Good morning. My name is Brandy and I will be your conference operator today. At this time, I would like to welcome everyone to the Shareholder Analyst Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I would now like to turn the call over to Ed Egl, Director, Investor Relations. Please go ahead, sir.
Thank you, Brady. Good morning, everyone, and thank you for joining us. With me this morning are David Steiner, Chief Executive Officer Steve Preston, Executive Vice President of Finance, Recycling and Energy Services and Jim Fish, currently Senior Vice President of our Easton Group and newly appointed Executive Vice President and Chief Financial Officer. David, Steve and Jim are each going to make some brief comments this morning and then we will open the lines for questions and answers. Before we get started, let me remind you that in addition to our press release that was issued this morning, we have filed a Form 8 ks that includes the press release as Exhibit 99.1 and is available on our website at www.wm.com.
The Form 8 ks and the press release include important information that you should refer to. During the call, you may hear certain forward looking statements based on current expectations, opinions or beliefs. Such statements are subject to risks and uncertainties and are based only on information available at the time the statements are made. Some of these risks and uncertainties are detailed in our filings with Securities and Exchange Commission, including our most recent Form 10 ks. Before I turn the call over to David, I would like to remind everyone that we have not yet closed our books for the Q2 and we will not comment on the Q2 results or previous guidance.
This call is being recorded and will be available 24 hours a day, beginning approximately 1 p. M. Eastern Time today until 5 p. M. Eastern Time on July 26.
To get a replay of the call over the Internet, access Waste Management website at www.wm.com. To get a telephonic replay of the call, dial 855-859 2056 and enter reservation code 9,743,304. Time sensitive information provided during today's call, which is occurring on July 5, 2012, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Waste Management is prohibited. Now, I'll turn the call over to Waste Management's CEO, David Steiner.
Thanks, Ed. And thank you all on the line for joining us on such short notice. As you read today, we announced that Jim Fish will succeed Steve Preston as our Executive Vice President and Chief Financial Officer. Steve will continue on with the company to ensure a smooth transition and to finalize various initiatives that he's working on. I'm certainly sorry to see Steve go, but I knew it was possible from the day we hired him, because Steve is an executive with all of the experience qualities of a CEO.
That's why we hired him. And unfortunately, that's why we're losing him. Once you've led large organizations, it's hard to go back to being a CFO. But Steve worked amazingly hard to ensure that he leaves our organization better than when he joined. His counsel has been invaluable and all who have worked with Steve at WM would join me in saying that we gained a colleague for a short period of time, but a friend for life.
Fortunately for us, we have a proven leader in Jim Fish to assume our CFO responsibilities. The only thing bigger than my disappointment in losing Steve is my excitement for what Jim will bring to our company and our senior leadership team. Jim has an established track record that will provide an operational focus to the CFO role. And with his field experience, he'll have a sharp focus on cost controls. Jim understands both the importance of top line revenue growth and controlling costs to improve operations.
He was our 1st Vice President of Pricing when we implemented our pricing programs and many of the pricing programs that we have in place today are a result of Jim's work. Jim then moved to field operations. And while running the Pennsylvania and West Virginia market areas, he identified a unique opportunity to grow revenue in the Marcellus Shale area. He developed a sound business case, identified opportunities and took a business from 0 revenue to over $100,000,000 in revenue in less than 2 years. In his time in the field running market areas and as the Eastern Group Senior Vice President, the first thing Jim did was to look at cost structures to identify ways to improve operational and back office efficiency.
This experience has certainly helped him. And even before he accepted the CFO role, he came to me to begin a project to review costs in various parts of our organization. So as you can see, Jim will bring a wealth of operational expertise to the CFO role, but he also has the requisite skills to run a large finance organization. Jim received a Bachelor of Science degree in Accounting from Arizona State University, an MBA in Finance from the University of Chicago and he's also a certified public accountant. In his career prior to Waste Management, he held finance and revenue management positions as well as working for KPMG Pete Marwick.
Bringing Jim in allows us to combine strong operational experience and financial knowledge to manage our financial affairs as we pursue our strategies. I've worked closely with Jim over the past 8 years. Jim was in the finance department when I was CFO and I pushed hard to get him into his 1st field operations role. So you can look at Jim's resume and see why he's the right person for the role. But beyond his resume, Jim has excelled at every job at every level of our organization and I'm certain he will continue to excel in his new role.
I'll now turn the call over to Steve for his comments. Thank you, David. I'd like to start out by saying what a privilege it's been to be part of this team. David's a committed leader with a leadership style that brings out the best in people. I firmly believe that this company is headed in the right direction as we address the changes that are underway in the waste industry.
Most importantly, we have talented committed people from the top all the way down through the field organization, which frankly is one reason why it's difficult to move on. However, I've been running large organizations for a number of years most recently Oakleaf, but previously the Department of Housing and Urban Development and the Small Business Administration. In addition, since October, I've been commuting to Houston with my wife and 5 children at home in Connecticut. So the work travel has become increasingly difficult for my family and me. I will wrap up my CFO duties through the filing of our Q2 Form 10 Q.
And then I expect to continue to work for Waste Management through the end of the Q3 to ensure a smooth transition to Jim as well as to finalize various initiatives that I'm working on and to support the integration of Oakleaf into our operations. Finally, I'd just like to say thank you to all the employees at Waste Management, especially those in the Finance, Recycling and Energy Services departments as well as the former Oakleaf team. The entire team has supported me from day 1 of the job. I've loved being a part of this team. That said, Jim Fish will be a capable CFO.
He will bring a solid base of skills, a deep base knowledge of the company and a strong operational focus to the role. On a personal note, I've enjoyed working with Jim. He's a thoughtful leader. He consistently looks for opportunities. And I'm also glad to be handing over the financial reins to another University of Chicago alum.
So with that, I would now like to introduce Jim Fish, our incoming Executive Vice President and Chief Financial Officer. Thank you, Steve.
Thank you, David. I'm looking forward to this position and I'm honored by it. Steve will be handing off a great finance organization and I look forward to working with them. As David mentioned, my recent operational background will be an asset as I transition into this role, Whether we're growing the top line through pricing or new service offerings or making decisions to streamline costs, I have experience in making those decisions and understand the impact to our customers and our employees. I'll be able to provide valuable insight to ensure that we're executing our strategies of knowing more about our customers and how best to service them, extracting more value from the materials that we handle and innovating and optimizing our business.
Today, many companies are looking for CFOs with an operational background to complement the finance function. In my view, the CFO should play a leading role in recognizing long term trends and opportunities and helping to capitalize on them. In my first finance position at Waste Management, I worked with the financial planning team to restructure the field organization, their compensation and many of their functions in response to a changing industry landscape. From a field perspective, I see a similar need today to reassess the level of SG and A required to support our current revenue base as well as the need to materially grow that revenue base at strong margins. Additionally, I believe that our allocation of capital and free cash flow is one of the most important tasks I will have as CFO.
I will focus on working capital, capital expenditures and a strategic overview of our acquisitions to make sure that we use our cash flow in a manner that is best for our shareholders. Before opening up the lines for questions, let me just say I'm prepared for the challenges that come with the job, but success will depend more upon our team than me individually. I have a very talented staff of professionals in place to support and execute our strategy. I believe that the people on my team will help me achieve great things for Waste Management and I look forward to working with each of them. I also plan on working to continue to provide valuable information to the investment community and I expect to spend a lot of time in the future getting out and meeting with investors and analysts.
And with that, operator, we can open up the line for questions.
Our first question comes from the line of Hamzah Mazari with Credit Suisse.
Good morning. Thank you. Steve's title had more than just CFO responsibilities. Maybe if you could comment, David, who will be taking over those responsibilities? And whether you feel you have a need for a Chief Operating Officer or whether that role doesn't make sense at Waste Management?
Yes. Hamzah, we're constantly looking at ways to create better alignment in our organization between our staff and our field operations. While Steve is here for the next quarter, he will continue to manage those other operations. But that's something that we're going to have to look at over the next 3 months. It's
when I
talk about Jim coming to me with some ideas, he had some ideas about organization. We asked him to lead a team to look at our organizational design. And so I would expect that by the time Steve officially leaves the company by the end of Q3 we'll have more on that.
Okay. Great. And any impact on Oakleaf? I know the benefits of that transaction were more back end loaded. Any impact there with Steve going away?
No. In fact, I actually think we'll see a better focus on it over the next quarter. Frankly, when Steve Steve and I have been talking about this potential transition for a while, ultimately made the final decision. But one of the things that we talked about was freeing him up from the finance organization allowing him to transition over to Jim would actually free up a lot of his times that go in and make sure that we have a transition with Oakley. So I think it will only be a positive there.
All right. Great. Thank you. Congratulations Steve and Jim on your new role. Appreciate it.
Thank you.
Thank you.
Our next question is from the line of Corey Greendale with First Analysis.
Hi, good morning. Good morning. Hey, I have one question for each of you on the call. For I guess, I'll start with Steve. Could you just talk a little bit about I know you talked about leading an organization and the travel, but presumably when you took the role initially you thought that it was going to work out.
So can you just talk a little bit more about what changed since you were originally announced as effectively the Head Financial Officer?
Well, actually from a lot of perspectives things worked out better than I thought because frankly coming into this organization I didn't know it and the deeper I got the more I realized we've got a terrific organization with what I think is a great opportunity. I think the realities of being out of the CEO role for a period of time, coupled with really the need to move the family down here were 2 things. And I've chosen not to pursue anything at this point. I've begun to get I've had a number of calls. And I think the more that I thought about the disruption to the family of either moving them or continuing to commute as well as just my own professional aspirations, it just didn't make sense anymore.
And we really we were at a point where we were going to have to pull the trigger on a move. And as David said, I've been talking about it for a while. So I think it nothing has really changed. In fact, I think it's probably more difficult to make the decision than I thought because really the team is terrific and I think the opportunities are terrific. Interestingly, when I was recruiting Steve as we were going through the Oak Leaf transaction and we completed it, as I was recruiting him, one of the things he told me was, I'm not sure I want to take a CFO role after I've had roles leading large organizations.
And I said, look, if you come to Waste Management and you become our CFO that will only help build your resume if you decide to go do something else. But we'd love to convince you to stay at Waste Management. So I think it's always been understood between Steve and I that he wants to run a large organization. And I think anyone that's done that, he and I talked about that too because I've had the CFO role. Anytime you've led a large organization, it's hard to go from the conning tower of the ship back down into the engine room.
And I think Steve, once you go get back down to that engine room, you want to get back on the conning tower as fast as you
can. That helps. And putting it in that context, Jim, as you are making the descent into the engine room, could you just tell us a little bit about kind of the view from the field? And maybe a little bit more explicitly, I realize you're probably not ready to announce big initiatives now, but just a little bit more detail on kind of things you've seen in the field that you think could be applied to Waste Management more broadly maybe some things that could be done better that we haven't heard about as much from a Wall Street perspective?
Yes. I mean now that I
know my position in the engine room here, I'll comment on that. I think that from a fuel perspective and I mentioned it a little bit in my script there, but I do think that we have too much SG and A at the company for our current revenue base. And I think that was maybe more apparent in the field than here. I don't know. But that's why I came to David several weeks back and said, look, I'd like to make some recommendations on how to streamline the organization.
So that's probably at the top of the list for me. Maybe second on that is looking at the growth side of our business, looking at our revenue base. You can look at either the numerator or the denominator there. But the denominator is the revenue base and I think our revenue base needs to we probably haven't been as effective with growing our revenues we'd like to have been over the last couple of years and certainly need to look at that as well.
Okay. And then just one for David if I could. Could you just kind of walk us through the walk us forward from the time that Bob Simpson announced his impending retirement and there was a fairly extensive CFO search. And this time you Jim's resume looks great, but you decided to go with an internal candidate rather than doing a search again. Can you just kind of talk us through your thought process?
Yeah. Glad to do it. We went through as you said an extremely extensive outside search process. I'm going to guess that I interviewed well over a dozen candidates and we looked at a lot more than that. And so I knew what the market was.
I knew the type of folks that we were going to get debt if we went out and did an external search. When I found Steve through the Oakleaf transaction, everyone that's ever recruited people knows that every once in a while you run across someone that you just know is the right person for the right job and that was Steve. But we still interviewed a lot of other CFO candidates. So I know what the market is. I've been out in that market.
And when I compare and by the way, at that time, Jim had not run the Eastern Group for a long period of time. He had just he was still in a market area role at that time and he took over the Eastern Groups shortly thereafter. So, yes, two things happening. I know what the market is because I was in the market for a long time. Jim went into the Eastern group role and like he did in every other position he completely excelled there.
And so I could see very clearly that I had the candidate the best candidate that I could find right in front of me. So there was no need to do an external search this time.
Great. So Steve, good luck and Jim look forward to getting to know you better and working with you.
Thank you. Thanks very much.
Thanks, Laurie.
Our next question comes from the line of Al Kaschak with Wedbush Securities.
Good morning. Good morning.
So it sounded like from the prior questions, the search you did not conduct any search externally for this process. And the timing of Steve's announcement was rather recent versus extended?
I think that's fair.
Can you talk a little bit about maybe from the bridge from Simpson's retirement announcements, the finding of Steve and maybe why you with some gut feeling probably David on your part that it was going to be hard to keep him as a CFO. Maybe why you didn't continue the search, not that Jim is not the right guy. Time obviously will tell there. But the history of having someone in there long term at Bob's level and then now sitting in a spot where what you look for I guess externally wasn't successful and you didn't feel like those candidates still existed out there from what you saw previously. Is that the way we should read this?
What I would say is, when we did went out and did the CFO search, I talked to a lot of folks that I thought could potentially be very good CFOs, that wasn't the search we were conducting. The search we were conducting was someone that could both be a CFO of the company, but longer term be the CEO of the company. And that's a little bit of a different search than just looking for a CFO. The problem with making that part of your criteria is anyone that you hire that has the potential to be CEO of Waste Management also has the potential to be a CEO at another company. And so you probably have more likelihood of losing that person, but whether it was Steve or anyone else that came in, in that role, but I thought it was well worth making that decision.
I think with Jim, you've got the same situation. If you look at Jim's record going back to the pricing department and then out into an area position and then into a group position. He succeeded at every level of our organization and I think he'll do the same thing here.
Can you talk in terms of you're coming up on 10 years I think in 2014 or is it next year? I'm not sure How the process is internally in terms of ultimately at some point your retirement? I know you're still got those fresh legs and young and hard not trying to suggest anything, but 10 years obviously in a public company in today's environment is a long time. So just maybe just in thinking there and like you said, Jim's got some operational background that should be very helpful for perhaps a candidate down the road, but where that transition process is and what your thoughts are about your days with WM?
Sure. And look you've hit the nail right on the head. My primary job as CEO is to give our Board of Directors a good slate to choose from if and when I retire whether voluntarily or involuntarily. And that is I think the number one job of any CEO. And so that's why I say when we conducted the search for the CFO, we conducted it with the idea in mind that we wanted to have someone in that role that could potentially be a CEO candidate not just a CFO candidate.
So that's certainly been one of my primary areas of focus for the last 2 years and it will continue to be the primary area of focus for me up until the day I do retire, because I think that the worst thing you can do as a CEO is not have your successor there. My point of view is I want to have folks in the organization that if and when I leave they can do the job better than I can do it. And I think Jim is one of those type of people. Great. Thank you.
Thank you.
Our next question comes from the line of Scott Levine with JPMorgan.
Hi, good morning. And Steve and Jim, best of luck in the future in whatever you do as well. I guess first question I would have, I was wondering if any thought had been given to the additional roles outside of leading the finance department that Steve had previously held as well as Jim's prior responsibilities and or whether we can expect announcements in the near future with regard to be handling those respective tasks within the organization? Yes. Jim is leading that organizational review.
But initially what we wanted to do was get Jim solidly implanted into the finance organization. The CFO job is a very big job. Steve Preston came in with experience as a CFO and experience in operational running big operations. And so it made sense to give him some operations. Jim, I think ultimately will certainly be capable of taking on more than just being a CFO.
As Jim said, we wanted someone in this role that was what I'd call an operational focused CFO. And so I would fully expect that Jim can take on more than just the finance department. But this is a big job. As Steve will tell you, you hit the ground running looking at earnings releases, looking at investor conferences. So we wanted to get Jim firmly implanted into the CFO role.
And then as we look at the organizational design, we'll have more on that in the future. Understood. Maybe as a follow-up then, I know that in your most recent slide deck, you had some you had a slide regarding your margin expectations over the intermediate term. And as Jim indicated, cost control initiatives are going to be a key focus for him and maybe other individuals in the organization may have responsibility for that. Should we consider those to be under evaluation or are you formally endorsing?
I think it was 200 to 400 basis points of margin improvement you're expecting over the intermediate term? Or should we expect a reevaluation period as Jim settles into the road, the role and more to be said on that subject going forward? Yes. I think Jim said it very well, which is, look, you get a completely different perspective on the SG and A needed to run an organization from the field level than you get at a corporate level. And frankly, it's why I so look forward to having Jim as my business partner, because he will be able to look at those cost structures and say what do we actually need to support this business?
And he'll know what he's talking about because he's been at every level of the organization. So I look forward to his recommendations and I fully expect that he'll come up with some things that we will all not only look at as good cost saving opportunities, but will also create better alignment between the field and the corporate office.
Got it. Great. Thanks, Dave.
Thank you.
Our next question comes from the line of Michael Hoffman with Wonderlic Security.
Thank you very much. And again, I echo other comments. Jim and Steve, good luck in what each of you are about to do. Question with regards to the costs again. Back under Bob's watch, there was an initiative to try and drive SG and A down to a 9% level.
And prior to his leaving, there were some adjustments in that target as far as timing. But we've now cycled through 2 executive officers at the finance level. Can you help us understand whether there's delays in capturing some of those savings? Or can we continue to look forward to that happening in the time line that was revised and set out as? Yes.
As you know Michael, the attack for SG and A for us it centers a lot around new technologies and new systems, which take time to implement. But Jim and I, when we start to talk about this role, Jim basically said, I get that. I understand that. Certainly, we're going to drive the costs out in doing that over the next few years. But we also need to make a down payment on that fairly soon.
And so we're certainly not ready to look at any final recommendations from Jim, but that's what we're going to be talking about over the next few weeks, which is how do we make a down payment on SG and A with the ultimate goal of following our plan to implement technologies to drive that 200 to 400 basis points out. Okay. And then just so I understand your earlier comments or question David, the CLO role as a functioning executive position at Waste Management is not off the table. It's being reevaluated whether that's the right course of action or not. Yes.
Michael, there's nothing off the table as far as the organizational design goes as long as it accomplishes primarily the alignment the corporate staff with the field staff. That's what our primary goal is. How do we we've got a lot of initiatives we're going to be driving into the next in the next few years to drive down SG and A and operational costs. And it's imperative that we have complete alignment between the corporate staff and the field in order to drive those initiatives. So anytime we look at organizational design, the primary focus is going to be how do we create better alignment.
Ultimately, creating better alignment from a lot of the things that we've done over the last 5 years from a technology point of view, from an information point of view, from a systems point of view has allowed us to also save some costs while creating better alignment. And that's exactly the spirit in which Jim came to me to talk about some of his ideas. And Jim, my question for you. You're coming out of the field, so you have a real sort of hands on understanding of this. There's clearly a perception in Wall Street, both on the buy and the sell side that the garbage industry is in a market share grab.
I think that's inaccurate. But can you comment on your experiences in the field? It's competitive or is it a market share grab?
I I think it's always been competitive. I mean, I've been out there for 6 years. It's always been a competitive marketplace. I don't see every now and then you see somebody that looks like they're doing something a little bit crazy. But for the most part, it just looks like to me a very competitive marketplace.
And in order for us to be as competitive as we can possibly be, we need to make sure that we're as lean as we can be.
Okay. Thank you very much and good luck. Thank you.
There appear to be no further questions at this time. I'll turn the call back to Dave Steiner for closing remarks.
Thank you. I'm excited by Jim's appointment. I'm certainly, as I said, sorry to see Steve go. I'm sure he'll go on to accomplish great things at another organization. But I look forward to getting out of the road with Jim and having him meet everybody from shareholders to the Wall Street community and we look forward to seeing you over the next couple
months. Thank you for participating in today's call. This conference is available for replay beginning today, July 5, 2012 at 1 o'clock p. M. Eastern Time until midnight July 26, 2012.
The conference ID number for the replay is 974 33,084. Again, the ID number is 9,743,304. The number to dial for the replay is 855-859-2056 or 404-537 3406. Thank you. You may now disconnect.