased 6.1 million of our outstanding shares for $300 million and paid $175 million in dividends. The $475 million reflects our confidence in the cash generation of our business and commitment to return cash to our shareholders.

Our income tax rate in the second quarter was 29.6%. Adjusting for items excluded in our as-adjusted results, the tax rate was 30.9%. In the second quarter of 2015, a reduction in deferred taxes and utilization of state net operating losses benefited earnings per share by $0.02.

In summary, our second-quarter results continue to show the momentum that we saw in the first quarter and positions us well to achieve our full-year guidance. This would not have been possible without the hard work and dedication of all of our employees, and for that I want to thank them. We are more than halfway through the year and we are very confident we will have a successful year.

With that, Genesha, let's open the line for questions.

(Operator Instructions). Corey Greendale, First Analysis.

Just a few questions. So, first of all, I appreciate the update on progress and some of your discussions on the structure of your recycling contracts. Just wondering, given that commodity prices have come off the bottom somewhat, is that impacting those conversations or customers' willingness to engage in changes?

No, really, the prices haven't come off the bottom. To the extent they have come off the bottom, it has been very marginal, so we're still relatively close to breakeven when it comes to processing costs versus commodity sales.

So, no. In fact, if anything, I think the discussions have become more pronounced with the customers and I think more and more as you see more folks like you all in the financial community and more folks in the general press understanding the issues facing recycling, I would say those issues are more and more coming to the front rather than going back.

Corey, when you look at the weighted average commodity price, it was about $83 in Q1 and $83 in Q2, so really the improvement we are seeing is through our cost efforts on cost of goods sold and operating cost.

Okay, yes, it is more -- at least the numbers I have seen, it is more in July that came more meaningfully off the bottom, but I'm looking at OCC and newsprint primarily, so maybe (multiple speakers)

OCC seems to have stabilized a little bit, but still at low levels.

Okay. Then the next question, David, clearly the tenor on the volume environment is getting increasingly positive. I just want to make sure I am hearing you correctly. I think you are saying you would expect volumes to get increasingly less negative each quarter in the back half, but you are not necessarily calling for it to go positive, but just want to clarify that.

Yes, and what we are trying to do in order to give you all even a little bit more clarity is to separate it between what we are calling our core solid waste volumes and then overall volumes.

And so when we look at it, we look at those core solid waste volumes, which were negative 0.6% in the quarter. And we would expect that to improve in the third quarter and in the fourth quarter so that -- look, we aren't going to try to predict a turn to positive volumes. We said this year that we didn't think volumes were going to get positive, but I would expect us by the end of the year to be at a run rate where we are actually flat to positive on volumes.

Okay, great. And then a question on the free cash flow, I am just trying to understand the moving pieces, particularly related to cash tax payments. I think last year you had a $210 million hit from early payment of taxes and net benefits this year. Can you clarify is that the right number? Have we already seen that whole benefit? And what should we expect in free cash flow breakout between Q3 and Q4?

Yes, so that's right. $210 million was the early payments in Q4 of last year, so we backed out $216 million to get to a number where we think that's for the year. And particularly, by the way, when you look at cash from operations and free cash flow, both of those, if you normalize those for those taxes and then if you normalize free cash flow for CapEx, we're in a position where we've actually overcome the WTI divestiture, which is pretty amazing in and of itself.

For the remainder of the year, if you tack on what we think was -- is achievable, which was last year's cash flow from operations, and essentially that's what we did for the first two quarters, if you tack that on and that's what we are forecasting, then you get to a number that is in that $1.5 billion range for free cash flow.

And Jim, without asking for operational guidance for 2016, if you just look at movement in cash taxes, would you expect that free cash flow would be up in 2016 or could it be down because of a movement in cash taxes?

So, if I -- yes, if I take our guidance for this year of $1.5 billion and I normalize that for the cash tax benefits and CapEx a little bit -- it is hard to say exactly what CapEx is going to be next year -- I get to a pretty good starting point of about $1.35 billion to $1.4 billion. Not that we're going to give you a lot of guidance for just yet.

Alex Ovshey, Goldman Sachs.

This is actually Usha Guntupalli on for Alex. One more question on recycling, as [you think] commodity prices stay flat at current levels, you are obviously working on reducing costs in this business, but when you expect the business to turn earnings positive at current commodity prices?

Yes, well, we are earnings positive actually at current prices, just slightly EBIT positive and certainly positive from an EBITDA point of view. So, we didn't lose money in recycling in the quarter. We just did $0.02 worse than we did last year, so it's the year-over-year comparison.

So, we are slightly EBIT positive, but certainly not EBIT positive enough to earn our return on capital -- to earn our weighted average cost of capital, so that's why we have got to get those earnings up.

Got it. That's helpful. And on the yield, yield seemed to have slowed in the second quarter, and you did mention part of it was just mix. Could you give us more color on what was driving that mix?

Yes, when you look at yield versus core price, it is why quite a while ago we started talking more about core price because really core price is what drives dollars to the bottom line.

When you look at yield, there is a lot of different factors that can play into that. I will let Jim talk about a few of the ways that yield can -- I guess the point is that yield is indicative of pricing, but it is really directional, whereas core price is truly indicative of what's going on in our pricing programs, but I will let Jim talk a little bit about the difference between yield and core price.

Yes, I think probably a good example of that is our energy services business. Typically, that business has a longer -- a quite a bit longer length of haul than our ordinary business. So due to that longer length of haul, that business has a higher unit price and a higher yield, but not a higher core price or profitability per unit.

So as the energy services business has slowed due to the fall in oil prices, we have seen a decline in yield, but not a decline in core price or unit profit.

And Jim, you also mentioned that we improve in the new business side on a net basis when we add new business in markets that have a lower average unit rate, not a lower profitability measurement, not a lower margin, but a lower average unit rate, and that's what happened in Q2. And/or we lose business in markets with higher or lower average unit rates. That affects yield and that's what happened in Q2, but it has no effect on margin or core price.

Yes, you can imagine -- just to put some color around what Jim Trevathan is saying, you can imagine that right now there is a lot of growth in Texas and Texas has lower landfill rates than you have in the Northeast, and hence you have got a little bit lower pricing, but you also have very high profitability.

So it's not a profitability issue; it's just the fact that because you have lower landfill pricing in Texas than you do in the Northeast, you will have lower unit costs and unit pricing for when you offer new services.

And so as you have seen more growth in places like Texas, where it is very profitable, but it is just a lower unit rate versus the Northeast, that's what drives those mix issues. And so when we look at that, we say, okay, the yield is down, but profitability is up. That's not such a bad thing, and that's why we say really what you have to look at is overall across our entire business what are we doing from price increase point of view, because price increases takes mix out of the mix.

And so core price is really the true indication of what we are doing, and as you saw with core price at 8.6% in industrial and 5.8% in commercial, it is still running at a pretty hefty rate.

Joe Box, KeyBanc Capital Markets.

I just want to review the capital deployment strategy post Wheelabrator. Obviously, you guys have Deffenbaugh under your belt and I know you have got $50 million to $75 million of EBITDA lined up from deals that are going to go next year. Just curious if you have gotten all the deals done that you had expected, because externally it looks like or it seems like you guys are shooting for more deals when you sold Wheelabrator.

And then just as a quick follow-up to that, the items that you lined -- the items that you mentioned in the pipeline, are those solid waste companies or are they outside of solid waste?

When we are looking at companies, they are all going to be solid waste. We really wouldn't look to stretch outside of our core business when we are doing acquisitions.

The acquisition -- you always think that you're going to have to have this money to spend and there is plenty of people out there to sell and it should be fairly easy to replace the EBITDA. And then once you get into the market, you realize there is 100 different issues that affect sellers, right? Sometimes they're family businesses and it's hard to get the family over. Sometimes there is higher expectations for pricing.

And so when we went into it, we said, look, if we can replace the Wheelabrator EBITDA at good accretive multiples, we will do it. The good news for us is if we can't, we can still buy back stock and it would still be accretive to where we were with Wheelabrator. So we are sort of in a win-win situation.

And rather than run out and in an undisciplined manner just pay whatever we needed to pay to replace the Wheelabrator EBITDA, we decided to take a little more of a disciplined approach, focus on our core solid waste business, and see if we can't go out and do deals that are nicely accretive to -- for our shareholders.

And so, would we like to -- would we prefer to buy businesses that replace the EBITDA, rather than buying back shares? Sure, we would, because that's a little bit more accretive for our shareholders. But we have got to maintain our discipline on pricing and we have got to realize that sometimes these acquisitions have to brew for a little while before they are ready and sellers have to come around to the fact that they're ready to sell.

And so, we certainly think that over time we will replace that roughly $200 million of EBITDA from Wheelabrator. It's just not going to happen overnight.

And Joe, as I said earlier to Corey's question, we have afforded ourselves the luxury of really being disciplined here because we really have -- if you look at our second quarter, you look at our net cash from operating activities, and you back out the cash tax benefit, we're $45 million in second quarter of last year and that quarter includes all the divested businesses.

So on the net cash from operating activities line and on the free cash flow line, as well, if you -- you got to normalize the free cash flow for CapEx, but on both those lines we have essentially replaced Wheelabrator and Puerto Rico and the Maritimes and really the only acquisition we have done is Deffenbaugh and we have had it in the Company for a quarter now.

So, what we will do in terms of capital allocation is continue to opportunistically buy back shares (technical difficulty) here, which we did in Q2 and again in Q3, and look to use those proceeds to buy companies at attractive prices.

Got it, thanks for the color on that. Switching gears over to the New York City contract, I know it potentially is coming a little bit closer. Can you guys maybe just talk to what your current contracts are? I know you guys have some transfer stations in the market, and maybe talk about if you are participating in the new RFP and how you sit in that market.

Yes, Joe, I will address the bid that is out now, the RFP that's out. We have provided a proposal for that volume. We are on the short list, along with Progressive. It appears the city has begun discussions with Progressive and we are awaiting what the next steps are. Progressive, as you remember, was the incumbent for that volume and what happens to it, I guess, will occur over the third and fourth quarter.

We still have the transfer stations in place receiving volume from New York City and a couple of those big transfers, Joe, and nothing has changed with regard to that volume.

Scott Levine, Imperial Capital.

So, just looking back at your initial guidance for this year, I think, assumed a (technical difficulty) year-over-year hit from recycling, and obviously your current guidance is assuming much more than that and, I'm guessing, a little bit bigger hit from FX. So, really just trying to get a sense -- you are guiding to the upper end of the range here. Where is the upside versus your initial expectations coming from to more than offset the greater headwinds in recycling and FX?

It is really coming across the board, right? On the volume side, although the actual percentage decline in the volumes isn't as good as we thought it would be, frankly the flowthrough that we are getting from the new volumes is better than we thought it would be, and so the point is that we are getting the right volumes.

We have consistently hit or beat our targets on our SG&A numbers and on our operating costs, and so, really, it is -- what I have said is that everything that we have got going on from an operational point of view seems to be working, other than recycling, and then, obviously, we have got the interest savings and the share count going down from the share buyback and that's benefiting the year.

So when we look at our business, we would say everything is clicking on all cylinders, other than recycling, and so, what is it that we can do to fix recycling? That is -- like we say, that's a long-term issue, but we are making good progress on it.

Thanks, and to be clear, is there -- and I don't know if you mentioned this -- is there a tax rate assumption implicit in your guidance for this year now or has that changed at all or no?

For the remainder of the year, I would assume that we'll be at 35% and that's what we baked into the guidance.

Got it, 35%. Okay, and then as a follow-up, I think, David, you mentioned that the acquisitions you are contemplating here in the back half, into 2016, are all solid waste. I just wanted to confirm that's right, and just to see if your thoughts had changed in any way regarding the energy waste business in particular and/or industrial waste since we've had the breakdown in commodity prices and the landscape has changed so dramatically?

Yes, what we are looking at in the back half of the year is most certainly solid waste assets.

When you look at things like energy services, we're going to be a player anytime one of those transactions becomes available. We think long term that's a good space to be. Clearly, short term, it has some challenges, and so you have got to look at it from a long-term valuation point of view, recognizing that short-term valuation might not be what the sellers are trying to sell it on.

So we will play in every one of those bids, but we're not going to -- look, everybody wants to get paid based on when things were blowing and going, and they say, well, this is just a short downturn. Well, we are not going to make that assumption. When we look at it, we're going to make an assumption on where we think the business is going to go over the next five to 10 years and we're going to evaluate accordingly.

So, we haven't bought anything new in the oilfield service space because seller expectations on price haven't come down as much as our view of value. So I would expect that if you look at what we're going to buy over the next year, it will be focused primarily on solid waste.

And what are sellers' expectations there in general? Is that market more rational, in your view, than oil services or not?

Yes, look, we have always said that for us it's pretty simple on the solid waste side. If you assume that our long-term multiple is somewhere around 8 times, right -- it has been higher than that; it has been lower than that. But let's call our long-term view of our multiple at 8 to 9 times EBITDA. Why would I pay someone more than 8 times EBITDA when I can buy a business I know real well, our own business, at 8 times EBITDA?

And so, look, we have lost a lot of deals right out of the chute because sellers are expecting 10 to 12 times EBITDA and that's just a number that doesn't work with our model. So, could we buy more businesses? Absolutely, but we would be buying those businesses at very high multiples, which obviously reduces the benefit to our shareholders.

And so, we will continue to look for those deals that we can buy pre-synergies at 8 times or less, and then post synergies hopefully at, as we have always said, 5.5 to 6 times EBITDA. If we can do that, we are pretty much guaranteed that come hell or high water, it is going to be accretive to our shareholders.

I think the opportunity landscape here in terms of what sellers are looking for is pretty broad. There are some folks that are looking for, and in some cases getting, 12 to 15 times. We are not talking to those folks. But there are folks that are much more reasonable, and obviously Deffenbaugh was one that we felt we got at a very attractive multiple, and so we will continue to talk to companies like Deffenbaugh.

Got it, great. Thank you.

Al Kaschalk, Wedbush Securities.

David or Jim, I just wanted to clarify on these deals that you have laid out, the $50 million to $75 million, are these close? Are we at the goal line or are these things that still have a few hurdles to get over? I'm just questioning why put this type of color there today.

Well, so I am going to define the goal line for you, Al.

Good.

There is two goal lines. There is getting a deal signed and then the second goal line is getting a deal approved by the government.

And getting the deal signed is a pretty simple process. For some reason, the government has been taking a long time. Look, you saw our Kansas City deal and it took them eight months to approve a deal where we weren't even in the market, right? So it didn't seem like it should take that long to approve it and it took a very long time for the government to approve it.

Now, they have got a lot of big deals in the pipeline at the Department of Justice and at the FTC and so I assume that's what's causing the delays, and so what I would tell you is the first goal line is getting the deals signed up. The second is regulatory approval.

We will be past that first goal line very short term. As far as getting the deals signed up, we're pretty much there, and so now the question is, how long is it going to take us to get those deals approved and what constraints will we have around getting those deals approved? And that's just such a wild card. That's why we wanted to let you all know we pretty much got these deals signed up for $50 million to $75 million of EBITDA, but now we got to get it across the regulatory goal line, the due diligence goal line. As you know, from signing to closing is complicated not only from a business and a due diligence point of view, from a government point of view.

So we're pretty much past the first goal line. We are now marching toward that second goal line.

And that second goal line, Al, is -- that's not an easy one to get over. We had a deal recently where we had agreed -- we had crossed the first goal line. We had agreed on purchase price months ago, but the HSR process was daunting enough for these folks that they just decided for now we are going to back away.

So, we both agreed to what we both agreed was a reasonable purchase price, but we just felt like that second goal line was not going to be achievable at least in the near term, so we decided to part ways for now.

So it sounds like this is multiple, several acquisitions as opposed to a single transaction.

Yes, well, the $50 million to $75 million that we are talking about is comprised of one larger transaction that would generate the bulk of that and then, obviously, some smaller bolt-on.

Okay. David, I want to push back on the volume comments here. The stock got absolutely crushed after Q1 and the number that you put up. I don't know if it was [two six] or [two eight], pardon me for not recalling that. And you had articulated as a Company getting towards that 50 basis points down to flat exiting -- I believe exiting 2015. So can you maybe just put a little better -- refine the sequential trends here? And in particular, is this -- this was an overall volume comment or was it specific to solid waste about the volume trend?

Yes, it was specific to solid waste, but let me put some sort of color around where we see the volumes going for the back half of the year.

So let's start out with our industrial volumes. Our industrial volumes were flat for the quarter and the only reason they were flat is because energy services obviously is down, so when you look at the rest of the business, industrial is actually positive. So when you look at what we would look at before we got into the energy services business as our core solid waste business, industrial volumes are actually positive and we don't see anything on the horizon that would stop that momentum. And so even with energy services down there flat, so we would expect those volumes to turn positive in the third or fourth quarter.

Looking at the commercial volumes, for the quarter they were down 2.2%. Now that's a 60 basis-point improvement from the first quarter. We would expect that rate of improvement to continue, and so if you see that rate of continuum -- rate of improvement continue, by the back half of the year you are at that negative -- call it negative 1% on commercial volumes.

Residential volumes were down, let's call it, down 3%, 3.1%, but we don't really honestly even look at residential volumes because when we are losing those volumes, they are generally low profit, very low-margin volumes, and so we are not that concerned about losing those volumes.

And then, the landfill continues to be very strong.

So when I look at volumes for the back half of the year, I look at volumes -- I am looking at the volumes that make us money, right? And when you look at the volumes that make us money, it is industrial, commercial, landfill. Industrial is going to be positive, landfill is going to continue to be positive, and commercial is going to get better. And so when I look at that, when I look at those three components of the volume, I say, look, the rest is all just noise.

As Jim talked about, when you are getting -- when you are passing through transportation to your customer and you charge your customer $100 for transportation, they pay you $100 and it cost you $100 and you make no margin on it, I don't care if I have that kind of revenue or not. And so when I look at the revenues that actually make us money, we see some really good trends and we expect those to continue in the back half of the year.

Al, I would add one thing to that, which is recycled volumes. I will give you an example. We had a plant, big plant, that essentially cut their volumes in half, and by doing that, they improved the quality of the material coming in. They went from, call it, $0.5 million a month loss to breakeven by doing that, so that is similar to the resi volumes in that, yes, we lost volume on the recycling line of business, but not a bad thing for us on the income statement.

Right, right. Okay, my final question, I want to ask about this whole capital allocation, and question why, I guess, you lay out -- by the way, is the share repurchase either open-market transactions versus an accelerated share repurchase (multiple speakers)

We haven't made a final call on that, but we did an accelerated share repurchase in the first quarter and I wouldn't be surprised if we did one in the second.

Okay. I guess to that end, David, (multiple speakers) why quantify a certain -- one quarter out, a share repurchase program target versus you are in it for the long haul here, as well as shareholders are, to just not maybe specifically allocate capital to those markets so that you can give yourself some flexibility to either execute on M&A, maybe the stock gets hit, maybe it doesn't?

I think that's a great point, and where we are right now is we're still in what I would call the final stages of replacing that Wheelabrator EBITDA.

I will tell you that, as Jim pointed out, we have basically replaced it through operations. That obviously takes a lot of pressure off of our need to do acquisitions. But we want to see what we can get put together in the back half of the year from an acquisition point of view so that then we can make that long-term call on where we are in share repurchases.

So, Al, I would expect that when we give guidance for 2016, we will be able to say, okay, here is what our expectations are for acquisitions and here's what our expectations are for long-term share repurchases and an approach to the dividend. And so, I would say that in -- at the beginning of 2016, after we went through the market and determined what we can buy and what we can't buy, we would be able to give you a more long-term view of share repurchases.

But to be fair, David, I think -- you said earlier this year that by the end of Q2, you would know -- I guess you're asking for an extension from the outsiders looking in, because I think you said earlier this year that by the end of Q2 you would have an idea what the M&A would look like to execute here.

I am not sure --

Okay, thank you.

-- I am asking for an extension, but I am saying that, yes, like I said earlier, you go into this process thinking, well, this is going to be simple. There is a bunch of sellers out there that want to sell and we're a buyer and this should line up fairly easily.

And at the beginning of the year, it absolutely lined up easily. Jim talked about a transaction that if we had done the transaction Jim was talking about, we'd pretty much be -- have replaced the Wheelabrator EBITDA and we would be moving on and telling you what our long-term share repurchases are.

It has only been in the last month where that -- the risk of HSR was too much for the seller to take on, and so we pushed that aside. And so, I'm not looking for an extension. I am just saying it's a fluid process; it's not a one-time event, and it didn't play out as fast as we would have liked it to play out. And so, the back half of the year is going to continue to be a little bit more fluid, and then we can get more certainty going into 2016.

Yes, but I guess you were playing a little analyst earlier in terms of 8 times, 9 times on what you are trading at, and if you are down now with the stock price where it's at, at the level, it sure would seem to make a lot more sense to buy back stock than to chase M&A. But I certainly understand the need to grow back to the EBITDA level, but I think in looking at what the realization is on asset valuations out there, it looks pretty attractive at 8 times here.

Oh, yes, absolutely. Well, look, you're talking to the person that put $2 million of his own dollars into the stock, so I certainly thought it was attractive.

Great, thank you, David.

Tyler Brown, Raymond James.

Jim, so if we could just go back quickly to free cash flow, and you gave some really good color, but I do need a little clarification. So if you assume that the cash tax normalizes -- I think you noted a run rate base of 1.35, but does that incorporate this $50 million to $75 million of EBITDA that you have lined up?

It does not. So, there is -- that is just growth on top of it. So that what I am --

Okay.

-- coming up with at [$135 million] is really normalizing -- and by the way, what we'll do is I didn't want to give 2016 guidance, so I gave you a starting point there, at my [$1.35 million to $1.4 million].

Exactly, okay. So then, you would add on acquisitions, maybe some rollover of Deffenbaugh, and then whatever your growth is in the core business, plus or minus the other stuff?

That's exactly right.

Okay, okay, okay, perfect. That's very --

(multiple speakers) models.

No, very helpful. Thank you. And then, can you just -- can you guys work through or remind us just what percent of the book is linked to CPI? I'm just curious how the 0% all-in [prince] today are going to impact the 2016 pricing? Is that more of a back-half issue? Should we expect that core pricing will take a step down in 2016 just mathematically from CPI?

Well, to answer your first question, Tyler, is about 40% of our business is driven by CPI. I wouldn't say it's a back-half issue, because I think it's pretty evenly spread. It's a midyear and then an end of the year adjustment, so it's pretty evenly spread for us. And what we have always said about CPI is to the extent that it hurts us, we will make it up elsewhere with open market.

And you know, when we talk about CPI, CPI is not -- there is not one CPI. There's a lot of different CPIs in different contracts.

What we have been trying to move toward is more of an industry-specific CPI, what we call the Refuse Rate Index, so that as our costs go up -- when CPI is 1% and you're giving people 3% pay raises, CPI just doesn't cover your costs. And so, what we have been trying to do in our contracts is look at different types of indexes that more reflect the true costs in our business and try to get those true costs.

And so, I think as an industry we could probably do a better job of making sure that we don't get linked to some arbitrary type of CPI, that we get linked to something specific to our industry. So when we talk about 40% of our business, a lot of that business -- or some of that business is tied to what we call this Refuse Rate Index and we hope to move that percentage up.

David, we have had some success in doing that in the first half of this year in some renewals where we moved to more of a refuse index, rather than just CPI, so there is some positive trends occurring.

So is it -- I mean, is it a big portion of that 40% or is it just a small slice?

Yes, it's probably be in the 10%, 15% of that 40% and -- maybe it's 20%. I don't have the numbers in front of me.

Typically (multiple speakers)

In that range.

And typically, Tyler, where we have seen more success in this is in the franchise markets in California and we have had a couple big franchise agreements that we have moved to Refuse Rate Indexes.

Okay, great.

Tyler, I was talking about at the lower end what we have done in the first half. The Oakland contract is an example of one we did last year that is going into effect this year that is on that same basis.

Okay, great. And then just lastly, real quick, you guys mentioned that I think overall landfill was up 3.2% and MSW landfill was up 7.2%? I think I heard that correct. I am curious. Is that a third-party number?

Yes.

Okay, any color on why landfill MSW has been so strong?

It has been strong now for 2-1/2 years, and it is probably mostly tied to when we bought the Oakleaf business and we retained that broker model, and we went out to the folks that brokered the collection business for us and said, look, we want you to keep that collection business. You are making good money on it. We want you to keep it. But in return, we want you to bring those volumes to our landfill.

And that was very successful and that's when we saw the rates go up. And then, look, over the last couple years, I think we've also seen -- as an industry, we have seen MSW growth. So, I think the specific actions that we took with respect to our brokers and then the general economy have both been good drivers of MSW.

I will tell you (multiple speakers)

And your same --

-- the encouraging part about it is not only the volume piece there, but really the price piece. If you look at unit rates at our landfills, I was looking at them last night, over the last five years, we have really increased unit rates at our landfills by way stream, whether it is MSW or C&D or special waste.

I was thinking along the same lines as you. Does this volume mean that we are seeing a deterioration in price, as I think about it in unit rates, and it's not. It's since 2011 nice increases and it is every year nice increases for MSW, special waste, C&D.

Okay, very good color, because that's what I was going to ask. It sounds like -- is the landfill pricing a key initiative as you look forward?

Absolutely, absolutely.

Okay, all right, thank you.

Michael Hoffman, Stifel.

Thanks for taking my questions. A little bit on the (technical difficulty). If you look at commercial same store, kept the customer, have had the customer, that volume is up, isn't it, in the container?

Yes, that is correct.

Yes, right, so when you have a [7.2] from third-party, there is some number that has got to be in that direction in your commercial market same store?

Yes, that's correct.

Right, right, so you are benefiting from what the industry is benefiting is we have had -- you and I interfacing with the economy outside of work, outside of home, is driving more volume in the container.

Yes, and again, look, we don't want to declare that the good times are here, but you all have heard me say over the last couple years that we have fits and starts in the various statistics and we still haven't seen a very clear-cut trend, until last quarter. And that trend continued into this quarter.

So, when you look at this really is the first quarter where all of the indicators are positive, and again, that doesn't mean we're going to go from negative [two two] to positive 5, but we don't have to, right, in order to try to make our numbers in the back half of the year. We just want to see continuous improvement.

And so, weights are up, service increases over decreases are up, the churn rate is down. On the industrial side, we have had really strong new business pricing. So this is really the first quarter where I would say all the indicators are positive. Now, look, we all know that can change on a dime, but right now I am more optimistic about volumes than I have been over the last five years.

Okay.

And Michael, I want to really reemphasize something here, and that is that because this industry -- you have been around a long time. The industry has a history of either being one or the other. You are either price or you're volume, and there is nothing in the middle.

And so while we are seeing some nice momentum here on the price side -- and David went through it in detail a few minutes ago -- we are not conceding our strong approach on pricing. And that's why we wanted to make sure we gave that explanation of yield versus core price that Jim and I walked through, because we are as strong as we have ever been on pricing.

We are just starting to see it. Maybe it's the economy. But we're starting to see that our volumes are looking promising. It is early in the third quarter, but July looks promising as well.

Okay. So, you have set me up for a perfect follow-on, Jim. I think of Waste as having put their foot down on the accelerator on price right to the floorboard for the last four or five years. And you took a volume consequence for that, knowingly.

Where are you or are you even contemplating feathering that, where instead of being 100 miles an hour, you are going 80, but now you're not pushing away what could be deemed good business, particularly commercial that -- now that this volume trend is coming, too?

Look, just the simple math, you all have heard us say it 1 million times that you need to get 3% volume in order to make up for 1% price. That's just simple math. And you can't get 3% volume by giving away 1% price.

So the weighting of where you want to focus will always be on price. What we want to do -- and by the way, if we as the largest player in the industry switch and go after volume, what do you think the industry is going to do? Look, we are the largest player and we recognize the position that we are in.

So, what we want to do is make sure we get our fair share of the growth and that we grow the right volumes in the right places. So, I don't think -- when you talk to industry participants, I don't think you'll ever hear anyone say, well, Waste Management is doing a volume grab in market X or market Y. Do we have individual contracts that we have done where we have gone after volume that I wasn't practically happy with it on our national accounts side or somewhere like that? Yes, we have done that in the past, but that is certainly not a pattern that you will see out of Waste Management.

So we are always going to favor price over volume, but in a growing market, we ought to get our fair share of the volume, too, because we can get our fair share of the volume and that won't have an effect on the overall industry pricing dynamic.

So, look, it's pretty simple economics. In a better economy, we think we can get both price and volume.

Okay.

Michael, I might add to that that we have also, because of our price leadership strategy, have begun efforts to improve our service. We realize that there are some improvements that need to be made to make sure we are providing that service that is worthy of our price leadership position, and we are doing a better job of that. You see it in the churn rate. We see it in metrics. We are not done with it, but we have progress in that regard.

Jim, I was just going to say that. Michael, when you talk about going from 100 miles an hour to 80 miles an hour on pricing, look, we have had a lot of discussion recently, to Jim's point, about a differentiated strategy. You can still go 100 miles an hour on pricing if you are differentiated. If your strategy is differentiation with things like the industrial business, where we provide expertise that others don't have, and the size of our balance sheet, things like that, or whether it's bringing technology to bear or, to Jim's point, improving customer service, all of those enable you to keep your foot on the price accelerator.

Okay, but to Jim T's comment, then the churn rate must be coming down if the service relationship is getting better.

It was -- it is not where we want it to be, but [10.3] is a whole lot better than [12.2] that it was the Q2 of 2014. So, absolutely, we see improvement and we expect more.

Okay, and then --

Michael, just to expand on that, so -- it shouldn't be lost. We improved the churn rate 190 basis points, but we didn't materially increase the rollbacks, right? In the past, what we have seen is that we -- one of the ways we improve the churn rate is our rollback percentage goes from 25% to 60%.

This quarter, we reduced the churn rate by 190 basis points with a virtually nonexistent change in our rollback percentage.

Okay, so we have known each other too long because you just anticipated my next question. So that was -- you are retaining more price, too, then, is that --

We are (multiple speakers) that.

Okay, all right, so now I am changing gears a second. Some housekeeping questions, Jim Fish. Starting share count for 3Q should be about 454 million or 455 million? Is that the right way to think about it?

I think more like 457 million I think is the number.

Okay. What's the 451.8 million, then, that is in the press release, plus the comp numbers of 2.8 million? I can follow up on that, but I just want to make sure I have the starting place.

And then on tax rate, just following up on the question that was asked earlier, that's 3Q and 4Q should have a 35%, not that the full year will be 35%?

Correct.

Okay. And working capital, you didn't talk about that. Where are we on DSOs and payables for -- your plan there?

I'm sorry (multiple speakers)

DSOs and DPOs?

Yes.

DSO and DPO. We have made some nice progress there over the last 2-1/2 years. We made nice progress sequentially and year over year. Year over year and sequentially from Q1, we have improved DPO by about -- a little bit less than three days, DSO by a little less than one day.

When I look at it over the time period that we've really started working on this, over maybe a 2-1/2-year period we have really improved the combination of the two by nine days. It is not totally out of the realm of possibility that we couldn't cross over at some point down the road. We are still a ways away from that. Some of our areas have started to cross over where their DPO is higher than their DSO, but yes. I am pleased with the progress, but won't be completely pleased until we cross over like most companies are.

All right, so just to put numbers on that, you are still in the mid-40s on DSOs and high 20s on DPOs, days?

We are in the low 40s on DSO and we have crossed over to 30 now -- we are above 30 on DPO.

Okay. Okay, and then I didn't -- you said this, but I was writing so many numbers, I missed it. What was the special waste trend at the landfill in the second quarter?

The special waste was 2.4%, as I recall. Let me just look -- yes, the volume was 2.4% for special waste. But when we look at it, we look at special waste, C&D, and revenue-generating cover. When you look at special waste, it was 2.4%, but revenue-generating cover, which is essentially special waste, was above 10%.

And I guess where I was going, it was wet in a lot of places in the country and special waste is predominantly dirt, so there is a good chance that we could see a special waste number that is much bigger in 3Q because you just couldn't get heavy equipment in to move the dirt around?

Yes, we actually had that discussion with our folks out in the markets, and you obviously had some wet down here in the Texas area. You had it up in the upper Midwest.

I think what our folks would say is the pipeline looks pretty strong. We don't expect special waste to slow down in the back half of the year, so I think they're pretty optimistic about it.

Okay, and then on the deal commentary, just to be clear, I get the ones you have got targeted are solid waste, but that doesn't preclude you -- you made a comment earlier, David, that I just want to make sure I understand. You would buy a hazardous waste business or an energy waste business under the right circumstances. That's just not what you are targeting at the moment.

Absolutely, we would. And we consider those core solid waste type businesses. Those are areas where we can apply our expertise very easily.

What we aren't going to do is what I led five years ago, which is get into some other types of businesses where we can't take our solid waste expertise and apply them very easily.

Okay, saving the best for last, Jim Fish, on free cash flow. If I take your $1.5 billion and I look at it on a what's the recurring operating cash generation, I got to pull out $300 million, right? $100 million for asset sales, round numbers, $200 million for cash tax. So I start at $1.2 billion, and then you are suggesting you will be $1.35 billion, potentially. You're not giving guidance. But none of that has any deals in it, so that's a pretty healthy $150 million swing. How much of that is working capital versus the optimization

programs, cost saves, organic?

Part of it, Michael, is you pull out $100 million in acquisitions, but -- I mean, in dispositions, but we do dispositions every year, and so we always assume that we're going to do, call it, $50 million to $100 million of asset dispositions. And so, I am not sure that you pull out that full $100 million.

And help me again, how did you get to the $1.2 billion? I know you pulled out the cash tax piece. What else did you (multiple speakers)

You have asset sales, so I can't predict that number, right, because I can drive a truck between $50 million and $100 million. So if I say, all right, what is the business generating in its own cash -- $1.5 billion less $100 million for asset sales, $200 million for cash taxes puts it at $1.2 billion? $1.2 billion goes to $1.35 billion, that's $150 million year-over-year improvement and there is no deals in that. I'm just trying to --

Michael, I am trying to also normalize CapEx. I don't know what my CapEx is going to be next year, but 2014 CapEx was $1.150 billion, 2015 CapEx is going to be $1.3 billion, so on -- by the way, on a smaller business, at this point. We don't have Wheelabrator; we don't have Puerto Rico; we don't have Maritimes.

So I am adding back a bit there in CapEx, too, but it's hard to say what -- we know we're going to have some CapEx next year for Oakland. We had some this year for Oakland, so it's not going to be $1.150 billion again, but it may not be $1.3 billion either.

Michael, you and Jim are talking the same number. The only difference is the divestiture piece, basically.

And I think that's the whole point, Michael, is that it is the divestitures and the CapEx that can move around a little bit. So when you look at the long-term history of what we have done both on CapEx and on divestitures, you get to that $1.35 billion number.

Okay, yes. What I was really trying to understand was what made up the $150 million, and so some of it is CapEx. How much, then, is organic versus the optimization programs you have initiated over the last couple years? How would you --

We will get into that. I don't want to try to parse it to the penny because, frankly, we haven't done that. We will certainly do that next year when we give 2016 guidance, so that's probably a better time to try to parse it down to the penny.

Okay.

We'd still get asked the starting point, though, so we did have that answer. (laughter)

Right, so we are both agreeing on [one two], so that -- good enough. All right, thanks.

Certainly. Michael, your question about share count, the difference between your 451 million or 452 million and my 457 million is just the effect of using weighted average common shares outstanding, and that has to do with the midyear share repurchase.

Got it, okay. All right, perfect. Thanks.

Barbara Noverini, Morningstar.

You talked a little bit about differentiation earlier in order to push price. And I thought we would focus on the residential business just a little bit. My sense is that Waste Management used to differentiate itself with recycling services in a bundled contract.

But now that you are heavily scrutinizing recycling, how else do you differentiate in residential outside of recycling? Is winning or renewing municipal contracts in this competitive environment increasingly dependent on the bundled services you are able to provide municipalities?

Yes, so I don't think the bundling of recycling with residential slows down. In fact, frankly, it is more of an opportunity to bundle it because given the asset mix that we have, we are one of the few companies that can actually make money on recycling, so it probably gives us a little bit of a competitive advantage as far as bundling recycling with residential services.

But when we look at the residential line of business, we start out with let's keep the contracts that we have at current rates or higher rates. And keeping the contract that you have is all about service, right? Most municipalities, if they've had your service for a long time and they're happy with it, the citizens aren't looking for a change just to save a little bit of money.

And so, the first part of our residential strategy is keep the contracts that we have at the same or higher rates, and we have got a very high success rate of doing that.

And then, the second piece is find out where we can be competitively advantaged. So if it's in a market where we have recycling capability and no one else does, can we bundle it with recycling capability? If it is in a market where we have different types of disposal assets and different green initiatives that we can bring to the table and that's what the customer wants, that is how we will differentiate ourselves.

And so for us, it is a two-part strategy. It is make sure you keep your current contract and that is by providing spectacular service, and then it is find out where we can win bids that aren't based solely on price. Because if they are based solely on price, we aren't going to win. And so, let's find those markets where service, recycling, green initiatives make a difference and let's go in and win those bids.

Thanks for that.

I think there are several (multiple speakers). I mean, we almost look at it by line of business because what differentiates you in the industrial line of business is different than what differentiates you in the residential line of business.

So as we -- and, in fact, we are in the process of going through a strategy preparation to present to the Board here in August and we're focusing specifically on differentiation in one case and it is by line of business. So maybe we bring different technology to the table. Maybe -- certainly operating efficiency, because so much of the residential business is driven by price and you got to be as efficient from an operating standpoint as you can in residential.

Right, got it. Yes, thanks for that.

I will now turn the call over to Mr. David Steiner for closing remarks.

Thank you. Thank you all for joining us. We have had a strong start to the year. We expect to finish the year strong and we will see you next quarter. Thanks again.

Thank you for participating in today's Waste Management conference call. This call will be available for replay beginning at 1:30 PM Eastern Standard Time today through 11:59 PM Eastern Standard Time on August 6, 2015. The conference ID number for the replay is 64809894. Again, the conference ID number for the replay is 64809894. The number to dial in for the replay is 855-859-2056.

This concludes today's Waste Management conference call. You may now disconnect.