Republic Services, Inc. — Q3 2023 Form 10-Q
Business context and reporting period
Republic Services provides environmental services, including collection, transfer, recycling, landfill disposal and environmental solutions, primarily in the United States and Canada. This unaudited 10-Q covers the quarter and nine months ended September 30, 2023; comparisons are with the same 2022 periods unless stated otherwise. Amounts are in millions except per-share data.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3,825.9 | $3,597.8 | $11,132.9 | $9,981.5 |
| Operating income | $727.8 | $664.3 | $2,079.2 | $1,814.5 |
| Operating margin | 19.0% | 18.5% | 18.7% | 18.4% |
| Net income attributable to Republic | $480.2 | $416.9 | $1,291.4 | $1,140.8 |
| Diluted EPS | $1.52 | $1.32 | $4.07 | $3.60 |
| Adjusted EBITDA | $1,145.7 | $1,051.3 | $3,301.9 | $2,964.3 |
For the first nine months, operating cash flow was $2,719.3, capital expenditures were $1,083.2, and cash used in investing activities was $2,100.8, including $1,051.1 for acquisitions and investments. Cash used in financing activities was $579.2. Cash and cash equivalents were $157.5 at September 30; cash, cash equivalents and restricted cash totaled $253.8.
Total debt carrying value was $11,925.1 at September 30, 2023, including $932.3 of current maturities and notes payable; long-term debt was $10,992.8. The $3.0 billion revolving credit facility had $1,986.1 of availability. The company reported a covenant debt-to-EBITDA ratio of approximately 2.9, below its 3.75 limit, and stated it was in compliance. Current assets were $2,348.4 and current liabilities $4,068.8.
Material changes versus the prior comparable period
- Revenue increased 6.3% in Q3 and 11.5% for the first nine months. Management attributed nine-month growth principally to acquisitions net of divestitures (5.3%) and average yield (6.1%); volume contributed 0.7%.
- Nine-month operating margin rose to 18.7% from 18.4%. Cost of operations declined as a share of revenue to 60.0% from 60.3% for the nine-month period.
- Interest expense rose to $378.8 for nine months from $282.7, reflecting higher interest rates on floating-rate debt and debt financing. Cash interest paid was $321.5 versus $232.4.
- Operating cash flow increased to $2,719.3 from $2,380.0. Capital expenditures rose to $1,083.2 from $924.8, while acquisition and investment cash outlays fell to $1,051.1 from $2,847.6.
- Environmental solutions revenue for the first nine months increased to $1,211.5 from $790.7, primarily reflecting the US Ecology acquisition. Recycling processing and commodity sales fell to $226.6 from $300.4.
Outlook, management commentary, risks and unusual items
- Updated full-year 2023 guidance is diluted EPS of $5.30–$5.33 and adjusted diluted EPS of $5.46–$5.49. Adjusted EPS excludes specified restructuring charges and US Ecology integration and deal costs; it is a non-GAAP measure.
- Management expects at least $1.0 billion of acquisition investment in 2023 and stated that cash, operating cash flows and financing activities should be sufficient for operating needs and cash commitments for at least the next 12 months.
- Management expected approximately $8 of additional restructuring charges and $8 of additional US Ecology integration costs during the remainder of 2023, with integration activities expected to be substantially complete by year-end.
- Commodity prices remain a risk: recycled commodity prices averaged $112 per ton in Q3 2023, compared with $162 in Q3 2022. Management estimates a $10-per-ton change would affect annual revenue and operating income by approximately $10.
- Interest-rate sensitivity: the company reported $2,316.4 of principal floating-rate debt, including swap contracts; a 100-basis-point rate change would alter annualized interest expense and net cash interest payments by approximately $23.
- Landfill and environmental liabilities totaled $2,369.7. Management said the reasonably possible high end of remediation estimates could exceed recorded remediation liabilities by approximately $369. The company is a potentially responsible party at the West Lake Superfund site and cannot currently estimate its eventual share of response costs. The Bridgeton Landfill remediation liability was $77.8.
- Legal proceedings accruals were approximately $16; potential liability using the high ends of estimated ranges would be approximately $9 higher. The filing states management does not believe pending legal matters will materially adversely affect the company.
- The company reported no material changes to the risk factors in its 2022 Form 10-K. It also reported no off-balance-sheet debt or similar obligations other than short-term operating leases and financial assurances.
Most important facts for investors to verify
- Review the assumptions and reconciliation behind full-year adjusted EPS guidance, including remaining restructuring and US Ecology integration costs.
- Monitor debt costs, floating-rate exposure, upcoming maturities and revolving-credit availability, particularly given higher interest expense.
- Assess the range and timing of landfill remediation and closure obligations, especially West Lake and Bridgeton, and the potential for estimates to change.
- Track organic pricing and volume trends separately from acquisition-driven growth, along with fuel recovery fees and volatile recycled-commodity prices.
- Evaluate whether acquisition integration and expected synergies support continued growth in environmental solutions and segment profitability.