2021 results

Revenue $11.295 billion
Year-over-year variation 11.2%
Net revenue $1.29 trillion

Fourth quarter results

Revenue $2.953 billion
Year-over-year variation 14.8%
Net revenue $313.1M

Fresh off the ad it’s acquisition of environmental solutions giant US Ecology for $2.2 billion, Republic Services also said during a fourth quarter earnings call Thursday evening that 2021 actually did marks its highest year of acquisition investment in more than a decade. Mergers and acquisitions spending totaled $1.06 billion, and executives suggested there was more to come.

CEO Jon Vander Ark said the company’s customer retention rate remained at an “all-time high” of 95%, and touted other superlatives, including a record price for the core at 5.4. %, consisting of small containers at 8.6%, large containers at 5.6% and residential at 4.8%. Additionally, executives said the combined full-year yield and volume of 6.7% was the highest level in the company’s history.

What’s Next for Environmental Solutions

  • Regarding the US Ecology deal, Vander Ark pointed to the “hard-to-replicate infrastructure” and immediate opportunities to cross-sell with existing customers, which he said the company has also seen with its acquisition of ACV Enviro. in 2021. “We now believe that we will have the first set of products and services in the field of environmental services to serve our customers,” added Vander Ark.
  • When analysts pointed out that combinations of solid waste and special waste have not always worked well in the past, Vander Ark doubled down on customer feedback as a key factor. “Solid waste and recycling customers [have] asked us to go here, they want a one-stop shop.”
  • Republic said this week it expects at least $40 million in “cost synergies” within three years of acquiring US Ecology. Vander Ark explained on Thursday that this figure does not include “any of the revenue synergies, including cross-sells or add-on acquisitions, of which we have a number in the pipeline”, and said that “all of these things will be opportunities accelerate.” He also said the consolidation should ultimately reduce overall costs for customers and that the value proposition includes speed, ease of service and a digital interface.
  • Overall, Republic’s existing environmental solutions business brought in $91.7 million in the quarter and $202.5 million in the year, marking an increase of $65 million compared to 2020, the company reported. Some of these gains were attributed to the acquisition of ACV.

US Ecology’s major landfills give it a 36% market share in hazardous post-collection, more than any other in the industry, but Vander Ark made it clear in prepared remarks that the focus on this business segment will not take away from solid waste and recycling, and that the company is not capital constrained.

“Expanding our environmental solutions business is a strategic priority. And this acquisition is a key addition. That said, the investments we make do not limit growth or reduce the focus on traditional recycling and solid waste businesses. It’s not an ‘or’ but [a] ‘both and’ approach,” Vander Ark said, adding that the company plans to make outsized investments in both businesses.

Regarding potential divestments, Vander Ark said Republic “get a very fair view” of US Ecology’s offerings and assess what can connect well for customers – versus what “could be a bit more standalone and not very scalable”, in which case “someone another might be the more natural owner”. Analysts at investment firm Stifel speculated this week that Republic might choose to offload international operations, in addition to oil intervention operations in the United States.

Workmanship and Durability

  • The company highlighted the $1,000 rewards it paid to each frontline worker in 2021. Republic said these extra or supplemental rewards will not continue, but the CFO Brian DelGhiaccio clarified that the company has “raised the raises for all of our front line employees given that this is an inflationary environment”.
  • As part of Republic’s RISE platform for digitization, the company said it has now implemented tablets in approximately 90% of its large and small container fleet. The next step is to deliver tablets to the residential stock early this year, with the aim of completing this rollout by mid-2023.
  • Regarding landfill gas-to-energy opportunities, the company said it expects to complete four such projects in 2022. next two years,” Vander Ark said, and the company foresees opportunities for another 40 projects “beyond the current pipeline.”

Outlook 2022

  • The company expects adjusted free cash flow to total between $1.625 billion and $1.675 billion in 2022, up from $1.515 billion last year. “We continue to believe that investing in acquisitions is the best use of free cash flow to create long-term value,” Vander Ark said.
  • DelGhiaccio said the company expects average yield to grow to 3.4% in 2022. As for organic volume growth, Republic expects between 1.5% and 2% this year, which, according to DelGhiaccio, “remains well above our long-term average”.
  • Republic forecasts that recycled feedstock will yield $187 per ton in 2022, which is in line with the 2021 average. Republic reported that commodity prices were $218 a tonne in the fourth quarter, nearly double those of a year earlier.
  • Going into 2022, Republic remains authorized to repurchase $1.7 billion in stock. The company said it returned $805 million in cash to shareholders last year through stock buybacks and dividends.

Vander Ark also previewed a new recycling initiative at the end of the call, following up on a previous mention that the company will be “make investments in recycling from 2022 to integrate forward into the plastics value chain.” He said that this chain currently “is not very well built.”

“We are thinking where we have the opportunity to take the next step and move forward with a fairly simple treatment that will allow us to capture a higher sale price and reduce the volatility of those sales through longer-term contracts,” he said, adding that “in the next few months you’re going to hear a lot more color on this topic.”