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Republic Services, Phoenix, had revenue of $ 2.471 billion for the first quarter of 2019 that ended March 31, an increase of 1.8 percent year over year.
Don Slager, President and CEO of the Republic; Jon Vander Ark, the chief operating officer; and other company executives held an earnings call on April 25 to discuss the background to the Republic’s financial results for the first quarter. Here are some highlights:
Slager on the quarter overall
“We are very satisfied with our strong start to the year. We continue to recognize the benefits of executing our strategy of profitable growth through differentiation, which includes strengthening our market position, attracting and retaining the best people in, improving the customer experience to increase willingness to pay, and leveraging our scale and technology to increase efficiency in our business. As a result, both earnings and free cash flow in the first quarter 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 continued that momentum in the second quarter, investing another $ 56 million for a total of $ 142 million. This puts us on the right track to exceed our original acquisition forecast of $ 200 million. We now expect to invest around $ 300 million for the full year. During the quarter, we returned $ 233 million to shareholders through dividends and share buybacks. …
“Frankly, there are a lot of really attractive companies right now that come to one place in their life cycle and think about monetizing their life’s work, and so on and so forth. So we’re not forcing deals. We don’t do bad business. We don’t chase deals. We’re still looking at companies that have a really high quality revenue base, which means a large percentage of the recurring revenue, contracted revenue, small container business, and roll up business for permanent contractors. We were very selective and have nothing against our development group. …
“We will continue to consolidate the business. This is how we built the republic. We will continue to look for good offers. “
Slager on landfill
“Owning these landfills is very expensive. They are very difficult to develop. You own it forever. Every time we bury someone’s ton of trash, we take the risk, if you will, and own it and sell that property forever. These assets are nearly impossible to replicate, and I’ve spoken very clearly about the past few years that they have frankly not stopped the end of pricing in the market.
“We are definitely evaluating the costs of operating a landfill. We have some higher leachate related costs that we need to pass on to customers. And I think I would like to believe that this is the start of landfilling and that infrastructure is finally getting some price that it deserves and frankly needs to be part of the future of the costs associated with owning the waste balance of people forever and always. “
Ark on pricing
“We continue to discuss the real cost of recycling with our municipal collections customers when we renegotiate contracts. So far we have achieved price increases of around 21 percent of our municipal collection customers. In US dollars, we have now recalculated around 17 percent of our revenue from municipal recycling collection. …
“We are continuing to take steps to transform recycling into a more permanent, economically sustainable business model, and most importantly, we are making progress and seeing results. By the end of the first quarter, we had price increases for approximately 34 percent of our recycling processing business.
“In addition, last year we imposed an additional fee on our open market collection customers for the recycling process to cover our increased costs. In the first quarter, this contributed to 35 price points in addition to the average return. Together we achieved a total price of 3.25 percent. These results show that our customers value recycling and are willing to pay for the service.
Ark to reduce operating costs
“Our maintenance costs continue to benefit from our standardized One Fleet maintenance program, and our labor costs benefit from our focus on process and routing efficiency and our efforts to attract and retain the best people. In the first quarter, our industry-leading revenue declined year over year. Given the tight labor market, this is real evidence of the culture we are building here in the republic. “
Ark on commodity prices
“Our recycling processing and raw material sales revenues continued to be under downward pressure from further declines in recycled raw material prices. In the first quarter, our average price for recycled raw materials per ton fell 17 percent to $ 93 from $ 112 per ton a year ago. Our price per ton in April is estimated at around $ 85.
Ark on a fixed volume of waste
“As expected, the total volume in the first quarter fell by 1.5 percent compared to the previous year. We saw several known volume headwinds during the quarter. These included a difficult comparison of hazardous waste in the previous year, continued absence from work on behalf of real estate agents and unfortunate loss of contracts in the area of residential collection. Without these items the underlying volume growth was 60 basis points and was in line with our expectations.
Ark on municipal solid waste
“We’re getting volume from third-party providers that we didn’t get last year. And we’re seeing strong growth in current customers, so a very positive turn. “
By the numbers
Other financial highlights from the first quarter are listed below. The full results report can be found on the Republic’s website.
- Revenue growth from average return was 2.9 percent, the company’s highest average return in nearly 10 years.
- Cash flow from 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. The adjusted EBITDA margin was 28.3 percent of sales and corresponded to the company’s margin forecast for the full year of 28.3 to 28.5 percent of sales.
- The republic continued to convert CPI-based contracts into cheaper price mechanisms for annual price adjustments. The company now has approximately $ 685 million in annual revenue tied to either a drop-off index or a fixed rate hike of 3 percent or more.