Fresh off the announcement that it's acquiring environmental solutions giant US Ecology for $2.2 billion, Republic Services also said in a fourth quarter earnings call late Thursday that 2021 did in fact mark its highest year of acquisition investment in over a decade. M&A spending totaled $1.06 billion, and executives suggested there's more to come.
CEO Jon Vander Ark reported the company’s customer retention rate remained at a “record-setting level” of 95%, and touted other superlatives, including an all-time high for core price at 5.4%, comprised of small container at 8.6%, large container at 5.6% and residential at 4.8%. Additionally, execs said full-year combined yield and volume of 6.7% was the highest level in company history.
What’s next for environmental solutions
- On the US Ecology deal, Vander Ark emphasized the “difficult to replicate infrastructure” and immediate cross-selling opportunities with existing customers, which he said the company has also seen with its 2021 acquisition of ACV Enviro. "We now think we will have the leading set of products and services in the environmental services space to serve our customers," Vander Ark added.
- When analysts pointed out that solid waste and specialty waste combinations haven't always panned out 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 the US Ecology acquisition. Vander Ark elaborated Thursday that figure doesn't include "any of the revenue synergies, including cross-sell, or bolt-on acquisitions, which we have a number in the pipeline down the road," and said "all those things will be opportunities to accelerate." He also said that bundling should ultimately decrease 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 during the quarter and $202.5 million over the course of the year, marking a $65 million increase over 2020, the company reported. Some of these gains were attributed to the ACV acquisition.
US Ecology's key landfills give it a 36% market share in hazardous post-collection, more than any others in the industry, but Vander Ark was clear in prepared remarks that the emphasis on this business segment won’t 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 are making are not limiting growth or reducing focus in the traditional recycling and solid waste businesses. This is not an ‘either or’ but [a] ‘both and’ approach,” Vander Ark said, adding that the company plans to make outsized investments in both businesses.
As for potential divestitures, Vander Ark said Republic will "take a very fair view" of US Ecology's offerings and assess what can connect well for customers — versus what "might be a little more standalone and not very scalable," in which case "somebody else might be the more natural owner." Analysts at investment firm Stifel surmised this week that Republic may choose to offload international operations, in addition to oil response operations in the U.S.
Workforce and sustainability
- The company highlighted $1,000 awards it paid to each frontline worker in 2021. Republic said those additional or incremental awards will not continue going forward, but Chief Financial Officer Brian DelGhiaccio clarified that the company has "elevated increases for all of our frontline people given it’s an inflationary environment."
- As parts of Republic's RISE platform for digitalization, the company said it’s now implemented tablets in approximately 90% of its large and small container fleet. The next step is getting tablets to the residential fleet early this year, with a goal of finishing that rollout by mid-2023.
- On landfill gas-to-energy opportunities, the company specified it expects to complete four such projects in 2022. Additionally, there are 14 others in the pipeline expected to be completed “over the next couple of years,” Vander Ark said, and the company foresees opportunities for another 40 projects “beyond the current pipeline.”
- The company expects adjusted free cash flow will total between $1.625 billion and $1.675 billion in 2022, compared to last year's $1.515 billion. "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 will increase to 3.4% in 2022. As for organic volume growth, Republic expects between 1.5% and 2% this year, which DelGhiaccio said "remains well above our long-term average."
- Republic anticipates recycled commodities will get $187 per ton in 2022, consistent with 2021's average. Republic reported that commodity prices were $218 per ton in the fourth quarter, nearly double that of the prior year.
- Entering 2022, Republic remains authorized to buy back $1.7 billion in stock. The company reported it returned $805 million of cash to shareholders last year through share repurchases and dividends.
Vander Ark also previewed a new recycling initiative at the end of the call, when following up on an earlier mention that the company will be "making recycling investments beginning in 2022 to forward-integrate in the plastics value chain." He said that chain currently “isn't very well constructed.”
“We think where we've got an opportunity to take a next step and move forward with some pretty simple processing that is going to allow us to capture a higher selling price, and take more volatility right out of those sales through longer-term contracting,” he said said, adding that "in the next few months, you're going to hear far more color on that topic.”