Republic Services, Inc.

Good afternoon, and welcome to the Republic Services second quarter 2024 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 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 one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations.

I would like to welcome everyone to Republic Services' second quarter 2024 conference call. John Van Der 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 of the information we discuss on today's call contains forward-looking statements, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. The material that we discuss today is time-sensitive. If, in the future, you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is July 24, 2024. 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 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. 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'd like to turn the call over to John.

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. Our strong second quarter results reflect the continued positive momentum in our business, and are a direct outcome of executing our strategic priorities. We continue to successfully grow our business while enhancing profitability by providing world-class service and solutions to our customers. During the quarter, we achieved revenue growth of 9%, generated adjusted EBITDA growth of 13%, expanded adjusted EBITDA margin by 110 basis points, reported adjusted earnings per share of $1.61, and produced $1.15 billion of adjusted free cash flow on a year-to-date basis. The results we are delivering are made possible by executing our strategy supported by our differentiated capabilities, Customer Zeal, Digital, and Sustainability. Regarding Customer Zeal, our commitment to delivering world-class essential services and sustainability offerings continues to drive customer loyalty and organic growth in the business. Our customer retention rate remained high at more than 94%, and net promoter scores continue to improve. Customers value our comprehensive service offerings and the 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 5.5%, and average yield on related revenue was 6.6%. This level of pricing exceeded our cost inflation and drove 110 basis points of EBITDA margin expansion. Organic volume on total revenue declined 80 basis points or 1% on related revenue. Volume losses were heavily concentrated to the cyclical portions of our business, including construction activity. Turning to our expanding digital capabilities, the team continues to advance the implementation of digital tools that improves the experience for both customers and our employees. Our RISE digital operations platform is driving improved route optimization and safety performance, and providing more predictable service delivery to our customers. MPower, our new fleet and equipment management system, was introduced to pilot locations earlier this month. MPower is expected to increase maintenance technician productivity and enhance warranty recovery. We expect to continue deploying the new system to all locations under a phased approach to the end of 2025. We estimate MPower will drive $20 million of annual cost savings once fully implemented. We continue to benefit from innovative technology on recycling and waste collection routes. Our platform utilizes cameras to identify overfilled containers and contamination in recycling containers. This technology reduces contamination at our recycling centers and is expected to generate approximately $60 million in incremental annual revenue. To date, we have already achieved $45 million of benefit. Moving on to sustainability. We believe that creating a more sustainable world is both our responsibility and a platform for growth. Earlier today, we 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 investments we are making in polymer centers, the Blue Polymers Joint Venture, renewable natural gas projects, and fleet electrification. Development of our polymer centers and Blue Polymers Joint Venture facilities continues to move forward. Major customers have certified the plastic flake produced at our Las Vegas polymer center. Production volumes continue to ramp and we expect to achieve a run rate output targets in the fourth quarter of this year. Construction is progressing on our Indianapolis polymer center with equipment installation underway. The operation will be co-located with a blue polymers production facility. We expect construction on this facility to be complete by the end of the year. with earnings contributions beginning in mid 2025. The renewable natural gas projects we're developing with our partners continue to advance. One project came online during the second quarter. Additionally, we completed construction at our RNG project in Fort Wayne, Indiana. This will be the first project to come online in our joint venture with BP. We expect five additional projects to be completed in the second half of this year. We continue to bring decarbonization solutions to the market, including our industry leading commitment to fleet electrification. We currently have 16 electric collection vehicles in operation. We expect to have more than 50 EVs in our collection fleet by the end of the year. We now have nine facilities with commercial scale EV charging infrastructure, and we expect five additional new sites to be completed in 2024. Customers are looking for solutions to support their sustainability goals. We recently announced an agreement with the city of Louisville, Colorado, making it the first municipality to adopt a fully electric residential collection service. As part of our approach to sustainability, we continually strive to be the employer of choice in the markets we serve. Employee turnover continues to improve, with second quarter turnover rate improving 70 basis points compared to the prior year. With respect to capital allocation, year-to-date, we have invested $68 million in acquisitions. Our acquisition pipeline remains supportive of continued activity in both recycling and waste and environmental solutions businesses. We currently have more than $300 million of transactions in advanced stages of diligence and are expected to close by the end of the year. Year-to-date, we returned $504 million to shareholders through dividends and share repurchases. Additionally, we recently announced an increase to the dividend for the 21st consecutive year. Strong results we produced for the first half of the year support a full-year earnings outlook that exceeds our original expectations. We now expect revenue in the range of $16.075 billion to $16.125 billion. Adjusted EBITDA in the range of $4.9 to $4.925 billion. Adjusted earnings per share in a range of $6.15 to $6.20. And adjusted free cash flow in a range of $2.15 billion to $2.17 billion. Our updated financial guidance includes the contributions from acquisitions closed through June 30th.