Q3 2021 Stericycle Inc Earnings Call
Good morning, and welcome to the Stericycle, Inc. Third quarter 2021 earnings conference call.
All participants will be in listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Andrew Ellis Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining Stericycle 2021 third quarter earnings call on the call today will be Cindy Miller, our Chief Executive Officer, and Janet Zelenka, Chief Financial Officer, and Chief Information Officer.
The discussion today includes forward looking statements that involve risks and uncertainties. When we use words such as believes expects anticipates estimates may plan will goal or similar expressions. We are making forward looking statements forward looking statements are prospective in nature and are not based on historical facts, but rather.
On current expectations and projections of our management about the future events and are therefore subject to risks and uncertainties. Our actual results could differ significantly from those described in such forward looking statements.
Factors that could cause our actual results to differ are discussed in the safe Harbor statement in our earnings press release and in greater detail within the risk factors in our filings with the U S Securities and Exchange Commission.
Our past financial performance should not be considered a reliable indicator of our future performance and investors should not use historical results to anticipate future results or trends, we disclaim any obligation to update or revise any forward looking statement other than in accordance with legal and regulatory obligations on.
On the call, we will discuss non-GAAP financial measures for additional information and reconciliation to the most comparable U S. GAAP measures. Please refer to the schedules in our earnings press release, which can be found on stair cycles Investor relations website at investors that Stericycle dot com there.
The prepared comments for today's call correspond to an earnings presentation, which is also available at Stericycle as Investor Relations website.
Throughout the call we may reference specific slides from the presentation.
This call is being recorded and a replay will be available approximately one hour. After the end of the conference call today until December 2nd 2021 to access a replay of the call dial 87734, 475 to nine and enter replay access code 10160097.
A replay of the webcast will also be available on stair cycles Investor Relations website.
I'm sensitive information provided during today's call, which is occurring on November 2nd 2021 may no longer be accurate at the time of a replay any redistribution retransmission or rebroadcast of this call in any form without the expressed written consent of Stericycle is prohibited ill now turn the call over to Cindy Miller.
Thank you Andrew Good morning, everyone and thank you for joining our third quarter earnings call overall, our results of the quarter demonstrate that we continue to execute on our key business priorities. We delivered on our quality of revenue initiatives driving organic revenue growth in regulated waste and comply.
<unk> services.
We also achieved an important milestone in our transformational journey the launch of our ERP system.
I couldnt be more proud and excited to share some of the benefits our team members and customers will begin to experience because of this new platform.
At the beginning of August we went live with the ERP capabilities for secure information destruction in North America for our operational and commercial processes as well as our overall North America financial and procurement processes today more than 5000 team members are using the new ERP across.
Eight key business processes, transforming us into a modernized data and technology environment.
The improved processes encompassed the following.
Market to quote which is how our commercial organization that identifies and onboard new customers and manages contracts and renewals source to pay which includes our procurement of goods and services and the payment to vendors.
Hire to retire which includes the technology and processes, we use to manage our global workforce order to cash which is how we process customer orders all the way to invoicing and cash collection.
Collect to dispose, which includes the comprehensive processes to service our customers customer experience, which is how we manage the overall relationship with our customers plan to perform which involves the planning forecasting and monitoring our business performance.
In the account to report, which is how we close our books and report our financials.
Our focus for the fourth quarter is to continue tuning in enhancing the platform.
While it is still early in the rollout let me outline a few of the impacts and improvements were beginning to see from the ERP.
One we have improved the quality of our automated data flow. The technology enabled data flows are moving us towards more streamlined and automated processing of our business, which we anticipate will improve service optimize the deployment of assets and minimize the need for manual intervention.
<unk>.
Two we have also launched an enterprise data lake that is being filled with data from the new systems. We are excited to begin harnessing the power of this data lake, which provides powerful analytic capabilities, including capturing daily revenue and cost trends. We believe this information will drive better re.
Time operational commercial decisions, leading to optimized business performance.
Three we are improving our customers' experience, we have expanded our digital customer experience capabilities for enhanced and simplified customer Onboarding and service delivery.
Streamlining sales and customer service processes, and expanding self service tools to deliver an integrated customer experience.
Four we are scheduling and servicing our North America secure information destruction customers through the ERP with 98% of orders being automatically routed to our dispatch system a significant improvement over prior processes, which included manual intervention.
Our new technology allows us to automate scheduling and route rebalancing, which we expect will result in route optimization and greater efficiency.
Five we are invoicing North America secure information destruction customers through the ERP.
System is also providing real time insights into revenue trends by facility location.
The power of this technology is its ability to organize processed and presented data, which will enable us to better understand our customers and their needs.
Six we are processing, both secure information destruction and regulated waste and compliance services North America vendor invoices through the new system and leveraging the technology to remit payment.
Our North America vendors and their invoices are being routed through our source to pay system. Following automated workflows that help ensure appropriate review and approval prior to payment.
We now have a fully automated flow of receipts and payments into our general ledger, giving us daily insight into expenditures.
Kevin.
We are closing our books in the new ERP, which was designed with an effective and efficient control environment in mind.
The ERP automate several key controls automate numerous manual journal entries and streamlines. Our overall close process. Additionally, we built a new profit and cost center structure that will enable future insights into profitability.
We are early days in harnessing the power of this technology and the value of the data generated.
And it's going to take time for us to unlock the full potential but we are encouraged by the system improvements we've experienced so far.
We have made great progress in the last three months and we will continue to work over the next several months on fine tuning the system and our processes as we build efficiencies and our operational execution.
Looking ahead to the North American regulated waste and compliance services ERP deployment, we couldn't be more excited.
The secure information destruction deployment has taught us many things and we will leverage those learnings for the North America, our WCS deployment in 2022.
I couldn't be more proud of how our team members came together for this deployment and for their adaptability to a new way of working.
Turning to our quality of revenue initiatives, we delivered another quarter of overall revenue growth of 2% and organic revenue growth of four 4%, which is in line with the revenue growth range provided last quarter.
Regulated waste and compliance services had organic revenue growth of six 8%.
Prized of six 9% growth in North America, as we continue to see recovery in maritime waste services, and elective surgeries and 6.2% growth in international.
Overall secure information destruction revenue declined one 1% as North America revenue declined three 4%, mainly due to the complexities associated with this large scale ERP deployment.
This decline was partially offset by 14.7% growth in international.
We are encouraged with month over month improvements in revenue within secure information destruction as we make this system are part of everyday life. We are pleased to see improvement from August through September which has continued into October.
Moving to operational efficiency modernization and innovation.
I'm excited to announce that our new northern California regulated waste facility came on line during the third quarter.
This is an important achievement that secures and strengthens stericycle medical waste capabilities in northern California, and furthers our commitment to sustainability.
This facility provides a 75% capacity increase to better serve the health care needs and heavily populated northern California.
This strategic location is expected to improve our network by reducing vehicles fleet miles driven fuel consumption and emissions. This modernized automated facility also is anticipated to process waste more cost efficiently improve employee safety and be more reliable.
We believe it's opening enhances our ability to grow our business in the region and improve customer service.
As mentioned last quarter Stericycle is not immune to the impacts of inflation.
And the labor market and supply disruptions.
These factors continued to impact us in the third quarter, primarily resulting in higher labor costs and delays in receiving services and materials for our capital expenditure projects.
On September 1st we divested our operations in Japan for approximately $11 $3 million.
The team continues to make strong progress executing on our portfolio optimization initiatives as this marks our ninth divestiture since 2019.
Proceeds from this divestiture were applied towards debt reduction.
I'll now turn the call over to Janet to review our financial results.
Thank you Cindy I will start by summarizing our third quarter results.
As noted on slide five revenues in the third quarter were $648 $9 million compared to $636 4 million in the third quarter of last year regulated waste and compliance services organic revenue growth was $30 4 million and the positive impact of foreign exchange rates was five point.
8 million. These increases were partially offset by the impact of divestitures of 21 6 million and a decline in secure information destruction organic revenue of $2 1 million.
As noted on slide six regulated waste and compliance services revenues were $461 $7 million compared to $449 1 million in the third quarter of 2020, excluding the impact of divestitures and a foreign exchange rates organic revenues grew six 8% in the third quarter.
<unk> North America regulated waste and compliance services organic revenues grew six 9%.
Of the six 9% growth approximately three 7% was driven by quality of revenue initiatives approximately 1.4% was due to an increase in maritime waste services revenues approximately one 1% was from an increase in the average weight per container, which we believe was due to incur.
[noise] elective surgery waste and the remaining 7% was primarily from COVID-19 related revenues international regulated waste and compliance services organic revenue growth was six 2% in the third quarter. The vast majority attributable to higher pandemic waste volumes.
Secure information destruction services delivered revenues of $187 $2 million compared to $187 3 million in the third quarter of 2020 organic revenues declined $2 $1 million or one 1% due to North America results.
In North America secure information destruction organic revenues decreased $5.6 million or three 4% compared to third quarter of 2020. This decline was due to ERP start up challenges, which included team members learn the new processes and technology across every aspect of the secure information destruction busy.
And onboarding and tuning the flow of new data elements to the system, we saw continuous improvement in our team members' performance as they leverage the technology and data flow during the quarter and into October.
In North America recycled paper revenues were up 11, 5% or about $2 million compared to the third quarter of 2020. The increase in recycled paper revenues reflected higher S. O P pricing offset by lower S. O P volume, which was primarily driven by our ERP challenges.
And international secure information destruction organic revenues increased 14, 7% compared to the third quarter of 2020. This was mainly due to increased service stops as this business continues to recover from COVID-19.
Loss from operations was $56 million from the third quarter compared to a loss from operations of $55 8 million in the third quarter of last year. The improvement was mainly due to lower year over year divestiture and impairment losses. This improvement was partially offset by an estimated aggregate F. C. P. A settlement accrual of <unk>.
$61 million typical startup challenges associated with the ERP deployment of approximately $13 $2 million ongoing I T operating expenditures from our new ERP up $10 8 million and higher labor costs of $5 $4 million.
In the third quarter of 2021 we spent $22 million related to the ERP with about 70% and operating expenditures and 30% and capital expenditures on track with the overall annual estimated spend I shared in previous quarters.
U S. GAAP net loss was $66 million or 72 cents diluted loss per share compared to a net loss of $81 $2 million or <unk> 89 cents diluted loss per share in the third quarter of last year. The difference was mainly related to improved loss from operations of $5 2 million.
As explained earlier.
Cash flow from operations for the nine months ended September 30th 2021 was $202 $2 million compared to $365 2 million in the same period of 2020 as illustrated on slide eight the year over year decrease of $163 million was mainly driven by 2020.
<unk> favorable nonrecurring variances of $141 1 million as itemized in prior quarters and broken down in detail on slide eight and net working capital changes of $21 9 million.
Adjusted income from operations was $72 $5 million or 11, 2% as a percentage of revenues down from 101 million or 15, 9% as a percentage of revenues in the third quarter of last year adjusted income from operations declined 470 basis points due to startup Chan.
Truth of deploying the ERP of approximately 200 basis points higher ongoing I T operating expenditures associated with the ERP go live explained during last quarter's earnings call contributing approximately 170 basis points higher labor costs of approximately 80 basis points and the.
Fact of divestitures of approximately 20 basis points, mainly driven by the divestiture of expert solutions in 2020.
Adjusted diluted earnings per share was 44 cents compared to 68 tenths in the third quarter 2020 as illustrated on the bridge on slide nine the 24 cent decline was due to the following.
A weapon Samsung favorability from ERP challenges nine cents on favorability associated with higher ongoing I T operating expenditures due to the ERP go live as explained during last quarter's earnings call.
For Samsung favorability from higher labor costs and.
And four cents on favorability from divestitures. These were partially offset by four cents favorability from other mainly driven by lower incentive compensation expense.
Our third quarter DSO as reported was 59 days compared to a DSO of 50 days in the third quarter 2020, when excluding divestitures as of September 30th 2021 from the trailing 12 month DSO calculation DSO was 60 days in the third quarter 2021 compared to 54.
Four days in the third quarter of 2020.
Difference is primarily due to a one time deferral in the North America secure information destruction customer invoicing schedule and subsequent collections due to the ERP deployment and increased revenue compared to prior year.
Capital expenditures for the nine months ended September 30th 'twenty, 'twenty, one were $85 $8 million compared to $94 7 million for the same period last year for full year 2021 we anticipate spending $110 million to $120 million in capital expenditures. This represents a change from our previously.
We shared range of a 140 to 160 million, mainly driven by expanded timeline to complete these projects due to supply chain delays. However, if there is any movement and supply chain opportunities. We will take advantage of them increased spending in the last two months of 2021.
Free cash flow for the nine months ended September 30th 2021 was $116 $4 million compared to 275 million in the same period to 2020, the $154 1 million decrease was due to lower cash flow from operations as explained earlier.
As shown on slide 10 at the end of the third quarter, our credit agreement to find debt leverage ratio was 3.40 times an improvement from the 375 times as of September 30th 2020, net debt was reduced by $125 $6 million through the nine months ended September 30 of 2021 two.
Approximately 1.62 billion during the third quarter, we renewed our credit agreement with a new maturity date of September 30th 2026. This provides a $200 million term loan facility and a $1.2 billion revolving credit facility. It also allows for a maximum depth.
Leverage ratio of four point to five times in any fiscal quarter and even before September 30th 2022 and 4.0 times thereafter.
Although we still operate with uncertainty due to the evolving recovery from the pandemic I would like to provide some insights into what we are seeing emerging related to fourth quarter revenues free cash flow and anticipated ERP related expenditures.
After normalizing for the impact of divestitures on revenues in the fourth quarter of 2020, which were approximately $18 million from expert solutions in Japan, and excluding the impact of foreign exchange rates, which have been favorable on revenues for the past couple of quarters, we anticipate generating organic revenue growth in the mid single digits in north.
Erica offset by lower international regulated waste and compliance services revenues, which we anticipate will begin normalizing compared to fourth quarter of 2020 due to COVID-19 pandemic impacts these.
These trends are expected to result in a low single digit year over year consolidated organic revenue growth rate in the fourth quarter of 'twenty 'twenty. One. Additionally, in the fourth quarter, we anticipate generating at least $45 million in free cash flow.
Regarding the ERP as Cindy mentioned, we have launched the North America finance and procurement portion of our ERP and completed our deployment for secure information destruction. As noted on slide 11, we are on track to spend approximately $75 million to $85 million on the ERP implementation in 2021 which is in line with the ERP.
Spending range I previously shared.
Incremental costs incurred in the remainder of the year will support system optimization and continued work on regulated waste and compliance services.
For the third quarter, we had $10 $8 million of additional ongoing operating expenses associated with the ERP and we anticipate occurring $30 million to $35 million for the full year beginning in 2022 we estimate the total annualized ongoing operating expenses for running the new system to be 50.
$60 million.
2022 ongoing I T operating expenditure ranges are in line with the estimates I previously provided.
A reminder, we plan to implement the North America ERP for regulated waste and compliance services and 2022 finally.
We remain committed to our long term outlook are summarized on slide 12, I will now turn the call back to Cindy.
Thank you Janet this quarter highlights the commitment and dedication of our team members as they executed on our key business priorities.
Pulling the technological foundation for Stericycle future works.
We're excited to begin leveraging the new system to deliver on our expected long term outlook driving organic growth operational.
Efficiencies and improved cash flow.
We are extremely proud of our recently released corporate social responsibility report the.
The report highlights many of our recent achievements, including how we support long term social and environmental sustainability updates on some of our new facility investments in technologies to reduce our consumption of natural resources and our commitment to diversity equity and inclusion.
As always I'd like to thank our team members our customers the communities, we serve and our shareholders for their continued trust and having stericycle protect what matters operator. Please open the line for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Please limit yourself to one question and one follow up.
If you have further questions you may reenter the question queue.
At this time, we will pause momentarily to assemble the roster.
And our first question comes from Sean Dodge of RBC capital markets. Please go ahead.
Yeah. Thanks, good morning so.
You mentioned some of the early capabilities or system improvements from the ERP deployment, thus far and it sounds like automation is a big part of it.
Are there any numbers you can put around how much labor. This frees up for you either in the near term.
Over the longer term I guess, how much how much is this the new ERP help kind of take some of the pressure from the tight labor conditions, Oh, all off your shoulders.
Yeah, I think Sean Thanks for the question. There are a couple of things. We're still early days in terms of that but anytime that you automate your data flow, you're taking manual Miss out of your business anytime you're developing a data lake youre going to get more information in order to be able that makes them real time decisions anytime you are automating and helping with your.
Optimize your routes are any of your route rebalancing anytime you're engaging in a more digital fashion with your customers. Obviously, you know that that brings the types of results that you're talking about so and and I even look at our our control environment. You know this this is going.
Give us even a stronger control environment. When you automate a lot of the key controls you automate and remove manual journal entries just to just to name a few I think obviously the system is going to give us what we're all expecting I think it's early days in terms of you know putting the specifics to it.
And quite frankly, we have just a third of the business on the ERP right now with the secure information destruction side with two thirds of the business coming with the regulated waste, but I can say right now on early adoption really excited about how the team has has adapted I think we've all.
Red and we've all been.
Been very focused on ERP and what makes an ERP successful and oftentimes you learned by reading what has made the erp's fail and I think adoption.
Adaptation to the new way of doing business the focus by the team the resilience and and then also how are you seeing your improvements from the initial rollout what are you seeing we get day after day week after week month after month and right now we've seen improvements.
Improvements in I think meaningful improvements from August to September and they've continued from September to October there was even quite a difference between the first two weeks of October and what we're seeing as we're gaining more momentum for the last two weeks of October so for US internally. We're very excited about what this technology is going to bring them into your quest.
More to come when we get you know a larger portion of the business on so that we can you know we can use this to make sure that we guarantee our work towards our long range plan.
Okay and then.
Shredded organic great challenges in the quarter Janet you mentioned related to the ERP is is that it just naturally how these deployments go that you've got some temporary disruption and lower productivity. When you introduce new systems or was this more of a kind of an isolated operational hiccup and I guess, what I'm getting at it should we expect something similar.
In regulated waste when when those modules are or is that part of the decline.
Okay.
You know Sean I'll start I know Janet can give maybe a little bit more color.
Again it has.
Has really been leading the charge force with her having her CIO had on a at the time, but a couple of things to think about.
So when I talked about market you quote that means everything changed for right from a sales force person on how do you how do you engage with the customer how do you input the information into the system how does it flow through what screen to you do you put somebody's address in we think those things are simple and basic but.
Just think about if you've gone into a 711 and they said Oh I'm sorry, we just changed our computer system I have to figure out you know how to how to hit the button for a for a soda fountain soda. It's all of those things are different. So what happens is we had an opportunity where it did slow down the process, but what it did.
Break the process, we've changed how we do business. So for us the excitement is as people develop the rhythm of the new system as people develop the short cuts of how they know to flip from one to the next as that data as people know where to look for data in the system on what.
Page on what screen, where do I find this as drivers get more familiar with our handheld that tells them that looks different that you know gives them different directions that tells them different things as the business develops that rhythm and adopts it and then starts to make it better that's the momentum that will ride.
Moving forward and I would say one thing too Sean the best thing for Us that we've learned in terms of lessons couple of things.
That were resilient and flexible and that this workforce can can handle can handle just about anything we've learned much about data.
And what do we need to do in order to prep the data even better for the our WCS rollout and then the other thing I think that we will have next year that we didn't have at the beginning of this rollout is right now we have 5000 current employees trained across multiple systems with a knowledge.
Base that they're developing and we'll have that core group of folks to help lean on and to help roll out our WCS, whereas they want August 1st this was new to everybody. So I think all of those things position us well for 2020 to Janet I'm, sorry, I I I may have gone Oh, I'll turn it over to you if there's.
If there's any other points I may have missed I'll just directly ask your question. Schon. These are these are typical your data and the ability of people to learn a new system. It. It just slows things down and I think I may have talked about that in past quarters, and then they gain speed as a game for millet familiarity as Cindy suggested.
And and then the data you are loading millions of data records from the old systems that were disparate into the new system and they have to be tuned and flowed and people have to understand them and then we're loading our whole data lake with those as well. So these what I would classify as typical challenges and I'm actually pleased with the speed of recovery.
From those normal challenges that you see in an ERP and I think that's due to our hyper care methodology that we use where we had people newly focused and a ticketing system to quickly resolve any issues that came up so we could recover quickly.
Okay. That's very helpful. Thanks again.
Thanks, Sean.
The next question comes from David Manthey of Baird. Please go ahead.
Thank you and good morning, everyone.
My question on the.
As far as the startup challenges here what were the nature of those revenues is that just drivers missing stops or something and then.
Does that $5 million does that include the stop fees and the.
Recycling revenues on the backend.
Yeah I.
Great. That's a great question and and I can I'll share with you just just what we've seen so what we do know is and as we've said many times, we learned a good bit through the pandemic. That's in secure information destruction side, we get paid when we provide a service. So you have a speed at which.
Your request and your service requests come through your pipeline and in yesterday's World. It was very manual you'd have a printout sheets and then you know a new order would come in and somebody would call you in a distressed person would write it on a piece of paper and we had all the lack of optimization and all.
The people driving close to somebody else and around the corner and and and all of those types of things when we made a commitment to the system and to US if if data doesn't come through the system as quickly as it did before for all the various reasons that Janet had talked about that means you know the drivers may have done.
A couple of stops less than normal because the system didn't produce it at the time of dispatch. So as you fix the pipeline as you fix the inputs through which your data must go through you start to get back to normal levels. So for US a transaction equals an opportunity to get revenue.
So it isn't about not having demand it isn't about any of those things it's about our internal ability to make sure that that demand for service yet to the frontline. So so we're we're we we've seen steady improvement from August to September and September to October.
So it it's more from that perspective in this type of business, where it is transactional in nature.
Okay and then.
Given that the service revenues are those are sort of Miss third gone, but the volume may still reside is that the right way to think about it that you could theoretically pick up greater volumes when you when you.
Drivers do you get there and then finally, our last question.
Would you be able to release the tons of paper and you picked up in the quarter. That's something you can provide to us.
On the first part Dave you're spot on.
So we apply normally come out and they should have gotten there on a Thursday in the month of August and I didn't get there and it didn't come through the system for me to get there until the following week Youre right. The opportunity would be that maybe had been hit a little fuller. So I think you're spot on in terms of those those transaction.
Stops, where we had an opportunity to you know swing our way back to it if you will and in terms of tonnes.
We we don't have it and we won't be able to we don't release it by quarter I can tell you I know we finished 'twenty 'twenty at around 550000 tons of paper its down front that was down from a 2019 average of anywhere from 700 to 750000 tonnes and I think Janet.
I I I think that was a those are the only numbers that we had released up to this point in time is that correct. That's correct. We did we did see as I had mentioned in my remarks that our tonnage also is impacted a bit in the quarter, but not it's more due to the ERP because if you pick up less paper you have less paper to recycle but nothing.
From a trend perspective, I think the first half year that the what we did release was appropriate.
Mhm, Okay. Thank you very much.
Hey.
The next question comes from Michael Hoffman of Stifel. Please go ahead.
And then Janet so I'm going to try and dissect the same conversation a little differently.
In <unk> you shared that you were down year over year Tempur sudden stops.
So it was a multi part question on this tumor I'm trying to ask two questions and ask five at once.
What is so what is the exit momentum on stopped at this point got it disrupted the stop numbers got to be greater than the 10, but what's the exit momentum or where are we in October what was the customer reaction to this.
And the I'm going to ask it differently, but there's gotta be lessons learned where you don't repeat some of those medical waste. When you do this in 22, that's the first question.
Alright, and I liked the multi question. So I tried to write down in and keep track. So I think let's start with the let's start with lessons learned anytime you learn as much as we are learning about data not just data that comes out after you after you've completed a transaction or after you've done something.
But about how to cleanse the data and how to understand how to make it fit through a pipeline whats the bandwidth required what's.
You know what what.
You know who who's putting in P O boxes, when they don't work in the system, you know where where do the where are the orders going that aren't necessarily making it into a driver's handheld you know what what are the forensics on all of those things that's a learning journey and I think when Janet talks about hyper care. We've had folks that have worked 24 seven literally.
Albeit sleeping in the building and have done just an unbelievable job of taking big rock big ticket issues and and you know getting those getting those.
Completed in fixed.
In one or two or couple of days that that was a really incredible to all of us and so those learnings they're gonna help tremendously as we get into our WCS. When we talk about a customer reaction you know I I look at something just as simple as this week. We have you know this technology, we've been able to to upgrade and <unk>.
Revamp a lot of our websites for the engagement that we have with our customers and this helps with demand capture and generation and we've seen very positive results. Since the launch that's not to say that initial startup with with phone calls coming in Hey, Where's My person. These normally here you know of course.
The company goes through all of those things, but I think in terms of overall, where we were always upset if we if we interrupt you know one customers' routine where we wanna be seamless we don't we want to be the the business that nobody thinks about that hey, we're just they're automatically we do our thing we helped you protect what.
And we're on our way so for US you know, we're we're certainly getting ourselves back towards a normal engagement from a customer experience, but I think in terms of opportunities customers are really liking it and.
And in terms of exit momentum.
What we're seeing is as we've seen before and we use this as kind of a a barometer.
As we've continued as the World has continued to recover from the pandemic the demand for our Shred services has continued commensurate with the opening up of you know whether it's facilities or economies are businesses and we saw that continue.
And what we saw in August and into September was disruption due to you know, we we couldn't catch as much that was coming to us but.
But we are getting better and we're seeing sequential improvement August to September September to October and like I said, even even just the the difference between the first two weeks of October and the last two weeks are very very encouraging for us and I think I think that's the best I can say with reference to our momentum that.
That we're building.
Okay.
And I just wanted to add you said, 10% down year over year, we were what we were up actually in Q2, 30% over the prior year in North America organic growth secure information destruction, we were down 10% to what we viewed as sort of benchmark before COVID-19 of down 10% I just wanted to clarify that.
And that's what I meant in and where is October compared to that number or are we back to that number. So we've made up we're back to a normal pace. So we are we're encouraged with the trends seen that the demand is coming in where you know not ready to release that we're still working on all the data flows et cetera, but we are encouraged by what we're seeing through the quarter.
Okay. So question number two medical waste in the 3.7.
Part of the total.
You had a very strong comps for last year. So how does the $3 seven compared to that comp what what's the what's in it what's what's it made up of and in the one four in maritime how does that compare to it virtually went to zero, so where am I getting back to.
But pre Covid Maritimes.
Yeah, I think so so let's talk about the $3 seven I, you know anytime you're getting quality of revenue growth and anytime youre getting any type of organic growth. That's that's a good thing if we take a look at the comparable to Q3 2021 to Q3 'twenty 'twenty remember.
Waste you know stayed at its an essential service. It it was the complete opposite of the story that we saw because of the pandemic with the characterization of destruction.
So we we were seeing you know opportunity and growth and we were trying to take advantage of the COVID-19 growth, whether it's in pop up testing centers and and and all the different kind of ancillary things that the health care networks set up in order to deal with the pandemic. So.
But we did we did see growth in here. We are now continuing with solid growth. If you take a look at the overall six 9% growth from an organic perspective here in North America overall for the company six eight I think.
Bearing that to Q3 of last year is is shows that that we continue to drive the value and be an important service to the customers I think maritime being up as Janet said, you know a 1.4% you know shows that it was it was basically zero last year it was zero.
So it is coming back and remember maritime for US and you know this better than anybody Michael is you know it's got to be an international boat. It's a cruise ship that has to be hit international waters for it to really play into being providing waste for us. So I think as we see any of that continue to open up you know that's a good sign for us.
Yeah, and Michael to Maritime there's still upside potential in maritime. It is just starting to recover as the cruise ships. Once so that's an encouraging sign that we see it up but we're not back to normal run rates by any stretch.
Okay. Thanks.
The next question comes from Scott Schneeberger of Oppenheimer. Please go ahead.
Hi, Good morning, it's Daniel on for Scott, Thanks for taking my questions.
Could you. Please provide an update on what you see with pricing for for large and small customers.
The ability to offset some of the cost pressures you're seeing labor in particular, thank you.
Sure Yeah, I think I think what you're what you're targeting or what youre getting to and I know Janet can add some color. There is you know our ability to maybe pass through some costs in terms of what we're seeing with the headwinds right now in the economy, whether it's with supply chain or labor shortages or just.
Just an overall challenging cost cost environment. So I think the good news for US is we've taken we've made concerted efforts over the last two and a half years with our quality of revenue initiatives to improve and standardize our contractual language. We didn't have that before so now we at lease.
Have levers that we can that we can engage with them in with the our customers through the contracts, where we have the opportunity to potentially pass through some of the costs, but like many other companies have mentioned I think the main issue is the difference in the speed at which you can pass through costs versus <unk>.
Is the immediate.
Real time affect your feeling of prices, increasing increasing right now so I think more to come on there in terms of what we're working on them, but but but just know that we do have it in our sights in terms of the contractual language and our opportunity to pass through some of the headwind costs, we're seeing.
Got it thank you.
On recycled paper prices recycled paper roll I think it was up 11% you said with higher pricing offsetting the lower volume can you. Please talk about how you see that going forward.
Both with respect to prices on the recycled paper rather than the wrong because you can put them up good on the surcharge program and its impact. Please thank you.
Yeah, I think I think in terms of of the recycled paper do we do see a continued demand for it and in it and it kind of followed as the world opens up a good bit of the recycled efforts of the paper that we do provide the paper mills It goes right into.
Whether it's the retail industry for napkins and paper towels and and the like so as is more demand and as the world continues to open up from that perspective, obviously the demand for paper increases. So I think I think is as we continue to see economies open to some degree there there will continue to be that.
Demand.
And for US in terms of the surcharge hours as you will recall is a tiered surcharge wherever the Ritchie rate comes in then there's a kind of a fee structure associated with it that would get passed through to customers and it's meant to not just have one constant priced that or one constant.
<unk> for customers to have to face, especially if the price of paper continues to rise so what what we what we do see is our it has been helpful for us, especially when paper at the end of.
At the end of 2019 had gotten down to as low as $85 a ton obviously that helped to smooth out some of the volatility and as we see the the.
The ability of paper to continue to rise we get more based off of the value of the paper. Therefore, the amount that we are receiving from the surcharge would reduce a bit Janet any other color on that on the specifics yeah in terms of the surcharge in our coverage of our revenue in North America and shred. It we've got about 60% of the revenue now covered with that surcharge.
Which gives us a really nice leverage point in terms of mitigating any risk with the Sop paper pricing, which right now is a tailwind for us.
Got it very helpful. Thanks, so much.
The next question comes from Jeff Silber of BMO capital markets. Please go ahead.
Thanks, So much just wanted to go back to the shred. It business I know you talked a lot about the ERP deployment, but you don't have the slower pace of office opening impacted that business at all I know we've seen this in almost every city.
No. That's it that's a great question, but one of the things that I would look towards is this Jeff.
Hum.
We've seen steady improvement since since the bottom of the pandemic effect on our shred business, which was Q2 of 2020.
And as the economy has opened we've continued to see steady improvement and we did right through from January of this year even through July.
July and talking about you know as services as companies cut back our services are there. So I think we all thought many businesses and professional buildings. We're gonna open whether it was in August or September and then there was a deferral of that but combined with that we saw steady demand for our shred business.
And schools weren't opened yet so as we got into right now schools are open which is one other piece of the of the total puzzle, but youre right. The big box offices aren't fully staffed or or open to whatever the new normal is going to be yet and to be fair, we look at that as yet another.
You know tailwind for us another opportunity for us to continue to provide service.
And work towards that transactional service fee revenue.
Okay, and then just sorry another question on the ERP startup challenges I know you don't have a crystal ball, but whenever you have is better than what we have any idea Wendy startup challenges will be behind you.
I think if you if you take a look at where we are today in comparison to where we were August 1st you know I can tell you. There is that in terms of calendar. It was only three months in terms of effort energy and blood sweat and tears. It felt like it could have been you know three years we've grown.
And we continue to grow them I think we fully expect to see that continual improvement and then Jeff I think the other thing that comes when you can say are you true. It is how well are you now adapting to the new data to the new world into the things that you're learning so that you can improve.
Improve the customer experience that you can figure out how to get the next customer that much better so for US we're looking at everything from improved demand generation, how we're capturing demand greater.
Greater accountability towards invisibility and towards into the pipeline are in into how we continue to drive business. So I can't say exactly when it's going to be over but I can tell you that that we March we marched steadily towards towards normalcy and let's be fair we're talking about.
Secure information destruction, a three 4% a decline here in North America, and we've paid close attention to you know many other companies and what they may have experience looking at the massive type of deployment that we've had and where we're at we're very pleased with where we are well positioned to continue to grow in the future.
Alright, thanks, so much.
Thank you.
Again, if you'd like to ask a question. Please press Star then one.
And our next question comes from Kevin Stein Key of Barrington Research. Please go ahead.
Hey, good morning, just wanted to follow up.
Yes.
Just your quality of revenue initiatives.
How far along would you say you are in.
Rolling those out in terms of I'm actually touch on your customer base I'm, just trying to get a sense as to.
What sort of growth legs, yeah, but what sort of runway, we have with continued growth coming from.
The quality of revenue initiatives.
Yeah, I think I think when you set up the right initiatives and the things that you're looking at them. They're there they're set in stone number wanted to get your organized in to get you functioning and then after that there they're set to make sure that you you get continual improvements anytime you make organizational changes or you you centralize RFP processing are you you get more.
<unk> discipline them, because you now have a pipeline and you get more disciplined in your pipeline management anytime youre, leveraging sales and sales intelligence or you're realigning our incentive plans to towards what you're what you're targeting anytime you do those things in and you now have daily analytics or sales activity.
You can look at by sales team, you're going to get better.
So for us in regulated waste, we have a long term outlook that we talked about from a 3% to 5% growth rate.
Regulated waste plays a very big portion of us being able to achieve that in and that's coming off of many many years within this company of decline.
So for us to see that in and continue to drive things forward I think I I think the quality of revenue of revenue initiatives are here to stay and will will help us continue to improve churn at any other color.
So I think that covered it.
Alright, one other quick question, just you've talked about this a pool of data you're accumulating from the ERP or I guess a week as.
I believe you called it.
Did you feel like you have to hire more should be able to really mine and analyze that data.
Get the insights and the business improvements you'd like two out of that or is that something you can.
You know handle with with your existing staff.
So I think.
Kevin That's a great question and one of the things we've talked about it is it's interesting to be in the business, that's becoming a data company that quite frankly here. We are you know at the turn of the century and still had not been to the degree that most of the other companies are so you are right.
Where do you get the the analytical capability to to take a look at data data glean important pieces of it and then be able to set business plans and operations and and that utilize it for planning and forecasting and just basic decision making.
I'm pleased to say, while many of our folks that currently work at Stericycle.
Some of some folks may not have always had access to that data, but I'm very pleased with the talent that we've brought in the talent that we've had that got it that that have been with the company. Maybe you know just a shorter period of time, but maybe longer than me as an example that came with.
With the skill and the ability for maybe a previous employer, where they understand and.
No what to do with data. So I think I think it's gonna be a combination. We're always we always want to make sure that we provide opportunity to to our internal folks, which we continue to do and then as we get into you know.
Some of the other other pieces of of goodness that we can get from all of this data we will we will bring in top talent when when we see we have a need.
Okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Cindy Miller for any closing remarks.
Thank you Andrea.
So it's just there's a close to everyone listening on the call as always we appreciate your interest in Stericycle and your shared excitement for our future. So thank you very much.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.