Republic Services, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; fourth-quarter figures are included but are unaudited. Republic provides collection, transfer, landfill, recycling and other environmental services, operating in 41 states. Collection represented 75% of annual revenue.
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $10.154 billion | $10.299 billion |
| Operating income | $1.709 billion | $1.787 billion |
| Operating margin | 16.8% | 17.3% |
| Net income attributable to Republic | $967.2 million | $1.073 billion |
| Diluted EPS | $3.02 | $3.33 |
| Cash from operating activities | $2.472 billion | $2.352 billion |
| Capital expenditures | $1.195 billion | $1.207 billion |
| Total debt, including finance leases | $8.934 billion | $8.689 billion |
Operating cash flow less property and equipment purchases was approximately $1.277 billion in 2020 versus $1.145 billion in 2019; this is a simple calculation, not the company’s stated free-cash-flow measure. Cash and cash equivalents were $38.2 million at year-end, with $149.1 million of restricted cash and marketable securities. Revolver availability was $1.672 billion on the main credit facility and $1.0 billion on the 364-day facility. The company reported a 3.07 debt-to-EBITDA covenant ratio against a 3.75 maximum and stated it was in compliance.
Changes versus 2019
- Revenue declined 1.4%, as a 3.1% volume decrease and lower fuel recovery fees and environmental-solutions revenue outweighed 2.6% average-yield growth.
- COVID-19 reduced service levels and volumes, especially in small- and large-container collection. Activity decline peaked in early April and gradually recovered.
- Operating margin contracted 0.5 percentage points. Lower operating costs, including fuel, helped offset lower revenue, but depreciation and other items weighed on results.
- Operating cash flow increased $119.5 million. Capital expenditures were slightly lower, while acquisition and investment spending rose to $769.5 million from $575.1 million.
- Debt increased by about $246 million. The company issued lower-coupon long-term notes and redeemed or repaid higher-coupon debt; interest expense fell to $355.6 million from $392.0 million.
- Quarterly dividends increased to $0.425 per share; annual dividends paid were $522.5 million. Share repurchases totaled $98.8 million, down from $399.4 million.
Guidance, commentary and notable items
- For 2021, management expected average-yield growth of approximately 2.5%, volume growth of 1.5%–2.0%, and adjusted diluted EPS of $3.65–$3.73, versus $3.56 in 2020. Guidance assumed no significant change in overall economic conditions.
- Management expected COVID-related costs to continue during 2021, and potentially beyond, but at a lower annual level than 2020. Direct and incremental COVID-19 costs were $68.4 million in 2020; the company also committed $20 million to its Committed to Serve initiative.
- Fourth-quarter 2020 included a $42.6 million charge to exit certain upstream environmental-solutions offerings and basins. Total 2020 net losses on divestitures and impairments were $77.7 million; multiemployer pension withdrawal costs were $34.5 million and debt-extinguishment losses were $101.9 million.
- Management forecast additional 2021 restructuring charges of approximately $15 million–$20 million, primarily for back-office software redesign.
- Environmental liabilities were significant: $1.346 billion for landfill capping, closure and post-closure, and $462.8 million for remediation. The company said the reasonably possible high end of remediation ranges was approximately $356 million above recorded amounts.
- Key risks include COVID-19 and economic uncertainty, labor and fuel costs, recycled-commodity price volatility, landfill permitting and airspace, environmental and climate regulation (including PFAS), remediation exposure, severe weather, competition, cybersecurity, and multiemployer pension obligations. Bridgeton and the West Lake Superfund site remain notable remediation matters; the company said West Lake allocation and final costs could not yet be estimated.
- Audit opinions were unqualified, and management and the auditor reported effective internal control over financial reporting. The auditor identified landfill asset amortization, landfill retirement obligations and environmental liabilities as critical audit matters.
Important facts for investors to verify
- Whether 2021 yield and volume guidance is achieved, particularly as commercial customer service levels normalize after COVID-19.
- Whether adjusted EPS comparisons appropriately account for excluded charges; adjusted EPS is a non-GAAP measure and may not be comparable across companies.
- Future remediation estimates, especially the Bridgeton liability and the unresolved allocation and remedy costs at West Lake; recorded remediation liabilities may increase.
- Landfill capacity and expansion assumptions: reported available capacity includes probable, unpermitted expansion airspace and depends on obtaining permits.
- Debt, covenant headroom and refinancing needs, including the 364-day facility maturing in August 2021 and substantial long-term contractual obligations.
- Exposure to variable fuel and recycled-commodity prices: the company reported no fuel or recycling-commodity hedges at year-end.