10-QPeriod: Q1 FY2019

REPUBLIC SERVICES, INC. Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 26, 2019For Securities:RSG

Summary

Republic Services, Inc. reported its first quarter 2019 financial results, demonstrating modest revenue growth driven by pricing increases, although this was partially offset by a decrease in volumes. Net income attributable to the company remained relatively stable year-over-year, though diluted earnings per share were flat. The company continues to manage its operations efficiently, with cost of operations as a percentage of revenue remaining largely consistent. Key financial developments include the adoption of new accounting standards for leases (ASC 842) and hedging activities, which had minimal immediate impact on the income statement but added significant detail to the balance sheet regarding operating leases. The company maintained strong liquidity through its revolving credit facility and continued to return capital to shareholders through dividends and share repurchases, albeit at a reduced pace compared to the prior year. Management remains focused on operational execution and disciplined capital allocation.

Financial Highlights

55 data points
Beta

Revenue

$2.47B

39.0% Gross Margin

Net Income

$234.90M

9.5% Net Margin

EPS (Diluted)

$0.72

Total Assets

$21.78B

Cash & Equivalents

$68.00M

Free Cash Flow

$254.40M

Financial Statements
Beta
Revenue$2.47B
Cost of Revenue$1.51B
Gross Profit$964.50M
SG&A Expenses$266.40M
Operating Income$422.80M
Interest Expense$100.40M
Net Income$234.90M
EPS (Basic)$0.73
EPS (Diluted)$0.72
Shares Outstanding (Basic)322.28M
Shares Outstanding (Diluted)323.45M

Key Highlights

  • 1Revenue increased by 1.8% to $2,470.6 million for the first quarter of 2019 compared to $2,427.5 million in the prior year, driven primarily by an average yield increase of 2.9%.
  • 2Net income attributable to Republic Services, Inc. was $234.2 million for Q1 2019, a slight decrease from $237.7 million in Q1 2018. Diluted EPS remained flat at $0.72.
  • 3Cost of operations as a percentage of revenue increased slightly to 61.0% from 60.5% in the prior year, with increases noted in labor, transfer/disposal costs, and fuel, partially offset by favorable remediation adjustments.
  • 4The company adopted new lease accounting standards (ASC 842) effective January 1, 2019, resulting in the recognition of $256.3 million in operating lease liabilities and $236.2 million in right-of-use assets.
  • 5Cash provided by operating activities was $553.7 million for Q1 2019, a decrease from $581.4 million in the prior year, attributed to changes in working capital, including a significant tax refund received.
  • 6The company returned $121.0 million to shareholders through dividends in Q1 2019, and repurchased $111.5 million of its common stock, compared to $114.4 million in dividends and $254.5 million in repurchases in Q1 2018.
  • 7As of March 31, 2019, the company had $160.0 million in borrowings under its primary credit facility, with total availability of $1,696.5 million.

Frequently Asked Questions

The primary driver of revenue growth was an increase in average yield of 2.9%, indicating the company successfully implemented price increases across its services. This was partially offset by a decrease in collected volumes.

Republic Services adopted the new lease accounting standard (ASC 842) on January 1, 2019. This resulted in the recognition of significant operating lease liabilities and corresponding right-of-use assets on the balance sheet. While it did not materially impact the income statement for the quarter, it provides a more comprehensive view of the company's lease obligations.

The company continues to manage environmental remediation and landfill closure costs. For the Bridgeton Landfill, the recorded liability was $158.2 million, with a potential higher end of the range estimated at $171 million above the recorded amount. For the West Lake Landfill Superfund site, the EPA has indicated a cost estimate of $229 million, but the company's ultimate liability is currently indeterminable due to ongoing negotiations and potential litigation where it will contest liability. The company believes it is adequately reserved for its expected remediation liability.

Republic Services maintained a strong liquidity position with $1.69 billion available under its revolving credit facility as of March 31, 2019. The company had $160 million drawn under its primary credit facility and $87.3 million under its uncommitted credit facility. The company is in compliance with its debt covenants and continues to service its debt obligations, which include senior notes, tax-exempt financings, and finance leases.