NYSE:RSG Republic Services Q4 2023 Earnings Report $243.96 +3.20 (+1.33%) Closing price 03:59 PM EasternExtended Trading$235.30 -8.66 (-3.55%) As of 05:23 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Republic Services EPS ResultsActual EPS$1.41Consensus EPS $1.28Beat/MissBeat by +$0.13One Year Ago EPS$1.13Republic Services Revenue ResultsActual Revenue$3.83 billionExpected Revenue$3.73 billionBeat/MissBeat by +$98.54 millionYoY Revenue Growth+8.60%Republic Services Announcement DetailsQuarterQ4 2023Date2/27/2024TimeAfter Market ClosesConference Call DateTuesday, February 27, 2024Conference Call Time5:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Annual Report (10-K)SEC FilingEarnings HistoryCompany ProfilePowered by Republic Services Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 27, 2024 ShareLink copied to clipboard.There are 13 speakers on the call. Operator00:00:00and welcome to the Republic Services 4th Quarter and Full Year 2023 Investor Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Erin Evans, VP, Investor Relations. Operator00:00:43Please go ahead. Speaker 100:00:46I would like to welcome everyone to Republic Services' 4th Quarter and Full Year 2023 Conference Call. John Vander Aart, our CEO and Brian DelGaggio, our CFO are on the call today to discuss our performance. I would like to take a moment to remind everyone that some of the information we discuss on today's call contains forward looking statements, 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 time sensitive. Speaker 100:01:22If in the future you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is February 27, 2024. 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. I want to point out that our SEC filings, our earnings press release, which includes GAAP reconciliation tables and a discussion of business activities along with the recording of this call are available on Republic's website at republicservices.com. I want to remind you that Republic's management team routinely participates in investor conferences. Speaker 100:02:07When events are scheduled, the dates, times and presentations are posted on our website. With that, I'd like to turn the call over to John. Speaker 200:02:15Thanks, 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 $1,990,000,000 of adjusted free cash flow. Speaker 200:03:02We 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 $1,800,000,000 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 $900,000,000 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. Speaker 200:03:48Our 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 Q4 with simultaneous increases in price and volume. Core price and related revenue was 8.8% and average yield and related revenue was 7.7%. Organic volume growth and related revenue was 40 basis points. Turning to our digital capabilities. Speaker 200:04:26The 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 enhance 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 $100,000,000 of total annual earnings contribution, of which approximately $65,000,000 has been realized to date. Speaker 200:05:18We continue to implement advanced technology on recycling and waste collection routes. Our platform utilizes cameras to identify overfill containers and contamination in 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. Speaker 200:05:48Development 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 Polymer Center. This development will be co located with a Blue Polymers production facility and construction at the site is expected to be completed in late 2024. Speaker 200:06:18The renewable gas projects being co developed with our partners continue to advance. Five projects came online in 2023 and we expect at least 8 additional projects to be completed in 2024. We continue to advance our efforts to support de carbonization, 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. Speaker 200:06:52We have 6 facilities with commercial EV charging infrastructure with more than 40 additional sites in varying stages of development. As part of our approach to sustainability, we continue to strive to be a workplace where the best people from all backgrounds want to work. In 2023, employee engagement improved to a score of 86 with 90% 99% of employees participating in the survey. Turnover rates continue to trend 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. Speaker 200:07:34Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named the Dow Jones Sustainability Index for the 8th consecutive year. Our 2023 results clearly demonstrate our ability to create sustainable value and our ongoing investments strengthen the foundation from which we will continue to grow our business. With respect to 2024, we expect to deliver outsized profitable growth, while continue to make investments in the business to drive lasting value creation. More specifically, we expect full year revenue in a range of $16,100,000,000 to $16,200,000,000 Adjusted EBITDA is expected to be in a range of $4,825,000,000 to 4 point per share in a range of $5.94 to $6 generate adjusted free cash flow in a range of $2,100,000,000 to $2,150,000,000 Our pipeline supports continued acquisition activity in both recycling and waste and environmental solutions. We are targeting at least $500,000,000 of investment in value creating acquisitions in 2024. Speaker 200:08:53Our 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 year. Thanks, John. Core price on total revenue was 7.2% in the 4th quarter. Core price on related revenue was 8.8%, which included open market pricing of 10.6% and restricted pricing of 6%. Speaker 200:09:21The components of core price on related revenue included small container of 12.3%, large container of 8.6% and residential of 8.2%. Average yield on total revenue was 6.3% and average yield on related revenue was 7.7%. In 2024, we expect average yield on total revenue in a range of 5.5% to 6%. We expect average yield on related revenue in a range of 6.5% to 7%. Yield is expected to step down sequentially during 2024 due to relatively lower index based pricing and certain fees implemented throughout 2023 which begin to anniversary. Speaker 200:10:064th quarter volume on total revenue increased 30 basis points and volume on related revenue increased 40 basis points. Components of volume on related revenue included an increase in small container of 20 basis points and an increase in landfill of 7.4%. Landfill was primarily driven by a 12.7% increase in special waste revenue. Volume growth was partially offset by a decrease in large container of 1.4% and a decrease in landfill C and D volume of 2.1%, primarily due to a slowdown in construction related activity. In 2024, we expect organic volume growth in a range of flat to positive 50 basis points. Speaker 200:10:48Moving on to recycling. Commodity prices were $131 per ton during the Q4. This compared to $88 per ton in the prior year. Recycling processing and commodity sales increased revenue by 50 basis points during the quarter. 2023 full year commodity prices were $117 per ton. Speaker 200:11:11This compared to $170 per ton in the prior year. Current commodity prices are approximately $135 per ton, which is the baseline used in our 2024 guidance. Now turning to our Environmental Solutions business. 4th quarter Environmental Solutions revenue was flat compared to the prior year. Adjusted EBITDA margin for the Environmental Solutions business was 19.7 percent, an increase of 2 50 basis points compared to the prior year. Speaker 200:11:424th quarter total company adjusted EBITDA margin expanded 260 basis points to 29.9%, which was driven by margin expansion in the underlying business of 230 basis points. Other changes in margin performance during the quarter included a 30 basis point increase from recycled commodity prices and a 20 basis point increase from net fuel, which was partially offset by a 20 basis point decrease from acquisitions. Our full year adjusted EBITDA margin was 29.7 percent which represents margin expansion of 60 basis points compared to the prior year. In 2024, we expect total company adjusted EBITDA margin to be approximately 30%. We expect to more than overcome a 30 basis point headwind from acquisitions. Speaker 200:12:30Depreciation, amortization and accretion was 10.7% of revenue in 2023 and is expected to be approximately 11% of revenue in 2024. Full year 2023 adjusted free cash flow was $1,990,000,000 an increase of 14% compared to the prior year. This was driven by EBITDA growth in the business and the positive contribution from changes in working capital. Total debt at the end of the year was $13,000,000,000 and total liquidity was $2,700,000,000 Our leverage ratio at the end of the year was 2.9 times. We expect net interest expense of approximately $545,000,000 in 2024. Speaker 200:13:17With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 25.1 percent during the Q4 and 24.8% for the full year. We expect an equivalent tax impact of approximately 26% in 20.24 made up of an tax rate of 20% and approximately $190,000,000 of non cash charges from equity investments in renewable energy. The expected increase in interest expense and taxes would result in a $0.20 EPS headwind in 2024. With that operator, I would like to open the call to questions. Operator00:14:00We will now begin the question and answer session. The first question comes from Toni Kaplan with Morgan Stanley. Please go ahead. Thank you so much. Speaker 300:14:41I wanted to ask about margins. In the 4th quarter, I know you mentioned a couple of factors, the commodities and fuel costs, but maybe just talk about how margins were so far ahead of the guide and what factors could continue into 2024 that could provide upside to the guidance there? Thanks. Speaker 200:15:06Sure. Yes, the team had a really strong Q4. Lots of things went in our favor, managed the middle of the P and L well. There were some one time opportunities both on MSW and a very strong special waste 4th quarter on that that we felt good with. Weather was actually very positive in the Q4, which has flipped here in the Q1 of the year. Speaker 200:15:26So I feel great about that. And then, we've got a lot of momentum headed into 2023. Some of those event based work, you can't build a budget against that, right? You've got to look at that as potential upside, which we're going to go after those opportunities. But oftentimes in election year, some of those jobs end up pushing or rolling forward. Speaker 200:15:45So 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. And Tony, we had mentioned all year long that we expected margin expansion to sequentially improve quarter on quarter ending the year with the highest level of margin expansion compared to the prior year. So that played out exactly as we thought. Now the margin expansion itself was a little bit stronger than we originally anticipated, but ending the year with that type of performance and the type of margin expansion in the over 200 basis points was in line with the Speaker 400:16:23way we thought it would end. Speaker 300:16:25Perfect. I wanted to ask about environmental services. Maybe just talk about what you're seeing the different pieces there. And I think there's a little bit flattish in the quarter. So does that turn around next year? Speaker 300:16:41Thanks. Speaker 200:16:43Yes. Most of the flatness is based on the comp. We had a really, really strong Q4 and 2022 that we were covering. There is some slowdown in parts of that business. So rig counts are down and that's really part of the opportunity in there. Speaker 200:16:58We've had a facility that we've shut down to turn around that we're going to reopen here in the middle of the year. So that will provide some incremental lift and that was closed in the Q4. And then we continue to we'll trade price over volume where we need to. So we've churned out some less profitable customers on that and feel really good about the book and the pipeline going forward. Operator00:17:19Perfect. Thanks so much. The next question is from Kevin Chiang with CIBC. Please go ahead. Speaker 500:17:29Hey, thanks for taking my question and congrats on a strong end to the year there. Maybe just on the 2024 guidance, the implied kind of 30, 40 basis points of margin expansion or reported margin 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 2? Or would you expect one to maybe outperform the other as you look out into 20 24 here? Speaker 200:17:58Yes. Look, overall, I would sit there and say that we expect margin expansion in both of the business types. We're expecting just as when you take a look in basis points, a little bit more on the ES side, the Environmental Solutions side, but it is still relatively balanced between the 2. Just given the sheer size of the recycling and waste business relative to the environmental solutions business, it will drive a majority of the overall expansion when you think about the enterprise taken as a whole. Speaker 500:18:30That's helpful. And maybe just my follow-up question. Just looking at your yield volume table that you provide in your disclosure, just I noticed the strong yields in residential volumes, maybe a little bit worse than recent trends. 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 yield in the Q4? Speaker 200:19:00Yes. We're always purposeful in trading out price versus volume. I'd say in this quarter, there was a couple of contracts that went out to bid that we bid a rate that we thought was going to cover our cost and give a fair return and we lost those opportunities. And then in previous quarters, we've had some nice wins, right? And these things come in fits and spurts. Speaker 200:19:20So we didn't have anything in that quarter and that's really the combination of those two things drives the volume picture. On the pricing side, this is the manifestation of high CPI and the alternative indices over the last couple of years really flowing through our pricing, which is great to see that's a challenged part of the yield story historically and to see that number we were really pleased with. Speaker 500:19:45Excellent. I'll leave it there. Again, congrats on a good set of results there. Great. Thanks. Operator00:19:52The next question is from Brian Bergmeier with Citi. Please go ahead. Speaker 600:19:58Good afternoon. Thank you for taking the question. Maybe just following up on Tony's question, I think margins have typically expanded kind of quarter over quarter from 4Q to 1Q. I imagine that will be a little bit more flattish this year. Just if you can Speaker 200:20:27Yes. Brian, 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 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 those summer months where you're getting some more of those seasonal volumes in particular on the landfill side, followed by Q4. Speaker 200:21:01And then finally, the Q1 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 how it 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. Speaker 200:21:22In part, you've got more winter months when you're dealing with the Q1 as well as when you just think about some of the taxes, you have your highest burden from a labor perspective in the Q1 and those tend to max out. And then as you move through the balance of the year, again, some of those some more of those state and local taxes then those basically reached their max in the Q1. And we had weather, we had mild weather in Q4 of last year and we had pretty intense weather in January where we lost some certainly some hauls and some tons. Some of that will come back, but some of that will get pushed out through the remainder of the year. So that's what will lead to Q4 number that probably looks our Q1 number that probably looks more flat than historically might have. Speaker 600:22:10Got it, got it. Thanks for all that detail. And then just following up on M and A, with the deals you completed in 4Q, did you provide a split 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. Speaker 200:22:33Yes. Rollover contribution will be about 200 basis points from deals closed in 2023 that will have a rollover impact into 2024. Just on the split from a revenue perspective, it was about $200,000,000 on the Environmental Solutions of annualized revenue acquired in the 4th quarter and about $140,000,000 on the recycling waste side. Speaker 600:22:55Got it. Thanks a lot. I'll turn it over. Operator00:23:00The next question is from Walter Spracklin with RBC Capital Markets. Please go ahead. Speaker 700:23:08Yes, thanks very much. Good afternoon, everyone. So I wanted to follow-up on M and A here. A big year for you in terms of deals done, I think, dollars 1,860,000,000 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? Speaker 700:23:34And 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 assess or 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, a heady space pace here in terms of M and A for 24? Speaker 200:24:04Yes. Look, we look at 2 things, obviously, the strategic fit and the financial return on any type of deal and we're going to stay disciplined on both of those things. Are we the natural owner and does it meet our expectations in terms of cash on cash returns. And then we do think about our ability to absorb it. And listen, we have a lot of capacity across the enterprise. Speaker 200:24:28We wouldn't necessarily do a couple of big deals in the same part of the country at the same time because the local team does play a pretty strong role in that day to day integration activity. Last year was the product of our normal tuck ins, which we've done forever and those are very value creating. It's hard to do those deals poorly because we've done them for so long. And then some nice kind of medium sized deals. We build the plan right now anticipating that those medium sized deals are going to be there, not that we're not pursuing it, but you just don't know when they're going to move or when they're going to come. Speaker 200:25:02So that's predicated on a step down in our expectation this year. For what we've done, it's not because the pipeline is weaker, pipeline is strong, but we never know exactly we're going to close and we're going to stay disciplined. Speaker 700:25:16Got 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 EPR or not better, but how do you how does that compare to EPR projects in terms of the return profile Speaker 400:25:44of that one? Speaker 200:25:46Yes. We're very satisfied with both the execution and the return. We're pretty conservative in terms of our financial modeling, leaving ourselves room. And we feel very good about the demand in the marketplace. We could have sold out Las Vegas 5 times over upfront and the pricing expectations are ahead of what we modeled. Speaker 200:26:08So the returns are going to come in, get ahead of our expectations on that front and that's certainly given us confidence as we talked about in the prepared remarks to go to Indy and then we're planning on at least 2 more across the country. Speaker 700:26:21Fantastic. Appreciate the time. Operator00:26:24The next question is from John Mazzoni with Wells Fargo. Please go ahead. Speaker 800:26:32Hi. Thanks for taking my question. Maybe just a quick one on pricing. Could you just remind us how the restricted book will layer through 2024 especially with some of the lag effects in CPI? Thanks. Speaker 200:26:44Yes. Heidi, one of the things I mentioned with respect to the cadence from a pricing perspective in my prepared remarks is we do expect a sequential step down in the level of pricing throughout the year, primarily due to the impact that that index pricing will have. So again, we expect us to report the highest level of average yield in Q1 and the lowest level in Q4 with a step down in between. Just to give you a little bit of perspective, when you take a look at the 2 primary components that may make up our basket that are related to some sort of index, one being headline CPI and then the other being the alternative indices. And when you take a look at headline CPI, right, it saw its peak in June of 2022 and has been stepping down sequentially since. Speaker 200:27:32Water, sewer, trash and garbage trash saw peak levels in August of 2023 and have been stepping down since then. Now that said, the water sewer trash and garbage trash still remain at elevated levels. Water sewer trash, the recent print was 5.5 and garbage trash was 6.4. So we're still pretty pleased about the level, but it is going to sit there and step down just due to the math. Speaker 800:27:57Great. 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 above the average. And any other thing you're seeing within that kind of end market? Speaker 800:28:10And any other commentary around anything different that you've done compared to peers? Thank you. Speaker 200:28:17Sure. Yes, we rolled out some new technology around AI, which helps us spot contamination and also helps us assess overages when the containers are overfilled. And that certainly contributed to the small container performance. And underlying pricing was great, but that put it on top and that's why we talked about our 24 number. We expect to anniversary that in the second half of the year, so that will come down a bit. Speaker 200:28:43Great. Thank Operator00:28:44you. The next question is from Michael Hoffman with Stifel. Please go ahead. Speaker 900:28:51Hey, guys. I'm always challenged for that stifle, stifle, stifle, whatever. So free cash flow in the guide is at about 7% in the midpoint versus the top line is at 7.9% and EBITDA is at 9.1%. 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 and L? Speaker 100:29:22That's correct, Michael. If you Speaker 200:29:23just take taxes alone, when you take a look at 2 components, so 1, we are assuming that the current loss stays in place, which means bonus depreciation, we'll sit there and have a further headwind at 2024 compared to 2023. Combined with the settlement we had with the IRS in 2023 where we received $20,000,000 of cash back to a matter that dates back to 2017. Combine those 2 create a $45,000,000 headwind in cash taxes. That alone is a 2.3% headwind to year over year growth on free cash flow. So you just take taxes alone and you'd sit there and say you'd be kind of 9.5% growth in free cash flow were it not for the impact of taxes. Speaker 200:30:07Interest to your point would just be a final further headwind. Speaker 900:30:12All right. And that was what I was trying to get at is the underlying cash growth is there and got some timing issues related to what we just discussed. Okay. On margin Speaker 200:30:25And Michael to that point from an underlying business perspective, the growth in free cash flow is double digit. Right. Okay. That's, I think, important. Speaker 900:30:34And then on margins, I think there's another sort of message potentially to be drawn out. So your pattern in your solid waste business given the Shield scale of managing price cost as you've been pretty ratably able to deliver full 30 basis points. So if the whole company is doing 30 and you've got an M and A headwind, and ACT Environmental comes in as a nice add in ES, but it's probably pretty dilutive. So how do we think about that ES dilution? It's much better structurally ex that dilution is what I think, Speaker 200:31:08which Yes. We if you sorry. Yes. Just to give you a little perspective, if you look across, right, about both business types, we're expecting 30 basis points of dilution from acquisitions. And we would expect dilution from an acquisition perspective in both Recycling and Waste and Environmental Solutions. Speaker 200:31:30If you're looking at the underlying business itself within ES, we're expecting over 100 basis points of margin expansion in the Environmental Solutions business due to the underlying business itself. Speaker 900:31:43Right. And about 30 in solid waste and then I net in the total company dilution, but it's greater in ES than it is in solid waste, just one size of the deal relative to the base? Speaker 200:31:55That's correct. Speaker 900:31:57Yes. Okay. I think that's important to draw out. 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? Speaker 200:32:10Yes. Speaker 900:32:12Okay, cool. Thanks. Operator00:32:16The next question is from Noah Kaye with Oppenheimer and Company Inc. Please go ahead. Speaker 400:32:23Thanks. 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 and L? Is it maintenance and repairs? Speaker 400:32:38What kind of savings are we talking about with this new system? Yes. Speaker 200:32:44It's really with the RISE platform, think about digitizing our operations from our logistic operation all the way through our fleet and how our drivers operate every day. This brings this to the maintenance shop. And so now rather than moving paper around, right, when the driver does their vehicle condition report before they take off in the morning, that digitally flows and is recorded into the maintenance organization. So they're dealing with tablets as well. So they're getting out of the paper based business. Speaker 200:33:15And a big driver of that is some productivity benefit to that for sure, but then there's also the warranty recovery element of that because when you're chasing paper that becomes a very manual process. When you could do this digitally it allows you to quickly understand what warranty is available. Are you fully claiming all the parts that are warranty eligible and allowing us to get full recovery? 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. Speaker 200:33:46This 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 John'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. Speaker 400:34:19Very nice. Just a quick housekeeping one. You already detailed the expectations for yield cadence through 2024. But just picking up your comments around weather, tough volume comp for 1Q and you just mentioned the weather flipped to maybe a little bit of a drag here to start the year, we all felt that cold. So how do we think about kind of the volume trends, Q to date and how that trends through the year? Speaker 200:34:49Look, I mean, the good news, right, is that while January, we did experience quite a bit of weather, we've seen most of that volume return, not a total recovery, but we saw what we would expect it in February so far to date. But we're guiding to flat to 50 basis point positive. Q1 maybe 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. And look, I mean, in Speaker 600:35:19an environment where your yield is decelerating year over year at Speaker 400:35:25a pretty, pretty shallow step down, down, you can get the margin expansion that you're looking for without a lot of volume contribution. So you let the volume be upside to where margins can go. Is that the basic Speaker 200:35:40takeaway? Correct. Speaker 400:35:41All right. Thanks very much. I'll turn it over. Operator00:35:46The next question is from Stephanie Moore with Jefferies. Please go ahead. Speaker 1000:35:53Hi, good afternoon. Thank you. Speaker 200:35:56Hi, Stephanie. Speaker 1000:35:57I wanted to touch a bit on maybe the underlying macro environment, probably a decent follow-up to the prior question. You called out some weakness in the quarter on land sales C and D volumes. I don't think any of us would be really surprised to hear that. But maybe any other areas you might be seeing weakness or other levels of strength of the asset? And then what is the kind of the underlying macro assumption embedded in the 2024 guidance? Speaker 1000:36:22Thanks. Speaker 200:36:25Yes. I think the picture is mix. Again, we're planning on having a strong year. If you think about, the direct things, we talked about whether certainly housing, interest rates being high, mortgage rates being high, housing activity is certainly a byproduct or depressed housing activity is a byproduct of 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. Speaker 200:36:50But we think that'll be more delayed toward the later end of the year. So we're not planning on 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 or other things have been very, very strong. PFAS has been a nice contributor to the business in 2023 and we've got a good pipeline in 2024. Speaker 200:37:20And then back row, we have 2 wars going on, right? 1 in Israel, 1 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. Speaker 1000:37:39Great. That's helpful. And then you touched on this a little bit, but if you could kind of walk through kind of what you've seen from a cost inflation standpoint, clearly getting better, but some of those clear headwinds that we saw through most of 2023 kind of how those are trending now to start 2024? Thanks. Speaker 200:37:57Yes, certainly stepping down operating labor clearly stepping down year over year, transportation 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 3 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, where that's 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. Speaker 200:38:43So that spend will be we think elevated throughout the year. We hope we do a little better, but we'll see. Speaker 1000:38:51Okay. Thank you so much. Operator00:38:55The next question is from Jerry Revich with Goldman Sachs. Please go ahead. Speaker 1100:39:03Yes. Hi. Good afternoon, everyone. I would love to continue the conversation on the cost side. I mean, really impressive in the quarter, your cost per unit were up just 1% year over year. Speaker 1100:39:16So I'm wondering where are you starting to see deflation? It sounds like the tailwind from better equipment availability is still in front of us. So I'm wondering what's gotten better for you folks already in the 4th quarter numbers. And then Brian, I'm wondering if you could just put a finer point on the comments that you made about yield slowing over the course of the year on comps. Do you expect to exit the year with price cost spread still favorable Q4 versus Q4? Speaker 1100:39:44Thanks. Speaker 200:39:45Yes, Jerry. So John mentioned one of them already. Our labor has continued to improve, right, really throughout the year. And 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 as well as there's a productivity impact. Speaker 200:40:08A 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 costs had had. These were things we had multi year agreements. Speaker 200:40:31They came up for renewal in the second half of twenty twenty two. And we said that we took some pretty big price increases and that they were going to comp out in the second half of twenty twenty three and we've certainly seen that. So I would say those are some of the tailwinds we've seen 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 sit there and say we expect the biggest or the most positive impact between that in the Q1. Speaker 200:41:03We expect that to modulate throughout the year, but still price exceeding cost by the time we exit 2024. Speaker 1100:41:12Okay. Super. And then nice progress on the $100,000,000 efficiency program. How much progress did you make in 2023 specifically and the remaining $35,000,000,000 of productivity improvement? When do you expect how much of an improvement do you expect in 2024 relative to that remaining $35,000,000 Speaker 200:41:32Approximately about $10,000,000 Operator00:41:42The next question is from Tobey Sommer with Truist. Please go ahead. Speaker 400:41:48Yes, good evening. This is Jack Wilson on for Tobey. Can we double click on sort of the state of the fleet and specifically fleet electrification in the long term and sort of where you see that going? Speaker 200:42:01Sure. We mentioned in the prepared remarks that we have 11. We're running on right now. We'll have adds 50 to that This year we'll be add several 100 next year and climbing our path that's going to start in residential and then we'll move into small container over time. And we've got a really thoughtful strategy in terms of how we roll that out. Speaker 200:42:22I 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's willingness to pay for the vehicle. And we feel that the trucks that we've had delivered out of our partnership with Oshkosh, Speaker 900:42:41those McNeilus trucks are working Speaker 200:42:43very, very well. So we're excited to see the next 50 come into the fleet. Speaker 400:42:48Okay. Thank you for that color there. And then just as a follow-up, can we sort of dig into the moving parts of volume? Are there sort of specific geographies or market segments that are especially volatile or changing? Speaker 200:43:03I know 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 or even for movement, right? People are kind of keeping their existing mortgage rates and are reluctant to move and oftentimes we see remodeling activity or other ancillary opportunities in 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. Thank you very much. Operator00:43:43The next question is from Tony Bancroft with Gabelli Funds. Please go ahead. Speaker 1200:43:49Thanks for the question. Nice job on the quarter. Just some more color, maybe you mentioned PFAS remediation. Could you just maybe talk about what is going on currently at your landfills or whatever you're doing regarding PFAS? And what could that maybe just a general idea of what could that business look like opportunity wise going forward? Speaker 200:44:16Yes. We think we've got a very compelling offer for customers and an end to end solution. So we can handle all the way from the assessment to the frontline remediation, to doing our field service work and then a range of disposal options on the back end, whether that's into a 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 waste. So that's measured in the tens of 1,000,000 if you look at last year. This year it will be the high end of tens of 1,000,000 or potentially tipping into a 9 digit number in terms of revenue. Speaker 200:44:55So 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. Speaker 1200:45:21That's great. And then maybe switching to trucks, you talked about what's going on with EVs and the amount of deliveries coming, which sounds great. Any issues with maybe on just traditional trucks and EVs on supply chain getting those deliveries? And then just to piggyback on that one, if surprises, you see any surprises in EV performance? You hear and read a lot of things about how it's performing. Speaker 1200:45:47Obviously, you're pretty well situated just based on the routing system. But just some real time color on how those I guess there's only a few right now, but that's going to be growing and I'm sure you've done a lot of testing. Speaker 200:46:00Yes, 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. Now keep in mind, we've grown a lot. We're coming off our 3rd straight year of double digit revenue growth on that. Speaker 200:46:23So as we grow and do these acquisitions, that creates more demand and need for new trucks. So we see that supply chain improving. I think we'll shorten 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 Magne less truck is the 1st purpose built refuse truck ever and it's electrified. Speaker 200:46:48And that truck is driving a full route. Most of the other EVs that we've piloted, they 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, right, 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 EVs. Speaker 1200:47:15Thank you so much. Great job. Operator00:47:19This concludes our question and answer session. I would like to turn the conference back over to John Vander Ark for any closing remarks. Speaker 200:47:29Thank you, Debbie. I would like to recognize and thank our more than 40,000 employees for their great work and commitment to serving our customers. Their efforts enable our strong 2023 results and the continued growth of our company. Have a good evening and be safe. Operator00:47:48The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallRepublic Services Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Annual report(10-K) Republic Services Earnings HeadlinesRepublic Services (RSG) Gains Price Target Boost from BMO Capital | RSG Stock NewsApril 25 at 5:43 PM | gurufocus.comRepublic Services (RSG) Price Target Raised to $245 by Baird Analyst | RSG Stock NewsApril 25 at 5:43 PM | gurufocus.comTrump’s treachery Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 25, 2025 | Porter & Company (Ad)Republic Services (RSG) Sees Price Target Boost Amid Strong Q4 Performance | RSG Stock NewsApril 25 at 5:42 PM | gurufocus.comRepublic Services (NYSE:RSG) Reports Q1 Sales and Income Growth with US$4 Billion RevenueApril 25 at 3:13 PM | finance.yahoo.comQ1 2025 Republic Services Inc Earnings CallApril 25 at 10:13 AM | finance.yahoo.comSee More Republic Services Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Republic Services? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Republic Services and other key companies, straight to your email. Email Address About Republic ServicesRepublic Services (NYSE:RSG), together with its subsidiaries, offers environmental services in the United States and Canada. It is involved in the collection and processing of recyclable, solid waste, and industrial waste materials; transportation and disposal of non-hazardous and hazardous waste streams; and other environmental solutions. Its residential collection services include curbside collection of material for transport to transfer stations, landfills, recycling centers, and organics processing facilities; supply of recycling and waste containers; and renting of compactors. The company also engages in the processing and sale of old corrugated containers, old newsprint, aluminum, glass, and other materials; and provision of landfill services. It serves small-container, large-container, and residential customers. 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There are 13 speakers on the call. Operator00:00:00and welcome to the Republic Services 4th Quarter and Full Year 2023 Investor Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Erin Evans, VP, Investor Relations. Operator00:00:43Please go ahead. Speaker 100:00:46I would like to welcome everyone to Republic Services' 4th Quarter and Full Year 2023 Conference Call. John Vander Aart, our CEO and Brian DelGaggio, our CFO are on the call today to discuss our performance. I would like to take a moment to remind everyone that some of the information we discuss on today's call contains forward looking statements, 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 time sensitive. Speaker 100:01:22If in the future you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is February 27, 2024. 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. I want to point out that our SEC filings, our earnings press release, which includes GAAP reconciliation tables and a discussion of business activities along with the recording of this call are available on Republic's website at republicservices.com. I want to remind you that Republic's management team routinely participates in investor conferences. Speaker 100:02:07When events are scheduled, the dates, times and presentations are posted on our website. With that, I'd like to turn the call over to John. Speaker 200:02:15Thanks, 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 $1,990,000,000 of adjusted free cash flow. Speaker 200:03:02We 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 $1,800,000,000 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 $900,000,000 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. Speaker 200:03:48Our 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 Q4 with simultaneous increases in price and volume. Core price and related revenue was 8.8% and average yield and related revenue was 7.7%. Organic volume growth and related revenue was 40 basis points. Turning to our digital capabilities. Speaker 200:04:26The 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 enhance 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 $100,000,000 of total annual earnings contribution, of which approximately $65,000,000 has been realized to date. Speaker 200:05:18We continue to implement advanced technology on recycling and waste collection routes. Our platform utilizes cameras to identify overfill containers and contamination in 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. Speaker 200:05:48Development 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 Polymer Center. This development will be co located with a Blue Polymers production facility and construction at the site is expected to be completed in late 2024. Speaker 200:06:18The renewable gas projects being co developed with our partners continue to advance. Five projects came online in 2023 and we expect at least 8 additional projects to be completed in 2024. We continue to advance our efforts to support de carbonization, 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. Speaker 200:06:52We have 6 facilities with commercial EV charging infrastructure with more than 40 additional sites in varying stages of development. As part of our approach to sustainability, we continue to strive to be a workplace where the best people from all backgrounds want to work. In 2023, employee engagement improved to a score of 86 with 90% 99% of employees participating in the survey. Turnover rates continue to trend 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. Speaker 200:07:34Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named the Dow Jones Sustainability Index for the 8th consecutive year. Our 2023 results clearly demonstrate our ability to create sustainable value and our ongoing investments strengthen the foundation from which we will continue to grow our business. With respect to 2024, we expect to deliver outsized profitable growth, while continue to make investments in the business to drive lasting value creation. More specifically, we expect full year revenue in a range of $16,100,000,000 to $16,200,000,000 Adjusted EBITDA is expected to be in a range of $4,825,000,000 to 4 point per share in a range of $5.94 to $6 generate adjusted free cash flow in a range of $2,100,000,000 to $2,150,000,000 Our pipeline supports continued acquisition activity in both recycling and waste and environmental solutions. We are targeting at least $500,000,000 of investment in value creating acquisitions in 2024. Speaker 200:08:53Our 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 year. Thanks, John. Core price on total revenue was 7.2% in the 4th quarter. Core price on related revenue was 8.8%, which included open market pricing of 10.6% and restricted pricing of 6%. Speaker 200:09:21The components of core price on related revenue included small container of 12.3%, large container of 8.6% and residential of 8.2%. Average yield on total revenue was 6.3% and average yield on related revenue was 7.7%. In 2024, we expect average yield on total revenue in a range of 5.5% to 6%. We expect average yield on related revenue in a range of 6.5% to 7%. Yield is expected to step down sequentially during 2024 due to relatively lower index based pricing and certain fees implemented throughout 2023 which begin to anniversary. Speaker 200:10:064th quarter volume on total revenue increased 30 basis points and volume on related revenue increased 40 basis points. Components of volume on related revenue included an increase in small container of 20 basis points and an increase in landfill of 7.4%. Landfill was primarily driven by a 12.7% increase in special waste revenue. Volume growth was partially offset by a decrease in large container of 1.4% and a decrease in landfill C and D volume of 2.1%, primarily due to a slowdown in construction related activity. In 2024, we expect organic volume growth in a range of flat to positive 50 basis points. Speaker 200:10:48Moving on to recycling. Commodity prices were $131 per ton during the Q4. This compared to $88 per ton in the prior year. Recycling processing and commodity sales increased revenue by 50 basis points during the quarter. 2023 full year commodity prices were $117 per ton. Speaker 200:11:11This compared to $170 per ton in the prior year. Current commodity prices are approximately $135 per ton, which is the baseline used in our 2024 guidance. Now turning to our Environmental Solutions business. 4th quarter Environmental Solutions revenue was flat compared to the prior year. Adjusted EBITDA margin for the Environmental Solutions business was 19.7 percent, an increase of 2 50 basis points compared to the prior year. Speaker 200:11:424th quarter total company adjusted EBITDA margin expanded 260 basis points to 29.9%, which was driven by margin expansion in the underlying business of 230 basis points. Other changes in margin performance during the quarter included a 30 basis point increase from recycled commodity prices and a 20 basis point increase from net fuel, which was partially offset by a 20 basis point decrease from acquisitions. Our full year adjusted EBITDA margin was 29.7 percent which represents margin expansion of 60 basis points compared to the prior year. In 2024, we expect total company adjusted EBITDA margin to be approximately 30%. We expect to more than overcome a 30 basis point headwind from acquisitions. Speaker 200:12:30Depreciation, amortization and accretion was 10.7% of revenue in 2023 and is expected to be approximately 11% of revenue in 2024. Full year 2023 adjusted free cash flow was $1,990,000,000 an increase of 14% compared to the prior year. This was driven by EBITDA growth in the business and the positive contribution from changes in working capital. Total debt at the end of the year was $13,000,000,000 and total liquidity was $2,700,000,000 Our leverage ratio at the end of the year was 2.9 times. We expect net interest expense of approximately $545,000,000 in 2024. Speaker 200:13:17With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 25.1 percent during the Q4 and 24.8% for the full year. We expect an equivalent tax impact of approximately 26% in 20.24 made up of an tax rate of 20% and approximately $190,000,000 of non cash charges from equity investments in renewable energy. The expected increase in interest expense and taxes would result in a $0.20 EPS headwind in 2024. With that operator, I would like to open the call to questions. Operator00:14:00We will now begin the question and answer session. The first question comes from Toni Kaplan with Morgan Stanley. Please go ahead. Thank you so much. Speaker 300:14:41I wanted to ask about margins. In the 4th quarter, I know you mentioned a couple of factors, the commodities and fuel costs, but maybe just talk about how margins were so far ahead of the guide and what factors could continue into 2024 that could provide upside to the guidance there? Thanks. Speaker 200:15:06Sure. Yes, the team had a really strong Q4. Lots of things went in our favor, managed the middle of the P and L well. There were some one time opportunities both on MSW and a very strong special waste 4th quarter on that that we felt good with. Weather was actually very positive in the Q4, which has flipped here in the Q1 of the year. Speaker 200:15:26So I feel great about that. And then, we've got a lot of momentum headed into 2023. Some of those event based work, you can't build a budget against that, right? You've got to look at that as potential upside, which we're going to go after those opportunities. But oftentimes in election year, some of those jobs end up pushing or rolling forward. Speaker 200:15:45So 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. And Tony, we had mentioned all year long that we expected margin expansion to sequentially improve quarter on quarter ending the year with the highest level of margin expansion compared to the prior year. So that played out exactly as we thought. Now the margin expansion itself was a little bit stronger than we originally anticipated, but ending the year with that type of performance and the type of margin expansion in the over 200 basis points was in line with the Speaker 400:16:23way we thought it would end. Speaker 300:16:25Perfect. I wanted to ask about environmental services. Maybe just talk about what you're seeing the different pieces there. And I think there's a little bit flattish in the quarter. So does that turn around next year? Speaker 300:16:41Thanks. Speaker 200:16:43Yes. Most of the flatness is based on the comp. We had a really, really strong Q4 and 2022 that we were covering. There is some slowdown in parts of that business. So rig counts are down and that's really part of the opportunity in there. Speaker 200:16:58We've had a facility that we've shut down to turn around that we're going to reopen here in the middle of the year. So that will provide some incremental lift and that was closed in the Q4. And then we continue to we'll trade price over volume where we need to. So we've churned out some less profitable customers on that and feel really good about the book and the pipeline going forward. Operator00:17:19Perfect. Thanks so much. The next question is from Kevin Chiang with CIBC. Please go ahead. Speaker 500:17:29Hey, thanks for taking my question and congrats on a strong end to the year there. Maybe just on the 2024 guidance, the implied kind of 30, 40 basis points of margin expansion or reported margin 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 2? Or would you expect one to maybe outperform the other as you look out into 20 24 here? Speaker 200:17:58Yes. Look, overall, I would sit there and say that we expect margin expansion in both of the business types. We're expecting just as when you take a look in basis points, a little bit more on the ES side, the Environmental Solutions side, but it is still relatively balanced between the 2. Just given the sheer size of the recycling and waste business relative to the environmental solutions business, it will drive a majority of the overall expansion when you think about the enterprise taken as a whole. Speaker 500:18:30That's helpful. And maybe just my follow-up question. Just looking at your yield volume table that you provide in your disclosure, just I noticed the strong yields in residential volumes, maybe a little bit worse than recent trends. 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 yield in the Q4? Speaker 200:19:00Yes. We're always purposeful in trading out price versus volume. I'd say in this quarter, there was a couple of contracts that went out to bid that we bid a rate that we thought was going to cover our cost and give a fair return and we lost those opportunities. And then in previous quarters, we've had some nice wins, right? And these things come in fits and spurts. Speaker 200:19:20So we didn't have anything in that quarter and that's really the combination of those two things drives the volume picture. On the pricing side, this is the manifestation of high CPI and the alternative indices over the last couple of years really flowing through our pricing, which is great to see that's a challenged part of the yield story historically and to see that number we were really pleased with. Speaker 500:19:45Excellent. I'll leave it there. Again, congrats on a good set of results there. Great. Thanks. Operator00:19:52The next question is from Brian Bergmeier with Citi. Please go ahead. Speaker 600:19:58Good afternoon. Thank you for taking the question. Maybe just following up on Tony's question, I think margins have typically expanded kind of quarter over quarter from 4Q to 1Q. I imagine that will be a little bit more flattish this year. Just if you can Speaker 200:20:27Yes. Brian, 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 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 those summer months where you're getting some more of those seasonal volumes in particular on the landfill side, followed by Q4. Speaker 200:21:01And then finally, the Q1 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 how it 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. Speaker 200:21:22In part, you've got more winter months when you're dealing with the Q1 as well as when you just think about some of the taxes, you have your highest burden from a labor perspective in the Q1 and those tend to max out. And then as you move through the balance of the year, again, some of those some more of those state and local taxes then those basically reached their max in the Q1. And we had weather, we had mild weather in Q4 of last year and we had pretty intense weather in January where we lost some certainly some hauls and some tons. Some of that will come back, but some of that will get pushed out through the remainder of the year. So that's what will lead to Q4 number that probably looks our Q1 number that probably looks more flat than historically might have. Speaker 600:22:10Got it, got it. Thanks for all that detail. And then just following up on M and A, with the deals you completed in 4Q, did you provide a split 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. Speaker 200:22:33Yes. Rollover contribution will be about 200 basis points from deals closed in 2023 that will have a rollover impact into 2024. Just on the split from a revenue perspective, it was about $200,000,000 on the Environmental Solutions of annualized revenue acquired in the 4th quarter and about $140,000,000 on the recycling waste side. Speaker 600:22:55Got it. Thanks a lot. I'll turn it over. Operator00:23:00The next question is from Walter Spracklin with RBC Capital Markets. Please go ahead. Speaker 700:23:08Yes, thanks very much. Good afternoon, everyone. So I wanted to follow-up on M and A here. A big year for you in terms of deals done, I think, dollars 1,860,000,000 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? Speaker 700:23:34And 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 assess or 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, a heady space pace here in terms of M and A for 24? Speaker 200:24:04Yes. Look, we look at 2 things, obviously, the strategic fit and the financial return on any type of deal and we're going to stay disciplined on both of those things. Are we the natural owner and does it meet our expectations in terms of cash on cash returns. And then we do think about our ability to absorb it. And listen, we have a lot of capacity across the enterprise. Speaker 200:24:28We wouldn't necessarily do a couple of big deals in the same part of the country at the same time because the local team does play a pretty strong role in that day to day integration activity. Last year was the product of our normal tuck ins, which we've done forever and those are very value creating. It's hard to do those deals poorly because we've done them for so long. And then some nice kind of medium sized deals. We build the plan right now anticipating that those medium sized deals are going to be there, not that we're not pursuing it, but you just don't know when they're going to move or when they're going to come. Speaker 200:25:02So that's predicated on a step down in our expectation this year. For what we've done, it's not because the pipeline is weaker, pipeline is strong, but we never know exactly we're going to close and we're going to stay disciplined. Speaker 700:25:16Got 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 EPR or not better, but how do you how does that compare to EPR projects in terms of the return profile Speaker 400:25:44of that one? Speaker 200:25:46Yes. We're very satisfied with both the execution and the return. We're pretty conservative in terms of our financial modeling, leaving ourselves room. And we feel very good about the demand in the marketplace. We could have sold out Las Vegas 5 times over upfront and the pricing expectations are ahead of what we modeled. Speaker 200:26:08So the returns are going to come in, get ahead of our expectations on that front and that's certainly given us confidence as we talked about in the prepared remarks to go to Indy and then we're planning on at least 2 more across the country. Speaker 700:26:21Fantastic. Appreciate the time. Operator00:26:24The next question is from John Mazzoni with Wells Fargo. Please go ahead. Speaker 800:26:32Hi. Thanks for taking my question. Maybe just a quick one on pricing. Could you just remind us how the restricted book will layer through 2024 especially with some of the lag effects in CPI? Thanks. Speaker 200:26:44Yes. Heidi, one of the things I mentioned with respect to the cadence from a pricing perspective in my prepared remarks is we do expect a sequential step down in the level of pricing throughout the year, primarily due to the impact that that index pricing will have. So again, we expect us to report the highest level of average yield in Q1 and the lowest level in Q4 with a step down in between. Just to give you a little bit of perspective, when you take a look at the 2 primary components that may make up our basket that are related to some sort of index, one being headline CPI and then the other being the alternative indices. And when you take a look at headline CPI, right, it saw its peak in June of 2022 and has been stepping down sequentially since. Speaker 200:27:32Water, sewer, trash and garbage trash saw peak levels in August of 2023 and have been stepping down since then. Now that said, the water sewer trash and garbage trash still remain at elevated levels. Water sewer trash, the recent print was 5.5 and garbage trash was 6.4. So we're still pretty pleased about the level, but it is going to sit there and step down just due to the math. Speaker 800:27:57Great. 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 above the average. And any other thing you're seeing within that kind of end market? Speaker 800:28:10And any other commentary around anything different that you've done compared to peers? Thank you. Speaker 200:28:17Sure. Yes, we rolled out some new technology around AI, which helps us spot contamination and also helps us assess overages when the containers are overfilled. And that certainly contributed to the small container performance. And underlying pricing was great, but that put it on top and that's why we talked about our 24 number. We expect to anniversary that in the second half of the year, so that will come down a bit. Speaker 200:28:43Great. Thank Operator00:28:44you. The next question is from Michael Hoffman with Stifel. Please go ahead. Speaker 900:28:51Hey, guys. I'm always challenged for that stifle, stifle, stifle, whatever. So free cash flow in the guide is at about 7% in the midpoint versus the top line is at 7.9% and EBITDA is at 9.1%. 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 and L? Speaker 100:29:22That's correct, Michael. If you Speaker 200:29:23just take taxes alone, when you take a look at 2 components, so 1, we are assuming that the current loss stays in place, which means bonus depreciation, we'll sit there and have a further headwind at 2024 compared to 2023. Combined with the settlement we had with the IRS in 2023 where we received $20,000,000 of cash back to a matter that dates back to 2017. Combine those 2 create a $45,000,000 headwind in cash taxes. That alone is a 2.3% headwind to year over year growth on free cash flow. So you just take taxes alone and you'd sit there and say you'd be kind of 9.5% growth in free cash flow were it not for the impact of taxes. Speaker 200:30:07Interest to your point would just be a final further headwind. Speaker 900:30:12All right. And that was what I was trying to get at is the underlying cash growth is there and got some timing issues related to what we just discussed. Okay. On margin Speaker 200:30:25And Michael to that point from an underlying business perspective, the growth in free cash flow is double digit. Right. Okay. That's, I think, important. Speaker 900:30:34And then on margins, I think there's another sort of message potentially to be drawn out. So your pattern in your solid waste business given the Shield scale of managing price cost as you've been pretty ratably able to deliver full 30 basis points. So if the whole company is doing 30 and you've got an M and A headwind, and ACT Environmental comes in as a nice add in ES, but it's probably pretty dilutive. So how do we think about that ES dilution? It's much better structurally ex that dilution is what I think, Speaker 200:31:08which Yes. We if you sorry. Yes. Just to give you a little perspective, if you look across, right, about both business types, we're expecting 30 basis points of dilution from acquisitions. And we would expect dilution from an acquisition perspective in both Recycling and Waste and Environmental Solutions. Speaker 200:31:30If you're looking at the underlying business itself within ES, we're expecting over 100 basis points of margin expansion in the Environmental Solutions business due to the underlying business itself. Speaker 900:31:43Right. And about 30 in solid waste and then I net in the total company dilution, but it's greater in ES than it is in solid waste, just one size of the deal relative to the base? Speaker 200:31:55That's correct. Speaker 900:31:57Yes. Okay. I think that's important to draw out. 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? Speaker 200:32:10Yes. Speaker 900:32:12Okay, cool. Thanks. Operator00:32:16The next question is from Noah Kaye with Oppenheimer and Company Inc. Please go ahead. Speaker 400:32:23Thanks. 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 and L? Is it maintenance and repairs? Speaker 400:32:38What kind of savings are we talking about with this new system? Yes. Speaker 200:32:44It's really with the RISE platform, think about digitizing our operations from our logistic operation all the way through our fleet and how our drivers operate every day. This brings this to the maintenance shop. And so now rather than moving paper around, right, when the driver does their vehicle condition report before they take off in the morning, that digitally flows and is recorded into the maintenance organization. So they're dealing with tablets as well. So they're getting out of the paper based business. Speaker 200:33:15And a big driver of that is some productivity benefit to that for sure, but then there's also the warranty recovery element of that because when you're chasing paper that becomes a very manual process. When you could do this digitally it allows you to quickly understand what warranty is available. Are you fully claiming all the parts that are warranty eligible and allowing us to get full recovery? 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. Speaker 200:33:46This 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 John'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. Speaker 400:34:19Very nice. Just a quick housekeeping one. You already detailed the expectations for yield cadence through 2024. But just picking up your comments around weather, tough volume comp for 1Q and you just mentioned the weather flipped to maybe a little bit of a drag here to start the year, we all felt that cold. So how do we think about kind of the volume trends, Q to date and how that trends through the year? Speaker 200:34:49Look, I mean, the good news, right, is that while January, we did experience quite a bit of weather, we've seen most of that volume return, not a total recovery, but we saw what we would expect it in February so far to date. But we're guiding to flat to 50 basis point positive. Q1 maybe 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. And look, I mean, in Speaker 600:35:19an environment where your yield is decelerating year over year at Speaker 400:35:25a pretty, pretty shallow step down, down, you can get the margin expansion that you're looking for without a lot of volume contribution. So you let the volume be upside to where margins can go. Is that the basic Speaker 200:35:40takeaway? Correct. Speaker 400:35:41All right. Thanks very much. I'll turn it over. Operator00:35:46The next question is from Stephanie Moore with Jefferies. Please go ahead. Speaker 1000:35:53Hi, good afternoon. Thank you. Speaker 200:35:56Hi, Stephanie. Speaker 1000:35:57I wanted to touch a bit on maybe the underlying macro environment, probably a decent follow-up to the prior question. You called out some weakness in the quarter on land sales C and D volumes. I don't think any of us would be really surprised to hear that. But maybe any other areas you might be seeing weakness or other levels of strength of the asset? And then what is the kind of the underlying macro assumption embedded in the 2024 guidance? Speaker 1000:36:22Thanks. Speaker 200:36:25Yes. I think the picture is mix. Again, we're planning on having a strong year. If you think about, the direct things, we talked about whether certainly housing, interest rates being high, mortgage rates being high, housing activity is certainly a byproduct or depressed housing activity is a byproduct of 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. Speaker 200:36:50But we think that'll be more delayed toward the later end of the year. So we're not planning on 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 or other things have been very, very strong. PFAS has been a nice contributor to the business in 2023 and we've got a good pipeline in 2024. Speaker 200:37:20And then back row, we have 2 wars going on, right? 1 in Israel, 1 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. Speaker 1000:37:39Great. That's helpful. And then you touched on this a little bit, but if you could kind of walk through kind of what you've seen from a cost inflation standpoint, clearly getting better, but some of those clear headwinds that we saw through most of 2023 kind of how those are trending now to start 2024? Thanks. Speaker 200:37:57Yes, certainly stepping down operating labor clearly stepping down year over year, transportation 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 3 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, where that's 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. Speaker 200:38:43So that spend will be we think elevated throughout the year. We hope we do a little better, but we'll see. Speaker 1000:38:51Okay. Thank you so much. Operator00:38:55The next question is from Jerry Revich with Goldman Sachs. Please go ahead. Speaker 1100:39:03Yes. Hi. Good afternoon, everyone. I would love to continue the conversation on the cost side. I mean, really impressive in the quarter, your cost per unit were up just 1% year over year. Speaker 1100:39:16So I'm wondering where are you starting to see deflation? It sounds like the tailwind from better equipment availability is still in front of us. So I'm wondering what's gotten better for you folks already in the 4th quarter numbers. And then Brian, I'm wondering if you could just put a finer point on the comments that you made about yield slowing over the course of the year on comps. Do you expect to exit the year with price cost spread still favorable Q4 versus Q4? Speaker 1100:39:44Thanks. Speaker 200:39:45Yes, Jerry. So John mentioned one of them already. Our labor has continued to improve, right, really throughout the year. And 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 as well as there's a productivity impact. Speaker 200:40:08A 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 costs had had. These were things we had multi year agreements. Speaker 200:40:31They came up for renewal in the second half of twenty twenty two. And we said that we took some pretty big price increases and that they were going to comp out in the second half of twenty twenty three and we've certainly seen that. So I would say those are some of the tailwinds we've seen 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 sit there and say we expect the biggest or the most positive impact between that in the Q1. Speaker 200:41:03We expect that to modulate throughout the year, but still price exceeding cost by the time we exit 2024. Speaker 1100:41:12Okay. Super. And then nice progress on the $100,000,000 efficiency program. How much progress did you make in 2023 specifically and the remaining $35,000,000,000 of productivity improvement? When do you expect how much of an improvement do you expect in 2024 relative to that remaining $35,000,000 Speaker 200:41:32Approximately about $10,000,000 Operator00:41:42The next question is from Tobey Sommer with Truist. Please go ahead. Speaker 400:41:48Yes, good evening. This is Jack Wilson on for Tobey. Can we double click on sort of the state of the fleet and specifically fleet electrification in the long term and sort of where you see that going? Speaker 200:42:01Sure. We mentioned in the prepared remarks that we have 11. We're running on right now. We'll have adds 50 to that This year we'll be add several 100 next year and climbing our path that's going to start in residential and then we'll move into small container over time. And we've got a really thoughtful strategy in terms of how we roll that out. Speaker 200:42:22I 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's willingness to pay for the vehicle. And we feel that the trucks that we've had delivered out of our partnership with Oshkosh, Speaker 900:42:41those McNeilus trucks are working Speaker 200:42:43very, very well. So we're excited to see the next 50 come into the fleet. Speaker 400:42:48Okay. Thank you for that color there. And then just as a follow-up, can we sort of dig into the moving parts of volume? Are there sort of specific geographies or market segments that are especially volatile or changing? Speaker 200:43:03I know 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 or even for movement, right? People are kind of keeping their existing mortgage rates and are reluctant to move and oftentimes we see remodeling activity or other ancillary opportunities in 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. Thank you very much. Operator00:43:43The next question is from Tony Bancroft with Gabelli Funds. Please go ahead. Speaker 1200:43:49Thanks for the question. Nice job on the quarter. Just some more color, maybe you mentioned PFAS remediation. Could you just maybe talk about what is going on currently at your landfills or whatever you're doing regarding PFAS? And what could that maybe just a general idea of what could that business look like opportunity wise going forward? Speaker 200:44:16Yes. We think we've got a very compelling offer for customers and an end to end solution. So we can handle all the way from the assessment to the frontline remediation, to doing our field service work and then a range of disposal options on the back end, whether that's into a 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 waste. So that's measured in the tens of 1,000,000 if you look at last year. This year it will be the high end of tens of 1,000,000 or potentially tipping into a 9 digit number in terms of revenue. Speaker 200:44:55So 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. Speaker 1200:45:21That's great. And then maybe switching to trucks, you talked about what's going on with EVs and the amount of deliveries coming, which sounds great. Any issues with maybe on just traditional trucks and EVs on supply chain getting those deliveries? And then just to piggyback on that one, if surprises, you see any surprises in EV performance? You hear and read a lot of things about how it's performing. Speaker 1200:45:47Obviously, you're pretty well situated just based on the routing system. But just some real time color on how those I guess there's only a few right now, but that's going to be growing and I'm sure you've done a lot of testing. Speaker 200:46:00Yes, 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. Now keep in mind, we've grown a lot. We're coming off our 3rd straight year of double digit revenue growth on that. Speaker 200:46:23So as we grow and do these acquisitions, that creates more demand and need for new trucks. So we see that supply chain improving. I think we'll shorten 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 Magne less truck is the 1st purpose built refuse truck ever and it's electrified. Speaker 200:46:48And that truck is driving a full route. Most of the other EVs that we've piloted, they 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, right, 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 EVs. Speaker 1200:47:15Thank you so much. Great job. Operator00:47:19This concludes our question and answer session. I would like to turn the conference back over to John Vander Ark for any closing remarks. Speaker 200:47:29Thank you, Debbie. I would like to recognize and thank our more than 40,000 employees for their great work and commitment to serving our customers. Their efforts enable our strong 2023 results and the continued growth of our company. Have a good evening and be safe. Operator00:47:48The conference has now concluded. 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