Republic Services Q4 2024 Earnings Call Transcript

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Provided by AlphaStreet
February 13, 2025
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Operator

Good afternoon, and welcome to the Republic Services 4th-Quarter and Full-Year 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. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchstone phone. And to withdraw your question, please press star and then two. Please note that 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.

Aaron Evans
Vice President, Investor Relations at Republic Services

I would like to welcome everyone to Republic Services 4th-Quarter and Full-Year 2024 conference call. Jon Vander Ark, our CEO; and Brian Delghiaccio, our CFO, are on the call today to discuss our performance. I would like to take a moment to remind everyone that some information we discuss on today's call contains forward-looking statements including forward-looking financial information, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. The material that we discuss today is times-ensitive. If in the future, you listen to a rebroadcast recording of this conference call, you should be sensitive to the date of the original call, which is February 13, 2025. Please note that this call is property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call-in any form without the expressed written consent of Republic Services is strictly prohibited. Our SEC filings, our earnings press release, which includes GAAP reconciliation tables and a discussion of business activities, along with a recording of this call are available on Republic's website at republic services.com. In addition, Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times and presentations are posted on our investor website. With that, I'd like to turn the call over to Jon.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. The Republic team finished the year strong. We delivered world-class service and innovative solutions for our customers and executed our strategy to profitably grow the business. As a result of the team's efforts, we delivered adjusted EBITDA, EPS and free-cash flow that exceeded our full-year guidance. During 2024, we achieved revenue growth of 7%, generated adjusted EBITDA growth of 12%, expanded adjusted EBITDA margin by 140 basis-points, delivered adjusted earnings per share of $6.46 and produced $2.18 billion of adjusted free-cash flow. We continue to be well-positioned to capture new opportunities and create long-term value for our stakeholders through our differentiated capabilities, customer yield, digital and sustainability. Regarding customer yield, our focus on delivering world-class essential services continues to support organic growth and enhanced customer loyalty. Our customer retention rate remained strong at more than 94%. We continue to see favorable trends in our Net Promoter score due to the value of the offerings and quality of our service delivery. 4th-quarter organic revenue growth was driven by solid pricing across the business. Average yield on total revenue was 4.4% and average yield on related revenue was 5.3%. This level of pricing continued to exceed our cost inflation and helped drive 110 basis-points of EBITDA margin expansion during the quarter. Organic volume on total revenue declined 1.2% in the quarter. Volume losses were concentrated to shedding underperforming contracts in the residential business and continued softness in-construction and certain manufacturing end-markets. Turning to our expanding digital capabilities. We continue to advance the implementation of digital tools to improve the experience for both customers and employees. Deployment of MPower, our new fleet and equipment management system is underway. MPower is designed to increase maintenance technician productivity and enhance warranty recovery. Deployment of the new system is anticipated to be completed by the end of 2025. We estimate MPower will deliver $20 million of annual cost-savings once fully implemented. We continue to benefit from innovative technology on our recycling and waste collection routes. We utilize cameras to identify overfilled containers and recycling contamination, which is enabled by our RISE digital platform. This technology generated more than $60 million in incremental revenue in the first year of operation. Moving on to sustainability, we believe that our sustainability innovation investments in plastic circularity and renewable natural gas position us for continued growth and long-term value-creation. Development of our polymer centers and Blue Polymers joint-venture facilities continues to move forward. Construction is complete at our Indianapolis Polymer center and equipment commissioning underway. This operation is co-located with a blue polymers production facility that is expected to be completed by mid 2025. We expect earnings contribution from the Indianapolis Polymer Center in the second-half of this year. Construction on the Blue Polymers production facility in Buckeye, Arizona is underway. This facility will complement our Las Vegas polymer center. We expect the completion of this facility in late 2025. We continue to bring decarbonization solutions to the market that will unlock value for our stakeholders, including the communities we serve. The renewable natural gas projects we're developing with our partners continue to advance. Two projects came online during the 4th-quarter and another project came online in January. We expect a total of seven new RNG projects to come online in 2025. We continue to advance our commitment to fleet electrification. We had 52 electric collection vehicles in operation at the end of 2024. We expect to have more than 150 EVs in our fleet by the end of this year. We now have 22 facilities with commercial-scale EV charging infrastructure. We expect to have approximately 30 facilities with charging capabilities by the end of 2025. As part of our approach to sustainability, we continually strive to be the employer where the best people want to work. In 2024, our employee engagement score remained high at 86 and turnover rates continue to trend lower with full-year turnover improving 150 basis-points compared to the prior year. Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named the Dow Jones Sustainability Index for the ninth consecutive year. With respect to capital allocation in 2024, we invested $358 million in strategic acquisitions and returned $1.18 billion to shareholders, which includes $490 million of share repurchases. Our results clearly demonstrate our ability to create sustainable value and our strategic investments strengthen the foundation to continue to grow our business. In 2025, we expect to deliver profitable growth while continuing to invest in the business to drive lasting value. More specifically, we expect full-year revenue in a range of $16.85 billion to $16.95 billion. Adjusted EBITDA is expected to be in the range of $5.275 billion to $5.325 billion. We expect to deliver adjusted earnings per share in a range of $6.82 to $6.90. Generate adjusted free-cash flow-in a range of $2.32 billion to $2.36 billion. Our pipeline supports continued acquisition activity in both Recycling and Waste and Environmental Solutions. We expect to deploy at least $1 billion of investment in value-creating acquisitions in 2025. Our 2025 guidance includes the financial contribution from acquisitions closed to date. I will now turn the call over to Brian, who will provide details on the quarter and year.

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Thanks, Jon. Core price on total revenue was 6.1% in the 4th-quarter. Core price on related revenue was 7.3%, which included open-market pricing of 9.1% and restricted pricing of 4.5%. The components of core price on related revenue included small container of 9.6%, large container of 7.4% and residential of 6.8%. Average yield on total revenue was 4.4% and average yield on related revenue was 5.3%. As expected, average yields stepped down sequentially as we fully anniversary the impact of new fees implemented in late 2023. The fees relate to overfilled containers and recycling contamination and were enabled by our digital platform. In 2025, we expect average yield on total revenue of approximately 4% and average yield on related revenue of approximately 5%. 4th-quarter volume on total revenue decreased 1.2% and volume on related revenue decreased 1.5%. Volume results included a decrease in large container of 4.6%, primarily due to continued softness in construction-related activity in certain manufacturing end-markets and a 2.8% decrease in residential due to intentionally shedding underperforming contracts. In 2025, we expect organic volume growth in the Recycling and waste business in a range of negative 25 basis-points to positive 25 basis-points. Moving on to recycling. Commodity prices were $153 per ton during the 4th-quarter. This compared to $131 per ton in the prior year. Recycling, processing and commodity sales increased revenue by-20 basis-points during the quarter. Full-year 2024 commodity prices were $164 per ton. This compared to $117 per ton in the prior year. Current commodity prices are approximately $145 per ton, which is the baseline used in our 2025 guidance. 4th-quarter total company adjusted EBITDA margin expanded 110 basis-points to 31%. Margin performance during the quarter included margin expansion in the underlying business of 110 basis-points, a 10 basis-point increase from net fuel and a 10 basis-point increase from recycled commodity prices. This was partially offset by a 20 basis-point decrease from acquisitions completed in the prior year. Our full-year adjusted EBITDA margin was 31.1%, which represents margin expansion of 140 basis-points compared to the prior year. Margin expansion in the Recycling and waste business was 130 basis-points and margin expansion in the Environmental Solutions business was 230 basis-points. With respect to Environmental Solutions, 4th-quarter revenue increased nearly $70 million compared to the prior year, driven by organic growth in the business and the rollover contribution from prior year acquisitions. Adjusted EBITDA margin in the Environmental Solutions business expanded more than 500 basis-points to 24.7% in the 4th-quarter. Total company depreciation, amortization and accretion was 11% of revenue in 2024 and is expected to be 11.2% of revenue in 2025. Full-year 2024 adjusted free-cash flow was $2.18 billion, an increase of 10% compared to the prior year. This was driven primarily by EBITDA growth in the business. Total debt at the end-of-the year was $12.8 billion and total liquidity was $2.5 billion. Our leverage ratio at the end-of-the year was approximately 2.6 times. We expect net interest expense of approximately $565 million in 2025. With respect to taxes, our combined tax-rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 23.4% during the 4th-quarter and 23.9% for the full-year. The favorable tax-rate in the 4th-quarter was supported by tax credits related to investments in RNG projects with our development partners. We expect an equivalent tax impact of approximately 25% in 2025, made-up of an adjusted effective tax-rate of 20% and approximately $170 million of non-cash charges from equity investments in renewable energy. With that, operator, I would like to open the call to questions.

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Operator

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touchstone phone. In the interest of time, we ask that you limit yourself to one question and one follow-up question today. If your question has been answered and you would like to withdraw your request, you may do so by pressing star and then 2. If you are using a speakerphone, please pick-up your handset before pressing the keys. And your first question today will come from Bryan Burgmeier with Citi. Please go-ahead.

Bryan Burgmeier
Analyst at Smith Barney Citigroup

Good afternoon. Thanks for taking the questions. So yes, was obviously really strong last year and I think you've said ERP implementation was kind of ongoing throughout the year. So with that now completed, is it fair to say there's almost another sort of leg-up for this business since it's fully-integrated or can you maybe just help me frame kind of what comes next for ES having hit 24% margins and seemingly cleared a bit of a hurdle?

Aaron Evans
Vice President, Investor Relations at Republic Services

Yeah, onward and upward with the business. We continue to remain very positive on our prospects there. Great year last year and you're right, lots of heavy-lifting by the team in terms of IT integration. We certainly have most of that behind us. There's certainly some work we're going to work on the rest of the year. But we mostly paused M&A in that area last year just to give the time -- the team time to breathe and integrate. And so we see opportunities certainly for M&A growth coming in that space in 2025 as well as more organic growth, right? This -- a lot of the IT work enables us to do more cross-sell, better visibility, more clarity on product-line profitability. And so we will see that ramping-up throughout the year in 2025 and certainly beyond as well?

Bryan Burgmeier
Analyst at Smith Barney Citigroup

Got it. Got it. Thanks for that detail. And then I was just wondering, Jon, if maybe you could touch on the margin bridge year-over-year for 2025. I think we're looking like 20 30 basis-points increase year-on-year. And I think you said on the last call long-term, you're trying to get to maybe 30 to 50 as opposed to 20 to 30. So just a little bit of detail on year-on-year margin expansion would be great. And I'll turn it over. Good luck in the quarter.

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. So we kind of say across -- if you look across the cycle kind of 30 to 50 basis-points a year in any given year, it could be a little more outsized or a little more muted on that front, obviously, coming off an incredibly strong year in 2024 of 140 basis-points of margin expansion. And then as you get into 2025, listen, the end-market construction, particularly and then parts of manufacturing are still pretty soft. And so we're looking for those to come back. Manufacturing is showing some really good early signs on that front. Construction where interest rates are in terms of impact on mortgage rates in the 10-year, I think that's going to be delayed here from a progress standpoint. So that certainly feeds into that and I'll let Dell add-in.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Yeah, Brian, to your point, when you take a look at the midpoint, you're looking at approximately 30 basis-points of margin expansion. But if you unpack that and you take a look, we took the current price of commodities and we held that flat for the entire year. So that's approximately $145 per ton. If you compare that to the $165 average we had in 2024, about a 10 basis-point headwind year-over-year as well as then some deal and integration costs we have on the acquisition front, we look at that as about a 10 basis-point headwind as well. So the underlying business is growing approximately 50 basis-points plus. That 50 basis-points is also overcoming what I would consider kind of some unique items. For example, we are not assuming that CNG tax credits are renewed. That cost us about $20 million or 10 basis-points on a year-over-year basis. So if you really look at the strength of the underlying business, you're in a 60, 70 basis-point of margin expansion as compared to the headline, which would suggest something closer to 30%.

Operator

Your next question today will come from Tyler Brown of Raymond James. Please go-ahead.

Tyler Brown
Analyst at Raymond James & Associates

Hey, good afternoon, guys.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Hey, Tyler.

Tyler Brown
Analyst at Raymond James & Associates

Hey, Ron, great detail on the bridge. But hey, Jon, I'm interested in the $1 billion in acquisition commentary. I know that's not included in the guidance, it's probably just a placeholder, but you must feel pretty good. So what do you kind of see out there on the M&A front? Are you looking at traditional solid waste or could there be some more specialty hazardous waste type stuff in the pipe as well?

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Yeah. I think for the last few years, we've put a marker out there more like $500 million and we're typically -- let's getting an indicator. We're always going to look at deals that pass-through screens, our strategic filter and our financial filter. The outsized number this year is predicated off a really strong start already. So we feel really good about the momentum the team has and things that are either closed or nearly closed on that front. So we've got a big head-start and that gives you a better indication of where we're going to-end up. In terms of where it's come from, look, we've got a really good pipeline on ES and on recycling and waste, I would suspect that pipeline looks a little heavier slanted in the first-half toward yes. And then over the back-half, probably heavier more heavily slanted toward recycling and waste, but we'll see all those things play-out.

Tyler Brown
Analyst at Raymond James & Associates

Okay. So, Brian, is there a material M&A benefit in '25 based on what has been closed to date in Q1. I'm more confused well, if you just take --

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah, if you just -- I'll put it in terms of revenue. If you take a look at rollover, which was pretty insignificant from deals in '24, but including what's closed to date, we've got about a full point of revenue growth from those deals.

Tyler Brown
Analyst at Raymond James & Associates

Okay. Okay. That's helpful. And then back on the flattish volume, is there any benefit from wildfires or hurricane cleanup now? Is that just not material or would that be upside or how should we think about that?

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

We didn't bake it in, right? I think there will be over-time. I think it's TBD how that plays out. I mean, we're certainly on-the-ground right now with our ES teams supporting those communities and getting the household hazardous waste cleaned up and that will ultimately matriculate into some forms of hazardous waste and certainly plenty of special waste that ends up in the landfills. Exactly where and how that ends up. We don't know yet, so that's not built-in.

Tyler Brown
Analyst at Raymond James & Associates

Okay. Okay. That's very helpful. Thanks guys.

Operator

Your next question today will come from Noah Kaye with Oppenheimer. Please go-ahead.

Noah Kaye
Analyst at Oppenheimer & Co. Inc.

Great quarter guys. Thanks for taking the questions. The 5% yield unrelated revenue in the guide, can you comp that to cost inflation expectations unrelated? Are you looking like sort of 3.5 and maybe 150 bps spread the right way to think about it?

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. Yeah. I think we're probably closer to 4% on the cost side. If you layer-in employee wage increases, benefits, etc., inflation on maintenance. So that takes us right about four and then five unrelated.

Noah Kaye
Analyst at Oppenheimer & Co. Inc.

Okay. Great. And then just how to think about seasonality for the year. I think there are certainly on things like commodities, more favorable comps later in the year. It's not that big of a headwind for you. But you also have, as you mentioned, some M&A benefits. So just give us some rough guidelines on how you think about at least sort of EBITDA cadence for the year?

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. I would say, just think about from the perspective of margin expansion, we would see it more balanced this year than maybe what you've seen over the last couple of years. Maybe a little bit more heavily slanted towards the first-half of the year than the second. But you can think of it relatively consistent for -- by quarter, first-half, second-half with margin expansion in all quarters and across all business types.

Noah Kaye
Analyst at Oppenheimer & Co. Inc.

That's super clear. I'll turn it over. Thank you.

Operator

And your next question today will come from Jerry Revich with Goldman Sachs. Please go-ahead.

Jerry Revich
Analyst at The Goldman Sachs Group

Yes, hi, good afternoon, everyone. I'm wondering if you could just talk about how the -- hi, how the polymer centers are performing, Jon, are you folks hitting the efficiency rates that you had targeted? And what's the level of contribution, Brian, that you folks are embedding in the guide from the polymer centers plus the RNG plants? Can you calibrate us on that?

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Yeah, I'd say kind of in the second, third, 4th-quarter, listen, some learning and start-up costs in terms of uptime on equipment and getting that dialed-in. Certainly some learnings on getting the specification right with each of the individual customers. There's some uniqueness there and some learning associated with that. I think the good news is all of our assumptions on run-rate in terms of price-cost, volume willingness to pay, right, really strong and really positive on those assumptions. So feeling good about the place that Las Vegas is right now. We're taking all those learnings, obviously and feeding those into Indianapolis. And so on our marks and onward upward and I'll let Brian cover the specifics.

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. So for next year, across our portfolio, the sustainability investments, we're looking at incremental revenue around $70 million and incremental EBITDA of $35 million.

Jerry Revich
Analyst at The Goldman Sachs Group

That is clear. Thank you. And then, Brian, I just want to go back to your comment on the weighting of margins. The downside of having a really good performance in '24 and really good 4th-quarter is maybe a bit of a tough comp. So if we were to apply normal seasonality to the 4th-quarter margin run-rate, I think it would imply first-quarter margins that are up 150 basis-points to 200 basis-points year-over-year and it sounds like you're guiding to just more modest margin improvement on a year-over-year basis in the first-quarter. Is there anything lumpy in the 4th-quarter? Can you just expand on that because it felt like you've built momentum across the businesses over the course of '24?

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. But Jerry, if you step-back and you think about a normal level of seasonality and you think about the distribution and where you generate the most amount of earnings and relative margin expansion, Q1 is seasonally your lowest quarter. You've got the winter months, you also have the highest percentage of employee-related taxes. So that tends to be your low watermark. Then generally followed by Q4. And then Q2 and Q3 are relatively similar, but I would put Q2 is third and Q4 is fourth as far as -- meaning it's Q3 is the highest-level of margin expansion for the year. So sequentially, going from 31% in the 4th-quarter to something that stepped down modestly is not going to generate 100 basis-points of margin expansion on a year-over-year basis. If you recall, margin was 30.2% in the first-quarter of 2024.

Jerry Revich
Analyst at The Goldman Sachs Group

Appreciate it. Thank you.

Operator

Your next question today will come from Trevor Romeo with William Blair. Please go-ahead.

Trevor Romeo
Analyst at William Blair & Co LLC

Hi, good afternoon. Thanks so much for taking the questions. I wanted to ask a follow-up on the Environmental Solutions business, really nice quarter of growth there. Just in terms of the revenue performance, I was wondering if you could, I guess, talk about the pricing environment for hazardous waste for one and then just kind of maybe split out what you're seeing between the treatment and disposal versus the field services business and kind of how you're thinking about each of those pieces moving into '25?

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Yeah, obviously, lots of positive impact on margin performance over the last 2.5 years since we did the US ecology acquisition. And that's come through a number of different levers. That's come certainly through customer mix of getting attractive customers who are willing to pay more and shedding work that's less profitable. That's come from pricing the work that we do. It's come from cost management and being more efficient in utilizing resources. And so if you think about our movement going-forward, we're not going to expand margins at the same rate as we have over-time, but we're going to continue to expand margins in that space because again, we think there is value of the work that we're delivering. And as we continue to build that out, we have a more differentiated set of products and services. So you'll see pricing on both of the post-collection assets as well as the field services assets. And that again will look more like single price increases a year more ratable like we do in recycling and waste versus multiple price increases within the year, but we expect continued momentum in contribution in 2025.

Trevor Romeo
Analyst at William Blair & Co LLC

Okay, great. Thanks for that, Jon. And then I wanted to follow-up on the labor environment a little bit. I think you mentioned turnover was 150 basis-points lower in '24. I was just wondering, one, where does that place you relative to kind of your historical averages? And then two, any sort of new initiatives you're putting in-place in '25? And I guess how much runway you think you have to decrease turnover further would be great.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Yeah, we don't have 30-year numbers on turnover, but this is a decade low, right? We are really performing at a high-level from a turnover standpoint. And it starts to leadership, employee engagement, very, very strong and a lot of good things happen when you get turnover into that spot, which is you're servicing customers at a very effective rate. Those customers are happy with the service and they pay more and they stay longer. When you do that, we certainly look for room to improve turnover unlike safety where your goal is zero, the goal in turnover is not zero. Some level of turnover is always natural and healthy. And so I don't think we're going to get the same leap and improvement in 2025, but we're going to look for continue to grind it out a few more basis-points of improvement. We think the team is capable of that.

Trevor Romeo
Analyst at William Blair & Co LLC

Great. Thanks so much.

Operator

And your next question today will come from Sabahat Khan with RBC Capital Markets. Please go-ahead.

Sabahat Khan
Analyst at RBC Capital Markets

Great. Thanks and good afternoon. Just a nice question on similar to the ES pricing and margin question early. I guess on solid waste, as you look across your portfolio, how is the pricing sort of discussion with the clients going? Is there more pushback, less pushback at this point in the cycle? How are you kind of get feedback like on that front? Just wondering after fears of sort of higher pricing, things do seem to be moderating, are customers still kind of okay with the spread? Just any feedback would be great.

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. I mean our pricing is obviously coming down from an absolute basis when you look at our yield over the past couple of years, but also our cost inflation is coming down as well, which we mentioned. And we're maintaining that spread. I think there was some fear that as pricing was going to come down, cost wasn't, we were going to get a price-cost squeeze and we certainly haven't seen that. And a 3% inflationary environment is a really good spot for us to operate on that front. And we measure how much of our price sticks to our retention rate and that's remaining very, very healthy on that front. So we're -- again, we got a lot of tools and sophistication in terms of who we price and how we price them. The team is doing a great job of giving customers again a price that they'll take, but also stay because we want to maintain that a high-level of loyalty that we have with our customers going-forward. And I'd say the one opportunity we have on pricing, which continues to be is in the municipal space. That's more on the restricted side. And that's just an area of the business in general where customers on-balance are not paying their fair share, right? We put an enormous amount of innovation, capital and labor into that equation and we have many attractive customers and contracts, but not all of them meet our standard. And so you'll continue to see us optimize that portfolio over the next few years.

Sabahat Khan
Analyst at RBC Capital Markets

Okay, great. And then just one on the R&D facilities. I think we're looking for four to come online. I think two came online. Is that the timing thing or how are you thinking about the rest of the R&D facilities opening up?

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah, it's more of a timing thing. There's a little bit of a rollover. We would expect those two to come online in the first-quarter. And so again, from a contribution perspective, think of it like a 90-day delay.

Sabahat Khan
Analyst at RBC Capital Markets

Great. Thanks very much. I'll pass the line.

Operator

Your next question today will come from Tobey Sommer with Truist Securities. Please go-ahead.

Tobey Sommer
Analyst at Truist Securities

Thank you very much. With respect to the kind of employee attrition level, you said decade low. How much juice do you think is left in that lemon to kind of squeeze-out because anytime you're at kind of a metric, is that an unusual period, either peak or trough, I'm kind of curious what you might look to as leading indicators to signal that we might be approaching the end of that as a tailwind to margin.

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. I mean, you think about that, you normally say we achieve that in a very-high unemployment environment where people are going to have a hard time finding jobs externally and so they're going to keep the job they have. But we're at 4% unemployment. So that labor market is still tight relative to a 20 or 30-year period. And I think a lot of it has to do with engagement, right? It's how we compensate our general managers, right? We think about paying them to achieve a financial outcome, to achieve a customer outcome and to achieve an employee outcome. And they really put a lot of energy in making Republic a great place to work. And so again, I think we've got the rate of improvement won't be 150 basis-points this year, right? I think it will be more narrow than that, but we think we can continue to make progress.

Operator

And your next question today will come from Stephanie Moore of Jefferies. Please go-ahead. Stephanie, your line may be muted.

Harold Antor
Analyst at Jefferies & Company, Inc.

Sorry, this is on for Stephanie Warren. So you guys talked about other fees from overflowing bind. So just want to get a sense for how far you are through that process, implement those additional fees in that? How are conversation is going with customers as you move from fixed-rate contracts to alternative indices.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Yeah, let me start with the latter. As far as on the alternative indices, since the beginning of when we started this initiative, we're at 63% of those contracts have either been moved to an alternative indices like water sewer trash or garbage trash or a fixed-rate that we would consider favorable.

Harold Antor
Analyst at Jefferies & Company, Inc.

Got it. Thank you for the color. I guess just on -- on the regulatory side, given the new administration, anything to call-out with PFAS or impact from rent pricing that you guys are looking at or any other regulations.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

On RIN prices, we assumed very conservative assumptions on our project as we move forward and you've seen your rince prices come down, but now they're trending back up here over the last couple of weeks on that front. So we remain enthusiastic about our gas energy pipeline and the set of projects we're going to have come online this year and in future years on that front. And then PFAS -- listen, PFAS is a broad issue that society wants to address and take care of regard of -- regardless of political administration. There's still a lot of TBDs on kind of timing and pace of recovery, but we feel very good about our team and our capabilities in terms of our ability not only to catch it and treat it on the landfill side from a solid waste perspective, but even more importantly, the opportunity, the upside to help customers from an ES standpoint or solutions standpoint to take care of their issues, remediate facilities and then ultimately find a final disposal for the material.

Harold Antor
Analyst at Jefferies & Company, Inc.

Thank you. I'll turn it over.

Operator

And your next question today will come from Brian Butler with Stifel. Please go-ahead.

Brian Butler
Analyst at Stifel Nicolaus & Co., Inc.

Hey, thanks for taking the question. On the first one, just when you think on the RNG and sustainability, adding kind of the $35 million in EBITDA in '25, what's the capital spend with that? And then beyond '25, what's remaining from a capital as well as an EBITDA contribution from future projects.

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Well, if you remember, Brian, so we are developing our polymer centers as wholly-owned facilities. So really the only thing that's running through our capex is the investment in the polymer centers, which is obviously embedded into our free-cash flow guide. So for 2025, we look to spend another $75 million on polymer centers, which is relatively consistent with what you've seen over the last several years. So it's really not much of a change from what you've seen in the baseline. The other investments that we're making are more in the JVs, the partnerships themselves. And in both the landfill gas-to-energy projects as well as with blue polymers, we have a minority interest. So that investment comes through the statement of cash flows, but more like a acquisition would as an other investing activity. And so if you take a look at next year, we would look to spend combined about $100 million in the investments in both of those JVs.

Brian Butler
Analyst at Stifel Nicolaus & Co., Inc.

Okay. That's helpful. Then I guess most of my questions answered, but I'd throw one out there. I mean the fundamentals look really good, a lot of success on a lot of the programs you have internally. What are some of the risks out there that you see kind of strategically going-forward from where we are today?

Jon Vander Ark
President And Chief Executive Officer at Republic Services

I think broader macro-environment. Listen, we've lived through a pandemic and high inflation and war at the shore of Europe and other elements. So a macro slowdown in the economy, what happens with tariffs and impact on inflation, none of those things, I would say, keep us up at night, but we're watchful and mindful of the macro-environment in which we operate on that front in terms of what we can control, safety is our number-one priority. So that's what we get up every day and focus on. And outside of that, we feel like the things in the business and in front of us are manageable.

Brian Butler
Analyst at Stifel Nicolaus & Co., Inc.

Great. Thank you.

Operator

And your next question today will come from Tony Bancroft with Gabelli Funds. Please go-ahead.

Tony Bancroft
Analyst at GAMCO Investors

Hi, gentlemen, congratulations. Very well done. And just this one sort of runs along the lines of, you know your Environmental Solutions acquisitions obviously turned out very well and has a -- has a -- has a lot of a lot of potential opportunity going-forward. Is there anything else out there that you could see that could be a transformational type of type of acquisition that's either in your space or maybe something different, something more on the sustainability side that you could see is there a longer-term, maybe three to five years or longer?

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Yeah. We maintain a perspective on everything and everybody and any dealer opportunity of consequence we're going to have a perspective on. That being said, those things often are opportunistic and uncertain. So we don't build our strategy hinged on some type of bigger -- bigger deal. And I think what you've seen over the last five years is we've driven a lot of value in the business by small and medium-sized deals and then really good execution organically as well. And I think that will be more of the same. We'll keep our eyes open. And if there's big opportunities, we'll be certainly aggressive in considering those, but nothing is imminent.

Tony Bancroft
Analyst at GAMCO Investors

Yeah. Great. Well, great job. Thank you so much.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Thanks, Tony.

Operator

Your next question today will come from Konark Gupta with Scotia Capital. Please go-ahead.

Konark Gupta
Analyst at Scotia Capital

Thanks for taking my question. You know, I think a lot of questions have been asked here, but just sensitivity, you know the commodity price environment is obviously not highly predictable, right? And I think like the way you are kind of assuming your commodity prices for '25, it seems like it's going to be a decent headwind in 2025. If the commodity prices kind of start to move-up higher than where you think they should be, how should we think about the sensitivity to your earnings from that?

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. Just -- and we disclosed this that on average, a $10 move-in recycled commodity prices on our basket of goods is approximately $10 million of annual EBITDA. So even when you take a look at where recycled commodities are right now at $145, and we maintain, we assume that they stay flat throughout '25 relative to the $165 average, it's down $20 million when you think about the EBITDA contribution, which isn't insignificant, but it's not overly material either. And so again, just to give you an idea, if you see commodity prices moving, again, it's on our basket, you have the sensitivity and you can expect that impact from both a revenue and an EBITDA perspective for that $10 move.

Konark Gupta
Analyst at Scotia Capital

Okay. That's great. Thanks. And if I can follow-up quickly on CNG tax credits, apologies if I missed that comment before. I guess you're not assuming the credits for this year. And if so, if they come through, what is a realistic set of assumption there?

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. On the CNG tax credit, so again, it's approximately $20 million per year for us and we did not assume that those are renewed. So right now, that is not embedded in our 2025 guide.

Konark Gupta
Analyst at Scotia Capital

Thank you.

Operator

And your next question today will come from Kevin Chiang with CIBC. Please go-ahead.

Kevin Chiang
Analyst at CIBC World Markets

Hey, thanks. One, good afternoon and thanks for taking my questions. Congrats on a strong end to the year here. You noted, I think in your prepared remarks, just some of your EV strategies, your fleet is growing there. But I think earlier this year, California withdrew its waiver to the EPA related to some of its more stringent zero-emission vehicle policies. Just wonder, does that change how you think about EV spend? And I know some of these vehicles have gone into California. Do you throttle that back a little bit and maybe a more or less stringent at the regulatory environment as it relates to vehicle emission?

Jon Vander Ark
President And Chief Executive Officer at Republic Services

No, it has not slowed down our pace there. There's lots of customer interest, lots of customer demand. There's certainly incentives, state and local that support us going-in that direction and we'll continue to deploy there. And more broadly, we're going to be mindful. We have no locked-in EV strategy in terms of the exact number of vehicles we're going to purchase by year, we're going to make sure that it's a superior product, right? It's a zero-emission vehicle that's quiet, safe, it's great for our employees as well. And so we're going to make sure that where that's deployed in the municipal space that we're getting a premium offering -- a premium price for that product. And we see a good line-of-sight to customer demand in that front. And so we'll go where customer demand takes us, but confidence that even with any administration change here that there is a path forward on EV.

Kevin Chiang
Analyst at CIBC World Markets

Okay. And then just maybe on turnover, great job there. But I guess a lot of the headlines we're seeing around, I guess, changes in US immigration policy, you are seeing or we are hearing from some companies that they are seeing an impact. I'm just wondering, are you seeing -- or are you envisioning downstream impacts? I can imagine your direct employee base isn't impacted by this, but in-markets that get tighter in terms of labor, that's a big downstream impact just the overall labor forces is trending. Just wonder, are the markets that you're starting to see some of this potential downstream impact? And I guess it's not flowing into your numbers today, but anything that you're keeping an eye out for or regions that might be becoming a little bit more problematic from a labor availability perspective.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Yeah, in terms of our own labor force or our -- where we do have third-parties that support us, listen, compliance has always been a huge part of our culture. So we don't see that as any type of threat or challenge. I think more broadly, if you look at the end-markets we serve, right, there's been a lot of talk about construction, right, in that part. And I think the biggest driver there is going to be mortgage rates. Our labor supply could be an issue on that front too. We'll see how that develops. So we'll keep an eye toward that, but I don't think that's going to be a major concern for us.

Kevin Chiang
Analyst at CIBC World Markets

That's great color. Thanks and best of luck as you execute on 2025 here.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Thanks.

Operator

And your next question today will come from James Schumm with TD Cowen. Please go-ahead.

James Schumm
Analyst at TD Cowen

Hey, thanks. Good quarter, guys. Can you -- just one quick one for me. Can you give an update on the truck supply-chain? Is that fully resolved? Are you still seeing any issues getting your trucks? And then sort of related, like where are you now in terms of your ASL conversions and then CNG truck conversions, how are you guys thinking about that and if there's additional opportunity for margin expansion over the next couple of years?

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Yeah. The supply-chain is caught up in terms of what they're delivering and kind of getting back. We have a very ratable replacement philosophy with our vehicles and fleet and we find the optimal kind of capex opex trade-off for one to retire vehicles. And we'll kind of be hitting that mark by the -- throughout this year and certainly by the end-of-the year, we'll be at our optimal point. So really thankful for our suppliers who have been able to help us over-deliver over the last 18 months-to get caught up in that respect. On automation, we're about 77% automated. We have a few points of opportunity over-time. They'll come with specific contracts or more in the environment. So that's not going to be a huge driver of performance, but we'll continue to go there. And then CNG, we've maintained our CNG fleet, but we've not put any new CNG fleets in the last five years because we believe electrification is a superior product. CNG is better than diesel for the environment, but it's not a zero-emission product and we think electrification is much more beneficial for the environment and that's where we see customer pull. So that's where we put our energy.

James Schumm
Analyst at TD Cowen

Okay, great. Understood. Thanks guys.

Operator

Your next question today will come from Devin Dodge with BMO Capital Markets. Please go-ahead.

Devin Dodge
Analyst at BMO Capital Markets

Yeah, thanks. Good afternoon. Just one clarification from me and apologies if I missed it, but of the $1 billion-plus M&A spending target in 2025, it sounded like the deals completed, let's say, in the first-six weeks of the year are included in the guide. Just one, is that correct? And two, if that is -- if that is correct, can you give us a sense for how much of that $1 billion has been deployed already?

Brian Delghiaccio
Executive Vice President And Chief Financial Officer at Republic Services

Yeah. So four deals that have been completed through today, that revenue contribution and the related financial outcomes are included in our guidance. So basically anything closed through today is included. Anything thereafter that we would complete is not. So -- and right now, if you think about the $1 billion spend, a good portion of that has been spent already at this point. So again, we feel really good about that target for the full-year.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

And we'll give you the details, obviously in April after Q1 results come out.

Devin Dodge
Analyst at BMO Capital Markets

All right, sounds good. Thank you

Operator

This time, there appear to be no further questions. MR. Vander Ark, I'll turn the call-back over to you for closing remarks.

Jon Vander Ark
President And Chief Executive Officer at Republic Services

Thank you, Nick. I want to thank the Republic Services team for their great work-in 2024. Their focus on safety, sustainability and exceeding customer expectations led to another year of great results and positions us well for continued growth. Have a good evening and be safe.

Operator

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

Corporate Executives
  • Aaron Evans
    Vice President, Investor Relations
  • Jon Vander Ark
    President And Chief Executive Officer
  • Brian Delghiaccio
    Executive Vice President And Chief Financial Officer
Analysts

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