Republic Services, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Republic provides integrated environmental services, including collection, transfer, recycling and waste disposal, across 41 states.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2,933.9 million | $2,572.1 million | $8,342.2 million | $7,580.4 million |
| Operating income | $564.2 million | $447.9 million | $1,574.5 million | $1,276.4 million |
| Operating margin | 19.2% | 17.4% | 18.9% | 16.8% |
| Net income attributable to Republic | $350.3 million | $260.0 million | $977.3 million | $731.8 million |
| Diluted EPS | $1.10 | $0.81 | $3.06 | $2.29 |
| Operating cash flow | Not separately stated for the quarter | $2,137.8 million | $1,909.0 million |
Q3 revenue rose 14.1% year over year; nine-month revenue rose 10.0%. Nine-month revenue growth reflected volume (+3.8%), average yield (+2.7%), net acquisitions (+2.1%), recycling and commodity sales (+1.2%) and fuel recovery fees (+0.6%), partly offset by one fewer workday and lower environmental solutions revenue. Nine-month cost of operations declined to 59.1% of revenue from 60.1%.
Cash, debt and capital allocation
- Cash and cash equivalents were $40.1 million at September 30, 2021. Cash, cash equivalents and restricted cash equivalents totaled $122.9 million.
- Long-term debt, net of current maturities, was $9,257.0 million; total debt carrying value was $9.265 billion, up from $8.934 billion at year-end 2020. The company reported $2.297 billion available under its $3.0 billion revolving credit facility.
- Nine-month investing cash outflow was $1,785.6 million, including $936.3 million for acquisitions and investments and $904.2 million of capital expenditures. Financing cash outflow was $343.5 million.
- Nine-month cash dividends paid were $406.5 million; share repurchases were $179.0 million. The quarterly dividend was $0.46 per share. The company repurchased 1.6 million shares during the nine-month period.
- The company reported a 2.84 debt-to-EBITDA ratio against a 3.75 covenant limit and stated it was in covenant compliance.
Changes and notable items
- Q3 operating income increased 26.0% year over year, and diluted EPS increased from $0.81 to $1.10. Results in 2020 included a $34.5 million debt-extinguishment loss and a $31.5 million divestiture and impairment loss, neither of which recurred in Q3 2021.
- Group 1 and Group 2 operating margins for the first nine months improved to 27.2% and 21.2%, respectively, from 26.1% and 19.5%.
- Higher fuel prices, wages, maintenance, disposal and risk-management costs pressured expenses; effective pricing, recovering volumes and cost management supported margins. The average diesel price was $3.16 per gallon for the nine-month period, versus $2.58 a year earlier.
- Acquisition activity included Santek Waste Services and other environmental services businesses. Acquisition purchase prices totaled $962.5 million, with allocations preliminary. Goodwill increased to $12.736 billion from $12.046 billion at year-end.
- Former CEO Donald W. Slager’s retirement resulted in a $15.4 million accelerated compensation-vesting charge during the first nine months. Management expects about $5 million of further restructuring charges in the remainder of 2021.
Outlook, risks and contingencies
- Full-year 2021 guidance was diluted EPS of $4.01–$4.04 and adjusted diluted EPS of $4.10–$4.13. Adjustments cited were $0.04 per share for restructuring and $0.05 for accelerated CEO-transition compensation expense. Adjusted EPS is a non-GAAP measure.
- COVID-19-related service declines had improved sequentially through September 2021, but the company said the pandemic’s future effects, including variants and supply-chain impacts, remain uncertain. It expected some elevated pandemic-related costs to continue.
- Accrued landfill and environmental costs were $1.912 billion. The company said the reasonably possible high end of remediation estimates could exceed recorded liabilities by about $352 million. The Bridgeton Landfill liability was $107.7 million, with a possible high end about $140 million above the recorded amount. The company cannot currently predict its share of future West Lake Superfund remediation costs.
- Recorded accruals for pending legal proceedings were approximately $27 million; aggregate exposure at the high ends of estimated ranges was about $4 million above recorded amounts. Management did not expect pending proceedings to materially adversely affect the company.
- Fuel and recycled-commodity prices remain exposures; the company had no fuel or recycling commodity hedges at quarter-end. It estimated that a 20-cent-per-gallon diesel-price change would affect annual fuel costs and fuel recovery fees by about $25 million each, at current levels; a $10-per-ton commodity-price change would affect annual revenue and operating income by about $12 million.
- Risk factors were reported as unchanged materially from the 2020 Form 10-K. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the full-year EPS guidance is achieved, and how reported results compare with the company’s non-GAAP adjusted measure.
- Whether volume, pricing and cost trends—particularly fuel, labor and insurance—sustain the Q3 margin improvement.
- Acquisition integration, final purchase-price allocations and the returns on the substantial acquisition spending.
- Future environmental remediation costs and liability allocation, especially at Bridgeton and West Lake.
- Debt, revolving-credit availability and covenant compliance as the company funds capital spending, acquisitions, dividends and buybacks.