By the numbers
Q1 net income: $384M
Accounted for 10.7% of revenue
Q1 core price: 8.2%
Up from 6% in Q1 last year
- Economic outlook: Republic Services CEO Jon Vander Ark said his company remained on track for guidance expectations in the quarter and was seeing strong acceptance of the company’s pricing increases to keep up with inflation. He expected that dynamic to continue into the second quarter, but he said inflation should modulate beginning in the second half of the year. “We think we'll have a pretty good price margin spread throughout the year, which will lead to a positive result for the year,” Vander Ark said in a Thursday earnings call.
- M&A: Republic spent $224.1 million on acquiring recycling and solid waste businesses in Q1, and Vander Ark said he now expects the company to surpass its initial projection of $500 million of acquisitions this year. The company remains focused on recycling and solid waste services in its acquisitions, though it’s also eyeing environmental solutions opportunities.
- Environmental solutions: Republic is already seeing a major boost from environmental solutions, much of which stems from last year's acquisition of US Ecology. Net revenue for environmental solutions in Q1 was $408.3 million, which Vander Ark said was "ahead of schedule." He also said Republic initially projected $40 million in cost synergies but now expects that number to be closer to $50 million. The company wants to move from a 20% margin in the business to 30%, which Vander Ark said could be achieved through pricing opportunities and integration with its recycling and solid waste business. “We built this thing for growth. So as we continue to grow, we get some leverage on our overhead spend in that space as well,” Vander Ark said.
- Pricing: Vander Ark said Republic’s customer retention rate remained at 94%, even as the company priced new and existing business ahead of cost inflation. The company’s Q1 core price increase, which is just shy of Republic’s high water mark of 8.4% last year, was fueled in part by 11.7% in open market pricing and 5.4% in restricted pricing. Executives said the pricing strategy would allow Republic to drive margin expansion in the underlying business.
- Recycling: Republic's average recycled commodity pricing was $105 per ton, up by $17 from the previous quarter but still roughly half of what it was the prior year. The slump contributed a 90 basis point decrease in revenue. CFO Brian DelGhiaccio predicted commodity prices would begin to recover this year as global supply and demand imbalances correct, noting current prices were at $115 per ton.
- Looking ahead: Work continues on Republic’s polymer centers in Las Vegas and the Midwest, which are slated to open by the end of 2023 and the end of 2024, respectively. DelGhiaccio said he expects to see $15 million of adjusted earnings before interest, taxes, depreciation and amortization from the polymer centers by 2024 and the segment could ramp up to $70 million in three to four years. The company’s RNG investments also remain on schedule, with six facilities slated to deliver this year. The business could yield $100 million of adjusted EBITDA per year by 2028, DelGhiaccio said.
