NYSE:RSG Republic Services Q4 2022 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$1.13Consensus EPS $1.02Beat/MissBeat by +$0.11One Year Ago EPS$1.02Republic Services Revenue ResultsActual Revenue$3.53 billionExpected Revenue$3.46 billionBeat/MissBeat by +$65.58 millionYoY Revenue Growth+19.50%Republic Services Announcement DetailsQuarterQ4 2022Date2/15/2023TimeAfter Market ClosesConference Call DateWednesday, February 15, 2023Conference Call Time5:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfilePowered by Republic Services Q4 2022 Earnings Call TranscriptProvided by QuartrFebruary 15, 2023 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Afternoon, and welcome to the Republic Services 4th Quarter and Full Year 2022 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 listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Operator00:00:42I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations. Please go ahead. Speaker 100:00:51I would like to welcome everyone to Republic Services' 4th quarter and full year 2022 conference call. John Vander Aart, our CEO and Brian Delgaccio, our CFO are joining me as we 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 100:01:28If in the future, you listen to a rebroadcast For recording of this conference call, you should be sensitive to the date of the original call, which is February 15, 2023. Please note that this call is property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call And 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 site@republicservices.com. I want to remind you that Republic's management team routinely participates in investor conferences. Speaker 100:02:16When events are scheduled, the dates, times and presentations are posted on our website. With that, I would like to turn the call over to John. Speaker 200:02:26Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. The Republic team finished the year strong by executing our strategy designed to profitably grow the business. We outpaced expectations throughout the year, delivering results that exceeded our full year guidance, even in the face of increased volatility in the broader marketplace. During 2022, We achieved revenue growth of 20%, including a 10% from acquisitions, delivered adjusted EBITDA growth of 16%, Generated adjusted earnings per share of $4.93 which is an 18% increase over the prior year and produced $1,740,000,000 of adjusted free cash flow, a 15% increase over the prior year. Speaker 200:03:17We continue to believe that investing in value creating acquisitions is the best use of our free cash flow. We invested $2,700,000,000 in acquisitions in Which includes the acquisition of U. S. Ecology. The integration of U. Speaker 200:03:32S. Ecology is going well with cost synergies tracking ahead of plan. Revenue contribution from U. S. Ecology outperformed our expectations by nearly $50,000,000 for the year with almost all of the over performance occurring in the 4th quarter. Speaker 200:03:50We continue to adjust prices related to U. S. Ecology and our broader Environmental Solutions business to better align with the capital invested and resources deployed. Pricing actions taken to date have been successful as our customers recognize the high value of service we provide. Additionally, we are building momentum cross selling our complete set of products and services with approximately $40,000,000 in new sales to date. Speaker 200:04:17Aside from U. S. Ecology, we invested $500,000,000 in value creating acquisitions during the year. All of these deals were in the recycling and solid waste space. As part of our balanced approach to capital allocation, we returned nearly $800,000,000 to shareholders through dividends and share repurchases. Speaker 200:04:38Regarding customer zeal, we continue to enhance our culture of delivering a world class customer experience to win new business and drive Our customer retention rate remains strong at 94% and we exited 2022 with our highest NPS Scores of the year. We delivered outsized organic revenue growth during the 4th quarter with simultaneous growth in both price and volume. Core price on related revenue increased to 8.4% and average yield on related revenue increased to 6.7%. This is the highest level of pricing in company history. Organic volume growth was 1.5%. Speaker 200:05:24Volume growth was broad based across our market verticals and geographies. Moving to digital. In early 2022, We implemented the finance and procurement modules of our new ERP system, which streamline back office activities And provide our local leaders with enhanced data. Currently, we are building our new asset management system, which is Expected to increase maintenance technician productivity and drive better warranty recovery. We expect to implement the new asset management system beginning in 2024. Speaker 200:05:59We continue to make progress on deploying Rise tablets in our collection business. We finished the implementation for all large container and Small container routes during 2022 and completed 37% of residential routes by the end of the year. The remaining residential routes are scheduled to be complete by mid-twenty 23. This is a key component enabling further connectivity with our customers including real time service notification. The adoption of RISE has helped drive operational efficiencies and cost savings worth approximately $50,000,000 annually. Speaker 200:06:36Sustainability is core to our strategy and one of our differentiating capabilities. We believe Republic Services is in a unique position to leverage sustainability as a platform for profitable growth while making a positive impact on the environment. For example, our Polymer Centers are advancing circularity of plastics. This is the first time a single U. S. Speaker 200:07:00Company will manage the plastic stream from curbside collection to delivery of high quality recycled content for consumer packaging. Development of the 1st center in Las Vegas is on track and is slated to come online in late 2023. Development of our 2nd Polymer Center is already underway. This facility will be located in the Midwest and will serve as a hub for aggregating and processing recovered plastics in the region. This center should come online in late 2024. Speaker 200:07:32Investments we are making to develop these polymer centers being absorbed through our normal capital expenditure process. Additionally, the development of our renewable natural gas projects is progressing well. All 57 of these projects are being with the majority structured as a joint venture. We expect 4 of these projects to come online by mid-twenty 23. As part of our approach to sustainability, we continually strive to be a workplace where the best people from all backgrounds come to work. Speaker 200:08:06Employee engagement improved to a score of 85 with 97% participation. Turnover rates in the 4th quarter improved to the lowest level we've experienced in nearly 2 years. As a result, we are better staffed to capitalize on growth opportunities in the market. Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named the Dow Jones Sustainability Index for the 7th consecutive year. Our 2022 results clearly demonstrate our ability to create sustainable value and strengthens the foundation from which we will continue to grow our business. Speaker 200:08:44Looking forward, we expect to deliver high single digit growth in revenue, EBITDA and free cash flow in 2023 even with the headwinds from lower recycled commodity prices and higher interest rates. More specifically, we expect 20 22 revenues in a range of $14,650,000,000 to $14,800,000,000 This represents high single digit growth compared to the prior year. Adjusted EBITDA is expected to be in the range of $4,275,000,000 to $4,325,000,000 This represents high single digit to low double digit growth compared to the prior year. We expect to deliver adjusted earnings per share in a range of 5 $0.15 to $5.23 and generate adjusted free cash flow in a range of $1,860,000,000 to $1,900,000,000 Our acquisition pipeline continues to support outsized levels of activity in both recycling and solid waste and Environmental Solutions. We are targeting at least $500,000,000 of investment in value creating acquisitions in 2023. Speaker 200:09:57Our 2023 financial guidance includes a rollover contribution from acquisitions that closed in 2022. I will now turn the call over to Brian, who'll provide details on the quarter year. Thanks, John. Core price on total revenue was 7.4% for the 4th quarter. Core price on related revenue was 8.4%, which included open market pricing of 10.4% and restricted pricing of 5.1 percent. Speaker 200:10:27The components of core price on related revenue included small container of 11.8%, Large container of 8.6 percent and residential of 7.8 percent. Average yield on total revenue was 5.9%. Average yield on related revenue was 6.7%, an increase of 40 basis points when compared to our 3rd quarter performance. In 2023, we expect average yield on total revenue of approximately 5.5%. We expect average yield on related revenue of approximately 6.5%. Speaker 200:11:04This is an increase of 80 basis points over our full year 2022 results. 4th quarter volume increased 1.5%. The components of volume included an increase in small container of 1.6%, An increase in large container of 60 basis points, an increase in residential of 1.2% and an increase in landfill of 3.9%. For 2023, we expect organic volume growth in a range of 50 basis points to 1%. Moving on to recycling. Speaker 200:11:38Commodity prices were $88 per ton in the quarter. This compared to $2.18 per ton in the prior year. Recycling processing and commodity sales decreased revenue by 180 basis points during the quarter. 2022 full year commodity prices were $170 per tonne. This compared to $187 per tonne in the prior year. Speaker 200:12:03Current commodity prices are approximately $95 per ton. We believe that current commodity prices are temporarily depressed due to a global supply demand imbalance and that prices will recover in the second half of the year. Accordingly, We are assuming average recycled commodity prices of $125 per ton in 2023 with prices starting at $95 per ton in the Q1 and steadily increasing throughout the year. At $125 per ton, this would result in a decrease In full year 2023 revenue and EBITDA of $45,000,000 when compared to the prior year and a 30 basis point headwind to EBITDA margin. In the Q1 of 2023, this would result in a year on year decrease of nearly $30,000,000 in revenue and EBITDA and a 70 basis point headwind to EBITDA margin. Speaker 200:12:56Next, turning to our Environmental Solutions business. 4th quarter Environmental Solutions revenue increased approximately $320,000,000 over the prior year, which primarily related to the acquisition of U. S. Ecology. On a same store basis, Environmental Solutions contributed 60 basis points to internal growth during the quarter. Speaker 200:13:184th quarter adjusted EBITDA margin was 27.3%. This compares to 28.1% in the prior year. Margin performance during the quarter included a 130 basis point decrease from acquisitions, which included 100 basis points related to U. S. Ecology and an 80 basis point headwind from lower recycled commodity prices. Speaker 200:13:41These margin headwinds were partially offset by a 20 basis point increase from net fuel And margin expansion in the underlying business of 110 basis points. 4th quarter adjusted EBITDA margin in the recycling and solid waste business was 28.7%. This compares to 28.6% margin in the prior year or 10 basis points of margin expansion. Margins improved in the recycling and solid waste business even with an 80 basis point headwind from lower recycled commodity prices. 4th quarter SG and A expenses excluding transaction costs from U. Speaker 200:14:17S. Ecology were 10.9% of revenue. This included 40 basis points from additional incentive compensation expense due to full year financial outperformance. Full year SG and A expenses were 10.2 percent of revenue. This was favorable 20 basis points compared to the prior year and reflects continued cost management as we grow the business. Speaker 200:14:40In 2023, we expect EBITDA margin to be approximately 29.2%. The 10 basis points of expected margin expansion include a 40 basis point decline related to acquisitions, primarily related to U. S. Ecology and a 30 basis point headwind from lower recycled commodity prices. These headwinds are more than offset by margin expansion in the underlying business of 80 basis points. Speaker 200:15:06While we expect full year expansion compared to the prior year, Margins are expected to be down in the first half due to the impact of acquisition rollover and recycled commodity prices. This is most notable in the Q1 where these headwinds impact margin by a combined 2 10 basis points. Depreciation, amortization and accretion was 10.7 percent of revenue in 2022 and is expected to be relatively consistent at 10.8 an increase of 15% compared to the prior year. This was driven by EBITDA growth in the business. For 2023, we are projecting adjusted free cash flow in a range of $1,860,000,000 to $1,900,000,000 or approximately 8% growth at the midpoint. Speaker 200:16:01We believe this level of performance is very strong given the expected impact from lower Total debt at the end of the year was $11,900,000,000 and total liquidity was $1,700,000,000 Loading debt interest rates consistently increased throughout 2022 and we now expect net interest expense of approximately $480,000,000 in 2023. This is an increase of approximately $90,000,000 compared to the prior year. As a reminder, a 1% increase in interest rates results in approximately $33,000,000 of additional interest expense. Our leverage ratio at the end of the year was approximately 3.1 times. We expect to revert to 3 times leverage by mid-twenty 23. Speaker 200:16:53With respect to taxes, our combined tax rate and non cash charges from Solar Investments resulted in an equivalent tax impact of 26.1% during the Q4 and 25.1% for the full year. This lower than anticipated tax rate resulted in a $0.06 benefit to our full year 2022 EPS. We We expect an equivalent tax impact of approximately 26% in 2023 made up of an adjusted effective tax rate of 20% Approximately $170,000,000 of non cash charges from Solar Investments. Finally, we expect a majority of the EPS growth in 2023 to be back end loaded. This results from having the toughest prior year comparisons on recycled commodity prices, interest rates and taxes during the first half of the year. Speaker 200:17:42With that operator, I would like to open the call to questions. Operator00:17:49We will now begin the question and answer session. And our first question Then we'll come from Tyler Brown of Raymond James. Please go ahead. Speaker 300:18:25Hey, guys. Hey, Tyler. Hey, Brian, so obviously pricing really strong here. I think full year pricing in the open market would say just over 9% and Speaker 200:18:37the restricted piece call it 4.5%. But I am Speaker 400:18:38curious if we were to kind of Did PACE Speaker 300:18:38call it 4.5%. But I am curious if we were to kind of decompose that next year, how those numbers would look? Well, we kind of see a convergence in those 2 or can we actually see the restricted pricing lead with all the CPI look backs? Speaker 200:18:55No, we would actually expect the restricted pricing to increase from the levels of where it is in the Q4. So again, unrelated revenue, It was 5.1% restricted in the 4th quarter and we would expect that to improve 50 basis points to 100 basis points In 2023, but we do expect the level of pricing to be driven by the open market similar to what you've seen in 2022 For that matter, the prior years as well. Speaker 300:19:22Yes. Okay. Okay, that's helpful. And then on the shape of kind of how the yields will progress, Well, we have a more, I'm going to call it historically normal cadence where pricing and I'm talking total pricing say above 5 5 minute tapers off below 5.5 as the year finishes up? Speaker 200:19:41Yes. So I guess you're talking about then on Total revenue, so I'll give you that piece. So yes, it starts highest. Actually our high watermark is in the Q1 based on our expectations. And then it sequentially declines from there, but we're expecting that pricing remains above 5% in all quarters. Speaker 200:20:00Yes. Speaker 300:20:00Okay. All right. That's helpful. And just real quick, how much M and A rollover is in the guide? And just to be crystal clear, The $500,000,000 that you expect to spend, none of that is included in guidance. Speaker 300:20:11Is that right? Speaker 200:20:13Yes. So I'll answer your second question first. That is correct. We have not included that. So what is included are deals that closed by the end of the year. Speaker 200:20:21It's $440,000,000 worth of revenue or 300 basis points of growth. That's the rollover, most of that being U. S. Ecology. Speaker 300:20:31Right, right. Okay. Thank you very much. You Operator00:20:37bet. The next question comes from Noah Kaye of Oppenheimer. Please go ahead. Speaker 500:20:44Thanks for taking the questions. So with the U. S. Ecology outperformance of $50,000,000 Can you give us a breakdown of how much of that outperformance was price versus volume? And then maybe you can tell us what you're expecting in terms of ES segment growth Specifically for 2023. Speaker 200:21:04Yes. It was a mix of both price and volume, but more pricing to come, right? We've taken a lot of pricing action, We still have some contracted portion of that business and fully seen that. So you're seeing both The cross sell that we talked about and you're seeing the pricing hit with really strong performance and the plans for 2023 that business Performing ahead of our plan more broadly, both the U. S. Speaker 200:21:29Ecology acquisition and the broader ES space, I think is going to be a very positive contributor. Yes. So if you think about no, I was just going to add, a good portion of the growth, right, that you're I see year over year is coming visavis the acquisition rollover. But if you think about total contribution from an organic Right. We're expecting 50 basis points on total revenue. Speaker 200:21:53So that's about, call it $70,000,000 and that would be just at The point when U. S. Ecology anniversaries forward. So that's still kind of a high single digit type organic growth. Speaker 500:22:06That's very helpful. Thanks. And then since you mentioned the synergies we're tracking ahead of plan, can you quantify that for us? And I guess, any chance you could give us an updated cost synergies number as to where you think this will get to within the timeframe? Speaker 200:22:22Yes. So just to give you an idea, when we actually provided the guidance when we closed the deal, we said we thought we'd get about $5,000,000 worth of synergies In 2022, we actually got closer to $13,000,000 $14,000,000 So you can see nice outperformance there. And a lot of that was just actually getting the integration activities done quicker than we originally anticipated. Yes. We said total synergies would be $40,000,000 cost synergies $40,000,000 I think that number went up closer to $50,000,000 Speaker 500:22:52Perfect. I'll give it back. Thanks. Operator00:22:59The next question comes from Walter Spracklin of RBC Capital Markets. Please go ahead. Speaker 400:23:06Yes, thanks very much. Good afternoon everyone. I want to just focus on the M and A there in the $500,000,000 guide. What drives Your target for $500,000,000 is that on a leverage basis that you'd like to keep yourselves close to? Or is it more just your best guess as to what kind of deals in your in the target areas that you want to do are available in 2023. Speaker 200:23:33I'd say it is based on Passionate view about intrinsic value, right, and driving intrinsic value over time and conservatism, Right. So we never want to put out a number that people go out and they have to hit and therefore we start chasing deals. I want the team to feel comfortable at any point in time passing on a given deal Because it doesn't mean a return criteria or there's a set of terms or business conditions or practices that we're not going to want to be owners of over time. And so I think we've always put out a number over the last 3 or 4 years. I think you've seen a pretty steady beat against that number. Speaker 200:24:09My Expectations for the team, I think are likely higher than that, but we always want to again put out a conservative numbers the team feels no pressure to reach. Speaker 400:24:19And has there been any shift in valuations, be it with higher interest rates, be it with more deals having been Done. Is there more difficulty? Is there has valuations come off? Has availability changed? In other words, the pipeline that you look at Going into 2023, is it very much different than what you saw in 2022 excluding obviously U. Speaker 400:24:40S. Ecology? Speaker 200:24:42No, pipeline is very strong. We got a mix of Small and medium sized deals across recycling solid waste and ES, right. And that's kind of a different stages in the process and feel good about that. The premiums or the multiples are still kind of hanging in the same zip code because we're looking at premium assets. We're not just buying revenue. Speaker 200:25:03We're very particular buyers and we want to get something that's quality. And one of the first questions we always ask is why would we do this ourselves? And If it's something like a residential subscription business or a temporary roll off business, we should go get that with our sales team, not pay a premium for that. So we're looking for infrastructure. We're looking For route based businesses with customer contracts that we know that we will integrate in the business and drive value over time. Speaker 400:25:29Okay. And just a last one here. Just on your guidance, I know you had had a double digit in there. You kind of walked it back last quarter. You've kind Brought it back again confidently here this quarter. Speaker 400:25:41Just what's changed your view here that gives you the confidence behind this guide that you perhaps Kind of didn't have it when you had the Q3 report. Speaker 200:25:51Well, maybe a slightly different view of the history, right? We never gave an official guidance. We said we had line of sight at one Point to double digit, right. That was in a different commodity price environment. And so given the commodity market being depressed for 6 to 9 months that Certainly gave us a different outlook, right, just based on the math of the commodity prices. Speaker 200:26:13And I think we've Joe talked about here a high single digit number going forward. Now if we end up doing more M and A early in the year and that has a year impact, can we get to double this? We certainly could, I think we've been pretty consistent with how we've approached it. And the other thing I would just add to that as well is that on the October call, We said that we've got a perspective that we're going to achieve high single digit growth. And if you look at the midpoint of everything we put out there, it's high single digit growth. Speaker 200:26:41So to John's point, I would sit there and say it is exactly in line with where we thought we would be in October. Speaker 400:26:48Fair enough. Okay. That's all my questions. Thank you very much. Operator00:26:56The next question comes from Toni Kaplan of Morgan Stanley. Please go ahead. Speaker 600:27:01Terrific. Wanted to ask first on Capital expenditures, I know 4Q is usually sometimes seasonally high, and this quarter seemed maybe particularly high. I I was wondering if that was related to the asset management system and the polymer centers or if there was something else in there and how we should be thinking about CapEx for 23. Speaker 200:27:24Yes, certainly investing to grow the business, right. We're always disciplined, but never afraid to spend that money. One of the bigger drivers of that was the 2nd polymer center that we're putting in the Midwest. We've seen so much demand for the offtake of our first one That is to have a lot of confidence that the market is really going to value and need that product and the returns in our business case We think are going to be north of what we originally pro form a. So that gave us the confidence to accelerate that investment move forward. Speaker 200:27:56Yes. And the other thing is, we talked that there were some supply chain disruptions throughout the year, impacted things like trucks and some of the heavy equipment. And we actually were able to take receipt, take title of those assets in the Q4. So as you think about building the 2023 plan, Most likely will be more back end loaded like you've seen in the last couple of years, but maybe not to the extent that you saw in 2022. Speaker 600:28:21Super helpful. And I wanted to ask on volumes. I know you gave the 50 to 100 basis points For 2023 of volume, I wanted to just ask sort of what you're seeing with regard to commercial and industrial. I know some of your competitors talked about like a little bit of a softness in 4Q, but maybe a little bit better in January. I wanted to hear your experience on that. Speaker 200:28:49Yes. There's different moving pieces for sure. Obviously, there's been A little bit of a slowdown in the construction market as you've seen housing starts kind of pull back in the second half of last year and we've certainly baked in some Softening of that into the 2023 environment, but listen the industrial market is very, very strong right now, right? You saw the consumer number this morning. I mean the Consumers engaged, so we still see lots of economic activity, travel and leisure, right, is kind of busting at the scene. Speaker 200:29:21We remain mindful, right, that there's certainly recession talk on the environment, but we're a pretty broad based barometer of the economy and we're seeing a lot of strength right now. And even though we're seeing a little bit of softness on some of the construction activity, we're still seeing above average price. If you take a look in the temporary large container business, We're nearly 9% price during the Q4. Speaker 600:29:43Terrific. Thanks for the color. Operator00:29:49The next question comes from Kevin Chiang of CIBC. Please go ahead. Speaker 700:29:56Thank you, operator, and good afternoon, everybody. I was just wondering, when you talk about the pricing initiatives within ES, Just wondering what percentage of your revenue do you think you need to reprice to get to the levels you want? And how long do you think it takes To kind of get through all of that. Speaker 200:30:17Well, we'll look at every dollar of revenue and every customer and really try to understand Again, we look at pricing in 2 lenses. 1 is from a customer and an insight standpoint, right? What does the market bear? What does our offer have From a value standpoint versus our competitors. And then we also want to look on the internal side and say, what is our cost, including a capital charge and make sure that we're getting a fair return on that. Speaker 200:30:41And so we're going to go systematically through every customer and every dollar of revenue. And I think the encouraging thing is we put out some double digit price increases And we're seeing it stick, right. Customers are really valuing the integrated offering and keep in mind whatever they Spend with us is a very small percentage of their cost structure and so safety and speed and sustainability and our digital tools and all the things that we're investing in, Those are big differentiators that allow that price to stick. All right. That makes a ton Speaker 700:31:13of sense. And then I apologize if you've given this number before, but When you look at longer term and you're through some of the cost synergies and some of the revenue upside opportunities, do you have a targeted Yes. Adjusted EBITDA margin that you're thinking about, you did 17.5% in or roughly 17.5% in 2022. Does this get to the mid-20s when you're kind of through many of these initiatives? Speaker 200:31:40Yes. I think what we're listen over time long term, I think these businesses converge in terms of returns. I think you'll get free cash flow conversion to get there first because this is a slightly different OpEx, CapEx trade off in this part of the business. And then over time, I think for a longer period of time, I think getting the margin to converge, I don't think is Out of sight or out of reach as well. Now that's not going to happen overnight. Speaker 200:32:04We are going to kind of ratably systematically take this up. So I think a goal over the next 4 or 5 years to get that in the mid-20s is very reachable. Speaker 700:32:13Excellent. I'll leave it there. Thank you very much. Operator00:32:21The next question comes from Michael Hoffman of Stifel. Please go ahead. Speaker 400:32:26Hi. Thank you very much, John and Brian, Aaron for taking the questions. Brian, are we At about a $1,600,000,000 run rate in ES revenues when I roll in the M and A. And then what does that 1.6 Grow organically, I was trying to put all the pieces together from your transcript. I think I had myself a little confused. Speaker 200:32:48We're probably closer, Michael, to in the 1.5% range, a little over 1.5%. But organically, like I said earlier, We're thinking that's 7%, 8% organic type grower here in the near term and with opportunities for even some of the additional cross sell opportunities to be additive to that. Speaker 400:33:08So, okay. So the following that then, in your margin for the whole year 29.2%, What do you think the solid waste business and the environmental services business do individually to merge together? Speaker 200:33:26So in the recycling and solid waste business, we're expecting overall about 30 basis points of margin expansion, Right. And in that business, we have to overcome the 30 basis point headwind from commodity price. So the underlying business is growing kind of 60 basis points to 70 basis points. Now in the Environmental Solutions business, we're expecting 100 basis points of margin improvement and there is the acquisition roll over U. S. Speaker 200:33:49Ecology, which is Kind of a negative 70 on that portion when you compare it to what we had in the Gulf. So we're expecting margin expansion in the underlying business there of 170 basis The reason why that only comes to 10 basis points overall is we just have a greater mix or greater percentage of ES business in 2023 than we did in 20 22. Speaker 400:34:10Yes. I get that. And then can you bridge for us the $1,724,000,000 of free cash in 22 to get to the midpoint of your guide, what is the cash interest, the cash tax, the incentive comp above plan? And And then I'm assuming everything else is made up by organic growth productivity. Speaker 200:34:31Yes. Let me give you a couple of pieces of that certainly. So interest and I'm going to give you some pre tax numbers and for argument's sake, you can just sit there and take call it 70% of it After you do the after tax, but interest up $90,000,000 right. So it's an increased outflow there. Incentive Comp is about a $35,000,000 outflow compared to target levels. Speaker 200:34:55And then bonus depreciation, you wouldn't tax effect the impact of bonus But that's about a $35,000,000 increase in cash taxes. Speaker 700:35:04Okay. Speaker 200:35:06When you take those pieces that creates Now I'm going to kind of flip a little bit to conversion. That creates call it about a 300 basis point headwind to conversion, all of which being offset Just the EBITDA growth in the business as well as some benefits in working capital, some of those benefits being unlocked, we talk about finishing the finance and procurement modules During 2022, we think that there's an opportunity in particular on the DPO side to drive improvements in working capital. Speaker 400:35:35Okay. And then I was squeezing 1 in, sorry. The $125 per ton, how much of that has to rely on OCC moving? And what would your Target B for OCC to make the $125,000,000 in your guide? Speaker 200:35:49Well, I mean, just to put it in perspective, right, OCC fiber, Right, represents about 70% of our basket of goods, right. So most of this we are expecting to come more on the OCC side. Even just to put it into all of it into perspective, if you take a look at what we're expecting from a guide perspective compared to current prices, it's a relatively modest recovery, Right. That's $30,000,000 worth of EBITDA and about 20 basis points to margin, dollars 20,000,000 of free cash flow if things were to stay at current levels. Speaker 400:36:22Okay. Thank you very much. Operator00:36:30The next question comes from Jerry Revich of Goldman Sachs. Please go ahead. Speaker 800:36:36Good afternoon and good evening everyone. Brian, if we just go back to your margin cadence discussion, the headwinds in 1st quarter, really the first half, that implies we're going to be exiting Q4 of 2023 with margins up something like 1 150 basis points year over year heading into 2024. So I'm wondering, are we setting up for 2024 to be an outsized Margin expansion year because we're essentially making up for a lost year from the commodity price impact in 2023. Anything that you'd add to that, Rich, as we think about what the margin progression might look like? Speaker 200:37:19Sure. And a couple of things, Jerry. I mean, you've got 2 variables, right? When you take a look at it, you have the what we're expecting in 2023, but also what happened in 20 22, Right. So we're expecting commodity prices in 2023 to be at the highest point of the year. Speaker 200:37:35They were at the lowest point in 22. So you can't just go to the margin expansion, but yes, exiting the year in 2024, we think it's going to be Kind of a nice jump off point heading into 2024, but I wouldn't just look at the overall margin expansion because you've got 2 years in your math that you got to take into consideration. Speaker 800:37:55Sure. But you're going to have the same comp benefit in the first half of twenty twenty four, hopefully. And if we think about the profitability of the recycling business in the 4th quarter with this ultra low Recycled cardboard prices. Can you just update us on what was the margin profile of the business roughly just so we Can you get a feel for where it's troughing in the cycle given all the work you've done there? Speaker 200:38:22You're talking about on the recycling side of the business? Speaker 800:38:25Yes. Speaker 200:38:26It's still a profitable business at these levels and still an attractive return. So, again, we would expect through the cycle we talked about, we expect these depressed prices to be somewhat transitory. And again, return closer in line to a 10 year average, not even back to the levels it was when it was over $200 a ton on our basket of goods. Speaker 800:38:51Super. And can I ask around the gas part of the business, nice little bonus we got from the EPA in terms of e RINs? How much gas to electric power do you folks generate in terms of your share of the power that you generate? And what's your take on what's a Reasonable value capture opportunity for you and your peers? Speaker 200:39:14Yes. Of our existing projects, the vast majority are gas Now the where RINs had gone, all of the new projects in the pipeline were contemplated to be gas, iron, or methane to RNG. The great news with our partnership with BP, we've got option value, right? Human is coming online and we're both very open minded Understanding where those markets move and the local geography and even places where we may power our own fleet to figure out whether we want to convert some of those opportunities rather than RNG to electricity as well, but we see it as over time a benefit for us because it will have 2 pathways. Speaker 800:39:55I'll leave it there. Thank you. Speaker 300:39:58You bet. Operator00:40:02The next question comes from David Manthey of Baird. Please go ahead. Speaker 400:40:08Thank you very much. My question is regarding residential volumes that have inched up here in the last couple of quarters. Is that a trend you expect to continue this year? And when you look at that 1% overall midpoint volume outlook, Does that contemplate commercial container volumes being flat or negative at any point in 2023? Speaker 200:40:33No, I mean what you're seeing mostly on the residential is some relatively larger contracts. You're seeing that in the numbers. So that's expected to Anniversary in 2023, so we don't expect that to continue throughout the year. And yes, when you take a look at our volume cadence, we expect That small container will remain positive right throughout 2023. Speaker 700:40:53When you take Speaker 200:40:53a look at overall volumes, we think to have our highest volume performance early in the year. And again, that's a step down throughout, but remaining positive in all four quarters. I'd say residential, that's been, I'd say over the last decade, the most disappointing part of the business In terms of where margin return has gone and that hasn't expanded at the same rate as the other businesses and there's a lot of reasons for that with commodity prices and And everything else, but listen, we don't do work for free, right? We put upward pressure, right, on all those contracts and look at those contracts just like we would in acquisition, We're going to put capital into it and what type of return do we get against that and if we can't meet our return thresholds on that, we won't do the work. Speaker 500:41:36I appreciate it. Thank you. Operator00:41:41The next question is from Kyle White of Deutsche Bank. Please go ahead. Speaker 900:41:47Hi, good afternoon. Thanks for Just curious what you're seeing on open market pricing heading into 2023 as inflation starts to come down and maybe there's a bit more uncertainty regarding Economy and volumes going forward, you've seen any change in behavior for maybe some of the smaller competitors in this environment relative to last year? Speaker 200:42:06Last year, we put out the highest level of pricing we ever have in small container in the open market and we had the highest percentage of Retention of that price that we've ever had in our history, which is really a staggering number. I think it speaks to the value of our service that we're providing. It also speaks to the broader context With everything else inflating, those numbers were quite consistent across the quarters, right, in terms of our ability to retain price, Right. And we're seeing strength here in the early part of the year on that. So we're mindful of the environment, but listen all of these smaller competitors, right, They have truck costs that are going up. Speaker 200:42:43They need to buy new equipment after some supply chain challenges, right. They have labor costs that are going up. So they need to price To cover their costs, which Speaker 500:42:51I think is the part of a broader pricing environment. Speaker 900:42:56Yes, that makes sense. And then on leverage, how are you thinking about leverage In this environment, what's the right target for you before investors should expect meaningful capital return through buybacks? Speaker 200:43:07Yes. We've talked about kind of that sweet spot for us being right around 3 times. We're a little bit over that right now, but we expect to be there in the next, call it 6 months, At which point then we would look to kind of return to that normal level of looking at the repurchases and so on and so forth. Speaker 900:43:27Sounds good. I'll turn it over. Operator00:43:34The next question comes from Stephanie Moore of Jefferies. Please go ahead. Speaker 1000:43:40Hi, good afternoon. Thank you. Speaker 200:43:43Hi, Beth. Speaker 1000:43:45I certainly appreciate this, the level of detail for your 2023 I think a lot of puts and takes in this environment. So it might be helpful if you could just outline the areas where you kind of see the greatest source of upside, inflation moderating, some Some tech investments and then on the flip side, where you see the greatest risk to maybe hitting these targets as well? Thanks. Speaker 200:44:08Yes. From an upside perspective and we mentioned this earlier is that we are expecting inflation to remain persistent throughout 2023. And so again, John just talked about the fact that we're pricing at higher levels in 2023, early in 2023 than we did even 22 because we expect inflation remains sticky. So if that does come down that is certainly an opportunity In order to sit there and to drive better performance than we anticipated, but you do have to remember some of that inflation are wages And wages typically go in annually. So once you put that wage out in the marketplace, you're not pulling that back. Speaker 200:44:47So there are there is some Stickiness to the inflation, but certainly as it relates to some third party costs, some of the maintenance related expenses, transportation expenses, if those come in, That would certainly be a source of upside. Speaker 1000:45:04Great. And then on the downside? Speaker 200:45:07We just talked a little bit about recycled commodity prices. Again, we've expected a recovery, but we've also dimensionalized it for you. So you realize it's a relatively Modest recovery that we're expecting, but if they stay at current levels, that would be a little bit some downside relative to our To our expectations. And then I'd just say the broader macro environment, obviously, we've been through a pandemic and war at the doorstep of Europe and China virtually shutting down and supply Challenges inflation. So I think we're prepared for uncertainty in a dynamic environment. Speaker 200:45:40Again, we're running the business not just for the quarter of the year, we're running Through the cycle and making decisions accordingly, but we're mindful that we may have to adjust or adapt the business if new things emerge. Speaker 1000:45:53Absolutely. And then just on the 2nd Polymer Center going up, starting to go up this year, Maybe you could talk a little bit about some of the initial KPIs or returns you're seeing from or expect to see just given the demand from your first And kind of what drove you to decide to open up the second here? Speaker 200:46:14Yes. Across, we think we're going to have At least 4 centers across the U. S, we think when they all get up and running at scale was kind of a $250,000,000 Incremental revenue business for us. We think the EBITDA margins are going to be certainly north of 30%, right, very attractive Ours on those investments and I think we're going to beat that pro form a, right. And we know from the conversations we've had and the pricing that we're getting right now, we're starting to take Orders obviously for the center in Las Vegas. Speaker 200:46:45I'm very confident we're going to beat those numbers in the pro form a. Speaker 1000:46:52Great. Thank you so much. Operator00:46:59The next question comes from Michael Feniger of Bank of America. Please go ahead. Speaker 400:47:06Yes. Thanks for taking my question. I understand that you guys have been pricing ahead Of cost and there's been a lot more discipline in the industry, but is there just like a step function change in terms of how Republic is pricing from a few years ago? I know you guys went through some years of intentional shedding some business. I'm just wondering if the quality of the business now you feel that you can have a wider price versus Cost spread than maybe the Republic Services a few years ago? Speaker 200:47:37Yes. I think it's a good question, Michael. Certainly, you highlighted it. Certainly customer mix is a hidden element or hidden factor in being able to get price. And we went through some intentional shedding, right, which had some Negative drag on our volume for a few quarters when you look a few years back, but the quality of our revenue is much higher than it was historically. Speaker 200:47:58We feel good about that and that's All the way across from national accounts to small container to getting out the last remaining broker work out of the system to municipal and getting a fair escalator into those contracts. So I think the overall health of our pricing across the Portfolio, well not perfect of course, but it's much, much better than it was a few years ago. And then you combine that with the capture and the tools that we have to really start to grind A few extra bps here and there across our 13,000,000 customers of understanding willingness to pay. And then on the other side of that with the right platform driving productivity and changing our cost position in the business. So when you've got a healthier customer mix, right, and better ability to price With a cost structure that I think is healthy and getting healthier, I think that does create the context for continued margin expansion over time. Speaker 400:48:52Great. And Brian, you touched on it with the question earlier, but just to dig a little deeper, can you actually talk about the Cost inflation, how that kind of trended through the Q4 and what you're seeing in early 2023? What you guys are kind of embedding there? Because I think you're saying you're not really embedding a rollover there. Just curious what you actually saw through the quarter in early 2023 And what we kind of expect or what you guys are at least embedding in the guidance there? Speaker 400:49:18Thanks. Speaker 200:49:20Yes. If you think about for the full year for 2023, we're in that, Call it 5% to 5.5% inflation type range. And again, when you take a look at the 6.5% The yield on related revenue that's how we're driving that 80 basis points or so of expansion in the underlying business. That's about the level we saw exiting the Q4 and we expect it to remain relatively consistent throughout 2023. Speaker 400:49:47Thank you. Operator00:49:55At this time, there appear to be no further questions. Mr. Van Der Ark, I'll turn the call back over to you for closing remarks. Speaker 200:50:03Thank you, Andrea. I would like to thank our 40,000 employees for their efforts that enabled our strong 2022 results. The success of our strategic investments is made possible due to their hard work and commitment to serving our customers. Have a good evening and be safe.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallRepublic Services Q4 202200:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Annual report(10-K) Republic Services Earnings HeadlinesRepublic 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.comReal Americans Don’t Wait on Wall Street’s Next MoveWhat's happening in the markets right now should concern every freedom-loving American who's worked hard and saved smart. Your 401(k) doesn't deserve to be dragged through the mud by tariffs, trade wars, reckless spending, and political standoffs. And you don't have to stand by while Wall Street plays roulette with your future.April 25, 2025 | Premier Gold Co (Ad)Republic Services reports Q1 EPS $1.58, consensus $1.53April 25 at 10:13 AM | markets.businessinsider.comRBC Capital Reaffirms Their Buy Rating on Republic Services (RSG)April 25 at 10:13 AM | markets.businessinsider.comQ1 2025 Republic Services Inc Earnings Call TranscriptApril 25 at 12:37 AM | gurufocus.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. The company was incorporated in 1996 and is based in Phoenix, Arizona.View Republic Services ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step In Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 11 speakers on the call. Operator00:00:00Afternoon, and welcome to the Republic Services 4th Quarter and Full Year 2022 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 listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Operator00:00:42I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations. Please go ahead. Speaker 100:00:51I would like to welcome everyone to Republic Services' 4th quarter and full year 2022 conference call. John Vander Aart, our CEO and Brian Delgaccio, our CFO are joining me as we 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 100:01:28If in the future, you listen to a rebroadcast For recording of this conference call, you should be sensitive to the date of the original call, which is February 15, 2023. Please note that this call is property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call And 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 site@republicservices.com. I want to remind you that Republic's management team routinely participates in investor conferences. Speaker 100:02:16When events are scheduled, the dates, times and presentations are posted on our website. With that, I would like to turn the call over to John. Speaker 200:02:26Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. The Republic team finished the year strong by executing our strategy designed to profitably grow the business. We outpaced expectations throughout the year, delivering results that exceeded our full year guidance, even in the face of increased volatility in the broader marketplace. During 2022, We achieved revenue growth of 20%, including a 10% from acquisitions, delivered adjusted EBITDA growth of 16%, Generated adjusted earnings per share of $4.93 which is an 18% increase over the prior year and produced $1,740,000,000 of adjusted free cash flow, a 15% increase over the prior year. Speaker 200:03:17We continue to believe that investing in value creating acquisitions is the best use of our free cash flow. We invested $2,700,000,000 in acquisitions in Which includes the acquisition of U. S. Ecology. The integration of U. Speaker 200:03:32S. Ecology is going well with cost synergies tracking ahead of plan. Revenue contribution from U. S. Ecology outperformed our expectations by nearly $50,000,000 for the year with almost all of the over performance occurring in the 4th quarter. Speaker 200:03:50We continue to adjust prices related to U. S. Ecology and our broader Environmental Solutions business to better align with the capital invested and resources deployed. Pricing actions taken to date have been successful as our customers recognize the high value of service we provide. Additionally, we are building momentum cross selling our complete set of products and services with approximately $40,000,000 in new sales to date. Speaker 200:04:17Aside from U. S. Ecology, we invested $500,000,000 in value creating acquisitions during the year. All of these deals were in the recycling and solid waste space. As part of our balanced approach to capital allocation, we returned nearly $800,000,000 to shareholders through dividends and share repurchases. Speaker 200:04:38Regarding customer zeal, we continue to enhance our culture of delivering a world class customer experience to win new business and drive Our customer retention rate remains strong at 94% and we exited 2022 with our highest NPS Scores of the year. We delivered outsized organic revenue growth during the 4th quarter with simultaneous growth in both price and volume. Core price on related revenue increased to 8.4% and average yield on related revenue increased to 6.7%. This is the highest level of pricing in company history. Organic volume growth was 1.5%. Speaker 200:05:24Volume growth was broad based across our market verticals and geographies. Moving to digital. In early 2022, We implemented the finance and procurement modules of our new ERP system, which streamline back office activities And provide our local leaders with enhanced data. Currently, we are building our new asset management system, which is Expected to increase maintenance technician productivity and drive better warranty recovery. We expect to implement the new asset management system beginning in 2024. Speaker 200:05:59We continue to make progress on deploying Rise tablets in our collection business. We finished the implementation for all large container and Small container routes during 2022 and completed 37% of residential routes by the end of the year. The remaining residential routes are scheduled to be complete by mid-twenty 23. This is a key component enabling further connectivity with our customers including real time service notification. The adoption of RISE has helped drive operational efficiencies and cost savings worth approximately $50,000,000 annually. Speaker 200:06:36Sustainability is core to our strategy and one of our differentiating capabilities. We believe Republic Services is in a unique position to leverage sustainability as a platform for profitable growth while making a positive impact on the environment. For example, our Polymer Centers are advancing circularity of plastics. This is the first time a single U. S. Speaker 200:07:00Company will manage the plastic stream from curbside collection to delivery of high quality recycled content for consumer packaging. Development of the 1st center in Las Vegas is on track and is slated to come online in late 2023. Development of our 2nd Polymer Center is already underway. This facility will be located in the Midwest and will serve as a hub for aggregating and processing recovered plastics in the region. This center should come online in late 2024. Speaker 200:07:32Investments we are making to develop these polymer centers being absorbed through our normal capital expenditure process. Additionally, the development of our renewable natural gas projects is progressing well. All 57 of these projects are being with the majority structured as a joint venture. We expect 4 of these projects to come online by mid-twenty 23. As part of our approach to sustainability, we continually strive to be a workplace where the best people from all backgrounds come to work. Speaker 200:08:06Employee engagement improved to a score of 85 with 97% participation. Turnover rates in the 4th quarter improved to the lowest level we've experienced in nearly 2 years. As a result, we are better staffed to capitalize on growth opportunities in the market. Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named the Dow Jones Sustainability Index for the 7th consecutive year. Our 2022 results clearly demonstrate our ability to create sustainable value and strengthens the foundation from which we will continue to grow our business. Speaker 200:08:44Looking forward, we expect to deliver high single digit growth in revenue, EBITDA and free cash flow in 2023 even with the headwinds from lower recycled commodity prices and higher interest rates. More specifically, we expect 20 22 revenues in a range of $14,650,000,000 to $14,800,000,000 This represents high single digit growth compared to the prior year. Adjusted EBITDA is expected to be in the range of $4,275,000,000 to $4,325,000,000 This represents high single digit to low double digit growth compared to the prior year. We expect to deliver adjusted earnings per share in a range of 5 $0.15 to $5.23 and generate adjusted free cash flow in a range of $1,860,000,000 to $1,900,000,000 Our acquisition pipeline continues to support outsized levels of activity in both recycling and solid waste and Environmental Solutions. We are targeting at least $500,000,000 of investment in value creating acquisitions in 2023. Speaker 200:09:57Our 2023 financial guidance includes a rollover contribution from acquisitions that closed in 2022. I will now turn the call over to Brian, who'll provide details on the quarter year. Thanks, John. Core price on total revenue was 7.4% for the 4th quarter. Core price on related revenue was 8.4%, which included open market pricing of 10.4% and restricted pricing of 5.1 percent. Speaker 200:10:27The components of core price on related revenue included small container of 11.8%, Large container of 8.6 percent and residential of 7.8 percent. Average yield on total revenue was 5.9%. Average yield on related revenue was 6.7%, an increase of 40 basis points when compared to our 3rd quarter performance. In 2023, we expect average yield on total revenue of approximately 5.5%. We expect average yield on related revenue of approximately 6.5%. Speaker 200:11:04This is an increase of 80 basis points over our full year 2022 results. 4th quarter volume increased 1.5%. The components of volume included an increase in small container of 1.6%, An increase in large container of 60 basis points, an increase in residential of 1.2% and an increase in landfill of 3.9%. For 2023, we expect organic volume growth in a range of 50 basis points to 1%. Moving on to recycling. Speaker 200:11:38Commodity prices were $88 per ton in the quarter. This compared to $2.18 per ton in the prior year. Recycling processing and commodity sales decreased revenue by 180 basis points during the quarter. 2022 full year commodity prices were $170 per tonne. This compared to $187 per tonne in the prior year. Speaker 200:12:03Current commodity prices are approximately $95 per ton. We believe that current commodity prices are temporarily depressed due to a global supply demand imbalance and that prices will recover in the second half of the year. Accordingly, We are assuming average recycled commodity prices of $125 per ton in 2023 with prices starting at $95 per ton in the Q1 and steadily increasing throughout the year. At $125 per ton, this would result in a decrease In full year 2023 revenue and EBITDA of $45,000,000 when compared to the prior year and a 30 basis point headwind to EBITDA margin. In the Q1 of 2023, this would result in a year on year decrease of nearly $30,000,000 in revenue and EBITDA and a 70 basis point headwind to EBITDA margin. Speaker 200:12:56Next, turning to our Environmental Solutions business. 4th quarter Environmental Solutions revenue increased approximately $320,000,000 over the prior year, which primarily related to the acquisition of U. S. Ecology. On a same store basis, Environmental Solutions contributed 60 basis points to internal growth during the quarter. Speaker 200:13:184th quarter adjusted EBITDA margin was 27.3%. This compares to 28.1% in the prior year. Margin performance during the quarter included a 130 basis point decrease from acquisitions, which included 100 basis points related to U. S. Ecology and an 80 basis point headwind from lower recycled commodity prices. Speaker 200:13:41These margin headwinds were partially offset by a 20 basis point increase from net fuel And margin expansion in the underlying business of 110 basis points. 4th quarter adjusted EBITDA margin in the recycling and solid waste business was 28.7%. This compares to 28.6% margin in the prior year or 10 basis points of margin expansion. Margins improved in the recycling and solid waste business even with an 80 basis point headwind from lower recycled commodity prices. 4th quarter SG and A expenses excluding transaction costs from U. Speaker 200:14:17S. Ecology were 10.9% of revenue. This included 40 basis points from additional incentive compensation expense due to full year financial outperformance. Full year SG and A expenses were 10.2 percent of revenue. This was favorable 20 basis points compared to the prior year and reflects continued cost management as we grow the business. Speaker 200:14:40In 2023, we expect EBITDA margin to be approximately 29.2%. The 10 basis points of expected margin expansion include a 40 basis point decline related to acquisitions, primarily related to U. S. Ecology and a 30 basis point headwind from lower recycled commodity prices. These headwinds are more than offset by margin expansion in the underlying business of 80 basis points. Speaker 200:15:06While we expect full year expansion compared to the prior year, Margins are expected to be down in the first half due to the impact of acquisition rollover and recycled commodity prices. This is most notable in the Q1 where these headwinds impact margin by a combined 2 10 basis points. Depreciation, amortization and accretion was 10.7 percent of revenue in 2022 and is expected to be relatively consistent at 10.8 an increase of 15% compared to the prior year. This was driven by EBITDA growth in the business. For 2023, we are projecting adjusted free cash flow in a range of $1,860,000,000 to $1,900,000,000 or approximately 8% growth at the midpoint. Speaker 200:16:01We believe this level of performance is very strong given the expected impact from lower Total debt at the end of the year was $11,900,000,000 and total liquidity was $1,700,000,000 Loading debt interest rates consistently increased throughout 2022 and we now expect net interest expense of approximately $480,000,000 in 2023. This is an increase of approximately $90,000,000 compared to the prior year. As a reminder, a 1% increase in interest rates results in approximately $33,000,000 of additional interest expense. Our leverage ratio at the end of the year was approximately 3.1 times. We expect to revert to 3 times leverage by mid-twenty 23. Speaker 200:16:53With respect to taxes, our combined tax rate and non cash charges from Solar Investments resulted in an equivalent tax impact of 26.1% during the Q4 and 25.1% for the full year. This lower than anticipated tax rate resulted in a $0.06 benefit to our full year 2022 EPS. We We expect an equivalent tax impact of approximately 26% in 2023 made up of an adjusted effective tax rate of 20% Approximately $170,000,000 of non cash charges from Solar Investments. Finally, we expect a majority of the EPS growth in 2023 to be back end loaded. This results from having the toughest prior year comparisons on recycled commodity prices, interest rates and taxes during the first half of the year. Speaker 200:17:42With that operator, I would like to open the call to questions. Operator00:17:49We will now begin the question and answer session. And our first question Then we'll come from Tyler Brown of Raymond James. Please go ahead. Speaker 300:18:25Hey, guys. Hey, Tyler. Hey, Brian, so obviously pricing really strong here. I think full year pricing in the open market would say just over 9% and Speaker 200:18:37the restricted piece call it 4.5%. But I am Speaker 400:18:38curious if we were to kind of Did PACE Speaker 300:18:38call it 4.5%. But I am curious if we were to kind of decompose that next year, how those numbers would look? Well, we kind of see a convergence in those 2 or can we actually see the restricted pricing lead with all the CPI look backs? Speaker 200:18:55No, we would actually expect the restricted pricing to increase from the levels of where it is in the Q4. So again, unrelated revenue, It was 5.1% restricted in the 4th quarter and we would expect that to improve 50 basis points to 100 basis points In 2023, but we do expect the level of pricing to be driven by the open market similar to what you've seen in 2022 For that matter, the prior years as well. Speaker 300:19:22Yes. Okay. Okay, that's helpful. And then on the shape of kind of how the yields will progress, Well, we have a more, I'm going to call it historically normal cadence where pricing and I'm talking total pricing say above 5 5 minute tapers off below 5.5 as the year finishes up? Speaker 200:19:41Yes. So I guess you're talking about then on Total revenue, so I'll give you that piece. So yes, it starts highest. Actually our high watermark is in the Q1 based on our expectations. And then it sequentially declines from there, but we're expecting that pricing remains above 5% in all quarters. Speaker 200:20:00Yes. Speaker 300:20:00Okay. All right. That's helpful. And just real quick, how much M and A rollover is in the guide? And just to be crystal clear, The $500,000,000 that you expect to spend, none of that is included in guidance. Speaker 300:20:11Is that right? Speaker 200:20:13Yes. So I'll answer your second question first. That is correct. We have not included that. So what is included are deals that closed by the end of the year. Speaker 200:20:21It's $440,000,000 worth of revenue or 300 basis points of growth. That's the rollover, most of that being U. S. Ecology. Speaker 300:20:31Right, right. Okay. Thank you very much. You Operator00:20:37bet. The next question comes from Noah Kaye of Oppenheimer. Please go ahead. Speaker 500:20:44Thanks for taking the questions. So with the U. S. Ecology outperformance of $50,000,000 Can you give us a breakdown of how much of that outperformance was price versus volume? And then maybe you can tell us what you're expecting in terms of ES segment growth Specifically for 2023. Speaker 200:21:04Yes. It was a mix of both price and volume, but more pricing to come, right? We've taken a lot of pricing action, We still have some contracted portion of that business and fully seen that. So you're seeing both The cross sell that we talked about and you're seeing the pricing hit with really strong performance and the plans for 2023 that business Performing ahead of our plan more broadly, both the U. S. Speaker 200:21:29Ecology acquisition and the broader ES space, I think is going to be a very positive contributor. Yes. So if you think about no, I was just going to add, a good portion of the growth, right, that you're I see year over year is coming visavis the acquisition rollover. But if you think about total contribution from an organic Right. We're expecting 50 basis points on total revenue. Speaker 200:21:53So that's about, call it $70,000,000 and that would be just at The point when U. S. Ecology anniversaries forward. So that's still kind of a high single digit type organic growth. Speaker 500:22:06That's very helpful. Thanks. And then since you mentioned the synergies we're tracking ahead of plan, can you quantify that for us? And I guess, any chance you could give us an updated cost synergies number as to where you think this will get to within the timeframe? Speaker 200:22:22Yes. So just to give you an idea, when we actually provided the guidance when we closed the deal, we said we thought we'd get about $5,000,000 worth of synergies In 2022, we actually got closer to $13,000,000 $14,000,000 So you can see nice outperformance there. And a lot of that was just actually getting the integration activities done quicker than we originally anticipated. Yes. We said total synergies would be $40,000,000 cost synergies $40,000,000 I think that number went up closer to $50,000,000 Speaker 500:22:52Perfect. I'll give it back. Thanks. Operator00:22:59The next question comes from Walter Spracklin of RBC Capital Markets. Please go ahead. Speaker 400:23:06Yes, thanks very much. Good afternoon everyone. I want to just focus on the M and A there in the $500,000,000 guide. What drives Your target for $500,000,000 is that on a leverage basis that you'd like to keep yourselves close to? Or is it more just your best guess as to what kind of deals in your in the target areas that you want to do are available in 2023. Speaker 200:23:33I'd say it is based on Passionate view about intrinsic value, right, and driving intrinsic value over time and conservatism, Right. So we never want to put out a number that people go out and they have to hit and therefore we start chasing deals. I want the team to feel comfortable at any point in time passing on a given deal Because it doesn't mean a return criteria or there's a set of terms or business conditions or practices that we're not going to want to be owners of over time. And so I think we've always put out a number over the last 3 or 4 years. I think you've seen a pretty steady beat against that number. Speaker 200:24:09My Expectations for the team, I think are likely higher than that, but we always want to again put out a conservative numbers the team feels no pressure to reach. Speaker 400:24:19And has there been any shift in valuations, be it with higher interest rates, be it with more deals having been Done. Is there more difficulty? Is there has valuations come off? Has availability changed? In other words, the pipeline that you look at Going into 2023, is it very much different than what you saw in 2022 excluding obviously U. Speaker 400:24:40S. Ecology? Speaker 200:24:42No, pipeline is very strong. We got a mix of Small and medium sized deals across recycling solid waste and ES, right. And that's kind of a different stages in the process and feel good about that. The premiums or the multiples are still kind of hanging in the same zip code because we're looking at premium assets. We're not just buying revenue. Speaker 200:25:03We're very particular buyers and we want to get something that's quality. And one of the first questions we always ask is why would we do this ourselves? And If it's something like a residential subscription business or a temporary roll off business, we should go get that with our sales team, not pay a premium for that. So we're looking for infrastructure. We're looking For route based businesses with customer contracts that we know that we will integrate in the business and drive value over time. Speaker 400:25:29Okay. And just a last one here. Just on your guidance, I know you had had a double digit in there. You kind of walked it back last quarter. You've kind Brought it back again confidently here this quarter. Speaker 400:25:41Just what's changed your view here that gives you the confidence behind this guide that you perhaps Kind of didn't have it when you had the Q3 report. Speaker 200:25:51Well, maybe a slightly different view of the history, right? We never gave an official guidance. We said we had line of sight at one Point to double digit, right. That was in a different commodity price environment. And so given the commodity market being depressed for 6 to 9 months that Certainly gave us a different outlook, right, just based on the math of the commodity prices. Speaker 200:26:13And I think we've Joe talked about here a high single digit number going forward. Now if we end up doing more M and A early in the year and that has a year impact, can we get to double this? We certainly could, I think we've been pretty consistent with how we've approached it. And the other thing I would just add to that as well is that on the October call, We said that we've got a perspective that we're going to achieve high single digit growth. And if you look at the midpoint of everything we put out there, it's high single digit growth. Speaker 200:26:41So to John's point, I would sit there and say it is exactly in line with where we thought we would be in October. Speaker 400:26:48Fair enough. Okay. That's all my questions. Thank you very much. Operator00:26:56The next question comes from Toni Kaplan of Morgan Stanley. Please go ahead. Speaker 600:27:01Terrific. Wanted to ask first on Capital expenditures, I know 4Q is usually sometimes seasonally high, and this quarter seemed maybe particularly high. I I was wondering if that was related to the asset management system and the polymer centers or if there was something else in there and how we should be thinking about CapEx for 23. Speaker 200:27:24Yes, certainly investing to grow the business, right. We're always disciplined, but never afraid to spend that money. One of the bigger drivers of that was the 2nd polymer center that we're putting in the Midwest. We've seen so much demand for the offtake of our first one That is to have a lot of confidence that the market is really going to value and need that product and the returns in our business case We think are going to be north of what we originally pro form a. So that gave us the confidence to accelerate that investment move forward. Speaker 200:27:56Yes. And the other thing is, we talked that there were some supply chain disruptions throughout the year, impacted things like trucks and some of the heavy equipment. And we actually were able to take receipt, take title of those assets in the Q4. So as you think about building the 2023 plan, Most likely will be more back end loaded like you've seen in the last couple of years, but maybe not to the extent that you saw in 2022. Speaker 600:28:21Super helpful. And I wanted to ask on volumes. I know you gave the 50 to 100 basis points For 2023 of volume, I wanted to just ask sort of what you're seeing with regard to commercial and industrial. I know some of your competitors talked about like a little bit of a softness in 4Q, but maybe a little bit better in January. I wanted to hear your experience on that. Speaker 200:28:49Yes. There's different moving pieces for sure. Obviously, there's been A little bit of a slowdown in the construction market as you've seen housing starts kind of pull back in the second half of last year and we've certainly baked in some Softening of that into the 2023 environment, but listen the industrial market is very, very strong right now, right? You saw the consumer number this morning. I mean the Consumers engaged, so we still see lots of economic activity, travel and leisure, right, is kind of busting at the scene. Speaker 200:29:21We remain mindful, right, that there's certainly recession talk on the environment, but we're a pretty broad based barometer of the economy and we're seeing a lot of strength right now. And even though we're seeing a little bit of softness on some of the construction activity, we're still seeing above average price. If you take a look in the temporary large container business, We're nearly 9% price during the Q4. Speaker 600:29:43Terrific. Thanks for the color. Operator00:29:49The next question comes from Kevin Chiang of CIBC. Please go ahead. Speaker 700:29:56Thank you, operator, and good afternoon, everybody. I was just wondering, when you talk about the pricing initiatives within ES, Just wondering what percentage of your revenue do you think you need to reprice to get to the levels you want? And how long do you think it takes To kind of get through all of that. Speaker 200:30:17Well, we'll look at every dollar of revenue and every customer and really try to understand Again, we look at pricing in 2 lenses. 1 is from a customer and an insight standpoint, right? What does the market bear? What does our offer have From a value standpoint versus our competitors. And then we also want to look on the internal side and say, what is our cost, including a capital charge and make sure that we're getting a fair return on that. Speaker 200:30:41And so we're going to go systematically through every customer and every dollar of revenue. And I think the encouraging thing is we put out some double digit price increases And we're seeing it stick, right. Customers are really valuing the integrated offering and keep in mind whatever they Spend with us is a very small percentage of their cost structure and so safety and speed and sustainability and our digital tools and all the things that we're investing in, Those are big differentiators that allow that price to stick. All right. That makes a ton Speaker 700:31:13of sense. And then I apologize if you've given this number before, but When you look at longer term and you're through some of the cost synergies and some of the revenue upside opportunities, do you have a targeted Yes. Adjusted EBITDA margin that you're thinking about, you did 17.5% in or roughly 17.5% in 2022. Does this get to the mid-20s when you're kind of through many of these initiatives? Speaker 200:31:40Yes. I think what we're listen over time long term, I think these businesses converge in terms of returns. I think you'll get free cash flow conversion to get there first because this is a slightly different OpEx, CapEx trade off in this part of the business. And then over time, I think for a longer period of time, I think getting the margin to converge, I don't think is Out of sight or out of reach as well. Now that's not going to happen overnight. Speaker 200:32:04We are going to kind of ratably systematically take this up. So I think a goal over the next 4 or 5 years to get that in the mid-20s is very reachable. Speaker 700:32:13Excellent. I'll leave it there. Thank you very much. Operator00:32:21The next question comes from Michael Hoffman of Stifel. Please go ahead. Speaker 400:32:26Hi. Thank you very much, John and Brian, Aaron for taking the questions. Brian, are we At about a $1,600,000,000 run rate in ES revenues when I roll in the M and A. And then what does that 1.6 Grow organically, I was trying to put all the pieces together from your transcript. I think I had myself a little confused. Speaker 200:32:48We're probably closer, Michael, to in the 1.5% range, a little over 1.5%. But organically, like I said earlier, We're thinking that's 7%, 8% organic type grower here in the near term and with opportunities for even some of the additional cross sell opportunities to be additive to that. Speaker 400:33:08So, okay. So the following that then, in your margin for the whole year 29.2%, What do you think the solid waste business and the environmental services business do individually to merge together? Speaker 200:33:26So in the recycling and solid waste business, we're expecting overall about 30 basis points of margin expansion, Right. And in that business, we have to overcome the 30 basis point headwind from commodity price. So the underlying business is growing kind of 60 basis points to 70 basis points. Now in the Environmental Solutions business, we're expecting 100 basis points of margin improvement and there is the acquisition roll over U. S. Speaker 200:33:49Ecology, which is Kind of a negative 70 on that portion when you compare it to what we had in the Gulf. So we're expecting margin expansion in the underlying business there of 170 basis The reason why that only comes to 10 basis points overall is we just have a greater mix or greater percentage of ES business in 2023 than we did in 20 22. Speaker 400:34:10Yes. I get that. And then can you bridge for us the $1,724,000,000 of free cash in 22 to get to the midpoint of your guide, what is the cash interest, the cash tax, the incentive comp above plan? And And then I'm assuming everything else is made up by organic growth productivity. Speaker 200:34:31Yes. Let me give you a couple of pieces of that certainly. So interest and I'm going to give you some pre tax numbers and for argument's sake, you can just sit there and take call it 70% of it After you do the after tax, but interest up $90,000,000 right. So it's an increased outflow there. Incentive Comp is about a $35,000,000 outflow compared to target levels. Speaker 200:34:55And then bonus depreciation, you wouldn't tax effect the impact of bonus But that's about a $35,000,000 increase in cash taxes. Speaker 700:35:04Okay. Speaker 200:35:06When you take those pieces that creates Now I'm going to kind of flip a little bit to conversion. That creates call it about a 300 basis point headwind to conversion, all of which being offset Just the EBITDA growth in the business as well as some benefits in working capital, some of those benefits being unlocked, we talk about finishing the finance and procurement modules During 2022, we think that there's an opportunity in particular on the DPO side to drive improvements in working capital. Speaker 400:35:35Okay. And then I was squeezing 1 in, sorry. The $125 per ton, how much of that has to rely on OCC moving? And what would your Target B for OCC to make the $125,000,000 in your guide? Speaker 200:35:49Well, I mean, just to put it in perspective, right, OCC fiber, Right, represents about 70% of our basket of goods, right. So most of this we are expecting to come more on the OCC side. Even just to put it into all of it into perspective, if you take a look at what we're expecting from a guide perspective compared to current prices, it's a relatively modest recovery, Right. That's $30,000,000 worth of EBITDA and about 20 basis points to margin, dollars 20,000,000 of free cash flow if things were to stay at current levels. Speaker 400:36:22Okay. Thank you very much. Operator00:36:30The next question comes from Jerry Revich of Goldman Sachs. Please go ahead. Speaker 800:36:36Good afternoon and good evening everyone. Brian, if we just go back to your margin cadence discussion, the headwinds in 1st quarter, really the first half, that implies we're going to be exiting Q4 of 2023 with margins up something like 1 150 basis points year over year heading into 2024. So I'm wondering, are we setting up for 2024 to be an outsized Margin expansion year because we're essentially making up for a lost year from the commodity price impact in 2023. Anything that you'd add to that, Rich, as we think about what the margin progression might look like? Speaker 200:37:19Sure. And a couple of things, Jerry. I mean, you've got 2 variables, right? When you take a look at it, you have the what we're expecting in 2023, but also what happened in 20 22, Right. So we're expecting commodity prices in 2023 to be at the highest point of the year. Speaker 200:37:35They were at the lowest point in 22. So you can't just go to the margin expansion, but yes, exiting the year in 2024, we think it's going to be Kind of a nice jump off point heading into 2024, but I wouldn't just look at the overall margin expansion because you've got 2 years in your math that you got to take into consideration. Speaker 800:37:55Sure. But you're going to have the same comp benefit in the first half of twenty twenty four, hopefully. And if we think about the profitability of the recycling business in the 4th quarter with this ultra low Recycled cardboard prices. Can you just update us on what was the margin profile of the business roughly just so we Can you get a feel for where it's troughing in the cycle given all the work you've done there? Speaker 200:38:22You're talking about on the recycling side of the business? Speaker 800:38:25Yes. Speaker 200:38:26It's still a profitable business at these levels and still an attractive return. So, again, we would expect through the cycle we talked about, we expect these depressed prices to be somewhat transitory. And again, return closer in line to a 10 year average, not even back to the levels it was when it was over $200 a ton on our basket of goods. Speaker 800:38:51Super. And can I ask around the gas part of the business, nice little bonus we got from the EPA in terms of e RINs? How much gas to electric power do you folks generate in terms of your share of the power that you generate? And what's your take on what's a Reasonable value capture opportunity for you and your peers? Speaker 200:39:14Yes. Of our existing projects, the vast majority are gas Now the where RINs had gone, all of the new projects in the pipeline were contemplated to be gas, iron, or methane to RNG. The great news with our partnership with BP, we've got option value, right? Human is coming online and we're both very open minded Understanding where those markets move and the local geography and even places where we may power our own fleet to figure out whether we want to convert some of those opportunities rather than RNG to electricity as well, but we see it as over time a benefit for us because it will have 2 pathways. Speaker 800:39:55I'll leave it there. Thank you. Speaker 300:39:58You bet. Operator00:40:02The next question comes from David Manthey of Baird. Please go ahead. Speaker 400:40:08Thank you very much. My question is regarding residential volumes that have inched up here in the last couple of quarters. Is that a trend you expect to continue this year? And when you look at that 1% overall midpoint volume outlook, Does that contemplate commercial container volumes being flat or negative at any point in 2023? Speaker 200:40:33No, I mean what you're seeing mostly on the residential is some relatively larger contracts. You're seeing that in the numbers. So that's expected to Anniversary in 2023, so we don't expect that to continue throughout the year. And yes, when you take a look at our volume cadence, we expect That small container will remain positive right throughout 2023. Speaker 700:40:53When you take Speaker 200:40:53a look at overall volumes, we think to have our highest volume performance early in the year. And again, that's a step down throughout, but remaining positive in all four quarters. I'd say residential, that's been, I'd say over the last decade, the most disappointing part of the business In terms of where margin return has gone and that hasn't expanded at the same rate as the other businesses and there's a lot of reasons for that with commodity prices and And everything else, but listen, we don't do work for free, right? We put upward pressure, right, on all those contracts and look at those contracts just like we would in acquisition, We're going to put capital into it and what type of return do we get against that and if we can't meet our return thresholds on that, we won't do the work. Speaker 500:41:36I appreciate it. Thank you. Operator00:41:41The next question is from Kyle White of Deutsche Bank. Please go ahead. Speaker 900:41:47Hi, good afternoon. Thanks for Just curious what you're seeing on open market pricing heading into 2023 as inflation starts to come down and maybe there's a bit more uncertainty regarding Economy and volumes going forward, you've seen any change in behavior for maybe some of the smaller competitors in this environment relative to last year? Speaker 200:42:06Last year, we put out the highest level of pricing we ever have in small container in the open market and we had the highest percentage of Retention of that price that we've ever had in our history, which is really a staggering number. I think it speaks to the value of our service that we're providing. It also speaks to the broader context With everything else inflating, those numbers were quite consistent across the quarters, right, in terms of our ability to retain price, Right. And we're seeing strength here in the early part of the year on that. So we're mindful of the environment, but listen all of these smaller competitors, right, They have truck costs that are going up. Speaker 200:42:43They need to buy new equipment after some supply chain challenges, right. They have labor costs that are going up. So they need to price To cover their costs, which Speaker 500:42:51I think is the part of a broader pricing environment. Speaker 900:42:56Yes, that makes sense. And then on leverage, how are you thinking about leverage In this environment, what's the right target for you before investors should expect meaningful capital return through buybacks? Speaker 200:43:07Yes. We've talked about kind of that sweet spot for us being right around 3 times. We're a little bit over that right now, but we expect to be there in the next, call it 6 months, At which point then we would look to kind of return to that normal level of looking at the repurchases and so on and so forth. Speaker 900:43:27Sounds good. I'll turn it over. Operator00:43:34The next question comes from Stephanie Moore of Jefferies. Please go ahead. Speaker 1000:43:40Hi, good afternoon. Thank you. Speaker 200:43:43Hi, Beth. Speaker 1000:43:45I certainly appreciate this, the level of detail for your 2023 I think a lot of puts and takes in this environment. So it might be helpful if you could just outline the areas where you kind of see the greatest source of upside, inflation moderating, some Some tech investments and then on the flip side, where you see the greatest risk to maybe hitting these targets as well? Thanks. Speaker 200:44:08Yes. From an upside perspective and we mentioned this earlier is that we are expecting inflation to remain persistent throughout 2023. And so again, John just talked about the fact that we're pricing at higher levels in 2023, early in 2023 than we did even 22 because we expect inflation remains sticky. So if that does come down that is certainly an opportunity In order to sit there and to drive better performance than we anticipated, but you do have to remember some of that inflation are wages And wages typically go in annually. So once you put that wage out in the marketplace, you're not pulling that back. Speaker 200:44:47So there are there is some Stickiness to the inflation, but certainly as it relates to some third party costs, some of the maintenance related expenses, transportation expenses, if those come in, That would certainly be a source of upside. Speaker 1000:45:04Great. And then on the downside? Speaker 200:45:07We just talked a little bit about recycled commodity prices. Again, we've expected a recovery, but we've also dimensionalized it for you. So you realize it's a relatively Modest recovery that we're expecting, but if they stay at current levels, that would be a little bit some downside relative to our To our expectations. And then I'd just say the broader macro environment, obviously, we've been through a pandemic and war at the doorstep of Europe and China virtually shutting down and supply Challenges inflation. So I think we're prepared for uncertainty in a dynamic environment. Speaker 200:45:40Again, we're running the business not just for the quarter of the year, we're running Through the cycle and making decisions accordingly, but we're mindful that we may have to adjust or adapt the business if new things emerge. Speaker 1000:45:53Absolutely. And then just on the 2nd Polymer Center going up, starting to go up this year, Maybe you could talk a little bit about some of the initial KPIs or returns you're seeing from or expect to see just given the demand from your first And kind of what drove you to decide to open up the second here? Speaker 200:46:14Yes. Across, we think we're going to have At least 4 centers across the U. S, we think when they all get up and running at scale was kind of a $250,000,000 Incremental revenue business for us. We think the EBITDA margins are going to be certainly north of 30%, right, very attractive Ours on those investments and I think we're going to beat that pro form a, right. And we know from the conversations we've had and the pricing that we're getting right now, we're starting to take Orders obviously for the center in Las Vegas. Speaker 200:46:45I'm very confident we're going to beat those numbers in the pro form a. Speaker 1000:46:52Great. Thank you so much. Operator00:46:59The next question comes from Michael Feniger of Bank of America. Please go ahead. Speaker 400:47:06Yes. Thanks for taking my question. I understand that you guys have been pricing ahead Of cost and there's been a lot more discipline in the industry, but is there just like a step function change in terms of how Republic is pricing from a few years ago? I know you guys went through some years of intentional shedding some business. I'm just wondering if the quality of the business now you feel that you can have a wider price versus Cost spread than maybe the Republic Services a few years ago? Speaker 200:47:37Yes. I think it's a good question, Michael. Certainly, you highlighted it. Certainly customer mix is a hidden element or hidden factor in being able to get price. And we went through some intentional shedding, right, which had some Negative drag on our volume for a few quarters when you look a few years back, but the quality of our revenue is much higher than it was historically. Speaker 200:47:58We feel good about that and that's All the way across from national accounts to small container to getting out the last remaining broker work out of the system to municipal and getting a fair escalator into those contracts. So I think the overall health of our pricing across the Portfolio, well not perfect of course, but it's much, much better than it was a few years ago. And then you combine that with the capture and the tools that we have to really start to grind A few extra bps here and there across our 13,000,000 customers of understanding willingness to pay. And then on the other side of that with the right platform driving productivity and changing our cost position in the business. So when you've got a healthier customer mix, right, and better ability to price With a cost structure that I think is healthy and getting healthier, I think that does create the context for continued margin expansion over time. Speaker 400:48:52Great. And Brian, you touched on it with the question earlier, but just to dig a little deeper, can you actually talk about the Cost inflation, how that kind of trended through the Q4 and what you're seeing in early 2023? What you guys are kind of embedding there? Because I think you're saying you're not really embedding a rollover there. Just curious what you actually saw through the quarter in early 2023 And what we kind of expect or what you guys are at least embedding in the guidance there? Speaker 400:49:18Thanks. Speaker 200:49:20Yes. If you think about for the full year for 2023, we're in that, Call it 5% to 5.5% inflation type range. And again, when you take a look at the 6.5% The yield on related revenue that's how we're driving that 80 basis points or so of expansion in the underlying business. That's about the level we saw exiting the Q4 and we expect it to remain relatively consistent throughout 2023. Speaker 400:49:47Thank you. Operator00:49:55At this time, there appear to be no further questions. Mr. Van Der Ark, I'll turn the call back over to you for closing remarks. Speaker 200:50:03Thank you, Andrea. I would like to thank our 40,000 employees for their efforts that enabled our strong 2022 results. The success of our strategic investments is made possible due to their hard work and commitment to serving our customers. Have a good evening and be safe.Read morePowered by