Republic Services - Earnings Call - Q4 2024

Executive Summary

• Q4 revenue grew 5.6% YoY to $4,046M with GAAP EPS of $1.63 and adjusted EPS of $1.58; adjusted EBITDA margin expanded 110 bps YoY to 31.0% on pricing ahead of costs and modest tailwinds from fuel and commodities.
• Organic pricing remained robust (core price +6.1% on total revenue; average yield +4.4%), while volumes declined 1.2% driven by residential pruning and continued construction softness; net income margin expanded 120 bps YoY to 12.7%.
• 2025 guidance introduced: revenue $16.85–$16.95B, adjusted EBITDA $5.275–$5.325B, adjusted EPS $6.82–$6.90, adjusted FCF $2.32–$2.36B; management expects pricing > cost inflation, acquisition contribution, and digital/productivity gains to support growth.
• Incremental 2025 contribution from sustainability investments (RNG, polymer centers): +~$70M revenue and +~$35M EBITDA; baseline recycled commodity assumption ~$145/ton and no CNG tax credits included (a ~$20M headwind), framing margin cadence and potential upside if commodities improve.

What Went Well and What Went Wrong

• What Went Well

  • Continued margin expansion: Q4 adjusted EBITDA margin 31.0% (+110 bps YoY) on pricing above cost inflation and productivity; “we delivered adjusted EBITDA, EPS and free cash flow that exceeded our full year guidance” (CEO).
  • Environmental Solutions (ES) strength: Q4 ES adjusted EBITDA margin 24.7% (+500+ bps YoY) with management seeing further runway post-ERP integration; “onward and upward with the business” (CEO).
  • Digital execution: RISE fees created ~$60M incremental revenue in first year; Empower roll-out targeted for completion by end of 2025 with ~$20M annual savings at run-rate.

• What Went Wrong

  • Volume headwinds: Q4 total volume -1.2% (large container pressured by construction softness; residential reduced by contract pruning), weighing on organic growth mix.
  • Commodities normalization QoQ: recycled commodity price per ton stepped down to ~$153 in Q4 (from $177 in Q3), modestly easing the tailwind sequentially.
  • 2025 headwinds embedded: no CNG tax credit (~$20M hit) and commodities held flat at ~$145/ton in the guide, tempering headline margin expansion despite stronger underlying expansion.

Transcript

Operator (participant)

Good afternoon, and welcome to the Republic Services Fourth Quarter and Full Year 2024 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. All participants in today's call will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. And to withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Aaron Evans, Vice President of Investor Relations. Please go ahead.

Aaron Evans (VP of Investor Relations)

I would like to welcome everyone to Republic Services Fourth Quarter and Full Year 2024 Conference Call. Jon 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 which involves 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 February 13, 2025. Please note that this call is 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.

Jon Vander Ark (CEO)

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. The Republic team finished the year strong. We delivered world-class service and innovative solutions for our customers and executed our strategy to profitably grow the business. As a result of the team's efforts, we delivered Adjusted EBITDA, EPS, and free cash flow that exceeded our full-year guidance. During 2024, we achieved revenue growth of 7%, generated Adjusted EBITDA growth of 12%, expanded Adjusted EBITDA margin by 140 basis points, delivered adjusted earnings per share of $6.46, and produced $2.18 billion of Adjusted Free Cash Flow. We continue to be well-positioned to capture new opportunities and create long-term value for our stakeholders through our differentiated capabilities, customer zeal, digital, and sustainability. Regarding customer zeal, 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 the offerings and quality of our service delivery. Fourth quarter organic revenue growth was driven by solid pricing across the business. Average yield on total revenue was 4.4%, and average yield on related revenue was 5.3%. This level of pricing continued to exceed our cost inflation and helped drive 110 basis points of EBITDA margin expansion during the quarter. Organic volume on total revenue declined 1.2% in the quarter. Volume losses were concentrated to shedding underperforming contracts in the residential business and continued softness in construction and certain manufacturing end markets. Turning to our expanding digital capabilities, we continue to advance the implementation of digital tools to improve the experience for both customers and employees.

Deployment of MPower, our new fleet and equipment management system, is underway, MPower is designed to increase maintenance technician productivity and enhance warranty recovery.

Deployment of the new system is anticipated to be completed by the end of 2025. We estimate MPower will deliver $20 million of annual cost savings once fully implemented. We continue to benefit from innovative technology on our recycling and waste collection routes. We utilize cameras to identify overfilled containers and recycling contamination, which is enabled by our RISE digital platform. This technology generated more than $60 million in incremental revenue in the first year of operation. Moving on to sustainability, we believe that our sustainability innovation investments in plastic circularity and renewable natural gas position us for continued growth and long-term value creation. Development of our polymer centers and Blue Polymers joint venture facilities continues to move forward. Construction is complete at our Indianapolis Polymer Center and equipment commissioning underway.

This operation is co-located with a Blue Polymers production facility that is expected to be completed by mid-2025. We expect earnings contribution from the Indianapolis Polymer Center in the second half of this year. Construction on the Blue Polymers production facility in Buckeye, Arizona, is underway. This facility will complement our Las Vegas Polymer Center. We expect the completion of this facility in late 2025. We continue to bring decarbonization solutions to the market that will unlock value for our stakeholders, including the communities we serve. The renewable natural gas projects we're developing with our partners continue to advance. Two projects came online during the fourth quarter, and another project came online in January. We expect a total of seven new RNG projects to come online in 2025. We continue to advance our commitment to fleet electrification. We had 52 electric collection vehicles in operation at the end of 2024.

We expect to have more than 150 EVs in our fleet by the end of this year. We now have 22 facilities with commercial-scale EV charging infrastructure. We expect to have approximately 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. In 2024, our employee engagement score remained high at 86, and turnover rates continued to trend lower, with full-year turnover improving 150 basis points compared to the prior year. Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named the Dow Jones Sustainability Index for the ninth consecutive year. With respect to capital allocation in 2024, we invested $358 million in strategic acquisitions and returned $1.18 billion to shareholders, which includes $490 million of share repurchases.

Our results clearly demonstrate our ability to create sustainable value, and our strategic investments strengthen the foundation to continue to grow our business. In 2025, we expect to deliver profitable growth while continuing to invest in the business to drive lasting value. More specifically, we expect full-year revenue in a range of $16.85 billion-$16.95 billion. Adjusted EBITDA is expected to be in the range of $5.275 billion-$5.325 billion. We expect to deliver adjusted earnings per share in a range of $6.82-$6.90, generate adjusted free cash flow in a range of $2.32 billion-$2.36 billion. Our pipeline supports continued acquisition activity in both recycling and waste and environmental solutions. We expect to deploy at least $1 billion of investment in value-creating acquisitions in 2025. Our 2025 guidance includes the financial contribution from acquisitions closed to date.

I will now turn the call over to Brian, who will provide details on the quarter and year.

Brian DelGhiaccio (CFO)

Thanks, Jon. Core price on total revenue was 6.1% in the fourth quarter. Core price on related revenue was 7.3%, which included open market pricing of 9.1% and restricted pricing of 4.5%. The components of core price on related revenue included small container of 9.6%, large container of 7.4%, and residential of 6.8%. Average yield on total revenue was 4.4%, and average yield on related revenue was 5.3%. As expected, average yields stepped down sequentially as we fully anniversary the impact of new fees implemented in late 2023. The fees relate to overfilled containers and recycling contamination and were enabled by our digital platform. In 2025, we expect average yield on total revenue of approximately 4% and average yield on related revenue of approximately 5%. Fourth-quarter volume on total revenue decreased 1.2%, and volume on related revenue decreased 1.5%.

Volume results included a decrease in large container of 4.6%, primarily due to continued softness in construction-related activity and certain manufacturing end markets, and a 2.8% decrease in residential due to intentionally shedding underperforming contracts. In 2025, we expect organic volume growth in the recycling and waste business in a range of -25 basis points to +25 basis points. Moving on to recycling. Commodity prices were $153 per ton during the fourth quarter. This compared to $131 per ton in the prior year. Recycling, processing, and commodity sales increased revenue by 20 basis points during the quarter. Full-year 2024 commodity prices were $164 per ton. This compared to $117 per ton in the prior year. Current commodity prices are approximately $145 per ton, which is the baseline used in our 2025 guidance. Fourth-quarter total company Adjusted EBITDA margin expanded 110 basis points to 31%.

Margin performance during the quarter included margin expansion in the underlying business of 110 basis points, a 10 basis point increase from net fuel, and a 10 basis point increase from recycled commodity prices. This was partially offset by a 20 basis point decrease from acquisitions completed in the prior year. Our full-year Adjusted EBITDA margin was 31.1%, which represents margin expansion of 140 basis points compared to the prior year. Margin expansion in the recycling and waste business was 130 basis points, and margin expansion in the environmental solutions business was 230 basis points. With respect to environmental solutions, fourth-quarter revenue increased nearly $70 million compared to the prior year, driven by organic growth in the business and the rollover contribution from prior-year acquisitions. Adjusted EBITDA margin in the environmental solutions business expanded more than 500 basis points to 24.7% in the fourth quarter.

Total company depreciation, amortization, and accretion was 11% of revenue in 2024 and is expected to be 11.2% of revenue in 2025. Full-year 2024 adjusted free cash flow was $2.18 billion, an increase of 10% compared to the prior year. This was driven primarily by EBITDA growth in the business. Total debt at the end of the year was $12.8 billion, and total liquidity was $2.5 billion. Our leverage ratio at the end of the year was approximately 2.6 times. We expect net interest expense of approximately $565 million in 2025. With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 23.4% during the fourth quarter and 23.9% for the full year. The favorable tax rate in the fourth quarter was supported by tax credits related to investments in RNG projects with our development partners.

We expect an equivalent tax impact of approximately 25% in 2025, made up of an adjusted effective tax rate of 20% and approximately $170 million of non-cash charges from equity investments in renewable energy. With that, Operator, I would like to open the call to questions.

Operator (participant)

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 request, you may do so by pressing star and then two. If you are using a speakerphone, please pick up your handset before pressing the keys, and your first question today will come from Bryan Burgmeier with Citi. Please go ahead.

Bryan Burgmeier (Equity Research Analyst)

Good afternoon. Thanks for taking the questions. So ES was obviously really strong last year, and I think you've said ERP implementation was kind of ongoing throughout the year. So with that now completed, is it fair to say there's almost another sort of leg up for this business since it's fully integrated? Or can you maybe just help me frame kind of what comes next for ES, having hit 24% margins and seemingly cleared a bit of a hurdle?

Jon Vander Ark (CEO)

Yeah, onward and upward with the business. We continue to remain very positive on our prospects there. Great year last year, and you're right, lots of heavy lifting by the team in terms of IT integration. We certainly have most of that behind us. There's certainly some work we're going to work on the rest of the year. But we mostly paused M&A in that area last year just to give the team time to breathe and integrate. And so we see opportunities certainly for M&A growth coming in that space in 2025, as well as more organic growth. Right? A lot of the IT work enables us to do more cross-sell, better visibility, more clarity on product line profitability. And so we will see that ramping up throughout the year in 2025 and certainly beyond as well.

Bryan Burgmeier (Equity Research Analyst)

Got it. Got it. Thanks for that detail. And then I was just wondering, Jon, if maybe you could touch on the margin bridge year-over-year for 2025. I think we're looking like 20-30 basis points increase year-on-year. And I think you said on the last call, long term, you're trying to get to maybe 30-50 as opposed to 20-30. So just a little bit of detail on year-on-year margin expansion would be great. And I'll turn it over. Good luck in the quarter.

Jon Vander Ark (CEO)

Yeah. Thanks. Yeah. We kind of say across, if you look across the cycle, kind of 30-50 basis points a year. In any given year, it could be a little more outsized or a little more muted on that front. Obviously, coming off an incredibly strong year in 2024 of 140 basis points of margin expansion. And then as you get into 2025, listen, the end market, construction particularly, and then parts of manufacturing, right, are still pretty soft. And so we're looking for those to come back. Manufacturing is showing some really good early signs on that front. Construction, where interest rates are in terms of impact on mortgage rates in the 10-year, right, I think that's going to be delayed here from a progress standpoint. So that certainly feeds into that, and I'll let Del add in.

Brian DelGhiaccio (CFO)

Yeah, Bryan, to your point, when you take a look at the midpoint, you're looking at approximately 30 basis points of margin expansion. But if you unpack that and you take a look, we took the current price of commodities and we held that flat for the entire year. So that's approximately $145 per ton. If you compare that to the $165 average we had in 2024, about a 10 basis point headwind year-over-year, as well as then some deal and integration costs we have on the acquisition front, we look at that as about a 10 basis point headwind as well. So the underlying business is growing approximately 50 basis points plus. That 50 basis points is also overcoming what I would consider kind of some unique items. For example, we are not assuming that CNG tax credits are renewed.

That costs us about $20 million or 10 basis points on a year-over-year basis. So if you really look at the strength of the underlying business, you're in a 60-70 basis point of margin expansion as compared to the headline, which would suggest something closer to 30.

Operator (participant)

Your next question today will come from Tyler Brown of Raymond James. Please go ahead.

Tyler Brown (Managing Director in Equity Research)

Hey, good afternoon, guys.

Brian DelGhiaccio (CFO)

Hey, Tyler.

Tyler Brown (Managing Director in Equity Research)

Hey, Brian. Great detail on the bridge. But hey, Jon, I'm interested in the $1 billion in acquisition commentary. I know that's not included in the guidance. It's probably just a placeholder, but you must feel pretty good. So what do you kind of see out there on the M&A front? Are you looking at traditional solid waste, or could there be some more specialty hazardous waste type stuff in the pipe as well?

Jon Vander Ark (CEO)

Yeah, I think for the last few years, we've put a marker out there at more like $500 million. And we're typically. That's kind of an indicator. We're always going to look at deals that pass two screens, our strategic filter and our financial filter. The outsized number this year is predicated off a really strong start already. So we feel really good about the momentum the team has and things that are either closed or nearly closed on that front. So we've got a big head start, and that gives you a better indication of where we're going to end up. In terms of where it's come from, listen, we've got a really good pipeline on ES and on recycling and waste.

I would expect that pipeline looks a little heavier slanted in the first half toward ES, and then over the back half, probably more heavily slanted toward recycling and waste, but we'll see all of those things play out.

Tyler Brown (Managing Director in Equity Research)

Okay, so Brian, is there a material M&A benefit in 2025 based on what has been closed to date in Q1? I'm a little confused on that.

Jon Vander Ark (CEO)

If you just take, I'll put it in terms of revenue. If you take a look at rollover, which was pretty insignificant from deals in 2024, but including what's closed to date, we've got about a full point of revenue growth from those deals.

Tyler Brown (Managing Director in Equity Research)

Okay. Okay. That's helpful. And then back on the flattish volume, is there any benefit from wildfires or hurricane cleanup in there? Is that just not material, or would that be upside, or how should we think about that?

Jon Vander Ark (CEO)

We didn't bake it in, right? I think there will be over time. I think it's TBD how that plays out. I mean, we're certainly on the ground right now with our ES teams supporting those communities and getting the household hazardous waste cleaned up, and that will ultimately materialize into some forms of hazardous waste and certainly plenty of special waste that ends up in landfills. Exactly where and how that ends up, we don't know yet, so that's not built in.

Tyler Brown (Managing Director in Equity Research)

Okay. Okay. That's very helpful. Thanks, guys.

Operator (participant)

Your next question today will come from Noah Kaye with Oppenheimer. Please go ahead.

Noah Duke Kaye (Managing Director and Senior Research Analyst)

Great quarter, guys. Thanks for taking the questions. The 5% yield unrelated revenue in the guide, can you count that to cost inflation expectations unrelated? Are you looking like sort of three and a half and maybe 150 with spread? The right way to think about it?

Jon Vander Ark (CEO)

Yeah, I think we're probably closer to four on the cost side. If you layer in employee wage increases, benefits, etc., inflation on maintenance. So that takes us right about four and then five unrelated.

Noah Duke Kaye (Managing Director and Senior Research Analyst)

Okay. Great. And then just how to think about seasonality for the year. I think there are certainly on things like commodities, more favorable comps later in the year. It's not that big of a headwind for you. But you also have, as you mentioned, some M&A benefits. So just give us some rough guidelines on how you think about at least sort of EBITDA cadence for the year.

Jon Vander Ark (CEO)

Yeah. I would say just think about from the perspective of margin expansion. We would see it more balanced this year than maybe what you've seen over the last couple of years. Maybe a little bit more heavily slanted towards the first half of the year than the second. But you can think of it relatively consistent by quarter. First half, second half with margin expansion in all quarters and across all business types.

Noah Duke Kaye (Managing Director and Senior Research Analyst)

That's super clear. I'll turn it over. Thank you.

Operator (participant)

Your next question today will come from Jerry Revich with Goldman Sachs. Please go ahead.

Jerry Revich (Managing Director)

Yes, hi. Good afternoon, everyone. I'm wondering if you could just talk about how the polymer centers are performing, Jon. Are you folks hitting the efficiency rates that you had targeted, and what's the level of contribution, Brian, that you folks are embedding in the guide from the polymer centers plus the RNG plants? Can you calibrate us on that?

Jon Vander Ark (CEO)

Yeah. I'd say kind of in the second, third, fourth quarter, listen, some learning in startup costs in terms of uptime on equipment and getting that dialed in. Certainly some learnings on getting the specification right with each of the individual customers. There's some uniqueness there and some learning associated with that. The good news is, right, all of our assumptions on run rate in terms of price, cost, volume, willingness to pay, right, really strong and really positive on those assumptions. So feeling good about the place that Las Vegas is right now, we're taking all those learnings, obviously, and feeding those into Indianapolis. And so on our marks and onward and upward, and I'll let Brian cover the specifics.

Brian DelGhiaccio (CFO)

Yeah, so for next year, across our portfolio of sustainability investments, we're looking at incremental revenue around $70 million and incremental EBITDA of 35.

Jerry Revich (Managing Director)

That is clear. Thank you. And then, Brian, I just want to go back to your comment on the weighting of margins. The downside of having really good performance in 2024 and really good fourth quarter is maybe a bit of a tough comp. So if we were to apply normal seasonality to the fourth quarter margin run rate, I think it would imply first quarter margins that are up 150-200 basis points year-over-year. And it sounds like you're guiding to just more modest margin improvement on a year-over-year base in the first quarter. Is there anything lumpy in the fourth quarter? Can you just expand on that because it felt like you've built momentum across the businesses over the course of 2024?

Brian DelGhiaccio (CFO)

Yeah. But Jerry, if you step back and you think about a normal level of seasonality and you think about the distribution and where you generate the most amount of earnings and relative margin expansion, Q1 is seasonally your lowest quarter. You've got the winter months. You also have the highest percentage of employee-related taxes. So that tends to be your low watermark. Then generally followed by Q4, and then Q2 and 3 are relatively similar, but I would put Q2 as third and Q4 as fourth as far as meaning Q3 is the highest level of margin expansion for the year, so sequentially going from 31% in the fourth quarter to something that steps down modestly is not going to generate 100 basis points of margin expansion on a year-over-year basis. If you recall, margin was 30.2% in the first quarter of 2024.

Jerry Revich (Managing Director)

Appreciate it. Thank you.

Operator (participant)

Your next question today will come from Trevor Romeo with William Blair. Please go ahead.

Trevor Romeo (Research Analyst)

Hey, good afternoon. Thanks so much for taking the question. I wanted to ask a follow-up on the environmental solutions business. Really nice quarter of growth there. Just in terms of the revenue performance, I was wondering if you could, I guess, talk about the pricing environment for hazardous waste for one, and then just kind of maybe split out what you're seeing between the treatment and disposal versus the field services business and kind of how you're thinking about each of those pieces moving into 2025.

Jon Vander Ark (CEO)

Yeah. Obviously, lots of positive impact on margin performance over the last two and a half years since we did the US Ecology acquisition. And that's come through a number of different levers. That's come certainly through customer mix of getting attractive customers who are willing to pay more and shedding work that's less profitable. That's come from pricing the work that we do. It's come from cost management and being more efficient in utilizing resources. And so if you think about our movement going forward, we're not going to expand margins at the same rate as we have over time, but we're going to continue to expand margins in that space because, again, we think there is value of the work that we're delivering. And as we continue to build that out, we have a more differentiated set of products and services.

You'll see pricing on both of the post-collection assets as well as the field services assets. And that, again, will look more like single price increases a year, more ratable like we do in recycling and waste versus multiple price increases within the year. But we expect continued momentum and contribution in 2025.

Trevor Romeo (Research Analyst)

Okay. Great. Thanks for that, Jon. And then I wanted to follow up on the labor environment a little bit. I think you mentioned turnover was 150 basis points lower in 2024. I was just wondering, one, where does that place you relative to kind of your historical averages? And then two, any sort of new initiatives you're putting in place in 2025 and, I guess, how much runway you think you have to decrease turnover further would be great.

Jon Vander Ark (CEO)

Yeah. We don't have 30-year numbers on turnover, but this is a decade low, right? We are really performing at a high level from a turnover standpoint. And it starts with leadership, employee engagement, very, very strong. And a lot of good things happen when you get turnover into that spot, which is you're servicing customers at a very effective rate. Those customers are happy with the service, and they pay more, and they stay longer when you do that. We certainly looked for room to improve. Turnover, unlike safety, where your goal is zero, the goal on turnover is not zero. Some level of turnover is always natural and healthy. And so I don't think we're going to get the same leap in improvement in 2025, but we're going to look for continuing to grind out a few more basis points of improvement.

We think the team is capable of that.

Trevor Romeo (Research Analyst)

Great. Thanks so much.

Operator (participant)

And your next question today will come from Sabahat Khan with RBC Capital Markets. Please go ahead.

Sabahat Khan (Managing Director)

Great. Thanks, and good afternoon. Just a question on similar to the ES pricing and margin question earlier. I guess on solid waste, as you look across your portfolio, how is the pricing sort of discussion with the clients going? Is there more pushback, less pushback at this point in the cycle? How are you kind of getting the most feedback on that front? Just wondering, after a few years of sort of higher pricing, things do seem to be moderating. Are customers still kind of okay with the spread? Just any feedback would be great.

Jon Vander Ark (CEO)

Yeah. I mean, our pricing is obviously coming down from an absolute basis when you look at our yield over the past couple of years, but also our cost inflation is coming down as well, which we mentioned. And we're maintaining that spread. I think there was some fear that as pricing was going to come down, cost wasn't. We were going to get a price cost squeeze, and we certainly haven't seen that. And a 3% inflationary environment is a really good spot for us to operate on that front. And we measure how much of our price sticks to our retention rate, and that's remaining very, very healthy on that front. So we got a lot of tools and sophistication in terms of who we price and how we price them.

The team is doing a great job of giving customers, again, a price that they'll take but also stay because we want to maintain that high level of loyalty that we have with our customers going forward. And I'd say the one opportunity we have on pricing, which continues to be, is in the municipal space. That's more on the restricted side. And that's just an area of the business in general where customers on balance are not paying their fair share, right? We put an enormous amount of innovation and capital and labor into that equation. And we have many attractive customers and contracts, but not all of them meet our standard. And so you'll continue to see us optimize that portfolio over the next few years.

Sabahat Khan (Managing Director)

Great. And then just one on the RNG facilities. I think we're looking for four to come online. I think two came online. Is that just a timing thing, or how are you thinking about the rest of the RNG facilities opening up?

Jon Vander Ark (CEO)

Yeah. It's more of a timing thing. There's a little bit of a rollover. We would expect those two to come online in the first quarter. And so, again, from a contribution perspective, think of it like a 90-day delay.

Sabahat Khan (Managing Director)

Great. Thanks very much. I'll pass the line.

Operator (participant)

Your next question today will come from Toby Sommer with Truist Securities. Please go ahead.

Toby Sommer (Managing Director)

Thank you very much. With respect to the kind of employee attrition level, you said decade low. How much juice do you think is left in that lemon to kind of squeeze out? Because anytime you're at kind of a metric, is that an unusual period, either peak or trough? I'm kind of curious what you might look to as leading indicators to signal that we might be approaching the end of that as a tailwind to margin.

Jon Vander Ark (CEO)

Yeah. I mean, you think about that, you normally say you'd achieve that in a very high unemployment environment where people are going to have a hard time finding jobs externally, and so they're going to keep the job they have. But we're at 4% unemployment. So that labor market is still tight relative to a 20 or 30-year period. And I think a lot of it has to do with engagement, right? It's how we compensate our general managers, right? We think about paying them to achieve a financial outcome, to achieve a customer outcome, and to achieve an employee outcome. And they really put a lot of energy in making Republic a great place to work. And so, again, I think we've got the rate of improvement won't be 150 basis points this year, right?

I think it'll be more narrow than that, but we think we can continue to make progress.

Operator (participant)

Your next question today will come from Stephanie Moore of Jefferies. Please go ahead. Stephanie, your line may be muted.

Harold Antor (VP in Equity Research)

Sorry. This is Harold Antor, Stephanie Moore. So you guys talked about adding fees for overflowing bins. So just want to get a sense of how far you are through that process, implement those additional fees in it. How are conversations going with customers as you move from fixed-rate contracts to alternative indices?

Jon Vander Ark (CEO)

Yeah. Let me start with the latter as far as on the alternative indices. Since the beginning of when we started this initiative, we're at 63% of those contracts that have either been moved to an alternative indices like water, sewer, trash, or garbage trash, or a fixed rate that we would consider favorable.

Harold Antor (VP in Equity Research)

Got it. Thank you for the call. And I guess just on the regulatory side, given the new administration, anything to call out with PFAS or impact from RNG pricing that you guys are looking at or any other regulations?

Jon Vander Ark (CEO)

On RIN prices, we assumed very conservative assumptions on our project as we move forward. And you've seen RIN prices come down, but now they're trending back up here over the last couple of weeks on that front. So we remain enthusiastic about our natural gas energy pipeline and the set of projects we're going to have come online this year and in future years on that front. And then PFAS, listen, PFAS is a broad issue that society wants to address and take care of regardless of political administration.

There's still a lot of TBDs on kind of timing and pace of recovery, but we feel very good about our team and our capabilities in terms of our ability not only to catch it and treat it on the landfill side from a solid waste perspective, but even more importantly, the opportunity, the upside to help customers from an ES standpoint, environmental solution standpoint, to take care of their issues, remediate facilities, and then ultimately find a final disposal for the material.

Harold Antor (VP in Equity Research)

Thank you. I'll turn it over.

Operator (participant)

And your next question today will come from Brian Butler with Stifel. Please go ahead.

Brian Butler (Analyst)

Hey, thanks for taking the question. On the first one, just when you think on the RNG and sustainability, adding kind of the $35 million in EBITDA in 2025, what's the capital spend with that? And then beyond 2025, what's remaining from a capital as well as an EBITDA contribution from future projects?

Jon Vander Ark (CEO)

If you remember, Brian, we are developing our polymer centers as wholly owned facilities. Really, the only thing that's running through our CapEx is the investment in the polymer centers, which is obviously embedded into our free cash flow guide. For 2025, we look to spend another $75 million on polymer centers, which is relatively consistent with what you've seen over the last several years. It's really not much of a change from what you've seen in the baseline. The other investments that we're making are more in the JVs, the partnerships themselves. In both the landfill gas-to-energy projects as well as with Blue Polymers, we have a minority interest. That investment comes through the statement of cash flows, but more like an acquisition would as an other investing activity.

And so if you take a look at next year, we would look to spend combined about $100 million in the investments in both of those JVs.

Brian Butler (Analyst)

Okay. That's helpful. Then I guess most of my questions are answered, but I throw one out there. I mean, the fundamentals look really good. A lot of success on a lot of the programs you have internally. What are some of the risks out there that you see kind of strategically going forward from where we are today?

Jon Vander Ark (CEO)

I think broader macro environment. Listen, we've lived through a pandemic and high inflation and war at the shore of Europe and other elements. So a macro slowdown in the economy, what happens with tariffs and impact on inflation, none of those things, I would say, keep us up at night, but we're watchful and mindful of the macro environment in which we operate, on that front. In terms of what we can control, safety is our number one priority. So that's what we get up every day and focus on. And outside of that, we feel like the things in the business and in front of us are manageable.

Brian Butler (Analyst)

Great. Thank you.

Operator (participant)

Your next question today will come from Tony Bancroft with Gabelli Funds. Please go ahead.

Tony Bancroft (Research Analyst)

Hey, gentlemen. Congratulations. Very well done. And just this one sort of runs along the lines of your environmental solutions acquisitions, obviously, turned out very well and has a lot of potential opportunity going forward. Is there anything else out there that you could see that could be a transformational type of acquisition, either in your space or maybe something different, something more on the sustainability side that you could see? Is there a longer term, maybe three to five years or longer?

Jon Vander Ark (CEO)

Yeah. We maintain a perspective on everything and everybody, and any deal or opportunity of consequence, we're going to have a perspective on. That being said, those things often are opportunistic and uncertain, so we don't build our strategy hinged on some type of bigger deal, and I think what you've seen over the last five years is we've driven a lot of value in the business by small and medium-sized deals and then really good execution organically as well, and I think that will be more of the same. We'll keep our eyes open, and if there's big opportunities, we'll be certainly aggressive in considering those, but nothing is imminent.

Tony Bancroft (Research Analyst)

Great. Well, great job. Thank you so much.

Jon Vander Ark (CEO)

Thanks, Tony.

Operator (participant)

Your next question today will come from Kunal Gupta, Winslow Capital. Please go ahead.

Thanks for taking my question. I think a lot of questions have been asked here, but just a sensitivity. The commodity price environment is obviously not highly predictable, right? And I think the way you are kind of assuming your commodity prices for 2025 seems like it's going to be a decent headwind in 2025. If the commodity prices kind of start to move up higher than where you think they should be, how should we think about the sensitivity to your earnings from that?

Brian DelGhiaccio (CFO)

Yeah. And we disclose this that on average, a $10 move in recycled commodity prices on our basket of goods is approximately $10 million of annual EBITDA. So even when you take a look at what recycled commodities are right now at $145, and we maintain, we assume that they stay flat throughout 2025, relative to the $165 average, it's down $20 million when you think about the EBITDA contribution, which isn't insignificant, but it's not overly material either. And so, again, just to give you an idea, if you see commodity prices moving, again, it's on our basket. You have the sensitivity, and you can expect that impact from both a revenue and an EBITDA perspective for that $10 move.

Okay. That's great. Thanks. And if I can follow up quickly on CNG tax credits, apologies if I missed that comment before. I guess you're not assuming the credits for this year. And if so, if they come through, what is a realistic sort of set of assumptions there?

Yeah. On the CNG tax credit, so again, it's approximately $20 million per year for us, and we did not assume that those are renewed. So right now, that is not embedded in our 2025 guide.

I see. Thank you.

Operator (participant)

Your next question today will come from Kevin Chiang with CIBC. Please go ahead.

Kevin Chiang (Executive Director in Institutional Equity Research)

Hey, thanks. Good afternoon, and thanks for taking my questions. Congrats on a strong year here. You noted, I think, in your prepared remarks, just some of your EV strategy, your fleets growing there. But I think earlier this year, California withdrew its waiver to the EPA related to some of its more stringent zero-emission vehicle policies. Just wondered, does that change how you think about EV spend? And I know some of these vehicles have gone into California. Do you throttle that back a little bit in maybe a more or less stringent regulatory environment as it relates to vehicle emission?

Jon Vander Ark (CEO)

No, it has not slowed down our pace there. There's lots of customer interest, lots of customer demand. There's certainly incentives, state and local, that support us going in that direction, and we'll continue to deploy there. And more broadly, we're going to be mindful. We have no locked-in EV strategy in terms of the exact number of vehicles we're going to purchase by year. We're going to make sure that it's a superior product, right? It's a zero-emission vehicle that's quiet, safe. It's great for our employees as well. And so we're going to make sure that where that's deployed in the municipal space, that we're getting a premium offering or a premium price for that product. And we see a good line of sight to customer demand on that front.

And so we'll go where customer demand takes us, but confident that even with any administration change here, that there's a path forward on EV.

Kevin Chiang (Executive Director in Institutional Equity Research)

Okay. And then just maybe on turnover, a great job there. But I guess a lot of the headlines we're seeing around, I guess, changes in U.S. immigration policy, you are seeing, or we are hearing from some companies, and they are seeing an impact. I'm just wondering, are you seeing or do you envision a downstream impact? So I can imagine your direct employee base isn't impacted by this, but in markets that get tighter in terms of labor, there could be a downstream impact as just the overall labor force is shrinking. Just wondering, are there markets that you're starting to see some of this potential downstream impact? And I guess it's not flowing into your numbers today, but anything that you're keeping an eye out for or regions that might be becoming a little bit more problematic from a labor availability perspective?

Jon Vander Ark (CEO)

Yeah. In terms of our own labor force or where we do have third parties that support us, listen, compliance has always been a huge part of our culture, so we don't see that as any type of threat or challenge. I think more broadly, if you look at the end markets we serve, right, there's been a lot of talk about construction, right, in that part. And I think the biggest driver there is going to be mortgage rates. Labor supply could be an issue on that front too. We'll see how that develops. So we'll keep an eye toward that, but I don't think that's going to be a major concern for us.

Kevin Chiang (Executive Director in Institutional Equity Research)

That's great color. Thanks. And best of luck as you execute on 2025 here.

Jon Vander Ark (CEO)

Thanks.

Operator (participant)

And your next question today will come from James Schumm with TD Cowen. Please go ahead.

James Schumm (Senior Analyst)

Hey, thanks. Good quarter, guys. Just one quick one for me. Can you give an update on the truck supply chain? Is that fully resolved? Are you still seeing any issues getting your trucks? And then sort of related, where are you now in terms of your ASL conversions and then CNG truck conversions? How are you guys thinking about that and if there's additional opportunity for margin expansion over the next couple of years?

Jon Vander Ark (CEO)

Yeah. The supply chain is caught up in terms of what they're delivering and kind of getting back. We have a very radical replacement philosophy with our vehicles and fleet, and we find the optimal kind of CapEx, OpEx trade-off for when to retire vehicles. And we'll kind of be hitting that mark throughout this year, and certainly by the end of the year, we'll be at our optimal point. So really thankful for our suppliers who have been able to help us overdeliver over the last 18 months to get caught up in that respect. On automation, we're about 77% automated. We have a few points of opportunity over time. They'll come with specific contracts or more in the onesie-twosie environment. So that's not going to be a huge driver of performance, but we'll continue to go there.

And then CNG, we've maintained our CNG fleet, but we've not put any new CNG fleets in the last five years because we believe electrification is a superior product. And CNG is better than diesel for the environment, but it's not a zero-emission product. And we think electrification is much more beneficial for the environment, and that's where we see customer pull. So that's where we put our energy.

James Schumm (Senior Analyst)

Okay. Great. Understood. Thanks, guys.

Operator (participant)

Your next question today will come from Devin Dodge with BMO Capital Markets. Please go ahead.

Devin Dodge (Industrials Analyst)

Yeah. Thanks. Good afternoon. Just one clarification from me, and apologies if I missed it, but of the $1 billion-plus M&A spending target in 2025, it sounded like the deals completed, we'll say in the first six weeks of the year, are included in the guide. Just one, is that correct, and two, if that is correct, can you give us a sense for how much of that $1 billion has been deployed already?

Brian DelGhiaccio (CFO)

Yeah. So four deals that have been completed through today, that revenue contribution and the related financial outcomes are included in our guide. So basically, anything closed through today is included. Anything thereafter that we would complete is not. And right now, if you think about the $1 billion spend, a good portion of that has been spent already at this point. So again, we feel really good about that target for the full year. And we'll give you the details, obviously, in April after Q1 results come out.

James Schumm (Senior Analyst)

All right. Sounds good. Thank you.

Operator (participant)

At this time, there appear to be no further questions. Mr. Vander Ark, I'll turn the call back over to you for closing remarks.

Jon Vander Ark (CEO)

Thank you, Nick. I want to thank the Republic Services team for their great work in 2024. Their focus on safety, sustainability, and exceeding customer expectations led to another year of great results and positions us well for continued growth. Have a good evening and be safe.

Operator (participant)

Ladies and gentlemen, this will conclude the conference call. Thank you for attending. You may now disconnect.