Q1 2024 Republic Services Inc Earnings Call
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I would now like to turn the conference over to Aaron <unk>, Vice President of Investor Relations.
Thank you I would like to welcome everyone to Republic services first quarter 2024 conference call John.
Jon Vander Ark, our CEO and Brian Delguercio, our CFO are on the call today as we discuss our performance.
I would like to take a moment to remind everyone that some of the information we discuss on today's call contains forward looking statements, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations.
The material that we discuss today is time sensitive 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 April 32024.
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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 our reporting of this call are available on Republic's website at Republic services Dotcom.
When events are scheduled the dates times and presentations are posted on our website with that I'd like the I'd.
I'd like to turn the call over to John.
John: Thanks, Aaron Good afternoon, everyone and thank you for joining us.
Our strong first quarter results demonstrate our focus on profitably growing the business.
We produce revenue growth, both organically and through acquisitions, while enhancing profitability across the enterprise.
During the quarter, we achieved revenue growth of 8%.
Generated adjusted EBITDA growth of 12%.
Expanded adjusted EBITDA margin by 120 basis points.
John: Reported adjusted earnings per share of $1 45.
John: Produced $535 million of adjusted free cash flow.
The results we delivered are made possible by executing our strategy supported by our differentiated capabilities.
Our efforts to provide best in class, our central services and sustainability offerings continue to drive customer loyalty and organic growth in the business.
John: Our customer retention rate remained high at over 94%.
And we continue to see favorable trends in our net promoter score as customers value, our broad service offerings and the quality of our service delivery.
John: Most of the weather impact occurred in January and we saw notable rebound in volume performance in February and March as weather conditions normalized.
John: Yeah.
John: Turning to our digital capabilities.
John: The team continues to advance the implementation of digital tools.
John: It improved the experience for both customers and our employees.
John: Our rise digital operations platform is driving improved route optimization safety performance.
John: And providing more predictable service delivery to our customers.
John: Development of our new asset management system is underway, which is expected to increase maintenance technician productivity.
John: An enhanced warranty recovery.
John: We expect to begin deploying the new system later this year using a phased approach, which we estimate will result in $20 million of annual cost savings by 2026.
John: We continue to benefit from advanced technology in recycling and waste collection routes.
John: Our platform utilizes cameras to identify overfill containers and contamination and recycling containers.
John: This technology will reduce can they havent contamination a recycling centers.
John: And it is expected to generate approximately $60 million in incremental annual revenue.
John: To date, we have already achieved $30 million of annual benefit.
John: Okay.
Speaker Change: Moving on to sustainability.
John: We believe that our sustainability innovation investments in plastics, circularity, and renewable natural gas or a platform for profitable growth.
John: Development of our polymer centers in Blue polymers joint venture facilities remains on track.
John: Our Las Vegas, Palmer centers operational and delivery of plastic flake to our off take partners began in March.
John: Construction is progressing on our Indianapolis Palmer center with equipment installation planned to begin in June.
John: This operation will be co located with a blue polymers production facility.
John: The renewable natural gas projects being co developed with our partners continue to advance.
John: One project came online during the first quarter and we expect at least seven additional projects to be completed in 2024.
John: We continue to advance our efforts to support decarbonization, including our industry, leading commitment to fleet electrification.
John: We currently have 15 collection.
John: Alexia vehicles in operations.
John: We expect to have more than 50 additional east to be added to our fleet in 2024.
John: We now have seven facilities with commercial EV charging infrastructure.
John: Development of 40 additional locations is underway with more than 10, new sites expected to be completed in 2024.
John: As part of our approach to sustainability, we continually strive to be the employer of choice in the markets that we serve.
John: Quarter turnover rates, improving 70 basis points compared to the prior year.
John: As a result, we are better staffed to optimize our operations and capitalize on growth opportunities in the market.
John: Yes.
John: Our comprehensive sustainability performance continues to be widely recognized as Republic services was recently named to Barron's 100, most sustainable companies list.
John: Spears, a world's most ethical companies list.
John: Unfortunately, most innovative companies list.
John: With respect to capital allocation, we invested $41 million in acquisitions during the first quarter.
John: Our acquisition pipeline remains supportive of continued activity in both the recycling and waste and environmental solutions businesses, we continue to see opportunity for $500 million of investment and value, creating acquisitions in 2024.
John: Additionally, we returned $168 million to shareholders through dividends in the first quarter.
John: I will now turn the call over to Brian who will provide details on the quarter. Thanks, Jon core price on total revenue was 7%.
Brian: Core price on related revenue was eight 5%, which included open market pricing of 10, 2% and restricted pricing of five 7%.
Brian: The components of core price unrelated revenue included small container of 12, 2% large container of seven 7% and residential of eight 1%.
Brian: Average yield on total revenue was 6% and average yield unrelated revenue was seven 3%.
Brian: First quarter volume on total revenue decreased 90 basis points and volume unrelated revenue decreased one 1%.
Brian: The components of our volume performance included.
Brian: The decrease in large container of four 4% primarily due to severe weather in January along with continued softness in construction related activity and a decrease in residential of two 6%.
Brian: During the quarter landfill MSW volume was up 1.6% and small container volume increased 30 basis points moves.
Brian: Moving on to recycling.
Brian: Moderately prices were $153 per ton during the first quarter this compared to $105 per ton in the prior year.
Brian: Our recycling processing and commodity sales increased revenue by 40 basis points during the quarter.
Brian: Commodity prices are exceeding our initial expectations as current commodity prices are approximately $160 per ton.
Speaker Change: Now turning to our environmental solutions business.
Speaker Change: First quarter environmental solutions revenue increased $15 million compared to the prior year. The growth was due to the rollover impact from an acquisition that closed in the fourth quarter of 2023.
Speaker Change: Adjusted EBITDA margin in the environmental solutions business was 25%, which compared to 21% in the prior year.
Speaker Change: After considering the dilutive impact from our recent acquisition of 110 basis points EBITDA margin in the environmental solutions business increased 60 basis points.
Speaker Change: Total company adjusted EBITDA margin for the first quarter expanded 120 basis points to 32%, which was driven by margin expansion in the underlying business of 110 basis points.
Speaker Change: Other changes in margin performance during the quarter included a 20 basis point increase from recycled commodity prices and a 20 basis point increase from net fuel.
Speaker Change: This was partially offset by a 30 basis point decrease from acquisitions.
Speaker Change: Adjusted free cash flow was $535 million in the first quarter free cash flow conversion was 45, 9%.
Speaker Change: Total debt was $13 billion and total liquidity was $2 $8 billion.
Speaker Change: Our leverage ratio at the end of the quarter was approximately two eight times.
Speaker Change: With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 25, 4% during the quarter, which was in line with our expectations.
Speaker Change: We also received a $12 million state grants associated with renewable energy investments. This benefit was recorded in other income and added three of EPS.
Speaker Change: Did not impact EBITDA or EBITDA margin during the quarter with that operator, I would like to open the call to questions.
Speaker Change: Okay.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: In the interest of time, we ask that you limit yourself to one question and one follow up question today.
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Speaker Change: Your first question comes from Jerry Revich with Goldman Sachs. Please go ahead.
Speaker Change: Hi, This is Adam on for Jerry today, Thanks for taking our question.
Adam: So your first polymer center recently open just wondering how that plan is tracking versus your initial expectations and any surprises there.
Adam: No it probably open a month later than we thought all around related permitting and infrastructure issues are the core operations are actually exceeding our expectation shipping.
Adam: Shipping to customers. They think it is some of the if not the cleanest.
Adam: Recycled P T flake in the world. So the facilities the team are executing really really well.
Adam: And can happy with our equipment providers happy with everything and were.
Adam: Up and running in our Indianapolis, and we're probably should shortly announce or a third location on the east coast.
Adam: Terrific and then shifting to U S. Ecology, just wondering if you can update us on how you're thinking about you know what what level of margin upside is it feasible for that business once.
Adam: You fully integrated.
Adam: Systems.
Adam: Just based on your experience on optimizing route profitability and pricing for your base business whats the level of margin upside potential there.
Speaker Change: Yeah, we're targeting a 25% EBITDA margin there in the midterm and that's really going to be.
Adam: A series of levers right, but we're going to think about customer mix and making sure that we have customers that are willing to pay we will obviously think about pricing for the value. We deliver on that will drive additional revenue through cross sell which we've talked about and then in the I T investments helped there. They also help us manage the middle just better labor utilization more efficient.
Adam: See in terms of disposal optimizing disposal assets and getting the material into the right spot and then as we grow we will certainly get more leverage on our SG&A. So we've got a series of levers that we think get us to 25% in the journey.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you. The next question is from Toni Kaplan with Morgan Stanley. Please go ahead.
Toni Michele Kaplan: Thanks, so much.
Toni Michele Kaplan: The weakness in volume related to weather I was hoping that you could give the weather impact in the quarter.
Toni Michele Kaplan: So we think overall that was about a 50 basis point drag on total volume performance. So you can think about that being down you know circle, 1% half of which was a weather related and then just have more in those cyclical volumes as we talked about construction activity and the like.
Speaker Change: Yeah. Okay. Thanks, a lot of sense and then just wanted to ask about pricing strong core price again this quarter maybe.
Speaker Change: Maybe a little bit above expectation I think you mentioned it exceeded your expectation as well you know I think last quarter, you talked about trajectory of lung Cubin, a high point for Q likely being the low end.
Speaker Change: Or is that still your expectation and has anything in the inflationary backdrop changed your.
Speaker Change: Your view on how price plays out or are how good pricewise and in the first quarter.
Speaker Change: Yeah, I think it's up modestly exceeded our expectations and I think that cadence we laid out is still right as we see the.
Speaker Change: We'll sort of come down could we extend that a little higher as you know interest rates remain high and I think inflation has been a little stickier than people expected. The yeah, I think there's certainly potential for that.
Speaker Change: Terrific. Thanks.
Speaker Change: Thank you. The next question is from Michael Hoffman with Stifel. Please go ahead.
Michael Edward Hoffman: Hi, good afternoon, thanks for taking my questions.
Michael Edward Hoffman: So I guess, one on yes would be the cross sell when you bought it you Didnt expect you didnt put that in the plan, but the but it's been proving to be.
Michael Edward Hoffman: A positive contributor or how do we track against where you.
Speaker Change: We are now in that cross sell what's that incremental total dollar we've picked up.
Speaker Change: Yeah, I think we're making great progress on that Michael listen that yes. It was a little soft during the quarter was certainly weather impact to them and they were also coming off a pretty tough comp because we had a great first quarter of last year, but that pipeline remains strong I think we stopped talking about the pipeline at 150 million that pipeline has draw.
Speaker Change: From there now that pipeline is over you know a couple of years that builds out as these opportunities develop either the work initiated from a recurrent generator or sometimes it's a project that has a scheduled start.
Speaker Change: It was pushed out a few months. So we feel really good about that and frankly theres another wave of upside as we get integrated on the it side and then we get our sales organization kind of optimized against those customer list and that information. We think there's strong pull through I think what's been undeniable for us is that our customers want.
Speaker Change: And desire a single source solution and this integrated offering is something that we could sell very profitably in the marketplace.
Speaker Change: Okay, and then switching gears back to <unk>.
Speaker Change: I would waste business.
Speaker Change: So that you know that opportunity to capture surcharges in overage is through the digital platform, what's the point of <unk>.
Speaker Change: In version of that into a permanent revenue. So you get the eventually sales person shows up and says Hey, your containers always overflowing and converted into a permanent upgrade what's that look like when how do we think about that.
Speaker Change: Yes.
Speaker Change: Michael you know to your point you know the obvious solution to that is to sit there and EBIT either get an increased level of service whether it be the size of the container or just the number of times the frequency that we're providing that service.
Speaker Change: But when you take a look just at those incremental revenues.
Speaker Change: They've been fairly sticky, meaning even though we've had these because they're not consistent they tend to be somewhat episodic as well. So again when when we're providing the service based on a certain amount of volume within that container. If there's those overages were going to charge for that and same with the contamination ultimately could that change behavior over time, yes.
Speaker Change: We would want that and at which point then that probably just results in increased frequency, which positively impacts the top line as well and that is the protocol right. If somebody has got multiple overages read the protocols, it's pushed through salesforce in a salesperson.
Speaker Change: Calls on that customer says Hey, it's time to go from twice a week to three times, a week or a larger container or whatever the right solution is.
Speaker Change: To Dallas point, I think it's still early days and we've seen it across a variety of customers right. It's not like we're getting all of this from the same small set of customers is kind of onesie twosies on that front. So it's a little early to tell in terms of what that conversion looks like in the kind of permanent upgrades.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. The next question comes from Brian <unk> with Citi. Please go ahead.
Brian: Good afternoon, thanks for taking the question.
Brian: Prepared remarks, you touched on a revenue opportunity and recycling I guess, just what's kind of driving the biggest tailwind there right now is it capturing maybe different material such as plastic or are you increasing the throughput speed.
Brian: And is there any opportunity maybe maybe on the labor side as well.
Speaker Change: Well I think what.
Speaker Change: What we talked about Brian on the recycling side, a little bit was on those fees. We were just talking about more on the contamination side. So.
Brian: So again when you take a look at how we're deploying AI into the business. We're doing it on overage is right on the on the traditional waste and then on the recycling it's more about contamination. So that's we're talking about there. When you just talk about where you saw the uplift in recycling that was really a function of just the recycled commodity prices and the lift in the overall basket.
Brian: You know our overall basket was $153 per ton in the first quarter, we exited the year at around 130. So that's that uplift, which is really what's driving that increase in recycled commodities.
Speaker Change: Got it got it that makes sense, yeah, I was I was acquiring about $60 million of opportunity. There. So thanks for the detail and then maybe.
Speaker Change: So maybe just some solid waste like really.
Speaker Change: Nice margin performance in <unk>.
Speaker Change: What are your expectations for costs now versus at the start of the year based on the public data, maybe wages or cooling a little bit I'm not sure if that's especially accurate for you guys.
Speaker Change: Do you view on kind of in our costs. Thanks, I'll turn it over.
Speaker Change: Sure Yeah, I think so.
Speaker Change: Teams are executing well in the middle that outlook is favorable in terms of cost because on the wage side that cake is already baked we give our.
Speaker Change: Colleagues all their annual increase at the end of February right and even if inflation cools, we don't call them up in September So we want some of that back so.
Speaker Change: It's more of a step function in terms of cost.
Speaker Change: Same thing on third party transportation I'd say the most dynamic.
Speaker Change: Parts of the cost structure of landfill operating and maintenance and maintenance teams.
Speaker Change: Teams executing well, we're taking more truck deliveries and that will certainly have a positive aspect as we.
Speaker Change: Hi, all thanks for taking the questions.
Speaker Change: You know really nice opex leverage here.
Speaker Change: As others have alluded to and you know at this point 30 bps margin expansion at midpoint for the full year looks looks pretty conservative at least in light of <unk> results and the trends. So can you kind of comment on margin expectations at least how we should be thinking about kind of the typical step up in <unk>.
Speaker Change: Margins as we get into the stronger seasonal quarters.
Speaker Change: Yeah, we certainly feel comfortable with how the team is executing on our plan for the rest of the year on that front.
Speaker Change: Well listen the overall environment, keeping my weren't eight.
Speaker Change: Pretty much zero growth ball, a volume environment on recycling of waste over the last couple of years, if you think about.
Speaker Change: Housing starts in the correlation of that to volume on that front and certain parts of the economy or a little slower I construction for sure with interest rates remaining elevated both commercial and residential construction has been softer on that front no manufacturing has certainly been softer as well now there are some.
Speaker Change: Certainly positive signs that that activity is picking up at the plant level, which is encouraging so we remain.
Speaker Change: Pretty confident in our plan, but also mindful of the external environment election years, sometimes special.
Speaker Change: Special waste volume can push out a little bit on that front. So we'll update you more as we get into the seasonal upswing here after Q2.
Speaker Change: Absolutely I think the spirit of the question is that despite volumes being down more than expected I mean margin performance in <unk> was was definitely stronger I think perhaps maybe even in your own internal forecast certainly than the than the street.
Speaker Change: Is there any reason why some of the underlying tailwind to margins excluding volumes shouldn't continue into future quarters.
Speaker Change: You have pretty good visibility on things like labor cost is there is there anything on the cost side of the equation that should give us pause.
Speaker Change: Yeah, No. It's to your question right, we got off to a nice strong start but it's the first quarter right. So again, we like to see that continue that seasonal uptick we've got some strength right now in recycled commodity prices, but we're a quarter of the way through so to your observation, we've gotten off to a really good start to the year.
Speaker Change: Which would suggest there is some some modest upside, but we've got to sit there and see it play through the remainder of the year.
Speaker Change: Yeah, very very fair. Thank you and then just a quick housekeeping item.
Speaker Change: The line item in the cash flow statement, obviously, well north of that and I assume that delta is primarily related to the sustainability investments maybe some renewable energy project can you maybe just help us with that bridge.
Speaker Change: How to think about full year spending.
Speaker Change: Even excluding the M&A that you hope to do in the balance of the year.
Speaker Change: Yes, most of that is the investments that we're making in those those JV is so we would expect between what we're doing on the landfill gas to energy as well as the investments in blue polymer should be about $230 million of investments in those jv's in 'twenty four.
Speaker Change: Okay $230 million and so it sounds like you spent a good chunk of that and already just doing some quick math here.
Speaker Change: So that tapers off as in the back half.
Speaker Change: Yes.
Speaker Change: All right excellent. Thank you.
Speaker Change: Thank you. The next question comes from David Manthey with Baird. Please go ahead.
David John Manthey: Thank you good afternoon.
David John Manthey: Could you provide us with some details on the timing size and type of acquisition that you did in environmental solutions. It looks like volume growth was about three 2% this quarter.
David John Manthey: I'm wondering how much of that was the acquisition.
David John Manthey: Well the acquisition that we completed within the fourth quarter of 'twenty three so most of what you're seeing there on the environmental solutions side is the rollover impact of.
David John Manthey: A company that we bought out on the West coast.
David John Manthey: And we talked about that in our fourth quarter release, but when you think about the total rollover impact right now of acquisitions, so that which closed in 'twenty three together with the deals that closed in the first quarter is about 220 basis points of rollover impact to revenue in 'twenty four.
Speaker Change: Okay. Thank you.
David John Manthey: This enterprise asset management initiatives, you have in your talk about maintenance productivity and warranty recovery.
David John Manthey: Could you explain to me what that means and maybe size the opportunity there.
Speaker Change: Yeah, well now you've got a system, which is going to be seamlessly integrated. So when you think about the platform that we put on both the financial and procurement side now being seamlessly integrated with an asset management system, so our ability to attract parts and to be able to sit there and make sure that we're getting warranty recovery on every single part that we take off a truck.
David John Manthey: Greatly enhance right now it's a very manual.
David John Manthey: The manual exercise in order to sit there and to get those warranty dollars as well as just greater efficiency for the technician. So what that means is with that extra time in that capacity. That's created we can in source more of those repairs. So instead of outsourcing at a multiple in order to sit there and have those repairs done with a third party shop we.
David John Manthey: Can do those in house.
Speaker Change: Thank you very much.
Speaker Change: Thank you. The next question comes from <unk> Khan with RBC capital markets. Please go ahead.
Khan: Okay, great Thanks, and good afternoon.
Khan: Maybe put to get a little bit of color on sort of the volume cadence you expect for the rest of the year a couple of your peers have called out but it was softer Q2, there maybe just your expectation on cadence and if that's changed versus what you might have expected at Q4 reporting a bit earlier.
Speaker Change: Yeah, we would expect obviously a sequential improvement from what we saw in Q1, just because we don't we're not expecting that the weather impact again Q2, yeah. We would expect it to be a little bit you know negative given what we're seeing with some of the construction related activity, we're not seeing a real.
Khan: Bound there yet as we get into the second half of the year, we start to anniversary some of those construction related declines. So we would expect that to be flat to even potentially slightly positive.
Speaker Change: Okay, Great and then on the PFS front, you guys have obviously a bit of a unique exposure with the environmental business. Maybe if you look at the puts and the takes across our entire business. Obviously, it's a bit early but just curious how you're sort of approaching that.
Speaker Change: Opportunity in kind of a net impact of any additional costs just how do you how do you view that entire opportunity given your two business lines.
Speaker Change: Yeah, well, it's a net positive for sure where we've talked about kind of $70 million to $90 million last year. A P. Foster related revenue will have that number better this year with a pipeline. That's building. So we offer a very unique set of products and services to our customers to help them remediate all the way from the service to.
Speaker Change: Multiple opportunities for disposal solid waste landfill obviously.
Speaker Change: For low levels of people Paris, those landfills deep well and that solution is certainly resonating with our customers.
Speaker Change: On the other side of the business and that's a multi year opportunity that's going to play out over time and there is certainly the size and scale of that opportunity is hard to size, yet because it does depend a bit on the regulatory environment.
Speaker Change: And likewise on the waste and recycling side, there's certainly.
Speaker Change: You know could be some headwinds there if this thing is.
Speaker Change: Quarterly executed I think the industry is doing a good job of pushing back and making sure that we don't get penalized as being a passive receiver.
Speaker Change: And I would say from a litigation standpoint, and more broadly as regulation increases in the industry. If you think about the last 25 30 years.
Speaker Change: We've done a really good job of passing on that cost of regulation and not making that hurt returns and I think over time, given the nature and complexity. It favors the larger players. So we want regulation to be thoughtful and intelligent, but we see that again over time, we're not one or through piece of us.
Speaker Change: Great. Thanks very much.
Speaker Change: Thank you. The next question is from Tony Bancroft with Gabelli funds. Please go ahead.
George Anthony Bancroft: Thanks for taking my question great job on the quarter.
George Anthony Bancroft: Regarding the plastics, maybe just step up.
George Anthony Bancroft: Climb up to 30000 feet and just sort of a long term view on it you know with with these with regulations that have been implemented on plastics like the ones that went into effect in Canada. You know maybe I assume as you know is as good as maybe Canada or in California. So it goes to goes the rest.
Speaker Change: How do you see those maybe stricter regulations and what could be.
Speaker Change: Made in you know thrown out versus what needs to be recycled and the restrictions on that how is that impact in the long term your polymer senators centers and maybe how it.
Speaker Change: Changes, our producer's behavior and what they will produce and how does that maybe impact your long term [laughter] net net return on investment for.
Speaker Change: For those for those facilities.
Speaker Change: Yeah, it looks like consumer packaged good companies for a long time and I've talked about a.
Speaker Change: Clear expectations for returns when we built the Las Vegas Palmer Center as we always do we're gonna be good stewards of capital and we certainly exceeded our expectations, there and I think there's more upward opportunity.
Speaker Change: We could sell off that facility five times over and the same will be true in Indianapolis and the other centers or the market is structurally short supply of recycled P. D and we've got the unique capability of collecting something 5 million times, a day right and so we can be the anchor tenant of our own facility on that front so over.
Speaker Change: Time, you know I think it will.
Speaker Change: Think about innovating on collection, so how do we get more P E T right and more olefins into the system and then that might spark the opportunity to create a fifth or a sick polymer center and more.
Speaker Change: Take that on as we go.
Speaker Change: Great answer thanks, so much great job.
Speaker Change: Thank you. The next question is from Tobey Sommer with <unk> Securities. Please go ahead.
Tobey O'Brien Sommer: Thanks, a question for you on the hazardous side.
Tobey O'Brien Sommer: Is the sort of pipeline and overall demand and do you think it's sufficient to easily absorb new incinerator capacity coming towards the end of this calendar year.
Tobey O'Brien Sommer: Yes, the pipeline is strong with activity like you said it was certainly weather related impact in the first quarter. Our pipeline is strong we got a number of attractive things get both on recurring streams and some of that work in the pipeline. The market is structurally short supplied on incineration and even with a new COO.
Tobey O'Brien Sommer: Passey coming online I think it's likely to be tight for the foreseeable future in that front.
Tobey O'Brien Sommer: And then do you think about any kind of medium to even a bearish case on <unk> is going to push more volume in the liquid side into incineration. So we see that market being tight supplied for the foreseeable future.
Speaker Change: I appreciate that and then if I could ask a question on the <unk>.
Speaker Change: Expense side beyond wages in terms of hiring training and the safety events that tend to happen more frequently with new employees are those other elements around direct compensation also sort of seeing less growth in <unk>.
Tobey O'Brien Sommer: Sort of a benefit to margins this year.
Speaker Change: Yeah, we're seeing certainly great tracking great.
Tobey O'Brien Sommer: Great safety numbers, we talked about turnover, we talked about mpls and listen all of these things are connected done. This a long time and we know that when you are fully staffed and you've got trained and tenured drivers. They provide great customer service right. It lowers your risk cost those customers are happy with the product offering and they're willing to pay more and stay law.
Tobey O'Brien Sommer: <unk>. So we're certainly seeing some of the benefits of a reduced.
Tobey O'Brien Sommer: To reduce turnover as well.
Tobey O'Brien Sommer: Thank you. The next question is from James Schumm with Cowen. Please go ahead.
James Schumm: Hey, Thanks, good afternoon.
James Schumm: Just curious if you guys are seeing any trends in the residential business with respect to competition or pricing.
James Schumm: Yeah, listen I think that Mark talked.
James Schumm: Talked about this at length over the last decade as the business has improved and transformed in lots of ways. That's one of the parts of the business that hasn't made as much progress and we have a very strong belief that we need to raise returns in that part of the business and I listen on balance I'd say.
James Schumm: Competitive conduct is improving in terms of people.
James Schumm: Getting a fair return for the work they do it still has room to improve and we're gonna be disciplined in that space and we're not going to do work for low returns and if the city wants to.
James Schumm: Different provider, who might be cheaper, but it doesn't provide as much benefit so be it we're going to put our allocate our capital in places, where we get a very attractive return.
Speaker Change: Got it thanks for that and then I'm, assuming turnover is trending lower but did you give any specifics there and what's your target for turnover. If you have one and apologies if I missed it.
James Schumm: Oh, probably don't talk about Covid sub 20%.
James Schumm: And you know theres, a seasonal curve to turnover, obviously it kind of goes up in Q2 Q3, just like volumes do and comes down in Q4 and Q1.
James Schumm: Was it running the business up 20% right, it's getting very attractive in terms of all the operating metrics I talked about earlier, including the financial performance of the business.
Speaker Change: Okay. Thank you very much.
Stephanie Lynn Benjamin Moore: Thank you. The next question is from Stephanie more with Jefferies. Please go ahead.
Speaker Change: Hello, This is Harold longhorn for stuff anymore I.
Harold Longhorn: I guess just on the M&A side.
Harold Longhorn: He said this year to be.
Harold Longhorn: Above average M&A you know we've heard somebody.
Speaker Change: Let's see.
Speaker Change: This year, maybe a little more active in I guess, you know and intensity of verticals, where which verticals.
Speaker Change: Would you like to.
Speaker Change: C would you listen made the biggest gains thank.
Speaker Change: Thank you.
Speaker Change: Listen we had a really outsized we're coming off a $5 5 billion of M&A spend over the last three years. There's also there's always some episodic nature of that we closed two really big transactions last year in the fourth quarter.
Speaker Change: And I think last year was a $1 $8 billion spend $1 four but it was in recycling and waste. So there's a natural ebb and flow of just when those deals close.
Speaker Change: We don't time any of those things around a quarter of year right. We do that when the seller is ready to sell on that front. The pipeline remains strong in recycling and waste and environmental solutions. The only place I'd say, we're slightly self constrained is on the environmental solutions field services side of the business only because we're doing so much IP integration.
Speaker Change: The work that we're letting that team get focus there and you know the pipeline is certainly building in we could close more opportunities right now we're pausing until 2025 on that when we have a really solid foundation to integrate companies into because that's what we think we maximize the synergies of those acquisitions.
Speaker Change: Okay.
Speaker Change: Thank you and I believe it.
Speaker Change: You said.
Speaker Change: Recycled commodities are trending I 160.
Speaker Change: Dollars per ton is that what you're baking in for two Q and if not I guess what are you baking in there and I guess, one housekeeping is what it is.
Speaker Change: Turning on inflation on it right now.
Speaker Change: Yes, I mean right now we're just pegging to what we see which is running right around that $160 per ton, but back to my earlier comment we want to see that stay for a longer period of time before we sit there and say that that's where it's going to be for the remainder of the year.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question is from Mike Feniger with Bank of America. Please go ahead.
Michael J. Feniger: Hey, Thanks for taking my questions just a quick one I apologies if you already addressed it but I think EBITDA was a little bit down and environmental.
Michael J. Feniger: Solutions or environmental services margin was down a little bit you might have addressed it earlier, but please if there was something you would want to call out of why that happened and how we kind of think about how that plays through the full year. Thanks, everyone.
Speaker Change: Sure Yeah, no most of that C acquisition, we did in the fourth quarter ACD and as you know when we do acquisitions right. We always invest heavily in Q1 or in the first year, rather than the pro forma to integrate them.
Speaker Change: Frank.
Michael J. Feniger: So that's what's the the drag on that but our park in our margin outlook for Es is certainly positive for the year.
Speaker Change: Yes, good morning, we would expect that.
Speaker Change: I would expect that to abate that that margin headwind down the acquisition and we ultimately expect to see margin expansion in that business on a full year basis.
Speaker Change: And would it be probably be above what you would expect for the solid waste business.
Speaker Change: Well look solid waste ran at 120 basis points in the first quarter.
Speaker Change: We've talked about that cadence on environmental solutions moving in that 75 to 100 basis points per year, right and we see that on a sustained basis and in the medium term until we hit that that medium term target of circa 25%. So I think you can think of it in that Zip code.
Speaker Change: And then lastly, guys just to wrap up.
Speaker Change: Brian obviously, there's a lot of focus on CPI either.
Speaker Change: Staying sticky rolling over of moderating can you just remind us when we think of CPI theres, obviously, the headline CPI. There's what you guys have kind of converted over time can you just remind us where we are in that process that would be helpful. Thanks, everyone.
Brian: Yeah. So if you just take a look again, if you look at our entire revenue stream about 45% of our revenue has some sort of contractual pricing restriction, 55% in the open market. So of that 45% that has that that contractual pricing mechanism, 23% is directly linked to CPI headlines.
Brian: CPI, 27%, our alternative indices like water sewer trash garbage trash and the remaining 50% are either a fixed rate increase some sort of rate review things of that nature. So we've continued to move right. The book away from headline CPI to alternative indices, where now we have more on alternative indices than we do.
Speaker Change: Headline.
Speaker Change: Thank you. The next question is a follow up from Michael Hoffman with Stifel. Please go ahead.
Michael Edward Hoffman: Hey, I just wanted to play a little cleanup so one the.
Michael Edward Hoffman: Roll off.
Michael Edward Hoffman: Temporary container business.
Michael Edward Hoffman: Is it correct that you would park equipment pretty quickly reposition drivers raised price. So while this may show up as a volume calculation is not that big of an impact to profitability because you can pivot so quickly.
Speaker Change: Yeah, certainly Michael I mean, we're dynamic in that in the market and if you look at the quarter. Our volume was down 10, 8%, but price was up seven 1%.
Speaker Change: And I, just think that speaks to the strength of execution and frankly, the strength of the industry right.
Michael Edward Hoffman: <unk>, where volume is declining if you go back a decade or two you might see behavior change in pricing to be flat or even pricing are negative and I think people understand the value of the products and services they are delivering.
Michael Edward Hoffman: And the ability to flex and scale in that business is quicker than almost any and certainly our team has done a great job of that.
Michael Edward Hoffman: And then the other would be the incineration comedy.
Michael Edward Hoffman: Concur with us will remain tight for a while.
Michael Edward Hoffman: U S ecology was predominantly in inorganic chemistry play on the disposal side and the incineration World is predominantly organic so it's less impactful to you anyway.
Michael Edward Hoffman: It's not that you don't have an organics, but you're much more of an inorganic play.
Speaker Change: Yeah, I would say.
Michael Edward Hoffman: Historically that was true Michael but as we provide again a broader set of products and services. We certainly expanded the offering right and we're a significant player in that place in that space in terms of liquids, because we're going to recurring revenue generators and handling.
Michael Edward Hoffman: 5678, 10 products in their facilities and it can certainly be on the organic and inorganic side.
Speaker Change: Right, Okay, but the disposal landfill disposal sites still predominantly an inorganic. So this is the fuel blending in liquid but it is getting into the Phoenix, okay. Great. Thank you.
Michael Edward Hoffman: Okay.
Speaker Change: Thank you at this time there appear to be no further questions Mr.
Michael Edward Hoffman: Mr. Vander Ark, I will turn the call back over to you for closing remarks.
Jon Vander Ark: Thank you M. Jay I would like to thank the entire Republic services team for their efforts and commitment to driving lasting value for all of our stakeholders.
Speaker Change: <unk> has handled this environment in this community with a lot of accidents is excellence and professionalism. So congratulations Michael in your next chapter I have a good evening, everyone and be safe.
Speaker Change: Ladies and gentlemen, this concludes the conference call. Thank you for attending you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].