Transcript • May. 7, 2026 9:00 PM • Republic Services Inc. (RSG)
Transcript
May. 7, 2026 9:00 PM
Republic Services Inc. (RSG)
Chief Financial Officer: or you can go back over several years and that's the case. But we do expect to spend that full year CapEx that we guided to in the beginning of the year.
Analyst: Yep. Okay. Got it. And then one other question on M&A, I just wanted to tackle it a little bit differently. I guess, are there, and it was sort of a, you know, 700 million to date, I believe. And so, you know, Were you trying to strengthen current markets that you're already in, entering new ones, trying to understand what opportunities you were able to find and how you're thinking about sort of what targets you're approaching? Thanks.
Chief Operating Officer: Yes and yes. So we look in recycling and waste, both the markets that we're already in, to strengthen those. And that's the bread and butter, I'd say, of what we do acquisition-wise. And then expanding geographies is also an opportunity for us, and those become great platforms for further tuck-in acquisitions over time. And then as well as environmental solutions, right, same opportunities there. Strengthening markets are already in and expanding into new markets. The balance of the spend so far this year of what's already closed and what's signed and going to close has really been 90% plus recycling and waste. That balance will probably rotate just a little throughout the rest of the year, but pretty strong on both ends.
Kim: Our next question comes from Tammy Zakaria with JP Morgan.
Tammy Zakaria: Hi, good morning. Sorry, good afternoon or evening. Thanks for the time. So question on CPI. The March reading accelerated sequentially. Just wondering if you could remind us how much of your portfolio is indexed with CPI? Should it continue to go higher and what's the typical lag?
Chief Financial Officer: Yeah, so of our portfolio of contracts that we call restricted, which have some sort of pricing restriction embedded in the contract itself, just shy of 20% are directly linked to headline CPI. 35% are linked to some sort of alternative index, you know, water, sewer, trash, garbage, trash, with the balance about 45%, some sort of fixed rate that's embedded in the contract itself or a rate review. The lag tends to be 12 months, call it, on average. There's a look-back period. And then the implementation period tends to be about 12 months after the fact.
Tammy Zakaria: That's very helpful. And I wanted to double-click on residential volumes. I know you're not speaking to 2027 specifically, but do you expect residential volumes to turn positive at some point next year?
Chief Operating Officer: Oh, no, I think the rate of decrease will certainly improve, whether that is flat next year or not, probably still declines, just given some of the rollover effect of those larger contracts that we lost, some of which started on January 1st and some of which are mid-year conventions on that front. And listen, we're going to continue to put upward pressure on price and be returns focused and get paid for the work we do. And to the extent that customers are not willing to pay, then we'll put our resources into other verticals and other opportunities.
Kim: Our next question comes from Konark Gupta with Scotia Capital.
Konark Gupta: Thanks. Just following up on the residential business, I understand the volumes are declining and why, but if you can talk about the underlying business, how is it performing from profitability and return standpoint?
Chief Financial Officer: Yeah, no, profitability in that business is improving. And again, I think for a couple reasons. One, when you have a contract that's underperforming and you look to get it to an acceptable level of return, and if you don't retain that because someone is willing to take that at that relatively lower price, you're going to improve your overall performance. Coupled with the fact that you look at the remainder of the portfolio and you look at the level of price, that we've had in the residential system itself, very strong and well in excess of our cost inflation. So the combination of the two have driven margin expansion in that business.
Chief Operating Officer: And when we bid these residential contracts, we never bid them to lose money. We bid them with the assumptions of profitability, but then things change over the course of a five-year term of the contract, which is maybe we didn't have a good pricing escalator on the contract and our costs inflated faster. Maybe our assumptions in terms of number of trucks we needed to cover the community wasn't quite right. It turned out to be a little more expensive to deliver or operate that truck. So we're being very disciplined across each one of those contracts to make sure that we are returns driven and pricing that accordingly when the contract comes up.
Konark Gupta: Thanks. And if we can follow up on the employee turnover side of things, are you seeing any implications whatsoever direct or indirect from the CDL regulations that are going through in the U.S. right now? I mean, I understand drivers may not be CDL necessarily, but some of them, but do you see any impact of the shortage of drivers that's going on in the industry?
Chief Operating Officer: Yeah, our drivers do have CDLs, and I'd say the impact has been de minimis. There's been a few individual cases, but overall, we set the turnover record two years in a row, and we may break it again for a third year. The team's doing a great job of finding talented technicians and drivers and customer service agents and all of our other frontline colleagues and retaining those colleagues at an increasingly high rate.
Kim: Our next question comes from Shlomo Rosenbaum with Stiefel.
Shlomo Rosenbaum: Hi, thank you very much for taking my questions. You mentioned that you're starting to see some green sheets in the solid waste business, and I'm wondering if you're seeing similar type of green shoots in the ES business as well. Are you seeing, you know, maybe some of the turnarounds happen a little bit faster? You know, what signs are you seeing over there in that business?
Chief Operating Officer: Yeah, I'd certainly say it's improving, maybe not improving quite as quickly as we're seeing on the special waste or side of the business in the recycling and waste business. And, you know, you've got some moving pieces. So, listen, as a oil prices spiking and people are kind of trying to blow out demand, right? That's delaying some of the other line project work to work, which can't be delayed forever, but can be suspended for three to six months. So there's puts and takes there, but the trend line is definitely up and we'll see what kind of momentum we build here in the second quarter.
Shlomo Rosenbaum: Okay. Thank you. And then What was driving the volumes down in the CNT business? Was that a tough comp issue over there with some of the stuff that you were talking about, or it just kind of stood out over there?
Chief Financial Officer: Yeah, it was more of a comp issue. So in the prior year, we had some hurricane cleanup efforts in the southeast.
Kim: Our next question comes from Toby Summer with Truist.
Operator: Toby, is your line muted?
Jon Vander Ark: No, can you hear me?
Toby Summer: Yeah, we can hear you. Okay, great. I just wanted to ask a question about volume in environmental services. How do you expect the cadence of that to change throughout the balance of the year?
Chief Operating Officer: Well, there we don't report on a specific volume metric just because there's so many different product and service lines there that it'd be really, really tough with a mixed standpoint. But as I mentioned earlier, we see momentum really building in the second half of the year. I think you'll see incremental progress quarter to quarter. The year-over-year comp is tougher in the second quarter, but the second half you'll definitely see the volume picture build.
Toby Summer: Thank you. And with respect to your acquisition program, are you seeing opportunities on the ES side as readily as you are on the municipal solid waste side?
Chief Operating Officer: Plenty of opportunities. I'd say there's a little more momentum right now in recycling and waste, not because of activity on our side, but just timing of market. We know that These things ebb and flow. Lots of opportunities we have on the recycling and waste side. We've had discussions with the sellers for over a decade, and it's really timing and event-driven on their side that drives the sale. Environmental Solutions, obviously, we don't have the relationship profile that is that long, but still some of the same things. We maintain a significant dialogue for every acquisition we close that we've probably had seven fall out of the system at some point in the pipeline, so we're very discriminating in terms of who we actually buy, but the activity level there is very strong as well.
Kim: Our next question comes from Stephanie Moore with Jefferies.
Stephanie Moore: Great. Good afternoon. Thank you. I wanted to circle back on some of the commentary that you provided on your RISE digital platform. I think some of your some of your peers have talked about leveraging technology for more dynamic pricing discussions. And I wanted to see if that's an area that you guys have tackled as of late. And at the same time, I think you've talked in the past about some opportunity with AI and, you know, algo-based routing. So I wanted to get an update there as well. Thank you.
Chief Operating Officer: Yes, on both sides. So pricing today is, we're using dozens of variables through AI to build bespoke prices to existing customers when we send them our annual price increase. And so we're trying to get that as surgical as possible to give them a price that maximizes both what they'll pay and incents them to stay over a long period of time. And that is a game of inches in terms of dialing that in, but small basis points across individual customers adds up quickly across the system and feel really encouraged. And that will just continue to get better and better over time. It kind of builds in a more linear fashion. Where the routing, there's a lot of upfront work, particularly around data and data accuracy and data management that you need to have in place so that when you start building dynamic routes through AI and then routing dynamically through the day, you get it right. And what we won't do is sacrifice customer service to pursue short-term gains. We're going to get it right with the customer first and then drive all of the operational efficiency through the system while improving customer service. And that's why you'll start to see some of that benefit in the second half of next year, but that's really 2028 where we think we scale.
Operator: That's it for me, guys. Thank you.
Kim: Our next question comes from David Manthe with Baird.
David Manthe: Thank you. Good afternoon. How much of the environmental solutions weakness is that self-inflicted pricing that you mentioned as opposed to end market softness? And if some of it is market-related, what exposures by service or customer type lead you to your view of an improvement in the second half of 26, just so we can sort of track that?
Jon Vander Ark: Yeah, it's a
Chief Operating Officer: To answer the last part of your question, we see the sales pipeline and just understand the activities both on our side and then work that is contracted and slated to begin. Some of those are longer-term things that happen over the course of many months, and some of those could be shorter, but we know the start date happens later in the second quarter or into the third quarter on that front. The split between what is market and what is our own activity is hard to identify. I'd say certainly it was more self-inflicted. In the second half of last year, and I'd say as we increasingly go forward, we're more market-driven, which is we think we got market pricing very dialed in here. We're not going to get it perfect every time, but much improved on that dimension. And some of this is things like ER, which is hard to predict. We've just had a soft kind of 18 to 24 months on emergency response other than a single job. And, you know, going forward, we would expect that to resume to normal levels, but we'll see where that progresses. And then it's a mixed picture on the underlying verticals. I mentioned petrochemical and that being a little slower, or we're seeing some of the biotech being a little slower, where some of the other verticals are moving a little quicker.
David Manthe: And given that you have visibility on these projects as they're coming down, we should assume these are, what, turnarounds, remediation, hazardous C&D? How should we think about what types of work that is?
Chief Operating Officer: Yeah, it's a full mix. It can be both recurring things where we've won the opportunity to take all of the integrated waste out of a plant. A plant produces recycling, solid waste, special waste, and hazardous liquids, hazardous water, we can handle all of that. Or it could be events where we know we're projected to do a big remediation opportunity. And again, that could produce special waste and hazardous waste solids.
Jon Vander Ark: And that event could be as short as two weeks or could last as long as eight or nine months.
Kim: At this time, there appear to be no further questions. Mr. Van Der Ark, I'll turn the call back over to you for closing remarks.
Jon Vander Ark: Thank you, Kim.
Chief Operating Officer: I want to thank the Republic Services team for the great start to the year. Their continued focus on safety, sustainability, and exceeding customer expectations positions us for success and another year of strong results. Have a good evening and be safe.
Kim: Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect.
