The operator welcomes participants to the Republic Services Fourth Quarter and Full Year 2023 Investor Conference Call and introduces the CEO, Jon Vander Ark, and CFO, Brian DelGhiaccio. The call will discuss the company's performance and may contain forward-looking statements. The call is time-sensitive and any redistribution or rebroadcast without consent is prohibited. Relevant materials are available on the company's website. Jon Vander Ark begins his presentation.

The Republic team had a successful year in 2023, exceeding expectations and achieving revenue and EBITDA growth. They made strategic investments in acquisitions and returned a significant amount of cash to shareholders. Their focus on providing excellent customer service and implementing digital tools has led to high customer retention and organic growth. In the fourth quarter, they saw significant increases in price and volume, as well as improvements in their digital capabilities.

The company is currently developing a new asset management system that is expected to increase productivity and warranty recovery for maintenance technicians. They anticipate utilizing the system in late 2024 and expect it to contribute $100 million in annual earnings. The company is also implementing advanced technology on recycling and waste collection routes to reduce contamination and drive revenue. In terms of sustainability, the company is investing in plastic circularity and renewable natural gas, with construction on their Indianapolis Power Center expected to be completed in late 2024. They have also committed to fleet electrification and currently have 11 electric collection vehicles in operation.

In 2024, Republic Services plans to add over 50 electric vehicles to their recycling and waste collection fleet and have charging infrastructure at over 40 sites. They prioritize employee engagement and have been recognized for their sustainability efforts. In 2024, they expect to see growth and profitability, with a focus on acquisitions in the recycling and waste and environmental solutions sectors. The financial guidance for 2024 includes contributions from acquisitions made in 2023. Brian will provide more details on the quarter and year.

In the fourth quarter, core price on total revenue increased by 7.2%, with open market pricing at 10.6% and restricted pricing at 6%. Average yield on total revenue was 6.3% and average yield on related revenue was 7.7%. In 2024, average yield is expected to decrease due to lower index-based pricing and certain fees. Volume on total revenue increased by 30 basis points and volume on related revenue increased by 40 basis points. Organic volume growth is expected to be flat to positive in 2024. Commodity prices for recycling were $131 per ton in the fourth quarter, compared to $88 per ton in the prior year. Environmental Solutions revenue remained flat in the fourth quarter.

The Environmental Solutions business saw an increase in adjusted EBITDA margin of 250 basis points compared to the previous year. Total company adjusted EBITDA margin also expanded by 260 basis points in the fourth quarter, driven by margin expansion in the underlying business. Other factors affecting margin performance included recycled commodity prices and net fuel, partially offset by acquisitions. The full year adjusted EBITDA margin was 29.7% and is expected to reach 30% in 2024. Depreciation, amortization, and accretion are expected to be approximately 11% of revenue in 2024. Adjusted free cash flow increased by 14% in 2023. Total debt was $13 billion and total liquidity was $2.7 billion. The leverage ratio was 2.9 times. Net interest expense is expected to be $545 million in 2024. The combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 25.1% in the fourth quarter and 24.8% for the full year. An equivalent tax impact of 26% is expected in 2024, with an adjusted tax rate of 20% and non-cash charges from equity investments in renewable energy. The increase in interest expense and taxes would result in a $0.20 EPS headwind in 2024.

During the question-and-answer session, Toni Kaplan from Morgan Stanley asks about the company's margins in the fourth quarter and potential factors that could contribute to upside in 2024. Jon Vander Ark, the operator, explains that the fourth quarter had strong performance due to one-time opportunities and positive weather, but they are not relying on these factors for future performance. Brian DelGhiaccio adds that they had expected margin expansion to improve throughout the year and it ended up being even stronger than anticipated. Toni then asks about environmental services.

The speaker discusses the flatness in the quarter and attributes it to a strong Q4 in 2022 that they were covering. They mention a slowdown in parts of the business, such as rig counts being down, but anticipate a lift from a reopened facility and trading price over volume. They feel good about the book and pipeline going forward. The next question asks about the 2024 guidance and the speaker explains that they expect margin expansion in both solid waste and ES, with a little more on the ES side. The majority of the expansion will come from the recycling and waste business due to its size.

The analyst asks about the strong yield in residential volumes and the company's strategy for shedding lower quality volume. The CEO explains that the volume picture is a combination of losing some contracts and winning others, and that high CPI and alternative indices have helped drive pricing. The analyst follows up on another question about margins and the CEO notes that historical seasonality may not apply due to certain factors in the first quarter.

The speaker discusses historical seasonality and how it affects margin performance. They mention that typically, Q2 and Q3 have the highest margin performance, followed by Q4, and then Q1 has the lowest. They also mention that this trend is expected to continue in 2024. The speaker attributes the sequential step down in margin from Q4 to Q1 to factors such as winter months and taxes. They also mention that weather played a role, with mild weather in Q4 and intense weather in January affecting haulage and tons.

During a Q&A session, the company's CEO and CFO discussed their recent M&A deals and their impact on revenue. They mentioned that there will be a 200 basis point rollover contribution from deals closed in 2023 to 2024 revenue. They also provided a rough split of the revenue from the deals, with $200 million coming from environmental solutions and $140 million from recycling waste. When asked about future M&A, the CEO stated that they will remain disciplined in their approach, considering both strategic fit and financial return. They also mentioned having capacity to absorb more deals.

The company has a strong focus on tuck-in deals and medium-sized deals, with a disciplined approach to pursuing them. The Las Vegas Polymer Center has been a successful investment with high demand and strong pricing expectations, leading the company to plan for two more centers across the country.

John Mazzoni from Wells Fargo asks a question about pricing to Brian DelGhiaccio, who explains that there will be a sequential step down in pricing throughout the year due to the impact of index pricing. He also mentions that the two primary components of the pricing basket, headline CPI and alternative indices, have been decreasing since their peaks in 2022 and 2023. DelGhiaccio also mentions the strength in the small container market, which has a high yield of 11.2%. Jon Vander Ark adds that the company has implemented new technology to help with contamination and assessing overfilled containers.

The speaker discusses how the underlying pricing was great and contributed to the small container performance, which led to a discussion about their 2024 number. They expect to anniversary that in the second half of the year, which will bring it down. The next question is about the free cash flow and the guide, which is at 7% in the midpoint. The speaker explains that this is due to higher interest expense and taxes, as they are not counting on bonus depreciation being retroactively reverted back to 100%. This creates a $45 million headwind in cash taxes, resulting in a 2.3% decrease in year-over-year growth for free cash flow. However, the underlying business growth is still double digit.

The speaker discusses the margin performance of the company's solid waste business and the potential dilution from recent acquisitions. They also mention the implementation of a new asset management system and its impact on the P&L, noting that it will contribute to margin expansion in the Environmental Solutions business. The system is called the RISE platform.

The company is considering digitizing their operations to improve productivity and streamline processes. This includes using tablets for vehicle condition reports and integrating their asset management and procurement systems. This will help with warranty recovery and reduce manual processes. The company expects weather and tough volume comparisons to impact their first quarter results.

The speaker discusses the volume trends seen in the first quarter and how they are expected to continue throughout the year. They mention that January was impacted by weather, but February has seen a return to expected levels. The company is guiding to a flat to slightly positive first quarter and expects this trend to continue throughout the year. They also mention that the macro environment is mixed, with weakness in landfill C&D volumes and potential weakness in housing due to high interest rates. However, overall the company is still expecting a strong year.

The recovery in the United States has been slower than expected, but there are positive signs for the business in terms of demand and projects. However, there are concerns about ongoing conflicts and high consumer credit card debt. Cost inflation is improving, but maintenance costs remain high due to supply chain issues.

The speaker discusses the impact of driving an older truck versus a new truck on maintenance costs. They expect maintenance costs to remain elevated throughout the year due to the age of their trucks. The next question is about cost per unit, which only increased by 1% year-over-year. The speaker mentions that labor has improved due to reduced turnover rates, resulting in lower hiring costs and increased productivity. They expect to see continued improvements in this area.

The company has seen positive impact from transportation costs and maintenance has stayed relatively constant. They have made progress on a $100 million efficiency program and expect to make $10 million more in improvements in 2024. They are also focused on fleet electrification, starting with residential and expanding into small containers. They have a well thought out strategy for this, including infrastructure.

The speaker discusses the importance of understanding the infrastructure, incentives, and customer demand for vehicles. They mention that the trucks delivered through their partnership with OshKosh are working well and they are excited to add more to their fleet. They also mention that the housing market and large-container temp has been soft, but they expect it to improve in the future. In response to a question about PFAS remediation, the speaker highlights their comprehensive solution for customers and the potential for future business opportunities.

The company has the capability to handle the entire process of assessment, remediation, and disposal of hazardous waste, which has resulted in significant revenue growth. They are well-positioned to serve customers in this area due to their national footprint and strategic accounts organization. The supply chain for traditional and electric trucks is currently meeting about 80% of the company's needs, but they have been able to manage their growth despite this.

The speaker discusses the company's revenue growth and plans for future acquisitions, which will lead to an increased demand for new trucks. They also mention their first purpose-built electric refuse truck and its successful performance. The speaker thanks their employees for their hard work and concludes the conference.

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