Republic Services, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial statements are unaudited. Republic is a U.S. environmental-services provider operating collection, transfer, recycling, landfill and environmental-solutions businesses.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $3,413.6 million | $2,812.3 million | $6,383.7 million | $5,408.2 million |
| Operating income | $589.6 million | $517.9 million | $1,150.2 million | $1,010.3 million |
| Operating margin | 17.3% | 18.4% | 18.0% | 18.7% |
| Net income attributable to Republic | $371.9 million | $331.1 million | $723.9 million | $627.0 million |
| Diluted EPS | $1.17 | $1.03 | $2.28 | $1.96 |
| Operating cash flow | — | $1,563.5 million | $1,482.8 million | |
| Capital expenditures | — | $647.3 million | $608.6 million |
Revenue increased 21.4% in Q2 and 18.0% in the first half. For the first half, management attributed growth to pricing and fuel-recovery fees, volume, acquisitions and environmental-solutions revenue. Operating margin declined as operating costs rose faster than revenue, including fuel, transportation/subcontracting, risk management and other expenses. The six-month effective tax rate was 23.8%, versus 24.1% in 2021.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $119.4 million; restricted cash and marketable securities were $121.5 million. Total current assets were $2.14 billion and current liabilities $2.93 billion.
- Total debt carrying value was $11.9 billion, up from $9.6 billion at December 31, 2021. Long-term debt, net of current maturities, was $11.59 billion.
- Availability under the $3.0 billion revolving credit facility was $1.435 billion. The company reported a 3.34 debt-to-EBITDA covenant ratio against a maximum of 3.75 and said it was in compliance.
- First-half financing cash flow was $1.80 billion, primarily reflecting net borrowing. Cash used in investing was $3.28 billion, including $2.655 billion for acquisitions and investments.
Material changes and notable items
- Republic acquired US Ecology on May 2, 2022, in a transaction valued at $2.2 billion. The acquisition expanded environmental-solutions services and was financed with a $1.0 billion term loan and revolving-credit borrowings. Preliminary purchase accounting included $1.37 billion of goodwill; valuations remain subject to revision.
- US Ecology integration and deal costs were $51.9 million in Q2 and $56.6 million for the first half. The company also incurred first-half restructuring charges of $11.9 million and $2.2 million of multiemployer-pension withdrawal costs.
- Q2 reported diluted EPS was $1.17; adjusted diluted EPS was $1.32 after specified adjustments. First-half reported diluted EPS was $2.28 versus adjusted EPS of $2.46.
- Republic repurchased $203.5 million of shares in the first half and paid $291.2 million in dividends. The quarterly dividend was $0.46 per share.
Outlook, risks and contingencies
- Full-year 2022 guidance: GAAP diluted EPS of $4.52–$4.55 and adjusted diluted EPS of $4.77–$4.80. Adjustments include restructuring, pension withdrawal and US Ecology acquisition costs. Adjusted EPS is a non-GAAP measure.
- Management expects to invest at least $500 million in additional acquisitions in 2022 and said available cash, operating cash flow and financing capacity should fund operating needs and commitments for at least the next 12 months.
- Management expects approximately $10 million of additional restructuring charges in the remainder of 2022. A July 2022 investment of approximately $90 million in a renewable-natural-gas joint venture is expected to support 39 projects, with further contributions tied to milestones over four to five years.
- Fuel costs rose to $312.8 million for the first half, from $171.3 million. Republic had no fuel hedges at June 30; fuel-recovery fees offset some, but not all, exposure. A $0.20-per-gallon diesel-price change is estimated to affect annual fuel costs by about $26 million, with a similar estimated change in fuel-recovery fees.
- Variable-rate debt totaled $3.541 billion. A 100-basis-point rate change was estimated to change annualized interest expense and net interest cash payments by approximately $38 million.
- Recorded landfill and environmental liabilities totaled $2.194 billion. Using the high ends of remediation cost ranges could increase recorded remediation liabilities by approximately $375 million. The Bridgeton Landfill reserve was $96 million, with a reasonably possible high end about $140 million above the recorded amount. Republic said it could not estimate its eventual share of West Lake Superfund response costs.
- Other risks include US Ecology integration, severe weather, recycled-commodity price volatility, regulatory and legal matters, and landfill liability estimates. The filing reported no material changes to previously disclosed risk factors. Management said disclosure controls were effective.
Most important facts for investors to verify
- Whether US Ecology integration delivers expected benefits and how final purchase accounting affects goodwill, intangible assets and results.
- Progress toward full-year adjusted EPS guidance, and the level and comparability of excluded costs.
- Whether pricing and fuel-recovery fees continue to offset fuel, labor and other operating-cost inflation without further margin erosion.
- Debt, interest-rate exposure, revolving-credit availability and covenant headroom as borrowing needs and rates change.
- Potential changes to environmental-remediation estimates, particularly Bridgeton and West Lake, and related cash requirements.