美國廢棄物管理公司 (WM) 2017 Q2 法說會逐字稿

Good morning. My name is Marcus, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2017 earnings release conference call. (Operator Instructions) Thank you. Mr. Egl, you may begin your conference.

Thanks, Marcus. Good morning, everyone, and thank you for joining us for our second quarter 2017 earnings conference call. With me this morning are Jim Fish, President and Chief Executive Officer; Jim Trevathan, Executive Vice President and Chief Operating Officer; and Devina Rankin, Senior Vice President, Chief Financial Officer and Treasurer. You will hear prepared comments from each of them today.

Jim Fish will cover high-level financials and provide a strategic overview. Jim Trevathan will cover price and volume details and provide an operating overview, and Devina will cover the details of the financials.

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 of 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.

Jim and Jim will discuss our results in the areas of yield and volume which, unless otherwise stated, are more specifically references to internal revenue growth, or IRG, from yield or volume. During the call, Jim, Jim and Devina will discuss our earnings per diluted share, which they may refer to as EPS or earnings per share. And they'll also address operating EBITDA and operating EBITDA margin as defined in the earnings press release.

Any comparison, unless otherwise stated, will be with the second quarter of 2016. Earnings per share, income from operations, income from operations margin and effective tax rate in each case for the second quarter of 2016 have been adjusted to exclude certain items that management believes do not reflect the fundamental business performance or results of operations.

These 2016 adjusted measures and comparison to these measures, together with free cash flow, are non-GAAP measures. Please refer to the earnings press release footnotes 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 our use of non-GAAP measures.

This call is being recorded and will be available 24 hours a day beginning approximately 1 p.m. Eastern time today until 5 p.m. Eastern time on August 9. 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 51149867.

Time-sensitive information provided during today's call, which is occurring on July 26, 2017, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without express written consent of Waste Management is prohibited.

Now I'll turn the call over to Waste Management's President and CEO, Jim Fish.

Thanks, Ed, and thank you all for joining us this morning. Our second quarter results have again demonstrated the cash-generating strength of our company. Our tactical focus on improving core price, adding profitable volume in a disciplined manner and controlling cost is clearly the right direction for our business.

The end result of that focus is once again a strong operating EBITDA performance, which translated into robust cash flow in the quarter. Our operating EBITDA grew about 8% in the quarter to $1.029 billion when compared to the second quarter of 2016. This was the highest operating EBITDA we've ever achieved in any quarter in Waste Management's long history.

As a result, our free cash flow grew almost 13% for the same comparative period despite a significant increase in cash taxes paid. The conversion rate of operating EBITDA to free cash flow has increased sequentially for the past 3 quarters to over 50% in the second quarter of 2017.

Devina will discuss our cash flow in detail, but we exceeded our internal expectations, and we remain confident that we can meet the upper end of our full year guidance of between $1.5 billion and $1.6 billion.

Turning to earnings per share. We generated $0.81 of EPS in the second quarter, an increase of 10.4% when compared to the second quarter of 2016. Included in that 10.4% growth were a $0.04 drag to EPS, $0.02 from an increased tax rate, $0.01 from the expiration of fuel tax credits and $0.01 from 2 small impairments. But even with that $0.04 of headwind, we grew EPS by $0.07 versus the second quarter of 2016.

Driving strong growth in EPS, EBITDA and free cash flow was solid growth in revenue and operating income. Our revenues grew by $252 million or 7.4%. And just as we saw in the first quarter, this increase was organically driven. Our income from operations grew 9.4%, and margins also expanded with the income from operation margin up 30 basis points.

One of the drivers of our success was the disciplined execution of our pricing programs. In the second quarter, our collection and disposal core price was 4.7%, and our yield was 1.9%. Our focus on disciplined pricing remains unchanged, as demonstrated by our core price results, which are well above our full year goal.

Looking at volumes. Our traditional solid waste volumes were positive 3.2% in the second quarter. We continue to focus on areas of the economy that are experiencing growth, and we are retaining customers through our improved customer service.

In the second quarter the underlying volume growth in our business remained strong in the commercial, industrial and landfill lines of business. And we also saw a slight improvement in the rate of decline in our residential business. As a result, we would expect our volumes to exceed our full year goal.

And as you can see, we're maintaining our price discipline while growing our volume. So we're hitting on all cylinders right now, with the cash-generating strength of our business shining brightly in 2017.

Looking beyond 2017, we've talked recently about our strategy of bringing more technology to bear in our business and about creating a 21st century HR organization. On the people front, we're tackling long-term opportunities, like reducing driver turnover, building best-in-class leadership development and leading in the field of training and performance management.

Regarding technology, our focus there is intended to serve as a differentiator to help us continue down this path of strong organic growth. It will come in several different forms, including customer-facing technologies for e-commerce and self-service, use of big data for predictive analytics like maintenance and dynamic routing, and improvement in our cost structure over the long term through the application of robotics and autonomy.

Of course, we will not lose our focus on disciplined capital expenditures and SG&A expense control as we proceed with this long-term strategy. We plan to have a strategic leader of the technology function in place by year-end.

So to sum it up, we've had an exceptional first half of 2017, and our employees continue to execute our plans and deliver strong performance. In the second half of 2017, we expect to see the momentum from the first half continue. As a result, we expect to meet the upper end of both our full year EPS guidance of between $3.14 and $3.18 and our full year free cash flow guidance of $1.5 billion to $1.6 billion.

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

Thanks, Jim, and good morning. The fundamentals of our pricing program, disciplined growth and cost initiatives continue to drive income from operations and operating EBITDA growth. The combined positive price and positive volume led to total company income from operations growing $58 million, an increase of more than 9%, and operating EBITDA growing $78 million, an increase of about 8% compared to the second quarter of 2016.

Looking at revenue in more detail in the second quarter, we continued to see strong organic revenue growth, as we focused on the execution of our price plans, customer service improvement and disciplined growth. Revenues in the quarter were $3.68 billion, an increase of $252 million or 7.4% when compared to the second quarter of 2016. Second quarter revenue growth in our collection and disposal business from the combined impact of price and volume was $158 million.

Second quarter revenues also benefited from higher recycling commodity prices and increased recycling volumes, which drove a $90 million increase in recycling revenue. Fuel surcharges increased $20 million, while foreign currency fluctuation decreased revenues by $8 million. And divestitures, net of acquisitions, also decreased revenue for the quarter by $8 million.

In the second quarter, looking at internal revenue growth, our collection and disposal core price was 4.7%, and yield was 1.9%. On the volume front, total volumes were 3.4%, while traditional solid waste volumes were 3.2%. We also saw service increases exceeding service decreases for the 14th consecutive quarter, supporting continued commercial volume growth. Our year-to-date churn rate improved 10 basis points to 9%.

Our collection lines of business continue to perform exceptionally well. In the second quarter, commercial core price was 7%, with volumes up 2.7%, another sequential increase in growth from first quarter levels of 2.5%. Industrial core price was 8.8% with volume up 2.1% in the second quarter.

In the residential line of business, core price was 2.7%, with residential volumes down 1.7% in the second quarter. But they are moving in the right direction as the residential volume is a 20 basis point sequential improvement from the first quarter of 2017. The combined price and volume increases in our collection line of business led to income from operations growing $24 million and operating EBITDA growing $26 million.

In the landfill line of business, total volumes increased 8.9%. MSW volumes grew 10%. C&D volume grew 17.4%. And the combined special waste and revenue-generating cover volumes grew 5.2%. On the MSW front, volumes did benefit from an outage at a Virginia waste-to-energy plant. Even without that benefit, underlying MSW volume growth remains solid in the mid- to high single digits.

Regarding pricing, we achieved core price of 2.5% in the landfill line of business, and MSW yield was 2%, both improvements from the first quarter levels. The combined price and positive volume led to total income from operations growing $25 million, almost a 9% increase; and operating EBITDA growing $48 million, an increase of more than 11% compared to the second quarter of 2016.

Turning to recycling. In the second quarter, the recycling business contributed $0.04 of EPS. But China has recently notified the WTO about a scrap import ban on certain categories of solid waste materials, including certain types of scrap plastics and unsorted wastepaper. Neither of these categories should materially affect us because of our current sorting processes and capabilities. Although we do not see a material impact to our overall business, we believe this action does create further uncertainty in forecasting recycling price levels.

Moving now to operating expenses. In the second quarter, total operating costs increased $160 million when compared with the second quarter of 2016. The cost increases were largely due to higher recycled commodity rebates, primarily related to our recycling brokerage business and rising fuel expenses. As Jim noted, the absence of a CNG tax fuel credit negatively impacted our EPS by slightly more than $0.01. Our operating expenses as a percentage of revenue increased 10 basis points from 62.2% in the second quarter of 2016 to 62.3% in the second quarter of 2017.

Combined costs of recycling rebates and higher fuel expenses increased 110 basis points as a percent of revenue. However, through efficiency gains and cost control efforts, particularly in the labor and transfer and disposal cost line, we were able to offset almost all of the increases in commodity-based costs in the quarter. Our traditional solid waste business improved operating expenses by about 70 basis points during the quarter, thanks to the strong execution of our field and corporate teams.

I'll now turn the call over to Devina to discuss our financial results.

Thanks, Jim, and good morning, everyone. As Jim mentioned, the strength of our operating results in the second quarter can be seen most directly by looking at our cash flow from operations and free cash flow.

In the second quarter, cash provided by operating activities was $813 million compared to $762 million in the second quarter of 2016. That's an increase of $51 million or almost 7% in spite of an additional $83 million in cash taxes. The significant increase in cash from operations for the quarter is the result of 2 things, operating EBITDA growth of $78 million, or about 8%, and our disciplined focus on improving our working capital metrics.

We're particularly pleased for the operating leverage that we can see in our cash flow from operations conversion metric. In the first half of 2017, our operating cash flow as a percentage of revenue has been consistently over 22%, which is a 400 basis point improvement in the measure over our long-term average.

Both capital expenditures and proceeds from divestitures were relatively flat on a year-over-year basis in the second quarter. So the growth in cash flow from operations converted straight through to free cash flow growth.

We continue to expect a $100 million to $150 million increase in capital expenditures in 2017 as compared to last year, and our full year capital expenditure guidance is unchanged. Due to the timing of truck purchases and certain other project spending, we expect this increase to impact our free cash flow in the back half of the year.

We generated $520 million of free cash flow in the second quarter of 2017, an increase of $59 million or 12.8% from the second quarter of 2016. For the first half of the year, we've generated over $900 million of free cash flow, putting us well on our way to meeting the upper end of our 2017 free cash flow guidance of between $1.5 billion and $1.6 billion.

The growth in free cash flow positions us to continue to return value to our shareholders through dividends and share repurchases and to fund acquisitions. In the second quarter, we repurchased $250 million of our outstanding stock, paid $187 million in dividends and funded $41 million in tuck-in acquisitions.

We remain committed to a capital allocation plan that prioritizes using 100% of our free cash flow to pay our dividends, execute strategic acquisitions and buy back our stocks. We will do this in a disciplined way to continue to deliver the best return on invested capital in the industry.

Our record high free cash flow in the first half of the year and the positive outlook we have for the remainder of 2017 and beyond supports the continued execution of our capital allocation plan. And so in the third quarter, we plan to enter into agreements to repurchase an additional $500 million of our stock, representing our remaining current-year authorization for share buyback.

Our disciplined management of SG&A costs also benefited our results for the quarter. For the second quarter of 2017, as a percent of revenue, SG&A costs were 9.6%, which is a 30 basis point improvement from the second quarter of 2016. On a dollar basis, SG&A costs were $353 million in the second quarter of 2017 or $13 million higher than in the prior-year period. The second quarter increase is largely attributable to revenue and earnings growth, which drove up our incentive compensation costs and commission.

We are successfully offsetting some of these cost increases by improving process efficiencies, and we will continue to drive down SG&A as a percent of revenue by better leveraging our fixed costs. We remain confident that for the full year, SG&A costs as a percentage of revenue will approach 10%, which would represent a 40 basis point improvement compared to the full year of 2016.

Our debt-to-EBITDA ratio, measured based on our bank covenants, remained at 2.4 at the end of the second quarter, indicating that we have a strong balance sheet and are well positioned for strategic acquisitions at the right price. Our weighted average cost of debt for the quarter was about 4.2%, and 12% of our total debt portfolio is at variable rates.

Our effective tax rate for the second quarter of 2017 was approximately 36.6%, which is in line with our expected full year 2017 adjusted tax rate of about 36.5%. Our adjusted tax rate for the second quarter of 2016 was 34.7%. The increase in our tax rate from 2016 is largely due to growth in our pretax earnings, which is meeting the benefits of tax credit. The higher tax rate impacted EPS by $0.02 per share.

In summary, the first half of 2017 has shown the combined value of our focus on executing our core operating objective, generating price, growing profitable volume and continuous cost improvement.

I want to thank all members of the Waste Management team, the best employees in the industry, as once again they have executed extremely well. They delivered fantastic results so far in 2017, and we are well on our way to achieving our 2017 goal.

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

(Operator Instructions) Your first question comes from the line of Brian Maguire with Goldman Sachs.

Just a question on margins, obviously really strong volumes in the quarter. I was a little surprised that it didn't translate into a little bit more operating leverage. I know you mentioned the tax credit issues on the fuel, that was a bit of a headwind in some of the recycling rebates. But I just wondered if you could dig into it a little bit more.

And I mean, what kind of -- in a normal quarter, what kind of operating margin leverage would you normally expect on that kind of volume growth? And maybe kind of an outlook for margins for the full year, I think you had guided to up 50 to 100 bps. Maybe just provide an update on where you see that coming for the full year.

Sure, Brian. I would actually say we felt good about our margins for the quarter. And here's why. The EBITDA margins were up 10 basis points or better by 10 basis points. And -- but they were impacted by 2 factors. You mentioned the one, which was fuel tax credits. That was worth about 20 basis points to us in margin.

But the other one, that -- that Jim's going to give a little bit of color on is our recycling brokerage business. And that impact -- that recycling brokerage business was up over 5% in revenue, which impacted margins by 50 basis points. And so if you exclude those 2, you're talking about 70 basis points of margin accretion there. So that's why I would tell you we felt good about our margins even being better by only 10 basis points on the EBITDA line.

Yes. Jim, maybe just a couple of facts, first, about the recycling business, and then into that brokerage side. Overall pricing was up about 31%. Volume's up 4%, as we said, and that lower-margin brokerage business revenue grew about 10%. It is lower margin. It's 4% to 6% margin on that brokerage business, but it's still extremely healthy for us and good for us strategically.

Just a little bit of comparison, first, the revenue is getting to be a substantial percentage of our revenue. It's significant. In fact, the brokerage business is about 2x larger than our largest competitor's total recycling revenue, and they've got a very healthy business. This brokerage business is about 50% of our total recycling revenue.

But just as important as that are the benefits of that business for us. With those additional tonnages, we're able to command a little higher price per ton when we sell all of the volume, both our merch-generated tons and this brokerage volume. It provides our customers that use this recycled commodity with a really consistent and high-quality volume, and it lets us get, we think, a couple extra dollars per ton.

The second thing about that brokerage business is it allows us to service these very large customers that generate this volume on a full service basis. Rather than just hauling their trash, we add some stickiness to what we do for them.

And I guess, the last thing I'd remind you is that these generators of this large volume that we broker, they've got their own capital equipment, their balers. And they manage that volume. And we just help them sell it, so there's no capital investment to this line of business, Brian. And it helps us with what Devina said, the highest ROI in the industry. It aligns perfectly with that. And this business is almost an infinite ROI given no capital associated with it.

If I summarize, Jim's right, we see that 70 basis points improvement without this and that fuel tax issue. This is a really healthy business for us.

If you look at one last factor maybe that we were looking at recently, if you remove that brokerage business, our overall WM -- Waste Management's EBITDA margin would be about 120 basis points higher, would be about 29.2% in the second quarter again without that brokerage business. Yet we're going to stay in that business. It's the right thing to do for our customers and very strategic for us. And it's just a good business.

So to follow on, with the 50 to 100 basis point margin improvement that you referenced, when we think about that, it really was going to come from 2 places. And we're seeing both execution in both of those things in the first half of the year, and we expect that to continue.

And the 2 places it was going to come from and we're seeing results are core solid waste business improvement to operating expense margin and then, secondarily, SG&A cost control driving margin improvement there.

So what Jim and Jim just described was a 70 basis point improvement in operating margin for our core solid waste operations. And then we saw a 30 basis point improvement in our SG&A costs in the quarter. So those 2 things together get us to the top end of that 50 to 100 basis point range.

Okay. One more, if I could. One of your competitors this morning was talking a lot about a big pickup in acquisition opportunities in the industry, and it seems like it could be a little bit of a change from the trend that we've been on the last couple of years for whatever reasons.

Parsing your comments and maybe some of the actions with the pivot towards the share repo in a bigger way over 2Q and 3Q, maybe just kind of comment on how you see the M&A environment these days, and if you've perceived a similar kind of change over the last quarter or 2.

No. I mean, I think the acquisition landscape is pretty healthy right now, and our pipeline is pretty healthy right now, too. We're going to talk about several today, in fact. But -- so I think you'll see us.

We've always kind of talked about our normal tuck-ins ranging between $100 million and $200 million. Last year, we were towards the lower end of that range. I would tell you, Brian, that this year, we'll be at the higher end of that range. So I wouldn't disagree with what one of our counterparts said about the M&A landscape.

Your next question comes from the line of Hamzah Mazari with Macquarie Capital.

The first question is just if you could just outline whether a 100 bps further opportunity on customer churn is realistic. And where do think that improvement comes from?

Yes. Hamzah, good to hear from you. I do think there's upside in our defection rate, 9% year-to-date -- year-to-date basis improved about 10 basis points. We've made real strides in 2 parts of that.

First, the core service delivery, we are really focused on a quality of service metric across all of our lines of business. And our areas are starting to really show that improvement that we expect in just the core delivery of what our customers pay for. And that will continue. But that's a long range impact to it because it's still -- we still deliver exceptional service, and yet we want to get better.

The other side to it, Hamzah, or at least one other side, is some of electronic e-commerce opportunities that we have. Our customers, at least segments of them, want more online capability. And we're doing a pretty good job of providing that. And as Jim mentioned earlier, we've got plans to really ramp that up and look at more opportunity to differentiate our offering to our customers.

As you know, Hamzah, our customer segments are extremely wide, from an open market residential customer all the way up to the largest companies in the Fortune 100. So their expectations vary across that segment basis. And we're finding things that we can do to improve that.

But part of it is just that core discipline of service, and then how we handle their questions when they call in. Our call centers are doing a really good job of focusing on answering their questions on the first call. We're making real strides there, but still connected with our field operating team. So I do see upside improvement continuing in that defection rate. One quarter here or there may be a vary. But over time, you'll see that number get better and better.

Great. And then just on free cash flow. The conversion is higher than history. How sustainable is that free cash flow conversion metric as you look out longer term? And where is it coming from? Is it working capital? I know CapEx is lumpy, but any color as to how sustainable that conversion rate is?

You're exactly right, Hamzah. With the free cash flow conversion that we saw in the second quarter, what we're really focused on is the positive trends that we're seeing of conversion of revenue dollars, EBITDA dollars to free cash flow.

We tend to focus more on the cash flow from operations piece because of the lumpiness of capital expenditures and just timing differences that can affect that. Our capital expenditures as a percentage of revenue, we still target that at about 9% to 10% of revenue, and we were a little below that in the second quarter.

And if you were to have normalized that, we would have still seen some really positive flow-through and continued execution of our focus on taking revenue dollars and putting them through to the bottom line. But what we think's important is to look at that cash flow from operations metric. And as I said, that's increased to over 22% of revenue in the quarter and for the full year.

And when we look at what's driving that, it's 2 things. It's operating EBITDA growth, and it's our focus on working capital. We do think that the focus on working capital will continue to provide us benefits, but we're more focused on that core solid waste operating performance driving free cash flow and cash from operations growth over the long term.

One thing I would add to this, and we're giving some long answers to the first 2 questions here from you and Brian, but I think it's worth really addressing this. But Devina is absolutely right about this. I mean, it is the biggest component of free cash flow that's actually driving it, which is EBITDA.

I mean, growing EBITDA by 8% organically is no easy task. And if you back up the line from there, growing revenue by 7.4% in an economy that's kind of a 1.5% or 2% economy, and doing all that with organic growth, to me, is really impressive.

And you may -- you look at revenue, even if you took out commodity price completely, if you said, "Okay, fine. But you're growing your revenue on --." Take it out, take that out completely. We still grew revenue organically by 4.1% in a 1.5% or 2% economy, double or 2.5x the economy.

So the fact that this is all translating down into free cash, cash from operations, and then free cash is not surprising to us. But we're really pleased with the fact that these big financial metrics that we focus on are performing as well as they are.

That's very helpful. Just a follow-up, and I'll turn it over. Historically, yourself and the sector has raised guidance on the second quarter based on seasonality of volumes, that when you first give guidance you don't have visibility on. It seems like things are coming in better than expected relative to the start of the year. And so I'm just curious, how conservative is your guidance because you've left it unchanged?

Well, we really didn't leave it unchanged. We said the guidance is a range. So if you think about EPS, for example, $3.14 to $3.18, it's a range. And now, we've said we'll be at the top end of the range. So if you assume that when we give the range, we're kind of in the middle at kind of $3.16, then we're saying we're -- in effect, we're raising guidance to the top end of the range, and you could say the same about free cash flow.

So what we'll do, though, is at the end of Q3 is reassess and look at the first 3 quarters and decide, are we going to exceed the top end of the range? Or are we still comfortable at the top end, where we are now?

Your next question comes from the line of Corey Greendale with First Analysis.

Just a couple of questions for me. So Devina, on the SG&A guidance, to get to 10% for the year, so I think in the first half of the year, you had 20 basis points of improvement. So you need to do better than 40 basis points of improvement in the back half to get there. So can you just talk about kind of the levers and how you get to that greater leverage?

So as a reminder, in the first quarter, we had a couple of headwinds on a year-over-year basis that aren't going to repeat throughout the remainder of the year. And those 2 things were severance costs, and then a higher year-over-year comparison in how we accrue our incentive compensation costs.

And so when you normalize for those 2 things and think about really what we demonstrated in more of a normal quarter in the second quarter, we are confident that we'll get better performance in the third and fourth quarters than what you've seen in the first half of the year.

So if I understand it, and I appreciate the reminder on the Q1 headwinds. But on a dollar basis, I think the SG&A dollars will actually have to be down year-over-year in the back half. So I was hoping maybe for just a little more detail on kind of where the cost savings are coming from incrementally from what you've seen so far this year.

Sure. So a piece of that incentive compensation accrual in the first part of the year has to do with a timing difference that will benefit the fourth quarter. And so that is a piece of this. But then, as I mentioned, we're seeing some process efficiency opportunities that continue to give us confidence that we're going to be able to reduce some of our general overhead costs as we look for more efficient ways to carry out processes, things we've mentioned in the past are call volumes as an example.

And as we're driving more and more customers to do business with us through the e-commerce platform, we're able to reduce the number of calls that come through our call centers. And things like that are going to reduce our costs over both the second half of the year and as we look forward.

Okay, helpful. And then on the volume, so I think I went back in my model, I think this is the best volume number you've reported since 2004. So -- and it doesn't sound like as you broke down the components that it was really event-driven.

So I realize the comp gets tougher as the year goes on, but can you talk about kind of the sustainability of these kinds of levels closer to 3% and should we -- understand you'll be above the guidance for the year, but should we expect it could be kind of this strong as the year continues?

Yes. What I would say on volume, and Jim, you can add some color to this, too, but it is that -- one thing that's pleasing to us about volume is that it's not just a big lump that we're seeing here. If you look at commercial volumes, commercial volumes have improved every quarter since Q2 of '14. So a fairly long string of improvement that we're seeing. It's not as if we're seeing a big lump all in Q2.

The roll-off business has been reasonably strong for the last 7 quarters. Resi has shown -- albeit still in the red, but resi has shown volume improvement for 5 consecutive quarters. And then at the landfills, Jim talked about MSW C&D volumes being very strong. And special waste maybe being -- the combination of special waste revenue generating cover was the lowest number on the page. And that one probably has some opportunity, and we feel good about our special waste pipeline at this point.

So I think the fact that volume has been on this consistent upward trend is really the encouraging part for me. I'd be a little more concerned about it as being onetime if we saw a big blip in second quarter. But we really didn't. It's just been a gradual increase in all lines of business.

Yes. Corey, the only -- a couple of color items just I'd note, that landfill growth, we did get the benefit for that Virginia waste energy plant that was down. So we received a pretty healthy amount of volume from it in the first half of the year, yes.

But even without that, as I mentioned, we still would have grown MSW volumes in that mid-single-digit range. So very healthy, given as Jim pointed out, the economy situation. So we're pleased with that. And you'll see -- should see landfill volumes stay again without that one line item in that mid-single-digit range.

Commercial volumes we're net positive in both number and dollars on a sale loss basis. So our sales teams and customer service teams are all doing exceptionally well in that regard, and that will help that permanent industrial commercial volume.

The one reminder is that in the second half of last year, we added 2 large national account customers that were almost exclusively commercial business. So the comps on the commercial side will get really difficult in the second half of the year. But excluding that large national account, you'll see the day-to-day commercial business continue to be strong.

Really helpful. And then just one last quick one, it's a tech question. As you talk about some of the things you can do with AI, for example, is that build versus buy? Are there third-party vendors who provide there? Do you expect to do that internally? Or is that still TBD?

So there's -- there are third-party vendors. Technology, for us, encompasses a number of different items, including things like, as you say, AI. AI is kind of a longer-term opportunity for us when we think about robotics or autonomy.

I think in the short-term, what you're seeing is us spending our kind of innovative time on customer-facing technologies such as the ones that Jim mentioned, e-commerce and self-service, and then also on big data for the use in our pricing tools and in things like predictive maintenance and routing and logistics.

And I'm just wondering if those kinds of data things could ultimately be like a competitive advantage for you, maybe not relative to the other big players or relative to the mom-and-pops -- if it enables you to price more intelligently or do maintenance more intelligently in a way that gives you a strategic cost or revenue advantage.

Yeah, I think you're right. I think it's -- and I think you're also right that this eventually ends up being something that we see across the larger companies. But the smaller companies, it will be a differentiator for us. But we think we're the leader in the industry and in technology, and we continue to invest that way.

We're spending somewhere between $100 million to $150 million in tech spend each year. We're putting somebody -- a leader in that position, a chief technology officer position by the end of the year. So we see technology as a differentiator for us within the industry. But I do think over the long term, it probably ends up being more versus the smaller companies.

Corey, one last point that I want to go back to your first question on the volume side. And just a reminder, as I did that national account comp problem for the second half of this year, we do have 2 less workdays in the second half of this year than prior year. So that permanent business like roll-off, the roll-off line of business, but also our landfill, could be affected.

But the trends and the absolute core nature of the business is still really positive. Those 2 items will have an impact on the second-half volume. That's why big Jim mentioned that we are guiding you to the upper end of our range, which was, I think, 1.2% to 1.6% for the second half of the year. But still really strong.

The good news about fewer work days is it actually is a positive for us on the bottom line. It just is not going to show up as a positive on a year-over-year comp basis in terms of absolutes. But on the bottom line, it ends up being a positive for us having fewer work days.

Is that, by the way, one day each in Q3 and Q4 or 2 in one of the quarters?

It's like 1.7 days in Q4 and 0.3 days in Q3.

Your next question comes from the line of Andrew Buscaglia with Credit Suisse.

A question on your free cash flow. So you talked about you're going to do $500 million of repo in this quarter. You did $250 million. Can you just remind us what's left in that authorization after that? And then your leverage is at about 2.4x. How do you feel about your leverage there? Is it -- would you guys be looking at taking on some debt just given your healthy free cash flow at this point?

So our authorization for the current year was $750 million. So the $500 million that we'll spend in the third quarter will take us to 100% of that authorization. We'll continue to look at our free cash flow allocation as we discuss future authorizations with the board going forward, and we typically do that in the fourth quarter.

With regard to our leverage, 2.4 is low historically when you look at Waste Management. But what we focus on is the fact that that's a healthy balance sheet that positions us for opportunity. And so we don't anticipate that we're going to reduce our debt balances in absolute dollars. But you could see the leverage balance or the leverage metric reduce over time as EBITDA continues to grow.

We really see opportunistic balance sheet -- a well-structured balance sheet as something that gives us opportunity to look for strategic M&A that's priced well. And we think that, that, combined with our free cash flow, really positions us to execute upon that if it presents itself.

Okay. And then just given what you guys said about your M&A probably hitting the higher end of that $200 million spend, that would imply that you're just looking at some smaller-type tuck-ins. But are you seeing anything opportunistic in terms of a larger-type deal?

I mean, there obviously are fewer of those than the tuck-ins. And once you get to larger deals, then we, because of our size, have to consider HSR filings and things like that. So it's not to say that there aren't deals out there of larger size. They involve more efforts for us from a justice perspective. It doesn't mean they're not good. We've done 3 of them over the last 4 years.

But for now, we're focused on those tuck-ins. And then as those other opportunities present themselves, I think that's really Devina's point is that the balance sheet gives us the ability to do those. The $100 million to $200 million just comes out of free cash flow. But if you start thinking about bigger deals, you have a balance sheet that's able to easily absorb bigger deals.

Your next question comes from the line of Noah Kaye with Oppenheimer.

Maybe we could just start with the recycling line of business. So obviously, the China policy, the notification to the WTO, that's all relatively recent. I wonder, how do you think about the potential impact on the business -- the recycling business as a whole, maybe in particular the brokerage part of the business?

Because it does seem like what's going to be restricted in particular are certain categories of plastics. So I'm not sure how that flows through to kind of the brokerage line of business. What do you think may change in terms of kind of the overall throughput going through that part of the business? And then what might you have to do just in terms of reconfiguring the business to respond?

Yes. Noah, we -- right question, good timing for it. But remember that our brokerage business is almost entirely fiber and not plastics-related. So we see no impact on thermoplastic standpoint on the brokerage business with China's action. It's really going to be a fiber, and then some plastics, but again, not brokerage-related.

It's because of the way we sort the mixed paper. And we do it today. We sort every bit of the mixed paper we receive. We don't see a material impact to what we export on that side. And that's one of their real focuses. The other are plastics that are out of the norm. That's not a small -- a large part of what we export.

So we, as of now, don't see a significant impact to either part of that business. But that's still to be determined. It looks like China is really trying to help from an environmental standpoint. It's not just related to recyclables, but they're looking to help their internal businesses probably perhaps to reduce or to manage price a little bit, but also to clean up some of the imported materials that they receive.

Given what we do and what we see today, we just don't see a significant impact. Yet as I mentioned, we're not ready to forecast price until we see -- have a little more clarity into 3Q.

But they are, Jim -- China is a big buyer in the market. So when they start tinkering with policies that could impact commodity prices, we have to be increasingly aware of that.

And so just in terms of how we think about the outlook for the rest of the year, are you assuming sort of a more kind of normalized dip in OCC prices? I mean, obviously, we're at elevated levels now. How should we think about kind of how you're thinking about the pricing environment?

It's hard to predict. I wish I had a crystal ball here because if you remember back at the end of Q1, we had just finished with a really good quarter and all of a sudden, China comes out and does something kind of crazy, and prices for OCC dropped 25% or 30% in a period of a week.

So it is -- we don't have a lot of ability to hedge ourselves there. The markets are pretty thinly traded. So it's a bit hard to predict. What I would say though about the back half of the year with respect to commodity prices is that comparisons do get more difficult, particularly as you get into Q4.

Last year, you may recall that we talked about the normal kind of seasonal decline in commodity prices that you tend to see from Q3 to Q4 that we did not see in 2016. I'm not sure that we are expecting a repeat of that. I think you probably will see the normal seasonal decline in commodity prices after they've done all of their kind of Christmas and holiday buying.

So we think that Q4 in particular has more difficult comps on commodity prices. But boy, the rest of the business is doing so well. And even the recycling business on the cost side is doing so well that we're still very comfortable with going to the top end of our range, as we mentioned earlier.

Great, great. And if I could just sneak one more in. Jim, you mentioned at the outset, you will be looking to bring on a chief technology officer by the end of the year. It seems as though there are already a number of internal improvement initiatives-related technology underway. You mentioned the e-commerce platform, these predictive maintenance efforts.

Maybe just if we could better understand kind of what the type of profile of that person coming in might look like, and really what their providence is going to be over the next several years. Are they -- is this person more kind of geared to some of these longer-term initiatives around robotics automation? Just how should we better think about that as aligning with the company's strategic initiatives?

Yes, it's a good finishing question there. I would tell you, we're not looking for a chief information officer. We're not looking for somebody to come in and -- who has a strong -- necessarily a strong IT background to come in and look at things like data structures and systems integrations and things like that.

We think we have a really good team internally to do that, and we're in the process of doing that already. We're in the process of consolidating data. We're in the process of looking where we have data overlap and making sure that we establish data consistency and eliminating some of our applications where we have multiple applications that sometimes do the same thing.

So we're not necessarily looking in this new chief technology officer for a more traditional chief information officer. We're looking for somebody that has an understanding of -- if not our business directly, an understanding of this type of routing and logistics type business in general, that also can bring some innovation to bear on those newer types of technologies.

Not just data, we talked a lot about data, but as you mentioned, robotics technology, and then longer term, working with our organic growth group on things like autonomy. I mean, we think that autonomy is -- particularly as we think about the collection side of our business, is a longer-term aspiration for us. Because while the technology is moving forward, there is a big difference between where the technology is and where the public perception and government regulation is.

So -- but all of those, we do think will eventually come to our industry. In the near term, we're going to be focusing this person more on those customer-facing technologies, e-commerce and self-service and in better use of data to make us as efficient as we can be.

Your next question comes from the line of Michael Hoffman with Stifel.

I guess, I now have to say big Jim and little Jim and Devina. Is that what I heard, Jim Trevathan? Okay. The waste energy volume that was going to a landfill in Virginia, has that stopped coming?

No, it hasn't, Michael. If we had to crystal ball it today, end of September, middle of September it will end. But that depends, obviously, on them getting back online. It's out of our hands.

Okay, got it. And then I am an absolute believer that your solid waste -- underlying fundamental solid waste business you've been saying had margin expansion. So bear with me. This is a little bit laborious.

But if I took $3.677 billion of revenues and subtract out $375 million and take $1.029 billion of EBITDA and subtract out $48 million, that's taking it all out, that's a 29.7% margin. If I do the same thing on the prior year, you're at 29.04%. Do you disagree with any of that conceptually?

I can tell you that I didn't...

You're giving us a lot of credit for following all those numbers.

I can't tell you that I followed the numbers specifically, but I can tell you that the 70 basis point improvement is the number that we have calculated internally. So the math seems to work to us.

Okay. So -- and that's -- I mean, the important statement is that you have real live honest-to-goodness leverage. But another way to look at it is you grew revenue 7.4%, you grew free cash flow -- you grew EBITDA [7%, 8%]. So there's 40 basis points there. You grew free cash flow even stronger.

So the -- whether the absolute margin of the whole company reports more than -- more narrow impression is there's more leverage here than people appreciate. That's why the cash conversion's so important.

Absolutely.

Well that's why we -- that's why, Michael, in all of our scripts -- we spent a lot of time talking about cash today because it is -- you are absolutely right. I mean, the cash -- the conversion here is impressive. And so not only is the conversion present, but the absolute numbers themselves. That's why I talked about revenue growing at 7.4%.

I mean, all of these numbers are kind of 2, 3, 4x the overall economy. So -- but you're absolutely right. The conversion is impressive. But the margins, and we didn't want to lose sight of that, the margin strength of the business is there. It just was masked a little bit by -- in particular by these 2 items that Jim talked about, which was the brokerage side of our business and the loss of the tax front.

It's, Michael, why I went through that brokerage business and the recycling business overall is to clearly show not just its impact on margin and how great, I think, the core business is operating, but it's also to show us all that there's value in that recycling and commodity or brokerage side of that business to the overall network.

Got it, okay. So now to be fair and balanced about this, at 1.9% reported price, that's below your own internal inflation. So how do you -- what do you -- help me understand where either that total reported number can go or how I should look at the mix of that number, this is around the solid waste business, to appreciate that you're not fighting a spread to your own internal inflation, which is probably somewhere between 2% and 2.5%.

Well, so keep in mind -- first of all, we said we'd be a 2% yield company. And we're at 1.9%. So we're pretty darn close. But keep in mind that the yield calculation really is -- and you know this. But the yield calculation is a unit rate comparison that includes the impact on unit rate of new business.

So by definition, when you bring new business on, and we're obviously bringing new business on when you look at our volume numbers, it has a dampening effect on unit rate comps. I mean, no matter how good that business is, and our sales team, and led by Jim and his -- all of his lieutenants, when they look at new business, they are very much looking at bringing good new business on.

But the fact of the matter is that that new business has not gone through a price increase. And we have customers that have been with us for 10, 15 years that have gone through a price increase every year. So by definition, that new business will have a dampening effect on unit rate comps, which is why we focus on not just yield, but we focus on core price.

We think core price is probably -- well, not probably -- is a far better representation of the price increases that we take on our core business and the rollbacks and the fees. And that, to us, is the best kind of corollary, I guess, to what's happening with our cost structure. You're right, our cost structure is going up more than 1.9%, but our core price has gone up by 4.7%.

Yes. Michael, you just take Jim's -- that new business that he mentioned. You just look at the increased revenue. They even take the brokerage side out or the recycling out in Jim's 4.1% revenue growth that he mentioned, excluding that commodity issue. Just with that growth alone, there's an impact to yield because we're increasing current customers, not increasing those new customers until they anniversary after a year.

So there's -- that is just a mathematical issue that's going to reduce yield to some extent because of the revenue growth. The other couple of just factoids about it, I mean, almost 70% of our locations had greater than 2% yield, and they overcame that. It's a mix issue in a few of our areas that struggled in that quarter, but not related to a business strategy issue, just pure mix issue.

If you look at our new business, both commercial and industrial new business came on at a higher unit rate than previous year's quarter. Our loss business was up slightly on the industrial side. That's that mix issue. It had an impact to yield. But every line of business had an average unit rate on a same-store basis higher than the previous year's quarter. So we have not taken our eye off of yield or price strategy when you look at that 3.2% volume. In fact, it's just the opposite. We are executing core price above our internal and our external target. And that's how we measure ourselves.

And Michael, I think it slowed down where we started the conversation with flow-through of that revenue growth through to the bottom line, whether it's EBITDA measures or the free cash flow measures. And so what you can see is that this volume growth that's coming in with very strong flow-through in both the collection and landfill lines of business and providing revenue growth that is so accretive from a margin expansion perspective and generating a free cash flow conversion that we expect.

Okay. So just so I summarize, one of the things I'm hearing, which is what I hope, is that you are participating and possibly even gaining share against new business growth that is coming in at an incremental unit of measure greater than historically, but has dampened the overall. And that's how we should think about, it's the power of the new business growth?

That is exactly right. And as when we were losing volume, and without a lot of new business growth years ago, it helped that yield calculation, but it didn't help the business. And we are helping the business by focusing on both core price, executing that plan and growing volume on a disciplined basis. You see that in the flow-through, both free cash and in EBITDA.

Okay. On the technology side, when you think about dynamic routing and you look at it today, what do you think the potential to either measures, things like number of miles driven, how much could be reduced or total hours, operating hours of the trucks reduced because of the success of what a dynamic routing system could do? And not -- it's over the long haul. This is going to come in small bites, I understand, steady improvement. What's the scope of something like that? Or on predictive maintenance, thinking about -- I'm assuming it's about avoiding the unscheduled downtime, which leads to labor increases and increase in R&M inflation, but I also think it has to do with these aftermarket parts or OEM parts. Aftermarket's cheaper, but they replace it more often. All that kind of stuff. Help me understand some of that.

Yes. I would tell you, Michael, I'm not sure we fully quantified to be able to -- the number to be able to answer your questions sufficiently. What I will say about both, technology on dynamic routing and on maintenance, is this. I'll talk to maintenance first. We do think that when you have to reactively repair a vehicle, it's probably 1.5 to 2x as expensive as proactively repairing it. Because when you have a vehicle breakdown on the road, you've got other costs in there that you simply don't have. You don't have towing costs if you're proactively repairing it. You don't have the overtime cost for the driver. You don't have a -- and by the way, that 1.5 to 2x does not include the customer -- the impact to the customer. So while we haven't gone through and quantified that impact yet on more of a macro basis, we do believe that moving much more towards predictive or proactive, however you want to talk about it, maintenance is a big efficiency and cost improver for us. And then on to routing and logistics, we've talked about routing and logistics a lot over the last couple of years with our SDO initiative, but most of the improvement that we've made has been on the front end of the day and the back end of the day for the drivers. So the front end of the day being their pre-trip and the back end of the day being their post-trip. We really believe we have established almost complete unanimity there within our systems, that being our districts. But within the middle of the day, which is the route itself, only about 30% of our routes are truly dynamically routed. And so we feel like we've got some real opportunity left within our routing and logistics to pick up some incremental dollars. As you recall a couple of years ago, we valued that at about a $100 million improvement. So when we started talking about this maybe 4 years ago, we thought it was about $100 million in improvement that we would get from routing and logistics. And so we've certainly seen a piece of that with the improvement in the pre-trip or the post-trip, but we think there still is opportunity. I would tell you, we're kind of at -- in the ninth inning or at the end of the game with respect to -- maybe we're never at the end of the game, but we're in the ninth inning with respect to the pre-trip and post-trip. We're still in the fifth inning or the fourth inning with respect to pulling the most efficiencies out of the route itself.

Michael, I would just -- a couple of comments there. We had to go through all of that effort to put onboard computers on every truck and create the management team at the local level that can handle that information and can try to begin to then manage through process their way through that to get to middle of the route improvement. So that's done. Our districts right now are 98% do certify that they have the mindset and the skill set in place and are getting efficiency. We had another quarter where the 3 lines of business, when you combine them, had positive efficiency. I think that's 8 or 9 in a row now of quarters on a combined basis that are efficient. We haven't had that in a long time. So you start -- we started with that onboard computer. We measure -- as you brought out, we measure miles per route at the local level and at the national level, at the area level today, by line of business and are starting to see improvement. But it is the execution in the middle of the day that will bring that on. And there's some technology that we're looking at adding that's not huge dollars. This is just taking what we have and leveraging it better to get more efficiency improvement than what we've had. But it's part of that margin impact, was the efficiency that we've already begun to see.

Okay. And then lastly, on autonomous vehicle, just to put this in perspective. We're a long way from having a local government having defined the rules that would allow a 24-ton residential truck to go down the road. So that the early wins here might be in off-road applications like inside a transfer station or a landfill compaction equipment before we see a commercial vehicle coming down on a res -- and it's possible only residential collection this implies to anyway.

Yes, that's right. I mean, look, we're working with both heavy equipment and heavy truck manufacturing partners, but it's really on an R&D basis. And we are, in the short term, going to put test -- we're going to test an autonomous vehicle in one of our landfills, in one of our mervs probably within the next 12 months. But as I mentioned, and you said as well, that putting autonomous vehicle on a collection route, and I would like to be a residential route, is a much longer-term aspiration for us because of that public perception and government regulation. I mean, the technology, I think, is moving pretty quickly there, but public perception and government regulation have to catch up with that. And I just can't predict when that's going to happen. I think that's a longer-term aspiration for us on our collection business.

Well, it's not unlike the airlines. I mean, the A380 or the -- most of these airplanes can take off and land all by themselves. I'm not sure I'd get on the plane if I didn't think there was a pilot and a copilot sitting in the seat.

You and I are in the same boat there.

Okay. Last question on recycling. Does the China Certification and Inspection Group come and do site inspections for you? So this whole issue about the WTO, as it really relates to your whole business, is a whole lot about nothing because your -- one, your quality is there with your process; two, you do on-site inspections. And therefore -- and they need the paper. There's a true demand side for this. So this is directed at Europe and the really bad quality that's been showing up. Basically, all their residuals are being bundled into the bales and sent over to China. And then China has finally said, "Enough." And they tried doing a green fence sword, and now they're doing it with the WTO.

You're right on all fronts, Michael. The one caveat I would add is that we want to see what they have written and see it in action. But yes, we do certify ourselves. We are authorized to certify that we are meeting the specs, and we expect that to continue right on all fronts.

All right. And then, Devina, could you give us -- what was your commodity bundled price in 2Q '17 and then 3Q '16, 4Q '16, so we can understand that comparison, just to put it in perspective? And my belief is there's this lower number than even what was 2Q '17 is in guidance?

So we were at about $130 a ton on an average basis in the first part of the year. I don't have last year's numbers at my fingertips, but Ed will be happy to give those to you.

Your next question comes from the line of Michael Feniger with Bank of America.

I think you said volumes -- you mentioned how volumes are exceeding your full year goal. So if you can remind us of what the full year goal in the volumes was? And you also said I believe core price is above your internal target. So if you're kind of coming in ahead of these internal targets, can you just give us the puts and takes of what's actually holding back the guidance?

What's holding back the guidance? Is that what you said?

Yes, yes, with the fact that the volumes and core price are actually turning ahead of your internal targets.

Oh, so 2 things. One was -- just to give you the numbers. The guidance for volume was 1.2% to 1.6%. And we said we'll be at the high end of that or above that actually, that 1.6%. And then core price, I think, was 4%?

4%.

4%. So I would tell you that with respect to guidance, as we said earlier, we are coming in -- we are effectively raising guidance here because of the fact that we gave a range initially. And now we're saying we're not going to be in the range where -- when you give a range, it kind of implies that the middle is what your actual number is, but you're going to give yourself a little wiggle room on both sides. Now by saying we'll be at the top of that range, we have in effect raised guidance from the middle to the top.

And what I would point out is the fuel tax credits that we've talked about all year, that's a $0.04 impact on a year-over-year basis. That was not included in our guidance for the year. So that is an element of softness that we didn't anticipate. But if you back out the impact of the impairments and the fuel tax credit on the second quarter, our EPS growth was 12% on a year-over-year basis. So we certainly are happy with the performance. And as Jim said, a $3.18 EPS target for the year is definitely an optimistic view compared to where we started this year when we set guidance.

That helps. That makes sense. And even with the $3.18, I think that implies the second half of the year should contribute around 56% to your full year EPS -- or sorry, it contributes around 53%, 54%. Even if we to go back to 2010, the second half is closer to 56%, 57%. Is there just anything we should be aware of, like the weighting of second half that maybe it's a little lighter this year than it is in the last prior 5 years? Is it with recycling perhaps? I'm just trying to get an idea of how to think about that.

Well, we certainly -- it's interesting because we look at that same math. And when we look at 2017 and how it compares to 2016, the year-over-year comparison, you're spot on. What is most difficult in that, in doing that math and just applying it consistently on a year-over-year basis is the recycling impact that we saw in the fourth quarter of last year. And the recycling benefits have been more heavily weighted towards the first half of this year. And so it's difficult to just apply that math in the current year without adjusting for the recycling impact.

In fact, it just wouldn't be accurate, especially the fourth quarter, where the comps will not be anywhere near the same as the first 2 and even third quarter. The comp will be very difficult for Q4 for recycling commodity price.

That makes sense. And then just my last question. Obviously, there's a lot of conversation about significant M&A. Are you finding valuation multiples high or maybe too demanding? Is there any view internally that you guys are willing to perhaps wait on the sidelines and just have the strongest balance sheet in the industry when the cycle turns down, and maybe focus more on returning cash through dividends and repurchasing, and just wait on the sidelines if multiple's too high?

Yes. I mean, I think we've done some waiting. I don't think we've really changed our approach though. Our approach has been that we want to be -- that whoever we look at as an acquisition candidate for us has to be properly priced based on our analysis, and then has to be the right strategic business for us to acquire. And that's been our approach for as long as I've been here in Houston. To answer your first question, our expectation is high. I would say they might be a little higher. I'm not sure they're high. I think they're a little higher just because you've seen our multiples creep up,. The big 3, within our industry, multiples have crept up a little bit. And so as a consequence, some of these folks that we're looking to acquire are not blind to that. But that doesn't change our approach, which is that we want our -- these companies to meet or exceed our expectations from a financial perspective.

And we continue to prioritize return on invested capital when we make those decisions.

Perfect. And then just lastly, I mean, you mentioned a lot about the trends you're seeing in Q2 and the strength. Just quickly, has that continued through July?

You're talking about volume? Or...

Yes, yes, like volume, C&D and what you guys are seeing there. Have you -- saw like the trend has continued through to July?

Yes. No, we're pleased with the July volume so far.

Your final question comes from the line of Jeff Silber with BMO Capital.

Just one quick one. Your internalization of waste percentage went up, and I think it's the highest we've seen in a couple of years. Can you just give us a little bit more color, how you're getting there and how high you think that will go?

When I look at internalization earlier, we were -- it's pretty much the same number. And that being -- when we think about internalization as the percentage that we actually -- that we collect, that we then turn around and take to our sites is about 66.5%. And it's been in that 66% range for -- since as far back as I was looking, which was 2010. So it hasn't changed dramatically.

Okay. I'll follow up offline.

At this time, we have no further questions. And I would like to turn the conference over to Mr. Jim Fish.

Thank you. Producing these levels of organic growth in almost every financial metric that are 2, 3, even 4x the overall growth of North American economies can only be done through the collective efforts of our team of 42,000 people. And every day that passes for me in this CEO job, I'm more and more amazed by this team's dedication, innovation, work ethic and their willingness to change. So thank you to all of Waste Management's 42,000 team members for this performance, and thank you to all of you for joining us this morning. We'll talk to you again next quarter.

This concludes today's conference. You may now disconnect.