Good afternoon and welcome to the Republic Services' Third 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. After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Stacey Mathews, Vice President of Investor Relations.

Hello. I would like to welcome everyone to Republic Services' third quarter 2021 conference call. Jon Vander Ark, our CEO; and Brian DelGhiaccio, our CFO are joining me as we discuss our performance. I would like to take a moment to remind everyone that 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. 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 October 28, 2021. Please note that this call is the property of Republic Services, Inc. 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 the 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. With that, I would like to turn the call over to Jon.

Thanks, Stacey. Good afternoon, everyone. And thank you for joining us. We are pleased with our strong performance in the third quarter. We continue to execute on our strategic priorities of customer zeal, digital and sustainability to drive growth and value for our stakeholders. During the third quarter, we delivered revenue and EBITDA growth of approximately 14% compared to the prior year, generated adjusting earnings per share of $1.11, which represents an increase of 11% over the prior year, and produced $1.4 billion of adjusted free cash flow on a year-to-date basis. We continue to effectively allocate capital by investing in value-creating acquisitions and returning excess cash to our shareholders. Year-to-date, we've invested over $900 million in acquisitions to further enhance our market position and increase free cash flow. This is the highest level of acquisition investment in over a decade. On August 31, we completed the acquisition of ACV Enviro. This strategic acquisition broadens our capabilities and offerings in the environmental services industry. It also provides us with a platform to pursue additional growth. We are excited to welcome ACV to the Republic team. Our acquisition pipeline remains robust with opportunities in both recycling solid waste and the environmental solutions businesses. We now expect to invest over $1 billion in acquisitions for the full year. In addition to investing in acquisitions, we have returned $622 million to our shareholders through dividends and share repurchases. We continue to prioritize customer zeal to drive profitable growth. This includes increasing customer loyalty, driving willingness to pay and attracting new volume as the provider of choice. Our customer retention rate remains at a record-setting level of 95%. During the third quarter, we delivered outsized revenue growth throughout our business. Total core price remained at an all-time high of 5.2%, and average yield increased to 3.2%. Volume increased 4.3% compared to the prior year, which exceeded our expectations and acquisitions contributed an incremental 350 basis points to total revenue growth. The outlook for organic and acquisition growth for the remainder of the year is strong. Turning to digital, we continue to realize the benefits of our investments in technology. In the third quarter, we made meaningful progress on the rollout of the next phase of our RISE platform. We have now implemented tablets in approximately 70% 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. Next, turning to our sustainability platform. We continue to partner with developers to capitalize on landfill gas to energy opportunities. We currently have 17 projects in the pipeline with more opportunities thereafter. On top of the royalty revenue these plants will generate, a majority of equity investment opportunities will further participate in the project economics. We also recently opened a solar project on one of our closed landfills in Bellevue, Illinois. This project consists of 30,000 solar panels, and will produce enough energy to power 2,200 homes annually. We remain committed to increasing the recycling and circularity of key materials as part of our ambitious 2030 sustainability goals. We recently opened the first solar power compost facility in California to further our progress and address the growing community needs. Our strong financial and operational results would not have been possible without our dedicated Republic employees. We continue to invest in developing both existing and new talent and creating innovative solutions for the increased demand for skilled workers. We recently unveiled our Republic Services Technical Institute, which is the industry's first-ever diesel technician school. This subsidized program is already building a strong pipeline of high-demand technician talent for Republic. Additionally, graduates will have upskilling opportunities to further grow their career with Republic. These types of innovative investments and talent lead to external recognition for our company. Republic was recently certified as a great place to work for the fifth consecutive year. This is a meaningful achievement, as employee recruiting and retention remains a prominent focus in today's labor market. Finally, turning to our outlook for the remainder of the year. Given the continued strength in our business, we now expect to exceed the full-year guidance we upwardly revised last quarter. Accordingly, we're increasing 2021 full-year financial guidance as follows. Adjusted EPS is now expected to be in the range of $4.10 to $4.13. And adjusted free cash flow is now expected to be in the range of $1.475 billion to $1.5 billion. I will now turn the call over to Brian.

Thanks Jon. Core price during the third quarter was 5.2%, which included open market pricing of 6.5% and restricted pricing of 2.9%. The components of core price included small container of 8.2%, large container at 5%, and residential at 5%. Average yield was 3.2%, which increased 60 basis points from the second quarter. Third quarter volume increased 4.3%. The components of volume included an increase in small container of 5.4%, an increase in large container of 3.9% and an increase in landfill of 6.6%. For reference, small container and MSW volumes in the third quarter were both above a 2019 pre-pandemic baseline. Moving on to recycling, commodity prices increased to $230 per ton in the third quarter. This compares to $99 per ton in the prior year. Recycling processing and commodity sales contributed 160 basis points to internal growth during the third quarter. Next, turning to our environmental solutions business. Third quarter environmental solutions revenue increased $27 million from the prior year. This was driven by both organic growth from increased activity and the contribution from acquisitions. On a same store basis, environmental solutions contributed 20 basis points to internal growth during the third quarter. Adjusted EBITDA margin for the third quarter was 30.4% and increased 10 basis points over the prior year. This included a 90 basis point increase from recycled commodity prices, a 50 basis point headwind from net fuel, and a 30 basis point headwind from the impact of recent acquisitions, primarily driven by deal and integration costs. SG&A was 10.2% of revenue. This represents an increase of 20 basis points over the prior year, which was exclusively due to higher incentive compensation accruals. Year-to-date adjusted free cash flow was $1.4 billion, an increase of $247 million or 22% compared to the prior year. This was primarily driven by EBITDA growth in the business. With respect to our full-year cash flow guidance, we expect to spend a disproportionate amount of our full-year CapEx and cash taxes during the fourth quarter. It should also be noted that we increased our expected full-year capital spending in our upwardly revised guidance by over $50 million. This increase relates to capital to support growth opportunities. Free cash flow conversion through September continued to track ahead of our original expectations and increased 330 basis points over the prior year. During the quarter, total debt was $9.3 billion and total liquidity was $2.4 billion. Interest expense decreased $11 million due to refinancing activities completed last year, and our leverage ratio was 2.8 times. With respect to taxes. Our third quarter adjusted effective tax rate was 25.5%. We had an equivalent tax impact of 27% when you include non-cash charges from solar investments. We expect our fourth quarter equivalent tax impact to be approximately 25%. This includes the effective tax rate and non-cash solar charges. I will now turn the call back over to Jon.

Thanks, Brian. We continue to create value for our stakeholders by executing our strategic priorities, which drives profitable growth and increases returns. We are expecting the positive momentum in our business to continue to produce profitable growth in 2022. At this point, we anticipate producing above-average revenue growth, leading to high single-digit adjusted free cash flow growth compared to our full-year 2021 performance. As usual, we'll provide full-year detailed 2022 guidance on our fourth quarter earnings call. With that operator, I would like to open the call to questions.

We will now begin the question-and-answer session. Our first question today comes from Tyler Brown with Raymond James.

Hey, good afternoon, guys.

Good afternoon, Tyler.

Hey, Brian, thanks for the detail on the 10 basis point improvement. But one, kind of how should we think about margins in Q4? Will they likely hold sequentially? And number two, and I know you'll give more details on this, but big picture, you've got a strong CPI rollover, you got a rational open market, do you expect in '22 to make progress on that 32% margin goal?

Yeah, Tyler, let me kind of answer the first part of your question there. I think you embedded two or three questions in there. So at least with respect to sequentially, there's a normal step down sequentially from Q3 into Q4, as well as we talked about the fact that we're doing more deals than originally anticipated. So we expect the highest level of deal and transaction and integration costs in the fourth quarter. So again, while we expect to see in the underlying business, we're expecting to continue to see really strong performance, we do expect a sequential step down from Q3 to Q4.

And then on your second part of your question, Tyler, yes, outlook is strong for next year, certainly, we've been strong on pricing in the open market portion of our business already. And we'll continue to do that. And then as some of these escalators kick in, the lag effect of 12 to 18 months, so some of them kick in into 2022, that provides more upward pressure on pricing, which we think will lead to margin expansion in 2022.

Okay, and then just from a modeling perspective, how much revenue today would likely roll over next year?

If you just take a look at the deals that have been completed through September, it's 160 basis points.

Okay. And then my last one here, so Jon, it's interesting. If you look at the big three, I think you guys posted actually the best volume growth this quarter and you actually had the toughest comp. So I'm not asking you to necessarily compare and contrast you with the peers. But was there a line or a vertical that just gave you this outside strength that you saw? I'm just kind of trying to - it's not really your strategy to prioritize volume over price, I just want to make sure that that's - make sure I've got that all straight?

Well, you certainly have the last parts, right, which is we're always going to start with price over volume, right. I mean, the thesis broadly of our company and the industry is that we can price ahead of our cost inflation. And I think we've proven to do that in a kind of rapidly changing environment this quarter. So we certainly feel good about that, in the short-term and in the long-term over time. And on the volume side, listen, we certainly left some volume on the table. If we had more labor, we would have gone after some more opportunities on that front. So very strong demand environment and I think the GDP print was 2% for the quarter, a lot of that's on the consumer side. I think the industrial side of our economy is very, very strong right now. And so our volume is pretty broad-based pretty strong across the board.

Okay, all right. Thanks, guys.

Our next question comes from Hamzah Mazari with Jefferies.

Hey, good afternoon. My first question is just on SG&A leverage going forward, maybe you could just walk through any potential COVID-related costs that came out of your system that are now coming back? Maybe there's some costs that are permanent in nature pose sort of looking at the business through COVID that you've instituted, just give us a sense of how to think about that going forward?

Yeah, I'd say there's some modest puts or takes, and we're already seeing some of that, for example, small container rates are coming back and long-term, that's a good thing, because it's a positive sign for demand. But that's certainly a financial headwind for us in a very short-term period that we already saw some of and we think that modulates over time. Certainly some - with the Delta variant, we had some elevated PTO cost right in the quarter of people who were sitting out and still getting paid overtime. So that's the headwind that abates over time. Listen, there's traffic patterns come back, does that slow us down a little bit, maybe I would have guessed, we would have seen a lot of that. But our RISE platform is really delivering a lot of productivity into the business. And then more from a central function standpoint we'll shrink our real estate footprint incrementally here as we have some of our more transactional colleagues working from home permanently, but that's pretty modest broad strokes. Again, a little bit of travel will come back, but we'll also take advantage of teams and do things in different ways over time. So again, lots of individual puts and takes, but I don't see - certainly I don't see any big structural headwinds that are going to come after us.

Yeah and Hamzah to your question specifically on SG&A, we've had a number of those costs come back into the system as far as some of the travel-related costs. So we're seeing that in the current period. As I mentioned in my prepared remarks most of the increase we saw really had to do with incentive compensation really didn't have to do with any of those ongoing SG&A expenses. So we feel pretty good about our performance and our ability to leverage SG&A going forward as we continue to grow the top line and migrate towards that 10% of revenue.

Got it, very helpful. And just my follow-up question. You mentioned landfill to gas, you mentioned 17 projects in the pipeline. Historically, I think you've just outsourced and taken royalty revenue. I think you referenced that you have equity stake opportunities. Is that something you've done before? And why not just bring them in-house given some of the ROIC and strong sort of margin profile of some of those projects? Thank you.

Yeah, that's a great question. So historically, again, we've been more opportunistic and side by side in this. As the world is moving into a more sustainable operation, we're certainly doing our part and hopefully leading the way. This has become more critical for us going forward. So not only do we have 17 projects to evaluate, but we'll participate in a different way than we have historically, probably in an equity basis, but probably not full ownership. And why I say this, we have a limited number of landfills. And so this is a great growth opportunity for us to pursue, but there's a ceiling to it, once you've kind of built it out on all the landfills that makes sense. That's it. We like to put all of our financial capital and our human capital in places that we think grow in an evergreen way. And so that's where we'll put our attention. Combine that with the fact that there's a lot of external financial and human capital resources who are anxious to partner with us. And we think that's probably going to be the winning combination for us going forward.

Yeah. And the other thing too, Hamzah, is that partnering up with a third party, we can actually move faster than if we were to sit there and go our own way. And that's one of the reasons we want to move quickly on this opportunity.

Got it. I just had a clarification question. Historically I think at Q3, you've talked about preliminary 2022 sort of maybe top line, is that a change in sort of how you're thinking about guidance? Or maybe historically you haven't done that?

Yeah. No Hamzah, I think we talked in our remarks as well, but we talked about here was providing visibility into where we see free cash flow going at this point. But that said, I think you also hear the tone. We're optimistic about the momentum in pricing. Volume is strong. And there's additional opportunities. And again, when you look at just the acquisition rollover, as well as the pipeline of acquisitions that are there, we feel that 2022 is going to be very strong on that front as well. So contribution from multiple facets that at least relative to a historical growth rate, we feel it's going to be outsized.

Our next question comes from Jeff Goldstein with Morgan Stanley.

Hey, good afternoon. Thanks for taking my questions here. So labor expense has clearly been a key topic in the quarter. But within your COGS, labor, I noticed actually declined as a percent of revenue year-over-year. So maybe you can just talk about how you've managed to contain that? Is it primarily from raising price? Is there anything around scheduling or maybe doing proactive wage increases that you call out? Maybe just talk a little bit more about the success managing that in the quarter? And then I guess going forward, is there any reason to think you won't be able to manage it as well?

Yeah, thanks for your question. I think you have to look way back to low CPI environments. And we've always had this fundamental belief that we want to give our people a fair and certainly steady increase every year. So we were raising their wages at 2% or 2.5%, even in low CPI environments, so people have been focusing in parallel on employee engagement and making sure this is the place that the best people come to work. So you put those two things together, and we think our employee value proposition has been really strong. And while turnover has been elevated, it's been modestly elevated. And we've really - we would have taken more people if we could to pursue some incremental growth opportunities, but our attention has been really strong. Now, that being said, we're facing the same pressures of the macro environment. So we've looked and done surgery and targeted markets where we think we weren't as competitive or maybe turnover was elevated. But you kind of take those costs increases, and you offset it with what we think is our digital ops in our RISE platform, which is really driving productivity, we look at our performance. And in the quarter versus 2019, right, we're just seeing we're getting more work right out of the same labor hour. And that's been really productive. And I think you're seeing it hold in a very challenging environment. And then, on top of that, of course, we're pricing because the market bears it and we want to support future wage increases for our employees.

Okay, that all made sense. And then now that you've had Santek for a few months, I think it closed back in May. I'm curious for the path forward, I'm bringing those margins back up to Republic levels, and any sense of synergies you'd expect out of that business. And then remind me in terms of pricing within the Santek book, was that in a place you were happy with? Or is there room to re-price some of that business as well. Just an update there would be helpful.

Yeah, we're really excited about that acquisition, great set of assets, gets us into certainly some geographic markets that we weren't in before. And that creates a basis or a platform for further growth, both organic and additional tuck-in acquisitions. As Brian mentioned, there's always startup costs in the first year. And the bigger the deal, the more the startup costs, because we really don't have to get multiple sites in the systems integrated. And there's a lot of employee benefits and related costs. And we really try to front-load all those and get all those done at once. A, to get those behind us, but B, to create a great employee experience. And so if those linger forever, they feel like they're not really part of the company. We think that leads to higher turnover time. So we'd get after that and have a very proactive and intentional plan. And we're ahead of that plan. And I think you'll see in '22, that'll be a nice, certainly tailwind for us as those costs come behind us. And given the nature of that company, the fairly landfill centric, the margins are really attractive.

Okay, thanks for the color.

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

Yeah, thanks very much operator and thanks for taking my questions, everyone. I'd like to turn back to acquisitions for a moment. When you look at the pipeline, which you mentioned, is quite robust right now. I was wondering if you could be able to provide a little bit of color on the pipeline perhaps discuss whether are these all smaller tuck-ins? Are there any larger chunkier targets end markets that interest you? And as a follow-up, is the regulatory review and scrutiny at all impacting your ability to do deals in this environment right now? Thanks very much.

Yeah. Walter, the pipeline is - I mean, the performance has been very strong this year. And the pipeline looking forward is very strong. And I would say the power and characteristic of that is very, very balanced, right. It's balanced, certainly weighted more heavily toward recycling and waste just given that's where the bulk of our business is, but certainly plenty of opportunities in the environmental solutions portion of our business as well. It's certainly balanced across size, plenty of small tuck-ins. I think a number of what we'd call medium-sized deals, and then listen, we maintain a perspective on everything. So could there be some larger deals that come through over time? Yeah, those are obviously more episodic, and can be - could be challenging from regulatory review. On balance, we have a very crystal clear point of view of where the regulation sits. And so if we think there's a deal that really is not going to get through, we just don't spend energy and time pursuing that opportunity. And or if we do have limited regulatory scrutiny on a deal, we've baked that right in, we understand what we probably have to divest and we go right to the regulators and say, here's our perspective. And then they can draw their own perspective. But we plan that right into the model. So we're never surprised on the back end of that. So, yes, there is heightened scrutiny versus four or five years ago on larger transactions, but more broadly, it's not slowed us down at all from I think, what is a different level of acquisition than we've historically done.

Okay. And here's my follow-up on special waste, it looks like it was a good quarter for you on special waste. Had some nice tailwind there, but it can be a lumpy business. How do you look at contribution from special waste from quarter-to-quarter? And is there any flags that you would give us in terms of how we model it in quarter to next? Are you fairly confident that that's going to be a good tailwind for you here over the next several quarters?

Yeah, I think it's a good tailwind, again, we saw kind of - we were active as ever. We saw times of uncertainty. I think if you go back 20, 25 years, special waste typically pushes right, jobs get sold and they get confirmed, but they just don't drop and get delivered. And so I think what you're seeing now is those things are starting to move. And so feel good about that. The pipeline is very robust going forward. It's a project-based business. So by definition, right, there's going to be quarters that are a little higher versus others. But I think the outlook for the next 12 to 18 months is very, very strong.

That's fantastic. Appreciate the time as always. Thank you.

Our next question comes from Michael Hoffman with Stifel.

Good afternoon, and thank you for taking my questions. The challenge, when you have two is can you actually ask a question with 14 different questions in it?

You're quite good at that, Michael, I trust you.

My attempt to do that is on organic growth. Thinking about a baseline exit momentum going into '22. You parse price and volume would - are we in the right neighborhood as we're starting with a three handle on price and then volume, ex special waste lumpiness, still has momentum from new business formation, service interval trends being positive, but we haven't seen a peak in that activity, so that creates tailwind. That's the right way to think about going into '22.

Yeah, certainly on the pricing, we would expect something starting with a three and then on volume, look, we're coming out of a - we're in a V-shaped recovery. And obviously, as the further along, you get this arithmetically, right, that slope starts to flatten. But I think there's still plenty of momentum. I talked about the labor side of being a little constrained there versus a pre-pandemic year, you're going to see outsized volume growth in 2022 to for months.

Yeah. And the follow-up to that, though, is probably not as high, though, as what we're going to see in '21. It's somewhere in between.

I couldn't hear you're Brian, could you say that again?

No, I just said to Jon's point, most of '21 was a recovery of units that were lost during the pandemic. My only point was that the volume at least the way we're thinking about it right now would be somewhere in between what we're doing in '21, or what we're going to deliver in '21 and that hit historical average.

Got it. And then last one for me is on free cash flow. And you think about a baseline of a conversion ratio. And you've talked about getting into the mid-40s. It appears that you're going to be there this year. So is that now the new - you've got to it and in that context going forward, you're spending more CapEx this year, but did you pull any forward? Or should I think of CapEx as the same rate of spend percent of revenues in '22?

Yeah, I think that CapEx is really more a function of growth, incremental CapEx, and these acquisitions with you, oftentimes, there's a plan and there's development projects associated with those, which are great. Those are more one-time in nature, right, and then you get the benefit of those in future years. And from a free cash flow conversion standpoint. Yes, right. We think we've hit a new baseline and we have plans to further expand that going into 2022 and beyond.

Okay, so how did I do? Did I get enough question in the two?

That was excellent.

Thanks, Michael.

Our next question comes from Jerry Revich with Goldman Sachs.

Hi, good afternoon, everyone.

Hey, Jerry.

Can you talk about what pricing announcements you've made to your open market customers in October? And as you folks look at the inflation that everyone across the industry is seeing, how much you feel like you need to push open market pricing over the next couple of months to make sure we've got enough room to execute as we hit the meaty part of the inflation cycle?

Yeah, I would say you got to look back, right, we've already done that. We jumped on that pretty much in the mid to end part of the first quarter, understanding where inflation was going and you're seeing our open market not 100 BPS of incremental pricing versus the prior quarters, right because we're pricing not only existing customers, but also new customers, right. Our capture pricing tool, as we saw steel go up for example, on containers, right, we put that right in and so immediately we're selling at different price on the street, right to cover the cost of that incremental steel, right with a return against it. So we're not diluting returns as we price that through so listen, we're putting more price out. That price is being realized in the marketplace. And again, we have a good broad backdrop right when you things like bacon is doubling and all kinds of things are going crazy, rental cars and from just a consumer purchasing standpoint where prices are going or as these price increases are relatively modest against that backdrop, and I think that's a good reason why they're holding. Yeah.

Yeah. And Jerry just a follow-up there, again, we've been quick to act in the open market. You really haven't seen the contribution yet from the restricted portion of the business. That's still to come in '22 with a rollover benefit in '23.

And just to clarify, so the current level of core price increases for the open market is 6.5. And obviously, we'll see the restricted acceleration from here, but is the 6.5 now at a high enough pace to cover this heightened level of inflation? Or should we look for open market increases to be higher than the six and a half we're posting now?

Yeah, you could see it incrementally tick up. But we're also managing costs in a way, right, where we're taking the price and the cost inflation and expanding margins, right. As we go, not only looking back, right, we're almost a 200 basis point expansion. If you look back a couple of years, and we think we've got more room to run in that going forward. Keep in mind, we've priced to existing customers, it's not a one-time event, right. We price rapidly kind of an open market, roughly a 1/12 of the book goes out every month, right. It's our ability to be flex up on that is really, really high.

Okay, great. And then you alluded to recycling investment opportunities in the press release. Could you just expand on that? What's the range of opportunities in terms of building facilities organically or seeing recycling rate increases out of your existing footprint versus acquisitions, can I trouble you just to flesh out that opportunities there please?

Yeah, we think there's a five or six core markets we're in that we would like to have an asset that was one over time we'll probably build if we could buy it, that would also be an opportunity, but probably something we'll build. Certainly seeing acquisition opportunities, smaller ones for recycling centers as we do some more medium-sized deals going forward and apart because we want to make sure we've got a place to take the material off of our back and not always be dependent on a third party in those markets. And apart because we think these resources have increasing value over time, right. In a world where plastics, for example, the consumer packages, companies are really in a need for post-consumer content. And we haven't, and we're an aggregator. So over time, that material is more valued, we think we're going to be able to capture a piece of that as we move forward. And the other thing I'll add Jerry there's plenty of opportunities on our existing facilities, to drive in more automation to kind of change the CapEx and OpEx trade-off. Those are tough jobs. Those are higher turnover jobs. And so it allows us to reduce the labor force just incrementally in those facilities, but then also produce a better product with more state-of-the-art equipment.

I appreciate the discussion. Thanks.

Thanks, Jerry.

And our next question comes from David Manthey with Baird.

Good afternoon. Thank you. First off, can you give us some early thoughts on CapEx for 2022? I don't know if you expect that to drop back into 11% to 12% of revenues range. And if you're willing to share with us a couple of your spending priorities for next year.

Yeah, David, look, we'll get into details when we're back together in February on the components within the free cash flow, but I would sit there and say, as you think about over time, right, as Jon mentioned, we've made really good progress on free cash flow conversion. We expect to continue to make progress and start to drive that free cash flow conversion into the high 40% range, some of that is going to be by reducing our CapEx as a percent of revenue.

Okay, second, how do you think about your commodity basket as you move into next year? I mean, do you budget for flat or do you assume it's going to be lower than that? Just how do you think about the commodity basket broadly as you look to the out year?

Yeah, just right now, right, what we're kind of looking at is more of in line with a year-to-date average as compared to current pricing. But again, once this plays down, we have a couple more months on our belt, we'll be able to give you a better perspective when we're back together in February.

Sounds good. Thank you.

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

Hi, team nice quarter. A couple of modeling ones for me. Brian, I think you mentioned 160 basis points of acquisition rollover. Is that a net number or a gross number? And then secondly, I guess it's safe to assume that you guys are going to do something better than that, because you're indicating that next year is going to be an elevated level of deal activity as well. Is that correct?

Yeah, so the 160 is essentially, both gross and net, quite honestly. But yes, if you think about - that only includes deals that have been closed through September.

Okay, got it. And, okay, so we'll have more upside there by the end of the year, and then whatever you guys do next year, we'll layer on to that. Alright, got it, and then just drilling in on margins. I don't want to put you guys into a box before you're given the guidance, but maybe just thinking about the normative 30 to 50 basis points of operating leverage in the business just naturally. I mean, what would be the moving pieces to think about relative to that? I mean maybe recycled commodities are a tailwind in the first half. I'm not sure. Maybe the acquisitions you've done are modestly diluted into next year. Now, just trying to think through those moving pieces that would be helpful.

Yeah, I mean, the core of the business, right, you should think of margin expansion or pricing ahead of our cost inflation, which we're certainly very committed to doing. And then there's some other pieces on that right commodity prices, right could create a drag, depending on whether that basket goes, but fuel was a drag in the quarter, right. You know that, in general, we price fuel and our fuel recovery fee is a pretty good broad hedge to fuel. But we have a little bit of drag as we go up, and then it happens a little bit of lag as we go back down. So depending on where fuel goes, but I'd say there's probably more chance that neutral or tailwind added in the next year. And then acquisitions, right, like I said, right, we kind of load up all those integration costs in the first year. And so we expect that to be a little bit of a headwind to the overall margin for a portion of that - the headwind in the equation, in the next year, but nothing dramatic, right. We're still committed to expanding margins next year with all those pieces put together.

Okay, excellent. Very helpful. I'll turn it over. Thanks, guys.

Thank you.

Thank you.

Our next question comes from Noah Kaye with Oppenheimer.

Hi, good afternoon, thanks for taking the questions. I think your footprint just to align naturally, with some population and demographic trends. And so that may partly playing years, the great organic growth trends we've seen from there. But I wonder if you could talk a little bit about new business formation and new business origination for the company. And specifically Jon, how you might be leveraging your digital platform to help drive that new business formation, rather than new business origination for the company? Is there anything that you're doing differently now at Republic than you might have done in years past to help identify and build new business?

Yeah, we've certainly advanced the cause with our digital tools, I mean, our sales team is on the sales force platform and got a lot of lead generation tools across the different verticals in our business that populate new leads going forward. And we've certainly seen some of that, frankly, I think there's more of that to come, right, as we get through delta. And consumer confidence even gets higher here. And we quote, unquote, get back to traveling and back to business. So we're optimistic, there's more upside of that going forward. But we think we're getting certainly our fair share of the growth of more because we've got 1,000 plus sellers out there working very local market to find opportunities, one at a time.

Okay, and then, I guess, in the context of the ACV Enviro acquisition, I wondered if you're able to share your vision for what kind of scale you want to have in this segment over time and often you've talked about environmental services TAM being around 20 billion and the fact that the customer base wants to consolidate? Who uses for services given sustainability and other drivers, but do you want this to be a billion-dollar business in a few years? Is that out of range of what you're thinking? Can you talk a little bit about your ambition?

Yeah. No, I think that's actually a really good starting point. I think a billion dollars in three-ish years, I think is a reasonable target. We certainly will not race or reach to get there by any means. We certainly wouldn't be afraid to clear that if we think we have the right opportunities going forward. It will be a mix of organic growth and acquisitive growth more acquisitive than organic just in percentage basis as we scale that business. And listen, that's been a really good fit for us in the early days, not only have they performed well, but we expected to see a lot of integration opportunities with our waste recycling business. And we're seeing a lot of those come through opportunity, internalize disposal, cross-sell with customers, and it's just going to strengthen the value proposition of both sides of our business.

Okay, thanks so much.

Thanks, Noah.

Our next question comes from Kyle White with Deutsche Bank.

Hey, good afternoon. Thanks for taking the question. I wanted to go back to special waste volumes as well as C&D. Just curious have you guys seen any impact on these volumes from the tight labor market and kind of the stressed supply chain across the business and the environment?

No, not really. I mean, listen, the supply chain is impacting us in weird ways. Like where we have a solar project we're putting in and we can't get them the equipment is trapped on a boat outside of Long Beach. So that project might not go in this year. But those are more incremental one-off things and get we're blessed to be in a business that is a service-based business, right and not materials-based, or we will be probably suffering, like some of the other companies that are so we feel good about that, but not in the special waste or C&D side. We think there's more demand coming back in that business without question, but I don't think the supply chain disruptions will attach anything to that part of the business right now.

Got it. And then on the solar investments, I think initially you're targeting $125 million for this year, is that still the right target? And should we expect that target to go higher next year?

It might be modestly more than that. As Jon mentioned we've got some of these projects right now, it's all based on what gets placed in service by the end of the year. I would say a good number to use through the cycle is in that $150 to $175 million range. And that's all predicated on some of the tax laws that are in place today.

Our next question comes from Michael Stinger with Bank of America.

Hey, guys, yeah, thanks for taking my questions. I appreciate the outlook raised. But just to put a finer point on it, I might have missed it. Is EBITDA margins up year-over-year on the fourth quarter? Or is there just a lot of integration acquisition costs that kind of creates some noise on the quarter?

Yeah. I think it's a couple of things. It's yes, what you said on kind of the integration costs, but also, when you take a look year-over-year, we've consistently seen since the fourth quarter of last year, heavier container weights, that sort of thing. So that probably will put a drag on the performance relative to the prior year.

Okay, got it. And just to be clear, I'd like - Brian, just on the 32% margin target you guys might have already fleshed out is this - is the track 2024, is that how to think about it, can it be much earlier, or in some inflationary pressure and just a lot of this acquisition? Obviously, it's lower than you integrate, I get it moving higher, like how do we think about the margin in the context of that 32% target?

Yeah, it was it, I think it's - we're not going to put a specific year on it. But we are certainly trending in that direction. And I think you're going to see steady ratable improvement, right. I don't think you're going to see any big jump, or I don't think you're going to see us flatten. And it's going to be a consistent set of levers, which is we are going to continue to grow. We're going to price out of our cost inflation and give our people a fair wage increase to drive productivity right alongside that, and listen we're growing in a different way than we ever had before. Over time, we think that gives us leverage on SG&A, which further helps with the margin expansion.

I guess like last, if we could squeeze it in, when I think about these acquisitions for solid waste and environmental services, can you help us - Jon is like the environmental services is this lower than average margin when we think of some of this stuff outside of the oil and gas more the downstream is that lower margin, you guys can bring it up over time to kind of thinking about that portion of the business that you guys are growing relative to like the non-hazardous solid waste.

Yeah, so we start with everything on intrinsic value and returns, right. That's where we start from a fundamental standpoint. And any deal we do is going to have to clear that hurdle right individually and then naturally collectively it will over time as a platform. These businesses in general do have a lower margin profile than recycling and solid waste, they also have a different capital intensity. So when you think about free cash flow conversion, right, it looks very similar. And we do think there's certainly an opportunity to raise those margins over time. And, again, we have been incredibly consistent over the last decade on our commitment to pricing, right. And that we won't flinch or back off of that, right as we grow in the broader volume of services space, right, we are going to be able to price because we're going to provide a differentiated service and that supports us not only giving a fair wage increase to our employees, but then expanding margins and providing great returns to our shareholders over time.

Thank you.

At this time, there appear to be no further questions. So I'd like to turn the call back over to Mr. Vander Ark for some closing comments.

Thank you, Isley. In closing, we are pleased with our third quarter performance. We delivered double-digit growth in revenue, EBITDA, EPS, and free cash flow. We continue to manage the business to create long-term value for all stakeholders and expect continued profitable growth in 2022. I would like to thank all our employees for their continued hard work and commitment to our customers. It is our team of dedicated employees that make these results possible. Have a good evening and be safe.

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