Republic Services, Inc.

Good afternoon and welcome to the Republic Services third 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 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 touchstone 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. Please go ahead.

I would like to welcome everyone to Republic Services' third quarter 2024 conference call. John VanderArk, 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 October 29, 2024. Please note that this call is property of Republic Services, Inc. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Republic Services is strictly prohibited. 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 the 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. We delivered strong third quarter results by effectively executing our strategy that supports profitable growth and value creation. The Republic Services team continues to deliver world-class service and innovative solutions to meet the needs of our customers. During the quarter, we achieved revenue growth of 7%, generated adjusted EBITDA growth of 14%, expanded adjusted EBITDA margin by 210 basis points, reported adjusting earnings per share of $1.81, and produced $1.74 billion of adjusted free cash flow on a year-to-date basis. Through our differentiated capabilities, customer zeal, digital, and sustainability, we continue to be well-positioned to capture new opportunities and create long-term value for our stakeholders. 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%. Third quarter organic revenue growth was driven by strong pricing across the business. Average yield on total revenue was 4.6%, and average yield on related revenue was 5.5%. This level of pricing continued to exceed our cost inflation and help drive 210 basis points of EBITDA margin expansion. Organic volume on total revenue declined 1.2%. Volume losses were heavily concentrated to the cyclical portions of our business, including special waste and construction activity. 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 2025. We estimate MPower will deliver $20 million in annual cost savings once fully implemented. We continue to benefit from innovative technology on our recycling and waste collection routes. Our platform utilizes cameras to identify overfilled containers and recycling contamination. This technology generated more than $60 million 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 to continue grow and create long-term value creation. Development of our Polymer Centers and Blue Polymers joint venture facilities continues to move forward. Las Vegas Polymer Center production volumes continue to increase throughout the quarter. Construction is progressing on our Indianapolis Polymer Center with initial equipment commissioning underway. This operation will be co-located with a Blue Polymers production facility. We expect construction on this facility to be complete by the end of this year with earnings contribution in the second half of 2025. We recently broke ground on a blue polymers production facility in Buckeye, Arizona. This facility will complement the Las Vegas Polymer Center. We expect the completion of this facility in late 2025. We continue to bring decarbonization solutions to the market that will unlock value for all of 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 third quarter, bringing the total completed this year to four projects. We expect four additional RNG projects to be completed during the fourth quarter. We continue to advance our commitment to fleet electrification. We currently have 28 electric collection vehicles, in operation and expect to have more than 50 EVs in our fleet by the end of the year. We now have 18 facilities with commercial-scale EV charging infrastructure. As part of our approach to sustainability, we are committed to being an employer of choice in the markets we serve. Our third quarter employee turnover rate improved more than 100 basis points compared to the prior year, and we are proud to be certified as a great place to work for the eighth consecutive year. With respect to capital allocation, year to date, we have invested $104 million in strategic acquisitions. Our acquisition pipeline remains supportive of continued activity in both recycling and waste and environmental solutions. We currently have more than $200 million of transactions that are expected to close by the end of the year. Year to date, we returned $834 million to shareholders, which includes $330 million of share repurchases. I'll now turn the call over to Brian, who will provide details on the quarter. Thanks, John. Core price on total revenue was 6.2%. Core price on related revenue was 7.4%, which included open market pricing of 9.1% and restricted pricing of 4.8%. The components of core price on related revenue included small container of 10.3%, large container of 6.9%, and residential of 7.2%. Average yield on total revenue was 4.6%. And average yield on related revenue was 5.5%. As expected, average yield stepped down sequentially as we began to anniversary the impact of new fees implemented last year. The fees relate to overfilled containers and recycling contamination and were enabled by our digital platform. Third quarter volume on total revenue decreased 1.2%, and volume on related revenue decreased 1.5%. Volume results included a decrease in large container of 3.6%, primarily due to continued softness in construction-related activity, and a decrease in residential of 2.9%, primarily due to municipal contracts lost in 2023 and anniversary in the fourth quarter of this year. During the quarter, small container volume decreased 40 basis points, while landfill MSW increased 30 basis points. Moving on to recycling. Commodity prices were $177 per ton during the third quarter. This compared to $112 per ton in the prior year. Recycling processing and commodity sales increased revenue by 70 basis points during the quarter. Commodity prices are currently $160 per ton, reflecting a recent decline in the price for recovered cardboard, or OCC. Total company adjusted EBITDA margin expanded 210 basis points to 32%. Margin performance during the quarter included margin expansion in the underlying business of 120 basis points, a 40 basis point increase from net fuel, 30 basis point increase from recycled commodity prices, and a 50 basis point benefit from an insurance recovery related to a prior year claim. This was partially offset by a 30 basis point decrease from acquisitions completed in the prior year. Now turning to our environmental solutions business. Third quarter environmental solutions revenue increased $60 million compared to the prior year, driven by the rollover contribution from prior year acquisitions. Adjusted EBITDA margin in the environmental solutions business expanded 290 basis points to 25.5% in the third quarter. Environmental solutions EBITDA margin was 22.6% in the prior year. Environmental solutions margin included a positive 110 basis points from an adjustment to an allowance for bad debts established in a prior year. Excluding this benefit, environmental solutions margin would have been 24.4%. Year-to-date adjusted free cash flow was $1.74 billion. The decrease from the prior year is primarily due to the timing of capital expenditures. Year-to-date net capital expenditures of $1.19 billion represents an increase of $256 million or 27% compared to the prior year. Capital spending is more ratable in 2024, whereas 2023 was heavily weighted to the fourth quarter. Prior year capital expenditures were impacted by vendor-related delays in truck and equipment deliveries. Total debt was $12.6 billion, and total liquidity was $2.6 billion. Our leverage ratio at the end of the quarter was approximately 2.6 times. With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 21.6% during the quarter. This favorable tax rate, driven primarily by the timing of equity investments in renewable energy, contributed 9 cents of EPS benefit during the quarter. I will now turn the call back over to John. Thanks, Brian. With respect to 2024, we believe we are trending toward the low end of our full-year revenue guidance due to continued softness and cyclical volumes. That said, we expect to more than overcome this revenue headwind and achieve the high end of our full-year adjusted EBITDA guidance. As a result, we expect EBITDA margin to outperform our expectations. Looking forward to 2025, we expect continued growth across the business supported by pricing ahead of underlying costs, cross-selling our complete set of products and services, and capitalizing on value-creating acquisition opportunities. We also expect financial contribution from the investments made in sustainability innovation, including plastic circularity and renewable natural gas projects. We believe that the fundamentals of our business remain strong and supportive of continued growth in revenue, EBITDA, and free cash flow, along with margin expansion in the underlying business. Over the long term, we believe our business can consistently deliver mid-single-digit revenue growth and grow EBITDA, EPS, and free cash flow faster than revenue. Our initial perspective on full year 2025 is consistent with this long-term growth algorithm. We plan to provide detailed 2025 guidance on our earnings call in February. With that, operator, I would like to open the call to questions.