Republic Services Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2021

There are 13 speakers on the call.

Operator

Good afternoon, and welcome to the Republic Services Second Quarter 2021 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 listen only mode. Please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Stacy Matthews, Vice President of Investor Relations. I would like to welcome everyone to Republic Services' 2nd quarter 2021 conference call. John Vander Ark, Our CEO and Brian DelGachio, our CFO are joining me as we discuss our performance. I would like to take a moment to remind everyone Some of the information we discuss on today's call contains forward looking statements, which involve risks and uncertainties and may be materially different from actual results.

Operator

Our SEC filings discuss factors that could cause actual results to differ materially from expectations. Enns. 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 July 29, 2021. Please note that this call is the property of Republic Services Inc.

Operator

Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited. I want to point out that 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 all available on Republic's website at republicservices.com. I want to remind you that Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times and presentations are posted on our website.

Speaker 1

Quarter. Our results reflect strong execution and continued momentum on our strategic priorities, which are building capabilities to further differentiate us from competitors. These capabilities include driving growth and building customer loyalty through a maniacal focus on the customer, which we call customer zeal. Leveraging digital tools to improve the experience for our customers and employees, to our customers while protecting the planet. During the Q2, we delivered adjusted earnings per share of $1.09 Which represents a 36% increase over the prior year.

Speaker 1

Expanded EBITDA margin 110 basis points to 30.6 percent capital by investing in value creating acquisitions and returning excess cash to our shareholders. Year to date, We invested $567,000,000 in acquisitions to further enhance our market position and increase free cash flow. Our pipeline of acquisition opportunities remains robust with opportunities in both solid waste and the environmental solutions portion of our business. We expect to invest well over $600,000,000 in acquisitions for the full year. Year to date, we returned $363,000,000 to our shareholders through dividends and share repurchases and our Board recently approved an 8% increase in the quarterly dividend.

Speaker 1

The strength of the underlying business is irrefutable and we continue to see the proof points that our strategy is working. Retention on our small and large container business remains at historically high levels at 94%. If you further consider all permanent units of service, retention is even higher at 95%. As anticipated, the pricing environment was strong in the 2nd quarter. Total core price was 5.2% and average yield was 2.6%.

Speaker 1

This level of core price matches the highest level in our company's history. During the Q2, we delivered outsized growth in our business as the economy improved. 2nd quarter volume increased 8.1% compared to the prior year, which exceeded our expectations. The outlook for growth in the remainder of the year both organically and through acquisitions is strong. Turning to digital, We continue to see the benefits of our investments in technology and are well underway on the rollout of the next phase of our RISE platform.

Speaker 1

Through the Q2, we implemented tablets in approximately 40% 47% of our large and small container fleet. We expect to be substantially complete by the end of this year with plans to further deploy to the residential fleet beginning in 2022. The in cab tablets enable automated customer notifications, which provides customers real time information about their service. Next, we believe sustainability is more than environmental stewardship, but also a platform for growth. We recently published our new sustainability report, which highlights the progress we are making on our most significant opportunities to positively impact our stakeholders and the environment.

Speaker 1

For example, we are proud to report a 5% reduction in operational greenhouse gas emissions in 2020 compared to the prior year. This year, we expanded and converted a landfill gas energy plant to high BTU and have 15 additional projects in the pipeline. These projects reduce landfill emissions, generate more renewable energy and improve our economics. We are also making the communities in which we operate better places to live. So far this year, we've supported more than 25 charitable efforts and neighborhood revitalization projects through financial contributions and volunteer efforts.

Speaker 1

This is in addition to the ongoing support of

Speaker 2

our local

Speaker 1

divisions provide to their communities. In recognition of our ESG performance and transparency, We were named to 3BL Media's 100 Best Corporate Citizens List for the 2nd consecutive year. Finally, Turning to our outlook for the remainder of the year. We expect continued strength in our business and to exceed the full year guidance we upwardly revised last quarter. Accordingly, we are updating full year financial guidance as follows.

Speaker 1

Adjusted EPS is now expected to be in a range of $4 to $4.05 and adjusted free cash flow is now expected to be in a range of $1,450,000,000 to 1 point for $75,000,000,000 This represents an increase of over 6% from the midpoint of the prior guidance. I will now turn the call over to Brian.

Speaker 3

Thanks, John. 2nd quarter core price was 5.2%, The components of core price included small container of 7.9%, large container of 5.3% and residential of 5%. Average yield was 2.6%, which increased 30 basis points from the Q1. This level of performance was in line with our expectations. 2nd quarter volume increased 8.1%.

Speaker 3

While we expected 2nd quarter to be the highest reported volume for the year, the 8.1% growth exceeded our expectations. And an increase in landfill of 12.6%. For reference, 2nd quarter volumes in our small and large container businesses were down less than 1% from a 2019 pre pandemic baseline. And MSW and C and D landfill volumes were both above the pre pandemic baseline. Moving on to recycling.

Speaker 3

Commodity prices increased to $170 per ton in the 2nd quarter. Internal growth during the Q2. Next, turning to our Environmental Solutions business. 2nd quarter Environmental Solutions revenue was essentially flat with the prior year. Approximately 30% of our Environmental Solutions business is in the upstream oil and gas sector and 70% is in the downstream petrochemical and broader industrial manufacturing sectors.

Speaker 3

The downstream petro Chemical and Industrial Manufacturing portion of this business grew 8% compared to the prior year. Adjusted EBITDA margin for the 2nd quarter was 30 0.6% and increased 110 basis points over the prior year. This included 130 basis points, a 50 basis point increase from recycled commodity prices and a 70 basis point headwind from net fuel. The margin expansion is a direct result of pricing in excess of our cost inflation, realizing operating leverage as volumes return and continued effective cost management. SG and A was 10.7% of revenue, which was flat with the prior year.

Speaker 3

SG and A included higher levels of incentive compensation due to projected financial outperformance. SG and A would have been approximately 10%, excluding the additional incentive compensation expenses. Year to date, adjusted free cash flow $1,000,000,000 and increased $276,000,000 or 38% compared to the prior year. The drivers of growth included EBITDA growth in the business, a positive contribution from a 1.5 day improvement in DSO and the timing of capital expenditures. We received approximately 40% of our projected full year CapEx during the first half of the year.

Speaker 3

During the quarter, total debt was $9,000,000,000 and total liquidity was $2,900,000,000 interest expense decreased $13,000,000 due to refinancing activities completed last year and our leverage ratio was 2.9 times. With respect to taxes, our 2nd quarter adjusted effective tax rate was 21.6%. We had an equivalent tax impact of 23.7 percent if you include non cash charges from Solar Investments. We still expect A full year equivalent tax impact of 26%, which includes the effective tax rate and non cash solar charges. With that operator, I would like to open the call to questions.

Operator

Thank you. We will now begin the question and answer session. York question today. If you are using a speakerphone, please pick up your handset before pressing the key. Our first question today comes from Tyler Brown with Raymond James.

Speaker 4

Hey, good afternoon, everyone.

Speaker 1

Good afternoon.

Speaker 4

Hey, Brian, I don't know if it was just my phone or not, but you kind of cut out when you were unpacking the 110 basis point improvement in EBITDA margins. Can you run through that again real quick?

Speaker 3

Yes. The underlying business, Tyler, was 1 130 basis points of expansion. We had a headwind from net fuel of 70 basis points And then higher commodity prices contributed 50 basis points of the increase.

Speaker 4

Okay, okay, perfect. And then on the $0.26 increase in EPS at The midpoint, can you just break down the moving pieces there? What I'm really trying to get at is kind of get a feel for how much was kind of core price and volume versus Other things like commodities?

Speaker 1

Yes. So let me I'll put

Speaker 3

it in these terms. So commodity prices from our prior guide It's about $0.08 of the increase. The rest of it is in the underlying business and that's just a combination of price, volume, better and more effective cost management. And as I mentioned, due to the financial performance. We are recording higher incentive compensation expense in that underlying business.

Speaker 3

We are absorbing those higher incentive compensation accruals.

Speaker 4

Okay, great. And then just lastly here, I know you don't give EBITDA guidance, but if you kind of run it through, are we kind of flirting with 30% EBITDA margins for the year?

Speaker 3

Yes.

Speaker 4

Okay. All right, guys. Thank you.

Speaker 5

Thanks, Tyler.

Operator

Our next question will come from Hamzah Mazari with Jefferies.

Speaker 6

Hi, this is Mario Cortellacci filling in for Hamzah. Maybe just to kind of piggyback off of Tyler's last question and maybe it implies the same thing, but could you just talk about your current free cash flow conversion and what's implied in your 2021 guidance? And then where does that go longer term and what are the big levers you can Pull in order to continue to see that increase.

Speaker 3

Yes, sure. So our original guidance We had free cash flow conversion in call it the 43% range. Since then, right, we are increasing both the EBITDA as well as the free cash flow, but we think the conversion is also improving at the same time. So it's trending closer to the 44% range. Longer term, we talked about our ability to get to mid-two to the 45%, 46%, 47% type free cash flow conversion.

Speaker 3

We think we can just get there quicker, just because again, we're having a better springboard here in 2021.

Speaker 6

Got you. And then just a quick follow-up on headcount. Could you just Remind us how you're thinking about further headcount additions and how you're also contemplating that with potential labor inflation going forward?

Speaker 1

Well, we'd certainly take more drivers if we could get them right now. We're probably foregoing certainly are foregoing some growth opportunities in certain markets, where listen the economy is booming in lots of spots, right? And we take more we're doing a great job on turnover broadly speaking, Right. And we just love to be able to hire some more people, again, particularly in the industrial or large container line of business. And then we're seeing very modest inflation in this year's economics, going to do an annual increase and we give our people a fair increase every year.

Speaker 1

We expect that certainly to tick up next year, but to be more than offset by our ability to price through that. So we think that inflation net net will be margin expanding for us.

Speaker 6

Understood. Thank you.

Operator

Our next question comes from Walter Spracklin with RBC Capital Markets.

Speaker 7

Thanks very much, operator. Good afternoon, everyone. I'd like to come back to your comments on waste to gas conversion. You mentioned, I think, 15 facilities where you You ramp that up. Can you give us any quantification on the revenue and cash flow generation from that, the level of Investment you would have to make or whether you're going to partner up here with anybody for offtake arrangements.

Speaker 7

And generally, what the strategic direction is around this. Is this something that you're just going to have as this nice steady stream of New revenue or could you contemplate down the road monetizing this? Obviously, there's been some significant valuations for This type of revenue stream and whether you could look at some value enhancing opportunities there, just on the waste of gas conversion, love to hear your thoughts on that.

Speaker 1

Sure. Yes. Strategically, we think it fits right into where we're going. I mentioned in my prepared comments. It supports our sustainability aspirations and we think it Drives money to the bottom line and that's where we look at, things that are both environmentally sustainable and economically sustainable.

Speaker 1

They happen to be related most of the time. Broadly speaking, we'll look to partner, Not because we can't do it ourselves, we do do that in a handful of cases. I just think about our resources and it's less financial capital, it's more of our talent. I don't want to tie up all of our time and energy in a place where I think it will be a nice ancillary revenue stream certainly profitable for us, But it doesn't provide exponential growth, right? There's a cap to that.

Speaker 1

And so we can work with other people who could help us get there quicker And again, capture all those environmental benefits and some of the financial benefits without having to tie up our resources, which I think are better placed elsewhere.

Speaker 7

Okay. And just in terms of quantifying the potential opportunity from the 15 facilities you mentioned?

Speaker 1

No, we're not talking about the specific economics. I'd say broadly speaking, if we think about kind of pushing out to not every site, but you're talking about kind of $200,000,000 revenue type opportunity for us, right, in a shared arrangement. So again, we're not going to give the multi year plan to get there. So that just dimension, it could be a little more, could be a little less of course, but that just dimensions that Why we're not spending all of our energy there because there's a ceiling to the opportunity.

Speaker 7

Got it. And that's a fairly low capital intensive opportunity. Is that right?

Speaker 1

Correct. Again, that's why we partner with others because we've got people lining up at the door to put their capital to work. And so we think the most attractive place way for us to play in that Is working with others.

Speaker 7

Got it. Okay. Thank you very much. Congrats on a great quarter.

Speaker 2

Thanks.

Operator

Our next question comes from Jeff Goldstein with Morgan Stanley. All right. We're going to go ahead and move to Kevin Chiang with CIBC.

Speaker 2

Hi, thanks for taking my question. Congrats on a good quarter there. If I could just turn to pricing, you called out the 5.2 highest in company history. I guess there's inflation everywhere, so your ability to offset that is obviously playing out. But I'm wondering, are you starting to see any pushback here As you look to capture pricing to offset inflation, you have central bankers telling us this is a transitory issue or any of your clients coming back saying, we're not willing to pay that price for what might be a point in time increase in inflation or has it been pretty this conversation has Pretty normal, I guess.

Speaker 1

No, we're certainly getting it, right? We're just seeing the volume growth and you're seeing the prices stick. And again, our capture pricing tool allows us to adjust real time as we've seen some inflationary pressure, for example, in steel prices on containers, right? We priced that right through. But keep in mind, most of the inflationary benefit of pricing hasn't yet flowed through.

Speaker 1

That will come on the contracted portion of our book, which is about 50% and most of that will flow into 2022. But now, broadly speaking, we are seeing customers take We're showing up, working hard, doing a great job and getting paid

Speaker 3

for the work we do. And Kevin, remember that core price metric is the price increase net of rollbacks. So that would already be included in that metric.

Speaker 2

That's a good point. That's a great clarification. I just maybe just looking at your free cash flow, you did increase York Your CapEx assumptions a little bit and I know you had a big spend in the first half of the year. Just looking to some other companies talking about the supply chain disruptions. One of the areas they're seeing it is the equipment they're planning to get this year.

Speaker 2

And just Looking at your raised guidance, how you would frame the confidence in getting to that number just given some of the supply chain disruptions around getting equipment And just getting the resources to get that stuff built.

Speaker 1

Yes, we're pretty confident in the number. Of course, so So, it's an uncertain environment, so anything can happen with supply chains here, but we're on track to do that. And the incremental spend versus the original guide is really for growth capital. And some of our bigger spends, obviously, in the capital side are trucks and heavy equipment. And we're on track.

Speaker 1

We're going to take about 1200 trucks this year. We've already received 700 of those and have good line of sight to the 500 and we're working really closely, our procurement team working really closely with our procurement team working really closely with our partners, which are strategic and long term and they've been on track in terms of supplying us. So we're hitting our marks there.

Speaker 2

That's great. Thank you very much. Great quarter. Thank you.

Operator

Our next question comes from Jerry Revich with Goldman Sachs.

Speaker 8

Yes. Hi. Good afternoon. I'm wondering Could you just talk about the recycling investment opportunity that you folks have? You called out in the sustainability report the investments that you made in Enhancing productivity at some plants, can you just talk about how much runway you have to continue that investment and any greenfield or acquisition opportunities that you folks see on that part of the business.

Speaker 1

Yes. We have some of both clearly. Broadly Speaking, we're going through an opportunity that does that CapEx, OpEx trade off, right? And we do it for two reasons. 1, we think by putting more capital and we can modernize those facilities.

Speaker 1

It allows us to produce a better product on the other end, better segmentation, less contamination. We think we're getting higher yield On the other end, a higher throughput of those facilities. Also back to the labor market, which is tight right now, those are very challenging jobs. So the more automation we put in those facilities, the better off we think we're going to be long term. And we've got a very consistent, steady plan to upgrade a number of our facilities and then there's a handful of markets that over the next few years will eye for greenfield facilities.

Speaker 1

They could be buy opportunities, but most likely we'll go studs up on those just because we can get the right equipment and get the right facility or the right Kind of CapExOpEx trade off in place when we do it Clean Sheet.

Speaker 8

Got it. And in terms of how much capital you might be able to Deploy in that direction over the next couple of years, can you just give us a rough sense?

Speaker 3

If we think about what we've done historically around our recycling We've made those investments. It's been anywhere from $30,000,000 to $40,000,000 per year.

Speaker 1

And again, that could bump up

Speaker 3

at any given year, Right, if

Speaker 1

we're going to do a truly new facility, and we're returns based, so we'll look at that. If we think it's got a good returns profile, we'll certainly make the investment.

Speaker 8

Okay. And lastly, excellent core price performance in the quarter. The pickup in core price was higher than the pickup in yield. Can you talk about what was the driver of the little bit lower pickup in yield versus core price and how you're thinking about sequential pricing from here compared to what we saw last year.

Speaker 1

Yes, I would say, as we are In the midst of coming out of an economic shock. And so when you go down really fast and then come up really fast, which is what we're doing now, That tends to create some noise in certain stats. So Small Containers are great example of that, right, really strong core price yield of only 2.2. A lot of that is mix. So you've got lower priced customers coming back online there, for example, education, Got a low cost position because you got a lot of containers in a small facility, but that also has a smaller price impact.

Speaker 1

So That will normalize here as we get into Q2 or Q3 and Q4. You'll seek some better year over year comps. We did historically, trust me, we've not lost our aspiration for price, especially in

Speaker 3

an inflationary environment. Our people need to get paid, right? And as goods increase,

Speaker 1

we will Certainly pass that price on through to customers.

Speaker 3

And Jerry, you can actually see that. So on the way down, so back in Q2 of 2020, if you look small container that's when yield was over 4%. That's when some of those education customers were exiting the system with service decreases. Now that they're coming back online, you're seeing that impact that mix is having. But just like we said with our large Container portfolio.

Speaker 3

It's come back to 3%. It was running lower, right, for the last couple of quarters and that had all of a function of lower weights, Right. So there's a little bit of noise, as John mentioned here, that we're seeing in some of these metrics, but the core pricing is strong. We're pricing in excess of our cost inflation and we're generating over 100 basis points of margin expansion.

Speaker 8

Terrific. I appreciate the conversation. Thanks.

Speaker 1

Thanks, Jared.

Operator

Our next question comes from Noah Kaye with Oppenheimer.

Speaker 5

Hey, good afternoon, everyone. Thanks for taking questions. You were talking, I think, in the last quarter and before about a good special waste pipeline and looking for Some of that's actually break free and it looks like that started to happen this quarter. I guess just what was driving your view that this kind of recovery in C and D and special waste. Was it regionally concentrated anywhere?

Speaker 5

And then how does the pipeline look heading into the back half?

Speaker 1

Yes, I just think special waste in times of uncertainty, those jobs, they often get awarded, right? They just don't move. And so we saw good special waste pipeline that continued to build even though the actual performance wasn't great in times of uncertainty. We're seeing those things get released. Listen, the pipeline is strong.

Speaker 1

We've seen places like California, for example, has not really opened up like other parts of the country have. So we see or upside and the pipeline remains

Speaker 5

strong. Okay, great. And then you talked before about the M and A opportunity in environmental services. I guess first to clarify, would that be more in the downstream part of the business? And second, What does the tail of opportunities look like for you in that market?

Speaker 5

Is this primarily about tuck ins? Do you have targets that could move the needle from a total company growth perspective?

Speaker 1

Yes. Our strategy there is really again a mix of acquisitive and organic growth, Right. And so we're building out product lines, building out geographies on that. And this is these are businesses or service lines that we've been in for long periods of time in very incremental ways and customers have asked us to play a better and bigger role as they look to consolidate their supply base around fewer providers who can have great safety track records, have a digital interface and good sustainability record. So we can fit all those marks for them.

Speaker 1

And so we're on a kind of steady sequential path and we see the pipeline there to be full. Over time, could we do something bigger? Of course, we could. But the near to medium term path is kind of Steady growth on that front. Again, it's not eitheror, it's bothand.

Speaker 1

We still have a very strong pipeline in the More traditional recycling and solid waste portion of the business as well.

Speaker 5

Okay. Thanks and congratulations on the great execution.

Speaker 1

Thank you.

Operator

Our next question comes from Sean Eastman with KeyBanc Capital Markets.

Speaker 9

Hi, guys. Thanks for taking my questions. Nice job again. Could we put a finer point around the updated Margin EBITDA Margin

Speaker 3

Guidance? Sure. What would you like to

Speaker 9

The exact number that's in the guidance would be wonderful.

Speaker 3

Yes. So look, we're year to date, we're running 30.6%. We see margin circa 30% in the back half of the year, which would put you at a call it a 30.3%, 30.4% On a full year basis, which would result in 90 to 100 basis points of margin expansion, 21 over 20, and that's following a year 2020 over 2019 where we had 130 basis points margin expansion. So that would be over 200 basis points of margin expansion in 2 years.

Speaker 9

Yes, certainly impressive. And that kind of implies a flattish trajectory in the back half. There's just so many moving parts in the business right now. Could you just kind of help me parse that out why a flattening out trend here makes sense? And maybe how the recycled commodity uplift has been built into that outlook?

Speaker 1

Yes, I'd say, listen, there's certainly some awareness that we're still in a pandemic, right? And with the Delta variant and the 3rd wave happening and Pockets of the country starting to retrench a bit, right? We're very mindful that we don't know exactly what's going to happen in the next 6 months. We're not Past this thing and into a new normal. We're very excited about the recovery in lots of spots.

Speaker 1

And certainly, the longer term growth profile as well as our ability to execute on that. I think in the near term, there just remains some uncertainty.

Speaker 3

Yes. And one of the things too that we were seeing Really from the beginning of the year and throughout the second quarter is that as units have recovered, we have seen higher container weights, in particular on our business customers.

Speaker 5

And so

Speaker 3

again, that's one of those things that we continue to expect going forward. We've talked about these macro benefits modulating as units return. Quite honestly, we've held on to those benefits longer than we originally anticipated. Many of these, we're thinking could become structural changes in our business. But that said, we're being prudent and we're still expecting some of those to modulate as we continue to see the recovery and that's why we expect a little bit of a sequential decline.

Speaker 3

But if it doesn't happen, then that could be upside to our expectations.

Speaker 9

Okay, got it. And then just on the recycled commodities, I'm just curious relative to where we're sitting today, how you've built it in, if there's a bit of a cushion there as well?

Speaker 3

Well, let me so our average recycled commodity prices were $170 per ton in the second quarter. We have assumed that that will stay flat at that level for the rest of the year.

Speaker 9

Okay, excellent. Okay, thanks very much guys. I'll turn it over.

Speaker 5

Thank you.

Operator

Our next question comes from Michael Hoffman with Stifel.

Speaker 10

Hey, gang. Thanks for taking the questions. Brian, the $125,000,000 free cash flow from your original February to your current Midpoint to midpoint. You broke up the $125,000,000 difference, the increase, how much is operating leverage and how much is commodities?

Speaker 3

Commodities is about 25% of that, Michael, and the rest of it is operating leverage. And when I say operating leverage, remember, we're absorbing the higher incremental incentive compensation in that number. So, ex that the operating leverage is even higher.

Speaker 10

Right. Okay. And this is a one time adjust. This is not my second question, just to tease this out. That's a one time adjustment to your incentive comps.

Speaker 10

So next year, I'd expect SG and A to find a different percent of revenues because it will that all normalize.

Speaker 1

Well, we hope to further exceed our plan next year. But yes, if gravity takes us back to hitting our number, we certainly that would anniversary well for us. Okay.

Speaker 10

On the sustainability commentary and I'm trying to tease out just so people begin to appreciate some of the data. On the greenhouse gas improvement, can you help us understand 2016, 2017, 2018 the numbers were reasonably flattish, the production of Scope 12 and then it spikes in 2019 and then it comes back down to 5% in 2020. Why does that list in that manner? Is there a measurement issue? Is there a peculiarity of the way the data is collected Based on algorithms and we all should be aware of that and put that in context for us.

Speaker 9

Yes, we can get back

Speaker 1

into the specifics of the kind of the jump in 2019 and certainly there's some this space is not fully settled out as you might imagine, Right, in terms of how everybody is measuring it. The improvement last year, that's twofold. One is, we just had fewer miles driven, right, as we got More productive and there was a little bit of a demand fall as well as we landfill gas to energy projects, right, those coming online and Not even just new ones coming online, it's also optimizing and driving the performance and the output of the existing fleet. That's certainly helping as well.

Speaker 3

Yes. And most of that reduction though, Michael, the 5% that was related to just enhanced landfill gas collection, which is a direct outcome Just those additional projects that have come online.

Speaker 10

Okay. That's very helpful.

Speaker 3

Thank you.

Operator

Our next question comes from Kyle White with Deutsche Bank.

Speaker 11

Hey, Hey, good afternoon. Thanks for taking the question. Just wondering with the new guide, are you providing updated thoughts on where you think volumes and average yields could end up for the full year?

Speaker 3

Look, average yield for right now, we're thinking is relatively consistent with what we originally guided with maybe

Speaker 1

a slight upward bias. Volume though

Speaker 3

we are expecting to see 50 to 100 basis points better than what we originally said. I think we said 1.5% to 2%. We're thinking it's probably closer To 2.5 at this point.

Speaker 11

Got it. That's helpful. And then on M and A, following the Santech deal, should we expect you guys to be kind of take a pause here For this year on M and A spend or do you still see a pretty robust pipeline and opportunity there for tuck ins for the remainder of the year? Yes, no, no pause.

Speaker 1

We're hard at work, pipeline is strong and we expect to have a really strong year on that front.

Speaker 11

Got it. Thanks. I'll turn it over.

Operator

Our next question comes from Jeff Goldstein with Morgan Stanley.

Speaker 12

Hey, can you guys hear me okay now?

Speaker 1

We can. Yes.

Speaker 12

All right, great. So you mentioned earlier some labor headwinds, which I get, But at the same time, you got a fairly high amount of leverage on the labor line this quarter. I think it was about 70 basis points. So Maybe you can just talk about what efficiencies you're seeing. Is that just lower over time generally?

Speaker 12

Is that really just price? Maybe you could just talk about some of those drivers?

Speaker 1

Yes. I think you're seeing a RISE platform really take root, right? We're just driving efficiencies into the system. So for a large container driver rather than doing 7 actions in a day, we're getting an 8 action right in the same time period, Right. And we've really worked hard over the last 3 or 4 years to design that platform.

Speaker 1

And now we talked about that being embedded in about half of our small and large container routes and while we're seeing the fruits of that come through the P and L and again we expect more benefit as we We'll go forward on that and listen, there's probably still a little bit of opportunity or a little bit of benefit from work from home and traffic patterns, Although we would have expected that to be a bigger headwind and again to Brian's earlier comment, we're holding on to that benefit. So we think that's a modest headwind at best as we move forward.

Speaker 12

Okay, great. And then your buybacks have been fairly limited since the onset of COVID. I know that partially has to do with a robust M and A market, but curious how we should think about your appetite for repurchases, I guess for the rest of the year and really into next year as well?

Speaker 1

We certainly have appetite. 1st priority if we find value creating acquisitions that meet our that are strategically aligned and meet our return profile. That's where we'll start, but we'll be active with the stock as well because we think that also is a great investment and Certainly, I think we're trading well below our intrinsic value.

Speaker 3

Yes. One of the things we talked about all along is that we want to preserve that capacity and kind of maintain that leverage ratio at or below 3 Times. Quite honestly, we were doing it with the Santac acquisition and given our outperformance, it created more capacity, which is why we were a buyer of our stock in the 2nd quarter.

Operator

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.

Speaker 1

Thank you, Eilif. Our second quarter results highlight the strength and momentum in the business, which positions us well for continued growth over the remainder of this year and beyond. We continue to create value for our stakeholders by executing against our strategic priorities, which drives profitable growth and increases returns. I would like to thank all of our employees for their continued hard work and dedication. They continue to demonstrate their passion for taking care of our customers, each other and the environment.

Speaker 1

Each year, the NWRA honors the best of the best, the drivers and operators of the year. I'd like to take a look at the public employees who swept every available award in our category this year. These individuals are James Davis, Deidra McKinley, Tony Forrest, Victoria Bargain, Urioso. We look forward to celebrating them next year at Waste Expo. They stood out among tens of thousands of their peers

Operator

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

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Earnings Conference Call
Republic Services Q2 2021
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