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Date
Tuesday, July 29, 2025 at 9:00 p.m. ET
Call participants
Chief Executive Officer — John Vander Ark
Chief Financial Officer — Brian DelGhiaccio
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Risks
Environmental Solutions revenue decreased by $11 million in Q2 2025, driven by continued softness in manufacturing end markets and lower event-based volumes.
Residential and large container volumes declined by 3.2% and 3.4%, respectively, in Q2 2025, primarily due to soft construction activity and the shedding of underperforming contracts.
Recycled commodity prices fell to $149 per ton in Q2 2025 from $173 per ton in Q2 2024, with current prices around $130 per ton in the second half of 2025, impacting revenue guidance.
Labor disruptions resulted in incremental costs from redeploying employees and providing customer credits, with ongoing negotiations in certain markets.
Takeaways
Revenue growth: Total revenue increased by 4.6% in Q2 2025, reflecting core pricing strength in the waste and recycling segments.
Adjusted EBITDA: Adjusted EBITDA increased by 8%, with a 100 basis point margin expansion, driven primarily by pricing above cost inflation and event-related landfill activities in Q2 2025.
Organic volume change: Organic volume increased by 20 basis points in Q2 2025, supported by hurricane cleanup in the Carolinas and wildfire remediation in Los Angeles, and partially offset by declines in collection categories.
Pricing metrics: Core price on related revenue was 7%, with open market pricing at 8.6%, restricted pricing at 4.6%, and average yield at 5% for Q2 2025.
Customer loyalty: Customer retention rate exceeded 94%, and net promoter score trends remained favorable in Q2 2025.
Recycling economics: Commodity prices averaged $149 per ton during Q2 2025 and are assumed to be $130 per ton for the remainder of 2025 in guidance.
Free cash flow: Adjusted free cash flow (non-GAAP) year-to-date reached $1.42 billion for the first half of 2025, with updated full-year 2025 guidance raised to $2.375 billion–$2.415 billion, primarily reflecting an $80 million cash tax benefit from bonus depreciation.
Capital expenditures: Year-to-date capital expenditures totaled $727 million, representing 38% of projected full-year spend as of Q2 2025.
Acquisition activity: Nearly $900 million was invested in acquisitions year-to-date (as of Q2 2025), with a pipeline supporting more than $1 billion in potential deals for 2025; $407 million was returned to shareholders via dividends and buybacks year-to-date (as of Q2 2025).
Leverage and liquidity: Total debt was $13.1 billion, total liquidity stood at $3 billion, and the leverage ratio was approximately 2.5x as of the end of Q2 2025.
Sustainability progress: The Indianapolis Polymer Center began commercial production in July 2025, and six renewable natural gas (RNG) projects commenced operations year-to-date, with seven expected by year-end 2025.
Fleet electrification: There were 114 electric collection vehicles (EVs) in service as of Q2 2025, with a target of over 150 by year-end 2025, and 27 facilities equipped with commercial-scale EV charging infrastructure.
Guidance update: The full-year 2025 revenue range was updated to $16.675 billion–$16.75 billion, reflecting reductions from weak construction and manufacturing volumes and lower commodity prices; adjusted EBITDA and EPS ranges remain unchanged.
Environmental Solutions EBITDA: Adjusted EBITDA margin for Environmental Solutions held steady at 23.7% in Q2 2025, despite the revenue decline.
M&A guidance contribution: Current full-year 2025 guidance includes 120 basis points of revenue growth from acquisitions, with $100 million included at initial guidance and $20 million incremental, totaling $35 million in annual revenue.
Summary
Republic Services(RSG 0.22%) faced persistent demand headwinds in construction and manufacturing throughout Q2 2025, resulting in a reduction of full-year 2025 revenue guidance by approximately $190 million at the midpoint. Cost discipline and robust price realization enabled 8% adjusted EBITDA growth and improved adjusted EBITDA margins in Q2 2025, while full-year 2025 adjusted EPS and adjusted EBITDA guidance remained unchanged. The company increased its full-year adjusted free cash flow outlook for fiscal 2025 after receiving an $80 million tax benefit from recently enacted 100% bonus depreciation. Ongoing labor disruptions remained localized, primarily driving incremental costs for temporary staffing and customer credits, and their direct impact will be excluded from adjusted results. Strategic investments in acquisition, fleet electrification, and polymers infrastructure continued as planned, with year-to-date capital deployed and pipeline expectations unchanged despite current volume softness.
CFO Brian DelGhiaccio explained that $65 million of the full-year 2025 revenue guidance reduction resulted from recycling and waste volume weakness, with the remainder largely stemming from Environmental Solutions.
CEO John Vander Ark stated, "when forced to choose, we're always gonna take price." clarifying pricing discipline amid volume challenges in Environmental Solutions and national accounts.
The management team described market conditions as "the most challenging demand environment now protracted for more than a decade" outside the COVID period, citing ongoing softness in core construction markets leading to further mid-single-digit volume declines year-over-year as of Q2 2025.
Sustainable margin expansion in Q2 2025 was supported by a positive mix from higher-margin landfill volumes related to event-driven activity, partially offset by decreased volumes in traditional collection and Environmental Solutions businesses.
The company maintained confidence in its acquisition strategy, noting that transaction multiples—especially in Environmental Solutions—have increased significantly over the past five years, but cash-on-cash returns remain the primary criterion for evaluating targets.
Industry glossary
C&D (Construction & Demolition): Waste stream from construction, renovation, and demolition of buildings, often handled by landfill operations and subject to cyclical demand.
RNG (Renewable Natural Gas): Methane collected from landfills or other waste sources, processed for use as a pipeline-quality fuel.
Open market pricing: Price increases implemented for customers whose contracts allow for changes without regulatory constraints.
Restricted pricing: Price increases governed by contract or regulation, limiting the company's flexibility to adjust rates.
Adjusted free cash flow: A measure of cash generated by the company excluding certain one-time or non-operating items, focusing on cash available for debt repayment, dividends, or reinvestment.
Bonus depreciation: A tax provision allowing companies to immediately deduct a large percentage of the purchase price of eligible assets, thereby lowering taxable income and improving near-term cash flow.
ES (Environmental Solutions): Republic Services segment focused on specialized waste streams—primarily industrial, hazardous, and event-driven services.
Full Conference Call Transcript
John Vander Ark, our CEO, and Brian DelGhiaccio, 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, 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 discussed 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 July 29, 2025.
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 expressed 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 John.
John Vander Ark: Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. We are pleased with our second quarter results, which reflect the resilience of our business model and consistent operational execution. We delivered robust earnings growth and margin expansion, overcoming continued lower demand from construction and manufacturing end markets. We continue to invest in our differentiated capabilities to meet the needs of our customers, allowing us to consistently grow our business and enhance profitability. During the quarter, we achieved revenue growth of 4.6%, generated adjusted EBITDA growth of 8%, expanded adjusted EBITDA margin by 100 basis points, delivered adjusted earnings per share of $1.77, and produced $1.42 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 enhanced customer loyalty. Our customer retention rate remains strong at more than 94%. We continue to see favorable trends in our net promoter score 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 4.1%, and average yield on related revenue was 5%. This level of pricing exceeded our cost inflation and helped drive a 100 basis points of adjusted EBITDA margin expansion during the quarter. Organic volume increased 20 basis points in the quarter.
Volume growth included outside special waste and C&D landfill activity. This related to hurricane recovery efforts in the Carolinas and wildfire remediation in the Los Angeles area. These volumes were partially offset by declines 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 was down in the environmental to total company revenue. Environmental Solutions revenue has been negatively impacted by continued sluggish manufacturing activity, uncertainty around tariff policy, and lower event-based volumes. Even with the revenue headwinds, our environmental solutions team demonstrated effective cost management to maintain EBITDA margin performance consistent with prior year results.
Moving on to sustainability. We believe that creating a more sustainable world is both our responsibility and a platform for growth. We recently released our latest sustainability report highlighting the progress we are making toward our 2030 goals, and the positive impact we are delivering to our customers and the communities we serve. Our 2030 goals are supported by the investments we are making in employee training and development programs, plastic circularity, and decarbonization. We are making progress on the development of our polymer centers and Blue Polymers joint venture facilities. Regarding the Indianapolis Polymer Center, we commenced commercial production in July. This operation is co-located with our Blue Polymers production facility.
We hosted a grand opening ceremony for this facility in June. We expect commercial production to begin in the fourth quarter upon the completion of equipment commissioning. The renewable natural gas projects we're developing with our partners are advancing. Four projects came online during the second quarter, along with another project completed in early July. This brings total projects completed this year to six. We still expect a total of seven RNG projects to commence operations in 2025. We continue to advance our commitment to fleet electrification. We had 114 electric collection vehicles in operation at the end of the second quarter. We expect to have more than 150 EVs in our fleet by the end of this year.
We currently have 27 facilities with commercial-scale EV charging infrastructure. We expect to have more than 30 facilities with charging capabilities by the end of 2025. As part of our approach to sustainability, we continually 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, year-to-date, we have invested nearly $900 million in strategic acquisitions. Our acquisition pipeline remains supportive of continued activity in both the recycling and waste and environmental solutions businesses. We continue to see the opportunity for more than $1 billion of value-creating acquisitions in 2025. Year-to-date, we have returned $407 million to shareholders through dividends and share repurchases. Additionally, we recently announced an increase to the dividend for the 22nd consecutive year. We updated our full-year 2025 financial guidance based on results delivered in the first half of the year, recently enacted tax legislation, and our outlook for the remainder of the year.
We now expect revenue to be in the range of $16.675 billion to $16.75 billion. We maintained our original guidance for adjusted EBITDA and adjusted earnings per share as follows. Adjusted EBITDA is expected to be in the range of $5.275 billion to $5.325 billion, and adjusted earnings per share is expected to be in the range of $6.82 to $6.90. We increased our full-year adjusted free cash flow guidance, which is now expected to be in the range of $2.375 billion to $2.415 billion. This increase reflects a benefit to cash taxes from 100% bonus depreciation, which passed earlier this month. Our updated financial guidance includes the contributions from acquisitions closed through June 30th.
We plan to remove the impact of recent labor disruptions from our adjusted results, which is reflected in our updated full-year guidance. Regarding the labor disruptions, we've been negotiating in good faith and remain committed to reaching a fair and equitable agreement that balances the needs of our employees, our customers, and our business. While the labor disruptions have been localized in impact, I'm proud of how our team is working tirelessly to serve our customers. I will now turn the call over to Brian, who'll provide details on the quarter.
Brian DelGhiaccio: Thanks, John. Core price on total revenue was 5.7%. Core price on related revenue was 7%, which included open market pricing of 8.6% and restricted pricing of 4.6%. The components of core price on related revenue included small container of 9%, large container of 7.1%, and residential of 6.6%. Average yield on total revenue was 4.1%. The average yield on related revenue was 5%. Second quarter volume performance on total revenue and related revenue increased 20 basis points. Volume results on related revenue included a 47% increase in landfill C&D volume, driven by hurricane cleanup activity in the Carolinas, and a 22% increase in landfill special waste revenue driven by wildfire remediation efforts in Los Angeles.
Large container volumes declined 3.4%, primarily due to continued softness in construction-related activity and most manufacturing end markets, and residential volume declined 3.2% due to shedding underperforming contracts. Moving on to recycling. Commodity prices were $149 per ton during the second quarter, compared to $173 per ton in the prior year. Recycling, processing, and commodity sales increased by $7 million during the quarter. Increased volumes at the polymer centers and reopening a recycling center on the West Coast offset lower recycled commodity prices. Current commodity prices are approximately $130 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 $140 per ton.
Total company adjusted EBITDA margin expanded 100 basis points. Margin performance during the quarter included a 60 basis point increase from previously noted event-driven landfill and margin expansion in the underlying business of 70 basis points. This was partially offset by a 10 basis point decrease from net fuel, a 10 basis point decrease from recycled commodity prices, and a 10 basis point decrease from acquisitions. With respect to environmental solutions, second quarter revenue decreased $11 million compared to the prior year, driven by lower event volumes and softness in most manufacturing end markets. Adjusted EBITDA margin in the Environmental Solutions business was 23.7%, flat when compared to the prior year. Year-to-date, adjusted free cash flow was $1.42 billion.
Our performance reflects EBITDA growth in the business and the timing of capital expenditures. Year-to-date capital expenditures of $727 million represent 38% of our projected full-year spend. Total debt was $13.1 billion, and total liquidity was $3 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 investment during the quarter. With that, operator, I would like to open the call to questions.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. In the interest of time, we ask that you limit yourself to one question and one follow-up question 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're using a speakerphone, please pick up your handset before pressing the keys. And we'll pause momentarily to assemble the roster.
Tyler Brown: Hey, good afternoon, guys.
John Vander Ark: Hey, Tyler.
Tyler Brown: Hey, Brian. I know there's a few moving pieces, and I appreciate the EBITDA hold. But can you just kind of maybe parse out a little bit the $200 million or so reduction in the revenue guide? Just how much of that was ES versus, say, commodities?
Brian DelGhiaccio: Yeah, Tyler, it's actually, I would say there's two primary components. So one, we are reducing volume expectation within the recycling and waste business. That is predominantly due to, again, we talked about weakness in construction-related activity, but also the weakness in manufacturing end markets, which impacts our recycling waste business. So that's about 65 or so of the $190 million reduction at the midpoint. And then the rest of it primarily being an environmental solution. If you think about commodity sales, fuel recovery fees, and RINs, the decrease we're seeing there is predominantly offset by incremental acquisitions that we completed in the second quarter.
Tyler Brown: Okay. Okay. That's extremely helpful. And then just a little additional color maybe on why ES has been a little slow. I mean, I know that the industrial market's in a malaise. It sounds like you had some bigger project work roll off, but is it is that really the story? Were there any share losses or just any additional color?
John Vander Ark: I think the dominant is the macro. I mean, you think about manufacturing and this is where trade policy impacts us, which is, you know, manufacturers are not making capital decisions. Right? Production is slowed. You can see that through PMI. Now somewhat optimistic here, we see a recovery of that. But that's what's impacted us to date and that we're forecasting, you know, being conservative for the rest of your kind of more of the same on that front. Unless we haven't always gotten it right, we've done a tremendous job of taking price and you've seen that. And some of that is shedding non-regrettable work.
And then some of that is we probably just, you know, priced ourselves out of a couple opportunities that we're now getting ourselves back into. And then it looks at a couple parts of the business when volume is slow, we've seen this in ES and we seen this in national accounts, you see people getting, you know, trading off volume for price. And so those are short-term phenomenons, we think, on that front. And when forced to choose, we're always gonna take price.
Tyler Brown: Okay. And just real quickly, I know that US Ecology and the Ultra Vida business are maybe kinda hidden in that portfolio, but can you just remind us how big your E&P business is in the US?
Brian DelGhiaccio: Yeah. So of the E&P, when you think about of total environmental solutions, it's representing, yeah, mid-single digits of, you know, kind of our the, you know, the total portfolio.
Tyler Brown: Okay. That's what I was after. Okay. Thank you.
Operator: Your next question will come from Bryan Bergmeier with Citi. Please go ahead.
Bryan Bergmeier: Good afternoon. Thanks for taking my questions. You know, maybe just on the kind of estimated impact from labor disruption, are you able to share sort of what comprises the estimated impact that you forecasted? I mean, or is it entirely lost volume, or is there an element of, you know, assuming some higher wages or maybe you're paying an outside hauler? And is it possible to say, you know, maybe how much of that has already been experienced and how much is sort of gonna be, you know, August, September moving forward?
John Vander Ark: Yeah. It's primarily two things. The primary is the addition labor cost we have of moving our colleagues in to service our customers so that our customers aren't experiencing disruption and feel very good about where we're at with that. Today. And then the secondary cost is some credits will issue to customers in markets where they've had labor disruption. Again, most of the time, we've had a very quick recovery. In places where it's been a little more protracted, we're gonna take care of customers on that front.
Bryan Bergmeier: Got it. And then, you know, maybe longer term, you know, when these contracts are eventually renewed, presumably with some level of a wage increase, can you maybe talk about how Republic has historically sort of mitigated the impact from higher wages, what that could sort of look like flowing through the P&L and maybe just what kind of levers are available to you. Thanks. I'll turn it over.
John Vander Ark: Yeah. Because we're very frontline focused. So we want our people to make a very competitive wage and which the markets they operate, whether they're represented by a union or not. So we think about that all the time. It's critical for us to get that right, too low. Right? Obviously, we have high turnover, and we can't service our customers. Too high isn't good either. Not good for frontline people because we become less competitive in the market. And we lose opportunities to serve customers and we shrink our workforce.
And, you know, across our markets today, we're very confident in terms of the wages that we put out and benefits for our colleagues in many of these markets, we're experiencing single-digit turnover. Right? So this isn't not you know, we don't have a wage or a benefit problem in these markets. We've got a labor disruption that we're working through, and we're actively ready to negotiate. Hopefully, get through it quickly, but we're also prepared for any scenario.
Operator: Your next question will come from Noah Kaye. Please go ahead.
Noah Kaye: Hey. Thanks for taking the questions. First one, just on the higher free cash flow outlook, maybe just for avoidance of doubt, is that all really from the bonus depreciation benefits? Can you say how much those were and if there's any other moving pieces to take the free cash flow outlook higher?
Brian DelGhiaccio: Yeah. So no. It's two components. So the increase from bonus depreciation, about $80 million benefit, that's partially offset by an increase in the CapEx of $25 million. Part, we've got a relatively small impact from some potential tariffs. But also some opportunities that we took to buy out some leases and really leverage our, you know, favorable, you know, balance sheet there and just our lower cost of capital.
Noah Kaye: Right. Which has some margin benefits over time, which actually leads into my next question. You know, I think to pick up on Tyler's point, you know, the revenue outlook was helpful. The bridge to prior margins are going higher here, and I guess maybe the lower expected revenues in ES could be mixed positive, but it just seems like there's kind of better underlying solid waste margin expansion here. So can you kind of help us do the similar bridge on the margin outlook versus what you had before?
Brian DelGhiaccio: Yeah. And so, again, as we talked about, you know, when you'd have the revenue and then you take a look at flow through to EBITDA, there is some positive mix. So while we're seeing a reduction in environmental solutions revenue and I mentioned the on the recycling waste side, the reduction or in expectations around construction activity, we did see the positive contribution from those landfill volumes. Right? So in both, you know, Los Angeles as well as in the Carolinas. So that mix helps the overall margin just because those landfill volumes fall through at a relatively higher EBITDA margin than, let's say, the collection volumes or the ES volumes.
And I would say it does point up the overall strength of the business. Right? If you think about the demand environment, outside of COVID, this has been the most challenging demand environment now protracted for more than a decade. And softness and volume in a few spots, but overall, like, expanding margins in a very challenging environment, I think, speaks to the strength in the long-term nature of the business. And when you start to see volumes come back and return, I think we're setting our sights on even higher targets.
Noah Kaye: Very good. I'll turn it over.
Operator: Your next question will come from Tony Kaplan with Morgan Stanley. Please go ahead.
Tony Kaplan: Thank you. First, I wanted to ask on the C&D volumes looked particularly good in the quarter, and we saw some disparity between the big three on this particular line. I was wondering if you thought that this was a geographic thing or definitional, or are you taking share in this particular part of the business? Just any color on strength versus the market would be great.
Brian DelGhiaccio: Yeah. This is Tony. I mentioned the hurricane volumes. They're coming through the C&D line item within our landfill book of business. So that's what that entirely is. When you take a look at construction more broadly, you see some of the temporary large container volumes, you can see those continue to run negative. Which is impacting our large container volumes. So would say more broadly when you take a look at that pure construction activity, that's still a negative demand environment. And those events almost always end up being connected to the landfill that's got the lowest cost logistics. So proximity matters the most in those cases.
Tony Kaplan: Great. And then I wanted to ask the labor disruption question. In maybe a different way. I guess, how do you think that well, first, it sounded like maybe you're alluding to you see it as a specific regional issues in different areas. Do you think it impacts the cost in the industry in the future and price cost spread? Like, is it more of an industry thing or do you think that it's more contained and specific? Thanks.
John Vander Ark: I think it's more contained and specific. We don't have a national contract. We have all local contracts. And we're about a third, unionized. In our frontline workforce. And, again, we feel very strong about the competitiveness of our cost position and the fitness of it. As I mentioned, right, we don't wanna get it too high because we're out of market and we lose work. We also don't want it to be too low because then we can't retain our very talented people. And can't service our customers, which allows us to get that price increase. So we feel very comfortable with the cost position today and moving forward.
Operator: Thank you. Your next question will come from Sabahat Khan with RBC Capital Markets. Please go ahead.
Sabahat Khan: Great. Thanks very much. Maybe just on some of the commentary from earlier tariffs, other moving pieces in the macro. Presumably, there's some cost increase across the business. I guess, with the macro, where it is, you know, how are your discussions on pricings for next year going? Not looking for, you know, guidance, but just acceptance of price, customers understanding that there are tariffs and other moving pieces, you know, should we expect a similar type of trajectory going forward? Relative to what we've seen recently?
John Vander Ark: Yeah. We're seeing that tariff impact come through again. It's de minimis for us compared to most organizations. And we're working on two fronts, obviously. Get you know, getting transparency with our suppliers and making them call out what is tariff related and then negotiating and pushing back on that, not down to zero in every case, but pushing back to make sure that we're not just taking the headline number that they present to us. And on the other side, some of that, there will be cost increases, and we'll do everything we can to pass that through to price. Next year.
So again, thinking about a 30 to 50 basis point margin spread, you know, per year across the cycle, we still think we're capable of doing that in this environment.
Sabahat Khan: Okay. Great. And then, you know, understand I Does that, you know, change the margin trajectory or the margin improvement journey you're on? And kinda second part, how far along are you on that journey if you just think about since adding some of those platforms to your business? Maybe how much more runway is there still on that front next?
John Vander Ark: And maybe I'll start with the end. Over time, we think there's considerable run room just given the nature of the very technical waste streams we challenge, given the number of landfills and incinerators and the post-collection environment. We think all that creates opportunity for margin expansion over time. But I've mentioned before, if you measure the progress here in any given quarter, you're gonna be disappointed because this isn't gonna be a straight line of progress. There's gonna be ups and downs. And it's a smaller business, so you have comps and changes in demand. But if you look across the years, I think we've demonstrated very consistent steady margin expansion.
And if you look forward, you're gonna see the same trajectory over the next four to five years.
Sabahat Khan: Thanks very much.
Operator: The next question will come from Tammy Zakaria with JPMorgan. Please go ahead.
Tammy Zakaria: Hey. Good afternoon. Thank you so much for taking my questions. My first question is actually if you could provide a little more color on the volume cadence for the remainder of the year. Should we expect volumes to get sequentially better or pretty much ratable and tricky for is there any color and volume?
Brian DelGhiaccio: Yeah. We would expect you know, as we think about the second half of the year, if you just you know, do the math based on what we're guiding to, to be, you know, flat to slightly negative in the second half of the year here. So we do have some of the event-driven landfill volume. We do have some contribution continuing into the third quarter. So we expect that to be somewhat flattish on a year-over-year basis. And then turning to negative, by the time of the fourth quarter as those projects are completed.
Tammy Zakaria: Got it. Thank you. That's very helpful. And then similarly, on pricing, any color on what to expect for 3Q versus 4Q?
Brian DelGhiaccio: Well, look, we've been just over 5% average yield on related revenue in the first half. We're maintaining our perspective of 5% for the full year. So it modulates a little bit, but you can think, you know, just under 5% in the second half of the year.
Tammy Zakaria: Got it. Thank you so much.
Operator: Your next question will come from Faiza Alwy with Deutsche Bank. Please go ahead.
Faiza Alwy: Yes. Hi. Thank you. So I wanted to ask about, you know, the lower revenues that you're citing on the core business I think you said $65 million. So just wanted for a final point on that because you know, I don't think you had a lot of the, you know, the event-based maybe, you know, impact that was in the guide. So I would have thought that would offset the incremental, you know, macro weakness. So just give us a bit more color on, like, is it, you know, more regional? Is there sort of any specific exposure that you might have that's gonna impacting, you know, the lower volume. Right?
I know you also talked about weather in the first quarter, so maybe it's related to that.
Brian DelGhiaccio: Well, look, if you think about when we entered the year, right, so our guidance was predicated on an economy that was relatively flat. So again, we were seeing volume declines in the construct business throughout last year. So we really expected that to anniversary and produce year-over-year results that were flat with the prior year. And you can see we're still on the large container side. We're still producing kind of a mid-single-digit decline on a year-over-year basis. So we're seeing further declines from a level of activity perspective than what we saw in the prior year. That was not expected. So most of it is really that construction-related activity.
And as I mentioned earlier, when you think about weak manufacturing end markets, that just doesn't impact our environmental solutions business. We have a $1.5 billion market vertical in recycling waste that's focused on manufacturing end markets. So John just talked about the weakness that we're seeing there. Some of the uncertainty that our customers are seeing and what that does to volume production is certainly having an impact on our business.
Faiza Alwy: Alright. Understood. And then just on the environmental solutions business, could you give us a sense of, like, what you're, you know, where we are from a volume and price perspective? I'm curious. I know we had, you know, last year, you'd maybe talked about, you know, sort of pricing above, I guess, trend. And I'm curious where we are at this point. And I know you mentioned sort of some of the, you know, volume versus price dynamics. So curious if you can tell us where what you saw, you know, volume versus price in the
John Vander Ark: Sure. Yeah. Price positive and volume negative. Obviously, that speaks to the business has got some scale sensitivity to it given the post-collection environment. So to be able to have flat margins in that environment, just speaks to, again, trading off price for volume in this case. Again, we haven't always gotten it perfectly right, lost a little bit of share in that volume, and the team is working really hard in places where it's positive to go get those opportunities and feel optimistic about the growth outlook. Again, the next couple of quarters, I think, are gonna be uncertain.
But if you think of the longer-term view here over the next four to five years, I couldn't be more excited about manufacturing in the United States. And if you just think about the results that we've produced since we acquired US Ecology, for the vast majority of that time frame, we've been in a PMI environment that's sub-fifty. Right? So since the beginning of 2023, there's only been three months that have exceeded fifty. So look at what we've done in a negative demand environment gives us a lot of confidence and really encourages us about what the future could bring when manufacturing activity actually resumes.
Faiza Alwy: Great. Got it. Thank you.
Operator: Your next question will come from Trevor Romeo with William Blair. Please go ahead.
Trevor Romeo: Good afternoon. Thanks for taking the questions. First one I had was just on the M&A pipeline. It sounds like maybe you did a couple deals in Q2. You sounded pretty bullish, I think, the past few quarters on the pipeline. So just any update there in terms of, you know, size, regions, any bias to one of the, you know, either recycling and waste or ES or just anything else on the pipeline would be really helpful.
John Vander Ark: Yeah. Pipeline remains strong and robust. I'd say with the exception of don't see any, you know, transformational deals in the immediate term. It shouldn't be a surprise. Most of what we do here, you know, some nice regional-sized deals or small tuck-ins on that front. And listen, there's a little lumpiness to this pipeline all the pipeline's strong, but the lumpiness to the activity of when, you know, deals close on that front. And already off to a strong year and, you know, the forecast is strong for the rest of the year.
Trevor Romeo: Okay. That makes sense. Thanks, John. And then just going back to margins, I guess, as we look to model margins in the second half, anything specific you'd call out on kind of the, you know, quarterly cadence or seasonality just because you may have a few moving pieces. So just any thoughts on, I guess, Q3 versus Q4 and the consolidated margins would be great.
Brian DelGhiaccio: Yeah. The one thing I would point on, and this is more of a year-over-year, you know, type comparison is that we called out in the third quarter of 2024. We called out about $20 million of out-of-period benefits which provided about 40 basis points of uplift to the margin in Q3 of 2024. So we have to overcome that. So again, when you take a look at call it relatively flat margin performance, in the second half of this year compared to the prior year, probably a little bit negative in the third quarter because we have that 40 basis points we have to overcome and a little bit positive in the fourth quarter.
Trevor Romeo: Got it. Very helpful. Thank you.
Operator: Appreciate it. The next question will come from Stephanie Moore with Jefferies. Please go ahead.
Stephanie Moore: Hi. Good afternoon. Thank you. I wanted to touch a little bit about the maybe medium-term margin opportunity or just investment opportunity that comes from leveraging your RISE platform. So you know, now that this platform is, you know, successfully been rolled out across the network in your fleet, if you could talk a little bit about what next in terms of how you can, you know, maybe harvest that data or the opportunity of having that rolled out that, you know, eventually, we can see the, you know, contrive, you know, kinda longer-term margin opportunity. Thank you.
John Vander Ark: Yeah. I think we have two components. One is it allows us to connect and communicate with the customer more proactively to understand giving them more precise times on service pickup, service verification, all of those things. And we're doing some of that already, but more proactive, you know, pushing and communicating. We know anytime we're more digitally connected with a customer that they are going to, you know, stay with us longer, which creates an opportunity for a very profitable customer to, you know, stay in the portfolio. And then on the efficiency side, we're starting to use AI to build routes.
And so that's the next opportunity to harness all that data and think about how do we more efficiently build routes not doing that in a lights-out fashion, but using our very talented logistics team and AI together to figure out, hey, how do we get this same number of stops done in five less minutes, ten less minutes, twenty less minutes a day. And we've talked about a minute taken out of the system across the years worth four to five million dollars for us. So this is really a game of, you know, seconds and then minutes that can drive real cost efficiency in the business.
Stephanie Moore: Got it. Just and then just wanted to touch a little bit on the Palmer Center. Maybe you could just give us a quick update in terms of how the centers that are already that are open are performing in terms of efficiency rates compared to what you've been targeting, you know, pricing opportunity, you know, any color there would be great. Thank you.
John Vander Ark: Yeah. I think, Vegas, we talked about a little slower out of the gate for some reasons on that. And then certainly had some learning curve on that in terms of exactly the quality specs our customers wanted and getting that communication clear. I think Vegas is making great progress. And then, you know, Indy is hitting its mark. Because we've taken all the learnings from Las Vegas and built those into Indianapolis. Then we'll leverage all those learnings, of course, in Pennsylvania for a third center as well. So feel very excited that we're capturing the benefits of those learning. And, listen, we have the supply. That's one of the reasons we did it.
And the demand for the product is through the roof. Right? The world is short supply. The country is short supplied on recycled PET. I still feel very confident about the returns profile of this over time.
Operator: The next question will come from Tobey Sommer with Truist. Please go ahead.
Tobey Sommer: Thanks. I wanted to ask a question about your on the labor side. She's covered a bunch of the demand and top-line stuff. Turnover and associated expenses and recruiting, safety, etcetera, have gone down now successively for a number of consecutive years. Do you think there's room to go on this or, you know, if we see the labor market pick up and the economy pick up might there be sort of a trade-off between industrial volumes improving, but the labor-related expenses sort of creeping higher as well?
John Vander Ark: Yeah. We're certainly not immune to the macro. And so if, you know, economy takes off and we go back to a very, very tight employment market, then that's gonna have, you know, some impact on either our growth and or to be able to supply workers and or wage rates. Although, again, I feel really good about our team and our talent of recruiting people, but also the culture we built. Right? We focus intensely on employee engagement. And being a place where most talented people wanna come to work. So how you treat them is a big part of that. The stability of the work is a big part of that. And then also compensation benefits.
And I've talked a lot about this call about being getting that right and being very competitive. And while we're not perfect every time, I think we've done a really good job of improving that successively every year and dynamic enough to adjust that based on the macro environment. So it doesn't cause me any concern terms of a hotter economy causing a labor pinch for us.
Tobey Sommer: And on the ES side, you mentioned, you know, if confronted with price versus volume, you're always gonna choose price. Anything you're seeing out in the market with respect to a competitor's behavior, make you think that there's a greater or lesser chance of continuing to fuel the business with acquisitions. Just curious if any of those behaviors are interrelated and therefore could inform the M&A outlook.
John Vander Ark: No. I think the M&A outlook is strong. I think from a competitive contact standpoint, listen. When you're in a kind of a challenging demand environment for a period of years, you start to see some people can make different trade-offs on volume versus price. We're seeing that in part of the ES market. And we're gonna stay disciplined. And I think the good news is that is marginal in the broader scheme of things, and a really good story in terms of margin improvement in that part of the business over time, and we don't see that trend stopping.
Operator: And the next question will come from Rob Wertheimer with Melius Research.
Rob Wertheimer: Second half incrementals, which you guys covered pretty well, but I was still left a little bit wondering if when you add back labor, is there any residual, you know, inefficiencies just from dealing with a situation that, you know, depressed margins slightly in 2H?
Brian DelGhiaccio: No. Again, I think if you when we talked about the labor disruption, I mean, again, we're planning on backing those out of the adjusted results. So and, again, those were those incremental costs that John walked through. When you talk about on the second half, it's not as much about what happening in the current period. If you take a look at prior year, you can see this sequential ramp-up that we saw first half into second half. We just get into tougher comps. So we still expect a price ahead of cost inflation, and we still expect to sit there and see the benefits. Of, you know, some of the, you know, labor productivity investments that we're making.
It's just gonna sit there and it's gonna modulate and taper off. As compared to what you saw as margin expansion in the first half of the year. And that was fully anticipated. We provided guidance in the beginning of the year as well.
Rob Wertheimer: Gotcha. No. Understood. And then just a second minor one. When you look at the big beautiful build, does that change your appetite for CapEx? You have areas you can invest profitably. I'm just curious if you reevaluate plans given the post appreciation. Thank you.
Brian DelGhiaccio: Yeah. When you take a look and, again, there's a certain amount of replacement CapEx that you're gonna do each and every year, and we do that somewhat ratably. So just because you have a, you know, a 100% bonus depreciation, that doesn't mean that you're gonna sit there and take an asset that you have still has remaining life and retire it. So, again, it actually on the margin, if you sit there and say, would you sit there and accelerate some things? I mean, perhaps on the margin, but for the most part, we are steady. We are consistent. And we're ratably replacing the assets in the business year in and year out.
Operator: Thanks. The next question will come from David Manthey with Baird. Please go ahead.
David Manthey: Thank you. Good afternoon. I just wanted to be clear on the third quarter 2024 unusual benefit there. So I recall there was a 50 basis point insurance recovery, and then there was also a bad debt item, I wasn't clear on whether that was a positive or a negative. Sounds like you're saying that was a minus ten leading to the net 40 basis points of favorability. Is that correct?
Brian DelGhiaccio: No. Actually, so there were $20 million worth of benefit in the third quarter of 2024. The insurance recovery was a positive fifteen, and the bad debt recovery was a positive five. That's what impacted the third quarter of 2024. Our commentary on the fifty basis points last year was in the prior year. So now you're back into 2023. We actually had some negatives. So now you're talking about the spread, 2023 over 2024. Now what we're saying is when you compare 2025 over 2024, you're really just having to overcome that $20 million benefit that we saw in Q3 of 2024. And, again, the insurance recovery, fifteen million. Bad debt, positive recovery, equals five.
David Manthey: Perfect. Alright. Thank you. And then, e coal used to break out base versus event work, and it sounds like you're saying that the base ES work is pretty lackluster given industrial production levels. You have any comments around environmental services event opportunities you're seeing and chemicals, metals, manufacturing, refining, some of the key industries there?
John Vander Ark: Yeah. I'd say one thing and, you know, good news, bad news, there's been less emergency response work this year. So from a societal standpoint, we've had fewer emergencies to deal with. Challenging for the business, obviously, because those end up being very profitable opportunities for us to go. And we know that across the cycle, and there's gonna be years of that spikes and years of that is a little lower on that front. It's been a slower first half of the year. We'll see what the second half looks like. And then any discretionary work on site cleanups or other things, this is where the macro, I think, is causing manufacturers to pause.
I mean, people are focused on tariff warehouse goods, etcetera. Anything ancillary to their operation, they just put on pause. So our pipeline looks good, but events and those opportunities aren't moving. At the pace that we would expect. And it's the uncertainty that hurts people as we get more certainty around trade policy, we're optimistic that starts to move.
David Manthey: Understood. Thank you.
Operator: Your next question will come from Konark Gupta with Scotia Capital. Please go ahead.
Konark Gupta: Thanks for taking the time. I understand that you'll be adjusting out the labor impact from the adjusted results you post, but just an update in terms of where the labor agreements are right now. My understanding is you had a few different regions of the country where you had these disruptions, but you have achieved maybe some agreements in some places. So can you update us where and what agreements are left right now? Thanks.
John Vander Ark: Sure. Yeah. What will happen is a number of markets went out right, with contracts that were expired and chose to strike. A few other contracts in different parts of the country had sympathy strike language. Where if people show up to picket, the workers don't cross those lines. We've kind of recovered on all of those sympathy strikes. Our colleagues are back to work, and we typically see this ends up being a day or sometimes a week activity. Right? And now we're down to just a few markets where we're negotiating. To get agreements on that front. And, again, we're gonna negotiate in good faith.
We want a deal that is, you know, very fair and competitive for frontline people. But we're not gonna do any deal that impairs the longer-term health of the business. Or hurts our colleagues longer term.
Konark Gupta: Okay. That's great. Thanks. And just on the M&A, I think you provided some good color. In terms of what the pipeline looks like. How much contribution in terms of revenue have you embedded in the guidance portfolio?
Brian DelGhiaccio: Yeah. So, again, if you take a look at what we're expecting, there's a 120 basis points contribution to 2025 growth, 100 of which was included in the guide. Because, again, we had known we had known about that. That was the Shamrock deal. That was already known at the time when we provided the guidance. Twenty is incremental.
Konark Gupta: Sorry. What was that last part?
Brian DelGhiaccio: Sorry. Twenty is incremental. Right? You had hundred. Twenty is incremental. Correct. Yeah. And that's about $35 million annual rep. Correct.
Konark Gupta: Okay. Thank you so much. Thanks.
Operator: The next question will come from James Schumm with TD Cowen. Please go ahead.
James Schumm: Hey, thanks. Just also on the M&A, but with respect to environmental services, there's been some, you know, some high multiples paid for some of these targets, fourteen, fifteen, sixteen times EBITDA multiples have been paid. Are you seeing as you look at takeover targets that a lot of these sellers are trying to really up their asking price? And, you know, are you seeing like, a widening of the bid-ask spread in the ES market with respect to M&A?
John Vander Ark: I don't think we're seeing a widening of the spread. I do think that, if you look across the last five years, multiples have absolutely gone up. They've gone up in recycling and too, but they've gone up faster in ES. And large part because there's been so much value that's been driven in that part of the business. So the business are becoming more valuable. On a forward-looking basis, and the multiple is totally dependent on what you're buying. If you're buying something with limited interest then more field services based, that multiple is going to be a fraction of what you mentioned.
If you're buying something with great permitting and great infrastructure, that could be a very value-creating deal on that. And, again, we're gonna look at unlevered cash on cash returns. The multiple ends up becoming an output.
James Schumm: Great. Okay. Thanks a lot. That's all I had.
Operator: At this time, there appear to be no further questions. Mr. Vander Ark, I'll turn the call over to you for closing remarks.
John Vander Ark: Thank you, Chuck. As we close out today's call, I want to thank the entire Republic Services team for their unwavering focus on safety, sustainability, and customer service. Their commitment, energy, and ingenuity are solving today's challenges and positioning us for continued success. Have a good evening, and be safe.
Operator: Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect.