Republic Services Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 13 speakers on the call.

Operator

Good afternoon, and welcome to the Republic Services Third Quarter 2023 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. All participants in today's call will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations.

Speaker 1

Thank you. I would like to welcome everyone to Republic Services' 3rd quarter 2023 conference call. John Vander Aark, 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.

Speaker 1

The material that we discuss today is time sensitive. If in the future, you listen to a rebroadcast or reporting of this conference call, You should be sensitive to the date of the original call, which is October 26, 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 express 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

Speaker 2

side. With that, I'd like to

Speaker 1

turn the call over to John.

Speaker 2

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. Our strong Q3 results reflect our focus on profitably growing the business. We produced revenue growth both organically and through acquisitions, while generating healthy margin expansion across our business. During the quarter, we delivered revenue growth of 6%, including 2% from acquisitions, generated adjusted EBITDA growth of 9%, expanded EBITDA margin by 70 basis points, reported adjusted earnings per share of $1.54 and produced $1,800,000,000 of adjusted free cash flow on a year to date basis.

Speaker 2

We continue to effectively allocate capital by investing in acquisitions to create long term value. Year to date, we have invested $947,000,000 in acquisitions. All transactions were in the recycling and waste space. The M and A environment remains active with opportunities in both the recycling and waste and environmental solutions businesses. We remain confident that we will exceed $1,000,000,000 of investment for the year.

Speaker 2

Year to date, we returned 671,000,000 to our shareholders through dividends and share repurchases. This includes $201,000,000 of share repurchases completed during the Q3 as our leverage ratio returned to target levels. We continue to make progress demonstrating the value of our complete set of products and offerings to customers, while increasing the profitability of our Environmental Solutions business. Pricing realization in the Environmental Solutions business remains strong and we continue to drive organic growth through cross selling. EBITDA margin in the Environmental Solutions business improved sequentially to 22.7% in the 3rd quarter and expanded 3.90 basis points over the prior year.

Speaker 2

The results we are delivering are made possible by executing our strategy in support of our differentiated capabilities. Regarding customer zeal, our efforts to deliver industry leading service continues to drive sustained customer loyalty and organic growth in the business. Our customer retention rate remained over 94% and we continue to see favorable trends in our Net Promoter Score supported by our valuable service offerings and quality service delivery. Organic revenue growth remained strong during the quarter with simultaneous increases in both price and volume. Core price and related revenue was 8.6% and average yield on related revenue was 7.2% and organic volume growth on related revenue was 10 basis points.

Speaker 2

Turning to our digital capabilities. The team continues to advance the implementation of digital tools that improve the experience for both customers and employees. The next phase of Our digital operations is expected to drive additional productivity savings through route optimization, further improve safety performance and provide more predictable service delivery to our customers. For example, we now have the ability to provide real time customer notifications regarding expected service time on a given day. We are in the early stages of deploying advanced technology on select recycling collection routes.

Speaker 2

The platform utilizes cameras to identify contamination in recycling containers. We expect this technology will reduce contamination over time and drive incremental revenue. Moving on to sustainability. We believe that our sustainability innovation investments in areas such as plastic circularity and renewable natural gas, our platform for profitable growth. Development of our Polymer Centers remains on track.

Speaker 2

Construction of our Las Vegas Polymer Center is substantially complete, and we expect full scale operations to begin in November. Our Midwest Polymers Center will be located in Indianapolis. This center will be co located with a Blue Polymers production facility with operations expected to begin in late 2024. The renewable natural gas projects being co developed with our partners are continuing to advance. Five projects were online by the end of the Q3, and we expect 8 additional projects to be completed in 2024.

Speaker 2

We are making progress in our efforts to reduce greenhouse gas emissions, including in our industry leading commitment to fleet electrification. We expect to have 12 electric vehicles in operation by year end and more than 60 EVs to be added recycling and waste collection fleet in 2024. We now have 6 facilities with commercial EV charging infrastructure with more than 40 additional sites in various stages of development. We continue to be recognized as an employer of choice and are proud to be certified as a great place to work for the 7th consecutive year. Our team members remain highly engaged to ensure that we are delivering high quality essential service that are valued by our customers.

Speaker 2

I now turn the call over to Brian to provide more details for the quarter.

Speaker 3

Thanks, John. Core price on total revenue was 7%. Core price on related revenue was 8.6%, which included open market pricing of 10.4% and restricted pricing of 5.7%. The components of core price on related revenue included small container of 12%, large container of 8.6% and residential of 8%. Average yield on total revenue was 5.8 percent and average yield on related revenue was 7.2%.

Speaker 3

We continue to price new and existing business ahead of cost inflation to drive margin expansion in the underlying business. Volume on total revenue and related revenue increased 10 basis points. The components of volume on related revenue included an increase in small container of 50 basis points and an increase in landfill of 3.5%. Landfill was primarily driven by an 8.2% increase in special waste revenue. Volume growth was partially offset by a decrease in large container of 1.7% and a decrease in landfill C and D volumes of 6.2%, primarily due to a slowdown in construction related activity.

Speaker 3

Moving on to recycling. Commodity prices were $112 per tonne during decreased revenue by 20 basis points during the quarter. We continue to see a steady recovery in fiber markets and plastics pricing has improved from recent lows. Our current average commodity price is approximately $120 per ton. Next, Turning to our Environmental Solutions business.

Speaker 3

3rd quarter Environmental Solutions revenue increased $8,000,000 over the prior year. On a same store basis, Environmental Solutions contributed 40 basis points to internal growth during the quarter. Adjusted EBITDA margin for the Environmental Solutions business was 22.7%, an increase of 3.90 basis points compared to the prior year. Total company adjusted EBITDA margin expanded 70 basis points to 29.9 percent. Margin performance during the quarter included margin expansion in the underlying business of 100 basis points and a 30 basis point increase from 1 less workday.

Speaker 3

This was partially offset by a 20 basis point decrease from acquisitions, a 20 basis point decrease from recycled commodity prices and a 20 basis point decrease from net fuel. Year to date adjusted free cash flow was $1,800,000,000 Similar to prior years, we expect to spend a disproportionate amount of our full year capital expenditures and cash taxes during the Q4. Year to date net capital expenditures of $935,000,000 represents 56% of our projected full year spend and year to date adjusted cash taxes of $152,000,000 represents approximately 60% of our projected full year spend. Total debt was $12,000,000,000 and total liquidity was $2,300,000,000 Our leverage ratio at the end of the quarter was 2.9 times. With respect to taxes, our combined tax rate and effects from solar investments resulted in an equivalent tax impact of 21.4% during the 3rd quarter.

Speaker 3

Relatively lower tax rate included a $20,000,000 favorable tax settlement from previous tax years, which added $0.06 of EPS during the quarter. We now expect an equivalent tax impact of approximately 24.5% for the full year. As noted in our earnings press release, we upwardly revised our full year adjusted earnings per share to be in the range of $5.46 to $5.49 primarily as a result of the lower tax rate. We remain comfortable achieving the other components Full year financial guidance that we provided in July. I will now turn the call back to John.

Speaker 3

Actually, we're going to open it up for Q

Speaker 2

Yes, let me Sorry, do one more section please. We are proud of the results we delivered during the Q3. Healthy contribution from our pricing strategy more than offset recycle commodity headwinds and cost inflation, which continues to moderate. Looking forward to 2024, we expect continued outsized growth in the recycling and waste and environmental solutions businesses supported by pricing ahead of underlying costs, cross selling our complete set of products and services and capitalizing on value creating acquisition opportunities. We also expect financial contribution from the investments made in sustainability innovation, including plastic circularity and renewable natural gas projects.

Speaker 2

The fundamentals of our business remain strong and supportive of continued growth in revenue, EBITDA and free cash flow along with margin expansion. We plan to provide detailed guidance on our earnings call in February. Now with that operator, I would like to turn it over for questions.

Operator

We will now begin the question and answer session. The first question today comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Speaker 4

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

Speaker 2

Yes, we're not providing guidance today obviously on 2024, but we expect The outlook is positive. So I think about high to mid to high single digit revenue growth and we'll grow free cash flow and EBITDA margin faster than that and that gets to your pricing question, which is pricing will come down nominally as inflation comes down, But we'll still be pricing ahead of our cost inflation, which should lead to that formula where we're going to grow the bottom line a little faster than the top line.

Speaker 4

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

Speaker 2

Yes, we're certainly we talked about cost inflation modulating in the second half and we're Seeing that. So you can see that in some of the cost categories, labor, maintenance, certainly a bright spot. The supply chain there Maybe getting incrementally better, but still we're not going to get all the

Speaker 3

trunks we want this year.

Speaker 2

But I think if you see the improvement in the maintenance that really speaks to the underlying cost Parts inflation has certainly improved versus the first half and we expect those costs to continue to modulate into next year as well.

Speaker 4

Thanks very much.

Operator

The next question comes from Brian Bergmeier with Citi. Please go ahead.

Speaker 5

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

Speaker 3

Yes. Look, as you mentioned, we raised the full year EPS guidance predominantly due to the relatively lower tax rate. There is a Cash component to that as well. That is somewhat offset by relatively higher interest rates than we normally thought, which is flowing through to cash interest. And that's why your adjusted free cash flow remains relatively consistent with what we previously provided.

Speaker 5

Got it. Thanks for that detail. And last question for me, I'm just wondering if you can maybe try to characterize The M and A market within environmental solutions have obviously been very busy with acquisitions, but we haven't seen any deals in ES Yes. I'm just wondering if M and A is a little bit slower than you developed or if everything's moving along and maybe it just comes down to Thanks. I'll turn it over.

Speaker 2

Yes, it really comes down to timing. The pipeline is strong, lots of opportunities, lots of conversations. Yes, we remain incredibly disciplined in terms of our financial strategic lens and our financial lens on that. But we feel certainly optimistic to the remainder of the year and into the first half of next year that there's a number of attractive opportunities in that space.

Operator

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

Speaker 6

Hey, good afternoon guys.

Speaker 2

Hey, Tom.

Speaker 6

Hey. So Brian, I think restricted pricing actually accelerated again to 5.7% here in Q3. Do you think that this is going to prove the high watermark? Or do you think we get Maybe one more quarter of acceleration and then we kind of hit that second derivative.

Speaker 3

I think we're near it. Quite honestly, Tyler here. Again, we talked about the relationship between CPI based pricing starting to step down, but water, sewer trash and garbage trash stepping up. And right now, I think they're somewhat offsetting each other. We think that to the question earlier about As you look forward, we do think that the restricted base pricing does step down sequentially 24 from 23, But again, still stays above that longer term average.

Speaker 6

Yes. Okay. That's helpful. And then, So John, I think last quarter there was some talk about kind of hitting a ceiling in certain places in ES with some of the pricing actions. It said that you were you kind of said that you were moving forward on that front, but just curious if you can give us an update there.

Speaker 6

Is pricing good in ES, you're starting to see some churn? And Are you seeing any impacts from the economy in that business specifically?

Speaker 2

Yes. No, pricing remains strong. We certainly remain Committed on that. There's still that's a customer churn on that portfolio. Some of that is permanent work, some of that is event work And we're trading off some low margin work and we're adding to that very attractive cross sell work.

Speaker 2

And so Lots of really attractive growth opportunities in that space, but we're never going to do work for free and we're always going to start out with price on that. So I'd say the macro environment in manufacturing and ES broadly is a bit mixed. The upstream oil and gas has been slower. Hopefully, a couple of big deals announced here that that will ignite some increased activity there in Q4 and into next Automotive obviously has been a little bit challenged here with labor activity, but then other parts of the petrochemical complex have been very, very strong. And overall, we're happy with the results and still feel very positive going into 2024 in terms of the demand environment.

Speaker 6

Yes. And this is my last one here, a couple of housekeeping items. But based on what we know today, what is the expected M and A rollover benefit Next year. And then based on what we know today with the RNG and the polymers, what is the incremental benefit to 24 EBITDA

Speaker 3

Yes. So first on the rollover, based on transactions that have closed to date, that'd be about 50 basis points of rollover into 24. And then just on Polymer Centers and the Renewable Natural Gas, you can think of Polymer Centers kind of the $12,000,000 or so incremental contribution next year from an EBITDA perspective and things circa $15,000,000 to $20,000,000 on the RNG portfolio.

Speaker 6

Okay.

Speaker 3

Perfect. That's EBITDA.

Speaker 6

Yes. Got it. Thank you.

Operator

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

Speaker 7

Hey, thanks for taking the questions. So if the prints are right, then the economy grew 4.9% real GDP annualized for the 3rd quarter And it's really the consumer leading that. Can you talk about your view of the broader macro right now? And specifically, I know you're not guiding for 24. What kind of a volume environment we are in an underlying basis?

Speaker 7

Are we still in a positive volume growth environment from your view?

Speaker 2

Yes. Listen, there's tons of uncertainty in the economy. If you look back 18 months and then even if you look forward, you think about 2 The war is going on and lots of different dynamics, election coming up next year. The underlying but I think we're closer to a soft landing than we certainly were a quarter ago. If you look at the outlook and we're planning on a positive year next You heard that in our numbers and forecasts with a lot of humility baked into that in terms of things could change, there's uncertainty and we'll adjust According to that, the recycling and solid waste business, the underlying volume growth in that business is kind of 50 to 100 bps, we're on the lower end of that with where construction is at.

Speaker 2

That's certainly been a soft spot. And we saw that with residential and commercial starts even last year and then earlier into this year slowing down. And we're hoping that starts to anniversary and rebound Here, so I'd say positive environment. We're not firing on every cylinder, but we're cautiously optimistic that we're going to grow out of this thing coming in

Speaker 8

Sure.

Speaker 7

Very helpful. Given the progress that you and the industry have made in Reducing some of the volatility around recycling commodities and the impact to the business. Just Curious to know how to think about whether as it relates to the Polymer Center or any of the vertical integration efforts you have, What the level of exposure is to commodities in that business? In other words, is this largely a processing and fee based model for you? And Is there any increased sensitivity to be expected from that?

Speaker 2

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

Speaker 3

Yes, because you have that underlying commodity risk, As you get the value of the upcycling and capture that spread, you have the same amount of volatility in dollars with incremental revenue. So as a percentage, your volatility actually goes

Speaker 7

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

Operator

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

Speaker 9

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

Speaker 2

Reasonably well. There's been some slowdown in activity in certain spots, but as you can kind of read from the headlines, right, it's been Walkouts on certain facilities to the point where if it was a mass shutdown, right, we'd have a much deeper impact because it would be All the automotive plants that we serve directly, but then it goes straight into the Tier 1, Tier 2 and even Tier 3 supply base. It's been such the case, I mean, we're a very, Very small portion of the overall cost structure. So you're not seeing people going to get down to canceling service or even reducing service intervals outside of a few facilities that have been directly impacted.

Speaker 9

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

Speaker 3

Yes. As we do the reconciliation, Michael, moving from net income to the definition of EBITDA, we will include Our pickup in those joint ventures, and remember this first round of facilities that are coming online. Most of those are going to be predominantly royalty. So you're not going to see a lot of that in 2024. That'll start being 2025 and Beyond that you'll really start to see the accounting that includes the pickup in those JVs.

Speaker 9

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

Speaker 9

That's sort of where I in the 45% I'd say, we have

Speaker 2

a positive outlook. Yes, we're already in Q4 obviously and We've got a positive outlook for that, but given that there is some seasonality of the business where you do get some weather to start to impact the business this time of year, There are some moving pieces in the broader economy. We thought it would be prudent to reaffirm and we'll give you the results here in February of how we

Speaker 3

But to that point, Michael, if you remember, even when we began the year, we said the cadence of margin expansion was going to actually start negative, which we saw in the Q1 and Sequentially year over year margin expansion was going to improve every quarter throughout the year and we still expect that. So we still expect to see the most amount of margin expansion In the Q4, ultimately driving margin expansion for the full year.

Speaker 9

But margins might be down sequentially just because of seasonality?

Speaker 3

That is correct.

Speaker 9

Okay. That's what I want to clarify.

Speaker 10

All right. Thanks.

Speaker 1

Thank you.

Operator

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

Speaker 10

Hi, good afternoon. Thank you. So acquisitions were 1 point 7% in the Q3, you said 50 basis points for 2024. It looks like maybe a couple of 100,000,000 rolled off 3rd quarter to Q4 last year, so we're looking at what maybe 150 basis points in the Q4 this year?

Speaker 3

Yes. Remember, when we talked about most of the rollover Yes, that we had for full year 2023 was the portion of U. S. Ecology that we completed May of 2022, right, coming in which was A majority of the rollover for the full year. As we think about the actual impact within the Q4, we're looking about 180 basis

Speaker 10

Okay. All right. Thank you for that. And second, on the RNG development, I think around now is when these facilities were scheduled to come online. And maybe you could just remind me the financial Targets and how those 39 RNG facilities with the BP joint venture are expected to ramp from here.

Speaker 3

Yes. So let me just talk about the entire portfolio rather than just the subset, right. So again, 5 have already come online here that are going to start Contributing here nominally in the 4th quarter, but really start to contribute in $24,000,000 You can kind of think about the cadence in the $20,000,000 to $25,000,000 per year of incremental EBITDA beginning in 2024 and ultimately hitting run rate in 2018, at which point we expect $100,000,000 cumulative of additional EBITDA in the portfolio compared to our current baseline.

Speaker 6

Got it. Okay. Thank you.

Operator

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

Speaker 8

Yes. Hi. Good afternoon. I'm wondering if we could just talk about the margin Over the course of 2024, Brian, as you pointed out, margin momentum on a seasonally adjusted basis is Accelerating this year, so you're already on track to expand margins by call it a full 30, 40 basis points just on a run rate 3Q versus the full year average. And so as we think about the moving pieces in 24, I guess it's not hard to get to double your normal margin expansion targets, especially given the moves in Potential moves in OCC and I'm wondering anything that we need to keep in mind as we look at those moving pieces and the cadence of margins that you Pointed out in an answer to an earlier question.

Speaker 3

Yes. So Jerry, the one thing I would point out is just remember from the point Time in which we acquired U. S. Ecology and we took several pricing actions, right. And as we sit there and move forward, we're going to get more in the cadence of more annual price increase on that portion of the business.

Speaker 3

So while we still expect margin expansion in the Environmental Solutions business And at a rate north or higher than what we expect in recycling and waste, we would expect that margin expansion to decelerate from what you saw in 2023. So you can look in just in the quarter alone, margin was up almost 400 basis points year over year. We would not expect that level of contribution going

Speaker 8

Got it. But the base business, the momentum, it sounds like is accelerating,

Speaker 3

Yes, Craig. I mean, if you take a look just right now, we're kind of in the 30 basis points. We've talked long term in that 30 to 50 and you start to get some of the contribution from some of the other sustainability investments that we're making. So it's a little bit of push and pull and net net we would expect margin expansion in 24 over 23.

Speaker 8

Okay, super. And can we talk about capital deployment with Buyback announcement, can you just update us on how much more runway do you think you have to deploy more capital towards polymers, opportunities To redevelop gas electric plants into gas plants and stock buyback From there, can you just calibrate us on how to think about the opportunities in each of those areas?

Speaker 2

Sure. Just to give you

Speaker 3

an idea, we've talked about several investments. You've got the RNG portfolio, you've got Polymer Center and you have Blue Polymers. Some of which is going to come through capital, some of which is going to be investment in the JVs. Just to kind of think it from a cumulative perspective here, maybe I'll walk From Polymer Centers, we see a total investment of around $300,000,000 okay, for the 4 centers, right? And that's going to happen, It's happened and we think that's over a 4 year timeframe of about $70,000,000 a year.

Speaker 3

Blue Polymers, you can think of that being about 100 and $50,000,000 investment. Again, those are going to be JVs, so that will come through as an investment in those joint ventures. And then the investment in the RNG portfolio is call around $375,000,000 Okay. So those are the cumulative investments, but we've been making those So those are somewhat in our run rate now and we talked about that after the U. S.

Speaker 3

Ecology acquisition where leverage Elevated to 3.4 times. We were going to focus on deleveraging getting back to that 3 times before we resume the share repurchase, got back to 2.9 times. We have since resumed, right, that share repurchase program. And as you just saw in the announcement, right, the Board just authorized another $3,000,000,000 program that extends over the next 3 years beginning in 2024 through the end of 2026.

Speaker 8

Super. Thanks.

Speaker 9

You bet.

Operator

The next question comes from Stephanie Moore with Jefferies. Please go ahead. Hi, good afternoon. Thank you.

Speaker 11

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

Speaker 11

Thank you.

Speaker 2

Yes. I think for most categories kind of thinking about a macro Metric like CPI kind of puts you in the right zone. Maintenance will be elevated off of that. Just historically, it's inflated a little faster than that. And we don't expect the supply chain to be fully caught up or reconciled in 2024, which means we're going to be driving some older And that's going to be at the end of the curve where maintenance cost is higher than it normally would be.

Speaker 2

So That would be the one I think is going to be elevated. Everything else kind of think about that where you see inflation going and if that's 4%, 4.5%, wherever that lands, That's kind of where we'll build a budget against that.

Speaker 11

Okay. That's helpful. I appreciate it. And then Just wanted to follow-up a little bit on the commodity basket exposure. Can you talk a little bit about how that basket is trending today?

Speaker 11

Maybe how that compares to 4Q of last year. I know there's some puts and takes to the various components, so that'd be helpful. Thanks.

Speaker 3

Yes, sure. So as we said, our average commodity price for the Q3 was $112 per ton. Right now we're expecting $120 In the Q4 that compared in the prior year for the Q4 we were at $88 per ton. So we're expecting a year over year increase of about $30 a ton in the 4th quarter.

Speaker 11

Got it. I'll leave it at that. Thank you.

Operator

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

Speaker 10

Thanks. I want to Kind of follow-up on a recent question, but ask it from a different angle. If you think about some of the pressures on margins of Smaller players that might be potential acquisition targets. How do you anticipate trends in a few buckets impacting their financial performance and maybe Desire to sell and I kind of am thinking of inflation in terms of their costs, The ongoing requirement in necessity to invest in technology. And then as you just mentioned, I think the Fleet and supply chain will fully be normalized.

Speaker 10

But if you apply those things to sort of

Speaker 3

the other side of the

Speaker 10

equation, not your own business, But those that you may look to incorporate into your business, what do you see?

Speaker 2

Yes. The pipeline for acquisitions is strong both in recycling waste and Environmental Solutions, this is the cost pressure, which is starting to abate for the smaller players is on the labor side. So, they're starting to get Less pressure there as we've seen turnover come down and labor availability go up. It's still elevated versus historical norm, but it's got easier relative to a year ago. The supply chain has it and that's certainly becoming constrained.

Speaker 2

And anybody who was a spot buyer of vehicles is really in a challenged spot, Certainly through the end of next year and probably into 2025 or 26 depending on how they how fast the supply chain can recover Because they're prioritizing all of their base customers who buy a large number and a similar number of trucks every year. So we certainly see that as an advantage. And then digital, I'd say, has just been a building trend over the last 5 plus years that I think is going to be with us for at least the next 5 and probably a much longer period than that, which is that we're making over a series of years between capital and OpEx 100 of 1,000,000 of dollars Investment to our digital footprint to make the experience better for our customers and employees and that certainly has a scale advantage for us

Speaker 10

And then just as my follow-up, I know it's been in the news Maybe even too much ad nauseam, but GLP-1s and the market looking for 2nd, 3rd, 4th, all the way to nth Derivative impacts, have you looked at that and have any sort of Preliminary view on what that could mean for volumes over what would probably be a very long term? Thanks.

Speaker 2

No, I've not done a lot of work on that yet. There's plenty in front of us right now. Obviously, is that It continues to be a major trend. We'll think about that, but I'd say we're in the tertiary or beyond in terms of the impact of those. I appreciate the response.

Speaker 2

Thank you.

Operator

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

Speaker 12

Hi. Thanks for taking my question. Just in regards to the M and A pipeline within I think up here in Canada, there's been the Competition Bureau is trying to prevent the merger of to, I guess, I'll call them energy waste service companies here. So it looks like there'll be some assets. Just wondering how the pipeline looks up here in Canada.

Speaker 12

And is Energy Waste Services an area of growth for you or accelerated growth for you when you look at your opportunities in Canada?

Speaker 2

Yes, we're certainly looking at opportunities in both U. S. And Canada. That probably isn't the top of the list. We'd be more opportunistic in that side of environmental services.

Speaker 12

Okay. And just I get the pricing I guess it sounds like the pricing Opportunities that you're going to move from something that you're doing it 3, 4 times a year within environmental services to once a year, which is maybe more Regular as inflation starts to or continues to subside here. But just given the pricing opportunities that you've talked about and the ability Get pricing more aligned with how you think about pricing within solid waste. Just why not push that lever more if you can? Or did you The customers were starting to push back on maybe the frequency in which you're coming to them with price increases within ES.

Speaker 2

Yes. No, I mean, yes, it's a big and diverse space. So there's been places where we've kind of pushed past The price line we would have wanted to, we've lost some volume, which I congratulated the team. Obviously, you don't understand the Stealing on price until you take it there. And listen, in certain parts of the business, we'll get into more of an annual increase For our bigger customers that's contracted for example.

Speaker 2

In other parts of the business particularly the more field facing field services, Those are things where it's really dynamic pricing because every opportunity event job, you've got a lot more flexibility there. And we'll certainly test the market and see what the market bears in terms of opportunity. I'd say underneath that too, there's a big mix opportunity, Which is just looking at the types of jobs we do, looking at the customer mix and making sure we're prioritizing our sales team around the most attractive customers And then conversely deprioritizing around customers who aren't willing to pay what we think is a very fair value for what we deliver.

Speaker 12

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

Speaker 8

Thank you.

Operator

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

Speaker 2

Thank you, Betsy. I would like to thank our more than 40,000 employees for their continued commitment to providing our customers with 1st class service to create a more sustainable world. Have a good evening

Speaker 6

and be safe.

Operator

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

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Earnings Conference Call
Republic Services Q3 2023
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