Q4 2024 Republic Services Inc Earnings Call
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Speaker Change: Please note that this event is being recorded. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations. Please go ahead.
Speaker Change: I would like to welcome everyone to Republic Services' fourth quarter and full year 2024 conference call. Jon van der Ark, our CEO, and Brian DelGhiaccio, our CFO, are on the call today to discuss our performance.
Speaker Change: I would like to take a moment to remind everyone that some information we discuss on today's call contains forward-looking statements.
Speaker Change: including forward-looking financial information which involves 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 discussed today is time-sensitive.
Speaker Change: 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 13, 2025.
Speaker Change: Please note that this call is property of Republic Services, Inc. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Republic Services is strictly prohibited.
Speaker Change: 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 Republic's website at republicservices.com.
In addition, Republic's management team routinely participates in investor conferences.
Speaker Change: When events are scheduled, the dates, times, and presentations are posted on our investor website. With that, I'd like to turn the call over to Jon. Thanks, Aaron. Good afternoon, everyone, and thank you for joining us.
Speaker Change: The Republic team finished the year strong. We delivered world-class service and innovative solutions for our customers and executed our strategy to profitably grow the business.
Speaker Change: As a result of the team's efforts, we delivered adjusted EBITDA, EPS, and free cash flow that exceeded our full year guidance.
During 2024, we achieved revenue growth of 7 percent.
Generated adjusted EBITDA growth of 12%.
Expanded Adjusted EBITDA margin by 140 basis points
delivered adjusted earnings per share of $6.46.
and produced $2.18 billion of adjusted pre-cash flow.
Speaker Change: We continue to be well positioned to capture new opportunities and create long-term value for our stakeholders through our differentiated capabilities, customer zeal, digital, and sustainability.
Regarding customers' yield.
Speaker Change: Our focus on delivering world-class essential services continues to support organic growth and enhanced customer loyalty.
Our customer retention rate remains strong at more than 94%.
Speaker Change: We continue to see favorable trends in our Net Promoter Score due to the value of the offerings and quality of our service delivery.
Speaker Change: Fourth quarter organic revenue growth was driven by solid pricing across the business.
Speaker Change: Average yield on total revenue was 4.4%, and average yield on related revenue was 5.3%.
Speaker Change: This level of pricing continued to exceed our cost inflation and helped drive 110 basis points of EBITDA margin expansion during the quarter.
Organic volume on total revenue declined 1.2% in the quarter.
Turning to our expanding digital capabilities.
Speaker Change: We continue to advance the implementation of digital tools to improve the experience for both customers and employees.
Speaker Change: Deployment of Empower, our new fleet and equipment management system, is underway.
Speaker Change: Empower is designed to increase maintenance technician productivity and enhance warranty recovery.
Speaker Change: Deployment of the new system is anticipated to be completed by the end of 2025.
Speaker Change: We estimate Empower will deliver $20 million of annual cost savings once fully implemented.
Speaker Change: We continue to benefit from innovative technology on our recycling and waste collection routes.
Speaker Change: We utilize cameras to identify overfilled containers and recycling contamination, which is enabled by our RISE digital platform.
Speaker Change: This technology generated more than $60 million in incremental revenue in the first year of operation.
Speaker Change: Moving on to sustainability. We believe that our sustainability innovation investments in plastic circularity and renewable natural gas position us for continued growth and long-term value creation.
Speaker Change: Development of our Polymer Centers and Blue Polymer's joint venture facilities continues to move forward.
Speaker Change: Construction is complete at our Indianapolis Polymer Center, and equipment commissioning underway.
Speaker Change: This operation is co-located with a Blue Polymers production facility that is expected to be completed by mid-2025.
Speaker Change: We expect earnings contribution from the Indianapolis Polymer Center in the second half of this year.
Speaker Change: Construction on the Blue Polymers production facility in Buckeye, Arizona is underway.
Speaker Change: This facility will complement our Las Vegas Polymer Center. We expect the completion of this facility in late 2025.
Speaker Change: We continue to bring decarbonization solutions to the market that will unlock value for our stakeholders, including the communities we serve.
Speaker Change: Renewable natural gas projects we're developing with our partners continue to advance.
Speaker Change: Two projects came online during the fourth quarter, and another project came online in January.
Speaker Change: We expect a total of seven new R&G projects to come online in 2025.
We continue to advance our commitment to fleet electrification.
Speaker Change: We had 52 electric collection vehicles in operation at the end of 2024.
Speaker Change: We expect to have more than 150 EVs in our fleet by the end of this year.
We now have 22 facilities with commercial-scale EV charging infrastructure.
Speaker Change: We expect to have approximately 30 facilities with charging capabilities by the end of 2025.
Speaker Change: As part of our approach to sustainability, we continually strive to be the employer where the best people want to work.
In 2024, our employee engagement score remained high at 86.
Speaker Change: And turnover rates continue to trend lower, with full-year turnover improving 150 basis points compared to the prior year.
Speaker Change: Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named the Dow Jones Sustainability Index for the ninth consecutive year.
With respect to capital allocation in 2024.
Speaker Change: and returned $1.18 billion to shareholders, which includes $490 million of share repurchases.
Speaker Change: Our results clearly demonstrate our ability to create sustainable value and our strategic investments strengthen the foundation to continue to grow our business.
Speaker Change: In 2025, we expect to deliver profitable growth while continuing to invest in the business to drive lasting value.
Speaker Change: More specifically, we expect full year revenue in a range of $16.85 billion to $16.95 billion.
Speaker Change: Adjusted EBITDA is expected to be in the range of $5.275 billion to $5.325 billion.
Speaker Change: We expect to deliver adjusted earnings per share in a range of $6.82 to $6.90.
Speaker Change: Generate adjusted free cash flow in a range of $2.32 billion to $2.36 billion.
Speaker Change: Our pipeline supports continued acquisition activity in both recycling and waste and environmental solutions.
Speaker Change: We expect to deploy at least a billion dollars of investment in value creating acquisitions in 2025.
Speaker Change: Our 2025 guidance includes the financial contribution from acquisitions closed to date.
Speaker Change: I will now turn the call over to Brian who will provide details on the quarter and year. Thanks, Jon. Core price on total revenue was 6.1% in the fourth quarter.
Brian DelGhiaccio: Core price on related revenue was 7.3% which included open market pricing of 9.1% and restricted pricing of 4.5%.
Brian DelGhiaccio: The components of core price on related revenue included small container of 9.6 percent, large container of 7.4 percent, and residential of 6.8 percent.
Brian DelGhiaccio: Average yield on total revenue was 4.4% and average yield on related revenue was 5.3%. As expected, average yield stepped down sequentially as we fully anniversary the impact of new fees implemented in late 2023.
Brian DelGhiaccio: The fees relate to overfilled containers and recycling contamination and were enabled by our digital platform.
Brian DelGhiaccio: In 2025, we expect average yield on total revenue of approximately 4% and average yield on related revenue of approximately 5%.
Brian DelGhiaccio: Fourth quarter volume on total revenue decreased 1.2 percent and volume on related revenue decreased one and a half percent.
Brian DelGhiaccio: Volume results included a decrease in large container of 4.6% primarily due to continued softness and construction related activity and certain manufacturing end margins and a 2.8% decrease in residential due to intentionally shedding underperforming contracts.
Brian DelGhiaccio: In 2025, we expect organic volume growth in the recycling and waste business in a range of negative 25 basis points to positive 25 basis points.
Moving on to recycling.
Brian DelGhiaccio: Commodity prices were $153 per ton during the fourth quarter. This compared to $131 per ton in the prior year.
Brian DelGhiaccio: Recycling processing and commodity sales increased revenue by 20 basis points during the quarter.
Brian DelGhiaccio: Full year, 2024 commodity prices were $164 per ton, this compared to $117 per ton in the prior year.
Brian DelGhiaccio: Current commodity prices are approximately $145 per ton, which is the baseline used in our 2025 guidance.
Brian DelGhiaccio: Fourth quarter, total company adjusted EBITDA margin expanded 110 basis points to 31%.
Brian DelGhiaccio: Margin performance during the quarter included. Margin expansion in the underlying business of 110 basis points.
Brian DelGhiaccio: a 10 basis point increase from net fuel and a 10 basis point increase from recycled commodity prices.
Brian DelGhiaccio: This was partially offset by a 20 basis point decrease from acquisitions completed in the prior year.
Brian DelGhiaccio: Our full year adjusted EBITDA margin was 31.1%, which represents margin expansion of 140 basis points compared to the prior year.
Brian DelGhiaccio: Margin expansion in the recycling and waste business was 130 basis points and margin expansion in the environmental solutions business was 230 basis points.
with respect to environmental solutions.
Brian DelGhiaccio: Fourth quarter revenue increased nearly 70 million dollars compared to the prior year driven by organic growth in the business and the rollover contribution from prior year acquisitions.
Brian DelGhiaccio: Adjusted EBITDA margin in the environmental solutions business expanded more than 500 basis points to 24.7% in the fourth quarter.
Brian DelGhiaccio: Total company depreciation, amortization, and accretion was 11% of revenue in 2024 and is expected to be 11.2% of revenue in 2025.
Brian DelGhiaccio: Full year 2024 adjusted free cash flow was $2.18 billion, an increase of 10% compared to the prior year.
This was driven primarily by EBITDA growth in the business.
Brian DelGhiaccio: Total debt at the end of the year was $12.8 billion and total liquidity was $2.5 billion.
Brian DelGhiaccio: Our leverage ratio at the end of the year was approximately 2.6 times.
Brian DelGhiaccio: We expect net interest expense of approximately $565 million in 2025.
Brian DelGhiaccio: With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 23.4% during the fourth quarter and 23.9% for the full year.
Brian DelGhiaccio: The favorable tax rate in the fourth quarter was supported by tax credits related to investments in R&G projects with our development partners.
Brian DelGhiaccio: We expect an equivalent tax impact of approximately 25% in 2025, made up of an adjusted effective tax rate of 20%, and approximately $170 million of non-cash charges from equity investments in renewable energy.
Brian DelGhiaccio: With that, operator, I would like to open the call to questions.
Brian DelGhiaccio: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone.
Brian DelGhiaccio: In the interest of time, we ask that you limit yourself to one question and one follow-up question today. If your question has been answered and you would like to withdraw your request, you may do so by pressing star and then 2.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys. And your first question today will come from Brian Bergmeier with Citi. Please go ahead.
Good afternoon. Thanks for taking the questions.
Speaker Change: So, TES was obviously really strong last year, and I think you've said ERP implementation was kind of ongoing throughout the year.
Speaker Change: So with that now completed, is it fair to say there's almost another sort of leg up for this business since it's fully integrated, or can you maybe just help me frame kind of what comes next for ES, having hit, you know, 24% margins and, you know, seemingly cleared a bit of a hurdle?
Speaker Change: Yeah, onward and upward with the business. We continue to remain very positive on our prospects there. Great year last year, and you're right, lots of heavy lifting by the team in terms of IT integration. We certainly have most of that behind us. There's certainly some work we're going to work on the rest of the year.
Speaker Change: But we mostly paused M&A in that area last year just to give the team time to breathe and integrate. And so we see opportunities certainly for M&A growth coming in.
Speaker Change: That's based in 2025 as well as more organic growth, right? This a lot of the IT work enables us to do more cross sell better visibility more clarity on product line profitability And so we will see that ramping up throughout the year in 2025 and certainly beyond as well
Speaker Change: I think you said in the last call, you know, long term, you're trying to get to maybe 30 to 50 as opposed to 20 to 30. So just a little bit of detail on your on your margin expansion would be great, and I'll turn it over. Good luck in the quarter.
Speaker Change: Yeah, thanks. Yeah, we kind of say across, if you look across the cycle, kind of 30 to 50 basis points.
Speaker Change: A year, in any given year, it could be a little more outsized or a little more muted on that front. Obviously coming off an incredibly strong year in 2024 of 140 basis points of margin expansion.
Speaker Change: And then if you get into 2025, listen, you know, the end market, construction particularly, and then parts of manufacturing.
are still, you know, pretty soft.
Speaker Change: So we're looking for those to come back. Manufacturing is showing some really good early signs on that front. Construction where, you know, interest rates are in terms of...
Speaker Change: impact on mortgage rates in the 10-year. I think that's going to be delayed here from a progress standpoint so that certainly feeds into that and I'll let Adele add in.
Speaker Change: Yeah, Brian, you know to your point when you take a look at the midpoint You're looking at approximately 30 basis points of margin expansion But if you unpack that and you take a look we took the current price of commodities And we held that flat for the entire year
Speaker Change: So, that's approximately $145 per ton. If you compare that to the $165 average we had in 2024, it's about a 10 basis point headwind year over year, as well as then some deal and integration costs we have on the acquisition front. We look at that as about a 10 basis point headwind as well, so the underlying business
is growing approximately 50 basis points plus.
Speaker Change: That 50 basis points is also overcoming what I would consider kind of some unique items. For example, we are not assuming that CNG tax credits are renewed.
Speaker Change: That cost us about $20 million, or 10 basis points on a year-over-year basis. So if you really look at the strength of the underlying business, you're in a 60-70 basis points of margin expansion as compared to the headline, which would suggest something closer to 30.
Speaker Change: Your next question today will come from Tyler Brown of Raymond James. Please go ahead.
Hey, good afternoon guys.
Hey Doug
Doug: Hey, Brian, great detail on the bridge, but hey, Jon, I'm interested in the billion dollars in acquisition commentary.
Speaker Change: I know that's not included in the guidance, it's probably just a placeholder, but you must feel pretty good. So what do you kind of see out there on the M&A front, are you looking at traditional solid waste or could there be some more specialty hazardous waste type stuff in the pipe as well?
Speaker Change: Yeah, I think for the last few years, we've put a marker out there of more like $500 million and we're typically...
Speaker Change: Let's get an indicator. We're always going to look at deals that pass two screens, our strategic filter and our financial filter. The outsized number this year is predicated off a really strong start already.
Speaker Change: So, we feel really good about the momentum the team has and things that are either closed or nearly closed on that front, so we've got a big head start.
Speaker Change: That gives you a better indication of where we're going to end up. In terms of where it's come from, we've got a really good pipeline on ES and recycling and waste. I would suspect that pipeline looks a little heavier slanted in the first half toward ES.
Speaker Change: And then over the back half, probably have you more heavily slanted toward recycling and waste, but we'll see how all those things play out.
Okay, so Brian, is there a material M&A benefit?
Speaker Change: In 25, based on what has been closed, today in Q1.
Speaker Change: I'll put it in terms of revenue, if you take a look at rollover, which was pretty insignificant from deals in 24, but including what's close to date, we've got about a full point of revenue growth from those deals.
Speaker Change: Okay, okay, that's helpful. And then back on the the flattish volume, is there any benefit from wildfires or hurricane cleanup in there? Is that just not material or would that be upside or how should we think about that?
Speaker Change: We didn't bake it in, right? I think there will be over time. I think it's TBD how that plays out. I mean we're certainly on the ground right now with our EF teams supporting those communities and getting the household hazardous waste cleaned up.
Speaker Change: And that will ultimately matriculate into some forms of hazardous waste and certainly plenty of special waste that ends up in landfills. Exactly where and how that ends up, we don't know yet, so that's not built in.
Okay, okay, that's very helpful. Thanks guys.
Speaker Change: Your next question today will come from Noah Kaye with Oppenheimer. Please go ahead.
Noah Kaye: Great quarter, guys. Thanks for taking the questions. The 5% yield on related revenue in the guide, can you comp that to cost inflation expectations unrelated? Are you looking like sort of three and a half and maybe 150 of spread? Is that the right way to think about it?
Noah Kaye: Yeah, I think we're probably closer to four on the cost side, if you weigh our employee wage increases, benefits, etc., inflation on maintenance. So that takes us right about four and five unrelated.
Noah Kaye: Okay, great. And then just how to think about seasonality for the year You know, I think there are certainly on things like commodities, you know more favorable consulate in the year It's not that big of a headwind for you, but you also have as you mentioned some M&A benefits so just Give us some rough guidelines on how you think about at least a sort of EBITDA cadence for the year
Noah Kaye: Yeah, I would say just think about from the perspective of margin expansion, we would see it more balanced.
Noah Kaye: this year than maybe what you've seen over the last couple years. Maybe a little bit more heavily slanted towards the first half of the year than the second.
Noah Kaye: But, you know, you can think of it relatively consistent for, you know, by quarter, first half, second half, with margin expansion in all quarters and across all business types.
That's super clear. I'll turn it over. Thank you.
Speaker Change: And your next question today will come from Jerry Revich with Goldman Sachs. Please go ahead.
Yes, hi. Good afternoon, everyone.
Jerry Revich: I'm wondering if you could just talk about how the Polymer Centers are performing, Jon? Are you folks hitting the efficiency rates that you had?
Speaker Change: Targeted and you know, what's the level of contribution, Brian, that you folks are embedding in the guide from the polymer centers plus the R&G plants? Can you calibrate us on that?
Speaker Change: Yeah, I'd say kind of in the second, third, fourth quarter.
Speaker Change: You know, listen, some learning and startup costs in terms of uptime on equipment and getting that dialed in.
Speaker Change: Certainly some learnings on getting the specification right with each of the individual customers. There's some uniqueness there and some learning associated with that.
Brian DelGhiaccio: feeling good about the place that Las Vegas is right now. We're taking all those learnings obviously and feeding those into Indianapolis. And so, you know, on our marks and on our upward, and I'll let Brian cover the specifics.
Brian: Yeah, so for next year, you know across our portfolio of sustainability investments We're looking at incremental revenue of around 70 million dollars and incremental EBITDA of 35
Speaker Change: That is clear, thank you. And then Brian, I just want to go back to your comment on the weighting of margins, you know, the downside of having really good performance in 24 and really good fourth quarter is maybe a bit of a tough comp. So, you know, if we were to apply normal seasonality to the fourth quarter margin run rate,
Brian: I think it would imply first-quarter margins that are up, you know, 150 to 200 basis points year over year, and sounds like you're guiding to just more modest...
Brian: margin improvement year-over-year based in the first quarter. Is there anything lumpy in the fourth quarter? Can you just expand on that because it felt like you built momentum across the businesses over the course of 24.
Jerry Revich: Yeah but you know Jerry if you step back and you think about a normal level of seasonality...
Jerry Revich: and you think about the distribution and where you generate the most amount of earnings and relative margin expansion, Q1 is seasonally your lowest quarter. You've got the winter months, you also have the highest percentage of employee related taxes, so that tends to be your low watermark.
Jerry Revich: then generally followed by Q4. And then Q2 and Q3 are relatively similar, but I would put Q2 as third and Q4 as fourth, meaning Q3 is the highest level of margin expansion for the year. So, sequentially, going from 31% in the fourth quarter
to something that steps down.
Jerry Revich: You know, modestly, it's not going to generate 100 basis points of margin expansion on a year-over-year basis. If you recall, margin was 30.2% in the first quarter of 2024.
Appreciate it. Thank you.
Speaker Change: Your next question today will come from Trevor Romeo with William Blair. Please go ahead.
and Brian DelGhiaccio. Thank you. Thank you.
Trevor Romeo: Hi, good afternoon. Thanks so much for taking the questions. I wanted to ask a follow-up on the environmental solutions business. Really nice quarter of growth there.
Speaker Change: Just in terms of the revenue performance, I was wondering if you could, I guess, talk about the pricing environment for hazardous waste for one, and then just kind of maybe split out what you're seeing between the treatment and disposal versus the field services business and kind of how you're thinking about each of those pieces moving into 25.
Speaker Change: Yeah, obviously lots of positive impact and margin performance over the last two and a half years since we did the U.S. Ecology acquisition.
Speaker Change: And that's come through a number of different levers that's come certainly to customer mix of getting attractive customers who are willing to pay more and Shedding, you know work that's less profitable that's come from you know pricing the work that we do it's come from
Speaker Change: Again, we think there's value of the work that we're delivering, and as we continue to build that out, we have a more differentiated set of products and services. So you'll see pricing on both of the post-collection assets as well as the field services assets. And that, again, will look more like...
Speaker Change: single price increases a year more ratable like we do in recycling a waste versus multiple price increases within the year but we expect continued momentum and contribution in 2025.
Speaker Change: Okay, great. Thanks for that, Jon. And then I wanted to follow up on the labor environment a little bit. I think you mentioned turnover was 150 basis points lower in 24.
Speaker Change: I was just wondering, one, where does that place you relative to kind of your historical averages and then two, any sort of new initiatives you're putting in place in 25 and I guess how much runway you think you have to decrease turnover further would be great.
Speaker Change: Yeah, we don't have, you know, 30-year numbers on turnover, but this is a decade low, right? We are really performing at a high level from a turnover standpoint.
and it starts with leadership, employee engagement.
Very, very strong.
Speaker Change: And a lot of good things happen when you get turnover into that spot, which is you're servicing customers at a very effective rate. Those customers are happy with the service and they pay more and they stay longer.
Speaker Change: When you do that, we certainly looked for room to improve turnover, unlike safety where your goal is zero.
Speaker Change: And so, I don't think we're going to get the same leap in improvement in 2025, but we're going to look for, continue to grind out a few more basis points of improvement. We think the team is capable of that.
Great. Thanks so much.
Speaker Change: Your next question today will come from Sabahat Khan with RBC Capital Markets. Please go ahead.
Sabahat Khan: Great, thanks and good afternoon. Just I guess a question on, you know, similar to the ES pricing and margin question earlier, I guess on solid waste.
Sabahat Khan: As you look across your portfolio, how is the pricing discussion with the clients going?
Speaker Change: More pushback, less pushback at this point in the cycle. How are you kind of get those the feedback like on that front? I was wondering after a few years of sort of higher pricing things do seem to be moderating, are customers still kind of okay with the spread? Just any feedback would be great.
Speaker Change: Yeah, I mean our pricing is obviously coming down from an absolute basis.
when you look at our yield.
Speaker Change: over the past couple of years, but also our cost inflation is coming down as well, which we mentioned.
Speaker Change: We're maintaining that spread. I think there was some fear that as pricing was going to come down, cost wasn't, we were going to get a price-cost squeeze, and we certainly haven't seen that. And a 3% inflationary environment is a really good spot for us to operate on that front.
Speaker Change: and you know we measure how much of our price sticks or retention rate and that's remaining very very healthy on that front so we're good we got a lot of tools and sophistication in terms of who we price and how we price them the team is doing a great job of giving customers again a price that they'll take but also stay
maintain that
Speaker Change: high level of loyalty that we have with our customers going forward. And I'd say the one opportunity we have on pricing, which continues to be, is in the municipal space.
That's more on the restricted side.
and that's just a...
area of the business in general.
Speaker Change: where, you know, customers on balance are not paying their fair share.
Speaker Change: We put an enormous amount of innovation, capital, and labor into that equation, and we have many attractive customers and contracts, but not all of them meet our standard, and so you'll continue to see us optimize that portfolio over the next few years.
Speaker Change: Great, and then just one on the R&D facilities. I think we're looking for four to come online. I think two came online. Is that just a timing thing or how you thinking about the rest of the R&D facilities opening up?
Speaker Change: yeah it's more of a timing thing there's a little bit of a rollover we would expect those two to come online in the first quarter and so again from a contribution perspective there think of it like a 90-day delay
Great. Thanks very much. I'll pass the line.
Speaker Change: Your next question today will come from Toby Sommer with Truist Security. Please go ahead.
Thank you very much.
Speaker Change: The you know kind of employee attrition level you said decade low How much juice do you think is left in that lemon to kind of squeeze out because anytime you're at?
Speaker Change: kind of a metric is at an unusual period, either peak or trough. I'm kind of curious what you might look to as leading indicators to signal that we might be approaching the end of that as a tailwind to margin.
Speaker Change: Yeah, I mean, you think about that, you normally say you'd achieve that in a very, you know, high unemployment environment where people are going to have a hard time finding jobs externally so they're going to keep the job they have, but we're at 4% unemployment, so...
Speaker Change: You know, that labor market is still tight relative to, you know, a 20- or 30-year period. And I think a lot of it has to do with engagement, right? It's how we compensate our general managers, right? We think about paying them to achieve a financial outcome, to achieve a customer outcome, and to achieve an employee outcome.
Speaker Change: and they really put a lot of energy in making Republic a great place to work. And so again, I think we've got the rate of improvement won't be 150 basis points this year, I think it'll be more narrow than that, but we think we can continue to make progress.
Speaker Change: And your next question today will come from Stephanie Moore of Jefferies. Please go ahead.
Stephanie, your line may be muted.
Speaker Change: Sorry, this is Harold Antoine, Stephanie Moore. So, you guys talked about, you know, adding fees from overflow and bend, so I just want to get a sense for how far you are through that process, implement those additional fees, and then how our conversation is going with customers as you move from fixed-rate contracts to alternative indices.
Speaker Change: Yeah, let me start with the latter as far as on the alternative indices. Since the beginning of when we started this initiative, we're at 63% of those contracts have either been moved to an alternative indices like water, sewer, trash, or garbage trash, or a fixed rate that we would consider favorable.
Got it. Thank you for the call.
Speaker Change: And I guess just on the regulatory side, given your administration, anything to call out with PFAS or MPOC from rent pricing that you guys are looking at or any other regulations?
Speaker Change: On REN prices, we assumed very conservative assumptions on our project as we move forward, and you've seen REN prices come down, but now they're trending back up here over the last couple of weeks on that front. So we remain enthusiastic about our landfill gas energy.
Speaker Change: pipeline and the set of projects we're going to have come online this year and in future years on that front and then you know PFAS
Speaker Change: PFAS is a broad issue that society wants to address and take care of regardless of political administration. There's still a lot of TBDs on timing and pace of recovery.
Speaker Change: to take care of their issues, remediate facilities, and then ultimately find a final disposal for the material.
Thank you.
Speaker Change: And your next question today will come from Brian Butler with Stiefel. Please go ahead.
Hey, thanks for taking the question.
Speaker Change: On the first one, when you think on the R&G and sustainability, adding the $35 million in EBITDA in 2025, what's the capital spent with that? And then beyond 2025, what's remaining from a capital as well as an EBITDA contribution from future projects?
Speaker Change: Well if you remember, Brian, so we are developing our polymer centers as wholly-owned facilities, so really the only thing that's running through our CapEx is the investment in the polymer centers.
Speaker Change: which is, you know, obviously embedded into our free cash flow guide. So, for 2025, we look to spend another $75 million on polymer centers, which is relatively consistent with what you've seen over the last several years. So, it's really not much of a change from what you've seen in the baseline.
Speaker Change: The other investments that we're making are more in the JVs, the partnerships themselves. And in both the landfill gas-to-energy projects, as well as with blue polymers, we have a minority interest. So that investment comes through the statement of cash flows, but more like an acquisition would.
Speaker Change: as an other investing activity, and so if you take a look at next year, we would look to spend combined about $100 million in the investments in both of those JVs.
Speaker Change: Okay, that's helpful. Then I guess most of my questions are answered, but I throw one out there. I mean, the fundamentals look really good. A lot of, you know, success on a lot of the programs you have internally. What are some of the risks out there that you see kind of strategically going forward from where we are today?
Speaker Change: I think broader macro environment. Listen, we've lived through a pandemic and...
Speaker Change: Tariffs and impact on inflation, none of those things I would say keep us up at night, but we're watchful and mindful of the macro environment which we operate on that front. In terms of what we can control, safety is our number one priority, so that's what we get up every day and
Speaker Change: focus on and outside of that we feel like the things in the business and in front of us are manageable.
Great, thank you.
Speaker Change: And your next question today will come from Tony Bancroft with Kibeli Funds. Please go ahead.
Speaker Change: Ladies and gentlemen, congratulations, very well done, and this just runs along the lines of
You know, you're...
Speaker Change: type of acquisition that's either in your space or maybe something different, something more on the sustainability side that you could see, is there a longer term, maybe three to five years or longer?
Speaker Change: Yeah, we maintain a perspective on everything and everybody and, you know, any dealer.
Speaker Change: opportunity of consequence we're going to have a perspective on that being said those things often are opportunistic and uncertain so we don't build our strategy hinged on some type of bigger bigger deal and I think what you've seen over the last five years is we've driven a lot of value in the business by you know for example
Speaker Change: of small and medium-sized deals, and then really good execution organically as well, and I think that will be more of the same. We'll keep our eyes open, and if there's big opportunities, we'll be certainly aggressive in considering those, but nothing is imminent.
Great. Well, great job. Thank you so much.
Thanks, Tony.
Speaker Change: Your next question today will come from Konar Gupta, Wiscosia Capital. Please go ahead.
Konar Gupta: Thanks for taking my question. You know, I think a lot of questions have been asked here, but
Konar Gupta: Just a sense of sensitivity, you know, the commodity price environment is obviously not highly predictable, right? And I think like the way you are kind of assuming your commodity prices for 2025 seems like it's going to be a decent headwind in 2025. If the commodity prices kind of start to move up,
Speaker Change: How should we think about the sensitivity to your earnings from that?
Speaker Change: Yeah, just, and we disclosed this, that on average a $10 move in recycled commodity prices on our basket of goods is approximately $10 million of annual EBITDA.
Speaker Change: So, even when you take a look at where recycled commodities are right now, at $145, and we maintain, we assume that they stay flat throughout 25.
Speaker Change: Relative to the $165 average, it's down $20 million, you know, when you think about the EBITDA contribution, which isn't insignificant.
Speaker Change: but it's not overly material either and so again just to give you an idea if you see you know commodity prices moving again it's on our basket you have the sensitivity and you can expect that impact from both a revenue and an EBITDA perspective for that $10 move.
Speaker Change: Okay, that's great. Thanks. And if I can follow up quickly on CNG tax credits, apologies if I missed that comment before. I guess you're not assuming the credits for this year, and if so, if they come through, what is a realistic sort of set of assumption there?
Speaker Change: Yeah, on the CNG tax credit, so again, it's approximately $20 million per year for us, and we did not assume that those are renewed, so right now that is not embedded in our 2025 guide.
Thank you.
Speaker Change: Your next question today will come from Kevin Chang with CIBC. Please go ahead.
Kevin Chang: Hey, thanks. One good afternoon and thanks for taking my questions. Congrats on a strong end to the year here. You noted, I think, in your prepared remarks just, you know, some of your EV strategies.
Kevin Chang: You know, your fleet's growing there, but I think earlier this year, California withdrew its waiver to the EPA, you know, related to some of its more stringent.
Kevin Chang: of Zero Emission Vehicle Policies. Just wondered, does that change how you think about EV spend? And I know some of these vehicles have gone into California. Do you throttle that back a little bit and maybe a more?
Kevin Chang: or less stringent regulatory environment as it relates to vehicle emissions.
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Kevin Chang: No, it has not slowed down our pace there. There's lots of customer interest, lots of customer demand. There's certainly incentives, state and local, that support us going in that direction and we'll continue to deploy there.
Kevin Chang: And more broadly, we're going to be mindful. We have no locked-in EV strategy in terms of the exact number of vehicles we're going to purchase by year.
Kevin Chang: We're going to make sure that it's a superior product, right? It's a zero...
Kevin Chang: a mission vehicle that's quiet, safe, it's great for our employees as well. And so we're going to make sure that where that's deployed, the municipal space, that we're getting a premium offering, a premium price for that product.
Kevin Chang: And we see a good line of sight to customer demand on that front, and so we'll go where customer demand takes us, but confident that even with any administration change here that there's a path forward on EV.
Okay.
and then just maybe on turnover a great job there
Kevin Chang: is impacted by this. But, you know, when markets get tighter in terms of labor, there could be a downstream impact. It's just the overall labor forces.
Speaker Change: is shrinking. Just wondering, are there markets that you're starting to see some of this potential downstream impact? And I guess it's not flowing into your numbers today, but anything that you're keeping an eye out for or regions that might be becoming a little bit more problematic from a labor availability perspective?
Speaker Change: Yeah, in terms of our own labor force or our where we do have third parties that support us, listen compliance has always been a huge part of our culture so we don't see that as any type of threat or challenge. I think more broadly if you look at the end markets we serve, right, there's been a lot of talk about construction.
Speaker Change: in that part and I think the biggest driver there is going to be mortgage rates. Labor supply could be an issue on that front too. We'll see how that develops so we'll keep an eye toward that but I don't think that's going to be a major concern for us.
Speaker Change: That's great color, thanks, and best of luck as you execute on 2025 here.
Thanks.
Speaker Change: Your next question today will come from James Shum with TD Cowan. Please go ahead.
Hey, thanks. Good quarter, guys.
James Shum: Can you, just one quick one for me, can you give an update on the truck supply chain? Is that fully resolved? Are you still seeing any issues getting your trucks? And then sort of related, like where are you now in terms of your ASL conversions and then, you know, CNG truck conversions? How are you guys thinking about that and, you know, if there's additional opportunity for margin expansion over the next couple years?
James Shum: Yeah, the supply chain is caught up in terms of what they're delivering and kind of getting back. We have a very ratable replacement philosophy with our vehicles and fleet and we find the optimal kind of CapEx, OpEx trade-off for one to retire vehicles.
James Shum: more in the onesie-twosie environment, so that's not going to be a huge driver of performance, but we'll continue to go there. And then C&G, we've maintained our C&G fleet, but we've not put any new C&G fleets in in the last five years because we believe electrification is a superior product.
James Shum: CNG is better than diesel for the environment, but it's not a zero-emission product, and we think electrification is much more beneficial for the environment, and that's where we see customer pull, so that's where we put our energy.
Okay, great. Understood. Thanks, guys.
Speaker Change: Your next question today will come from Devin Dodge with BMO Capital Markets. Please go ahead.
Devin Dodge: Yeah, thanks. Good afternoon. Just one clarification from me, and apologies if I missed it, but of the $1 billion-plus M&A spending target in 2025, it sounded like the deals completed
Devin Dodge: We'll say in the first six weeks of the year are included in the guide. Just one, is that correct, and two, if that is correct, can you give us a sense for how much of that $1 billion has been deployed already?
Devin Dodge: Yeah, so four deals that have been completed through today, that revenue contribution and the, you know, the related financial outcomes are included in our guidance. So basically anything closed through today is included. Anything thereafter that we would complete is not.
Devin Dodge: And right now, if you think about the billion-dollar spend, a good portion of that has been spent already at this point. So, again, we feel really good about that target for the 4-year. And we'll give you the details, obviously, in April after Q1 results come out.
All right, sounds good. Thank you.
Speaker Change: At this time, there appear to be no further questions. Mr. Vander Ark, I'll turn the call back over to you for closing remarks.
Speaker Change: Thank you, Nick. I want to thank the Republic Services team for their great work in 2024. Their focus on safety, sustainability, and exceeding customer expectations led to another year of great results and positions us well for continued growth. Have a good evening and be safe.
Speaker Change: Ladies and gentlemen, this will conclude the conference call. Thank you for attending. You may now disconnect.