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By the numbers
Q2 net income: $427.4M
Net income represented 11.5% of revenue in the quarter
Q2 core price: 7.3%
Up from 6.2% in the second quarter of 2022
- Improved guidance: Republic Services raised its full-year guidance on the back of a strong Q2, projecting revenues would reach between $14.77 billion and $14.85 billion, and adjusted earnings before interest, taxes, depreciation and amortization would reach between $4.34 billion and $4.36 billion. CEO Jon Vander Ark said growth also continues to be broad-based across both the environmental solutions business and recycling and solid waste business.
- Environmental solutions: Republic continued its integration and optimization of assets from its acquisition of U.S. Ecology in 2022, which significantly remade its environmental solutions business. Revenue in the segment increased $104 million in the second quarter of 2023 year-over-year, primarily due to the acquisition. Vander Ark said during the earnings call that much of the growth in the segment had derived from “multiple double-digit price increases” and cross-selling, and he expected the company to continue to push prices upward over time despite having shed some customers already. “We found the ceiling, but we're unafraid. These are valuable assets that are impossible to replicate and customers are valuing what we're offering,” he said.
- Ravago announcement: Republic announced a partnership on Monday morning with Ravago, which will develop plastic production centers at four planned polymer centers to develop 100% recycled polypropylene and polyethylene resins. On the call, Vander Ark said the centers would guarantee a customer and add certainty to the market for the recycled resins produced. Vander Ark also said that demand for the planned output from Republic’s polymer centers, especially food-grade rPET, “outstrips supply by a lot.” He added, “We could have sold the Las Vegas center out three or four times over without challenges because the market is so short-supplied.” CFO Brian DelGhiaccio said Republic’s total investment in the joint venture would be about $160 million, or $40 million per center. In 2029, with all four planned facilities running, he said Republic can expect to see $30 to $32 million in EBITDA.
- Future polymer centers: Vander Ark said the plan to build four centers was based on the amount of material Republic collects today — about 300 million pounds of plastic last year. But he said the first facility to come online in Las Vegas has a broker desk, and he envisions adding a fifth or sixth polymer center to Republic’s portfolio if the company continued to see robust demand for its products and supply from third parties.
- Pricing: Republic expanded its net income margin and adjusted EBITDA margins slightly this quarter, in part by pricing ahead of cost inflation, Vander Ark said in a news release. DelGhiaccio said he expected pricing increases as a year-over-year comparison to decline slightly in the second half of the year, due in part to an unusual year for pricing in 2022. But he noted that solid waste was acting counter to some inflation trends.
- M&A: Republic expects to surpass $1 billion in acquisitions this year, as it’s already invested $926.9 million in recycling and solid waste-related acquisitions so far. Among its major deals this year were the June acquisition of a piece of GFL’s broader divestiture package in Colorado and New Mexico. Acquisitions contributed 4.4% of revenue growth in the quarter. DelGhiaccio said some of the acquisitions it made this year came with heavy costs, including legal fees from regulatory filings and deal integration costs. But he expects M&A to contribute to gains in EBITDA and partially offset costs associated with depressed recycled commodity prices.
