Republic Services, Inc. (RSG) Q2 2026 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Republic Services Second Quarter 2026 Investor Conference Call. Republic Services is traded on the New York Stock Exchange under the symbol RSG. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Weeks, Vice President of Investor Relations.

Good afternoon. I would like to welcome everyone to Republic Services' Second Quarter 2026 Conference Call. Jon Vander Ark, our CEO; and Brian DelGhiaccio, our CFO, are on the call today to discuss our performance. I'd 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 may 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 August 6, 2026. 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. Our SEC filings, our earnings press release, which includes GAAP reconciliation tables and a discussion of business activities, along with a recording of this call, are available on Republic's website at republicservices.com. In addition, Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times and presentations are posted on our investor website. With that, I'd like to turn the call over to Jon.

Thanks, John. Good afternoon, everyone, and thank you for joining us. Our strong second quarter results reflect the resilience of our business model and consistent operational execution. We delivered solid growth on both the top and bottom lines. At the same time, we continued investing in technology, automation and customer-focused solutions that strengthen our competitive position, improve the customer experience and enhance long-term profitability. During the quarter, we achieved revenue growth of 4.6% and generated adjusted EBITDA growth of 4.5%. We maintained adjusted EBITDA margin at 32.1% and overcame headwinds associated with event-driven landfill volumes received in the prior year. We delivered adjusted earnings per share of $1.85 and produced $1.58 billion of adjusted free cash flow on a year-to-date basis. Our focus on delivering world-class essential services continues to support organic growth and enhance customer loyalty. With respect to customer zeal, our customer retention rate remained strong at more than 94%. We continue to see favorable Net Promoter Scores due to the value of our offerings and quality of our service delivery. Organic revenue growth during the second quarter was driven by strong pricing across the business. Average yield on total revenue was 3.4%, and average yield on related revenue was 4%. This level of pricing exceeded our cost inflation, which drove margin expansion in the underlying business. Organic volume was down 1.9% on related revenue or 1.6% on total revenue. This level of performance was expected with 1.3% of the decline in total revenue associated with landfill event volumes received in the prior year. Aside from the tough prior year comp, volume performance improved 50 basis points from the first quarter. Organic revenue in the Environmental Solutions business decreased total revenue by 20 basis points in the second quarter, which was in line with our expectations. Our Environmental Solutions sales pipeline continues to build with increased activity across multiple end markets. We continue to expect year-over-year revenue growth in this business in the second half of the year. Turning to digital. Our investments in technology and AI are advancing. Over time, these capabilities are expected to drive additional growth and support continued operating leverage. We are actively deploying AI-based predictive technology that supports optimized pricing decisions across markets with varying customer and competitive dynamics. This approach is expected to reinforce price retention and reduce customer attrition over time. Enhancements to our RISE digital platform are progressing with initial deployment focused on the large container business. The integration of AI and advanced routing algorithms is expected to improve safety outcomes, strengthen service execution and increase route efficiency. Early pilots confirm the expected value from this initiative. Activation of digital tools in our call centers are enhancing the customer experience and unlocking value in our business by optimizing the 11 million inbound calls we receive each year. Moving on to sustainability. Last week, we released our latest sustainability report, highlighting the meaningful progress we are making toward our 2030 goals and the positive impact we are delivering for our customers and communities. Our suite of sustainability reports and materials is available on our website. We continue to believe that our investments in plastic circularity and decarbonization position us for profitable growth and long-term value creation. Production volume continues to increase across our Polymer Center network as we optimize processing operations. Construction at our third Polymer Center in Allentown, Pennsylvania is progressing. Facility commissioning is planned to begin early next year. We continue to advance renewable natural gas projects with our partners. We commenced operations at 2 RNG projects during the second quarter and expect 2 additional projects to begin operations by year-end. We made further progress on our commitment to fleet electrification. We had more than 250 electric collection vehicles in operation at the end of the second quarter. We expect to exit this year with more than 300 EV collection trucks in our fleet, and we'll continue to grow this differentiated service offering. As part of our approach to sustainability, we strive to be the employer where the best people want to work. We continue to see high employee engagement scores, and our turnover rate is the lowest on record. With respect to capital allocation, we invested $860 million in strategic acquisitions in the first half of the year. Our acquisition pipeline remains supportive of continued activity in both the Recycling & Waste and Environmental Solutions businesses. We expect to invest more than $1.2 billion in value-creating acquisitions in 2026. During the first half of the year, we returned more than $1 billion to shareholders through dividends and a repurchase of approximately 1% of our outstanding shares. Additionally, we recently announced an increase of the dividend for the 23rd consecutive year. Building on the strong results delivered through the first half of the year and continued momentum we see across the business, we raised our full year 2026 guidance as follows. Revenue is expected to be in the range of $17.2 billion to $17.3 billion. Adjusted EBITDA is expected to be in a range of $5.525 billion to $5.55 billion. Adjusted earnings per share is expected to be in the range of $7.23 to $7.28, and adjusted free cash flow is expected to be in a range of $2.54 billion to $2.575 billion. Our full year guidance incorporates higher-than-expected fuel recovery fee revenue through July, increased recycling commodity revenue based on current prices and the contribution of acquisitions closed to date. I will now turn the call over to Brian, who will provide details on the quarter.

Thanks, Jon. Core price on total revenue was 5.3%. Core price on related revenue was 6.4%, which included open market pricing of 7.8% and restricted pricing of 4.1%. The components of core price on related revenue included small container of 8.1%, large container of 6.9% and residential of 6.3%. Average yield on total revenue was 3.4%, and average yield on related revenue was 4%. Additionally, fuel recovery fees increased total revenue by 1.8%, which offset higher fuel expense and related surcharges. Second quarter volume decreased total revenue by 1.6% and related revenue by 1.9%. Most of the decline was due to the event-driven landfill volumes in the prior year. Volume performance on related revenue also included a 1.1% increase in landfill MSW. This was more than offset by large container volumes, which declined 2.2%, primarily due to continued softness in construction-related activity; residential volume, which declined 4.3% due to known contract losses; and landfill special waste, which declined 30 basis points. It's important to note that landfill special waste increased 10.7%, excluding the tough comp from wildfire volumes received in the prior year. Moving on to recycling. Commodity prices were $136 per ton during the second quarter. This compared to $149 per ton in the prior year. Recycling processing and commodity sales increased by $8 million during the quarter. Increased volumes at our Polymer Centers offset lower recycled commodity prices. Current commodity prices are approximately $140 per ton. This is the basis used for the second half of the year in our updated guidance. This would imply a full year average commodity price of approximately $135 per ton. Total company adjusted EBITDA margin was 32.1%. Margin performance during the quarter included margin expansion in the underlying business of 90 basis points, which was offset by a 50 basis point decrease from landfill event volumes, a 30 basis point decrease from net fuel and a 10 basis point decrease from recycled commodity prices. With respect to Environmental Solutions, second quarter revenue increased $53 million sequentially, driven by higher event volumes and additional seasonal activity across the business. Adjusted EBITDA margin in the Environmental Solutions business was 20.2%, a sequential improvement of 100 basis points. Year-to-date, adjusted free cash flow was $1.58 billion. Our performance was driven primarily by EBITDA growth in the business. Total debt was $14.2 billion, and total liquidity was $2.8 billion. Our leverage ratio at the end of the quarter was approximately 2.6x. With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 23.8% during the quarter. We now expect an equivalent tax impact of approximately 24.5% for the year. With that, operator, I would like to open the call to questions.

[Operator Instructions] Your first question today comes from Tyler Brown with Raymond James.

Brian, it looks like the EBITDA midpoint was up, call it, $40 million, I think, at the midpoint. Just curious if you could break that increase down between M&A and the core. And then is flat to slightly down margins in Q3 still a good placeholder?

Yes. When you look at the increase of the $40 million or so in EBITDA, majority of that is just due to increase in commodity prices. So if you look at both the revenue and the related EBITDA, that's about $25 million, and then the rest is due to the contribution from incremental acquisitions. So if you look at the revenue that's increasing, you've also got the increase from fuel recovery fees, but that is mostly offset by fuel costs as well as related surcharges.

Okay. And then on the Q3 margins?

Yes. So Q3, think of it relatively flattish with the prior year with margin expansion in the fourth quarter.

Okay. Perfect. And then this is a big picture question. So first, congrats to the team for giving the sustainability report. I know those are big undertakings. But Jon, one of the things that caught my eye in there was your total TRIR safety numbers. I think those are a decade low. I know that 0 is the goal. But can you kind of talk about what you think the top 1 or 2 items that are really driving that success are?

Yes. Thank you for noticing. That's our #1 priority and value, and I think it's a mix of things. We've always had a very good safety culture and very good at training, prioritizing on the front line. I think the big increases have really been technology. We put a lot of equipment into vehicles. And it's not just the camera, the technology. It's also the coaching and training around it. That system has really been encouraging. And I'd say our next frontier is really to use AI in that capacity and think about analytics and understand what types of environments create unsafe opportunities and how do you then create management actions and systems and tools and processes around it. So I think we've got more room to run on that. We don't take it for granted. We wake up every day and try to keep all 42,000 colleagues safe, but we're making great progress.

The next question will come from Adam Bubes with Goldman Sachs.

Wondering if you could just break the performance out across the major lines in Environmental Solutions because I know there's a lot of moving pieces there. And then nice to see that sequential seasonal step-up. Just how are you thinking about potential magnitude of growth in the balance of the year?

Yes. So if you take a look at the performance in Environmental Solutions, we saw an increase in emergency response jobs year-over-year, which was partially offset by a reduction in landfill tons. And again, we are just slightly down on a year-over-year basis, but we saw sequential improvement each of the month throughout the second quarter. And we're optimistic, and again, we project that we're going to grow from a top line perspective as well as related margin expansion in the second half of the year.

And then on the volume side, I think this year's residential volume trends reflected the loss of a few larger residential contracts that you called out last quarter. How are you thinking about volume trends beyond 2026 as you lap those contracts? Is low to mid-single-digit volume declines the right framework over the medium term? Or is there a path towards stabilization in residential?

Yes. Maybe, I think, start with market. We're coming out of a period of nearly 4 years of negative growth in Recycling & Waste. That's really been driven by industrial and construction or lack thereof in terms of activity. And I think we're now in a market that's sequentially improving. I would think of it more flat with encouraging signs month-over-month. And in that context, we're obviously losing a little bit of share in residential, and we're gaining some share in industrial and small container, which will take all day long if we can make that mix change. You'll see residential, the rate of decline certainly start to narrow as we get into '27. And listen, we don't aspire to lose or shrink in that category, but we're always going to take price over volume, and we're going to continue to get a fair return on the hard work that our people do and the assets we invest. And if we need to continue to slightly prune in order to find more value there, we're going to do it.

The next question will come from Sabahat Khan with RBC Capital Markets.

Great. Maybe hoping to get some additional color on the commentary on the increased use of AI. I guess, based on your learnings so far, are you being pointing into direction of, look, these are customers that you previously weren't pushing on price but you can? Or is it kind of same customer, just higher magnitude? Just maybe what are the learnings? And how much more runway do you think there is on that front?

Yes. I think AI is going to transform us broadly across the business, and we're using -- experimenting with it, I'd say, almost everywhere. We talked about the 3 major areas that we're going deep, and there's a few other ones that we'll add to the list over time in terms of investing at scale across the enterprise. On pricing specifically, it's understanding the specific price that you want to give to a customer that both maximizes value in the short term but also the long term, right? So you could price more, but then if you're going to drive defection, that's not a very good long-term trade-off. And so this now takes in dozens of variables about the customer, and each customer has their own fingerprint in terms of the service history and background and size and scale and location. And so we're able to put all of those variables in to really get a precise optimized price that maximizes long-term value. We've always done analytics, but this is totally, as an order of magnitude, different level of sophistication.

Great. And then just a second one on M&A. It sounds like about $1 billion and change for this year. Is this a pipeline that's building up? Or you think it could kind of seep into next year and next year could also be an outsized year? Or are most of these closing this year or these transactions closing this year, maybe not as much momentum into next year? Any color there?

Yes. The pipeline is certainly strong and how many of those things close in the back half of the year versus push into the first part of next year, we'll expect to have another strong year next year. We'll probably give a relatively conservative guide because I never want the team to chase an M&A number because you can easily hit that and not get the returns that we expect. But everything we see going forward, that pipeline looks strong and continues to build both in the short and the medium term.

The next question will come from Bryan Burgmeier with Citi.

Maybe just following up on Tyler's question on the revision to 2026 EBITDA guidance. Are there any changes to your underlying assumptions for the core solid waste business, specifically just thinking about volume or cost inflation for some key buckets?

I would say, look, the components of organic growth, the price, the volume and then obviously, the related inflationary costs are all coming relatively in line with our initial expectations. So most of the update to the guide, again, was due to, as I mentioned earlier, those -- the increase in fuel recovery fees, due to just increased diesel costs, the incremental acquisitions. So we came into the year thinking we had about 70 basis points of contribution to top line growth due to both rollover as well as the in-year deals. Now that's 100 as well as an increase in commodity prices moving from $115 per ton to $135.

Got it. Got it. Really appreciate that detail. And then maybe just on the kind of margin outlook or the margin cadence that you described for the second half of the year, waste and recycling margins were up like 40 bps in 2Q, and then I guess, commodities will maybe be more helpful in 3Q. But it sounds like you're maybe expecting flattish kind of year-over-year, so just help us kind of frame that or maybe some headwinds I might not be thinking of. I'll turn it over.

Yes, we still have the continuation of the landfill event volumes in the prior year, so that's about a 40 basis point headwind. We also -- just because of the timing of the acquisitions themselves, when we look at the integration costs that we expect to incur, most of that's going to happen in the third and fourth quarter, which is a headwind. But again, when you take a look at the overall performance, we expect the underlying business to continue to remain strong and the margin expansion in the underlying business such that when you take a look at what we expect for the full year, we're looking at 60 to 70 basis points of margin expansion in the underlying business.

The next question will come from Faiza Alwy with Deutsche Bank.

I wanted to follow up on volumes because some of your peers in the waste space have talked about their changing views around volumes and kind of talked about maybe fuel surcharges impacting some volumes. So it sounds like you're not changing your view on that and not seeing anything different. And I'm just curious if you have a perspective on why that might be and what your interpretation is of what's going on around -- from a macro perspective on volumes.

Yes. I think the -- look, I talked about this. This has been a negative market in recycling and waste for almost 4 years, driven by construction and industrial activity was changing. As I'd say, commercial construction, we're starting to see slight rebound. I'd still say it's depressed overall but slight rebound. Residential construction is still very challenged. And on the industrial activity, that's where you're starting to see more momentum. And you can see that with the PMI prints that are over 50 for the last 5 months and starting to accelerate, and we just see that with service changes with our large container customers. So that's where we're seeing some volume lift. So special waste, take out the comp from last year on the wildfire, and that looks good. It's a market that is slightly improving. I think there's still plenty of caution from geopolitical environment with oil prices and other things, so where we have a positive outlook, but we're still waiting and seeing for this economy, I would say, fully fired.

Okay. Makes sense. And then just to clarify on the guidance change. Is the incremental M&A that's in the guide, is that for the $1.2 billion? Or I think it's $860 million that's closed so far. So could you just confirm that it's only what's closed so far? And then secondly, I think you said that the fuel surcharge that was included in the guide is only through July. And I'm assuming that these -- like that represents some upside to revenues and possibly EBITDA because I think diesel prices are still ahead of last year. So just those 2 quick clarifying things.

Yes, you are correct. So on the fuel recovery fees, we took what we knew through the month of July, right? So fuel prices have been highly volatile, so we didn't want to assume that they would remain elevated then to just have them come down, and now you're talking about a revenue change because of that assumption. So we took August through the end of the year back to our original assumption, which was just below $4 a gallon from a cost per gallon perspective on diesel. And I'm sorry, on your first question?

Yes. That was just the confirmation of the M&A because I think you're saying you're expecting $1.2 billion of M&A. So I just want to make sure that, that entire -- the EBITDA impact of that is not in the guide. That's just what's closed so far.

Yes. So through today, we've closed just shy of $1.2 billion of investment in acquisitions, all of which is included in the guidance for the full year.

The next question will come from Toni Kaplan with Morgan Stanley.

I wanted to ask on pricing. Core price stepped down a little bit this quarter. Just wanted to know your thoughts on how you see that trending through the rest of the year. And then maybe also a sort of a follow-up on pricing. Like if you think about you're doing AI initiatives to sort of optimize your pricing, and I imagine that others are as well, like how do you think that, that changes like the industry's pricing dynamics in the long term? Like do you sort of have even more stickiness and things like that because everyone's sort of charging the optimal price for the business that's maybe geographically advantaged, et cetera?

Yes. If you think about pricing over time, fuel skyrocketed, and that becomes a meaningful portion of our customers' bills. So this is where AI helps us to think about the optimization of that and making sure we're playing a long-term game. So probably went out with balancing for a couple of months a little less gross price than we would have in another environment. I don't see the pricing environment changing broadly, which is we're pricing ahead of our cost structure. I think even in a challenged industry period, I think industry conduct around certain structure around price, right, has maintained pretty good discipline from my seat in the park, and now you see units starting to come back. That will be very positive. And then with respect to AI, I think this is true of almost any AI investment. It's almost always a scale investment. And so when you do routing, whether you roll that across 100 routes, 1,000 routes or 10,000 routes, you've got to do the same underlying work. Same thing with customers. Whether you do that across 2,000 customers or 2 million customers, you've got to do the same underlying work. So I think it will favor scale players who are able to invest in these tools.

And on the core price, we would expect it to stay near what we posted here in the second quarter, so in a range, call it, 6.2% to 6.4%, in that ZIP code.

The next question will come from Trevor Romeo with William Blair.

This is Melissa on for Trevor Romeo. Maybe just turning to Environmental Solutions. Can you guys speak to what the PFAS business is running at on a revenue dollar and year-over-year growth basis and maybe just what kind of opportunities you're seeing on the disposal wastewater treatment and remediation or service side of that?

Yes. Strong. I think, again, we did over $100 million last year, and we're going to exceed that number this year. Kind of we're well ahead of that pace, and we're seeing it across the full suite of our assets. So it's taking -- certainly utilizing our hazardous waste landfills and our water treatment capabilities, but it's also utilizing our solid waste landfills. So some of that special waste growth you see are jobs initiated through our Environmental Solutions team that are actually flowing through the Recycling & Waste P&L. And that's one of our advantages given that we have a broad set of offerings for clients that different levels of PFAS require different solutions. And for low levels, a Subtitle D landfill is the most cost-effective solution. And so we're taking advantage of that, and we think that pipeline is building. And so we would expect to comfortably beat our number again next year.

Great. And then maybe just a quick follow-up on that end as well on the reshoring trend. I realize this could be a multiyear opportunity. But are you seeing any tangible near-term lift with clients that are building out their presence in the U.S.?

Yes, we're starting to see that with some construction projects. I think it's mostly been -- first, it was talk and policy and now -- then it was planning, and I think we're now starting to see shovels in ground. And that will be good for us on both sides of the business. Certainly, in that construction activity, whether it's remediating the dirt to prepare the construction site or the construction process itself and then the ongoing service of those facilities across a range of end markets in the manufacturing space will be good and will -- that will be, I think, a tailwind for this business for 5-plus years.

The next question will come from Konark Gupta with Scotia Capital.

Maybe just to start on the pricing discussion. The spread between open market pricing and restricted pricing this quarter was perhaps one of the smallest we have seen, I think, in the last many years. What are you seeing in terms of competitive dynamics? And is there anything specific to like macro or fuel that's influencing that?

Yes. Some of this is just the -- that's a natural effect of a declining inflationary environment, which we've seen over the last year, obviously, spiking because of oil in the last couple of months, but there's typically a 12-month lag between when inflation or CPI would print and then when you see that in the restricted business. And then the open market, we think about pricing relative to that context overall, so that's why we talked about gross prices coming down. But our cost structure is also coming down, so we're maintaining that spread over time. And then in terms of pricing activity in markets, there are a handful of markets where you see low-cost players come in and try to build up a book of revenue almost exclusively to sell that over time. And that's distracting in a handful of markets, but that's really been true for the last 30 years in this business. And we do a good job of fiercely defending and making good price volume decisions there over time. Those players who then don't end up transacting pretty quickly figure out that their set of assumptions around cost to serve is higher than they expected, and those decisions oftentimes are not very profitable in the end.

Okay. No, understood. And if I can follow up on the RNG business, BP is looking to sell the Archaea Energy business they have. You guys have some good relationships with them, I guess. Do you anticipate any changes as part of the sale process with the future owners? Obviously, you don't know who that could be. But like what are some of the kind of guardrails in your contracts with them, which can protect you in terms of any changes potentially that may happen?

Yes. We feel very comfortable. That business is very well contracted. So we will have a seat in the table in that process, and we'll be assured that our contract rights are going to live going forward with whoever they transact that business to.

The next question will come from Jerry Revich with Wells Fargo.

I'm wondering if you could just talk about Environmental Services. So nice to see the sequential margin improvement. Can you just update us on how you're thinking about the margin opportunity on a multiyear basis? At 1 point, I think we were talking about margins potentially in the high 20s as being feasible. Is that off the table at this point? Or what are the significant opportunities and the levers that you could pull to drive margin upside here over time? And what's a reasonable expectation?

Yes. That long-term aspiration certainly hasn't changed. We've got to operate in a broader context and market, so we're going to make the right price volume trade-offs and we talked about -- probably didn't get it perfect as demand dropped at the end of '24 and into '25. We probably -- we're pursuing price more aggressively than we would have in retrospect. I think as we go forward and build from here, you'll see us, I think, ahead of our enterprise 30 to 50 basis points of margin expansion, as you talk about, a year. But you'll see Environmental Solutions expand at a faster pace than that. Exactly how fast? I think it will be a little bit dictated by both competitive environment but also the demand environment, right? And if industrial activity really starts to take another step up here, I think that will be very good for margin performance as well as growth.

And Jon, in terms of just to shift the conversation to the AI opportunities, you had sized that as $100 million 3 months ago. Can you just talk about has that estimate changed at all? And how are you thinking about the cadence, the 30 to 50 basis points of margin expansion? Could we be ahead of that in 2027 because of potential AI benefits?

Yes. I don't think we'll be ahead of it in 2027. Over the long term, we certainly could. I think what we've learned both in pricing and in routing have confirmed our assumptions that, that $100 million is on the table. The exact pace of rollout, I think, will certainly be trending toward that number in the end of 2027. The exact pace which we get it, we're going to make sure we get it and we stick it, right, not make it an event but make it an ongoing capability. And the tool part, I don't worry about. It's -- for routing, for example, you've got to get drivers to drive a different route that's optimized. And that change is easier said than done. You don't send out a memo and make that happen. You've got to work site by site, and that's a leadership opportunity that I'm confident we'll capture, but that will take us a little bit of time to make sure it's durable.

The next question will come from Seth Weber with BNP Paribas.

Just another -- sorry, another look back on the ES business. The margin -- the kind of the flattish revenue and lower margin, I just want to confirm that that's really just a mix issue and not -- there's nothing weird going on with pricing. You feel like pricing in ES has kind of stabilized or settled out in a good spot here. Is that fair, accurate?

Yes, very much. And this is kind of how we forecast and talked about it, that we would see this leveling out in the second quarter, and that would be a base to build from. And this pipeline, some things happen right away like ER, but most of these things, you get a longer sales pipeline. So we can see into the fact that we'll have momentum into the second half, just like we saw in the back half of last year what the results will be in the first half of this year.

Got it. Okay. And then just on free cash flow, if my math is right, it looks like free cash conversion goes a lot lower in the second half. Is that just a timing issue relative some stuff got pulled into the first half or something? Or perhaps my math is wrong, but it looks like free cash conversion goes lower.

Yes. It's the normal seasonality of the business. And if you take a look, all years are somewhat like we paid proportionately less cash taxes in the first half of the year, and our CapEx tends to be more back-end loaded. So this is consistent with what you've seen in prior periods, and it's right on top of our plan.

The next question will come from Will Grippin with Barclays.

Wanted to just come back to your fuel recovery fee assumptions in the second half. It sounds like you're assuming, I think you said $4 diesel and kind of a neutral EBITDA impact. I would have thought, just based on your disclosed sensitivity and assuming diesel is either stable from here or perhaps coming down a bit, that we should see actually a net margin uplift in the second half. Is that correct? And are you sort of just being conservative here? Or what am I missing in that?

Yes. So that sensitivity was the fuel recovery fees, and it was the direct impact of diesel fuel. We've talked about this. We talked about in the last quarter, there are other costs that we incur, transportation surcharges and other indirect expense charges that we get as well as from an overall cash perspective, increased CapEx when you've got the increased oil prices for landfill liner for example. So we try and recover from a comprehensive or a holistic perspective the cash impact of changes in diesel prices. And so we've expanded, and you'll see it when you see the 10-Q, expanded to include some of those other cost increases so that you get to a relatively neutral EBITDA impact from changes in diesel prices.

Okay. But there wouldn't be any sort of like margin catch-up or anything because you have a lagged effect in the first half, so -- if diesel comes down. Yes.

Yes. So you do see that. There is a lag, right? So again, we actually wound up having a net negative from a net fuel perspective in the first quarter. As you saw, diesel prices rise in the month of March, and we didn't start recovering those costs until April. So if you see fuel costs come down precipitously in the second half of the year, we could get that back. But it's really just a timing issue. It's not something that's sustained.

Okay. And last one for me. But within the ES business, I would be curious to hear what you've been seeing in terms of recent emergency response trends. We've been hearing that this year has maybe been historically low, sort of below baseline levels for emergency response activity. Is that consistent with what you've been seeing?

It was pretty slow for us last year, actually. And I'd say it's slightly on the pickup this year, but versus historic norm, yes. If you think about many years, there's kind of large, big jobs you can point to across a number of different providers, and we're just not seeing that level of kind of transformational type or big jobs that you would call out.

The next question will come from David Manthey with Baird.

What was the approximate annual revenue run rate of acquisitions that you completed in the first quarter and then the same for the second quarter?

Yes, we're not -- So in total, if you just take a look at what we guided to through the acquisitions completed in the first quarter, was that 70 basis points contribution. Again, that was a combination of rollover as well as in year. If you take a look at what we just added in the second quarter, it was basically an additional 30 basis points of contribution to the top line.

Okay. But does that take you to the $1 billion? Or does that take you higher than the $1 billion?

That takes you to about the $1 billion. One of the deals that we include that we closed on here most recently was something where we already had a 50% ownership interest in. So as we complete that deal, when you see that flow through, we were already consolidating that entity. So there's no incremental revenue, but there will be incremental EBITDA.

Okay. I see. And then second, you've kind of framed the second and third quarter EBITDA margin as flat with all of the expansion coming in the fourth quarter. It looks like it will be -- should be 50 to 70 basis points depending on the range of the guidance. But could you tell us just how much of that is already locked in because of the normalizing comps and the actions you've already taken and maybe some of the lagging CPI price benefits versus what's dependent on future actions and future demand?

Well, I think you have to take into consideration what's already happened through the first half of the year. So we had 50 basis points of margin expansion in the first quarter, relatively flat in the second. So year-to-date, you're at plus, call it, 25. If you're flat in the third quarter, then that kind of squeezed out what you need in the fourth quarter to get to the overall year, which we're saying is in the 10 basis point ZIP code. So not -- the entire year's worth of margin expansion isn't coming in the fourth quarter. Some of it already came in the first.

The next question will come from Shlomo Rosenbaum with Stifel.

I just want to probe a little bit more about the pipeline of activity that you're seeing in ES and the nature of it. You said you have pretty good visibility. Can you just give us a little layer deeper into what's building, where you're winning? How much is kind of you're winning versus the overall market just getting a little bit better? And then I have one follow-up.

Yes. I think it's across end markets. Obviously, anything manufacturing related, it's probably about half of that business probably refined oil and gas and semiconductors and a range of different industries there. Listen, our strongest value proposition is going to be an integrated offering, where we can bring to bear field services, hazardous waste landfills, solid waste landfills, water remediation, even hazardous liquids. We've got great partnerships on incineration. So the more complex and broad the job is, the more competitive we're going to be versus a single oil spill is going to be a pretty competitive environment where we're going to be less competitive in that space. So I'd say it's -- the pipeline is robust. It's not hanging on a single job or a single opportunity. It's broad-based geographically and across end markets.

Okay. Great. And then could you talk -- did anything change in terms of your expectations for incremental revenue and EBITDA from both the Polymer Centers and RNG for the year?

No, it's consistent with what we originally guided to. So this year, when you take a look at our entire sustainability portfolio, we're expecting about $40 million of incremental revenue with about $20 million of incremental EBITDA.

The next question will come from Kevin Chiang with CIBC.

Just 2 -- maybe 2 clarification questions. Just back to ES, if I look at the sequential improvement in revenue and EBITDA, we saw about a 28% incremental margin lift. Is that kind of the right way to think about the back half incremental margins as you return to growth on the top line there?

Yes. I mean I think when you think on the increment, you're in the ZIP code there of what we would expect to see on those incremental revenues, in part, when you think about the mix. So as we get some more of the waste solutions, which is that post-collection-centric type volumes, they tend to carry a relatively higher margin but also just eating into some of the capacity we have on the field and industrial services side.

Okay. That's helpful. And just you mentioned 1 of the acquisitions you made was a 50% ownership. Does that impact the equity investment line at all on the income statement? I just missed how that was being accounted for before.

No, we were consolidating it, so we had the revenue and then we were basically paying out the 50% interest through subcontract costs. Basically, we'll eliminate that subcontract cost line item.

The next question will come from James Schumm with TD Cowen.

I actually -- on that subcontractor cost, I was actually looking at that line item and your components of OpEx, and it looked like that jumped more than usual. Usually, there's a seasonal jump in the second quarter, but this looked like it was more than usual. And I was wondering if that was due to fuel, indirect fuel expenses and if there's an opportunity that, that could come down in the second half or whenever fuel prices decline.

Yes, a lot of that would be the increase in fuel, and we have fuel -- they have fuel recovery mechanisms that we negotiate with them just like we have in our contracts. And to Brian's comment earlier, we've got a pretty good overall hedge. There's a little bit of lag and drag as fuel moves up and down. But when you think about direct fuel costs and then those indirect fuel costs, we feel pretty good about being covered across different fuel prices.

Okay. And then you -- I think you said you have 250 EV trucks. You've been running these for several quarters now. Just curious to hear how has the performance been? What are the pros and cons? I mean we know that the capacity of those trucks are somewhat limited by -- with all the batteries. But maybe at a time like now when fuel prices are high, maybe that's helping you out. So just sort of broad-based over the past couple of years, how happy are you with those? And any color there would be appreciated.

Yes. The performance is exceeding our expectations. So obviously, some learning curve when you get the first ones off the line of the factory, but that's true of any new vehicle. That's not -- doesn't have anything to do with the powertrain. The battery performance and uptime and things have been really, again, exceeding our expectations. And in terms of capacity, that's true largely when you retrofit a diesel truck. That's where you get too much weight with a battery, and you start to take down payload and really limit the routes that, that truck can cover. When you have a truck that designs studs up as an EV, that allows you to take out enough weight out of the vehicle where you're not sacrificing a lot of payload.

The next question will come from Tobey Sommer with Truist.

Henry on for Tobey here. Maybe just to start really quick. You laid out some of the pieces, but maybe I missed. But anything on the pricing side, incremental improvement expectations there that drove part of the guidance increase?

No. The -- when you look at the components of the increase in revenue, again, the $150 million at the midpoint, approximately 1%, exclusively driven by increased fuel recovery fees due to the change in diesel prices, the incremental acquisitions for deals closed to date and then the increase in commodity prices. The combination of both price and volume are in line with our initial expectations.

Understood. And then thinking about CapEx for next year, how are you, I guess, thinking about that relative to this year? Maybe some of the sustainability investments come in. And then maybe more specific around those for the longer term, if you can kind of lay out how you think about that on a multiyear basis.

I would say relatively consistent as a percent of revenue of what you're seeing in 2026.

The next question will come from Stephanie Moore with Jefferies.

Actually, that's a good segue into what I wanted to talk about. Maybe taking again a longer-term view. I mean, I think over the last couple of years, you've built a pretty nice sustainability portfolio across RNG, in plastics. And so 2 parts, wanted to get an update on just the returns of those investments, how they're trending as they stand today. But also, I think more importantly, are there any other areas within sustainability or even outside sustainability that might be outside of your core business now that you're kind of exploring, investing in, again, over the medium to long term? So kind of a higher level question there.

Yes. Look, we've been really happy with the demand side of the Polymer Centers in that we could sell each of those out 3 or 4 times over, and we're largely exceeding our pricing assumptions. We have the supply, and so that was a strategic advantage and one of the reasons we got into it. From a learning standpoint, we're probably too optimistic on the timing in terms of how we could get to full capacity. Now the good side is that when we hit full capacity, we're above our nameplate capacity. So we had originally talked about 4 Polymer Centers. We think we'd probably get there with 3 in the short to medium term just because we're getting more capacity out of those when they're running at full steam. So we're excited about that over time. In terms of where we go to next, listen, anything that goes into a landfill, we're going to challenge. We would -- landfill ultimately is a cost, and we would rather take volume out of that and get a second life and the second revenue stream for that. And that allows us to extend the life of landfills, which in many urban areas, we're running out of airspace and the industry is. So parts of New England and coastal California and other places, if you can get an extra 5, 6, 7, 10 years in those landfills, that's enormously valuable while getting a second revenue stream. So organic material, flexible packaging, those are all things that we're taking a look at. And we'll make sure that both is going to be environmentally sustainable but economically sustainable. It's got to have a return for us to invest.

The next question will come from Noah Kaye with Oppenheimer.

Sorry, it's getting a little bit more fine with the points on the modeling here, but for our models for the back half, you mentioned that the total price volume outlook hasn't changed. Any moving parts within that? I mean could volumes be a little bit worse, pricing a little bit better? Because obviously, we're going to have still an overhang on volumes from a comp perspective here in 3Q, but just trying to get a little bit more granular if possible.

I would say only on the margin, Noah, and what you see is, if you're going to grow, you're going to take on new units that are below your portfolio average. And so nominally, that would put lower pressure on yields. So we'll probably end up more toward the lower side of our yield guidance because we're doing slightly better on volumes. Same thing with service increases, right? You're going to see service increases come in at a slightly lower rate, which again puts downward pressure on yield. But those are all additional activities, which are good for the business overall, and that's why you see the margin being strong because we still got a good overall price-cost spread.

Helpful. And then there's been a lot of questions asked about ES today. And I kind of want to pull back for a minute and just ask you about how the business has performed over a longer period of time. And we're about 4 years into integrating US Ecology, and just curious where you'd assess the business is at now versus the deal model. And if you think about kind of controllable levers of improvement beyond just the macro, what sort of remains as clear opportunity?

Yes. We're more excited about that business today than we were when we purchased US Ecology 4 years ago, and we've substantially exceeded the pro forma and driven really good returns for our shareholders there. I think we probably underestimated the challenge of integration of some legacy assets that both we had as well as legacy US Ecology had and getting the systems and tools and processes put together. And we're playing the long game, so we're going to make the right decision for the long term even if that sacrifices some short-term performance. We haven't gotten it always perfect in the commercial side in terms of price volume, but I think that team keeps learning and growing. And on balance, if you look at the progress, you're taking a business that had in the 14%, 15% EBITDA margin and made substantial improvement. And I think that improvement going forward won't be a straight line. Nothing that you're building ever is going to be perfect. It's not a mature business yet, but the upward path is to the up and to the right on the margin standpoint. And again, we're very excited about both the top and bottom line prospects of that business.

The next question will come from Connor Cerniglia with Bernstein.

You all highlighted AI-driven benefits in pricing and routing. There was a recent industry headline about automated AI-enabled systems being deployed at landfills. Can you talk about whether or not you've evaluated those technologies yet? And any early views on how landfill automation could impact your operations over time?

I think automation and AI will impact everything we do. I expect that to matriculate, it already is, matriculate into our vehicles and into our heavy equipment. I think the idea of getting to autonomy at scale, a truck driving down the road or operating at a landfill truly autonomous, you could do it. I'm not sure that there's going to be substantial cost savings because, in the end, somebody is likely going to be programming or driving that. So you're not going to see a huge labor arbitrage in that part of the business. But if you look at other parts of the business in recycling centers, the more technology we put in -- I mean, we have a fraction of the employees that we did a decade ago in many of our recycling centers through robots and automation. And so I think that we'll continue to invest and grow there. But automation, just like everything else we do has got to have a return, right? We've got to make sure that we're solving a problem and not just automating for automation's sake.

And then maybe switching to residential. You mentioned residential volumes should improve sequentially from here. Can you maybe just refine the trajectory of the volume recovery? It seems like volumes maybe continue in the, call it, down 3% to 4% range before you lap the large contracts in Q1 of next year and then maybe you see volumes kind of closer down to 1%, 2%. Is that the right way to think about the trajectory? Or maybe I'm a bit too specific. Any commentary there would be helpful.

Yes, we would expect sequential improvement in the volume performance, still negative, but in the, call it, 3% to 3.5% range in the second half of the year. And then that moving in '27 at this point, probably still down circa 2% based on what we expect right now. But as we've talked about, the other lines of business, small container, permanent large container, the landfill MSW, we're seeing those improve, which will -- again, when you take a look at the total volume performance, we would expect total company volume performance to sequentially improve quarter-on-quarter from here on out.

The next question will come from Tami Zakaria with JPMorgan.

One question for today. New York is proposing that landfills treat leachate for PFAS before discharging to waterways. I think the public comment period is open. Do you plan to provide comments? And more broadly, are you planning or preparing in terms of maybe changes to your operations, the strategy should something like this go into effect?

Yes. Obviously, there's been a lot of dialogue at both the federal and state level about PFAS, and we are very active and engaged in those conversations. We're not opposed to regulation, but it's got to be sensible regulation. And what we are opposed to is blaming a landfill for all the inbound volume that contains PFAS. PFAS is pervasive, and so it shows up in every landfill because it's in all types of waste streams. And penalizing the landfill, we think, is the wrong solution. We're actually the right point to remediate that because we're capturing that leachate and we're able to treat it in many cases, pretreat it in some cases, discharge it and work with our utility partners at the local level to make sure that we have the right solutions. So I'd say it's something we -- again, we're mindful of. We're in state capitals. We're in federal capitals, but it isn't something, I think, is a fundamental risk to the business. We will manage through this just like all the regulation the industry has done in the past.

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 today's call, I want to thank the entire Republic Services team. Their dedication to our customers and communities continues to strengthen our business and differentiate Republic in the marketplace. I'm proud of what we've accomplished in the first half of the year and confident in our ability to build on this momentum as we continue creating long-term value for our customers, employees and shareholders. Have a good evening and be safe.

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