The operator welcomes listeners to the Republic Services' Third Quarter 2023 Investor Conference Call and introduces Aaron Evans, Vice President of Investor Relations. Evans reminds listeners of the risks and uncertainties involved in the information discussed and notes that the call is time-sensitive. He also mentions that the call is property of Republic Services and any redistribution without consent is prohibited. The company's SEC filings, earnings press release, and recording of the call are available on their website. Jon Vander Ark, CEO, thanks everyone for joining the call.

The company had a strong third quarter with revenue growth, acquisitions, and margin expansion. They have also effectively allocated capital by investing in acquisitions and have returned a significant amount to shareholders. The Environmental Solutions business has shown improvement in pricing and profitability, and the company's strategy has helped drive customer loyalty and organic growth.

The company's customer retention rate and Net Promoter Score remain high, driven by valuable service offerings and quality service delivery. Organic revenue growth was strong, with increases in both price and volume. The company is also investing in digital tools to improve customer and employee experience, as well as sustainability initiatives such as plastic circularity and renewable natural gas. Construction of a new polymer center and renewable natural gas projects are on track, with plans for fleet electrification to reduce greenhouse gas emissions.

The company expects to have 12 electric vehicles in operation by the end of the year and plans to add more than 60 EVs to their fleet in 2024. They have 6 facilities with commercial EV charging infrastructure and are recognized as an employer of choice. The team remains engaged in delivering high-quality services. The core price on total revenue was 7%, with open market pricing at 10.4% and restricted pricing at 5.7%. Volume on total revenue and related revenue increased by 10 basis points, with landfill and small container showing growth but large container and landfill C&D volumes decreasing. Commodity prices for recycling decreased revenue by 20 basis points, but there has been a steady recovery in fiber markets and improved plastics pricing.

In the third quarter, the Environmental Solutions business saw an increase in revenue and adjusted EBITDA margin. However, there was a decrease in margin due to acquisitions, recycled commodity prices, and net fuel. Year-to-date adjusted free cash flow was $1.8 billion and the company expects to spend a significant portion of its capital expenditures and cash taxes in the fourth quarter. Total debt was $12 billion and total liquidity was $2.3 billion, with a leverage ratio of 2.9 times. The combined tax rate and effects from solar investments resulted in a lower tax rate of 21.4% for the quarter, including a $20 million favorable tax settlement. The company has upwardly revised its full year adjusted earnings per share to be in the range of $5.46 to $5.49 due to the lower tax rate.

The company is confident in achieving their full year financial guidance and will now open up the call for Q&A. They are proud of their results in the third quarter and expect continued growth in the recycling and waste businesses, supported by pricing, cross-selling, and investments in sustainability. They will provide more detailed guidance in February and expect a positive outlook for 2024, but are not providing specific guidance at this time. The first question in the Q&A is about initial thoughts on pricing for open market and restricted markets.

The speaker discusses the company's projected revenue growth and their plans to increase free cash flow and EBITDA margin. They mention that pricing will come down slightly due to inflation, but they will still be able to price ahead of cost inflation. They also mention that equipment availability and retention have improved, leading to lower costs. The speaker then addresses a question about the EBITDA and free cash flow bridge provided in the press release, stating that net income is expected to increase due to tax rate changes, but the cash flow may not reflect this due to potential adjustments to cash taxes and changes in working capital.

In the paragraph, Brian DelGhiaccio discusses the company's full year EPS guidance and attributes the increase to a lower tax rate and higher interest rates. He also mentions that the M&A market within Environmental Solutions is strong and that the company remains disciplined in their approach. Tyler Brown then asks about restricted pricing, which has accelerated to 5-7 in Q3. Brian believes this may be the high watermark and that the relationship between CPI-based pricing and water/sewer/trash pricing may offset each other.

The restricted base pricing for 2024 will step down sequentially from 2023 but will still stay above the longer-term average. Pricing in the ES business remains strong and there are attractive growth opportunities, but the company will not do work for free. The macro environment in manufacturing and ES is mixed, with slower activity in upstream oil and gas and challenges in the automotive sector. The company is still positive about the demand environment for 2024. The expected M&A rollover benefit for next year is unknown, but the company is expecting incremental benefits to 2024 EBITDA from RNG and polymers.

The company's CFO, Brian DelGhiaccio, confirms that there will be a 50 basis point rollover into 2024 and discusses the expected contributions from polymer centers and renewable natural gas. The CEO, Jon Vander Ark, acknowledges the uncertainty in the economy but believes the company is closer to a soft landing. They are planning for a positive year in 2022, with underlying volume growth of 50 to 100 basis points in the recycling and solid waste business. Construction has been a soft spot but they hope it will rebound.

The speaker is cautiously optimistic about the company's growth in the coming year. They discuss the level of exposure to commodities in their polymer center and state that their model is constructed to avoid adding to overall volatility. They also mention that the company's exposure to the auto industry has been impacted by strikes.

The speaker explains that there have been walkouts at certain facilities, but they have not had a major impact on the company's overall cost structure. They will include the pickup in their joint ventures in their EBITDA accounting, but this will mostly be seen in 2025 and beyond. The company has had great margin expansion, but they are still reaffirming their guidance for the fourth quarter due to potential seasonality and economic factors.

Brian DelGhiaccio and Michael Hoffman discuss the expected margin expansion for the year, with sequential improvement in each quarter. They clarify that margins may be down in the fourth quarter due to seasonality. The company's acquisitions were 1.7% in the third quarter and are expected to be 180 basis points in the fourth quarter. The 39 RNG facilities with the BP joint venture are expected to ramp up in 2024, with five already online.

The company expects a cadence of $20 million to $25 million per year of incremental EBITDA starting in 2024, with a run rate of $28 million and a cumulative $100 million of additional EBITDA compared to the current baseline. The margin momentum is already accelerating this year and is expected to continue, with a full year average of 30-40 basis points expansion. However, the margin expansion is expected to decelerate from the high levels seen in 2023 due to annual price increases in the acquired US Ecology business.

The paragraph discusses the expected margin expansion in 2024 compared to 2023, as well as the company's plans for capital deployment, including investments in polymer centers, Blue Polymers, and the RNG portfolio. The company has already been making these investments and is focused on deleveraging before resuming share repurchases.

The company has resumed its share repurchase program and the Board has authorized another $3 billion program over the next three years. In response to a question about inflation in 2024, the company's CEO states that they expect maintenance costs to be elevated due to supply chain issues, but overall inflation will likely be in line with macro metrics. The company's commodity basket exposure is discussed, but there are no specific details provided.

The company has seen an increase in commodity prices for the fourth quarter, which is expected to result in a year-over-year increase of $30 per ton. The company is also considering potential acquisitions, as the pipeline for both recycling and waste management is strong. However, smaller players may be facing cost pressures, particularly in labor and supply chain, which could make them more willing to sell.

In this paragraph, the speaker discusses the challenges faced by spot buyers of vehicles and the potential impact of the GLP-1 trend on volumes in the long-term. They also mention their investments in digital technology to improve the customer and employee experience. They state that they have not done much work on the impact of GLP-1s yet, as they have other priorities at the moment.

The company is looking at potential mergers and acquisitions in both the U.S. and Canada, but it is not a top priority. The company is also planning to adjust its pricing strategy in the environmental services sector to align with solid waste pricing and may increase prices more regularly in the future. The company has already pushed the price line in some areas and lost volume, but in other areas, pricing is more dynamic.

The speaker discusses their plans to test the market and prioritize their sales team around the most attractive customers. They thank their employees for their commitment to providing excellent service.

This summary was generated with AI and may contain some inaccuracies.