Republic Services, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request metadata says 2022 Q4, this filing reports full-year results, with comparisons primarily to FY 2021. Republic provides collection, recycling, disposal and environmental services across the United States and Canada.
Key financial metrics
| Metric | FY 2022 | FY 2021 | Change or context |
|---|---|---|---|
| Revenue | $13.511 billion | $11.295 billion | Up 19.6%; includes acquisition growth, notably US Ecology |
| Operating income | $2.392 billion | $2.076 billion | Operating margin was 17.6%, down from 18.4% |
| Net income attributable to Republic | $1.488 billion | $1.290 billion | Up about 15.3% |
| Diluted EPS | $4.69 | $4.04 | Adjusted diluted EPS was $4.93 vs. $4.17, a non-GAAP measure |
| Adjusted EBITDA | $3.929 billion | $3.384 billion | Non-GAAP; margin was 29.1% vs. 30.0% |
| Cash from operations | $3.190 billion | $2.787 billion | Up about 14.5% |
| Capital expenditures | $1.454 billion | $1.316 billion | Operating cash flow less capital expenditures was approximately $1.736 billion |
| Cash and cash equivalents | $143 million | $29 million | Restricted cash and marketable securities were an additional $128 million |
| Debt principal | $11.902 billion | $9.678 billion | $456 million principal due in 2023; revolving facility availability was $1.402 billion |
Performance, changes and capital allocation
- Revenue growth reflected average yield of 5.2%, fuel recovery fees of 2.6%, volume growth of 2.4% and net acquisition growth of 9.6%; lower recycling commodity sales reduced growth by 0.6%.
- Cost of operations rose to 60.7% of revenue from 59.7%. Fuel expense increased to $631 million from $383 million, amid higher diesel prices; labor, maintenance, transportation and risk-management costs also rose.
- The US Ecology acquisition closed May 2, 2022, in a transaction valued at $2.2 billion. The acquisition expanded environmental solutions and was financed with a $1.0 billion term loan and revolving-credit borrowings. Republic recorded $77.3 million of related integration and deal costs in 2022.
- Investing cash outflow was $4.423 billion, including $3.039 billion used for acquisitions and investments. Financing cash inflow was $1.344 billion, reflecting net borrowing proceeds, alongside $593 million of dividends paid and $204 million of share repurchases.
- The quarterly dividend increased to $0.495 per share in 2022. At year-end, $1.5 billion remained under the share-repurchase authorization, which expires December 31, 2023.
Outlook, risks and unusual items
- 2023 guidance: Revenue of $14.650–$14.800 billion; average yield growth of approximately 5.5%; volume growth of 0.5%–1.0%; and adjusted diluted EPS of $5.15–$5.23. Guidance is forward-looking and non-GAAP adjusted EPS is not directly comparable across companies.
- Management expects 2023 net property-and-equipment investment of $1.65–$1.67 billion and at least $500 million of acquisitions. It expects approximately $35 million of US Ecology integration costs and approximately $20 million of restructuring charges in 2023.
- Republic reported approximately $1.786 billion of landfill capping, closure and post-closure liabilities and $487.5 million of environmental remediation liabilities. Management says reserves are based on estimates; the reasonably possible high end of remediation estimates was approximately $374 million above the recorded amount.
- Other key risks include environmental permitting and regulatory changes, including potential PFAS requirements; landfill expansion and airspace estimates; fuel and recycled-commodity price volatility; labor and inflationary pressures; severe weather; and acquisition integration. A $10-per-ton change in recycled commodity prices is estimated to affect annual revenue and operating income by about $10 million. A 100-basis-point change in rates on variable-rate debt is estimated to affect annual interest expense and net cash interest by about $33 million.
- Debt covenants were met at year-end; the reported debt-to-EBITDA ratio was 3.12 against a temporary 4.25 maximum through March 31, 2023. Investment-grade ratings were BBB+ (S&P), Baa2 (Moody’s) and BBB+ (Fitch). Management said available cash, operating cash flow and financing capacity should cover expected needs.
- Unusual earnings items included $77.3 million of US Ecology deal and integration costs, $27.0 million of restructuring charges, a $6.3 million net gain on divestitures and impairments, and a $1.6 million reduction in estimated multiemployer-pension withdrawal liability. Solar investment tax credits reduced the 2022 tax provision by approximately $139 million.
- The auditor issued unqualified opinions on the financial statements and internal controls. The internal-control assessment excluded US Ecology, which represented approximately 6% of 2022 revenue; integration of its controls was still in progress.
Most important facts for investors to verify
- Whether pricing and volume meet 2023 guidance while cost inflation and fuel expenses are contained.
- US Ecology integration progress, expected synergies and remaining integration costs.
- Cash conversion and working-capital trends: days sales outstanding increased to 43.3 days, or 31.8 days net of deferred revenue, from 39.2 and 27.5 days, respectively.
- Debt and liquidity after the acquisition, including refinancing of short-term commercial paper and the 2023 maturity schedule.
- Changes in landfill capacity, remediation estimates and environmental obligations, particularly the West Lake and Bridgeton matters.
- Reliance on tax credits from solar investments and the sensitivity of earnings to recycled commodity prices and interest rates.