Republic Services, Inc.

Republic Services is traded on the New York Stock Exchange under the symbol RSG. All participants on 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 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.

Good afternoon. I would like to welcome everyone through a public services first quarter 2025 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 April 24, 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 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 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 first quarter results, which demonstrated our ability to price ahead of inflation and effectively manage costs. We produced strong earnings growth and expanded margins. while overcoming top-line headwinds from challenging winter weather and continued softness in cyclical volumes. During the quarter, we achieved revenue growth of 4%, generated adjusted EBITDA growth of 9%, expanded adjusted EBITDA margin by 140 basis points, delivered adjusted earnings per share of $1.58, and produced $727 million of adjusted free cash flow. These strong results were supported by our differentiated capabilities. 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 our offerings and quality of our service delivery. First quarter organic revenue growth was driven by solid pricing across the business. Average yield on total revenue was 4.5%, and average yield on related revenue was 5.4%. This level of pricing continued to exceed our cost inflation and helped drive 140 basis points of adjusted 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 residential business and continued softness in construction and certain manufacturing end markets. Challenging winter weather also impacted volume results during the quarter. Turning to our expanding digital capabilities, we continue to advance the implementation of digital tools to improve the experience for both customers and employees. Development and deployment of Empower, our fleet and equipment management system, is progressing. Empower is designed to increase maintenance technician productivity and enhance warranty recovery. Today, we have implemented Empower at nearly 40% of our facilities. Moving on to sustainability. We believe that our sustainability innovation investments in plastic circularity and decarbonization position us for growth and long-term value creation. Development of our polymer centers and Blue Polymers joint venture facilities continues to move forward. In March, we hosted the grand opening of our Indianapolis Polymer Center. Product quality testing is progressing well. We expect to begin ramping commercial production volume in June, with earnings contribution beginning in the second half of this year. This operation is co-located with a Blue Polymers production facility that is expected to be completed in the coming months. Construction on the Blue Polymers production facility in Buckeye, Arizona continues to progress. This facility will complement our Las Vegas Polymer Center. We expect the completion of this facility early next year. The renewable natural gas projects we're developing with our partners are advancing. One project came online during the first quarter and two projects came online in April. We still expect a total of seven RNG projects to commence operations in 2025. We continue to advance our commitment to fleet electrification. We had 80 electric collection vehicles in operation at the end of the first quarter. We expect to have more than 150 EVs in our fleet by the end of this year. We now 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. Our employee engagement score continues to improve, and our turnover rate continues to trend lower compared to the prior year. Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named to Barron's 100 Most Sustainable Companies list, Fortune's Most Innovative Companies list, and Ethisphere's world's most ethical companies list. With respect to capital allocation, we invested $826 million in strategic acquisitions during the first quarter. This includes the acquisition of Shamrock Environmental, a leader in industrial waste and wastewater treatment services. This acquisition further strengthens our capabilities to provide high demand services to our customers. Our acquisition pipeline remains supportive of continued activity in both the recycling and waste and environmental solutions businesses. We continue to see opportunity for more than a billion dollars of investment in value-creating acquisitions in 2025. As part of our balanced approach to capital allocation, we returned $226 million to shareholders in the quarter, including $45 million of share repurchases. I will now turn the call over to Brian, who will provide more details on the quarter. Thanks, John.

Core price on total revenue was 6.1%. Core price on related revenue was 7.3%, which included open market pricing of 9% and restricted pricing of 4.6%. The components of core price on related revenue included small container of 9.1%, large container of 7.9%, and residential of 6.5%. Average yield on total revenue was 4.5%, and average yield on related revenue was 5.4%. First quarter volume performance on total revenue decreased 1.2%, and volume on related revenue decreased 1.5%. Volume results on related revenue included a decrease in large container of 3.3%, primarily due to continued softness in construction-related activity in certain manufacturing end markets. and a 2.9% decrease in residential due to shedding underperforming contracts. We estimate that severe weather negatively impacted volume performance by $25 to $30 million during the quarter. The weather impact was isolated to January and February. Moving on to recycling, commodity prices were $155 per ton during the first quarter. This compared to $153 per ton in the prior year. Recycling processing and commodity sales increased revenue by 30 basis points during the quarter. This was primarily driven by increased volumes at the Las Vegas Polymer Center and reopening a recycling center on the West Coast. Current commodity prices are approximately $160 per ton. Total company adjusted EBITDA margin expanded 140 basis points to 31.6%. Margin performance during the quarter included margin expansion in the underlying business of 110 basis points, and a 40 basis point increase from one less workday. This was partially offset by a 10 basis point decrease from acquisitions. With respect to environmental solutions, first quarter revenue increased $25 million compared to the prior year, driven by both organic growth in the business and the contribution from recent acquisitions. Adjusted EBITDA margin in the environmental solutions business was 20.1%. This compares to 20.5% in the prior year. Margin performance in the environmental solutions business was impacted by project timing and severe winter weather. Adjusted free cash flow was $727 million, an increase of 36% compared to the prior year. This increase was driven by EBITDA growth in the business and the timing of working capital. This level of performance was in line with our expectations. Total debt was $13.4 billion, and total liquidity was $2.6 billion. Our leverage ratio at the end of the quarter was approximately 2.6 times. Yesterday, Moody's upgraded our credit rating to A3. The upgrade recognizes the stability of our revenue base, strong EBITDA margin profile, and robust free cash flow generation. With respect to taxes, our combined tax rate and impact from equity investments and renewable energy resulted in an equivalent tax impact of 26.5% 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 one on your touch-tone phone. In the interest of time, we ask that you limit yourself to one question and one follow-up question today. If your question has been answered and you would like to withdraw your request, you may do so by pressing star then 2. If you are using a speakerphone, please pick up your handset before pressing the keys. And your first question today will come from Sabahat Khan with RBC Capital Markets. Please go ahead.

Great. Thanks, and good afternoon. Maybe if we could just start by commenting on maybe what you're seeing out there, maybe more cyclical parts of the overall business. Any change in trends through the quarter in Q1 and anything that might have evolved into Q2? Thank you.

Sure. Yeah, like we've mentioned, you know, cyclical volumes have been down. That's really been true for the last three years. We're kind of in a, you know, negative demand environment, really led by construction and manufacturing. It's a little difficult to tell when you mix in the weather what's happening. Certainly January and February were softer on that front. and March has picked up and April is following that trend, so we feel good about that. I think on the construction side, we're expecting more flatness throughout the rest of the year, just given where the 10-year interest rate is. We've got to get mortgage rates down. I think manufacturing is more of a wait-and-see. Obviously, there's a lot of uncertainty right now with tariffs. To the extent that we get a trade policy clarified, I think there could certainly be some pent-up demand, but for now, it's more of a wait-and-see.

Great. And then maybe just continuing for that or on that as my follow-up, maybe just comment on your outlook on 2025, the guidance metrics, any changes in the puts and takes on the top line or the margin guidance provided at the last quarter. Thank you.

Yeah, maybe just as a matter of principle going forward, if we don't formally update our guidance, we are implicitly and explicitly reaffirming our guidance on that front.

So,

Again, it's always cyclical. Seasonality in the business is important because you've got to see how demand comes in the second and the third quarter, which are our strongest quarters. And we've seen a nice pickup on that front. So we will update you more in the following quarter based on what we see coming in here in April, May, and June.

Thanks very much.

And your next question today will come from Brian Bergmeier with Citi. Please go ahead.

Good afternoon. Thanks for taking the question. I was just wondering if you could maybe talk through some of the puts and takes in margin expansion for solid waste in the first quarter. You know, it's quite a bit better than our forecast. I'm just curious how it kind of compared to your expectations. Maybe what went better than you expected. You know, it seems like it's maybe all-time high margins. And I guess we normally don't think about one Q being the high point. So just any kind of detail you can add would be great.

Yeah, Brian, it was a good quarter, obviously, with the level of margin expansion. We've talked about this, that we're still reaching back to relatively higher pricing. And there is this spread between that and the cost inflation, which we're realizing more on a real-time basis. So most of that is just driven by price in excess of our cost inflation. That said, a little bit of this was arithmetic as well. So, again, when we saw some of the softness in things like construction activity, which is good work, but it tends to be a little bit below our corporate average, but we saw some pretty strong special waste volumes in the quarters. Well, that change in mix can actually have a positive impact on your overall margin performance. So, again, slightly ahead of our initial expectations, and we'll see where this goes through the balance of the year.

Got it. Got it. Thanks for that. And just maybe broadly just kind of curious on your, your appetite for further M&A, you know, I guess on one hand leverage is still pretty low, but then, you know, on the other hand, the macro outlook is quite uncertain. You know, you've already, uh, done quite a few deals year to date. So, um, yeah, just further views on that. Thank you. I'll turn it over.

Yeah. The prepared remarks, we've mentioned that our pipeline is strong and listen, we'll, uh, We're active in the space, both in recycling and waste and across environmental solutions. It's got to meet two screens. One, it's got to meet our strategic screen. Are we the natural owner of this? Is it a good fit for our business? And then our financial screen as well, where we're going to look for double digit, you know, unlevered cash on cash returns. And most of the things that fit those screens then have some level of permanence associated with them, either permits on infrastructure or or density and small and large container permanent routing, so things that stand the test of time. So we're not going to buy a completely cyclical business, for example. That's just not a good fit for us. And we're buying these things forever, right? We're not being opportunistic and saying we're going to buy it and sell it. We're going to keep it forever. So we'll take that through cycle mindset, and I think you'll see us be active the rest of the year.

And your next question today will come from Tyler Brown with Raymond James. Please go ahead.

Hey, good afternoon, guys.

Good afternoon.

Hey, John. So I think you've owned U.S. Ecology for a while, but I guess technically you haven't owned it through a cycle. But like you kind of mentioned, I guess you could argue the last couple of years have been industrial malaise, to say the least. But big picture, you know, what are the KPIs that you're kind of looking at to assess the end market health? for that business, and is that business still about three quarters recurring revenue and about one quarter project or event work?

Yeah, we'll start at the end. Broadly speaking, yes. Now, I think putting those two things in discrete categories is a little less clear. For example, you may have a contract with a large industrial player to do something like emergency response. Well, there's going to be some variability year to year in that contract, and those are technically events. But overall, across years, it's a pretty stable stream on that front. But that 75-25, for your purposes, I think is a fair marker on that front. But we look at the same thing other people do. We look at PMI from a manufacturing output standpoint. We look at industrial activity or permitting for more some type of event-based work on that front. And again, you look at all those things, and they've been suggest historic softness. Those markets are not disasters either. They've just been soft for the last two, three years.

And remember, Tyler, there's a lot of overlap between our recycling and waste business and the environmental solutions business, so we see it on both sides. Same customer, just a different waste stream.

Yeah, exactly. Okay, that's helpful. And then, John, can you just talk a little bit more about the Shamrock deal? Can you just talk about what it brings to the table, what exactly they do, maybe is it levered to PFAS, just how it fits in that environmental service mosaic?

Yeah, good question. So they have commercial water treatment facilities, and we've had some of those through the U.S. Ecology Deal, so we're in that business. The primary reason we got into it is we had a lot of, they were a big, or we are a big customer of theirs. We have a lot of industrial water on our back because when we go to serve our Most complex customers, they have a lot of different needs and different waste streams, water being one of those. And so we knew the assets incredibly well on that front. Great infrastructure base. Also fills out some dots on the map for us in terms of field services on that front. So it felt really good. And they do have PFAS technology. We actually were taking some leachate to them as well. So that wasn't the primary driver of the deal, but that certainly will be supportive over time as PFAS becomes a bigger and bigger part of our service offering.

Okay. Yeah, that's very interesting, very helpful. My last one here real quick, Brian. I know you guys are going to address the guidance in July, but I think you had said last call to expect a point, like one point from M&A for revenue. Is that kind of number still intact? I think I just want to make it clear that your guidance had already contemplated this heavy spend in Q1. Is that right?

Yeah, that's fair. It's right. It's still around a point. Okay. And that is correct that our guidance, because we had already closed a majority of the transactions by the time that we were providing the guidance, we had included the revenue from those closed transactions in the guidance itself.

Yep. Perfect. Very clear. Thank you, guys.

Great. And your next question today will come from Tony Kaplan with Morgan Stanley. Please go ahead.

Thanks so much. I wanted to ask on the margins side again, just really strong quarter there seemed driven by price-cost spread and you mentioned the mix. I guess conceptually that level of expansion has to moderate through the year in order to get to the guide. Maybe just help bridge what do you think gets a little bit worse? I know there's a little bit of arithmetic as you mentioned, but is there anything that sort of gets worse, or is it conservatism, just given maybe some uncertainty with regard to, you know, lighter volumes, et cetera?

Yeah, well, we think that, you know, the spread between the two, the price-cost spread, we had said all along that we still anticipate pricing ahead of our cost inflation, but that spread is going to somewhat modulate over time. As you also move throughout 24, you can see the cadence that we have there. You start getting into tougher comps. So, again, you saw a big sequential uptick from Q1 into Q2, then again up into Q3, and, you know, again, Q4 being 80 basis points higher than where we were in the first quarter. You know, this year we still expect that natural seasonal progression, but a little bit flatter, if you will, with respect to the absolute throughout the year.

And then just on the volume side, you mentioned the resi-shedding. Should that continue through the next few quarters or when does that lap? And was that related to prior M&A or, you know, I guess what are the big drivers there? Thanks.

Yeah, that may be last for a few quarters here. And part of that is, you know, intentional shedding from M&A deals. And again, we've talked about this a lot. When we do a deal, we know there's a certain part of that revenue we're not going to retain and we don't pay for it in the deals. And that's going to come out of the system typically 6, 12, 18 months later. We're always going to honor those contracts, but we know they're elected or new. And then some of that is us putting upward pressure on price. The municipal vertical in this market is the one that has returns that need to go up, right? Lots of capital, lots of investment in terms of people on the front line. And we're going to look for customers that are willing to pay for the value that we deliver over time. And... Many, many customers do. Those that don't will continue to take our investments in our human resources and financial resources and place them in other parts of the market.

Thank you.

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

Yes, hi. Good afternoon, everyone. I just wanted to ask on your pricing and retention rates, both really impressive numbers. Pricing was, I think, half a point ahead of most expectations. Can you just talk about what you're seeing in the business that's driving such attractive retention rates while pricing is at high levels as well? That really stood out in the results and the sustainability into the second quarter based on what you're seeing. Thanks.

Yeah, you know, Jerry, we continue to just see improvements in overall service delivery, which is leading to overall better NPS. And when you have that backdrop, And the customer can realize the value of the service you're providing much more receptive to the price increase and staying with you longer. And, you know, again, that's why we say all of these things that we do are so interconnected as far as making sure that we're meeting the promises that we make to our customers each day and we're seeing the benefits and you're seeing it manifest itself in higher levels of pricing and ultimately dropping to the bottom line.

Super. And then, you know, on the polymer centers, there's, discussions about potentially increasing plastics use by your customers from aluminum. Can you just talk about, I don't know if it's too early or not, to talk about where pricing could ultimately go for the polymer center output given what seems like rising adoption and the transition towards recycled plastic from aluminum. What's that opportunity look like for you folks? How much higher could pricing go when you folks do ramp up across the facilities?

Yeah, it's certainly a tailwind versus a headwind, and why we got into space is we understood that the market and demand was there for recycled PET, and the supply was constrained, and that still proves to be true. I think we could sell out both Las Vegas and Indianapolis multiple times over. That's the strength of the customer demand, and obviously we're pricing differently, appropriately for that, and we'll see where pricing goes as we move forward. Most of our contracts are of shorter duration on that front because we're understanding price discovery and where that market moves, and as the market moves up, we'll be able to capture that price.

And so, John, are you willing to share just the order of magnitude? How much higher could it be versus the initial contracts?

No, we'll wait and see. We'll see whether the market evolves and develops on that front, but I think the upward trend is on the line.

Thank you. And your next question today will come from Noah Kay with Oppenheimer & Co. Please go ahead.

Thanks for taking the questions. You know, I'm not sure if it was a record, but it certainly felt like your script to start off the call was maybe the tightest and most concise I can remember. So thanks for giving us more time to ask questions. I guess I wanted to start with ES, picking up on Tyler's line of questioning. It looked like it was about maybe 70 bps or so organic growth within the segment. Was that all price? What happened with volumes? I mean, obviously, whether it was call to house and impacts and project delays. And maybe you can kind of go from there to talk about what you expect, you know, kind of moving here into 2Q.

Yeah, Noah, what we saw there, we kind of mentioned a combination of a little bit of project mix, but also weather. And the reason we're mentioning that and the isolation of January and February is the results were very different in those two months than what we saw in March. March is more of what we would have expected, where, again, we saw good organic growth and margin expansion. And when you think about that business, it carries a little bit of a higher fixed cost base than what you tend to see in the recycling and waste business. And so when you have those days when you're down, it's a little bit tougher to overcome. So, again, we are, you know, again, optimistic about what we saw in March and based on some of the early, you know, results of what we're seeing in April, that it really was more of a weather issue, as well as we mentioned. There were some project items where, again, when you take a look at the mix, we had a little bit more on the field services issues. And again, when you bring some of that in, which is good work, but at a relatively lower margin than the post-collection side, you can see a little bit of the impact that you saw in margin.

Yep, yep, makes sense. So we kind of see it pick up back to good organic growth. The margin question is asked a couple of ways. I want to ask slightly different because you do report by line item on the cost side. You know, some real leverage there on the fuel line Also, some of the gains were in transfer and disposal, the maintenance. Now, I suppose some of that is kind of related to the workday. But, you know, maybe you can just sort of parse out fuel, you know, like for like what that was as a benefit to margins in the quarter.

Yeah, well, if you actually take a look within the quarter, the impact of net fuel, because remember, you've got fuel expense and then you've got our fuel recovery fee. It had no impact on margin year over year. So, again, the 140 basis points of margin, right, most of which being in the underlying business, that 110 basis points that I mentioned is just going to be, again, that price and excess of cost inflation. So it's coming from all of these line items. It's somewhat across the board once you actually normalize for the impact of net fuel. The workday itself was 40 basis points of the 140. Yep.

Yep. Okay. This is very clear. Thanks. Last one I just got to ask. You already commented the pipeline's strong. The $1 billion of M&A spend for the year, just given the 1Q activity, feels like a low bar. At this point, any reason to anticipate that it couldn't meaningfully exceed that? Sounds like the pipeline is strong and the activity levels in the sector are very good. So just your bias towards the $1 billion.

Yeah, I like our chances to beat it. All right. Well, stay tuned. Thanks so much.

And your next question today will come from Tammy Zakaria with JP Morgan. Please go ahead.

Hi. Good afternoon. Thanks for taking my question. My first question is on the environmental solutions EBITDA margin. I think it was down year over year. Are you able to isolate how much of that was due to, I think you mentioned weather and project timing, And so related to that, are you expecting that segment's EBITDA margin to eventually be up year over year in 2025?

Yes. To answer your last question first, yes. Listen, from a quarter to quarter, there's going to be some mix that moves that margin around and the nature of the work because some of that work, for example, field services, could be very, very low capital work. So that might have downward pressure on the margin, but that's still value creating work over time. And so I would, you know, encourage you to look at the trends across years, not quarters on environmental solutions. And I think what you've seen over, you know, three years of getting into this business and scale is really nice margin expansion. And I think we'll, you know, consistently deliver on that trend, albeit at a slower pace in the first three years. But we'll continue to expand margins. The quarter to quarter I don't think is going to be a great signal.

Got it. That's super helpful. And then one question on the guide, I appreciate you mentioned you're going to probably talk about it after the second quarter, but in your current guide, the volume growth of slattish at the midpoint, did that range of volume outcomes embed any recessionary scenario or any incremental slowdown in the broader economy for the year?

No, I didn't anticipate a hockey stick rebound either, but I anticipated kind of slow and steady recovery, manufacturing and construction. And as I mentioned, we certainly didn't see that January, February, March, and the start of April looked more promising on that front. And that's why we'll update you more after the next quarter.

Great. Thank you.

Your next question today will come from Kevin Chang with CIBC. Please go ahead.

Hi. Good afternoon. Maybe I can ask the ES margin question a little bit differently. So it sounds like you had some weather issues in Q1. Just wondering if some of the work that you're seeing pick up in March here, some of that project work is pushed out or seems like it is getting pushed out into Q2. If I look at the short history you've had this, it looks like sequential margins move up about 200 to 300 basis points, quarter over quarter from Q1 into the second quarter. Is that a good seasonal range? And then just given some of the movement of the timing of some of this revenue, do you think you kind of track towards the upper end of that, just as some of that work normalizes in April and hopefully May and June versus what you saw in January, February? Okay.

Yeah, hey, Kevin, just real quick. We've talked about taking a through-cycle mindset with the environmental solutions business and with what we're doing and the opportunities there. We said we saw margin expansion in the 75 to 100 basis points per year, right, in contrast to the recycling waste business in kind of the 30 to 50. So, again, there was a little bit of this weather impact early in the first quarter, but we still think there's that trajectory as we move forward. And so I think you can think about that for the year, as well as for the next several years, just because, again, it's a little bit more opportunity in that business, recycling waste being a little bit mature, and we still see that opportunity going forward.

That's helpful. And I know tariffs will have a significant impact on your business, but just wondering as you think of your your capital plan for this year, maybe even into 2026? Are you thinking about changing the cadence of how some of the capital comes through to maybe avoid the risk of tariffs or is the, you know, I guess the planned outlay as we get through the next three quarters here, I guess, relatively intact from what you would have thought, you know, four to six months ago for 2025 and maybe as you kind of early thoughts into 2026?

Yeah, in 2025, it'll have minimal impact, right? It won't be zero, but we're going to have plans to mitigate that and other initiatives. And then I think 26 is TBD, right? We are working really, really hard, including things like asking our suppliers to spell out or specify any tariff-related surcharges on that front, because this will be an environment where it will be easy to try to pass through price increases that end up sticking if we have a different trade policy in, you know, come 30 days or 60 days or three months. So we're working really hard on that front. I think it's too early to tell. There are some minor things we're doing about moving things around the supply chain to make the more things that landed here on that front to minimize the tariff impact. But we'll have better visibility in the next three months.

Perfect. Thank you very much.

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

Hey, good afternoon. Thanks for taking the questions. One quick one, back to volumes. Just noticed that the MSW and the volumes were down, I think, 4% in the quarter. I'm just wondering if there was anything, you know, specific or maybe lumpy, call it as a driver there, and what's your view on, you know, MSW volumes to come back going forward?

Yeah, look, that's where you're certainly going to see some weather, right? You know, impact on that front. So, again, that's what we think most of that was. you know, for the first quarter. I want to point out at the same time that the yield in that business was 6.8%. So total MSW as a line of business increased over 3% from an organic growth perspective. But we think that, you know, that volume comes back as we look forward into the future quarters.

Okay, great. Thank you for that. And then just wanted to follow up on... I guess I appreciate the commentary on the Polymer Center so far, but maybe on your more traditional recycling facilities. I was just wondering if you could talk about the upgrade opportunity there across your footprint. I think you had the one in Anaheim that just reopened this month. I was wondering if you could talk about how much further opportunity you see there to increase efficiency and take some labor benefits.

Thank you. Sure. Yeah, most of what we do there, there's just a continual movement across our 75-plus recycling centers. to upgrade capital, certainly to maintain it. But every time we do that, you put in more automation, and it takes out some labor on that front. So Anaheim was unique because it was a complete retool and rebuild, and there's advantages to that because you can get everything designed perfectly. But we are constantly going through the fleet and the system to take – first of all, we're trying to create a better product. That is all where the investment goes. Inevitably, that takes out some jobs along with it.

All right, thank you very much.

And your next question today will come from Stephanie Moore with Jefferies. Please go ahead.

Hi, good afternoon. Thank you. I was hoping you could talk a bit about your polymer centers, maybe if you could talk about how the ones that are open are performing, maybe hitting, you know, the certain kind of rates or efficiency rates or output that you've been targeting, you know, so any updates there. And then also, Just given the changes, administration, potential for deregulation, anything that could cause an impact as you see now in terms of some of your RNG plants coming live?

Sure. Yeah, so polymer centers have been exciting in the sense they've met our assumptions on inbound volume. We have most of it on our back, so that's easy. We do take some third-party volume and Uh, we could certainly take more if we needed to. Very exciting on the demand standpoint in terms of customers willing to buy them multiple facilities out if they could and hitting our price points. And then from an operating standpoint, absolutely in terms of can we produce the product? Now, Vegas has had some learnings in terms of getting the product quality completely designed, um, dialed in to the specific specs of customers. And listen, innovation's hard. It's not a straight line. So we've learned some things on that. And, uh, feel really excited about where that's going, and then captured all those learnings into Indianapolis. And so that startup has been much quicker and taken all advantage of the product quality learnings and other lessons on that front. And then administration change, listen, the predominant regulatory structure in this industry is state. And so that's where we spend the vast majority of our energy. There could be some puts and takes on the federal level around tax incentives, or other types of incentives. You know, RINs is a good example where we had landfill gas energy in the first Trump administration. We're having it in this administration, and RINs prices are hanging right in there. Could they be a little higher in a different administration? Probably on that front, but broadly speaking, those projects are still hitting their financial marks.

And, Stephanie, as you remember, when we announced the investments in both RNG and fleet electrification, that was prior to the Inflation Reduction Act. So those credits came out after we actually made that decision to invest. So they were going to be additive. They were going to take a good return and even make a better return. So we obviously want those credits to stay in place, but it would not have changed our decision or the return that we anticipated when we made those investments if they were to be repealed.

Got it. And actually, just to follow up there to John, I guess to your point, what would cause you to consider bringing in external or outside volumes into those polymer centers?

We do. The plan is to take more and more. It's just building up. These things have about a 12-month build to get to full run rate capacity on that front. And then we'll get to, after we have our four facilities completed, then I think we'll get to a decision point, do we need a fifth facility or not on that front.

Great. Appreciate the time.

And your next question today will come from Toby Sommer with Truist. Please go ahead.

Thank you. On the M&A opportunity in front of you, any shuffling of the motivations of the sellers? Anything changing in their motivations to sell at this time?

Not really, given what I talked about earlier, that these are high-quality assets. These are great operators. They've run the business for decades on that front, so they know what they have. That being said, broader uncertainty is probably helpful for us on the margin in terms of M&A, which is uncertainty makes people think about taking chips off the table and cashing out on decades of investment. But that's not a big driver for our pipelines.

Okay, thank you. And then just curious if you're with all that's going on in D.C. with Doge proposed budget changes, mostly cuts, and prospective regulatory changes, anything you're observing in evolving customer behaviors that you'd call out? Not that I can think of at this point. Okay, didn't think so, but I appreciate the response. Thank you.

And your next question today will come from Tony Bancroft with Gabelli Funds. Please go ahead.

Thanks for taking my call, gentlemen. Obviously, you've done a wonderful job. This environment you're in, this industry is very well set up. I guess, you know, the position you're in, the margin performance, you know, where do you go from here over the next few years? You know, maybe... Talk about something potential transformational. Obviously, you know, the U.S. ecology business has been a great, great win for you. And then maybe also what is it keeping you up at night right now? Obviously, with the uncertainty going on, looking forward, maybe you can just talk about some of those things.

Yeah, listen, we think we've got a lot of growth potential ahead of us. We're a relatively small share player, broadly speaking, right? So 15% recycling and waste, same thing in environmental solutions, and we're just getting started in sustainability and innovation is really our third engine for growth on that. So you'll see us grow there organically, you'll see us grow there through price, and you'll see us grow there through M&A. So we really have a lot of avenues and pathways to grow going forward. And we benefit from being a recession resilient business. Obviously we've talked about some of the challenges, but the challenges are very modest compared to the macro context of other businesses where they're facing, you know, 20, 30% drops in demand. So we feel fortunate to be in the space on that. Obviously the macro environment does impact our business, right? If a company or the country or the world goes into recession, we're going to feel some of that and we'll adjust accordingly. But, Again, we're running the business through the cycle for the long term on that, so you'll see us continue to invest and make value creating both organic and inorganic investments. Thanks so much. Great job, John and team. Appreciate it.

Thanks, Mike. And your next question today will come from Michael Fenninger with Bank of America. Please go ahead.

Yeah, thanks, guys, for getting me in. Brian, I appreciate you've mentioned the look back on the pricing side a few times on the call, but I also know you guys have kind of changed a lot of the mix of your contract. So just to be kind of clear, you know, you had a really strong start to Q1. When we even look at the open or restricted, are we thinking more of a gradual step down, Brian, or is there a bigger fall off that we should kind of be anticipating in just because you had such a good start to the year to try to kind of think about how that plays out through the year?

No, I would say it's more gradual. And again, to your point earlier on some of the work that we've done, going back to where we were in 2016 when we were predominantly linked to headline CPI and some of the moves that we made to alternative indices, whether it be water, sewer, trash, garbage, trash, or a fixed rate. As I said, we've moved about 63% of that portfolio. And if you take a look right now on a six-month look back, water, sewer, trash is running close to 5%, garbage, trash 4.5% relative to headline CPI in the high twos, 2.7%. That has certainly given us, again, a nice floor from which we're sitting able to price when you take a look at the 4.6% that we saw in restricted pricing. So We would expect that to be more gradual, I would say, as we move sequentially, just because the way that the pricing mechanism works itself. But it'll be in and around that range.

Great. And Brian, just last one. If you touched on this, I apologize. But the free cash flow conversion was really strong. I know there's always some moving pieces there. Anything we should be thinking about there when we look at that conversion rate, either from the cash from ops side, but also the free cash flow side? It was just a really strong start. You know, anything you want to flag there and how we should kind of think about that through the year?

Yeah, look, the biggest component of that growth was the EBITDA growth in the business. But as you also can see, there was a benefit from working capital. Just some timing things, quite honestly. We had one less payroll period in the quarter itself. So some things that normalized. throughout the year. So really good start to the year pleased with that outcome, but we would sit there and say it was, you know, on our marks. And that's why I mentioned in the prepared remarks that it was in line with our expectations. Perfect.

Thank you guys.

And your next question today will come from James Shum with TD Cowan. Please go ahead.

Hey guys. Nice quarter. Um, Just one for me. As I look at your recycling revenues, what portion of the mix is a fee-based structure versus the other portion, which would be commodity price sensitive? Is it like half and half? How should I think about that?

Well, when you take a look just, you know, overall, when you take a look at our business, we've got about, you know, 60% of our business, both on the collection as well as the recycling side, the recycling processing side, that's going to be a fee-for-service, right? And then you've got, obviously, the sale of the commodities as well. So when you take a look just the way that the math works, you're looking at about, you know, 50-50 mix between the two on just the recycling book of business because most of that's on the recycling processing side. which would be the combination of the fee for service as well as the sale of the recycled commodity.

Okay, great. Thank you very much. That's all I had.

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

Thank you, Nick. As we close out the call, I want to thank the entire public services team for their continued focus on safety, sustainability, and service. Through their efforts, we are positioned for continued success. Have a good evening and be safe.

The conference has now concluded. Thank you for attending today's conference. You may now disconnect.