Q2 2025 Republic Services Inc Earnings Call

Good afternoon and welcome to the Republic Services. Second quarter of 2025 investor conference call Republic Services is traded on the New York Stock Exchange under the symbol RSG.

All participants in. Today's call will be in a listen-only mode. Should you need assistance? Please signal conference specialist by pressing the star key followed by zero.

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 republicservices.com.

In addition, Republic's management team routinely participates in investor conferences. 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 John.

Thanks, Aaron. Good afternoon, everyone. And thank you for joining us.

We are pleased with our second quarter results which reflect the resilience of our business model and consistent operational execution.

We delivered robust earnings growth and margin expansion. Overcoming continued lower demand, from construction and and Manufacturing and markets.

We continue to invest in our differentiated capabilities to meet the needs of our customers, allowing us to consistently, grow our business and enhance profitability.

During the quarter, we achieved Revenue growth of 4.6%.

Generated. Adjusted ebit growth of 8%.

Expanded adjusted ibida margin by 100 basis points.

7.

and produce $1.42 billion of adjusted free cash flow on a year-to-date basis.

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%.

We continue to see favorable Trends in our net promoter score, due to the value of our offerings and quality of our service delivery.

Organic revenue growth during the second quarter was driven by strong pricing across the business.

Average yield on total revenue was 4.1% and average yield on related Revenue was 5%.

This level of pricing exceeded our cost inflation and helped drive 100 B points of adjusted ebit and margin expansion during the quarter.

Organic volume increased 20 basis points in the quarter.

Volume growth included, outside special waste, and CND land selectivity.

This relates to hurricane recovery efforts in the Carolinas and wildfire remediation in the Los Angeles area.

These volumes were partially offset by declines in the collection business.

The decrease in collection Vol is related to continued softness and construction and Manufacturing and markets.

And shedding underperforming contracts in the residential business.

Organic Revenue was down in the Environmental Solutions, business and resulted in a 90 basis point headwind to Total company Revenue.

Environmental Solutions. Revenue has been negatively impacted by continued sluggish manufacturing activity.

Uncertainty around tariff policy and lower event-based volume.

Even with the revenue headwinds, our Environmental Solutions team demonstrated effective cost management to maintain a margin performance consistent with prior year results.

Moving on to sustainability.

We believe that creating a more sustainable world is both our responsibility and a platform for growth.

We recently released our latest sustainability report, highlighting the progress we are making toward our 2030 goals and the positive impact we’re delivering to our customers and the communities we serve.

Our 2030 goals are supported by the investments we are making in employee training and development programs focused on plastic circularity.

And decarbonization.

We are making progress on the development of our polymer centers and blue polymers. Joint venture facilities.

Regarding the Indianapolis Polymer Center, we commence commercial production in July.

This operation is co-located with our blue polymers production facility.

We hosted a grand opening ceremony for this facility in June.

We expect commercial production to begin in the fourth quarter upon the completion of equipment commissioning.

The renewable natural gas projects were developing with our partners; we are advancing.

Or projects came online during the second quarter along with another project completed in early July.

This brings the total projects completed this year to 6.

We still expect a total of 7 RNG projects to commence operations in 2025.

We continue to advance our commitment to a fleet electrification.

We had 114 electric collection vehicles in operation. At the end of the second quarter.

We expect to have more than 150 EBS in our Fleet by the end of this year.

We currently have 27 facilities with commercial scale, EV charging infrastructure.

We expect to have more than 30 facilities with charging capabilities by the end of 2025.

As part of our approach to sustainability, we continually strive to be the employer where the best people want to work.

We continue to have high employee engagement scores, and our turnover rate continues to trend lower compared to the prior year.

With respect to Capital, allocation.

Year to date. We have invested nearly 900 million dollars in strategic acquisitions.

Our acquisition pipeline remains supportive of continued activity in both the recycling and waste and Environmental Solutions businesses.

We continue to see the opportunity for more than a billion dollars of investment in value creating Acquisitions in 2025.

Year to date, we have returned 407 million dollars, to shareholders through dividends and share repurchases.

Additionally, we recently announced an increase of the dividend for the 22nd consecutive year.

We updated our full-year 2025 financial guidance based on results delivered through the first half of the year, recently enacted tax legislation, and our outlook for the remainder of the year.

16.675 billion to 16.75 billion.

We maintained our original guidance for adjusted ibida and adjusted earnings per share as follows.

Adjusted EBITDA is expected to be in the range of $5.275 billion to $5.325 billion.

And adjusted earnings per share is expected to be in the range of 6.82 to 6.90.

We increased our full year, adjusted free cash flow guidance, which is now expected to be in the range of 2.375 billion to 2.415 billion.

This increase reflects the benefit to cash taxes from 100% bonus depreciation, which passed earlier this month.

Our updated financial guidance includes the contributions from acquisitions closed through June 30.

We plan to remove the impact of recent labor. Disruptions from our adjusted results which is reflected in our updated full year guidance.

Regarding the labor disruptions. We've been negotiating. Good faith and remain committed to reaching a fair and Equitable agreement that balances the needs of our employees. Our customers and our business.

Well, the labor disruptions have been localized and impact. I'm proud of how our team is working tirelessly to serve our customers. I will now turn the call over to Brian who will provide details on the quarter. Thanks John Core price on total revenue was 5.7%.

Core price on related Revenue was 7%, which included open market pricing of 8.6% and restricted pricing of 4.6%.

The components of core price on related Revenue included, small container of 9% large container of 7.1% and residential of 6.6%.

Average yield on total revenue was 4.1% and average yield on related Revenue was 5%.

Second quarter, volume performance on total revenue and related Revenue, increased 20 basis points.

Volume results on related revenue included a 47% increase in landfill CND, driven by hurricane cleanup activity in the Carolinas, and a 22% increase in landfill special waste revenue, driven by wildfire remediation efforts in Los Angeles.

Large container volumes decline, 3.4% primarily due to continued softness, and construction related activity and most manufacturing and markets and residential volume declined, 3.2% due to shedding underperforming contracts.

Moving on to recycling.

Commodity prices were $149 per ton during the second quarter. This compared to $173 per ton in the prior year.

Recycling processing and commodity sales increased by $7 million during the quarter.

Increased volumes at the polymer centers and reopening a recycling center on the West Coast offset lower recycled commodity prices.

Current commodity prices are approximately $130 per ton?

This is the basis used for the second half of the year in our updated guidance.

This would imply a full-year average commodity price of approximately $140 per ton.

Total company adjusted EBITDA margin expanded 100 basis points to 32.1%.

Margin performance during the quarter included a 60 basis. Point increase from previously noted, event-driven landfill volumes in margin expansion in the underlying business of 70 basis points.

This was partially upset.

By a 10 basis point decrease from net fuel, a 10 basis point decrease from recycled commodity prices, and a 10 basis point decrease from acquisitions.

With respect to Environmental Solutions, second quarter revenue decreased $11 million compared to the prior year, driven by lower event volumes and softness in most manufacturing and markets.

Adjusted EBITDA margin and the Environmental Solutions business was 23.7%, flat when compared to the prior year.

Year to date, adjusted free cash flow was $1.42 billion. Our performance reflects EBITDA growth in the business and the timing of capital expenditures.

Year-to-date capital expenditures of $727 million represent 38% of our projected full-year spend.

Total debt was $13.1 billion and total liquidity was $3 billion.

Our leverage ratio at the end of the quarter was approximately 2.5 times.

With respect to taxes, our combined tax rate and the impact from equity investments in renewable energy resulted in an equivalent tax impact of 23.3%. During the quarter with that operator, I would like to open the call to questions.

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,

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And we'll pause momentarily to assemble our roster.

And the first question will come from Tyler Brown with Raymond James, please go ahead.

Hey, good afternoon, guys.

Hey, hey Brian. I know there's a few moving, a few moving pieces and uh I appreciate the IBA. Hold. But can you just kind of maybe parse out a little bit? The the $200 million or so reduction in the revenue guide just how much of that was es versus say commodities.

Yeah, Tyler. It's actually, I would say there are two primary components. Uh, so one, we are reducing our volume expectation within the recycling and waste business.

Uh, that is predominantly due to, again, we talked about weakness in construction-related activity, but also the weakness in manufacturing and markets, which impacts our recycling waste business. So that's about $65 million or so of the $190 million reduction at the midpoint. And then the rest of it is primarily in Environmental Solutions.

If you think about commodity sales, fuel recovery fees, and rims, the decrease we're seeing there is predominantly offset by incremental acquisitions that we completed in the second quarter.

Okay. Okay. Okay. That's extremely helpful and then just a little

Additional color maybe on why es has been a little slow. I mean I know that the industrial markets in a malaise um and it sounds like you have some bigger Project work roll off, but is it is that really the story or were there any share losses or just any additional color?

Yeah, I think the dominant, uh, is the macro. I mean, you think about manufacturing, and this is where trade policy impacts us, which is.

You know, manufacturers are not making Capital decisions, right? Production is slow. As you can see that through PMI. Now, some would optimistic here, we see a recovery of that. Uh, but that's what's impacted us today and that we're forecasting, you know.

Being conservative for the rest of the year, kind of more of the, same on that front and let's we haven't always gotten it, right? We've done a tremendous job of taking price and you've seen that and some of that is shedding uh non-credible work. And that some of that is we probably just, you know, priced ourselves out of a couple opportunities that we're now getting ourselves back into.

And then it looks at a couple parts of the business when volume is slow. We've seen this in es and we've seen this in national accounts. You see people getting, you know, trading off volume for price.

And so those are short-term phenomenons, we think on that front and when forced to choose, we're always going to take price.

And just real quickly, I know that us ecology and the ultra Vita business or maybe kind of hidden in that portfolio. But can you just remind us how big your EMP business is in the US?

Yeah. Uh, so of the EMP, when you think about of of Total Environmental Solutions, it's representing.

Yeah. Mid single digits of, you know kind of our you know, the total portfolio.

Okay, so it's it's pretty small, okay? That that's what I was after, okay. Thank you.

The next question will come from Brian Bergmeyer with a city. Please go ahead.

Good afternoon. Thanks for taking my questions. Um, you know, maybe just on the the kind of estimated impact from Labour disruption. Um are are you able to share sort of what comprises the the estimated impact, um, that you forecasted? I mean, or is it entirely lost volume? Or is there an element of, you know, assuming some higher wages or maybe you're paying an outside hauler? Um, and is is it possible to say, you know, maybe how much of that has already been experienced and how much is is sort of going to be, um, you know, August September, uh, moving forward.

Yeah, it's primarily two things. The primary is the additional labor costs. We have of moving our colleagues into service our customers, so that.

Got it, got it. And then you know maybe longer term um you know when when these contracts are are eventually renewed, presumably with with some level of a wage increase. Can you maybe talk about how, um, you know, Republic has has historically, sort of mitigated the impact from higher wages. Um, what that could sort of look like flying through the p&l and and yeah, maybe just what kind of levers are available to you, thanks. I'll turn it over.

Yeah, those were very Frontline, Focus. So we want our people to make a very competitive wage in which the markets they operate, whether they're represented by a union or not. So we think about that all the time. It's critical for us to get that right. Uh, too low, right? Obviously we have high turnover and we can't surface our customers. Uh, too high isn't good either. It's not good for our Frontline people because we become less competitive in the market, and we lose opportunities to serve customers, and we shrink our Workforce.

and, you know, across our markets today, we're very confident in terms of

the wages that we put out and benefits for our colleagues in many these markets, we're experiencing single digit turnover, right? So this isn't not, you know, we don't have a wage or a benefit problem. In these markets, we've got a Labour disruption that we're working through and we're uh actively ready to negotiate and hope we get through it quickly but we're also prepared for any scenario.

The next question will come from Noah K. with Oppenheimer. Please go ahead.

Hey, thanks for taking the questions. Uh, first one just on the higher free cash flow outlook. Um, maybe just for avoidance of doubt, is that all really from the bonus depreciation benefits? Can you say how much those were? And if there are any other moving pieces to take the free cash flow outlook higher?

Yeah, so so no, it's, it's 2 components. Um, so the increase from Bonus depreciation by 80 million dollar benefit. That's partially offset by an increase in the capex of 25 in part. We've got a relatively small impact from, uh, some potential tariffs. Uh, but also some opportunities that we took to buy out some leases and really leverage our, you know favorable uh you know, balance sheet there and just our our lower cost of capital.

Right. Which has some, uh, margin benefits over time. Uh, which actually leads into my next question. You know? I think to pick up on Tyler's point. Um,

You know, the the revenue Outlook was helpful, the bridge to Prior margins are going higher here. And I I guess maybe the uh, the lower expected revenues in es could be mixed positive, but it just seems like there's kind of better underlying Solid Waste margin expansion here. So can can you kind of help us do the similar?

Rage on the margin Outlook, uh, versus what you had before.

Yeah. And so again, as we talked about, you know, when you have the revenue and then you take a look at the flow-through to EBITDA, there is some positive mix. So while we're seeing a reduction in Environmental Solutions revenue, and I mentioned the expectations around recycling and Wayside, the reduction in expectations around construction activity, we did see the positive contribution from those landfill volumes.

Right. So in both you know Los Angeles as well as in the Carolinas so that mix helps the overall margin uh just because those landfill volumes fall through at a relatively higher if it's on margin than let's say the collection volumes or the es volumes and I would say it does point up the overall strength of the business.

Right? If you think about the demand environment, outside of Co, this is been the most challenging demand environment. Now protracted for more than a decade and softness and volume in a few spots. But overall right expanding margins in a very challenging environment. I think speaks to the you know strength in the long term nature of the business and when you start to see volumes come back and return, I think we're uh setting our sights on even higher targets.

Very good. I'll turn it over.

The next question will come from Tony Kaplan with Morgan Stanley. Please go ahead.

Thank you. Um first I wanted to ask on the CMD volumes looked particularly good in the quarter and we saw some disparity between the Big 3 on this particular line. And I was wondering if you thought that this was a geographic thing or a definitional or are you taking share in this particular part of the business? Just any color on strength versus the market would be great.

The temporary large container volumes continue to run negative.

Uh, which is impacting our large container volume. So we would say, more broadly, when you take a look at that pure construction activity, that's still a negative demand environment, and those events almost always end up being connected to the landfill. That's got the lowest cost logistics, so proximity matters the most in those cases.

Great. And then I wanted to ask the Labour disruption question in maybe a different way. Um I guess how do you think that? Well first it sounded like maybe you were alluding to you see it as a as specific Regional issues and different areas. Do you think it's it um impacts the cost in the industry uh in the future and price costs? Spread like is it more of an industry thing or do you think that it's it's more contained and specific things.

Yeah, I think it's more contained in specific. We don't have a national contract. We have all local contracts.

And we're about a third, uh, unionized, uh, in our frontline workforce. And again, we feel very strong about the competitiveness of our cost position and the fitness of it. As I mentioned, right? We don't want to get it too high because we're in the auto market and we lose work. We also don't want it to be too low because then we can't retain our very talented people and can't service our customers, which allows us to get that price increase. So we feel very comfortable with the cost position to.

And moving forward.

Thank you.

The next question will come from Sabah Hartcon with RBC Capital Markets. Please go ahead.

Great. Thanks very much. Um maybe just on some of the commentary from earlier around Tara of Southern moving pieces in the macro, presumably, there's some cost increased across the business. I guess with the macro where it is you know how are your discussions on pricing for next year going now looking for you know guidance but just the acceptance of price customers understanding that there are tariffs and other moving pieces. You know, could we expect a similar type of trajectory going forward a relative to what we've seen recently.

So we're seeing that Tara impact come through again. It's the Minimus for us compared to most organizations and we're working at 2 fronts, obviously get, you know, getting transparency with our suppliers, making them call out, what is Terry related? And then negotiating and pushing back on that knot down to zero in every case. But pushing back, to make sure that we're not, uh, just taking the headline number that they present to us. And then the other side, some of that there will be cost increases and we'll do everything we can to pass that through to price next year. So again, thinking about a 30 to 50 basis, point margin spread, you know, per year, across the cycle, we still think we're capable of doing that in this environment.

Okay great. And then you know understanding that some of the es volumes could be affected by the macro like they might be this year. Does that you know change the margin trajectory or the margin Improvement Journey you're on and kind of second part how far along are you on that Journey? If you just think about since adding some of those platforms to your business maybe how much more Runway is there? Still on that front? Thanks.

Yeah, maybe I'll start with the end over time. We think there's considerable uh, run room just given the nature of the very technical way streams. We challenge given the uh, number of landfills

Incinerators and the post collection environment. We think all that creates opportunity for margin expansion over time. But I mentioned before, if you measure the progress here in any given quarter, you're going to be disappointed because this isn't going to be a straight line of progress. There's going to be ups and downs and it's a smaller business. So you have comps and changes in demand but if you look across the years, I think we've demonstrated very consistent, uh, steady margin expansion. And if you look forward, I think you're going to see the same trajectory over the next 4 to 5 years.

Thanks very much.

The next question will come from Tammy, Zakaria with JP Morgan. Please go ahead.

Hey, good afternoon. Thank you so much for taking my questions. My first question is actually if you could provide a little more color on the volume cadence for the remainder of the year. Should we expect volumes to get sequentially better, or pretty much remain the same in Q3 and Q4? Any color on volume?

Those projects are completed.

Got it. Thank you. That's very helpful. And then, similarly on pricing, any color on what to expect for Q3 versus Q4?

Well, look, we've been just over 5% average yield on related revenue in the first half.

We're maintaining our perspective of 5% for the full year, so it modulates a little bit. But you can think, you know, just under 5% in the second half of the year.

Got it. Thank you so much.

The next question will come from Fisa Aly with Deutsche Bank. Please go ahead.

Yes. Hi, thank you. So I wanted to ask about, you know, the the lower revenues that you're citing on the Core Business. Um, the I think you said 65 million so just want to put a final point on that because, you know, I don't think you had a lot of the, you know, the event based. Uh maybe, you know, it impacts that was in the guide. So I would have thought that that would offset the incremental, you know, macro weakness. So, just give us a bit more color on. Like, is it, you know, more Regional, um, is there sort of any specific exposure that you might have? Um, that's going to impacting, you know, the lower lower volume, right? I know you'd also talked about whether in the first quarter, uh, so maybe it's it's related to that.

Well, look, if you think about when we entered the year, right? So our guidance was predicated on an economy that was relatively flat.

So, again, we we were seeing volume declines in the construction business throughout last year. So we really expected that to anniversary and produce year-over-year results that were flat with the prior year. And you can see, we're still on the large container side. We're still producing kind of a mid single digit decline on a year-over-year basis. So we're seeing further declines from a level of activity perspective than what we saw in the prior year, that was not expected. So most of it is really that that construction related activity. And as I mentioned earlier, when you think about weak Manufacturing in markets that just doesn't impact our Environmental Solutions business, we have a 1 and a half billion dollar market, vertical and Recycling and waste that's focused on manufacturing and markets.

So, John just talked about the weakness that we're seeing there, some of the uncertainty that our customers are experiencing and what that does to volume production. I think it's having an impact on our business.

All right, and understood. And then, just on the, on the Environmental Solutions business, could you give us a sense of, like, what your, you know, where we are from a volume, and, and price perspective? Um, I'm curious, I know we had, you know, last year. You'd maybe talked about, uh, uh, you know, sort of pricing, uh, above. Um, I guess Trend, and I'm curious where we are at this point. And I know you mentioned sort of some of the, you know, volume

Versus price, uh, Dynamics. Um, so curious, if you can tell us where what you saw, you know, volume versus price and yeah.

Sure. Yeah, price positive and volume negative, and obviously that speaks to, and that business has got some skill sensitivity to it given the post-collection permit. So, to be able to.

We have flat margins in that environment. It just speaks to, again, trading off price for volume in this case. And again, we haven't gotten it perfectly right and lost a little bit of share in that volume. The team is working really hard in places where it's positive to go get those opportunities, and I feel optimistic about the growth outlook. Again, the next couple of quarters, I think, are going to be uncertain. But if you think of the longer-term view here, over the next 4 to 5 years, I couldn't be more excited about manufacturing in the United States.

And if you just think about the results that we've produced, since we acquired US Ecology, for the vast majority of that time frame, we've been in a PMI environment that is sub-50. Since the beginning of 2023, there have only been three months that have exceeded 50.

So, looking at what we've done in a negative demand environment gives us a lot of confidence and really encourages us about what the future could bring when manufacturing activity actually resumes.

Great got it. Thank you.

Your next question will come from Trevor Romeo with William Blair. Please go ahead.

Good afternoon. Thanks for taking the questions.

First, I had just a question on the M&A pipeline. It sounds like maybe you did a couple of deals in Q2. You sounded pretty bullish, I think, the past few quarters on the pipeline. So, just any update there in terms of, you know, size, regions, and any bias to one of the, you know, either recycling in wage or ES, or just anything else on the pipeline would be really helpful.

Remains, you know, strong and robust. I'd say, with the exception of...

I don't see any transformational deals in the immediate term. It shouldn't be a surprise. Most of what we do here are, you know, some nice regionalized deals or small tokens on that front.

And plus, there's a little lumpiness to this pipeline. All the pipeline's strong, but the lumpiness to the activity of when deals are closed on that front is already off to a strong year, and you know, the forecast is stronger for the rest of the year.

Okay, that makes sense. Thanks John and then um, just going back to margins, I guess as as we look to model margins, in the second half, anything specific. You'd call out on kind of the, you know, quarterly Cadence or or seasonality just because you, you may have a few moving pieces. So just any thoughts on I guess, Q3 versus Q4 in the Consolidated. Margins would be great.

Yeah, the 1 thing I would point out and this is more of a a year-over-year uh you know type comparison is that we called out in the third quarter of of 24 we we called out about 20 million dollars of out of period benefits which provided about about 40 basis points of uplift to the margin in Q3 of 2024.

So we have to overcome that. So again, when you take a look at call it relatively flat margin performance in the second half of this year compared to the prior year, probably a little bit negative in the third quarter because we have that 40 basis points we have to overcome and a little bit positive in the fourth quarter.

Got it. Very helpful. Thank you. I appreciate it.

The next question will come from Stephanie Moore with Jeffrey's. Please, go ahead.

Hi, good afternoon. Thank you. Um, I wanted to touch a little bit about the maybe medium-term.

Margin opportunity or just investment opportunity, that comes from leveraging, your your rise platform. So, you know, now that this platform is, you know, successfully been rolled out across the network in your Fleet if you could talk a little bit about what's next, in terms of how you can, you know, maybe Harvest that data or the opportunity of having that rolled out that you know eventually we can see the you know can drive you know kind of a longer term margin opportunity. Thank you.

Yeah, I think we got 2 components. One is that it allows us to connect and communicate with the customer more proactively to understand, giving them more precise.

Times on service pickups service, verification, all of those things. And we're doing some of that already but more proactive, you know, pushing and communicating we know anytime we're more digitally connected with a customer that they are going to, you know, stay with us longer, which creates an opportunity for a very profitable customer to, you know, stay in the portfolio. And then on the efficiency side, uh, we're starting to use AI to build routes. And so that's the next opportunity to harness all that data and think about how do we more efficiently build routes, and not doing that in a lights out fashion, but using our very talented Logistics team and AI together to figure out. Hey, how do we get the same number of stops done in 5 lesce minutes 10 less minutes, 20 less minutes a day and we've talked about a minute taken out of the system across the years, where 4 to 5 million dollars for us. So this is really a game of, you know, seconds and then minutes that can drive real cost efficiency into the business.

Got it just and then just wanted to touch a little bit on the polymer center. It's maybe you could just give us a quick update in terms of how the centers that are already. That are open are performing just in terms of efficiency rates compared to what you've been targeting, you know, pricing opportunity. You know any any color there would be great. Thank you.

Yeah, I think, uh, Vegas—we talked about a little slower out of the gates for some construction reasons on that—and then certainly had some learning.

Curve on that in terms of exactly the quality specs our customer wanted and getting that communication clear, I think Vegas is making great progress. And then, you know, Indy is hitting its marks because we've taken all the learnings from Las Vegas and built those into Indianapolis.

And then we'll leverage all those learnings, of course, in Pennsylvania for a third center as well. So if you feel very excited that we're capturing the benefits of those learnings, and listen, we have the supply. That's one of the reasons we did it. And the demand for the product is through the roof, right? The world is short supply. The country is short supply on recycled bed. So feel very confident about the returns profile this over time.

The next question will come from Toby Somer with Truist. Please go ahead.

Thanks.

Answers of recruiting safety Etc. That have gone down now. Successively for a number of consecutive years. Do you think there's room to go on this or you know if we see the labor market pick up and the economy pick up might there be sort of a trade-off between industrial volumes improving but the labor related expenses sort of creeping higher as well.

Yeah, we're certainly not immune to the macro. And so, if you know,

Economy takes off and we go back to a very, very tight employment Market. Uh, that's going to have, you know, some impact on either our growth and or to be able to supply workers and or a wage rates. Although again, I feel really good about uh, our team and our talent of recruiting people, but also the culture we built, right? We focus, uh, intensely on employee engagement and being a place where the most talented people want to come to work. So how you treat them is a big part of that.

Uh the stability of the work is a big part of that and then also compensation benefits and we talked a lot about this call about being getting that right and being very competitive and while we're not perfect, every time I think we've done a really good job of improving that successively every year and dynamic enough to adjust that, uh, based on the macro environment. So, it doesn't cause me any concern in terms of a hotter economy, causing a, uh, a labor pitch for us.

Okay. And on the ES side, you mentioned, you know, confronted with

In a price versus volume scenario, you're always going to choose price. Is there anything you're seeing in the market with respect to competitors' behavior that makes you think there's a greater or lesser chance of continuing to fuel the business with acquisitions? I'm just curious if any of those behaviors are interrelated and therefore inform the M&A outlook.

No, I think the M&A outlook is strong. I think from a competitive product standpoint, listen, when you're in a...

It's been a kind of challenging demand environment for a period of years. You start to see some people making different trade-offs on volume versus price.

Uh, we're seeing that in part of the ES market, and we're going to stay disciplined. I think the good news is that it is marginal in the broader scheme of things and a really good story in terms of margin improvement in that part of the business over time. We don't see that trend stopping.

And the next question will come from Rob Worth Dimer with Melius Research. Please go ahead.

Thanks, and good afternoon. Um, I had a question on the second half. Incremental is what you guys covered pretty well, but I was still left a little bit wondering if, um, when you add back labor, is there any residual inefficiencies, just from dealing with a situation that, you know, depressed margins slightly into Q2?

No, again, I think if you, when we talked about the, the Labour disruption, I mean, again, we're we're planning on backing those out of the, uh, adjusted results. So and again, those were those incremental costs that, that, that John walked through. So, when you, when you talk about on the second half, it's not as much about what's happening in the in the current period. If you take a look at at prior year, you can see this sequential ramp up that we saw first half into second half, we just get into tougher comps

So, we still expect the price ahead of cost inflation, and we still expect to sit there and see the benefits of some of the labor productivity investments that we're making. It's just going to sit there, and it's going to modulate and taper off.

As compared to what you saw, there was margin expansion in the first half of the year, and that was fully anticipated when we provided guidance at the beginning of the year as well.

Gotcha. No, understood. And then just a second minor one. When you look at the big, beautiful build, does that change your appetite for CapEx? You have areas where you can invest profitably, and I'm just curious if you reevaluate plans given the bonus depreciation. Thank you.

Yeah, when you take a look, and again, there’s a certain amount of replacement capex that you’re going to do each and every year, and we do that somewhat regularly.

So just because you have a 100% bonus depreciation, that doesn't mean that you're going to sit there and take an asset that you have that still has remaining life and retire it.

So again, it actually is on the margin. If you sit there and say, would you sit there and accelerate some things? I mean, perhaps on the margin, but for the most part we are steady. We are consistent, and we're rapidly replacing the assets in the business year in and year out.

Thank you.

The next question will come from David Manty with a beard. Please go ahead.

Um, unusual benefit there. So, I recall there was a 50 basis point insurance recovery, and then there was also a bad debt item. I wasn't clear on whether that was a positive or a negative. It sounds like you're saying that was a minus 10, leading to the net 40 basis points of favorability. Is that correct?

No actually. So there were there were 20 million dollars worth of benefits. In the third quarter of 24, the Insurance Recovery, was a positive 15 and a bad debt. Recovery was a positive 5. That's what impacted that. Third quarter of 24, our commentary on the 50 basis points. Last year was in the prior years. Now, you're back in the 23, we actually had some negatives. So now you're talking about the spread 23 over 24. Now what we're saying is when you compare 25 over 24, you're really just having to overcome that 20 million benefit that we saw in in Q3 of 24 and again the Insurance Recovery, 15 million, bad debt, positive recovery was 5.

Perfect. All right. Thank you.

And then, um, Eco used to break out base versus event work, and it sounds like you're saying that the base ES work is pretty lackluster given industrial production levels. Do you have any comments around Environmental Services event opportunities? You're seeing chemicals, metals, manufacturing, and refining as some of the key industries there.

Yeah, I'd say, 1 thing and, you know, good news, bad news. There's been less emergency response work this year. So good, from a societal standpoint, we've had a fewer emergencies to deal with uh, challenging for the business obviously because those end up being very profitable opportunities for us to go and we know that across the cycle, and there's going to be years of that spikes and years, that that is a little lower in that front. It's been a slower first, half of the year, we'll see what the second half looks like and then any discretionary work on site cleanups, or other things? This is where the macro I think is, causing manufacturers, is to pause. I mean, people are focused on tariff policy relocating manufacturing figuring out how to get you know, Warehouse Goods, Etc, anything ancillary to their operation. They just put on pause

So, our pipeline looks good, but events in those opportunities aren't moving at the pace that we would expect. It's the uncertainty that hurts people. As we get more certainty on trade policy, we're optimistic that that starts to move.

Understood, thank you.

The next question will come from Colin Art Gupta with Scotia Capital. Please go ahead.

Thanks uh for taking the time. Um I understand you'll be adjusting out the labor impact uh from the adjusted results, you will post but just uh just an update in terms of where the labor Agreements are right now my understanding is you had a few different regions of of the of the of the country where you had these disruptions, but you have achieved, maybe some agreements in some places. So can you update us where and what ingredients are left right now, thanks.

Sure. Yeah, what happened is?

A number of markets went out right with contracts that were expired and showed to strike a few other contracts. Different parts of the country have sympathy strike language, where if people show up to take it, the workers don't cross those lines.

We've kind of recovered on all of those sympathy strikes, our colleagues are back to work. And we typically see this ends up being a day or sometimes a week activity, right? And now we're down to just a few markets where we're negotiating um to get a agreements on that front. And again, we're going to negotiate in good faith. We want to deal that is, you know, very fair and competitive for a Frontline people. But we're not going to uh do any deal of that impairs the longer term health of the business or hurts our colleagues longer term.

Okay, that's great. Thanks. And just on the M&A, I think you provided some good color in terms of what the pipeline looks like. How much contribution, in terms of revenue, have you embedded in the guidance properly?

Yeah, so again, if you take a look at what we're expecting, there's a 120 basis points contribution to 2025 growth, 100 of which was included in the guide.

Because, again, we had known about that. That was the Shamrock deal, which was already known at the time when we provided the guide. Plenty of things.

I'm sorry. What was that last part? Sorry, $20 is the incremental, right? You had $100% $20 in incremental, correct? Yeah. And that's about $35 million in manual rep, correct?

Okay, thank you so much. Thanks.

The next question will come from James Shum, with TD Cowen. Please go ahead.

Respect to Environmental Services. There's been some, you know, some high multiples paid for some of these targets. 14, 15, 16 times IBA multiples have been paid. Are you seeing as as you look at takeover targets that a lot of these sellers are trying to really up their their asking price. And, you know, are you seeing like a, a widening of the bid ask spread in the es Market with respect to m&a.

I don't think we're seeing a widening of the spread. I do think that if you look across the last 5 years, multiples have absolutely gone up. They've gone up and recycling your waste, too, but they've gone up faster in ES.

Uh, and a large part because there's been so much value that's been driven in that part of the business. So the businesses are becoming more valuable on a forward-looking basis. Uh, and the multiple is totally dependent on what you're buying. If you're buying something with limited infrastructure, more field services-based, that multiple is going to be a fraction of what you mentioned. If you're buying something with great permitting and great infrastructure, that could be a very value-creating deal on that. And again, we're going to look at unlevered cash on a cash. Returns, the multiple ends up becoming an output.

Great. Okay, thanks a lot. That's all I had.

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

Thank you, Chuck. As we close out today's call, I want to thank the entire Republic Services team for their unwavering focus on safety, sustainability, and customer service.

Their commitment, energy, and ingenuity are solving today's challenges and positioning us for continued success. Have a good evening and be safe.

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