Q1 Earnings

Republic Services, fresh off announcements of a CEO transition and the long-awaited close of its acquisition of Santek Waste Services, said during a late Wednesday earnings call it saw its first positive revenue growth since the start of the pandemic in the first quarter of 2021. The company is raising its free cash flow guidance from a high of $1.375 billion to a range of $1.35 billion to $1.4 billion.

It was Don Slager’s final earnings call as CEO after about a decade in that role and more than 30 years with the company. During the call, incoming CEO and current President Jon Vander Ark credited Slager with having successfully integrated several hundred acquisitions. “He professionalized our company and motivated our talent along the way by modeling a purpose-driven approach to the business,” Vander Ark said of Slager.

Slager said, "I am so very grateful for the opportunity I've had to serve and to lead here at Republic," adding that "John and his team are well on their way to write a wonderful and rewarding new chapter of the Republic story."

Republic slightly missed analysts' expectations on revenue. Shares are up approximately 23% since its full-year 2020 earnings call in February.

Performance and pandemic​ recovery trends

• Average yield was 2.3%, versus 2.9% in the prior year, and core price increased revenue by 4.3%.
• On pricing outlook, Republic Chief Development Officer Brian Bales said the company expects "continued momentum on landfill pricing" and nominal improvement on large container pricing.
• Volumes were still below those of the first quarter last year, but they marked an even greater increase over fourth quarter volumes reported in February. “We expect volume to turn positive in the second quarter and remain positive for the remainder of the year,” Vander Ark said.

Less than 1% of Republic non-residential, small container customers are still paused, Vander Ark said.

That customer base consists of schools, entertainment and hospitality businesses, and restaurants. “Schools are going to come back in person at some point here,” he said. “Restaurants have been shockingly resilient from our perspective. It doesn't mean there haven't been any closures, but there's been some openings, too.” How the entertainment sector returns is "probably going to be the most interesting to watch," Vander Ark said, predicting a "boom back in some pent-up business travel and personal travel."

Waste Management and Waste Connections, which hosted their earnings calls last week, expressed similar confidence in an accelerating pandemic recovery.

Other highlights

Turning to the future, Vander Ark described Republic as being “at an inflection point,” with the company poised to “move faster going forward."

“So you're going to see us focus a lot on three core capabilities: customer zeal, digital and sustainability,” he said. “And we think that's going to allow us to drive growth opportunities, certainly in our traditional waste and recycling business, but also more broadly in environmental services over time.”

The company reported safety incidents were down 18% year over year.

Recycled commodity prices rose 75% to $133 per ton in the first quarter, versus $76 per ton in last year's first quarter. Recycling processing and commodity sales totaled $87.6 million compared with $67.8 million in the prior-year period.

M&A perspective

• Republic also announced Wednesday, just before its earnings call, that it closed the acquisition of Tennessee-based Santek. The deal was first reported in early 2020, and once was projected to close in the second half of last year, but it faced a long review by the U.S. Department of Justice and a subsequent divestiture process.
• Vander Ark touted the deal that ultimately was finalized, saying “we came out exactly where we expected. We knew that there were going to be some small divestitures associated with that, and we ended up right on our numbers.” The deal gives Republic 11 landfills, and Vander Ark said the company sees opportunities for “follow-on M&A and tuck-in deals” in the new communities it’s entering.
• As for total M&A activity, the company remains “on track” to put at least $600 million toward acquisitions for the full year, Vander Ark said. According to Republic's quarterly filing, the company spent $17.8 million on acquisitions during the quarter.

“We stayed really active during the pandemic, obviously, meeting with potential sellers in new ways, virtually, and now our team is getting back out on the road and meeting people face to face," Vander Ark said.

The company also expressed openness to pursuing additional larger deals where available. “We're still targeting those types of opportunities. There's not a ton of those opportunities versus the smaller tuck-ins, obviously. That's just a kind of a numbers game, but we're not deterred at all from pursuing those types of opportunities," he said.