Republic Services Inc. 2026 Q2 Earnings Call

Good afternoon. I would like to welcome everyone to Republic Services second 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 may involve risk 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 August 6th, 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. 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.

Thanks, John. Good afternoon, everyone, thank you for joining us. Our strong second quarter results reflect the resilience of our business model and consistent operational execution. We delivered solid growth on both the top and bottom lines. At the same time, we continued investing in technology, automation, and customer-focused solutions that strengthen our competitive position, improve the customer experience, and enhance long-term profitability. During the quarter, we achieved revenue growth of 4.6% and generated adjusted EBITDA growth of 4.5%. We maintained adjusted EBITDA margin at 32.1% and overcame headwinds associated with event-driven landfill volumes received in the prior year. We delivered adjusted earnings per share of $1.85 and produced $1.58 billion of adjusted free cash flow on a year-to-date basis. Our focus on delivering world-class essential services continues to support organic growth and enhance customer loyalty.

With respect to customer zeal, our customer retention rate remains strong at more than 94%. We continue to see favorable net promoter scores due to the value of our offerings and quality of our service delivery. Organic revenue growth during the second quarter was driven by strong pricing across the business. Average yield on total revenue was 3.4%, and average yield on related revenue was 4%. This level of pricing exceeded our cost inflation, which drove margin expansion in the underlying business. Organic volume was down 1.9% on related revenue or 1.6% on total revenue. This level of performance was expected, with 1.3% of the decline in total revenue associated with landfill event volumes received in the prior year. Aside from the tough prior year comp, volume performance improved 50 basis points from the first quarter.

Organic revenue in the environmental solutions business decreased total revenue by 20 basis points in the second quarter, which was in line with our expectations. Our environmental solutions sales pipeline continues to build with increased activity across multiple end markets. We continue to expect year-over-year revenue growth in this business in the second half of the year. Turning to digital. Our investments in technology and AI are advancing. Over time, these capabilities are expected to drive additional growth and support continued operating leverage. We're actively deploying AI-based predictive technology that supports optimized pricing decisions across markets with varying customer and competitive dynamics. This approach is expected to reinforce price retention and reduce customer attrition over time. Enhancements to our RISE digital platform are progressing, with initial deployment focused on the large container business.

The integration of AI and advanced routing algorithms is expected to improve safety outcomes, strengthen service execution, and increase route efficiency. Early pilots confirm the expected value from this initiative. Activation of digital tools in our call centers are enhancing the customer experience and unlocking value in our business by optimizing the 11 million inbound calls we receive each year. Moving on to sustainability. Last week, we released our latest sustainability report highlighting the meaningful progress we are making toward our 2030 goals and the positive impact we are delivering for our customers and communities. Our suite of sustainability reports and materials is available on our website. We continue to believe that our investments in plastic circularity and decarbonization position us for profitable growth and long-term value creation. Production volume continues to increase across our Polymer Center network as we optimize processing operations.

Construction at a third Polymer Center in Allentown, Pennsylvania, is progressing. Facility commissioning is planned to begin early next year. We continue to advance renewable natural gas projects with our partners. We commenced operations at two RNG projects during the second quarter and expect two additional projects to begin operations by year-end. We made further progress on our commitment to fleet electrification. We had more than 250 electric collection vehicles in operation at the end of the second quarter. We expect to exit this year with more than 300 EV collection trucks in our fleet and will continue to grow 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 see high employee engagement scores, and our turnover rate is the lowest on record.

With respect to capital allocation, we invested $860 million in strategic acquisitions in the first half of the year. Our acquisition pipeline remains supportive of continued activity in both the recycling and waste and environmental solutions businesses. We expect to invest more than $1.2 billion in value-creating acquisitions in 2026. During the first half of the year, we returned more than $1 billion to shareholders through dividends and the repurchase of approximately 1% of our outstanding shares. Additionally, we recently announced an increase to the dividend for the 23rd consecutive year. Building on the strong results delivered through the first half of the year and continued momentum we see across the business, we raised our full-year 2026 guidance as follows. Revenue is expected to be in the range of $17.2 billion to $17.3 billion.

Adjusted EBITDA is expected to be in a range of $5.525 billion to $5.55 billion. Adjusted earnings per share is expected to be in the range of $7.23 to $7.28. Adjusted free cash flow is expected to be in a range of $2.54 billion to $2.575 billion. Our full-year guidance incorporates higher than expected fuel recovery fee revenue through July, increased recycling commodity revenue based on current prices, and the contribution of acquisitions closed to date. I will now turn the call over to Brian, who will provide details on the quarter.

Thanks, John. Core price on total revenue was 5.3%. Core price on related revenue was 6.4%, which included open market pricing of 7.8% and restricted pricing of 4.1%. The components of core price on related revenue included small container of 8.1%, large container of 6.9%, and residential of 6.3%. Average yield on total revenue was 3.4%, and average yield on related revenue was 4%. Additionally, fuel recovery fees increased total revenue by 1.8%, which offset higher fuel expense and related surcharges. Second quarter volume decreased total revenue by 1.6% and related revenue by 1.9%. Most of the decline was due to the event-driven landfill volumes in the prior year. Volume performance on related revenue also included a 1.1% increase in landfill MSW.

This was more than offset by large container volumes, which declined 2.2%, primarily due to continued softness in construction-related activity, residential volume, which declined 4.3% due to known contract losses, and landfill special waste, which declined 30 basis points. It's important to note that landfill special waste increased 10.7%, excluding the tough comp from wildfire volumes received in the prior year. Moving on to recycling. Commodity prices were $136 per ton during the second quarter. This compared to $149 per ton in the prior year. Recycling processing and commodity sales increased by $8 million during the quarter. Increased volumes at our Polymer Centers offset lower recycled commodity prices. Current commodity prices are approximately $140 per ton. This is the basis used for the second half of the year in our updated guidance. This would imply a full-year average commodity price of approximately $135 per ton.

Total company adjusted EBITDA margin was 32.1%. Margin performance during the quarter included margin expansion in the underlying business of 90 basis points, which was offset by a 50 basis point decrease from landfill event volumes, a 30 basis point decrease from net fuel, and a 10 basis point decrease from recycled commodity prices. With respect to environmental solutions, second quarter revenue increased $53 million sequentially, driven by higher event volumes and additional seasonal activity across the business. Adjusted EBITDA margin in the environmental solutions business was 20.2%, a sequential improvement of 100 basis points. Year to date, adjusted free cash flow was $1.58 billion. Our performance was driven primarily by EBITDA growth in the business. Total debt was $14.2 billion, and total liquidity was $2.8 billion. Our leverage ratio at the end of the quarter was 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 23.8% during the quarter. We now expect an equivalent tax impact of approximately 24.5% for the year. With that, operator, I would like to open the call to questions.