Q3 2022 Stericycle Inc Earnings Call
Ill ask a question you will have the opportunity to do so on the Q&A portion. Please press star followed by one on your telephone keypad I now have the pleasure of handing over the call to Andrew Ellis, Vice President of Investor Relations and Enterprise Finance Andrey. Please go ahead.
Good morning, and thank you for joining Stericycle as 2022 third quarter earnings call on the call today will be Cindy Miller, our Chief Executive Officer, and Janssen Link, our 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 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 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.
The prepared comments for today's call correspond to an earnings presentation, which is also available at Stericycle Investor Relations Web site.
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 one 2022 to access a replay of the call dial 866 8139403 in the U S. Two to six 8% to 875 708 in Canada or <unk>.
44204.
500, 25065 to eight is outside of the U S. Canada and enter a replay access code 90 84608, a replay of the webcast will also be available on the Stericycle Investor Relations Web site time sensitive information provided during today's call, which is occurring on November <unk> 2022 may no longer be accurate at the time of <unk>.
<unk>.
Any redistribution retransmission or rebroadcast of this call in any form without the expressed written consent of Stericycle is prohibited.
Now I'll turn the call over to Cindy.
Thank you Andrew Good morning, and welcome to today's call before we begin I want to recognize all of those who had been impacted by hurricanes in and Fiona.
Leading up to and in the wake of the Hurricanes if continued to support our customers the medical facilities and hospital staff that are working in extreme conditions Stericycle is proud to support our customers to continue to safeguard the health and safety of our communities to assist our Stericycle team members, who have been affected we mobilized our stair.
He cares fund in employee sponsored fund that is used to help support our employees who have suffered loss.
As shown in our results in the third quarter, we continued to build on our momentum in the second quarter as revenue margin adjusted earnings per share and free cash flow all improved.
Turning to the quality of revenue we.
We delivered another quarter of overall organic revenue growth growing 10, 9% with secure information destruction, increasing 32, 3% and regulated waste and compliance services, increasing two 2%.
In North America organic revenue growth was 13, 2% with secure information destruction, increasing 36, 1% and regulated waste and compliance services, increasing three 2%.
The benefits of our surcharge and fee pricing initiatives that started in the first quarter and expanded in the second quarter.
<unk> to drive positive results in the third quarter the service cost recovery fee, we implemented for some North America hospital customers and the enhanced recycling recovery surcharge in North America secure information destruction contributed approximately $9 million in revenue this quarter.
And bind with the $5 million, we generated from this fee in surcharge in the second quarter. We are on track to deliver the previously shared $25 million of incremental revenue this fiscal year.
Turning to operational efficiency modernization and innovation. We believe there is great value to unlock as we continued to invest in ourselves, including investing in our physical infrastructure and network over the past two years, we have opened four new Greenfield autoclave facilities, including two in North America and two in the U K.
We have also completed 22 upgrade projects, including improvements autoclave, shredders, washers and enhanced convenience and sharps processing.
Let me share some of the progress we have made from our new Stockton facility after being operational for about a year.
By optimizing the location of this facility near our Western U S customers and executing our transportation and long haul plan on average we are driving approximately 20000 fewer miles per month compared to last year, which drives cost savings and important sustainability benefits.
With new facilities, we typically see productivity gains month over month, and Stockton is no exception overtime for northern California has been reduced by more than 40% for the nine months ended September 32022, compared to the same period. In 2021, we have also achieved approximately a 4% improvement in.
Average stops per day for the nine months ended September 32022, compared to <unk> first full quarter of operations in 2021.
Let me now turn to our North America ERP deployment in the third quarter. We successfully moved the technical code functionality for regulated waste and compliance services into our production environment.
Following the completion of this milestone we launched a pilot at the end of October for regulated waste and compliance service customers in Puerto Rico. We are early days in this regional pilot, but the system appears to be working as designed over the coming weeks, we will fine tune the system and gather our learnings in anticipation of our broader <unk>.
<unk> waste and compliance services North America ERP rollout in 2023.
As a reminder, we already have over 5000 employees using the new ERP platform today, which includes secure information destruction finance procurement and other back office functions.
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 $693 million.
Compared to $648 9 million in the third quarter of last year, excluding the net impact of divestitures of $13 3 million unfavorable foreign exchange rates of $18 million due to the strengthening of the U S dollar and an acquisition of 2 million organic revenues increased $70 7 million.
Of this increase secure information destruction organic revenue growth was $60 5 million and regulated waste and compliance services organic revenue growth was $10 2 million as noted on slide six regulated waste and compliance services revenues were $447 8 million compared to.
$461 7 million in the third quarter of 2021, excluding the impact of divestitures and acquisition and foreign exchange rates organic revenues increased two 2% in the third quarter, North America regulated waste and compliance services organic revenues increased three 2%.
Mainly driven by our pricing levers, including fuel surcharges and the service cost recovery fee. We have also achieved underlying volume growth in our core business, including maritime which was partially offset by lower mail back volume due to lower year over year, COVID-19 related waste volumes.
International regulated waste and compliance services organic revenues declined one 5% in the third quarter due to an expected normalization of volume as COVID-19 related weights continue to decline as noted on slide six secure information destruction delivered revenues of $242 five.
$5 million compared to $187 2 million in the third quarter of 2021, excluding the impact of foreign exchange rates organic revenues for secure information destruction increased 32, 3%, mainly due to pricing, including fuel and other surcharges higher recycled.
Paper revenues driven by SLP pricing increased service stops and nonrecurring typical ERP startup challenges experienced in the third quarter of 2021.
In North America secure information destruction organic revenues increased $57 3 million or 36, 1% compared to the third quarter of 2021, when we deployed the ERP, which impacted both our volume and normal pricing actions.
This 36, 1% growth service revenues contributed 27, 3% and recycling paper contributed eight 8% to 27, 3% service revenue growth is comprised of approximately 25% due to price and two three.
Percent due to volume driven by stops.
The price growth about half was driven by pricing levers and the other half by surcharges, including the fuel and environmental surcharges and the recycling recovery surcharge is recycled paper contributed approximately $14 million more than in the third quarter of 2021, reflecting both higher.
Sop pricing and volume.
In international secure information destruction organic revenues increased 11% or $3 2 million <unk>.
Compared to the third quarter of 2021. This improvement was mainly due to increased service revenues as the business continued to recover from the economic impact of COVID-19, and as Sop recycling revenue due to rising commodity prices.
Income from operations in the third quarter was $56 million.
Compared to a loss from operations of $56 million in the third quarter of 2021.
$101 2 million increase was principally due to the CPA litigation settlement accrual recorded in the third quarter of 2021 up $61 million 2022, commercial pricing levers and incremental volume as previously discussed resulting in revenue flow through of 30.
$4 6 million nonrecurring typical ERP startup challenges in the third quarter of 2021 of an estimated $13 2 million divestiture losses in the third quarter of 2021 of $10 9 million and lower annual incentive compensation expense in 2022 three.
$6 million.
These were partially offset by higher supply chain wage adjustments and other inflationary costs of approximately $19 2 million higher bad debt expense of $9 2 million due to normalizing bad debt as well as continued North America secure information destruction billing and collection efforts.
Mainly related to the ERP deployment, and higher head count and Onboarding costs of approximately $6 3 million of higher supply chain wage adjustments and other inflationary costs were mainly from higher vehicle costs, including replacement rental lease and maintenance costs higher utility and energy expenses.
<unk> and higher inflationary wage adjustments to attract and retain talent in the current labor environment now.
Non inflationary labor costs were driven mostly by higher head count while fuel related costs have increased they have been offset through our existing fuel and environmental surcharges.
U S. GAAP net income was $28 million or <unk> 30 diluted earnings per share compared to a net loss of $66 million or <unk> <unk> diluted loss per share in the third quarter of last year. The difference was mainly related to higher income from operations of $101 2 million.
Cash flow from operations for the nine months ended September 32022 was $43 1 million compared to $202 2 million in the same period of 2021 the year over year decline of $159 1 million was mainly driven by the expected F CPA settlement payments and the.
Second and third quarters of 2022 of $81 million timing of vendor payments of $36 2 million an increase in DSO that equates to $30 3 million and higher interest payments of $9 3 million as shown on slide nine overall cash flow from operations was <unk>.
$61 5 million in the third quarter, $41 1 million higher compared to the second quarter of 2022 adjusted income from operations was $92 million or 13, 3% as a percentage of revenues up from $72 5 million or 11, 2% as it were.
<unk> revenues in the third quarter of last year.
Adjusted income from operations increased 210 basis points as a percentage of revenues due to the following revenue flow through a 500 basis points nonrecurring typical ERP startup challenges in the third quarter of 2021 of 190 basis points and lower annual incentive compensation.
<unk> expense of 50 basis points.
These were partially offset by higher supply chain wage adjustments and other inflationary costs of approximately 280 basis points higher bad debt expense of 130 basis points higher head count and Onboarding costs of approximately 90 basis points.
And higher ongoing it operating expenditures of 70 basis points due to the shift in ERP costs associated with the North America secure information destruction deployment in August 2021.
As noted on slide eight adjusted diluted earnings per share was <unk> 65, compared to <unk> 44 cents in the third quarter of 2021 <unk>.
Excluding the impact from divestitures and acquisition and foreign exchange rates of one tank.
The remaining 22 cent year over year increase was driven by.
31, <unk> from revenue flow through 11 from the nonrecurring typical ERP startup challenges in the third quarter 2021, and five from taxes interest and other these were partially offset by <unk> <unk> from higher supply chain wage adjustments and other inflationary costs five.
From higher head count and Onboarding costs and forest tenths from expected higher ongoing operating expenditures cap.
Capital expenditures for the nine months ended September 32020 to a $106 million.
Compared to $85 8 million for the same period last year with the $22 million change mainly due to the timing of cash payments.
Free cash flow for the nine months ended September 32022 was an outflow of $62 9 million compared to an inflow of $116 4 million in the same period of 2021.
As noted on slide nine the year over year decline of $179 $3 million was mainly due to lower cash from operations of $159 1 million, which reflects the CPA settlement payments in 2022 of 81 million and increased cash paid for capital expenditures of 20.
$2 million as explained earlier.
Our third quarter DSO as reported was 63 days compared to a DSO of 59 days in the third quarter 2021. This difference was mainly driven by the timing of North American secure information destruction customer billing and subsequent collections.
<unk> discussed in the prior quarter as well as higher revenue DSO in the third quarter improved one day compared to a DSO of 64 days in the second quarter of 2022.
As shown on slide 10 at the end of the third quarter, our credit agreement defined debt leverage ratio was 376 times and our net debt was approximately $1 6 billion.
Now turning to 2022 guidance, which as noted on slide 11 for the following forward looking items. One we are raising our organic revenue growth range to 5% to 7% up from 4% to 6% two we are maintaining our adjusted EPS range of $2.
To $2 15.
Three we are maintaining our free cash flow range of $80 million to $100 million.
As mentioned last quarter. This excludes other adjusted litigation items accrued for in 2022, which we anticipate being paid in the fourth quarter and would reduce free cash flow by approximately $16 million in the fourth quarter, we anticipate free cash flow will increase approximately $100 million to $120 million.
Actually compared to the third quarter of 2022 of this expansion, we expect improvement on cash collections of approximately $40 million to $50 million lower interest payments in the fourth quarter of approximately $25 million vendor another payment timing of approximately $30 million and lower capital expenditures of approximately 7% to <unk>.
$19 million the forecasted improvement in cash collections in the fourth quarter is dependent on timing of customer payments for we are maintaining our capital expenditure range of a $125 million to $135 million.
I will now turn the call back to Cindy. Thank you Janet I would like to announce one more important update two weeks ago, We released our latest corporate social responsibility report. This year's report highlights our continued progress and conducting business safely responsibly and sustainably while advancing our strategic environmental.
Social and governance initiatives a copy of this report can be found on our Investor Relations website.
In summary, our financial results for the third quarter came in line with the overall expectations. We shared last quarter from the proactive measures we have taken to combat inflationary cost pressures and as always I'd like to thank our customers team members. 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.
Thank you if you wish to ask a question. Please press star followed by one on your telephone keypad. If you fill your question has been answer. Please press star followed by the <unk> withdrew Connie limit your questions to one and you may ask a follow up question.
Please allow youll find Amit like he wants to answer your question kindly brief pulse hanwha questions are now being registered.
Our first telephone question today comes from soon Dodge with RBC capital markets. Please go ahead.
Yes, thanks, good morning, and congratulations on the great.
Progress in the quarter.
Well, maybe starting with the surcharges.
So there was a nice ramp in contribution from those in the quarters than you said.
$9 million versus versus five in the previous quarter, and so I think that implies something like $11 million.
For the fourth quarter.
If we think about the things that youre doing to implement those as sort of the negotiations waiting for contract anniversary then our renewals how much is still potentially lap as we start to think about kind of the surcharge contribution and how that rolls forward into it.
2023, it sounds like the inflationary environment still a little challenging.
How much more juice do you have left and what youre able to pass through and surcharges.
To mitigate that.
Yes, I think Sean that's a great question and first of all I think.
I am extremely I talked about momentum and being happy with the momentum that we have in revenue.
And part of that is because we've really.
I think the transformation of our commercial group is really.
At play here.
We've been.
Historically, we had been pretty in flexible.
And certainly more I would say at held at Bay in terms of different conditions.
So the nimbleness and the flexibility that the team showed early in the year.
And and the engagement with our customers.
These arent surprised type surcharges or fees. These are certainly great discussions that we're having.
With them with a good bit of the customer base. So I think as we move forward.
I think what we do know is I have no idea, what's going to happen with inflation I have no idea, if it's going to turn into the recession that some folks talk about or if it will be mitigated in and will be muted.
So I think at least for us.
What I do know is we are well positioned in that relationship with our customers.
In order to be able to see what we can do moving forward based on where it goes where.
We're very hopeful that it doesn't see an upward tick beyond where it is I know the fed has taken some adjusted adjustments to make sure that doesn't happen.
So I think Thats, where we are.
Okay and then.
Certainly the.
Florida outlook for inflation.
Difficult to.
Accurately, but if we think about kind of what youre seeing now.
I know diesel prices have bounced around a little bit lower than they were this summer.
Staffing Ben for you kind of how is the.
Wage rate backdrop in other parts of your your cost structure supply chain.
Kind of these inflationary pressures begin to show signs of stabilizing or there was still something that's gotten more difficult.
Kind of going on here.
That's a very good question, Sean I think I think what we are seeing one of the reasons why we didn't necessarily call out staffing this particular quarters because it's maintained.
It was a pretty drastic decline kind of coming out of the end of 2021 in the first quarter 'twenty two.
I'm very pleased that our efforts.
They have helped stabilize.
The workforce, where we are right now so I think I think there are pressures on wages I think.
I read the news like everyone else and I've seen them in a lot of a lot of contracts getting turned down with some pretty hefty increases in them and in many many different industries. So I would not speak as if you know.
As if everything is rosy, but I will say I'm very pleased with the efforts internally of our of our frontline operators of our of our support folks and making sure that we make stericycle and environment that folks want to come and join and then eventually stay so at this moment, where we're pleased with where we are.
Okay very helpful. Thanks, and congratulations again.
Thanks, so much Shawn.
Thank you Sean our next question today comes from David Manthey of barge David. Please go ahead.
Yes. Thank you good morning, everyone.
First first off thanks for providing the bridges as always thats helpful and let us understand the progress of the company.
Two questions first on <unk>.
<unk> business last year, I think you picked up 529000 tons of paper, including that the dip that we saw in the third quarter of 21, following the ERP implementation.
Where do you think tons will shake out for this year based on the run rates, you're seeing right now and then related to that also.
Also in the SMB business does your ability to pull these price levers in this segment.
Is that an indication of having better intelligence better visibility because of the new ERP system.
I'll start with that second question first I think.
Any time that you add technology to our business certainly one that's been.
Absent technology as we've been.
Thank you.
You've got to harness that and you've got to get better. So so we do have greater insights into contracts rates that are presented pushback rates we've agreed upon.
So I think I think our market intelligence, which is really I think the core of your question we've gotten smarter.
And we've.
And I think it shows.
So that's that's very good news for US and then I think as we continue to stabilize the workforce you do have the opportunity to feel confident in the value that you are going to provide when customers call.
And then I think if you take a look in terms of the tonnage Youre right last year, you know lets say its about 530000 tons I think I think so far this year, we've got about 200, and let's say we're at.
About halfway through.
So I think we should finish the mark probably a little bit ahead of last year I would I would say we're on track where let's say 530 540000 is just a rough estimate right now year to date I think we're around.
Yeah, Yeah, we gave the second quarter number which was 267000.
<unk> tons in mid year, and we saw increase in tons third quarter. This year to third quarter last year. So that was the move to improvement some of it was due to we had some disruption last year. So it's a little hard to measure, but we did see we did see that increase in this quarter.
We should see we should see some improvement certainly not getting to pre pandemic levels, but but improved over last year.
Right. Okay. That's good to hear and then as a follow up more broadly here with all of the price actions that you've taken.
It's surprising to see gross margin not a little bit higher than we did and I assume that's because youre still chasing these inflationary pressures in your own business, but.
Also with your operating expenses coming down as a percentage of sales I think that.
Actually in dollar terms.
Bit surprising as well can you.
Sort of justify those two things it seems like they're moving in different directions for some reason.
Yes, so I think youre, referring to gross margin versus what we saw on SG&A. So we have seen improvement in SG&A year over year and we.
<unk> seen margin expansion EBIT line its more modest at the gross margin, that's where most of the inflationary pressures are hitting us so thats why youre seeing that split.
Pleased with the pricing motion to cover all of our increases are flowing through and as Cindy mentioned, we saw so over time year over year as well.
Yes Janet.
You look at the dollars of operating expenses that actually come down every quarter of this year and I am a little surprised to see that given that your revenues are moving the other way and I know a lot of that is price, but could you talk about what's driving that.
Well, it's it's really disciplined cost management and efficiencies, we're gaining in the shared services function. So it's really.
It's nothing magical it's just fundamentals have really pushed putting in budgeting and cost management on a monthly basis travel management to all of those have been levers that we've pulled to keep those costs in line.
Okay great.
Thank you.
The low end and at the GAAP level, we have lower ERP costs too.
Right right. Okay. Thanks again.
Thank you David our next question today comes from Scott Schneeberger of Oppenheimer. Scott. Please go ahead.
Thank you and good morning, everyone.
One for Sundar and one for Janet.
It's Cindy.
Good to see the higher revenue guidance.
Our revenue guidance.
And I.
That's a good bit from some from pricing.
If we could delve into that a little bit more and maybe discuss the cadence of what you saw in the third quarter in the fourth quarter. It sounds like you have a lot of momentum maybe.
Don't have to quantify but some thoughts on kind of month by month progression as we transitioned one quarter to the other and then it's not clear to me is your pricing, yet exceeding inflationary costs or not yet and getting close.
I couldn't tell from the commentary I just.
Just a little bit more clarity on that.
Yes.
And thanks, Thanks for that question Scott a couple of things I think you hit on it when you said momentum I'm very very pleased that we are seeing momentum whether its in revenue growth because of the quality of revenue initiatives have afforded us the opportunity to be a bit more flexible and nimble based on market conditions.
If youre going to talk about margin.
Or whether its adjusted earnings per share or free cash flow.
Those things then come into the modernization and innovation and efficiency efforts that we have going on and then lastly, I think momentum we're very very pleased that we we launched the the ERP pilot in Puerto Rico recently and.
We've.
We're getting quite a few learnings we've got boots on the ground there we've got eyes.
<unk> ears, working with the team here in Puerto Rico and <unk>.
Very pleased with that as well so I think I think overall for US. The theme is momentum I think one of the things, though that you had talked about with reference to pricing.
Scott. The question is are we.
Is it at parity with inflationary costs.
I can tell you, we still see a tremendous amount of pressure, whether it's on vehicle costs maintenance.
If it's on leasing and rentals and.
The cost of utilities and everything else is still seeing very strong pressure with reference to inflation.
<unk> comfortable and confident in the team that we are.
Taking the necessary steps in terms of pricing in order to combat it as best we can.
And I'm very very hopeful that we have.
We're not looking at anything getting much.
Much worse, if you will so Janice just a couple of comments then on M. On the few things Scott Yes.
So Scott if you look at slide eight in our deck you will see that we saw revenue flow through of 31 cents against inflationary costs of 16 cents in the quarter. So we did gain traction against the inflationary costs in the quarter, we actually tried to split the higher head count costs, which is an investment in the company of the <unk> from the pure.
Our inflationary costs. So that's some indication and we believe in order to maintain the guidance for carrying that momentum into the fourth quarter.
Great. Thanks, both of you on that.
<unk>.
Janet looks like.
I would sneak into two partner to you as well.
It looks like Youre going to have.
Why the big amount of our free cash flow in the fourth quarter. If my math is correct.
Typically large if you could kind of elaborate.
What is expected there and then the second part of the question just real quick.
Other income was a was a good guy in the quarter a lot more than it normally is if you could just address what's driving that thank you.
Alright, so the other income is really our FX transaction translation.
Which is what's causing that differential and the other it comes so I'll start there to free cash flow as I mentioned, we actually see cash from operations sort of maintaining so then it's really working capital improvements that we're seeing in the fourth quarter to drive that which is improved cash collections of $40 million to $50 million.
Sure interest of 25 million in terms of payments vendor and other payment timing of about $30 million and then a lower capex of 7% to $17 million compared to Q3. So that's a Q3 to Q4 momentum story and those are the key drivers of the change.
Excellent. Thank you very much Bob.
Thank you Scott.
Thank you Scott. Our next question today comes from Michael Hoffman of Stifel. Michael. Please go ahead.
So.
I have five calls to those so I've dialed into yours late if I'm asking a question you dealt with them in the comments I apologize.
Our problem.
I'm trying to understand is.
How to think about margin momentum, which clearly demonstrated.
Are we.
We are clearly up year over year, but are we up sequentially to an <unk> to hit our marks.
And then how do I think about it.
We are so we're up sequentially too.
Yes, that's really cool.
Okay.
Based on what you've done doing everything else being equal when does this margin level peak off of just these actions versus the incremental benefit of the next round of ERP and all of those things.
As we've modeled.
<unk> 23.
Yes, no no.
But I think I think the one thing that you do talk about is technology is the great.
It has been a great opportunity.
<unk> for US it provides companies opportunities to right size. It provides companies opportunities to take away Emmanuel as it provides an awful lot of things for improvements and efficiencies and I think.
As much as we all would like the ERP to be completed.
We still just with this pilot we still have a major rollout for two thirds of the revenue.
A very large portion of the business in 2023.
So I think I think Michael what I can say is at this moment definitively we know that there will be a step change in improvements in margin as we march towards the $400 million in free cash flow.
In our long range plan, so further out and.
And we never said that it was going to be as you know and you've pointed out. It's it's never it's never five steps up and you just continue climbing sometimes theres enough in a backwards before you keep marching towards that so our goal is to make sure that we continue to improve margin as we move forward, we're going to continue to leverage the ERP as we deploy it and then fine.
We had the full business.
On a current platform.
And it kind of a technology void company.
And then from there I think I think it would be much easier for us to be able to talk about the how.
How do we march to that to that bigger free cash flow number and obviously that is true.
Kind of bigger step improvements in terms of margin and then Michael as you look at our guidance the longer term guidance at 3% to 5% growth rate as a compound annual growth rate that we said and that's what we think is underlying this on a core basis once inflation and other things settled so really we will do our best to keep up.
With inflation and we have some momentum on that on pricing as we layered in this year, we will get full year impact next year of some of that indexes that are surcharge space will fluctuate with whatever the commodities are for fuel and environmental surcharges and the reserve rate surcharge, we put on our service revenue, but we've also.
Put in underlying core pricing actions, we will see some momentum, but when the dust settles that 3% to 5% sort of our true north in terms of underlying growth rate.
Okay, and then on the food business, where volume is interesting.
I would think the more compelling number is where you are on stops comparatively.
I'd be interested in him and the other part of said I have to imagine the gross margins instead of starting to improve at a lot better pace than <unk>.
Medical was just because of the benefit of all the tools.
You have yesterdays data, where you don't have yesterdays date in medical waste kind of thing is that a is that a fair observation without getting into specific numbers.
Absolutely I can tell I know that our operators just with reference to just daily engagement.
We've got dashboards and.
Morning reports, if you will that give us and give us full visibility into shred, which we do not have on the regulated side.
And.
Basics come to work in in today's day and age that we're going to get in as we continue to rollout our regulated so I think youre spot on with that and then with reference to stops.
We are seeing.
We're seeing some improvement in terms of the stops I can say, we are not back to pre pre COVID-19 levels.
But I think anytime youre looking at organic revenue growth.
With us having the stops are bisso transactional in terms of revenue.
I think that that's that's what we can look at.
And Michael our service revenue growth, which means the stock base revenue growth just as it was up 27, 3%, 25% was due to pricing and about two 3% and see the volume, which is roughly equivalent to improvement and stopped I remember we had the ERP disruption last year. So it's harder to measure the true.
Stop impactful, we're encouraged with the stop improvement and as well as the overall revenue improvement.
Thank you.
Thank you for your question as a reminder, please press star followed by one on your telephone keypad. If you wish to ask a question today.
It appears we have no further questions from the audience at this time.
Turn the call back to the management team for any closing remarks. Thank you.
So thank you Luisa so to everyone listening to this call. We appreciate your interest in Stericycle and your shared excitement for the future. Thank you very much.
Thank you all for joining today's call have a lovely rest of your day you may now disconnect your lines.