Conference Operator: Good afternoon and welcome to the Republic Services third quarter 2025 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 conference specialists 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. And to withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Aaron Evans, Vice President of Investor Relations. Please go ahead, sir.
Aaron Evans: Good afternoon. I would like to welcome everyone to Republic Services' third 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 October 30, 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 GAAP reconciliation tables and 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.
John VanderArk: Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. We delivered strong third quarter results, which highlight the consistency of our business model, disciplined operational execution, and power of our portfolio. Even with persistent headwinds in construction and manufacturing and markets, we generate solid earnings growth and margin expansion. Continued investment in our differentiated capabilities positions us well to drive sustainable growth and enhance long-term shareholder value. During the quarter, we achieved revenue growth of 3.3%, generated adjusted EBITDA growth of 6.1%, expanded adjusted EBITDA margin by 80 basis points, delivered adjusted earnings per share of $1.90, and produced $2.19 billion of adjusted free cash flow on a year-to-date basis. Our commitment to delivering world-class service continues to support organic growth by reinforcing our position as a trusted partner for our 13 million customers. Our customer retention rate remains strong at 94%. We saw continued improvement in our net promoter score. This reflects our team's commitment to delivering products and services that customers value. Organic revenue growth during the third quarter was driven by strong pricing across the business. Average yield on total revenue is 4%, and average yield on related revenue is 4.9%. Organic volume decreased total revenue by 30 basis points. and related revenue by 40 basis points in the quarter. Volume performance included outsized C&D and special waste landfill activity. The increase in C&D tons related to hurricane recovery efforts in the Carolinas. Special waste activity was driven by an increase in event-based volumes across many of our disposal assets, primarily located in Sunbelt geographies. These volumes were offset by decline in the collection business. The decrease in collection volumes related to continued softness in construction and manufacturing end markets and shedding underperforming contracts in the residential business. Organic revenue decline in the environmental solutions business created a 140 basis point headwind to total company revenue this quarter. Environmental solutions performance was impacted by three primary factors. Continued softness in manufacturing activity lower event-driven volumes in our landfills, which includes ENP activity, and fewer emergency response jobs. Given the relatively fixed cost structure of these assets and services, the impact on Environmental Solutions EBITDA and margin was more pronounced. While the Environmental Solutions business was down both sequentially and year-over-year, demand stabilized exiting the third quarter. Our pipeline for a new business is now expanding, and we remain well-positioned to capture growth opportunities as market conditions improve. Importantly, despite these headwinds in environmental solutions, we delivered over 6% growth in adjusted EBITDA and expanded adjusted EBITDA margin by 80 basis points at the enterprise level. These results reflect disciplined pricing above cost inflation, strong operational execution, and effective cost management. Moving on to sustainability, we are making progress on the development of our polymer centers and blue polymers joint venture facilities. In July, we commenced commercial production at our Indianapolis Polymer Center. This operation is co-located with a Blue Polymers production facility. We expect commercial production to begin at the Blue Polymers facility late in the fourth quarter. We are advancing renewable natural gas projects with our partners. One project came online during the third quarter. We have commenced operation at six RNG projects this year. We expect a total of seven RNG projects to commence operations in 2025. We continue to advance our commitment to fleet electrification. We had 137 collection vehicles in operation at the end of the third quarter. We expect to have more than 150 EVs in our fleet by the end of the year. We currently have 32 facilities with commercial scale EV charging infrastructure. This infrastructure investment will support continued growth of 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 have high employee engagement scores, and our turnover rate continues to trend lower compared to the prior year. With respect to capital allocation, we've invested more than a billion dollars in strategic acquisitions on a year-to-date basis. Our acquisition pipeline remains supportive of continued activity in both the recycling and waste and environmental solutions businesses. Year-to-date, we have returned $1.13 billion to shareholders through dividends and share repurchases. I will now turn the call over to Brian, who will provide additional details on the quarter.
Brian DelGaccio: Thanks, John. Core price on total revenue was 5.9%. Core price on related revenue was 7.2%, which included open market pricing of 8.6% and restricted pricing of 4.8%. The components of core price on related revenue included small container of 9.2%, large container of 7.1%, and residential of 6.8%. Average yield on total revenue was 4%, and average yield on related revenue was 4.9%. Third quarter volume decreased total revenue by 30 basis points and decreased related revenue by 40 basis points. Volume results on related revenue included a 45% increase in landfill construction and demolition, or C&D volume, driven by $35 million of hurricane cleanup activity in the Carolinas, and an 18% increase in landfill special waste revenue driven by volume growth across many of our disposal assets. Year-to-date, we recorded approximately $100 million of event-driven revenue associated with hurricane and wildfire cleanups. We estimate these volumes will result in a full-year adjusted EBITDA margin benefit of 30 basis points. Large container volumes declined 3.9%. primarily due to continued softness and construction-related activity in most manufacturing end markets, and residential volume declined 2.4% due to shedding underperforming contracts. Moving on to recycling. Commodity prices were $126 per ton during the quarter. This compared to $177 per ton in the prior year. Recycling processing and commodity sales decreased organic revenue growth by 20 basis points. Increased volumes at our polymer centers and reopening a recycling center on the West Coast partially offset the impact of lower recycled commodity prices. Current commodity prices are approximately $120 per ton. Total company adjusted EBITDA margin expanded 80 basis points to 32.8%. Margin performance during the quarter included a 40 basis point increase from previously noted event-driven landfill volumes, and margin expansion in the underlying business of 90 basis points. This was partially offset by a 20 basis point decrease from net fuel, a 20 basis point decrease from recycled commodity prices, and a 10 basis point decrease from acquisitions. Adjusted EBITDA margin in the recycling and waste business was 34.3%, which was up 150 basis points compared to the prior year. With respect to environmental solutions, Third quarter revenue decreased $32 million compared to the prior year, driven by softness in manufacturing and markets, lower event activity, and softer E&P volumes in the Gulf. Adjusted EBITDA margin in the environmental solutions business was 20.3%. Year-to-date adjusted free cash flow was $2.19 billion. Our strong performance reflects EBITDA growth in the business and the timing of capital expenditures. Year-to-date capital expenditures of $1.18 billion represents 62% of our projected full-year spend. Total debt was $13.4 billion, and total liquidity was $2.7 billion. Our leverage ratio at the end of the quarter was approximately 2.5 times. With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 21.2% during the quarter. I will now hand the call back to John.
John VanderArk: Thanks, Brian. Through this cycle, we believe our business can consistently deliver mid-single digit revenue growth and grow EBITDA, EPS, and free cash flow even faster. This generally produces 30 to 50 basis points of EBITDA margin expansion per year. This growth assumption is supported by pricing ahead of underlying costs, selling our comprehensive set of products and services, and capitalizing on value-creating acquisition opportunities. We also expect financial contribution from investments made in sustainability innovation, including plastic circularity and our renewable natural gas projects. Our initial perspective regarding 2026 as a long-term growth algorithm is intact. As a reminder, we reported approximately $100 million of revenue at an 80% incremental margin related to landfill volumes except in 2025 that will not repeat in 2026. This should be reflected in year-over-year growth assumptions. We plan to provide full year 2026 guidance at our earnings call in February. With that, we can now open the call to questions.
Conference Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. In the interest of time, we ask that you limit yourself to one question and one follow-up today. If your question has been answered and you would like to withdraw your question, you may do so by pressing star then two. If you are using a speakerphone, please pick up your handset before pressing the keys. And today's first question will come from Tyler Brown with Raymond James. Please go ahead.
spk14: Hey, good afternoon, guys.
Conference Operator: Hey, John.
spk14: Hey, John, I just want to make sure I have it big picture. I appreciate the color right there at the end of the prepared remarks. So the long-term algorithm, mid-single-digit revenue, hopefully EBITDA free cash grow faster than that. When you think about as we go into 26, and I think you kind of alluded to that, is that including the headwinds with the special, with the event-driven volumes? And then we also are going to have a fairly sizable commodity headwind if we snap the line today. So can you just talk a little bit about the puts and takes into 26?
John VanderArk: Yeah, as you know, we're not giving guidance for 26, but I'll give you some markers in the spirit of your question. Listen, the long-term growth algorithm of, you know, mid-single digit growing EBITDA growth or EBITDA faster than revenue and free cash flow faster than EBITDA we think holds. We're coming over a tougher comp, so that probably just takes each of those down a click going into 26. And that's predicated on remaining pretty conservative on the macro, but also understanding what our pipeline looks like and how well-performing we are in the fundamentals of the business. I think that's, you know, shapes our perspective into 2026. And that certainly includes overcoming that commodity headwind as well.
spk14: Okay. Helpful. And then Brian, just on the event driven volumes, I just want to make sure I have it kind of by quarter. Was it something like 10 million of revenue in Q1 and then 55 in Q2 and 35 in Q3? Is that roughly right?
Brian DelGaccio: Yeah, so it's roughly – it was $12 billion of revenue Q1, 53 Q2, 36 in Q3, total of 100.
spk14: Okay, perfect. And then just my last one, you know, you guys have been very realistic around the volume environment. It does look like ES slowed down. You know, it accelerated to the downside. Just kind of what are you seeing out there in the market? Is that largely related to project work? And then if I look at the EBITDA flow through, I think it was almost a one-to-one revenue to EBITDA flow through. I know Hathaway's landfills have very high flow through, but was there something else driving that contribution margin?
John VanderArk: Yeah, I think it's a confluence of events. Like the macro manufacturing continues to be very slow, and we see that In the recycling and waste business too, in large container halls, again, we're gaining share in that area, but volume is slowing down just because plant output is down in that space. So that's part of it. We're seeing delayed project-based work, a lot of reoccurring work like turnarounds or tank cleanouts. People are just pushing those. And the good news is those come back. Those don't get delayed forever. And then, you know, good news for the macro society, bad news for us. It's just been a very slow emergency response here across the board. activity has just been pretty low across the board. So all of those things are feeding into it.
Brian DelGaccio: Yeah, and Tyler, to your question just on the margin, you're right, it is falling through almost at the amount of the revenue decline. That is not just due to the revenue itself. There were some unique costs. We called out last year that we had a bad debt recovery, about $4 million. That was somewhat out of period. This year we had a legal settlement, which added a couple million dollars worth of cost. So that added $6 million spread between the two years, about 140 basis point impact on margin year over year.
spk03: Okay. Okay. Yep. No, that's very helpful. Okay. Thank you, guys. Thank you.
Conference Operator: The next question will come from Noah K. with Oppenheimer and Company. Please go ahead.
spk04: Thanks for taking the questions. The open market pricing strength looked good again this quarter. Maybe just update us on how you see price-cost spread heading into year-end here and kind of the runway for 26.
John VanderArk: Yeah, positive. I mean, we'll think about cost inflation kind of roughly in line with what you think about CPI. Broadly speaking, there's a few puts and takes underneath that, but at the aggregate, that's fair. And then we'll think about
spk03: kind of a yield number that's, you know, 75, 100 basis points above that.
spk04: That's a great place to model from. I guess switching gears, you know, there was one competitor this week that took an impairment charge related to a plastic facility. I know it's different technology, but, you know, as you look at what's happened with commodity pricing, how do you think about return expectations for the polymer centers?
John VanderArk: Yeah, we're excited. Listen, these projects typically have challenges on two ends. One is the supply end, and I'm sure we have an advantage because we get something off the ground 5 million times every day. And the other is on the demand end. And the demand end from both a pricing and a volume standpoint has been very strong. And the spread between the input and the output on this side has been really consistent. Now, in fairness, it's taken us a little longer on the ramp-up of these projects to get to full capacity and full output, and that's just the normal learning curve of, you know, new facilities, starting up plants is challenging, but feel really good about our long-term assumptions there and excited to see Indy come up the curve and Allentown open up next year.
spk04: Okay, excellent. Thank you. I'll turn it over.
Conference Operator: The next question will come from Sabahat Khan with RBC Capital Markets. Please go ahead.
spk10: Great. Thanks, and good afternoon. I guess just as you kind of think about 2026 and you call it acquisitions as one of the areas that generally contribute here, how is the pipeline looking relative to kind of this year, obviously a big year this year? Can you just talk about kind of the magnitude or how full that is and then mix across your different silos? Historically, you've talked about just keeping it more balanced, but just how is that looking right now? Thanks.
John VanderArk: Yeah, pipeline looks very strong. We expect to, you know, finish the year strong and start out next year strong. The exact balance of when things close end of year or into the first half of next year, we'll see. And then the pipeline behind that, things that would be more likely to close in the second half is still very full. And that'll be a balance across both recycling and waste and ES, you know, tilted toward recycling and waste. But we'll look for opportunities on all ends.
spk10: Great, and then you provided some benchmarks around 2026. Is it really just going to be on the environmental services side, kind of the magnitude of the event-driven volumes that really swing how that segment performs, or do you have any sort of visibility on how the next year could evolve relative to this year, just from a high-level perspective on what you're seeing next?
John VanderArk: Yeah, listen, we'll forecast to grow that business next year, even in what we, again, we'll remain conservative on the macro and that continuing to be sluggish. excuse me, the pipeline. Again, Brian mentioned or mentioned in a previous remark that the pipeline is building. And most of our challenges here have been macro. But we talked last quarter, we haven't always got it quite right in terms of the price-volume trade-off. And we've taken a lot of price over the last three years in this business. And we will continue to put upward pressure on price. That being said, for some of these opportunities, finding the market and the right balance, we've probably overshot that. And the team's working hard and That's why the pipeline is building to get that pricing right.
spk03: Great. Thanks very much.
Conference Operator: The next question will come from Brian Bergmeier with Citi. Please go ahead.
spk19: Hi. Good afternoon. Thanks for taking the questions. Yeah, I mean, just following up on some of the questions on ES, can you maybe give us a sense of your expectations for the fourth quarter for that business? You know, should we continue to expect kind of those mid-single digit declines in the top line or, you know, just the pipeline that you're mentioning and buildings sort of start to come through? And then I guess, you know, on a sequential basis, margins kind of step down from 3Q to 4Q normally. I'm just not sure if that's generally how you're thinking about it.
John VanderArk: Yeah, we think we've kind of found the bottom on this thing. We're overcoming a pretty tough comp from the fourth quarter of last year. We had a major ER job that came in at pretty high incremental margin on that front. But I think about margin performance that kind of looks in the same zip code, and then we build up from that in 2026. Got it.
spk19: Got it. Thanks for that detail. And then just one follow-up is you mentioned you acquired – recycling facility in California during the quarter. I think that's a little bit different than your polymer centers. This would be more of a reclaimer. I think that does that kind of sit between your polymer centers and your MRFs? I'm just sort of curious what the incremental opportunity is there. And is there more opportunities like that as Republic tries to build out their, you know, national kind of plastic recycling network, just overall thoughts on the M&A environment around plastics. Thanks. I'll turn it over.
John VanderArk: Yeah, that ended up being pretty opportunistic and unique. It's connected to the West Coast Polymer Center and gets us plugged into really the bottling value chain there. Over time, we'll look for more M&A in the space. I think in the very near term, you're unlikely to see more opportunities there just because we'll be focused on executing the Palmer Center and, you know, getting Indy fully up the curve, getting Allentown on pace, and then the Blue Palmer JVs. And then over time, there'll be an M&A opportunity, but I would think more about 27 and beyond there versus 26.
Conference Operator: The next question will come from Kevin Chang with CIBC. Please go ahead.
spk11: Hey, thanks for taking my question. Maybe just on some of the labor disruption you had in the second quarter or maybe the first half of the year, you called out about $56 million in costs. Just wondering if there's any residual impact as we think of Q4 into next year related to credits or any type of revenue adjustments you make as you kind of rebuild goodwill with some of these customers that face that disruption as we think of revenue trends in the next year. few quarters here?
Brian DelGaccio: Yeah, Kevin, we think we mostly captured the impact of that, including the revenue credits themselves. So we think at this point, the $56 million that we recorded in the third quarter will be it at this point. So yeah, we think we're done.
spk11: Oh, perfect. Thanks for clarifying. And just Just on the EV targets, you provide us with the update every quarter here. It does feel like OEMs are deprioritizing the production of their electrification strategy. How do you think that impacts these longer-term targets you have? It feels like you still feel pretty confident that you can get the vehicles you want, despite maybe OEMs deprioritizing this propulsion system.
John VanderArk: Yeah, no, we feel really good about our, you know, partners in the space and, you know, customer demand for it. And we think it provides really unique benefits of a zero emission vehicle and, you know, cities and communities are excited about it. At the same time, we're going to do it in an economic fashion, right? This isn't just a sustainability investment. This is also a business investment. And so we lost a little bit of incentive here in the federal legislation and And that might slow our pace on the margin, but there's other state and local incentives, and there's certainly customers who are willing to pay the most important part of the equation that will allow us to continue. So we're going to continue to march it out in communities where it makes sense.
spk11: Perfect. Thank you for taking my questions.
Conference Operator: The next question will come from Trevor Romeo with William Blair. Please go ahead.
spk16: Hi, good afternoon. Thanks for taking the questions. I had one question. kind of follow up on, I guess, the overall kind of manufacturing industrial volume activity as it relates to both solid waste and ES. Just kind of wondering, was the softness in this quarter kind of about what you'd expected last quarter when you lowered the guidance? Or, you know, you talked about demand stabilizing exiting the quarter. Maybe you could just walk us through kind of the monthly trends a little bit more or just any more color on that would be great.
John VanderArk: Yeah, it probably was. Since our last call in the first couple of months after that, it was certainly, you know, more to the negative. than our outlook was. And we've mentioned starting to stabilize and we think we found the bottom of rebounding from here. There's a ton of uncertainty out there for manufacturers and, you know, trade policy is top of the list. And I think you're just seeing the rebound effect of those tariffs and people, you know, pre-building and pre-buying to get ahead of the tariffs. And then we've seen a slowdown in economic activity in a lot of sectors pretty dramatically in June, July, August and started to see that, you know, pick back up. And so that's really what we're facing in both sides of the business.
spk16: Got it. Thank you, John. And then I guess on capital allocation, the buyback ramped up quite a bit in Q3. I think all the solid waste stocks have been trading kind of weaker since the quarter closed even. Should we think about buybacks continuing to be maybe a bigger driver with the stock at these levels, or how are you thinking about that versus other uses of capital in the kind of near term?
Brian DelGaccio: Yeah, I would say we've always been opportunistic, and we looked at it as a great opportunity to create value for our shareholders.
spk03: So we were a buyer, and I would expect us to be a buyer going forward. Okay. Thank you very much.
Conference Operator: The next question will come from Toby Salmer with Truist. Please go ahead.
spk07: Hey, good afternoon, guys. This is Jasper Bivon for Tobii. I just wanted to ask about expense inflation trends, any early indication on what you're anticipating for price-cost spread in 26? Notice your labor talks actually decline every year this quarter, so maybe a favorable indicator there.
John VanderArk: Yeah, as mentioned earlier, we think about, you know, pricing coming down relative, but also cost coming down, but maintaining a price-cost spread and recycling and waste business of 75 to 100 basis points and have pretty good outlook and confidence of that going into 2026.
spk07: Got it. And then maybe following up on ES, have you seen any retention impacts at your customers based on the pricing increases you've taken over the past couple years?
John VanderArk: There's certainly been some churn, and we see that all the time in the recycling and waste business, too, as we've improved margin in that space. We've also seen the return of customers. and that understanding that low price doesn't always mean the best value. I'd say where we've gotten the price-volume equation just slightly off is more of the event-based work that we've missed out on some opportunities. So it's not pricing recurring revenue customers out. It's event-based opportunities that we think we're going to be able to be more competitive going forward.
spk03: Got it. Thanks for clarifying that.
Conference Operator: The next question will come from Tony Kaplan with Morgan Stanley. Please go ahead.
spk01: Hi, this is Yehuda Silverman on the line for Tony Kaplan. Just had a quick question about some of the costs uptick specifically for fuel and landfill operating costs in the quarter. I'm just wondering if this was tied to anything specific or if it's nothing really to focus too much on.
spk03: Yeah, look, if you're looking just at a year-over-year basis,
Brian DelGaccio: Yeah, some of that, again, it's a combination of both. You know, you've got price, but you also have volume due to acquisitions. So I would say neither of which are going to be, you know, anything significant or out of the norm.
spk03: Because if you look at the percent of revenue, for example, fuel is relatively flat.
spk01: Got it. And just had a question on commodities in general. So were the commodity headwinds this quarter worse than expected? And is there any way to sort of hedge or counteract weaker price in commodities?
Brian DelGaccio: Well, I mean, commodity prices tick down, right, throughout the quarter. So, you know, when we were exiting Q2, they were in like the $140 range, you know, $135, $140. And, you know, you can kind of see for the average for Q3, $126, actually about $120. So they have been stepping down sequentially. That's when you think about getting a third-party hedge. It's a pretty thin market, quite honestly. So more what we've done is we've moved the model to charge the fee for service. So for the collection itself of those materials or the processing of the material at one of our third-party facilities, we're charging the fee. And then we split with our customers the ultimate sale of the commodity. So again, we're earning a good return on the services we're providing. And you accept some level of volatility with the ultimate commodity sale, but that's just inherent to the business.
Conference Operator: Got it. Thanks. The next question will come from Rob Wertheimer with Mellius Research. Please go ahead.
spk15: Thanks, and good evening. You just touched on this a minute ago, but X, the labor one-offs, labor productivity actually looked pretty good in one of your better quarters. Is there anything to call out there, or is that normal variability?
Brian DelGaccio: Well, no, labor productivity, I would say, if you take a look at labor as a percent of revenue, just in the quarter, we've seen an improvement of 70 basis points on that front. So that's going to be a continuation of the benefits that we're getting from our RISE platform, where we're producing productivity benefits within our collection business. But also, just as we've said, when you think of the margin expansion, a lot of that is the price in excess of your cost inflations. So with labor being one of your largest cost inputs, the place where you're going to see that the most is labor improving as a percent of revenue.
spk15: Totally fair. Thank you. And then just a small one. You touched on manufacturing and some of the – we've seen that, obviously, in the industrial world. There's a lot of cross-currents in construction. Any trend line you saw through the quarter, you've got interest rate cuts, you've got large projects, you've got lots of cross-currents. So I'm just curious if there's any movement one direction or the other. Thank you.
John VanderArk: No, not yet. I haven't really seen signs of life. Again, we remain in the longer term very bullish, medium to longer term on construction. In terms of single-family, multifamily, there's a lot of pent-up demand in most of the markets across our thousand dots on the map in the U.S. and Canada. I think we probably need just a little more time before we start to see that take off. Thank you.
Conference Operator: The next question will come from David Manthe with Beard. Please go ahead.
spk06: Thank you. Good afternoon, everyone. Back to environmental solutions. When you talk about stabilization, just trying to understand definitionally, are you saying that the declines should start lessening here, or are you talking about absolute revenues sort of flattening sequentially from 3Q to 4Q?
Brian DelGaccio: Yeah, I would say a little bit of both. Right. So, again, at the same time, we saw just from an overall revenue perspective. And look, one month doesn't make a trend, but September was better than August. And we're starting to see something look similar in October from an overall revenue perspective. And then you think about just the year over year that would just naturally lend itself to the year over year decline starting to modulate. Now, John mentioned earlier, one of the things you have to remember is last year. Right. We had almost 50 million dollars of revenue in the quarter from a single emergency response job. So that's something that we have to anniversary. So that's going to create a tough comp and about $15 million of that carried over into Q1. So you don't get that out of the numbers from a year-over-year perspective until we get to Q2 of 26.
spk06: Right. Okay. That's great color sequentially. Okay. And then looking back to the e-coal data back in 2021, has the data changed much in terms of the top verticals in environmental solutions? So is it still chemicals, metals, and general manufacturing making up, I don't know, 40%, 45% of the total?
John VanderArk: It's a very diverse set of end markets, and we probably don't cut it exactly the same way that the legacy company did, but Very strong. Manufacturing will be the largest broadly defined. Chemicals, oil and gas, continuous flow, general production. But utilities, government, there's a broad mix in markets that we serve.
spk03: Got it. Thank you.
Conference Operator: The next question will come from Stephanie Moore with Jefferies. Please go ahead.
spk12: Hi, good afternoon. Thank you. I wanted to... ask maybe a higher level question on the solid waste business as it relates to pricing. I think you guys, as well as the industry, continue to execute well on pricing and getting good pricing, obviously, in the open market as well. As you think about the success that you've had in the open market, what would you attribute the major drivers of that to be? Do you think it you know, just general rationality. I mean, obviously inflationary, but we also hear a lot from, you know, general customers with price fatigue and inflation fatigue. So I'd love to get your updated thoughts. I mean, is it your ability to capture price because of your technology investments? But I think just kind of your updated thoughts on that would be helpful. Thank you.
John VanderArk: Yeah, I think there's a lot of elements to the equation. I'd say the most important Important one from a macro level, we're a very, very small percentage of most customers' cost structure. And in a macro sense, I think the industry is underpriced. You think about a resident, their bill is less than their Starbucks bill every month. And we're taking a $400,000 truck and driving it, you know, taking it to a recycling center that costs $50, $60 billion to build or a landfill where we're going to rent you a piece of real estate forever and probably produce electricity or gas. on the back end of that. So I think the value proposition across the industry is phenomenal. And we're getting a very small portion of people's cost structure. So that creates a lot of pricing opportunity. I think if you kind of come down 11, look at our company, we focus really hard on customer mix. Some customers are very price sensitive, and we under are under penetrated in that part of the market over penetrated and customers who are willing to pay more for the value. and then have a lot of tools and sophistication in terms of how we price customers to make sure that they not only take the price, but they stay forever.
spk12: Got it. Appreciate it. And then just one follow-up on the M&A commentary. Appreciate the look into 2026. I wanted to also gauge your appetite in maybe doing a larger deal M&A at this time, whether in solid waste or within EF. Thanks.
John VanderArk: Yeah, we will maintain a perspective on everything, all right, as fiduciaries of the business on that front. And I wouldn't say anything is impossible. I'd also say our focus is on small and medium-sized deals as we look into the rest of 2025. But even in the 26 and 27, I feel like we've got a very strong pipeline, both in recycling and waste and ES.
Conference Operator: Great. Thank you so much. The next question will come from Shlomo Rosenbaum with Seafull. Please go ahead.
spk13: Hi. Thank you for taking my questions. I just want to get straight a little bit about that commentary about things getting better in ES towards the end of the quarter. How much of it is you're figuring out the issues with the pricing in specific areas, and how much of it is finding kind of a bottom and starting to improve? And then I just wanted to ask you a little bit about the pricing just in general. Do you feel like You figured out where you're getting it, you know, not exactly on the mark. And is there a thought that we've kind of gotten to the point where the outsized pricing is kind of behind us? Or is it really just those emergency response type stuff is really the only place where you feel like you've pushed it too far?
John VanderArk: Yeah, maybe let me start at the end. I think we've taken up margins fairly dramatically since we closed U.S. Ecology Acquisition. So tremendous progress. And that wasn't all price, but a lot of that was price. And we think there's certainly more room to go. We're facing, obviously, a very challenging demand environment. And so getting that balance right, primarily on event-based work, but it's certainly an opportunity for us and the team. Part of this is just that This industry itself is at a different stage of evolution and maturity than the recycling waste industry, where we've been at recycling waste a long time in terms of the tools, sophistication, commercial capabilities of our sales team to get that balance just right to try to win the job at maximized price. And we're still climbing the ladder on the environmental solution side of the business. And if you work your way back into what kind of momentum we're seeing, I think we are seeing certainly growth. a stabilization of the overall market, not strength and rapid recovery, but a stabilization. And then you layer on top of that our level of speed. We're getting very, very dialed in to specific opportunities. And those two things together give us a positive outlook.
spk13: Okay. And then just overall in the pricing, you said you've taken a lot over there. Would you say you're still in early innings, mid-innings? Where do you feel you are in terms of that opportunity, you know, ex the area where you're, you know, kind of recalibrating right now?
John VanderArk: Yeah, I'd say longer term, we still think these assets are underpriced, right? On the post-collection side, these assets are impossible to replicate, right? And we sell things here rather than priced by the ton, oftentimes by the pound or sometimes by the ounce, right? And so we think there's plenty of room to go. We've also said this isn't going to be a straight line of progress. There's going to be ebbs and flows on our path. And so in any given quarter, like the one we just saw, there might be a little bit of pullback. And I think if you measure this thing very narrowly, you know, quarter to quarter, I think you're going to miss the picture. If you measure it year over year, I think you're going to get a much better view of where we think progress in this business goes. Okay, great. Thank you.
Conference Operator: The next question will come from William Gripen with Barclays. Please go ahead.
spk18: Great. Thanks for the time. Just wanted to come back to the union contract settlement here. Was there any impact, I guess, from the strikes on revenue in the quarter? I know you made the adjustment to EBITDA, but just wondering if there was any impact on the revenue side. And then any sort of outlook in terms of cost inflation in 26 related to that contract sort of relative to your your expectations and your commentary.
Brian DelGaccio: Let me take the first part there. So there was an impact on revenue. There was a recognition of about $16 million worth of credits, which reduced the reported revenue. Now, when you look at adjusted EBITDA, well, we didn't adjust the revenue. We did include those credits in the adjusted EBITDA. So the add back of $56 million includes those $16 million worth of revenue credits. in order to drive adjusted EBITDA.
John VanderArk: In terms of longer-term impact on labor, we think the answer is no. We work very hard whether our frontline people are represented by a union contract or not, that we're keeping them in line, and we want our people to be amongst the best paid in the local markets in which they operate. But it's very critical for us to make sure that they're not out of market. And when people get out of market, it hurts everybody. We lose work, and we ultimately have to let go of drivers and technicians. So getting that number right is important to us, and that's why we took the stand we did this past year on the set of contracts. But going forward, we feel like we're in a very good position to maintain our price-cost spread, as we talked about before.
spk18: Appreciate that. And then just coming to the ES business, you mentioned in your pipeline possibly having some opportunities related to M&A for ES. Any additional color you could provide there on what types of assets or services that you might be looking at?
John VanderArk: Sure, yeah. We certainly look for certain verticals that we're in that we'd like to get in further. So life sciences and biopharma and high tech are certainly attractive to us, and we've got great positions regionally, but not in every region. There's 20 field services locations geographically where we have really strong footprints in recycling and waste. but don't have a field services location, that creates an immediate cross-sell opportunity for us. And then we're always interested in any post-collection assets, anything with infrastructure we feel is very attractive to the network as well.
spk18: Perfect. I appreciate that. I'll pass it along. Thank you.
Conference Operator: The next question will come from Tony Bancroft with Gabelli Funds. Please go ahead.
spk02: Thank you, gentlemen, and great job on the quarter. I know I'm sort of beating a dead horse here, but with M&A game plan, maybe another way to look at it, you know, it's obviously this huge draw of energy demand with data centers. Any thoughts, maybe just longer-term view or vision of M&A in sort of that space with ENT or energy-based, or is it more, you know, more of the traditional stuff? Maybe you could talk about that a little bit.
John VanderArk: Yeah, that'll certainly help us on the margins. Those things get constructed. There's opportunities around, you know, earth moving and soil and remediation opportunities. And then, listen, our landfills, less than half of them have landfill energy projects on them. And could those projects be electric-based, kind of back to the future in the sense that that's where we started those projects and it's been all R&G over the last few years? We're certainly exploring some technologies around getting after lower flow sites, smaller landfills, and electricity projects might be part of that, and that might be, you know, feed into that grid. I'd say from a macro standpoint, those facilities don't create a ton of ongoing waste and recycling or environmental solutions opportunities once they're up and constructed, but during the construction phase, we'll certainly participate.
spk00: Great. Thanks so much.
Conference Operator: Good job. At this time, there are no further questions. I would like to turn the call back over to Mr. Vander Ark for closing remarks. Please go ahead, sir.
John VanderArk: Thank you, Chuck. Before we conclude today's call, I want to take a moment to recognize the great work of the entire public services team. The team's commitment to safety, sustainability, and providing outstanding service continues to drive our performance. We're confident in our strategy, our people, and our ability to continue delivering value to our customers communities and shareholders. Have a good evening and be safe.
Conference Operator: Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect.
