Republic Services 2026 Q3 Earnings Call

I would like to welcome everyone to Republic Services' third 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 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 29, 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 GAAP 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. We delivered another strong quarter of results driven by disciplined pricing and improving volume trends while successfully overcoming elevated diesel fuel costs. Positive momentum across the business included profitable growth in Environmental Solutions, underscores the strength and resilience of our business model and our ability to capitalize on improving macroeconomic trends. Our results reflect our continued focus on pricing ahead of cost inflation and effective cost management while making strategic investments that strengthen our competitive advantages and position us to deliver sustainable growth and long-term shareholder value. During the quarter, we achieved revenue growth of 8.2%, increased adjusted EBITDA 4.8%, delivered adjusted earnings per share of $1.94, and generated year-to-date adjusted free cash flow of $2.28 billion. With respect to Customer Zeal, our commitment to deliver world-class essential services continues to drive organic growth and strengthen customer satisfaction.

Customer retention remained high at more than 94%. Customers value the quality and breadth of our services, which extends continued loyalty and supports our ability to earn attractive returns for the value of the services we provide. Strong pricing across the business remained the primary driver of organic revenue growth during the third quarter. Core price on related revenues was 6.3%, which is relatively consistent with our second quarter performance. Combined with higher fuel recovery fees, the price increase is over 8%. Average yield on related revenues is 3.5% and continued to exceed our internal cost inflation. The sequential moderation in average yield was primarily due to better-than-expected volumes in our small and large container businesses, which included an increase in service levels. Service increases are profitable and increase route density, but typically have a dilutive impact on average yield.

Organic volume decreased 70 basis points on related revenue and were positive 20 basis points after adjusting for one-time landfill event volumes received in the prior year. Importantly, volume in both small and large container businesses increased 50 basis points. This marks the first time in more than three years that both businesses generated positive volume growth at the same time. Organic revenue in the Environmental Solutions business increased 21% compared to the prior year and contributed 2.1% to total company revenue growth in the third quarter. Revenue growth in this business was driven by a few large emergency response jobs. Revenue grew in this segment by approximately 9% excluding these jobs. We continue to see strong demand for our Environmental Solutions customers and expect positive revenue growth to continue through the rest of the year and into 2027.

Turning to digital, we continue to advance our technology and AI initiatives to improve pricing effectiveness, extend customer retention, and increase labor productivity. AI-enabled pricing technology is now deployed across the business, providing enhanced insights to support pricing decisions that reflect service requirements and market conditions. These enhanced capabilities are designed to better reflect customer needs and support long-term revenue retention. We continue to pilot our new AI-enhanced routing platform to improve service execution, gain route efficiencies, and reduce disposal costs. This new technology combines AI capabilities with advanced routing algorithms to optimize every aspect of our routing logistics. Full-scale deployment is expected to begin early next year. With respect to our call centers, digital tools are transforming how we manage 11 million inbound calls ES year. We believe that over time, more than half of these calls can be eliminated or handled through a lower-cost channel.

This enables faster resolution and a more seamless customer experience. Moving on to sustainability. Construction of our third Polymer Center in Allentown, Pennsylvania, remains on track, with commissioning planned for early next year. Our renewable natural gas projects with our partners continue to make progress. We are on track to complete two additional RNG projects by year-end, which would bring the total project additions for the year to four. We continue to electrify our fleet. During the quarter, we launched Florida's first fully electric residential Recycling & Waste collection fleet in the City of Coconut Creek. We ended the third quarter with more than 280 electric collection vehicles in operation across our business. We remain on track to finish the year with more than 300 EV trucks as we continue to grow this differentiated offering. We strive to be the employer where the best people want to work.

Employee engagement remains high, and turnover is at a record low. We were recently named one of 3BL's 100 Best Corporate Citizens and earned Great Place to Work certification for the tenth consecutive year. With respect to capital allocation, we invested $1.1 billion in value-creating acquisitions so far this year. We expect to finish 2026 with at least $1.2 billion in acquisition investments. Looking ahead, our acquisition pipeline remains active across both Recycling & Waste and Environmental Solutions. Year to date, we returned $1.43 billion to shareholders, including $884 million of share repurchases and $577 million of dividends. I will now turn the call over to Brian, who will provide more details on the quarter.

Thanks, John. Core price on total revenue was 5.3%. Core price on related revenue was 6.3%, which included open-market pricing of 7.6% and restricted pricing of 4.1%. The components of core price on related revenue included small container of 8%, large container of 7%, and residential of 5.8%. Average yield on total revenue was 2.9%, and average yield on related revenue was 3.5%. The 50 basis point sequential decline in yield on related revenue was primarily driven by increased unit growth in our small and large container businesses. Fuel recovery fees increased total revenue by 1.8%, which offset higher fuel expense and related surcharges. Third quarter volume decreased total revenue by 60 basis points and related revenue by 70 basis points. The decline was driven by a 90 basis point headwind from event-driven landfill volumes received in the prior year.

The rest of the business increased 20 basis points on a year-over-year basis. The details of volume performance during the quarter included a 50 basis point increase in small container volume, driven by net new business and increased service levels by our same store customers, a 50 basis point increase in large container volume, primarily due to increased service levels, and a 6.4% increase in special waste revenue. This was more than offset by residential volume, which declined 4.3%, primarily due to certain municipal contract losses and reduction in construction and demolition landfill volume, which related to the previously mentioned event work in the prior year. Moving on to recycling. Commodity prices were $142 per ton during the third quarter, compared with $126 per ton in the prior year. Recycling, processing, and commodity sales increased $15 million during the quarter, driven by higher Polymer Center volumes and recycled commodity prices.

With respect to Environmental Solutions, third quarter revenue increased $96 million compared to the prior year. Environmental Solutions revenue increased 21% compared to same-store revenue in the prior year and contributed 2.1% to total company revenue growth. Adjusted EBITDA margin in the Environmental Solutions business was 25.4%, which represented 440 basis points of margin expansion compared to the prior year. Total company adjusted EBITDA margin was 31.8%. Margin performance during the quarter included a 50 basis point decrease from net fuel, a 40 basis point decrease from landfill event volumes received in the prior year, and a 60 basis point decrease from elevated healthcare costs. This was comprised of 20 basis points from a prior year rebate that did not repeat and 40 basis points from above-average large claims activity. Healthcare claims activity returned to more normal levels in the month of October.

The rest of the business expanded margin by 50 basis points, which was in line with our expectations. Year-to-date adjusted free cash flow was $2.28 billion, driven primarily by EBITDA growth in the business. Total debt was approximately $14.2 billion, and total liquidity was $2.3 billion. We ended the quarter with a leverage ratio of 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 21.7% during the quarter. For the full year, we expect an equivalent tax impact of approximately 24%. I will now turn the call back over to Jon.

Thanks, Brian. Based on results to date and our outlook for the remainder of the year, we updated our full year 2026 financial guidance as follows. Revenue is now expected to be in the range of $17.425 billion to $17.475 billion. Adjusted EBITDA is now expected to be in the range of $5.5 billion to $5.575 billion, and adjusted free cash flow is expected to be in the range of $2.565 billion to $2.585 billion. Most of the revenue increase is due to higher fuel recovery fees related to elevated diesel fuel costs. As a reminder, our fuel recovery program is designed to offset the cash impact of changing diesel costs and is dilutive to margin when fuel costs are increasing.