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F500-2021-297-Republic Services

Republic Services is a solid waste and recycling solutions company headquartered in Phoenix.

This year's Fortune 500 marks the 66th running of the list.

F500 2020 305 Republic Services

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Republic Services Inc. is a provider of environmental services in the U.S., offering services for recycling, solid waste collection, hazardous waste disposal, and renewable energy projects. The company operates a network of over 1,000 locations, including 74 recycling centers and 207 landfills, serving approximately 13 million customers nationwide. Under its commitment to sustainability, Republic Services transforms landfill gas into renewable energy and invests in advanced recycling technologies to promote a circular economy. Its 42,000 employees work to provide reliable, efficient, and environmentally responsible waste management solutions.

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Q4 2024

Republic Services (RSG): Company Profile, Stock Price, News, Rankings

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Republic Services

republic services

Good afternoon, and welcome to the Republic Services Fourth Quarter and Full Year twenty twenty four 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. After today's presentation, there will be an opportunity to ask questions.

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.

I would like to welcome everyone to Republic Services' fourth quarter and full year twenty twenty four conference call. John Vander Ark, our CEO and Brian Delgaccio, our CFO, are on the call today to discuss our performance. I would like to take a moment to remind everyone that some information we discuss on today's call contains forward looking statements, including forward looking financial information, 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 02/13/2025. Please note that this call is property of Republic Services Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited. Our SEC filings, our earnings press release, which includes GAAP reconciliation tables and a discussion of business activities, along with the 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. 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. 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%, generated adjusted EBITDA growth of 12%, expanded adjusted EBITDA margin by 140 basis points, delivered adjusted earnings per share of $6.46 and produced $2,180,000,000 of adjusted free cash flow. 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 customer zeal, 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 the offerings and quality of our service delivery.

Fourth quarter organic revenue growth was driven by solid pricing across the business. Average yield on total revenue was 4.4% and average yield on related revenue was 5.3%. 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. Volume losses were concentrated to shedding underperforming contracts in the certain manufacturing end markets.

Turning to our expanding digital capabilities. We continue to advance the implementation of digital tools to improve the experience for both customers and employees. Deployment of mPower, our new fleet and equipment management system is underway. MPOWER is designed to increase maintenance technician productivity and enhance warranty recovery. Deployment of the new system is anticipated to be completed by the end of twenty twenty five.

We estimate MPOWER will deliver $20,000,000 of annual cost savings once fully implemented. We continue to benefit from innovative technology on our recycling and waste collection routes. We utilized cameras to identify overfilled containers and recycling contamination, which is enabled by our RISE digital platform. This technology generated more than $60,000,000 in incremental revenue in the first year of operation. 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. Development of our Polymer Centers and Blue Polymers joint venture facilities continues to move forward. Construction is complete at our Indianapolis Polymers Center and equipment commissioning underway. This operation is co located with a Blue Polymers production facility that is expected to be completed by mid-twenty twenty five. We expect earnings contribution from the Indianapolis Polymers Center in the second half of this year.

Construction on the Blue Polymers production facility in Buckeye, Arizona is underway. This facility will complement our Las Vegas Polymer Center. We expect the completion of this facility in late twenty twenty five. We continue to bring decarbonization solutions to the market that will unlock value for our stakeholders including the communities we serve. The renewable natural gas projects we're developing with our partners continue to advance.

Two projects came online during the fourth quarter and another project came online in January. We expect a total of seven new RNG projects to come online in 2025. We continue to advance our commitment to fleet electrification. We had 52 electric collection vehicles in operation at the end of twenty twenty four. 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. We expect to have approximately 30 facilities with charging capabilities by the end of twenty twenty five. 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 and turnover rates continue to trend lower with full year turnover improving 150 basis points compared to the prior year. 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, we invested $358,000,000 in strategic acquisitions and returned $1,180,000,000 to shareholders, which includes four ninety million dollars of share repurchases. Our results clearly demonstrate our ability to create sustainable value and our strategic investments strengthen the foundation to continue to grow our business. In 2025, we expect to deliver profitable growth while continuing to invest in the business to drive lasting value. More specifically, we expect full year revenue in a range of $16,850,000,000 to $16,950,000,000 Adjusted EBITDA is expected to be in the range of $5,275,000,000 dollars to $5,325,000,000 We expect to deliver adjusted earnings per share in a range of $6.82 to $6.9 generate adjusted free cash flow in a range of $2,320,000,000 to $2,360,000,000 our pipeline supports continued acquisition activity in both recycling and waste and environmental solutions. We expect to deploy at least $1,000,000,000 of investment in value creating acquisitions in 2025.

Our 2025 guidance includes the financial contribution from acquisitions closed to date. I will now turn the call over to Brian who will provide details on the quarter and year.

Thanks John. Core price on total revenue was 6.1% in the fourth quarter. Core price on related revenue was 7.3%, which included open market pricing of 9.1% and restricted pricing of 4.5. The components of core price on related revenue included small container of 9.6%, large container of 7.4% and residential of 6.8%. 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 twenty twenty three. The fees relate to overfilled containers and recycling contamination and were enabled by our digital platform. In 2025, we expect average yield on total revenue of approximately 4% and average yield on related revenue of approximately 5%. Fourth quarter volume on total revenue decreased 1.2% volume on related revenue decreased 1.5%. Volume results included a decrease in large container of 4.6%, primarily due to continued softness in construction related activity and certain manufacturing end markets and a 2.8% decrease in residential due to intentionally shedding underperforming contracts.

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. Commodity prices were $153 per ton during the fourth quarter. This compared to $131 per ton in the prior year. Recycling processing and commodity sales increased revenue by 20 basis points during the quarter.

Full year 2024 commodity prices were $164 per ton. This compared to $117 per tonne in the prior year. Current commodity prices are approximately $145 per tonne, which is the baseline used in our 2025 guidance. Fourth quarter total company adjusted EBITDA margin expanded 110 basis points to 31%. Margin performance during the quarter included margin expansion in the underlying business of 110 basis points, a 10 basis point increase from net fuel and a 10 basis point increase from recycled commodity prices.

This was partially offset by a 20 basis point decrease from acquisitions completed in the prior year. Our full year adjusted EBITDA margin was 31.1%, which represents margin expansion of 140 basis points compared to the prior year. Margin expansion in the recycling and waste business was 130 basis points and margin expansion in the environmental solutions business was two thirty basis points. With respect to environmental solutions, fourth quarter revenue increased nearly $70,000,000 compared to the prior year driven by organic growth in the business and the rollover contribution from prior year acquisitions. Adjusted EBITDA margin in the Environmental Solutions business expanded more than 500 basis points to 24.7% in the fourth quarter.

Total company depreciation, amortization and accretion was 11% of revenue in 2024 and is expected to be 11.2% of revenue in 2025. Full year 2024 adjusted free cash flow was $2,180,000,000 an increase of 10% compared to the prior year. This was driven primarily by EBITDA growth in the business. Total debt at the end of the year was $12,800,000,000 and total liquidity was $2,500,000,000 Our leverage ratio at the end of the year was approximately 2.6 times. We expect net interest expense of approximately $565,000,000 in 2025.

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. The favorable tax rate in the fourth quarter was supported by tax credits related to investments in RNG projects with our development partners. We expect an equivalent tax impact of approximately 25% in 2025 made up of an adjusted effective tax rate of 20% and approximately $170,000,000 of non cash charges from equity investments in renewable energy. With that operator, I would like to open the call to questions.

Thank you. We will now begin the question and answer session. And your first question today will come from Brian Bergmeier with Citi. Please go ahead.

Good afternoon. Thanks for taking the questions. So ES was obviously really strong last year and I think you've said ERP implementation was kind of ongoing throughout the year. 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 24% margins and seemingly cleared a bit of a hurdle?

Yes, 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.

But we mostly paused M and A in that area last year just to give the time the team time to breathe and integrate. And so we see opportunities certainly for M and A growth coming in that space 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.

Got it. Thanks for that detail. And then I was just wondering, John, if maybe you could touch on the margin bridge year over year for 2025. I think we're looking like twenty, thirty basis points increase year on year. And I think you said on the last call, 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 year on year margin expansion would be great. And I'll turn it over. Good luck on the quarter.

Yes, thanks. Yes, we kind of say across if you look across the cycle kind of 30 to 50 basis points 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. And then as you get into 2025, listen, the end market construction particularly and then parts of manufacturing are still pretty soft. And so we're looking for those to come back. Manufacturing is showing some really good early signs on that front.

Construction where interest rates are in terms of impact on mortgage rates in the ten year, right, I think that's going to be delayed here from a progress standpoint. So that certainly feeds into that and I'll let Dell add

in. Yes, Brian, 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. So that's approximately $145 per tonne. If you compare that to the $165 average we had in 2024, 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. 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. That cost us about $20,000,000 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 sixty, seventy basis points of margin expansion as compared to the headline, which would suggest something closer to 30.

Your next question today will come from Tyler Brown of Raymond James. Please go ahead.

Hey, Ron, great detail on the bridge. But hey, John, I'm interested in the $1,000,000,000 in acquisition commentary. 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 and 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?

Yes, I think for the last few years, we've put a marker out there more like $500,000,000 and we're typically that's getting 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. 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 and that gives you a better indication of where we're going to end up.

In terms of where it's come from, we got a really good pipeline on ES and recycling and waste. I would expect that pipeline looks a little heavier slanted in the first half toward ES and then over the back half probably heavier more heavily slanted toward recycling and waste, but we'll see all of those things play out.

Okay. So, Brian, is there a material M and A benefit in 2025 based on what has been closed today in Q1? I'm more confused

just I'll put it in terms of revenue. If you take a look at rollover, which was pretty insignificant from deals in 2024, but including what's closed to date, we've got about a full point of revenue growth from those deals.

Okay, okay. That's helpful. And then back on 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?

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 ES teams supporting those communities and getting that household hazardous waste cleaned up. 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.

Your next question today will come from Noah Kaye with Oppenheimer. Please go ahead.

Great quarter guys. Thanks for taking the questions.

the guide, can you comp that to cost inflation expectations unrelated? Are you looking like sort of 3.5 and maybe 150 bps spread, the right way to think about it?

Yes, I think we're probably closer to $4,000,000 on the cost side, if you layer employee wage increases, benefits, etcetera, inflation on maintenance. So that takes us right about $4,000,000 and $5,000,000 unrelated.

Okay, great. And then I just had to think about seasonality for the year. I think there are certainly on things like commodities, more favorable comps later in the year. It's not that big of a headwind for you. But you also have, as you mentioned, some M and A benefit.

So just give us some rough guidelines on how you think about kind of at least sort of EBITDA cadence for the year?

Yes, I would say just think about from the perspective of margin expansion, we would see it more balanced this year than maybe what you've seen over the last couple of years. Maybe a little bit more heavily slanted towards the first half of the year than the second, But you can think of it relatively consistent 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.

And your next question today will come from Jerry Revich with Goldman Sachs. Please go ahead.

Yes. Hi, good afternoon, everyone. I'm wondering if you could just talk about how the polymer centers are performing, John? Are you folks hitting the efficiency rates that you had targeted? And what's the level of contribution, Brian, that you folks are embedding in the guide from the polymer centers plus the RNG plants?

Yes. I'd say kind of in the second, third, fourth quarter, listen, some learning and startup costs in terms of uptime on equipment and getting that dialed in. 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. The good news is, right, all of our assumptions on run rate in terms of price, cost, volume, willingness to pay, right, really strong and really positive on those assumptions.

So 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 on our marks and onward upward and I'll let Brian cover the specifics.

Yes. So for next year, across our portfolio of sustainability investments, we're looking at incremental revenue around $70,000,000 and incremental EBITDA $35,000,000

That is clear. Thank you. And then Brian, I just want to go back to your comment on the weighting of margins. The downside of having really good performance in 2024 and really good fourth quarter is maybe a bit of a tough comp. So if we were to apply normal seasonality to the fourth quarter margin run rate, I think it would imply first quarter margins that are up 150 to 200 basis points year over year and it sounds like you're guiding to just more modest margin improvement on a year over year basis in the first quarter.

Is there anything lumpy in the fourth quarter? Can you just expand on that because it felt like you've built momentum across the businesses over the course of 2024?

you think about a normal level of seasonality 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. Then generally followed by Q4.

And then Q2 and Q3 are relatively similar, but I would put Q2 is third and Q4 is fourth as far as meaning it's 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 modestly is 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 twenty twenty four.

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

Hi, good afternoon. Thanks so much for taking the question. Wanted to ask a follow-up on the Environmental Solutions business, really nice quarter of growth there. 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?

Yes, obviously lots of positive impact on margin performance over the last two point five years since we did The U. S. Technology acquisition. And that's come through a number of different levers. That's come certainly through customer mix of getting attractive customers who are willing to pay more and shedding work that's less profitable.

That's come from pricing the work that we do. It's come from cost management and being more efficient in utilizing resources. And so if you think about our movement going forward, we're not going to expand margins at the same rate as we have over time, but we're going to continue to expand margins in that space because and we think there is 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 on assets as well as the field services assets.

And that will look more like single price increases a year more ratable like we do in recycling and waste versus multiple price increases within the year. But we expect continued momentum and contribution in 2025.

Okay, great. Thanks for that, John. 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 2024. I was just wondering, one, where does that place you relative to your historical averages?

And then two, any sort of new initiatives you're putting in place in 2025? And I guess how much runway you think you have to decrease turnover further would be great?

Yes. We don't have thirty 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. And a lot of good things happen when you get turnover into that spot, which is your servicing customers at a very effective rate.

Those customers are happy with the service and they pay more and they stay longer. When you do that, we certainly looked for room to improve turnover unlike safety where your goal is zero. The goal on turnover is not zero. Some level of turnover is always natural and healthy. 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.

And your next question today will come from Sabahat Khan with RBC Capital Markets. Please go ahead.

Great. Thanks and good afternoon. Just a quick question on similar to the ES pricing and margin question earlier, I guess on solid waste, as you look across your portfolio, how is the pricing sort of discussion with the clients going? Is there more pushback, less pushback at this point in the cycle? How are you kind of getting those feedback like on that front?

Just wondering after fears 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.

Yes. I mean, our pricing is obviously coming down from an absolute basis when you look at our yield over the past couple of years, but also our cost inflation is coming down as well, which we mentioned. And 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.

And we measure how much of our price sticks to our retention rate and that's remaining very, very healthy on that front. So we're we got a

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 because we want to maintain that 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 an area of the business in general where customers on balance are not paying their fair share. Right?

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.

Okay, great. And then just one on the RNG facilities. I think we're looking for four to come online. I think two came online. Is that just a timing thing or how are you thinking about the rest of the RNG facilities opening up?

Yes, 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, think of it like a ninety day delay.

Great. Thanks very much. I'll pass the line.

Your next question today will come from Tobey Sommer with Truist Security. Please go ahead.

Thank you very much. With respect to the 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 kind of a metric, is that 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?

Yes. I mean, you think about that, you'd normally say we need to achieve that in a very high unemployment environment where people are going to have a hard time finding jobs externally and so they're going to keep the job they have. But we're at 4% unemployment. So that labor market is still tight relative to a twenty or thirty 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. 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, right? I think it will be more narrow than that, but we think we can continue to make progress.

And your next question today will come from Stephanie Moore of Jefferies. Please go ahead. Stephanie, your line may be muted.

Sorry, this is Harold on to Stephanie Moore. So, you guys talked about how the change from overflowing bins. So just want to get a sense of how far you are through that process, implement those additional fees in that. How are conversations going with customers as you move from fixed rate contracts to alternative indices?

Yes. 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 that 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 color. And I guess just on the regulatory side given the new administration, anything to call out with PFAS or impact from RIN pricing that you guys are looking at or any other regulations?

On RIN prices, we assume very conservative assumptions on our project as we move forward and you've seen RINs 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 pipeline and the set of projects we're going to have come online this year and in future years on that front. And then PFOS, PFOS 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 kind of timing and pace of recovery, but we feel very good about our team and our capabilities in terms of our ability not only to catch it and treat it on the landfill side from a solid waste perspective, but even more importantly the opportunity upside to help customers from an ES standpoint, a environmental solution standpoint to take care of their issues, remediate facilities and then ultimately find a final disposal for the material.

Republic Services (RSG) Q4 2024 Earnings Call Transcript

Company Participants