Republic Services Inc

NYSE:RSG

Good afternoon, and welcome to the Republic Services First Quarter 2025 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. [Operator Instructions] 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.

Good afternoon. I would like to welcome everyone to Republic Services First Quarter 2025 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 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 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 April 24, 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 the 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.

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. We are pleased with our first quarter results, which demonstrated our ability to price ahead of inflation and effectively manage costs. We produced strong earnings growth and expanded margins while overcoming top line headwinds from challenging winter weather and continued softness in cyclical volumes.

During the quarter, we achieved revenue growth of 4%, generated adjusted EBITDA growth of 9%, expanded adjusted EBITDA margin by 140 basis points, delivered adjusted earnings per share of $1.58, and produced $727 million of adjusted free cash flow. These strong results were supported by our differentiated capabilities. Regarding customer zeal, our focus on delivering world-class essential services continues to support organic growth and enhance 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. First quarter organic revenue growth was driven by solid pricing across the business. Average yield on total revenue was 4.5% and average yield on related revenue was 5.4%. This level of pricing continued to exceed our cost inflation and helped drive 140 basis points of adjusted 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. Challenging winter weather also impacted volume results during the quarter.

Turning to our expanding digital capabilities. We continue to advance the implementation of digital tools to improve the experience for both customers and employees. Development and deployment of M-Power, our fleet and equipment management system is progressing. M-Power is designed to increase maintenance technician productivity and enhance warranty recovery. Today, we have implemented M-Power to nearly 40% of our facilities.

Moving on to sustainability. We believe that our sustainability innovation investments in plastic circularity and decarbonization position us for growth and long-term value creation. Development of our Polymer Centers and Blue Polymers joint venture facilities continues to move forward. In March, we hosted the grand opening of our Indianapolis Polymer Center. Product quality testing is progressing well. We expect to begin ramping commercial production volume in June, with earnings contribution beginning in the second half of this year.

This operation is co-located with a Blue Polymers production facility that is expected to be completed in the coming months. Construction on the Blue Polymers production facility in Buckeye, Arizona continues to progress. This facility will complement our Las Vegas Polymer Center. We expect the completion of this facility early next year.

The renewable natural gas projects we're developing with our partners are advancing. One project came online during the first quarter and 2 projects came online in April. We still expect a total of 7 RNG projects to commence operations in 2025. We continue to advance our commitment to fleet electrification. We had 80 electric collection vehicles in operation at the end of the first quarter. We expect to have more than 150 EVs in our fleet by the end of this year. We now 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. Our employee engagement score continues to improve and our turnover rate continues to trend lower compared to the prior year. Our comprehensive sustainability performance continues to be widely recognized as Republic Services was named to Barron's 100 Most Sustainable Companies list, Fortune's Most Innovative Companies list, and Ethisphere's World's Most Ethical Companies list.

With respect to capital allocation, we invested $826 million in strategic acquisitions during the first quarter. This includes the acquisition of Shamrock Environmental, a leader in industrial waste and wastewater treatment services. This acquisition further strengthens our capabilities to provide high-demand services to our customers. Our acquisition pipeline remains supportive of continued activity in both the recycling and waste and Environmental Solutions businesses.

We continue to see opportunity for more than $1 billion of investment in value-creating acquisitions in 2025. As part of our balanced approach to capital allocation, we returned $226 million to shareholders in the quarter, including $45 million of share repurchases. I will now turn the call over to Brian, who will provide more details on the quarter.

Thanks, Jon. Core price on total revenue was 6.1%. Core price on related revenue was 7.3%, which included open market pricing of 9% and restricted pricing of 4.6%. The components of core price on related revenue included small container of 9.1%, large container of 7.9% and residential of 6.5%. Average yield on total revenue was 4.5% and average yield on related revenue was 5.4%.

First quarter volume performance on total revenue decreased 1.2% and volume unrelated revenue decreased 1.5%. Volume results on related revenue included a decrease in large container of 3.3%, primarily due to continued softness in construction-related activity in certain manufacturing end markets and a 2.9% decrease in residential due to shedding underperforming contracts. We estimate that severe weather negatively impacted volume performance by $25 million to $30 million during the quarter. The weather impact was isolated to January and February.

Moving on to Recycling. Commodity prices were $155 per ton during the first quarter. This compared to $153 per ton in the prior year. Recycling processing and commodity sales increased revenue by 30 basis points during the quarter. This was primarily driven by increased volumes at the Las Vegas Polymer Center and reopening a recycling center on the West Coast. Current commodity prices are approximately $160 per ton.

Total company adjusted EBITDA margin expanded 140 basis points to 31.6%. Margin performance during the quarter included margin expansion in the underlying business of 110 basis points and a 40 basis point increase from 1 less workday. This was partially offset by a 10 basis point decrease from acquisitions. With respect to Environmental Solutions, first quarter revenue increased $25 million compared to the prior year, driven by both organic growth in the business and the contribution from recent acquisitions. Adjusted EBITDA margin in the Environmental Solutions business was 20.1%. This compares to 20.5% in the prior year margin performance in the Environmental Solutions business was impacted by project timing and severe winter weather.

Adjusted free cash flow was $727 million, an increase of 36% compared to the prior year. This increase was driven by EBITDA growth in the business and the timing of working capital. This level of performance was in line with our expectations. Total debt was $13.4 billion and total liquidity was $2.6 billion. Our leverage ratio at the end of the quarter was approximately 2.6x.

Yesterday, Moody's upgraded our credit rating to A3. The upgrade recognizes the stability of our revenue base, strong EBITDA margin profile and robust free cash flow generation. With respect to taxes, our combined tax rate and impact from equity investments and renewable energy resulted in an equivalent tax impact of 26.5% during the quarter. With that, operator, I would like to open the call to questions.

[Operator Instructions] And your first question today will come from Sabahat Khan with RBC Capital Markets.

Maybe if we could just start by commenting on maybe what you're seeing out there maybe more cyclical parts of the overall business. Any change in trends through the quarter in Q1 and anything that might have evolved into Q2?

Sure, yes. Look, we've mentioned cyclical volumes have been down. That's really been true for the last 3 years. We've been in a negative demand environment really led by construction and manufacturing. It's a little difficult to tell when you mix in the weather what's happening. Certainly, January and February were softer on that front, and March has picked up and April in that trend. So we feel good about that.

But I think on the construction side, we're expecting more flatness throughout the rest of the year, just given where the 10-year interest rate is, and we've got to get mortgage rates down. I think manufacturing is more of a wait and see. Obviously, there's a lot of uncertainty right now with tariffs. To the extent that we get a trade policy clarified, I think there could certainly be some pent-up demand. But for now, it's more of a wait and see.

Great. And then maybe just continuing for that or around that as my follow-up. Maybe you can just comment on your outlook on 2025, the guidance metrics. Any changes in the puts and takes on the top line or the margin guidance provided at the last quarter?

Yes. Maybe just as a matter of principle going forward, if we don't formally update our guidance, we are implicitly and explicitly reaffirming our guidance on that front. So again, it's always cyclical. Our seasonality in the business is important because you've got to see how demand comes in the second and the third quarter, which are our strongest quarters. And we've seen a nice pickup on that front. So we will update you more in the following quarter based on what we see coming in here in April, May and June.

And your next question today will come from Bryan Burgmeier with Citi.

I was just wondering if you could maybe talk through some of the puts and takes in margin expansion for solid waste in the first quarter. It was quite a bit better than our forecast. I'm just curious how it kind of compared to your expectations. Maybe what went better than you expected? It seems like it's maybe all-time high margins and I guess we normally don't think about 1Q being a high point. So just any kind of detail you can add would be great.

Yes, Bryan, it was a good quarter, obviously, with the level of margin expansion. We've talked about this that we're still reading back to relatively higher pricing. And there is this spread between that and the cost inflation, which we're realizing more on a real-time basis. So most of that is just driven by price in excess of our cost inflation.

That said, a little bit of this was arithmetic as well. So again, when we saw some of the softness in things like construction activity, which is good work but it tends to be a little bit below our corporate average, but we saw some pretty strong special waste volumes in the quarter as well, that change in mix can actually have a positive impact on your overall margin performance. So again, slightly ahead of our initial expectations and we'll see how this goes through the balance of the year.

Got it, got it. And just maybe broadly, just kind of curious on your appetite for further M&A. I guess on one hand, leverage is still pretty low. But on the other hand, the macro outlook is quite uncertain. You've already done quite a few deals year-to-date. So yes, just further views on that.

Yes. In the prepared remarks, we've mentioned that our pipeline is strong. And listen, we'll -- we're active in the space, both in recycling and waste and across Environmental Solutions. It's got to meet 2 screens. One, it's got to meet our strategic screen. Are we the natural owner of this? Is it a good fit for our business? And then our financial screen as well, where we're going to look for double-digit unlevered cash-on-cash returns.

And most of the things that fit those screens then have some level of permanence associated with them, either permanence on infrastructure or density and small, large container permanent routing. So things that stand the test of time. So we're not going to buy a completely cyclical business, for example, that's just not a good fit for us. And so -- and we're buying these things forever, right? We're not being opportunistic and saying, we're going to buy and sell it. We're going to keep it forever. So we'll take that through-cycle mindset. And I think you'll see us be active the rest of the year.

And your next question today will come from Tyler Brown with Raymond James.

Jon, so I think you've owned US Ecology for a while, but I guess, technically, you haven't owned it through a cycle. But like you kind of mentioned, I guess, you could argue the last couple of years have been an industrial malaise, to say the least. But big picture, what are the KPIs that you're kind of looking at to assess the end market health for that business? And is that business still about 3/4 recurring revenue and about 1/4 project or event work?

Yes, let me start. Broadly speaking, yes. I talk -- putting those 2 things in discrete categories is a little less clear. For example, you may have a contract with a large industrial player to do something like emergency response. Well, there's going to be some variability year-to-year in that contract, and those are technically events. But overall, across years, it's a pretty stable stream on that front, but that 75-25, for your purposes, I think, is a fair marker on that front.

But if we look at the same thing other people do. We look at PMI from a manufacturing output standpoint. We look at industrial activity or permitting, right, for more -- some type of events-based work on that front. And again, you look at all those things and they then suggest historic softness, right, not -- those markets are not disastrous either. They've just been soft for the last 2, 3 years.

And remember, Tyler, there's a lot of overlap between our Recycling & Waste business and the Environmental Solutions business so we see it on both sides. Same customer, just a different waste stream.

Yes, exactly. Okay, that's helpful. And then, Jon, can you just talk a little bit more about the Shamrock deal? Can you just talk about what it brings to the table, what exactly they do? Maybe is it levered to PFAS? Just how it fits in that environmental service mosaic.

Yes, good question. Yes. So they have commercial water treatment facilities, and we've had some of those through the US Ecology deal, so we're in that business. The primary reason we got into it is we had a lot of -- they were a big -- or we are a big customer of theirs. We have a lot of industrial water on our because when we go to serve our most complex customers, they have a lot of different needs and different waste streams, water being one of those.

And so we knew the assets incredibly well on that front infrastructure base. Also fills out some dots on the map for us in terms of field services on that front, so felt really good. And they do have PFAS technology. We actually were taking some leachate to them as well. So that was the primary driver of the deal, but that certainly will be supportive over time as PFAS becomes a bigger and bigger part of our service offering.

Okay. Yes, that's very interesting, very helpful. My last 1 here real quick, Brian. I know you guys are going to address the guidance in July, but I think you had said last call to expect 1 point, like 1 point from M&A for revenue. Is that kind of number still intact? I think I just want to make it clear that your guidance had already contemplated this heavy spend in Q1. Is that right?

Yes, that's fair. It's right. It's still around 1 point. And that is correct that our guidance, because we had already closed the majority of the transactions by the time that we were providing the guidance, we had included the revenue from those closed transactions in the guidance itself.

And your next question today will come from Toni Kaplan with Morgan Stanley.

Wanted to ask on the margins side again, just really strong quarter there. It seemed driven by price/cost spread and you mentioned the mix. Just I guess, conceptually, that level of expansion has to moderate through the year in order to get to the guide. Just maybe just help bridge what do you think gets a little bit worse. I know there's a little bit of arithmetic as you mentioned, but is there anything that sort of gets worse? Or is it conservatism, just given maybe some uncertainty with regard to lighter volumes, et cetera?

Yes, we think that the spread between the 2, the price/cost spread, we have said all along that we still anticipate pricing ahead of our cost inflation, but that spread is going to somewhat modulate over time. As you also move throughout '24, you can see the cadence that we have there. You start getting into tougher comps. So again, you saw a big sequential uptick from Q1 into Q2, then again up into Q3. And again, Q4 being 80 basis points higher than where we were in the first quarter. This year, we still expect that natural seasonal progression but a little bit flatter, if you will, with respect to the absolute throughout the year.

Perfect. And then just on the volume side, you mentioned the resi shedding. Should that continue through the next few quarters or when does that lap? And was that related to prior M&A, or I guess, what are the big drivers there?

Yes. That maybe last for a few quarters here and part of that is intentional shedding from M&A deals, and again, we've talked about this a lot. When we do a deal, we know there's a certain part of that revenue we're not going to retain, and we don't pay for it in the deal. And that's going to come out of the system typically 6, 12, [ 18 ] months later. We're always going to honor those contracts but we know they're unlikely to renew.

And then some of that is us putting upward pressure on price, the municipal vertical and from this market is the one that has returns that need to go up, right? Lots of capital, lots of investment in terms of people in the front line. And we're going to look for customers that are willing to pay for the value that we deliver over time. And many, many customers do. Those that don't will continue to take our investments and our human resources and financial resources and place them in other parts of the market.

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

I just wanted to ask on your pricing and retention rates. Both really impressive numbers. Pricing was, I think, 0.5 point ahead of most expectations. Can you just talk about what you're seeing in the business that's driving such attractive retention rates while pricing is at high levels as well that really stood out in the results and the sustainability into the second quarter based on what you're seeing?

Yes. Jerry, we continue to just see improvements in overall service delivery, which is leading to overall better NPS. And when you have that backdrop and the customer can realize the value of the service you're providing, much more receptive to the price increase and staying with you longer. And again, that's why we say all of these things that we do are so interconnected as far as making sure that we're meeting the promises that we make to our customers each day. And we're seeing the benefits and you're seeing it manifest itself in higher levels of pricing and ultimately dropping to the bottom line.

Super. And then on the Polymer Center, there's discussions about potentially increasing plastics use by your customers from aluminum. Can you just talk about -- I don't know if it's too early or not to talk about where pricing could ultimately go for the Polymer Center output, given what seems like rising adoption and the transition towards recycled plastic from aluminum. What's that opportunity look like for you folks? How much higher could pricing go when you folks do ramp up across the facilities?

Yes, it's certainly a tailwind versus a headwind. And kind of why we got in the space is we understood that the market and demand was there for recycled PET and the supply was constrained. And that still proves to be true. I think we could sell out both Las Vegas and Indianapolis multiple times over. That's the strength of the customer demand. And obviously, we're pricing appropriately for that, and we'll see where pricing goes as we move forward. Most of our contracts are of shorter duration on that front because we're understanding price discovery and where that market moves. And as the market moves up, we'll be able to capture that premium.

And sorry, Jon, are you willing to share just order of magnitude how much higher could it be versus the initial contracts?

No. We'll wait and see. We'll wait and see whether the market evolves and develops on that front. But I think the upward trend is undeniable.

And your next question today will come from Noah Kaye with Oppenheimer & Co.

I'm not sure if it was a record but it certainly felt like your script to start off the call was maybe the tightest and most concise I can remember, so thanks for giving us more time to ask questions. I guess I wanted to start with ES, picking up on Tyler's line of questioning. It looked like it was about maybe 70 bps or so organic growth within the segment. Was that all price? What happened to volumes? I mean, obviously, weather was called out as an impact on project delays. And maybe you can kind of go from there to talk about what you expect kind of moving here into 2Q.

Yes. Noah, what we saw there, we kind of mentioned a combination of a little bit of project mix but also weather. And the reason we mentioned and the isolation of January and February is the results were very different in those 2 months than what we saw in March. March is more of what we would have expected. Again, we saw good organic growth in margin expansion. And when you think about that business, it carries a little bit of a higher fixed cost base than what you tend to see in the Recycling & Waste business.

And so when you have those days when you're down, it's a little bit tougher to overcome. So again, we are, again, optimistic about what we saw in March and based on some of the early results of what we're seeing in April, that it really was more of a weather issue as well as we mentioned. There were some project items where, again, when you take a look at the mix, we had a little bit more on the field services. And again, when you bring some of that in, which is good work, but at a relatively lower margin than the post-collection side, you can see a little bit of the impact that you saw on margins.

Yes, yes. Makes sense. So we kind of see a pickup back to good organic growth. The margin question is asked a couple of ways. I want to ask slightly different because you do report by line item on the cost side. Some real leverage there on the fuel line. Also some of the gains were in transfer and disposal and maintenance. Now I suppose some of that is kind of related to the workday. But maybe you can just sort of parse out fuel like-for-like what that was as a benefit to margins in the quarter?

Yes. Well, if you actually take a look within the quarter, the impact of net fuel because remember, you've got fuel expense and then you've got our fuel recovery fee, it had no impact on margin year-over-year. So again, the 140 basis points of margin, right, most of which being in the underlying business, the 110 basis points that I mentioned is just going to be, again, that price in excess of cost inflation. So it's coming from all of these line items. It's somewhat across the board once you actually normalize for the impact of net fuel. The workday itself was 40 basis points of the 140.

Yes, okay. This is very clear. Last one I just got to ask. You already commented the pipeline is strong. The $1 billion of M&A spend for the year, just given the 1Q activity, feels like a low bar. At this point, any reason to anticipate that it could meaningfully exceed that? It sounds like the pipeline is strong and the activity levels in the sector are very good. So just your bias towards the $1 billion.

Yes, I like our chances to beat it.

All right. We'll stay tuned.

And your next question today will come from Tami Zakaria with JPMorgan.

My first question is on the Environmental Solutions EBITDA margin. I think it was down year-over-year. Are you able to isolate how much of that was due to, I think, you mentioned weather and project timing? And so related to that, are you expecting that segment's EBITDA margin to eventually be up year-over-year in 2025?

Yes. To answer your last question first, yes. Look, from a quarter-to-quarter, there's going to be some mix that moves that margin around, and the nature of the work because some of that work, for example, field services could be very, very low capital work. So that might have downward pressure on the margin but that's still value-creating work over time.

And so I would encourage you to look at the trends across years, not quarters on Environmental Solutions. And I think what you've seen over 3 years of getting into this business of scale is really nice margin expansion. And I think we'll consistently deliver on that trend, albeit at a slower pace in the first 3 years, but we'll continue to expand margins. The quarter-to-quarter, I don't think is going to be a great signal.

Got it. That's super helpful. And then 1 question on the guide. I appreciate you mentioned you're going to probably talk about it after the second quarter. But in your current guide, the volume growth of flattish at the midpoint, did that range of volume outcomes embed any recessionary scenario or any incremental slowdown in the broader economy for the year?

No, I didn't anticipate a hockey stick rebound either, but I'd anticipated kind of slow and steady recovery in manufacturing and construction. And as I mentioned, right, we haven't sincerely didn't see that in January and February. March and the start of April is more promising on that front, and that's why we'll update you more after the next quarter.

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

Maybe if I can ask that ask a margin question a little bit differently. So it sounds like you had some weather issues in Q1. Just wondering if some of the work that you're seeing pick up in March here from that project work gets pushed out, or it seems like it is getting pushed out into Q2. If I look at the short history you've had this, it looks like sequential margins moved up about [ 200 to 300 ] basis points quarter-over-quarter from Q1 into the second quarter. Just is that a good seasonal range?

And then just given some of the movement of the timing of some of this revenue, do you think you can kind of track towards the upper end of that just as some of that what normalizes in April and hopefully May and June versus what you saw in January and February?

Yes. Kevin, just real quick, we've talked about taking a through-cycle mindset with the Environmental Solutions business. And with what we're doing and the opportunities there, we said we saw margin expansion in the 75 to 100 basis points per year, right, in contrast to the Recycling & Waste business in kind of the 30 to 50.

So again, there was a little bit of this weather impact early in the first quarter but we still think there's that trajectory as we move forward. And so I think you can think about that for the year as well as for the next several years just because, again, it's a little bit more opportunity in that business, Recycling & Waste being a little bit mature, and we still see that opportunity going forward.

That's helpful. And I know tariffs won't have a significant impact on your business, but just wondering as you think of your capital plan for this year, maybe even to 2026, just are you being able to tune in the cadence of how some of the comes through to maybe avoid the risk of tariffs? Or is the -- I guess, the planned outlay as we get through the next 3 quarters here, I guess, relatively intact from what you would have thought 4 to 6 months ago for 2025 and maybe as you kind of early thoughts into 2026.

Yes, in 2025, it will have a minimal impact, right? It won't be [indiscernible] plans to mitigate that and other initiatives. And I think '26 is TBD, right? We are working really, really hard, including things like asking our suppliers to spell out or specify any tariff-related surcharges on that front because this will be an environment where it would be easy to try to pass through price increases that end up sticking if we have a different trade policy come 30 days or 60 days or [ 3 months ].

So we're working really hard on that front. I think it's too early to tell. There are some minor things we're doing about moving things around the supply chain to make them more things that are landed here on that front to minimize the tariff impact. But we'll have their visibility in the next 3 months.

And our next question today will come from Trevor Romeo with William Blair.

One quick 1 back to volumes. Just noticed that the MSW landfill volumes were down 4% in the quarter. Just wondering if there was something specific or maybe lumpy you'd call as a driver there? And what's your view on MSW volumes to come back going forward?

Yes. Look, that's where you're certainly going to see some weather, right, impact on that front. So again, that's what we think most of that was for the first quarter. I want to point out at the same time the yield in that business was 6.8%. So total MSW as a line of business increased over 3% from an organic growth perspective. But we think that, that volume comes back as we look forward into the future quarters.

Okay, great. And then just wanted to follow up on -- I guess appreciate the commentary on the Polymer Center so far, but maybe on your more traditional recycling facilities, I was just wondering if you could talk about the upgrade opportunity there across your footprint. I think you had the one in Anaheim that just reopened this month. I was wondering if you could talk about how much further opportunity you see there to increase efficiency and take some labor benefits.

Sure, yes. Most of what we do there is there's just a continual movement across our 75-plus recycling centers to upgrade capital, certainly to maintain it. But every time we do that, you put in more automation and it takes out some labor on that front. So Anaheim was unique because it was a complete retool and rebuild. And there's advantages to that because you can get everything designed perfectly. But we are constantly going through the fleet and the system to take -- first of all, we're about a product. That is all where the investment goes. Inevitably, that takes out some jobs along with it.

And your next question today will come from Stephanie Moore with Jefferies.

I was hoping you could talk a bit about your Polymer Centers. Maybe if you can talk about how the ones that are open are performing, maybe hitting the certain kind of rates or efficiency rates or output that you've been targeting. So any update there? And then also, just given the change of administration and potential for deregulation, anything that could cause an impact as you see now in terms of some of your RNG plants coming live?

Sure, yes. So Polymer Centers have been exciting in the sense they've met our assumptions on inbound volume. We have most of it in our back so that's easy. We do take some third-party volume and we could certainly take more if we need to. Very exciting on the demand standpoint in terms of customers willing to buy them multiple facilities out if they could and hitting our price points.

And then from an operating standpoint, absolutely in terms of can we produce the product. Now Vegas has had some learnings in terms of getting the product quality completely dialed in to the specific specs of customers. And listen, innovation is hard. It's not a straight line so we've wanted some things on that and feel really excited about where that's going and then captured all those learnings into Indianapolis. And so that start-up has been much quicker and taking all advantage of the product quality learnings and other lessons on that front.

On the administration change, listen, the predominant regulatory structure in this industry is state. And so that's where we spend the vast majority of our energy. There could be some puts and takes on the federal level around tax incentives or other types of incentives. RINs is a good example where we had landfill gas energy in the first Trump administration. We're having this administration, RINs prices are hanging right in there. Could they be a little higher in a different administration? Probably on that front. But broadly speaking, those projects are still hitting their financial markets.

And Stephanie, as you remember, when we announced the investments in both RNG and fleet electrification, that was prior to the Inflation Reduction Act. So those credits came out after. We actually made that decision to invest. They were going to be additive. They were going to take a good return and even make a better return. So we obviously want those credits to stay in place. But it would not have changed our decision or the return that we anticipated when we made those investments if they were to be repealed.

Got it. And actually just as a follow-up there. Jon, I guess to your point, what would cause you to consider bringing in external or outside volumes into those Polymer Centers?

We do -- the plan is to take more and more. It's just building up. These things have about a 12-month build to get to full run rate capacity on that front and then will get to us after we have our fourth facilities completed, then I think we'll get to a decision point, do we need a fifth facility or not on that front?

And your next question today will come from Tobey Sommer with Truist.

On the M&A opportunity in front of you, any shuffling of the motivations of the sellers? Anything changing in their motivation to sell at the time?

Not really, given what I talked about earlier that these are high-quality assets. These are great operators. They've run the business for decades on that front so they know what they have. That being said, broader uncertainty is probably helpful for us on the margin in terms of M&A, which is uncertainty makes people think about taking chips off the table and cashing out on decades of investment. But there's been -- that's not a big driver for our pipeline.

Okay. And then just curious if you're -- with all that's going on in D.C. with DOGE-proposed budget changes, mostly cuts and prospective regulatory changes, anything you're observing in evolving customer behaviors that you'd call out?

Not that I can think of at this point.

Okay. Didn't think so but I appreciate the response.

And your next question today will come from Tony Bancroft with Gabelli Funds.

Obviously, you've done a wonderful job on your -- this environment you're in. This industry is very well set up. I guess the position you're in, the margin performance, where do you go from here over the next few years? Maybe talk about something potential transformational. Obviously, the US Ecology business has been a great win for you. And then maybe also, what is it keeping you up at night right now? Obviously, with the uncertainty going on looking forward, maybe you could just talk about some of those things.

Yes. Listen, we think we've got a lot of growth potential ahead of us. We've got -- we're a relatively small share player, broadly speaking, right? It's about 15% Recycling & Waste. Same thing in Environmental Solutions, and we're just getting started in sustainability and innovation is really our third engine for growth on that. So you'll see us grow there organically. You'll see us grow there through price, and you'll see us grow there through M&A. So we really have a lot of avenues and pathways to grow going forward.

And we benefit from being a recession-resilient business. Obviously, we've talked about some of the challenges, but the challenges are very modest compared to the macro context of other businesses where they're facing 20%, 30% drops in demand. So we feel fortunate to be in the space on that. Obviously, the macro environment does impact our business, right? If the company or the country or the world goes into recession, we're going to feel some of that and we'll adjust accordingly. But if we're running the business through the cycle for the long term on that, so you'll see us continue to invest and make value-creating both organic and inorganic investments.

Great job, Jon and team.

And your next question today will come from Michael Feniger with Bank of America.

Brian, I appreciate you've mentioned the look back on the pricing side a few times on the call, but I also know you guys have kind of changed a lot of mix of your contracts. So just to be kind of clear, you had a really strong start to Q1 when we even look at the open or restricted. Are we thinking more of a gradual step down, Brian? Was there a bigger falloff that we should kind of be anticipating just because you had such a good start to the year? Just trying to kind of think about how that plays out through the year.

No, I would say it's more gradual. And again, to your point earlier on some of the work that we've done, going back to where we were in 2016 when we were predominantly linked to headline CPI and some of the moves that we made to alternative indices, whether it be water sewer trash, a garbage trash or a fixed rate. As I said, we've moved about 63% of that portfolio.

And if you take a look right now on a 6-month look back, water sewer trash is running close to 5%, garbage trash 4.5% relative to headline CPI in the high 2s, 2.7%. That has certainly given us again a nice floor from which we're sitting or able to price when you take a look at the 4.6% that we saw in restricted pricing. So we would expect that to be more gradual, I would say, as we move sequentially just because of the way that the pricing mechanism works itself, but it will be in and around that range.

Great. And Brian, just last one. If you touched on this, I apologize, but the free cash flow conversion was really strong. I know there's always some moving pieces. Anything we should be thinking about there when we look at that conversion rate either from the cash from op side but also the free cash flow side? It was just a really strong start. Anything you want to flag there and how we should kind of think about that through the year?

Yes. Look, the biggest component of that growth was the EBITDA growth in the business. But as you also can see, there was a benefit from working capital, just some timing things, quite honestly. We had 1 less payroll period in the quarter itself. So some things that normalized throughout the year. So really good start to the year. Pleased with that outcome, but we would sit there and say it was on our marks. And that's why I mentioned in the prepared remarks that it was in line with our expectations.

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

Nice quarter. Just 1 for me. As I look at your Recycling revenues, how much of -- what portion of the mix is a fee-based structure versus the other portion, which would be commodity price sensitive? Is it like half and half or how should I think about that?

Well, when you take a look just overall, when you take a look at our business, we've got about 60% of our business, both on the collection as well as the recycling side, the recycling processing side, there's going to be a fee for service, right? And then you've got, obviously, the sale of the commodities as well. So when you take a look just the way that the math works, you're looking at about 50-50 mix between the 2 on just the Recycling book of business because most of that's on the recycling processing side, which is the combination of the fee-for-service as well as the sale of the recycled commodity.

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.

Thank you, Nick. As we close out the call, I want to thank the entire Republic Services team for their continued focus on safety, sustainability and service. Through their efforts, we are positioned for continued success. Have a good evening and be safe.

The conference has now concluded. Thank you for attending today's conference today. You may now disconnect.