Republic Services, Phoenix, has reported a revenue of $2.471 billion for the first quarter of 2019 ending March 31, which represents a 1.8 percent increase over the prior year.
Don Slager, Republic’s president and CEO; Jon Vander Ark, the chief operating officer; and other company executives hosted an earnings call April 25 to discuss the operations behind Republic’s Q1 financial results. Here are some highlights:
Slager on the quarter overall
“We are very pleased with our strong start to the year. We continue to realize the benefits of executing our strategy of profitable growth through differentiation, which includes strengthening our market position, attracting and retaining the best people, enhancing the customer experience to increase willingness to pay, and leveraging our scale and technology to drive additional efficiencies in our business. As a result, in the first quarter, both earnings and free cash flow are in line with our expectations.”
Slager on acquisition activity
“In the first quarter, we continued our balanced approach to capital allocation to increase long-term shareholder value. We invested $86 million in acquisitions. We sustained this momentum into the second quarter and have invested an additional $56 million for a total of $142 million of investment to date. This puts us on track to outpace our original acquisition guidance of $200 million. We now expect to invest approximately $300 million for the full year. During the quarter, we also returned $233 million to shareholders through dividends and share repurchases. …
“There are just frankly a lot of really attractive companies right now who are coming to a place in their life cycle who are thinking about monetizing their life's work, et cetera, et cetera. So we don't force deals. We don't do bad deals. We don't chase deals. We're looking still at companies that have a really high-quality revenue base, meaning a large percentage of reoccurring revenue, revenue under contract, small container business, permanent contractor roll-up business. We've been very selective and hats off to our development group. …
“We're going to continue to consolidate the business. That's how we've built Republic. We'll continue to be in the hunt for good deals.”
Slager on landfills
“These landfills are very expensive to own. They're very difficult to develop. You own them in the perpetuity. Every single time we bury someone's ton of waste, we're taking the risk, if you will, and owning it and selling that real estate forever. These assets are nearly impossible to replicate, and I have been very vocal about the fact that they frankly have not held up their end of pricing in the marketplace over the past several years.
“We're certainly evaluating the costs of running landfill. We have some higher costs related to leachate that we have to pass through to customers. And I think I'd like to believe … that this is the beginning of land to landfill and the infrastructure finally getting some traction on price that it deserves, and frankly needs, to offset some of the future of costs related to owning people's waste forever and ever.”
Ark on pricing
“We continue to discuss the true cost of recycling with our municipal collection customers as we renegotiate contracts. To date, we've secured price increases from approximately 21 percent of our municipal collection customers. In terms of dollars, we have now reprised approximately 17 percent of our municipal recycling collection revenue. …
“We continue to take action to transform recycling into a more durable economically sustainable business model and more importantly we are making progress and seeing results. Through the end of the first quarter, we secured price increases on approximately 34 percent of our recycling processing business.
“Additionally, last year we rolled out an incremental recycling process charge to our open market collection customers to cover our increased costs. In the first quarter this contributed 35 basis points of pricing in addition to average yield. Combined, we achieved total pricing of 3.25 percent. These results demonstrate that our customers do value recycling and are willing to pay for the service.
Ark on cutting operational costs
“Our maintenance expense continues to benefit from our One Fleet standardized maintenance program, and our labor expense is benefiting from our focus on process and routing efficiencies, as well as our efforts to attract and retain the best people. In the first quarter, our industry-leading turnover decreased versus the prior year. Given the tight labor market this is a true testament to the culture we are building here at Republic.”
Ark on commodity pricing
“Our recycling processing and commodity sales revenue continued to experience downward pressure from further declines in recycled commodity prices. In the first quarter, our average recycled commodity price per ton decreased 17 percent to $93 down from $112 per ton in the prior year. Our April price per ton is estimated to be approximately $85.
Ark on solid waste volume
“As anticipated, total volume in the first quarter decreased 1.5 percent versus the prior year. We faced several known volume headwinds in the quarter. These included a difficult special waste comp in the prior year, continued shedding of work performed on behalf of brokers and non-regrettable contract losses in the residential collection business. Excluding these items, underlying volume growth was 60 basis points and in line with our expectations.
Ark on municipal solid waste volume
“We're getting some third-party volume that we didn't get last year. And we're seeing strong growth from current customers, so very positive turn.”
By the numbers
More Q1 financial highlights are listed below. For the full earnings report, visit Republic’s website.
- Revenue growth from average yield was 2.9 percent, the company's highest level of average yield in nearly 10 years.
- Cash provided by operating activities was $554 million and adjusted free cash flow, a non-GAAP measure, was $349 million.
- Adjusted EBITDA, a non-GAAP measure, was $699 million. Adjusted EBITDA margin was 28.3 percent of revenue and in line with the company's full-year margin guidance of 28.3 to 28.5 percent of revenue.
- Republic continued to convert CPI-based contracts to more favorable pricing mechanisms for the annual price adjustment. The company now has approximately $685 million in annual revenue tied to either a waste-related index or a fixed-rate increase of 3 percent or greater.