Bryan Burgmeier • Citigroup

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CEO Jon Vander Ark explained that the primary costs from labor disruptions stem from bringing in replacement workers to maintain service and issuing credits to affected customers. He emphasized Republic's focus on providing competitive wages to remain an employer of choice, stating that the current disruptions are not due to uncompetitive pay, as evidenced by low single-digit turnover in many affected markets. He stressed the importance of balancing wages to be fair to employees without becoming uncompetitive in the market.

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CEO Jon Vander Ark stated the impact is primarily from the additional labor costs of bringing in other colleagues to service customers, plus some customer credits in affected markets. Regarding wage mitigation, Vander Ark emphasized the company's focus on maintaining competitive wages to balance employee retention and market competitiveness, noting that in many markets with disruptions, turnover is in the single digits, suggesting the issue is not wage-related.

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CFO Brian DelGhiaccio attributed the strong margin performance to pricing exceeding cost inflation and a favorable business mix, with softer construction activity and strong special waste volumes. CEO Jon Vander Ark confirmed that the M&A pipeline remains strong and that Republic Services will continue to be active, seeking deals that meet both strategic and financial screens, including double-digit unlevered cash-on-cash returns.

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CEO Jon Vander Ark expressed a positive outlook for the ES business, highlighting upcoming M&A and organic growth opportunities. CFO Brian DelGhiaccio detailed the margin bridge, explaining that the underlying business margin expansion is approximately 50-60 basis points, which is masked by headwinds from lower commodity price assumptions and the non-renewal of CNG tax credits.

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CFO John Haudrich explained that the net price headwind moderated due to lower-than-expected inflation, particularly in energy, and relatively stable gross pricing. He confirmed most of the year-over-year pricing pressure was realized in the first half. CEO Gordon Hardie commented on the trade deal, stating that while any certainty is beneficial for customer planning, full clarity is still needed on whether tariffs will apply to key categories like wine and spirits, which is delaying final decisions.

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EVP & CFO Devina Rankin detailed the margin outlook, noting that while the legacy business is performing strongly, the Healthcare Solutions acquisition creates a headwind that will lessen in H2. She projected full-year Collection and Disposal margin expansion of about 110 basis points. President & COO John Morris confirmed the full-year volume growth expectation remains between 0.25% and 0.75%.

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EVP and CFO Devina Rankin stated that no unusual seasonality is expected, apart from the impact of California wildfires, and that solid waste margin expansion will continue to be strong. She noted that healthcare synergy capture will accelerate, with Q3 being the strongest quarter. EVP and COO John Morris added that while Q1 yield was affected by anomalies like wildfire cleanup volumes and some industrial softness, the underlying core price performance remains robust and is driving margin expansion.

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EVP and CFO Devina Rankin explained that earnings sensitivity will not scale directly with volume growth, as benefits from automation and a fee-for-service model create a floor and are independent of commodity prices. EVP and COO John Morris stated that while the rate is high, they are constantly focused on optimizing the network and leveraging logistical capabilities, implying continuous improvement rather than a final state of optimization.

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Executive Luke Pelosi noted a potential positive scenario where CPI-linked pricing on restricted contracts could rise while internal labor cost inflation remains muted. CEO Patrick Dovigi stated the M&A priority is not based on asset type but on acquiring tuck-in businesses that drive incremental volume to existing post-collection facilities to maximize return on invested capital.

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Executive Luke Pelosi stated that every $0.50 change in RIN prices currently drives roughly $15 million of EBITDA. He also noted that after 2025, another $100-150 million of net CapEx remains for RNG projects through 2028. CEO Patrick Dovigi added that while they won't lock in long-term pricing now, they will forward sell all RINs for the year to reduce volatility. He also guided for a return to a normal M&A spend of $500-700 million, with an upside case closer to $1 billion.

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CEO Howard Coker attributed the guided growth to strength in the North American metals business and the global paper can business. He noted that new capital projects in Thailand, Mexico, and the U.S. are beginning to contribute. Regarding the pack season, Coker stated the company is not forecasting a major recovery, only a 'slightly better' year, meaning a strong season would represent potential upside.

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CEO Adam Greenlee clarified that the inventory reduction was an internal, strategic decision related to a restructuring in the flat cap closures business, not a customer-driven action. He attributed the strong dispensing growth forecast to continued new business wins in 2024 and additional expected wins in 2025, driven by the company's competitive advantages in innovation and design.

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