Welcome everyone to The Woodlands. We appreciate you taking the time to travel, many of you from a long distance, Canada, the Northeast, other areas. We appreciate it very much. We've got about 50 investors and analysts in here this morning, and we are also joined by several on the webcast. So we appreciate everybody's attention.
Welcome to our 2nd ever Investor and Analyst Day. We did this exactly 10 years ago on our 10 year anniversary, and we figured with another milestone at 20 years, we'd do it again. And so that will be today. In the back, I'm joined by many of our executive officers today. You'll notice them because they're wearing their nametag or a Waste Connections shirt of some sort as well as many of our regional staff or regional VPs.
In fact, 5 of our 6 regional VPs are here with us today, 4 of which will be presenting later today, and I'll be introducing them as they go. But please feel free to, at the breaks or at the lunch, grab any Waste Connections individual you see. And any question you have of them, please feel free to ask throughout the day. All right. Let me before I go into our agenda, tell you a little bit about where you are.
You're obviously in The Woodlands. This hotel you're sitting in did not exist 18 months ago. It's been completed over the last 1.5 years. And the whole area that you're sitting in really did not exist about 4 years ago, including all the buildings that you see as you walked in and came down. We relocated to The Woodlands 5.5 years ago from California, moved our corporate headquarters, and this was grass.
Part of our negotiation was to build with The Woodlands, was to build the 258,000 square foot building where we are in and to include a restaurant in the lobby of that building, which is where our lobby is, but was also to build a 4 star hotel with 300 rooms or greater as part of that. And this was that hotel. And that was finally completed about a year ago. So we want it's worked out very well for us. We still have a little campus here.
We have our headquarters with a training facility in the bottom, and it's about 100 yard walk or less connected to this hotel. We often bring guests into here or employees into here for training. They're able to stay here and able to really walk and go anywhere they wish for the evening. So today, the agenda. We're going to spend the first hour talking a little bit about what we believe about the business and why, what our strategy is and why and talking about other things that we believe are critical to what we believe is a differentiated company.
We're then going to give you a bit of a deeper dive into the Progressive Waste transaction and what we have done from a high level view, and then we're going to dive into 3 specific geographic regions and have our regions talk about their perspectives on what they found throughout the transaction and from that, what they did and now what those outcomes are exactly 1 year later. We will then have Q and A at the end of that session before we take our first break at around 10 We'll then come back, and we're going to have a section on continuous improvement, giving you some deeper dives into some things that we believe are differentiators for Waste Connections and things that are top of mind in the industry right now, so include leadership development, IT, technology, its application, some very specific things that we're doing in 3 different areas. And then we're going to have a discussion on quality of revenue and sales approach and a Q and A for that session. And then we'll have our senior executive team up here for a 30 to 45 minute Q and A fireside chat, taking questions on anything we've talked about today or things that we didn't talk about that might be on your mind from the audience.
So that is the agenda for today. These are in your books, so I'm not going to read them to you, but just a list of our presenters today and a few that are not presenting but that are here, again, are available for your questions at breaks or at the lunch or any time they're in. And this is in your book. Our requisite Safe Harbor statement, again, we would always encourage anybody before making any investment decision to read this either in any of our filings or on our website. So I'm going to start off by talking about what we believe are the keys to success to this business and the way we look at the business.
And I want to preface this by saying that one of the things you're going to hear from us today is a word that I don't think is understood enough in this business at least, and that word is intentional. Waste Connections has been very intentional for 20 years about a few things. One of them is we've been very intentional about what our strategy is about this business and why. I'm going to talk about that. And by saying what we're intentional about, we're also saying what we're intentional about not doing.
We've also been very intentional about culture, and we're going to give you a deeper dive into that today. As we will tell you, we believe everybody has a culture. Most are unintentional about it. It's an outcome of how they go about life day to day. That is very, very different than what we do.
And so we're going to talk about some of these keys to success today. But I'm going to start off with obviously, this is our 20th anniversary and why we're having our 2nd Analyst and Investor Day. And we are proud about that. We'll do a little bit of look back only to give some perspective to those that haven't known us as long, but mostly look forward and talk about current day. We have some analysts and investors both in here today who were here 20 years ago, believe it or not.
And as I look around Michael Hoffman, Bill Fisher, they were here 20 years ago. If I go to 10 years ago, I can hit several other. Corey Greendale sitting in the audience was here 20 years ago. Several of our largest investors that we're fortunate enough to have here today, although the analyst or the manager may have changed at those investment community funds, the same investors are still with us today, and we're very proud of that. Real quickly, I'm not going to read these.
You can read them for yourself, but you can see where we started and where we are today, a dramatic change. If we were to go back 10 years ago, in 2007, the company was just approaching $1,000,000,000 had about a $2,200,000,000 market cap and $106,000,000 of free cash flow. As we move to today, the company is nearly $4,500,000,000 about a little over $16,000,000,000 $16,000,000,000 to $17,000,000,000 market cap and concurrent guidance about 725,000,000 dollars of free cash flow. If you go back to 20 19 go back to 2,007, we were managing about 215 P and Ls. That's what each of those operating locations represent.
And today, it's about 6 21 P and Ls. So dramatic, dramatic difference in the complexity of the company. Not up there today. We serve over 7,000,000 customers. If we go back to 2,007, we serviced a little under 3,000,000.
But I think one thing that is important is and sometimes gets lost, especially because many analysts and investors stop at EBITDA in their valuation is if you take a look at two numbers right there. 2,007 adjusted free cash flow, dollars 106,000,000 equity market cap, dollars 2,200,000 That's about just under 21x free cash flow was the value of the company. If you forward to today and you take the same two numbers, you get 21 times free cash flow. So despite a valuation change in EBITDA, the reality is that the company has really been valued at about the same multiple of free cash flow for the last decade. Ultimately, why we believe it is the only arbiter that matters is free cash flow.
Why EBITDA is expanding? Because if you look at to why the EBITDA multiple has expanded, if you look at 2,007, the company's free cash flow was running about 10% to 11% of revenue, dollars 106,000,000 on about $1,000,000,000 of revenue. And today, it runs 15% to 17 percent. The free cash flow percent of revenue has changed dramatically over the last decade. Thus, you see an expansion of the EBITDA multiple that we trade That's really just the same free cash flow multiple.
It's great when these work. All right. What do we believe about the business? Let me define this because there was some discussion about this at the Waste Expo, And I know other companies take a different view of the business. And I believe a lot of it comes down to a definition.
We believe the solid waste business is fundamentally a commodity business. And what do I mean by that? What I mean by that is that for most customers, and we have 7,000,000 of them, okay? The number one decision is price, okay? There is a very small percentage of customers, your large industrial customers, your manufacturing customers, by the way, that represents 1% to 2% of your customers, where service quality materially matters.
But for the vast majority of customers, what matters is price. And that's why we define this as a commodity business. Something that trades predominantly on price is a commodity business. I know, for example, Republic Services believes and articulated that they do not believe it is a commodity. But I would argue that when you're the size of Republic Services and when you change your price by more than 1% a year, you lose most of your business, that's a commodity.
To me, something that can't improve price by more than 1% or so is a commodity, okay? That's our definition. And that's important because what we have tried to do in our model intentionally for 20 years is build a business where we minimize the price commoditization of the business. That is what we've attempted to do. We've done that by our focus on franchise and secondary market.
The reality is, if this wasn't a commodity, private companies wouldn't dictate pricing in local markets, but they do. So we seek to minimize that element in our model and we've been very intentional about that. Based on that, we believe that, in this business, success is 1st and foremost driven by market selection because it determines the sustainability and direction of return. 2nd, your asset and contractual positioning within each of the markets that you select. This creates a moat for pricing growth and customer retention.
And third, execution at the local level. Put simply, we believe if you get 12 right, 3rd matters a lot less. If you get 1 and 2 wrong, 3rd doesn't matter at all, okay? That is a fundamentally different belief because of the market strategy that we are in than our large urban centric competitive model company. They must rely on number 3 because they do not have 12.
We believe ultimately in this business, the only thing that matters free cash flow creation. That is what drives value creation. That's been our focus for 20 years. We expanded the free cash flow as a percentage of revenue over the last decade by almost 2x as a percentage of revenue, moving it from approximately 10% of revenue to well, at times prior to the Progressive transaction, to 18% to 20% of revenue, still sitting today at about 16% of revenue. The next thing that we're very intentional about is we believe that the company that wins human capital business wins in this business on a market by market basis, ultimately.
We believe that every business, whether you're in the waste industry or any other business, has 3 types of assets: financial, physical and human. And what we find is that most companies in most industries, ours included, spend all of their efforts focused on financial and physical assets. Here's the truth. Those are the easiest to do. Those are the easiest to do because you can purchase them.
Those are initiatives, technology, okay? The reason most companies focus on that is because they're more instantaneous. But we believe the focus on human capital and winning that game is actually what differentiates our company and differentiates 1 in this industry and or in most as well. With our balance sheet, we can win both of those at any time. So we spend almost all our energy focused in the 3rd bucket, the human element bucket.
We believe if you take and
you focus your energy in
that bucket and you win in that area that you ultimately win this game. And we believe that we point to our last 20 years as proof of that. It is not coincidental that whether you choose margins, whether you choose turnover rate, whether you choose safety, incidents, whether you choose pricing, choose whether you choose volume, choose whatever metric you would like to in any area. Waste Connections has been fortunate to lead this sector for 20 consecutive years in every metric. That is not a coincidence.
That is intentional. That is an outcome of our strategy and our approach to the business. As we're going to spend time on today, ultimately, you'll hear a lot at Waste Connections. You won't hear us talk about initiatives. We don't talk about initiatives.
We believe initiatives are what you do when you don't know what else to do, right? We talk about culture. Ultimately, if you get the best people, if you incentivize and motivate and retain the best people. The best people figure out how to win locally day in and day out. One of the things that is a hallmark of WES Connections, again, that we've been intentional about for 20 years is the continuity and stability of our management team.
Compare that to anyone else in the sector, it's probably been through 2 to 4 rotations in the same period. We believe that has an effect on things. You'll hear presenters today, most presenters today have been with Waste Connections between 15 20 years. Our senior executive team, which includes 20 officers, has been together on an average of 15 to 16 years. Several of us here today have been working together for over 25 years.
Again, it's something we believe is very important and we're very intentional about.
Well, it's pretty sensitive.
Eventually, I'll get this to work. You'll see a little we have a little saying, and it's culture it, in parentheses, matters. That's not IT. Our IT and group would like to believe that IT matters, but we make sure it's not. IT does matter, but and it matters.
And we use this as a little saying within our company. And most people just say, well, okay, that's cute. What is it? We actually define it, okay? And it are sort of the 3 to 4 cultural underpinning pillars of how we do things and why.
So it's the how and the why behind what we do that we try to establish as a common element for all our leaders and all our employees throughout the company. To make it an intentional, but really almost unconscious way of acting and thinking over time. What are those that define us? Well, really one we would really define is what we call golden rule thinking, okay? And it's really that simple.
Gets back to something we all learned early on, treat others as we would hope to be treated. And that's really the underpinning of this. But it starts with our vision and values and purpose that underpins everything we do. Many of you have heard about servant leadership. You're going to hear a lot more about that today because that is a real underpinning of Golden Rule Thinking.
We began the implementation of servant leadership as a leadership philosophy back into the company 12 years ago. This has been a 12 year journey. It is not a project. It is not an initiative. Those have beginnings and ends.
This does not. This is a philosophy. It's a way of doing things. And it's been a long journey. First 2 to 3 years are very difficult one.
It is something that is very foreign in an old line industrial male centric blue collar business. That's what the waste industry is. Something that's very foreign to that and took a tremendous amount of intentional effort for many years to get going. But about the 3 year 3 to 4 year mark, we started getting a lot of traction, And the acceleration of that traction over the last 6 to 8 years has been tremendous. You're going to hear about that today.
I believe, we believe that it is the number one thing that helps drive our culture and ultimately much of our results. And it is something that is very difficult to do. It is not something you can begin today and say, we're going to be there in 5 years. We're very big in community involvement and giving back. We believe that ultimately, our business is a local business at each market.
And to be successful, we have to be woven as a thread through the fabric of each community that we operate in and be viewed as a partner with the community and the not for profit and those that are less fortunate in each of the communities we operate in as a fundamental value that we drive for. We also believe that relationships drive results, that relationships drive results. It's a huge focus for us. You'll hear about it today. We're also very bullish on delivering our commitment.
One thing that people have a hard time understanding from the outside is how in a decentralized operating structure do you get accountability and results. That is part of the secret sauce. That is part of the magic of our we believe our culture and our leadership approach is that accountability to result in a decentralized operating environment. If I was to back up I'm not going to because of this clicker. If I was to back up to the little handprint on the culture, it matters with a little handprint like a greasy handprint.
It's sort of what we call an indelible thumbprint. We use that as a symbolic reminder to our people, to our leaders throughout branding within the company that every day in your interaction with people, you're leaving an indelible thumbprint. You're touching them whether you like it or not in your interaction, in your communication, in your approach to how you handle things, good and bad. And that thumbprint's indelible. And we ask our people to think about how they want that thumbprint to be remembered a year, 5 years, 10 years out with each and every one of the employees that they have the opportunity to lead.
That's what that is for. It's about trying to have our people be humble and have that show humility. The hallmark of servant leadership is the willingness to be accountable to those you have the opportunity to lead. I'll let you think about that for a second. Because most organizations, leadership is about people being accountable to those they report to.
We have that too. That's called management. That's called management. Management is about the execution, the how things are executed. It is about order.
It is about the accomplishment of objectives, sometimes agreed, sometimes unagreed. Leadership is about how that gets done. And in how it gets done, we ask our leaders to be accountable to those they have the opportunity to lead, sort of invert the traditional management pyramid is how we look at it. Also one thing, if you've been around Waste Connections at all, this is one you probably think was number 1. It's something we do believe very much in, and that is celebrating victory, celebrating birth fees at a corporate level, at a district level, at a departmental level.
We focus very heavily on striving to be a great place to work. We sort of want to embody a work hard, play harder attitude. People put so much of their lives, into their careers, whether they're driving for us or they're one of our executive leaders, they're spending 50 to 70 hours a week at work, more time than they do probably at home with their spouse. If they don't want to do that, there's a lot of options in the world for them today. We focus very heavily on trying to create a great place to work where they want to be, not have to be.
And we believe that continuous celebration of small victories is very, very important, very, very important. And lastly, we want to lap towards that is local decision making. We operate in what we call a strong district manager decentralized operating philosophy, which means that we push down the vast majority of our decisions on service delivery and employee interaction and execution to our local management team. And part of servant leadership is developing self directed empowered employees. What you will find in this industry as a rule of thumb, and we were there and we are still there in some places because it's a continuous battle, is what we call firefighting leadership.
Every day you get up, you go in, you figure out what fires to put out because there's too many to put out. And all you do is hope to get through the day in 12 hours, get everybody in, hopefully, somewhat safe and go to the next day and get ready to firefight again. That is a painful way to run a local market or a company. It is the hallmark of this industry. We have tried for over a decade now to move away from that model to a model where employees are much more self empowered so that leadership can actually take proactive steps of continuing to move the company forward and get out of Crisis Management, get out of what we call firefighting management.
We've done that through our decentralized model with servant leadership really being the guiding way to do that. And we're going to put a lot more teeth on that for you today so you understand how we've done that. But ultimately, the key to a successful model, and particularly one that is decentralized, is accountability, is accountability to objectives, taking ownership at a local level. As you'll hear from us today, we do not believe in standardization. We believe in standard, okay?
Now we have standardization in many things, okay, financial, accounting, IT, things that are sort of transparent to the customer and the employees would be a good way to think about it. But aside from that, we believe in standards, standards for risk, standards for productivity, standards for customer satisfaction, for sales, for return on invested capital, for virtually everything. But we allow the market to determine how to achieve the standard because it's very different business in Alaska than Houston, than Albany, New York and Miami, Florida. Culture, weather, local politics, local politics, local politics, national politics, government regulation, all of these things have dramatic impacts on our business on a local level more so than most people would understand. You cannot have a standardized approach to this business.
We do not believe you can. Before I introduce our next speaker, I want to say this. What we want you to think about today is what has made Waste Connections successful for 20 years and has increased that lead between years 10 2020 because we really have kept the same strategy for 20 years. We've moved very heavily into the leadership and culture focus over the last 12 years with even a greater focus over the last 8 to 10. And we believe we've created a business model that is very different and at a size now that obviously is very different than we were 10 years ago.
But our approach to the business and the markets we choose, why we choose those markets and the operating model that, that produces is not something that anyone else can just pick up tomorrow. Put simply, the 500 to 1000 basis point lead in margins that we've had over most of the industry for a decade to 20 years, The 40% gap in pricing, the 40% better turnover, the 40% better risk, those are monumental gaps in a commodity business. This is not a gap that will be closed in 10 years or 15 years or 20 years. As we stand here at our 3rd investor meeting at year 30, the gap will be as great or larger. Some people say I've had investors and analysts say, well, so and so company is going to get to 30%.
They're at 27% or 28% today in EBITDA. I said that's great. There's one way they get there, with 3% GDP and a 3% plus CPI because that tide will lift their boat. If they get there, that means I'm at 36% to 37%. The gap doesn't change, right?
Because that's what it takes for them to get something approaching 5% to 6% organic growth. In that environment, we'll have 7% to 9%. We've been through that environment, what's called 2,006 to 2,008. So we believe we've created a company that in good times or bad, and we've been through both. This will be if we hold up this year, I hope we do, this will be our 14th consecutive year of positive stock price appreciation.
We've done that through the worst contraction in the history of the U. S. Other than the Great Depression. And through all those years, we were still positive. So whether in good times or bad, we believe we've built a resilient model.
We've been intentional about it. And I hope what you're going to see from our teams today is the breadth and the depth of the team and the understanding of a approach to the business that is fundamentally different than anyone has had or will have because there's no way to adjust midcourse at where people are today, not with the footprint that exists. So our next speaker is Mr. Hank Kohl. Hank is our Director of Leadership and Development at the corporate level.
Hank's been with us about 11 plus years now. We recruited him back when we were headquartered in California in the Sacramento area. He has a tremendous pedigree in leadership training and development out of several sectors. But Hank is really the champion, I'm going to say, of our culture. And he and his team drive every day drive every day to continue pounding on the message of culture and leadership development.
So with that, Hank, come on forward. Thanks, Ron, for the nice comment. And thank you all for taking some time out and coming down and letting us share our story with you today. I hope you have a good time, and I hope maybe there are couple of golden nuggets you can take back to the people that you work with over here. 2013, this was our annual report.
Some of you may recognize it, okay? Let's see who's the sharpest person this time of the morning in the room right now. Who can unscramble the letters that were on the cover of our 2013 annual report? Who's got it? Who's sharp?
Culture matters. Oh, my gosh. Do we have prizes? Okay, perhaps later, perhaps later. Yes, it's like culture matters.
Now let me ask you, you guys are smart people. You see a lot of annual reports. How many companies put culture on the cover of their annual report? Mark, give me a number. How many?
All the Europeans do. All the Europeans do. Wow. What could we draw from that? We probably I don't have time to go into that discussion today, but I suggest not many really put that on the cover of the report.
But that's how important it is to us. And it kind of begs the question, I guess, what do we mean by culture? What is culture? Anybody want to throw something out? What comes to mind when you hear culture?
It's just the participation part
of the morning, by the
way, just so you don't miss this opportunity. But who's got a definite working definition for culture? Anybody? It's easier to undo the scrambled letters, wasn't it? Okay.
I'll help you out a little bit. And with Connections, we like to think culture is kind of the way we do things around here, okay? It's how we do what we do, but it's very intentional. It's not by accident. As Ron said, every group of people has a culture.
You get more than 2 people hanging out together, they've got a culture and how they do what they do. But in most cases, it just evolved. For the last 10 years, we've been very intentional in what we want the Waste Connections culture to be, but then we think that culture is going to help us get the results that we want to get. We call our culture servant leadership. And as Ron mentioned, servant leadership is about taking care of other people.
It's about being able to make good things happen for other people. That's what it's all about. And if we've got 16,000 employees that every day are trying to make good things happen for other people, whether it's their customers, their coworkers, their managers, their community, our shareholders. We think that's what drives the results, yes, Ed. And you may be asking yourself, since I mentioned we do this intentionally, how do you do that?
How do you drive a culture that's coast to coast, multi nations now, 16,000 employees, a couple of 1,000 managers? How do you be intentional about that? Well, let me share with you one thing that we do. Every new manager to the company, whether it's newly hired, newly promoted or newly acquired through an acquisition, during the 1st 90 days, they attend a 2 day training session at the region office that we call Servant Leadership Discovery. And during that time, that's when we introduced them to this intentional culture that they get to be a part of now.
And I thought it might be kind of fun if you'll indulge me. Are you willing to have just a little bit of fun? I know it's stretch for some of you, but could we have just a little fun for a minute? I'd share with you one of the activities we do during servant leadership discovery for our new managers. Inside the front pocket of your book is a little worksheet, and this is all you need.
And what we do during the servant leadership discovery, Damon, if you can help me out there, Then we kind of ask them to take a minute and think about where they used to work, okay? You can think about whether you work now or where you used to work, whatever you like. And what we do is we ask them to kind of go through this list of things and kind of decide, is it more like the left side or more like the right side? In other words, where you used to work, were the decisions more centralized, in other words, they all came from the home office? Or were they more decentralized and allowed to remain at the other end?
And you can kind of just put a check mark more towards the left or more towards the right with all that. So again, just for fun, you can kind of skip through that. Don't worry, it's not going on your permanent record, okay? Nobody's going to collect these or any day later. But just go through them.
When we kind of take a look at centralized and decentralized decision making, does the company have standardization, as Ron just talked about, cookie cutter, everything's the same? Or were there just standards, where there's values that people can make decisions by? Was it about controlling people? Or was it about empowering people? Was it about a results focus or more relationships focus?
Was it about doing things right, following all the procedures, checking the boxes? Or is it about doing the right thing? Is it about thinking and talking about it? Or is it about doing something about it, getting it done? About work hard or play hard?
And maybe it's in the middle someplace. That's okay, too. Was it about looking forward or looking back? Was it about annual performance conversations for employees? Or was it about daily performance conversations between managers and employees?
Was it about safety compliance or safety behavior? You should probably have a group of Xs all over the pages if you're playing along with me. And some of you, I know, just gotten an important e mail, you had to take care of these. So you didn't have time to take care of this. I'm a trained professional.
I understand all those games, okay? You can't fool me, okay? Here's the deal. If you've got somebody next to you, just take a peek over the person sitting next to you and see if their exes look exactly like yours. Who's got it?
Anybody got a couple? Yes. Anybody the same? Are they the same or different, do you think? It's different, okay?
Because every culture is different. Thanks for playing along with me, too. You'll be richly rewarded later in the day, okay? So every culture is a little bit different. I've been with Waste Connections about 10 years now, and this is the world according to Hank, okay?
If I had to do this on how I view Waste Connections right now, this would be how I see the access here at Waste Connections in our culture. Now let me connect the dots here. If I connected all those and turn your head slightly to the right as you look at the screen, what do you see? What do you see? A W, and the W is for winning.
We think this is the winning culture, right? This is the winning culture. This is what it takes to get the results that we get and make them sustained results. A little later this morning, Ron's going to share with you some information about the Progressive acquisition, where we doubled in size a year ago. And in the 1st 90 days, every single one of the 1,000 managers at Progressive did this activity with us, okay?
You might be thinking, I wonder what their graph looked like when they came on board, right? Could I share that with you? I'm asking your permission. Is it okay? Okay.
Because you've got other things, I'll just move right along. Here's what the progressive graph look like. It's the exact opposite. It's the exact opposite, So picture you're in a room and this is where you used to work and you just got introduced to what it's going to be like with the new place you work. What might you be thinking?
Anybody? Yo, shit, well, it's where they used to work. I'll tell you the response we got was, woo hoo, it's about damn time, okay? This is the kind of organization I want to work for. And I think that whole shift and understanding the culture that we're going from to the culture that we're going to really is what helped us make this transition much, much, much easier because people can see I get to do things the way I'd like to do them, and I'm going to be rewarded for it, embraced in doing it.
So that's what the culture was really all about and how it changed and how we help them understand what the culture was like and being able to make that transition. So we mentioned that it's an intentional culture. So when new managers come on board, they've got some responsibilities with that. In other words, what's the manager's role in making sure the culture stays where it's going and doesn't go sideways and doesn't really change because cultures will change if you're not intentional about it. And our message to all new managers is that they become, once they work at Waste Connections, to keep further culture, which basically means don't mess it up, okay?
It's very intentional. It took us time to get here, and their job is to keep doing how we do that, okay? So let me ask you all, based on what you've heard already and what you already know about Waste Connections, does culture matter? Yes. Yes.
We think it really does. And it takes a lot of work. It's hard. It's difficult. But we really think culture is that key differentiator that's made things happen so much.
Ron? Thanks for if it's okay, could I come back a little later this morning? Goody, I can't wait. Thanks, Ron. This early in the morning, we give you brief snippets of Hank.
We do this at corporate too for training. We have him come in early. It's everybody awake, but then we have to bring him in later to reenergize. This morning, I wanted Hank to give you a glimpse into servant leadership because later today, we're going to do sort of 3 deep dives deeper dives into areas, and one of them is going to be into servant leadership. Hank will be back to really put more fundamental meat on the concept.
Next the concept. Next, I would like to introduce Sean Mandel, our VP of Safety and Risk Management. Sean is going to come up and give you a little bit overview of how we view risk, what our approach is to risk, what some of the results have been. Sean has done an exceptional job with us. He comes with he came to us from one of the larger public companies or he had been for many years.
And I think it's valuable for you to hear his opinion of the approach there versus the tutelage, the company has made great strides, as I think you'll see today. So with that, Sean, come on up. Great. Thank you, Ron. Appreciate it.
Let's see if I can figure this quicker out. Good morning. Appreciate the opportunity to spend a few minutes and share with you what we consider our first operating value. I am privileged, as Ron had said, to be the Vice President of Safety and Risk. And with that, just to give you a little background on myself, I've got 22 years in the industry, started with a company known as BFI.
Many of you probably remember that company. They were acquired by Allied Waste and then eventually Republic Services. Although I remained with the organization, the organization just changed things. And I was fortunate enough, as he said about 7 years ago, to come over to what I consider the absolute best company in the industry. And I'd like to share with you our story from a risk and safety standpoint.
When I first got here, it was pretty clear that there were some things very special about Waste Connections. Hank and Ron have shared with you a little bit about that. That thing that we call sort of a leadership and the approach has really been the foundation of the success that we've been able to see. You see, for those of you that may not know, this waste industry as an industry has been in the top 10 most hazardous industries in America for well over a decade. According to the Bureau of Labor Statistics, we're currently 5th most hazardous industry in America.
Why is this important to know? Because all the companies will say safety is our first priority, with the exception of 1. We refer to it as our first value. You see, priorities can change according to the wind and direction and things of that nature. Values remain consistent.
They don't change. And so the Waste Connections record of success in safety and risk mitigation, reducing that risk is built upon that foundation of servant leadership. Our role as leaders is to equip our people for success, to get our business and our people from here to there. That servant leadership, that unparalleled culture of safety and the strict adherence to those operating values, it's a differentiator for us. And I'd like to share with you some of the successes that we've seen.
So as you know, there are certain things that are reported to governmental agencies with public companies, publicly traded companies. On the private side of the waste industry, we are accountable to report to the Bureau of Labor Statistics things like our total incident rates to the DOT, our total accident rates and things of that nature. And so this is just a snapshot from 2015 of where we were at that NAICS code of 5,621. I'm sure all of you understand, but that's basically the waste industry. And as an industry, it was around 6.4.
In other words, if you had 100 employees, better than 6 of those employees would be involved in some type of injury, recordable injury throughout the course of the year. In addition, during the years of 'thirteen, 'fourteen and 'fifteen, the private sector saw well over 200 employee fatalities. Think about that for a minute. Private sector only, over 200 fatalities during that time period. Anybody have any idea over that same period how many employee fatalities Waste Connections may have had?
0, not one. Why? Because it's a value for us. We have onboard event recording technology. We have onboard tablets.
We have processes for defensive driver training like Smith system and so forth. We have all those things. What's the difference? Our culture and the servant leader approach that we take. You see, we're made up of a lot of Type A personality folks that like to win.
How many of you enjoy winning, right? Take a look at Waste Connections' track record and you'll see we enjoy winning. I don't care what the metric is, we like to win. And there is no greater asset to our organization than our people. As Ron mentioned earlier, if we can win in that human piece, game over.
And that's what we've done through this servant leader approach and the culture of safety that we've been able to establish. From a total recordable incident rate that I was referencing earlier, as you see, the industry has remained flat or actually slightly increased in that total recordable incident rate, while Waste Connections continues to improve. And this is important to remember, because
when our folks come
in to work this very arduous and sometimes hazardous job, they want to feel like they're protected. They're protected through a culture with us. Our job is to get our people and our business from here to there. We talked about the last 20 years and where that here to there was in 1997 and 2007. Our here to there in 2017 is to continue the track record that we've had for 20 years, is to continue to further that mindset, that skill set, that tool set throughout our nearly 16,000 employees over 600 locations in 41 states and 6 provinces of Canada is to continue to further that.
You see, when I started in the industry 22 years ago, it was very much about compliance. If our lockout tagout and hazard communication, our compliance based programs and so forth, we've got all the records and documents, we're doing the training. We could hit everything but the lottery out there from a collision and injury standpoint, but if those things were done and we could check the box, we were winning. What an abysmal thought and approach to take. Our success here is dictated by the success of our folks out there on the road every day.
Every day, each region reports out to the region Vice President and every other leader in the region how many incidents they had that day. Now an incident could be a rut in the lawn or a broken sprinkler head, maybe a mailbox or it could be as serious as a life changing injury. But they report that out every day. And when a report comes through that a region is gone with a 0 for the day, there is a celebration. There are e mails flying back and forth.
You should see it. Where the rocket? We've had some regions, you'll be speaking with Jason Craft a little bit later, that have gone 4, 5, 6 days without a single incident, again, in the 5th most hazardous industry in America. Pretty exciting stuff we've got going on, and it's a differentiator for us. Again, Waste Connections' operating values, those serve as a constant guide to our leaders.
There's a reason that they're in the order that they are. Safety is at the top. Why? Because without it, none of the others, integrity, put in a great place to work, customer service, doing that premier, none of those other things can happen if our employees aren't able to go home the same way they came in. Our local leaders, our supervisors, ops managers, district managers, site managers, they understand and utilize those well established values as a basis for their decisions every day.
They're not checking a box. They're creating an environment and building relationships where our folks can come home the same way that they went out. It's an important differentiator. As I said, I was previously the Director of Safety for Republic Services, and they had very similar programs and processes. What was missing?
The culture, the leaders understanding that they're here to make good things happen for other people. And the most important other people that we're talking about are those people that they have the privilege to lead. Our senior leaders like our divisional vice presidents and regional vice presidents, many of whom you'll be hearing from later this morning, their responsibility is to ensure that they support that, that they're furthering that. And then finally, all of our leaders promote these values throughout our organization. Again, we refer to them as values.
And by definition, for us anyway, it's how we do what we do. It's what differentiates us from the others. Go and take a look. If there's any other national players out there that can say they completed 4 consecutive years without a single employee fatality or preventable third party fatality. I assure you there are none.
As a co chair of the National Waste and Recycling Association Safety Committee, I guarantee you there are none. You see, these values, they differ from priorities. They don't change. They remain the same as they were 10 years ago, and they will be the same 10 years from now. There are some foundational and cornerstones that we built upon.
We have the best technology. We were the 1st national company to fully deploy event recording technologies in the form of DriveCam and 3rd Eye Cam. We're one of the first to make it a mandatory requirement that all of our drivers go through Smith system defensive driver training. We developed internal defensive driver training that we refer to as the Target 4. We've got Target District programs and things of that nature.
We're the 1st company to fully deploy internal e communication safety boards at all of our locations. We've got the technology. What's the difference? The culture side, that servant leadership. It's a differentiator for us.
It will continue to be a differentiator for us. Our success is dependent upon it. Every one of our leaders understands that. And again, it's why we're able to sit here 20 years later with the success and track record that we've been able to. Appreciate your time this morning.
We've got a lot more that we're going to share with you, but this is just kind of the Waste Connections incident rates over a decade plus. As you see, every year, we've continued to improve. Make no mistake, there was a reset with the merger and the legacy Progressive Waste Company, but we're getting there again. Give you an example of the successes we've seen already just in the 1st year post merger and keep in mind we actually communicated this in January February. There were some key leaders meeting together to ensure that the progressive leaders that would be coming on board understood our operating values and direction.
These are the results that we saw in November of 15. Progressive Waste saw nearly 500 incidents in that 1 month. As a comparison, Waste Connections for all of 2015 had 1200 incidents, 1 month aggressive Waste 500 incidents. In April of 2016, after the communication and several meetings with their leadership, that number was dramatically reduced almost cut in half to about 250. And in April of 'seventeen, we're trending just slightly above 100 incidents.
What changed? The trucks didn't change. The people didn't change. The technology didn't change. The mindset changed.
The values changed. The culture is beginning to change, and we're excited about the direction. We anticipate that we will be at 40% improvement by year end. Think about that. 1 year post merger, 40% plus improvement in our incident rates.
But what is most valuable to our leaders, what we consider our greatest accomplishment is, that means people are going home to their families at the end of their workday. That means fewer life changing events are occurring. There's this thing that is known as Heinrich's pyramid. Some of you may be familiar with it. There's a gentleman by the name of Robert Heinrich.
And in the 1930s, he did several studies and came up with this math that says, for every life changing event that occurs, there will be 29 less serious, but still minor incidents. And of those 29, there will be 300 unsafe behaviors that occur around the organization for that one life changing. We adjust the behavior. You see Progressive Waste had event recording technology as well. They just used it differently.
We coach and change behavior. That's our responsibility as leaders. We want to equip our folks for success. Whether it's a customer site that is far too hazardous and we need to make a change or if an employee that for whatever reason can't come over from a behavioral standpoint to do what we need them to do and we need to make a change there, we're willing to make that change because we understand that that's what our responsibility is as leaders. Again, I appreciate your opportunity to spend a little time with you.
If you have any questions, they'll be around on the brakes and this afternoon for lunch. Thanks very much. Now we're going to jump to the next part of presentation. I'd like to ask the 8 participants to come forward. And as they do, let me talk a little bit about this.
We're going to give you an in-depth view of the Progressive transaction and how we attack that transaction. From company and have you hear from our leaders what exactly they found from that, what their approach was and then what the results are as we sit here today. As we looked at the Progressive transaction, we really approached it with the same playbook. We approach every transaction. It's just that we had an approach to $2,000,000,000 transaction in revenue before.
But first thing objective was to infuse our culture. That is a major undertaking. We're a year into it, a little over a year into it. And we've got a lot of work to do, but it's had a material impact. You'll hear about some of that.
By the way, we let me back up. We closed this we announced this transaction January 19, 2016. We had our first meeting in Orlando, Florida with all of the field level leadership of Progressive in the 3rd week of February. We then had the leadership of the Progressive and the controller leadership of Progressive here for 2 day meetings in April May and then our next one in 5 days after we closed June 6, 2016. So while we closed June 1, 2016, we began the work intensely 4 months earlier so that the day we closed, everybody knew the game plan for that we were going to approach going forward.
A lot of people said, well, we've made a lot of progress in the year and we have, but we've really been active up closer to 16 to 17 months as we sit here today than a year. And the first thing we had to do was we had to drive our culture into Progressive to improve safety, improve employee retention and accountability. Quick real quick numbers. Progressive's risk rate was 3.5xR at Waste Connections. Their employee turnover was 43% to 44% on a run rate basis.
And local accountability to objectives like risk, like turnover, like pricing, I don't want to say were non existent, but they were very close. And it was something that was not part of the progressive culture. So we had to change that immediately. We had to improve the quality of revenue. You'll hear later from several in a deep dive.
But Progressive was a company focused on volume at almost any cost. They were of the belief that if we didn't have a customer, we couldn't price increase them, which is true, but then you also have to price increase them. And that was just something that they did not consistently do. Productivity was an overarching objective. There were many there were 1,000,000 of dollars of customers that we gave the field the okay to shed that were unsafe to serve.
And we went about a very directed approach to quality of revenue, being strategically consistent, customers that were safe to serve and appropriately priced. As many of you know, so in the prior year to the close, Progressive's reported price improvement was 0.6%. That platform is now on a run rate of 3% to 3.5% improvement in price per year. So a 500% to 600% increase in price in 1 year. We want to drive higher EBITDA and less revenue.
To an extent, Progressive had a philosophy of being all things to all people in each of the markets they were in. That led to many markets where they were had 0 to single digit EBITDA and we're comfortable with that. That is not something we are comfortable with whatsoever. So, in many markets, we had to stop doing certain business, stop servicing different types of customers, eliminate brokerage business and, in some cases, divest the business through outright sales or swaps with other companies. We were going to control the business and make the business footprint look like what we're used to doing.
And we were going to reduce the CapEx to EBITDA ratio. Progressive consistently ran approaching 14% of revenue in CapEx. We have that footprint down to about 10%, a 40% reduction in CapEx on the revenue in less than a year. And ultimately, we were going to increase EBITDA to drive free cash flow conversion, and that would lead to shareholder value creation. We are tracking a solid 12 to 18 months ahead of where we thought we'd be.
To be quite honest, we sit here today in Q2 at where we thought we would end 2018 and begin 2019. So that's how we get to the approximately 18 months ahead. The reality is, as 18 months ahead. The reality is, is we underestimated the opportunity for improvement. We underestimated the opportunity for improvement.
You've seen that in that we have scaled back the amount of divestitures because we have fixed markets that we thought we would divest. In less than a year, we have taken markets that were running 0% to 4% EBITDA and we have brought them to 18% to 21 in a year. We don't need to divest that when we can make that type of an improvement. So we underestimated the opportunity and that is one of the reasons we are ahead. Many of you know those outcomes, but I will tell you.
So revenue, we're going to shrink the business 10% to 15% on divestitures and intentional shedding. So what does that mean? Progressive was about $1,950,000,000 in revenue at the time of close. By the time we're done with that footprint, it will be about $1,750,000,000 to $1,800,000,000 So shrinking it at probably about $200,000,000 $150,000,000 or so in divestitures and $50,000,000 in intentional shedding. And then with the price growth on the business this year, you get back to from about 1.7 5 to about 1.8.
Our EBITDA, we're going to increase to 25%. When we closed, it was running 4.75000000 to 4.80 1,000,000 We are now going to be pushing a run rate of €600,000,000 So do the math, €600,000,000 on 1.8 is almost 33%. When we closed the business, it was running $24,000,000 to $25,000,000 Adjusted free cash flow, we have doubled it. They were running about £150,000,000 and we are now running approximately £300,000,000 Next up, I am going to ask 3 of our most impacted regions. In our company, we just so you know, we have 4 U.
S. Solid waste regions and 1 Canadian solid waste region. And then we have an E and P region. So we have 6 regions in our company. The Progressive transaction really impacted 3 of our regions very heavily, and you're going to hear from them today.
And then a 4th one of our regions, central region, we picked up the Missouri assets there. And of course, it had some impact, but minimal. So with time, we've asked 3 of our regions to present today. So, first up is Rob Nielsen, our Regional Vice President from our Southern region. And he is going to talk about what he found.
Rob has Rob and I have worked together for probably close to 25 years now. Rob has been with Waste Connections since virtually our founding. He was our 1st Regional Vice President of our Eastern Region. He then went out and ran our Western Region for many years. When we acquired R360, I asked him to come in and be the President of R360, and he did that.
And when we did this transaction, I asked him to head up what would be the largest region in the company, which was the Southern region. And he has been here doing that since before we closed last June. So with that, Rob, welcome.
Great. Thank you. Good morning, everybody, and thanks for giving me the opportunity to talk about the Southern region. I'm going to talk about the state that Progressive Waste was in when we found it and the steps we took in riding the ship. Then I'll talk about the struggles we've had with the fleet.
And at the end, I'll talk about the fruits of our labor. Before we start, I'll give you a quick orientation on the region. Southern Region is the largest region in the company to be measured by employees and by revenue, a little over 4,300 employees, dollars 1,130,000,000 in revenue. We have a lot of opportunity for growth in these Southeast states. It's comprised of about 85% legacy progressive waste districts.
We have 3 overlapping markets, Monroe, Louisiana Houston, Texas and Lubbock, Texas. We managed about 110 income statements in 8 states. We are in Arkansas, Louisiana, Mississippi, Alabama, Florida, all of Texas except for El Paso. El Paso reports in the fill in the central region. We have a little bit of business in Southern Oklahoma that reports down in the North Texas and then we have Memphis and a little bit of Western Tennessee.
This is the leadership of the Southern region, 23 folks, 13 came out of Waste Connections, 10 came out of Progressive Waste. The average tenure on the right hand column is about 18.5 years in the industry and about 9 years either with Progressive or Waste Connections. So I'm going to talk a little bit about the situational assessment we had. What did we find? We're very lucky and we're able to go out into these operations and spend 2 to 3 months listening and learning for all the legacy Progressive Waste operations before the merger closed.
We found a culture that was very, very different than ours. It was top down driven, had decision making done at the corporate office and it was slow, really slow, long protracted decisions on very simple, simple things. This led to a complete lack of trust within the field. We found that customer service comes safety. No matter what, service the customer.
We just recently, as of last week, found our customer in Florida, where our driver to service that customer had to pull his truck back into an enclosure and climb out of the window to service that customer. Completely, completely unacceptable. We quit the customer. We told the customer they had to change their enclosure, but we weren't going to service the customer. They chose not to change their enclosure, so we quit the customer.
We're going to let someone else take that risk. I'm 53 years old. I don't want to be climbing out of a truck. I'm not sure about anybody else in here. I have a truck window every day.
We found there's a high, high focus on statistics and on metrics, most of which when we quiz the field, no one knew what was done with these statistics. They had basic numbers they kept that were very important, haul per day, landfill tons, recycling tons, employee hours, hours of service, but they captured many, many other statistics and it consumed their day. No one could tell us what they did with these numbers. They just knew they went to Toronto somewhere. We found that districts in the region specifically spent enormous amount of time doing backwards looking quarterly operating reviews, monthly operating reviews, very little time looking forward.
We saw poor capital deployment. Some locations that desperately needed trucks, they didn't get sufficient replacement trucks. Even trucks for growth that were justified by price or by additional customer count. They were started with these trucks. We found hauling company managers who had absolutely no input into the type of truck that they were given to run our operation.
We found a complete lack of discipline on RFPs and on bids. Actually had 1 area manager, it's a true story, had 1 area manager try to convince myself and Rick Wojon that we needed to buy an asset in order to get their trucks because their fleet was so much better than the fleet he had because he could rob those trucks and take them and put them into other operations. He was completely willing to overpay for that deal just to get those trucks because he was so starved from capital. We also learned that former executives thought that CapEx could be a solution for safety. Ultimately, the opposite is true.
The right truck for the right service is a safer thing to do. It's not the truck, it's the driver. If I look at revenue, top line growth is a priority. Managers were not required to look at margins, they were required to look at contract terms, they were required to get the revenue with the mantra being you can't price increase or rate adjust to customer you don't have. We found training was done, but it wasn't done in a meaningful manner.
They had driver trainers, certified driver trainers. They had a driver trainer academy. They flew people into a central location or drove them into a central location to train them before they started service with us. Sounds good? The problem is then they hand that driver off to someone else and they never touch that driver again.
They don't know what that driver is taught and they don't know what the proficiency was of that driver. It's always a high turnover and the low morale. So what do we do? Our media plan is to immerse as many people, as many leaders, as many employees into the culture as possible. As Hank talked about, we immersed the leaders in servant leadership discovery.
In our region alone, between June 1 September 30, we trained 800 leaders in servant leadership discovery. We followed up with Culture Matters with SLD for all with SL1 and civil treatment training. In terms with this, we set the structure into the strong district manager decentralized structure that Ron talked about. We have a region and below the regions we have divisions and below divisions we have districts. The district manager makes the decisions, the rest of us supports that person, supports those individuals.
Safety was and is our number one value and effort and safety improvement became a byproduct of the changing of the culture. We focused on margin improvement. We quit brokers, we quit low margin accounts and we renewed municipal contracts on our terms, but we left the customer the competition to have that customer. We recognized and implemented synergies. We reduced our headcount by over 400 people in my region alone.
We began planning and implementing capital deployment for the Lancelot in the fleet. We moved trucks out of operations that didn't want that type of truck. Replaced it with proper equipment. We traded yellow irons between sites, between landfills, between transfer stations, between recycling plants and we listened to the managers who needed equipment. We asked them what they needed and oftentimes Daryl Chambliss, our COO and I on the spot ordered the trucks.
No lengthy decision making. We repainted every single truck in the entire fleet in the 1st 12 months. Imagine what that did for morale. We hired a half a dozen region engineers and environmental compliance managers to support the field with engineering, construction and compliance. We put processes in place to make sure the field was compliant with all federal, state, local statutes and permits.
We fill up assets when it made sense. Last Friday, we did a small little deal between Jason Craft and our region with advanced waste. Lea County, Florida, we traded in my location in my region doing advanced waste and we gave and they gave Jason Craft and his region the stranded assets in the Carolina. It made sense for both of us. It was high capital, low margin, no internalization in our region.
No reason to continue running that asset. So with the fleet, we inherited a bunch of markets that progress away to go all in on compressed natural gas, Dallas, McKinney, Fort Worth, Tampa, Florida, parts of Louisiana. There was no direct monetary return to do this. There were no contract extensions. There were no customer requirements to do this.
Progressive Waste made the decision to do this purely based upon the savings they believe they could get out of commodities. This had a ripple down effect through the entire region. You had fleets that got 100% new trucks across the board. They loved it. And we had other fleets, high performing districts that were starved of additional capital.
This hurt safety, it hurt morale and it really hurt turnover. Drivers will not last long on old trucks that they're not happy to drive in and they don't feel safe. The culture of the fleet management fleet maintenance team was to rent trucks anytime you needed it. In 30 years prior to this last year, I had never rented a truck in my entire career. When we took over this region, we found out we had 55 trucks on rent at $7,000 a month.
We found deferred repairs, we found our long dated service intervals, we found leaders were tasked with reducing their costs to lead those to manage the fleet, but they weren't given new capital. Old trucks, it's a fact they cost more to maintain. So what do we do? We continue to tell everyone our priority and our number one value is safety. We installed a maintenance database called RTA to track all maintenance and we tracked all the maintenance staff to fixing anything that was unsafe, no matter how small.
We moved trucks to the proper application. We implemented preventive maintenance programs to be proactive and the results over time was an improved fleet with better reliability and more uptime. We limited truck rentals by purchasing the trucks. We also quit customers and that reduced the demand on some of those trucks and we purchased new equipment. Our goal and we accomplished this was to reduce repairs and maintenance as a percentage of revenue and to make our truck costs more predictable.
Our results, we reduced our instance by 45%. We decreased our turnover by 40%. We increased our quality revenue by 300 basis points. And most importantly and the proudest, we increased our margins in our region by 7 50 basis points in 12 months. It's been the tough 12 months, but the results have proven the effort was worth it.
Thank you.
Thanks, Rob. Thanks, Rob. Next up, Jason Craft, our Regional Vice President of our Eastern Region. Jason has been like Rob with us for quite a period of time. We've had him in multiple roles throughout the Western U.
S, corporate and now the Eastern region. Has done an exceptional job, I think, as you will see from the numbers. This is a region that was our smallest region prior to the merger and today has become really from a revenue standpoint equal to our 2nd largest region, our Western region, just behind the Southern region. So with that, Jason, come on up.
Thank you, Ron, and thanks for the comments. On behalf of the entire Eastern Region team, I'm pleased to share with you a little bit about our region, a little bit about our experience as we go through the progressive integration here. So, a quick overview of the region. Just as Ron alluded to, works for RAC in right of $100,000,000 when you add in the Groot acquisition that occurred earlier this year. We're 11 states, just over 80 facilities, and call it, 31100, 3200 employees.
Our largest concentration by revenue is now in the really in the Illinois, upstate, New York and in Western or excuse me, Tennessee and Kentucky in particular. Here's a look at our region leadership team. So, our region is broken into 6 divisions, led by division VPs and division controllers. Within that, you'll see we've got 3 key members of the new Waste Connections members, the former Progressive Group, in particular, our DVP in
the Northeast, as well as our
sales manager and our assistant region controller in Knoxville, ranging anywhere from 2 to 34 years of experience on the team. So, a situational assessment leading into the region. Our region today is about 65% legacy waste connections, if you will, 35% legacy progressive or what we now call as new waste connection sites. We were running just north of 35 percent EBITDA margin. We were doing about 77 incidents a quarter.
So, for right about 2,100 employees, we had about an incident every single day. And we were doing clipping along right at about 4.5% organic growth, really price led organic growth. So, about 3 quarters of that was price. The balance, obviously, volume. To the contrary or in comparison, our legacy Progressive or our new waste connection sites, as I'll refer to them from this point on, their margin was about 1300 basis points below ours.
So they're running low 20s. And as you heard Ron talk about earlier, their incident frequency was about 3.5x our frequency. This is the thing that concerned me the most as we moved into the integration was how do we make an impact as quickly as we can to let them know how we define success and what the expectation of leadership was or my expectation in particular, we're going to make it a safe place to work today for tomorrow and make an impact there. And then, they were actually a full point ahead of us on organic growth, but it was all volume. It was about 67%, 68% volume, the balance being price.
In terms of integration of the team, leading up to the integration, we got an opportunity to go out and do site visits due diligence.
And as we interacted with the group, what we found largely was it was they were good people, really stuck in a procedural based management system, had low autonomy, were very, very reactive
in how they manage the business. There was a lack of vision,
certainly, would impact the business longer term, and I'll share some of those with you in a little bit. Okay. And then, certainly would impact the business longer term and I'll share some
of those with you in
a little bit.
So, low leadership accountability for safety. Again, from my vantage point, actions always support your value. So, I'll give you an example. We're out at a district and we're walking around and we're talking to the general manager. We're looking at the trucks, we're talking about the service area, started asking him about his incident rate or his incident frequency.
And he started telling us, oh, yes, safety is important. We walk into the driver break room and there is a 4x8 whiteboard and it's got all statistics, every statistic you could ever be known to man from the garbage business. And in about the top corner, taking up about 2% of the whiteboard is their incident frequency. So, I asked them, I said, what kind of message you think you're really sending when the guys come in and you say, hey, we're all about safety, but 98% of your 8 foot whiteboard is all about each statistic that you're running in day in and day out. You saw siloed management structure, in particular, maintenance and sales.
This is where we saw this the largest. Again, conversations early on with the group as we talked about their market plan and their sales plan and what the condition of their fleet was. Got a lot of answers about, well, that's not mine. That goes to division or that goes to region. And we quickly, as you'll see in the integration, went to our strong DM philosophy and removed those silos and said, hey, if you're going to be the general manager, you're accountable for everything that happens on-site.
Certainly, the strength of Progressive with sales, without question, their goal was to drive revenue. Grow revenue at all costs. Again, can't have a customer, you can't PI, but most importantly, just grow revenue. We saw sites out there that had 0 EBITDA margin. And when we asked the question about, hey, why are you at 0?
Well, that's what they've asked me to do. In our world, 0 EBITDA margin doesn't work. We don't live on 0 EBITDA margin. Whether it's integrated or not, you're running trucks, you're deploying people, you've got capital, we don't do 0. Those same assets today are no longer doing 0.
It wasn't overnight, but I'll tell you, it's capable if you empower the DM and tell them exactly what you want from them. And you saw and Rob talked about fleet deployment in
a vacuum. I'll just give you
a great example. We're in a site in Pennsylvania, and they had 2 brand new trucks. And I said, oh, you guys got new trucks?
And they said, yes. And I said, so what are
you doing with those? They said, well, we're trying to figure out if we're going to put them on route.
I go, what do you mean figure out?
They have kind of the wrong truck. Okay. I'm like, well, you're going to cut any route hours? No. I don't do me a favor.
Don't put those trucks on route. Those trucks were deployed by June 1 in a location where we actually deployed them in the right mechanism. They didn't get tuning trucks out of the deal, but they certainly understood that you can't just deploy a truck and not get some sort of return on it. As we walk through the integration, our balance for the Eastern region, again, now 2 thirds to 1 third was certainly going forward as one team. And what we meant by that or what I meant by that was ensuring that the team from Progressive understood our expectations in the playbook early on, how we define success, what was important to us, why we do the things that we do.
You heard Hank talk about our culture earlier. But the other caveat to that, and this was incredibly important to me, was that our legacy Waste Connections didn't see a disconnect as we started to integrate effectively double the size of the company, in our case, add 40% to the region. It was important that their culture remain the same because as that starts to change, that's cultural change for our group. All right, guys, we're a little delayed here. So, I talked about going out and introducing the Waste Connections playbook.
Our strategy was a little bit different. We were afforded a little bit better of strategic position, if you will, from an integration standpoint. So, our goal was to go out to each side as fast as we can beginning May 31 at midnight. I'm literally standing on the sidewalk in the Bronx talking to people in New York City about welcoming them to the team, what was important to us and how we define success. And we did that as quickly as we could and hit each one of the locations that we could really in about 10 days.
We were moving. We were it was a little bit of planes, trains and automobiles. But it was important to us to and it was important for me to meet as many people as we could early on and let them know who we were and what we were about. We set the expectation early about servant leadership. From our vantage point, it's the only way we lead people.
So, build that relationship with every employee and find out what you can do to help them be successful. Certainly, immediately turned over empowerment to the team, defined business. You'll see here on our slide, we've done some very good things and I'm very proud of what the team has done in many of our markets. And we work to make it a great place to work. Again, you heard Ron talk earlier about work hard, play harder.
From our vantage point, whether it was lunches on-site or dinners late at night, we just talked to them about our story, our Waste Connections story and about how much work it takes to be in this industry or this business. But at the same time, let's have a little bit of fun doing it because we're certainly asking a lot of everybody that's on our team. And then I talked about the integration earlier, the immediate expectation of one team. I wanted to make sure early on that we didn't have 2 cultures going in the Eastern region. It was our Waste Connections culture from the onset.
So, we eradicated the former Progressive, the new Waste Connections members is how we referred to them. And the expectation was the same from the legacy to the new Waste Connections members. We set up mentors at the DM level. We provided as much support as we could and told them what was expected of them and started driving accountability. We talked about discipline or financial discipline and expectations early on.
From our vantage point, we told them that price always mattered more than volume. It trumps volume in every case, that EBITDA matters. We talked about the 0 percent group. We established margin targets in many of our markets. There's a conversation that dates back to March of earlier this year, where there's a group in New York City talking about the New York City business in particular and the margin that they were running at that time and whether or not could get it to a double digit EBITDA margin.
And they absolutely would resoundingly say, yes, we can do that. Here's how you do it. And now, fast forward the clock, call it 13 months on paper, it's over 2,000 basis points improvement in New York City alone. We put them on CapEx diet. We made them re budget everything that they had for the balance of the year and said, hey, listen, we look at capital a little bit different than the way that you do.
Focused on voluntary turnover reduction, in particular, again, going back to servant leadership and building relationships, letting people know you care about them, let them know that you're important, that they have an opportunity to interact with you on a daily basis and that you want them to be there is important. I'll tell you a little bit about what we've got to in turnover reduction here in a minute. And then one of my more favorite here is we eliminated the monthly operating review and the quarterly operating reviews, MORs or QORs as they referred to them. We heard many stories about hours of preparation of MORs and QORs and then going to a specific site, presenting what happened over the last month and then looking at an action plan, that's not the way we lead. We certainly keep score, right?
We need to know exactly what the result is, but we spend an incredible amount of time talking about what's going to happen and as importantly from a leadership perspective, what you're going to do about it. And I actually went so far as to impose fines on people that said MOR or QOR. So, we gave a nice contribution to the Knoxville Area Children's Hospital on behalf of our new members of Waste Connections.
So, let me give you a
quick example of situational awareness and where we got to on a specific site. So, most of you probably are familiar with Seneca Meadows Landfill. It's New York State's largest landfill. It's in the Eastern region. And as we started looking at Syndicate, it had a host of issues, specifically operational issues, odor in particular, that led to some deteriorating host community relationships.
And the team locally had a lack of leadership and vision. They really got jammed up in an analyze and plan mode without a lot of action. So, we very quickly identified an action plan to get this site going in the right direction. And I'll tell you, we actually deployed one of our very best district managers from Legacy Waste Connections, a guy, engineering background, has run multiple sites in really all across the country. He was deployed in the Seneca Meadows in March, long before the actual merger closed to
take over the site.
Damon, can you just hit that? Thank you.
So, he specifically looked at leachate, he looked at gas collection, he looked at equipment, and he looked at what we were taking as a landfill, what the stream was and what the pricing was. And I will tell you that we made improvements
very, very quickly
based upon just really how we were operating the business. Some short term decisions about things like intermediate cover and how much water was being held in the cell and what we were charging specific customers really made a large impact very, very quickly. But as importantly, he immediately, with the help of several members of our executive team that are in here today, went and met with the host community and said, hey, guys, here's where we're at, but more importantly, here's where we're going, which made a significant improvement with the host community early on acknowledging, hey, we're not as good as we should be, but here's where we're going. So, let me tell you about where we ended up in the Eastern region. Fast forward the clock, we've got, I think, an exceptional number of additions to the Eastern region team.
We believe we've established culture and vision. We've invigorated and fulfilled a number of the employees of the team members that have joined us. And why
do I say that? Well, let me
tell you about what they've done since they've come aboard. So, safety, we've reduced our incidents by over half, right, at 55%. We've improved turnover by 30%. More importantly, we've decreased voluntary turnover by over 50%. Quality of revenue on price, we went up over 300 basis points.
We've taken EBITDA margin up a full 9.50 basis points and counting from this point going forward. And we've really taken our internalization, which is one of the key strategic moves in this industry, as many of you are well aware, We've increased that by over 1,000 basis points in the region alone. Appreciate your time today. Thank you very much.
Thank you, Jason. Okay. Next up, I'm going to ask Dan Pugh, who is our President of Canada, to come up. But before I do that, in Canada, we also have a Regional Vice President, just like you've had Rob and Jason present. Mark Fox, at the end of the table, is our Regional Vice President for Canada.
But because Canada is an entire it runs the geography of the entire United States, we run Canada business a little differently in part because part of it is French speaking as well as English speaking. We have legal and treasury and portions of IT where we do those functions in the United States at our corporate headquarters and support our regions, We have those self contained in Canada. So because of that, we also have a President of Canada, and that is Dan Pio. And so we are structured just a little different. I want to explain why Dan was presenting rather than Mark who runs the region on a day to day basis for Dan and for us.
So Dan, come on up.
Good morning, everyone. It's great to be here. I'm blessed to have spent the last 30 years in this industry. And I can tell you without a doubt, no period has been more rewarding than the last 18 months with Waste Connections. What stands out about our region is the sheer breadth and diversity of our business across very large country.
I think many of you know that about 75% of the population in Canada resides about 100 miles north of the U. S. Border. We operate in many of those locations, about 3,000 miles from Victoria through to Montreal. We cover 4 time zones and our 84 locations house about 3,000 employees and we generate just over CAD900 1,000,000 in Canadian on an annual basis in revenue.
To dispel the myth, we operate very similar services to the services that are provided to our U. S. Customers, collection, it's transfer, it's recycling, it's landfills, all the same. I think the one thing that differentiates our business in Canada from our competitors is we have a strong presence in every market we operate in. We've got assets that are very difficult to replicate long term assets and that gives us a competitive
So where were we about
a year or so ago?
Go back, pass the slide.
Just an overview of our leadership team. You'll see here there's quite a bit of tenure. Average tenure is about 17 years. The main thing is we've actually integrated some Waste Connections folks. You recall Waste Connections did not have a presence in Canada at all.
Pre merger, we're able to integrate 5 Waste Connections employees. Some of them are expats who came back to Canada to work for our team, been invaluable members and contributors to our success so far. A very good blend of industry experience, which you can see, but also some new faces, some new blood, some fresh ideas have been added to our team and that's been very beneficial as we look to our continuous improvement mindset. They keep us long timers honest and help us look at things in a different way at times. Very fortunate to have this team there, the reason why we've been successful.
So pre merger, we were a company that was really managing quarter to quarter. I think a lot of the decisions we were making were really focused on short term improvements and not long term value. We had a top down management approach to our company. Very few decisions were left to our local leaders. And if you heard Ron and many others talk about it, this is a local business at the end of the day.
Decisions have to be made locally. Unfortunately, our leadership at the time did not allow that to happen. It was one of the things we changed immediately, and I tell you, our folks really embrace that change. At the company, safety was not a value. It was more a program.
We had policies and more policies. What we didn't do was take it from the head. I think everyone conceptually understands what safety is all about,
but we didn't take it from
the head to the heart. I think it's one of the things we've been able to do over the last 12 months has caused that to happen, and we've seen tremendous improvement as a result. You've heard others talk about the volume strategy we're on. We really developed a sales force that was geared towards hunting, hunting new business, gain volume. The theory was that, that would drive productivity and that would really serve the same purpose as price.
Well, that proved to not be accurate. That volume mindset created a culture that lacked the safety focus and that was obviously something that we could not sustain. Our leaders were really out of touch with what the drivers of true performance in our business were. We spent far too much time looking back. You heard about MORs and QORs and not a lot of time looking forward on how we're going to change that environment.
So our integration with respect to integration with voice connections, our first priority was really communication. And we started that communication early on. That communication took many forms. We'd held a lot of town halls to get people up to speed on what was happening, how the merger would affect their daily lives. That was very well received and something we continue to this day quite honestly.
You've heard others talk about the training we put people through. We did a lot of what I call vocational type training, training people how to be better mechanics, how to be better drivers. What we didn't do is invest in leadership training. And that is some of the hardest training that anybody will take on. And as Ron pointed out, a competitive advantage that will take a decade or more for others to catch up even if they wanted to start today.
We made a significant investment in that. In the 1st 90 days following the merger, we trained about 400 people in what we called culture that matters, and we followed up within the last 3 months on what we call servant leadership discovery, another 400 people going through that very training and provides a foundation for how we want to operate the company. Part of the feedback we got through those sessions, you may recall some of us may recall, we were going to stay branded as Progressive in Canada. And we've gone through a rebranding in the last couple of years. But some of the feedback we got through some of those sessions was, want to be part of the Waste Connections family.
So, earlier this year, we announced the rebranding of the company to Waste Connections of Canada and couldn't be prouder. And you'll start to see, for those of you who travel to Canada, our trucks, our containers, our facilities taking on that rebranded image. Early on, we invested in recruiters. We did not have recruiters at all. All recruiting was done locally.
What that's allowed us to do is really improve the quality of the hire, allows us to have standards around how we onboard folks, how we train them and more importantly, how we provide ongoing coaching to those employers, which we didn't have previously. That's allowed us really to set expectations. We had some very clear expectations. This year, you see 2 of them there in terms of reducing turnover and improving pricing. We have 5 set to goals for 2017 for our region and we've been delivering on all five of those areas.
I think the best example for us is our transformation in the area of safety. It really starts with, in my opinion, safety starts with what I call visible leadership. And visible leadership means being there with our employees each and every day. It means being at what we call tailgate meetings. Many of our drivers start the day really early before many of us get out of bed.
They're out on the road at 2, 3 in the morning. Being visible and being a leader in front of them during those tailgates is incredibly important. We embarked upon a very long journey in doing that and we continue to do that. I mentioned the town halls we held with employees, many face to face meetings, conference calls, newsletters, everything we do to continue to enforce the fact that our number one value is safety and that's how we need to focus our company. We made every decision, whether it's going after a
new bid or renewal of
a bid with a discussion around safety. Can we perform the work safely? And we focused on risky behaviors. To me, you heard some talk about irates and incident rates. That's an outcome.
It's kind of like an EBITDA multiple in the M and A game. That's an outcome. What we focus on is the behaviors that lead to those incidents and addressing those behaviors head on. We instituted early on what we call target 4 calls. As a company, we're reviewing very serious target 4 incidents.
These are the most risky type of maneuvers that we see our drivers perform. We've done them for all target 4 calls. So, I get on a call, no matter whether the reversal of a truck was into a pole or into a building, I'm on that call reviewing that call with Mark and discussing the root causes and what we're going to do to get better. We instituted recognition programs. Those recognition programs are varied from truck rodeos that we hold all across the country.
And that's really led to some outstanding performance. In the month of April, we had 5 days where we had 0 incidents, no injuries, no accidents anywhere across the whole country. And proactively sourcing people, as I mentioned earlier on the turnover side, there is a direct link between turnover and safety. If you hire the right person, if you bring them on board the right way and you continue to provide mentoring to that employee, you're going to end up with a better safety result. So the results after 1 year are quite impressive and quite honestly, very rewarding for not only me, but for our team, for Mark and our team.
Our incidents, as you can see there in April, year over year, down a staggering 70%. It's really a testament to how we've embraced the values of Waste Connections. It means we are keeping not only our people safe, but keeping the communities that we serve safe each and every day. And turnover, I think, is a big driver of that improvement in safety, again, focusing on hiring based on a set of values. When we go through interviews, we actually hire to the characteristics of our values.
That's been a big change for us. It's no longer acceptable to be a warm body to be in one of our trucks. You've got to embody our values each and every day. We've improved the penetration of PIs. We'll make sure that all our customers feel and carry the weight of our cost increases.
We've been able to do that quite successfully. And we've been focused on shedding some unprofitable business. You heard folks talk about 0 EBITDA business. Canada was no different. We had some of that.
We focused on that and improved that. We also spent quite a bit of time in investing in RTA. RTA is a fleet management system. Progressive was lacking in this area. We didn't have any consistent standard across any of our regions, quite honestly.
RTA has allowed us to have visibility to our fleet. We pride ourselves on our preventative maintenance program. We think ultimately that's what results in higher uptime and better reliability with our trucks. That tool gives
us that visibility. It gives
us visibility to spend and forecast spend. So, to wrap up, we're pleased with what we've been able to achieve so far, and we are excited and I'm quite encouraged about our future. Thank you.
Before we go to Q and A, which we're going to do in just a second here, I want to point one thing out. Many of you know that Canada was and is the crown jewel within Progressive. It was the original BFI Canada. And one thing we were told early on is you will not change risk in Canada. It is fundamentally different, Ron.
We heard it over and over and over. It's 50% unionized. That's the nature of the business in Canada, okay? 1 year later, incidents are down by 70%. In some way, we couldn't do it.
That is and the only thing that changed is the approach to how we deal with our people. I know that's really hard to understand and put in a model, but it is the fundamental driver. To drive 200 margin points in what was already the crown jewel of the company in a year is a tremendous testament to Dan and Mark and their team. So with this, while Worthing and Mary Anne come forward with some microphones to take your questions so that the people that are webcast can hear you as well as in here. Obviously, you've met Rob, you've met Jason, you've met Dan, you've heard me introduce Mark.
Let me introduce the other people that are up here. Some of them you will hear later in today's session. This is Chris Thomas. Chris Thomas is a long time Wix Connections leader who we immediately deployed from the West Coast to Florida upon the closing of the transaction. Chris has made an enormous impact in the Greater Orlando marketplace For us, he is now going to actually be moving to Texas, where we have promoted him to a Divisional Vice President within the last two weeks, he'll be running a very large part of Texas for us now.
Damian Rybar was a legacy, we don't use that word, but progressive leader who was an area manager in Atlantic area of Florida. He is the Divisional Vice President for all of the Atlantic Coast of our Florida operations. Adam Gooderham is our District Manager of Waste Up here in the Houston market. You're going to hear specifically from Adam in a deep dive a little later today about pricing and sales. And Adam is a long time Waste Connections guy.
And next, Dean De Valerio. Dean is our Assistant Regional Vice President of our Southern Region for Rob, a long time leader in this industry through BFI Republic and then Progressive. And we're asking to come over with the transaction and be an understudy at one of our regions to Rob, our largest region, a region that was 85% progressive, and we wanted somebody that really understood what had worked there and what hadn't and why. Dean has been a critical link to what we've been able to achieve in the Southern region. And I've introduced Mark Fox as our Regional Vice President.
So, ask those people to be a part of this panel. We'll take your questions now on, hopefully, the things we've talked about to this point this morning, and I'll direct that to the appropriate leader here on the panel. Later today, in the fireside, we'll our executive team will take any and all of your questions. But this morning, especially since we're webcasting, we'd like to try and take some questions relating to something we've talked about thus this morning. So Chris, go ahead.
Chris Murray from Ultra Capital. Maybe a question for each of the regional leaders. One of the things that was always interesting about Progressive was, frankly, for a lot of us in the investment community, the forecasting, the accuracy was always tough. Can you talk a little bit about and some of you touched on some of the cultural issues, how the difficulty was in transitioning and the level you have and the confidence of
what you're generating now on
a regular basis? Dave, why don't you start and jump to Rob?
You're talking about specifically the projections?
Yes. I mean, just the question I think was Progressive had some struggles with it, you're a region that now has a lot of former Progressive leaders, Bob has even more. How has that adjustment been?
I would tell you, it's actually went better than what we thought.
Again, we were very intentional and purposeful about our actions.
So we actually sat down as a region team with the district level managers and division level managers and controllers early on and really became an active participant in that discussion and that participation that here's the level of detail that we expect and why. So I think from our vantage point, we'll be much better than what we thought, but they were very receptive to it. And again, I talked about it early on in my session. For me, that's specifically when I get into the details on a monthly basis. And I'd walk them through the why that is, and specifically because we can make an impact on it, right?
I mean, once we've closed, it is what it is. So much better than what we thought, but we identified that early on as an opportunity where we could help set the expectation in coach and mentor and did that. Let me before Rob adjusts, let
me address to Chris Thomas, our District Manager of our Orlando market. We moved Chris from the West Coast right at the close to take over Orlando. Orlando is in a fantastic market for us today and was for Progressive. Let me give you a couple statistics. When Chris took over Orlando in the preceding year, Orlando had almost 200 accidents and injuries in the year, okay?
Today, on a run rate basis, Orlando is down to likely having in the teens for incidents in a year. It has been reduced by about 85% to 90% in the incident. That's just one area, okay? But I think Chris could talk to you because he took over a district that the entire leadership team was Progressive legacy Progressive. So talk to where forecasting was and where it is today.
Yes. It was an interesting process. It's a lot more time talking about what happened the previous month than actually what was going to happen. And matter of fact, there was seemingly no good process to track that. And so we really put in the 1st month, I sat down and it was a little interesting because I had controllers that were former progressive folks.
So we sat down with them and showed them step by step how to build trackers to track some certain key things that are going to drive the forecast. And 1st couple of months were a little rocky. But once we got it into place, I mean, we're hitting revenue within 0.5% and down in that 1% on EBITDA. And it really 90 to maybe a little over 90 days and we were able to kind of get that nailed down. I mean, obviously, it's kind of a small microcosm of all the progresses, but I imagine it was pretty similar across the region
of what you guys saw. Well, so it may sound simple, but what we did is we took away game and ship. So, in the old days, a projection would come in 9, 10 days into the working month and the field would keep a little bit back because they knew we are going to come back and beat them up. And this process was flawed. So what we did as a region is we made them on it.
We said you're going to give us your best projection and we're not going to change it. Now we're going to challenge them on it. We're going to look at it. We have a very short period of time to go through these, especially when in our region we have 110 income statements. But we don't make significant changes.
And then we incentivize them to be accurate. There is advantages to them that they can be accurate on revenue and on EBITDA. We've typically been within that 1% range in accuracy.
Yes. It's Andrew Buscaglia, Chris with.
Can you guys talk a little
bit about I mean, a lot of
that discussion this morning, obviously, is your differentiation in your culture. But one thing you guys pointed out, it's all rising tides with all boats. Would you not say your competition is probably more rational than it might have ever been in the last 10 years and that's helping you guys too? Or could you just talk a little bit about what you're seeing competitively? Because it seems like obviously there's that gap as you pointed out regardless of what your competitors are doing, it will be hard for them to catch up.
But do you think you're benefiting a little bit from generally better competition that's a little bit more rational than it's ever been?
Sure. I'm going to let these guys answer directly in a second. But let me say this. Number 1, the answer the basic answer to your question is absolutely a rising tide lifts all boats. And since we're in the ocean, we get lifted too.
And so as things get better for the group, we get a benefit from that. That is unequivocally, that is accurate. However, do not mistake improved rationality for rising tides, okay? Because as soon as tides go back out, you'll find rationality goes away. We've been through these cycles, and all you have to do is go look back at what happened from 2,009 to 2014.
Our largest peer had negative price and volume. So do not mistake rationality for a rising tide. Now let's look at it on a local basis. Adam, who runs our huge demand, highly competitive market, how would you define how things are in the competitive environment today relative pick 2 to 5 years ago?
Yes. So I was here
in 2009 coming off the recession and there's a definite difference in how the 2 main competitors compete with us today than they did then. But back then, they were the price they were as more aggressive price as some of the independent players would be. But now you see them being a little bit more disciplined. And we're seeing that more so today than we did 3 or 4 years ago.
Damian, how about Damian who runs our Eastern Florida, Atlantic Sea area of Florida.
Yes. Similar, what we're seeing is definitely competitors are jumping on that volume bandwidth. We do see that out there. We see as alluded to in a number of the presentations, certain
bids that we've
had in the past that were low margin, we'll come back and say, look, we're going to do this on a long term basis. We want it for a return, not for practice. In some cases, we haven't been successful in some of those, but those that were left a tremendous amount of money on the table relative to what
they were going after these contracts for.
And we're fine with that because we're not going to just buy the trucks to wear them out in 6 or 7 years. So we have seen people
do that. We're going to
stick with the fundamentals of the price and making sure that we're doing the work that we want to do, if it's safe to do and it's the right work for our our company to do.
Is there a question over here, Hamzah?
Yes. Thank you. Hamzah from Macquarie.
So one of
the things I think the market appreciates what you've done with the BIN asset, but maybe just give us a flavor of where do we go from here? Where is the low hanging fruit now? Safety seems like it's come down a lot, incidents. Where do we go from here? And then secondly, maybe for Dan, the Canadian market is very unique.
You guys have a gas plant that is helping margins. Is there anything unique that you can do in Canada that you can't do in the U. S. Going forward that can help the business? Thanks.
Yes. Hamzah, let me take the first part of that, and I'll give it to a couple of the guys and have Dan come back on Canada, Dan or Mark. Obviously, the largest impact to the prior progressive footprint has occurred, right? We've moved EBITDA from $480,000,000 to approaching $600,000,000 You don't move it from $600,000,000 to $720,000,000 Maybe you do over time, but you don't do it in this time of the period. But we believe there are still multiple years of improvement, meaning 2018 2019 on the legacy Progressive footprint for us.
There are improvements still to turnover, which will drive risk. There is continued multiyear improvements to price that we will drive. And there are continued divestiture or rationalization opportunities as we make a determination on assets, can we get them to the position we think. So it is a continuous process from here in 2018 2019, and you're going to see that happen. And I think you'll continue to see that.
It will not be to the magnitude, obviously. I'm going to let Jason, why don't you take I mean, you've had almost 1,000 basis points and you're not going to have that going forward. But what do you expect over 2018 2019 in that footprint?
Well, Ron, I think you nailed it. I
mean, specifically, what I want to see is sustained improvement in turnover, which obviously helps risk for us. There's some pricing. We did what we were able to do early on, but based upon contract windows, etcetera, there's still improvement there to be seen. And I think in a few markets, we still are defining who we want to be long term. We went back somebody said earlier, maybe it was Ron.
In many cases, we were all things to everybody in that market. And we've repositioned a few to say, hey, we're going to be slightly different as we grow up in long term. Here's what the vision
looks like. Mark, you want to take the question? Maham's had a specific question on Canada and Sure.
I think the question was, what can we do to enhance our margins in Canada? You referenced a gas plant and one answer is we could build another one. So, we have another point is we have done some permitting changes in activities at our landfills. There are things that are ancillary to the landfill. I'm thinking for example at our soils landfill we started the soil recycling activity which has allowed us to increase our throughput.
We have another landfill where we have received permission from the Ministry to exempt certain materials going to our landfill. We started some organics processing at landfill. And the third part to my answer would be, at the onset, Ron challenged us in improving the collection margins. We have a number of locations that are have attractive margins, But when you dig deep into those locations, there are activities within those locations that could be doing better.
One other thing I want to say Hamzah and is that we've spent the last year and a half really driving towards improving the footprint of the business we acquired and making some very large changes. But the thing you haven't yet seen, and I believe you will see at the latter part of 2017 and into 2018 2019, is the whole other engine that is not presenting to you today, which is our M and A group. And that M and A group has a footprint to work in and drive our model that it has not had for 20 years. And you're going to see that engine come out of 1st gear and go into 2nd and third over the next year to 3 years and expand upon these new assets in both the U. S.
And Canada that we have and further drive free cash flow creation through tuck in acquisitions, additional transfer stations to internalize business that isn't today, new landfills to internalize business that's not today. That's, I think, what the next leg is for the business over the next 2 to 3 years, is that engine, which we've been really working heavily on. But that engine takes time. And there are other drivers we'll talk about later today that do that. And we apologize because we are webcast and we published a very specific time we would stay to.
We're going to and we've asked you to sit quietly for 2 hours and drink coffee, which we know is a good thing to do. We're going to take a 15 minute break right now, come back at right at 10:15. And we promise you, at the end section, we will not have a real cutoff for questions. We'll take any and all questions you have and try to answer those thoroughly. Thank you.
123. Again, 123, 123, 123, 123.
Okay. Can I get
you maybe to button the next button up? That's the plate and collect the book from each of them and say we're getting some revenue added. Yes, I think it was. That's good. Thank you.
Okay. If we get everybody to take a seat, thank you. We know 15 minutes goes really quick after 2 hours of sitting. So thank you for getting back in. But because we are webcast and we have many people on the webcast.
We're trying to stay on track. All right. We are now going to go into the section in your slide deck that is entitled Driving Continuous Improvement. And we're going to give you sort of 3 deeper dives into some areas. I'd now like to bring back up Hank Holes, who you met earlier today, our Director of Leadership and Development.
Hank will be joined up here by Adam Matthews. Adam, who is currently our Divisional Life President in Texas, is actually going to be very shortly moving into Hank's role at the corporate level as Hank sort of trends. Hank, we didn't tell you this. As Hank has decided to move into more of a leisure life on a part time role over the next several years, backing down a little bit of what he's been doing on the travel side for us for over a decade. And he is going to continue working with us, but he will now be working with Adam, who will be taking over our leadership development and training at the corporate level.
And Adam will be backfilled by who I mentioned earlier today, Chris Thomas, who will be the Divisional Vice President in Texas. So we've asked both Hank and Adam to join us today for the next session. Come on up, guys. All right. Awesome.
And the big news for the vendor supplies, if we come on board here, is just taken. This room, I tell you, they are so tuned in. They're like paying attention. I know it was great. But I'm so glad they let us come back.
Yes. All right. Congratulations. Retirement thing goes good. Yes, I hope so too.
And good luck to you with all
this stuff.
It makes me think, maybe we should have a little pop quiz. Are you up for that? I'm up for that. Okay. Just talk amongst yourselves.
I'm going to work this out. Because you're taking over this year, the pop quiz is culture matters. Would you say true or false? True. True.
And the it is IT. IT. Perfect.
I think we're cracking good. Because without technology, the
clickers wouldn't want. I know. We upgraded the clicker, okay? You're supposed to say nice. Nice.
Yes. There it is. There it is. Hey, one more popular question. I'm just going to see if it will be.
Do I handle it? Ron, you can tell me about this. Okay, I know. This is how we do. We make it up as we go along sometimes there.
For culture, it matters. We kind of call that servant leadership. So for those of us who were paying attention earlier today, this is the pop please portion of our morning. And we kind of have a definition of servant leadership and it's to make good things happen forever. Is that what you're going to say, Adam?
I want. It's awesome. I love that. I love that. So far, 100% on the Popcoil's item, I think you've got to work out just fine.
So I want to take just a few more minutes and kind of pull back the curtain a little bit since we were talking about our culture is how we do what we do. I thought we would just share with you a little bit of a high overview of how do we develop these managers that oftentimes come from culture that is actually the opposite of us. How do we help them do what we need to do very quickly here? So would that be of interest to you? Because if not, we're done early and you could start asking all those financial questions.
But let me share with you kind of quickly how it is. Here's kind of the secret if I had to boil it down. It's about taking the typical org chart where the manager is at the top and they control all the people underneath them and it's turning that upside down. And instead of controlling people, now the managers at the bottom of the pyramid and they have to empower all the people that are fortunate enough to meet. I think that's hard or easy.
It's hard. Hard or way hard. It's way hard. It's way hard. Because now when you're at the bottom of the org chart, to get the results that you want, you have to train and develop all those people up there.
You have to set crystal clear expectations. And then you've got to make sure that they know the boundaries, that they can make those decisions within. And then the hardest part at all for a lot of managers is you got to get out of the way and let people do what you hired them to do. And that's what empowerment is. And that's what we've done in our organization, our culture, is we've gone from controlling people to empowering people and letting them closest to the situation make the best decisions, okay?
And again, we've been on a 10 year journey of that. Anybody else that wants to do it, I can show them this slide and tell them that's what you need to do. It's just hard to do. And that's why I think so many companies don't actually create this kind of a culture because it's hard to do, hard to do. Here's kind of how we do it.
We believe every manager needs to have 3 things. They need to have a mindset, a skill set and a tool set to operate within this culture, Three things. And if they can get those three things, they'll be successful and what we call be a servant leader. The mindset is that as a manager, my job is to focus on results and relationships. Most companies' managers focus on which of those 2?
The results. It's all about did you get the numbers? Did you meet the budget? Did you exceed this? But they're equal there.
There's a big and in the middle. You got to do both. You got to get results. That doesn't change like with the progressive managers, but we had to them how do you build relationships with your people because it's a people sport. That's the difference.
So they got to have that in their head. They got to understand that, oh, that's what I need to do, results and relationships. But that's the mindset. We have to give them the skill set. And the skill set is how do you have conversations with people?
I know, don't be offended, but there's a lot of managers that don't know how to have real conversations, straight up honest, candid, caring conversations with people. And we've actually had to teach managers how to do that. That's the skill is having conversation. The tool set to back all that up is structure, support and accountability, and that comes from every levels in the organization, that there is a structure to have these conversations. Is it time to have this kind of a conversation and it's time to have that kind?
And there's plenty of support. So if I'm not sure how to have a specific conversation with Skippy,
I can get some support.
I know there's somebody there who's going to help me, help Skippy be more successful. And then there's accountability. Somebody's going to be checking how that conversation with Skippy go. And was Skippy able to change his behavior and do things better? So that's what we do in its simplest form is help people get that mindset skill set and tool set.
And the success is they become a servant leader and now they've left their indelible thumbprint on Skippy. And Skippy is the one that pays that forward to somebody else where now he can have a conversation with somebody, and that's what makes our culture self sustaining. It's not about me. I feel really comfortable with me going into kind of part time retirement mode that our culture will keep this going because we've got enough people passing on the thumbprint as we go along. Head nod, does that kind of make sense?
Perfect, perfect. Well, here's kind of how it plays out. So the question you should be asking yourself, okay, how do they get the mindset, skill set and tool set? Well, we have 3 ways that we help every single manager in our company get the mindset, skill set and tool set. The first one is on the job coaching from their boss.
Their direct boss is responsible for developing leaders. And my job is to help them be able to do that, but I'm not responsible for teaching 2,000 managers how to be great leaders and waste connection. Each manager, that's their job. Most important part of the job is to develop their people. Then it's through on the job coaching.
The second way is we do offer weekly webinars. So all those high achievers that want to multitask over lunch at their desk, we can give them the mindset, skill set and tool set in a very short manner right at their desk. It's very practical that at the end of the webinar, they'll be able to go out and do something right now that's different and better than what they did before. And finally, probably the most impactful is we have classroom sessions where we bring managers together, which we call learning labs, to help them get this mindset skill set and tool set. So if I could real quick, I'll give you just a quick overview of what these three methods kind of work.
The first one is on the job coaching. And what that is, that's where these conversations play out. And every one of our managers are able to have the 3 most important conversations. Sometimes they call them something different, but essentially they're all the same. The first one is what we call a dot conversation.
A dot just stands for do one thing. Here's the basic premise. If I sit down and give SCPI 27 measurable objectives to have completed by the end of the year, guess how many things he's going to focus on? A 0, okay? Nobody can handle 27 measurable objectives at one time to stay focused on.
But what Schippy can focus in on is one thing at a time, particularly if it's a short time frame. So the conversation with Schippy is, Schippy, what's the one most important thing you can do this week that would have the greatest positive impact on your safety? Great. Just do that this week. Or what's the most important thing you could do to have the greatest positive impact on reducing our truck variable expenses this month.
Great. Do that this week. We have 16,000 people all doing one thing a week. Think it will make a difference? Yes, we think it does.
So it's about having that short conversation about what's your one thing you're doing this week that's going to make things better. It definitely impacts results. The second conversation is about relationships. And we call it a take 10 check-in. Every employee gets 1 on one time with their boss about once a month, sometimes a little more frequently, sometimes a little less for just 10 minutes.
But it's the employee's agenda. We talk about whatever the employee wants to talk about. Sometimes it's personal stuff, sometimes it's work stuff, whatever it is, but everybody gets some one on one time. That's where we build these relationships. It's intentional.
Everybody gets one on one time. And finally, the 3rd conversation is what we call a safe 3 minute conversation. Only takes about 3 minutes, okay? And what we use it for is 2 fold. 1, it's a way of recognizing and celebrating people.
So if Adam's walking through his division or his district, he sees something to do with something today, we like to say, if we see it, say it. So stop and let them know how much we appreciate what they do and we tell them why what doing makes a difference. We reinforce the behavior. The Safety Room in a conversation is also, if Adam sees somebody who's signed a little bit off track, this is a conversation that says, good news, I'm here to help you get back on track so you can be as successful as you can be. Let me give you some feedback that's going to allow you to get back on track.
And all that happens within 3 minutes. Nobody gets ripped a new one. It's all about I'm talking to you because I care about you and I want you to be successful. And so that's what we do. Out of all of your managers have been through what servant leadership discovery, where we really teach them about these safe conversations.
Do you have a story maybe you could share of how being a little ahead of these conversations has impacted your folks? I do. Thank you, Hank. Yes, before Progressive was acquired last year, we really had no formal training in the early performance feedback to our people, either good or bad. And so we went through the turbine leadership discovery.
We introduced the SAFE conversation and it was a totally foreign concept.
It was new to us.
And candidly, we're a little skeptical of this.
We practice the safe conversations on
each other, these 3 minute conversations, which are intended to recognize and reinforce those good behaviors, but also to redirect or change certain behaviors, particularly unsafe ones from the organization. So we've referenced those. Now I'll tell you that one of our guys who really took this to heart was Chris Carr. Now Chris is our District Manager of the San Antonio District. He's a good manager.
He's been with us a number of years, but he's been struggling in some areas of performance and in some key areas. His incident rate, the 12 month eye rate that Sean talked about earlier is a key indicator of our safety performance was over 40%, was unacceptable. His turnover rate was over 40% of the combination of both voluntary and involuntary turnover, the high turnover rate. And he had some equipment failures at his district, which had contributed to some service issues, which had impacted the organization and frustrated really everyone at the district. Well, Chris put this to heart.
He's practicing his 3 minute conversations with his people. He became very fluent. And really it's made an impact which is a vast improvement of what it was a year ago. As a matter of fact, which is a vast improvement of where he was a year ago. As a matter of fact, he is second only to Chris Thomas' Orlando district, most improved for a target district in the company in that year.
His turnover rate is less than half of what it was a year ago. And the customer service efforts there have been vastly improved. And really we're raising among contributing to the renewal extension of 2 key municipal contracts in that market both with price increases. So I mean really Chris has done an outstanding job to make an effort in those areas impacting results and relationships. Now I'd say I would regard Chris' team as one of the closest knit groups that I have in the division And truly, they've become a stronger team and it just demonstrates again how these safe three minute conversations can make an impact.
Nice. So Chris, he's a long term industry veteran, been successful in his own way, but he's even better manager now because he can have the right kind of conversation with his folks and still get results. Absolutely. Results and relationships is exactly how it plays out. The second one we try to help people get this mindset skill set and tool set is doing weekly webinars.
We offer at least one webinar every week. We have over 50 topics that we have, all of them related to leadership. We don't teach how to route. We don't teach all the technical vocational stuff. This is all about leaders.
How do I be a better leader when I go back? And they're everything from how do you stop boring meetings that suck, how to piss off your people. 2, how do you interview and hire agents instead of pulling a joker out of the deck? They're all hard hitting. They'll get the mindset.
They'll lead with a specific skill and usually some kind of tool, a job aid, something. So they can go back right after the webinar and do something differently that allows them to be more successful. We also offer a series of 6 webinars that help the employees move into that supervisory role, very difficult transition. We call it going from bud to boss, but we give them the basic skills that fit into our culture to do that and again a variety. That's for all the high achieving managers that want just a little bit more.
They can sign on, it's opt in, nobody ever gets sent to a webinar, sent to a training. Everything we do is opt in. They choose it if they want it. That's another way that we get them to be successful. And finally, the Servant Leadership Learning Labs is what we do as we bring people together.
It's expensive for us to bring 25, 30 managers together here at corporate on a given time, but we think it's one of the most positive things we do. Right now, I've got 25 managers in our servant leadership development center waiting for me to get back over to them right now. And what we do is we bring managers from all across the country, all the disciplines together for 3 days. They get a chance to interact with their peers, problem solve, learn new skills together. And the way they get there is by invitation only.
And as I said, no one gets sent to training. We invite people to trade.
And when we invite them, they get
to choose to opt in or opt out, right? Now practically, there's only 2 answers we get when you get invited to one of our service and leadership learning labs. Managers either say yes or they say, hell yes, one of the 2, because not everybody gets invited. It's not an entitlement program. We basically take the very best managers we've got, and those are the ones we choose to invest just a little bit more in.
So there's a little bit of prestige of being invited to attend the Servant Leadership Learning Lab sessions. In each of the sessions, there's pre reading. The pre reading for our very first session, Servant Leadership Discovery, is the book called The Secret because we want them to know The Secret right at the beginning of it. And so we haven't been the pre reading, but they really learn what they need to learn. That way, once they show up, we get to just practice it.
So we kind of flip the learning. They don't show up as empty vessels to learn, but they keep learning before they even get there. Every one of the Servant Leadership Learning Lab sessions, there's also some kind of an assessment process, whether it's just a self assessment or 360 assessment. So they get feedback on how well they're already doing with whatever that skill set and tool set is that they're going to get to help them realize what they need to change and what they need to do better with that. The highlight of all of the Learning Lab sessions is what we call the project.
And in every one of them, there's a different project. And the project is basically it's kind of a hardware case study kind of a project. It's realized stuff that has happened at Waste Connections that we put together into a case study. We put them together in teams and they just have to come up with their solution for whatever the project is. And there's no right answer.
They get to interpret the information and decide what would they do as a leader to deal with that. And all these case studies
are leadership kinds of issues.
And then the following morning, they actually have to present their solution to our senior leadership team. So our senior leadership team did send them and then we talk about it collectively as a group afterwards. And again, by far, this is the highlight of every one of our Leadership Learning Lab sessions is at. Also, all of our senior leadership teams present and teach. We kind of believe in leaders as teachers here.
And so they all share that. Again, all of this I think is very unique. A lot of companies have a weeklong leadership academy. Some new manager goes through checks the box they've been and then that's all they do. While Waste Connections, the learning never ends.
We currently have a curriculum of 9 of these servant leadership labs. The managers who get invited maybe attend 1 per year. So we've got managers that sometimes have been here 7, 8, 9, 10 years that are coming back to learn one more thing. And the basic premise we do this is to answer the question of when do you know it all? When do you know it all?
But do you all know people who think they know it all? Yes, they're doomed. Because the minute you think you know it all, you're absolutely doomed. Malcolm Ford says the dumbest people I know are those that know it all. And so we invest in managers every single year even though they've been successful and been here for 10 years or more, they get to keep coming back.
And we add one more layer on to how to be even better servant leader with all of this. Adam, most of your managers in Texas have been through our 1st level servant leadership discovery. A bunch of them have been through servant leadership 1. What difference have you seen from them once they attend to learning that? Significant.
But I want to point out too is that training is not unique to the other major players in the industry. I mean, they have very elaborate training efforts. They're typically targeted towards functional objectives. I can tell you this, after 30 years in the industry, both with work at Waste Management, BFI, they're very targeted training efforts, maybe around route optimization, around customer service initiatives. I know it because I led one of those.
So I know that typically these initiatives are very focused. But what Hank described around leadership is unique, because the whole strategy around leadership and around, Chairman leadership is very unique to Waste Connections. And I can
tell you that from the standpoint
of its impact, it's made a notable impact to our group in our division. And one individual that I think is really noteworthy is that of Tom Ebenhause. Now Tom is our district manager in the Austin District. Tom is a seasoned professional. He's been in the industry for over 30 years.
He is very kind of old school. He's got a very direct communication style, very efficient. Some might even call him a box holder. I mean, he's very, very focused. But I'd say that after SLD and SL1, his personality truly changed.
Today, he's far more approachable. He's more engaging. He's frankly quite he's happier. It's made a difference in the organization. You can see it.
You can feel it. When you walk now through the district in Austin, it's a whole different atmosphere. When you walk through there, you'll see people, groups collaborating together. You walk through the driver room at the end of the day, you'll see guys who are punched out. They're still hanging out.
Why? Because it's a greater place to be. And that just has made a big impact on the organization. I can say Tom is one of the first guys in Austin along with Adam in Houston to roll out SLD For All. And Rob mentioned that earlier, but SLD For All is kind of a condensed version of the SLD training class.
And we designed that in collaboration with Hank's team. And it's designed to bring the same principles to everyone. It's not just engineered for leaders, for supervisors and managers, because the principle of the teaching is that everyone is a servant leader. So we want to share that with the organization. And so Adam and Tom are among the first introduced out of the division.
Tom also is one of the first guys to hang our operating core values in the form of Progressive office there in Austin. On the menu of foyer, also in the training centers, he made sure everyone in the organization understood those core values, understood that our decisions as managers and leaders were based upon them, understood that we have a decision tree based upon them. And today, it's made a big impact. And I would say that following the SLV, SL1, I mean, Tom has become that servant leader. And this goes to show it after years of doing things a certain way that you can change and you can make great things happen for your people.
Wow. That's a great story. And not only do we help Tom become a better manager and a leader, is it fair to say we make Tom a better Tom? No, Dan. It's pretty powerful stuff, Matt.
And that's what happened in a lot of organizations. I hope you realize that. Here's what we found over the years. If we can't make Tom be a servant leader, what we found is servant leadership is a choice.
You have to choose
to want to be a servant leader.
And there is an alternative path you
can take. That's a choice, okay? We think servant leadership is the way to go. And if you got the mindset, skill set and tool set, you can be a great servant leader. But here's the deal.
You can choose that you want to be a servant leader, but you don't get picked whether you are a servant leader. That happens every night at the dinner table
by every one of your employees.
When Skippy comes home from work and Mrs. Skippy says, Hey, honey, how was your day today? And Skippy says, You know what that thoughtful Hank did today? He's making me work this weekend and I'm missing our kid's birthday party. That's when Skippy decides whether his boss is a servant leader or not.
And that's quite different than if Skippy gave us a say, you know what Hank did today? He remembered our son was pitching the final high school baseball day in this Friday and he told me to leave at noon, try to go home and shower and we could go see him pitch. Hey, Hank, he's an okay guy. That's the difference. Where do you think discretionary effort comes from?
The first example or the second example? That's the value of the culture. That's what servant leadership is all about. It's having the relationships that help us get the results. And we do that very intentionally, very intentionally.
We tend to believe, as Adam said, every one of our 16,000 employees can be a servant leader. And the reason for that is everyone can serve. Everyone of you can serve other people. And it's all about approaching life all day long. We're here to make good things happen for other people.
And if you look for every opportunity to do that, you think it gets good results, you think it does. Thanks for your time today, Pat. And I'm glad to have you here, Matt.
I think it's all good.
I'm sure many of you are sitting there thinking it's hard for me to understand how communication is an in-depth strategy, although think about where you work. And for many, we know that your business probably is not that different from most of the waste industry or many industrial companies. If you look back and we know we've made this point a few times today, we didn't change fleets, we didn't change frontline people. We didn't route differently. We changed approach, changed the leadership approach, communication approach.
We made it results focused excuse me, relationship focused and results outcome, not results focused. Relationship focus and results are an outcome. That's something that we believe very, very strongly in and has worked very well for us. We will tell you it is very foreign to this business and foreign to many businesses because it takes tremendous time to implement into the organization and become the way the organization sort of unconsciously acts day in and day out. It's something you must be intentional about for a long time before it becomes sort of an unconscious act of how you do things.
There's no way to take servant leadership and what we call golden rule thinking, as we talked about in our opening today, and explain it in a half hour to 40 minutes in any kind of forum, because it is woven through the threat of everything we do in our company, in every department, in every approach. But we wanted to give you just sort of a snippet of how we do it and some of the impacts it's made. Next, I would like to introduce Eric Hansen, our Vice President and CIO and Keith Gordon, our VP of Information Systems. They're going to come forward now. And very shortly, joining them up here will be Colin Whitby, our VP of Sales.
But we've asked them to give you more of an in-depth view of some things we're doing in our information system and our technology approach to the business with 3 specific things in different areas to give you again some snippets of things that we are doing and how we think about the utilization of technology today and on a go forward basis. Eric, keep him on
morning, everyone. It is nice to be here, but very difficult to follow Hank, Adam and Skippy for the presentation. But we're going to go ahead and tell you a little bit about the Information Systems department. I'm Eric Hanson, that's Keith Gordon. And as we get started, I got to go back just a few years because I've been here a long time, 19 years.
I'm looking in the back of the room at Eric Merrill. About 19 years ago this month, we started probably the biggest computer project in this company's history at that time. It was very short tenure at that time, but we had to convert Vancouver, Washington to route manager. And we did that on one server, which really was our first data center, one server. My cell phone back there, my smartphone has more capacity in it than that one server did.
We now have about 1,000 servers and along the way between one server and 1,000 servers, we did a couple of key things. 1, we learned how to work together, right, because that was operations and IT working as a team. We decided right then and
there that's how it was
going to go. 2, on the technology side was we adopted Citrix and that allowed us a number of things. Most importantly, it allowed us that when we acquired a company, we could get that new company on our systems right away, just in a matter of minutes. And in just a few years ago, when we moved to Texas, we had a big change in our technology and that's when we adopted the BCE conversion infrastructure here in Houston. And we did that at the same time we made the move.
A big deal for us, allowed us to grow quickly, rapidly, which we absolutely needed because you saw what happened to us once we got here. We just didn't sit still. So today, we're going to talk about 3 major topics and to tell you a little bit more about the team that run those projects with Keith Gordon. Thanks, Eric. So again, I'm Keith Gordon.
I've been with the company for 7 years.
So I'm one of the guys dragging down that tenure that Ron talked about a little bit. But I do have 25 years of experience. Spent about 14 years in the cable and satellite IT. So I've seen them evolve. I've seen bigger companies.
I had the pleasure to work with a startup company and get the sense of energy there. And then I spent a number of years in the military ending as an instructor at West Point. But I've never seen is a CIO with 19 years of experience, never, all right? So in the technology world, CIO stands for career is over, right? And this is a real test in this volumes to
what he put in place.
I mean that's really what we call it, all right? So, I think we make a great partnership, Eric and I and sort of the yin yang. I'd like to talk a little bit about the team that we have. There's 5 major departments. We have a HR and financial applications team.
So they basically do the development and support of all the corporate applications, anything that really isn't operationally developed. We've got an operational application team. We're going to take
a look at a couple
of their applications today. They're really anybody any application that's around service delivery, they're the ones that are responsible for delivering and supporting those. Our biggest organization is our customer service organization. We've got some field techs that we strategically placed across North America, to provide hands on support and then we got 2 small call centers that provide help desk support. And we also have a data center team that provides all Eric talked about our data centers today.
We have 3 data centers. Every aspect of the physical and the virtual servers, they're responsible for that. We're taking it down to 2. So they're collapsing 1 of the data centers there and they're also responsible for our on cloud disaster recovery. And then the final one is our network team.
And we've got our Director over there. I'll introduce Naiman Chambliss. He runs the network as well as the telecommunications some of the facilities and procurement. I want to take just one little side detour here though and talk about the interview process that we use that kind of bring together my experience with the startups. We do interviews, Eric and I, no matter if it's a help desk tech or if it's a manager, we both interview them and often Steve Bauch will come in as the President, Ron will come by.
And when you're doing an interview and CEO or the President comes by, it actually blows the mind of the candidates. And they're like, your President or your CEO actually takes the time to come down and meet us. And I said, yes, this is a it's a different kind of company, right? I mean, we've been around for 19 years. We've got all that experience, but in all the right ways, it feels like a startup company.
You got people who share the same values, they're passionate about what they do, you're empowered, there's no bureaucracy here, and that really goes a long way when we're
going through the interviews process. All right. So guys, what our role is, we work directly with the business units, finance team, sales team, operations team, their ideas, their concepts, their needs, that's what drives our decisions, okay? Everything we do is with intent. We have tried to align ourselves with our business unit.
And in the end, that's the partnership we create. So this
is just a handful of some of the projects we're working on. In every area, we've got dozens of different initiatives. And if you look at this, aside from maybe the data center and the network where we're setting up the infrastructure or looking at cybersecurity or other security, we really are driven by the business. If you look at what Hank was talking about, about servant leadership, we actually all the IT folks, Eric and I have a program that we've rolled out about servant leadership. We use that principle in how we look at the districts that we support.
We're on the bottom of that. A lot of IT organizations, you'll see push down initiatives based on what the IT agenda is. That's not what we do. We look and we champion what the district's mission is and it's our job to make them successful. So we're going to take a look at 3 areas where we've built in house solutions to do just that.
It's about driving either safety, it's about revenue generation, it's about efficiency and cutting costs or it's about customer satisfaction and retention. Okay.
So our first one is the truck tablet. A lot of technology has been put into trucks these days. A few years ago, we started looking into creating our own truck tablet application. Truck tablet has been around for a long time. We've always found it kind of big and bulky and expensive and the software that was on them required us to shape our business towards the software rather than shaping the software towards our business.
So we experimented with them. We tried them in a few districts, never had a lot of great success. Our in house development team wanted to take a crack at it. So I let him go to work on it a little bit. We found a couple of test tablets and we took this idea to Darryl Chambliss in the back row there.
And we said, Darryl, what do you think of this? We think we can build a tool specifically for Waste Connections, how we do business in our districts, put this tablet in our trucks. And he looked at it and he said, do it. The famous words of our CEO and our COO were always do it. Love hearing those words.
But he said, you got to do 4 things. You got to make it safe. You got to increase productivity and customer service. And you got to lower cost. Those four things, okay, were on our minds and we started building this tablet project.
So our guys went to work on it again. We talked to district managers. We talked to guys in the field, operations supervisors. We took our own interpretation of the things. We put it all together and we created a pilot project.
And we rolled it out. We thought we had a pretty good product. We'd come in at a lot less cost, about $1,000 a tablet. Product was looking good. We own the licensing, so that didn't cost us any money.
We gave it to the drivers in a pilot project and they didn't like it at all. Didn't like it, hated it. All right. So where did we go wrong? Well, we went back to the drivers and to figure out where we went wrong, we took the developers and we put them
in the truck with the drivers for
2 weeks. They got up at 2 in the morning, 3 in the morning, they went around with these guys till they figured it out. By the time we got done, we ended up with this right here. Now I'm going to take you through this program. This is actually our truck tablet tool.
Just in case any of you want to switch careers in the future and become a driver, you'll know how to work our truck tablet. Anybody at all? All right. So safety was first, right? First thing we did and the absolute first thing we did was make sure that this tablet cannot be interacted with while the vehicle is moving.
You can see the address, but there's no touching, no messing with it, can't do it. Look at the Sean, we got Sean's blessing. Sean can shut this thing down anytime or make changes to it. So that was number 1. Number 2 is to increase productivity.
So on here are all the key areas we need to capture from a productivity standpoint. And let me go back and just tell you what we're trying to replace here by the way, in case you guys don't know this, you're all involved in part of this. Every week, you take a trash can out
and put it on the
street, don't you? Some of you would probably take it down to the condo and shove it down to shoot, but somebody take that trash can out and put it on the street. This route sheet in the old days looked just like this. We would print these off every night, driver would pick it up, got his pencil, he goes start running the route. As he runs the route, he goes to your house, he marks down whether he serviced this or you didn't service it or was not out or there was an extra, things of that nature.
Also captures how much fuel he used, how long he was out there, those types of things. So this is what we're replacing, paper and pencil. Now it seems pretty historic from where we're sitting. We have smartphones, computers, tablets and things of that nature. But to a driver, this is pretty easy, okay?
The only way I make friends in this business is if I make someone's job easier. So that's where we
went with this tablet.
If we look at this tablet now, you can see up in the left hand corner, who am I? Driver basically logs in. Then he picks a route. Then he starts telling us when he's leaving the yard and he begins the route. In the end of the day, he comes back to this, puts in how many miles, how many gallons and those types of things in terms of fuel.
Along the way, we tell him where to go and what to do when he gets there. Left hand side are all of the addresses coming up. In the middle is the current stop. And he tells us now if we service the account, if it's not out, if it's not serviced, he takes a photo, is there extras. So all these things rather than being put down on this piece of paper and handed to a person in the office at the end of the day to be hand keyed in are now traveling real time back to our systems, updating our databases.
No one has to key them in at the end of the day. We started rolling this out, like I said, in that pilot project and the guys weren't real enthused about it initially. Once we made our adjustments, once we got to this point here, this was like the rediscovery of the iPhone for us, okay? We can't roll them out fast enough. We've got 2,800 rolled out in the United States in I think 18 months, another 1800 in Canada and that's in a lot less time.
The drivers are eating us up. It was a good cooperative effort, a good collaborative effort between Information Systems and the operations group.
To tell
you about our next project, Steve?
Thank you. So the next one is our next generation customer management billing and routing tool. So, we co developed this with our vendor who has provided our solution for the last 19 years. And the idea was to make it state of the art, it's using responsive design, web technologies, but also to streamline some of those business processes, so we could drive some efficiencies. And this screen that you're looking at right now, this is our onboarding or our new user screen.
Traditionally, it takes 15 or 56 different steps in 5 minutes for a CSR to go through this process. So we streamlined it, you go in there, you select the billing company, start entering in the customer name and typing in their address. We use Google APIs to do auto complete on the address, comes back with a USPS certified address. We got it down to 9 steps, about 30 seconds. So the data is cleaner, right?
The customer experience is better because the customer is not on the phone for 5 minutes going through this process and it's a lot more efficient for us as a business. So, this is what it looks like after we auto populate a lot of these fields that CSRs was actually manually putting in during that process. The beauty of this project really is that we are able to leverage the expertise and the resources of our vendor, right. We are able to bring our staff up at a manageable pace. We now own that code line.
So we're able to go in here and make changes that are specific to our company. We don't have to be on a roadmap, a product roadmap for a vendor. We actually go out there and make our own changes as the field says, hey, it needs to do this. So this is a good example of something that we've really taken in house and obviously the licensing we can't beat the price there.
All right. For our next project, we're going to bring up Colin with you. This is a really exciting project. It's called Web to Lead. It's a partnership now between Information Systems and the sales team.
And bottom line guys, short story on this one is we take customer information that we gather on the Internet from entities about any device, cultivate it and turn it into
a customer. Tom? Okay. Thanks, Eric.
I'm not going to I'm not talking really about lead generation here. Everybody in our space does that in different levels of success. So whether you're doing some kind of AdWords search and putting money into that or doing organic search, that's a discussion in and of itself. I'm talking more about our partnership with IT to grab these leads once they're on a web page, be able to move the customer quickly through our web page and then be able to get that into the hands of our sales reps. Just give a little background of what this has done for us because all of this is done in house.
That's why it makes it rapid for us to get this change. And like everything, things are moving a lot faster today and especially on the sales side. We see enhancements happening to lead sources all the time. We have to react to them rather quickly. In the case of this, this is all the leads that come through the web, Oasis Connections, already our number one sales rep in the company, and they have been for a number of months.
And the growth on that's exponential. We've seen more and more leads that are coming through the web and they're all hot leads. So we're able to convert them rather quickly. The real interesting piece of that and the most important piece of that is the average size of these leads is around $200 per month. What that means is those are the individual proprietor type businesses, one off businesses that are very receptive to the contract that we present to them, which is usually an evergreen contract.
Contract that we present to them, which is usually an evergreen contract. They're very receptive to the price that we come in on the door. And then most importantly, they put no restrictions around what we can do on price increases. So an extremely important lead source to us because that's really what we call our sweet spot customer. What we went to IT with on this was looking at that group of customers and studying what they really wanted was the ease to move through our system once they're on our web page very quickly.
So they've enhanced this tool for whatever tool the customer or the prospect is using, whether that's a handheld device, an iPad, a laptop, a desktop, it configures automatically for them. That may sound easy, but remember that even though we're showing you a Waste Connections website on the screen here, we have multiple websites because if you go to El Paso, that's a Waste Connections company, but they go under strong, strong brand names that is El Paso disposal that has been there for many, many years. We have websites that are also local to those strong, strong brands. So any changes that we make on this, we say we make them rapidly, they have to do them on multiple different websites. Within this, they made the steps extremely easy for the customer.
That can change with us from month to month as we find things out on our other web pages. So we have to be very quick on how we change that, but we moved through there very quickly. And the final thing that they did was they made the connection from once the customer pushed that button that they want us to give them a price to instantaneously put that in the hands of our reps in the field. All of our sales tools are built on a strong platform, a salesforce.comcloudbased platform. They are able to work with that platform and rapidly make these changes that we need as these lead sources change.
This is the number one feedback piece that we get from our sales field sales rep saying put more effort into this, give us more of these leads because they're warm and things that we can close quickly. And IT is able to, because it's in house, rapidly make those changes that we need on this and other programs that we're going to be talking about in a minute. Ron?
Thank you. Before we go into our next part, which Colin is actually going to stay up here for, I think the thing we want you to take away, and again, we're just trying to give you snapshots or snippets of various areas, give you a little bit of a view of how we view the world, is with IT particularly 2 things. 1, we use IT sort of driven by the field in how and what they need to improve the business, whether it is in safety, productivity, revenue enhancement or customer experience. What we don't do is acquire enterprise level consultant driven platforms and force them onto the organization with the belief that the consultant that has sold it to us will drive 1,000,000 of dollars of improvement. What it usually drives is a software write off.
That's our experience. That's why we do not do it. Like most things we do at Wave Connections, we believe internally customized solutions are a far better approach to the business. This is not a cookie cutter business on a local basis. Next up, I've asked Colin Lipke, our VP of Sales David Hall, our Senior VP of Sales and Marketing and then Adam Gooderham, our District Manager of our Houston marketplace, to come up and give you more of a deep dive of quality of revenue and how we are using both technology and our sales approach in a post Progressive Waste Connections merger and what how that looks on a macro basis and then what it looks like on a local basis on an implemented basis.
So, Colin, why don't you start? Okay. I'm David Hall. I've been with company 19 years, been in the business 30 years. Waste Connections has always focused on quality of revenue.
That's always been our play from day 1. And as what we heard a little bit earlier, Progressive was growth for growth sake. So the challenge we had is we've got to change behavior and we've got to bring in systems to support changing behavior to have a more quality of revenue going forward. And that's really what we're going to talk about today is a system that will push that increased growth, but provide discipline in pricing. 2 of the cornerstones of the company as you've heard several times today, servant leadership and decentralization.
And those two cornerstones are what we use in the sales organization to establish our structure and our management philosophy. The reality is this, I started in this business 30 years ago, it's a local business. Today, it's a local business. And in the future, it will always be a local business. What you've got to do is match your sales organization, your management organization to the customers.
They're local. So as you can see, the sales rep reports directly to their sales manager who reports directly to the district manager. They run the marketing sales for that organization. You cannot manage 600 different locations, all of which have different strategies that you've got to put in place. You can't do it from 3 states away, and you certainly can't do it in a centralized style of environment.
So we do have dotted line reporting and that's where you see regional sales managers. We have 4 of those in the United States to include Canada. And their job is really there to support them in thinking about those strategies, how do we implement those, what can we do in terms of capturing sales data, So there an accountability, regional accountability. And then in concert with the corporate level, our job is to bring tools to the sales organization that makes them more efficient and more successful. When we had the merger and any merger that you have, you're going to have duplicative systems, and we did too from a software standpoint, particularly in the area of CRM and sales software systems.
And quite frankly, both systems had very strong tools in terms of supporting sales organization. So that was a challenge for us. What do we do? Fortunately, what we discovered is we have 2 highly complementary systems. What I mean by that is Progressive, as we saw, really was on the growth side, really pushed getting prospects.
And we were at the other end of the sales cycle from the standpoint that we looked at quality of revenue, how do I improve the profitability of our current customer and customer retention. So we spent 10 months really combining the 2, and we just started deploying here over the last few months through about January, we should be through. What is different in the first time in 30 years that I've seen it in the business is we are fully automated in the sales cycle. So what do I mean by that? When you enter that prospect, we're going to take that rep sits with an iPad in front of the customer, gets their service data, inputs that.
The system is going to give them a pricing level that they go after. Customer says, I'd like to see a proposal. They push a button, automatically generated. Customer says, I like what I see. Can you get me a contract?
Automatically generated with the terms and conditions they just spoke about on the proposal. Customer signs it either on the iPad or they send it in via e mail, automatically input it into a queue, a management queue for approval. We're going to take a look at that. And then after that, we have a customer service person who just validates the information. They don't have to do anything.
Once again, once we entered the data here, it's going straight through, goes into the system then to have it deployed from a container standpoint and a routing standpoint, completely automated. And now we're going to have Colin go over one of the aspects we really liked about the progressive system and that is the ability to forecast. Okay. Good. Thanks, David.
Sales, this is a little bit of an overused term, but sales is part art, part science. So the art piece, we're heavily focused on. That's the training of our people so that they can negotiate, that they can work sales through pipeline and that they're able to close. So art is one side of it. That's the components in the person themselves.
And the other side, the science piece is what we're talking about today. And the science really is the math part of it. Working leads through a system, if you have consistent steps, it really turns into math at that point. You can apply ratios to different steps in a pipeline and get extremely, extremely predictable about what your future sales are going to be. One of the first conversations I had with Ron, I come from the progressive side.
Well, it wasn't a first conversation. The first conversation was revenue quality and price increase. But the second conversation we had was worth looking for. And Ron said, it's important what happened to analyze that and look at it, but it pales in comparison to your ability to look forward because looking forward, I can make changes and adjustments to make sure that my month is coming through or my month's in the future. So let me explain what we're looking at here quickly, so you can understand really quickly what I'm going through.
So this is a snapshot of a live pipeline. I bring up that live pipeline piece because I think it was Rob Nielsen said when he first started meeting with progressive sites, he didn't want them putting a lot of time into making reports. So our sales tool is a live tool that as sales reps are filling their data on an hourly basis, there's tool updates. You're looking at a corporate version of tool, but the same pipeline as this exists for the regions and more importantly for the district and the sales reps. And if you were looking at it live right now, you would see it moving every few minutes.
It moves about $8,000 to $12,000 a day. Let me explain those numbers too so you can understand this. When you look at certain numbers on here, they represent the monthly the 1st month revenue of a deal that we sell. So, if you're looking at this number on the bottom here that says $509,000 that's the Monoclonal's business for that particular month 1st month revenue. We keep a contract or a customer in the company on average 10 years, so about 120 months.
So any number that you're looking at here, they're not quite as small as they look there. They're 120 times that. So for that month and every month, our goal is around $60,000,000 of lifetime value of the contract that they bring on, just to kind of level set you on what you're looking at here. I want to explain what's on here, so you can follow me. This snapshot that I took, I did it purposely on May 31 and the top three bars across the top represent the month of May.
The bottom three digits, if you will, represent the month of June. So on May 31, I'm looking at what I have coming in June and what happened in May. The first bar graph represents the corporate goal. And in that case, it's just $460,000 of 1st month revenue. Again, that would multiply up by 120 times.
And above at the blue bar represents where we came in, in the month of May. It's about $509,000 on that goal of $460,000 The middle widget represents what percentage that is, 101%. And then on the far right is the pipeline stages. Very importantly, on the pipeline stages, this goes back to standardization standards, We have standard terminology for each of those pipeline stages. That's what gives us the ability to really project cleanly.
So looking at these, you can see on May 31 when I took this shot that for the month of May, the corporation was in good shape, 111 percent on that month. We were happy with that month. I don't put it up there for that reason. I put it up there just to explain that. That wasn't a surprise to me.
I knew we were going to come in around 110% for the month of May, sometime mid April, because I saw the pipeline for May building out back in April. Very similar to how I saw this June pipeline building out already mid May. I can see when I look at this where June is going to end up on May 31 and it's executing out exactly like I see it here. I'll explain to you what I see here. So for our corporation, we found over the last several years of doing this that if we enter the month in that middle widget at just below right around 50% on presold business, that's what that represents, that we're in good shape as the other portions of our pipeline are built up that we're going to make our goal.
So we're looking at getting 50% around this closed number. When I talked about ratios in this pipeline, we're tracking specifically on ratios against these three buckets right here. Closed won has a firm definition. That means there's a contract with a signature sitting on a district manager like Adam's or a sales manager's desk in our districts across Canada and U. S.
We know 100% of this $264,000 on May 31 is already done for June. Verbal, again, is a firm definition. It means that someone has verbally committed to us and they're just going through the steps of getting the contract done. We know from our history that 85% of that comes through. Proposal, again, another definition that's the same in Anchorage as it is in Miami.
A price has been presented whether verbally or on a proposal to a customer and they're actively working on that deal. 20% of this comes through by the end of the month. When you add up those ratios that I just gave you, we come out on this month at about 94%. And when I took the shot, the month isn't done. There's still some stuff that are going to flow down into here, which did happen for the rest of May 31.
But going into this month, I was very comfortable. I was more than very comfortable. I knew where I was going to end the month of June. That's me at the corporate level. We also have those exact same pipelines at every single one of our districts.
Adam is here today, so I put his pipeline up. That's the same rationale. Adam, in the month of May, I took this screenshot again at the end of May, knew that he is 100 and 13% sometime mid April. Adam with his sales manager, watching his pipeline build, he's predicting out where his May is going to end up long before that happens. That wasn't a surprise to him.
More importantly for him, in the month of May, he was already looking at this build. And if you go back to what I said, we're looking at about 50% to start the month of closed one business. He was already at 61%. And if you add up the ratios that I apply again to the closed one in the verbal and the proposal stage, Adam was projecting out to be for the month at about 1 115 ish percent. He's tracking right now when we look at his pipeline today to be exactly there.
That's the important piece because he was looking at this in mid May already, and he can make adjustments either way. If he sees he's short, he knows he's short a piece of this funnel because his pipelines again are nothing more than a build up of all these individual reps. Now we took the names off, but these are Houston reps. Adam can dig into this, into this month, the prior month, the months to come. And I showed you pipelines for May June.
We have the exact same pipelines for August, September, October going all through the year and into 2018. We have business pre sold in every single month in 2017 and many months in 2018. This data at the rep level gives Adam and his sales manager the ability to work with the reps that need to be worked with and make adjustments with a with a predictable pipeline. If you have this working well, which we do here and really had it working well at Progressive, The issue is and a lot of people have alluded to it, it becomes a bit of a faucet because it works well for you and you can open or close that faucet. And the opening of the faucet is you start to accept lower rates, let's put it that way, and you can open the faucet and bring more revenue on.
I was one of the first discussions also that Ron had with me when we came together. And as we built this tool and refined it, we wanted to put in a lot more safeguards for Adam and the district managers to make sure the quality revenue in all these pipelines was exactly what they wanted from a pricing standpoint, from a contract term standpoint and ability to do price increases. So David is going to talk further about that.
When we talk about differentiation, this system doesn't exist anywhere else, the ability to forecast. This differentiates us in terms of anybody else in the space. And as I said, quite frankly, this came from Progressive and it was one of the aspects that we really liked and we knew that we had to keep that. This is where the rubber hits the road when we talk about quality of revenue. Within the system, this is what the sales rep is going to see when they're in front of that customer and they just found out, in this case, they got a 6 yard container.
They put the service data in there, the system down where you see the green bar, the system is going to generate an A, a B and a C price, and the difference in those are just different returns at those levels. We want to, of course, try and achieve the A level. So the system gets pricing changed on a quarterly basis. We make sure that we're up to date with our expenses. We have a price increase at the landfill.
If fuel goes up, we look at it on a quarterly basis, it automatically uploads different pricing. So in this case, in the circle, as you can see, the sales rep did a great job and they've got A. And we color code everything very quickly. As you're going to see, for me, the most powerful part of this system is this slide right here. This is what the manager takes a look at.
So when that customer signs the deal, they have an approval board, which they take a look at. This just magnifies one single account. They may have 50 that they take a look at. So what we had to do is make it quick. The old days, you had 75 deals were on sheets of paper.
You got to go through those. Now that same thing takes one second to quickly take a look at the 3 criteria that you need to decide whether this is a good sale or not. And they are, A, the price. So in this case, they had a score of A, it's green. If they do B pricing, we put that at orange.
And if it's a C price, it's red. So it stands out. Now as you can see under the terms and conditions, this is a 36 month agreement, the 36 month renewal. Looks pretty good, but it's orange. The reason why it's orange is in this particular district, it's a market that can handle 5 year agreements.
So what we call this is a coaching opportunity. The manager is going to go to the person and go, why is this only 36 months? We usually get 5 year agreements. And finally, we want to know whether it has any restrictions on it, meaning pricing restrictions. You can increase the price more than 3% over the next 2 years.
We don't see very much of that. We very much avoid that. But in many cases, this may be where I'm saving a customer. They want to stay with us, but they don't want us to price increase them greater than 3% to 5% down the road. Now what you've got to match here with these, the perfect situation is green, green, green.
So that means the sales rep's commission plan, you've got to change that behavior as we talked about from growth for growth sake to quality of revenue. Your commission plan has to reward them for selling at a higher price. And so our plans follow exactly that. We want to make sure we reward them for getting what we hope is, A, a 5 year agreement and no restriction. Now that's new business.
We need to take a look at current business that we have and this analysis does that. It looks at the current customer. When we have an increase in service or a decrease in service, that is the one opportunity in this business where you have the ability besides a price increase to really move the profitability of the account. Once again, we direct them. We give them percentages over to improve the profitability.
So in this case, the customer is $3.13 a yard. The sales rep moved it to $3.44 a yard when they changed their service from twice a week to 3 times a week, we just improved the profitability of that particular customer. Once again, it's color coded green. We see that we moved it by 10%. So these systems are all great.
We changed these behaviors, we hope. What Adam is going to be talking about is, at the field level, do the systems work? Do we see any change in terms of the financials of the district? And Adam is going to address that.
Thanks, David. So we're going to conclude our presentation today on quality of revenue by talking about the Houston experience. Our continued focus really on quality of revenue and our disciplined approach to growth and price, as David had mentioned, we use something internally called our pricing model, which is updated quarterly that takes into account our district individual district's cost structure. This takes place at most of our competitive markets throughout the country and I'm assuming now Canada. And those pricing models are a matrix that takes the size of the container and the frequency of the pickups and puts it into buckets A, B and C based on a specific internal rate of return.
And like David mentioned in the previous slide, our sales reps and our compensation plans are aligned with that so that our reps are paid a heavier or a greater weighted percentage on a A rate versus a C rate. And in this new system, Ares, we're able to now see that in a way that we've never been
able to see it before.
As David mentioned, as far as maybe 4 or 5 years ago, we were looking at everything in physical contracts. Now everything is digital and you can see a snapshot of everything at any given point in the month, which makes my job and makes our job at the sales manager level much easier to identify opportunities for improvement. In Houston, we have adopted a specialized sales role. It works for us here in the Houston market. And what the specialized sales roles are basically split our team into 2 groups.
One set of reps are solely focused on growth and looking for new opportunities. The other half are focused on account management and customer relationships. And where we've seen a huge benefit in this structure has been after our annual large price increases. Historically, when we've had that model before, our growth reps or our reps would lose momentum because they were inundated with calls and customer inquiries and also competitive pressures seem to creep up during that time frame. Now those reps, those growth reps don't lose any momentum.
They are continually going after business. And in fact, this year, after we adopted this structure, we've actually had some of our best sales adjustment. So, we've really enjoyed that and have seen the benefit of that. As David and Colin both mentioned in the presentation, the visibility in our system, our new ARIES system is fantastic. And with visibility comes, of course, accountability.
And it allows us to identify opportunities for praise and also identify opportunities for improvement. The big, big benefit to this system is the forecasting benefit and not just on revenue. That's pretty easy to see on the other dashboard that you were able to look at, but more so on the capital side and the container count, the truck capacity on routes and the ability to make sure our staffing levels are appropriate. If we're selling like in the example that if you go back to the other slide, we had already sold in the 1st part of May, I believe $12,000 worth of gross sales for June, which led which allowed me and our team to understand that we've probably already sold a certain number of yards that they are associated with that. So we had to make sure knowing that early in the month that our routes were able to accommodate that growth and that we have the proper resources to absorb that and get our customers taken care of.
So and then also a big benefit is the market intelligence gathering. Every appointment, every prospect has a value associated with it. It also shows where we're at in the process. So if a rep leaves the company, is out on vacation or extended leave of absence, we do not lose any momentum with the sales process. And so due to our improved focus on quality of revenue and our disciplined approach, in addition to other integration benefits, our district and market area has improved nearly 700 basis points here in the Houston area.
Thank you, Adam and Colin and David. While our team brings forward some chairs before Worthing and Steve Valk and Dale Chambliss and I opened this up to what we call the fireside chat, make a just put a couple of little things in perspective for you. So while you sit there and you're not as familiar with our business, you just started to, Adam, talk about $20,000 in a monthly new sales a market like Houston and put that in perspective around as to why this tool and these things are so important. Well, dollars 20,000 a month sitting in your seat sounds very nominal. Our average price per yard in the Houston market is just north of $3 a yard.
Divide $3 a yard into $20,000 a month, you'd get about 6,000 yards. Our average container size in Houston is a little over 5.5 yards per container. Do the math, it's 1100 containers a month that he has to plan for going out. That's a mess. Now do that across the system.
Adam is one market of over 2 50 market areas. That's why this is so critical. The forecasting element is and do we have do we spend CapEx for 1100 containers market per month? No. Why?
Because in the competitive piece of this business, you probably have 6 100 to 900 coming back in, okay? That's how this business works. So he's planning on 1700 to 1900 container moves a month just to handle that $20,000 in new business. I just wanted to give you some perspective on how that intricacy of this business actually works. So with that, you obviously know Daryl Worthing and Steve.
And we now wanted to go to what we're calling a fireside chat, which is nothing more than really opening this up to your questions about anything we've talked about today or anything we haven't talked about today. 1 of the 4 of us will attempt to answer your question. If we think one of our leaders that's sitting in the back with us today is more appropriate, we'll ask them to come up and answer it. So go ahead. I think I have
the microphone first. Thanks for doing this, Ron. So I got a few questions if I may.
In a decentralized model,
who owns what at corporate? And what are you doing
from an ongoing sort of investment training? I guess, where I'm coming at that
is in 2000 and sort of 'seven,
'eight, 'nine, did training get cut when things got bad? And then who owns what at corporate versus who owns what
at the district in a
decentralized model, just to be clear about accountability. Sure. That's for first question. Well, the short number 1, we did not have any training in 2007, 2008 or 2009. It has accelerated every year since 2004, Increased spend, not only aggregate dollar spend, but as a percentage of revenue spend.
So that's number 1. Number 2, really the way to think about the decentralized model is look, our district managers and their team locally, Operations Manager, Management Manager, Customer Service Manager, Controller, Sales Manager, government affairs manager, I'm using that. They own really all of the day
to day decisions that affect service delivery
and employee interaction. So they make hiring and firing decisions, they make wage compensation decisions, they make customer pricing decisions, they make customer satisfaction and delivery decisions, they make capital allocation decisions. Now they do all allocation decisions. Now they do all that day to day, but they do it in the framework of the standard that the corporate executive group and the region staff give
them the boundaries upon. So those are what
I'm going to call the standards. So the standard for returns, the standard for price, the standard for return on capital for savings, etcetera. So it is really truly a collaborative effort between corporate raising and the district and the state. Okay.
You have about 10% of
the business is urban and you define this structural difference in your model versus
the competitors. How would you compare that 10% of
the business versus the competition in performance? What are the distinguishing features of this service leadership model that makes you stand out in
that like for like competitive environment? Well, number 1, because we have the laptop as a percentage, we can probably focus a greater amount of energy unnecessarily because 43%, 44% of our business doesn't take near as much management energy because it is franchised or exclusive in some form. So that we're able to focus a little bit more on that percentage if not. But if I compare Houston, which is obviously more urban, New York City, we talked about today, Miami as an example. Our margins in those markets on a collection only basis are, I would argue, probably 30% to 70% higher than most of the urban centric peers' margins in similar market areas.
I can give you an example. I mean, we're running at a approximate 20% collection margin in Houston. We're running at approximately or approaching that in New York City. If you look at and you just again, look at the business holistically, I'm rounding. A third of what we do is disposal.
A third of the industry, what are the costs I've been saying for probably setting that, about a third is transfer and disposal. That business runs around 50% to 60% EBITDA. That means 2 thirds of the business, and if you want to call that collection, some of it is recycling, some of it is other things, but about 2 thirds of the business is collection, okay? If you take a look at what is different between us and our peer group, it's that our margins on collection are substantially high, because our disposal margins are the same. So the way we get 500 to 1000 basis point difference of aggregate EBITDA margin is we make more money in collections.
Purely simple. And we do that because we've taken the price discovery element out of the franchise piece and the secondary market piece. And then in
our urban piece, we've been
able to focus a little more conservatively on it because of such a small piece of what we do. Okay. Last one for me. So,
culture is hard work. And I think you
said it is hard work. I think they're like
the real job once they
work at GE. They spent 40 years investing in culture in this for
the last 16 trillion years as they
went from a training people, investment training. So how
do you what do you do to
see the slippage, so you
can stop the slippage? Because there's always slippage. Yes.
What are the tools that I attach it quickly
so that there isn't a slide back because
it tends to happen. It took 15 years for
him to kill it, but he didn't. So it took him 15 years. Well, I think number 1, Michael, you've heard us repeatedly say today, there's some statistics we focus on very heavily and we're not a huge statistics focused company. So one is employee turnover and 2 is risk. And then the reason we do is those are inexplicably linked, number 1.
And number 2, they are an indicator of leadership success or failure. Employees lead, particularly on a voluntary basis, due to lack of engagement. And culture is what we believe keeps people engaged. So we focus very heavily. I look daily at turnover, weekly and monthly to tell you every all the jobs by region that are open, when we're running and what that percentage is and pretty much project the wording on a forward basis what risk is going to look like in the next 2 to 3 months based on churn.
Turnover. And so, if we were to look at Progressive, again, at the beginning, there were 43.4% turnover compared to Waste Connect with legacy 18%. Of 95% of turnover was voluntary. At Progressive, 95% of turnover is voluntary. People walking out the door.
That's a repudiation of what's going on. So, we look at not only what is his turnover, but what's voluntary versus involuntary. To me, that is the most important thing of what is going on within the culture of the company
and what our leadership
is moving forward with that.
And a couple of other things to add. One is we do an annual survey of all of our employees asking them basically to grade their manager how are they doing. And we look at those surveys and the feedback that we get from every employee, and that tells us where we are from a culture perspective within that organization. And then the other piece of it is Daryl, myself and the RVPs, Ron Worthing, we all spend a lot of time traveling in the field and talking to the people themselves. And they're the ones who really give you the feedback.
They're the ones that you get the sense of what is going on within the organization.
And to that, Steve, what Steve is referring to is an annual cert leadership survey that's sent to every employee. They can fill it out either in our form or online. And it is a blackout survey, but we do it internally in 10 measurable areas of service leadership of their manager. To give you a perspective, this year we had an 82% response rate of 16,000 employees on that survey of their managers. And we grade every leader against their prior year score in the eyes of their employees.
And it is a quarter of their incentive compensation is their service leadership score in the eyes of their employees. So we know by district, by manager, we have an 8 year running chart of what's going on in 10 negligible areas in the eyes of the employees at every location. That's one of the ways we view is going forward and backwards and where and why.
If you look at it further from a finance standpoint, you hear a lot of people talk about forecasting. Now if you're in my seat, how do I gauge the ability for the field to hit those commitments because those are just commitments. But what I know is that if turnover is trending in the right direction and if safety is trending in the right direction that reflects on a local leadership, The odds of that local leader satisfying or exceeding their commitment on a forecasting basis goes up dramatically if safety and turnover trending in the right direction. The early indicators that those are trending in the wrong direction will be problems in the financials in the future. And so even in my seat, say we're looking at these statistics, they mean something different to everyone.
But from my standpoint, it's a comfort level ability to meet the commitment on the forecast.
Pat, Bill and let's turn it to Lynn. When your turnover
is 10%, you're running
a district of 100 employees, So you're replacing 10 employees a year and using that. Your ability to drive proactively what's going on in the market and forecast it's exponentially higher than if your turnover is 45% in that same size picture. You are in a firefighting mode day in and day out. Your forecast is going to suffer because you are a reactive owner.
Yes. Thank you. Derek Spronling at RBC.
You've had a pretty significant improvement in your free cash flow as a percent of revenues over the past decade. You're now sitting just north of 15% of free cash flow as a percent of revenue. Have you reached is there a feeling to that or
how do you manage
Yes. I'll start on the percentage of revenue. You have to remember the challenge is not to expand it as a percentage of revenue from here, but to keep on achieving that percentage on an ever increasing top line, right? Because if you look at the balance of the space, most companies in the space, if they can do 9% or 10% of revenue, it's free cash flow. And this is on many billions of revenue, that's the best they can do.
So the fact that as you saw us take the company from $1,000,000,000 in sales 10 years ago doing 10% to now $4,500,000,000 doing 16%, the fact that we're able to even double the company in the past year and maintain that percentage. That's where the challenge is. So we see the ability going forward to maintain that conversion of EBITDA to free cash flow, again, at around that 50% range And we maintain that 16% plus or minus percentage of revenue, but again, do another increase in
top line as we grow the business.
I think probably the least understood issue in this room. And actually within our industry, we've been pounding on it now for 4 to 5 years publicly. And we actually are finally hearing other companies say, Oh, that's our problem. Is when you do M and A, your leader gets a step up in your invested purchase price or you don't. Waste Connections has been extremely dilutive about getting step up 95% plus of the time when we invest capital in buying a company.
What does that mean? If you're buying a company for $10 and it has $2 of tax basis in its stock, your options are to take the $2 of basis, pay $10 for it and not get to deduct $8 of purchase price for ad book or pay $10 get a step up and get $10 of deductibility in your purchase price, okay? So it's a material difference. Many companies in our space, if you look at why their tax tax rate is higher than their GAAP tax rate, it's because they did deals for decades with no step up. They can't fix this.
That's why they have a 39 percent GAAP tax rate and their outflow is more than 39% of GAAP taxes. It's because they have a permanent disconnect between gas and Cap. Waste connection has a lower Cap tax rate than gas. Why? Because we've battled for 20 years in deal to get a step up.
It is the least understood thing in our business about M and A. It can be a 2 to 3 turn of EBITDA difference in a purchase transaction. So somebody thinks they're paying 6 times I'm using that 8 times EBITDA and they didn't get a step up, they just paid 10 to 11. And it wakes up 5 years later and says, we don't understand why our cash tax rate is 47%. These are some of the permanent differentiators that we talked about this morning that there's not a way to close that gap.
On the cost inflation side, I mean, what we're seeing right now really hasn't changed too much. Yes, wage inflation is up probably about 50 basis points this year, higher than what it was last year. But again, if last year was 2.2%, 2.3%, now it's running about 2.7%, 2.8%. But if wages are about 20% of revenue, that's a 10 basis point unit push on the cost side. But if you step back and look at it on the macro, grow the first one percent of price increase is needed to overcome wage and benefit inflation.
2nd 1% of price increase will be coverage inflation under the balance of your cost items. So at a minimum, in this industry, in this environment, you've got to show that 2% price just to stay even on EBITDA dollars. Obviously, that's margin dilutive, right, because you're doing more revenue to stay neutral on the dollar impact. So pricing has to exceed 2% to drive margin inflation. And obviously, you would hope that the volume growth that's come as they're attaining right now is margin accretive.
And obviously, in our model with over 40% of the revenue in exclusive markets, new volume growth comes on as a much higher contribution because of the guaranteed price. And then with quality of price, if you heard Dave and Colin talk about on volume growth with regard to competitive markets, volume growth in that system also comes accretive on an aggregate basis. And so it's a tougher climate. But again, you've got to deliver step in at least 2% to start the margin discussion above and beyond that.
Yes. And Eric, and I'm not saying anything that anyone doesn't know. Look, to drive through capital growth, great creation as a percentage of revenue higher from here, we have to do 4 things. We have to improve margins, EBITDA margins, okay? We have to do that.
We have to control CapEx as a percentage of revenue to higher and lower than it's been. Certainly, as we told you on the Progressive transaction, we're 40% lower than they were running. So we drive EBITDA, maintain CapEx control that's going to drive EBIT. That's going to drive greater free cash flow creation. And then we have to deploy capital at higher return rates than our average cost of capital.
And we have to get step up in transactions when we're deploying large amounts of capital to not fool ourselves on the efficiency of that capital over a 10 year model when we're making very proactive decisions. And those are the things we have to do to move that continually, move our free capital percent revenue up. Just one question from me. And I think
But at the same time, we're probably clearly dramatically change the culture with a competitive way solution. So when I think about your leadership attention, what are you doing to prevent others from poaching to how you've cultivated internally here and effectively allowing peers to potentially post that
Sure. Well, number 1, and let me correct out one thing. So we think the differentiation is really 2 things. We think it's a model differentiation where we are focused on a different strata of the business, focusing on exclusive revenue, which is 43%, forty percent of what we do today and predominantly secondary suburban markets where we are usually the only 1 or 2 players. That's a very different model for 85% to 90% of our revenue than the urban center.
We think that's the number one differentiator. That yields a business that is less price prone to churn and a variety of other things. And that builds in model differences in financial performance. We augment that with a what we believe is a different cultural approach. And then that drives things like risk, like turnover, like management retention that we think is additive to the model difference.
So I think that's how we think of the business. Now to the next part of your question, I mean, look, no offense. It's a lot harder for someone to take our people today than it was 10 years ago, okay? And why do I say that? We use a lot of equity incentives for our people at all levels.
Our district managers, our district sales managers, our division vice president to our region vice president, they make on salary basis, probably 80% to 90% of their public company peer group, but they make on an equity participation basis 150% to 300% of the public company peer group. And then when that actually goes up by 2,500 percent over the last 15 years, they swap their peer group if we perform. And that we'd like to think they all stayed here just because we're good people. But they've also stayed here because they've done very well. So all of them have had their doors locked on their email chat and emailed into call and they could go anywhere they wanted if they would wish today.
I would tell you that I think that's a challenge. We want it's our job to make that a challenge for our competitors. See. I view that as a personal challenge. And I think I know all these guys and I know our RVPs and our executives in the back too.
And it's why it hasn't passed. I'm not going to say, well, all of it can't, but it hasn't. And we're going to do everything we can to prevent that.
Jerry? You guys were very upfront at the beginning. I'll say that this is a commodity business. But I can't think of any if any other commodity business where price is up low single digit year end year end. In the non franchise part of the business, how do you think about that elasticity curve and obviously waste management is a required service for your customers.
But I think think about pricing year in year out and do you either like extra competition or customers starting to push back?
Yes. Well, again, we believe that the reason price has been in low single digits year in year out in our model. Again, I think if you look at the sector, we're unique in that because it's been negative for many years and many of the others points to the model differentiation where in 43%, 44% of the business today, we're going to get that CPI whatever that is. Now that might only be 1.5%, 2.5%, but we're going to get. And then in that other 56%, 57% of the business that's not in the vast majority, if it were we are in a more of a suburban or rural market, We often own the only landfill.
And so we can drive price without as much fear of retribution because if we do lose that customer,
the competitor is still going to likely bring
it into our landfill at a differential price. So those are them so that now allows us for that 10% to 12% that's urban to be more surgical. And so those are the 3 ways we think about how the model is different than where you have 50% to 70% sitting in urban Central America with multiple landfills and hundreds of competitors. It's a different lot. It's not what the model we want to be in.
Price is in this business, in the competitive piece of this business, price when you go to price increase the customer, customers are upset whether you increase them 2% or 8%. The same customers are going to call whether it's 2% or 8%. So what we find is going to play, okay? You can't get the same number of calls. And for those that got calls, you're going to do a little better off.
And that's an oversimplification, obviously. But we also work hard to we're not the right choice for our customers, okay? And we're okay. There is a good portion of customer base by market that the private companies who have
who can live on lower margins,
they're not public, they don't have the expectation of their shareholders as a shareholder And then a 5% to 10% EBITDA, they're making a good living and they're happy and that's financeable. There's a customer base for that, okay? But and that's not who should obviously our customer. And in that case, we want to own the landfill of the transfer station and be the customer to that live space. So that's why this business is so different by market area and you can't take a standardized approach in our beliefs.
Sure. So obviously, you guys spend a lot of time on revenue quality. Can you just talk about
how you view of revenue quality to default for the last couple of years? I guess we
could probably be you are taking a
good example. 18% EBITDA margin is up 2,000 basis points. I'm guessing 3 years ago, you were at the time that New York's really
a good market. So how does the ball go at the time? Last at it a year and a half ago.
By the way, it's also internalized. Yes.
Again, I think to a question asked earlier today or comment made earlier today, right? And I do have all both. Europe is a very good market. And there's a whole host of reasons that we're doing better and we want to be there. We think there's a very bright future there for us.
But on the price side, what we found when we spent time with the management is that they were told don't lose customers and obtain X amount of growth per month. And that brought in revenue at a certain level. And when we went there, we said shrink the business, get rid of stuff that you're charging $1 that cost you $2.50 to handle, stop doing unsafe things and don't try to be open to all people.
And don't try to subsidize collection with your cycle.
And don't try to subsidize collection with your cycle, Okay? And that was a fundamental shift in what they had looked at in the whole market. In fairness, they actually said, here's what we need to do to make money. And we said, yes, go do all those things. Those are all things we're okay with.
We're fine going backwards in revenue and not doing this for practice. And we told them, we gave them benchmarks that if they could hit and demonstrate what they said, but that would be a market we would sort of take from does this make sense to be in and look at swapping or does this make real long term sense? But they had that control in their destiny. And I'll tell you they executed ahead of schedule.
I guess maybe the next same vein then. I'm curious if you could clarify your comments earlier. I I mean you said that the M and A engine could be turned on over the next 1 to 3 years. I guess that was our view it's already gone. I mean,
we've obviously done a lot of deals over the last year. So are you
seeing the market folded up in terms of where you're willing to go? Or are you just more focused on operations and pitching Progressive over the last year and now you can get into some
of these markets and maybe some adjacent deals? Yes. I think it's a combination of things, so. Number 1, it takes time to go into new market areas, evaluate who the prospects are and how they may fit into your assets or become new assets and then develop relationships and see if there is an interest in doing something. That is a protracted process.
That's why while we've been at it for 1.5 years on the progressive assets, you're going to just start seeing some stuff go. If you've heard us for many time on Waste Connections, we will tell you that the deals that we close in any given year, we've probably talked to for 5 to 10 or more years and made 3 to 7 offers till we finally get this done. So that isn't going to take longer. The second thing is, I believe this has nothing to do with Progressive that we are on the verge and I don't just mean our sector. We are on the verge of an M and A bonanza in this country if tax reform happens.
You have no idea how many private companies have sat on the sidelines for the last 8 years and you figure out why. Because of an economic decline for a while, the dramatic tax rate changes at state and federal levels and then increased regulatory activity that out that increased cost burden and depress their financial performance. They have lined up waiting for a tax law change. They view that there's a window. If it happens, if it happens, there's a window of maybe 3 years
to get through before potentially
a regime change and a reversal of that tax law change. So, I think you're going to see dramatic change. There's also a change in taxes or reduction in taxes dramatically has an effect on this lack of step up issue that affects TransX. So you get a dual multiplier for why it will occur.
John? Hey, thank you for taking
my question. Ron, just on the M and
A idea, you guys have done such
a tremendous job with Progressive and pretty much every asset you purchase. Could you give us a sense of what the pipeline looks like big picture? And what I mean by that is, when I think out 10, 15 years, how many revenue dollars could we be putting Connections margins on when I think about
what that might look like? Well, I mean, look, the private company a private company basket of M and A opportunity, When we were in the former Waste Connections footprint, we talked about a $2,000,000,000 to $2,500,000,000 private company basket of opportunities. And now we can tell you that, that number is closer to about $4,000,000,000 as we look at our market areas today, okay? And that's private company. That's not regional companies or any other public companies or anything of that nature.
And if you look at our model of acquiring 3% to 4% to 4% external growth a year on $4,500,000,000 that would tell you we're acquiring $150,000,000 ish a year. Well, that basket of $4,000,000,000 is growing at the same 3% to 4%. So, we're effectively just about only buying the growth rate. So you can go out not forever, but quite some time. Now there's going to be years we do a lot more than that 3% to 4%.
But I would tell you that if you just look at us and you say that we deliver organically, I mean around in this environment, in this GDP and CPI environment for 2.5% to 3% price environment is better. It will be better than that. And 1.5%, 2% volume, if GDP is better, it will be better than that. But that tells you 4% to 6% organic growth. You layer on 3% to 4% external growth.
Well, that takes you within 5 years. The company is well north of $6,500,000,000 to $7,000,000,000 in revenue. And you can just extrapolate from there. I mean, we're not in the business to make it 10 year projections, but I mean, that is the model, that is the mix.
Got it. And if I could ask one more on Progressive. There's a little bit of housekeeping in here, but also bigger picture. On housekeeping, we're being I feel like it's been very clear that the volume numbers are going to start looking very different around the quarter as we mix in the negative volume growth in Progressive. Maybe you could just clarify that and elaborate that.
And then this is a bigger picture. Associated question. At what point do we see the kind of more typical connection algorithms kick in into moving the progressive and those numbers normalize where we see positive volume growth for normal prices?
Sure. If you look at the near term, and again, we've been very clear on progressive impact to reported volume. Progressive organic growth numbers started coming into our reported numbers beginning June 1. So we're just the 1st month into it. So there won't be as much impact in the reported numbers in Q2 on volume because it's just 1 month out of the 3.
But the U. S. Economy for us and the regions we operate in is running at the upper end of a 1% to 2% range. And we've been reporting numbers 2% plus or minus on volume growth for that for some time. So if you pull Progressive in for 1 month, you'll have basically 1 month impact of a negative 1% impact from what we're shedding.
So that's about a 30 basis point impact, right, to reported line growth in
the U. S. If think
about it in Canada, it's different. And by the way, that will accelerate because in the second half of the year, you have the full 1% impact, right, because you have 3 months in each quarter. In Canada right now, you've got the purposeful shedding, it's running 2% to 2.5% as an impact on volume. And you've got some other things that we're doing around a price focus in Canada that's driving again north of 4% on price and some price volume trade off in the near term. And So basically, in the near term, we're seeing us kind of fixed and right sized the Canadian business, where price is still outstripping volume losses.
But then most of the volume growth you're seeing in a non reported basis is still in the U. S. Marketplace given the broader mix of waste connections underlying.
Yes. I think Phil can take that. And the second part of your question is that if it comes in Progressive, meaning into the organic growth calculation and price and volume at the anniversary date, as Marvin said, you really got to go a full year until you've anniversaried the effects of that before you really get into what to wave connection algorithm from a reported spike in volume. And so what you'll see is some compression of price in places consciously in 2018 by Wave Connections, where we'll now let volume come back up. And so then you mix that with our traditional footprint.
And you're going to get something, I would say, next year in the second half of the year that looks more like that, I'm going to ramp depending on the environment, 3% prices and getting back to that 1.5% reported volume on a run rate basis, if economy improves maybe a little north of that as we by that we're consciously shedding business, okay? We're constantly consciously shedding unprofitable and unsafe business. Our sales force, Colin Davis, is still plowing along and driving positive volume on the underlying nature of that. So we're just outstripping the formal shedding.
Where we have the opposite impact on price, where our reported price is going to be going higher, right? So legacy Waste Connections, to use that phrase again, was running 2.5% to 2.7%. With Progressive coming into the mix, you're seeing pricing in the U. S. Pull up the upper end of that 2.5% to 3%.
And you know I talked about Canada right now, slightly around 4%.
Yes. You mentioned how the next leg of progressive is M and A engine.
I'm just curious that 3 years down the road, can we see that
make it a bit lower to save you
more comfortable and confident in your culture
and your approach in some of these more urban areas? And the last question is
to be on the E
and T business. Obviously, there's been
a lot of volatility with oil in synthetic. Just curious
if anything you're seeing there, is that
okay, let's take each of those 3. So number 1, I do not think you will see the percentage of exclusive contract business decrease as a percentage of revenue as we go forward. I'm not saying a long little point or 2, but it's going to effectively be in that 40% to 45% level. And the reality is in the footprint of opportunity, 35% to 40% sit in exclusive geography has also been the slowest over that geography has also been the slowest over the last 5 years in M and A because of tax rate issues. So I actually think you see some disproportionate opportunities there as a percentage.
So no, I don't expect it to change. Secondly, I do not want to mislead anyone if I said this. We are not more comfortable in the Ermecentric footprint and you will see that continue to decline as a percentage of revenue as the company moves forward. That is not our model, okay? We will not be outdoing urban centric M and A.
We have made some very nice progress in markets we inherited and decided to stay in because of niche opportunities. But you're not going to see us out doing M and A in urban Centric America, where we're not already today. That is not so it will continue to drop. So the revenue mix will work more and more like legacy Waste Connections as the company moves forward year after year after year, right, because of dilution of that. The third thing is our E and P business.
I'll give you a very distinct answer to that. You tell me the price of oil and I'll tell you how it will be. Look, 6 weeks ago oil was in there was $53 to $54 and was going to break through to $55 to $16 everybody felt great and today it's 44. Now I think people still feel a lot better at 44 than they did at 38 to 40 a year ago because those producers have lowered their cost structures dramatically. But our E and P business is doing very well.
It is and we reported each quarter and we will again, but we are ahead of where we thought we would be in the Q2. We're clearly ahead of where we thought we'd be in 2017. And that business is going to be $150,000,000 to $200,000,000 business for us this year and it's going to be back to not the margins it was in 2014, but not far from them on a run rate basis. But that in the engine of the 5 company we are today is now 3% to 4% of our revenue and 4% to 5% of our EBITDA not 10% to 15% of each. We do not need M and A to drive our E and P business.
We have the assets. We are in the disposal of solids, which is what we do. We are the £800 of the road. No one's close. And we don't need anyone else's assets to improve our performance there.
We need the price of crude to change. And with that, we will have to perform. Couple. Yes. Just 2 2 part questions.
Ron, moving into this area, the margin gap between peers, how much of that is execution versus structural? And then second question, for modeling, how companies are not raising guidance today?
I'll be reading anything into that.
Yes. I'll take the second one first. You're right. We typically reassess guidance when we announce Q2. And you're right, you got to sit around and wait another month.
We'll stay on schedule, and when we report Q2 and have our earnings call, We'll guide to Q3 and we'll also take a hard look at the full year as well. So no change in our timing on that. Read nothing into it.
Yes. Look, we would tell you that 75% of that gap is structural due to market selection and asset positioning within the market or what I'd call the model, right? And then I think 25% of that is execution, culture of things we try to do different and impact in the areas we've talked about today. Now as we have more urban centered business because of the transaction we did, I would tell you that in those areas, the performance is a lot more than the 25 percent sell through execution. But of course, because it's such a small percentage, we can pour a lot more energy in it than anyone can on a relative basis because it's such a small percentage of what we do.
And that's another reason it's more.
So I think as you
mentioned, we've seen pretty broad that progressive with the weaknesses where in the Northeast and the South where they had some of
the key
issues. Are those areas where you have seen and can still see the greater margin opportunity potentially? And when you're into the deal as well, I'd ask you if there are any things about the operations you acquired that surprised
you with your positive experience? Well, number 1, yes, I mean, the greatest areas of opportunity when we closed the deal were the Northeast and and the South. We showed you today, we've made the greatest progress in the Northeast on a margin basis and substantial, but not quite as much yet in the South. The South is much bigger, so it's harder to get it. I would say on a go forward basis that we have incrementally more opportunity in the Southern region to make improvements and then the North and then Canada in that order.
We also had a large piece of business progressing in our central region, which we didn't got silver bars and the RVP sitting here today and central debt in Missouri in and around the St. Louis area and South of St. Louis. And that has actually had arguably maybe the largest part in business team in that area of the country for us.
So can I just add a couple
of things? You mentioned fleet. And certainly, within our Southern region, fleet has been a big issue for us. We've been resolving those issues. Daryl and Greg Thibodeau have been working through those issues.
So those 3 issues are improving. It's getting the right vehicle, as you heard today, into the right application. So we've got those things continuing. There are also core contracts, some of which we have to let them run out, At which point in time, we will either renew them at a price where we make money or we will lose them, which is fine. And then in addition, we have the divestitures.
So I mean, all of those are part of taking the margins that we have. And I'm particularly focusing here in my remarks on the Southern region and improving the margins in the Southern region to what would be more margins and the way we do business within Waste Connections. And above all that, we still have
the rollover contribution of safety improvements, right? We talked about the reduction in frequency right now. We're seeing that benefit on the cash side. But in the P and L, there's only about $18,000,000 to $20,000,000 of savings this year. I mean, there's another $8,000,000 to $10,000,000 of rollover that will come most likely next year, maybe some of the trips into 2019 a little bit.
That's above and beyond the quality of revenue and pricing improvements we're talking about and the kind of fine tuning around maintenance fleet, etcetera. So there's still tailwinds with regards to the transaction that are above and beyond what someone else refers to as our normal algorithm on that side.
I'm sorry?
What do you think, Carol?
What inning are you in on?
I'd say we're probably in the 6th. So again, you're seeing a lot of the flow through already. I mean, the things that we talked about driving Q1 of this year, both pricing and volume environment, both the integration benefits, higher recycling prices, better E and P, etcetera, All that's influenced Q2 as well. So all the trends we've been talking about 1st part of the year that continued well into Q2 and continues to sit here today. So it's just been a little more stable environment.
And obviously, the integration benefits sort of a little driver there.
I think the second part of your question, Scott, you asked what are we what was favorable, what was unfavorable relative to our expectations. I'll take a little bit from Michael's comments.
I'll let Drew and
Daryl were sitting on the fleet. The reality is important to our Southern Navy, we need to spend more money in fleet than we're spending today. We have no question. How we're going to do that with you not seeing it is we're going to do that by improving quality of revenue, right? If I outstrip the revenue, I can jack the R and M percent.
So the fleet in the Southern region is in far worse condition than we could have imagined for the magnitude of CapEx put in by Progressive in the prior 4 years. As Bob noted in his commentary, it was put in a very concentrated dose in specific markets. And because they were already at such a high percentage of revenue, they couldn't do anything else and communicate to you why, so they did nothing, okay? And when you do nothing and you don't have ongoing preventative maintenance, you have breakdown maintenance. And then when you do have breakdown maintenance, you put new fleet in and you don't maintain it, you take an asset that should last 10 to 12 years and you turn it into $0.46, right?
That was worse than we anticipated. That was far worse than we anticipated. We are getting our arms around that fast, but that takes several years to do. We need to spend more money in that area. Progressive also relative to Wave Connections in parts of the country ran the business with far plus far fewer plus line supervisors than we just experienced.
And it depends on the nature of the business franchise or competitive, the geography and how far rural versus non rural is affected. But in some parts of the country, we need to put a lot more supervision and increase the frontline headcount to supervisors. In other parts of the country, we need to send it out. Right? So we're still that was a surprise to us for a company that was so regimented in command and control.
It was so disparate and didn't make the settlement. It's basically still in some places doesn't make sense to us.
So, no, in this forum, we've got time for 2 more questions. And then we'll all be hanging around here during lunch. Feel free to mix and mingle, ask additional questions. I see a microphone with Corey and I think Andrew's and Gary, so we'll take
the final three questions. Thanks for taking around into lunch. So 2 quick ones, both M and A related. Short term question, as you pointed out, Ron, is tax reform would be a good one. Given what's happening or not in
Absolutely. Absolutely. You're going to see it. There's been others. Again, there's 2 types of things.
Traditionally and today, remember, we've said there's things that drive our M and A pipeline, whether it's death, visibility, disease, divorce, what we call life events. Those life events are still occurring. And irrespective of tax reform, those life events occur and people need to move forward in deals and they are, okay? But then there's a whole other set of deals that the life of it hasn't happened and it is but I want to plan my say, I'm not going to do that until I know what's going to happen this year. Was it going to be something in cash reform happened in the before the August reset and is affected back to January 1 or after the August reset and is in effect until next year.
Why am I going to do something for our business? So we're seeing a lot of people just say, let me get ready to the start line, tell me what business is worth, let's talk about structure and let's hurry up and wait for DTE.
Another question on the longer term one. How important is or not is culture target when you look at M and A? Is your belief that almost anyone can learn your culture to figure out what's better off with
these? Or is culture of the target
if you make a lot to make more improvement? And is that linked to your thinking on either retaining or placing management of the target?
It absolutely plays into it and plays into valuation very much. We know our company that, for example, GRUIT is a great example. I mean, that is a company with tremendous culture, long term tenures, very entrepreneurial management, a
4th generation, a 104 year old
company that had a very, very cohesive culture. In a lot of ways, very similar to Linked Connections. Not quite as strong on safety, not quite as strong on price, not quite as much proactive on R and M, but from limited capital, replacement policy, quality of assets, market positioning, contract strength, things that were very critical. And in that, we're able to take existing management, in this case, 4th generation John Group and
1 in
Brands Fund. And those are gentlemen who are in their business 30s who have adapted our culture exceedingly well and have made step changes already in that business. And we felt that would happen in our analysis as we factored it into it. Other times, we look at companies and we like the market positioning assets, but there's no way the existing management is going to function in our culture. And in that case, we can sort of negotiate the excise of the management prior to close and identify equally 2 or 3 key players from our organization that we can insert.
And we can affect that pretty quickly. Particularly, it's a culture of sort of a top down repressive culture. The reality is most people don't like to work in that environment. And so we're able to expect that a little quicker. Gary?
Yes. We have what you saw today is being done in every market in the U. S. And Canada now. And then just
one last one on your capital allocation looking forward in the next 5 years. Do you think it's time to reassess given much bigger company on a bigger, broader investor base potentially could be the
fee. Will you take
a look at that in terms of your dividend, maybe bump that out? How are you thinking about that in the next few years?
Well, the goodness is we're already on the TSX-sixty. That happened last week. Look, we're very methodical as we look at the dividend and growing at double digits every October. Now with the free cash flow per share CAGR that's been growing at 14% over the last 5 years, it's really not encroaching on the aggregate percentage of free cash flow. So look, we like the flexibility given the growth point that we have and Ron has talked about that, especially as you look at the next potential M and A environment.
That the flexibility we have of not having the dividend be 60% or 80% of cash flow, that flexibility to grow the business through acquisitions is the unique advantage that we have. And if M and A slows down for any reason, we can redirect the the cash flow to share buyback. We're sitting right now on over $400,000,000 of cash in the U. S. On the balance sheet, waiting for the timing of the acquisitions to get knocked down.
So our approach to capital
allocation won't change. Again, you see a steady increase in the dividend. You won't see the dividend though given the growth of cash flow, given our flexibility and ability again to fund all the growth opportunities we have is unique for us.
Well, I think we've run over by 20 minutes when we promised you we'd do today. We apologize for that, but we wanted to be able to take all of your questions. For everybody here in the room and those that may still be left online or on our webcast, we appreciate you taking the time out to make us act surprised to be here today to be part of the Investor Day and hear our team. We're proud of our team. We're proud of the 20 years that we've had.
For those that have owned us or watched us for any period of time, you shouldn't anticipate a change. We've been executing effectively the same name for quite some time. We'll tweak it here and there as the dynamics of the business change and technology and other things change, but those are going to be squeezed around the edges. They're not going to be material changes to the focus of how we pursue the business. We're all accessible.
Certainly, Worthing and Mary Anne Whitney available at all times and Steve, Joe and I and are listening to the team as ever you need it. So thank you. We do have for those here, We do have lunch available now. And the 4 of us and our senior members that are here today will be at the lunch. Feel free to approach anyone and ask any questions you didn't get answered or didn't have a chance to ask today.
And we thank you and we'll obviously be talking to you on our July call and seeing the new conferences and meetings as we go forward and then in this kind of setting 10 years from now.