Republic Services, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request metadata says “2021 Q4,” this filing reports full-year results, not standalone fourth-quarter results. Republic is a U.S. environmental services company, with collection, transfer, landfill, recycling and environmental solutions operations in 41 states.
Financial performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $11.295 billion | $10.154 billion |
| Operating income / margin | $2.076 billion / 18.4% | $1.709 billion / 16.8% |
| Net income attributable to Republic | $1.290 billion | $967.2 million |
| Diluted EPS | $4.04 | $3.02 |
| Adjusted diluted EPS (non-GAAP) | $4.17 | $3.56 |
| Cash from operations | $2.787 billion | $2.472 billion |
| Capital expenditures | $1.316 billion | $1.195 billion |
Cash from operations less capital expenditures was approximately $1.470 billion in 2021; this is a simple calculation, not a company-reported free-cash-flow measure.
- Revenue rose 11.2%, reflecting internal growth of 8.4% and acquisitions net of divestitures of 2.8%. Internal growth included 3.8% volume growth, 2.9% average yield, 1.1% recycling processing and commodity sales, and 0.8% fuel recovery fees, partly offset by one fewer workday.
- Collection provided 73.6% of revenue. Recycled commodity prices averaged $187 per ton in 2021, versus $96 in 2020, supporting higher recycling revenue.
- Operating margin improved 1.6 percentage points. Cost of operations declined to 59.7% of revenue from 60.1%, while fuel expense increased to $383.0 million from $271.7 million. Higher revenue and effective cost management helped results; inflation and fuel costs were pressures.
- Interest expense fell to $314.6 million from $355.6 million. The effective tax rate increased to 18.0% from 15.2%; 2021 tax expense included approximately $126 million of benefits from solar investment tax credits.
Liquidity, debt and capital allocation
- At year-end, cash and cash equivalents were $29.0 million; a further $139.0 million of restricted cash and marketable securities was not generally available for operations. Availability under the $3.0 billion revolving credit facility was $2.634 billion.
- Debt principal was approximately $9.7 billion; carrying value was approximately $9.6 billion. Only $8.2 million of principal was due in 2022. The debt-to-EBITDA covenant ratio was 2.89, against a 3.75 limit; the company reported covenant compliance.
- Republic generated $2.787 billion of operating cash, spent $1.316 billion on capital expenditures and $1.222 billion on acquisitions and investments, and paid $552.6 million in dividends. It repurchased 2.2 million shares for $252.2 million; $1.7 billion remained under its repurchase authorization.
- Landfill and environmental liabilities totaled $1.962 billion, including $1.507 billion for capping, closure and post-closure and $454.9 million for remediation. These are long-duration estimates subject to change.
Outlook, developments and risks
- For 2022, management guided to average yield growth of approximately 3.4%, volume growth of 1.5%–2.0%, and adjusted diluted EPS of $4.58–$4.65, compared with $4.17 in 2021. Guidance assumes no significant change in overall economic conditions and excludes the pending US Ecology acquisition.
- Management expected approximately $1.3 billion of 2022 capital expenditures, at least $500 million of acquisition investment, and approximately $20 million of additional restructuring charges, mainly for back-office software redesign.
- On February 8, 2022, Republic agreed to acquire US Ecology for approximately $2.2 billion, including debt, with financing expected from existing and new debt sources. Completion remained subject to regulatory and other approvals.
- CEO Jon Vander Ark succeeded Donald Slager in 2021; accelerated vesting tied to the transition resulted in a $22.0 million charge. Other notable prior-year items included a $101.9 million debt-extinguishment loss, $77.7 million of divestiture and impairment losses, and $34.5 million of multiemployer pension withdrawal costs.
- Key risks include fuel and labor inflation, competition and the ability to pass costs through pricing, volatile recycled commodity prices, landfill permitting and capacity, environmental regulation and remediation, severe weather, safety and insurance exposure, labor availability and multiemployer pension obligations. A $10-per-ton change in recycled commodity prices is estimated to affect annual revenue by about $22 million and operating income by about $10 million.
- For remediation liabilities, management disclosed that the reasonably possible high end of its estimates was approximately $342 million above the recorded amount. The company also noted uncertainty over its potential share of West Lake Superfund site costs. Legal proceedings had an aggregate accrual of about $11 million; the estimated aggregate exposure using high ends of loss ranges was about $3 million higher.
Important facts for investors to verify
- Compare reported and adjusted EPS, and review the company’s non-GAAP definitions and adjustments.
- Track whether pricing and volume growth offset fuel, labor, disposal, insurance and other inflationary costs.
- Check realized cash generation against capital spending, dividends, repurchases, acquisition spending and debt service.
- Monitor US Ecology approval, financing, integration and any effect on leverage or the 2022 outlook.
- Review changes in landfill airspace, permit progress, remediation estimates and related financial-assurance needs, particularly at Bridgeton and West Lake.
- Assess commodity-price sensitivity, pension-plan exposure and the company’s progress against its stated sustainability goals.
The financial statements received an unqualified audit opinion, and the auditor and management reported effective internal control over financial reporting. The auditor identified landfill development asset amortization and landfill retirement obligations as critical audit matters involving significant estimates.