Republic Services(US:RSG)2023-04-28 03:13Financial Data and Key Metrics - Revenue growth of 21% in Q1, including 11% from acquisitions, with adjusted EPS of $1.24 and adjusted free cash flow of $496 million [30] - Adjusted EBITDA margin for the Environmental Solutions business improved to 20.6%, a sequential increase of 350 basis points [47] - Total company adjusted EBITDA margin for Q1 was 29%, compared to 30.4% in the prior year [47] - Core price on total revenue was 8.2%, with related revenue at 9.3% [46] - Volume on total revenue increased 1.6%, while volume on related revenue increased 1.8% [46] - Recycling commodity prices were $105 per ton in Q1, compared to $201 per ton in the prior year, with current prices at $115 per ton [17] Business Line Performance - Environmental Solutions revenue increased by $309 million YoY, primarily due to the acquisition of US Ecology, contributing 50 basis points to internal growth on a same-store basis [28] - Cross-selling efforts in Environmental Solutions generated over $60 million in new sales, with $40 million in annualized cost savings achieved [12] - Over 75% of residential routes are operating with RISE tablets, with full deployment expected by mid-year [13] - Landfill revenue increased by 21.7%, driven by special waste [46] Market Performance - Volume growth was broad-based across market verticals and geographies [31] - Pricing actions were well-accepted, with minimal customer defection [12] - Recycling processing and commodity sales decreased revenue by 90 basis points during the quarter [17] Strategic Direction and Industry Competition - The company is focused on integrating US Ecology and improving the profitability of its Environmental Solutions business [12] - Investments in sustainability include scaling the electric fleet, with prototypes expected later this year and full-scale deployment by 2025 [44] - The company is leveraging digital capabilities to enhance customer experience and service offerings [13] - The acquisition pipeline remains strong, with opportunities for over $500 million in value-creating acquisitions in 2023 [30] Management Commentary on Operating Environment and Future Outlook - Management remains cautiously optimistic about the demand environment, with strong growth in pricing and volume [23] - The company expects commodity prices to recover in the second half of the year as global supply/demand imbalances correct [17] - Employee engagement is high, with turnover rates below 2019 levels, improving the ability to capitalize on growth opportunities [26] - The company is well-positioned to navigate potential economic uncertainties, with a focus on pricing ahead of cost inflation [23] Other Important Information - The company was named to Barron's 100 Most Sustainable Companies list, Ethisphere's World's Most Ethical Companies list, and Fortune's list of the World's Most Admired Companies [26] - The company is investing in renewable natural gas projects, with six expected to commence operations this year [122] - The combined tax rate and effects from solar investments resulted in a tax impact of 26.3% during Q1, in line with expectations [120] Q&A Session Summary Question: M&A Pipeline and Distribution Across Businesses [4] - The pipeline for M&A remains strong, with a focus on recycling, solid waste, and environmental solutions businesses [30] Question: Employee Turnover and Recruitment Trends [10] - Turnover is down, and employee engagement is high, with recruitment improving significantly in the last 4-5 months [10] Question: Pricing and Cost Inflation [54] - Unit cost inflation is expected to be around 6%, higher than the initial guidance of 5.5%, driven by factors like truck delivery costs [54] Question: Environmental Solutions Margin Improvement [55] - The company aims to improve Environmental Solutions margins from low 20% to 30% over the long term [55] Question: Special Waste Sensitivity to Recession [115] - Special waste volumes are less sensitive to economic downturns, as most projects are essential and not discretionary [100] Question: PFAS Regulation Impact [126] - The company sees PFAS regulation as an opportunity, with potential to pass regulatory costs to customers [132] Question: Electrification Progress [127] - The company is on track with its electrification strategy, with over 20 trucks electrified and plans to scale up to several hundred by 2025 [68] Question: Free Cash Flow Conversion [138] - The company aims to improve free cash flow conversion to the high 40% range, despite headwinds like interest expense and bonus depreciation expiration [138] Question: Competitive Dynamics and M&A Opportunities [139] - Smaller competitors may face challenges in financing and expanding due to supply chain issues, creating opportunities for the company [139] Question: Environmental Services Cyclicality [136] - The company is working to make Environmental Services less cyclical by integrating offerings and building closer customer relationships [137] Question: Price and Cost Spread in 2024 [98] - The company expects to maintain a 30-50 basis point margin expansion in 2024, pricing ahead of cost inflation [80] Question: Special Waste Revenue Growth [105] - Special waste revenue growth is driven by cross-sell opportunities and strong demand in the Environmental Solutions business [105] Question: Commodity Price Recovery [88] - Commodity prices are expected to recover, with a full-year average of $125 per ton, in line with initial expectations [88] Question: Margin Bridge and Seasonality [151] - The company outperformed normal seasonality in Q1, with margin improvements driven by pricing and cost management [151] Question: Organic Growth Composition in Environmental Services [159] - Organic growth in Environmental Services is driven by both pricing and volume, similar to the broader business [160] Question: Price Cadence for the Year [173] - The company expects price increases to moderate in the second half of the year, with a focus on maintaining a positive price/cost spread [124]