Operator:

Good afternoon, and welcome to the Republic Services Second Quarter 2024 Investor Conference call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. All participants in today's call will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations.

Jon Vander Ark:

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. Our strong second quarter results reflect the continued positive momentum in our business and are a direct outcome of executing our strategic priorities. We continue to successfully grow our business while enhancing profitability by providing world-class service and solutions to our customers. During the quarter, we achieved revenue growth of 9%, generated adjusted EBITDA growth of 13%, expanded adjusted EBITDA margin by 110 basis points, reported adjusted earnings per share of $1.61, and produced $1.15 billion of adjusted free cash flow on a year-to-date basis. The results we are delivering are made possible by executing our strategy supported by our differentiated capabilities, customer zeal, digital, and sustainability. Regarding customer zeal, our commitment to delivering world-class essential services and sustainability offerings continues to drive customer loyalty and organic growth in the business. Our customer retention rate remained high at more than 94% and net promoter scores continue to improve. Customers value our comprehensive service offerings and the quality of our service delivery. Organic revenue growth during the second quarter was driven by strong pricing across the business. Average yield on total revenue was 5.5% and average yield on related revenue was 6.6%. This level of pricing exceeded our cost inflation and drove 110 basis points of EBITDA margin expansion. Organic volume on total revenue declined 80 basis points or 1% on related revenue. Volume losses were heavily concentrated to the cyclical portions of our business, including construction activity. Turning to our expanding digital capabilities. The team continues to advance the implementation of digital tools that improves the experience for both customers and our employees. Our RISE digital operations platform is driving improved route optimization and safety performance and providing more predictable service delivery to our customers. MPower, our new fleet and equipment management system, was introduced to pilot locations earlier this month. MPower is expected to increase maintenance, technician productivity, and enhance warranty recovery. We expect to continue deploying the new system to all locations under a phased approach through the end of 2025. We estimate MPower will drive $20 million of annual cost savings once fully implemented. We continue to benefit from innovative technology on recycling and waste collection routes. Our platform utilizes cameras to identify overfilled containers and contamination in recycling containers. This technology reduces contamination at our recycling centers and is expected to generate approximately $60 million in incremental annual revenue. To date, we have already achieved $45 million of benefit. Moving on to sustainability. We believe that creating a more sustainable world is both our responsibility and a platform for growth. Earlier today, we released our latest sustainability report highlighting the progress we are making toward our 2030 goals and the positive impact we're delivering to our customers and the communities we serve. Our 2030 goals are supported by investments we are making in polymer centers, the Blue Polymers joint venture, renewable natural gas projects, and fleet electrification. Development of our polymer centers and Blue Polymers joint venture facilities continues to move forward. Major customers have certified the plastic flake produced at our Las Vegas Polymer Center. Production volumes continue to ramp and we expect to achieve our run-rate output targets in the fourth quarter of this year. Construction is progressing on our Indianapolis Polymer Center with equipment installation underway. The operation will be co-located with a Blue Polymers production facility. We expect construction on this facility to be complete by the end of the year with earnings contributions beginning in mid-2025. The renewable natural gas projects we're developing with our partners continue to advance. One project came online during the second quarter. Additionally, we completed construction at our RNG project in Fort Wayne, Indiana. This will be the first project to come online in our joint venture with BP. We expect five additional projects to be completed in the second half of this year. We continue to bring decarbonization solutions to the market, including our industry-leading commitment to fleet electrification. We currently have 16 electric collection vehicles in operation. We expect to have more than 50 EVs in our collection fleet by the end of the year. We now have nine facilities with commercial-scale EV charging infrastructure, and we expect five additional new sites to be completed in 2024. Customers are looking for solutions to support their sustainability goals. We recently announced an agreement with the City of Louisville, Colorado, making it the first municipality to adopt a fully electric residential collection service. As part of our approach to sustainability, we continually strive to be the employer of choice in the markets we serve. Employee turnover continues to improve with second quarter turnover rate improving 70 basis points compared to the prior year. With respect to capital allocation, year-to-date we have invested $68 million in acquisitions. Our acquisition pipeline remains supportive of continued activity in both recycling and waste and environmental solutions businesses. We currently have more than $300 million of transactions in advanced stages of diligence and are expected to close by the end of the year. Year-to-date, we returned $504 million to shareholders through dividends and share repurchases. Additionally, we recently announced an increase to the dividend for the 21st consecutive year. Strong results we produced through the first half of the year support a full-year earnings outlook that exceeds our original expectations. We now expect revenue in the range of $16.075 billion to $16.125 billion, adjusted EBITDA in the range of $4.9 billion to $4.925 billion, adjusted earnings per share in the range of $6.15 to $6.20, and adjusted free cash flow in a range of $2.15 billion to $2.17 billion. Our updated financial guidance includes the contributions from acquisitions closed through June 30th. I will now turn the call over to Brian who will provide more details on the quarter.

Operator:

[Operator Instructions] The first question comes from Toni Kaplan of Morgan Stanley. Please go ahead.

Jon Vander Ark:

Sure. Yeah, listen, we feel good about the project and our approach specifically on landfill gas to energy. As you know, we're in a joint venture model and there's a series of independent decisions around projects. And so, to be said that, the RINs market changes and that takes some of those projects kind of below our return threshold, those are projects that we won't do on that front. But keep in mind also that we had a very conservative set of assumptions on $2 RINS and we built out the initial set of assumptions and what we talked to you about financial impact. So we still feel really confident, which ties into the second point. There'll be puts and takes, whether there's an administration change and there'll certainly be a new President, whether that's a party change or not. I think in general the conventional wisdom as a Republican administration is going to be more business friendly and a Democratic one maybe less business friendly. I think if you look at the last three years, our business has performed really well in the context of a Democratic administration. So I think in any environment we feel confident there'll be some puts or takes on the margin for sure but we'll -- our team will navigate that.

Jon Vander Ark:

Sure. Yeah, I think from a volume standpoint, we'll be slightly below our original expectations and that's a function of, listen, the construction market's still pretty challenged. With high interest rates, commercial construction activity and residential construction activity have been very muted and you see that our volume numbers in [temp] (ph) large container the great news is that pricing is holding up and I think the industry is behaving very responsibly in that context. And I also am relatively optimistic that that is somewhat of a short-term phenomenon. We need more housing stock in the United States. I think you're starting to see rays of hope here on interest rates cuts, which I think will be the catalyst for that to happen, whether that happens three months from now or six or nine months from now. I do think that's more transitory versus permanent on that front. And then there's also been, again, you talked about the residential contracts. We've accelerated some of the broker exits that we acquired in our M&A deals we always talk about, we require somebody we never value to work on brokers because we know it's going to matriculate out of the system. We've accelerated that, so that drove a little bit of outsized volume decline in the quarter. And then for the overall revenue guide, part of that is the volume outlook, which I just gave you. Part of that is the sustainability projects, landfill gas to energy. We're going to hit our number. The timing of the starts of those is going to be a little bit later in the year. I think ourselves and the industry have faced a little bit of delays in terms of permitting, getting the equipment in place, et cetera. So that's not a big surprise. And then our polymer center, well, we’ve teams executing phenomenally in terms of the product we're producing. We got to a little bit of a later start than we expected through all kinds of things ancillary to the system like permitting for the facility and other things, so that caused a little delay in the timing on that front. Again, that's transitory and we'll be on full run rate as I discussed in my prepared remarks.

Operator:

Next question comes from Tyler Brown with Raymond James. Please go ahead.

Jon Vander Ark:

Afternoon.

Brian DelGhiaccio:

Yeah. And Tyler, good observation. We talked about -- in Q1 we thought that would be our highest level of pricing of this year and then it would sequentially decline in part just because of some of the index-based pricing and just the impact that has throughout the year. As you've seen, though, we've also seen cost moderate, cost inflation moderate, so our spread we've maintained. So we have a similar level of margin expansion in Q1 and Q2. We would expect that spread to decrease a little bit as we move into the second half of the year. But again, if you take a look, driving outsized margin expansion and well above our initial expectations.

Brian DelGhiaccio:

Yeah, and Tyler, I think our words were that we saw that in the near term, we saw 32% as achievable. Really what we're looking at is the consistent cadence of margin expansion across our business and we talked about that in the 30 to 40 basis point of margin expansion, the recycling waste business a little bit more in the environment solutions, call it, 75 basis points plus just given where it is in its maturity. And so we continue to see that opportunity as we move forward. So we're not going to call what the theoretical cap is, but again, it's about pricing in excess of cost inflation. It's about realizing the benefits from our initiatives, including our digital initiatives, and driving costs out of the system. And we see that runway for years to come.

Jon Vander Ark:

Listen, we look at everything. We have made a perspective on any type of transaction and if it's going to create value for our shareholders and fits with us strategically, we'll certainly be at the table on that front. So, plus that we do about 20 deals a year on average over the last decade. Most of those are the small tuck-ins, which we're great at and we've got a good pipeline looking forward. And then the bigger ones become more opportunistic, just in terms of is it a fit for us time-wise? Does it create value? Are we the natural owner of that? Again, you'll see us be active in that space over time.

Operator:

The next question comes from Kevin Chiang with CIBC. Please go ahead.

Jon Vander Ark:

Yeah, there's plenty of opportunities, no question. On the small tuck-ins on the environmental solutions side of the business, we've been intentionally a little bit slow on that this year because the team is doing a lot of integration work from an IT standpoint. And again, it's very analogous to recycling and waste. We create value in that space because we've got well-run systems, highly integrated, and we can take a smaller company and layer that operationally right into our density and just draft right off of our systems. Until we get that on the environmental solutions side, you're just adding to your complexities, you're not getting that synergy. And so you'll see us, again, that pipeline is building, you'll see us be much more active next year in the space.

Jon Vander Ark:

I think it's consistent, which is there's variation in deals that may be of a little lower quality from our perspective. I think the high quality deals, right, you're going to pay certainly a higher multiple for. But then I think we've done -- got a good example of that with the US Ecology acquisition. If you buy something quality and you've got a plan against it, you can certainly drive value post-acquisition.

Brian DelGhiaccio:

Yeah, no, it's hundreds. So think about putting in the initial infrastructure and getting connected to the grid and then you think about charging stations which become modular once that infrastructure is put in. And so the strategy is we're going a five-year outplan on each of these sites to understand that we'll be layering more vehicles in. And so you're bearing the upfront cost right now and then it's just an incremental cost to put in the charging station as the fleet grows in that space.

Brian DelGhiaccio:

Thank you.

Noah Kaye:

Hey, good afternoon. Thanks for taking the questions. I’ll start with environmental services. Just on the organic performance of the business, pretty big sequential improvement in the trends quarter-over-quarter, you had a headwind organically in the segment last quarter, and I know you called out some weather events and the like, but then to go to kind of this sort of mid-single-digit organic growth in the segment this quarter. Can you just maybe help us understand what you saw from the business on an organic basis and how to think about organic growth going forward through the balance of the year?

Brian DelGhiaccio:

And Noah, just based on when we put in our annual price increase, we didn't see the full impact of that until the second quarter. And so I think that's also reflective of what you're seeing in EBITDA margin performance of that business at the same time.

Jon Vander Ark:

I'm sorry, do we expect organic growth for the balance of the year?

Jon Vander Ark:

Yes, yeah, we are. And if you know that business and nature of it, because it's so mix sensitive, there isn't a very clear kind of unit versus price, the kind of pair apart or peel apart volume versus price like we do in recycling and waste. And it hasn't been for lack of trying, but there's just too many variables that don't allow us to do that, but underlying organic unit growth will be there.

Brian DelGhiaccio:

Yeah, let me start with your -- the last part of your question first. I think the shape, you're on the right path there. Maybe a little bit less in Q3 and a little bit more in Q4, but I think the shape, you're directionally correct. Looking at the performance in the underlying business, we saw 120 basis points in recycling waste. We saw actually more than that in the environmental solutions business because for the 130 basis points for the company taken as a whole, remember we had to overcome 80 to 100 basis points of dilution from acquisition we completed in the environmental solutions business in Q4 of ‘23. So, when you take a look at the underlying business within environmental solutions, it was close to 200 basis points.

Operator:

The next question comes from Bryan Burgmeier with Citi. Please go ahead.

Jon Vander Ark:

Well, I'd say the good news is, from an ongoing standpoint, right, we had a bigger broker business a decade ago, and we made a very clear choice that we believe customers are people who generate recycling waste, and we want to have direct relationships with them. So, we're very intentional. What's happened is over the last four or five years, as we've become much more acquisitive, we've seen that portion of the business increase because when we acquire companies, we see that 10% of their book, for example, might be serving brokers. And we don't value $0.01, right, when we pay the purchase price of the deal, because we know that business is going to come out of the system. Typically, we do that over the course of six to maybe even 12 or 18 months honoring contracts in a very ratable fashion, right? In this case, we accelerated it because we felt like with one broker, in particular, we had a receivables risk. And so we took more accelerated action. But there'll always be a small portion of the business that's going to be a drag on our revenue that we're shedding because it's coming in through M&A.

Bryan Burgmeier:

Got it, got it, that makes total sense. Just kind of last question for me, it's just on the guidance increase, apologies if I missed this. Is it possible to maybe just bucket maybe what is going better on the net price side or just kind of touch on it anecdotally, is it prices coming in higher, cost coming in lower? Is it labor? Is it repair? Just any finer points you can kind of put on what's really been better throughout the first six months. Thank you and I'll turn it over.

Operator:

The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Jon Vander Ark:

Hey, Jerry.

Brian DelGhiaccio:

Yeah, what I would say, Jerry, is that, again, back to we're not looking at a theoretical cap, we're just looking for that consistent improvement in performance. So our expectations is that just, because again, when you think about some of the things that we can do on the balance sheet as far as improving working capital, being more efficient with the CapEx, start with the, 30 to 50 basis points of EBITDA margin expansion we expect, growing free cash flow conversion a little bit more. Now that said, we've got to overcome things like the expiration of bonus depreciation and some other things that we've had to sit there and overcome that are a little bit outside of our control. So you got to overcome that. From the base business though, you can think of that, call it 50 to 75 basis points of improvement. And then you got to net out the impact of bonus depreciation, which is different by year.

Brian DelGhiaccio:

Yeah, we'd see being on a common platform, right, on that business, on the environmental solutions business in early ‘25, then we can then iterate the system itself in order to be able to get smarter with respect to the information that we have. So we can be more strategic with respect to pricing, get better as far as productivity, and just become more profitable over time. But right now, we still have a number of systems that we're trying just first to consolidate, then we can continue to enhance and improve the system that we're operating on.

Operator:

The next question comes from Sabahat Khan with RBC Capital Markets. Please go ahead.

Brian DelGhiaccio:

Yeah, the pipeline looks good. Keep in mind, we don't operate the business for the quarter. We operate it forever. So we did $800 million of acquisitions in Q4 last year. So there's some natural lumpiness, especially the M&A pipeline. So a little quieter for the first quarter. This year, listen, we could end up at $500 million. We could end up between, $400 million to $500 million or we could end up north of $500 million if other stuff kicks in here. I think we'll be north of $400 million just based on what we have in front of us. And then do we get closer to $500 million or above that, we'll see kind of what happens. Sometimes deals hit you and they're in an accelerated fashion. Most of the time at this point, we're kind of looking at a Q1 and Q2 for close for those transactions. So anything bigger would certainly be at a little bit of a longer timeframe in terms of a close in next year, wouldn't close this year anything more substantial.

Brian DelGhiaccio:

Yeah, we certainly saw good sequential improvement from Q1 to Q2 across maintenance, transportation, labor that -- the cake is already baked on labor for the year, but the comp year-over-year is certainly improving on that. So, as Brian mentioned, that's certainly what's fueling, along with price, our margin expansion. And we seek a continued modulation of that in the second half of the year. So feel really good about the team's execution on cost control.

Operator:

Next question comes from David Manthey with Baird. Please go ahead.

Brian DelGhiaccio:

Yeah, so I think, David, I think you're talking about our RISE digital platform. So we said there was $100 million of opportunity. They're cumulative and we've realized about $65 million to date and we would expect to continue to sit there and realize those benefits in future periods, which is embedded in that 30 to 50 basis points of margin expansion that we're calling for on a regular cadence, that would certainly be part of that over the next couple years.

Brian DelGhiaccio:

Sure that’s -- sorry, I think [indiscernible] that's an additional $20 million. Now, it's going to be deployed in a phased approach. So we actually just hit our first pilot locations. We're going to be deploying that through the end of 2025. So we really don't expect to get that full run rate benefit until 2026.

Jon Vander Ark:

No, it's all of the above. It's certainly pricing for the value we're delivering. It is challenging then the mix, right? We make more money in certain, especially in the field services side of the business, you make more money in certain areas and less in others. And then even within some of those categories of in field service challenging each customer account. What isn't really earning their cost of capital and therefore those are things we're pricing or replacing over time and the team's done a great job of that. I'd say as we get our IT systems in place, which Del talked about, that gives us an opportunity to get even more refined and drive even more value from a pricing standpoint.

Operator:

The next question comes from Stephanie Moore with Jefferies. Please go ahead.

Jon Vander Ark:

Well, I think Del highlighted earlier, think about recycling of waste 30 to 50 basis points of margin expansion a year. We talked about environmental solutions, getting to 25%. Now again, we're reaching there, getting there probably a little quicker than we thought. But again, there'll be some ups and downs in any given quarter. But over the sequence, certainly have line of sight to 25% margin for the year on that category. And then that's not the ending point, right? We'll continue to move. I think in the long term, we would aspire to have EBITDA margins across the two different parts of our business that converge over time, because we think there's that much opportunity and value that's delivered in the environmental solutions space. And again, that's a long-term target on that, but I've given you kind of a marker for kind of what kind of ratable improvement. And we're reticent to kind of choose an individual year because again, that's not how we run the business. We run it forever.

Brian DelGhiaccio:

Yeah. So, again, we've talked about our initiative in order to move to those favorable indices, water sewer trash, garbage trash, and those tend to run higher than CPI. So if you're going back and comparing to five or six years ago, yes, we would expect the restricted portion of our book to perform better than it had historically. But, we've made really good progress and movement against that. So, again, we're close to 60% of that book that was historically linked to CPI now on a favorable index or a fixed rate increase. So that's already reflected in the numbers that you saw in, or that you're seeing in 2024. But certainly, yes, we would expect to be better than where we were historically.

Operator:

The next question comes from Brian Butler with Stifel. Please go ahead.

Jon Vander Ark:

Yeah, so service increases continue to exceed decreases. And as I mentioned, for net new business within our open market small container is positive. So if you just take the open market, it would have been modestly positive. I would sit there and say, in the quarter, which was completely offset by what we saw from the broker-related business.

Brian DelGhiaccio:

Yeah, so it's, call it, 25 to 30 with the balance all being in the underlying business.

Brian DelGhiaccio:

Our sensitivity hasn't changed that much just because we haven't added that much to the portfolio. It will certainly -- that sensitivity will increase over time as more projects come online. But right now, if you think about just rough math, a $0.10 change in RIN prices is approximately $1 million of operating income annual for us.

Operator:

The next question comes from Tobey Sommer with Truist Securities. Please go ahead.

Brian DelGhiaccio:

Yeah we don't really have a target on the acquisition number. And so we kind of give you a rough guide because it's helpful, I think, for your modeling purposes. But as we think about opportunities, right, we want to buy companies that can first fit our strategic filter. We think we're the natural owner there and we can create value for our customers and then the financial filter, which is -- are we going to exceed our cost of capital and create economic profit for our shareholders. Those are the two things we look at. And so we're not opportunity -- we're not capital constrained in that respect. And so [to the extent] (ph) we find those opportunities, we're going to go do that. So, we've spent as much as $3 billion in a given year, and this year is going to be a little more muted, obviously, partly, again, for the internal constraint of we want to make sure that we can digest and execute what we buy over time. So we'll give you an update as we go get into 2025 what we think the outlook is, but it's going to be more of a year-to-year look than some longer-term outlook of what we're going to spend.

Brian DelGhiaccio:

Well, I'd say if you think about we're at, right, kind of our benchmark level, if you think about any normal run of period. Now, if you take a very short look, like, April and May of 2020, after COVID hit, right, it dropped near zero because everyone was just trying to hold on and figure out what's happening in the world. But if you think about any longer run across a set of quarters, we're certainly at our best performance and we're not stopping. We think there's further opportunity for improvement. Obviously, the rate of improvement will slow. Zero is never the right answer in this category, but we think we can get better.

Jon Vander Ark:

Thank you, Nick. I would like to thank the entire Republic Services team for their focus on exceeding customer expectations and commitment to driving value for all of our stakeholders. Have a wonderful rest of the summer and be safe.

Operator:

Good afternoon, and welcome to the Republic Services First Quarter 2024 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations.

Unknown Analyst:

This is Adam on for Jerry today. So your first polymer center recently opened. Just wondering how that plan is tracking versus your initial expectations. Any surprises there?

Unknown Analyst:

Terrific. And then shifting to US Ecology. Just wondering if you can update us on how you're thinking about what level of margin upside is feasible for that business once you fully integrated the systems, just based on your experience on optimizing route profitability and pricing for your base business. What's the level of margin upside potential there?

Operator:

The next question is from Toni Kaplan with Morgan Stanley.

Brian Delghiaccio:

We think, overall, that was about a 50 basis point drag on total volume performance. So you can think about that being down circa 1%. Half of which was weather-related and then just half more in those cyclical volumes as we talked about, construction activity and the like.

Jon Vander Ark:

Yes, I think it modestly exceeded our expectations. And I think that cadence we laid out is still right as we see the -- it will sort of come down. Could we extend that a little higher as the interest rates remain high and I think inflation has been a little stickier than people expected? Yes, I think there's certainly potential for that.

Michael Hoffman:

So I guess, one on ES would be the cross-sell. When you bought it, you didn't expect -- you didn't put that into the plan, but it's been proving to be a positive contributor. How do we track against where you -- we are now in that cross-sell? What's that incremental total dollar we picked up?

Brian Delghiaccio:

Michael, to your point, the obvious solution to that is to sit there and either get an increased level of service, whether it be the size of the container or just the number of times, the frequency that we're providing that service. But when you take a look just at those incremental revenues, they've been fairly sticky, meaning even though we've had these, because they're not consistent, they tend to be somewhat episodic as well. So again, when we're providing the service based on a certain amount of volume within that container, if there's those overages, we're going to charge for that and same with the contamination. Ultimately, could that change behavior over time? Yes, and we would want that. And at which point then, that probably just results in increased frequency, which positively impacts the top line as well.

Operator:

The next question comes from Bryan Burgmeier with Citi.

Brian Delghiaccio:

Well, I think what we talked about, Bryan, on the recycling side a little bit, was on those fees. We were just talking about more on the contamination side. So again, when you take a look at how we're deploying AI into the business, we're doing it on overages, right, on the traditional waste. And then on the recycling, it's more about contamination. So that's what we're talking about there.

Bryan Burgmeier:

Got it. Got it. That makes sense. Yes, I was inquiring about the $60 million opportunity there. And then maybe just on solid waste, like really nice margin performance in 1Q. What are your expectations for cost now versus the start of the year? Based on the public data, maybe wages are cooling a little bit. I'm not sure if that's really accurate for you, guys. And any view on kind of M&R costs? I'll turn it over.

Operator:

The next question comes from Noah Kaye with Oppenheimer.

Jon Vander Ark:

Yes. We certainly feel comfortable with how the team is executing in our plan for the rest of the year on that front. And look, for the overall environment, keep in mind, we're in a pretty much a zero-growth volume environment on recycling and waste over the last couple of years, if you think about housing starts and the correlation of that to volume on that front. And certain parts of the economy are a little slower like construction for sure, with interest rates remaining elevated, both commercial and residential construction has been softer on that front.

Noah Kaye:

Absolutely. I think the spirit of the question is that despite volumes being down more than expected, I mean, margin performance in 1Q was definitely stronger, I think, perhaps, maybe even in your internal forecast, certainly, than the Street. Is there any reason why some of the underlying tailwinds to margins, excluding volumes, shouldn't continue into future quarters? So as you said, you have pretty good visibility on things like labor costs. Is there anything on the cost side of the equation that should give us pause?

Noah Kaye:

Yes. Very fair. And then just a quick housekeeping item. The release and your comments mentioned $41 million spend on acquisitions in the period. The line item in the cash flow statement, obviously, well north of that. And I assume that delta is primarily related to the sustainability investments, maybe some renewable energy projects. Can you maybe just help us with that bridge and how to think about full year spending, even excluding the M&A that you hope to do in the balance of the year?

Noah Kaye:

Okay, $230 million. And so it sounds like you spent a good chunk of that then already, just doing some quick math here. So that tapers off as we move to the back half?

Operator:

The next question comes from David Manthey with Baird.

Brian Delghiaccio:

Well, the acquisition that we completed was in the fourth quarter of '23. So most of what you're seeing there on the environmental solutions side is the rollover impact of a company that we bought out on the West Coast. And we talked about that in our fourth quarter release. But when you think about the total rollover impact right now of acquisitions, so that which closed in '23, together with the deals that closed in the first quarter, it's about 220 basis points of rollover impact to revenue in '24.

Brian Delghiaccio:

Yes. Well, now you've got a system which is going to be seamlessly integrated. So when you think about the platform that we put on both the financial and the procurement side, now being seamlessly integrated with an asset management system, so our ability to track parts and to be able to sit there and make sure that we're getting warranty recovery on every single part that we take off a truck, greatly enhanced. Right now, it's a very manual exercise in order to sit there and to get those warranty dollars as well as just greater efficiency for the technician.

Operator:

The next question comes from Sabahat Khan with RBC Capital Markets.

Brian Delghiaccio:

Yes, we would expect obviously a sequential improvement from what we saw in Q1 just because we don't -- we're not expecting the weather impact again. Q2, yes, we would expect it to be a little bit negative, given what we're seeing with some of the construction-related activity. We're not seeing a rebound there yet. As we get into the second half of the year, we start to anniversary some of those construction-related declines. So we would expect that to be flat to even potentially slightly positive.

Jon Vander Ark:

Yes. We're -- it's a net positive for sure. We talked about kind of $70 million to $90 million last year of PFAS-related revenue. We'll have that number better this year with the pipeline that's building. So we offer a very unique set of products and services to our customers to help them remediate, all the way from the service to multiple opportunities for disposal, solid waste, landfill, obviously.

George Bancroft:

Regarding the plastics, maybe just a step up -- climbing to 30,000 feet and just sort of long-term view on it. With these -- with regulations that have been implemented on plastics like the ones that went into effect in Canada, I maybe assume as it goes to Canada or in California, so goes the rest. How do you see those maybe stricter regulations in what can be made and thrown out versus the need to be recycled and the restrictions on that? How does that impact in the long term your polymer centers? And maybe how it -- if it changes producer behavior in what they'll produce? And how does that maybe impact your long-term net return on investment for those facilities?

Tobey Sommer:

A question for you on the hazardous side. How is sort of pipeline and overall demand? And do you think it's sufficient to easily absorb new incinerator capacity coming towards the end of this calendar year?

Jon Vander Ark:

Yes. We're seeing certainly great trucking safety numbers. We talked about turnover. We talked about NPS. And listen, all these things are connected. We've done this a long time, and we know that when you are fully staffed and you've got trained and tenured drivers, they provide great customer service, right? It lowers your risk costs. Those customers are happy with the product offering, and they're willing to pay more and stay longer. So we're certainly seeing some of the benefits of a reduced turnover as well.

James Schumm:

Just curious if you guys are seeing any trends in the residential business with respect to competition or pricing?

James Schumm:

Got it. And then I'm assuming turnover is trending lower, but did you give any specifics there? And what's your target for turnover, if you have one? And apologies if I missed it.

Operator:

The next question is from Stephanie Moore with Jefferies.

Jon Vander Ark:

Listen, we had a really outsized -- we're coming off $5.5 billion of M&A spend over the last 3 years. There's also -- there's always some episodic nature to that. We closed 2 really big transactions last year in the fourth quarter. And I think last year, there was a $1.8 billion spend. $1.4 billion of it was in recycling and waste, so there's a natural ebb and flow of just when those deals close. And we don't time any of those things around a quarter or a year, right? We do that when the seller is ready to sell on that front. The pipeline remains strong in recycling and waste and environmental solutions.

Harold Antor:

And I believe that you said recycled commodities are trending at $160 per ton. Is that what you're baking in for 2Q? And if not, I guess, what are you baking in there? And I guess one housekeeping is, what is internal inflation running right now?

Operator:

The next question is from Mike Feniger with Bank of America.

Jon Vander Ark:

Sure. Yes. No, most of that is the acquisition we did in the fourth quarter, ACT. And as you know, when we do acquisitions, we always invest heavily in Q1 -- or in the first year rather, the pro forma, to integrate on that front. So that's what's the drag on that. But again, our margin outlook for ES is certainly positive for the year.

Michael Feniger:

And would it be probably above what you would expect for the solid waste business?

Michael Feniger:

And lastly, guys, just to wrap up, Brian, obviously, there's a lot of focus on CPI, either inflation staying sticky, rolling over, moderating. Can you just remind us when we think of CPI, there's obviously the headline CPI. There's what you guys have kind of converted over time. Can you just remind us where we are in that process? That would be helpful.

Operator:

The next question is a follow-up from Michael Hoffman with Stifel.

Jon Vander Ark:

Yes, certainly, Michael. I mean, we're dynamic in that in the market. And if you look at the quarter, volume was down 10.8%, but price was up 7.1%. And I just think that speaks to the strength of the execution, frankly, that strength of the industry, right, in an environment where volume is declining. If you go back a decade or 2, you might see behavior change and pricing be flat or even pricing go negative. And I think people understand the value of the products and services they're delivering. And the ability to flex and scale in that business is quicker than almost any and certainly, our team has done a great job of that.

Jon Vander Ark:

Historically, that was true, Michael. But as we provide, again, a broader set of products and services, we certainly expanded the offering, right? And we're a significant player in that place, in that space in terms of liquids because we're going to recurring revenue generators and handling 5, 6, 7, 8, 10 products in their facilities. And it can certainly be on the organic and inorganic side.

Jon Vander Ark:

Correct.

Jon Vander Ark:

Thank you, MJ. I would like to thank the entire Republic Services team for their efforts and commitment to driving lasting value for all of our stakeholders. I'd also like to make a special acknowledgment to Michael Hoffman, a senior statesmen on the call. He's been with the industry for decades. And as he's announced, he's starting a new chapter, certainly supporting the industry in a different capacity. But over the last number of decades, he's certainly seen a lot of transformation in the industry and has handled this environment and this community with a lot of excellence and professionalism. So congratulations, Michael, in your next chapter. Have a good evening, everyone, and be safe.

Operator:

Good afternoon, and welcome to the Republic Services Fourth Quarter and Full Year 2023 Investor Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Aaron Evans, VP, Investor Relations. Please go ahead.

Jon Vander Ark:

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. The Republic team finished the year strong by executing our strategy designed to profitably grow the business. We outpaced expectations throughout the year and deliver results that exceeded our full year guidance. During 2023, we achieved revenue growth of 11%, including 5% from acquisitions; generated adjusted EBITDA growth of 13%, expanded adjusted EBITDA margin by 60 basis points, including margin expansion in the underlying business of 100 basis points; reported adjusted earnings per share of $5.61; and produced $1.99 billion of adjusted free cash flow. We continue to believe that investing in value-creating acquisitions to further expand our business is the best use of our free cash flow. We invested $1.8 billion in acquisitions in 2023, including transactions in both the recycling and waste and Environmental Solutions businesses. As part of our balanced approach to capital allocation, we returned $900 million to shareholders through dividends and share repurchases. The results we are generating are made possible by executing our strategy, supported by our differentiated capabilities. Regarding customer zeal. Our efforts to provide industry-leading service continues to drive sustained customer loyalty and organic growth in the business. Our customer retention rate remained high at over 94% and we continue to see favorable trends in our Net Promoter Score due to the value of our offerings and quality of our service delivery. We delivered outsized organic revenue growth during the fourth quarter with simultaneous increases in price and volume. Core price and related revenue was 8.8% and average yield on related revenue was 7.7%. Organic volume growth on related revenue was 40 basis points. Turning to our digital capabilities. The team continued to advance the implementation of digital tools that improve the experience for both customers and employees. Development of our new asset management system is underway, which is expected to increase maintenance technician productivity and enhanced warranty recovery. We expect to begin utilizing the new system in late 2024. The continued operational enhancements supported by our RISE digital operations platform are expected to drive additional productivity through improved route optimization and safety performance and provide more predictable service delivery to our customers. We anticipate the RISE platform will drive approximately $100 million of total annual earnings contribution, of which approximately $65 million has been realized to date. We continue to implement advanced technology on recycling and waste collection routes. Our platform utilizes cameras to identify overfill containers and contamination and recycling containers. This technology is reducing contamination and driving incremental revenue. Moving on to sustainability. We believe that our sustainability innovation investments in plastic circularity and renewable natural gas are a platform for profitable growth. Development of our polymer centers and Blue Polymers joint venture facilities remain on track. We are finalizing commissioning at our Las Vegas Polymer Center this week. Delivery of plastic flake to our offtake partners is expected in the coming weeks. Construction is progressing on our Indianapolis Power Center. This development will be co-located with Blue Polymers production facility and construction at the site is expected to be completed in late 2024. The renewable gas projects being co-developed with our partners continue to advance. Five projects came online in 2023, and we expect at least eight additional projects to be completed in 2024. We continue to advance our efforts to support decarbonization, including our industry-leading commitment to fleet electrification. We currently have 11 electric collection vehicles in operation. We expect more than 50 additional EVs will be added to our recycling and waste collection fleet in 2024. We have six facilities with commercial EV charging infrastructure, with more than 40 additional sites in various stages of development. As part of our approach to sustainability, we continue to strive to be a workplace with the best people from all background who want to work. In 2023, employee engagement improved a score of 86 with 90% -- 99% of employees participating in the survey. Turnover rates continue to turn lower with full year turnover improving 400 basis points compared to the prior year. As a result, we are better staffed to optimize our operations and capitalize on growth opportunities in the market Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named to the Dow Jones Sustainability Index for the eighth consecutive year. Our 2023 results clearly demonstrate our ability to create sustainable value and our ongoing investments to strengthen the foundation from which we will continue to grow our business. With respect to 2024, we expect to deliver outsized profitable growth while continuing to make investments in the business to drive lasting value creation. More specifically, we expect full year revenue in a range of $16.1 billion to $16.2 billion. Adjusted EBITDA is expected to be in a range of $4.825 billion to $4.875 billion. We expect to deliver adjusted earnings per share in the range of $5.94 to $6, generate adjusted free cash flow in a range of $2.1 billion to $2.15 billion. Our pipeline supports continued acquisition activity in both recycling and waste and environmental solutions. We are targeting at least $500 million of investment in value-creating acquisitions in 2024. Our 2024 financial guidance includes the rollover contribution from acquisitions that closed in 2023. I will now turn the call over to Brian, who will provide details on the quarter and year.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Jon Vander Ark:

Sure. Yes. Team had a really strong fourth quarter. Lots of things went in our favor, managed the middle of the P&L well. There were some one-time opportunities both on MSW and a very strong special waste fourth quarter. On that, that we felt good with, weather was actually very positive in the fourth quarter, which has slipped here in the first quarter of the year. So I feel great about that. And then, we've got a lot of momentum headed into 2023. Some of the event-based work, you can't build a budget against that, right? You've got to look at that as a potential upside, which we're going to go after those opportunities. But oftentimes, an election year, some of those jobs end up pushing and rolling forward. So we're not going to build a plan based on that outsized performance that we got in Q4, but still looking at a very positive year in 2024.

Toni Kaplan:

Perfect. Wanted to ask about environmental services. Maybe just talk about what you're seeing in the different pieces there. And I think there's a little bit flattish in the quarter. So, does that turn around next year? Thanks.

Toni Kaplan:

Perfect. Thanks so much.

Kevin Chiang:

Hey, thanks for taking my question and congrats on a strong end of the year there. Maybe just on the 2024 guidance, the implied kind of 30, 40 basis points of margin expansion, reported market expansion you're guiding to. Is there a way to think about how that splits between solid waste and ES? Is it pretty balanced between the two? Or would you expect 1 to maybe outperform the other end as you look at into 2024 here?

Kevin Chiang:

That's helpful. And maybe just my follow-up question. Just looking at the - your yield volume table that you provided in your disclosure. Just I noticed the strong yield in residential volumes, maybe a little bit worse than recent terms. Just wondering if you could provide some color in terms of what's happening there? And if you're -- as you mentioned earlier, are you maybe being more purposeful in shedding maybe lower quality volume to the benefit of good yield in the fourth quarter?

Kevin Chiang:

Excellent. I'll leave it there. Again, congrats on a good sets of results there.

Operator:

The next question is from Bryan Burgmeier with Citi. Please go ahead.

Brian DelGhiaccio:

Yes. Bryan, what I would say is that when you talk about historical seasonality, I think you have to go back before just the last several years kind of post-pandemic. I think you have to look at a broader data set there. So -- when we came into this year, we said this year, we thought it was going to have what we would call a normal level of seasonality. And when you take a look at what that means, that would -- typically, when you look at margin performance, you would have peak margin performance in Q2 and Q3 during the summer months where you're getting some more of those seasonal volumes, in particular, on the landfill side followed by Q4. And then finally, the first quarter would seasonally be your lowest margin performance, and that's what we've seen for decades. And so we said that at the beginning of the year, that's kind of what played out. And that's what I would say we would also expect going into 2024 based on what we see right now. So, we would expect a sequential step down in margin from Q4 to Q1, in part, you've got more winter months when you're dealing with the first quarter as well as when you just think about some of the taxes, you have your highest burden from a labor perspective in the first quarter, and those tend to max out and as you move through the balance of the year, again, some of more of those state and local taxes, then those basically reach their max in the first quarter.

Bryan Burgmeier:

Got it. Got it. Thanks for all that detail. And then just following up on M&A, with the deals you completed in 4Q, did you provide a rough split for how that is divided up between the two segments? And did you provide a rollover contribution to 2024 revenue in guidance? Thanks.

Bryan Burgmeier:

Got it. Thanks a lot. I'll turn it over.

Walter Spracklin:

Yes. Thanks very much. Good afternoon, everyone. So I wanted to follow-up on M&A here. A big year for you in terms of deals done, I think, $1.86 billion they're acquired. And I was wondering if you could give us an update on, first of all, what the pipeline looks like going forward, particularly relative to such a large year this past year. And then second is in terms of integration, will you be focusing a bit more given how big the year was in 2023 on integration and perhaps put a little bit on -- touch a little bit on how that integration is going? Or do you see room and capacity to continue at a fairly heavy space pace here in terms of M&A for 2024.

Walter Spracklin:

Got it. That's great color. And just for my follow-up, turning to recycling. I know your Las Vegas Polymer Center opened in December. Can you talk a bit about the build-out on the polymer center -- and I don't know if you've had enough time now to assess, but do you see this as a better investment than kind of -- or not better, but how do you -- how does that compare to EPR projects in terms of the return profile of that one?

Walter Spracklin:

Fantastic. Appreciate the time.

John Mazzoni:

Thanks for taking my question. Maybe just a quick one on pricing. Could you just remind us how the restricted book will layer through 2024especially with sort of the lag effects in CPI? Thanks.

John Mazzoni:

Great. Thank you. And maybe for a quick follow-up. Could you just talk to the strength in small container, especially with the 11.2% yield? It seems like that's kind of update the average? And any other thing you're seeing within that kind of end market and any other commentary around anything different that you've done compared to peers? Thank you.

John Mazzoni:

Great. Thank you.

Michael Hoffman:

Hey, guys. I've always challenged for that full cycle, people, whatever. So free cash flow and the guide is at about 7% in the midpoint versus the top line at 7.9% and EBITDA is at $9.1 million. I'm presuming we've got higher interest expense and probably higher cash taxes because you're not counting on bonus depreciation being retroactively reverted back to 100%. Is that how I think about the bridge between the growth rates through the P&L?

Michael Hoffman:

All right. And that was what I was trying to get at. Is the underlying cash growth is there and you've got some timing issues related to What we just discussed? Okay. On margin…

Michael Hoffman:

Right. Okay. That's, I think, important. And then on margins, I think there's another sort of message to potentially to be drawn out. So your pattern in your solid waste business, given the shield scale of managing price costs as you're being pretty ratably able to deliver all 30 basis points. So, if the whole company is doing 30 and you've got an M&A headwind and act environmental comes in is a nice add in ES, but it's probably pretty dilutive. So how do we think about that EES to dilution? It's much better structurally ex that dilution is what I think, which--

Michael Hoffman:

Right. And about 30 in solid waste and then a net in the total company dilution, but it's greater in ES than it is in solid waste. It's just one size of the deal relative to the base?

Michael Hoffman:

Yes. Okay. I think that's important to draw that, you're still on that track of 25% or better margins at ES, ex acquisitions and the acquisitions will then contribute to that as you integrate them?

Michael Hoffman:

Yes. Okay. Cool. Thanks.

Noah Kaye:

Thanks Jon. Can you talk to us about this new asset management system that you're putting in place? What are you functionally doing? And where does that ultimately show up in the P&L? Is it maintenance and repairs? What kind of savings are we talking about with the system?

Brian DelGhiaccio:

Yes. When you think about the linkage, so a couple of years ago, we started on our journey of modernizing our core systems, and that started with our general ledger and procurement systems. This is an extension of that. So the asset management system will be directly linked and integrated on a common platform with our procurement system. So, now you can sit there and say, from the point of PO all the way to putting something on a truck, you can sit there and you can track that part. So to Jon's point on warranty management, this is something before we had to do very manually, which means that we had a lot of leakage in the system. Now, we feel very confident that we're going to get every single portion of that warranty that we're entitled to.

Brian DelGhiaccio:

Look, I mean, the good news, right, is that while January, we did experience quite a bit of weather, we have seen most of that volume return, not a total recovery, but we saw what we would expected in February so far to-date. We're guiding to flat to 50 basis point positive Q1, may be kind of the low point of that because of the weather. But I would think of it relatively ratable that type of cadence throughout the year.

Jon Vander Ark:

Correct.

Operator:

The next question is from Stephanie Moore with Jefferies. Please go ahead.

Jon Vander Ark:

Hi, Stephanie.

Jon Vander Ark:

Yes, I think the picture is mixed. So again, we're planning on having a strong year. If you think about the direct things, we talked about weather, certainly housing, interest rates being high, mortgage rates being high, housing activity is certainly a byproduct or depressed housing activity as a byproduct to that. So, we would have hoped for a quicker recovery there, both for our business and because we need more homes in the United States, but we think that will be more delayed towards the later end of the year. So we're not planning a robust recovery on that front. And then if you think about the other macros, the manufacturing, I think, is a mixed picture. We see pockets where while we're winning business, there's some service declines in certain subsectors of manufacturing, but other places in terms of remediation projects and other things have been very, very strong. PFAS is a nice contributor to the business in 2023, and we've got a good pipeline in 2024. And then the macro have two wars going on, right, one in Israel, one in the doorstep of Europe. Credit card debt is high with consumers. So we have a cautious kind of macro perspective on that but the underlying demand signals for our business are largely positive.

Jon Vander Ark:

Yes, certainly stepping down operating labor, clearly stepping down year-over-year. Transportation is stepping down. Maintenance has been a little bit stickier and most of that is the fact that we're growing and we're driving a fleet that's aging just because the supply chain is still a little congested and we're not getting all the trucks that we wanted. And it's really been a three-year phenomenon in that front. So, we're going to catch up some in this year, but we're not going to fully catch up on that. And all that is when you're driving a 12, 13-year-old truck, right, with a kind of a peak cycle in terms of its maintenance versus a new truck that has relatively high warranty recovery, and so therefore, very low maintenance cost, that's going to show up in the underlying maintenance bucket. So that spend will be, we think, elevated throughout the year. We hope we do a little better, but we'll speak.

Operator:

The next question is from Jerry Revich with Goldman Sachs. Please go ahead.

Brian DelGhiaccio:

Yes. Yes, Jerry, so Jon mentioned one of them already is our labor has continued to improve, right, really throughout the year. In part, that's just due to a reduction in turnover, right, that we've seen. And so again, when you just take a look at the impact that turnover has, there's a hiring cost of bringing someone else, well, which is a productivity impact. A newer driver just tends not to be as productive as those that have some tenure. And so we're starting to see as the turnover rates have come down. We're seeing that kind of come through that labor line item, which has had a positive impact. So I would say that's where we've seen some of the biggest improvements. Together, we mentioned throughout the year, some of the impact that transportation cost it had, these were things where we had multiyear agreements. They came up for renewal in the second half of 2022. And we said that we took some pretty big price increases and that they were going to comp out in the second half of 2023. And we've certainly seen that. So I would say those are some of the tailwinds we've seen it from a cost perspective. The maintenance has stayed relatively sticky in kind of that 7% to 8% type cost increase range year-over-year. To your question just on the price/cost spread, I would say the say we expect the biggest or the most positive impact between that in the first quarter. We expect that to modulate throughout the year, but still price exceeding cost by the time we exit 2024.

Brian DelGhiaccio:

Approximately about $10 million or the main $35 million.

Operator:

The next question is from Tobey Sommer with Truist. Please go ahead.

Jon Vander Ark:

Sure. We mentioned in the prepared remarks that -- we right now, we'll have a $50 million to that this year. We'll be at several hundred next year and climbing our path, that's going to start in residential, and then it will move into small container overtime. And we've got a really thoughtful strategy in terms of how we roll that out. I mentioned the infrastructure side of that as well it's not just a truck, right? It's a system. So you need to understand the infrastructure. You need to understand the incentives. You need to understand the customer or willingness to pay for the vehicle. And if we feel the trucks that we've had delivered out of our partnership with OshKosh, those trucks are working very, very well. So we're excited to see the next 50 come into the fleet.

Jon Vander Ark:

No, I mentioned the housing piece, large-container temp. That's been certainly soft, as we're not putting up as many new houses as we need and even for Movement, People are kind of keeping their existing mortgage rates and are reluctant to move. And oftentimes, we see move we see remodeling activity or other ancillary opportunities and large container temp, and that's been muted. We don't think that will last forever here, but we're planning on a relatively benign year this year, looking to 2025 to see that accelerate.

Operator:

The next question is from Tony Bancroft with Gabelli Funds. Please go ahead.

Jon Vander Ark:

Yes. We think we've got a very compelling offering for customers in an end-to-end solution. So we can hand all the way from the assessment to the frontline remediation doing our field service work and then a range of disposal options on the back end, whether that's into hazardous landfill, whether that's in deep well, some of that waste can be profiled and then put into a solid waste landfill as well, and you're seeing some of that flow through our special ways. So that's measured in the tens of millions. If you look at last year -- this year, it will be the high end of tens of millions or potentially tipping into a nine-digit number in terms of revenue. So this is a real growth opportunity for us. And this is all mostly people self-selecting in advance of the EPA regulations coming down as well as some of the Department of Defense work that's been accelerated on that front. So we feel like our national footprint positions us well to -- in our strategic accounts organization positions us very well to serve customers on this issue.

Jon Vander Ark:

Yes. The supply chain is -- again, we're probably getting about 80% of the trucks we want over the last couple of years. And that includes the rollover from the previous year, right? So we're not continuing to fall way behind, but we haven't fully caught up yet either. But keep in mind, we've grown a lot. We're coming off our third straight year of double-digit revenue growth on that. So as we grow and do these acquisitions, that creates more demand and need for new trucks. So we see that slightly improving. I think we'll get -- we'll sort and that we'll shrink that gap as we exit 2024. I don't expect that we'll close that gap until 2025 on that front And then the EV specifically, the McNeilus truck is the first purpose-built refuse truck ever and it's electrified. And that truck is driving a full route. Most of the other EVs that we've piloted that you spend the first 60 days with a lot of software issues that you're working through, we've been really, really surprised by the performance level and the uptime of this vehicle. Working through some bugs. We're still in a test and learn environment but really promising in terms of what this is going to be able to do to operate at scale with EV.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Jon Vander Ark for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good afternoon, and welcome to the Republic Services' Third Quarter 2023 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. All participants in today's call will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations.

Jon Vander Ark:

Thanks Aaron. Good afternoon everyone and thank you for joining us. Our strong third quarter results reflect our focus on profitably growing the business. We produced revenue growth both organically and through acquisitions, while generating healthy margin expansion across our business. During the quarter, we delivered revenue growth of 6%, including 2% from acquisitions, generated adjusted EBITDA growth of 9% and expanded EBITDA margin by 70 basis points, report adjusted earnings per share of $1.54 and produced $1.8 billion of adjusted free cash flow on a year-to-date basis. We continue to effectively allocate capital by investing in acquisitions to create long-term value. Year-to-date, we have invested $947 million in acquisitions. All transactions were in the recycling and waste space. The M&A environment remains active with opportunities in both the recycling and waste and Environmental Solutions businesses. We remain confident that we will exceed $1 billion of investment for the year. Year-to-date, we returned $671 million to shareholders through dividends and share repurchases. This includes $201 million of share repurchases completed during the third quarter as our leverage ratio returned to target levels. We continue to make progress, demonstrating the value of our complete set of products and offerings to customers while increasing the profitability of our Environmental Solutions business. Pricing realization in the Environmental Solutions business remains strong, and we continue to drive organic growth through cross-selling. EBITDA margin in the Environmental Solutions business improved sequentially to 22.7% in the third quarter and expanded 390 basis points over the prior year. The results we are delivering are made possible by executing our strategy in support of our differentiated capabilities. Regarding customer zeal, our efforts to deliver industry-leading service continues to drive sustained customer loyalty and organic growth in the business. Our customer retention rate remained over 94% and we continue to see favorable trends in our Net Promoter Score, supported by our valuable service offerings and quality service delivery. Organic revenue growth remained strong during the quarter, with simultaneous increases in both price and volume. Core price and related revenue was 8.6% and average yield on related revenue was 7.2%, and organic volume growth and related revenue was 10 basis points. Turning to our digital capabilities. The team continues to advance the implementation of digital tools that improve the experience for both customers and employees. The next phase of our digital operations is expected to drive additional productivity savings through route optimization, further improved safety performance, and provide more predictable service delivery to our customers. For example, we now have the ability to provide real-time customer notifications regarding expected service time on a given day. We are in the early stages of deploying advanced contamination over time and drive incremental revenue. Moving on to sustainability. We believe that our sustainability innovation investments in areas such as plastic circularity and renewable natural gas or a platform for profitable growth. Development of our polymer centers remains on track. Construction of our Las Vegas Polymer Center is substantially complete, and we expect full scale operations to begin in November. Our Midwest Polymer center will be located in India. This center will be co-located with a Blue Polymers production facility with operations expected to begin in late 2024. The renewable natural gas projects being codeveloped with our partners are continuing to advance. I projects were online by the end of the third quarter, and we expect eight additional projects to be completed in 2024. We are making progress in our efforts to reduce greenhouse gas emissions, including our industry-leading commitment to fleet electrification. We expect to have 12 electric vehicles in operation by year-end and more than 60 EVs to be added to our recycling and waste collection fleet in 2024. We now have 6 facilities with commercial EV charging infrastructure with more than 40 additional sites in various stages of development. We continue to be recognized as an employer of choice and are proud to be certified as a great place to work for the seventh consecutive year. Our team members remain highly engaged to ensure that we are delivering high-quality essential services that are valued by our customers. I now turn the call over to Brian, who'll provide more details for the quarter.

Jon Vander Ark:

Yeah, let me do one more section, please. We are proud of the results we delivered during the third quarter. Healthy contribution from our pricing strategy more than offset recycled commodity headwinds and cost inflation, which continues to moderate. Looking forward to 2024, we expect continued outsized growth in the recycling and waste and Environmental Solutions businesses, supported by pricing ahead of underlying costs, cross-selling our complete set of products and services and capitalizing on value-creating acquisition opportunities. We also expect financial contribution from the investments made in sustainability innovation, including plastic circularity and renewable natural gas projects. The fundamentals of our business remain strong and supportive of continued growth in revenue, EBITDA and free cash flow along with margin expansion. We plan to provide detailed guidance on our earnings call in February. Now with that, operator, I would like to turn it over for questions.

Toni Kaplan:

Thanks very much. Not looking for guidance in 2024, but just maybe, if you could just provide some initial thoughts on pricing, maybe on the separated into open market and restricted, how those should hold up? Thank you.

Toni Kaplan:

Great. And then just thinking about some of the expense drivers. We've heard from peers and from you as well in prior quarters that the equipment availability has been a little bit better, that retention has been improving. Is there any way to size some of those benefits? Just trying to think about those on a go-forward basis. Thanks.

Toni Kaplan:

Thanks very much.

Bryan Burgmeier:

Good afternoon. Thanks for taking the question. Jon, Brian, apologies if I missed this, but when I look at the EBITDA and free cash flow bridge is provided in the press release, it seems like net income kind of steps up consistent with the tax rate changes we've talked about. But it maybe doesn't flow through to cash. Just wondering what I might be missing? Is it maybe a change to an adjusted number on how your cash taxes, is there changes to working capital? Any detail you could provide would be great.

Bryan Burgmeier:

Got it. Thanks for that detail And last question for me. I'm just wondering if you can maybe try to characterize the M&A market within Environmental Solutions. You've obviously been very busy with acquisitions, but we haven't seen any deals and yes yet. I'm just wondering if M&A is a little bit slower than you developed or if everything is moving along and maybe it just comes down to timing? Thanks gentlemen.

Operator:

The next question comes from Tyler Brown with Raymond James. Please go ahead.

Jon Vander Ark:

Hey, Tyler.

Jon Vander Ark:

I think we're near it, quite honestly, Tyler here. Again, we talked about the relationship between CPI-based pricing starting to step down, but water sewer trash and garbage trash stepping up. And right now, I think they're somewhat offsetting each other. We think that to the question earlier about as you look forward, we do think that the restricted base pricing does step down sequentially 2024 from 2023, but again, it still stays above that longer-term average.

Jon Vander Ark:

Yes. No, pricing remains strong. We certainly remain committed on that. There's sort of that's a customer churn on that portfolio. Some of that's permanent work, some of that is event work, and we're trading off some low-margin work, and we're adding to that very attractive cross-sell work. And so lots of really attractive growth opportunities in that space, but we're never going to do work for free, and we're always going to start out with price on that. So in the macro environment in manufacturing and ES broadly is a bit mixed. So the upstream oil and gas has been slower. Hopefully, a couple of big deals announced here that, that will ignite some increased activity there in Q4 and into next year. Automotive, obviously, has been a little bit challenged here with the labor activity. But then other parts of the petrochemical complex have been very, very strong. And overall, we're happy with the results and still feel very positive going into 2024 in terms of the demand environment.

Brian DelGhiaccio:

Yes. So first on the rollover, based on transactions that have closed to date, that'd be about 50 basis points of rollover into 2024. And then just on polymer centers and the renewable natural gas, you can think of polymer centers kind of the $12 million or so incremental contribution next year from an EBITDA perspective. and things circa $15 million to $20 million on the RNG portfolio. That EBITDA.

Operator:

The next question comes from Noah Kaye with Oppenheimer. Please go ahead.

Jon Vander Ark:

Yes. Listen, there's tons of uncertainty in the economy. You can look back 18 months. And then even if you look forward, do you think about 2 wars going on and lots of different dynamics, election coming up next year. The underlying -- but I think we're closer to a soft landing than we certainly were a quarter ago. if you look at the outlook, and we're planning on a positive year next year, and you heard that in our numbers and forecasts with a lot of humility baked into that in terms of things could change as uncertainty and we'll adjust according to that. . The recycling and solid waste business, the underlying volume growth in that business is kind of 50 to 100 bps. We're on the lower end of that with where construction is at. That's certainly been a soft spot. And we saw that with residential and commercial starts even last year and then earlier into this year is -- slowing down. And we're hoping that starts to anniversary and rebound. -- here. So I'd say positive environment. We're not firing on every cylinder, but we're cautiously optimistic that we're going to grow out of this thing coming into next year.

Jon Vander Ark:

No. The model is constructed. We're really making money on the spread and so that's one thing that we -- when we did this investment, we were very sensitive to that we're not adding to the volatility of the overall profile. So could there be spots on the margin, of course. But in general, this isn't something where we're increasing our exposure.

Noah Kaye:

Right, right. So it's really an infrastructure and spread play. Okay. That's really helpful. I'll turn it over.

Michael Hoffman:

Thank you very much. On the ES side, US Ecology used to have a decent exposure to the auto industry given its Michigan density. So how are we sort of weathering what's going on with the strikes and that business?

Michael Hoffman:

And then, dwell on the RNG accounting since you're doing mostly partnerships. Is this going to be an add back into the EBITDA, or how are you going to account for this as we see printed financial statements?

Michael Hoffman:

Okay. Great. That's what I needed. And just one last, you had a great margin expansion and yet you're reaffirming the guidance. It seems like you're then expecting a lot more seasonality in 4Q given the strength of the margins or we're at least at the very top end of the range. That's sort of where I - ?

Brian DelGhiaccio:

But to that point, Michael, if you remember, even when we began the year, said the cadence of margin expansion was going to actually start negative, which we saw in the first quarter. And sequentially, year-over-year margin expansion was going to improve every quarter throughout the year, and we still expect that. So we still expect to see the most amount of margin expansion in the fourth quarter, ultimately driving margin expansion for the full year.

Jon Vander Ark:

That is correct.

Operator:

The next question comes from David Manthey with Baird. Please go ahead.

Brian DelGhiaccio:

Yeah. Remember, when we talked about most of the rollover that we had for full year 2023 was the portion of US Ecology that we completed May of 2022 right? Coming in, which was a majority of the rollover for the full year. As we think about the actual impact within the fourth quarter, we're looking about 180 basis points.

Brian DelGhiaccio:

Yes. So let me just talk about the entire portfolio rather than just the subset, right? So again, five have already come online here that are going to start contributing here nominally in the fourth quarter, but really start to contribute in 2024. You can kind of think about the cadence in the $20 million to $25 million per year of incremental EBITDA beginning in 2024 and ultimately hitting run rate $28 million at which point we expect $100 million cumulative of additional EBITDA in the portfolio compared to our current baseline. .

Operator:

The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Brian DelGhiaccio:

Yeah. So Jerry, the one thing I would point out is just remember from the point in time in which we acquired US Ecology and we took several pricing actions, right? And as we sit there and move forward, we're going to get more in the cadence of more of an annual price increase on that portion of the business. So while we still expect margin expansion in the Environmental Solutions business and at a rate north or higher than what we expect in recycling and waste. We would expect that margin expansion to decelerate from what you saw in 2023. So you can look in -- just in the quarter alone, margin was up almost 400 basis points year-over-year. We would not expect that level of contribution going forward.

Brian DelGhiaccio:

Yeah, correct. I mean if you take a look just right now, we're kind of in the 30 basis points. We talked long term in that 30 to 50, and you start to get some of the contribution from some of the other sustainability investments that we're making. So it's a little bit of push and pull and net-net, we would expect margin expansion in 2024 over 2023.

Brian DelGhiaccio:

Sure. Just to give you an idea, if we've talked about, right, several investments, you've got the RNG portfolio, you've got polymer center and you have Blue Polymers, some of which is going to come through capital, some of which is going to be the investment in the JVs just to kind of think it from a cumulative perspective here, maybe I'll walk through each from polymer centers, we see a total investment of around $300 million, okay, for the four centers. right? And that's going to happen, right? It's happened, and we think that's over a four-year time frame of about $70 million a year. Blue Polymers, you can think of that being about $160 million investment. And again, those are going to be JVs. So that will come through as an investment in those joint ventures. And then the investment in the RNG portfolio is all around $375 million, okay? So those are the cumulative investments, but we've been making those investments. So those are somewhat in our run rate. Now -- and we talked about that after the US Ecology acquisition, where leverage elevates to 3.4 times, we were going to focus on deleveraging, getting back to that three times before we resume the share repurchase, got back to 2.9 times. We have since resumed, right, that share repurchase program. And as you just saw in the announcement, right, the Board just authorized another $3 billion program that extends over the next three years beginning in 2024 through the end of 2026.

Brian DelGhiaccio:

You bet.

Stephanie Moore:

Hi. Good afternoon. Thank you.

Stephanie Moore:

Hey, guys. I appreciate the color so far in kind of 2024 outlook and just now on kind of the margin opportunity, too. But, maybe could you talk a little bit about your views on inflation in 2024? Not necessarily hard numbers, but kind of buckets of areas where you think some inflationary pressures maybe could linger from 2023, or -- on the other side of that, should abate versus 2023. Just trying to think of those puts and takes would be helpful. Thank you.

Stephanie Moore:

Okay. That's helpful. I appreciate it. And then I just wanted to follow up a little bit on the commodity basket exposure. Can you talk a little bit about how that basket is trending today? Maybe how that compares to 4Q of last year? I know there's some puts and takes to the various components. So that would be helpful. Thanks.

Stephanie Moore:

Guy, I'll leave it at that. Thank you.

Tobey Sommer:

Thanks. To kind of follow-up on a recent question, but ask it from a different angle. If you think about some of the pressures on margins smaller players that might be potential acquisition targets. How do you anticipate trends in a few buckets impacting their financial performance and maybe desire to sell? And I kind of -- I'm thinking of inflation in terms of their costs, the ongoing requirement and necessity to invest in technology. And then as you just mentioned, I think fleet and supply chain won't fully be normalized. But if you apply those things to sort of the other side of the equation, not your own business, but those that you may look to incorporate in your business, what do you see?

Tobey Sommer:

And then just as my follow-up. I know it's been in the news, maybe even too much ad nauseam. But GLP-1s in the market, looking for second, third, fourth, all the way to nth derivative impacts. Have you looked at that in have any sort of preliminary view on what that could mean for volumes over what would probably be a very long-term? Thanks.

Tobey Sommer:

I appreciate the response. Thank you.

Kevin Chiang:

Hi, Thanks for taking my question. Just in regards to the M&A pipeline within Environmental Services, I think up here in Canada, there's been the Competition Bureau is trying to prevent the merger to I guess, I'll call them energy waste service companies here. So it looks like there'll be some assets. Just wondering how the pipeline looks up here in Canada. And -- and is energy waste services in an area of growth for you or accelerated growth for you when you look at your opportunities in Canada?

Kevin Chiang:

Okay. And just I get the pricing, I guess, it sounds like the pricing opportunities that you're going to move from something that you're doing it three, four times a year within environmental services to once a year, which is maybe more regular as inflation starts to or continues to subside here. But just given the pricing opportunities that you've talked about and the ability to get pricing more aligned with how you think about pricing within solid waste, just why not push that lever more if you can, or did you feel the customers were starting to push back on maybe the frequency in which you are coming to them with price increases within ES?

Kevin Chiang:

That makes a ton of sense. Thanks for taking my question, and best of luck as you get through this year.

Jon Vander Ark:

Thank you, Betsy. I would like to thank our more than 40,000 employees for their continued commitment to providing our customers with first-class service to create a more sustainable world. Have a good evening and be safe.

Operator:

Good afternoon, and welcome to the Republic Services Second Quarter 2023 Investor Conference Call. All participants in today's call will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations. Please go ahead.

Jon Vander Ark:

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. Our strong second quarter results demonstrate the value created by our differentiated capabilities and the execution of our strategic priorities. We continue to successfully grow our business both organically and through acquisitions while enhancing profitability. During the quarter, we delivered revenue growth of 9%, including more than 4% from acquisitions; generated adjusted EBITDA growth of 10.5%; expanded EBITDA margin by 40 basis points; reported adjusted earnings per share of $1.41; and produced $1.26 billion of adjusted free cash flow on a year-to-date basis, a 10% increase over the prior year. We continue to effectively allocate capital by investing in acquisitions to create long-term value. Year-to-date, we invested $927 million of acquisitions, all transactions were in the recycling and solid waste space, including the acquisition of assets in Colorado and New Mexico from GFL. The M&A environment remains active with opportunities in both the recycling and Solid Waste and Environmental Solutions businesses. We now expect investment in value creating acquisitions to exceed $1 billion for the year. We are making great progress on the integration of U.S. Ecology and increasing the profitability of our Environmental Solutions business. Pricing realization in this business remains strong. Customers value our complete set of products and services. We have achieved over $110 million in new sales to date as a result of cross-selling our products and services. The sales pipeline is robust with opportunities for organic growth and expansion of services within our existing customer base. We achieved more than $40 million of annualized cost synergies and EBITDA margin in the Environmental Solutions business improved to more than 22% in the quarter. The strong results we achieved in the first half of the year, along with the positive momentum in our business, supports a full-year financial outlook that exceeds our original expectations. We now expect revenue in a range of $14.775 billion to $14.85 billion, adjusted EBITDA in a range of $4.34 billion to $4.36 billion, adjusted earnings per share in a range of $5.33 to $5.38 and adjusted free cash flow in a range of $1.9 billion to $1.925 billion. Our updated financial guidance includes the contribution from acquisitions closed through June 30th. The results we are delivering are made possible by executing our strategy supported by our differentiated capabilities, customer zeal, digital and sustainability. Regarding Customer Zeal. Our efforts to deliver industry-leading service continues to drive sustained customer loyalty and organic growth. Our customer retention rate remained over 94% and we continue to see positive trends in our Net Promoter Score, supported by improved service delivery. Organic revenue growth remained strong during the quarter and simultaneously increases in both price and volume. Core price on related revenue was 8.8% and average yield on related revenue was 7.1%. This includes landfill MSW yield of 6.2%. This is the highest level performance in company history in this category. Organic volume growth on related revenue was 50 basis points. Turning to Digital. We have reached a milestone in our efforts to create digital tools to enhance our customers and employees' experience and deliver meaningful financial benefits. The deployment of RISE tablets in our Recycling and Solid Waste Collection business was completed during the second quarter. The next phase of our digital operations is expected to drive additional productivity savings through route adherence, improve safety performance, and provide more predictable service delivery for our customers. In total, we believe the benefits of our digital initiatives are worth approximately $100 million, with $50 million already achieved and $50 million to be captured over the next three years. Moving on to Sustainability. We continue to invest in differentiating capabilities to leverage sustainability as a platform for profitable growth. Earlier today, we announced a joint venture with Ravago called Blue Polymers. This groundbreaking partnership further supports our efforts to lead in a plastic circularity. Blue Polymers will utilize recycled olefins from our Polymer Centers to create blended pellets for use in manufacturing sustainable packaging. We expect to open four facilities beginning in late 2024 with earning contribution beginning in 2026. Development of our Polymer Centers in Las Vegas and the Midwest remain on track, with the centers becoming operational in late 2023 and late 2024, respectively. Demand for recycled plastics remains strong as the consumer goods industry continues to work toward achieving their sustainability goals. For example, we are partnering with a Coca-Cola Company to supply recycled PET from our Polymer Centers for use in sustainable packaging. The 57 renewable natural gas projects being co-developed with our partners are advancing. We expect four of these projects to be operational by the end of the third quarter. Finally, we continue to believe that creating a more sustainable world is our responsibility and a platform for growth. We recently published our latest sustainability report, highlighting the progress we are making on our 2030 goals. These goals are supported by investments we are making in Polymer Centers, the Blue Polymers joint venture, renewable natural gas projects and fleet electrification. I'll now turn the call over to Brian who will provide details for the quarter.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Bryan Burgmeier of Citi. Please go ahead.

Jon Vander Ark:

No, it's incremental. So think about that Polymer Center producing two things, PET on one side and olefins on the other side. At the PET, we take into a flake, basically, a hot wash clean flake that's food grade that can go right back into water bottle manufacturing or other types of PET applications. On the olefins, it takes a slightly different path. So we sort, get full collection of that olefins and then we feed the Polymer Center. So this basically guarantees the demand on the back end of our Polymer Center for the olefin side of it. And then Ravago was world-class at compounding and blending olefins to create unique products. And so that's why we partnered with them. We think we can provide the right applications to the market. We get to participate – not only do we get the supply, so it affects the supply agreement on one side, we get to participate in the benefit and the upside as a 45% minority JV partner.

Bryan Burgmeier:

Understood. Thanks for that detail. And if I can just maybe follow-up on the recycling business. I think your filings say your volume is about 80% fiber. Once the Polymer Centers are online, do you think that 80% fiber exposure drops a bit? Or is there maybe a different way we should start to think about value versus volume? Thanks, and I will turn it over.

Operator:

The next question comes from Toni Kaplan of Morgan Stanley. Please go ahead.

Jon Vander Ark:

Yes. I'd say broadly kind of in line with expectation, probably slightly ahead in certain areas. So construction, we anticipated that being down. We saw residential and commercial starts obviously start to soften the second half of last year. And there's a lag effect as we have jobs that are getting completed. And so we're down 3.8%, but we have really strong pricing there. So we've taken the opportunity there to be disciplined on price and making sure that we're getting a positive mix even in that environment. And then other special waste, right, is attractive. Part of that special waste clearly is our cross-sell initiatives. With the U.S. Ecology acquisition, we have now a unique offering in the marketplace, and we're seeing customers demand to that unique offering. So that's certainly helping us. Small container was a bright spot, right, in terms of volume growth for the quarter. So I feel really good about that as well. And again, I'd say broadly in line with what we expected.

Toni Kaplan:

Yes, understood. And then you mentioned the partnership with Coca-Cola. Can you talk about potential impacts from that? It might be a little bit longer term, but just any thoughts on how to quantify how you're thinking about that partnership and the benefits to you? Thank you.

Toni Kaplan:

Perfect. Thank you.

Tyler Brown:

Hey, good afternoon, guys.

Tyler Brown:

Hey, Brian, just real quick from a modeling perspective, what is the expected contribution from M&A in the new revenue guidance? I think it was supposed to be maybe a 3% contributor coming into the year. Is it maybe closer to 3.5% to 4%? And then how much rolls into 2024 based on what we know today?

Tyler Brown:

Okay, perfect. That's helpful. And then – so I just kind of want to think about the EBITDA a little bit. So it looks like you raised EBITDA by, call it, $50 million. But if I'm not mistaken, you actually lowered your commodity assumption, but then you added in some M&A. So basically, I'm trying to bridge that change. How much of the EBITDA change was basically core versus some other moving pieces, if that makes sense at all.

Tyler Brown:

Okay, perfect. Yes, okay, that's what I thought. Okay, just real quick on the last one here. So if we just exclude Blue Polymer and we just look at the Vegas facility, what is the expected EBITDA impact of that facility in 2024? And then how dependent will it be on recycled plastic prices because we have seen some weakness there recently. And basically, sorry, does this Blue Polymer JV, does it kind of inoculate that offtake risk longer term? Am I thinking about all that right?

Tyler Brown:

Okay, perfect. Yes, so it kind of helps inoculate the offtake longer-term.

Tyler Brown:

If I read it right.

Tyler Brown:

Okay. All right. Thank you guys so much. Thank you.

Operator:

The next question comes from Jerry Revich of Goldman Sachs. Please go ahead.

Jon Vander Ark:

Yes. We're certainly starting with price, right? That's always the first component, right? We have to price ahead of our costs. You've seen the organic growth picture. And the underlying solid waste and recycling business is a slow growth business, right? And we expect to grow slightly faster than the market, only slightly because it's a highly contracted market and shares don't move easily. And again, we're always going to stay disciplined on price first. As we've expanded into Environmental Solutions, the underlying growth from an organic standpoint is certainly a little stronger. So that's a tailwind. On the growth side, we're doing more M&A than we ever had. It was six or seven years ago, we talked about spending $100 million a year in M&A. And then that's been ramped up to $500 million to $700 million, and obviously, we had announced last year the U.S. Ecology acquisition and got to $3 billion. But even outside of U.S. Ecology, it's $800 million of deals outside of U.S. Ecology. And this year, we've said more than $1 billion, and we're already sniffing up against that number. So M&A is certainly contributing. And then our other sustainability investments, right, are nice contributors and probably a little less on the topline in terms of really moving the needle given the scale of the business. But on the bottom line, right, these are kind of high EBITDA margin investment opportunity, very high return. So we feel great about that over time.

Brian DelGhiaccio:

Look, I would say there's always some puts and takes. But I would say if you aggregate those from a net number perspective, it was a fairly clean quarter.

Operator:

The next question comes from Michael Hoffman of Stifel. Please go ahead.

Brian DelGhiaccio:

Yes, the guide. So, Michael, as I mentioned, I mean, we're not going to get into the individual components of the EBITDA contribution of our acquisitions and other things. But what I can tell you is, as I just said with Tyler on the phone, if you take a look at the in-year acquisition contribution net of those deal and integration costs, right, that is a positive number, which is almost entirely offset by the reduction in recycled commodities. That reduction in recycled commodities is about $15 million to $20 million negative compared to our original expectations. So if you look at guide to guide right at the midpoint, our EBITDA is up $50 million, which is the underlying business made up primarily of relatively higher price. We took our yield from 5.5% on total revenue to 6%. We took it from 6.5% on related to 7%. So that's that 50 basis points as well as just outperformance within the Environmental Solutions business. That's what's contributing, right, to the overall increase in EBITDA.

Jon Vander Ark:

Yes, let me start there, Michael. We're working through that. Obviously, it's a little bit like special waste in terms of there's a mix issue that there's a lot of unique products and services. So we haven't nailed yet what we might report externally in terms of price or yield metric there, certainly our aspiration over time, whether that's large parts of the business, like yield per drum or things like that, work through it. But a huge portion of the outperformance there is price. We've taken multiple double-digit price increases, and we will lead from a pricing standpoint. And that's caused a few units to be shed in certain places. So we found the ceiling, but we're unafraid. These are valuable assets, impossible to replicate and customers are valuing what we're offering. So we're going to continue to push on that front. And that, also combined with the cross-sell, which is where we're driving a lot of the volume, has been a really good story and picture for that business.

Michael Hoffman:

Okay. If I could just tease out one thing. We've had negative trends in ISM PMI were below 50 on the index. It looks like it's floor bottoming. But is there a positive volume even if I don't get the split, there's positive volume plus a lot of price?

Michael Hoffman:

Okay.

Michael Hoffman:

All right. Let me squeeze one more, if I can. You raised price in 4Q, you raised it in 1Q. Did you raise it in 2Q as well?

Michael Hoffman:

Perfect. Thank you so much.

Walter Spracklin:

Yes. Thanks very much. Good afternoon, everyone. Just on the volume, good job on growing that volume amid some of your peers seeing it contract a little bit. But I'm just curious as to whether we're hearing a little bit on the price competition from smaller players that are somewhat less disciplined in that regard and some of your peers walk away from that is. Are you seeing any evidence that smaller players are acting a little bit more aggressive here? And do you suspect that this will ultimately translate in either pressure on pricing or on volumes for your business going forward?

Brian DelGhiaccio:

And the other thing, too, you have to remember is that there are still supply chain constraints on getting new trucks. So in order to sit there into, again, have that type of behavior, you'd have to have capacity in your system or be able to secure a new truck in order to service those new accounts. And we are not seeing those supply chain constraints easing anytime soon.

Jon Vander Ark:

Yes. No, we're doing that on an ongoing basis, right? We're looking at opportunities and Polymer Centers and Blue Polymer are good examples of things that we think. If they're value-creating, sustainable investments over time, we're going to make those investments. But we think also about, hey, normal course of business, what is the budget and not having any big CapEx bubble. So in this year, for example, the supply chain is challenged on the truck side. And so we're able to pull forward a little bit of spend on heavy equipment this year and some of that truck spend then will flow into next year. So across the two years, it will be relatively balanced. So there's always a little bit of push, pull on the margin, but we're looking at it all the time. And then thinking about into next year, if there's things that are really value creating, we'll put those into the budget next year. But we're kind of giving you what we see in terms of Blue Polymer and Polymer Centers in terms of investments outside of that, including the landfill gas energy projects we've already talked about.

Walter Spracklin:

Got it. And last question here is on acquisitions. You had a couple of lumpy – chunky ones in the quarter. Is it your intention now to digest a little bit as you go into 2024? Or is this something that you think you could keep up a fairly solid clip that even ex those chunkier acquisitions you would have done otherwise?

Walter Spracklin:

That's fantastic. Appreciate the time. Thank you.

Operator:

The next question comes from Sean Eastman of KeyBanc Capital Markets. Please go ahead.

Jon Vander Ark:

Sure. Yes. Different picture obviously. Labor has been a really good story for us in terms of we brought the turnover down, starting to see that inflation certainly modulate. Maintenance has been a little more of a challenge and it's twofold. Some of it's just the underlying tires or things and true inflation. The other is the challenge of the supply chain, right, while we're growing the business, right, and we're not getting the replacement trucks or the growth trucks we need at the exact clip, that's causing us to drive older trucks, and we're going to do that to service our customer and capture the opportunity. So it's still value creating, but it is going to show up in that maintenance line in terms of older trucks at higher maintenance cost on that front. But we expect broadly all the cost categories, we're starting to see that inflation modulate in the second half of the year. And so we should see pretty good price cost spread at the remainder of the year.

Brian DelGhiaccio:

Yes. Look, we're not providing guidance right now for 2024.

Brian DelGhiaccio:

But again, if you – when we talk about that kind of 30 to 40 basis points per year, we're doing off of a full-year comp. So again, if you take a look at the midpoint of the EBITDA and the midpoint of the revenue, you can get a baseline adjusted EBITDA margin and think of it off of that because we're saying this year is a relative – we're expecting a relatively normal level of seasonality. We always expected it to follow the normal seasonal pattern from a margin profile perspective by quarter. So I think if you look at the full-year number, that's a good baseline.

Jon Vander Ark:

Thank you.

Noah Kaye:

Hi, sorry. This is Noah Kaye on Lydia.

Noah Kaye:

Hey, thanks for taking the questions. Maybe we – can just to make sure we understand, to put a finer point on the last question, how you think about kind of the yield and margin cadence for the back half. There's some odd comps, obviously, last year to consider versus what feels this year. As you said, more like normal seasonality. So can you maybe help us put a little bit of a finer point on it for modeling purposes?

Noah Kaye:

Okay, great. And I think – by the way, I take your point around higher flow-through on price versus volume and agree with it all day. And so part of just trying to better understand because I think there's been a theme to this earnings around what the volume environment actually looks like. So I just want to make sure I can reconcile something. I think that the guide basically implies flat volumes, right, for the back half. And as you said in your commentary, you're not really looking at a flat volume environment, you're still looking at growth. So just how do I reconcile those? Are you maybe just being a little bit conservative given some of the indicators? Just help us to make sense.

Noah Kaye:

Okay, great. That's helpful. Thank you.

David Manthey:

Thanks. Good afternoon, everyone. Question on Environmental Solutions. In broad strokes, can you outline what that segment might look like in five years based on your strategy today?

David Manthey:

Okay. Thank you. And second, I guess someone has to ask about PFAS. So with your current environmental solutions capabilities, is PFAS remediation a net positive opportunity today for Republic? Or do you need other pieces to make it that way?

David Manthey:

Great. Thank you.

Tobey Sommer:

Thanks. Can you keep this pace of margin expansion in ES into 2024? And where is the ultimate end goal? Maybe speak to the drivers from this low 20% range.

Tobey Sommer:

How much higher can you drive retention above the 94% level and still have it sort of be economically advantageous? And what's driving service delivery improvement now?

Tobey Sommer:

Thanks. Last one for me. What are the puts and takes of multiple price hikes per annum as opposed to larger, less frequent price hikes?

Tobey Sommer:

Thank you very much.

Stephanie Moore:

Hi, good afternoon. Thank you.

Stephanie Moore:

Sticking on the move to the ES side and particularly the U.S. Ecology deal. I mean, I think kind of everything that was laid out tonight kind of speaks to the strength you've seen, whether it's pricing or the cross-selling. So suffice it to say, is that $75 million to $100 million revenue synergy target, presumably, we've blown past that at this point? Do you have a new target? Or how would you think about kind of ultimately the opportunity you can continue to garner from a cross-selling and pricing standpoint and what that means for that original target?

Stephanie Moore:

Okay, got it. And then maybe switching gears. Can you provide us an update on the joint venture with the BP and on the RNG front, maybe any updates or how it's progressing thus far?

Stephanie Moore:

Okay. Got it. So maybe any volatility we've seen with RINs this year and nothing – that really doesn't have any significant impact with kind of your expectations for this year and next just given the structure of the JV? Is that kind of a fair assessment? Or how would you talk about company volatility?

Stephanie Moore:

All right. Thank you so much.

Operator:

The next question comes from Michael Feniger of Bank of America. Please go ahead.

Brian DelGhiaccio:

Yes. On a majority of that 50 basis point rollover, we would expect that to be at the margin plus.

Brian DelGhiaccio:

Yes. Well, a couple of things. So I mean your observation of relatively flat with 2022. Be mindful though that we're overcoming over 300 basis points worth of headwinds between higher cash interest rates, commodity prices and the impact of bonus depreciation. So the underlying business is actually offsetting all of that to drive a result that looks relatively flat. That said, the contribution as we start thinking about the RNG plants and we think about Polymer Centers, Blue Polymers, all of which would be accretive to current company performance, that should all be additive. And as long as we don't continue to experience these year-over-year headwinds like we did this year in those three areas I just mentioned, you should start to see that flow through.

Brian DelGhiaccio:

Yes. So again, when we think about open market pricing, and we've said this all along that we expected relatively higher pricing in the first half as compared to the second half, not really a function of what we're doing in the current year, it just we'd start getting into tougher comps. And again, it's a year-over-year comparison, so expressed as a percentage. You start to see that modulate a little bit. But again, all staying within, call it, 50 basis points of the full-year guide. So it steps down a little bit. Within the restricted, as we look forward, depends really on the pricing mechanism. So while we see potentially some of the CPI escalators, right, sequentially start to step down, water sewer trash and garbage trash are doing the exact opposite. Each month, they tend to improve. So again, we see it being relatively consistent in the restricted portion of the book just because what we see in step downs in CPI being offset again by those alternative indices.

Operator:

The next question comes from Kevin Chiang of CIBC. Please go ahead.

Jon Vander Ark:

Yes. No, it's a great question. Right now, that's all costs, no benefit. So we're investing a lot in IT and doing a lot of hard integration work. U.S. Ecology, but also ACV and a lot of the other legacy assets we have all in the common platform, starting with a customer, how do we make that service offering even more compelling by getting digitally integrated with them. And then there's certainly some things on the operating side of the business, which will also help us drive labor utilization, more efficiency in terms of material flow, et cetera. We haven't quantified exactly what that's worth yet, but that will be part of the path to get to the 30. And when we get a little further down the road, we'll talk about those initiatives in more detail.

Operator:

The next question comes from Stephanie Yee of JPMorgan. Please go ahead.

Jon Vander Ark:

Yes. Four was – the business case we based it off of was all the material we collect today. So we don't have supply risk, which is great. Now we built those centers with a capacity to take third-party volume, and we're already getting some of that. So we've created a brokered asset that's already starting to capture some third-party volume, and it's a great value proposition. For example, if you have a municipally owned recycling center, we can take labor out of your facility, right, give you a few more penny for that load, and it's part of your sustainability story as well. So you share in the environmental benefits of that. Over time, right, as that demand for third party continues to grow, we could imagine five or six centers. It's regionally based, all hub-and-spoke model. So we've got the flexibility in the network over time that if the demand outstrips the capacity of the four, that we'll continue to invest.

Brian DelGhiaccio:

Remember, it's more – we're a minority owner, so it's more an investment then it will come through CapEx. But we're thinking that our allocable share would be about $40 million per facility or $160 million in total over the next five to six years.

Operator:

At this time, there are no further questions. I'd like to turn the conference back over to Mr. Jon Vander Ark for any closing remarks.

Operator:

Ladies and gentlemen, this concludes the conference call. Thank you for attending, and you may now disconnect.

Operator:

Good afternoon, and welcome to the Republic Services First Quarter 2023 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations. Please go ahead, sir.

Jon Vander Ark:

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. We started the year strong and are pleased with our first quarter results. Our performance reflects our ability to grow across our business while enhancing profitability. We remain well positioned to capitalize on additional growth opportunities in the marketplace by providing the most complete set of products and services to customers. During the quarter, we delivered revenue growth of 21%, including 11% from acquisitions, generated adjusted earnings per share of $1.24 and produced $496 million of adjusted free cash flow. We continue to believe that investing in acquisitions is the best use of free cash flow to create long-term value. We invested $224 million in acquisitions during the first quarter. All transactions were in the recycling and solid waste space. Our acquisition pipeline remains supportive of outsized levels of activity in both recycling and solid waste and environmental solutions businesses. We continue to see opportunity for well over $500 million of investment in value-creating acquisitions in 2023. We are making great progress on the integration of U.S. Ecology and increasing the profitability of our Environmental Solutions business. We continue to adjust prices to earn an appropriate return on the valuable services we provide. The acceptance of our pricing actions remains high with very little customer defection. Cross-selling our complete set of products and services continues to run ahead of plan with more than $60 million in new sales to date. We have now achieved over $40 million of annualized cost savings. As a result of the actions taken in the Environmental Solutions business, EBITDA margin improved to just over 20% during the first quarter. We continue to generate outsized growth by executing our strategy, supported by our differentiating capabilities, customer zeal, digital and sustainability. Regarding customers' yield. We remain laser-focused on providing a world-class customer experience to drive increased loyalty and organic growth. Our customer retention rate remained at 94%. We continue to see positive trends in our Net Promoter Score, supported by improved service delivery. Our front-end colleagues, including drivers, technicians and the customer experience team are determined to fulfill our daily commitments to our customers. We delivered robust organic revenue growth during the quarter and simultaneously increased in both price and volume. For price and related revenue increased to 9.3% and average yield on related revenue increased to 7.4%. Organic volume growth on related revenue was 1.8%. Volume growth was broad-based across our market verticals and geographies. Turning to digital, we continue to make progress on deploying RISE tablets in our collection business. Over 75% of our residential routes are operating with RISE tablets. The remaining routes are on-track to be completed by mid-year. This technology is the foundation that will allow us to further enhance our digital service offerings and improve our customer experience. Moving on to sustainability. We are investing in differentiated capabilities to leverage sustainability as a platform for profitable growth. In February, we announced our plans to significantly scale our electric fleet through our long-term agreement with Oshkosh. We will begin operating 2 fully integrated electric recycling and solid waste collection prototypes later this year and expect to start buying a scale in 2025. This announcement supports our industry-leading commitment to fleet electrification through a multi-supplier strategy. Development of our Palmer centers in Las Vegas and the Midwest remain on-track with the centers becoming operational in late 2023 and late 2024 respectively. The 57 renewable natural gas projects being co-developed with our partners are advancing. We expect at least six of these projects to commence operations this year. Our approach to sustainability includes our aspiration to be the employer of choice in the markets that we serve, and we are seeing positive results. Turnover rates continue to improve, and we are now below 2019 levels. As a result, we are better staffed to capitalize on growth opportunities in the market. We continue to be widely recognized for our comprehensive sustainability performance. For example, we were recently named to Barron's 100 Most Sustainable Companies list, Ethisphere's World's Most Ethical Companies list and Fortune's list of the world's Most Admired Companies. A positive momentum in our business continues to build as we harness the power of our differentiated capabilities. We will continue to invest for the future profitable growth to deliver the results that create unmistakable value for our stakeholders. I will now turn the call over to Brian to provide financial details for the quarter.

Operator:

Thank you. We will now begin the question-and-Answer Session. [Operator Instructions]. The first question comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Jon Vander Ark:

Yes, certainly a very strong environment still. We expect kind of maintain that momentum for the first half and for lots of reasons, we think that sequentially comes down into the second half, right, as some inflation starts to modulate and in our restricted portion of our business, obviously, right, CPI comes down in terms of where the comps go, but we also expect cost inflation to modulate through the year. So we think we'll have pretty good price margin spread throughout the year, which will lead to a positive result for the year.

Jon Vander Ark:

Yes, a really strong quarter for us, obviously, right, over 20% and broad-based, and a portion of that is certainly the cross-sell opportunities that I talked about in my prepared remarks. And that we're offering customers a comprehensive and integrated offering and part of that is showing up in our recycling and solid waste business and going to our special waste into our landfill. And that's the benefit of our offering where we can take things into liquid hazardous waste, we can take solid hazardous waste, we can take special way so we can provide a range of solutions to customers, and that still put us in a pretty differentiated position in the marketplace and excited about the momentum that the team has.

Toni Kaplan:

Perfect. Congrats, again.

Patrick Brown:

Hey, good afternoon guys. Sorry, I just want to be clear. So are you effectively just reiterating all the pieces of the guidance?

Patrick Brown:

Okay. Okay. This wasn't totally 100% clear. But kind of going back and following on the previous question, I know pricing was strong out of the gate. But can you talk a little bit about unit cost inflation? So I think you guys guided to something like 5% to 5.5% unit cost inflation for '23, I think on the last quarter call. Do you kind of still see that or you still seeing maybe inflation starting high and then it kind of easiness as the year goes on?

Patrick Brown:

Okay. All right. That's perfect. Just my last one is here. Going back to environmental services. So there's a lot of traction there. It seems like that franchise is maybe run rating $1.5 billion in total revenues, and I don't have the calculation on the fingertips here. But is that kind of like a low-low 20% margin today. I think you had talked about maybe getting that to 30% longer term. So do you still see that, Jon? And kind of what are the couple of the key drivers to get you there? Is it just we need to go through a couple more cycles of pricing? Or just any thoughts on timing and how we go from call 20 to circa 30.

Patrick Brown:

Yes. Lots of momentum there. Appreciate the time guys. Thanks.

Noah Kaye:

Good afternoon. Thanks for taking the questions. There's been maybe some mixed messages today in earnings -- previous earnings around the macro, the health of the macro. I have a feeling your answer may be not so mixed, maybe a little more unambiguous. But can you talk today about the health of the customer, the sustainability of your pricing? You mentioned that your retention rates are at 94%. So they're sticking. But looking at your -- both the pricing and some of the volume trends you reported, they're very robust. And so would just love your perspective on what you're seeing in the staying power of some of these trends.

Noah Kaye:

Yes. And then maybe just a little bit of a follow-on, but also housekeeping. Can you comment to what MSW tons did? And then did the quarter have any benefit on the cleanup related to the train derailment in Ohio? I don't know if remediation work ended up being significant.

Jon Vander Ark:

And then the specific to derailment in Ohio, I think is the one you're referring to, a de minimis impact in the quarter.

Jon Vander Ark:

Very strong, very broad-based. Listen, we've gone out with multiple double-digit price increases, which is sticking. Obviously, that business is more unique, and there's a lot of mix elements because you're doing a lot of individual project work and a lot of things like special waste on the hazard side that come in. So we haven't yet developed our yield metric, which we aspire to do over time in that portion of the business. And I'd say the industrial economy from our seat in the park is still very strong. Now it's not universally strong on boarded, for example, would be a spot that's a little bit down. So we're seeing some of that in the Midwest, which has a lot of manufacturing capacity there, but other parts are very, very strong on the industrial side.

Operator:

The next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead.

Brian DelGhiaccio:

Yes. Walter, I would say the first thing to keep in perspective is that Environmental Solutions revenue in total is about 10% of our book. You got to keep that in mind. That being said, a good portion of this revenue stream is, as a consistent and recurring nature to it. And increasingly more, we're trying to get closer to the customer to make that more of an annuity type revenue stream. Is it exactly the same? Maybe not, but is it pretty close, I would say yes.

Jon Vander Ark:

Yes, I think you got moving pieces there. Obviously, when the economy goes down, people will get cautious and things that have discretion to them, you're going to see some delays. But the vast majority of our special waste those are jobs that need to get completed. They need to get done. So it's not a matter of the job getting canceled. It's a matter of the job getting pushed. And I'd say the counterbalance of that right now is just all of the infrastructure spending and government funding. We see a lot of those opportunities just starting to emerge, but we really haven't taken advantage of a lot of that spending hasn't flowed all the way through to jobs being committed here.

Operator:

The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Operator:

Okay. The next question comes from Sean Eastman with KeyBanc Capital Markets. Please go ahead.

Jon Vander Ark:

Yes. We feel really good about the start to the business and said what remains quiet positive as you know, it's a seasonal business, so you get a ramp-up here in Q2 and Q3. And we want to see that ramp-up fully take hold. We are starting certainly see some of that ready but that gets into full swing here in May and the summer month in the northern part of the country. And so we'll come back in July when we talk again and see our progress there, and we'll tell you if we have any update at that point.

Brian DelGhiaccio:

Yes. From a commodity perspective, we're tracking almost exactly the way that we thought we would. So we thought we would start the year right around this, call it, $100 a ton, sequentially increasing with a full year average of about $125 per ton. And so right now, we would say with what we saw in the first quarter on average plus where current prices are at $115 per ton. It's playing out exactly the way we thought it would. And so when you think about the margin cadence of that, in this quarter, it was a 60 basis point headwind. We think it's a relatively consistent headwind in Q2. That drops to, call it, a 20 basis point headwind in Q3 and then flip positive in Q4 at those levels.

Brian DelGhiaccio:

Certainly in part. That's why you're going to see it. When you actually sell into the recycling and solid waste business, what you're going to see is that's where a good portion of it is going to come in. That's a lot of the volume aspect of it. But at the same time, we're seeing that -- again, we're talking about total revenue being up about 22%. It's a pretty good split between both price and volume. So it's a combination of both, and that's going to be a reflection again of just healthy activity, which includes the benefits of that cross-sell.

Operator:

The next question comes from Stephanie Moore with Jefferies. Please go ahead.

Jon Vander Ark:

So yes, we put out in our initial guidance. We anticipated spending $500 million. I think we'll exceed that number as we go throughout the year. We have a really attractive pipeline, both in recycling and solid waste and environmental solutions. And so I think you'll see some of those deals come across through the remainder of the year, and we get things are at different stages. We're all the way in the front end of conversations to the back end of letters of intent, and we report on things once we sign and close those deals. So you'll hear more in the second quarter. And the exact timing of where that flows between Q2, Q3 and Q4, obviously, we don't predict that because things can people forward or they can move out a few months here or there. The pipeline remains strong. I think both for '23 and all the way into '24 at this point. We feel really good about the pipeline.

Jon Vander Ark:

Yes. Look, we remain committed to pricing ahead of our cost inflation to allow us to expand margins across the business. So we've talked about 30 to 50 basis points of margin expansion that's kind of the pace that we go after, and that would be our initial ingoing assumption in 2024. Now a lot can change between now and then in terms of could we get more than that, if we can do that and maintain and improve the health of our overall business, we'll certainly do that, but more to come down the road here on 2024 perspective.

Operator:

The next question comes from Tony Bancroft with Gabelli Funds. Please go ahead.

Jon Vander Ark:

Yes. Very important regulation. And again, we're not opposed to regulation, we happen if it's well constructed, so we have a seat at that table. And we're involved in those conversations to make sure that we don't, as a company, or even an industry get penalized for something that we catch. We didn't create the problem. People should be happy that we've got the modern infrastructure and systems to protect the environment. Net-net, we see it as more of an opportunity over time, especially with our Environmental Solutions business and being able to serve customers. Could that have some elevated costs in our landfill, Yes, we've got a really good history of passing those types of costs, regulatory costs. on to customers. And so more to come on that as we move forward. But we're very much in the conversation and we'll be active in shaping the legislation in a way that it enhances the business versus penalizes the business.

Jon Vander Ark:

Still very much on track. We've got more than 20 trucks right around the country right now that are electrified through multiple manufacturers. We talked about our Oshkosh partnership and that the first kind of bottoms up zero emission designed vehicle and excited about that. And that number of 20 will go north of 50 next year, by 2025, we'll have several hundred vehicles. And it is important. It's not just the vehicle, it's the system. So you need to have the infrastructure, you need to have understanding government regulations, you need to understand the incentives, and we've been working for years on those things and have multiple infrastructure projects already going on, anticipating where we're going to put vehicles in working closely with customers. So we feel we're on track. And listen, innovation is hard. There will be some bumps and twists and turns, but we're really, really confident that this is a product that the customers want to buy and that this is very viable, again, for us to operate in a way that enhances our business versus penalized.

Operator:

The next question comes from Tobey Sommer with Truist Securities. Please go ahead.

Jon Vander Ark:

Well, if you go back from 5 years ago, it certainly has changed when we were predominantly vastly recycling and solid waste player, and we've obviously grown the Environmental Solutions business to Del's point, right, that's still about 10% of the business broadly. The pipeline is probably an 80-20 mix of 80% recycling and solid waste and 20% environmental solutions. So that will grow faster just because there's more geographies to fill in. There's a few product lines to build out. So there's more kind of inherent growth in that in terms of our starting point. But the balance of the business will still be recycling and solid waste and feel really confident about that. In any given time period, that could ship a single deal could flip it to 80-20 in any given quarter. But if you look across a longer time horizon of 3 to 5 years, I think that 80-20 makes us a pretty good barometer.

Jon Vander Ark:

Yes. Turnover is down. Employee engagement is up from a very high watermark. So people are engaged, right, turnover is down, and this is the recruiting situation in the last 4 to 5 months has substantially improved, number of applicants per open rec, right has substantially improved. So there's still pockets of tightness around so it could be very geographically dependent. But from a broad-based macro level as the situation versus 6 months ago is substantially better.

Jon Vander Ark:

Yes. We talked about turnover being below 2019 levels. We aspire to continue to grind that down kind of 30 to 50 basis points of product turnover long-term would be great for us. Turnover is never going to be zero people move and have changes in life circumstances, and there's always opportunity bringing new talent, but we'll look to bring that down. But we feel like right now, we're at a very healthy level and that we can continue to improve from here.

Operator:

The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Brian DelGhiaccio:

Yes. Jerry, we mentioned sequentially the Environmental Solutions business improving 350 basis points. But also in the fourth quarter, remember, as we outperformed the year, we had heavier incentive compensation expense in the fourth quarter. So I would say there were some things that were more unique in Q4 as far as expenses are concerned off to a strong start this year. I think that's why you're seeing more of that sequential improvement. This year, we would expect just more normal seasonality and a Q4 that looks like what you've seen in the or 3 to 4 years as compared to what you saw last year from a margin perspective.

Brian DelGhiaccio:

Yes. When we think about some of the cost inflation, we see some of the anniversarying, which is just a little bit more of when we saw some of those cost increase going into play last year. So yes, we start to anniversary some of those things in the second quarter. We started seeing a lot of that more on the wage side. We also start to see some of that modulate from a comp perspective on transportation costs beginning in the third and fourth quarter. So we would expect the inflation levels to decrease as we move sequentially. Again, it's not that we're seeing a significant price decrease in the current period. It's just that we're anniversarying the cost increase that went in the prior year.

Brian DelGhiaccio:

Yes. So if you think about -- let me start with the plastic side on the polymer center. We start to see that in '24, start to layer in with, call it, $15 million or so of EBITDA, and then it really ramp up into 25 and into 26 and until you get to a run rate of, call it, somewhere in that $75 million plus type EBITDA range. When you take a look at from a gas perspective, again, most of that, you're starting to see, again, you start to see the first projects come online towards the end of '23. So most of the contribution coming in '24, you could see $25 million plus type of incremental EBITDA in '24 and then sequentially in a $15 million to $20 million per year until we get to that $100 million worth of total contribution by 2028.

Operator:

The next question comes from Kevin Chiang with CIBC. Please go ahead.

Jon Vander Ark:

I think two things are true. When you're just predominantly a post-collections player, everything you see can look variable and cyclical because it could be a recurring revenue stream, but that provider might farm that out or source that out to a few different places looking for price. When you get closer to the generator, then you do you have control of that product. Now could they take that somewhere else, of course, they could over time. But when you provide excellent service and you have an integrated offering, you become stickier. And so huge opportunity that we're seeing right now to take things that might have looked more cyclical or volatile or variable to become more consistent and recurring in the revenue stream. That doesn't mean that will be 100% of it like we have in our current business. We have some of that base work. On the landfill side, we'll certainly have some of that. But over time, the profile will migrate closer to the recycling solid waste side.

Brian DelGhiaccio:

Yes, I would probably say, it's probably relatively similar just from the perspective of some of these are project-related jobs. That being said, we've seen really good pricing in that business, but we've also just seen an increase of activity at the same time, which is really a function of now offering the most complete set of products and services in the space. So again, we're seeing a combination of both, and that's what's really driving the outsized revenue growth in that portion of the business.

Operator:

The next question comes from Mike Feniger with Bank of America. Please go ahead.

Brian DelGhiaccio:

Well, look, I mean, we said that rewind the clock 2, 3 years ago, and we were up high 30% free cash flow conversion company. We've moved that into the mid-40s, and we said we have line of sight into the high 40% and beyond. And we're working on these things. And again, those are some of the things that we're going to do in order to achieve that level of performance even while we're overcoming some headwinds to getting into that high 40% interest expense is a headwind to free cash flow conversion, the expiration of bonus depreciation, which is phasing out over the next 5 years. Those are all headwinds. And even in the face of those things, we think we can achieve that level of performance. And everything you just mentioned is the way we're going to get there.

Jon Vander Ark:

And I don't think we've seen that show up specifically. There's probably an example somewhere in our M&A pipeline. Of that being the case, I do think it's becoming more challenging, right? Because given supply chain challenges, because we got 90% of our trucks. If you were a spot buyer of trucks, you're in a really tough spot. You're going to be driving that truck, not as a matter of months, but a matter of years before you can get allocation on that. So digital, we've talked about that a number of times. That being the second moat in the business and our investments in that space and the ability to service customers and connect it to our operations and core systems, I think those are all things that make an attractive time for smaller players to sell.

Operator:

[Operator Instructions]. The next question comes from Michael E. Hoffman with Stifel. Please go ahead.

Brian DelGhiaccio:

Yes, Michael, first of all, I think that it's a little bit more, I would sit there and say in the 50-50 rather than the 30-70 between those two aspects of the business. I think you have a combination of things. First, let's talk about what happened sequentially. So we talked about price increases that we put in late in '22 as well as early '23. So a certain aspect of that was certainly timing. Also, as you just think about increasing utilization as we're actually achieving the cross-sell, some of that is that we're utilizing some excess capacity that's in that system. So it's the flow-through of that incremental revenue is at a very high margin. We're seeing the combination of the both. So Jon mentioned it when we were on the call, some of the way that we're going to get there is also just by scale. When you take a look at the size of our areas, when you take a look at our four areas, they're managing less revenue than their counterparts on the recycling and solid waste space, which gives us capacity to grow into that and leverage that SG&A. So we built that area structure to look a lot like the recycling and solid waste side, even though they're managing less revenue, which gives them opportunity to grow without adding any additional SG&A costs.

Michael Hoffman:

Okay. And that's always been the secret challenge or challenge for the billable hours world as they struggle with utilization of their billable hour resource. So what I'm hearing you say is you're striking a balance on how to maximize that.

Michael Hoffman:

Okay. On the price cadence for the remainder of the year to get to the 55. Can you help us with the mix between open and restricted through the remainder of the year, so we sort of understand how to think about that, that gets us to the total of 5.5 million for the year?

Michael Hoffman:

Okay. And just to be clear, so I got these some of your numbers coming at us, high watermark for the beginning of the year, sorry, I'm flipping pages. There's 11.7 in the open and 5.4 for restricted.

Michael Hoffman:

That's core. Not yield. What was the yields?

Michael Hoffman:

No, no, go ahead, please. That's what I was going to ask.

Michael Hoffman:

Okay. And then, Jon, you made a comment earlier to an answer to your question, said 6%, and I missed, is that 6% inflation or you thought yield would maybe land at 6% by the end of the year?

Michael Hoffman:

Right. Which would suggest the guide of 5.5% probably works its way up to staying on top of that.

Michael Hoffman:

Had to try. See you in Orleans on the weekend. Thanks.

Jon Vander Ark:

Thank you, Vaishnavi. I would like to thank our 40,000 employees for their commitment to deliver an essential service in the markets we serve. Our results are a direct reflection of the team's ongoing efforts to deliver best-in-class service to all our customers. Have a good evening and be safe.

Operator:

Good afternoon and welcome to the Republic Services Fourth Quarter and Full Year 2022 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations. Please go ahead.

Jon Vander Ark:

Thanks Aaron. Good afternoon, everyone, and thank you for joining us. The Republic team finished the year strong by executing our strategy designed to profitably grow the business. We outpaced expectations throughout the year, delivering results that exceeded our full year guidance, even in the face of increased volatility in the broader marketplace. During 2022, we achieved revenue growth of 20%, including a 10% from acquisitions; delivered adjusted EBITDA growth of 16%; generated adjusted earnings per share of $4.93, which is an 18% increase over the prior year; and produced $1.74 billion of adjusted free cash flow, a 15% increase over the prior year. We continue to believe that investing in value-creating acquisitions is the best use of our free cash flow. We invested $2.7 billion in acquisitions in 2022, which includes the acquisition of US Ecology. The integration of US Ecology is going well, with cost synergies tracking ahead of plan. Revenue contribution from US Ecology outperformed our expectations by nearly $50 million for the year, with almost all of the overperformance occurring in the fourth quarter. We continue to adjust prices related to US Ecology and our broader Environmental Solutions business to better align with the capital invested and resources deployed. Pricing actions taken to date have been successful as our customers recognize the high value of service we provide. Additionally, we are building momentum cross-selling our complete set of products and services, with approximately $40 million in new sales to date. Aside from US Ecology, we invested $500 million in value-creating acquisitions during the year. All of these deals were in the recycling and solid waste space. As part of our balanced approach to capital allocation, we returned nearly $800 million to shareholders through dividends and share repurchases. Regarding Customer Zeal, we continue to enhance our culture of delivering a world-class customer experience to win new business and drive customer loyalty. Our customer retention rate remained strong at 94%, and we exited 2022 with our highest NPS scores of the year. We delivered outsized organic revenue growth during the fourth quarter, with simultaneous growth in both price and volume. Core price on related revenue increased to 8.4% and average yield on related revenue increased to 6.7%. This is the highest level of pricing in company history. Organic volume growth was 1.5%. Volume growth was broad-based across our market verticals and geographies. Moving to digital. In early 2022, we implemented the finance and procurement modules of our new ERP system, which streamline back-office activities and provide our local leaders with enhanced data. Currently, we are building our new asset management system, which is expected to increase maintenance technician productivity and drive better warranty recovery. We expect to implement the new asset management system beginning in 2024. We continue to make progress on deploying RISE tablets in our collection business. We finished the implementation for all large container and small container routes during 2022 and completed 37% of residential routes by the end of the year. The remaining residential routes are scheduled to be complete by mid-2023. This is a key component enabling further connectivity with our customers, including real-time service notification. The adoption of RISE has helped drive operational efficiencies and cost savings worth approximately $50 million annually. Sustainability is core to our strategy and one of our differentiating capabilities. We believe Republic Services is in a unique position to leverage sustainability as a platform for profitable growth, while making a positive impact on the environment. For example, our polymer centers are advancing circularity of plastics. This is the first time a single U.S. company will manage the plastic stream from current site collection to delivery of high-quality recycled content for consumer packaging. Development of the first center in Las Vegas is on track and is slated to come online in late 2023. Development of our second polymer center is already underway. This facility will be located in the Midwest and will serve as a hub for aggregating and processing recovered plastics in the region. This center should come online in late 2024. The investments we are making to develop these polymer centers is being absorbed through our normal capital expenditure process. Additionally, the development of our renewable natural gas projects is progressing well. All 57 of these projects are being co-developed with partners, with the majority structured as a joint venture. We expect 4 of these projects to come online by mid-2023. As part of our approach to sustainability, we continually strive to be a workplace where the best people from all backgrounds come to work. Employee engagement improved to a score of 85, with 97% participation. Turnover rates in the fourth quarter improved to the lowest level we've experienced in nearly two years. As a result, we are better staffed to capitalize on growth opportunities in the market. Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named to the Dow Jones Sustainability Index for the seventh consecutive year. Our 2022 results clearly demonstrate our ability to create sustainable value and strengthens the foundation from which we will continue to grow our business. Looking forward, we expect to deliver high single-digit growth in revenue, EBITDA, and free cash flow in 2023, even with the headwinds from lower recycled commodity prices and higher interest rates. More specifically, we expect 2022 revenues in a range of $14.65 billion to $14.8 billion. This represents high single-digit growth compared to the prior year. Adjusted EBITDA is expected to be in the range of $4.275 billion to $4.325 billion. This represents high single-digit to low double-digit growth compared to the prior year. We expect to deliver adjusted earnings per share in a range of $5.15 to $5.23 and generate adjusted free cash flow in the range of $1.86 billion to $1.9 billion. Our acquisition pipeline continues to support outsized levels of activity in both Recycling and Solid Waste and Environmental Solutions. We are targeting at least $500 million of investment in value-creating acquisitions in2023. Our 2023 financial guidance includes a rollover contribution from acquisitions that closed in 2022. I will now turn the call over to Brian, who will provide details on the quarter and year.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Tyler Brown of Raymond James. Please go ahead.

Jon Vander Ark:

Hey, Tyler.

Brian DelGhiaccio:

No, we would actually expect the restricted pricing to increase from the levels of where it is in the fourth quarter. So, again, on related revenue, it was 5.1% restricted in the fourth quarter. And we would expect that to improve 50 to 100 basis points in 2023. But we do expect the level of pricing to be driven by the open market, similar to what you've seen in 2022 and, for that matter, the prior years as well.

Brian DelGhiaccio:

Yes. Listen, I guess you're talking about then on total revenue, so I'll give you that piece. So, yes, it starts highest -- actually, our high watermark is in the first quarter based on our expectations. And then it sequentially declines from there, but we're expecting that pricing remains above 5% in all quarters.

Brian DelGhiaccio:

Yes. So, I'll answer your second question first. That is correct. We have not included that. So, what is included are deals that closed by the end of the year. It's $440 million worth of revenue or 300 basis points of growth, that's the rollover, and most of that being US Ecology.

Operator:

The next question comes from Noah Kaye of Oppenheimer. Please go ahead.

Jon Vander Ark:

Yes, it was a mix of both price and volume, but more pricing to come, right? We've taken a lot of pricing action, but we still have some contracted portion of that business and fully seen that. So, you're seeing both the cross-sell that we talked about, and you're seeing the pricing hit with really strong performance. And the plans for 2023, that business is performing ahead of our plan, more broadly both the US Ecology acquisition and the broader ES space, I think, is going to be a very positive contributor.

Noah Kaye:

That's very helpful. Thanks. And then since you mentioned the synergies were tracking ahead of plan, can you quantify that for us? And I guess, any chance you could give us an updated cost synergies number as to where you think this will get to within the timeframe?

Jon Vander Ark:

And we said total synergies would be $40 million, cost synergy would be $40 million. I think that number wound up closer to $50 million.

Operator:

The next question comes from Walter Spracklin of RBC Capital Markets. Please go ahead.

Jon Vander Ark:

I'd say it is based on a passionate view about intrinsic value, right, and driving intrinsic value over time and conservatism, right? So, we never want to put out a number that people go and they have to hit, and therefore, we start chasing deals. So, I want the team to feel comfortable at any point in time passing on a given deal because it doesn't mean a return criteria or there's a set of terms or business conditions or practices that we're not going to want to be owners of over time. And so I think we've always put out a number over the last three or four years, I think you've seen a pretty steady beat against that number. My expectations for the team, I think, are slightly higher than that. But we always want, again, put out a conservative numbers the team feels no pressure to reach.

Jon Vander Ark:

No, pipeline is very strong. We've got a mix of small- and medium-sized deals across Recycling and Solid Waste and ES, right, and that's kind of at different stages in the process and feel good about that. The premiums or the multiples are still kind of hanging in the same ZIP Code because we're looking at premium assets. We're not just buying revenue. We're very particular buyers, and we want to get something that's quality. And one of the first questions one has asked is why would we do this ourselves? And if it's something like a residential subscription business or a temporary roll-off business, we should go get that with our sales team, not pay a premium for that. So, we're looking for infrastructure. We're looking for route-based businesses with customer contracts that we know that we will integrate in the business and drive value over time.

Jon Vander Ark:

Well, maybe a slightly different view of the history, right? We never gave an official guidance. We said we had line of sight at one point to double-digit, right? That was in a different commodity price environment. And so given the commodity market being depressed for six to nine months, that certainly gave us a different outlook, right, just based on the math of the commodity prices. And I think we've talked about here a high single-digit number going forward. Now, if we end up doing more M&A early in the year and that has the year impact and we get to double-digits, we certainly could, but I think we've been pretty consistent with how we've approached it.

Walter Spracklin:

Fair enough. That’s all my questions. Thank you very much.

Toni Kaplan:

Perfect. I wanted to ask first on capital expenditures. I know 4Q is usually sometimes seasonally high, and this quarter seemed maybe particularly high. I was wondering if that was related to the asset management system in the polymer centers, or if there was something else in there. And how we should be thinking about CapEx for 2023?

Brian DelGhiaccio:

Yes, and the other thing is, we talked that there were some supply chain disruptions throughout the year, impacted things like trucks and some of the heavy equipment. And we actually were able to take or seed, take title of those assets in the fourth quarter. So, as you think about building the 2023 plan, most likely, we'll be more back-end loaded like you've seen in the last couple of years, but maybe not to the extent that you saw in 2022.

Jon Vander Ark:

Yes, there's different moving pieces for sure. Obviously, there's been a little bit of a slowdown in the construction market as you've seen housing starts kind of pull back in the second half of last year, and we've certainly baked in some softening of that into the 2023 environment. But listen, the industrial market is very, very strong right now, right? You saw the consumer number this morning. I mean the consumer is engaged. So, we still see lots of economic activity. Travel and leisure, right, is kind of bursting at the seams. So, we remain mindful, right, that there's certainly recession talks on the environment, but we're a pretty broad-based barometer of the economy, and we're seeing a lot of strength right now.