Republic Services, Inc.

Good afternoon and welcome to the Republic Services first quarter 2023 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 listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note 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, sir.

I would like to welcome everyone to Republic Services' first quarter 2023 conference call. John VanderArk, our CEO, and Brian DelGaccio, our CFO, are joining me as we discuss our performance. I would like to take a moment to remind everyone that some of the information we discuss on today's call contains forward-looking statements which involve risks and uncertainties and may be materially different from our actual results. Our SEC filings discuss factors that cause actual results that differ materially from expectations. The material that we discuss today is time-sensitive. If, in the future, you listen to a rebroadcast or rerecording of this conference call, you should be sensitive to the date of the original call, which is April 27, 2023. Please note that this call is the property of Republic Services, Inc. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Republic Services is strictly prohibited. I want to point out that our SEC filings, our earnings press release, which includes gap reconciliation tables and a discussion of business activities, along with a recording of this call, are available on our public's website at republicservices.com. I want to remind you that Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times, and presentations are posted on our website. With that, I would like to turn the call over to John.

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. We started the year strong and are pleased with our first quarter results. Our performance reflects our ability to grow across our business while enhancing profitability. We remain well positioned to capitalize on additional growth opportunities in the marketplace by providing the most complete set of products and services to customers. During the quarter, we delivered revenue growth of 21%, including 11% from acquisitions, generated adjusted earnings per share of $1.24, and produced $496 million of adjusted free cash flow. We continue to believe that investing in acquisitions is the best use of free cash flow to create long-term value. We invested $224 million in acquisitions during the first quarter. All transactions were in the recycling and solid waste space. Our acquisition pipeline remains supportive of outsized levels of activity in both the recycling and solid waste and environmental solutions businesses. We continue to see opportunity for well over $500 million investment in value-creating acquisitions in 2023. We are making great progress on the integration of US Ecology and increasing the profitability of our environmental solutions business. We continue to adjust prices to earn an appropriate return on the valuable services we provide. The acceptance of our pricing actions remains high with very little customer defection. Cross-selling our complete set of products and services continues to run ahead of plan with more than $60 million in new sales to date. We have now achieved over $40 million of annualized cost synergies. As a result of the actions taken in the environmental solutions business, EBITDA margin improved to just over 20% during the first quarter. We continue to generate outsized growth by executing our strategy, supported by our differentiating capabilities, customer zeal, digital, and sustainability. Regarding customer zeal, we remain laser-focused on providing a world-class customer experience to drive increased loyalty and organic growth. Our customer retention rate remained at 94%. we continue to see positive trends in our net promoter score, supported by improved service delivery. Our frontline colleagues, including drivers, technicians, and the customer experience team, are determined to fulfill our daily commitments to our customers. We delivered robust organic revenue growth during the quarter and simultaneously increased in both price and volume. For price and related revenue increased to 9.3%, An average yield on related revenue increased to 7.4%. Organic volume growth on related revenue was 1.8%. Volume growth was broad-based across our market verticals and geographies. Turning to digital, we continue to make progress on deploying RISE tablets in our collection business. Over 75% of our residential routes are operating with RISE tablets. The remaining routes are on track to be completed by mid-year. This technology is the foundation that will allow us to further enhance our digital service offerings and improve our customers' experience. Moving on to sustainability. We are investing in differentiated capabilities to leverage sustainability as a platform for profitable growth. In February, we announced our plans to significantly scale our electric fleet through our long-term agreement with Oshkosh. We will begin operating two fully integrated electric recycling and solid waste collection prototypes later this year and expect to start buying at scale in 2025. This announcement supports our industry-leading commitment to fleet electrification through a multi-supplier strategy. Development of our polymer centers in Las Vegas and the Midwest remain on track, with the centers becoming operational in late 2023 and late 2024, respectively. The 57 renewable natural gas projects being co-developed with our partners are advancing. We expect at least six of these projects to commence operations this year. Our approach to sustainability includes our aspiration to be the employer of choice in the markets that we serve, and we are seeing positive results. Turnover rates continue to improve, and we are now below 2019 levels. As a result, we are better staffed to capitalize on growth opportunities in the markets. We continue to be widely recognized for our comprehensive sustainability performance. For example, we were recently named to Barron's 100 Most Sustainable Companies list, Ethisphere's World's Most Ethical Companies list, and Fortune's list of the World's Most Admired Companies. A positive momentum in our business continues to build as we harness the power of our differentiated capabilities. We will continue to invest for the future profitable growth to deliver the results that create unmistakable value for our stakeholders. I will now turn the call over to Brian, who will provide financial details for the quarter. Thanks, John. Core price on total revenue was 8.2%. Core price on related revenue was 9.3%, which included open market pricing of 11.7% and restricted pricing of 5.4%. The components of core price on related revenue included small container of 12.6%, large container of 9.6%, and residential of 8.4%. Average yield on total revenue was 6.5%. Average yield on related revenue was 7.4%, an increase of 70 basis points when compared to our fourth quarter performance. We continue to price new and existing business ahead of cost inflation to drive margin expansion in the underlying business. Volume on total revenue increased 1.6%, while volume on related revenue increased 1.8%. The components of volume on related revenue included an increase in small container of 1.6%, an increase in large container of 80 basis points, and an increase in landfill of 8.6%. Landfill was primarily driven by a 21.7% increase in special waste revenue. Moving on to recycling. Commodity prices were $105 per ton in the quarter. This compared to $201 per ton in the prior year. Recycling processing and commodity sales decreased revenue by 90 basis points during the quarter. Current commodity prices are approximately $115 per ton. We believe that commodity prices will continue to recover in the second half of the year as the global supply-demand imbalance continues to correct. Next, turning to our environmental solutions business. First quarter environmental solutions revenue increased $309 million over the prior year, which primarily relates to the acquisition of U.S. Ecology. On a same-store basis, environmental solutions contributed 50 basis points to internal growth during the quarter. Adjusted EBITDA margin for the environmental solutions business was 20.6%, a sequential increase of 350 basis points. Total company adjusted EBITDA margin for the first quarter was 29%. This compares to 30.4% in the prior year. Margin performance during the quarter included a 130 basis point decrease from acquisitions, which includes 90 basis points related to U.S. ecology, a 60 basis point decrease from recycled commodity prices, and a 30 basis point decrease from an additional workday, partially offset by a 40 basis point increase from net fuel, and margin expansion in the underlying business of 40 basis points. Adjusted free cash flow was $496 million in the first quarter, or approximately 25% of the midpoint of our full-year guidance. Free cash flow conversion was 47.6%. Total debt was $12.1 billion, and total liquidity was $2.5 billion. Our leverage ratio at the end of the quarter was approximately 3.1 times. With respect to taxes, our combined tax rate and effects from solar investments resulted in an equivalent tax impact of 26.3% during the first quarter, which was in line with our expectations.