00:00Republic Services topping estimates showing just how resilient the waste business can be.
00:04Now it's betting on recycling and sustainability for its next leg of growth.
00:09For more, I'm joined by the Republic Services CEO, John Van Der Ark.
00:14John, so a strong set of results.
00:16And honestly, when I first saw these, my initial thought was like,
00:19I'm assuming that trash and waste management is pretty acyclical.
00:25But that I don't know for certain.
00:26John, can you just kind of describe how the company, how the industry as a whole performs relative to the
00:32overall American economy?
00:34Good morning. You're right.
00:35We have a very high floor in the business.
00:37So we're not recession-proof, but we say we're recession-resilient.
00:41And so it's an essential service.
00:43We can't really create demand in most cases.
00:46And so we have seen demand be relatively soft across our 20-year history,
00:52just given industrial and construction activity has been pretty soft the last three or four years.
00:57But that means, you know, unit growth is down maybe a point.
01:01And so it's still a very high floor.
01:03And we've performed well and expanded margins even in that more challenging context for us.
01:07What about things for, like, industrial waste?
01:09I'm assuming that might be a barometer for the greater economy.
01:13How is that segment looking?
01:15It is. It's been challenging.
01:16If you look at PMI, that's a decent barometer for more of the manufacturing and industrial part of our business.
01:22And the last three months have been positive, but it's been challenged over the last 36 months.
01:27So I'd say we're starting to see some green shoots and starting to see a little bit of momentum in
01:32that part of the economy,
01:32which will be good for our business.
01:35By the way, this is a necessary question because, for those that don't know,
01:39I have a deal show every Wednesday at 12 p.m.
01:42And you yourself, John, you've been, you know, pretty acquisitive,
01:45$700 million in acquisitions so far this year.
01:48Are you looking at anything else?
01:50What's kind of the strategy?
01:52Yeah, we'll spend, we said we're going to spend over a billion dollars this year in acquisitions.
01:56I think we'll do between 25 and 30 deals.
01:59So most of those deals are smaller tuck-in deals, but some of those are a bigger scale.
02:04We're spending $200, $300, $400 million,
02:06so some nice medium-sized companies that we tuck in.
02:09And we're very good at acquisitions.
02:11We've done it for a long time.
02:12We're good at identifying.
02:14We're disciplined buyers.
02:15And then we do a really good job at integrating those deals right into the business.
02:19Why not swing bigger?
02:20Why not go for some big acquisitions,
02:22given it does seem like it's an administration that is somewhat receptive to that?
02:26Yeah, we look at all opportunities, and we're going to do two things.
02:29One, we're going to make sure it fits our strategy,
02:32that we're the natural owner for that.
02:34And then we're going to be very disciplined from a financial standpoint.
02:37We think about double-digit cash-on-cash returns,
02:39and we're going to look and pursue all opportunities.
02:43The bigger ones, obviously, are tougher to come by
02:45because there are fewer of them out there,
02:46but I wouldn't take anything off the table.
02:48You've also been very clear in your recycling initiative
02:51that this isn't just for sustainability,
02:53but it's a revenue-generating infrastructure play.
02:56What exactly does the market look like?
02:59What are you leaning into, and how does that pay off?
03:02Yeah, so we say, we joke, we're equal measures capitalists and environmentalists,
03:07so we want to do the right thing for the environment
03:09and our shareholders at the same time.
03:11And a good example of that is plastics.
03:13Historically, we recycle a lot of plastic,
03:15but most of that gets downcycled into carpets or pipes or park benches.
03:20Good use, but a last use.
03:22And we're going to spend about a half a billion dollars
03:25into advanced recycling,
03:26where that water bottle we're going to take
03:29and we're going to not only recycle it,
03:31but then clean it, turn it into clean, recycled PT flake
03:34that's food-grade that can end up back into the water bottle.
03:37So we have examples today where you could put that into your container
03:41and take it out to the street,
03:43and 120 days later, some of that very plastic
03:45can show back up on the shelf of your grocery store
03:48or convenience store in the form of a water bottle again.
03:50And for us, it's a great example
03:51of a very pragmatic, sustainable solution.
03:54Just while we're talking about big trends, John,
03:57I'd be remiss if I didn't talk about the one
03:59that's kind of dominating everything right now,
04:02and that's AI and data centers.
04:03We were just having a conversation just moments ago
04:06that it's an economy that looks like
04:07it's increasingly relying on data centers.
04:10We're talking about some of your industrial exposure,
04:12some of the more corporate-focused ones.
04:14I got to ask, you know,
04:16how large is the waste and recycling opportunity
04:19for a data center?
04:22It's relatively modest because a data center,
04:25there's a little bit of opportunity
04:26when building the data center,
04:27maybe remediating some of the soil,
04:29and we do a lot of that work in the construction process.
04:32Once the data center is up and running,
04:34it doesn't produce a lot.
04:36It's mostly zeros and ones running through the building.
04:38And I'd say more broadly,
04:39AI is going to have a profound impact on our business
04:42in terms of how we route trucks,
04:44in terms of how we price customers,
04:45how we take care of our customers digitally.
04:48And so we're deploying AI across the enterprise,
04:50and I'm really enthusiastic about
04:52what it's going to do for the customer experience
04:54and for the productivity of the business.
04:56I'd struggle to see, like,
04:57a fully autonomous truck, John,
04:59just because of the complication of what it requires.
05:02But could you see partially autonomous trucks
05:05or, like, something that's driven autonomously
05:07with a person in the back?
05:08What about the actual technology
05:10of these behemoth of machines themselves?
05:13Yeah, we're working closely with our partners on that,
05:17and you've got it right.
05:18I think the idea of a fully autonomous truck,
05:21we're decades away at least,
05:23in part because our hardworking frontline colleagues,
05:25they're not just driving that truck,
05:27they're getting out and they're opening gates,
05:29they're unlocking corrals,
05:31they're getting out and cleaning up around the container.
05:33And to automate that with robotics,
05:36it's possible, but it's prohibitively expensive,
05:38at least it will be for a long time.
05:40But the idea of a truck now taking over and running,
05:44automating that street in a residential application,
05:47and so the driver can be hands-off
05:49until they have to turn the corner
05:50and get back on the road,
05:52I think that's more near-term than long-term.
05:54John, just how big of a bottleneck
05:56is labor for you at this moment?
05:57It's been a complicated year and some change
06:02with changes to immigration.
06:04We, again, see issues in this labor market.
06:07We're sort of the highest-paying jobs,
06:08see more robust, lower-paying jobs,
06:11struggling necessarily to find the workers.
06:12Are you facing that kind of issue as well?
06:16We've had two years in a row
06:18where we've broken our own record
06:19in terms of low turnover,
06:21and I think we're going to break it again this year.
06:23So our team is doing a great job,
06:25in part because we pay a very livable wage
06:27to our frontline colleagues,
06:29and we focus a lot on employee engagement
06:31and being the place where the best people
06:33want to come to work.
06:34And so I would say it's not a tight labor market,
06:36but it's also not an easy labor market,
06:38but in that context,
06:39we're performing really, really well.
Comments