Good afternoon, and welcome to the Republic Services fourth 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. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Stacey Matthews, Vice President of Investor Relations.
Hello. I would like to welcome everyone to Republic Services fourth quarter 2021 conference call. Jon Vander Ark, our CEO, and Brian DelGhiaccio, our CFO, are joining me as we discuss our performance. I'd 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 February 10, 2022. 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 express 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 the discussion of business activities, along with a recording of this call, are all available on Republic's website at republicservices.com. I want to remind you that Republic's management team routinely participates in investor conferences. When events are scheduled, the dates, times, and presentations are posted on our website. With that, I'd like to turn the call over to Jon Vander Ark.
Thanks, Stacy. Good afternoon, everyone, and thank you for joining us. Our fourth quarter performance capped off a very strong year of financial results and operational execution. We outperformed expectations throughout the year and exceeded the high end of our upwardly revised guidance. During 2021, we generated adjusted earnings per share of $4.17, which increased 17% over the prior year. Produced $1.52 billion of adjusted free cash flow, which increased 23% over the prior year. Expanded EBITDA margin 60 basis points to 30%. Improved free cash flow conversion 350 basis points to 44.8% and increased customer retention rates to an all-time high of 95%. Profitable growth remains our strategic priority, and we continue to believe that investing in acquisitions is the best use of free cash flow to create long-term value.
In 2021, we invested over $1 billion 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. Our acquisition pipeline remains robust, with opportunities in recycling and solid waste and environmental solutions. Yesterday, we announced our agreement to acquire US Ecology. This acquisition propels Republic into a leading position in the environmental solutions space and adds a platform of high-quality assets and difficult-to-replicate infrastructure. I will discuss this strategic acquisition in more detail before we open up the call for Q&A. In addition to investing in acquisitions, we returned $800 million to our shareholders through dividends and share repurchases. We delivered outsized growth and profitability by executing our strategy. Our strategy is supported by three differentiating capabilities: customer zeal, digital, and sustainability.
With respect to customer zeal, our customer retention rates remain at a record-setting level of 95%, and NPS remains well above pre-pandemic scores. During the fourth quarter, we delivered outsized revenue growth throughout the business. Core price reached an all-time high of 5.4%, and average yield increased to 3.4%. Volumes increased 3.6% compared to the prior year, and acquisitions contributed an incremental 490 basis points to total revenue growth. Full-year combined yield and volume of 6.7% was the highest level in company history and over 200 basis points above the next highest year of performance. Turning to digital, we continue to make meaningful progress on the rollout of the next phase of the RISE platform. We have now implemented tablets in approximately 90% of our large and small container fleet.
With these new capabilities, we generated operational efficiencies and delivered over 1 million automated proactive notifications to customers last year. We will begin deploying tablets to the residential fleet early this year and expect to be complete by mid-2023. Next, turning to sustainability. We continue to partner with developers to capitalize on landfill gas to energy opportunities. We expect four of these projects to be completed this year, with another 14 in our pipeline expected to be completed over the next couple of years. We see an opportunity for another 40 projects beyond the current pipeline. We are also making recycling investments beginning in 2022 to forward integrate in the plastics value chain. These investments will provide a platform for future revenue growth with attractive returns and drive a more sustainable world for future generations. We will absorb these investments within our normal level of capital spending.
Our sustainability performance continues to be well regarded, as Republic Services was named to the Dow Jones Sustainability Index for the sixth consecutive year. Additionally, our MSCI ESG rating was upgraded to an A, which is the highest rating in our industry. One of the primary factors leading to the upgrade was an increase in our human capital management score. This reflects our strong culture that embraces inclusion and diversity. These strong financial and operational results would not have been possible without our dedicated employees. In appreciation of their hard work throughout the pandemic, we paid each frontline employee $500 Committed to Serve award in the fourth quarter. Combined with the award paid in January 2021, our frontline employees received an additional $1,000 during the year.
This brings our total support provided through our Committed to Serve initiative to $50 million since the beginning of the pandemic. The strength of our 2021 results clearly demonstrates our ability to create sustainable value and provides the foundation from which we will continue to grow. That said, we expect another strong year of performance in 2022. Specifically, we expect to deliver adjusted earnings per share in a range of $4.58-$4.65, and generate adjusted free cash flow in the range of $1.625 billion-$1.675 billion. This represents high single-digit to low double-digit growth over our 2021 performance. It's important to note that this guidance, as well as any assumptions we discuss on today's call, do not contemplate the impact from the pending acquisition of US Ecology.
We will provide updates to our guidance if needed once the transaction closes. I will now turn the call over to Brian.
Thanks, Jon. Core price during the fourth quarter was 5.4%, which included open market pricing of 7% and restricted pricing of 2.9%. The components of core price included small container of 8.6%, large container of 5.6%, and residential of 4.8%. Average yield was 3.4%, which represents a 20 basis points increase from our third quarter performance. In 2022, we expect average yield of approximately 3.4%. This is an increase of 50 basis points over our full year 2021 results. Fourth quarter volume increased 3.6%. The components of volume included an increase in small container of 4.6%, an increase in large container of 3.7%, and an increase in landfill of 6.7%.
We expect organic volume growth in a range of 1.5%-2% in 2022, which remains well above a long-term average. Moving on to recycling. Commodity prices were $218 per ton in the fourth quarter. This compares to $110 per ton in the prior year. Recycling, processing, and commodity sales contributed 110 basis points to internal growth during the fourth quarter. We are assuming $187 per ton for recycled commodities in 2022, which is consistent with the full year 2021 average. Next, turning to our Environmental Solutions business. Fourth quarter Environmental Solutions revenue increased $65 million from the prior year. This was driven by 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 fourth quarter. Adjusted EBITDA margin for the fourth quarter was 28.1%. This compared to 29.9% in the prior year. Margin performance during the quarter was impacted by a 70 basis point headwind from higher incentive compensation expense. We expect incentive compensation expense will return to target levels. Margin performance also included a 50 basis point dilutive impact from recent acquisitions, which included deal and transition costs. It should be noted that we pulled forward certain integration costs originally planned for 2022. The remaining impact to margin was primarily driven by a 50 basis point increase in risk management costs.
The current period includes a one time true-up for an insurance captive that increased expense 20 basis points, and the prior year included a 30 basis points favorable reduction in reserves which did not repeat. We expect risk management expense in 2022 to be relatively flat with our full year 2021 performance. For reference purposes, fourth quarter margin performance at target levels of incentive compensation and excluding the one-time Committed to Serve payment would have been 29.4%. The remaining difference to prior year margin performance relates to the impact of recent acquisitions. SG&A during the fourth quarter was 10.6% of revenue. This represents an increase of 60 basis points over the prior year, which was driven by higher incentive compensation accruals previously discussed. Full year 2021 EBITDA margin of 30% expanded 60 basis points compared to the prior year.
This resulted from pricing levels in excess of cost inflation and effective cost management, which demonstrates our ability to gain operating leverage in the business. To put our operating leverage into context, we estimate wage inflation, net of productivity, was approximately 3%. Our average yield of 3.4% more than covered this level of cost inflation, which is why labor and maintenance were both down as a percentage of revenue for the fourth quarter and for the year. In 2022, we expect EBITDA margin will continue to improve and are targeting margin expansion of 30-40 basis points over our full year 2021 performance.
The components of expected margin expansion include pricing in excess of cost inflation, adding 60-70 basis points, and incentive compensation expense returning to target levels, adding 50 basis points, partially offset by acquisitions decreasing margin by 40 basis points and net fuel decreasing margin by 40 basis points. DD&A as a percentage of revenue was 11.2% for the year. We expect DD&A as a percentage of revenue of approximately 11.5% in 2022. Year to date, adjusted free cash flow was $1.52 billion, an increase $279 million or 23% compared to the prior year. This was driven by EBITDA growth in the business and a reduction in interest expense resulting from refinancing debt.
Full year 2021 free cash flow conversion increased 350 basis points to 44.8%. We are targeting high 40% level conversion within the next couple of years. Total debt was $9.6 billion and total liquidity was $2.8 billion. Our leverage ratio was 2.9 times. With respect to taxes, our combined tax rate and non-cash charges from solar investments resulted in an equivalent tax impact of 24% during the fourth quarter. This was in line with our expectations and resulted in a 26% equivalent tax impact for the year. We expect an equivalent tax impact of 26% in 2022, made up of an effective tax rate of 21% and approximately $120 million of non-cash charges from solar investments. Let me now turn it back over to Jon.
Thanks, Brian. Before I open up the call, let me provide a little more color on our recent announcement. With the addition of US Ecology's national footprint of vertically integrated assets, leading disposal infrastructure, and comprehensive capabilities, we are better positioned to serve our customers with one of the most complete sets of products and services. This strategic acquisition provides a platform for additional organic and acquisitive growth with cross-selling opportunities for existing customers who want a single partner to manage their environmental services needs. We expect this acquisition to be immediately accretive to adjusted earnings and free cash flow and to create significant value with double-digit returns for our shareholders. We are excited to welcome US Ecology's talented employees to the Republic team and expect the deal to close by the end of the second quarter this year.
Expanding our environmental solutions business is a strategic priority, and this acquisition is a key addition. That said, the investments we are making are not limiting growth or reducing focus in the traditional recycling and solid waste businesses. This is not an either/or, but a both/and approach. We plan to make outsized investments in both businesses to accelerate growth and create lasting value. We remain disciplined allocators of capital and will only make investments in organic growth opportunities in M&A that increases intrinsic value and improves returns. With that, operator, I would like to open the call to questions.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. In the interest of time, we ask that you limit yourself to one question and one follow-up today. If your question has been answered and you would like to withdraw your request, you may do so by pressing star two. If you are using a speakerphone, please pick up your handset before pressing the keys. Your first question comes from Noah Kaye with Oppenheimer. Please go ahead.
Thanks so much. I'm sure there'll be a bunch of questions about US Ecology, but I'd like to focus on the core business for now. Starting with pricing, noticed the yield, you know, was really strong, especially at a full year basis, but that core price called out at an all-time high worth noting. The yield was very strong in collection. What's your view on post-collection pricing and yield going into 2022? Do we start to see that nudge up as well? Because certainly there's rising operating expenses there just like there is everywhere else.
Yeah, certainly you'll see some momentum in the first couple of quarters, and I think you'll see that momentum accelerate in the second half of the year. A lot of those customers are attached to CPI or something, a derivative CPI. Like our collections business, there's, you know, a 12- 18-month lag. So that elevated print from the last year will then start to flow through, and you'll see really nice economics on the yield side, especially in Q3 and Q4.
That's super helpful. That feeds into the next question, which is really how to think about the ratability or the cadence of yield trends over the course of the year. I know, you know, you're not like some peers, and you tend to do your PIs ratably through the year. Is the 3.4% full year number, since you're doing 3.4% here in the fourth quarter, fairly smooth and stable over the balance of the year or is there anything that you would call out?
Yeah, it's the same thing, which is, you know, the portion of our book that's attached to CPI or something related to that. You will get more momentum in the second half. I think you'll see really good pricing numbers here in Q1 and Q2, and then you'll see that start to accelerate in Q3 and Q4. You know, the open market side will end up being more ratable with the caveat that we're living in a very dynamic world, right?
Mm-hmm.
If we see inflationary costs, inflationary pressure, right, the core thesis of this business is that we are gonna price ahead of our cost, right? We did a great job of that last year as costs started to accelerate in pockets, and we'll do the same thing this year. Nothing broad based, right? We look at every market uniquely and dynamically and make sure that our people are getting paid and that, again, we're pricing ahead of our costs.
Yep. One more to sneak in. Brian, you know, you called this out, but I wanna go back to it because I think it's important, just around the margins and the impact from the higher incentive comp and the bonuses. I think you said it was 130 basis points.
Yeah.
You know, so just A, was that I guess how much of that was anticipated? You know, B, when you talk about that, sort of being a tailwind to margins next year, I guess how do you think about that in the context of, you know, continued, you know, support for the labor force, given the tight labor market and of course, you know, ongoing support amidst, you know, the COVID pandemic, which is still, although easing with us?
Yeah. Let me kind of talk about the incentive compensation piece first, and then we can talk about the Committed to Serve award. You know, clearly from an incentive compensation perspective, we put a plan together that assumes target, right? As you've seen all year long, we've outperformed, and with that came additional incentive compensation accruals, which will be expensed or were expensed in 2021. The cash for that will be paid in 2022, which is one of the reasons, too. When you take a look at our free cash flow, the growth on a more normalized basis is actually even in excess of what we're presenting because we've got to absorb that extra cash payment in the first quarter. On the Committed to Serve, again, that was a you know, discretionary item, right?
That we decided to do certainly in recognition for the hard work that our frontline employees did during the pandemic. We are not planning on making any of those additional or incremental awards going forward.
Largely, too, Noah, 'cause that's baked into the plan, right? We've got elevated increases for all of our frontline people, given it's an inflationary environment. Again, we're pricing ahead of that. Even with that plan, we're planning to expand margins. That's why we assume that's in. Again, as the situation moves and becomes dynamic, we'll adjust accordingly.
Yeah. Dynamic is definitely the right word. I'll turn it over. Thank you.
Our next question comes from Jerry Revich with Goldman Sachs. Please go ahead.
Yes, hi. Good afternoon.
Good afternoon, Jerry.
Can you talk about the cadence of the margin expansion that you folks are looking for over the course of the year? Obviously, you know, the fourth quarter will have the easy comp that you just mentioned, but what about as we head into the first quarter, you know, if we apply normal seasonality, it looks like your margins might be starting the year, you know, down 50-100 basis points year-over-year in the first quarter unless we get outsized pricing contribution. Is that right? Can you just talk about the cadence of the year-over-year margin performance that you're looking for?
Yeah. You know, Jerry, you're on the right path there. I would say in 2022, we're expecting normal seasonality with respect to both the revenue as well as the EBITDA margin. I think when you look at the last two years, right? So 2020 and 2021 you had anything but normal, right? You really have to go back and look at that seasonal cadence prior to that. Which again, when you think about seasonally, we tend to see our highest revenue and margin performance in the third and second quarters, Q4 thereafter. You know, usually Q4 is a little bit, you know, the lightest for the year, really for two reasons.
You've got the winter months, so you're not seeing that uptick in particular landfill volumes, as well as you've got the highest percentage of taxes in the first quarter. Payroll taxes, I'm sorry. Yep.
Sure. No, appreciate it. Then, you know, separately on the acquisition announcement, you know, can you talk about the path to get to double digit returns? You know, what amount of bolt-on activity do we need or, you know, how much more do we have to go from a synergy standpoint to earn that double digit return that, you know, I think typically for transactions this size takes most companies at least three to five years to get to?
Yeah, no, that double-digit return is based on the current pro forma, which again is on the $40 million of cost synergies, which don't include any of the revenue synergies, right? Including cross-sell or bolt-on acquisitions, which we have a number in the pipeline down the road. All those things will be opportunities to accelerate, get to double digits more quickly and then accelerate the overall returns to even a higher level.
Okay. Appreciate the discussion. Thanks.
Our next question comes from Tyler Brown with Raymond James. Please go ahead.
Hey, good afternoon. Hey, just real quick, Brian, but to be clear, the margins in 2022 are assuming a normal like 100% incentive comp accrual?
That's correct.
Okay.
We hope they're higher. Yeah, yeah. We'll take higher, but we're planning on 100%. That is correct.
Right. Okay. Okay, that's helpful. I know while we're on the talk of margin here, I know in the US Ecology release, you laid out that 47% free cash flow conversion by 2024, but you didn't really make any mention of the margin targets. Now I get it that US Ecology is probably, I'm gonna say 70, 80 basis points dilutive to margins. Does anything preclude you from achieving those, call it 32% margins longer term? Is that something that investors should still think could be a reasonable expectation like mid-decade?
Yeah. So absolutely in the solid waste and recycling side, right, we're on our marks, right? We're gonna get there. You're right, this acquisition, right, and this space in general has a slightly different value creation formula. A little bit lower margins, but less capital intensity, right? That starts to converge more into free cash flow conversion. You'll see us move later in the year to segment reporting, right? That calls those things out. It really makes it clear to-.
Okay.
to the investment community what kind of progress we're making on each front. Just arithmetically, right, we'll get there just slightly slower than we would have otherwise. But our sights are still set towards that target over time.
Okay. Yeah. Segment detail would be helpful. Jon, I think it was only 90- days ago, though you mentioned that you wanted to get environmental services up to a billion-dollar franchise over, I think, the next like three years. Clearly, pro forma, this is gonna get you there. You mentioned a platform for deals in the release. You mentioned it again on this call. But like, where do you envision the business longer term? Are you targeting a certain percentage of sales that you maybe don't want to exceed or just big picture there?
No, listen, we're you know this deal, right, is a very unique set of assets, right? You know, gives us a really attractive position, right? We don't think there's you know a deal of the size or scale, right, out there in the future. We're certainly gonna take this so we'll be able to close it and you know integrate it, get our people connected, the systems, right, make sure that we're executing above the pro forma, right? Then along the way, of course, there's other deals that can fold into this while we're aggressively growing, right, the solid waste and recycling business. We don't have any defined target of what percentage of the business this is.
You know, the bulk of this business, just arithmetically, is gonna be a traditional recycling and solid waste business, and we're gonna continue to kinda grow both sides of that, as we move forward.
Okay. My last one, just real quick. You talked about the $40 million of synergies from the deal, but you never really put a finer point there. Where exactly are these synergies coming from? Are they more SG&A? Are they other operating costs, or are they even CapEx?
No, it's two broad fronts. Think about half of it is just duplicative corporate costs, right? They're just costs of being a public company.
Okay.
IR treasury and all the normal things that you would think to take out. The other 20 would come more at the field level, because you see, we have a Gulf Coast region, right? We have a Northeast region in our Environmental Solutions business, right? They have a national footprint, and we'll obviously think about harmonizing and integrating those, right? That's a relatively small number, right, when you think about it in terms of cost takeout, because we think this is a huge platform for growth for us, right? We're not going into, you know, cut and flip. We're buying to, you know, keep and build. Now, as we go and we learn more, if there's more opportunities to do things a bit more efficiently, we'll certainly take advantage of that.
Okay. All right. Appreciate the timing.
I think, Tyler, you know, the other thing too, just the $40 million is exclusively cost synergies. There are no revenue synergies baked into the plan.
Okay. Okay, that's clear. Thank you.
Our next question comes from Michael E. Hoffman with Stifel. Please go ahead.
Thank you very much. I'm gonna ask two questions and get them in a minute. You ended the year at 44% free cash flow conversion. Your guidance is up almost 9%, but cash flow from ops is only up about 5.5%. Capital spending is almost flat. I'm trying to understand what's happening in capital spending. What do you think the cash conversion ratio does in 2022? Is the cash flow from ops as a percentage of revenues kind of the same in 2022 as it was in 2021? How is that combined in one question?
Yeah. Michael, let me kind of put it to you this way here, and I mentioned that we've got the additional cash incentive compensation that we're paying in 2022 that's related to 2021 performance. It's about $40 million of extra cash, which impacts free cash flow conversion by 100 basis points. We think we're going to be able to, from an overall perspective, get to that 45% + even absorbing that $40 million extra, that extra 100 basis points of free cash flow conversion.
Okay. That'll show up in the cash flow from ops number.
That's in cash from ops. Correct.
Yeah.
It's in working capital where you see it.
Right. Why is CapEx relatively flat year-over-year?
Well, remember, we talked about in the current year, right? Again, if you take a look at our original guide and then what we ultimately spent. You know, at the midpoint of that, we were, you know, kind of $90 million more of CapEx. We had the ability, one, to fund additional growth. Again, take a look at our volume performance. From an organic perspective, we had additional growth opportunities as well as pull forward some capital that was originally going to be spent in 2022. That's why it's relatively flat in 2022 because some of that spending actually happened in 2021.
Got it. That's what I thought it was. Just wanted to make sure that was clear. You, Jon Vander Ark, I think it is important for everybody to understand that don't focus on margins, focus on the discipline of Republic's cash-on-cash returns. Just to put it in perspective, I mean, you know, you now have, I don't know, about $1.3 billion of ES revenues. What do you got? Maybe two. If you get US Ecology close, $2.5 billion invested. On a like-for-like basis, the same investment is probably 2x on a per revenue basis in garbage. That's the way people ought to put it in perspective. Am I thinking about that correctly?
Well, I'd probably have to do a little bit of math offline, Michael, to confirm or deny your thesis. I think broadly speaking, you're in the right zone, which is can people get very caught up in the margin? Listen, we understand the margin as a, you know, way to measure the business, and we don't run away from that. We own that. We've done a great job of expanding margins the last couple of years, right? Kind of creeping up on 300 basis points as we get into next year, right? We don't run the business for the quarter. We don't run it for any single metric. We run it for the long-term and intrinsic value. That's where cash-on-cash returns, right? That's where value creation comes in.
A business that might have a slightly different optics, which is structurally a little lower margin, and then, but less capital intensity, that, you know, free cash flow conversion is a better metric that starts to harmonize those two things and get much closer to a, you know, returns or a view toward returns. Look, we think there's margin opportunity in this business, right? We think that we're gonna continue to look for efficiencies, and we're gonna think about, you know, make sure that we take our mindset around revenue management and our skills and capabilities and our belief that we have to price out of our cost, right? With expanding margins, that allows us to reinvest in the business, right, and take care of our customers over time.
Okay. Thank you.
Our next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead.
Yeah, thanks very much. Good afternoon, everyone. Just touching on that, I know you just kind of said it, the answer to my question being, how do you grow margin and how do you take advantage of that margin opportunity in the environmental services business? You said both synergy and pricing. If you were to kind of frame it, is it 50/50 or is it really a business that needs to be repriced and properly priced to get those margins up? Or is it more on the cost synergy side that you're looking to get those margins higher?
Yeah, I talked about the $40 million that we have right in front of us, and then of course, as we go on, we'll look for opportunities. Now, we're acquiring not just assets, we're re-acquiring deep expertise, right, in the hazardous waste value chain around compliance and operations and commercial capabilities. We're very, very mindful of that. The last thing I wanna do is, you know, step over a $20 bill to grab a nickel. We're not gonna be very short-term focused. We're gonna think about long-term. As we find more and learn more, right, we'll certainly report out on that. You know, on the revenue side, but we haven't put anything into the pro forma, right? We see opportunities across multiple fronts.
I mean, strategically, the reason that we're into this business is because of the connectivity of solid waste and recycling. Customers have asked us to go here. They want a one-stop shop. They want somebody who we now think we will have the leading set of products and services in the environmental services space to serve our customers. The cross-sell opportunities become immediate. We've seen that with ACV and any other previous acquisition that we've done in this space. We talked about the follow-on acquisitions and that being a real opportunity. We think there are really interesting capital investment opportunities on the post-collection side of that business that allow us to compete, more broadly, right, across incineration from other parts of the value chain we're excited about.
Look, we will bring our skill and capability of revenue management to the table, understanding that there is no work for free. We'll look at every individual job that we do and make sure there's sufficient returns on that over time. Again, that becomes important to allow us to pay our people and to reinvest in the business. We haven't quantified any of those yet, right, because we're, again, concentrated on hopefully closing this transaction and integrating our colleagues, but we think there's a lot of upside over time.
That's a great color. My second question here is on scalability of future acquisitions. What, you know, solid waste versus the environmental services side. Is environmental services is that a more scalable where integration of acquisitions, future acquisitions is better, it's easier to integrate, it's you know, more upside. Is it, you know, rather that way on solid waste, more so? I'm looking to gauge where your opportunity set and incremental dollar will be spent now if there's a lot bigger opportunity in one of the buckets through acquisitions than the other one.
Well, I think the great news is that we're not capital constrained, right? So that we don't have a dollar and choose where to put it. Yeah, we look strategically where is the fit and does it meet our disciplined returns criteria. Then if it's both, we invest in both over time. I think the space looks very similar to what solid waste and recycling looked like, you know, a decade or more ago, where there's a lot of fragmentation, and we've already seen this rolling in smaller players, right. Provides a ton of synergy. We've got a pipeline that we see sometimes building on a regional footprint. Sometimes it's adding even further to our product and service offering that will be great fits. Our pipeline and acquisitions is robust on both fronts.
Got it. Okay. Appreciate the time. Thank you.
The next question comes from Sean Eastman with KeyBanc Capital Markets. Please go ahead.
Hi, team. Thanks for taking my questions. I just wanted to make sure I understand the price versus underlying inflation expectations over the course of the year. You know, if we're expecting 60-70 basis points of margin expansion from pricing ahead of cost inflation, the average yield guidance is 3.4%. Does that mean we have 2.75% inflation kind of assumed? Or maybe just help me understand that those assumptions.
Yes. Sean, remember, one of the things you have to remember when we disclose average yield, we're using total revenue as the denominator. When you take a look about where we price and you look in that solid waste business, if you did it on related business, it actually would be 70 basis points higher than our 2021 performance, and about 20-30 basis points higher than on total revenues. That's the way you have to put it into context. The 3.4%, you got to make 3.6% or 3.7%, you know, call it, based on related revenues. You look at that pricing in excess of cost inflation, that would imply closer to a 3% inflation, cost inflation.
Okay. Very helpful.
The actual kind of wage and benefit number there is probably slightly higher. Keep in mind, we're not talking a lot about it, but we're still getting a lot of productivity benefits through RISE, and that's one of the great stories through the pandemic, is it's allowed us to keep paying our people as their bills go up while managing the cost structure, because we're just getting more efficient at the work.
Okay, great. Yeah, I'm glad we fleshed that out. Very helpful. Maybe on, just on US Ecology in light of your comments around, you know, environmental solutions being less capital-intensive, but also mentioning that there are some interesting CapEx opportunities around this particular acquisition. I mean, you know, and then seems like there's been a lot of noise around the US Ecology capital spending historically. I mean, what should we expect as a baseline and sort of variability around CapEx from US Ecology?
Yeah, look, I think there's been some elevated capital with respect to building out, right, some landfills. Through the cycle, we would expect the CapEx to run circa 9% of revenue or so on that business. Again, it's gonna be less than that in that 4%-5% range on the field services piece and a little bit more on that waste solutions piece. On average, call it about 9%.
Okay. All right. Excellent. Thanks, guys.
Our next question comes from Hamzah Mazari with Jefferies. Please go ahead.
Hey, thank you very much. Just had a question around as you think about synergies on revenue from haz waste and solid waste, do you have a sense of how many customers can subscribe to sort of both services? And then also, you know, in the past, you know, there's been people that have looked at medical waste and solid waste together, and that hasn't quite worked out. What's different about this space? Do you have a lot of manufacturing customers that sort of are asking you to do both? Just give us a sense of revenue synergies. You don't have to quantify it, just help us understand that.
I think versus your previous thesis, I think when you start with this sounds like an interesting bundle, let me try to go sell it, right? That may or may not work, right? We start with asking the customer what they want, what they need, and how they wanna buy, and have worked our way back into this. Yeah, it's true certainly for our broad set of industrial customers, right? Who produce an ongoing recurring set of waste streams. This really has accelerated over the last decade. They want fewer people into their plant. Second, they're taking a very hard look at the sustainability footprint of their supply base, right? That's a big part of their sustainability story. People who have the ratings we have, who have the record we have, become really meaningful for them.
Keep in mind, we're still a very, very small percentage of their overall cost structure. The idea that they'd be willing to pay a little bit more for somebody who can handle their needs compliantly and provide the speed they need, right, that's the value proposition. That's what we've seen proven out with the ACV Enviro transaction immediately, right? We think we'll get that just at a much bigger scale with the US Ecology transaction. It also applies to some event type work. If you think about the infrastructure bill and brownfield site remediation, the same thing. You have a contractor there, right, who really wants to understand speed. A single provider that can handle all the different waste streams becomes a really big strategic advantage.
Got it. So, you know, can you give us a sense of post US Ecology, what is your market share in haz waste, and where do you think it can go? I know US Ecology is heavy on landfills, they're heavy on event work, they have this NRC business that they over-levered to buy. What, where. How are you thinking about the portfolio? Does incineration matter or not? Does haz waste landfills mean more? Is NRC a good business? Just walk us through, like, how you're thinking about the portfolio because, you know, they do have a few businesses.
Yeah.
Hazardous waste is, you know, obviously a very big market that, you know, has a number of other players and also they're captive incinerators. It's very different than solid waste, as you obviously already know.
Yeah, sure. I mean, it starts with their historic business, which is really in the post-collection hazardous landfill side, and they have TSDFs and tank farms and other things around that. But those five sites, right, give them about a 36% market share position, right, in hazardous post-collection, right? That's been the strength of their business, really, really strong and we're excited about that. They bought a company called NRC, which has largely field services, which the thesis of which is getting close to the customer. We believe and agree with that thesis, right, and we've seen that and proved that out that that works, right? We're there with the ACV deal, and we see that in our Gulf Coast region as well over time. That NRC transaction brought with it a couple of other types of businesses.
They've got a little bit business in Europe, and they've got some things, a marine standby business which focuses on, you know, oil spill recovery. Those are things that we'll go in and clearly take a look at and evaluate and understand, hey, what's the fit with the rest of the business? Is it connected from a customer standpoint, from an asset sharing standpoint? And take a very fair view of, is this something we think we can build and grow, we'll be excited about it, or if this is something that might be a little more standalone and not very scalable and somebody else might be the more natural owner of that, we'll of course evaluate that as well.
Gotcha. That's very clear. Thank you so much.
Our next question comes from Kevin Chiang with CIBC. Please go ahead.
Thanks for taking my question here. Maybe I could ask, you talked about, you know, some of the revenue synergies as you build up your environmental solutions capabilities, the vertical integration. I guess you spoke a little bit about this, but what does the customer get out of it? It sounds like you might give them better service under one umbrella. And maybe it's just not clear to me why that would be. But do they also get, like, a cost savings? Like, is there a bundled program offer, you know, a level of pricing discount that they wouldn't get if they're using two different vendors?
Just, you know, what else does the customer get out of this, you know, having this all come out of Republic versus maybe dealing with, you know, US Ecology and Republic separately, let's say?
Yeah, I know the thesis, and it's true in some industries where, hey, the more you put together, the more you bundle, the more price pressure you could be under. We see this in our business today, actually, that the more products the customer and services the customer buy, the average price per product or service goes up, not down. Right? Keep in mind, waste and recycling broadly are a very small portion of a customer's cost structure. Like, if you run a manufacturing facility, you think first about all of your direct costs. Could be steel or copper, anything else. Then you think about your labor, and then you think about your SG&A costs of IT and everything else. Waste and recycling, right, we're talking about basis points, right, of someone's overall cost structure.
A small price premium on a very small number is still a very, very small number. For them, it's around compliance, right? Think about producer liability, right? When they produce a waste stream, especially more complex and complicated ones, they have the liability of that forever. Having somebody who's gonna handle that in a sustainable and appropriate manner is of enormous value to them. The speed, right, of being able to get things out of their facility and keep the container empty, because a full container can sometimes shut down the manufacturing process. There's enormous value created by speed, ease of service, right? Digital interface and billing, and those are all pieces that we start to put together for people. That's the value proposition for customers.
No, that's a great clarification answer. As you know, the compliance has got to be a big part of the value proposition. My second question maybe is more of a philosophical question, but you know, the industry and you're seeing it yourself, you know, you're getting strong pricing, you're covering the inflation, you know, the churn is at record lows as well, so you kind of get best of both worlds. I guess, what churn level would force you to reevaluate your pricing strategy? You know, you said you had 95%, I guess, I think it was a Q4 number. Like, at what point or at what level of churn would you rethink, you know, the pricing you're putting out into the market in order to maintain, you know, a certain level of market share or volume?
Well, we look at that all the time, right? We understand. We have a very sophisticated pricing, both pricing new customers as well as pricing existing customers. The latter becomes more important for us obviously, because we have such a long customer tenure, right? That's what that high customer retention drives, or underneath that is long customer tenure. We have all kinds of experiences with customers around test and learn, right? We take A and B sampling in terms of understanding a price that customers are willing to pay, and then at what price does that start to drive churn, right? Start to drive defection. There's an incredible amount of science underneath that process that's been developed over the last two decades.
It's really not the top-down number we look at, and if we go 92, we change pricing across the board or the opposite direction, right? It's much more surgical, almost at a customer by customer level, right? And that's what produces the, you know, pricing number while driving great volume growth.
Well, that's clear. That's helpful. Thank you very much for taking my question.
Our next question comes from David Manthey with Robert W. Baird & Co. Please go ahead.
Thank you very much. Two quick ones here. Jon, you mentioned at the beginning something about forward integrating into the plastics supply chain. Could you tell me what that means? I'm completely clueless about that. Second, on the US Ecology deal, it looks like margins, free cash flow, and returns are lower than core Republic right out of the box here. Organic growth maybe a little bit more attractive and the platform for bolt-on acquisitions seems to be one of the best attributes of it. Could you just compare and contrast sort of the pipeline at US Ecology as you've gone through your due diligence, talked to them about deals versus what you know about the average MSW deal?
Yeah, sure. On plastics, listen, the world has a single-use plastics problem, right? You don't have to read too many websites or magazines or watch too many television shows to figure that out. Now, it's very different nature of those problems is very different across geographies. In the U.S., the problem is, right, circularity, right? We produce single-use water bottles or anything else, and we don't capture enough of those, and you know, that plastic ultimately gets lost or gets downgraded, right? There's huge pressure on the CPG companies to drive more reusable product rather than just using virgin plastic. The constraint in all this is aggregation and supply. We are uniquely positioned in the value chain because we have that material.
Today, that value chain isn't very well constructed, so you have product that moves very inefficiently. We sell that product for a relatively low value for what it's ultimately worth when it returns into the hands of the CPG companies. A lot of dialogue, a lot of discussion going on across every stage of the value chain, right? We think we've got an opportunity to take a next step and move forward with some, you know, pretty simple processing that is gonna allow us to capture a higher selling price and take more volatility, right, out of those sales, you know, through longer term contracting. I'm not gonna get into any more detail right now than that, but stay tuned here because I think in the next few months you're gonna hear far more color on that topic.
On US Ecology, listen, we have a really robust and capable business development team, both out and geographically dispersed as well as here in Phoenix, that maintains a perspective on every company, big and small, and builds a pipeline. We've been working on this for years on the environmental solutions side of the business and have. You know, we're very disciplined buyers, very patient, but we've had discussions, right, with dozens of companies. This isn't talking to US Ecology and saying, "What's in your pipeline?" Of course, we'll do that. But we have our own robust pipeline, right? That we know will fit in well, right, to the US Ecology platform, right, post-closing.
Thank you very much.
At this time, there appears to be no further questions. Mr. Vander Ark, I'll now turn back over to you for closing remarks.
Thank you, Sarah. In closing, the strength of our 2021 performance demonstrates the power of our platform and the value our strategic investments are creating. We exceeded our upwardly revised financial goals by delivering double-digit growth in revenue, EBITDA, EPS, and free cash flow. We continue to manage the business well 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. Results like these are made possible by our team of dedicated employees. Have a good evening and be safe.
Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect.