Q1 2020 Earnings Call

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Senior director of Investor Relations. Thank you. Please go ahead Sir.

Thank you Blue good morning, everyone and thank you for joining us for first quarter 2020 earnings Conference call with me this morning, or Jim Fish, President and Chief Executive Officer Drug <unk> Executive Vice President and Chief operating Officer.

<unk> Executive Vice President and Chief Financial Officer.

Your prepared comments from each of them today.

John will cover October 19 response strategy, along with an overview of our results drug will cover an operating overview devito will cover the detailed financials.

Well, we get started please note that we have filed a form eight k. the sporting goods. The earnings press release and is available on our website at Www Dot W.M. dotcom.

Form 8-K, the press release schedule. So the press release includes important information.

During the call you will hear forward looking statements, which are based on current expectations projections were opinions about future periods. All such statements are subject to risks and uncertainties that could cause actual results could differ materially.

Some of these risks and uncertainties are discussed in today's press release in our filings with the FCC, including our most recent form 10-K and subsequent form 10-Q.

I will discuss our results in the areas of yield and volumes, which unless otherwise stated our war specifically references to internal revenue growth for RG from yield or volume.

During the cold Gingerly, Dino will discuss operating EBITDA, which is income from operations before depreciation and amortization.

Any comparisons unless otherwise stated will be with the first quarter of 2018.

Net income you P.S. operating EBITDA margin and actually the expenses.

I've been adjusted to enhancing our ability by excluding certain items that management. Please do not reflect a fundamental business performance or results of operations, including costs incurred in connection with the pending acquisition of 80, yes.

These adjusted measures it isn't a free cash flow or non-GAAP measures.

Please refer to the earnings press release, the tables, which can be found on the company's website at www Dot W. I'm dot com.

A reconciliation for the most comparable GAAP measures and additional information about use of non-GAAP measures and non-GAAP projections.

This call is being recorded and will be available 24 hours a day beginning approximately one PM eastern time today until five P.M. Eastern time on May 26, 20.

Do you hear a replay of the call over the Internet access the waste matter website at Www Dot W. I'm dotcom.

You're a telephonic replay of the call dial 8558, Fivenine to 056 and had a reservation code for 950 049.

Time sensitive information provided during today's call, which is occurring on May six 2020 may no longer be accurate at the time of a replay.

Any redistribution retransmission or rebroadcast of this call in any form without the express written consent of waste management is prohibited now I'll turn the call over two weeks later, president and CEO Jim fish.

Thanks, Ed.

Thank you all for joining us.

Given the significant and widespread disruptions caused by covert 19, we will use our time on the call to discuss our response strategy rather than focus on first quarter results.

Our immediate priorities going into the shutdown, we're protecting our employees and providing safe and reliable service to our customers in communities.

Having established a framework to achieve those early priorities. We're now focused on optimizing our business for the new environment, preserving our financial strength and flexibility and progressing towards closing the acquisition of a dance disposal.

We're taking steps to use the crisis to create a new normal.

We're focused on opportunities to enhance our business, attracting top quality talent and developing customer centric solutions.

I'm extremely proud of how our team has worked together proactively to address the challenges we faced during the last two months and how our frontline teammates continue to diligent would provide a central services to our customers.

As I've said many times at waste management, we put our people first so they can take care of our customers communities and the environment, which will in turn to benefit our shareholders.

It should be no surprise that our top priority as a leadership team has been the health safety and financial well being about 45000 team members.

We wanted to ensure that our employees could focus on continuing provide exceptional customer service and not worry about whether they'd be able to pay their bills.

So the first I'd, probably easiest decision. We made was to indefinitely guarantee 40 hours a pay for full time employees through the duration of the pandemic.

So that they know their jobs and pay will be secure even at Cowen 19 reduces the number of routes were hours needed to service our customers.

Of course, it's important to point out that we took immediate steps to protect the jobs. A 40, why we took immediate steps to protect the jobs at 45000 employees, we're managing the labor component of operating costs through significant reductions in overtime hours.

Regarding health and safety.

We're also working with vendors to make sure that we had appropriate personal protective equipment for frontline employees, including masks gloves and a hand sanitizer.

We quickly made strict.

Changes to our daily processes.

To follow social distancing guidelines for our front line employees and we transitioned about 20000 to our office employees to weigh work from home environment in one weeks' time.

This has been a massive change to how our t. performs their jobs and overall, it's been a very successful transition.

We're also providing paid sick leave for October 19 related absences.

For employees and have extended benefits for backup child care in light of school closures.

The team has responded commendable lead by continuing to provide essential services to customers and communities across North America.

Our team has also been focused on supporting customers, especially small and medium commercial businesses that are the lifeblood of our economies.

Even with the substantial support packages small businesses will certainly need a helping hand coming out of the shutdowns.

Given that we've helped our our customers rightsized there their service levels, reducing service where necessary.

Temporarily pausing price increases and extending payment terms.

In addition, as I've said publicly in an effort to support those small businesses.

Waste management is getting a three month of service to qualifying open market small business customers as they were doing as a result.

Their normal waste service and restart their businesses in a post cobot 19 economy.

Our customer teams are proactively contacting these small business customers in an effort to show our support and well continue to do to do so estates and provinces.

Reopen across North America.

We see this is the right thing to do and believe it will result in greater customer loyalty over the long term.

We're optimistic that this enhanced customer loyalty combined with the fact that we've seen less than 1% service cancellations in our commercial lot of business since the start of the pandemic.

Our good signs for how our business will recover.

As business has reopened and meet our services.

We're also working with our municipal customers to address increased residential weights per units.

And helping them manage recycling challenges in areas, where there have been processing disruptions.

Turning to our financial results for the first quarter or business generated operating EBITDA more than $1 billion.

For the first two and a half much of the quarter, our operations were performing extremely well, putting us on track to exceed our first quarter goals.

Of course, the whole world chains during the second half of March and we swiftly began to adapt our business and identify cost saving opportunities.

John Divina, we'll give more color on cost reductions, but I can assure you that we're maximizing our asset utilization.

And looking at all discretionary costs and capital spending.

Maybe more maybe even more importantly, we're looking at this unprecedented event as an opportunity to permanently change our business processes, our customer service offering.

Our work.

Our office work model and.

Application of digital business solutions to name a few.

W.M. has always been a very resilient business model and we will make sure we come out of this pandemics stronger more differentiated and even more resilient than we were going yeah.

Finally, it's been about one year since we announced our acquisition of advance disposal.

Despite the general business disruption caused by Coas 19, we continue to make progress and currently anticipate being in a position to receive final antitrust regulatory approval and proceed towards closing by the end of second quarter of 2020.

We're looking forward to completing this transaction.

Integrating the Ats team in operations, and creating long term value for our shareholders.

In closing despite the fact that solid waste is an essential service and many parts of the business remain recession resilient.

We are suspending financial guidance, we provided in February given the uncertainty around the unprecedented impact of cobot 19.

At this time, we cannot forecast with reasonable accuracy the duration of the cobot 19 disruptions for the pace of recovery, particularly for small businesses.

There are just too many unknowns and any guidance at this time would be an educated guess at best.

Poor short term visibility does not however, alternate the very strong cash generating ability of our business model.

In past downturns, we have demonstrated the ability to flex spending managed capital and maintain solid pricing discipline all in order to generate strong free cash flow and strong return to our shareholders.

We expect to continue to do that in today's economic environments, and most notably now more than ever has been the right time to stand firmly behind our 45000 team members and our small business partners to do our part to protect their futures.

With that I'll turn the call over to John's discuss our operational results for the quarter as well as additional color on the impacts to our business from the pandemic.

Thanks, Jim Good morning, everyone.

First I can't emphasize enough how proud I am of the W.M. team. Our team members have stayed focused on c., we serving our customers and communities during the time books of extreme uncertainty and distraction.

Despite the volatile backdrop, our frontline employees have reported a work in seeking great pride in their role providing an essential service to our cities and towns across the U.S. and Canada.

Well many companies are facing challenges to their supply change in this environment I want to take I want to recognize a fantastic work that our supply chain team has done to keep our operations running smoothly.

They've been able to continue to meet the needs of our business business and the safety of our employees, including being able to secure personal protective equipment.

Protect our frontline employees for the next several months Theres no doubt that we have a dedicated team of men and women, who are committed to providing the waste and recycling services our communities to fend off.

Turning to our results operating EBITDA grew 2.6% for the for the quarter with Kobin 19 impacting our business in the second half a March we saw revenue negatively impacted by $40 million.

We've positioned ourselves to be responsive to the volume changes in our business and properly adjust our costs.

First spend some time talking about something specific ways that we are flexing our costs to respond to this decreasing volume environment.

And our collection line of business technology, and analytical tools, such as I'm 100 provide data and visibility into our drivers routes that enable us to swiftly remove overtime hours and optimize where eliminate routes when customers reduce were spent service.

These insights have allowed us to flex our labor cost in this rapidly evolving environment. For example, we've been able to reduce overtime hours by half compared to pre pandemic. In addition.

Commercial routes by almost 6% and industrial routes by almost 13% and overall Weve park, almost 6% over routed vehicles, allowing us to reduce fuel and maintenance costs in our post collection operations were flexing cost commensurate with this volume environment. These results are evident in a reduction of heavy equipment operating hours overtime and other very.

<unk> expenses.

With most communities, we serve understate homeowners, we've seen a significant increase in residential container weights and our disposal costs are increasing putting pressure on margins.

But as we discussed last quarter, improving the profitability of our residential business is one of our key focus areas in 2020, so that put US ahead of the game and initiating conversations with our municipal customers on price increases that keep pace with rising costs.

We are having these conversations as contracts come up for renewal as well as proactively discussing the changing dynamics with our customers.

Given the fluid environment, where we're in I also want to provide some color on the volume declines that we've seen during the month of April at the peak, we saw more than 20% to clients and third party landfill tons and industrial halls, and close to 16% declines in the commercial line of business law residential line of business has seen about a 25% increasing the amount of.

Yes disposal.

A large portion of our landfill business over the last several years had it been driven by big businesses, Sandy contractors and special waste volumes and they account for much of the decline that we've seen we expected. These volume should rebound fairly quickly as the economy reopens and as our pipelines remained strong.

On a positive note as we progressed through the month the rate of volume decline improved and we had two areas actually show positive net service changes at the end of April.

However, we still saw low double digit volume declines in our overall business in order to help our customers recovered post Coburn, we have internal task force teams to focus on proactive restoration efforts to facilitate volume increases for restaurants retail in offices, which make up 60% of the commercial revenue impact.

The extreme bought the extreme volatility that we've seen it in our volumes in the uncertainty and knowing how quickly those volumes return are the primary reasons, we decided to suspend our guidance.

Turning to price in the first quarter of 2020 core price was 5.5% versus 4.5% in the first quarter of 2019 with all lines of business greater than 4%.

Landfill core price remained strong at 4.3% with collection and disposal yield of 2.2% in the first quarter.

As a reminder, yield is calculated using current period volume and as a result in a declining volume environment, there will be downward pressure on yield but that does not indicate we are lowering prices as Jim mentioned, we have taken thoughtful proactive customer focused steps to help our small business customers in this tough economic climate and the generate long term.

Customer loyalty.

These actions do not indicate where a banding are abandoning our pricing discipline, we remain committed to recovering increased cost of our business through pricing actions.

While we aggressively address cost reductions related to our volume trends. We also remain focused on meeting our customers' needs our operations and customer experience teams our partner to ensure we can swiftly respond to service increased requests and ramp our operations backup to meet their demands.

We've developed a proactive approach to service restorations for customers adversely affected by the cobot crisis. Our goal is to ensure that reinstating their environmental services is seamless. So they can focus on getting their business back up and running.

We're in a great position to do this as our 40 hour guarantee was the right thing to do for our team members, allowing us to remove overtime, while retaining our front line employees for the next phase ramping our operations backup as efficiently and swiftly as possible to meet our customers' needs.

In addition, our emerging self service capabilities as well as the technology owner vehicles will help us support their needs as their business has come back on line and finally, our recycling business performed well considering further erosion of recycled commodity prices in the first quarter, our average commodity price fell nearly 30% to $40 per ton.

Despite a decline in revenue of about $60 million in first quarter, the operating EBITDA contribution from the business increased modestly.

These results demonstrate the success, we continue to have in restructuring our recycling business to a fee for service model.

Throughout the cobot crisis, we've been able to Ted.

I've been able to continually to safely process. Most recyclables as we encourage everyone to continue to recycle right.

As a result of the demand created for materials, we collect we've seen an increase in FCC prices in April.

While we are encouraged by the increase in demand and recovered pace Reprices. There are some challenges with other commodities like steel aluminum and plastics as we've seen the prices for these commodities decline.

Despite all these movements and restrictions in the marketplace. Our team continues to be able to consistently move all the tons we process.

I'm proud of how we navigated the cobot crisis in particular, how we've taken care of our people. This will no doubt help us with employee retention and ultimately help differentiate waste management as a great place to work with that I'll now turn the call over to ceded to Divina to further discuss our first quarter financial results and capital allocation priorities.

Thanks, John Good morning, everyone.

Jim mentioned, we have temporarily suspended our 2020 guidance.

Definitely view, it's prudent due to the uncertainty created by Kevin 19.

That said one of the strength of our business model is that in the face of unprecedented uncertainty we provide our constituents.

Employees customers communities and shareholders with a great deal of certainty.

Waste management provides a central services to a diverse customer base across the U.S. in Canada.

Our businesses recession resilient with more than 75% of revenues, having annuity like characteristics.

We have experienced and dedicated team members, who are focused on safely serving our customers and we are finding them more dedicated than ever.

We have implemented tools and practices that drive disciplined pricing cost control and capital spending across our network and so we are well positioned to flex or has it our business with changing volume.

All of this comes together to position waste management to generate strong and consistent free cash flow.

Turn value to our shareholders.

We're certainly seeing declines in revenue related to Kevin 19 engine, partially offset the impact of the anticipated revenue decline.

Except for manage cost in capital spending without compromising our long term strategic priorities our growth opportunity.

Some of these steps include limiting hiring reducing or eliminating discretionary spending and travel and entertainment and consulting costs.

And reducing incentive compensation costs.

We have proven in the past that we are very good at flexing, our spending when facing challenging economic conditions and we want to assure you that we will continue to manage our business to maximize cash generation and returns over the long term.

We remain confident and our ability to generate strong free cash flow in 2020.

He has to pay our dividend make opportunistic investments and bolster our liquidity.

We're extremely well position financially to manage our business recovered 19 impacts.

We continue to maintain a strong balance sheet and liquidity position with our current unforecasted leverage ratio well within our revolving credit facility financial Covenant.

Our liquidity is the strongest that has been in the company's history bolstered by the recent upsizing, our revolving credit facility to three and a half billion dollars.

We kept proactive steps to fund the Ats acquisition. So when you consider our cash on hand, with our expectations for access to both short term and long term financing option. We are confident that our liquidity and financial position will remain strong through the acquisition closed and the most significant challenges presented by the pandemic.

Turning briefly to our first quarter 2020 result, I want to highlight how we see as DNA capital spending and cash flows.

Results that we saw in the first quarter as important indicators for what we expect for the remainder of the year.

First quarter SDMA was $390 million, a decrease of 4.6% compared to the same period last year.

And as soon as a percentage of revenue was 10.5% and improvement 60 basis points over last year.

These results include benefits from lower incentive compensation accruals as well, let's steps, we've taken from quickly reduced discretionary spending and responsive business impacts related to Cabot 19.

The continuous improvement mines that we have fostered over the last several years is serving us well as we rationalize an optimized cost across the organization.

As a result, we expect to reduce SG nine spending by about 10% of overhead related revenue decline.

Net cash provided by operating activities with $765 million than the first quarter. The strong start to the year was driven by operating EBITDA growth.

With that growth with more than offset by higher cash interest and advisor costs associated with the pending Mds acquisition.

As well as a sharp decline in customer receipts in late March, which we attribute to customers taking steps to.

Protect their own financial position.

We are seeing this trend continue into April and are paying close attention to how this impacts our revenue.

Got reserves and working capital outlook.

Capital spending in the first quarter was $459 million, which is down modestly when compared to the same quarter in 2019.

While we continue to prioritize investments and the long term growth of our business. We are now flexing our capital spending to align with current volumes and expect to see a significant declining capital spending beginning in the second quarter 2020.

For the full year, we are targeting capital spending reductions of about 10% from planned levels.

Landfill capital makes up about one third of our overall capital spending and we expect most of the reductions in this category as we adjust sell construction schedules with declines in volumes.

We also see opportunities to flex spending for containers and heavy equipment.

Free cash flow was $318 million in the first quarter 2020.

Important to highlight that our first quarter 2020 cash flow.

Included over $55 million related to our pending acquisition of Ats and the ERP implementation.

When we consider these items in the uncharacteristic customer receipt flow down we saw at the end of March combined with our intentional focus on flexing SDMA in capital spending.

We're satisfied that we remain on track to deliver another year of strong free cash flow.

The cash that we generate positions us to invest in our business and return cash to our shareholders.

In the first quarter, we paid $236 million and dividends and repurchased $402 million in shares.

We remain fully committed to our dividend program. However, as a prudent steps to preserve cash in this uncertain environment. We decided at the end of March to temporarily suspended our share repurchases.

In closing I want to Echo what folks chairman John have sat I could not be prouder of how our employees have responded to this unprecedented pandemic.

I want to thank every one of our 45000 employees. The work they have done and continue to do we'll make waste management, a stronger and more resilient company as the economy emerges from the pandemic impacts.

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

Thank you as a reminder to ask a question you will need the press star one on your telephone keypad.

Again that is star the number one of your telephone keypad.

Your first question comes into line of Walter Spracklin from RBC Capital. Your line is open.

Thanks, very much a good morning, everyone. Thanks for taking my question.

First starting here on pricing I guess, a uh huh.

Recognize that you will be taking some actions here, perhaps deferring any price increases given the environment, but overall can you speak to to the pricing behavior, among your competitors, especially smaller players.

And whether you are losing business due to some of that price action.

Particularly since April period be great.

Yes, I think.

Hi, Good morning, Walter I think the business that we've lost which John can go into a more detailed sets. It. So it's a very small amount of commercial business that we lost so far is strictly been due to the pressure of this cold shutdown not due to two pricing and anyway.

We have not seen anybody out there slashing pricing I think most companies are out there are really focused on the cost side of their other income statement.

And I think from for US specifically for all the for all the right reasons, we put our price increase.

Program to our small businesses on hold until they can can restart those I mean as I said in my prepared remarks, I mean small business is truly the the group that has the greatest risk here and hence our program to try to help them reemerge, but as John said.

And I'll say, we're not.

We've gone for for a long time building. This this kind of price discipline muscle here and.

Just because it's it's.

On a two month or three month rate does not mean, it's kind of got to atrophy, where we're going to continue to make sure that we increased price.

Two offsets cost increases that we've seen in and.

But we are going to take a break with those small businesses until they get back on a fee.

Okay that makes sense my follow up here is on the.

And just the a understanding that you you're you have less what visibility into the full year, but just looking into venture in April and as we model for for Q2 here.

I heard you you mentioned low low double digit volumes and pressure on pricing or pressure on yields I guess.

If that kind of.

If we were to kind of take the low double digit volume and negative pricing as our Q2 and then you know decide where we go from there would there be anything that we'd be missing or you would highlight.

That would either causes to reexamine that assumption here for the second quarter.

Yes, I mean the.

There is a bit of there's some good news here and when we look at our numbers and it's primarily on the roll off and landfill side of our business those as John mentioned.

And good news on the.

Bit of reason for optimism on the commercial line of business. Although that one is the one. That's that's is is less clear we just don't have.

As good of an idea about what happens with commercial business, what happens with retail restaurants, all the sporting related businesses office space.

That is really a virtually impossible to predict theres no historical evidence for us to to kind of look back into but as we just look at our own numbers.

I'll give you a couple of here with roll off and roll off as John mentioned was down at its low points in the 20% range. So I'll read off a couple of those numbers starting with the week of the 15th of March we were down 4.6%, that's compared to a pre co bid.

We could just a couple of weeks before but down 4.6%. So you have so all of a sudden the week of the 22nd of March down 11.6% down 14.6. The week of the 29 first week of made down 17.7 down 19.6. The week of the 12 all of that is not surprising not unexpected.

And not great, but then all of a sudden the week of the 19. So that the next week. We went from down 19.6 to down 15.1. The week of the 26 do we went from down 15.1 to down 11.8, so a fairly sharp rebound in the roll off line of business and when we look at the waste streams within our.

Landfill line of business that are most driven by big business, we're seeing a similar rebound where we're not seeing necessarily a big rebound. We are seeing some signs that we bottomed and starting to climb out gradually and let me stress gradually is the commercial line of business because so much of that is driven.

By small business and and I I, just think small business themselves.

Don't know what the what the rebalance going to look like this is driven by geography, it's driven by mix of business there.

I mean, the small businesses that are tied to healthcare.

Probably didnt, even see a downturn, but.

Fairly significant percentage of our business is schools for example schools, obviously was shut down and there's conversation Houston that they might go every other day in the fall. So we just don't have a good we don't have good visibility with respect to small business, but the good news is that a big business.

That's not in any kind of liquidity doesn't have any liquidity concerns or going concern issues that is starting to rebound and when we looked at a those numbers I just read you for roll off it looks it looks encouraging maybe walters a little more color on the landfill side, when we look and we strip it out by waste.

And what we've seen is looks like our landfill volumes on the MSW side bottomed out between like the first and second week of April were starting to see not big improvements, but it's improving week over week. So we are seeing volume come back.

On the MSW line special waste a little bit later, it looks like it bottomed out in the last week or two and that is starting to turn positive and then and then lastly, CND was obviously down pretty significantly but we've also in the back half of April seen signs that thats flattened and started to turn to turn positive. So there are some signs of optimize.

Ism and our landfill volumes and most importantly, the one we pay obviously particular attention to is MSW and we've seen that we've seen that turn positive here in the last few weeks on John and Walter that when John talked about 25% down at its low point for all landfill tons.

Heavily weighted there too with the C and D and special waste and those are really big customers. Those are big contractors special waste is almost exclusively big customers and they're not they're not going out of business. They just kind of went into wait and see mode.

Our pipeline as John mentioned in his remarks is strong and so I think what's you're starting to see with that roll off and some of those waste streams until at the landfill returning is big business starting to kind of.

Turn things back on.

Some great granular.

Color really appreciate it and hope everyone. Thanks, Dave Thanks.

Thank you Paula.

Your next question comes from the line of Kyle Light from Deutsche Bank. Your line is open.

Hey, good morning, everyone. Thanks for taking my question Hope everyone is doing well just focusing on residential obviously with the the uptake in volumes on the questions I'd given the smelter in place orders can you just talked about your ability to potentially increased pricing in order for it to be more appropriate appropriate for the increased volume levels have you had any success during this today.

Well, yeah, I mean first and foremost I think our strategy on residential before this pandemic was obviously a focal area for us we've talked about our plans to improve margins there and I think if you look at our core price results in Q1. They were they are strong and stronger quarter over quarter from from 19 to 20 on the volume sites.

Certainly we've seen plus 20% increases in the volume on a per unit basis, and we've kind of broken that down.

About 25% of its open market in the balance of it really has municipal and franchise business. So we are really focused on going back to all those municipal and franchise customers and having some conversations about about what's going on to buy me looking nobody signed up for 25, the plus or minus per se increases our residential volumes and I'm sure as you folks know.

And can assume some of that is going to remain because that I think what that Jim mentioned in his opening remarks is.

Theres going to be a change in the in the work environment I think we're going to see more people say and work from home. So we're that is a key focal area for us.

That's it and then just follow on can you provide similar level details on the commercial line of business similar to what you just did for the roll up and how how the month of April low how's the beginning relative to the exit rate of April in terms of severance declines.

Yeah, I mean, Jim mentioned that I think what we saw US it started that moderated through the month of April we had it we had two of our our areas or regions. If you have depending how you refer to actually show positive coming into the end of the month and just in the world obviously like everybody watching this on a day over day basis, we go over a week and I would tell you that each day.

Hey, it's improving over the previous week as Jim mentioned, it's you know, it's not huge increases yet, but really what's important for us is trying to try to figure out where the bottom of this thing is and that's where we're focused on and we feel like we've got a pretty good feel for right now I think the good news John on commercial.

And call the good news on commercial well that well we've said, there's there's not a ton of visibility with small business. The good news is that we really.

Have been diligence and trying to determine which customers are not going to make it out of this and so.

John talked about that 1%, we've scrubbed that number that's not just customers, calling us and saying Hey, you know cancel or service, we're not going to continue that is us proactively through on enhanced.

Process made made possible by the way through our onboard systems.

Going back to them and saying the this is a driver for example, identifying through an enhanced to all our call process identifying a customer that looks like the doors are closed and and so but is still on their routes sheet and so that would all be included in that 1%. So 1% is a very encouraging number that.

Tells us.

That of all these small businesses, though the large large majority you're going to try and make a goal of this coming out of cobot 19, now what we don't know is how many of them actually make it. We don't know I mean, you can read you can read 100 articles on on what the risk is two to small business. If this thing last six months or 12.

Lots.

It differs from from New Jersey in New York to Texas, and and and Arizona. So it's.

The other thing I think John that said you were going to touch on was that the.

The number of service reductions that we've seen yeah, yeah, No fair Jim. Thanks, I mean, we went back and looked at just under about 10% of our 1.3 million commercial customers have had some change in their service. The vast majority as Jim mentioned only about less than 1% of actually cancel service. The rest are either reduce or suspended service and I think.

It's important to note there is about 80% of those customers came to us as their business and started to decline, but the Jim's point, we've been very proactive whether ops team our customer experience team to use the tools, we have both on the truck and back in the office to be able to identify and worked proactively with these customers and granted we might be reducing some yards. If you will.

All in this example, a little quicker than it otherwise may have happened well listen this is that we're playing the long game. Here. This is this is certainly about working with our customers, especially the small business customers through a really tough time I think the upside for us is that 20% I refer to that our folks identified.

Service reductions also provide a little risk mitigation because one of the things. We're talking about is what puts financial position or the small business is going to be in the past et cetera. So what's gotten out in front of this and reducing those yards proactive fashion also for Texas, We think a little bit from from bad debt and dealt allowances for doubtful accounts in the future. It may call. It may end up.

It gives us the best information right, now, which actually maybe maybe in the numbers a little bit lower for commercial.

For commercial yards, because we're proactively addressing its with customers, where they haven't reached out to us, but where it appears there is a problem, but it also then once we emerge from cobot 19 will give us a much more accurate number there are we won't be billing somebody with the expectation that we're going to collect and find out after the fact that.

Oh, they're out of business, we believe it gives us a much more accurate number during cobot 19, and then maybe as importantly, a much.

More accurate number when we emerged from cobot 19.

Got it. Thank you probably can either good luck in about the or.

Thank you.

Your next question comes the line of Hamzah Mazari from Jefferies.

Hi, Good morning Hope everybody sits and how the my my first question is maybe you could touch on what you're seeing in container weights in commercial in April.

And any thoughts that's true.

Historically, the sectors lag going into a downturn and coming out of a downturn, maybe if you could talk about how the dynamics maybe different this time.

Given this pandemic.

[noise], maybe hamzah I'll take the first part of that I think what we've seen.

In terms of container weights has been generally commensurate with the volume decline.

We paid a lot of attention not only to the to the.

To the volume in the container, but obviously the weight per unit.

Because we obviously, it's business as slowdown we're seeing less waste in.

The container so I think the overall what we've seen is volume declines are weak declines commensurate with with volume in our Frontload containers.

Hamzah with respect to kind of.

Historical downturns.

As you know I mean that this is this is not theres no precedent for this because typically whether it's all eight or nine or whether it's 2000 or any downturn that you look at.

There are the economy starts to you know there are signs that this is happening and the economy starts to ramp down.

Into a.

A recession there was no ramp down here there were there was no ramp to this this literally in a matter of days the entire.

North American economies and the world economies for that matter shut down and so.

There were there wasn't a ramp for this which is hopefully we'll never see this ever again, but no ramp and then the ramp coming out is less about kind of macroeconomics and more about.

More about geography is in cities and more about that the the virus itself and you know the phases that the white house put out so it is so hard to know.

I mean, I would tell you with respect to commercial that's we don't I can't tell you.

When football stadiums or Broadway shows or office complexes I mean, we're.

We're in a phase one status in the state of Texas, but I would tell you. It is a ghost town downtown. So there are no office buildings, there, they're open but there's but our office building here might have I don't know three or 4000 people on it and I bet you there aren't more than 75 people in this office so.

I just don't know I couldn't tell you when the Houston Astros are all of a little ancillary businesses around the Astros or any other sports team for that matter are going to play ball again don't know so it is very very different and trying to compare it to a previous recession, just kind of feels like.

It's it's not applicable.

Gotcha Gotcha and.

Jim you talked about.

You know potentially using this bank that make the make some permanent changes in the business.

What do you see as sort of the big structural changes coming coming out of covert I'd and clearly you know work from home population could double if not triple you have to manage your residential business and your mix change you. There you know you referenced our deliberate pace.

Maybe if you could talk about what do you see as sort of the one two or three big dynamic there to change your business coming out of this would be helpful.

Yes, absolutely Hamzah look I mean, one of the things that this taught us.

Was that if we really narrow our focus and put our full efforts behind something we can get it done quickly and we can get it done well I mean, you you mentioned work from home.

I would tell you if I if I'd ask nickel I show for Us our Chief Digital officer, if I'd asked him back in November Eightth, what's it going to take to do a full work from home solution.

I I promise you would have said.

12 months.

And we did it in seven days, so and we've done it well we've really he may have been a few hiccups early on but at this point, we're running smoothly so to give you that.

We did slow down as it has an esselte you talk about alright, So let's say, we put everything on the table.

And and then we pick three projects that we're going to get done.

We are at least put a huge amount of focus into and everything else is going to gets.

Put on the back burner and so what we came out of that meeting with a few weeks ago.

Was.

Work from home solution. The good news about that as we've already invested in the technology. We will there is no pilot involved we piloted all 20000 people. So this is really just Tam law and her team, making sure that we set up the right.

Performance management metrics and we look at that at all of the Super Supervisory considerations.

And that we consider internal controls and those types of things.

That we'd expect to be up and running by by June one.

We did talk about ERP and that's something we've talked to you about and talk to on this call about.

And that was one we felt look we have two systems that have been.

That aren't that aren't supported at this point that are almost 20 years old we have to move forward with that that by the way is not going to be completed by the end of 2020, but it'll stay on the schedule that we laid out which is kind of a 2020 to 2023 completion there for that so that was number two in the number three is really a when we looked at.

Thats the who the winners are coming out of this and there aren't a whole lot, but if I would ask you arms, whose the big winter not necessarily in our industry, but just overall my guess is that you'd say, probably Amazon is a big one or while you're right Amazon has been a big winter and then it's because they're the king of of self service and so how do we digitize.

Our self service offering it's something we talked about at Investor Day last may and how do we expedite that how do we how do we expedited the digitization the self service customer experience.

And get that done in a in a very quick but very well done manner and that's and those are really the three projects that we identified and said we're going to move forward with all three of those and we're going to expedite it at least two of them well, while staying on schedule with ERP.

Great. Thank you for much.

Yes. Thanks.

Your next question comes the line, Jeff Silber from BMO capital markets.

Thanks, so much.

I've had a number of Investor has asked me the questions I'll just ask it to you one of your larger competitors reported last night seem to be a little bit less impacted by Kobe last quarter, and I think the near term outlook, while while dollar.

A little bit I get less worse than what you might be looking at.

I don't know if you've looked at their numbers I'm, assuming you have any reason for those differences.

You know what I would say, we certainly listen to that call and have done what we can the same that all of you and your investors have done to digest, what we heard and we would tell you that we think that.

We're going to focus on waste management, and our outlook and.

We see as did the 40 million dollar impact that we gave you in terms of revenue and the two weeks.

I was March is is not.

Not anything that we can use to say that that's representative of what you should extrapolate for the full year, which is why we suspended guidance. We would tell you that what the company has been focused on and as we talked about is responding well and taking care of our customers and our employees and we are controlling our costs and ration.

That capital spending where appropriate and all in all we remain very confident in our ability to generate strong free cash flow for the year and all those things together give us great confidence that we will respond.

As well as we shut in this environment and certainly as well as we expect the industry as a whole well hey, Jeff I think that one important point that we've all made at one through this conversation is trying to dictate where the bottom is we spent a good bit if I'm talking about whether its landfill or collection volumes on some of the positive signs that we're seeing their eyes.

We came into the last couple of weeks April Yes, I think.

That look I mean, I didnt listen to their call I mean Republic always does a nice job managing their business.

So credits them for that I mean, I do think we all are facing very similar challenges I know there they're trying to take over time out just like we are we we may be handling it slightly differently in ends in some respects, but for the most part the industry is is I think doing a really good job of handling this I do think and I don't know weather.

What what they said about their commercial business, but as I've said several times on this call look commercial is that's the big unknown that that's the question how are they going to how is our these small businesses going to recover from this are they going to recovery, how how many of them will choose to just throwing the towel.

When do all these schools opened backup would do they open back up the same way. They went in I mean, we're hearing that that's you know I read an article that said that that is as many as 40% about going seniors from high school are going to take a gap year, that's going to affect colleges and that affects our business. So so I can't really answer your question specifically about how.

How Republic is doing managing there's versus managing ours I would say that that's for US. There are certainly some reasons for optimism, which we've gone into specifically landfill and and roll off which are really related to big business, but the the piece that I think.

All waste companies are going to going to really have to kind of get our heads around is what happens to small business. Because it is unprecedented that you take the entire 23 trillion dollar us economy and shut it down and so these small businesses are going to be impacted by that and that's.

Got it honestly, that's why we Didnt give guidance because we just out it's a big piece of of our collection. It's a big piece of our disposal and we just don't have good visibility, we hope that by the end of Q2.

Enough of these states will be kind of back up and running an end to phases, two and three and on that we'll be able to give you a better insight into what happened with small business, but I can't really say why they're picture was rosier than ours I can just tell you that that I'm feeling pretty good about some parts of our business and I'm not feeling pessimistic about others.

I just don't know I, just don't know about about small business right now.

All right that that that's fair enough I really appreciate the candor. Thanks, so much.

Yes.

Your next question comes from the line of no look Kaye from Oppenheimer.

Okay.

Hey, good morning, Jim John apparel doing well, a and thanks for all the detailed this morning, I guess pursuant to touch on on the question of decremental margins here you can you walk through.

Some of the cost levers that you have and expectations for SGN A. I guess is there a good sort of high level way that we should be thinking about your decrementals here as you know you margins as you men's through some mix shift and an overall volume decline is 35, 40% the right level for how we should be thinking.

So we've historically talked about incremental margins being around that 40% that you identify what I would say in this environment that makes giving you a decremental margin number to Tim model, our project, that's particularly difficult as massive business and.

We've talked about the fact that our volume declines are coming in our highest margin businesses and we.

We also identified that we think in the first quarter, we talked about 40 basis points of degradation in March and as a result that high margin business volume decline. We currently based on our outlet. We think that 40 basis points that 40 basis points will continue into the remainder of the year and then when you combine that with the fact that we had expected 50.

Basis points of margin expansion in 2020, we think the full year impact to marching can be around 100 basis points. As a result of covet 19 that said, it's really difficult for us to know the answer to that question because.

I think what you've heard consistently today is just the level of uncertainty you make some of that difficult to predict and what we're seeing as a great level of ability to flex the business and the industrial line of business as an example, but in the landfill line of business. If we see volume declines there continue that's a line of business.

Has very good flow through internationally and the variable cost at the ability to reduce variable cost. There is just negligible in relation to the rest of our business. So we're.

We would say that the best way to think about that is about 100 basis points of margin decline from our previous estimates.

Okay. That's very helpful. And then just on receivables build up that you mentioned.

Can you give some color on where in the business that occurred in taught by sector line of business or was that really concentrated.

You know, it's it really was across the board, we look at our cash receipts for our customer base.

Really in totality and what we saw at the end of March was an estimate of $60 million to $80 million a pullback in cash proceeds from our customers and we've seen that continue into April.

We can only attribute that to our customers taking steps to slow things down but also we take into account. The fact that we were all moving ourselves to I work from home environment, and we expect that they were doing the same so we would expect that as business as find their way back too.

Finding a way to work in this new normal environment.

That will see a hobby bounce back there and what have you that more timing, we've got our eyes on ads and we will be watching it through the year. We did judge for any additional color we'd have about a 5 million dollar charge.

As CNH during the quarter for bad debt reserves.

Because that's our best estimate of what we think that that might mean to.

That slowdown in customer receipts might mean.

Got it okay.

Okay.

I just had one thing to that I mean look to the Venus points about slowdown in cash.

Payments from customers I mean that that is not in any way surprising to us I mean I can't imagine.

That these small businesses or big business and.

In the month of April are rushing to pay their bill.

If they even got their bill.

If it went to their office and they're not at the office. So I mean, it's not surprising in any way that that you would see that that effect from the us and by the way I. We think that the you know that the olive branch I guess, the we're extending to small business will actually have a positive effect on that we think its a.

It's a sign of our commitment to them.

And we think that's that's in return.

It's a it's a much much easier call for an accounts receivable Clark to call. After we've given a three month to service to a small businesses say hey, just wanted to remind you that that you're in your second month.

Coming back hope all is well by the way we.

A little late on your on your payment we need to make sure that gets paid that's an easier conversation than if we if we never changed anything and and and certainly I don't want to be that receivables core calling them right now and say hey, Havent seen your haven't seen your payment yet they're going to hang up the phone on me. So I think everybody every company we'll see.

Some type of of impact on D.. So I can't imagine a day were you don't see an impact on the ASO coming out of 100% economic shutdown, but the goal for dividend at her team has to be in a position to recover that as quickly as we can and just like pricing discipline, we have working capital discipline here that we will not lose focus.

Hello.

I appreciate that thanks, Jim and giving it can I sneak one more interest I wanted to clarify from the prepared remarks on the DSW timing you said you're expecting.

Receipt of regulatory approvals by the end of second quarter, and then moving to clothing did you say you expect closing to occur in.

Second quarter or subsequent to that I just wanted to understand.

Well I know I, just said, we anticipate being in a position to close by the end of the second quarter I think it's important to point out that.

Look when we when we first announced this deal I.

I don't remember the exact David is like the middle of April 19, or something of what was it just 14 14. Thank you.

[laughter] that we said.

It feels like that 14 of April 1990, honestly because of this this pandemic, but but we said that it would take we thought between 12 and 15 months to close we're at 13 and a half or we will be next week. So our 12 and a half so were with we're within that.

Yes that window in terms of this.

Being in anticipation of.

Or anticipating being a position in close so.

We're not worried about that by the way.

Certainly I and I'm not going to blame anything on on the this this pandemic, but look we were moving 20000 people to work from home that included.

Chuck's attorneys who were working on this that included DLJ attorneys.

Credit to to both sides for doing a nice job continuing to work, even though we weren't traveling anymore, but but no question. There was some some impact from cobot 19 on on this we did not contemplate when we close this deal any type of major economic.

Disruption when we when we went about this in April 19.

I appreciate that thank you.

Your next question comes.

Comes from the line of Michael Hoffman from Stifel.

Thank you only Mark Hi, Tim.

Thank you for taking the questions.

John could you give them a clarification.

What was the.

Sent change in your total yards in service in the commercial business.

In April I think Mike.

I think we said, 16% Michael was it was that was the highpoint.

So sick actually sorry.

Yeah actually yard change or is it the volume change.

Now that with the yard that was the yard exchange yards change, Okay, and that's the low point and its improved from there is that that's the point you've made.

I would say, it's improving although as Jim said it hasn't been it hasn't been as significant as kind of more flatten that I looked at the number. This morning, Michael I think it was 15.2%. This morning. So it it is improving I think we've actually had a couple of areas and I think maybe John you mentioned Abbott has gone positive.

But its its creeping back Michael I also mentioned specific so we're looking at this day by day week over week. So my comments are really are that granular as we're looking for the bottom and looking for signs of improvement, but it's only been in the last week or two that we've really seen a bottom out start to show signs of some.

Moving and Matt and I know somebody wanted to put you in a comparison tests, but that's consistent with what we're hearing is that there's this gradual rolling reopening and so.

You should start to see some leveling off.

No I agree and as Jim said I think the Big question is what's going to happen in those handful of buckets. We spoke to you know retail.

Public sector et cetera, and how they're going to have what rates are going to reopen okay. And then there was a number given and I'm not sure I heard it correctly, so I want to ask the question.

Our used 2019 commercial revenue of 3.47 billion what per se.

There was a 60% numbers had somewhere in the call today, but what percent of that is deemed small business versus larger business.

Commercial we actually look at more by customer type rather than size. So that's a difficult number to provide that John can give a little more color. There yeah, Michael we looked at it from a revenue and unit perspective on what we said was is that if you look at office retail the restaurants in the education.

Bucket that was about 65, 70% of where we've seen the degradation in revenue and volume.

Okay, Alright that helps and then I mean, I apologize I'm not sure I totally understood. Your question a comment about how you're addressing would you mind explaining it to me that's done country Boyd and quite got it.

Oh, so our our objective with SGN, a as with most of our discretionary cost categories and places that we know that we should be flat thing is to flex in response to the change in revenue that we see and would as you know we think that given the mix between what we view as controllable versus what we.

You as required in order to run the business, we think that for every dollar decline in revenue that we see.

[music].

First is our plans levels, we can take out 10 cents of that dollar.

Okay. That's it that's what I thought I heard I just wasn't sure okay.

And then the headquarter move still planned for the fourth quarter and throw that a monkey wrench into that.

No. It's so it's still plan I mean, we we have a we have signed agreement with them and so we're still planning on moving in and I think the interesting part will be.

As we look at Thats kind of a new normal with work from home.

Is.

Do we use all the floors that we're committed to we.

You can imagine the Houston is not a great commercial property market right now but.

But we would maybe sublease out we're not going to be able to sublease it out.

For top dollar, but the way, we sublease out a floor. It really is going to be dependent on on how many of our.

Corporate office.

Employees decide to or we decide that those jobs are better fit.

From home environment, Okay, and then divina of the total dollars of direct labor spent in 2019 what percent of that was overtime.

It's about 15% and based on what we got out which John mentioned earlier with 50%, we actually seen that trend even higher with about a 60% reduction. We think you know if you held on to that level of cost reduction you could see $150 billion to $185 billion Aflacs.

If for some reason you see this continue I think what's most important there is that we learn some things about how to optimize our driver hours and the pandemic and we've learned things about what our drivers want as well and you know whether it be I'm trying to manage ourselves to more like a 45 hour work week, so that overtime.

Lots of part of our normal cost of doing business. There there are steps that we can be taking.

To to optimize the long term cost structure I think Michael yes, you're saying the same thing about About's particular about hourly labor and overtime is that we went through a.

A fairly quick but thoughtful approach to the 40 hour backstop that we provided and I think initially there was some concern that Oh my gosh, what do you what are you doing there, but the interestingly that has there's been a a pretty minimal cost of that backstop recognize what that is it really is protecting their.

Our job not protecting their paycheck, where it was pre covance. So all this overtime that John.

And divina have talked about they recognize that that would come out as divina just said in some cases drivers are saying you know what I actually would rather work 44 hours a week as opposed to 53 hours a week. So it has been interesting and I think what we are what we're seeing is that that as opposed to just taken a given.

An hourly increase for you know for all hourly employees.

Which by the way, it's going be tough to get back once this thing ends.

We decided that we would provide a backstop so it protects their jobs it doesn't protect their their pay.

And it has been incredibly well received I mentioned on a on a on a on an interview that.

We've had some people that have sent notes to me that honestly if they were it felt like they were crying through their email. They were so happy that they at least knew that I have my job protecting hey, Michael the last point I'd point out put on that I, just with regard to 40 hours. The other thing it's going to do is as we start to recover we've got capacity in the system with those employee.

He is where we flex down the overtime and the thing that's been really interesting attendance and morale have never been better.

Frankly, our safety results have improved and we had a really good first quarter and we've we've rolled in April and had even better results. In April you could argue it's less travel as other things, but I think we're seeing the best out of our employees and they're performing exceptionally well.

So why do we want we move on I, we've got looks like we still have six or seven folks left so I just had one last question, Jim If I may I'm sure why pay terms for advanced disposal on under that circumstance.

Why I'm, sorry, I'm, saying idea why pay the current terms for advanced disposal given what this pandemic as Matt why why why do that.

Look I mean.

Honestly, Michael we really don't talk about those details on any acquisition, whether its ats or or $10 million acquisition. So I mean, I'd I'd love to be able to answer that's already but we just don't talk about those and we'll talk about that after the fact, okay. Thanks.

Your next question comes on the line of Sean Eastland from Keybanc.

Hi, Tim I'll just ask one so we can you guys can get back to work [laughter] I guess, just just going back to the analyst day last year Theres talk there was talk about the rise of cities. The rise of urban environments. You know clearly some of those population growth patterns could chew.

I think coming out of this and I'm just curious whether that's something you're you're thinking about and just kind of how nimble you can be around.

How you strategize around that that type of shift.

Sean there's been a lot of talk about this urban versus rural kind of math and we've certainly gone back and looked at it and the interesting part of it is is that we can certainly find correlations you look at places like New York New Jersey.

All that had been hit pretty hard by this pandemic you can certainly see the impact that said on volumes there and also maybe a little bit they're going to be slower to recover right. Because there is still under these stayed pretty strict stay at home orders are shelter.

In place that really has been the learning for us the learning has been not urban versus rural but it's been about where have the bought where where have cities where municipalities gone into shelter in place orders earlier and if you look at some of those they've gone and earlier and that's where we've seen the volume and I will tell you we've looked at market by market and where you would think there.

A correlation we've looked on the east coast, the West Coast Middle America, and what we have been able to correlate as it's really been about who went out early and how long they are going to stay out and that's where we really see the shift in volume it's been less about just strictly urban versus rural yes, I mean, I think I think there's been I mean, we as John said, we looked at it really market by market I mean, there's places there there.

Some places.

Where big cities are down less than then rural areas Philadelphia as an example of that.

Where or when I looked at Philadelphia was down less than gilbert's fill or Scranton or Harrisburg. So it's a it really is more about the the the business itself, it's more about the shutdown and.

It's not just that the urban areas are down more than the rural areas. There are some urban areas that are down more than rural areas, such as Seattle, but they're also I just couldn't find a strong correlation either way because as I went through probably seven.

Our areas I found big cities that were down more than rural areas and I found rural areas that were down more than big cities and there was no rhyme or reason to it other than just business mix.

Okay helpful. Appreciate the time thank you.

Thanks.

Your next question comes into line of Brian Maguire from Goldman Sachs.

Hi, good morning, everyone up here, all safe and doing well.

Thanks.

Jim I know you've talked in the past I think as recently as a quarter or two ago about one of the best Barometer is for the outlook for the industry being the health of the U.S. consumer and we've gone from record.

Maybe 40, 50 or low unemployment rates to.

60, 70 year high unemployment rates and hopefully it's all temporary but just wondering if you think that's still the case. If you still think that we could kind of draw some parallels and tangents to what's going on in the labor market in the consumer sentiment and outlook and and use that as sort of predictive indicators for where you think the industry is going in.

And taking that a step further as you look out to next year.

Unemployment rates remain elevated like a lot of people are forecasting you think that it's just.

Just going to be a little bit more of a prolonged recovery then just reopening.

Some of the businesses and these phase one two and three sort of Rollouts getting completed.

Yes. This boy that's a that's kind of a big Crystal ball question and I I.

I just don't know that I have a good at a good answer for you I, Here's what I would tell you as it relates to W. am I mean, I think that's.

Clearly the consumers is going to be heavily impacted by this my big worry and this is just my own opinion my Big worry is that if we stay in this for too long we are going to create some real long term damage and look I'm not being insensitive to I know your end in New York and I'm not.

Being insensitive to the people have been affected by this virus.

Those families that have lost loved ones I'm not I'm, just saying there is also a consideration on the other side, which is the long term impact of this not just the long term economic impact, but the long term health impact long term impact on on.

Things like.

Clinical depression and things like that so.

What it how it relates to our business is that I do think those this has been a pretty common theme this morning, but.

Those that will be most impacted the longer we go with this will be those small businesses because they.

There were some for our of report out yesterday that said if this goes six months.

At 40% of small business could be at risk of closure.

Look that's going to affect us that's going to protect Republic, thats going to affect everybody in every industry.

I think as we think about our own business. The good news is that we do have a big landfill business that is largely driven by two groups not exclusively but largely driven by the residential business with third party MSW and largely driven by special waste and CND.

And as I said earlier those are big businesses. So I think the landfill business will emerge from this how fast I don't know, but it will emerge from this more quickly than other lines of business for us and other industries honestly and I. Thank you I would say the same about about the roll off business for.

For us for all the reasons that I just Dave.

As I've said.

Several times this morning.

The one that is going to be.

The the most difficult to predict is that commercial line of business.

And I just don't know.

What happens with schools, what happens with with airlines and of course that whole hospitality space is a massive question at this point does it ever return to where it was with rental cars and airlines and hotels. So I do think though that as city and state start to reopen like text.

This is reopening we went to a restaurants on Saturday.

Pretty full I mean, you know not not inside it was outside seeding only but pretty full and so I think you'll see the those states that are able from a health standpoint to come out and and and emerge with with kind of two months of damage look I think we can deal with a two month snowstorm, but at this.

Things are a nine month snowstorm, well, that's that's going to be hard to recover from so I think the long answer to your very short question, it's really going to depend on a on these reemergence plans on how quickly we're able to reemerge and that is going to most impact the commercial lot of business. So hopefully thats helped.

Hello.

Yes, I know, we're running long I just I want one one quick one just procedurally and on how you're going to count some of the small business volume that's being suspended and some of the I don't know if you call. It a rent holiday for the month of April for folks is that coming in as as a volume number or as a metric on yield in any.

No sense kind of how many how much of the small container business might be on might might be able to apply for that sort of rent holiday.

Are you kind of some other service there that's the frame up to serve.

That's right.

Yes, that's that's going to show up as price really and Thats why you said I want to caution about what it says with respect to price discipline, I mean, I don't want somebody to freak out in Q2, when we when we show a price number in it and it doesn't look very good because.

We've given.

A free month of service by the way just to give a little bit of context around that.

It is not necessarily the month of April it would be the first month that they come back and reestablish service. So.

And it's not all small customers. It is it's those customers that were that were forced into some type was impacted by this if your business had no impact.

If you're right if you're a a small healthcare facility in your and your businesses operate your small grocery store than than you are not you don't participate in us because you were you weren't impacted by it but.

But if you come back and start your business back up as a restaurant and you previously were five days a week servicer.

And now you're going to be two days a week. Then then we give you would the two day a week service for that month in your first month, we're not going to give you a free month at a credit for whatever your bill was back in November Brian I would just say we met we said in the beginning right now a little bit less than 10% of our commercial customers total commercial customers have been affected by this or whatever.

We should be a subset of small subset of that number yes.

Great. Thanks very much.

You bet.

Your next question comes in the line of either Brown from Raymond James.

Hey, good morning, guys.

Good morning, guys.

Hey, as far as having a hard time getting on the call. So you addressed this I'm, sorry, but John I do want to come back to the pricing commentary I. Appreciate your philosophy hasn't changed are you seeing anything irrational from small haulers are other landfill operators and are you hearing about service failures for small haulers are then simply exiting the market.

So Jim did comment on that specifically Tyler in the beginning and again were seven weeks into this and I don't think theres been anything out of the ordinary that we've observed I'm not going to comment what other folks here I'd just tell you that.

Whether it's our collection pricing discipline I spoke to our post collection pricing discipline by the way the cost structure and those and those spaces has obviously not.

As not subsided. So we're going to continue I think the way to look at this is you just heard the commentary from Jim about that small business, we're going to pause on a sub section of our customers to help them through this tough time, but our strategy around recovering costs to protect in particular, our landfills and our collection lines of business is not changing at all right.

To your second question I have not I haven't heard of any small colors.

Thrown in the talent I mean, I think because we're all considered an essential services my guess is that.

It's not as if you're going from from full revenue to zero revenue like some some of these businesses are.

Yes. Okay. So this is my Big picture question I hate to come back to residential but.

It is residential basically having a national soared moment and what I mean by that is readily has already been struggling the last call. In Q4, you said, it's your worst performing collection line margins are down 50% from the past five to 10 years now you've got surgeon container weights and it feels like that paradigm shifted I know it's early but.

Why don't we need to go through a fundamental stair step in resi price either be level that field.

Tyler I will tell you know you've heard me on the last four or five calls or since I assume this position that is a focal area for me pre pandemic and obviously, we've got additional work to do now that we've referenced some of these container weights and listen we also were seven weeks into this so a lot of what we're seeing is we're trying to see where as I mentioned earlier, where the bottom is where the peak is on disposal volumes were starting to.

See some signs that's going to mitigate the real question is how much is going to be up permanently and how do we amended our strategy. What I can tell you is before this pandemic. It we have dedicated resources around the organization that are focused on residential what we've done as we've obviously had another chapter to their book here than they've got to go have some difficult conversations with some municipal.

Maladies Tonto me, let his car running in the parking garage as soon as we're done areas and over to meet with some of our municipalities. That's Howard. This is I mean, we have kitting, there, but have not I mean, we have to we you're right. It's how do we really do have to.

Look at how I mean Theres no reason to believe that also said we're going to go back to pre cobot on this I mean, they're going to be a lot of people that are working from home permanently and weight.

Right. Okay. Thank you.

Yep.

Your next question comes from the line of Caving Chow from C. D C.

Thanks for taking my question just just one for me. Thanks for all the the trend data I just wondered if you could delineate that between urban like US. Your rural markets are you seeing the broad based in terms of a bottoming or or urban markets, maybe showing a bottoming first because as you mentioned that went down into lockdown person.

And rural markets are still are still.

Still still trying to find a bought I'm just trying to get a sense of how you would need to look at those two markets separately.

No I would I would tell you that where the urban markets, obviously I referenced a few of them where they have gone out earlier.

And so they got to their bottom quicker and as I said, we're starting to see a flattening and some slight signs of improvement in the rural markets. We've also seen some declines and as Jim mentioned, we referenced a bunch of specific markets. We've looked at and Theres no clear correlation that just because one is ROE or one one is urban that the volume decline has been faster.

Her or longer.

In between those two I think what we what we are confident in is I think we are have found or have found most of the bottoms and where we have and it looks like where at least that the flat part of the curve and we're optimistic we're going to start seeing.

Volume increases there in the near term, yes, I think kind of the same answer there that we gave before in terms of not seeing real trends that were discernible.

I mean I did look again at some data yesterday I look have to look at San Antonio in Austin.

Those happen to be too big cities that are not down as much as some of their role counterparts at least for us and and so in terms of the bounced back because Texas is now in phase one I wanted to see whether these cities are coming back more quickly Houston, which was down more than San Antonio and Austin does appear.

Year to be at least for us appear to have more bounce back to it and when I looked at Houston versus some of the some of its smaller rural counterparts.

Yeah, I mean, I guess in some cases, it's bouncing back quicker.

But it's just really hard to tell because.

Houston was.

As a big city, San Antonio was a big city, San Antonio was down.

Barely double digits in somebody's metrics, where is Houston was down closer to the numbers John Dave.

That's great color. Thank you very much.

Last question comes in the line Mark Neville from Scotiabank.

Hey, good morning.

I will keep the one I guess my question just around I appreciate sort of the lock into the building the suspension of the outlook.

To your point it sounds like some of it it is getting a little bit better Division I think you referenced this on the Capex with a 10% dropped assuredness. So I guess the question Im just curious how you got to that number.

I'm thinking is if you're thinking earnings cash flow, we'd be down something significantly more than that maybe there's more room to flex that line.

Or that's been so yeah, I guess I'm just curious when the Capex sort of how you got to the 10% and that's sort of a fair way to think about your early thoughts on what the or might look like.

Yes, sure so what I want to start with is that the 10% isn't.

Inclusive of intangible investments that we may make and advancing those initiatives that Jim spoke to earlier, that's more in our volume oriented business.

And so when we thought about.

How we targeted capital expenditure reduction that we thought was appropriate based on what we were seeing for the year. We looked at those volume numbers that we've talked so much about over the course, the call and so whether it be industrial volumes, our landfill volumes, which we've talked about being down double digits that was the barometer or that we used to.

Then pulled back to that has the capital category and say what level of flats do we think is appropriate if we see a rebound and industrial flex we can turn it back up.

What we want our shareholders to understand is that the company is going to be responsive and diligent diligent and managing cash flows and that includes investing capital for the long term. Because these are long term investments that needs to be prudent not just for today, but for the foreseeable future when we think about capital expenditures.

As a percentage of revenue, we think maintenance capital than the range of eight and a half Tonight and a half percent we've trended higher in recent years, because we've seen healthy volume growth and so in this environment, what we thought was proven as to.

I'm going to 10% target as as kind of our baseline and we'll adjust that as appropriate if we see volumes rebound quicker.

And we we might projects today.

Okay, that's there and I guess or they just want to clarify the point the 10%.

But there were there would be some special investments or did that would bring that we'd be down less than 10% I guess.

Hey, good for early phases.

Turning those investments so I can't specifically quantify what we think that we'll be at that 10% is exclusive of those into.

Right.

I'm pleased to sit on thanks.

Thank you Okay website. Please continue.

Yes, thank you very much blue.

So last I, just want to say as I always do thanks to our 45000 employees who really.

Have continued to represent the best.

At this company is and you've heard me speak about this many times you've heard me speak about to today, but our commitment to putting our people first during this.

Truly truly unprecedented time.

Has never wavered and I think it's shown through during this our LIBOR.

Our leaders.

Certainly have shown up in ways that I'd that I honestly had never seen and have really.

I think unified our efforts.

So just not compromise on our commitments to our people to our customers and to our shareholders and with that I mean I couldn't be prouder.

Our management team and of all of our 45000 people.

We're still working through what what the new normal looks like but I can assure you that.

That waste management will come out of the stronger on the other side. Thank you very much for your time just wondering.

Ladies and gentlemen, this concludes todays conference call you may now disconnect. Thank you for participating.

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