Q2 2023 Republic Services Inc Earnings Call
Speaker 1: Good afternoon and welcome to the Republic Services second quarter 2023 investor conference call.
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Speaker 1: I would now like to turn the conference over to Erin Evans, Vice President of Investor Relations. Please go ahead.
Speaker 2: I would like to welcome everyone to our Public Services second quarter 2023 conference call. John Vander Ark, our CEO , and Brian Delgaccio, our CFO , are joining me as we discuss our performance.
Speaker 2: 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.
Speaker 2: and may be materially different from actual results.
Speaker 2: Our SEC filings discuss factors that could cause actual results to differ materially from expectations.
Speaker 2: The material that we discussed today is time sensitive. If 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.
Speaker 2: 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.
Speaker 2: 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 this call, are available on our Republic's website at republicservices.com.
Speaker 2: I want to remind you that Republic's management team routinely participates in investor conferences.
Speaker 2: When events are scheduled, the dates, times, and presentations are posted on our website. With that, I would like to turn the call over to John .
Speaker 2: Thanks, Aaron. Good afternoon, everyone, and thank you for joining us.
Speaker 2: Our strong second quarter results demonstrate the value created by our differentiated capabilities and the execution of our strategic priorities.
Speaker 2: We continue to successfully grow our business both organically and through acquisitions, while enhancing profitability.
Speaker 2: During the quarter, we delivered revenue growth of 9%, including more than 4% from acquisitions.
Speaker 2: Generated adjusted EBITDA growth of 10.5%.
Speaker 2: expanded EBITDA margin by 40 basis points.
Speaker 2: reported adjusted earnings per share of $1.41
Speaker 2: and produce $1.26 billion of adjusted free cash flow on a year-to-date basis, a 10% increase over the prior year.
Speaker 2: We continue to effectively allocate capital by investing in acquisitions to create long-term value.
Speaker 3: Year to date, we invested $927 million dollars in acquisitions.
Speaker 3: All transactions were in the recycling and solid waste space, including the acquisition of assets in Colorado and New Mexico from GFL.
Speaker 3: The M&A environment remains active with opportunities in both the recycling and solid waste and environmental solutions businesses. We now expect investment in value creating acquisitions to exceed $1 billion for the year.
Speaker 3: We are making great progress on the integration of geosychology and increasing the profitability of our environmental solutions business.
Speaker 3: Pricing realization in this business remains strong. Customers value our complete set of products and services.
Speaker 3: We have achieved over $110 million in new sales to date as a result of cross-selling our products and services.
Speaker 3: The sales pipeline is robust with opportunities for organic growth and expansion of services within our existing customer base.
Speaker 3: We achieved more than 40 million dollars of annualized cost energies.
Speaker 3: EBITDA margin in the environmental solutions business improved to more than 22% in the quarter.
Speaker 3: The 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.
Speaker 3: We now expect revenue in a range of $14.775 billion to $14.85 billion.
Speaker 3: adjusted EBITDA in a range of $4.34 to $4.36 billion.
Speaker 3: Adjusted earnings per share in a range of $5.33 to $5.38.
Speaker 3: and adjusted free cash flow in a range of $1.9 to $1.925 billion.
Speaker 3: Our updated financial guidance includes the contribution from acquisitions closed through June 30th.
Speaker 3: The results we are delivering are made possible by executing our strategy, supported by our differentiated capabilities, customer zeal, digital and sustainability.
Speaker 3: Regarding customer's deal.
Speaker 3: Our efforts to deliver industry leading service continues to drive sustained customer loyalty and organic growth.
Speaker 3: Our customer retention rate remained over 94%.
Speaker 3: And we continue to see positive trends in our net promoter score supported by improved service delivery.
Speaker 3: Organic revenue growth remains strong during the quarter and simultaneously increases in both price and volume.
Speaker 3: Core price on related revenue was 8.8%.
Speaker 3: and average yield on related revenue was 7.1%.
Speaker 3: This includes landfill MSW yield of 6.2%. This is the highest level performance in company history in this category.
Speaker 3: Organic volume growth on related revenue was 50 basis points.
Speaker 4: Turning to digital.
Speaker 3: We have reached a milestone in our efforts to create digital tools to enhance our customers' and employees' experience and deliver meaningful financial benefits.
Speaker 3: The deployment of RISE tablets in a recycling and solid waste collection business was completed during the second quarter.
Speaker 3: The next phase of our digital operations is expected to drive additional productivity savings through route adherence
Speaker 3: improve safety performance, and provide more predictable service delivery for our customers.
Speaker 3: In total, we believe the benefits of our digital initiatives are worth approximately $100 million, with $50 million already achieved and $50 million to be captured over the next three years.
Speaker 3: Moving on to sustainability.
Speaker 3: We continue to invest in differentiating capabilities to leverage sustainability as a platform for profitable growth.
Speaker 3: Earlier today, we announced a joint venture with Revago called Blue Polymers.
Speaker 3: This groundbreaking partnership further supports our efforts to lead in plastic circularity.
Speaker 3: Blue polymers will utilize recycled olefins from our polymer centers to create blended pellets for use in manufacturing sustainable packaging.
Speaker 3: We expect to open four facilities beginning in late 2024 with earning contribution beginning in 2026.
Speaker 3: Development of our polymer centers in Las Vegas and the Midwest remain on track.
Speaker 3: with the centers becoming operational in late 23 and late 24 respectively.
Speaker 3: The man for recycled plastics remains strong as the consumer goods industry continues to work toward achieving their sustainability goals.
Speaker 3: For example, we are partnering with a Coca-Cola company to supply recycled PT from our polymer centers for use in sustainable packaging.
Speaker 3: The 57 renewable natural gas projects being co-developed with our partners are advancing.
Speaker 3: We expect four of these projects to be operational by the end of the third quarter.
Speaker 3: Finally, we continue to believe that creating a more sustainable world is our responsibility and a platform for growth.
Speaker 3: We recently published our latest sustainability report highlighting the progress we are making on our 2030 goals.
Speaker 3: These goals are supported by investments we are making in polymer centers, the Blue Polymer joint venture, renewable natural gas projects, and fleet electrification.
Speaker 3: I will now turn the call over to Brian , who will provide details for the quarter.
Speaker 2: Thanks John . Core price on total revenue was 7.3%.
Speaker 2: Core price on related revenue was 8.8%.
Speaker 3: which included open market pricing of 11%.
Speaker 3: and restricted pricing of 5.3%.
Speaker 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%.
Speaker 3: Average yield on total revenue was 5.9%, and average yield on related revenue was 7.1%.
Speaker 3: We continue to price new and existing business ahead of cost inflation to drive margin expansion in the underlying business.
Speaker 3: Volume on total revenue increased 40 basis points.
Speaker 5: while volume on related revenue increased 50 basis points.
Speaker 5: The components of volume on related revenue included an increase in small container of 1.4%
Speaker 5: an increase in residential of 80 basis points,
Speaker 5: and an increase in landfill of 3.7%.
Speaker 5: Landfill was primarily driven by an 8.3% increase in special waste revenue.
Speaker 5: Volume growth was partially offset by a decrease in large container at 1.3%, primarily due to a slowdown in construction-related activity.
Speaker 5: Moving on to recycling. Modeling prices were $119 per ton during the quarter.
Speaker 5: This compared to $218 per ton in the prior year.
Speaker 5: Recycling processing and commodity sales decreased revenue by 1.1% during the quarter.
Speaker 5: Current commodity prices are approximately $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.
Next, turning to our environmental solutions business.
Second quarter environmental solutions revenue increased $104 million 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.
Adjusted EBITDA margin for the environmental solutions business was 22.5%.
So, quantually 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 that fuel and margin expansion in the underlying business of 20 basis points.
Year-to-date adjusted free cash flow was $1.26 billion.
Our performance through the first half benefited from the timing of capital expenditures and cash taxes.
Year-to-date capital expenditures of $550 million represents 33% of our projected full year spend. And year-to-date adjusted cash taxes of $99 million represents 40% of our projected full year spend.
Total debt was $12.2 billion and total liquidity was $2.1 billion.
Our leverage ratio at the end of the quarter return to approximately 3.
With respect to taxes, our combined tax rate and effects from solar investments
resulted in an equivalent tax impact of 26.8% during the second quarter, which was in line with our expectations.
We expect an equivalent tax impact of 25% in the second half of 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.
We will now begin the question and answer session.
To ask a question, you may press star then one on your touchtone phone.
In the interest of time, we ask that you limit yourself to one question and one follow up question today.
If your question has been answered and you would like to withdraw your request, you may do so by pressing star then two.
If you are using a speakerphone, please pick up your handset before pressing the key. Your first question comes from Brian Bergmeier of Citi. Please go ahead.
Good afternoon, thanks for taking the question. You know, on the blue polymer announcement this morning, is that something that's already captured in the pro forma earnings from the polymer center is still spoken about previously, you know, or is this gonna be incremental? You know, if it is incremental, could you give the suspense of the potential earnings impact? Take this time.
No, I think, cremental. So think about that polymer center producing two things. PET and one side and olefins on the other side.
At the PET we take into a flake basically a hot wash clean flake with food grays that can go right back into
Water of Olive Manufacturing or other types of PET applications. On the Ola fence, it takes a slightly different path. So we sort, get full collection of that Ola fence and then we feed the polymer centers. So this basically guarantees.
the demand on the back end of our Palmer Center for the olefin side of it. And then Rovago was world class at compounding and blending. Olefin's to create unique products. And so that's why we partnered with them. We think we can provide the right applications to the market. We get to participate. Not only do we get the supply, so it picks up.
The blogger met on one side, we get to participate in the benefit on the upside as a 45% minority change partner.
From an economics perspective, we look at our equity pick up, that one line pick up, beginning in 26, two centers, somewhat contributing in that year with about $15 million. So you can think seven to eight million dollars per center.
and then getting $78 million incremental in both 27 and 28. Ultimately, we see $30 to $32 million for the EBITDA for all four at RunRate in 2020.
Understood. Thanks for that detail. And if I can just take a follow up on the recycling business, I think your filing state or your volume is about 80% fiber, once the polymer centers are online.
You think that 80% hybrid exposure drops a bit or is there maybe a different way we should start to think about value versus value.
your drops a bit or is there maybe a different way we should start to think about value versus all you want. Thanks and I'll turn over.
Yeah, it looks initially it won't drop much at this one volume standpoint because what we're really doing with the polymer centers taking things that are down cycle today and some material on the way in that down cycle is lost at landfill to get full volume recovery out of that plastic and get much higher yield because we're driving true circularity.
Now these polymer centers are built actually to take third party product over time. So over time, we'll flow third party product in there, that will put more plastic into the system and then dilute the fiber percentage at a certain level, but you're probably talking more like going from 80 to 75 versus a major change in the mix.
Next question comes from Tony Kaplan of Morgan Stanley . Please go ahead.
Thanks a lot. You mentioned a couple of comments on volume, and I 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, and how you think for the rest of the year.
I'd say broadly in line with expectation, probably slightly ahead in certain areas. So construction, we anticipated that being down.
We saw residential conversion starts obviously start to soften the second half of last year and there's a lag effect As you know, we have jobs are getting completed and so you know, we're down 3.8 percent But we're really strong pricing there so we've taken the opportunity there to see discipline that price
and making sure that we're getting a positive mix, even in that environment. And then other special ways straight as attractive, part of that special waste clearly is our cross-alemission is.
the US Ecology acquisition, but 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 with a bright spot in terms of buying a girl into the floor, so it's really good about that as well.
Again, rightly broadly in line with what we expect. Yeah, and Tony, if you remember, in our original guidance, the range on volume was 50 basis, 0.1% 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.
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. Yep, 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.
Yeah, Coca-Cola has been a great part. I would say this demand for our product out of the polymer center outstripped supplied by a lot. Right? So we were able to talk to a number of parties that we could have sold the Las Vegas center out three or four times over without challenges because the market is so short supplied.
for this type of R-PAP, that's food grade. And we're taking it right now, this single site over time will take the Midwest site, and then these partnerships will evolve, and I'm sure they'll grow, right, as we expand the network, but that's all we're disclosing at this point.
Terrific, thank you.
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Hey Brian , just real quick, from a modeling perspective, what is the expected contribution from M&A in the new revenue guidance? I think it was supposed to be maybe a 3% contributor coming into the year. If it may be closer to 3 1 1 2 4, and then how much rolls into 24 based on what we know today?
Yeah, so the in-year contribution roll over from 22 transactions as well as the in-year impact from 23 transactions, we're thinking four and a quarter percent. Right, and the roll over impact into 24, right, from the deals that were completed in 23, we think adds 50 basis points to our 24 revenue growth.
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 million. But if I'm not mistaken, you actually lowered your commodity assumption, but then you added in some M&A. So basically, I'm trying to bridge that change. How much would the EBITDA change was basically core versus some other moving pieces, if that makes sense at all? Yeah, let me answer the question. The short story is that the entire increase is essentially the underlying business.
deal and integration costs. Two of these deals required regulatory filing so we had heavy legal costs. We also have fairly significant integration costs just because one of those deals requires that we rebrand the trucks within the first six months.
So the contributions from acquisitions in years still positive, but it's somewhat muted. To your point, that's then further offset by the reduction recycled commodity prices. So if you think about taking all those things, I just mentioned relative to our original guide, it's a relative push.
The $50 million increase in EBITDA at the midpoint is essentially the increase in price flowing through to the bottom line.
Yeah, okay, that's what I thought. Okay, and just real quick, I'm a last one here. So if we just exclude blue polymer and we just look at the vagus facility, what is the expected EBITDA impact of that facility in 24? And then how dependent will it be on recycled plastic prices? Because we have seen some weakness there recently.
Am I thinking about all that right? Yeah, let me go ahead and start with you in a couple questions there. So we'll kind of unpack some of those. So the expected contribution for just the Polymer Center.
So this is the one in Vegas in $24, it's $15 million.
right, of evid.contribution in 24. You can then think of about an incremental $20 million per year thereafter, right, as we bring other centers online, ultimately getting to about $80 million worth of evid. at run rate in 2028.
To your other point, on the blue polymers, yes, we are going to be selling all of the olefins, coming out of the polymer center two, the blue polymers JV, right? So when you start thinking about the...
off take agreement there that guarantees right a contractual rate for all of those units leaving blue polymers on the old infancy. I'm sorry polymer center on the old infancy.
the next question comes from Jerry Revich of Goldman Sachs. Please go ahead.
Okay, perfect. Yeah, so it kind of helps to not give off take long ago. Yes, that's all right. Okay. All right. Thank you. Got so much. Thank you. The next question comes from Jerry Revich of Goldman Sachs. Please go ahead. Good afternoon and good evening everyone.
We are actually in the process of raising prices here early in 3Q. Perfect. Thank you so much. The next question comes from Walter Sprackland of RBC, Capital Market. Please go ahead. Yeah, thanks very much. Good afternoon, everyone. Just on the volume, a 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 less discipline in that regard and and and 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 and and do you suspect that this will ultimately translate in either
pressure on pricing or on volumes for your business going forward? No, we haven't seen it. Now again, there's always you know an ankle-biter and a market here or there who's going to take advantage of you know 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.
Well, a small container, right, 9.5% 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 they might start out in Resi script or start out in temporal off and then they you know 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 And the other thing too you have to remember is that there are still supply chain constraints on getting new trucks
And we are not seeing those supply chain constraints easing anytime soon. Right, 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. Have you looked at your budget for this year? Is that something you do on an ongoing basis? Is 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 time frame when you might update your CapEx budget based on what projects may or may not have come into the fold.
Yeah, no we're doing that on an ongoing basis, right? We're looking at opportunities and, you know, polymer centers of blue polymer are good examples of things that we think.
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 bubbles so in this year for example the supply chain is challenged on the truck side and so we're able to pull forward a little bit of a spend on a heavy equipment this year and some of that truck spend then will flow into next year so across the two 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 you know thinking about in the next year if there's things that are you know really value creating well you know put those into the budget next year.
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. And if you look in the details of the guidance when we do the reconciliation of adjusted free cash flow included in that is a
a guide for the capital expenditures, and the number that's in there in the revised guide is exactly the same as what we guided back in February .
Last question here is on acquisitions. You had a couple 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 X those chunkier acquisitions you would have done otherwise?
That's fantastic. Appreciate the time. Thank you. The next question comes from Sean Eastman of KeyBank Capital Markets. Please go ahead. Hi, team. Thanks for taking my questions. 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 the in light of those, you know 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 corridor? How you're responding? How these pricing programs are responding to to those trends?
Sure, yeah, different picture obviously. 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. Some of it's just the underlying tires or things and true inflation. The other is the challenge of the supply chain. Well, we're growing the business 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 serve as a customer and capture the opportunity. So it's still value creating, but it is going to show up in that maintenance line in terms of older trucks at higher maintenance costs 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.
So we should see pretty good price-cost spread throughout the manager year. Okay, and then maybe taking that a little bit further.
the just trying to think about the jumping off point for margins into next year just assuming kind of status quo on some of the the commodity related inputs.
I'm trying to think about the typical 30 to 50 basis points.
Yeah, look, we're not providing guidance right now for 24. Totally understand. But again, if you think, when we talk about that, you know, kind of 30 to 40 basis points per year, we're doing off a full year. So, you know, 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, you know, we're expecting a relatively normal level of seasonality, we always expected it to follow the normal seasonal pattern from a margin profile perspective by quarter.
Sorry, this is Noah Kayon. How are you? Hey, Dott. Hey, thanks for taking the questions. Maybe we can just make sure we understand to put a final point on the last question how you think about kind of the, you know, yield and margin cadence for the back half. You know, there's some, you know, odd comps obviously last year to consider versus what feels from this year, like I said, more like normal seasonality. So can you maybe help us put a little bit of a finer point on it for modeling purposes?
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 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 Q score 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 and a half, 50 and a half.
And I think, by the way, I take your point around higher flow-through on price versus volume and agree with it all day. And so part of this is just trying to better understand because I think there's been a theme to this earnings around what the volume environment actually looks like. So I just want to make sure I can reconcile something. I think the guy basically implies flat volumes 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.
Just how do I reconcile those? Maybe just being a little bit conservative, given some of the indicators, to help us make sense. Yeah. I think just caution and conservatism, given the construction market, given, obviously, the manufacturing industry we talk about.
Very, very positive, but on the volume standpoint, we're just being conservative. Okay, great. That's helpful. Thank you. The next question is from David Manvey of Baird. Please go ahead. Thanks. Good afternoon, everyone. Question on environmental solutions. In broad strokes, can you outline what that segment might look like in five years based on your strategy today?
Yeah, we expect to keep growing and this question comes up often, what percentage of the mix is going to be? We don't have a target percentage mix. I can tell you that we also plan on growing the recycling subways out of the distance.
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're going to look to gain organic growth, right? And throw, you know, some basis points ahead of the market, but not wildly ahead of the market, and then have a strong M&A pipeline, but stay very disciplined in terms of double-digit returns and make sure that any deal we do there fits our strategy. Okay, 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? No, we see it as a positive. And again, laws are still evolving here and the regulations are, and so we're actively having discussions at the Department of Health and Human Services.
Environment and 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 in that positive Great thank you The next question comes from Toby summer of truest securities, please go ahead Thanks, can you keep this pace of margin expansion in ES into 2024? Where's the ultimate end goal? 2024 and where's the ultimate end goal and maybe speak to the
the drivers from this low 20% range? Yeah, the 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 pre-cash flow conversion because over the cycle this side of the business has a little less capital intensity.
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 be economically advantageous? 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 right platform.
It's just allowing, positioning our frontline people to succeed every day. All 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 our customer service. So we've got a full visibility and can communicate with the customer quickly.
Turnover coming down is certainly helping that. 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 or wanna go from a price increase. And there is some natural movement of.
movement of homes, closures of business, etc. But we don't think we're done yet. We aspire to take that 94 up higher. Thanks. Last one from 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? So 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, you know, the flexibility we have. You know, over time, you're not going to see us do that. Our normal case in recycling cell waste business is...
typically annual increases when extraordinary things happen like, you know, a commodity issue four or five 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.
Thank you very much. The next question comes from Stephanie Moore of Jefferies. Please go ahead..
Hi, good afternoon. Thank you.
Speaking on that move to the ES side and particularly the U.S. ecology deal, I mean I think kind of everything that was 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 to 100 million revenue synergy target – dad SG
Presumably, we've blown past that at this point. You know, do you have a new target or how would you think about kind of ultimately, you know, the opportunity you can continue to garner from a cross-selling and pricing standpoint and what that means for that original target? Yeah, because 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, US Ecology, which was a great company, we were lucky to acquire, most importantly, the people, but also those assets, they're now part of a public services and the environmental solutions business, so we've anniversaried that going forward, and so you'll see that roll through our volume numbers as we forecast 2024.
Okay, got it. And then maybe switching gears, can you provide us an update on the joint venture with BP and the RNG front, you know, maybe any updates or how it's progressing as far?
Yes, it's progressing with 57 projects.
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.
The largest chunk of that is with BP. 40 plus projects of those are with BP. And we're hitting our marks broadly. Now there's certainly been some push-pull across individual locations where we've had some capital.
delays and 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. I think that's a helpful part of our portfolio given the number of sites where you have one or two sites that might run.
into a little bit of delays, you've got the opportunity to look to accelerate other places. Okay, got it. So maybe, you know, 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 this year and next just given the structure of the JV. Is that kind of a fair assessment or?
How would you talk about company volatility? From a long term planning, we talked about how we were valuing these investments. We assumed $2 rent prices through the cycle.
So, you know, the more recent uptick in rinse prices will actually be upside to our original expectations.
All right, thank you so much.
All right, thank you so much.
The next question comes from Michael Feniger of Bank of America. Please go ahead.
Hey guys, thanks for squeezing me in. Just, Brian , the M&A rollover, you said next year is 50 basis points. I think typically M&A ends up being margin dilutive, but some of the acquisitions look like nice assets like Colorado.
just on that 50 bits next year is there any chance that M&A isn't margin diluted that it could be neutral or even a creative basis on the assets you you guys were able to purchase? Yeah on a majority of that 50 basis point rollover you know we would expect that to be at the margin plus. Great and I guess just for
is going to plateau or is there an opportunity for next year for 24 to see that break out a little bit and step up? What are some things that we should consider that might maybe hold that back or potential upside for that into next year? Yeah, well a couple things. So I mean your observation of relatively flat with 22. Be mindful though that we're overcoming over 300 basis points worth of headwinds between higher cash interest rates, commodity prices, and the impact of bonus depreciation.
The underlying business is actually offsetting all that to drive a result that looks relatively flat. That said, the contribution is we start thinking about the RNG plants and we think about polymer centers, blue polymers, all of which would be accretive to current company performance. That should all be additive.
And as always, we don't continue to experience these year-over-year headwinds like we did this year. In those three areas I just mentioned, you should start to see that backflow. growoundgreat and Brian , just maybe just the last 1, just when I look at the open first, restricted pricing, obviously very healthy.
How do we kind of think of those moving parts as we go into the second half and any visibility we kind of have in the first half next year just based on how we do the look backs? Thank you.
Yeah, so, you know, again, when we think about open market pricing, and we've said this, you know, all along that we expected relatively higher pricing in the first half as compared to the second half.
Not really a function of what we're doing in the current year, it's just be targeting into tougher comps.
Again, it's a year-over-year comparison, so expressed as a percentage, you start to see that modulate a little bit, but again, all staying within, call it, 50 basis points of the full year guide.
Okay. So it steps down a little bit, you know, within the restricted as we look forward, depends really on the pricing mechanism. 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.
we see it being relatively consistent in the restricted portion of the book, just because what we see in step downs and CPI being offset again by those alternative indices.
The next question comes from Kevin Chang of CIBC. Please go ahead.
Thanks for squeezing in. 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. You've had the success with all the technology, automation, a bunch of things that have helped.
how much that could be the margins if you roll out some of that technology to the environmental solutions business.
Yeah, 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.
The US Ecology but also ACB and a lot of the legacy assets we have all on the common platform starting with a 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, etc. We haven't quantified exactly what that's worth yet, but that will be part of the path to get to the 30. And when we get a little further down the road, we'll talk about those initiatives in more detail.
Okay, that's helpful. You know, I'll leave it there. It's been a long call. Thank you very much. The next question comes from Stephanie Yeh of JP Morgan. Please go ahead.
Hi, good afternoon. I want to ask about the polymer centers, so the Las Vegas, Midwest, and the two other others that you're planning to build. Is four 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 four facilities? Yeah, four was the business case we based it off of was all the maturity we collect today. So we don't have supply risk. A lot of people have peak salesius and demographics and that's the kind of supply, you know?
Which is great now we built those centers with a capacity to take third parties on them And we're already getting some of that so we've created a broker desk. It's already starting to capture
Some third-party volume and it's a great value proposition for example if you have a municipally owned recycling center We can take labor out of your facility, right give you a few more Pennies for that load and it's part of your sustainability story as well So you share in the environmental benefits of that? You know over time right as that demand for third-party continues to grow we could imagine, you know
will continue to invest. Okay that's very helpful and just on the blue polymers JV can you give us an idea of the CapEx then that would be coming from Republic or is it too early at this point?
Remember, it's more, we're a minority owner so it's more an investment than it'll come through CAPEX. But we're thinking that our allocable share would be about $40 million dollars per facility or $160 million in total over the next 5-6 years.
Okay, okay, that's helpful. Thank you. At this time there are no further questions. I'd like to turn the conference back over to Mr. John Zanderark for any closing remarks.
Thank You Andrea. This month marks the 25th anniversary of Republic Services of Stock Trading and 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. Ladies and gentlemen, this concludes the conference call. Thank you for attending and you may now disconnect.