Republic Services, Inc.

Good afternoon, and welcome to the Republic Services second quarter 2026 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 touch-tone phone. To withdraw your question, please press star, and then two. Please note, this event is being recorded. I would now like to turn the conference over to Jon Weeks, Vice President of Investor Relations. Good afternoon.

I would like to welcome everyone to Republic Services' second quarter 2026 conference call. Jon Vander Ark, our CEO, and Brian DelGhiaccio, our CFO, are on the call today to discuss our performance. I'd 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 may involve risk 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 August 6, 2026. 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. 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 Jon. Thanks, Jon.

Good afternoon, everyone, and thank you for joining us. Our strong second quarter results reflect the resilience of our business model and consistent operational execution. We delivered solid growth on both the top and bottom lines. At the same time, we continued investing in technology, automation, and customer-focused solutions that strengthen our competitive position, improve the customer experience, and enhance long-term profitability. During the quarter, we achieved revenue growth of 4.6%, and generated adjusted EBITDA growth of 4.5%. We maintained adjusted EBITDA margin at 32.1% and overcame headwinds associated with event-driven landfill volumes received in the prior year. We delivered adjusted earnings per share of $1.85 and produced $1.58 billion of adjusted free cash flow on a year-to-date basis. Our focus on delivering world-class essential services continues to support organic growth and enhance customer loyalty. With respect to customer zeal, our customer retention rate remains strong at more than 94%. We continue to see favorable net promoter scores due to the value of our offerings and 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 3.4% and average yield on related revenue was 4%. This level of pricing exceeded our cost inflation, which drove margin expansion in the underlying business. Organic volume was down 1.9% on related revenue or 1.6% on total revenue. This level of performance was expected with 1.3% of the decline in total revenue associated with landfill event volumes received in the prior year. Aside from the tough prior year comp, volume performance improved 50 basis points from the first quarter. Organic revenue in the environmental solutions business decreased total revenue by 20 basis points in the second quarter, which was in line with our expectations. Our environmental solutions sales pipeline continues to build with increased activity across multiple end markets. We continue to expect year-over-year revenue growth in this business in the second half of the year. Turning to digital, our investments in technology and AI are advancing. Over time, these capabilities are expected to drive additional growth and support continued operating leverage. We're actively deploying AI-based predictive technology that supports optimized pricing decisions across markets with varying customer and competitive dynamics. This approach is expected to reinforce price retention and reduce customer attrition over time. Enhancements to our RISE digital platform are progressing, with initial deployment focused on the large container business. The integration of AI and advanced routing algorithms is expected to improve safety outcomes, strengthen service execution, and increase route efficiency. Early pilots confirm the expected value from this initiative. Activation of digital tools in our call centers are enhancing the customer experience and unlocking value in our business by optimizing the 11 million inbound calls we receive each year.

Moving on to sustainability.

Last week, we released our latest sustainability report, highlighting the meaningful progress we are making toward our 2030 goals and the positive impact we are delivering for our customers and communities. Our suite of sustainability reports and materials is available on our website. We continue to believe that our investments in plastic circularity and decarbonization position us for profitable growth and long-term value creation. Production volume continues to increase across our polymer center network as we optimize processing operations. Construction at a third polymer center in Allentown, Pennsylvania is progressing. Facility commissioning is planned to begin early next year. We continue to advance renewable natural gas projects with our partners. We commenced operations at two RNG projects during the second quarter and expect two additional projects to begin operations by year end. We made further progress on our commitment to fleet electrification. We had more than 250 electric collection vehicles in operation at the end of the second quarter. We expect to exit this year with more than 300 EV collection trucks in our fleet and will continue to grow this differentiated service offering. As part of our approach to sustainability, we strive to be the employer where the best people want to work. We continue to see high employee engagement scores and our turnover rate is the lowest on record. With respect to capital allocation, we invested $860 million in strategic acquisitions in the first half of the year. Our acquisition pipeline remains supportive of continued activity in both the recycling and waste and environmental solutions businesses. We expect to invest more than $1.2 billion in value-creating acquisitions in 2026. During the first half of the year, we returned more than $1 billion to shareholders through dividends and the repurchase of approximately 1% of our outstanding shares. Additionally, we recently announced an increase to the dividend for the 23rd consecutive year. Building on the strong results delivered through the first half of the year and continued momentum we see across the business, We raised our full-year 2026 guidance as follows. Revenue is expected to be in the range of $17.2 billion to $17.3 billion. Adjusted EBITDA is expected to be in a range of $5.525 billion to $5.55 billion. Adjusted earnings per share is expected to be in the range of $7.23 to $7.28 cents. An adjusted free cash flow is expected to be in a range of $2.54 billion to $2.575 billion. Our full-year guidance incorporates higher-than-expected fuel recovery fee revenue through July, increased recycling commodity revenue based on current prices, and the contribution of acquisitions closed to date. I will now turn the call over to Brian, who will provide details on the quarter. Thanks, Jon.

Core price on total revenue was 5.3%. Core price on related revenue was 6.4%, which included open market pricing of 7.8% and restricted pricing of 4.1%. The components of core price on related revenue included small container of 8.1%, large container of 6.9%, and residential of 6.3%. Average yield on total revenue was 3.4%, and average yield on related revenue was 4%. Additionally, Fuel recovery fees increased total revenue by 1.8%, which offset higher fuel expense and related surcharges. Second quarter volume decreased total revenue by 1.6% and related revenue by 1.9%. Most of the decline was due to the event-driven landfill volumes in the prior year. Volume performance on related revenue also included a 1.1% increase in landfill MSW. This was more than offset by large container volumes, which declined 2.2%, primarily due to continued softness and construction-related activity, residential volume, which declined 4.3% due to known contract losses, and landfill special waste, which declined 30 basis points. It's important to note that landfill special waste increased 10.7%, excluding the tough comp from wildfire volumes received in the prior year. Moving on to recycling, commodity prices were $136 per ton during the second quarter. This compared to $149 per ton in the prior year. Recycling processing and commodity sales increased by $8 million during the quarter. Increased volumes at our polymer centers offset lower recycled commodity prices. Current commodity prices are approximately $140 per ton. This is the basis used for the second half of the year in our updated guidance. This would imply a full year average commodity price of approximately $135 per ton. Total company adjusted EBITDA margin was 32.1%. Margin performance during the quarter included margin expansion in the underlying business of 90 basis points, which was offset by a 50 basis point decrease from landfill event volumes, A 30 basis point decrease from net fuel and a 10 basis point decrease from recycled commodity prices. With respect to environmental solutions, second quarter revenue increased $53 million sequentially driven by higher event volumes and additional seasonal activity across the business. Adjusted EBITDA margin in the environmental solutions business was 20.2%, a sequential improvement of 100 basis points. Year-to-date adjusted free cash flow was $1.58 billion. Our performance was driven primarily by EBITDA growth in the business. Total debt was $14.2 billion and total liquidity was $2.8 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 23.8% during the quarter. We now expect an equivalent tax impact of approximately 24.5% for the year. 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 1 on your touchtone 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 two. If you are using a speakerphone, please pick up your handset before pressing the keys. Your first question today comes from Tyler Brown with Raymond James. Please go ahead.

Hey, good afternoon, guys.

Hey, Brian. Hey, it looks like the EBITDA midpoint was up, call it $40 million, I think, at the midpoint. Just curious if you could break that increase down between M&A and the core, and then is flat to slightly down margins in Q3 still a good placeholder? Yes, when you look at the increase of the $40 million or so in EBITDA, majority of that is just due to increasing commodity prices. So if you look at both the revenue and the related EBITDA, that's about $25 million, and then the rest is due to the contribution from incremental acquisitions. So if you look at the revenue that's increasing, you've also got the increase from fuel recovery fees, but that is mostly offset by fuel costs as well as related surcharges.

Okay, and then on the Q3 margins?

Yeah, so Q3, think of it relatively flattish with the prior year with margin expansion in the fourth quarter. Okay, perfect. And then this is a big picture question. So first, congrats to the team for getting the sustainability report. I know those are big undertakings. But, Jon, one of the things that caught my eye in there was your total TRIR safety numbers. I think those are at decade low. I know that zero is the goal, but can you kind of talk about what you think the top one or two items that are really driving that success are?

Yeah, thank you for noticing. That's our number one priority and value. And I think it's a mix of things. We've always had a very good safety culture and very good at training, prioritizing on the front line. I think the big increases have really been technology. We put a lot of equipment into vehicles. And it's not just the camera, the technology, it's also the coaching and training around it. That system has really been encouraging. And I'd say our next frontier is really to use AI in that capacity and think about analytics and understand what types of environments create unsafe opportunities and how do you then create management actions and systems and tools and processes around it. So I think we've got more room to run on that. We don't take it for granted. We wake up every day and try to keep all 42,000 colleagues safe, but we're making great progress. Okay, all right, thank you guys.

The next question will come from Adam Bubas with Goldman Sachs. Please go ahead.

Hi, good afternoon. I'm wondering if you could just break the performance out across the major lines in environmental solutions, because I know there's a lot of moving pieces there. And then nice to see that sequential seasonal step up. Just how are you thinking about potential magnitude of growth in the balance of the year.

Yeah, so if you take a look at the performance in environmental solutions, we saw an increase in emergency response jobs year over year, which was partially offset by a reduction in landfill times. And again, we are just slightly down on a year over year basis, but we saw sequential improvement each of the month throughout the second quarter. and we're optimistic and again we project that we're going to grow from a top line perspective as well as related margin expansion in the second half of the year.

And then on the volume side I think this year's residential volume trends reflected the loss of a few larger residential contracts that you called out last quarter. How are you thinking about volume trends beyond 2026 as you laugh those contracts. Is low to mid-single-digit volume declines the right framework over the medium term, or is there a path towards stabilization in residential?

Yeah, maybe think, start with market. We're coming, you know, out of a period of nearly four years of negative growth in recycling and waste. That's really been driven by industrial and construction, or lack thereof in terms of activity. I think we're now in a market that's sequentially improving. I would think of it more flat with encouraging signs month over month. And in that context, we're obviously losing a little bit of share in residential, and we're gaining some share in industrial and small container, which will take all day long if we can make that mix change. You'll see residential, the rate of decline certainly start to narrow as we get into 27%. Listen, we don't aspire to lose or shrink in that category, but we're always going to take price over volume, and we're going to continue to get a fair return on the hard work that our people do and the assets we invest. If we need to continue to slightly prune in order to find more value there, we're going to do it.

The next question will come from Sabahat Khan with RBC Capital Markets. Please go ahead.

Great, thanks, and good afternoon. Maybe hoping to get some additional color on the commentary on the increased use of AI. I guess based on your learning so far, are you being pointed into direction of, look, these are customers that you previously weren't pushing on price where you can, or are they kind of same customers, higher magnitudes? Maybe what are the learnings, and how much more runway do you think there is on that front?

Thanks.

Yeah, I think AI is going to transform us broadly across the business, and we're experimenting with it almost everywhere. We talked about the three major areas that we're going deep, and there's a few other ones that we'll add to the list over time in terms of investing at scale across the enterprise. On pricing specifically, it's understanding the specific price that you want to give to a customer that both maximizes value in the short term, but also the long term. So you could price more, but then if you're going to drive defection, that's not a very good long-term trade-off. And so this now takes in dozens of variables about the customer, and each customer has their own fingerprint in terms of the service history and background and size and scale and location. And so we're able to put all those variables in to really get a precise, optimized price that maximizes long-term value. We've always done analytics, but this is totally, I would say, an order of magnitude, different level of sophistication. Great. And then just the second one in M&A, it sounds like about a billion and change for this year.

Is this a pipeline that's building up where you think it could kind of seep into next year and next year could also be an upside year? Or are most of these closing this year or these transactions closing this year, maybe not as much momentum into next year?

Yeah, the pipeline is certainly strong. And how many of those things closed? in the back half of the year versus pushing to the first part of next year. We'll expect to have another strong year next year. We'll probably give a relatively conservative guide because I never want the team to chase an M&A number because you can easily hit that and not get the returns that we expect. But everything we see going forward, that pipeline looks strong and continues to build both in the short and the medium term.

Thank you.

The next question will come from Brian Bergmeier with Citi. Please go ahead.

Hi, good afternoon. Thanks for taking the question. Maybe just following up on Tyler's question on the revision to 2026 equity guidance, are there any changes to your underlying assumptions for the core solid waste business, specifically just thinking about volume or cost inflation for some key buckets?

I would say, look, the components of organic growth, the price, the volume, and then obviously the related inflationary costs are all coming relatively in line with our initial expectations. So most of the update to the guide, again, was due to, as I mentioned earlier, the increase in fuel recovery fees, due to just increased diesel costs, the incremental acquisitions. So we came into the year thinking we had about 70 basis points of contribution. to top line growth due to both rollover as well as the in-year deals. Now that's 100, as well as then the increase in commodity prices moving from $115 per ton to 135. Got it.

Got it. Really appreciate that detail. And then maybe just on the kind of margin outlook or the margin cadence that you described for the second half of the year, waste and recycling margins were up. We still have the continuation of the landfill event volumes in the prior year, so that's about a 40 basis point headwind.

We also, just because of the timing of the acquisitions themselves, when we look at the integration costs that we expect to incur, most of that's going to happen in the third and fourth quarter, which is a headwind. But again, when you take a look at the overall performance, we expect the underlying business to continue to remain strong and the margin expansion in the underlying business, such that when you take a look at what we expect for the full year, we're looking at 60 to 70 basis points of margin expansion in the underlying business.

The next question will come from Faiza Alwi with Deutsche Bank. Please go ahead.

Yes, hi, thank you. I wanted to follow up on volumes because some of your peers in the waste base have talked about, you know, they're changing views around volumes and kind of talked about maybe fuel surcharges impacting some volumes. So it sounds like you're not changing your view on that and not seeing anything different. I'm just curious if you have a perspective on why that might be and, you know, what your interpretation is of what's going on around, you know, from a macro perspective, a perspective on volumes.

Yeah, I think the, like I talked about, that this has been a negative market in recycling waste for almost four years, driven by construction and industrial activity. What's changing is I'd say commercial construction, we're starting to see You know, slight rebound. I'd still say it's depressed overall, but slight rebound. Residential construction is still very challenged. And on the industrial activity, that's where you're starting to see more momentum. And you can see that with the PMI prints that are over 50 for the last five months and starting to accelerate. And we just see that with service changes with our large container customers. So that's where we're seeing some volume lift. So special waste, take out the comp from last year and the wildfire, and that looks good. It's a market that is slightly improving. I think there's still plenty of caution from a geopolitical environment with oil prices and other things. So we have a positive outlook, but we're still waiting and seeing for this economy, I would say, fully fire.

Okay, makes sense. And then just to clarify on the guidance change, Is the incremental M&A that's in the guide, is that for the 1.2 billion or I think it's 860 that's closed so far? So could you just confirm that it's only what's closed so far? And then secondly, I think you said that the fuel surcharge that was included in the guide is only through July. And I'm assuming that these, like that represents some upside to Revenues and possibly EBITDA because I think diesel prices are still ahead of last year. So just those two quick clarifying things.

Yeah, you are correct. So on the fuel recovery fees, we took what we knew through the month of July, right? So fuel prices have been highly volatile. So we didn't want to assume that they would remain elevated than to just have them come down. And now you're talking about a revenue change because of that assumption. So we took... August through the end of the year, back to our original assumption, which was just below $4 a gallon from a cost per gallon perspective on diesel. And I'm sorry, on your first question?

Yeah, that was just the confirmation of the M&A, because I think you're saying you're expecting $1.2 billion of M&A. So just want to make sure that that entire EBITDA impact of that is not in the guide. It's just what's closed so far.

Yeah, so through today, we've closed just shy of a billion two of investment in acquisitions, all of which is included in the guidance for the full year.

Perfect, perfect. Thank you so much.

The next question will come from Tony Kaplan with Morgan Stanley. Please go ahead.

Thanks so much. I wanted to ask on pricing, before price stepped down a little bit this quarter, just Thank you so much for having me. Do you sort of have even more stickiness and things like that because everyone's sort of charging the optimal price for the business that's maybe geographically advantaged, etc.?

Yeah, if you think about pricing over time, fuel skyrocketed and that becomes a meaningful portion of our customer's bills. This is where AI helps us to think about the optimization of that and making sure we're playing a long-term game. So probably went out with balancing for a couple months a little less gross price than we would have in another environment. I don't see the pricing environment changing broadly, which is we're pricing ahead of our cost structure. I think even in a challenge industry period, I think industry conduct around structure around price has maintained pretty good discipline. for My Seat in the Park. And now you see units starting to come back. That will be very positive. And then with respect to AI, I think this is true of almost any AI investment. It's almost always a scale investment. And so when you do routing, whether you roll that across 100 routes, 1,000 routes, or 10,000 routes, you've got to do the same underlying work. Same thing with customers. Whether you do that across 2,000 customers or 2 million customers, you've got to do the same underlying work. So I think it will favor scale players who are able to invest in these tools.

And on the core price, we would expect it to stay near what we posted here in the second quarter. So in a range, call it 6.2 to 6.4 in that zip code.

Yep. Terrific. Okay, thank you.

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

Hi, guys. This is Melissa. I'm for Trevor Romeo. Thanks so much for taking the questions. Maybe just turning to environmental solutions. Can you guys speak to what the PFAS business is running at on a revenue, dollar, and year-over-year growth basis, and maybe just what kind of opportunities you're seeing on the disposal, wastewater treatment, and remediation or service side of that?

Yeah, strong.

I think, again, we did over $100 million last year, and we're going to exceed that number this year. We're well ahead of that pace, and we're seeing it across the full suite of our assets. So it's taking... certainly utilizing our hazardous waste landfills and our water treatment capabilities, but it's also utilizing our solid waste landfills. So some of that special waste growth you see, our jobs initiated through our environmental solutions team that are actually flowing through the recycling and waste P&L, and that's one of our advantages given that we have a broad set of offerings for clients that, you know, different levels of PFAS require different solutions, and for low levels, a subtitle D landfill is a, you know, is the most cost-effective solution. And so we're taking advantage of that. And we think that pipeline is building. And so we will expect to comfortably beat our number again next year.

Great. And then maybe just a quick follow-up on that end as well. On the reshoring trend, realize this could be a multi-year opportunity, but are you seeing any tangible near-term lift with clients that are building out their presence in the U.S.?

Yeah, we're starting to see that with some construction projects. I think it's mostly been, you know, first it was talk and policy and now then it was planning and I think we're now starting to see shovels in the ground and that will be good for us on both sides of the business, certainly in that construction activity, whether it's remediating the dirt to prepare the construction site or the construction process itself and then the ongoing service of those facilities across a range of end markets in the manufacturing space will be good and we'll That will be, I think, a tailwind for this business for five plus years.

Thank you so much.

The next question will come from Konar Gupta with Scotia Capital. Please go ahead.

Thanks. Just to start on the pricing discussion, the spread between open market pricing and restricted pricing this quarter was perhaps One of the smallest we have seen, I think, in the last many years. What are you seeing in terms of competitive dynamics? And is there anything specific to, like, macro or fuel that's influencing that?

Yeah, some of this is just the – that's a natural effect of a declining inflationary environment, which we've seen over the last year, obviously, spiking because of oil in the last couple of months. But there's typically a 12-month lag between when inflation, a CPI would print, and then when you see that in a restricted business. and then the open market, we think about pricing relative to that context overall. So that's why we talked about gross prices coming down, but our cost structure is also coming down. So we're maintaining that spread over time. And then in terms of price negativity in markets, there are a handful of markets where you see low cost players come in and try to build up a book of revenue almost exclusively to sell that over time. and that's distracting in a handful of markets but that's really been true for the last 30 years in this business and we do our good job of fiercely defending and making good price volume decisions there over time. Those players who then don't end up transacting pretty quickly figure out that their set of assumptions around cost to serve is higher than they expected and those decisions oftentimes are not very profitable in the end.

Okay, no understood. Thanks and if we can follow up on on the R&G business. BP is looking to sell the Arkea Energy business they have. You guys have some good relationships with them, I guess. Do you anticipate any changes as part of the sale process with the future owners? Obviously, you don't know who that could be, but what are some of the kind of guardrails in your contracts with them which can protect you in terms of any changes potentially that may happen?

Yeah, we feel very comfortable. That business is very well contracted, so we will have a seat in the table in that process, and we'll be assured that our contract rights are going to live going forward with whoever they transact that business to.

Okay, thank you. The next question will come from Jerry Revich with Wells Fargo. Please go ahead.

Yes, good afternoon. I'm wondering if we would just talk about environmental services. So nice to see the sequential margin improvement. Can you just update us on how you're thinking about the margin opportunity on a multi-year basis? At one point, I think we were talking about margins potentially in the high 20s as being feasible. Is that off the table at this point, or what are the significant opportunities and levers that you can pull to drive margin upside here over time, and what's a reasonable expectation?

Yeah, that long-term aspiration certainly hasn't changed. You know, we've got to operate in a broader context and market, so we're going to make the right price-buying trade-offs. And we talked about probably didn't get it perfect as demand dropped at the end of 24 and into 25. We probably were pursuing price more aggressively than we would have in retrospect. I think as we go forward and build from here, you'll see us, you know, I think ahead of our enterprise 30 to 50 basis points of March expansion should talk about a year. I think you'll see environmental solutions expand at a faster pace than that. Exactly how fast, I think it'll be a little bit dictated by both competitive environment, but also the demand environment, right? And if industrial activity really starts to take another step up here, I think that will be very good for margin performance as well as growth.

And Jon, in terms of just to shift the conversation to the AI opportunities, you had size that has $100 million three months ago. Can you just talk about has that estimate changed at all? And how are you thinking about the cadence, you know, the 30 to 50 base point of margin expansion? Could we be ahead of that in 2027 because of potential AI benefits?

Yeah, I don't think we'll be ahead of it in 2027. Over the long term, we certainly could. I think what we've learned both in pricing and in routing have confirmed our assumptions that that $100 million is on the table. The exact pace of rollout, I think we'll certainly be trending toward that number in the end of 2027. The exact pace which we get it, we're going to make sure we get it and we stick it, right? Not make it an event, but make it an ongoing capability. And the tool part I don't worry about, it's, you know, for routing, for example, you've got to get drivers to drive a different route that's optimized. And that change is easier said than done. You don't send out a memo and make that happen. You've got to work site by site. And that's a leadership opportunity that I'm confident we'll capture, but that will take us a little bit of time to make sure it's durable.

Thanks. The next question will come from Seth Weber with the BNP Paribas. Please go ahead.

Hey, guys. Good afternoon. Sorry, another look back on the ES business. The margin, kind of the flattest revenue and lower margin, I just want to confirm that that's really just a mixed issue and not, you know, there's nothing weird going on with pricing. You feel like pricing in ES has kind of stabilized or settled out in a good spot here. Is that fair, accurate?

Yeah, very much. And this is kind of how we forecasted and talked about it, that we would see this leveling out in the second quarter and that would be a base to build from. and this pipeline, some things happen right away like ER, but most of these things, you get a longer sales pipeline so we can see into the fact that we'll have momentum into the second half just like we saw in the back half of last year, what the results will be in the first half of this year.

Got it. Okay. And then just on free cash flow, if my math is right, it looks like free cash conversion goes a lot lower in the second half.

Is that just a timing issue? Relatives, some stuff got pulled into the first half or something, or perhaps my math is wrong, but it looks like free cash conversion goes lower.

Yeah, it's the normal seasonality of the business. And if you take a look, all years are somewhat like this. We pay proportionately less cash taxes in the first half of the year, and our capex tends to be more back-end loaded. So this is consistent with what you've seen in prior periods, and it's right on top of our plans. Thanks, guys. Appreciate it.

The next question will come from Will Grippen with Barclays. Please go ahead.

Thanks for the time here. Wanted to just come back to your fuel recovery fee assumptions in the second half. Sounds like you're assuming, I think you said $4 diesel and kind of a neutral EBITDA impact. I would have thought, just based on your disclosed sensitivity and Assuming diesel's either stable from here or perhaps coming down a bit, that we should see actually a net margin uplift in the second half. Is that correct? And are you sort of just being conservative here or what am I missing in that?

Yeah, so that sensitivity was the fuel recovery fees and it was the direct impact of diesel fuel. We've talked about this, talked about it in the last quarter. There are other costs that we incur, transportation surcharges and other indirect expense charges that we get, as well as from an overall cash perspective, increased CapEx when you've got the increased oil prices for landfill liner, for example. So we try and recover from a comprehensive or a holistic perspective the cash impact of changes in diesel prices. We've expanded, and you'll see them when you see the 10Q expanded, to include some of those other cost increases so that you get to a relatively neutral EBITDA impact from changes in diesel prices.

Okay.

But there wouldn't be any sort of margin catch-up or anything because you have the lagged effect in the first half. So if diesel comes down...

Yes, so you do see that. There is a lag, right? So again, we actually wound up having a net negative from a net fuel perspective in the first quarter as you saw diesel prices rise in the month of March, and we didn't start recovering those costs until April. So if you see fuel costs come down precipitously in the second half of the year, we could get that back. But it's really just a timing issue. It's not something that's sustained.

Okay. Last one for me, but within the ES business, I would be curious to hear what you've been seeing in terms of recent emergency response trends. We've been hearing that this year has maybe been historically low, sort of below baseline levels for emergency response activity. Is that consistent with what you've been seeing?

It was pretty slow for us last year, actually, and I'd say it's slightly on the pickup this year, but versus historic norm, yes. If you think about Many years, there's kind of large, big jobs you can point to across a number of different providers, and we're just not seeing that level of kind of transformational type or big jobs that you would call out.

I appreciate the call. Thanks, everybody.

The next question will come from David Manthe with Barrett. Please go ahead.

Thank you.

Good afternoon. What was the approximate annual revenue run rate of acquisitions that you completed in the first quarter and then the same for the second quarter?

So in total, if you just take a look at what we guided to through the acquisitions completed in the first quarter was that 70 basis points contribution. Again, that was a combination of rollover as well as in-year. If you take a look at what we just added in the second quarter, it was basically an additional 30 basis points of contribution to the top line.

Okay, but does that take you to the $1 billion or does that take you higher than the $1 billion?

That takes you to about the $1 billion. One of the deals that we include that we closed on here most recently was something where we already had a 50% ownership interest in. So as we complete that deal, when you see that flow through, We were already consolidating that entity, so there's no incremental revenue, but there will be incremental EBITDA.

Okay, I see.

And then second, you've kind of framed the second and third quarter EBITDA margin as flat with all of the expansion coming in the fourth quarter.

It looks like it should be 50 or 70 basis points, depending on the range of the guidance. Could you tell us just how much of that is already locked in because of the normalized comps and the actions you've already taken and maybe some of the lagging CPI price benefits versus what's dependent on future actions and future demand?

Well, I think you have to take into consideration what's already happened through the first half of the year. So we had 50 basis points of margin expansion in the first quarter, relatively flat. in the second. So year to date, you're a plus, call it 25. If you're flat in the third quarter, then that kind of squeezes out what you need in the fourth quarter to get to the overall year, which we're saying is in the 10 basis point zip code. So not the entire year's worth of margin expansion isn't coming in the fourth quarter. Some of it already came in the first. Got it.

Okay. Thank you. The next question will come from Shlomo Rosenbaum with Stiefel. Please go ahead.

Hi, thank you very much for taking my questions. I just wanted to probe a little bit more about the pipeline of activity that you're seeing in the ES and the nature of it. You know, you said you have pretty good visibility. Can you just give us a little layer deeper into what's building, where you're winning, how much is kind of you're winning versus the overall market just getting a little bit better? And then I have one follow-up.

Yeah, I think it's across the end markets. Obviously, anything manufacturing related is probably about half of that business probably to find oil and gas and semiconductors and a range of different industries there. And listen, our strongest value proposition is going to be an integrated offering where we can bring to bear field services, hazardous waste, landfills, solid waste landfills, water remediation, even hazardous liquids. We've got great partnerships on incineration. So the more complex and broad the job is, the more competitive we're going to be versus a single oil spill is going to be a pretty competitive environment where we're going to be less competitive in that space. So I'd say the pipeline is robust. It's not hanging on a single job or a single opportunity. It's broad-based geographically and across markets.

Okay, great. And then could you talk, did anything change? in terms of your expectations for incremental revenue and EBITDA from both Palmer Centers and RNG for the year?

No, it's consistent with what we originally guided to. So this year, when you take a look at our entire sustainability portfolio, we're expecting about $40 million of incremental revenue with about $20 million of incremental EBITDA.

Okay, thank you. The next question will come from Kevin Chang with CIBC. Please go ahead.

Hi. Thanks for taking my question. Just maybe two clarification questions. Just back to ES. If I look at the sequential improvement in revenue in EBITDA, we saw about a 28% incremental margin lift. Is that kind of the right way to think about the back half incremental margins as you return to growth on the top line there?

Yeah, I mean, I think when you think on the increment, you're in the zip code there of what we would expect to see on those incremental revenues, in part, when you think about the mix. So as we get some more of the waste solutions, which is that post-collection-centric type volumes, they tend to carry a relatively higher margin, but also just eating into some of the capacity we have on the field and industrial services side.

Okay, that's helpful. And just, you mentioned... One of the acquisitions you made was a 50% ownership. Does that impact the equity investment line at all on the income statement? I just missed how that was being accounted for before.

No, we were consolidating it, so we had the revenue, and then we were basically paying out the 50% interest through subcontract costs. Basically, we'll eliminate that subcontract cost line item.

Okay, perfect. Thank you for the clarification. Thank you.

The next question will come from James Shum with TD Cowan. Please go ahead.

Hey, thanks. Good afternoon. I actually, on that subcontractor cost, I was actually looking at that line item and your components of OPEX, and it looked like that jumped more than usual. Usually there's a seasonal jump in the second quarter, but this looked like it was more than usual, and I was wondering if that was due to fuel costs Indirect fuel expenses and if there's an opportunity that that could come down in the second half or whenever fuel prices decline.

Yes, a lot of that would be the increase in fuel. And they have fuel recovery mechanisms that we negotiate with them just like we have in our contracts. And to Brian's comment earlier, We've got a pretty good overall hedge. There's a little bit of lag and drag as fuel moves up and down. But when you think about direct fuel costs and then those indirect fuel costs, we feel pretty good about being covered across different fuel prices.

Okay. And then I think you said you have 250 EV trucks. You've been running these for several quarters now. Just curious to hear, how has the performance been What are the pros and cons? We know that the capacity of those trucks are somewhat limited with all the batteries, but maybe at a time like now when fuel prices are high, maybe that's helping you out. Just sort of broad-based over the past couple of years, how happy are you with those? Any color there would be appreciated.

The performance is exceeding our expectations.

So obviously some learning curve when you get the first ones off the line of the factory, but that's true of any new vehicle. That doesn't have anything to do with the powertrain. The battery performance and uptime and things have been really, again, exceeding our expectations. And in terms of capacity, that's true largely when you retrofit a diesel truck. That's where you get too much weight with a battery and you start to take down payload and really limit the routes that that truck can cover. When you have a truck that design studs up as an EV, that allows you to take out enough weight out of the vehicle where you're not sacrificing a lot of payload.

Okay. Great. Thanks. The next question will come from Toby Sommer with Truist. Please go ahead.

Hi. Hi. It's Henry. I'm for Toby here. Thanks for taking my questions. Let me just start really quick. You laid out some of the pieces, but maybe I missed. But anything on the pricing side, you know, incremental improvement expectations there that drove part of the guidance increase?

No. When you look at the components of the increase in revenue, again, the $150 million at the midpoint, approximately 1%, exclusively driven by increased fuel recovery fees due to the change in diesel prices. The incremental acquisitions for deals closed to date and then the increase in commodity prices. The combination of both price and volume are in line with our initial expectations. Understood.

Thank you. And then thinking about CapEx for next year, how are you thinking about that relative to this year? Maybe some of the sustainability investments come in and maybe more specifically on those for the longer term. Can you kind of lay out how you're thinking about that on a multi-year basis?

I would say relatively consistent as a percent of revenue of what you're seeing in 2026.

The next question will come from Stephanie Moore with Jefferies. Please go ahead.

Hi, good afternoon. Actually, that's a good segue into what I wanted to talk about. Maybe taking a Again, a longer term view. I mean, I think over the last couple of years, you've built a pretty nice sustainability portfolio across R&G and plastics. And so two parts. Wanted to get an update on just the returns of those investments, how they're trending as they stand today. But also, I think more importantly, are there any other areas within sustainability or even outside sustainability that might be outside of your core business now that you're kind of exploring investing in again over the years?

We've been really happy with the demand side of the polymer centers in that we could sell each of those out three or four times over, and we're largely exceeding our pricing assumptions. We have the supply, and so that was a strategic advantage and one of the reasons we got into it. From a learning standpoint, we were probably too optimistic on the timing in terms of how we could get to full capacity. Now, the good side is that when we hit full capacity, we're above our nameplate capacity. So we had originally talked about four polymer centers. We think we probably get there with three in the short to medium term just because we're getting more capacity out of those when they're running at full steam. So we're excited about that over time. In terms of where we go next, listen, anything that goes into a landfill, we're going to challenge. Landfill ultimately is a cost, and we would rather take volume out of that and get a second life and a second revenue stream for that. And that allows us to extend the life of landfills, which in many urban areas, we're running out of airspace, and the industry is. So Parts of New England and coastal California and other places, if you can get an extra 5, 6, 7, 10 years in those landfills, that's enormously valuable while getting a second revenue stream. So organic material, flexible packaging, those are all things that we're taking a look at. And we'll make sure that both it's going to be environmentally sustainable but economically sustainable. It's got to have a return for us to invest.

Awesome. Thanks, guys.

Noah Kay, Oppenheimer

Obviously, we're going to have still an overhang on volumes from a comp perspective here in 3Q, but just trying to get a little bit more granular if possible.

I would say only on the margin. What you see is if you're going to grow, you're going to take on new units that are below your portfolio average. And so nominally, that would put lower pressure on yield. So we'll probably end up more to the lower side of our yield guidance because we're doing slightly better on volume. Same thing with service increases, right? You're going to see service increases come in at a slightly lower rate, which can put downward pressure on yield, but those are all additional activities which are good for the business overall, and that's why you see the margin being strong, because we've still got a good overall price-cost spread.

Hmm. Helpful. Thank you. And then there's been a lot of questions asked about ES today, and I kind of want to pull back for a minute and Just ask you about how the business has performed over a longer period of time. We're about four years into integrating U.S. ecology. I'm just curious where you'd assess the businesses at now versus the deal model. If you think about controllable levels of improvement beyond just the macro, what remains as clear opportunity?

Yeah, we're more excited about that business today than we were when we purchased U.S. Ecology four years ago, and we've substantially exceeded the pro forma and driven really good returns for our shareholders there. I think we've probably underestimated the challenge of integration of some legacy assets that both we had as well as legacy U.S. Ecology had in getting the systems and tools and processes put together. We're playing a long game, so we're going to make the right decision for the long term, even if that sacrifices some short-term performance. We haven't gotten it always perfect in the commercial side in terms of price volume, but I think that team keeps learning and growing. On balance, if you look at the progress, you're taking a business that had in the 14%, 15% EBITDA margin and made substantial improvement. I think that improvement going forward won't be a straight line. Nothing that you're building ever is going to be perfect. It's not a mature business yet, but the upward path is to the up and to the right on the margin standpoint. And again, we're very excited about both the top and bottom line prospects of that business.

I really appreciate that answer. Thank you.

The next question will come from Connor Cerniglia with Bernstein. Please go ahead.

Great, thank you for my question. You all highlighted AI-driven benefits in pricing and routing. There was a recent industry headline about automated AI-enabled systems being deployed at landfills. Can you talk about whether or not you've evaluated those technologies yet and any early views on how landfill automation could impact your operations over time?

I think automation and AI will impact everything we do. I expect that to Matriculate already is matriculating into our vehicles and into our heavy equipment. I think the idea of getting to autonomy at scale, a truck driving down the road or operating at a landfill truly autonomous, you could do it. I'm not sure that there's going to be substantial cost savings because in the end, somebody is likely going to be programming or driving that. So you're not going to see a huge labor arbitrage in that part of the business. But if you look at other parts of the business and recycling centers, the more technology we put in, I mean, we have a fraction of the employees that we did a decade ago in many of our recycling centers through robots and automation. And so I think that we'll continue to invest and grow there. But automation, just like everything else we do, has got to have a return, right? We've got to make sure that we're solving a problem and not just automating for automation's sake.

and then maybe switching to residential. You mentioned residential volume should improve sequentially from here. Can you maybe just refine the trajectory of the volume recovery? It seems like volumes maybe continue in the, call it down 3% to 4% range before you lap the large contracts in Q1 of next year and then maybe you see volumes kind of closer down to 1%, 2%. Is that the right way to think about the trajectory or maybe I'm getting a bit too specific. Any commentary there would be helpful. Thank you.

Thank you for joining us. Total Company Volume Performance to sequentially improve quarter on quarter from here on out.

The next question will come from Tammy Zaccaria with JP Morgan.

Please go ahead.

Hey, good morning. Good afternoon. How are you? One question for today. New York is proposing that landfills treat leachates. for PFAS before discharging to waterways. I think the public comment period is open. Do you plan to provide comments? And more broadly, are you planning or preparing in terms of maybe changes to your operations or strategies should something like this go into effect?

Yeah, obviously, there's been a lot of dialogue at both the federal and state level about PFAS. very active and engaged in those conversations. We're not opposed to regulation, but it's got to be sensible regulation. And what we are opposed to is blaming a landfill for all the inbound volume that contains PFAS. PFAS is pervasive, and so it shows up in every landfill because it's in all types of waste streams. And penalizing the landfill, we think, is the wrong solution. We're actually the right point to remediate that because we're capturing that Leachate, and we're able to treat it in many cases, pre-treat it in some cases, discharge it, and work with our utility partners at the local level to make sure that we have the right solution. So I'd say it's something we're mindful of. We're in state capitals. We're in federal capitals. But it isn't something I think is a fundamental risk to the business. We will manage through this just like all the regulation the industry has done in the past.

Understood. Thank you.

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 today's call, I want to thank the entire public services team. Their dedication to our customers and communities continues to strengthen our business and differentiate Republic in the marketplace. I'm proud of what we've accomplished in the first half of the year and confident in our ability to build on this momentum as we continue creating long-term value for our customers, employees and shareholders. Have a good evening and be safe.

Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect.