Q1 2021 Waste Management Inc Earnings Call
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Sure I'll give it to you.
Thank you Holly and good morning, everyone and thank you for joining us for our first quarter of 2021, earning conference call with.
With me. This morning are Jim Fish, President and Chief Executive Officer, John Morris Executive Vice President and Chief operating Officer, and Divina, Rankin Executive Vice President and Chief Financial Officer, and you'll hear prepared comments from each of them today, Jim will cover high level financials and provide a strategic update total.
Cover and operating overview and Davita will cover the details of the financials.
Before we get started and it plays out that we filed a form 8-K. This morning that includes the earnings press release and available on our website at Www Dot and Wm Dot com.
The form 8-K, the press release and the schedules and 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 and all.
Forward looking 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 our filings with the SEC, including our most recent form 10-K.
John will discuss the results and the areas of yield and volume, which unless stated otherwise are more specifically references to internal revenue growth or IRG from yield or volume.
During the call, Jim John and Divina will discuss operating EBITDA.
Income from operations before depreciation and amortization.
And any comparisons unless otherwise stated will be with the first quarter of 2020.
Net income EPS, and operating EBITDA and margin and SG&A expense results and finish.
Adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations.
These adjusted measures and addition of free cash flow are non-GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at www Dot Wm com for reconciliations to the most comparable GAAP measures and additional information of our use of bug GAAP measures and non-GAAP projections.
This call is being recorded and will be available 24 hours a day beginning approximately one P. M. Eastern time today until five P. M. Eastern time on May 11th.
A replay of the call over the Internet access the waste management website at Www Dot W. M Dot com.
Telephonic replay of the call dial 855, eight and 59056 and that's a reservation code 129 died 110.
And sensitive information provided during today's call, which is occurring on April 27, 2021 may no longer be accurate at the time of a replay.
Any redistribution retransmission or rebroadcast of this call in any form without the expressed written consent and waste management and prohibited now I'll turn the call over to waste management, President and CEO Jim fish.
Thanks, Ed and thank you all for joining us.
It was said many times last year and the 2020 and was a year like no other.
For many reasons and it was an incredibly difficult and triangle.
And our positive message internally wasn't great companies use tough times to better themselves and that's.
Precisely what WMD Ed.
And first quarter of 2021 showed that with an exclamation point.
We have and exceptionally strong start to the year as we kept our focus on those fundamentals that are always buy and it's great.
People first and our customers and then we focus on the details of our business.
And that order inevitably produces the best results and Q1 ensure that as we achieved record operating EBITDA of $1 $6 billion.
And robust cash from operations of $1, one $2 billion.
Typically during our first quarter earnings call, we reaffirm our full year guidance.
However, as we view these strong results and addition to our confidence and the transformative changes, we're making to our business model and the fact, we have yet to see a full recovery and our critical landfill commercial and industrial volumes.
It became clear and we're on track to outperform our guidance from only two months ago.
Combine this with the broader economic trends and all indicators show that our full year revenue.
Adjusted operating EBITDA and free cash flow, we're on track to meet or exceed the upper end of the guidance range. We provided in February.
Jim will discuss our updated guidance, but it's safe to say, we're very excited about our performance for the first quarter and we expect to show continued strength throughout the year.
We're seeing tangible benefits from the investments that we've made and recycling and renewable energy.
And our recycling line of business.
We've developed a model for all new plants, which with the addition of sophisticated technology produces far better returns through a combination of added efficiencies a higher quality of saleable material and less residual material for disposal at the end of the process.
While our basket of recycled commodity prices.
Climb back nicely to historical average price levels.
Additionally, three years ago, we made the decision to close the loop between our natural gas fleet and the gas produced at our landfills by investing in the renewable energy business.
We're now seeing those investments pay healthy dividends with approximately two to three year paybacks on our four plants and Tampa with greater stability and higher pricing and the renewable energy markets.
As we discussed last quarter W. And is also well positioned to leverage our ESG leadership and.
And particularly our focus on environmental sustainability and to help our customers meet their own climate goals through recycling and other beneficial uses such as renewable energy generation.
We're in a unique position to help key stakeholders rise to the challenge and we can do this while growing our business at the same time collaborating with our stakeholders to find new ways to create value together.
Continuing to integrate environmental sustainability into our strategic business framework for long term sustainable and profitable growth requires a strong focus.
Which is why we've taken the steps and dedicate a member of our senior team to this effort.
Im pleased to announce the Tara Hemmer senior Vice President of operations will be taking this new role as senior Vice President and Chief Sustainability Officer reporting directly to me and effective July one.
With tariffs move our area, Vice President and leading the greater mid Atlantic area, Rafa Carrasco will be promoted to a member of our senior leadership team as senior Vice President of operations.
We've also launched a new exciting education benefits for our team members. This month and that will provide development and upscaling opportunities for our work force.
These changes underscore how the tenants and ESG are embedded into our broader business and strategy.
As digital transformation sweeps across nearly every industry and the way until the pandemic, we're making strides and differentiating our customers' experience through into and digital transformation.
Today, our customers can manage their relationship with us.
Through online and through our online dummy math by Wm platform.
And as connected operationally through our smart truck technology and supported.
By our customer analytics and data management tools.
Our newly automated setup process and streamlines customer orders and accelerates the speed at which we can deliver on our commitments, while also reducing our cost to serve.
These developments combined with continued growth of our E Commerce channel.
And this confidence that our decision to accelerate technology investments was the right one and.
And we will emerge from the pandemic a stronger more agile company.
In closing I want to thank the entire waste management team for their hard work and dedication that has positioned us for a record setting 2021.
W and is well positioned to benefit from the continued reopening as more states and provinces emerge from the pandemic and we expect our commercial industrial and landfill businesses. Our three most profitable lines of business to benefit from further volume recovery and produce robust financial results with high incremental margins over the remainder of the year.
I'll now turn the call over to John to discuss our operational results for the quarter.
Thanks, Jim and good morning, before reviewing a terrific operating results and we achieved and the first quarter I want to provide and update on the integration of ETS.
Over the last six months, we've made significant progress on combining the two businesses and we've been able to accelerate some of our integration plans.
Teams have worked tirelessly to make sure that this combination goes smoothly and based on this success and the integration. So far we are increasing our synergy expectations to $150 million of total annual run rate synergies by $130 million coming from operating cost and SG&A savings and 20 million income coming from capital savings.
For 2021, we now expect synergies of between 75 and $85 million all coming from cost savings.
With approximately $15 million and annualized synergies captured in 2020, we expect to exit 2021 on an annual run rate synergy level around $100 million.
Remaining $50 million and is expected to be captured in 2022, and 2023 from a combination of operating costs SG&A and capital expenditures.
Now turning to our first quarter results organic revenue grew two 1% and disciplined pricing and improved recycling results overcame modest volume declines.
Pricing performance for the quarter was very solid with both core price of $3 four per cent and collection and disposal yield of two 8% outpacing our expectations.
Notably our commercial yield rebounded sequentially from three 1% to three 1% from one 9% and the fourth quarter.
As economic reopening progressed during the first quarter collection and disposal volumes and improved again sequentially to a decline of two 3% from two 7% in the fourth quarter.
And the first quarter net new business turned positive churn improved meaningfully to eight 2% and service increases and expand.
While volumes have recovered meaningfully from the second quarter of 2020 collection and disposal.
The second quarter, 2020 collection and disposal decline of 10, 9% as Jim pointed out W. M is positioned to benefit from further improvements in North American economies.
For example at the end of the first quarter, we have recovered about 72 per cent of the commercial yards lost due to COVID-19.
Providing room for considerable improvement and commercial volumes as we progress through the year. Similarly, our other highest margin businesses industrial and landfill and volume upside opportunity as visibility into the economic reopening continues to improve and more have worked event work as scheduled and completed.
Looking at the lines of business, we're making improvements with the help of a very deliberate pricing focus residential landfill and recycling I'm happy to report that we have had standout performance and each of these areas during the quarter.
Residential and Youll doubled year over year to four 2% as we make strides to improve the profitability and this line of business. This is the highest residential yield we've achieved since 2000, Inc. And showcases our success and demonstrating the value of our service and pricing it appropriately.
The increased yield drove operating EBITDA margins and our residential line of business to the highest level and the past 12 months, despite still elevated residential container weights.
Landfill core price was three 2% a strong result, when you consider the impact of lower volumes and related both to the pandemic and severe winter weather.
And recycling operating EBITDA doubled year over year to achieve earnings that rank and our top five best quarters ever.
These results are truly a reflection of our work to improve the business model, while creating a sustainable solution for our customers and.
And not simply the result of an increase and recycled commodity prices.
Well, our other top recycling quarters had an average commodity price of $127 per ton, we achieved our strong first quarter results when the price of $79 per ton.
Finally, turning to cost first quarter operating expenses as a percentage of revenue improved 130 basis points to 61, 1% demonstrating that we are maintaining our cost discipline as volumes recover.
And the first quarter, we saw 40 basis point improvement and our labor costs as we continue to manage overtime spending. We also saw efficiency improvements in both commercial and industrial lines of business, which we were able to identify and capture as our investments and technology helped make us nimbler.
In closing I want to thank the waste management team for the exceptional job and they've done and managing our operations to position as per section success in 2021 and.
I'll now turn the call over to Devine and to discuss our financial results and further detail.
Thanks, John and good morning, everyone.
Have you heard from Beth Chairman, John We had a fantastic start to 2020, one and we forecast continued strength and our businesses' local economies and emerge from the pandemic.
These strong results and our confidence and our outlet for the remainder of the year has led us to raise our full year financial guidance.
And your growth is expected to be 12.5% to 13%.
And the internal revenue growth from yield and volume and the collection and disposal business at 4.5% or greater.
The increased outlook is underpinned by our disciplined pricing programs and strong outlook for continued volume recovery.
And adjusted operating EBITDA, and we now expect to generate between 4 billion and $875 million and four.
And $4.975 billion.
$100 million increase at the midpoint from our prior guidance.
The improved outlook for adjusting adjusted operating EBITDA translates directly into incremental free cash flow and we now expect that we will generate between 2 billion and $325 million and 2 billion and $425 million of free cash by and for the year.
Our team members on the front line continue to deliver and the investments, we are making and our people technology and customer experience and generating strong results.
Turning to our first quarter results.
Net cash provided by operating activities grew $355 million.
Contribution from operating EBITDA growth accounted for a little less than half of that increase with the remainder coming from lower incentive compensation payments and Inc.
Kris and cash collections from customers and.
Favorable timing of some of our payable.
While we expect some of the timing difference is experienced and the first quarter to reverse that and year.
Meaning contributors to our strong cash flow from operations results position us for a very strong year.
And the first quarter capital spending with $270 million and $189 million decrease from the first quarter of 2020.
Capital expenditures were lower in the quarter, primarily due to timing, but the timing and fleet purchases, which we have intentionally frontload Ed in 2020 and steps. We took in late 2020 to accelerate some of our 2020, one capital given our confidence and the pace of volume recovery.
We continue to prioritize investments and the long term growth of our business and.
<unk> and recycling renewable energy and technology investments that we have previously discussed.
And the phone year, we expect capital spending to be at the high end of our one seven and $8 billion, So $188 billion guidance range, and we invest and our business to support growth reduce our cost to serve and extend our environmental sustainability efforts.
Putting it all together our business generated free cash flow of $865 million and the first quarter.
Operating EBITDA growth lower capital expenditures and favorable working capital changes that I discussed.
The significant year over year free cash flow increased this sets us up very well to achieve our increased free cash flow outlook and.
And the first quarter, we used our free cash flow to pay $247 million, and debit and and allocated $250 million to share repurchases.
Turning to SG&A costs.
SG&A was $10 seven per se and revenue and the first quarter and that's a 20 basis point increase over 2020.
We remain focused on managing our discretionary costs and optimizing our structure for the ABS acquisition and using SG&A dollars to enhance our business.
And deliberate increased level of investment and technology as well as higher incentive compensation accruals and the driver of SG&A as a percentage of revenue being above our long term target of less than 10 per cent of revenue that we are committed to ensuring we returned to that optimized cost structure and the near term.
Our first quarter and leverage ratio of 3.04 times has improved from the fourth quarter due to our strong operating EBITDA growth.
This leverage ratio remains well within the financial covenants of our revolving credit facility and right at the top of our long term targeted range of two and a half to three times.
Our strong first quarter results and increased expectations for current and near operating EBITDA and free cash flow position us to purchase at least $1 billion of our shares in 2020, one and net.
At the same time and achieve our target leverage of 275 times by the end of the year.
Our capital allocation priorities continue to be a strong balance sheet prudent investment and the growth of our business and strong and consistent shareholder returns.
But the strength of our collection and disposal business expectations for continued recovery and improved market backdrop for recycling and effective cost control and even better than expected integration and synergies from the 80 S acquisition cash.
Cash Bumpkins margin conversion was strong and as a result, we expect to increase cash allocated to share holder returns from our initial plan.
And closing it is imperative that we think the men and women across the waste management team for their tireless efforts to serve our customers and communities each day.
Our strong results are a testament to their commitment and we're excited about what we will achieve together over the remainder of the year.
With that Holly, let's open the line for questions.
As a reminder to ask a question and you will need to press Star then one on your telephone Keypad again press Star then one.
And our first question is going to come from the line of Jerry Revich Goldman Sachs.
Yes, hi, good morning, everyone.
Yes, Hi can you hear me.
Yes, we can hear you and anybody.
Okay, great good morning, everyone and it really nice performance.
And of the gate here I'm wondering if you could talk about as you look at your employee footprint today and look towards recovery.
What level of volume growth.
And the business absorbed before we're back to Ed any cause and accounts.
Ladies and gentlemen, and hold on Jerry and I believe are having an issue with the speaker line one moment.
And anybody heroes conjecture.
These first ladies and gentlemen, standby and teams.
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Ladies and gentlemen, standby the call per resume momentarily.
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Ladies and gentlemen, please standby to cover with you momentarily.
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Jim.
Good day.
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And we are back and we will now begin the question and answer session, ladies and gentlemen, once again to ask a question press star one on your telephone keypad to withdraw your question press the pound key our first question will come from the line of Jerry Revich with Goldman Sachs.
Perfect. Thank you and good morning can you hear me now.
And Sir Gerry.
Okay terrific. Thank you sorry didn't mean to break the conference call on a per skull together here.
I'm wondering if you can talk about.
The magnitude of volume growth that your footprint and absorb off of the current run rate levels before we're back and having to add head count you spoke about reducing overtime.
In the quarter and as we ship forward to recovery from here and I'm wondering if you could touch on.
And how we should think about absorption from here and capacity. Thanks.
Yes, Jerry.
And what I would tell you as I said, if you looked at our performance throughout the kind of COVID-19 and the volume slide if you will.
Efficiencies improve throughout our obviously as you mentioned our management of overtime.
Certainly improved and what that also data has helped us build some capacity and the system. So as we look at the rest in 2020 and what we've revised guidance do we feel like we're in good shape to absorb absorb that that volume.
Jeremy I would add one thing share too which is.
About adding back.
Adding back labor I mean, there's a couple of dynamics here one is that pretty much all of U S. Companies are facing larger small is this temporary competition against the government for unemployment benefits and that is.
Having an impact on us the good news for assets that we didn't lay people off from COVID-19. So if you did and you're trying to re hire right now you're having a tough time.
And we as you may recall we.
We guaranteed 40 hours last year, when COVID-19 first hit and said youre not going to lose your job because of COVID-19 and the and so that did help us I'm.
I'm not sure that we expected this unemployment benefits continue as it has but it did help us.
I think the other aspects of this is that we recognize that labor.
<unk> is going to be around it's been 5% ish for our non exempt for a couple of years now.
And with that we didn't anticipate this this new competitor being the governments. We think that's temporary right now I think and scheduled to these unemployment benefits are scheduled to go at the end of July.
Standard with the new package through September but.
But we'll use we'll use pricing from a kind of a microeconomic standpoint to make sure that we manage volume, where we don't need and thank all new volume coming.
We'll take the best and the new volume and and we'll manage accordingly.
And John and his team will through.
Through the labor line by using price to maybe tamp down some of that volume if we need to.
Okay terrific and I appreciate the color and then as we think about where volumes are tracking for the first quarter, they're about 3% below 2019 levels. So bed same trajectory holds and the second quarter, we should be looking at something like high single digit volume growth.
Is that consistent with what you're seeing through April can you just comment on whether that two year stack holds and if that's what we should be thinking about the cadence and the second quarter.
Yes, Jerry Thank you make great we'd looked at 2019, we looked at 2020 and really what we've done is looked at Q4, 2020 to look at some of the sequential trends on volume and that's really where I think we feel what we hear and level of confidence and as January and February were certainly are challenging months, partly due to weather, partly due to just the comp year over year.
Really happy with what we saw in March on the volume front and and equally pleased with what we're seeing.
In April so while we've looked at 2000 22019, we've really focused on what the sequential improvements Ben and that's part of why and you heard the message from us about how we feel about the balance and a year.
Terrific and <unk>.
Lastly on the ESG side, obviously, some clarity or with pricing now can you talk about to what extent you have the capability based on permitting to transition additional landfills to landfill landfill gas producing landfills that tie to the grid and take advantage of where wing prices are.
And what the cadence of the additions could look like over and over the next couple of years.
Yes, so we have.
And so we have four plants now we have.
A fifth that would be coming online in 2022.
And that capital is being spent right now thats in the plan so that the Divina mentioned.
This this is Ed.
We believe it's a nice opportunity for us.
And it's made possible because of the fact that our our fleets now are we are almost at 70% of our routed fleet as C. G.
And and.
Considering that.
And that includes the 80 S trucks, which are at a much lower percentage and we.
Think theres a couple of benefits. There one is just a simple shift from diesel to natural gas is definitely a good shift for US and then as you mentioned the fact that we're able to close that loop between those natural gas trucks and.
That's produced at our landfills, we like the investment and we started making this investment two or three years ago. They have they have at current pricing. They have really good returns and then and I think you'll see us continue to do that.
As we're doing this year and I expect we'll continue to do it next year.
Terrific and I appreciate the discussion thank you.
You bet.
Our next question will come from the line of Jeff Goldstein with Morgan Stanley.
Hey, good morning.
On the new on the new internal revenue growth guidance of four and a half per cent or greater can you just help parse out what the breakdown of this figure is between yield and volume and how that compares at all tie to your prior thinking around the recovery in terms of that mix.
Yeah. So what we're looking at and what you saw in the first quarter really strong performance on the yield side translating into strength for the remainder of the year and that really being day.
Catalyst for the upside on the total of 4.5% or greater that being said our initial outlook for volume was that around one and a half to two per cent and we're optimistic that we'll also be at the high end of that range, but outperformance to our previous expectation at this point really is centered around strength and pricing.
And the outlook for continued strength over the rest of the year.
Okay Perfect and then just on the EBITDA margin guide for the year. If my math is right. The implied margin for the year is coming up a similar amount as the increase and the expected synergies from E. S.
Is that fair and should we assume that based on that your other investment assumptions for the year are largely intact or just any other cadence of expenses that we should be contemplating for the year.
Yeah, you know when we've looked at 2021 on a year over year basis, we knew we had some cost headwinds and in particular, the second quarter had some cost headwinds for health and welfare specifically, we also expected incentive compensation to be ahead range for the full year and that's even greater.
And had wins now because of our strong outlook for 2020, one and then we would have initially expected.
Overall margin guidance for 2020. One initially was as much as a 50 basis point improvement you can see with the strong performance and the first quarter.
Could be some upside to that though rather than update margin specifically at this point.
And really liked it.
And our results on volume and because the contribution margin from that incremental volume is one of the important things for us to keep our eye on that means that I think it's really important to step back and recognize that we started with guidance that could have been slightly backward at 20 basis points and a year over year comparison, both because of that.
Headwinds and the integration of ETS, but then when we look at where we stand today, we're confident that we'll actually be at the high end of our expectations of 50 basis points and and certainly somewhat because of the ABS synergy capture but it's also because of some stronger outlook on pricing that I mentioned earlier.
Great that's helpful color.
Our next question will come from the line of Hamzah Murray with Jefferies.
Mario <unk> filling in for Hamzah.
And maybe you could talk about how much room, you have on the disposal pricing side and I think it's running and the high two range right now is going to recovering and and maybe you could speak about interest in context of what you guys were executing on and what the goal was prior to COVID-19.
And and how.
Pricing on the disposal side had started ramping.
Higher to the pandemic.
Yes, so Atlanta pricing as you know is always a top priority for us MSW core price was strong.
For the quarter.
And as were the other lines of business I think an important distinction here is that several of these lines of business specifically commercial.
Jim.
And also as we've talked many times about recycling have become somewhat fee based and so as volume increases you see fees increase and those fees go to the price line. So.
It's honestly part of why there's a number of reasons why we took the unusual step to raise guidance and Q1, but one of those is the strength that we're seeing and pricing.
And of course, there's a second one is that when you think about volumes and I mentioned it in my and my remarks that volume is really have not recovered fully and especially in those three high margin lines of business commercial landfill and industrial John mentioned that we're starting to see really good green shoots and.
In March and continuing into April on the volume front.
And then lastly on on reasons why we felt.
We are comfortable.
With art with our guidance changes was that's recycling.
As Jim mentioned in his script.
And we're producing these great results and recycling average commodity prices I mean $79 for that for that basket of commodities is right and the middle of our historical averages, whereas the other four quarters, we talked about the top five and being in the top line best quarters of all time and recycling and yet the other four when we.
And we're up its a 120 $527.
On an average commodity price, we're now down and 79 or at least that's what we work for the quarter. So all of those combine to give us real confidence going forward.
That said and we could raise guidance, but pricing and landfill pricing in particular, we think R. R.
Our strength for the quarter and will continue to be and in the next couple of quarters.
Great. Thank you and then on the ASW synergies just thinking about what the long term revenue synergy potential is there and in prior to the deal.
They were busy doing deals and building out their route density and that more or less what was put on hold and the deal was going through them and.
And again, we got hit by the pandemic.
Does that create more pricing opportunity for that particular business on top of what I.
I guess it was already baked into what their plans were and any thoughts on that would be great.
Yes, we are.
Look I think Aes will go through a similar price model.
And legacy goes through.
So what we've really been focused on in terms of synergies is the is the cost synergies obviously with respect to Etfs, just as with our with W. And legacy we're looking at the cost side of the business to see what do we have to do.
And with pricing to make sure that we that we keep up with inflation.
Got it and then if I could sneak in just one more you had mentioned weather and I don't want me and if I missed it during the prepared remarks.
Are you able to help quantify what the weather impact was on volumes and the quarter.
It's really difficult to specifically point to volume, but what we looked at is basically a month by month and you are the our volume trends and what we saw and that.
Significant downward pressure in the month of February some carryover of that into <unk>.
And our recovery and that I should say in March, but we don't know how much was true recovery and volume lost in February Preston.
<unk> continued momentum and SVP economic recovery from the pandemic and we certainly think that Ed.
And the ladder.
And we're optimistic that we'll continue to see growth based on what we are seeing and the month of April that star I think it's fair to say, though that it was not insignificant I mean, when we have to shut down the entire state of Texas per week.
And and shut down our Gulf Coast operations.
Which are.
You know are very important operations for us from a special waste standpoint for example.
We shut down our R. R.
A lot of our operations and areas like like Tennessee.
That was shut down for almost an entire week. So it was not an insignificant impact.
And as part of why the volume story is a little clouded for the first quarter and why John gave some details on what January and February looked like versus March and April.
Great. Thank you so much.
And our next question will come from the lineup Walter Spracklen RBC capital markets.
Good morning, everyone.
Sure.
And I'd like to start just on obviously, you had a great quarter with from a cash flow generation standpoint.
And indication that.
That that trend is kitchen, just curious how that impacts how you look at M&A.
Does that does that more dry powder make you more incentive to look a little harder for M&A. Obviously your experience here with with <unk> W is going very well.
Or is it the case that youre kind of concentrated on the integration you're preoccupied with that and M&A outside of any tuck ins is any larger scale M&A outside of any tuck ins is probably not and the cart.
Yeah, I mean, it's probably more of the latter.
We are still very focused on on a D S integration.
But look our what we're hearing internally is that that there is quite a bit of interest probably driven as much as anything by the potential for tax law changes coming and so I think youre seeing that.
Jim.
The pipeline start to build a little bit we at this.
<unk> are saying bottom end of the range.
And the historical range of 100 and $200 million and that's what we said when we when we gave guidance back in February and we're sticking to that right now.
And it's possible, though it's always possible and something comes along and it's too good to pass up and.
And I think what you'll probably see is that.
You may see that valuations actually and it's really just a math equation you may see valuations come down a little bit because somebody is looking at and saying all right.
And my capital gain here is going to be pretty significant and here's what the cost of.
That is at a higher capital gains rates.
So I'm willing to to come down a little bit in terms of.
And my sales price and don't know for a fact that that's what happens, but it wouldn't surprise me if that happens but for US right now Walter we're really focused on integration and we're sticking with the bottom end of that range at 100 million.
That makes sense, Okay and my second question here is on coming back to your contracts and how might the pandemic have given you and opportunity to to get better yield without raising your core price and here I am referencing to structurally.
Charging more.
Or are charging on a waste basis as opposed to a per household but is there anything that you're looking at now that is allowing you to make a greater return on your on your contracts with your customers commercial residential or otherwise that goes beyond just simply.
Higher price.
Well there really are a couple of dynamics, taking place with price. If you set aside recycling and just talk about.
Commercial industrial and Ramsey and.
And if we talk about really commercial I mentioned earlier that we're moving some of that to fee base and so that is a component of price.
And it's an important component of price and we think that that has and that's going to help and that has helped and will continue to help commercial and.
And industrial and then and then on residential John's talked about residential now for two or three years, and we really look at residential as being one of the real strong points for the quarter. The work that his team John and his team have done to get to the highest yield since 2008, a 4% yield.
<unk> has really been and a success story.
For for the company and that's coming as much as anything through maybe not as much with fee base and as it's coming through and contract renegotiation. It might surprise you to know that that's not coming from some of the index is going up we actually saw a small amount of deterioration and that for the quarter and how we do.
We expect that that we do expect that inflation will kick up a little bit and so we will get some help and we're typically a beneficiary of higher inflation, but we didn't benefit in Q1 from that it was really all a.
Almost all of it was just renegotiation of contracts and factoring in to those contracts. The fact that we now expect waste to be a bit higher permanently.
Because of the pandemic and because of somewhat of a permanent shift of some some portion of the economy to a work from home environments.
This was really all and then by the way there's also this.
Ongoing move to a different index, that's more reflective of our cost structure, which is a water sewer trash index away from a CPI index and we're up to about.
About 40% of our overall business is index, driven and about 40% of that is now on a water sewer trash, which which then equates to about about 15 or 16% in total.
That's great color I appreciate the time and congrats on a good quarter.
Thank you.
And our next question is going to come from the line of Tyler Brown with Raymond James.
Hum.
Okay.
Jim So back at our conference you talked about some pretty stark differences in the small container volumes in reopened versus not reopened markets and.
And I realize you may not have all the data right. There at your fingertips, but can you just give us some flavor of how say like a texas or.
Small container track versus call It, Ontario, Canada, just maybe something like that I'm, just curious to get a little more color there.
Right So Tyler the.
And you're right we talked about some of those states there were early and reopening like Texas, Florida, Arizona, and Tennessee, and how they were showing real real nice signs of recovery, but how other states maybe not as much. The good news is that we're starting to see some of those states that we're in and the latter group reopening and California is a good example, where.
Seeing some sudden.
Some reopening and California, we're seeing some reopening and new England.
We're seeing some reopening and the upper Midwest and Illinois.
I was I would say that right now and Tyler into the area that is still showing the greatest.
<unk> announced that it has not come to the party Ed is Canada, and its mostly eastern Canada that I looked at the numbers this morning, and facts and still showing weakness in Canada, and it's and it really has to do with the fact that they've remained shut down we're still showing a little bit of softness also in New York and Michigan.
But the the number of the areas that are and that latter group. The softer group is shrinking and that's good news.
And so I think I would add a couple of them to the list that I gave you at your conference to just the Texas and Florida as well, we've got a few new entrants there that are helping.
Okay. Okay, that's helpful, but those Texas and Florida are they tracking up in.
And small container.
Yes, so I looked at Torrance is ever yesterday, and Florida looks great.
I would tell you the only challenge there is on the labor side is that it's that competing against <unk>.
Somebody sitting on the couch and so you know why.
We didn't have layoffs as a result of COVID-19 as the business grows we havent need two two and add drivers and technicians, we have a number of open racks there and.
And I'm not going to.
Tony it's been easy to fill those but we do think that's temporary we don't think those.
And then we're competing against the government for Forever, We think it's probably third quarter when and when the government starts to realize that that ultimately needs to go away that theres enough jobs out there to.
Phil without providing.
And the added unemployment benefit, but Florida is doing real well right now that a lot of that hospitality is coming back.
In Florida, and I would say the same and in Arizona, the same really and Texas too.
That's helpful and then davina.
And if I took the midpoint of the EBITDA guidance I think the raise was about $100 million.
So I'm curious how that yeah. Okay. So I'm curious how that breaks down so it sounds like there's maybe 20 of additional ADF synergies, but then it sounds like theres, a little bit of actually a drag on incentive comp, but basically of the remaining.
How much of that is simply commodities and how much of that is improving IRG.
Yeah, It's a great question, Tyler and I think the way that we're thinking about it and you highlighted and yes, we're thinking about 80 assets being an important component to the overall collection and disposal business and our collection and disposal business with synergy capture and over half and expect.
890, our left and EBITDA with a lot of that coming from expectations for stronger pricing expectations for strong cost discipline, and then theres a big asset for the incentive compensation that we discussed so when you when you have about half of that related to strong solid waste, it's a really strong indication.
And the strength of those two indicators than on the commodity side. We've got a combination of the recycling line of business and men's and recycling commodity piece, we have about $35 million, there and about $20 million from RIN.
Ran value.
Okay, So collection and disposal.
It gets completely offset by incentive comp and then commodities is kind of and the other piece.
Yeah.
We offset by incentive comp and just takes away from that.
Headline number for.
Solid waste.
Okay, and then just I know theres been a lot of change with the fee for service change and Rajiv. So what is it $10 sensitivity to a $10 move and the commodity basket either in terms of EPS or EBITDA. These days.
Yes, Tyler on the recycling I'm assume and presuming that's what you meant.
So yes, I mean, you saw and heard some of that and my prepared comments about on average rate and in Q1 of <unk> 79 versus the historical high average is in the mid to high 100 Twenty's and.
And as I also mentioned, we've doubled the EBITDA quarter over quarter for the year. So we're very happy there and to answer your question, specifically I would say, it's about 23% to 25 per cent of that book or two and $23 million and $10. If you want to look at it that way, but what I would caution you by saying that and I've made this comment on a number of these calls again net Matt is key.
Correct, It does and slight up and down the same way as it used to because again, we've put floors in place from an inbound customer standpoint, we've got better and secured outlets on the outbound side I mean, we're seeing strong domestic and export markets right now, which is really helping us on the outbound pricing side and we've got more security around some of those.
Right. So the math I gave you is right at a point and time, if commodity price one way far south, which we don't expect and we expect them to stay hang in there for the next handful of years that math would change, but about 23 about $23 million.
And for that $10 move is where we're at for Q1 per.
Per share then Tyler is it's about and within this band that John just described this price band.
It is about four cents per $10 moving okay. Yeah, that's what I'm looking for okay. Thank you so much.
And our next question will come from the line of Michael Hoffman with Stifel.
Hey, Jim Thank you for everybody and Jim Divina, John Ed for taking our questions. So Cai.
And to being a little bit more for Tyler's question.
And if we're if we've got greater than 50% is benefited by the collection and disposal. So that's $55 million and then there's $55 million from recycling and Rins.
And the compensation number than just $10 million and then I just wouldn't want to get this right.
And the compensation impact right now our estimate and this can change based on our performance and the compensation estimate and as a total of about $25 million and so when you look at the solid waste piece. My my comment was it to more than 50 per cent. So we take that.
And $55 million from commodity the $25 million offset from.
Incentive compensation and that gets you to $30 million and you've got about $70 million and solid waste and that's a combination of synergy capture from the Ats business and the strong performance from legacy W. M.
Alright, and that was the important part of it so on the Wm piece, that's about asset utilization and incremental price because you lowered your churn improved your core that's it's a little bit of all of those things some up together right.
That incremental.
Right.
Okay.
And then John.
There was a question earlier about labor I mean, one of the things that caution everybody's you may make a decision to walk over time up not to add capital drive more trucks at a higher rate and then add a truck at a high level of utilization and instead of battling and truck at a low real level of utilization and we have to be careful when we look at the balancing out.
Some of those numbers is that over time is that correct.
Yeah, That's that's fair Michael I think what we've also learned through this is that as the volume really kind of the time and went out on volume I think the team did really a good job from an asset utilization standpoint, and what we've learned is that we can even do some efficiency gains to be made by shortening the work week. If you will from five or six days to 45 days and we work pretty hard through the <unk>.
And I can make sure reflects down and I think that's what you see and our efficiency numbers, our asset utilization numbers, our labor numbers and then as we flex back up to your point I mean, theres going to reach a point, where we theoretically you have to add another truck, but to my earlier comments, because we created that capacity, we feel we've got some leverage.
Certainly throughout this year to be able to to be able to take on those additional volumes without real day.
Incremental costs right and it's things like let's not work half a day on Saturday, which is over time.
Get the work all done and five days kind of thing that's the stuff that you've kept okay and a.
Last year and fourth quarter, you gave us a number of the total number of customers that weren't open yet.
At the end of the calendar year, where does that number stand today.
And just the recovery of our commercial collection that we talked about being at about 70%.
And the COVID-19 losses is that what youre, referring to and Michael Yeah, So and the distinction being.
Customer because if they they could restart but have less volume so I want to be careful of theres a ton issue, but there's also a customer.
Once they're back on that as revenue came back on whether they whether they can was full or partially full I don't care that revenue came back on.
And I'm trying to so when you say the 72% is at 72% of and not open physically or the tonnage.
It's Michael at several lever and I referenced it 72 per cent number that sort of yards Lawson and yards recovered and so its units.
Right Okay.
You still have a lot of customers.
Go ahead, sorry, Mike we do think that there is a.
Theres a percentage of businesses that and.
And we don't know what that is at this point, but theres a percentage of businesses that are going to be much longer and reopening and so because this is such a unique.
Events that we had never seen before we don't know exactly how that.
How that reopening occurs but.
And we do know that there are some businesses and likely and to Tyler's question likely and those states that were that were that took longer to reopen.
Texas reopened.
At least partially on the 17th of May last year, and then fully reopens later in the year and the third quarter.
Some of the state stay closed until 2020, one and and if you were a small business in Texas or in Florida, or and Arizona, you probably were able to weather. The storm. If you are a small business and Michigan or in Toronto you may have.
You may still be having a tough time weathering. The storm. So we don't know exactly what that debt.
And how many of those customers actually just simply don't come back there will be some out there for sure but we are by the way are looking a bit at and I know a lot of industries are comparing to 2019.
And because the comparisons are going to start to get really quirky. They already are I mean comparing to 2020.
For any metric is difficult and I'll give you one number that's net.
And that's very encouraging for us and that's the EBITDA number and as part of why we were so excited about it.
Quarter and about actually raised the guidance when you look at 2019 EBITDA for Wm legacy and you add it to kind of 80 S. Legacy you get something in the neighborhood of.
And kind of 4.8.
And that's about $4 $85 billion.
And then you look at what we just adjusted to and it's a $100 million above that keep in mind that.
Not really fair to do that because we divested a bunch of legacy so, but even if you don't count that if you just say Wm legacy 19.
And ABS legacy 19, Youre talking and $4 85 billion and were a $100 million above that and we have not gotten a lot of the volume back and we still have a lot of room to go.
In terms of Etfs so.
And that's one of the many reasons why we were very encouraged with the quarter and very able to take that unusual step to raise guidance alright, and I hope that helps a lot and to follow your thought all the way through you sold 100 million of EBITA, approximately so you're really up net.
$200 million on the combination of the two companies and you still have room to go.
And we did have the sell side and that's for sure Yeah. Okay. John you mentioned service intervals improved.
So just to be clear are you seeing.
This is Ed.
COVID-19 customer restarting and then the interval improved our existing business on the interval improved or a combination of all of that.
I think it's a combination of and I got a couple of numbers I mean service increases outpacing decreases that's been the case for a while but it's the gaps actually widening. So you can argue about what that points to but overall, we've seen a good trend there and the churn number you know where he's talked about what was structural and out of that churn number and we were at eight 2% for.
The quarter down from nine and change so we view that all of these are obviously is a good indicator and then to my points earlier, Michael about volume and particular in commercial.
Hard to look at the January and excuse me. The Q1 this year versus last year and split sequentially. When you look at Q4 and then.
And across January February.
Non strong months, partly weather, partly all the other stuff we've mentioned, but then I look at March and what the trends arent April and small containers and we're certainly encouraged there as well.
Alright, and then.
Last one for me and this is a little bit of and non sequitur I think the garbage industry has one of the greatest opportunities to influence scope three emissions.
Which are down.
Downstream from you. It's your it's your vendors or suppliers. So on Tara is no arena.
What is the opportunity there because I think your business model forces those suppliers and vendors that this or change the way they do things to meet your needs.
Let me give you an example of where you are right on that one.
Ralph tournaments.
We have made the golf tournament zero waste now four nine.
And I think nine consecutive years, maybe 10 consecutive years and so we take a very influence we play a very influential role there with the vendors or with the with the fans coming in.
And while it's not going to be identical to that we certainly to your point can play and influential role in the and sustainability and.
And that's why we look at it as such a differentiator for US. It's why we we felt that strongly about putting a senior level person in charge of it but I think you're absolutely right about that Michael alright, well nice job. Thanks for doing something very unusual 33 years and I can't remember the last time somebody raised guidance and the first quarter.
Thanks, Mike.
And our next question will come from the line of Sean Eastman Keybanc capital markets.
Hi, guys, a strong start to the year congrats.
Davina, you mentioned and the Q&A sort of not explicitly.
<unk> the margin guidance, you're sort of still keeping your eye on that contribution margin into the second quarter volume recovery.
I mean, what are the big puts and takes that you really keeping your eye on there and is it fair to say that you are feeling better about that dynamic now with the first quarter closed out strongly.
And so it's a great question and I think we talked.
To you all today about the biggest driver and that's the labor cost part of the equation.
And we certainly think that.
The efforts that have been put forth by the teams and manage overtime hours and and get those impacts not just on the service side that extended through on the repair and maintenance side have been a tremendous value and.
And we want that tech and needs to be a lever that produces the strong operating margin for the business and we're optimistic about that but we also know that there are flex points are breakpoints in the equation that happened when you add and additional route and so that's what we're watching.
And therefore, it from here with a growing volume environment.
Aside from Labor you know I think what's really important is that we can't forget that and our transfer and if it does.
Personnel costs and subcontractor costs, there's a lot of third party labor costs sales into those numbers and as well and so that's been that Jim had pointed us to a number of times today about and you know.
The labor pressure that exists across the board, that's something that we've seen and those costs.
And something we expect to continue into 2020 one.
45% contribution and contribution margin and that's what we talked about we're encouraged that we think that that holds but we think that there could be upside from it but the labor piece of the equation is really going to be the piece we have to watch.
Okay, that's really helpful and.
And then I guess, a more broad question.
Cash flow generation performance measure and the stock incentive plan seems to imply.
You guys are going to have over 4 billion.
Deployable free cash flow and a sense over.
The next three years I mean, I think we have a good sense of capital deployment priorities for 2020, one as you integrate a DSW but.
Yeah, there's a lot of dollars there and I thought I would check and to see if we could get a bit of a flavor on that.
Whats looking the most interesting as you look out over that three year that three year horizon with all of them all of that capital.
Yeah.
First priority is.
And investing in the long term growth of the business and that's something that we talk a great deal about and are.
Gannett gross three of them and focuses in recycling and renewable energy and have been places that we said you could see some outpaced capital spending from us about a day.
Current guide for 2020, one incorporates our expectations for the full year in those programs and.
We just have yet to determine how much we could accelerate spending 2022, and 2023 that cover incremental investment that could be worthwhile and those spaces.
And you know I think the rest of the allocation and really comes down to shareholder returns continuing to grow the dividend over the long term in that 45 to 50 per cent range.
On a payout ratio basis, and we measure that on free cash flow. So there's direct conversion and from that free cash flow measure and the long term incentive plan toward the dividend and which I think is a really strong indicator of how we think about the expected growth that can happen as we revisit that and the fourth quarter beyond that.
The statement that we made about at least $1 billion of share buyback in 2020, one as an indication that when we don't see M&A being the place that we will spend that available dollar and free cash flow and there is tremendous flexibility to allocate incremental dollars to the shareholders through share buyback.
M&A you know Jim touched on that I will continue to be sure that we're mindful of the opportunities that exist there and if we see opportunities to provide outpaced returns relative to our other opportunities will be.
Well positioned to do that with a strong balance sheet that I mentioned.
Okay terrific. Thanks for the help there.
And our net.
Our next question is going to come from the line of Kevin Chiang with CIBC.
Hi, good morning, and thanks, Thanks for taking my questions here and congrats on a solid start to the year.
I'm just wondering.
As the economy opens up I think during the pandemic.
Given all the government support for small businesses I think that did cloud some of the.
Some of the analysis in terms of what bad debt could look like as if those companies came out of this and and I guess, there's parts of your business.
Come almost full circle, I guess and some of this government support is being removed.
And the thing playing out that was unexpected and in terms of how you accrued for some of these bad debt or things coming better worse or maybe maybe as expected.
Yeah, I would say that things are recovering as expected semi.
Cash flow perspective, they're really strong and felt that we had and the current year has to do with the headwinds that we experienced in the first quarter at 2020 and the first quarter of 2020, we were between 60 and $80 million behind on cash flow because with our customers slowed down their payments.
We've seen really strong resilience from our customers and I think our proactive steps to protect our customers, particularly small business through the pandemic has paid dividends in that regard and you know so I will say, we had really good results from our day sales outstanding and bad debt perspective, and the first quarter.
A little ahead of expectations that all and all I would say more close to tracking Daniel.
Okay.
It's great news there.
And then moving just ballpark.
On on all the opportunities around the landfill gas capture and you spoke spoke to this in your prepared remarks, but it does feel like there's more private capital flowing.
Flowing to this opportunity.
And for example, and a number of investment announcements around companies looking to partner with landfills on things like sustainable aviation fuel.
Are you seeing the cost of capital come down on these on these kinds of projects or maybe Conversely are once the improving just there's a lot of other end markets look to reduce their own carbon intensity and looked at the landfill gas capture is maybe.
These are achieved and own goals.
Yes, Kevin.
And third party front and I'm sure. There's plenty of dollars out there that are looking for a place to park and this space and.
But I think what's important is that the ones the four and five plants, we have either in operation or and that we've invested in are showing some really strong results and we're going to continue to look at those opportunities I think divina how.
And then how we finance it to a different question, we have the balance sheet to be able to.
And to do that and we've got a fleet of 130 or so plants a handful of those are the RMG plants and as Jim mentioned, we're closing the loop and fueling over half our fleet with renewable natural gas, which I think long term.
That is a great solution for us and we've clearly got some runway to go before we even.
Consume all of the our capabilities to fuel.
Your own fleet.
We're happy with the space and the investments we have for share.
That makes sense and thanks.
And for taking my questions, Congrats and good quarter again.
Okay.
And our next question will come from the line of Noah Kaye with Oppenheimer.
Good morning, everyone. Thank you John.
Just looking at the 50 million of Upsized is idiots the synergies targeted here.
Can you give us maybe the two or three big factors that are really driving that where where are you getting greater savings and previously target and then.
Because it would help investors understand what what but sustainably youre actually doing here to do it.
Improve the returns.
Well, certainly you've heard us talk and the last few quarters. The integration has kicked off and got it has gone well a lot of the elements of the integration and risk seems to be going better than expected, we talk about data migration and being kind of a long haul last long pole and the Ted that's coming along nicely as we're moving that that information over to our system. That's that's important ela because.
In order to get the routing synergies of route consolidations, we need to have all the information and one database, but specifically to your question I mean.
Public public deal.
We didn't you don't get the same look under the Hood as maybe with a private deal and once we did get under the Hood and what we found is is that the areas that are impacted are finding out that they can operate the business more efficiently than we even thought going into it.
Lee I think on and internalization and transportation synergies is a another bucket where again once we got a look at some of that detail, we were able to drive out and.
Additional synergies and then and then lastly, really on the supply chain side, even though we're facing a couple of headwinds and some commodity related pieces, our supply chain group once they've got to look at the whole portfolio of spend there has also been able to drive some and.
Some additional benefits so it's really efficiency and the business in the field and it's the internalization and transportation and disposal internalization and and lastly, it's really some of the corporate synergies around supply chain knows and the three big buckets.
Okay. That's super helpful. John and then I guess, a question for Jim and the team broadly.
And I'm, just curious to know how and how you're engaging so far.
And with the New administration on.
Some of the priority and stay focused on it.
And in terms of climate pledge and they're clearly taking a whole low government approach.
That includes E P a.
Also it's clear that our waste reduction.
And as for.
And for some parts of the government a focus as well.
So just can you talk about some of the engagement and you've had so far and some of the focus areas for you as we kind of get and go.
Almost what one quarter.
And the way through the year of this first administration.
Well, so you mentioned EPA and that's where our engagement has been largely.
We've been engaged with them for not just the quarter that the new administration has been and office, but but for quite some time before that but.
Because of that engagement with them, we do know that there are.
There are changes coming through the EPA down the Pike and we are prepared for those and I think the.
We've mentioned this before but and in and off sort of way, we believe we end up being a beneficiary.
Some of these changes coming from EPA, because we've always held ourselves to a much higher standard environmentally so to the extent that that's the barghest raised.
And by the New administration, it actually ends up being a benefit to us the other areas.
And as talked about.
And the potential for tax changes and things like that and and so we're.
And we're keeping up on that I personally have not had any any engagement with the new administration.
In order to have engaged over the last administration I guess, they don't value our opinion that much but that's okay.
And to fly under the radar.
Alright, I appreciate it thanks Jim.
And our next question will come from the line of Jeff Silber with BMO capital markets.
Thanks, So much I know it blayne and I'll just ask one follow up and the last one.
President and proposed a pretty aggressive infrastructure program I know, there's some people thinking that you know may not all the spending be infrastructure related but I'm just curious from what you've seen so far and you think you'll be any benefits to your company from if anything's kind of come to fruition.
Look I think and infrastructure bill is going to be a positive for us anyway, you slice it but there is a question about what the what the details of that bill or I don't think anybody knows at this point and.
And it's there still is a lot of Nash.
And asking them to eat that's going to need to take place within.
And Congress to figure out those details so.
There could be an infrastructure bill that ends up being even better for us.
And depending on the details of it but any infrastructure Bill is I think good for the economy and and ultimately good for us.
Can you give us some examples of what those details might be that could benefit.
Well, so and infrastructure Bill for example that focuses.
And on road construction or bridges or big projects like that.
That is that we'll start we would certainly be a beneficiary of that and if it.
The structure that focuses on.
A reduction and natural disasters, that's a much much longer term benefit.
So I don't know that Thats I don't know that infrastructure spending that's and in turn turns into fewer hurricanes.
And that is going to benefit us because that's going to be harder to see I'll put it that way, but certainly an infrastructure bill as we think about airports as we think about our roads and bridges and all of that we end up being a beneficiary both on the collection side of our business and the disposal side.
Alright, that's very helpful. Thanks, so much.
Yes.
And our next question will come from the line of David Manthey with Baird.
Thank you for fitting me and one.
One less cut here at the guidance walk if I could so you're saying the EBITDA guidance is up by about $100 million and I believe you're saying that the compensation expense will offset pretty much.
The ABS and synergies. So if we just thought those things on the side. If your revenue midpoint is up by $2 66, EBITDA was up by 100.
And that looks like a high thirties kind of contribution margin and what I'm asking here and it seems like if you're saying most of the revenue upside is coming.
Coming from yield and commodities and growth and higher margin segments are you introducing a factor of.
And the conservatism here or is there another element we're missing.
And what I mentioned earlier about the cost headwinds that we know are coming and they were particularly strong in the second quarter 2020, one outlook and so our expectations. Currently are certainly that we could outperform on the margin side relative to where we stand today.
And to build it and thus far we've seen the volume acceleration, we thought would be.
You know not necessarily prudent based on and where we stand and we knew that $100 million left and EBITDA from just two months ago was a really strong indication of the strength of the overall business. So is there upside potentially but it would have to come from how we see the cost side of the equation.
Flow through as we see volume return, but I think we're always you're always going to see this this company this management team and really even and the industry be somewhat conservative we're a fairly conservative.
Company and industry so.
Fairly conservative which is why to Dominion has pointed to was it was such a unique.
Event for us to raise guidance. After just one quarter I mean every time that I can remember and I'm just about hit and the 20th year with the company.
We've had a poor first quarter, even in a really good first quarter, where we've just reaffirmed guidance and I think we did have one quarter, where we lowered guidance. After after one quarter, but sounds but this is this is pretty unique for us to raise guidance.
But with that said, we're always we're always thoughtful about it and and there is a level of conservatism and everything we do.
I appreciate it thank you.
And our.
Last question today is going to come from the line of Michael Feniger with Bank of America Merrill Lynch.
Oh, Hey, guys. Thanks for that day.
And for squeezing me out there and I'll just keep it very short I mean, obviously, the industry's bid and more disciplined you guys had talked about the focus on the price we saw there and prevent churn I'm just I'm wondering Jim as you see things open up and volumes do come up it seems like maybe just reopening is is getting pushed out a little bit based on the car.
Commentary and instead of April and May they just getting pushed out but what do you do see opening are you good and see some small players that has kind of been struggling and I think and it are they going to try to grab that volume do you have to walk away from some areas, where you think it might get a little too competitive on that volume and focus on the higher margin areas I'm curious.
How youre seeing that kind of play out when this reopening really does pick up more and more steam. Thank you.
Yes, Michael maybe maybe a little bit I mean honestly, if you look at it.
About the improvement, we've made and the residential and business and.
And we have walked away for some from some contracts there.
And so I think I think you'll see some of that I think you will always see us look at volume.
With with low.
Look at it pretty carefully because.
Not all volume is created equal and so as we think about this reopening.
As I said earlier, there may be some volume that we just simply elect not to take and that might help us.
Not only in terms of margin and in terms of operating performance, but it might also help our operations teams as they look at.
And the higher too.
To accommodate that volume.
Are you seeing that Jim and and some of the places that have reopened and maybe some of those mom and pops that had been struggling much more than you guys are they starting to get a little competitive there and.
As you see some of these regions and states open back up.
Okay.
It's a competitive industry. So there is there are always going to be.
There is no shortage of competition and our space.
And I honestly, just anecdotally I didn't see a whole lot of small businesses go away and art and at least and our industry. So I don't necessarily think you're going to see a whole lot come back because they there those are where theyre pre pandemic are still there.
And it's a competitive space no matter, who is competing so I think we do a nice job of.
The beauty for US is I think we're doing a really nice job of differentiating ourselves. So it's not just based on price its based on and on our service offering it's based on on this customer service digitalization that we've talked about.
And that ultimately is what we look to differentiate ourselves and give us the ability to raise price.
So that we're not just staring at a at our commodity competition.
And and Divina and just just so we're clear because I might have missed this like obviously April and May are are crazy.
The comps with the year over year with what happened last year like how are we thinking about this volume the 2% volume number with the second half and Q2 have you guys I might have missed this have you framed a range is that how to think about that easy comp and the second quarter and then really the second half how that how that plays out.
Yeah, It's a great question and Michael and you know that.
And the estimates are really difficult to predict but I would tell you our math at this point tells us that it's around 6% volume in Q2, and then closer to the one and a half day cheaper than in the back half of the year.
Okay perfect. Thank you appreciate that everyone. Thank you.
Thank you and that will conclude the Q&A session of today's call I'd now like to turn the call over to President and CEO Jim fish.
Thanks, Alan just just a quick hitting common and I just want to reiterate how much we appreciate and we do.
And I'll have 50000, almost 51000 and folks here that have made a huge contribution to the success of this quarter and continue to do so day and a day asked so thanks to all of you.
For your contributions and and thanks to everyone on the call for joining us today.
Thank you for participating in today's waste management conference call. This call will be available for replay beginning at two P. M. Eastern today through midnight on May 11th 2021, The conference I'd number for the replay is 1299110 again the conference I D.
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8592056, or 404537 and three four euro six. Thank you you may now disconnect.
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