NYSE:RSG Republic Services Q2 2023 Earnings Report $243.96 +3.20 (+1.33%) Closing price 03:59 PM EasternExtended Trading$235.30 -8.66 (-3.55%) As of 05:23 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Republic Services EPS ResultsActual EPS$1.41Consensus EPS $1.32Beat/MissBeat by +$0.09One Year Ago EPS$1.32Republic Services Revenue ResultsActual Revenue$3.73 billionExpected Revenue$3.73 billionBeat/MissMissed by -$4.13 millionYoY Revenue Growth+9.10%Republic Services Announcement DetailsQuarterQ2 2023Date7/31/2023TimeAfter Market ClosesConference Call DateMonday, July 31, 2023Conference Call Time5:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfilePowered by Republic Services Q2 2023 Earnings Call TranscriptProvided by QuartrJuly 31, 2023 ShareLink copied to clipboard.There are 16 speakers on the call. Operator00:00:00Afternoon, and welcome to the Republic Services Second Quarter 2023 Investor Conference Call. 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. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations. Operator00:00:40Please go ahead. Speaker 100:00:44I would like to welcome everyone to Republic Services' 2nd quarter 2023 conference call. John Vander Ark, our CEO and Brian DelGachio, 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 100:01:19If in the future, you listen to a rebroadcast or recording of this conference call, You should be sensitive to the date of the original call, which is July 31, 2023. Please note that this call is property of Republic Services Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited. I want to point out that our SEC filings, our earnings press release, which includes GAAP reconciliation tables and a discussion of business activities, Along with the recording of this call are available on Republic's website at republicservices.com. I want to remind you that Republic's management team routinely When events are scheduled, the dates, times and presentations are posted on our website. Speaker 100:02:09With that, I would like to turn the call over to John. Speaker 200:02:12Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. Our strong second quarter results demonstrate the value created by our differentiated capabilities and the execution of our strategic priorities. We continue to successfully grow our business both organically and through acquisitions while enhancing profitability. During the quarter, We delivered revenue growth of 9%, including more than 4% from acquisitions, generated adjusted EBITDA growth of 10.5%, Expanded EBITDA margin by 40 basis points, reported adjusted earnings per share of 1.41 and produced $1,260,000,000 of adjusted free cash flow on a year to date basis, a 10% increase over the prior year. Speaker 200:03:01We continue to effectively allocate capital by investing in acquisitions to create long term value. Year to date, we invested $927,000,000 of acquisitions. All transactions were in the recycling and solid waste space, including the acquisition of assets in Colorado, New Mexico from GFL. The M and A environment remains Active with opportunities in both the Recycling Solid Waste and Environmental Solutions businesses. We now expect investment in value creating and increasing the profitability of our Environmental Solutions business. Speaker 200:03:44Pricing realization in this business remains strong. Customers value our complete set of products and services. We have achieved over $110,000,000 in new sales to date as a result of cross selling our products and services. The sales pipeline is robust with opportunities for organic growth Expansion of services within our existing customer base. We achieved more than $40,000,000 of annualized cost synergies And EBITDA margin in the Environmental Solutions business improved more to more than 22% in the quarter. Speaker 200:04:20The strong results we achieved through the first half of the year along with the positive momentum in our business supports a full year financial outlook that exceeds our original expectations. We now expect revenue in a range of $14,775,000,000 to $14,850,000,000 adjusted EBITDA in a range of $4,340,000,000 to $4,360,000,000 Adjusted earnings per share in a range of $5.33 to $5.38 and adjusted free cash flow in a range of $1,900,000,000 to $1,925,000,000 Our updated financial guidance includes the contribution from acquisitions closed through June 30. The results we are delivering are made possible by Our strategy supported by our differentiated capabilities, customer zeal, digital and sustainability. Regarding customer zeal, our efforts to deliver industry leading service continues to drive sustained customer loyalty and organic growth. Our customer retention rate remained over 94% and we continue to see positive trends in our Net Promoter Score supported by improved service delivery. Speaker 200:05:38Organic revenue growth remained strong during the quarter and simultaneously increases in both price And volume. Core price on related revenue was 8.8% and average yield on related revenue was 7.1%. This includes landfill MSW yield of 6.2%. This is the highest level of performance in company history in this category. Organic volume growth on related revenue was 50 basis points. Speaker 200:06:07Turning to digital. We have reached a milestone in our efforts to create digital tools to enhance our customers' and employees' experience and deliver meaningful financial benefits. The deployment of Ryze tablets in our recycling and solid waste collection business was completed during the Q2. The next phase of our digital operations is expected to drive additional productivity savings through route adherence, improve safety performance and provide more predictable service delivery for our customers. In total, we believe the benefits of our digital initiatives are worth approximately $100,000,000 with $50,000,000 already achieved and $50,000,000 to be captured over the next 3 years. Speaker 200:06:48Moving on to sustainability. We continue to invest in differentiating capabilities to leverage sustainability as a platform for profitable growth. Earlier today, we announced a joint venture with RIVAGO called Blue Polymers. This groundbreaking partnership further supports our efforts to lead In plastic circularity, Blue Polymers will utilize recycled olefins from our polymer centers to create blended pellets for use We expect to open 4 facilities beginning in late 2024 with earning contribution beginning in 2026. Development of our Polymer Centers in Las Vegas and the Midwest remain on track with the centers becoming operational in late 'twenty three and late 'twenty four, respectively. Speaker 200:07:37Demand for recycled plastics remains strong as the consumer goods industry continues to work toward achieving their sustainability goals. For example, we are partnering with The Coca Cola Company to supply recycled PT from our polymer centers for use in sustainable packaging. The 57 renewable natural gas projects being co developed with our partners are advancing. We expect 4 of these projects to be operational by the end of the third Finally, we continue to believe that creating a more sustainable world is our responsibility and a platform for growth. We recently published our latest sustainability report, highlighting the progress we are making on our 2,030 goals. Speaker 200:08:19These goals are supported by investments we are making in Polymer Centers, the Blue Polymers joint venture, renewable natural gas projects and fleet electrification. I will now turn the call over to Brian, who will provide details for the quarter. Speaker 300:08:33Thanks, John. Core price on total revenue was 7.3%. Core price on related revenue was 8.8%, which included open market pricing of 11% and restricted pricing of 5.3%. The components of core price on related revenue included small container of 12.3%, large container of 8 8% and residential of 8.3%. Average yield on total revenue was 5.9% Inflation to drive margin expansion in the underlying business. Speaker 300:09:14Volume on total revenue increased 40 basis points, While volume on related revenue increased 50 basis points, the components of volume on related revenue included an increase in small container of 1.4%, An increase in residential of 80 basis points and an increase in landfill of 3.7%. Landfill was primarily driven by an 8.3% increase in special waste revenue. Volume growth was partially offset by a decrease in large container of 1 point 3% primarily due to a slowdown in construction related activity. Moving on to recycling. Commodity prices were $119 per ton during the quarter. Speaker 300:09:56This compared to $2.18 per ton in the prior year. Recycling processing and commodity sales decreased revenue by 1.1% during the quarter. Current commodity prices are approximately 1 $115 per ton. We believe commodity prices will remain relatively flat with current levels in the second half of the year. And we now expect average recycled commodity prices in a range of $110 to $115 per ton for the full year. Speaker 300:10:27Next, turning to our Environmental Solutions business. 2nd quarter Environmental Solutions revenue increased $104,000,000 over the prior year, which primarily relates to the acquisition of U. S. Ecology. On a same store basis, Environmental Solutions contributed 20 basis points to internal growth during the quarter. Speaker 300:10:48Adjusted EBITDA margin for the Environmental Solutions business was 22.5%, a sequential increase of more than 150 basis points. Total company adjusted EBITDA margin expanded 40 basis points to 30% during the quarter. Margin performance included a 50 basis point decrease from recycled commodity prices and a 30 basis point decrease from acquisitions, which was fully overcome by a 100 basis point increase from net fuel and margin expansion in the underlying business of 20 basis points. Year to date adjusted free cash flow was $1,260,000,000 Our performance through the first half benefited from the timing of capital expenditures and cash taxes. Year to date capital expenditures of $550,000,000 represents 33% of our projected full year spend And year to date adjusted cash taxes of $99,000,000 represents 40% of our projected full year spend. Speaker 300:11:49Total debt was $12,200,000,000 and total liquidity was $2,100,000,000 Our leverage ratio at the end of the quarter returned to approximately 3 times. With respect to taxes, our combined tax rate and effects from solar investments resulted in an equivalent tax impact of 26.8 percent during the Q2, which was in line with our expectations. We expect an equivalent tax impact of 25% in the second half The year resulting in a full year equivalent tax impact of approximately 25.5%. With that operator, I would like to open the call to questions. Operator00:12:58Your first question comes from Brian Bergmeier of Citi. Please go ahead. Speaker 400:13:06Good afternoon. Thanks for taking the question. On the Blue Polymer announcement this morning, is that something that's already captured in the pro form a earnings Polymer centers that you've spoken about previously, or is this going to be incremental? And if it is incremental, could you give us a sense of the potential earnings impact? Speaker 200:13:28No, it's incremental. So think about that Polymer Center producing 2 things, PET on one side and Olefins on the other side, at the PET, we take into a flake basically, a hot wash clean flake that's food grade that can go right back into Speaker 300:13:44Water bottle manufacturing or other types of PT applications, Speaker 200:13:48on the olefins, it takes a slightly different path. So we Sort get full collection of that olefins and then we feed the Polymer Center. So this basically guarantees the demand on the back end of our Polymer Center for the olefin Side of it? And then RIVAGO is world class at compounding and blending olefins to create unique products. And so that's why we partnered with them. Speaker 200:14:11We think we can provide the right applications to the market. We get to participate. Not only do we get the supply, so a fixed Supply agreement on one side, we get to participate in the benefit and the upside as a 45% minority J. D. Partner. Speaker 300:14:26Yes. From an economics perspective, we look at our equity pickup, that one line pickup beginning in 2026, Two centers, somewhat contributing, in that year with about $15,000,000 So you can think $7,000,000 to $8,000,000 per center, And then getting $7,000,000 to $8,000,000 incremental in both $27,000,000 and $28,000,000 ultimately we see $30,000,000 to $32,000,000 worth of EBITDA for all 4 at run rate in 2029. Speaker 400:14:58Understood. Thanks for that detail. If I can just maybe follow-up on the recycling business. I think your filings say your volume is about 80% Fiber, once the Polymer Centers are online, do you think that 80% fiber exposure drops a bit? Or is there maybe a different way we should start Value versus volume? Speaker 400:15:19Thanks and I'll turn it over. Speaker 200:15:22Yes. Listen, initially, it won't drop much at least from a volume standpoint because what we're really doing in the Polymer Center is taking things that are down cycled today and some material along the way in that down cycling is lost at landfill To get full volume recovery out of that plastic and get much higher yield because they're driving true circularity. Now these polymer centers are built So over time, we'll flow 3rd party product in there that will put more plastic into the system and Dilute the fiber percentage, right, at a certain level, but you're probably talking more like going from 80% to 75% versus a major change in the mix. Operator00:16:07The next question comes from Toni Kaplan of Morgan Stanley. Please go ahead. Speaker 500:16:13Thanks so much. You mentioned a couple of comments on volume and was just wondering if volume was sort of in line with what you were expecting or if it was a little bit lighter. And I know you mentioned the Construction activity and the special waste, was something mentioned by one of your competitors as slowing. I know here you got the 8.3% increase in special waste revenue, but just anything on volume trends and where things are above or below what you were expecting how you think for the rest of the year? Speaker 200:16:50Yes, I'd say broadly kind of in line with expectation, probably slightly ahead in certain areas, so construction, we anticipated that being down. We saw residential and commercial starts obviously start to soften in the second half of last year and there's a lag effect As you know, we have jobs that are getting completed. And so we're down 3.8%, but we have really strong pricing there. So we've taken the opportunity there to stay disciplined on price and making sure that we're Stay disciplined on price and making sure that we're getting a positive mix, right, even in that environment. And then other special waste, right, is attractive, but part of that special waste clearly is our cross sell initiatives, The U. Speaker 200:17:28S. Ecology acquisition, we have now a unique offering in the marketplace and we're seeing customers demand That unique offering, so that's certainly helping us. Small container was a bright spot, right, in terms of volume growth for the quarter. So I feel really good about That as well. And again, I'd say broadly in line with what we expected. Speaker 300:17:49Yes. And Tony, if you remember, in our original guidance, The range on volume was 50 basis point to 1 percent positive. And now we're thinking it's at that still within the range, but at the lower end. But at the same time, we increased our guidance on average yields, right? So the flow through in the contribution of a 50 basis Point increase on yield is much more significant to the enterprise in our results than the 50 basis point decrease on the volume side. Speaker 500:18:20Yes, understood. And then you mentioned the partnership with Coca Cola. Can you talk about potential impacts from that? It might be a little bit longer term, but just any thoughts on how to quantify how you're thinking about that partnership and the benefits to you? Thank you. Speaker 200:18:40Yes. Coca Cola has been a great partner. I would say this demand for our product out of the Polymer Center Outstripped supply by a lot, right? So we were able to talk to a number of parties, right? We could have sold the Las Vegas Center out 3 or 4x It's over without challenges because the market is so short supply for this type of ARPU that's food grade. Speaker 200:19:02And we're taking it right now the single site over time will take the Midwest site and then these partnerships will evolve and I'm Certainly, they'll grow, right, as we expand the network, but that's all we're disclosing at this point. Speaker 500:19:15Terrific. Thank you. Operator00:19:20The next question comes from Tyler Brown of Raymond James. Please go ahead. Speaker 600:19:26Hey, good afternoon guys. Speaker 200:19:28Hey, John. Speaker 600:19:29Hey, Brian, just real quick from a modeling perspective, What is the expected contribution from M and A in the new revenue guidance? I think it was supposed to be maybe a 3% contributor coming into the year. Is it maybe closer to 3.5% to 4% and then how much rolls into 2024 based on what we know today? Speaker 300:19:48Yes. So the in year contribution rollover 22 transactions as well as the in year impact from 2023 transactions, we're thinking 4.25%, Right. And the rollover impact into 2024, right, from the deals that were completed in 2023, we think adds 50 basis points To our 2024 revenue growth. Speaker 600:20:11Okay. Perfect. That's helpful. And then, so I just kind of want to think about the EBITDA A little bit. So it looks like you raised EBITDA by call it $50,000,000 But if I'm not mistaken, you actually lowered your commodity But then you added in some M and A. Speaker 600:20:27So basically I'm trying to bridge that change. How much of the EBITDA change was basically core versus some other moving pieces, If that makes sense at all. Speaker 300:20:37Yes, let me answer the question. The short story is that the entire increase is essentially the underlying business. So let me go through some of the puts and takes. So to your point, right, we've added EBITDA associated with acquisitions, but most of those acquisitions were We've also got deal and integration costs. 2 of these deals Required regulatory filings, so we had heavy legal costs. Speaker 300:21:03We also have a fairly significant integration costs Just because one of those deals requires that we rebrand the trucks within the 1st 6 months. So the contributions from acquisitions in here is still positive, but it's somewhat muted. To your point, that's been further offset by the reduction in recycled commodity prices. So if you think about taking all those things I just mentioned relative Our original guide, it's a relative push. The $50,000,000 increase in EBITDA at the midpoint is essentially the increase in price Speaker 200:21:34Flowing through to the bottom line. Speaker 600:21:36Okay, perfect. Speaker 700:21:37Yes, okay. Speaker 600:21:37That's what I thought. Okay. And just real quick on my last one here. So if we just exclude Blue Polymer And we just look at the Vegas facility, what is the expected EBITDA impact of that facility in 2024? And then How dependent will it be on recycled plastic prices? Speaker 600:21:55Because we have seen some weakness there recently. And basically, sorry, does this Blue Polymer JV, does it kind of inoculate that offtake risk longer term? Am I thinking about all that right? Speaker 300:22:10Yes. Let me go ahead and start. You had a couple of questions there. So we'll kind of unpack some of those. So the expected contribution from just the Polymer Right. Speaker 300:22:17So this is the one in Vegas in 24,000,000 is $15,000,000 right, of EBITDA contribution in 24,000,000 Speaker 200:22:24You can then think Speaker 300:22:25of about an incremental $20,000,000 per year thereafter, right, as we bring other centers online, ultimately getting to about $80,000,000 worth EBITDA at run rate in 2028. To your other point, right, on the blue polymers, yes, We are going to be selling all of the olefins coming out of the Polymer Center to the Blue Polymers JV, Right. So when you start thinking about the offtake agreement there that guarantees, right, a contractual rate for all of those units leaving Polymers on the olefin Speaker 400:23:00side I'm Speaker 300:23:01sorry, Polymer Center on the olefin side. Speaker 600:23:04Okay, perfect. Yes. So it kind of helps inoculate the offtake longer term? Yes. Speaker 800:23:09If I read it right. Correct. Speaker 600:23:10Okay. All right. Thank you guys so much. Thank you. Speaker 200:23:13Thanks, Howard. Operator00:23:18The next question comes from Jerry Revich of Goldman Sachs. Please go ahead. Speaker 900:23:24Good afternoon and good evening, everyone. Hi, Craig. John, I'm wondering if you could just Expand on comments you recently made to The Wall Street Journal. You spoke about having visibility on double digit top line growth here in the medium term. I'm Wondering if you could just unpack what gives visibility on that between polymer, M and A yield, other moving pieces So in that type of top line environment, do you think you can still deliver the 2x leverage between Revenue and earnings that Republic has done over the past decade? Speaker 900:24:01Thanks. Speaker 200:24:04Yes. We're certainly starting with price, That's always the first component, right? We have to price ahead of our cost. You've seen the organic growth picture. And the underlying Solid waste and recycling business is a slow growth business, right? Speaker 200:24:18And we expect to grow slightly faster than the market, only slightly because it's a highly contracted market and Shares don't move easily and again we're always going to stay disciplined on price first. As we've expanded into Environmental Solutions, The underlying growth from an organic standpoint is certainly a little stronger. So that's a tailwind. On the growth side, we're Doing more M and A than we ever had, right? It was 6 or 7 years ago, we talked about spending $100,000,000 a year in M and A, right? Speaker 200:24:44And then that's been ramped up to $500,000,000 to $700,000,000 and obviously with an outsized year last The US Ecology acquisition and got to $3,000,000,000 but even outside of US Ecology, it's $800,000,000 of deals outside of US Ecology. And this year, we've said more than $1,000,000,000 and we're already sniffing up against that number. So M and A is certainly contributing. And then our other sustainability investments, right, are nice contributors and probably a little less on the top line in terms of really moving the needle given the scale of the business. But on the bottom line, right, So kind of high EBITDA margin investment opportunities, very high return. Speaker 200:25:19So we feel great about that over time. Speaker 900:25:24Subra, and Brian, can I ask separately, in the quarter, really strong Margin performance, your COGS per unit were up just 3%? Any in terms of lumpy items that contributed to the results In the quarter or were the results pretty clean? It sounds like attrition was pretty low, but I'm wondering were there any other moving pieces that Help margins or costs in the quarter that we should keep in mind before run rating the really strong results? Speaker 300:25:55I would say there's always some puts and takes, but I would say if you aggregate those from a net number perspective, it was a fairly clean quarter. Speaker 900:26:04Well done. Thank you. Operator00:26:10The next question comes from Michael Hoffman of Stifel. Please go ahead. Speaker 1000:26:15Hi, good afternoon. Thank you. Brian, could we walk through a dollar reconciliation of last year's EBITDA to this year's EBITDA on a dollar basis? So not just the Aggregate change the 50, but what are the what are all the puts and takes? Because I think I have this sense that we're understating the power of solid waste by just saying 50. Speaker 1000:26:38This is on the guide. Speaker 200:26:39Sorry, I meant the guide. Speaker 300:26:40Yes, the guide. So Michael, as I mentioned, we're not going to get To the individual components of the EBITDA contribution of our acquisitions and other things. But what I can tell you is, as I just said, With Tyler on the phone, if you take a look at the in year acquisition contribution, net of those deal and integration costs, Right. That is a positive number, which is almost entirely offset by the reduction in recycled commodities. That reduction in recycled commodities is about $15,000,000 to $20,000,000 negative compared to our original expectations. Speaker 300:27:17So if you look at guide to guide, right, the midpoint, Our EBITDA is up $50,000,000 which is the underlying business made up primarily of relatively higher price. We took our yield from 5.5% on total revenue to 6%. We took it from 6.5% unrelated to 7%. So that's that 50 basis points As well as just outperformance within the Environmental Solutions business. That's what's contributing right to the overall increase in EBITDA. Speaker 1000:27:49Okay. Could we then talk about Environmental Solutions? And would you talk about the price volume mix Fair because I think it's important for everybody to see that there's a combination of both and that the pricing of a scarce asset continues? Speaker 200:28:05Yes. Let me start there, Michael. We're working through that. Obviously, it's a little bit like special waste in terms of there's Mix issue that there's a lot of unique products and services. So we haven't nailed yet what we might report externally in terms of A price or yield metric there, certainly our aspiration over time, whether that's for large parts of the business like yield per drum or things like that Work through it, but a huge portion of the outperformance there is price. Speaker 200:28:36We've taken multiple double digit price increases And we will lead from a pricing standpoint. And that's caused a few units to be shed in certain places, so we found the ceiling, But we're unafraid. These are valuable assets impossible to replicate and customers are valuing what we're offering. We're going to continue to push on that front. And that also combined with a cross sell, which is where we're driving a lot of the volume has been a really good story and picture Yes. Speaker 200:29:05And I mean just Speaker 300:29:06to put some numbers on that, Michael, if you take a look at the Environmental Solutions business this time last year 17.1 percent EBITDA margin, this quarter 22.5 percent. So that 540 basis points of margin improvement Is essentially most of that being price driven, but also just better overall utilization as well. We're becoming more efficient And we're optimizing from a labor perspective. So when we do get those units, not just because of the price alone, but as far as the overall profitability of each one of those Jobs were just becoming overall more efficient as we have better utilization of the assets and the resources that are providing those services. Speaker 1000:29:47Okay. If I could just tease out one thing. We've had negative trends in ISM PMI We're below 50 on the index. It looks like it's floor bottoming, but is there positive volume even if I don't get the Split, there's positive volume plus a lot of price? Speaker 200:30:07Yes, I think, yes. And so we look at all those indices too, Michael, and I think what we're not fully accounting for is a lot of the infrastructure spend and the government spending is flowing through and we're certainly getting a lot of opportunity there. Speaker 1100:30:20Okay. Speaker 200:30:21And I think Speaker 300:30:21the other thing too, Michael, that we're also seeing right now as well as the benefit of the cross sell. As we said, we've now increased reported more than $110,000,000 in new sales, which is positively impacting both the Environmental Solutions business As well as the recycling and solid waste business, but more of that positively impacting the environmental solutions business just because when you take a look at the revenue per customer tends Just be higher than we see in recycling in the Southwest. Speaker 1000:30:50All right. I'll try to use one more if I can. You raised price in 4Q, you raised it in 1Q. Did you raise it in 2Q as well? Speaker 300:30:59We are actually in the process of raising prices here early in 3Q. Speaker 1000:31:05Perfect. Thank you so much. Operator00:31:10The next question comes from Walter Spracklin of RBC Capital Markets. Please go ahead. Speaker 800:31:17Yes, thanks very much. Good afternoon, everyone. Just on the volume, good job On growing that volume amid some of your peers seeing it contract a little bit, but I'm just curious as to whether we're hearing A little bit on the price competition from smaller players that are somewhat Less disciplined in that regard and some of your peers walking away from that. Are you seeing any evidence that smaller players are acting a little bit more aggressive here? And do you suspect that this will So here, and do you suspect that this will ultimately translate in either pressure on pricing or on volumes for your business going forward? Speaker 200:31:57No, we haven't seen it. Now again, there's always an ankle biter in a market here or there who's going to take advantage of Try to grow volume and figure out pretty quickly, right, that's a tough way to make a business and earn your cost of capital. The small container, right, 9.5 percent yield, 1.4% volume, really, really strong numbers for us this quarter. And that's a place we often see the price competition come in. That's where they try to attack because that's a profitable part of the business And people try to build their business there. Speaker 200:32:30They might start out in resi script or start out in temporal off and then they quickly get into that Because that's the higher margin stuff. And so we've not seen the market broadly turn into a negative correction at all. Speaker 300:32:43And the other thing too you have to remember is that there are still supply chain constraints on getting new trucks. So in order to sit there and To Speaker 200:32:51again have that type of behavior, you'd have to Speaker 300:32:53have capacity in your system or be able to secure a new truck in order to service those new accounts. And we are not seeing those supply chain constraints easing anytime soon. Speaker 800:33:05Right. Being a little bit of a natural limiter there. On the CapEx spend, we saw a few of your competitors again increase CapEx a little bit unexpectedly in certain cases. And Just curious how you review your CapEx spend and new projects as they develop. Are you have you looked at your budget for this Is that something you do on an ongoing basis? Speaker 800:33:29Is it upcoming? Are you seeing evidence of projects that perhaps weren't on the horizon or perhaps not In your purview that are starting to pop up, just curious as to on a timeframe when you might update your CapEx budget based on what projects might or may or may not have come into the fold? Speaker 200:33:48Yes. We're doing that on an ongoing basis, right? We're looking at opportunities and Polymer Centers and Blue Polymer are good examples of things that we think if they're value creating sustainable investments over time, we're going to make those investments. But we think also about, hey, normal course of business, what is the budget and not having big any big CapEx bubble. So in this year, for example, the Supply chain is challenged on the truck side. Speaker 200:34:15And so we're able to pull forward a little bit of a spend on heavy equipment This year and some of that truck spend then will flow into next year. So across the 2 years, it will be relatively balanced. So there's always a little bit of push Pull on the margin, but we're looking at it all the time. And then thinking about it in the next year, if there's things that are really value creating, we'll put those into the budget next Cheer. But we're kind of giving you what we see in terms of Blue Polymer and Polymer Centers in terms of investments outside of That including the landfill gas energy projects we've already talked about. Speaker 300:34:48And if you look in the details of the guidance, when we do the reconciliation of adjusted Free cash flow included in that is a guide for the capital expenditures and the number that's in there in the revised guide is exactly the same It's what we guided back in February. Speaker 800:35:05Got it. And last question here is on acquisitions. You had a couple of lumpy chunky ones in the quarter. Is it your intention now to digest a little bit as you go into 2024 or is this something that you think you could keep up a fairly solid clip that even ex Those chunkier acquisitions you would have done otherwise? Speaker 200:35:25No, pipeline remains strong, both on the recycling and solid waste and the environmental solutions side of the business. We're mindful of not loading up a specific geography, right? If they've done a big deal, we want to make sure that they can digest that and get that operational. But we've got a good pipeline of deals of all sizes and we look forward to a strong 2nd half and then into 2024 as well. Speaker 800:35:50That's fantastic. Appreciate the time. Thank you. Operator00:35:57The next question comes from Sean Eastman of KeyBanc Capital Markets. Please go ahead. Speaker 700:36:04Hi, team. Thanks for taking my questions. So particularly in light of the way the EBITDA guidance raise was framed in terms of That pricing falling through to the bottom line and relative to the comments in response to Michael's question about raising Prices successively each quarter. Just in light of those with those as context, could you just talk about what you're seeing in the underlying inflation In the business, how those trended through the quarter? How are you responding? Speaker 700:36:33How these pricing programs are responding to those trends? Speaker 200:36:38Sure. Yes. Different picture obviously, right? Labor has been a really good story for us in terms of we brought the turnover down, Starting to see that inflation certainly modulate. Maintenance has been a little more of a challenge and it's twofold, both of it just the underlying Pires are things and true inflation. Speaker 200:36:57The other is the challenge of the supply chain, right? While we're growing the business, right, and we're not getting the replacement Trucks or the growth trucks we need at the exact clip, that's causing us to drive older trucks and we're going to do that to service our customer and capture the opportunity. So it's still value creating, Well, it is going to show up in that maintenance line in terms of older trucks at higher maintenance cost on that front. But we expect broadly all the cost categories. We're starting to see that inflation modulate in the second half of the year. Speaker 200:37:25And so we should see pretty good price cost spread throughout the remainder of the year. Speaker 700:37:30Okay. And then maybe taking that a little bit further, just trying to think about the jumping off point For margins into next year, just assuming kind of status quo on some of the commodity related inputs. I'm trying to think about the typical 30 to 50 basis points. Should we be building that number off of the second half outlook? As much information Or thoughts as you can provide on that bridge would be really appreciated. Speaker 300:38:07Yes. Look, we're not providing guidance right now For 24. Speaker 700:38:10Totally understand. Speaker 300:38:11But again, if you said when we talk about that kind of 30 basis points to 40 basis points per year, we're doing off of a full year. So again, if you take a look at the midpoint of the EBITDA and the midpoint of the revenue, you can get a baseline adjusted EBITDA margin and think of it off of That because we're saying this year is a relative we were expecting a relatively normal level of seasonality. We always expected it to follow The normal seasonal pattern from a margin profile perspective by quarter. So I think if you look at the full year number, that's a good baseline. Speaker 700:38:47Okay. Thanks a lot, gentlemen, and nice update here. Speaker 200:38:50Thank you. Operator00:38:55The next question comes from Lydia Yawn of Oppenheimer. Please go ahead. Speaker 1100:39:01Hi, sorry. This is Noah Kaye on. How are you? Speaker 200:39:05Hey, Noah. Speaker 1100:39:07Hey, Pat for taking the questions. Maybe we can just make sure we understand to put a final point in the last question, how you think about kind of Yield and margin cadence for the back half, there are some odd comps obviously last year To consider versus what feels in this year, as you said, more like normal seasonality. So can you maybe help us Speaker 800:39:31put a little bit of Speaker 1100:39:31a finer point on it for modeling purposes? Speaker 300:39:35Well, and again, I would say it had more to do with the prior year than the current year. We always said this year we expect more of a normal seasonality Sequentially. And so, again, when you take a look at in a normal year, your two Best quarters tend to be Q2 and Q3 because you're capturing those summer months, right? And then again, you start pulling in some of the in the colder climates Where some of the units start to step down and that's why you see comparably lower margin performance, lower revenue, lower EBITDA in Qs 4 and 1. But as you kind of see this year and you kind of do the math, it looks like second half will be slightly more contribution than first half, Kind of a 49.5%, 50.5% type contribution. Speaker 300:40:25And again, we would say that that's relatively in line With our original expectations. Speaker 400:40:32Okay, Speaker 1100:40:33great. And I think By the way, I take your point around higher flow through on price versus volume and agree with it all day. Speaker 200:40:44And so part of just trying Speaker 1100:40:45to better understand, because I think there's been a theme concerning this around what the volume environment actually looks like. So I just want to make sure I can reconcile something. I think the guide basically implies flat volumes, right, for the back half. And as you said in your commentary, you're not really looking at a flat volume environment, you're still looking at growth. So Just how do I reconcile those? Speaker 1100:41:10Are you maybe just being a little bit conservative given some of the indicators? Just help us make sense. Speaker 200:41:17Yes. So I think just caution and conservatism given the construction market, given obviously the manufacturing industry we talk about and just There's some general uncertainty out there, have we really stopped the soft landing or not. So we want to be cognizant of that. Let's we're still raising. We've got a great story to tell and very, very positive, but on the volume standpoint, we're just being conservative. Speaker 1100:41:42Okay, great. That's helpful. Thank you. Operator00:41:47The next question is from David Manthey of Baird. Please go Speaker 800:41:52ahead. Thanks. Good afternoon, everyone. Question on Environmental Solutions. In broad strokes, Can you outline what that segment might look like in 5 years based on your strategy today? Speaker 200:42:08Yes. We expect to keep growing. And this question comes up often what percentage of the mix is going to be, right? We don't have a target percentage mix. I can tell you that we also plan on growing the recycling sub waste side of the business. Speaker 200:42:21And so whether that is 12%, 14%, 15%, 16%, 1 year might be outsized 1 or the other, but we expect it to contribute. And Most important thing for us is it's related, right? It's the thing that's helping us drive cross sell and stickiness with our customers, Not just in the ES side of the business, but in the recycling and solid waste side of the business. So same formula there, we're going to start with price, Right. We are going to look to gain organic growth, right, and grow some basis points ahead of the market, but not wildly ahead of the market, then have a strong M and A pipeline, but stay very disciplined in terms of double digit returns and make sure that any deal we do there fits our strategy. Speaker 800:43:05Okay. Thank you. And second, I guess someone has to ask about PFAS. So with your current environmental Solutions capabilities, is PFAS remediation a net positive opportunity today for Republic or do you need other pieces to make it that way? Speaker 200:43:23So we see it as a positive. And again, this is not there's laws are still evolving here and the regulations are. And so we're actively having discussions at Federal, state and local level, right, to make sure that we're not and the industry broadly, right, isn't the one holding the bag, right? They should want us to take care of PFOS because we're the one collecting it, we didn't generate it or create it. So we're going to be mindful that we're not penalized because we're doing the right thing from the environment. Speaker 200:43:51And then you flip it on the ES side of the business, lots of opportunities already emerging and lots of customer discussions for how we remediate. We have some Solutions today that portfolio is going to grow. So we think this is a net positive for this one. Speaker 800:44:05Great. Thank you. Operator00:44:11The next question comes from Tobey Sommer of Truist Securities. Please go ahead. Speaker 200:44:18Thanks. Can you keep this pace of margin expansion in ES into 2024? And Where is the ultimate end goal? And maybe speak to the drivers from this low 20% range? Yes. Speaker 200:44:34The ultimate end goal is to harmonize the financial profile of this business with the recycling solid waste side of the business. We think we first will get there in free cash flow conversion Because over the cycle this side of the business has a little less capital intensity and then ultimately margin. We're going to get there in a very disciplined way, Right. You won't see the pace of the margin expansion, right, 5.40 basis points, that's leaps and bounds. We're not going to keep this pace, but I think you're going to see steady Progress on that front. Speaker 200:45:04And listen, there'll be some movement in this business like there is as The economy ebbs and flows, but we're going to take a through cycle mindset, continue to serve customers, stay disciplined, focus on people who are generating recurring revenue Over time and I think you'll see the financial profile harmonize over time in the two sides of the business. How much higher can you drive retention above the 94% level and still have it sort of The economically advantageous and what's driving service delivery improvement now? I'll start with the end of your question. Certainly, technology is helping us on that front. As we put in the RISE platform, It's just allowing positioning our frontline people to succeed every day. Speaker 200:45:54All the information with the customers in front of them, When things come up like a block stop, they can immediately communicate digitally to our logistics department through We're service, so we've got a Speaker 300:46:06full visibility and communicate with Speaker 200:46:08the customer quickly. Turnover coming down is certainly helping that. We feel good about That on the front line of the business. And I don't think we can drive loyalty to 100 because at some point that's unattractive for certain customers who aren't willing to Go on, we want to go from a price increase and there is some natural movement of homes, closures of business, etcetera. But we don't think we're done yet. Speaker 200:46:33We aspire to take that 94 up higher. Thanks. Last one for me. What are the puts and takes Of multiple price hikes per annum as opposed to larger less frequent price hikes? Well, one would be test and learn, right? Speaker 200:46:52So when you put out the price increase, right, you can understand exactly how customers react And are we able to retain that work? And so that's the flexibility we have. Over time, you're not going to see us Our normal case in recycling and salt waste business is typically annual increases when extraordinary things happen like The commodity issue 4, 5 years ago, multiple price increases in a year, but that's not normal course. So over time, the ES business will matriculate to that model as well. Speaker 1100:47:25Thank you very much. Operator00:47:32The next question comes from Stephanie Moore of Jefferies. Please go ahead. Hi, good afternoon. Thank you. Speaker 900:47:42Good afternoon. Speaker 1200:47:44Hi. Sticking on that maybe the ES side and The U. S. Ecology deal, I mean, I think kind of everything that was line, laid out tonight kind of speaks to the strength you've seen, Whether it's pricing or the cross selling, so suffice it to say, is that $75,000,000 to $100,000,000 revenue synergy target, Presumably, we've blown past that at this point. Do you have a new target? Speaker 1200:48:07Or how would you think about kind of ultimately The opportunity you can continue to gather from a cross selling and pricing standpoint and what that means for that original target? Speaker 200:48:18Yes. Listen, the pipeline is strong. Ultimately, this will manifest itself in our guidance for 2024, which we're not talking about today, but that will roll Right. And again, U. S. Speaker 200:48:28Ecology, which was a great company, we were lucky to acquire that most importantly the people, but also those assets. They're now part of Republic Services in the Environmental Solutions business, so we've anniversaried that going forward. And so you'll see that roll through our volume numbers as forecast Speaker 1100:48:472024. Speaker 1200:48:49Okay, got it. And then maybe Can you provide us an update on the joint venture with BP and your of the RNG front, maybe any updates or how it's Speaker 200:49:03Yes, progressing with 57 projects and partnership, The largest chunk of that is with BP, 40 plus projects of those are with BP. And listen, we're hitting our marks broadly. Now there's certainly been some push pull across individual locations, where we've had some capital Delays in being able to get facilities built, but then we've had other places where we've been able to redirect and pull forward faster and get that permitting in place. So ultimately, we're meeting our expectations for what's going to come online by the end of this year. And I think that's a helpful part of our portfolio given the number of sites Where you have 1 or 2 sites that might run into a little bit of delays, you've got the opportunity to look to accelerate other places. Speaker 1200:49:53Okay, got it. So maybe any volatility we've seen with RINs this year and nothing that really doesn't have any Significant impact with kind of your expectations for this year and next, just given the structure of the JV, is that kind of a fair assessment or How would you talk about the money volatility? Speaker 300:50:11From a long term planning, when we talked about how we were valuing these investments, we assume $2 RIN prices Through the cycle. So the more recent uptick in RINs prices will actually be upside to our original expectations. Operator00:50:30All right. Thank you so much. Speaker 200:50:33Thank you. Operator00:50:37The next question comes from Michael Feniger of Bank of America. Please go ahead. Speaker 1300:50:43Hey guys, thanks for squeezing me in. Just Brian, the M and A rollover, you said Nectar is 50 basis points. I think typically M and A ends up being margin dilutive, but some of the acquisitions look Like nice assets like Colorado. Just on that 50 bps next year, is there any chance that M and A isn't margin dilutive that it could be neutral or even accretive basis of the assets you guys were able to purchase? Speaker 300:51:12Yes. On a majority of that 50 basis point rollover, We would expect that to be at the margin Speaker 1300:51:21plus. Great. And I guess just for My second question, free cash flow is tracking well. I think the conversion is going to be in that 44% range, in line with last year. I guess with all the conversations about sustainability investments and these projects, just do you think that free cash flow conversion Is going to plateau or is there an opportunity for next year for 2024 to see that breakout a little bit and step up? Speaker 1300:51:49What are some things that we should consider that might maybe hold that back or potential upside for that into next year? Yes. Speaker 300:51:57Well, a couple of things. So I mean your observation of relatively flat with 2022. Be mindful though that we're overcoming over 300 basis So the underlying business is actually offsetting all of that to drive a result that looks relatively flat. That said, the contribution as we start thinking about the RNG plants and we think about polymer centers and blue polymers, all of which would be accretive New current company performance, that should all be additive. And as long as we don't continue to experience these year over year headwinds like we did this year in those three areas I As mentioned, you should start to see that flow through. Speaker 1300:52:43Great. And Brian, just maybe just the last one. Just when I look at the open 1st restricted pricing, obviously very healthy. How do we kind of think of those moving parts as we go into second half? And Any visibility we kind of have in the first half next year just based on how we do the look back? Speaker 1300:53:01Thank you. Speaker 300:53:03Yes. So again, when we think about open market pricing and we said this all along that we expected relatively higher pricing in the first half as compared The second half, Speaker 200:53:14not really a function of what we're doing in the Speaker 300:53:16current year, it's just we start getting into tougher comps. Operator00:53:19And again, Speaker 300:53:20it's a year over year comparison, so expressed as a You start to see that modulate a little bit, but again all staying within call it 50 basis points of the full year guide. So it steps down a little bit. Within the restricted as we book forward, it depends really on the pricing So while we see potentially some of the CPI escalators, right, sequentially start to step down, Water, sewer, trash and garbage trash are doing the exact opposite. Each month they tend to improve. So again, we see it being relatively Consistent in the restricted portion of the book just because what we see in step downs in CPI being offset again by those alternative indices. Speaker 1100:54:04Thank Operator00:54:08you. The next question comes from Kevin Chiang of CIBC. Please go ahead. Speaker 1400:54:16Thanks for squeezing me. Maybe just one for me. I'm just wondering when you think of ES margins from the low 20s To eventually 30%. It sounds like pricing is tracking well. You've got the cross selling opportunities. Speaker 1400:54:30Just you've had the success rolling on technology, automation, a bunch of things that have helped improve your solid waste margins. Just wondering how many of those initiatives you've rolled into ES or maybe how many of those initiatives would be applicable in the ES segment that could help bridge that gap? And is there a way to maybe Quantify how much that could be to margins if you roll out some of that technology into the Environmental Solutions business? Speaker 200:54:57Yes. No, it's a great question. Right now that's all cost, no benefit. So we're investing a lot in IT and doing a lot of hard integration work US Ecology, but also ACV and a lot of the legacy assets we have all on the common platform, starting with the customer, how do we make that service offering even more compelling By getting digitally integrated with them. And then there's certainly some things on the operating side of the business, which will also help us drive labor utilization, More efficiency in terms of material flow, etcetera. Speaker 200:55:28We haven't quantified exactly what that's worth yet, but that will be part of the path to get 30 and when we get a little further down the road, we'll talk about those initiatives in more detail. Speaker 1400:55:37Okay. That's helpful. I'll leave it there. It's been a long call. Thank you very much. Speaker 1100:55:41Kevin. Operator00:55:46The next question comes from Stephanie Yih of JPMorgan. Please go ahead. Speaker 1500:55:52Hi, good afternoon. I want to ask about the Polymer Centers, so the Las Vegas, Midwest and the 2 Others that you're planning to build, is 4 kind of the gating factor because of how much Plastics you're actually collecting in your recycling routes or if there is a lot of demand, would you consider investing in more than 4 facilities? Speaker 200:56:19Yes. 4 was the business case we based it off of with all the material we collect today. So we don't have supply risk, Which is great. Now we built those centers with the capacity to take third party volume and we're already getting some of that. So we've created a brokered asset that's already starting to capture Some third party volume and it's a great value proposition. Speaker 200:56:37For example, if you have a municipally owned recycling center, we can take labor out of your facility, right, give you a few more Penny, it's for that load and it's part of your sustainability story as well. So you share in the environmental benefits of that. Over time, right, as that demand for 3rd party continues to grow, we could imagine 5 or 6 centers. It's regionally based all hub and spoke model. So we've got the flexibility in the network over time that if the demand outstrips the capacity of the 4 that we'll continue to invest. Speaker 1500:57:10Okay. That's very helpful. And just on the Blue Polymers JV, Can you give us an idea of the CapEx spend that would be coming from Republic or is it too early at this point? Speaker 300:57:24Remember, it's more we're a minority owner, so it's more an investment, then it will come through CapEx. But we're thinking That our allocable share would be about $40,000,000 per facility or $160,000,000 in total over the next 5 to 6 years. Speaker 1500:57:41Okay. Okay, that's helpful. Thank you. Operator00:57:49At this time, there are no further questions. I'd like to turn the conference back over to Mr. John Vander Ark for any closing remarks. Speaker 200:57:58Thank you, Andrea. This month marks the 25th anniversary of Republic Services stock trading on the New York Stock Exchange. I would like to thank all of our stakeholders, including customers, employees, communities and shareholders for their commitment and support in building this great organization. Have a good evening and be safe. Operator00:58:21Ladies and gentlemen, this concludes the conference call. Thank you for attending and you may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallRepublic Services Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) 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.comTrump’s treachery Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 25, 2025 | Porter & Company (Ad)Republic Services 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. 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There are 16 speakers on the call. Operator00:00:00Afternoon, and welcome to the Republic Services Second Quarter 2023 Investor Conference Call. 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. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations. Operator00:00:40Please go ahead. Speaker 100:00:44I would like to welcome everyone to Republic Services' 2nd quarter 2023 conference call. John Vander Ark, our CEO and Brian DelGachio, 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 100:01:19If in the future, you listen to a rebroadcast or recording of this conference call, You should be sensitive to the date of the original call, which is July 31, 2023. Please note that this call is property of Republic Services Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited. I want to point out that our SEC filings, our earnings press release, which includes GAAP reconciliation tables and a discussion of business activities, Along with the recording of this call are available on Republic's website at republicservices.com. I want to remind you that Republic's management team routinely When events are scheduled, the dates, times and presentations are posted on our website. Speaker 100:02:09With that, I would like to turn the call over to John. Speaker 200:02:12Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. Our strong second quarter results demonstrate the value created by our differentiated capabilities and the execution of our strategic priorities. We continue to successfully grow our business both organically and through acquisitions while enhancing profitability. During the quarter, We delivered revenue growth of 9%, including more than 4% from acquisitions, generated adjusted EBITDA growth of 10.5%, Expanded EBITDA margin by 40 basis points, reported adjusted earnings per share of 1.41 and produced $1,260,000,000 of adjusted free cash flow on a year to date basis, a 10% increase over the prior year. Speaker 200:03:01We continue to effectively allocate capital by investing in acquisitions to create long term value. Year to date, we invested $927,000,000 of acquisitions. All transactions were in the recycling and solid waste space, including the acquisition of assets in Colorado, New Mexico from GFL. The M and A environment remains Active with opportunities in both the Recycling Solid Waste and Environmental Solutions businesses. We now expect investment in value creating and increasing the profitability of our Environmental Solutions business. Speaker 200:03:44Pricing realization in this business remains strong. Customers value our complete set of products and services. We have achieved over $110,000,000 in new sales to date as a result of cross selling our products and services. The sales pipeline is robust with opportunities for organic growth Expansion of services within our existing customer base. We achieved more than $40,000,000 of annualized cost synergies And EBITDA margin in the Environmental Solutions business improved more to more than 22% in the quarter. Speaker 200:04:20The strong results we achieved through the first half of the year along with the positive momentum in our business supports a full year financial outlook that exceeds our original expectations. We now expect revenue in a range of $14,775,000,000 to $14,850,000,000 adjusted EBITDA in a range of $4,340,000,000 to $4,360,000,000 Adjusted earnings per share in a range of $5.33 to $5.38 and adjusted free cash flow in a range of $1,900,000,000 to $1,925,000,000 Our updated financial guidance includes the contribution from acquisitions closed through June 30. The results we are delivering are made possible by Our strategy supported by our differentiated capabilities, customer zeal, digital and sustainability. Regarding customer zeal, our efforts to deliver industry leading service continues to drive sustained customer loyalty and organic growth. Our customer retention rate remained over 94% and we continue to see positive trends in our Net Promoter Score supported by improved service delivery. Speaker 200:05:38Organic revenue growth remained strong during the quarter and simultaneously increases in both price And volume. Core price on related revenue was 8.8% and average yield on related revenue was 7.1%. This includes landfill MSW yield of 6.2%. This is the highest level of performance in company history in this category. Organic volume growth on related revenue was 50 basis points. Speaker 200:06:07Turning to digital. We have reached a milestone in our efforts to create digital tools to enhance our customers' and employees' experience and deliver meaningful financial benefits. The deployment of Ryze tablets in our recycling and solid waste collection business was completed during the Q2. The next phase of our digital operations is expected to drive additional productivity savings through route adherence, improve safety performance and provide more predictable service delivery for our customers. In total, we believe the benefits of our digital initiatives are worth approximately $100,000,000 with $50,000,000 already achieved and $50,000,000 to be captured over the next 3 years. Speaker 200:06:48Moving on to sustainability. We continue to invest in differentiating capabilities to leverage sustainability as a platform for profitable growth. Earlier today, we announced a joint venture with RIVAGO called Blue Polymers. This groundbreaking partnership further supports our efforts to lead In plastic circularity, Blue Polymers will utilize recycled olefins from our polymer centers to create blended pellets for use We expect to open 4 facilities beginning in late 2024 with earning contribution beginning in 2026. Development of our Polymer Centers in Las Vegas and the Midwest remain on track with the centers becoming operational in late 'twenty three and late 'twenty four, respectively. Speaker 200:07:37Demand for recycled plastics remains strong as the consumer goods industry continues to work toward achieving their sustainability goals. For example, we are partnering with The Coca Cola Company to supply recycled PT from our polymer centers for use in sustainable packaging. The 57 renewable natural gas projects being co developed with our partners are advancing. We expect 4 of these projects to be operational by the end of the third Finally, we continue to believe that creating a more sustainable world is our responsibility and a platform for growth. We recently published our latest sustainability report, highlighting the progress we are making on our 2,030 goals. Speaker 200:08:19These goals are supported by investments we are making in Polymer Centers, the Blue Polymers joint venture, renewable natural gas projects and fleet electrification. I will now turn the call over to Brian, who will provide details for the quarter. Speaker 300:08:33Thanks, John. Core price on total revenue was 7.3%. Core price on related revenue was 8.8%, which included open market pricing of 11% and restricted pricing of 5.3%. The components of core price on related revenue included small container of 12.3%, large container of 8 8% and residential of 8.3%. Average yield on total revenue was 5.9% Inflation to drive margin expansion in the underlying business. Speaker 300:09:14Volume on total revenue increased 40 basis points, While volume on related revenue increased 50 basis points, the components of volume on related revenue included an increase in small container of 1.4%, An increase in residential of 80 basis points and an increase in landfill of 3.7%. Landfill was primarily driven by an 8.3% increase in special waste revenue. Volume growth was partially offset by a decrease in large container of 1 point 3% primarily due to a slowdown in construction related activity. Moving on to recycling. Commodity prices were $119 per ton during the quarter. Speaker 300:09:56This compared to $2.18 per ton in the prior year. Recycling processing and commodity sales decreased revenue by 1.1% during the quarter. Current commodity prices are approximately 1 $115 per ton. We believe commodity prices will remain relatively flat with current levels in the second half of the year. And we now expect average recycled commodity prices in a range of $110 to $115 per ton for the full year. Speaker 300:10:27Next, turning to our Environmental Solutions business. 2nd quarter Environmental Solutions revenue increased $104,000,000 over the prior year, which primarily relates to the acquisition of U. S. Ecology. On a same store basis, Environmental Solutions contributed 20 basis points to internal growth during the quarter. Speaker 300:10:48Adjusted EBITDA margin for the Environmental Solutions business was 22.5%, a sequential increase of more than 150 basis points. Total company adjusted EBITDA margin expanded 40 basis points to 30% during the quarter. Margin performance included a 50 basis point decrease from recycled commodity prices and a 30 basis point decrease from acquisitions, which was fully overcome by a 100 basis point increase from net fuel and margin expansion in the underlying business of 20 basis points. Year to date adjusted free cash flow was $1,260,000,000 Our performance through the first half benefited from the timing of capital expenditures and cash taxes. Year to date capital expenditures of $550,000,000 represents 33% of our projected full year spend And year to date adjusted cash taxes of $99,000,000 represents 40% of our projected full year spend. Speaker 300:11:49Total debt was $12,200,000,000 and total liquidity was $2,100,000,000 Our leverage ratio at the end of the quarter returned to approximately 3 times. With respect to taxes, our combined tax rate and effects from solar investments resulted in an equivalent tax impact of 26.8 percent during the Q2, which was in line with our expectations. We expect an equivalent tax impact of 25% in the second half The year resulting in a full year equivalent tax impact of approximately 25.5%. With that operator, I would like to open the call to questions. Operator00:12:58Your first question comes from Brian Bergmeier of Citi. Please go ahead. Speaker 400:13:06Good afternoon. Thanks for taking the question. On the Blue Polymer announcement this morning, is that something that's already captured in the pro form a earnings Polymer centers that you've spoken about previously, or is this going to be incremental? And if it is incremental, could you give us a sense of the potential earnings impact? Speaker 200:13:28No, it's incremental. So think about that Polymer Center producing 2 things, PET on one side and Olefins on the other side, at the PET, we take into a flake basically, a hot wash clean flake that's food grade that can go right back into Speaker 300:13:44Water bottle manufacturing or other types of PT applications, Speaker 200:13:48on the olefins, it takes a slightly different path. So we Sort get full collection of that olefins and then we feed the Polymer Center. So this basically guarantees the demand on the back end of our Polymer Center for the olefin Side of it? And then RIVAGO is world class at compounding and blending olefins to create unique products. And so that's why we partnered with them. Speaker 200:14:11We think we can provide the right applications to the market. We get to participate. Not only do we get the supply, so a fixed Supply agreement on one side, we get to participate in the benefit and the upside as a 45% minority J. D. Partner. Speaker 300:14:26Yes. From an economics perspective, we look at our equity pickup, that one line pickup beginning in 2026, Two centers, somewhat contributing, in that year with about $15,000,000 So you can think $7,000,000 to $8,000,000 per center, And then getting $7,000,000 to $8,000,000 incremental in both $27,000,000 and $28,000,000 ultimately we see $30,000,000 to $32,000,000 worth of EBITDA for all 4 at run rate in 2029. Speaker 400:14:58Understood. Thanks for that detail. If I can just maybe follow-up on the recycling business. I think your filings say your volume is about 80% Fiber, once the Polymer Centers are online, do you think that 80% fiber exposure drops a bit? Or is there maybe a different way we should start Value versus volume? Speaker 400:15:19Thanks and I'll turn it over. Speaker 200:15:22Yes. Listen, initially, it won't drop much at least from a volume standpoint because what we're really doing in the Polymer Center is taking things that are down cycled today and some material along the way in that down cycling is lost at landfill To get full volume recovery out of that plastic and get much higher yield because they're driving true circularity. Now these polymer centers are built So over time, we'll flow 3rd party product in there that will put more plastic into the system and Dilute the fiber percentage, right, at a certain level, but you're probably talking more like going from 80% to 75% versus a major change in the mix. Operator00:16:07The next question comes from Toni Kaplan of Morgan Stanley. Please go ahead. Speaker 500:16:13Thanks so much. You mentioned a couple of comments on volume and was just wondering if volume was sort of in line with what you were expecting or if it was a little bit lighter. And I know you mentioned the Construction activity and the special waste, was something mentioned by one of your competitors as slowing. I know here you got the 8.3% increase in special waste revenue, but just anything on volume trends and where things are above or below what you were expecting how you think for the rest of the year? Speaker 200:16:50Yes, I'd say broadly kind of in line with expectation, probably slightly ahead in certain areas, so construction, we anticipated that being down. We saw residential and commercial starts obviously start to soften in the second half of last year and there's a lag effect As you know, we have jobs that are getting completed. And so we're down 3.8%, but we have really strong pricing there. So we've taken the opportunity there to stay disciplined on price and making sure that we're Stay disciplined on price and making sure that we're getting a positive mix, right, even in that environment. And then other special waste, right, is attractive, but part of that special waste clearly is our cross sell initiatives, The U. Speaker 200:17:28S. Ecology acquisition, we have now a unique offering in the marketplace and we're seeing customers demand That unique offering, so that's certainly helping us. Small container was a bright spot, right, in terms of volume growth for the quarter. So I feel really good about That as well. And again, I'd say broadly in line with what we expected. Speaker 300:17:49Yes. And Tony, if you remember, in our original guidance, The range on volume was 50 basis point to 1 percent positive. And now we're thinking it's at that still within the range, but at the lower end. But at the same time, we increased our guidance on average yields, right? So the flow through in the contribution of a 50 basis Point increase on yield is much more significant to the enterprise in our results than the 50 basis point decrease on the volume side. Speaker 500:18:20Yes, understood. And then you mentioned the partnership with Coca Cola. Can you talk about potential impacts from that? It might be a little bit longer term, but just any thoughts on how to quantify how you're thinking about that partnership and the benefits to you? Thank you. Speaker 200:18:40Yes. Coca Cola has been a great partner. I would say this demand for our product out of the Polymer Center Outstripped supply by a lot, right? So we were able to talk to a number of parties, right? We could have sold the Las Vegas Center out 3 or 4x It's over without challenges because the market is so short supply for this type of ARPU that's food grade. Speaker 200:19:02And we're taking it right now the single site over time will take the Midwest site and then these partnerships will evolve and I'm Certainly, they'll grow, right, as we expand the network, but that's all we're disclosing at this point. Speaker 500:19:15Terrific. Thank you. Operator00:19:20The next question comes from Tyler Brown of Raymond James. Please go ahead. Speaker 600:19:26Hey, good afternoon guys. Speaker 200:19:28Hey, John. Speaker 600:19:29Hey, Brian, just real quick from a modeling perspective, What is the expected contribution from M and A in the new revenue guidance? I think it was supposed to be maybe a 3% contributor coming into the year. Is it maybe closer to 3.5% to 4% and then how much rolls into 2024 based on what we know today? Speaker 300:19:48Yes. So the in year contribution rollover 22 transactions as well as the in year impact from 2023 transactions, we're thinking 4.25%, Right. And the rollover impact into 2024, right, from the deals that were completed in 2023, we think adds 50 basis points To our 2024 revenue growth. Speaker 600:20:11Okay. Perfect. That's helpful. And then, so I just kind of want to think about the EBITDA A little bit. So it looks like you raised EBITDA by call it $50,000,000 But if I'm not mistaken, you actually lowered your commodity But then you added in some M and A. Speaker 600:20:27So basically I'm trying to bridge that change. How much of the EBITDA change was basically core versus some other moving pieces, If that makes sense at all. Speaker 300:20:37Yes, let me answer the question. The short story is that the entire increase is essentially the underlying business. So let me go through some of the puts and takes. So to your point, right, we've added EBITDA associated with acquisitions, but most of those acquisitions were We've also got deal and integration costs. 2 of these deals Required regulatory filings, so we had heavy legal costs. Speaker 300:21:03We also have a fairly significant integration costs Just because one of those deals requires that we rebrand the trucks within the 1st 6 months. So the contributions from acquisitions in here is still positive, but it's somewhat muted. To your point, that's been further offset by the reduction in recycled commodity prices. So if you think about taking all those things I just mentioned relative Our original guide, it's a relative push. The $50,000,000 increase in EBITDA at the midpoint is essentially the increase in price Speaker 200:21:34Flowing through to the bottom line. Speaker 600:21:36Okay, perfect. Speaker 700:21:37Yes, okay. Speaker 600:21:37That's what I thought. Okay. And just real quick on my last one here. So if we just exclude Blue Polymer And we just look at the Vegas facility, what is the expected EBITDA impact of that facility in 2024? And then How dependent will it be on recycled plastic prices? Speaker 600:21:55Because we have seen some weakness there recently. And basically, sorry, does this Blue Polymer JV, does it kind of inoculate that offtake risk longer term? Am I thinking about all that right? Speaker 300:22:10Yes. Let me go ahead and start. You had a couple of questions there. So we'll kind of unpack some of those. So the expected contribution from just the Polymer Right. Speaker 300:22:17So this is the one in Vegas in 24,000,000 is $15,000,000 right, of EBITDA contribution in 24,000,000 Speaker 200:22:24You can then think Speaker 300:22:25of about an incremental $20,000,000 per year thereafter, right, as we bring other centers online, ultimately getting to about $80,000,000 worth EBITDA at run rate in 2028. To your other point, right, on the blue polymers, yes, We are going to be selling all of the olefins coming out of the Polymer Center to the Blue Polymers JV, Right. So when you start thinking about the offtake agreement there that guarantees, right, a contractual rate for all of those units leaving Polymers on the olefin Speaker 400:23:00side I'm Speaker 300:23:01sorry, Polymer Center on the olefin side. Speaker 600:23:04Okay, perfect. Yes. So it kind of helps inoculate the offtake longer term? Yes. Speaker 800:23:09If I read it right. Correct. Speaker 600:23:10Okay. All right. Thank you guys so much. Thank you. Speaker 200:23:13Thanks, Howard. Operator00:23:18The next question comes from Jerry Revich of Goldman Sachs. Please go ahead. Speaker 900:23:24Good afternoon and good evening, everyone. Hi, Craig. John, I'm wondering if you could just Expand on comments you recently made to The Wall Street Journal. You spoke about having visibility on double digit top line growth here in the medium term. I'm Wondering if you could just unpack what gives visibility on that between polymer, M and A yield, other moving pieces So in that type of top line environment, do you think you can still deliver the 2x leverage between Revenue and earnings that Republic has done over the past decade? Speaker 900:24:01Thanks. Speaker 200:24:04Yes. We're certainly starting with price, That's always the first component, right? We have to price ahead of our cost. You've seen the organic growth picture. And the underlying Solid waste and recycling business is a slow growth business, right? Speaker 200:24:18And we expect to grow slightly faster than the market, only slightly because it's a highly contracted market and Shares don't move easily and again we're always going to stay disciplined on price first. As we've expanded into Environmental Solutions, The underlying growth from an organic standpoint is certainly a little stronger. So that's a tailwind. On the growth side, we're Doing more M and A than we ever had, right? It was 6 or 7 years ago, we talked about spending $100,000,000 a year in M and A, right? Speaker 200:24:44And then that's been ramped up to $500,000,000 to $700,000,000 and obviously with an outsized year last The US Ecology acquisition and got to $3,000,000,000 but even outside of US Ecology, it's $800,000,000 of deals outside of US Ecology. And this year, we've said more than $1,000,000,000 and we're already sniffing up against that number. So M and A is certainly contributing. And then our other sustainability investments, right, are nice contributors and probably a little less on the top line in terms of really moving the needle given the scale of the business. But on the bottom line, right, So kind of high EBITDA margin investment opportunities, very high return. Speaker 200:25:19So we feel great about that over time. Speaker 900:25:24Subra, and Brian, can I ask separately, in the quarter, really strong Margin performance, your COGS per unit were up just 3%? Any in terms of lumpy items that contributed to the results In the quarter or were the results pretty clean? It sounds like attrition was pretty low, but I'm wondering were there any other moving pieces that Help margins or costs in the quarter that we should keep in mind before run rating the really strong results? Speaker 300:25:55I would say there's always some puts and takes, but I would say if you aggregate those from a net number perspective, it was a fairly clean quarter. Speaker 900:26:04Well done. Thank you. Operator00:26:10The next question comes from Michael Hoffman of Stifel. Please go ahead. Speaker 1000:26:15Hi, good afternoon. Thank you. Brian, could we walk through a dollar reconciliation of last year's EBITDA to this year's EBITDA on a dollar basis? So not just the Aggregate change the 50, but what are the what are all the puts and takes? Because I think I have this sense that we're understating the power of solid waste by just saying 50. Speaker 1000:26:38This is on the guide. Speaker 200:26:39Sorry, I meant the guide. Speaker 300:26:40Yes, the guide. So Michael, as I mentioned, we're not going to get To the individual components of the EBITDA contribution of our acquisitions and other things. But what I can tell you is, as I just said, With Tyler on the phone, if you take a look at the in year acquisition contribution, net of those deal and integration costs, Right. That is a positive number, which is almost entirely offset by the reduction in recycled commodities. That reduction in recycled commodities is about $15,000,000 to $20,000,000 negative compared to our original expectations. Speaker 300:27:17So if you look at guide to guide, right, the midpoint, Our EBITDA is up $50,000,000 which is the underlying business made up primarily of relatively higher price. We took our yield from 5.5% on total revenue to 6%. We took it from 6.5% unrelated to 7%. So that's that 50 basis points As well as just outperformance within the Environmental Solutions business. That's what's contributing right to the overall increase in EBITDA. Speaker 1000:27:49Okay. Could we then talk about Environmental Solutions? And would you talk about the price volume mix Fair because I think it's important for everybody to see that there's a combination of both and that the pricing of a scarce asset continues? Speaker 200:28:05Yes. Let me start there, Michael. We're working through that. Obviously, it's a little bit like special waste in terms of there's Mix issue that there's a lot of unique products and services. So we haven't nailed yet what we might report externally in terms of A price or yield metric there, certainly our aspiration over time, whether that's for large parts of the business like yield per drum or things like that Work through it, but a huge portion of the outperformance there is price. Speaker 200:28:36We've taken multiple double digit price increases And we will lead from a pricing standpoint. And that's caused a few units to be shed in certain places, so we found the ceiling, But we're unafraid. These are valuable assets impossible to replicate and customers are valuing what we're offering. We're going to continue to push on that front. And that also combined with a cross sell, which is where we're driving a lot of the volume has been a really good story and picture Yes. Speaker 200:29:05And I mean just Speaker 300:29:06to put some numbers on that, Michael, if you take a look at the Environmental Solutions business this time last year 17.1 percent EBITDA margin, this quarter 22.5 percent. So that 540 basis points of margin improvement Is essentially most of that being price driven, but also just better overall utilization as well. We're becoming more efficient And we're optimizing from a labor perspective. So when we do get those units, not just because of the price alone, but as far as the overall profitability of each one of those Jobs were just becoming overall more efficient as we have better utilization of the assets and the resources that are providing those services. Speaker 1000:29:47Okay. If I could just tease out one thing. We've had negative trends in ISM PMI We're below 50 on the index. It looks like it's floor bottoming, but is there positive volume even if I don't get the Split, there's positive volume plus a lot of price? Speaker 200:30:07Yes, I think, yes. And so we look at all those indices too, Michael, and I think what we're not fully accounting for is a lot of the infrastructure spend and the government spending is flowing through and we're certainly getting a lot of opportunity there. Speaker 1100:30:20Okay. Speaker 200:30:21And I think Speaker 300:30:21the other thing too, Michael, that we're also seeing right now as well as the benefit of the cross sell. As we said, we've now increased reported more than $110,000,000 in new sales, which is positively impacting both the Environmental Solutions business As well as the recycling and solid waste business, but more of that positively impacting the environmental solutions business just because when you take a look at the revenue per customer tends Just be higher than we see in recycling in the Southwest. Speaker 1000:30:50All right. I'll try to use one more if I can. You raised price in 4Q, you raised it in 1Q. Did you raise it in 2Q as well? Speaker 300:30:59We are actually in the process of raising prices here early in 3Q. Speaker 1000:31:05Perfect. Thank you so much. Operator00:31:10The next question comes from Walter Spracklin of RBC Capital Markets. Please go ahead. Speaker 800:31:17Yes, thanks very much. Good afternoon, everyone. Just on the volume, good job On growing that volume amid some of your peers seeing it contract a little bit, but I'm just curious as to whether we're hearing A little bit on the price competition from smaller players that are somewhat Less disciplined in that regard and some of your peers walking away from that. Are you seeing any evidence that smaller players are acting a little bit more aggressive here? And do you suspect that this will So here, and do you suspect that this will ultimately translate in either pressure on pricing or on volumes for your business going forward? Speaker 200:31:57No, we haven't seen it. Now again, there's always an ankle biter in a market here or there who's going to take advantage of Try to grow volume and figure out pretty quickly, right, that's a tough way to make a business and earn your cost of capital. The small container, right, 9.5 percent yield, 1.4% volume, really, really strong numbers for us this quarter. And that's a place we often see the price competition come in. That's where they try to attack because that's a profitable part of the business And people try to build their business there. Speaker 200:32:30They might start out in resi script or start out in temporal off and then they quickly get into that Because that's the higher margin stuff. And so we've not seen the market broadly turn into a negative correction at all. Speaker 300:32:43And the other thing too you have to remember is that there are still supply chain constraints on getting new trucks. So in order to sit there and To Speaker 200:32:51again have that type of behavior, you'd have to Speaker 300:32:53have capacity in your system or be able to secure a new truck in order to service those new accounts. And we are not seeing those supply chain constraints easing anytime soon. Speaker 800:33:05Right. Being a little bit of a natural limiter there. On the CapEx spend, we saw a few of your competitors again increase CapEx a little bit unexpectedly in certain cases. And Just curious how you review your CapEx spend and new projects as they develop. Are you have you looked at your budget for this Is that something you do on an ongoing basis? Speaker 800:33:29Is it upcoming? Are you seeing evidence of projects that perhaps weren't on the horizon or perhaps not In your purview that are starting to pop up, just curious as to on a timeframe when you might update your CapEx budget based on what projects might or may or may not have come into the fold? Speaker 200:33:48Yes. We're doing that on an ongoing basis, right? We're looking at opportunities and Polymer Centers and Blue Polymer are good examples of things that we think if they're value creating sustainable investments over time, we're going to make those investments. But we think also about, hey, normal course of business, what is the budget and not having big any big CapEx bubble. So in this year, for example, the Supply chain is challenged on the truck side. Speaker 200:34:15And so we're able to pull forward a little bit of a spend on heavy equipment This year and some of that truck spend then will flow into next year. So across the 2 years, it will be relatively balanced. So there's always a little bit of push Pull on the margin, but we're looking at it all the time. And then thinking about it in the next year, if there's things that are really value creating, we'll put those into the budget next Cheer. But we're kind of giving you what we see in terms of Blue Polymer and Polymer Centers in terms of investments outside of That including the landfill gas energy projects we've already talked about. Speaker 300:34:48And if you look in the details of the guidance, when we do the reconciliation of adjusted Free cash flow included in that is a guide for the capital expenditures and the number that's in there in the revised guide is exactly the same It's what we guided back in February. Speaker 800:35:05Got it. And last question here is on acquisitions. You had a couple of lumpy chunky ones in the quarter. Is it your intention now to digest a little bit as you go into 2024 or is this something that you think you could keep up a fairly solid clip that even ex Those chunkier acquisitions you would have done otherwise? Speaker 200:35:25No, pipeline remains strong, both on the recycling and solid waste and the environmental solutions side of the business. We're mindful of not loading up a specific geography, right? If they've done a big deal, we want to make sure that they can digest that and get that operational. But we've got a good pipeline of deals of all sizes and we look forward to a strong 2nd half and then into 2024 as well. Speaker 800:35:50That's fantastic. Appreciate the time. Thank you. Operator00:35:57The next question comes from Sean Eastman of KeyBanc Capital Markets. Please go ahead. Speaker 700:36:04Hi, team. Thanks for taking my questions. So particularly in light of the way the EBITDA guidance raise was framed in terms of That pricing falling through to the bottom line and relative to the comments in response to Michael's question about raising Prices successively each quarter. Just in light of those with those as context, could you just talk about what you're seeing in the underlying inflation In the business, how those trended through the quarter? How are you responding? Speaker 700:36:33How these pricing programs are responding to those trends? Speaker 200:36:38Sure. Yes. Different picture obviously, right? Labor has been a really good story for us in terms of we brought the turnover down, Starting to see that inflation certainly modulate. Maintenance has been a little more of a challenge and it's twofold, both of it just the underlying Pires are things and true inflation. Speaker 200:36:57The other is the challenge of the supply chain, right? While we're growing the business, right, and we're not getting the replacement Trucks or the growth trucks we need at the exact clip, that's causing us to drive older trucks and we're going to do that to service our customer and capture the opportunity. So it's still value creating, Well, it is going to show up in that maintenance line in terms of older trucks at higher maintenance cost on that front. But we expect broadly all the cost categories. We're starting to see that inflation modulate in the second half of the year. Speaker 200:37:25And so we should see pretty good price cost spread throughout the remainder of the year. Speaker 700:37:30Okay. And then maybe taking that a little bit further, just trying to think about the jumping off point For margins into next year, just assuming kind of status quo on some of the commodity related inputs. I'm trying to think about the typical 30 to 50 basis points. Should we be building that number off of the second half outlook? As much information Or thoughts as you can provide on that bridge would be really appreciated. Speaker 300:38:07Yes. Look, we're not providing guidance right now For 24. Speaker 700:38:10Totally understand. Speaker 300:38:11But again, if you said when we talk about that kind of 30 basis points to 40 basis points per year, we're doing off of a full year. So again, if you take a look at the midpoint of the EBITDA and the midpoint of the revenue, you can get a baseline adjusted EBITDA margin and think of it off of That because we're saying this year is a relative we were expecting a relatively normal level of seasonality. We always expected it to follow The normal seasonal pattern from a margin profile perspective by quarter. So I think if you look at the full year number, that's a good baseline. Speaker 700:38:47Okay. Thanks a lot, gentlemen, and nice update here. Speaker 200:38:50Thank you. Operator00:38:55The next question comes from Lydia Yawn of Oppenheimer. Please go ahead. Speaker 1100:39:01Hi, sorry. This is Noah Kaye on. How are you? Speaker 200:39:05Hey, Noah. Speaker 1100:39:07Hey, Pat for taking the questions. Maybe we can just make sure we understand to put a final point in the last question, how you think about kind of Yield and margin cadence for the back half, there are some odd comps obviously last year To consider versus what feels in this year, as you said, more like normal seasonality. So can you maybe help us Speaker 800:39:31put a little bit of Speaker 1100:39:31a finer point on it for modeling purposes? Speaker 300:39:35Well, and again, I would say it had more to do with the prior year than the current year. We always said this year we expect more of a normal seasonality Sequentially. And so, again, when you take a look at in a normal year, your two Best quarters tend to be Q2 and Q3 because you're capturing those summer months, right? And then again, you start pulling in some of the in the colder climates Where some of the units start to step down and that's why you see comparably lower margin performance, lower revenue, lower EBITDA in Qs 4 and 1. But as you kind of see this year and you kind of do the math, it looks like second half will be slightly more contribution than first half, Kind of a 49.5%, 50.5% type contribution. Speaker 300:40:25And again, we would say that that's relatively in line With our original expectations. Speaker 400:40:32Okay, Speaker 1100:40:33great. And I think By the way, I take your point around higher flow through on price versus volume and agree with it all day. Speaker 200:40:44And so part of just trying Speaker 1100:40:45to better understand, because I think there's been a theme concerning this around what the volume environment actually looks like. So I just want to make sure I can reconcile something. I think the guide basically implies flat volumes, right, for the back half. And as you said in your commentary, you're not really looking at a flat volume environment, you're still looking at growth. So Just how do I reconcile those? Speaker 1100:41:10Are you maybe just being a little bit conservative given some of the indicators? Just help us make sense. Speaker 200:41:17Yes. So I think just caution and conservatism given the construction market, given obviously the manufacturing industry we talk about and just There's some general uncertainty out there, have we really stopped the soft landing or not. So we want to be cognizant of that. Let's we're still raising. We've got a great story to tell and very, very positive, but on the volume standpoint, we're just being conservative. Speaker 1100:41:42Okay, great. That's helpful. Thank you. Operator00:41:47The next question is from David Manthey of Baird. Please go Speaker 800:41:52ahead. Thanks. Good afternoon, everyone. Question on Environmental Solutions. In broad strokes, Can you outline what that segment might look like in 5 years based on your strategy today? Speaker 200:42:08Yes. We expect to keep growing. And this question comes up often what percentage of the mix is going to be, right? We don't have a target percentage mix. I can tell you that we also plan on growing the recycling sub waste side of the business. Speaker 200:42:21And so whether that is 12%, 14%, 15%, 16%, 1 year might be outsized 1 or the other, but we expect it to contribute. And Most important thing for us is it's related, right? It's the thing that's helping us drive cross sell and stickiness with our customers, Not just in the ES side of the business, but in the recycling and solid waste side of the business. So same formula there, we're going to start with price, Right. We are going to look to gain organic growth, right, and grow some basis points ahead of the market, but not wildly ahead of the market, then have a strong M and A pipeline, but stay very disciplined in terms of double digit returns and make sure that any deal we do there fits our strategy. Speaker 800:43:05Okay. Thank you. And second, I guess someone has to ask about PFAS. So with your current environmental Solutions capabilities, is PFAS remediation a net positive opportunity today for Republic or do you need other pieces to make it that way? Speaker 200:43:23So we see it as a positive. And again, this is not there's laws are still evolving here and the regulations are. And so we're actively having discussions at Federal, state and local level, right, to make sure that we're not and the industry broadly, right, isn't the one holding the bag, right? They should want us to take care of PFOS because we're the one collecting it, we didn't generate it or create it. So we're going to be mindful that we're not penalized because we're doing the right thing from the environment. Speaker 200:43:51And then you flip it on the ES side of the business, lots of opportunities already emerging and lots of customer discussions for how we remediate. We have some Solutions today that portfolio is going to grow. So we think this is a net positive for this one. Speaker 800:44:05Great. Thank you. Operator00:44:11The next question comes from Tobey Sommer of Truist Securities. Please go ahead. Speaker 200:44:18Thanks. Can you keep this pace of margin expansion in ES into 2024? And Where is the ultimate end goal? And maybe speak to the drivers from this low 20% range? Yes. Speaker 200:44:34The ultimate end goal is to harmonize the financial profile of this business with the recycling solid waste side of the business. We think we first will get there in free cash flow conversion Because over the cycle this side of the business has a little less capital intensity and then ultimately margin. We're going to get there in a very disciplined way, Right. You won't see the pace of the margin expansion, right, 5.40 basis points, that's leaps and bounds. We're not going to keep this pace, but I think you're going to see steady Progress on that front. Speaker 200:45:04And listen, there'll be some movement in this business like there is as The economy ebbs and flows, but we're going to take a through cycle mindset, continue to serve customers, stay disciplined, focus on people who are generating recurring revenue Over time and I think you'll see the financial profile harmonize over time in the two sides of the business. How much higher can you drive retention above the 94% level and still have it sort of The economically advantageous and what's driving service delivery improvement now? I'll start with the end of your question. Certainly, technology is helping us on that front. As we put in the RISE platform, It's just allowing positioning our frontline people to succeed every day. Speaker 200:45:54All the information with the customers in front of them, When things come up like a block stop, they can immediately communicate digitally to our logistics department through We're service, so we've got a Speaker 300:46:06full visibility and communicate with Speaker 200:46:08the customer quickly. Turnover coming down is certainly helping that. We feel good about That on the front line of the business. And I don't think we can drive loyalty to 100 because at some point that's unattractive for certain customers who aren't willing to Go on, we want to go from a price increase and there is some natural movement of homes, closures of business, etcetera. But we don't think we're done yet. Speaker 200:46:33We aspire to take that 94 up higher. Thanks. Last one for me. What are the puts and takes Of multiple price hikes per annum as opposed to larger less frequent price hikes? Well, one would be test and learn, right? Speaker 200:46:52So when you put out the price increase, right, you can understand exactly how customers react And are we able to retain that work? And so that's the flexibility we have. Over time, you're not going to see us Our normal case in recycling and salt waste business is typically annual increases when extraordinary things happen like The commodity issue 4, 5 years ago, multiple price increases in a year, but that's not normal course. So over time, the ES business will matriculate to that model as well. Speaker 1100:47:25Thank you very much. Operator00:47:32The next question comes from Stephanie Moore of Jefferies. Please go ahead. Hi, good afternoon. Thank you. Speaker 900:47:42Good afternoon. Speaker 1200:47:44Hi. Sticking on that maybe the ES side and The U. S. Ecology deal, I mean, I think kind of everything that was line, laid out tonight kind of speaks to the strength you've seen, Whether it's pricing or the cross selling, so suffice it to say, is that $75,000,000 to $100,000,000 revenue synergy target, Presumably, we've blown past that at this point. Do you have a new target? Speaker 1200:48:07Or how would you think about kind of ultimately The opportunity you can continue to gather from a cross selling and pricing standpoint and what that means for that original target? Speaker 200:48:18Yes. Listen, the pipeline is strong. Ultimately, this will manifest itself in our guidance for 2024, which we're not talking about today, but that will roll Right. And again, U. S. Speaker 200:48:28Ecology, which was a great company, we were lucky to acquire that most importantly the people, but also those assets. They're now part of Republic Services in the Environmental Solutions business, so we've anniversaried that going forward. And so you'll see that roll through our volume numbers as forecast Speaker 1100:48:472024. Speaker 1200:48:49Okay, got it. And then maybe Can you provide us an update on the joint venture with BP and your of the RNG front, maybe any updates or how it's Speaker 200:49:03Yes, progressing with 57 projects and partnership, The largest chunk of that is with BP, 40 plus projects of those are with BP. And listen, we're hitting our marks broadly. Now there's certainly been some push pull across individual locations, where we've had some capital Delays in being able to get facilities built, but then we've had other places where we've been able to redirect and pull forward faster and get that permitting in place. So ultimately, we're meeting our expectations for what's going to come online by the end of this year. And I think that's a helpful part of our portfolio given the number of sites Where you have 1 or 2 sites that might run into a little bit of delays, you've got the opportunity to look to accelerate other places. Speaker 1200:49:53Okay, got it. So maybe any volatility we've seen with RINs this year and nothing that really doesn't have any Significant impact with kind of your expectations for this year and next, just given the structure of the JV, is that kind of a fair assessment or How would you talk about the money volatility? Speaker 300:50:11From a long term planning, when we talked about how we were valuing these investments, we assume $2 RIN prices Through the cycle. So the more recent uptick in RINs prices will actually be upside to our original expectations. Operator00:50:30All right. Thank you so much. Speaker 200:50:33Thank you. Operator00:50:37The next question comes from Michael Feniger of Bank of America. Please go ahead. Speaker 1300:50:43Hey guys, thanks for squeezing me in. Just Brian, the M and A rollover, you said Nectar is 50 basis points. I think typically M and A ends up being margin dilutive, but some of the acquisitions look Like nice assets like Colorado. Just on that 50 bps next year, is there any chance that M and A isn't margin dilutive that it could be neutral or even accretive basis of the assets you guys were able to purchase? Speaker 300:51:12Yes. On a majority of that 50 basis point rollover, We would expect that to be at the margin Speaker 1300:51:21plus. Great. And I guess just for My second question, free cash flow is tracking well. I think the conversion is going to be in that 44% range, in line with last year. I guess with all the conversations about sustainability investments and these projects, just do you think that free cash flow conversion Is going to plateau or is there an opportunity for next year for 2024 to see that breakout a little bit and step up? Speaker 1300:51:49What are some things that we should consider that might maybe hold that back or potential upside for that into next year? Yes. Speaker 300:51:57Well, a couple of things. So I mean your observation of relatively flat with 2022. Be mindful though that we're overcoming over 300 basis So the underlying business is actually offsetting all of that to drive a result that looks relatively flat. That said, the contribution as we start thinking about the RNG plants and we think about polymer centers and blue polymers, all of which would be accretive New current company performance, that should all be additive. And as long as we don't continue to experience these year over year headwinds like we did this year in those three areas I As mentioned, you should start to see that flow through. Speaker 1300:52:43Great. And Brian, just maybe just the last one. Just when I look at the open 1st restricted pricing, obviously very healthy. How do we kind of think of those moving parts as we go into second half? And Any visibility we kind of have in the first half next year just based on how we do the look back? Speaker 1300:53:01Thank you. Speaker 300:53:03Yes. So again, when we think about open market pricing and we said this all along that we expected relatively higher pricing in the first half as compared The second half, Speaker 200:53:14not really a function of what we're doing in the Speaker 300:53:16current year, it's just we start getting into tougher comps. Operator00:53:19And again, Speaker 300:53:20it's a year over year comparison, so expressed as a You start to see that modulate a little bit, but again all staying within call it 50 basis points of the full year guide. So it steps down a little bit. Within the restricted as we book forward, it depends really on the pricing So while we see potentially some of the CPI escalators, right, sequentially start to step down, Water, sewer, trash and garbage trash are doing the exact opposite. Each month they tend to improve. So again, we see it being relatively Consistent in the restricted portion of the book just because what we see in step downs in CPI being offset again by those alternative indices. Speaker 1100:54:04Thank Operator00:54:08you. The next question comes from Kevin Chiang of CIBC. Please go ahead. Speaker 1400:54:16Thanks for squeezing me. Maybe just one for me. I'm just wondering when you think of ES margins from the low 20s To eventually 30%. It sounds like pricing is tracking well. You've got the cross selling opportunities. Speaker 1400:54:30Just you've had the success rolling on technology, automation, a bunch of things that have helped improve your solid waste margins. Just wondering how many of those initiatives you've rolled into ES or maybe how many of those initiatives would be applicable in the ES segment that could help bridge that gap? And is there a way to maybe Quantify how much that could be to margins if you roll out some of that technology into the Environmental Solutions business? Speaker 200:54:57Yes. No, it's a great question. Right now that's all cost, no benefit. So we're investing a lot in IT and doing a lot of hard integration work US Ecology, but also ACV and a lot of the legacy assets we have all on the common platform, starting with the customer, how do we make that service offering even more compelling By getting digitally integrated with them. And then there's certainly some things on the operating side of the business, which will also help us drive labor utilization, More efficiency in terms of material flow, etcetera. Speaker 200:55:28We haven't quantified exactly what that's worth yet, but that will be part of the path to get 30 and when we get a little further down the road, we'll talk about those initiatives in more detail. Speaker 1400:55:37Okay. That's helpful. I'll leave it there. It's been a long call. Thank you very much. Speaker 1100:55:41Kevin. Operator00:55:46The next question comes from Stephanie Yih of JPMorgan. Please go ahead. Speaker 1500:55:52Hi, good afternoon. I want to ask about the Polymer Centers, so the Las Vegas, Midwest and the 2 Others that you're planning to build, is 4 kind of the gating factor because of how much Plastics you're actually collecting in your recycling routes or if there is a lot of demand, would you consider investing in more than 4 facilities? Speaker 200:56:19Yes. 4 was the business case we based it off of with all the material we collect today. So we don't have supply risk, Which is great. Now we built those centers with the capacity to take third party volume and we're already getting some of that. So we've created a brokered asset that's already starting to capture Some third party volume and it's a great value proposition. Speaker 200:56:37For example, if you have a municipally owned recycling center, we can take labor out of your facility, right, give you a few more Penny, it's for that load and it's part of your sustainability story as well. So you share in the environmental benefits of that. Over time, right, as that demand for 3rd party continues to grow, we could imagine 5 or 6 centers. It's regionally based all hub and spoke model. So we've got the flexibility in the network over time that if the demand outstrips the capacity of the 4 that we'll continue to invest. Speaker 1500:57:10Okay. That's very helpful. And just on the Blue Polymers JV, Can you give us an idea of the CapEx spend that would be coming from Republic or is it too early at this point? Speaker 300:57:24Remember, it's more we're a minority owner, so it's more an investment, then it will come through CapEx. But we're thinking That our allocable share would be about $40,000,000 per facility or $160,000,000 in total over the next 5 to 6 years. Speaker 1500:57:41Okay. Okay, that's helpful. Thank you. Operator00:57:49At this time, there are no further questions. I'd like to turn the conference back over to Mr. John Vander Ark for any closing remarks. Speaker 200:57:58Thank you, Andrea. This month marks the 25th anniversary of Republic Services stock trading on the New York Stock Exchange. I would like to thank all of our stakeholders, including customers, employees, communities and shareholders for their commitment and support in building this great organization. Have a good evening and be safe. Operator00:58:21Ladies and gentlemen, this concludes the conference call. Thank you for attending and you may now disconnect.Read morePowered by