Q4 2023 Republic Services Inc Earnings Call
Operator: Good afternoon, and welcome to the Republic Services fourth quarter and full year 2023 investor conference call. All participants will be in listen-only mode.
Good afternoon, and welcome to the Republic services fourth quarter and full year 2023 Investor Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.
By pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
Operator: To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Erin Evans, VP of Investor Relations. Please go ahead.
To withdraw your question. Please press Star then two.
He's note. This event is being recorded I would now like to turn the conference over to Erin Ovens VP Investor Relations. Please go ahead.
Erin Ovens: I would like to welcome everyone to Republic services fourth quarter, and full year 2023 conference call, Jon Vander Ark, our CEO and Brian.
Erin Evans: I would like to welcome everyone to Republic Services' fourth quarter and full year 2023 conference call. Jon van der Ark, our CEO, and Brian DelGhiaccio, our CFO, are on the call today to discuss our performance. I would like to take a moment to remind everyone that some of the information we discuss on today's call contains forward-looking statements that involve risk 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 discussed today is time-sensitive.
Erin Ovens: <unk>, our CFO are on the call today to discuss our performance.
Erin Ovens: I would like to take a moment to remind everyone that some of the information we discuss on today's call.
Erin Ovens: Forward looking statements, which involve risks and uncertainties and may be materially different from actual results are.
Erin Ovens: Our SEC filings discuss factors that could cause actual results to differ materially from expectations.
Erin Ovens: The material that we discuss today is time sensitive if.
Erin Evans: 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 February 27, 2024. Please note that this call is property of Republic Services Inc. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Republic Services is strictly prohibited. I want to point out that our SEC filings, our earnings press release, which includes gap reconciliation tables and a discussion of business activities, along with a recording of this call, are available on the Republic's website at republicservices.com. I want to remind you that Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times, and presentations are posted on our website. With that said, I'd like to turn the call over to Jon. Thanks, Aaron. Good afternoon, everyone, and thank you for joining us.
Erin Ovens: 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 February 27th 2024.
Erin Ovens: 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.
Erin Ovens: 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 a recording of this call are available on Republic's website at Republic services Dot com.
Erin Ovens: I want to remind you that republic's management team routinely participates in investor conferences. When events are scheduled the dates times and presentations are posted on our website.
Erin Ovens: With that I'd like to turn the call over to John Thanks.
John: Thanks, Aaron Good afternoon, everyone and thank you for joining us the Republic team finished the year strong by executing our strategy designed to profitably grow the business.
Jon Vander Ark: The Republic team finished the year strong by executing our strategy designed to profitably grow the business. We outpaced expectations throughout the year and delivered results that exceeded our full-year guidance. During 2023,
John: We outpaced expectations throughout the year and deliver results that exceeded our full year guidance.
Speaker Change: During 2023.
Jon Vander Ark: We achieved revenue growth of 11%, including 5% from acquisitions, generated adjusted EBITDA growth of 13%, expanded adjusted EBITDA margin by 60 basis points, including margin expansion in the underlying business of 100 basis points, reported adjusted earnings per share of $5.61, and generated $1.99 billion of adjusted free cash flow. We continue to believe that investing in value-creating acquisitions to further expand our business is the best use of our free cash flow. We invested $1.8 billion in acquisitions in 2023, including transactions in both the recycling and waste and environmental solutions business. As part of our balanced approach to capital allocation, we returned $900 million to shareholders through dividends and share repurchases. The results we are generating are made possible by executing our strategy, supported by our differentiated capabilities. Regarding customer zeal Our efforts to provide industry-leading service continue to drive sustained customer loyalty and organic growth in the business. Our customer retention rate remains high at over 94%.
John: We achieved revenue growth of 11%, including 5% from acquisitions.
John: Generally adjusted EBITDA growth of 13%.
John: Expanded adjusted EBITDA margin by 60 basis points, including margin expansion in the underlying business of 100 basis points.
Reported adjusted earnings per share of $5.61.
John: It produced $1.99 billion of adjusted free cash flow.
John: We continue to believe that investing in value, creating acquisitions to further expand our business is the best use of our free cash flow.
John: We invested $1 $8 billion in acquisitions in 2023, including transactions in both the recycling and waste and environmental solutions businesses.
John: As part of our balanced approach to capital allocation, we returned $900 million to shareholders through dividends and share repurchases.
John: The results we are generating are made possible by executing our strategy supported by our differentiated capabilities.
John: Regarding customer zeal.
John: Our efforts to provide industry, leading service continues to drive sustained customer loyalty and organic growth in the business.
John: Our customer retention rate remained high at over 94%.
Jon Vander Ark: And we continue to see favorable trends in our Net Promoter Score due to the value of our offerings and the quality of our service delivery. We delivered outsized organic revenue growth during the fourth quarter with simultaneous increases in price and volume. Core price and related revenue was 8.8%, and an average yield on related revenue was 7.7%.
John: And we continue to see favorable trends in our net promoter score due to the value of our offerings and quality of our service delivery.
John: We delivered outsized organic revenue growth during the fourth quarter with simultaneous increases in price and volume.
John: Core price and related revenue was eight 8%.
John: And average yields and related revenue was seven 7%.
John: Organic volume growth unrelated revenue was 40 basis points.
Jon Vander Ark: Organic volume growth and related revenue was 40 basis points. Turning to our digital capability, the team continues to advance the implementation of digital tools that improve the experience for both customers and employees.
John: Turning to our digital capabilities.
John: Team continues to advance the implementation of digital tools that improve the experience for both customers and employees.
John: Development of our new asset management system is underway, which is expected to increase maintenance technician productivity and enhanced warranty recovery.
Jon Vander Ark: Development of our new asset management system is underway, which is expected to increase maintenance technician productivity and enhance warranty recovery. We expect to begin utilizing the new system in late 2024. The continued operational enhancements supported by our RISE digital operations platform are expected to drive additional productivity through improved route optimization and safety performance and provide more predictable service delivery to our customers. We anticipate the RISE platform will drive approximately $100 million of total annual earnings contribution, of which approximately $65 million has been realized to date. We continue to implement advanced technology on recycling and waste collection routes. Our platform utilizes cameras to identify overfilled containers and contamination in recycling containers.
John: We expect to begin utilizing the new system in late 2024.
John: The continued operational enhancements supported by a rise digital operations platform are expected to drive additional productivity through improved route optimization and safety performance.
John: And provide more predictable service delivery to our customers.
John: We anticipate the rise platform will drive approximately $100 million of total annual earnings contribution of which approximately $65 million has been realized to date.
John: We continue to implement advanced technology on recycling and waste collection routes.
John: Our platform utilizes cameras to identify overfill containers and contamination recycling containers.
Jon Vander Ark: This technology is reducing contamination and driving incremental revenue. Moving on to sustainability, we believe that our sustainability innovation investments in plastic circularity and renewable natural gas are a platform for profitable growth. Development of our Polymer Centers and Blue Polymer's joint venture facilities remain on track.
John: Balance sheet, reducing contamination and driving incremental revenue.
Speaker Change: Moving on to sustainability.
Speaker Change: We believe that our sustainability innovation investments in plastics, circularity, and renewable natural gas or a platform for profitable growth.
Speaker Change: Development of our polymer centers and Blue polymers joint venture facilities remain on track.
Speaker Change: We are finalizing commissioning at our Las Vegas Palmer Center this week.
Jon Vander Ark: We are finalizing commissioning at our Las Vegas Palmer Center this week, and delivery of plastic flake to our off-take partners is expected in the coming weeks. Construction is progressing at our Indianapolis Power Center.
Speaker Change: Delivery of plastic flake to our offtake partners is expected in the coming weeks.
Speaker Change: Construction is progressing on our Indianapolis Power Center.
Jon Vander Ark: This development will be co-located with a blue polymers production facility, and construction at the site is expected to be completed in late 2024. The renewable gas projects being co-developed with our partners continue to advance. Five projects came online in 2023, and we expect at least eight additional projects to be completed in 2024. We continue to advance our efforts to support decarbonization, including our industry-leading commitment to fleet electrification. We currently have 11 electric collection vehicles in operation.
Speaker Change: This development will be co located with our blue polymers production facility and construction at the site is expected to be completed in late 2024.
Speaker Change: The renewable gas projects being co developed with our partners continue to advance.
Speaker Change: Five projects came on line in 2023.
Speaker Change: We expect at least eight additional projects to be completed in 2024.
Speaker Change: We continue to advance our efforts to support decarbonization, including our industry, leading commitment to fleet electrification.
Speaker Change: We currently have 11 electric collection vehicles in operation.
Jon Vander Ark: We expect more than 50 additional EVs to be added to our recycling and waste collection fleet in 2024. We have six facilities with commercial EV charging infrastructure, with more than 40 additional sites in varying stages of development. As part of our approach to sustainability, we continue to strive to be a workplace where the best people from all backgrounds want to work.
Speaker Change: We expect more than 50, additional evs will be added to our recycling and waste collection fleet in 2024.
Speaker Change: We have six facilities with commercial EV charging infrastructure with more than 40 additional sites in varying stages of development.
Speaker Change: As part of our approach to sustainability, we continue to strive to be workplace, where the best people from all backgrounds wants to work.
In 2023 employee engagement improved to a score of 86 with 90% 99% of employees participating in the survey.
Jon Vander Ark: In 2023, employee engagement improved to a score of 86, with 99% of employees participating in the survey. Turnover rates continue to trend lower, with full-year turnover improving by 400 basis points compared to the prior year. As a result, we are better staffed to optimize our operations and capitalize on growth opportunities in the market. Our comprehensive sustainability performance continues to be widely recognized, as Republic Services was named to the Dow Jones Sustainability Index for the eighth consecutive year.
Speaker Change: Turnover rates continue to trend lower with full year turnover, improving 400 basis points compared to the prior year.
Speaker Change: As a result, we are better staffed to optimize our operations and to capitalize on growth opportunities in the market.
Speaker Change: Our comprehensive sustainability performance continues to be widely recognized as Republic services was named to the Dow Jones sustainability index for the eighth consecutive year.
Speaker Change: Our 2023 results clearly demonstrate our ability to create sustainable value and our ongoing investments to strengthen the foundation from which we will continue to grow our business.
Jon Vander Ark: Our 2023 results clearly demonstrate our ability to create sustainable value, and our ongoing investments strengthen the foundation from which we will continue to grow our business. With respect to 2024, we expect to deliver outsized profitable growth and will continue to make investments in the business to drive lasting value creation. More specifically... We expect full-year revenue in a range of $16.1 billion to $16.2 billion. Adjusted EBITDA is expected to be in a range of $4.825 billion to $4.875 billion. We expect to deliver adjusted earnings per share in a range of $5.94 to $6.00 and generate adjusted free cash flow in a range of $2.1 billion to $2.15 billion. Our pipeline supports continued acquisition activity in both recycling and waste and environmental solutions. We are targeting at least $500 million of investment in value-creating acquisitions in 2024.
Speaker Change: With respect to 'twenty 'twenty, four we expect to deliver outsized profitable growth well continue to make investments in the business to drive lasting value creation more specifically.
Speaker Change: We expect full year revenue any range of $16.1 billion to $16 $2 billion.
Speaker Change: Adjusted EBITDA is expected to be in a range of $4.8 billion to $5 billion to $4 $875 billion.
Speaker Change: We expect to deliver adjusted earnings per share in the range of $5.94 to $6.
Speaker Change: Generate adjusted free cash flow in a range of $2 $1 billion or $2.15 billion.
Speaker Change: Our pipeline supports continued acquisition activity in both recycling and waste and environmental solutions.
Speaker Change: We are targeting at least $500 million of investment and value, creating acquisitions in 2024.
Speaker Change: Our 2024 financial guidance includes the rollover contribution from acquisitions that closed in 2023.
Brian M. DelGhiaccio: Our 2024 financial guidance includes a rollover contribution from acquisitions that closed in 2023. I will now turn the call over to Brian, who will provide details on the quarter and year. Thanks, Jon.
Speaker Change: I will now turn the call over to Brian who will provide details on the quarter and year.
Brian: Thanks, John core price on total revenue was seven 2% in the fourth quarter Corp.
Brian M. DelGhiaccio: Core price on total revenue was 7.2% in the fourth quarter. Core price on related revenue was 8.8%, which included open market pricing of 10.6% and restricted pricing of 6%. The components of the core price on related revenue included small container of 12.3%, large container of 8.6%, and residential of 8.2%. Average yield on total revenue was 6.3%, and average yield on related revenue was 7.7%. In 2024, we expect average yield on total revenue in a range of $5.5 to $6 billion. We expect average yield on related revenue in a range of $6.50 to $7.00. Yield is expected to step down sequentially during 2024 due to a relatively lower index base price and certain fees implemented throughout 2023, which begin to anniversary. Fourth quarter volume on total revenue increased 30 basis points, and volume on related revenue increased 40 basis points.
Brian: Core price on related revenue was eight 8%, which included open market pricing of 10, 6% and restricted pricing of 6%.
Brian: The components of core price unrelated revenue included small container of 12, 3% large container of eight 6% and residential of eight 2%.
Brian: Average yield on total revenue was six 3% and average yield unrelated revenue was seven 7% in 2024, we expect the average yield on total revenue in a range of five 5% to 6%.
Brian: We expect average yield on related revenue in a range of six 5% to 7%.
Brian: Yield is expected to step down sequentially during 2024 due to relatively lower index based pricing and certain fees implemented throughout 2023, which begin to anniversary.
Brian: Fourth quarter volume on total revenue increased 30 basis points and volume unrelated revenue increased 40 basis points.
Brian M. DelGhiaccio: The components of volume on related revenue included an increase in small container volume by 20 basis points and an increase in landfill volume by 7.4%. Volume growth was partially offset by a decrease in large container volume by 1.4% and a decrease in landfill C&D volume by 2.1%, primarily due to a slowdown in construction-related activity.
Components of volume unrelated revenue included an increase in small container of 20 basis points and an increase in landfill of seven 4% landfill was primarily driven by a 12, 7% increase in special waste revenue.
Brian: Volume growth was partially offset by a decrease in large container of one 4% and a decrease in landfill C&D volume of two 1% primarily due to a slowdown in construction related activity.
Brian M. DelGhiaccio: In 2024, we expect organic volume growth in a range of flat to positive 50 basis. Moving on to recycling, commodity prices were $131 per ton during the fourth quarter.
Brian: In 2024, we expect organic volume growth in a range of flat to positive 50 basis points.
Brian: Moving on to recycling.
Commodity prices were $131 per ton during the fourth quarter this compared to $88 per ton in the prior year.
Brian M. DelGhiaccio: This compared to $88 per ton in the prior year. Recycling processing and commodity sales increased revenue by 50 basis points during the quarter. 2023 full year commodity prices were $117 per ton. This compared to $170 per ton in the prior year. Current commodity prices are approximately $135 per ton, which is the baseline used in our 2024 guide. Now, turning to our environmental solution. Fourth quarter environmental solutions revenue was flat compared to the prior year.
Brian: Recycling processing and commodity sales increased revenue by 50 basis points during the quarter.
Brian: 2023 full year commodity prices were $117 per ton this.
Brian: This compared to $170 per ton in the prior year.
Brian: Current commodity prices are approximately $135 per ton.
Brian: Which is the baseline used in our 2020 for guidance.
Brian: Now turning to our environmental solutions business fourth quarter.
Environmental solutions revenue was flat compared to the prior year.
Brian M. DelGhiaccio: Adjusted EBITDA margin for the environmental solutions business was 19.7%, an increase of 250 basis points compared to the prior year. 14 Total Company Adjusted EBITDA margin expanded 260 basis points to 29.9%, which was driven by margin expansion in the underlying business of 230 basis points. Other changes in margin performance during the quarter included a 30-basis point increase from recycled commodity prices and a 20-basis point increase from net fuel, which was partially offset by a 20-basis point decrease from acquisition. Our full-year adjusted EBITDA margin was 29.7%, which represents a 60 basis points margin expansion compared to the prior year. In 2024, we expect the total company adjusted EBITDA margin to be approximately 30%. We expect to more than overcome a 30-basis point headwind from acquisitions.
Brian: Adjusted EBITDA margin for the environmental solutions business was 19, 7% an increase of 250 basis points compared to the prior year.
Brian: Fourth quarter total company adjusted EBITA margin expanded 260 basis points to 29, 9%, which was driven by margin expansion in the underlying business of 230 basis points.
Brian: Other changes in margin performance during the quarter included a 30 basis point increase from recycled commodity prices and a 20 basis point increase from net fuel, which was partially offset by a 20 basis point decrease from acquisitions.
Brian: Our full year adjusted EBITDA margin was 29, 7%, which represents margin expansion of 60 basis points compared to the prior year.
Brian: In 2024, we expect total company adjusted EBITDA margin to be approximately 30%.
Brian: We expect to more than overcome a 30 basis point headwind from acquisitions.
Brian M. DelGhiaccio: Appreciation, Amortization, and Accretion was 10.7% of revenue in 2023, and it's expected to be approximately 11% of revenue in 2024. Full year 2023 adjusted free cash flow was $1.99 billion, an increase of 14% compared to the prior year. This was driven by EBITDA growth in the business and the positive contribution from changes in working capital. Total debt at the end of the year was $13 billion, and total liquidity was $2.7 billion.
Brian: Depreciation amortization and accretion was 10, 7% of revenue in 2023.
Brian: And it is expected to be approximately 11%.
Brian: Of revenue in 2024.
Brian: Full year 2023, adjusted free cash flow was $1 $99 billion, an increase of 14% compared to the prior year.
This was driven by EBITDA growth in the business and the positive contribution from changes in working capital.
Brian: Total debt at the end of the year was $13 billion and total liquidity was $2 7 billion our leverage ratio at the end of the year was two nine times.
Operator: Our leverage ratio at the end of the year was 2.9 times, and we expect net interest expense of approximately $545 million in 2021. With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 25.1% during the fourth quarter and 24.8% for the full year. We expect an equivalent tax impact of approximately 26% in 2024, made up of an adjusted tax rate of 20% and approximately $190 million of non-cash charges from equity investments in renewable energy. The expected increase in interest expense and taxes would result in a $0.20 EPS headwind in 2020. 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 telephone keypad.
Brian: We expect net interest expense of approximately $545 million in 2024.
Brian: With respect to taxes, our combined tax rate and the impact from equity investments in renewable energy resulted in an equivalent tax impact of 25, 1% during the fourth quarter and 24, 8% for the full year we.
We expect an equivalent tax impact of approximately 26% in 2024 made up of an adjusted tax rate of 20% and approximately $190 million of noncash charges from equity investments in renewable energy.
Brian: The expected increase in interest expense and taxes would result in a 20 cent EPS headwind in 2024.
Speaker Change: With that operator, I would like to open the call to questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: Ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Operator: If you are using a speakerphone, please pick up your handset before pressing the key to withdraw your question- Please press star, then 2. And please restrict yourselves to one question and one follow-up question. At this time, we will pause momentarily to assemble our roster. The first question comes from Tony Kaplan with Morgan Stanley. Please go ahead. Thank you so much.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: And please restrict yourself to one question and one follow up question.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Toni Kaplan with Morgan Stanley. Please go ahead.
Toni Kaplan: Thank you so much.
Jon Vander Ark: I wanted to ask about margins. In the fourth quarter, I know you mentioned a couple factors, commodities and fuel costs. But, you know, maybe just talk about how margins were so far ahead of the guide and what factors could continue into 2024 that could provide upside to the guidance there. We had a really strong fourth quarter.
Toni Kaplan: Wanted to ask about margins in the fourth quarter.
Toni Kaplan: Now you mentioned a couple of factors the commodity and fuel costs, but maybe just talk about how.
Toni Kaplan: The Americans were so far ahead of the guide and what factors could continue into 2024 that could provide upside.
Toni Kaplan: The guidance there thanks.
Speaker Change: Sure Yeah with team had a really strong fourth quarter lots of things went in our favor manage the middle of the P&L well there were some one time opportunities both on MSW and a very strong special waste fourth quarter on that that we felt good with weather was actually very positive in the fourth quarter, which is flipped here in the.
Jon Vander Ark: Lots of things went in our favor. We managed the middle of the P&L well. There were some one-time opportunities, both on MSW and a very strong Special Ways fourth quarter on that that we felt good about. Weather was actually very positive in the fourth quarter, which flipped here, first quarter of the year. So I feel great about that.
Speaker Change: First quarter of the year, so I feel great about that and then we've got a lot of momentum headed into.
Brian M. DelGhiaccio: And then we've got a lot of momentum headed into 23. Some of the event-based work, you know, you can't build a budget against that, right? You've got to look at that as potential upside, which we're going to go after those opportunities. But oftentimes, in election years, some of those jobs end up pushing or rolling forward. So we're not going to build a plan, you know, based on that outsized performance that we got in Q4, but we are still looking at a very positive year. And Tony, we had mentioned all year long that we expected margin expansion to sequentially improve quarter-on-quarter with, you know, ending the year with the highest level of margin expansion compared to the prior year. So that played out exactly as we had thought.
Speaker Change: 23, some of those event based work you can't build a a budget against that right you've got to look at that as potential upside, which we're going to go after those opportunities, but oftentimes in election years. Some of those jobs end up pushing a rolling forward. So we're not going to build a plan.
Speaker Change: Based on that outsized performance that we got in Q4, but still looking at a very positive year in 'twenty four.
And Tony we had mentioned all year long that we expected margin expansion two sequentially improved quarter on quarter with ending the year with the highest level of margin expansion compared to the prior year. So that played out exactly as we thought now the margin expansion itself was a little bit stronger than we originally anticipated.
Jon Vander Ark: Now, the margin expansion itself was a little bit stronger than we originally anticipated, but ending the year with that type of performance and the type of margin expansion of, you know, over 200 basis points was in line with the way we thought of it. Perfect.
Speaker Change: Good, but ending the year with that type of performance and the type of margin expansion in the you know over 200 basis points was in line with the way we thought it would end.
Speaker Change: Terrific.
Speaker Change: Ask about environmental services maybe.
Jon Vander Ark: Maybe just talk about what you're seeing, the different pieces there. And I think there's a little bit of flattishness in the quarter. So, you know, does that turn around? Yeah, most of the flatness is based on the comp. We had a really, really strong quarter.
Speaker Change: Maybe just talk about what you're seeing there are different pieces there and.
Speaker Change: I think there's a little bit you know flattish.
Speaker Change: In the quarter so it.
Speaker Change: Does that turn around next year.
Speaker Change: Yes, most of the flatness is based on the comp we had a really really strong.
Jon Vander Ark: Q4 and 22 that we were covering. You know, there is some slowdown in parts of that business. So rate counts are down, and that's really part of the opportunity in there. We have had a facility that we shut down to turn around that we're gonna reopen here in the middle of the year.
Speaker Change: Q4 in 'twenty two that we were covering most of it there is some slowdown in parts of that business. So rig counts are down.
Speaker Change: And that's really part of the opportunity in there we've had a facility that we shut down to turnaround that we're going to reopen here in the middle of the year. So that'll provide some incremental lift and that was closed in the fourth quarter and then we continue to you know all trade price or volume, where we need to so we've turned out some less profitable customers.
Jon Vander Ark: So that'll provide some incremental lift, and that was closed in the fourth quarter. And then we continue to, you know, we'll trade price over volume where we need to. So we've turned out some less profitable customers on that and feel really good about the book and the pipeline going forward. Perfect. Thanks so much.
Speaker Change: That and feel really good about the book and the pipeline going forward.
Speaker Change: Perfect. Thanks, so much.
Speaker Change: The next question is from Kevin Chiang with CIBC.
Brian M. DelGhiaccio: The next question is from Kevin Chang with CIBC. Please go ahead. Hey, thanks for taking my question and congrats on a strong interview. Um, maybe just on the 2024, uh, guidance. You know, the implied kind of 30, 40 basis points of margin expansion, or reported margin expansion, your guidance. Is there a way to think about how that splits between solid waste and ES? Is it pretty balanced between the two, or would you expect one to maybe overlap?
Kevin Chiang: Please go ahead.
Kevin Chiang: Hey, Thanks for taking my question and congrats on a stronger into the year there.
Kevin Chiang: Maybe just on the 2024.
Kevin Chiang: Guidance.
Kevin Chiang: Apply kind of 30 40 basis points of margin expansion.
Kevin Chiang: What are your margin expansion your guidance.
Speaker Change: As a way to think about.
Speaker Change: How that splits between solid waste it does it is.
Speaker Change: Is it is it pretty balanced between the two or would you expect one to two maybe outperformed the other angles you look at it.
Brian M. DelGhiaccio: Yeah, look, overall, I would sit there and say that we expect margin expansion in both of the business types. We're expecting just as, you know, when you take a look at basis points, a little bit more on the ES side, the environmental solutions side, but it is still, you know, relatively balanced between the two. Just given the sheer size of the recycling and waste business relative to the environmental solutions business, it will drive, you know, a majority of the overall expansion when you think about the enterprise taken as a whole. That's helpful.
Paul: Paul here.
Paul: Yeah look overall I would sit there and say that we expect margin expansion in both of the business types are we're expecting just as you know when you take a look and basis points, a little bit more on the es side that environmental solutions side, but it is still you know relatively balanced between the two just given the sheer size.
Paul: Some of the recycling and waste business relative to the environmental solutions business. It will drive you know them.
Paul: Majority of.
Paul: The overall expansion when you think about the enterprise taken as a whole.
Speaker Change: That's that's helpful and maybe as my follow up question is just looking at the.
Jon Vander Ark: And maybe just my follow-up question, just looking at the, you know, your yield volume table that you provide in your disclosure, just, you know, I noticed that the strong yields in residential volumes are maybe a little bit worse than recent trends. Just wondering if you could provide some color on what's happening there. And if you're, as you mentioned earlier, are you maybe being more purposeful in shedding, maybe lower quality volume to the benefit of Yeah, we're always purposeful in trading off price versus volume. I'd say in this quarter, there were a couple of contracts that went out to bid where we bid a rate that we thought was going to cover our costs and give us a fair return, and we lost those opportunities. And then, you know, in previous quarters, we've had some nice wins, right? And these things come in fits and spurts. So we didn't have anything in that quarter.
Speaker Change: Your your yield ballroom table that you provided in your disclosure.
Speaker Change: I noticed the strong yields in residential volumes, maybe a little bit worse than we said just wondering if you could provide some color in terms of what's happening there.
Speaker Change: As I mentioned earlier.
Speaker Change: Maybe be more purposeful shedding, maybe lower quality volume to the benefit of that.
Speaker Change: Yield in the fourth quarter.
Speaker Change: Yeah, we're always purposeful and trading off price versus volume, let's say in this quarter. There was a couple of contracts that went out to bid that we bid a rate that we thought was going to cover our costs and give us a fair return and we lost those opportunities are and then you know in previous quarters. We've had some nice wins right and these things come in fitness.
Speaker Change: First so we didn't have anything in that quarter and that's really the combination of those two thing drives the.
Jon Vander Ark: And that's really the combination of those two things driving the, on the pricing side, this is the manifestation of high CPI and alternative indices over the last couple of years really flowing through our pricing, which is great to see this challenge, part of the yield story historically, and to see that number. We were really pleased. Excellent. I'll leave it there. Again, congratulations on a good set of results. The next question is from Brian Bergmeier with Citi. Please go ahead. Good afternoon.
Speaker Change: The volume picture on the pricing side. This is the manifestation of high CPI and <unk>.
Speaker Change: Turn of indices over the last couple of years really flowing through our pricing, which is great to see this is challenged.
Speaker Change: The yield story, historically and to see that that number we were really pleased with.
Speaker Change: Excellent I'll leave it there again congrats on this set of results there.
Speaker Change: Okay.
Speaker Change: The next question is from Brian Birchmeier with Citi. Please go ahead.
Good afternoon. Thank you for taking the question maybe just following up on Tonys question I think margins have typically expanded kind of quarter over quarter from four Q1, Q I imagine that will be a little bit more flattish this year.
Brian M. DelGhiaccio: Thank you for taking the question. Maybe just following up on Tony's question. I think margins have typically expanded kind of quarter over quarter from 4Q to 1Q. I imagine that'll be a little bit more flattish this year.
Brian M. DelGhiaccio: If you can identify maybe some of the factors weighing 1Q margins or more broadly, like why historical seasonality might not apply. Yeah, you know, Brian, what I would say is that when you talk about historical seasonality, I think you have to go back, you know, before just the last several years, you know, kind of post-pandemic. I think you have to look at a broader data set there. So when we came into this year, we said this year was going to have what we would call a normal level of seasonality. And when you take a look at what that means, that would typically, when you look at margin performance, you would have peak margin performance in Q2 and Q3, during those summer months when you're getting some more of those seasonal volumes, in particular on the landfill side, followed by Q4. And then finally, the first quarter would seasonally be your lowest margin performance. And that's what we've seen for decades.
Brian Maguire: If you could identify maybe some of the factors weighing <unk> margins or more broadly like why historical seasonality might not apply.
Speaker Change: Yeah, you know, Brian what I would say is that when you talk about historical seasonality I think you have to go back before just the last several years you know kind of post pandemic I think you have to look at on a broader data set there. So when we came into this year. We said this year. We thought was going to have what we would call a normal level of seasonality and when you take a.
Speaker Change: Look at what that means that would typically when you look at margin performance you would have peak margin performance in Q2 and Q3 during the summer months, where you're getting some more of those seasonal volumes in particular on the landfill side.
Speaker Change: Followed by Q4.
Speaker Change: And then finally, the first quarter with seasonally be your lowest margin performance and that's what we've seen for decades.
Brian M. DelGhiaccio: And so we said that in the beginning of the year, that's kind of how it played out. And that's what I would say we would also expect going into 24 based on what we see right now. So we would expect a sequential step down in margin from Q4 to Q1. In part, you've got more winter months when you're dealing with the first quarter, as well as when you just think about some of the taxes, you have your highest burden from a labor perspective in the first quarter, and, you know, those tend to max out and then as you move through the balance of the year, you know, again, some of those, Some of more of those state and local taxes than those, you know, basically reach their max in the first quarter.
Speaker Change: And so we said that in the beginning of the year, that's kind of how it played out and that's what I would say we would also expect going into 'twenty four based on what we see right now. So we would expect a sequential step down in margin from Q4 to Q1 in part you've got more winter months, when youre dealing with the first quarter as well as when you just think about some of the taxes you have your highest.
Speaker Change: [noise] burden from a labor perspective in the first quarter and.
Speaker Change: Those tend to Max out and then as you move through the balance of the year.
Speaker Change: Again some of those.
Speaker Change: Some are more of those state and local taxes, then those basically reached their Max in the first quarter.
Brian M. DelGhiaccio: And we had weather. We had mild weather in Q4 of last year, and we had pretty intense weather in January, where we lost certainly some hauls and some tons. Some of that will come back, but some of that will get pushed out through the remainder of the year, so that's what will lead to a Q1 number that probably looks more flat. Got it, got it.
Speaker Change: And weird weather front with mild weather in Q4 of last year, and we had pretty intense weather January where we lost some certainly some halls and some tonnes some of that will come back, but some of that will get pushed out to the remainder of the year. So that's what will lead to a Q4 number that probably looks our Q1 number that probably looks more flat.
They might have.
Speaker Change: Got it got it thanks for all that detail and then just following up on M&A.
Brian M. DelGhiaccio: Thanks for all that detail. And then just following up on M&A, with the deals you completed in 4Q, did you provide a split, a rough split, for how that is divided up between the two segments? And did you provide a rollover contribution to 24 revenue in guidance? A rollover contribution will be about $200,000 from deals closed in 2023 that will have a rollover impact into 2024. Just on the split from a revenue perspective, it was about $200 million in annualized revenue acquired in the fourth quarter and about $140 on recycling waste. Thanks a lot.
Speaker Change: But the deals you completed in four Q did you provide a split rough split for how that is divided up between the two segments and did you provide a rollover contribution to 'twenty four revenue in guidance. Thanks.
Speaker Change: Yeah rollover contribution will be about 200 basis points from deals closed in 'twenty, three that'll have rollover impact into 'twenty four.
Speaker Change: Just on the split from a revenue perspective, it was about $200 million on the environmental solutions of annualized revenue acquired in the fourth quarter and about 140 on the recycling and waste side.
Speaker Change: Got it thanks, a lot I'll turn it over.
Speaker Change: The next question is from Walter Spracklen with RBC capital markets. Please go ahead.
Jon Vander Ark: I'll turn it over to you. The next question is from Walter Sprackland with RBC Capital Markets. Please go ahead. Thanks very much. Good afternoon, everyone.
Derek Spronck: Yeah, Thanks, very much good afternoon, everyone.
Jon Vander Ark: So I wanted to follow up on M&A here. A big year for you in terms of deals done, I think, you know, $1.86 billion there acquired. And I was wondering if you could give us an update on, first of all, what the pipeline looks like going forward, particularly relative to such a large year this past year. And then, second, in terms of integration.
Derek Spronck: I wanted to.
Derek Spronck: To follow up on M&A here, a big year for you in terms of.
Derek Spronck: Deals done I think you know 1.86 billion they were acquired.
Derek Spronck: I was wondering if you could give us an update on first of all what the pipeline looks like going forward.
Derek Spronck: You know, particularly relative to such a large year. This past year and then second is in terms of integration.
Jon Vander Ark: Will you be focusing a bit more, given how big the year was in 2023, on integration and perhaps assess or put a little bit on, touch a little bit on how that integration is going? Or do you see room and capacity to continue at a fairly heady pace here in terms of M&A for 2024? Yeah, let's look at two things, obviously, the strategic fit and the financial return on any type of deal. And we're going to take discipline on both of those things. Are we the natural owner?
Derek Spronck: Will you be focusing a bit more given how big the year was in 2023 on integration and.
Derek Spronck: Perhaps assess or put a little bit on a touch a little bit on how that integration is going or do you see room and capacity to continue at a at a fairly heavy.
Derek Spronck: <unk> space pace here in terms of M&A for 2024.
Speaker Change: Yeah look we look at two things obviously the.
Speaker Change: Strategic fit and the financial return on any type of deal and we're going to stay disciplined on both of those things are we the natural owner and does it meet our expectations in terms of cash on cash returns and then we do think about our ability to absorb it and listen we have a lot of capacity across the enterprise.
Jon Vander Ark: And does it meet our expectations in terms of cash on cash returns? And then we do need to think about our ability to absorb it. And listen, we have a lot of capacity across the enterprise. We wouldn't necessarily do a couple of big deals in the same part of the country at the same time because the local team does play a pretty strong role in that day-to-day integration activities. You know, last year was the product of our normal tuck-ins, which we've done forever, and those are very value-creating. It's hard to do those deals poorly because we've done them for so long.
Speaker Change: We wouldn't necessarily do a couple of big deals in the same part of the country at the same time because the local team does play a pretty strong role in that day to day integration activity.
Speaker Change: Last year was the product of our normal tuck ins, which are we've done forever and those are very value, creating and it's hard to do those deals poorly because we've done it for so long and then some nice kind of medium sized deals we build the plan right now and are anticipating that those medium sized deals are gonna be there not that we're not pursuing it but you just don't know when they're going on.
Jon Vander Ark: And then some nice kind of medium-sized deals, you know, we build the plan, right, not anticipating that those medium-sized deals are going to be there, not that we're not pursuing them, but you just don't know when they're going to move or when they're going to come. So that's predicated on, you know, a step down in our expectations this year. For what we've done, it's not because the pipeline is weaker. The pipeline is strong, but we never know exactly what we're going to close, and we're going to stay this way. Got it. That's a great color.
Speaker Change: Move or when they're going to come so that's predicated on a step down in our expectation this year.
Speaker Change: We've done it's not because the pipeline is a weaker pipeline is strong, but we never know exactly what we're gonna close and we're going to stay disciplined.
Speaker Change: Got it that's great color and just for my follow up turning to recycling I know your Las Vegas polymer Center opened in December.
Jon Vander Ark: And just for my follow-up, turning to recycling, I know your Las Vegas Polymer Center opened in December. Can you talk a bit about the build out of the Polymer Center? And I don't know if you've had enough time now to assess, but do you see this as a better investment than some kind of EPR, or not better, but how does that compare to EPR projects in terms of the return profile of that one? Yeah, we're very satisfied with both the execution and the return. We're pretty conservative in terms of our financial modeling, leaving ourselves room. And, you know, we feel very good about the demand in the marketplace. We could have sold out Las Vegas five times over at first, and the pricing expectations are ahead of what we modeled.
Speaker Change: Can you talk talk a bit about the buildout on on that on the polymer center and and I don't know if you've had enough time now to assess but do you see this as a better investment than kind of epo or not better, but how do you how does that compare to EPR projects in.
Speaker Change: In terms of the return profile of that.
Speaker Change: Of that one.
Speaker Change: Yeah, we're very satisfied.
Speaker Change: Satisfied with.
Speaker Change: Both the execution and the return you know, we're pretty conservative in terms of our financial modeling.
Speaker Change: Leaving ourselves room, and we feel very good about the demand in the marketplace. We could have sold all of Las Vegas, five times over upfront and the pricing expectations are ahead of what we modeled so the returns are going to come in again ahead of our expectations on that front and that's certainly giving us confidence as we talked about in the prepared remarks.
Jon Vander Ark: So the returns are going to come in again ahead of our expectations on that front, and that's certainly given us confidence as we talked about the prepared remarks to go to Indy, and then we're planning on at least two more across the country. Fantastic. Appreciate the time.
Speaker Change: To Andy and then we're planning on at least two more across the country.
Andy: Fantastic appreciate the time.
Andy: The next question is from John Nozomi with Wells Fargo. Please go ahead.
Jon Vander Ark: The next question is from John Mazzoni with Wells Fargo; please go ahead. Thanks for taking my question. Maybe just a quick one on pricing.
John Nozomi: Hi, Thanks for taking my question, maybe just a quick one on pricing could you just remind us how the restricted book will layer through 'twenty, four, especially with sort of lag effects in CPI. Thanks.
Brian M. DelGhiaccio: Could you just remind us how the restricted book will layer through 24, especially with some of the lag effects in CPI? Yes, one of the things I mentioned with respect to the cadence from a pricing perspective in my prepared remarks is that we do expect a sequential step down in the level of pricing throughout the year, primarily due to the impact that index pricing will have. So again, we expect us to report the highest level of average yield in Q1 and the lowest level in Q4, with a step down in between. Just to give you a little bit of perspective, when you take a look at the two primary components that make up our basket that are related to some sort of index, one being headline CPI and then the other being the alternative index. When you take a look at headline CPI, it saw its peak in June of 22 and has been stepping down sequentially since. Water, sewer, trash, and garbage disposal saw peak levels in August of 23. And I have been stepping down since then.
John Nozomi: Yes, hi.
John Nozomi: One of the things I mentioned with respect to the cadence from a pricing perspective in my prepared remarks is we do expect a sequential step down in the level of pricing throughout the year, primarily due to the impact that that index pricing will have.
John Nozomi: So again, we expect to report the highest level of average yield in Q1, and the lowest level in Q4 with a step down in between just to give you a little bit of perspective, when you take a look at the two primary components that make up our basket that are related to some sort of index, one being headline CPI and then the other being the.
John Nozomi: Alternative indices and when you take a look at headline CPI right. It's all at its peak in June of 'twenty, two and has been stepping down sequentially since water sewer trash and garbage trash saw a peak levels in August of 'twenty, three and have been stepping down. Since then now that said the water sewer trash and garbage trash.
Brian M. DelGhiaccio: Now, that said, the water, sewer, trash, and garbage trash still remain at elevated levels. For water, the recent print was five and a half, and garbage trash was 6.4. So we're still pretty pleased about the level, but it is gonna sit there and step down just due to the... Great, thank you. And maybe for a quick follow-up, could you just talk about the strength in small containers, especially with the 11.2% yield, it seems like that's kind of above the average and anything you're seeing within that kind of end market and any other commentary around anything different that you've done compared to peers? Thank you. So yeah, we rolled out some new technology around AI, which helps us spot contamination and also helps us assess overages when containers are overfilled.
John Nozomi: Still remain.
John Nozomi: Elevated levels water sewer trash. The recent print was five and a half in garbage trash was $6. Four so we're still pretty pleased about the level, but it is going to sit there and stepped down just due to the math.
Speaker Change: Great. Thank you and maybe for a quick follow up could you just talk to the strength in small container, especially with the 11, 2% yield it seems like that's kind of above the average and any other thing you're seeing within that kind of end market and any other commentary around anything different that you've done compared to peers. Thank you.
Speaker Change: Sure Yeah, we rolled out some new technology around AI, which helps us spot contamination and also helps us assess overages when the containers are overfilled.
Brian M. DelGhiaccio: And that certainly contributed to the small container performance. Again, underlying pricing was great, but that put it on top. And that's why we talked about our 24 number. We expect to anniversary that number in the second half of the year. So that will come down. All right, thank you. The next question is from Michael Hoffman with Stifle. Please go ahead. Hey, guys, I've always challenged for that simple, simple, simple, whatever.
Speaker Change: And that certainly contributed to the small container performance underlying pricing was great, but that put it on top and that's why we talked about our 24 number we expect to anniversary that in the second half of the year, so that will come down with it.
Speaker Change: Alright, thank you.
Speaker Change: The next question is from Michael Hoffman with Stifel. Please go ahead.
Michael E. Hoffman: Hey, you guys have always challenged with that stifles people or whatever.
Brian M. DelGhiaccio: So, free cash, and the guide is at about 7% of the midpoint versus the top lines at 7.9% and EBITDAs at 9.1%. I'm presuming we've got higher interest expense and probably higher cash taxes because you're not counting on bonus depreciation being retroactively reverted back to 100%. Is that how you think about the bridge between the growth rates through the P&L? That's correct, Michael. If you just take taxes alone, when you take a look at the two components, so one, we're assuming that the current law stays in place, which means bonus depreciation.
Michael E. Hoffman: So free cash flow.
Michael E. Hoffman: And the guide is that about 7% at the midpoint versus the top lines at seven 9% Ebitdas at nine one I'm presuming, we've got higher interest expense and probably higher cash taxes, because you're not counting on bonus depreciation being retroactively.
Michael E. Hoffman: Reverted back to a 100% is that how I think about the bridge between the growth rates through the P&L.
Speaker Change: That's correct Michael if you just take just taxes alone when you take a look at two components. So one we are assuming that the current law stays in place which means bonus depreciation.
Brian M. DelGhiaccio: We'll sit there and have a further headwind, 24 compared to 23, combined with the settlement we had with the IRS in 23, where we received $20 million of cash back on a matter that dates back to 2017. Combine those two, and you get a $45 million headwind in cash taxes. That alone is a 2.3% headwind to year-over-year growth in free cash. So you just take taxes alone, and you'd sit there and say you'd have kind of a nine and a half percent growth in free cash flow were it not for the impact of taxes.
Speaker Change: Well sit there and have a further headwind 24 compared to 23 combined with the settlement we had with the IRS in 'twenty, three where we received $20 million of cash back to a matter that dates back to 2017 combined those two create a $45 million headwind in cash taxes that alone.
Speaker Change: <unk> is a two 3% headwind to year over year growth on free cash flow. So you just take taxes alone and you would sit there and say you'd be kind of nine 5% growth in free cash flow were it not for the impact of taxes interest to your point would just.
Brian M. DelGhiaccio: Interest, to your point, would just be further ahead. All right, that's, and that was what I was trying to get at is the underlying reason why Al Kaschalk's growth is there, and he's got... Timing issues related to what we just discussed. Okay, on margins, and Michael, to that point, from an underlying business perspective, the growth in free cash flow is double. Right, okay, that's, I think, important. And then on the margins, I think there's another sort of message potentially to be drawn out.
Speaker Change: It'd be a further headwind.
Speaker Change: Alright, and that was what I was trying to get at is the underlying growth is there and <unk> got some timing issues related to what.
Speaker Change: What we just discussed okay on margin.
Speaker Change: And Michael to that point from an underlying business perspective, the growth in free cash flow is double digits.
Michael E. Hoffman: Right, Okay, that's I think important.
Speaker Change: And then on margins I think theres, another sort of message potentially be drawn out. So your pattern in your solid waste business given the field scale of managing price cost did you been party ratably able to deliver about 30 basis points. So if the whole company is doing 30, and you've got an M&A headwind.
Brian M. DelGhiaccio: So your pattern in your solid waste business, given the SHIELD scale of managing price costs, is you're pretty radically able to deliver all 30 basis points. So if the whole company's doing 30, and you've got an M&A headwind, And Act Environmental comes in as a nice add-on to EES, but it's probably pretty dilutive. So how do we think about that EES dilution? It's much better structurally at that dilution, I think.
Speaker Change: Enact environmental comes in it's a nice nice add in E S, but its probably pretty dilutive. So how do we think about that yes dilution. It's it's much better structurally.
Speaker Change: Dilution is what I think.
Brian M. DelGhiaccio: Which, yeah, we, if you take a look. Yeah, just to give you a little perspective, if you look across, right, you know, both business types, we're expecting 30 basis points of dilution from acquisition. And we would expect dilution from an acquisition perspective in both recycling and waste and environmental solutions. But if you're looking at the underlying business itself within ES, we're expecting over 100 basis points of margin expansion in the environmental solutions business. Due to the underlying business... Right, and about 30 in solid waste, and then I add in... The total company dilution, but it's greater in E.S. than it is in solid waste, just one size of the deal relative to the base. Take care, everyone!
Speaker Change: Yeah.
Speaker Change: If you look at it.
Speaker Change: Yeah, just to give you a little perspective, if you look across right. Both bolt business types were expecting 30 basis points of dilution from acquisitions, and we would expect dilution from an acquisition perspective in both recycling and waste and environmental solutions, if youre looking at the underlying business itself.
Speaker Change: Yes within Es, we're expecting over 100 basis points of margin expansion in the environmental solutions business due to the underlying business itself.
Speaker Change: Right and about 30 in solid waste and then in that in the total company dilution, but it's greater than U S than it is in solid waste just one size of the deal relative to the base.
Speaker Change: That's correct.
Jon Vander Ark: Yeah, okay. I think that's important to point out that you're still on that track of 25% or better margins that he has. X acquisitions, and the acquisitions will then contribute to that as you integrate. Yeah. Yeah. Okay. Thanks. The next question is from Noah Kaye with Oppenheimer and Company Inc. Please go ahead.
Speaker Change: Yeah, Okay, I think that's important to draw out youre still on that track of 25% or better margins that he has.
Speaker Change: Ex acquisitions and the acquisitions will then contribute to that as you integrate them.
Speaker Change: Yes.
Speaker Change: Okay cool thanks.
Speaker Change: The next question is from Noah Kaye with Oppenheimer <unk> Company, Inc. Please go ahead.
Speaker Change: Thanks.
Jon Vander Ark: Thanks. Can you talk to us about this new asset management system that you're putting in place? What are you functionally doing?
Noah Kaye: Can you talk to us about this new asset management system that you are putting in place.
Noah Kaye: What are you functionally doing and where does that ultimately show up in the P&L maintenance and repairs.
Jon Vander Ark: And where does that ultimately show up in the P&Ls, maintenance, and repairs? What kind of savings are we talking about with this new, Yeah, it's really we have the RISE platform, think about digitizing our operations from our logistics operation all the way through our fleet and how our drivers operate every day. But this brings this to the maintenance shop. And so now, rather than moving paper around, right when the driver does their vehicle condition report before they take off in the morning, that digitally flows into and is recorded into the maintenance organization. So they're dealing with tablets as well.
Noah Kaye: What kind of savings are we talking about with this new system.
Speaker Change: Yeah, It's really we have the right platform think about digitizing our operations from our logistic operation all the way through our fleet and how our drivers operate everyday but this brings this to the maintenance shop, and so now rather than moving paper around right. When the driver does there.
Speaker Change: Vehicle condition report before they take off in the morning that digitally flows and is recorded into the maintenance organization. So they're dealing with tablets as well so they're getting out of the paper based business.
Jon Vander Ark: So they're getting out of the paper-based business. And a big driver of that, there's the productivity benefit to that for sure, but then there's also the warranty recovery element of that. Because when you're chasing paper, that becomes a very manual process.
Speaker Change: And a big driver of that is the productivity benefit to that for sure. But then there's also the warranty recovery element of that because when you're chasing paper that becomes a very manual process. When you could do this digitally it allows you to quickly understand but warranties available are you fully claiming all the parts that are warranty eligible and allowing us to get full recovery.
Brian M. DelGhiaccio: When you can do this digitally, it allows you to quickly understand what warranty is available, are you fully claiming all the parts that are warranty eligible, and allows us to get full recovery. Yeah, when you think about the linkage. So, you know, a couple of years ago, we started on our journey of modernizing our core systems, and that started with our general ledger and procurement system. This is an extension of that. So the asset management system will be directly linked to and integrated on a common platform with our procurement system.
Speaker Change: Think about the linkage. So a couple of years ago, we started on our journey of modernizing our core systems and that started with our general Ledger and procurement systems. This is an extension of that so the asset management system will be directly linked and integrated on a common platform with our procurement system. So now you can see.
Brian M. DelGhiaccio: So now you can sit there and say from the point of purchase all the way to putting something on a truck. You can sit there, and you can track that part.
Speaker Change: Sit there and say from the point of P. O all the way to putting something on a truck you can sit there and you can track that park.
Brian M. DelGhiaccio: So to Jon's point on warranty management, you know, this is something that before we had to do very manually, which means that we had a lot of leakage in the system. Now we feel very confident that we're gonna get every single portion of that warranty that we're entitled to. Hmm. Very nice.
Speaker Change: To Jon's point on warranty management you know this is something before we had to do very manually which means that we had a lot of leakage in the system now we feel very confident that we're going to get every single portion of that warranty that we're entitled to.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Very nice.
Jon Vander Ark: Just a quick housekeeping one, you've already detailed the expectations for yield through 2024. But just picking up on your comments around weather, tough volume comp for 1Q. And you just mentioned, you know, the weather flipped to be a little bit of a drag here to start the year. We all felt that cold.
Speaker Change: Just a quick housekeeping one.
Speaker Change: You already detailed the expectations for yield through 2024, but just picking up your comments around weather tough volume comps for <unk> and you. Just mentioned you know the weather flipped a can be a little bit of a drag here to start the year, we all felt back.
Jon Vander Ark: So how do we think about kind of volume trends, Q to date? how that trends through the year? Look, I mean, the good news, right, is that while January did experience quite a bit of weather, we've seen most of that volume return, not a total recovery, but we saw what we would expect in February. So far, to date, we're guiding to flat to 50 basis points positive. Q1 may be kind of the low point of that because of the weather, but I would think of it relatively stable, that type of cadence throughout the year. I love having an environment where your yield is, you know, decelerating year for year. Pretty, pretty shallow step down.
Speaker Change: So how do we think about kind of the volume of friends.
Speaker Change: Year to date.
Speaker Change: How that trend through the year.
Speaker Change: Look I mean, the good news right is that while January we did experience quite a bit of weather we've seen.
Speaker Change: Most of that volume return not our total recovery, but we saw what we would expected in February so far to date, but we're guiding to flat to 50 basis point positive Q1 may be kind of the low point of that because of the weather, but I would think of it relatively ratable that type of cadence throughout the year.
Speaker Change: Okay.
Speaker Change: Look I mean in an environment, where your yield.
Speaker Change: No.
Speaker Change: Celebrating Europe for a year at <unk>.
Speaker Change: Pretty pretty shallow stepped down.
Jon Vander Ark: You know, you can get the margin expansion that you're looking for without a lot of volume contribution. So you let the volume be upside to where margins can go. That's the basic takeaway. All right. All right. Thanks very much, everyone. The next question is from Stephanie Moore with Jeffreys. Please go ahead. Hi, good afternoon.
Speaker Change: You can get the margin expansion that we're looking for without a lot of volume contribution. So you'll let them all you would be upside to where margins can go.
Speaker Change: Oh boy.
Speaker Change: Right.
Speaker Change: Alright, thanks, very much I'll turn it over.
Stephanie More: The next question is from Stephanie more with Jefferies. Please go ahead.
Stephanie More: Hi, good afternoon. Thank you.
Stephanie More: Hi, Stephanie I wanted to hey, there I wanted to touch a bit on maybe the underlying macro environment, probably a decent follow up to the prior question you called out some weakness in the quarter on landfill C&D volumes I don't think any of us would be really surprised to hear that but maybe any other areas you might be seeing weakness or other levels of strength.
Jon Vander Ark: Thank you. I wanted to touch a bit on the underlying macro environment, probably a decent follow-up to the prior question. You called out some weakness in the quarter on landfill C&D volumes. I don't think any of us would be really surprised to hear that. But maybe there are other areas you might be seeing weakness or other levels of strength of the opposite? And then, you know, what is the kind of underlying macro assumption embedded in the 2024 guidance thing? Yeah, I think the picture is mixed.
Stephanie More: That's it and then you know what is that kind of the underlying macro assumption embedded in there to make any more guided.
Speaker Change: Yeah, I think the picture is a mixed so again, we're planning on having a strong year. If you think about the direct things we talked about weather certainly housing interest rates being high mortgage rates being high housing activity is certainly a byproduct or depressed housing activity as a byproduct to that so weird.
Jon Vander Ark: So again, we're planning on having a strong year. If you think about the direct things we talked about, whether certainly housing, interest rates being high, mortgage rates being high, housing activity is certainly a byproduct, or depressed housing activity is a byproduct of that. So we would have hoped for a quicker recovery there, both for our business and because we need more homes in the United States. But we think that'll be more delayed toward the later end of the year, so we're not planning on a robust recovery on that front. And then if you think about the other macros, you know, the manufacturing, I think is a mixed picture.
Stephanie More: Hope for a.
Stephanie More: Quicker recovery there both for our business and because we need more homes in United States are up.
Stephanie More: But we think that'll be more delayed towards the later end of the year. So we're not planning on a robust recovery on that front and then if you think about the other macros.
Stephanie More: But the manufacturing I think is a mixed picture, we see pockets where.
Jon Vander Ark: We see pockets where... You know, while we're winning business, there are some service declines in certain subsectors of manufacturing, but other places, in terms of remediation projects and other things, have been very, very strong. PFAS has been a nice contributor to the business in 2023, and we've got a good pipeline for 2024. And then the macro, we have two wars going on, right? One in Israel, one on the doorstep of Europe.
Stephanie More: You know what we're winning business there is some service declines in certain sub sectors of manufacturing, but other places in terms of remediation projects or other things.
Stephanie More: Very very strong P fast and then a nice contributor to the business in 2023, and we've got a good pipeline in 2024.
Stephanie More: And then the backdrop, we have two wars going on right one in Israel, one in the doorstep of Europe, a credit card debt is high with consumers. So yeah, we have a cautious kind of macro perspective on that but the underlying demand signals for our business are largely positive.
Jon Vander Ark: Credit card debt is high among consumers, so we have a cautious kind of macro perspective on that. But the underlying demand signals for our business are largely positive. Great, no, that's helpful.
Speaker Change: Great No. That's helpful. And then you touched on this a little bit, but if you could kind of walk through kind of what you've seen from a cost inflation standpoint, clearly getting better but some of those.
Brian M. DelGhiaccio: And then you touched on this a little bit, but if you could kind of walk through kind of what you've seen from a cost inflation standpoint, clearly getting better, but some of those clear headwinds that we saw through most of 2023, kind of how those are trending now to start 2024. Thanks. Yes, certainly stepping down, operating labor clearly stepping down year over year, transportation stepping down, and maintenance has been a little bit stickier, and most of that is the fact that we're growing and we're driving a fleet that's aging just because the supply chain is still a little congested and we're not getting all the trucks that we wanted. And it's really been a three-year phenomenon on that front. So we're going to catch up some this year, but we're not going to fully catch up on that.
Speaker Change: Clear headwinds that we saw through most of 2023 kind of how those are trending now to start 2024.
Speaker Change: Oh, yes, certainly stepping down operating labor clearly stepping down year over year transportation stepping down our maintenance has been a little bit stickier and most of that is the fact that we're growing and we're driving a fleet. That's aging just because of the supply chain is still a little congested and we're not getting all the <unk>.
Speaker Change: Trucks that we wanted.
Speaker Change: And it's really been a three year phenomenon in that front. So we're gonna catch up some in this year, but we're not going to fully catch up on that and all of that is when you're driving a 12 13 year old truck right, whether that's a kind of a peak peak cycle in terms of its maintenance versus a new truck.
Brian M. DelGhiaccio: All that is, when you're driving a 12, 13-year-old truck, that's kind of a peak cycle in terms of its maintenance versus a new truck that has relatively high warranty recovery and so therefore very low maintenance cost, that's going to show up in the underlying maintenance bucket. So that spend will be, we think, elevated throughout the year. We hope we can do a little better, but we'll see. Okay, thank you so much. The next question is from Jerry Revich with Goldman Sachs. Please go ahead. Yes, hi. Good afternoon, everyone.
Speaker Change: That has relatively high warranty recovery. So therefore, very low maintenance cost that's going to show up in the underlying maintenance bucket. So that spend will be we think elevated throughout the year, we hope to do a little better, but I will say.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you so much.
Speaker Change: Okay.
Speaker Change: The next question is from Jerry Revich with Goldman Sachs. Please go ahead.
Jerry David Revich: Yes, hi, good afternoon, everyone.
Brian M. DelGhiaccio: I would just love to continue the conversation on the cost side. I mean, really impressive. In the quarter, your costs per unit were up just 1% year over year. So I'm wondering, where are you starting to see deflation? It sounds like the tailwind from better equipment availability is still in front of us. So I'm wondering what's gotten better for you folks already in the fourth quarter numbers? And then, Brian, I'm wondering if we could just put a finer point on the comments that you made about yield slowing over the course of the year on comps. Do you expect to exit the year with the price costs spread still favorable in the fourth quarter versus the third? Yeah, yeah, Jerry. So Jon mentioned one of them already is, you know, our labor has continued to improve, right, really throughout the year. And in part, that's just due to a reduction in turnover, right? And so again, when you just take a look at the impact that turnover has, there's the hiring cost of bringing someone else in, as well as the productivity impact: a newer driver just tends not to be as productive as those that have some tenure.
Jerry David Revich: Just love to continue the conversation on the cost side, I mean really impressive in the quarter your cost.
Jerry David Revich: Cost per unit were up just.
Jerry David Revich: A 1% year over year. So I'm wondering where are you starting to see deflation it sounds like the tailwind from.
Speaker Change: Better equipment availabilities still in front of us So I'm wondering what's gotten better for you folks already in the fourth quarter numbers and then Brian I'm wondering who would just put a finer point on the comments that you made about yield slowing over the course of the year on comps do you expect to exit the year with price cost spread still.
Speaker Change: Favorable fourth quarter versus fourth quarter.
Speaker Change: Yeah, Yeah, Jerry So John mentioned, one of them already as you know our labor has continued to improve right really throughout the year.
Brian: Part, that's just due to a reduction in turnover rate that we've seen and so again when you just take a look at the impact that turnover has theres a hiring cost of bringing someone else as well, which is a productivity impact a newer driver just tends not to be as productive as those that have some tenure.
Brian M. DelGhiaccio: And so we're starting to see as the turnover rates have come down; we're seeing that kind of come through that labor line item, which has had a positive impact. So I would say that's where we've seen some of the biggest improvements. Together, we mentioned throughout the year some of the impact that transportation costs had had. These were things where we had multi-year agreements. They came up for renewal in the second half of 22.
Brian: And so we're starting to see is the turnover rates have come down we're seeing that kind of come through that labor line item, which has had a positive impact. So I would say, that's where we've seen some of the biggest improvements together we mentioned throughout the year. Some of the impact that transportation cost that had these were things we had multi year agreements. They came up for renewal in the second half.
Brian: Half of 'twenty, two and we said that we took some pretty big price increases in that they were going to comp out in the second half of 'twenty three and we've certainly seen that so I would say those are some of the tailwind as we've seen from a cost perspective. The maintenance has stayed relatively sticky in kind of that 7% to 8% type cost increase range year over year.
Brian M. DelGhiaccio: And we said that we took some pretty big price increases and that they were going to comp out in the second half of 23, and we've certainly seen that. So I would say those are some of the tailwinds we've seen from a cost perspective. The maintenance has stayed relatively sticky in kind of that 7% to 8% type cost increase range year over year. To your question just on the price versus cost spread, I would sit there and say we expect the biggest or the most positive impact between that and the first quarter; we expect that to modulate throughout the year, but still price exceeding cost by the time we exit. Super
Speaker Change: Year to your question just on the price cost spread I would sit there and say we expect the biggest or the most positive impact between that in the first quarter, we expect that to modulate throughout the year, but still price exceeding cost by the time, we exit 2024.
Speaker Change: Okay Super and then.
Brian M. DelGhiaccio: And then nice progress on the $100 million efficiency program. How much progress did you make in 23 specifically and the remaining $35 billion of productivity improvement? When do you expect? How much of an improvement do you expect in 24 relative to that remaining $35? Approximately about $10 million. END. Thank you. The next question is from Tobey Sommer with Truist. Please go ahead. Yeah, good evening. This is Jack Wilson on for Tobey.
Speaker Change: And nice progress on the $100 million efficiency program.
Speaker Change: How much progress did you make in 'twenty, three specifically and the remaining $35 billion of productivity improvement.
Speaker Change: When do you expect how much of an improvement do you expect in 'twenty four relative to that remaining $35 million.
Speaker Change: Approximately about $10 million.
Speaker Change: While the remaining 35.
Speaker Change: Thank you.
Speaker Change: The next question is from Tobey Sommer with Truest. Please go ahead.
Speaker Change: Yeah. Good evening. This is Jack Wilson on for Tobey.
Jon Vander Ark: Can we double-click on sort of the state of the fleet and specifically fleet electrification in the long term and sort of where you see that going? Sure. We mentioned in the prepared remarks that we're going to have 11 right now. We'll have add 50 to that this year. We'll add several hundred next year, and you know, climbing our path that's going to start as a residential tower, and then it will move into small containers over time, and we've got a really thoughtful strategy in terms of how we roll that out. I mentioned the infrastructure side of that as well; it's not just a truck, right? It's a system.
Jack Wilson: We double click on sort of the state of the fleet and politically fleet electrification in the long term and where you see that going.
Jack Wilson: Sure we mentioned in the prepared remarks that we have 11.
Jack Wilson: Right now we will have add 50 to that this year.
Jack Wilson: There will be some add several hundred.
Speaker Change: Next year and climbing our path that's gonna started residential amount will move into small container.
Speaker Change: Over time, and we've got a really thoughtful strategy in terms of how we roll that out I mentioned.
Speaker Change: The infrastructure side of that as well, it's not just a truck right. It's a system. So you need to understand the infrastructure you understand the incentives you need to understand the customer willingness to pay.
Jon Vander Ark: So you need to understand the infrastructure, you need to understand the incentives, you need to understand the customer's willingness to pay for the vehicle. And we feel that the trucks that we've had delivered out of our partnership with Oshkosh, those McNeil trucks, are working very, very well. So we're excited to see the next 50 come into the fleet. Okay, thank you for that color there. And then, just as a follow-up, can we sort of dig into the moving parts of volume?
Speaker Change: So the vehicle and we feel that the trucks that we've had delivered out of our partnership with Oshkosh. Those many of those trucks are working very very well. So we're excited to see the <unk>.
Speaker Change: Next 50 come into the fleet.
Speaker Change: Okay. Thank you for that color there and then just as a follow up can we sort of dig into the moving parts in volume are there any sort of specific geographies or market segments that are especially volatile war or changing.
Jon Vander Ark: Are there any sort of specific geographies or market segments that are especially volatile or, or changing? I know I mentioned the housing piece, the large container temp threat, you know, that's certainly soft as well. We're not putting up as many new houses as we need, or even for movement, right? People are kind of keeping their existing mortgage rates and are reluctant to move, and oftentimes we see remodeling activity or other ancillary opportunities in large container housing, and that's been muted.
Speaker Change: I know I mentioned the housing piece large container tap threat, that's been certainly soft as.
Speaker Change: Oh, we're not putting up as many new houses as we need them or even for a movement right people are kind of keeping their existing mortgage rates and are reluctant to move and oftentimes, we see move we see remodeling activity or other ancillary opportunities in large container tamp and that's been muted. We don't think that will last forever here.
Jon Vander Ark: We don't think that will last forever here, but we're planning on a relatively benign year this year, looking to 2025 to see that accelerate. Thank you very much. The next question is from Tony Bancroft with Gabelli Funds. Please go ahead.
Speaker Change: But we're planning on a relatively.
Speaker Change: Benign year this year looking to 2025 to see that accelerate.
Speaker Change: Thank you very much.
Speaker Change: Okay.
Speaker Change: The next question is from Tony Bancroft with Gabelli funds. Please go ahead.
Jon Vander Ark: Thanks for the question. Nice job on the quarter. Just some more color, maybe you mentioned PFAS remediation; could you just maybe talk about what is going on currently at your landfills or whatever you're doing regarding PFAS and what that, maybe just a general idea, what that business could look like opportunity-wise? Yeah, we think we've got a very compelling offering for customers and an end-to-end solution. So we can handle all the way from the assessment to the, you know, frontline remediation, doing our field service work, and then a range of disposal options on the back end, whether that's into a hazardous landfill, whether that's in a deep well. Some of that waste can be profiled and then put into a solid waste landfill as well. And you're seeing some of that filter or special waste.
George Anthony Bancroft: Thanks for the question nice job on the quarter.
George Anthony Bancroft: Just some more color maybe you mentioned P sauce remediation could you just maybe talk about what what is going on currently at your landfills or whatever you're doing regarding P boss and what could that maybe it's just a.
George Anthony Bancroft: Just a general idea of what what could that business looked like opportunity wise going forward.
George Anthony Bancroft: Yeah, We think we've got a very compelling offering for customers and an end to end solution. So we can handle all the way from the assessment to the frontline remediation.
George Anthony Bancroft: Doing our field service work and then a range of disposal options on the back end whether that's.
George Anthony Bancroft: Andrew hazards landfill, whether that's in deep well some of that waste can be profiled within put into a solid waste landfill as well and youre seeing some of that flow through our special waste. So you know.
Jon Vander Ark: So, you know, that's measured in the tens of millions. If you look at last year, this year, it'll be the high end of the tens of millions or potentially, you know, tipping into, you know, a nine-digit number in terms of revenue. So this is a real growth opportunity for us. And, you know, this is mostly people self-selecting in advance of the EPA regulations coming down, as well as some of the Department of Defense work that's been accelerated on that front. So we feel like our national footprint positions us well to, and our Strategic Accounts Organization positions us very well to serve customers on this issue. That's great.
George Anthony Bancroft: That's measured in the tens of millions if you look at last year. This year it'll be the high end of tens of millions or potentially you don't tipping into.
George Anthony Bancroft: A nine digit number in terms of revenue. So this is a real growth opportunity for us and you know this is all mostly people self selecting in advance of the EPA regulations coming down as well as some of the department of defense work, that's been accelerated on that front. So we feel like our national footprint positions us well.
George Anthony Bancroft: <unk> two in our strategic accounts organization positions.
George Anthony Bancroft: Positions us very well to serve customers on this issue.
Speaker Change: That's great and then maybe switching to trucks, you talked about what's going on with the vs and the amount of deliveries coming which sounds great.
Jon Vander Ark: And then maybe switching to trucks you talked about. What's going on with EVs and the amount of deliveries coming, which sounds great. Any issues with maybe just traditional trucks and EVs in the supply chain getting those deliveries? And then, just to piggyback on that one, any surprises? Do you see any surprises in EV performance? You hear and read a lot of things about how it's performing. Obviously, you're pretty well situated just based on the routing system, but just some real-time color on how those, I guess there's only a few right now, but that's going to be growing.
George Anthony Bancroft: Any issues with maybe I'll, just traditional trucks and Suvs on supply supply chain getting those deliveries and then just to piggyback on that one.
George Anthony Bancroft: Surprises have you seen any surprises in EV performance.
George Anthony Bancroft: Hear and read a lot of things about how how it's performing obviously, you're pretty well situated as based on the route routing system, but just you know just some real time color on how those how those are I guess, there's only a few right now, but that's going to be growing and I'm sure you're doing a lot of testing.
Jon Vander Ark: Yeah, the supply chain is again probably getting about 80% of the trucks we want over the last couple of years. And that includes the rollover from the previous year, right? So, you know, we're not continuing to fall way behind, but we haven't fully caught up yet either. But, keep in mind, we've grown a lot. We're coming off our third straight year of double-digit revenue growth on that. So as we grow and do these acquisitions, that creates more demand and need for new trucks. Uh, so... Uh, we see that selection is improving. I think we'll get, we'll shorten that, we'll shrink that gap as we exit 24. But I don't expect that we'll close that gap until 2025 on that front. And then the EV specifically, Maynila's truck is the first purpose-built refuse truck ever, and it's electrified. And that truck is driving a full route.
Speaker Change: Yeah. The supply chain is again, probably we're probably getting about 80% of the trucks, we want over the last couple of years.
Speaker Change: And that includes the rollover from the previous here right. So you know, we're not continuing to fall way behind but we havent fully caught up yet either I'll.
Speaker Change: Keep in mind, we've thrown a lot we're coming off a third straight year of double digit revenue growth on that so as we grow and do these acquisitions that creates more demand and need for new trucks.
Speaker Change: So.
Speaker Change: We see that supply chain, improving I think we will get will shorten that will shrink that gap as we exit 'twenty four I don't expect that will close that gap until 2025 on that front and then the E V. Specifically.
George Anthony Bancroft: I mean, needless truck is the first purpose built refuse truck ever electrified and that truck is driving a full route most of the other evs that we've piloted that you spend the first <unk>.
Jon Vander Ark: Most of the other EVs that we've piloted, they spend the first... You know, 60 days with a lot of software issues that you're working through. We've been really, really surprised by the performance level and the uptime of this vehicle, but working through some bugs, we're still in a test and learn environment, but really promising in terms of what this is going to be able to do to, you know, operate at Great job! This concludes our question and answer session. I would like to turn the conference back over to John Vander Ark for any closing remarks. Thank you, Debbie. I would like to recognize and thank our more than 40,000 employees for their great work and commitment to serving our customers. Their efforts enable our strong 2023 results and the continued growth of our company.
George Anthony Bancroft: 60 days with a lot of software issues that you're working through we've been really really surprised by the performance level and the uptime of this vehicle, but working through some bugs, we're still in a test and learn environment, but really promising in terms of what this is going to be able to do to operate at scale with evs.
Speaker Change: Thank you so much great job.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Jon Vander Ark for any closing remarks.
Speaker Change: Thank you Debbie I would like to recognize and thank our more than 40000 employees for their great work and commitment to serving our customers.
George Anthony Bancroft: Their efforts enable.
Speaker Change: Our strong 2023 results and the continued growth of our company have a good evening and be safe.
Jon Vander Ark: Have a good evening and be safe. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.