Q4 2022 Waste Management Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the Wm fourth quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation.
There'll be a question and answer session to ask a question during the session you will need to press star one one on your telephone.
And then here an automated message advising your hand is raised.
Draw. Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.
<unk> senior director of Investor Relations.
Thank you Josh good morning, everyone and thank you for joining us for our fourth quarter 2022 earnings Conference call with me. This morning are Jim Fish, President and Chief Executive Officer, John Morris Executive Vice President and Chief operating officer convenient ranking Divina ranking executive Vice President and Chief Financial Officer, and Tara Hemmer, Senior Vice President and Chief Sustainability Officer.
During their prepared comments, Jim will cover high level financials and provide a strategic update John will cover an operating overview and divina will cover the details of the financials.
Following comments, Jim John Devine entire will be available to answer questions.
Before we get started please note that we have filed a form 8-K. This morning that includes the earnings press release and is available on our website at Www Wm Dot com.
In addition, we have published a supplemental presentation with additional information about our multiyear plan for investments in our renewable energy and recycling businesses and it is also available on our form 8-K on our website at investors that Wm Dot com and the form 8-K, the press release supplemental presentation and a scheduled to the press release include important information.
During the call you will hear forward looking statements, which are based on current expectations projections or opinions about future periods. All forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
These risks and uncertainties are discussed in today's press release, and our filings with the SEC, including our most recent Form 10-K.
John will discuss our results in the areas of yield and volume, which unless otherwise stated are more specifically references to internal revenue growth or Iot from your other volume.
During the call Jim Jonathan to being able to discuss operating EBITDA, which is income from operations before depreciation and amortization.
Any comparisons unless otherwise stated will be with the fourth quarter of 2021 net income EPS operating EBITDA and margin and SG&A expense results have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operation.
These adjusted measures. In addition to free cash flow are non-GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at www Dot Wm dot com for reconciliations to the most comparable GAAP measures.
Information about our use of non-GAAP measures and non-GAAP projections.
This call is being recorded and will be available 24 hours a day beginning approximately one P M eastern time today.
To hear a replay of the call access the Wm website at investors that Wm Dot Com Todd.
Sensitive information provided during today's call, which is occurring on February one 2023 may no longer be accurate at the time of a replay any redistribution retransmission or rebroadcast of this call in any form without the express written consent of WNS prohibited now I will turn the call over to Wm's, President and CEO Jim fish.
Thanks, Ed and thank you all for joining us.
2022 was another very successful year and Wm.
Coming into an uncertain 2022, I wouldn't have predicted that we would grow adjusted operating EBITDA by more than nine 5% for the year.
And eight 8% for the fourth quarter all of our recycling was down $79 million for the year on a sharp drop in commodity prices.
That's exactly what happened strong operational execution, and an unwavering commitment to our strategic priorities.
Led to our full year adjusted operating EBITDA growth of $480 million.
We achieved this tremendous growth in the face of elevated inflation of tight labor markets and a downturn in the recycled commodity price market.
So we're very proud of our results.
Our robust operating EBITDA translated into record cash from operations of more than $4 5 billion.
Which allowed us to return more than $2 $5 billion to our shareholders through dividends and share repurchases.
As 2023 kicks off our confidence that our long term focuses on sustainable growth.
Transforming our business through technology and automation.
Are setting us up to meet the changing needs of our customers our people.
And our business environment, while leveraging our competitive advantages.
Turning to our high level outlook for 2023, we expect to deliver adjusted operating EBITDA of between five 8% five and $5 97 5 billion in the year ahead reps.
Representing growth of just over 7% at the midpoint, which continues the trend of robust operating EBITDA growth that we've delivered since 2019.
Since then we've grown operating EBITDA almost 26%.
And at a time when the economic outlook is increasingly uncertain. We're pleased to be anticipating another strong year of earnings growth in 2023.
The essential nature of our service our diverse customer base and recurring revenue streams provide stability in times of economic uncertainty.
Much of the growth in our 2020.
Three outlook comes from deliberate steps that we've already taken to grow revenue and efficiently manage costs.
Overall, we're anticipating between 40 and 80 basis points of adjusted operating EBIT EBITDA margin expansion in the year ahead.
Driven by our collection and disposal business.
Moving now to our sustainability growth investments. So let me give you an abbreviated overview of the supplemental deck that was posted to our investors website.
The investment in our renewable energy business is a unique opportunity that we simply couldnt afford to mess.
You're all aware that since the passage of a subtitle D and associated air quality regulations, and the 19 eighties and nineties landfill has been required to install gas collection systems.
Historically, we've been collecting our landfill gas converting much of it into electricity, which provides an earnings stream for us.
Fast forward to present day with landfill gas designated as a renewable resource we are increasing the value of the gas that's an inevitable byproduct of most landfills.
These R&D plants are simply taking gas that's naturally produced from the landfill and converting it into a cash generating machine with a three year projected payback in a far better environmental outcomes than the status quo.
And our returns far surpass those of our competition by virtue of our <unk> fleet, which today represents 74% of our routed vehicles. As a result, we're better positioned to close the loop and capture extremely valuable regulatory RIN credits.
At the same time.
The recently enacted inflation reduction act will provide tax credits and benefits that served to amplify the value creation of Wm as renewable energy business.
The supplemental presentation to the earnings press release provides details on investments and our projections for cash flow and operating EBITDA growth, but suffice it to say we view this as a very strong positive for shareholders.
We have a number of attractive options for our renewable energy portfolio.
Internally, we said there are three possible outcomes from this opportunity good.
Really good or great and we're heading down the great paths by owning the landfill gas and renewable energy facilities.
Generation of Rins through our <unk> fleet and maximizing the value of new tax benefits to increase the resulting earnings and cash flows.
We're also advancing our plans recycling investments and it provided more details in our supplemental presentation on our website.
Our portfolio of projects to automate existing and build new mccarran material recovery facilities have three key financial benefits.
Reduced labor costs.
Improved product quality that commands a price premium and capacity growth.
In the fourth quarter labor cost per ton at our single stream automated merce improved by 35%.
The automation of these plants enabled us to reduce 137 positions through attrition in 2022.
And in 2023, we expect to reduce labor dependents by another 200 positions.
By the end of 2023, we're anticipating about a 15% increase in processing capacity from our automated facilities in new markets.
We will host a virtual information session for investors on April 5th to provide even more insight into our recycling and renewable energy growth plans.
The Avino will discuss our 2023 capital allocation plans in more detail but.
But I want to emphasize our confidence in our ability to continue to allocate capital to all of our priorities, including investing in these high return sustainability growth projects.
Turning cash to shareholders through dividends and share repurchases and acquiring accretive businesses.
In closing I want to thank the entire Wm team for another fantastic year, we look forward to 2023 as we continue to execute on our operating plans and progress our investments in renewable energy recycling and automation to drive growth I'll now turn the call over to John to discuss our operational results.
Thanks, Jim and good morning, everyone. Jim described our fantastic results in 2022, and then all begins with our collection and disposal business in the face of some of the highest inflationary cost pressures our collection and disposal business delivered double digit adjusted EBITDA for the full year.
During the fourth quarter collection and disposal results were even more impressive as adjusted operating EBITDA grew more than 11% and margin expanded 40 basis points.
This momentum sets the stage for continued growth in 2023 and strengthens our conviction that the investments, we're making in our people and automation and in differentiating our service offerings are the right decisions.
The growth in our collection and disposal business starts at the top of the income statement with robust organic revenue growth full.
Full year core price was seven 8% with collection and disposal yield of six 7% in volume of one 8% as.
As we work to keep pace with decades of high inflation, our revenue management teams delivered record core price in 2022 in every one of our lines of business led by 10, 5% and our commercial lines of business.
We talk often about our focus on generating appropriate returns on our residential and post collection lines of business and in 2022, we delivered core price of six 5% in the residential line of business six 4% at our landfills and five 9% at our transfer stations, our revenue metrics demonstrate that our customers' receptivity to our pricing.
Remain favorable through the fourth quarter, our rollback percentage was almost 400 patients basis points better for the full year, while new base business pricing increased more than 6% and our commercial line of business.
The results clearly demonstrate our ability to manage cost pressures through continued pricing discipline and momentum while maintaining our focus on customer lifetime value.
As we move into 2023, our disciplined pricing programs combined with the strong momentum from 2022 are expected to deliver core price of between six 5% and 7% with yield approaching five 5%.
Our expectation is for strong rollover of 'twenty two price performance given the acute inflationary environment in 2022, we increased certain fees that we don't expect to step up again at the same level, we remain committed to securing pricing that outpaces, our cost inflation, which is demonstrated by the operating EBITA margin expansion that we're in.
Dissipating in 2023.
Shifting to volumes in the fourth quarter event, driven volumes remained strong with special waste and C&D volumes grow, but growing double digits, our commercial and industrial volumes were positive for the full year. However, we saw some softening in the fourth quarter. Given these recent trends we are tempering our volume expectations in the year ahead, our guidance includes 2020.
Three collection in disposal volumes that are relatively flat with 2022.
We continue to see the rate of labor increases easing in our business and we remain focused on managing our operating expenses and flexing down cost flexing costs down with the changing volumes in our collection and disposal business. We are seeing improvements in our labor costs as inflationary wage pressures are easing turnover trends are improving and the.
<unk> that we are making in automation are showing benefits.
These improvements were on display in the fourth quarter and our fourth quarter results. As we saw operating expenses expense margin improved by 30 basis points, despite still stubbornly higher maintenance and repair costs for.
For the full year of 2022 operating expenses increased 50 basis points as a percentage of revenue, but that was largely driven by negative impacts from higher fuel costs in recycling commodity prices that together impacted the measure by 80 basis points.
This increase was partially offset by lower labor and related benefits costs in our collection and disposal business and improved risk management costs.
Putting it all together when you combine our pricing efforts with our progress on cost containment. We expect 2023 operating expense as a percentage of revenue to improve between 30% and 50 basis points for the full year with those improvements beginning in the second quarter of 2023.
In the fourth quarter, our recycling operating EBITDA remained solidly positive even with the sharp decline in commodity prices to about $47 per ton.
Over the last several years, we've intentionally taken steps to shift the business to a fee for service model has reduced our sensitivity to commodity market changes.
When we started this journey in 2017 commodity prices were 60% higher than.
Then what we are anticipating in our 2023 outlook, yet 2023 operating EBITDA is expected to be about 13% higher than in 2017.
This clearly demonstrates that our business model is profitable and generate solid returns in any economic environment.
As we look to the future of recycling, we remain focused on advancing automation across our MRF network, which we have which we have proven can lower the cost to process material.
<unk> better quality, while enhancing recycling profitability.
Our employees delivered strong results in 2022, I don't want to thank the entire Wm team for their commitment to providing the best customer service, while focusing on improving our operation operations. The team has done an exceptional job and I know that this will continue in the in the year ahead.
I will turn the call over to Divina to discuss our 2022 financial results and 2023 financial outlook in further detail.
Thanks, John and good morning.
Once again, our solid waste business was at the center of Wm strong quarterly results capping off a great 2022.
Our team delivered strong organic revenue growth with a diligent focus on leveraging core price to offset cost inflation.
Having customer service and customer lifetime value to minimize customer churn all resulting in record high yield.
When combined with strong cost control. These efforts delivered an 80 basis point expansion of operating EBITDA margin in the fourth quarter.
Importantly, we achieved these excellent results, while investing in technology and sustainability growth it will benefit wm for years to come.
Full year adjusted SG&A was nine 6% of revenue a 40 basis point improvement over 2021, as we achieved back office operational efficiencies through standardization and process improvement.
I would ask to reduce more than 600 positions through attrition.
You can clearly see our strong performance in the record cash flow from operations that we achieved in 2022, which grew four 6% to $4 billion $536 million.
The increase in cash allowed us to accelerate investments at year end, which brought full year capital spending to the high end of our expectation.
2022 capital expenditures totaled 2.587 billion with $2 billion and $26 million of that related to normal course capital to support the business and the remaining $561 million related to the strategic growth of our recycling and renewable energy businesses.
Putting these pieces together 2022 free cash flow with $1 billion $976 million, despite an increase in cash taxes of $370 million.
During 2022, we returned a record $2 $5 $8 billion to shareholders.
$108 billion in dividends and repurchasing $1 5 billion of our stock.
In addition, we spent $377 million on traditional solid waste and recycling acquisitions to grow our business.
With all of this while accelerating our sustainability and growth investment and achieving our targeted leverage ratio of about 275 times.
Our balance sheet is well positioned for growth capital investments in our business or strategic acquisition.
Moving to our 2023 financial outlook as John mentioned, we anticipate organic growth approaching five 5% from Europe .
Given an expectation for a little more than 1% revenue growth from acquisitions and a decrease in revenue contributions from recycled commodity sales and fuel surcharges, we anticipate total revenue growth of between four and five 5%.
When combining our plan to deliver strong organic revenue growth with a focus on optimization and cost control could drive 40 to 80 basis points of operating leverage we expect to generate adjusted operating EBITDA of $5 85 to $5 97 $5 billion in 2023.
We expect to allocate $1 $1 billion to capital investments in recycling and renewable natural gas projects in the coming year and 2023 is expected to be the peak investment year for each business.
While these investments are reported as a component of our capital expenditures and therefore reduce our traditional measure of free cash flow.
We view these investments as better than an acquisition Tyler as they will produce even higher return growth as a strong complement to our existing business.
Our normal course capital to support our business is expected to be between 2 billion and $2 $1 billion in 2023 and free cash flow is projected to be between one five and $1 6 billion.
Including the impact of sustainability growth investment.
Our outlook anticipates, an increase in cash interest and taxes of $175 million to $215 million and about an $80 million headwind from working capital due in large part to the timing and amount of incentive compensation payments.
As Jim discussed even as we step up our investment in high return recycling and renewable energy growth projects, we remain well positioned to allocate our cash among all of our capital allocation priorities, including returning cash to our shareholders.
Given the board of directors intended seven 7% increase in the 2023 dividend rate, we expect dividend payments to total about $1 $1 billion in the year ahead.
We also expect to continue our share repurchase program in 2023 as the board recently provided authorization to repurchase up to $1 5 billion of our stock.
While our guidance does not specifically include acquisition growth, we will continue to be opportunistic in pursuing the right deal.
At the right price.
In closing we are proud of what we achieved in 2022 and we're excited about the opportunities that lay ahead for 2023 and future years.
I want to thank our hardworking team members for all of their contributions to our success with.
With that Josh let's open the line for questions.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Our first question comes from Jerry Revich with Goldman Sachs. You May proceed.
Yes, hi, good morning, everyone.
Morning, Jerry I'm.
I'm wondering I wonder if you can just talk about the puts and takes around the guidance if recycled commodity prices remain tight.
Tough over the year that should be about a 50.
$50 million drag to EBITDA give or take and in that scenario I'm wondering if we should be thinking about.
Yield that's above the five 5% target.
Laying out here.
How should we think about the potential for.
The yield number to move higher over the year as we've seen over the past couple of years.
Sure Let me let me tackle the first question first on recycling and then I'll touch on yield.
Yield overall.
Recycling, obviously fell off the table there at the end of the year I think a lot of it had to do with.
With China itself, even though China isn't a big customer of ours anymore. They still affect the overall market, particularly when we think about OCC and zero Covid policy certainly destabilize the market.
I think as Dave reopened we've started to see some stabilization there so that should help and that's part of why we are are a bit more optimistic in 'twenty three with pricing starting to climb back up it did climb up.
A bit in December and we.
We think it will continue to climb, albeit not back up to where it was for the year in 2022.
To your question about yield in general and five 5%.
<unk> yield is doing exactly what we thought it would do it's doing exactly what we said it would do.
Last year I kind of felt like we.
Yield and cost we're in a we're in a fist fight for the last 18 months with really no winter and and what we said was that we hope that when inflation moderated which it is.
That we would start to be able to to use yield to not only cover costs, but also put a few points on the board in terms of.
<unk> margin and that's exactly what's happening so.
We think that five 5% yield number.
As is absolutely the right direction.
We're sensitive to customers.
Some of our yield numbers last year were were double digits and when inflation comes back down to four or four 5% I.
I don't expect it to take commercial increases.
The 11, 5% range.
So I think we're pleased with with the projection and we're pleased actually with the fact that costs are starting to moderate and we can actually apply a little bit of our yield to the margin line.
Okay Super and Jim maybe just to expand on that last point.
Given the margin cadence over the course of the year to get the margin expansion that you are targeting for 2003, it looks like youre going to be exiting the year with margins up maybe closer to 100 basis points year over year in the fourth quarter, just given the seasonality and cadence can you just comment on that.
Whether that momentum.
Could continue into early 'twenty four.
Yes, Jerry I think.
<unk>.
<unk> got an overview that you provided is spot on in terms of how it is that we're looking at margin for the year ahead 60 basis points of market margin expansion at the midpoint indicates our confidence that the momentum that we saw in the back half of 2022 years should continue into 2023, we expect some of.
The margin pressure from the recycling part of the business to continue in the first half.
We are seeing strong fundamentals and our solid waste part of our business that should help to offset that as they did in Q4.
That being said some of the cost execution, we really are laser focused as a management team on what we're doing on the cost side of the business and that's not just looking at inflation and responding to it but being proactive in terms of what we can do to manage it appropriately and Chuck delivery trends are favorable now realm.
<unk> to where we started 2022 and that should give us some relief both in repair and maintenance and in truck rental costs are frontline retention efforts are showing really strong benefits and we expect that to continue in 2023, we're managing down professional fees, particularly in our SG&A and then on SG&A front.
Also leveraging technology to automate our processes, which is improving our customer experiences and reducing our cost to serve so all of that gives us confidence that it is our strong execution on the cost side of the equation that will complement the yield that Jim just spoke to in terms of delivering that margin expansion.
Exiting 2023, with a 100 basis points above kind of that current run rate feels like the right target for us.
Super Divina, Thank you and can I just sneak one more in really appreciate the landfill gas disc.
Disclosures.
Wondering Gary and team can you just give us an update on offtake agreements.
A quarter ago, you were at a third of your to your off take agreements were done can you just give us an update on where that stands today and whether the pricing point.
On off takes in the market is still in the <unk>.
Or if that's come in given the pullback in Henry hub gas. Thank you.
Yes. So during 2022, we were at 30% and we're projecting in 2023 to be at 40% of our offtake in fixed and I think what's important to note. Here is we really took a look at this back in early 2022 looking at the volume ramp of our R&D and we were pretty intentional about.
Thinking through how to tap into those voluntary market.
So those markets today, we're seeing them be quite robust. If you think about large public utilities and industrial end users. This is a great way for them to tap into a low carbon fuel and we're not seeing any price pullback at the moment, we will give a bit more detail in April .
On what it looks like longer term as well.
Super Thank you.
Thank you one moment for questions.
Our next question comes from Toni Kaplan with Morgan Stanley You May proceed.
Thanks, so much I.
Wanted to start out on the renewable energy. Thanks for all the details in the supplemental presentation.
I know you had previously talked about 23 is an elevated year for investment, but it seems like maybe you.
You decided to accelerate it and expand even more so I guess.
What sort of why is this the right time and maybe just cadence of the investment during the year and maybe just does this mean that M&A will.
It will be lower this year versus last year.
Yes, we didn't really give guidance on on M&A. Historically, we've said $100 million to $200 million. So it's likely going to be kind of in that range.
The reason to your point that we've decided to accelerate some of this is just simply the opportunity itself.
I mentioned it in my prepared remarks, but.
It really is part of our solid waste business. This is gas as a result of subtitle D and air quality.
<unk>, that's coming to us anyway about half of that gas has been monetized over the last.
Don't know 20 years, but we still have half left and and.
And we're certainly not monetizing the full amount.
You look at that deck, but that that we are monetizing.
We're effectively paying kind of three times or three times multiple instead of what you might pay for an acquisition.
Which would be kind of 8% to 12 times.
So that's why we're feeling so good about it and we've we've modeled these had very conservative numbers right now we're well above those.
So I think I think the the opportunity just started to present itself through.
The designation of this gas is being renewable.
Markets themselves opening up and now with an opportunity, which terex go into about electricity in those cases, we don't even have to add capital that we already have.
Electric facilities generating facilities out there the only other thing I would just add to what Jim said regarding the acceleration of the investment is the investment tax credit and the fact that that is.
Really strong pathway for us to get some tax credits on our investments and there is a timeline associated with that we feel really positive about where we are and our ability to capture those tax credits, we modeled about 300 million, which you see in the deck regarding our broader portfolio. I mean this is one of the reasons.
Why we talk about this opportunity being so great because we preserved so many options for wm, because we own the gas we own our projects, we announced 20 projects. There is a whole pipeline that can come after that and then with the <unk> pathway. If you look at our legacy.
Handful gas to electricity projects.
We can create an earnings stream with no incremental capital and that's not in our numbers today, so that upside long term. So we're really optimistic about what we have in front of us here at.
Maybe one last point here that I did mentioned also but I'll mention it again.
That differentiates us from from our competition and that is that CMG fleet I mean, 74% of our fleet is <unk> in a way.
<unk> works is you have to burn the fuel before you can monetize the ran and having a fleet that is three quarters natural gas gives us a potential stream their earnings stream that our competition, who might be it at 15% to 30% CMG. They simply don't have that or at least don't have it at the same.
St potential that we do.
Super and wanted to ask about volume I mentioned, the softening in commercial and industrial in the fourth quarter maybe.
Maybe just a little bit more color there the magnitude how quickly.
Hello, how it like was it early in the quarter or throughout the whole quarter et cetera, and if you're expecting any softer volumes in the remainder of the business implied in the guide.
There were a few moving parts on the volume that was down slightly for Q4.
Some of it was by design.
Residential specifically.
A it was a couple of loss contracts and in the commercial.
Your line of business.
And that was typically going to be in our national accounts group.
And then.
Some of them as is.
Maybe soft is showing up in the roll off line of business I guess, if there is any good news there is that when we just looked at our January numbers. This morning, they were actually better than Q4 on the volume front.
Particularly C&D, although some of that sandy might be coming from.
From the Hurricane cleanup in Florida, but MSW was was a positive sign for January so even with that we felt that.
Negative.
5 million to a positive <unk> five saw flat volume with last year as John mentioned was appropriate.
And I guess as we look at the as we look at the tea leaves for the economy.
There are a few factors that are concerning out there the housing slowdown for sure I mean, that's been that's been widely discussed in that housing slowdown while our C&D volume has been very good and continues to be good we think that sandy will come back a bit it almost has to with the housing slowdown special waste continues to be a strong point for us.
And the pipeline is good there, but I think as you as you think about whether it's housing slowdown or whether you think about.
The consumers saving of 7% in 2020, and now down to almost zero because inflation is eaten up that savings that's going to affect the consumer.
But the good news for US is that our strategy is really not built around the volume aspect. It's built around cost controls. It's built around building out this sustainability strategy.
And it's built around pricing.
So we're pleased with being able to come in at the top end of the range on EBITDA.
It's 7% for 2023.
Fantastic. Thank you.
Thank you one moment for questions.
Our next question comes from Tyler Brown with Raymond James You May proceed.
Hey, good morning, guys good morning.
Hey, Jim Thank you for the supplemental deck, but I, just kind of want to get to the heart of it. So is the idea here that the contribution in 'twenty six between R&D and recycling, maybe it's now expected to be 740 million I think.
My math is right and that was upsized that right that's correct yep.
Okay.
But you are also in the midst of a labor automation effort and I just want to make sure that I'm not double counting because some of that is probably in recycling, but how much additional EBITDA are you expecting by 2006 from that effort as well.
So there is.
A bit of the when we automate and the recycling piece in the deck there is a bit of that.
And the and the $260 million I think was the number but yes, there are 70 million okay.
The deck, but there are other there are other areas, where we're automating away positions and that are not captured in that deck at all that it really has nothing to do with RMG or recycling.
Yes, that's my point.
On that piece.
What I would tell you that it's too early for us to predict the impact of that to 2026 and beyond but we're really emphasizing.
Emphasizing in our 2023 outlook is that we're starting to see some of the benefits, yes recycling for piece of that but beyond that the recycling line of business were seeing back office the 600 heads.
Our head count attrition that I mentioned and customer experience specifically is a strong example of that and the leverage we've gotten an SG&A margin is in large part due to some of that success. So the 40 to 80 basis points of margin expansion really is all solid waste.
And so that strong performance in 2023 is an indicator of future value that we think will come as we start to see in particular optimization efforts in the collection line of business take hold.
All of that is delayed because of truck deliveries as well as some of our efforts to take that across additional lines of business. We started in the industrial line of business intentionally and we're seeing strong success in some of those pilots and we're happy with where we are a bit too early for us to predict how much efficiency gain we can get across.
All lines of business in.
In 2026, and beyond but I think taking the 40 to 80 basis points accomplished or predicted for 2023 is a strong indicator of the strength of those initiatives. Let me. Let me just ask real quick on what you just said about the 600 positions because that'll become close to 1000 positions just in customer experience and we.
<unk> a lot over the last couple of years about automation.
But we haven't really given you kind of the numbers and where it's benefiting the bottom line. This is a good example, I mean, what we really did there was used a turnover number that was close to 50%.
In customer experience took advantage of that attrition and at the same time, we automated the customer experience, which every other industry by the way had done over the last 20 years and we had until it was ours was still kind of a person to person experience. We haven't eliminated the person to person experience, but we've just made it available made a self service option available to our customers and.
As a result, our call volumes down close to 25% that's a huge drop in call volume.
Hence our ability to take advantage of attrition to the tune of 600 positions in 'twenty two and another.
Close to 400 positions and 23.
Okay, Yes.
Extremely helpful. A lot what's on the come there okay.
Divina kind of coming back to 'twenty three margins, though.
Want to be.
I do want to be specific.
Can you just talk about first half and second half margins.
Our margin is going to be a little bit more flattish in the first half and then up quite a bit in the second half.
Wanted to make sure that we all kind of get the shape of the year right and good margins actually be down in Q1 year over year.
Margins could be backward in the first quarter of the year the pressure from the recycling line.
Business is the most acute and while dropping.
Dropping commodity prices is typically something that we see benefit our margin in that part of the business because of the pass through elements of some of it we have seen some pressure. So we are predicting some flatness I would say in the first quarter with expanding margin in the second quarter, particularly on the op cost side of the business.
And starting to see the pricing.
Parts of the business really contribute as they did in the second half of 2022.
As we anniversary some of those impacts from the recycling line of business I mentioned, so first half first half second half I would say youll see more muted margin expansion in the first half stronger margin expansion in the back half.
That being said I wouldn't expect that minus 100, plus 100 that we saw in 2022, because we've overcome so many of the operating cost.
Headwinds that we were experiencing this year and really starting to see some strong momentum there.
Okay perfect. That's extremely helpful and my last one just real quick you kind of went through quite a bit on the free cash flow puts and takes.
But can you kind of go back over what the expectation is year over year for cash taxes cash interest and then maybe working capital just trying to help build that bridge.
Sure So EBITDA growth at the midpoint $390 million and so that will be the driver of free cash flow growth cash flow from operations growth next year.
Unfortunately, with this interest rate environment, we're going to have to give some of that back because our cost of debt is going up as you can see when you look at our fourth quarter results, our weighted average borrowing rate in the fourth quarter actually went up 80 basis points and so that was an increase of $26 million in quarter, we were.
Virtually flat all year long.
In advance of Q4, and when we take that Q4 impact and extrapolate it to 2023, that's what going to be driving our interest costs higher so that in and of itself a little over $100 million of impact and then we do expect our debt balances to increase in the year ahead.
Our debt balances are going to increase because we are seeing such strong growth and we are going to be investing in all elements of capital allocation with that strong balance sheet. So not pulling back any on our allocation of cash to share buyback and the year ahead.
<unk> is our current plan, we may moderate it sound that will will give you more color on that over the course of the year, so with the higher debt balances and.
The higher interest cost that really is all of the $175 million to $215 million that I mentioned and interest and taxes.
Taxes are actually going to be essentially flat so.
While we would have expected some moderation in that because of the one time payment that I mentioned of $100 million.
We're really seeing that offset by two things one higher pretax income and the other being the exploration of a piece of bonus depreciation and the asset mix that we're putting in place.
So.
Those are the interest and tax pieces, the $80 million headwind I mentioned on working capital, we had an $88 million contribution to working capital in 2022. So we're essentially saying that we think we might give some of that back.
Some of that is.
Moderation in DSO, just because of the recessionary environment that we're predicting but a large contributor is timing and amount of incentive compensation payments.
Very detailed as always thank you very much.
Thank you in a moment for our questions.
Okay.
Yeah.
Our next question comes from Noah Kaye with Oppenheimer You May proceed.
Hi, good morning, Thanks, DNA stepped up in <unk>.
Can you first provide a little color on that and then give us what should be DNA for 2023.
Sure so the call.
There is really inflation in our landfill costs and it's both from normal inflationary cost pressures as well as the regulatory environment, that's driving some of our cost smart closure post closure higher so the charge that we took in the fourth quarter relates predominantly to our clothes sight.
Part of the portfolio. Some of it is also representative of changes we're seeing in management of the active landfill too.
In terms of next year's DD&A, we're not predicting.
Another step change from this current level, but we are expecting DD&A levels to reflect better delivery of trucks in the year ahead, so youll see.
Some increased depreciation in the first half of the year, rather than waiting to see all of that impact in Q4.
Okay, but we could again be above kind of that $2 billion.
Number 423, so net net DNA would step up year over year.
Net net DNA is going to be moderately higher just with.
Capital expenditure deliveries, but it's not going to be another step change from this level.
Yes, Okay, and then just on pricing.
I guess, Jim listening to your comments around some of the softening in the commercial sector. How do we think about the cadence of of of price growth expectations seems hard to sustain double digits.
In C&I as we go through the balance of the year. There is some math on that of course, but but how do we think about pricing and what elements of the business may see the greatest sequential price declines.
On a cadence basis.
We're thinking about pricing.
Because there are there is a kind of a twofold exercise here one is combating cost increases or inflation, which was why the last 18 months have been so challenging.
Because we really felt like it was almost all in fact in many cases all of it was going towards.
Combating inflation and then a second pieces is adding a few margin points for us.
So as we as we look at this through our our price group, particularly for commercial since that's where your question was.
We think that pricing will moderate a bit.
Yeah.
Because inflation is moderating significantly.
And that ends up being a good thing for us if you look at collection and disposal yield for last year versus our guidance for this year last year was $6 seven issue guidance is five five so.
There is some moderation in yield there.
<unk>.
But a significantly and were projecting at least a significantly different.
Cost picture, so we think that price starts to contribute to margin again.
Or is it hasnt for the last probably three years I think the only add I would make there Jim is the residential line of business specifically, yes. If you look at our volume loss. There clearly we continue to make deliberate decisions. We mentioned some of the franchises that we parted ways with and even if you look at the four and a half of four 7% negative volume or revenue was still up over $50 million for the quarter in <unk>.
<unk> as we've said, we're going to continue down that path until we get acceptable returns and margins for that line of business and we're so we're happy with that progress we don't like intentionally shedding that business, but under these conditions like Jim said that inflation is what we're combating and it's been most acute in residential partly due to the labor intensity there so yeah.
And maybe one place where it might not moderated as much as on the landfill side I mean.
We have a differentiated product there and so not that we don't have a differentiated product on the collection side, but landfill in particular.
The yield of six 2% MSW last year I think that's probably the highest annual yield for MSW, maybe in our history.
And I don't expect that to come back to that a lot.
Okay very helpful. Thank you.
Thank you.
Our next question comes from Brian Brookmyre with Citi. You May proceed.
Good morning, and thanks for taking the question.
I understand the free cash flow will be near term, but do you think wm can emerge from this investment period.
Structurally higher free cash flow conversion from EBITDA than you had in 2021 and before it seems like these investments will be highly cash generative once ramped and potentially.
Exceed where you were before the investment period.
Yes, Brian Youre spot on there our ability to convert revenue and EBITDA dollars to free cash flow with the sustainability investments will be heightened as we come through the investment period.
Fundamentally that because theres a different capital outlay model for this part of our business than there is for the collection and disposal business, where you're having to spend capital dollars.
Effectively each day that you service the customer so with maintenance capital level meaningfully lower in both recycling and renewable energy. We are optimistic that cash flow conversion will be stronger after this investment period.
Got it thanks for that and last question for me the press release called out investment in plastic recycling infrastructure.
Maybe just from a high level.
To say what makes that such an enticing market for Wm.
Longer term do you have any thoughts on how the margins or returns going to compare to your existing business.
Sure the investment we made in mature PCR. This is really about taking film and film plastic and mechanically recycling. It film has very low recycling rates today and on top of that if you look at all of the brands out there CPG companies have very strong commitment to.
Use more recycled content product. So it's a market where there is a very strong need and we have a strong fit also if you think about the plastics that we collect on the brokerage side of the house. So felt like a natural fit for us what youre seeing in the press release.
Capital dollars to invest in building out that plant portfolio in Houston and also in the mid west and we'll be providing a bit more information on that in April .
Okay, great. Thanks, a lot I'll turn it over.
Thank you.
Our next question comes from Kevin Chiang with CIBC you May proceed.
Hi, Thanks for taking my question and thanks for the supplemental information here.
If I look at your pro forma earnings contribution from these.
Capability investments and if they do kind of a quick back of the envelope math it seems like.
You've got to something like 15, maybe even upwards of 20% of your earnings coming from from recycling at RMG and.
The payback.
But all of the ROIC, because obviously, they're very big but I guess, how do you think about the underlying earnings volatility of the business now that it because more commodity expose what these investments are.
<unk>.
Yes, I can speak to the commodity volatility on both sides of the business. So on the R&D side of the house.
We've talked a lot and I mentioned it today that we have a 40% of our volume that is really tied into fixed price markets. And then we also have the ability on the transportation side of the house to leverage Wm, and sweet and tie it into E. Rins, we're really sorry, rins conventional rent.
We're really being thoughtful about.
How our ramp look long term and how to tap into those.
Fixed versus.
Transportation markets and so we'll give a bit more information on that in April but suffice it to say that it's something that we're tracking very closely and we have a whole host of options to ensure that we can navigate that I think there is very strong fundamentals. If you look at what the EPA did with.
Their announcement on the renewable volume obligation and setting a three year pathway.
Really shores up where we're headed on the renewable natural gas side of the house on the recycling side of the house I think what's interesting is if you look at the.
$240 million in EBITDA, 60% of that is really independent of commodity prices and that really speaks to the fact that a big piece of it is coming from labor and labor improvements.
35% exiting the quarter in labor cost per ton improvements at our automated facilities and then revenue quality and a great example of that is how we're able to take mixed paper and remove cardboard from those bills and sell it at a higher price premium and that's independent of market prices.
So a lot of what we're doing.
Will help us and fleet ourselves from those swings.
And Jeff I might add one thing because in your question about adding volatility.
I mean, I guess, you could say that but look as I said in Terra as mentioned as well. This gas is coming to us regardless I mean this is gas that is produced by these landfills as a result of MSW going into them.
And.
About half of it is monetized in some form today. All we're doing here is taking advantage of a situation that was presented to us.
But also taking advantage of our of our natural gas fleet.
And turning that 50% that isn't monetized into some some value add for shareholders does it add some volatility I guess it adds some although Tara has gone through.
Part of her.
Answered the question earlier was too that we are.
Looking to.
To take some of that volatility away by fixing some of the pricing.
But I think there's this view that's why would you add a volatile business here and there.
And the answer is we're just taking gas that's being produced by these sites.
And turning it into a very very profitable revenue stream with very very strong paybacks.
Right.
That's great color, Jim, but that's very helpful.
Second one just maybe on some of the automation that we're talking about on the customer service side. It sounds like obviously, some huge huge wins there.
Just wondering what youre seeing from the labor cost savings.
Did you track I guess like a net promoter score or.
Our customer churn as you roll that technology out.
Maybe we do some of the friction that some of your customers might have had calling into call centers.
Seeing.
Other benefits.
Whether it's at the net promoter score or churn rate that you'd be tracking alongside just the labor cost savings yes. It is.
A good question a few things are happening on that front, one as we digitize a lot of the customer facing elements of these transactions. So customers have a better ability to transact with us when and how they want to from a digital perspective, we're seeing that translate to NPS scores not.
Not a surprise.
At the beginning of the year had some dips in our NPS scores as we were challenged on some of the labor and asset fronts with Davina and Jim commented on but that started to improve in the second half of the year, which has also helped our service quality. So we're seeing our NPS score.
Start to move the right way in the back half of the year and we're also at the same time seeing the benefits from some of the labor arbitrage and as Jim mentioned these are not jobs. We're moving out. These are jobs that were not replace them because they are because they are high turnover and I think Tyler and Jim gave good color on what's happening with the recycling on the recycling front with respect to automation benefits and we've touched on the other.
Bucket is moving from sort of the traditional manual rear load system to the Asl system, that's announced another element of automation, where we're clearly seeing benefits.
Excellent that's it for me thank you very much.
Thank you.
Our next question comes from Walter <unk> with RBC capital markets. You May proceed.
Okay. Thanks, very much and just following up on Kevin's question there regarding.
And to your point, Jim It is fluctuation, but it's something that can be managed and it looks like youre doing.
Youre setting up for a great job managing some of that.
Fluctuation, but I guess investors are you touched on your pricing in the solid waste sector investors are accustomed to price never going down.
Yes, it might go up less than the volatility is really just how much more does it go up one year to the next but with some of the renewable energy fluctuations and.
Recycle commodity prices that you pointed out I mean, you are getting.
EBITDA going down this year as a result of those my question I guess is that is.
As you build these out more is this something that you would you.
You would consider spinning off while retaining a stake.
As to kind of separate the two so that investors who.
Desire that volatility won't that volatility and willing to pay for the volatility can do so and then those that are prefer the more steady stream that your company has delivered so well in the past.
Can focus more on that is that something that is in the cards in the future. How much have you thought about it just curious in that regard.
Well a couple of I think youre, making a couple of points here just to maybe correct one thing.
It isn't going down.
If that's what you're implying it's not going down. It's just it's just going up by slightly less than it did last year.
And to your question about whether we would consider.
Spinning off.
RMG business.
First of all.
There's a lot of options for us and we would never take any options off the table, but what Tara said earlier, which I think is important is we part.
Part of the value for us is that we like owning the gas we like owning the facilities and so for the time being.
The answer is we're going to develop these ourselves we're going to.
And we're going to see the full benefits come to ourselves and we will do everything we can to try and mitigate the volatility.
But.
We like owning the gas itself, we like being in a position I have been in a position in the field, where where I managed to landfill, where we didn't own the well field and that was not a great position to be in having having been there a number of years ago. So we like being in a position, where we manage the well fields that produce the gas.
Not to say, we wouldn't consider that down the road, but for now we're kind of in our infancy, and we're going to we're going to own and develop on our own for now I.
I think Jim a phone it okay that was my only question. Thanks, very much yeah, I was going to add on the recycling side. If you look at that separately from the R&D comments you made if you went back five or six years ago and looked at the commodity price versus what the earnings stream was out of the recycling because it was much different but in my prepared comments here and a $47 a ton we're still seeing strong earnings and returns in our <unk> and <unk>.
All of our Mers not to mention the fact that when you were to carve out the automated plants, which is only a small portion we're going to add to that next year as Tara mentioned those margins are even higher so I would argue that we've taken out a lot of the volatility in the recycling business and that's why you continue to see our conviction in those investments going forward, Yes, I'm glad you made that point, Jon can make because we did change.
A lot of these contracts from four years ago, and I think Thats your point.
Yes.
That's absolutely that's clear that you've got a lot of good work in terms of restructuring those contracts to reduce some of that volatility just curious in terms of the spinout, but addressed that question appreciate the time.
You bet.
Thank you.
Our next question comes from Sean Eastman with Keybanc capital markets. You May proceed.
Hi team thanks for taking my questions.
First one I just wanted to reconcile the there was a 35% labor cost per ton reduction on the recycling footprint mentioned also a head count reduction of I think 120.
Seven I'm just trying to reconcile those two.
Data points.
Yes, So John mentioned in his remarks, the 35% reduction on our automated plants on labor cost per ton and that's what we saw in Q4, and then that 137 number is related to the the head count attrition related to automation in 2022, and we're expecting to.
200 in 2023.
Okay helpful. It's impressive.
And then the other one is just.
Kind of nitpicking here, but the.
Some of the inputs on the guidance for this year of $70 OCC too.
$2 30, RIN price could you just tell me where those numbers are today.
If you can just how to think about sensitivity to the extent, we don't climb up to those numbers.
Yes, so just to clarify is $70 per ton in our commodity basket not on OCC.
Yes.
Yes.
Yes, so $70 a ton number for 2023.
Sitting December of this year, just north of $50 a ton and we.
We're seeing some signs on the plastic side is a great example, where we're seeing plastic pricing increase a bit and we've seen that uptick related to again.
<unk> companies trying to meet their sustainability commitments on using recycled content.
Expect if you look at that ramp.
Through Q1, Q2, Q3, we'll start to see that ramp over the quarters. When you look at how commodity prices will move on the recycling side of the business.
And then on the renewable energy side of the house that $2 30, RIN price exiting.
Exiting 2022, RIN prices were higher we have seen a bit of a dip on RIN pricing that definitely recognizes what we're seeing in the market today and where we expect it will head throughout 2023, just remember 40% of our uptick has been so the other 60 per.
<unk> is exposed and I would just say the midpoint of our guidance anticipated.
Commodity values that Terry just went through the downside has contemplated some of the downside risk should those values be less than what we are currently predicting.
Understood. Thank you very much I'll pass it over.
Thank you.
Our next question comes from Michael Hoffman with Stifel. You May proceed.
Good morning.
I just wanted to make sure. This is very clear you are not seeing unit prices come down the rate of change of prices narrowing because inflation is coming down.
No Sir Michael No we are not okay.
And you are in a position today, where you have a real spread against the internal cost of inflation.
Yes that was my earlier point.
This gives us it gives us that spread.
So essentially no spread for the last 18 months.
So then I want to dig into I think there's more power in the solid waste business than maybe everybody is understanding are you about 80% of your EBITDA, 80% to 85% solid waste and then 15% to 20 is sustainable investments in recycling is that about the right proportionately.
Way that I would answer the question Michael is if you look at our outlook for the year ahead, we're implying growth from the solid waste business of about $475 million and that rival the highest levels of growth that we've ever seen in our history and so what what we focus on in terms of measuring solid waste performances.
Our ability to fundamentally grow that business over the long term both in terms of the pricing execution and our strong focus on operating cost efficiency and those things are what are driving that $475 million target I would tell you. Michael I think we are devine and I can share this.
Due on Opex, but I think to Jim's point, we were kind of arm wrestling with it I forget the phrase you used Jim I think the efforts that we undertook last year and what happened in the last two quarters in particular, the fourth quarter make us feel really good about what's happening on the solid waste side and some of the commentary was about price and yield in a movement, but when you see opex our guidance on Opex moving the way.
It is for next year, and the EBITDA improvement and Divina said, what the strength of the solid waste business is we feel really good about how we're entering 2003.
And I agree I'm trying to get there by backing into the numbers a little more precisely that's why I was asking about the mix if I'm right and you're in the 80% to 85% of solid waste youre going to end up with a 9% to 10% growth in solid waste in 'twenty, three and EBITDA and like 90 basis points, maybe even 100 basis points in the solid waste business.
A little bit of it back because the other stuff.
Right right.
That strong solid waste growth, coupled with some SG&A margin expansion and those are really the two levers for next year overall EBITDA growth.
Okay.
Okay, well I tried I would.
Would you all consider starting to segment, where you show us recurring core solid waste versus the alternatives. So we start to be able to track this better.
You know, we always focus on making sure that you guys have the best information available and we will continue to try and meet that goal and we will step back and look at our disclosures and ensure that they are appropriately robots. We think that they are today, but we know we can always get better okay baseline capital spending.
At two to two one rig comes out at nine 9% of revenues, which is below your long term average.
It's a little surprising given the vendor side of the world is talking about a lot of inflation in their side of the business still.
I'm trying to understand why that baseline, it's essentially flat sequentially in absolute dollars. So what.
I don't think you're under investing in your business I know youre not doing that but can you talk me through why that settling the way it is.
Michael If you look at the inflationary pressure on their performance on the revenue side related to that we've been also very sensitive to the fact that capital shouldn't just necessarily go up because revenue is we're looking at it by line of business and what's happened from a volume perspective, and I think thats, what youre seeing part of the leverage there on the supply side, Michael I would tell you. This was a challenging year in terms of juggling.
Mostly because of the the truck related issues that we had so 23 will be more balanced, but I think youre seeing the sub 10 number as a result of our our discipline discipline around capital capital dollars. The other thing I would point out is we did pump had some capital into the fourth quarter and as a result of our <unk>.
Ability to do that.
Moderated our outlook for 2023 capital slightly from our original expectations should we see a need to adjust that further as we get into the year end.
Perform well as we expect to do particularly in the solid waste business, we might take some steps to accelerate capital that much further but this is about strong execution on capital discipline combined with our ability to ensure that our price isn't just addressing the operating cost side of the business, but also capital inflation.
Last two for me Tara the $500 million EBITDA in R&D in 2026, how much of it's fixed versus spot.
Today, we have.
40% fixed based on the roughly 4 million Btu and so that is what is today, we're working on fixing more of that longer term.
But so you don't have a goal for that $500 million I guess, that's what I'm trying to ask how much of it.
We have a goal will give you more information on that in April Michael.
We have a pathway to have a portfolio mix longer term.
And when you gave us scale through April for that in April .
When you talk about sales in April as well so we can model this right.
Youre talking about revenue yeah.
The R&D business, yes, yes.
The supplemental document we have EBITDA and the free cash, but they don't have revenue so.
We're all guessing what that means to our model.
I think you could figure it out based on the $26 from NBC in number we gave you.
Suffice to say, it's the margins on this business, Michael and whether Youre looking at margins on the EBITDA side are 70 percentage, maybe 75% I mean, what will get us. She said, we'll give more detail on in April and then as Divina went through the cash conversion is tremendous too so it's why.
This business why we're so excited about it and nobody has asked a question about M&A, but but but I did mentioned that I'd, rather do a three times EBITDA investment than a 10 times EBITDA. That's one where there is some uncertainty about integration. So we'll talk about revenue and what it means but these are hugely high margins.
On the EBITDA line with these R&D plants.
Last question for me and 19, you told us the solid waste business would compounded 5% to seven EBITDA free cash when I add in the $740 million by 'twenty six will that new baseline still compounded the aggregate number at 5% to seven or does that does that 10% increase.
Dilute that compounding the aggregate compounding.
Great question, Michael and what we're doing is working too.
Segment. These parts of the business very clearly so that we can articulate the level of growth that each of them is expected to have the solid waste business has outperformed that 5% to 7% target that we established and we couldnt be more proud of those results in terms of what's happening in the R&D and <unk>.
Recycling businesses, we're talking about a new step level change in our free cash flow generation for the business.
Our ability to grow that I think has done a great job of articulating. The fact that this opportunity and whats outlined in the supplemental pack is just a starting point for us our portfolio provides tremendous upside opportunity from here, our ability to say, whether thats, 5% to 7% or some other number.
That will come as we further articulate our plans for building out the total addressable market that we have across our landfill network. Okay. Thanks for taking my questions.
Thank you.
Our next question comes from Michael Feniger with Bank of America, You May proceed.
Okay. Thanks, everyone I know we're over so I'll just keep it short Terra just apologies if you touched on this but why has rolled over and beginning of this year and any policy actions that we should be monitoring that helps get that RIN recovery to that $2 30 for the full year.
Yes, I think.
The important thing to remember here is that earlier in really in December of 'twenty, two EPA came out with their set rule, which now on the positive side.
A three year framework for renewable volume obligations, which for us for the long term is positive because at the end of the day. It really sets the standard for the program and the RIN pathway for US I think theres been a little bit of speculation in the marketplace.
Just around whether or not those were the right numbers that EPA issued we're confident that come June when EPA issued their final rule there'll be more clarity. So I think that's a little bit of what you're seeing but long term strong fundamentals on the price side related to rent.
Thank you and just the last four to five years I think your EBITDA margins have been in the tight range of 28 to 24, you are now guiding for 40 to 80 bps.
So.
Moving up there.
Can you quantify how much of a headwind is there on the margin for Orange in OCC in 2023 based on the guide.
It's 10 to 20 basis points.
Perfect. Okay. Thanks, everyone.
Thank you.
Okay.
Our next question comes from Stephanie more with Jefferies. You May proceed.
Hi, Thank you will keep it brief and it's kind of just a continuation of the last question just wanted to talk about what Youre seeing.
From a pricing standpoint in your renewable energy business I know that does include rents, but it does include some other factors as well within your business.
And then longer term.
I know near term Divina, and just kind of discuss with EPA standards that RIN pricing, but is there any kind of risks of a maybe a supply demand imbalance with more supply at some point as more and more certainly.
Certainly you guys, but also your competitors also Randy.
Renewable natural gas facilities online just what that can mean for pricing not necessarily this year, but longer term. Thanks.
Sure I'll speak to the price side and this is in a footnote in our press release, but we did see pricing.
Pricing come down in the three categories.
This decline on the power side and as you can imagine we saw some record power prices related to some of the dynamics in 2022 related to weather and whatnot. So that's reflected on the power side.
On the natural gas side natural gas pricing has come down we were north of $5 in 2022 and now.
Coming in at around $3 60, that's what we're guiding to and then on RIN prices again $2 30 is what we have in our guidance and I think I just went over a little bit of the dynamics there as far as the supply and demand dynamic I think what's really important to note on the renewable natural gas side as there are.
Two markets and they're quite robust. The first is the on the transportation side, which is where we generate D.
<unk> rens and for US we're in a unique position Jim's mentioned this before where we own our own fleet. So we're able to capture more of the value and we have robust discussions with obligated parties. So we're able to.
Three of those Rins and has a long history with that at the same time you have this voluntary market that exists where.
Many many public utilities have come out with.
Announcements, where they need to decarbonize their own portfolios and the fastest way for them to do that is to buy renewable natural gas and renewable natural gas at a price premium and.
Again, we'll give you more information on this in April , but we feel really positive about the options that we have for each of those.
Understood. Thanks, so much.
Thank you.
Our next question comes from Stephanie <unk> with Jpmorgan you May proceed.
Hi, Thank you for taking my question I, just wanted to come back to the 2023 guidance overall.
And just ask whether you're assuming a recession in the guide or maybe just a slowing economic environment and I guess, you could probably see that reflected in the volume guidance range. So that's the low end of the range that kind of negative one 5%, but some conservatism on the economic environment.
No I wouldn't say that any of us are macro economist.
Whether we're projecting a recession or not is hard to say, but we are projecting some softness for sure. We saw some softness in our volume numbers as I mentioned, probably particularly in roll off for Q4, and that's continue to bits in January , albeit a R.
Our numbers were a little stronger volume wise in January .
I think if we try and read those tea leaves ourselves and we're all reading as much information as we can it feels like there could be some type of a slowdown, especially as a consumer it's through all of their savings.
But I am I am the last thing I am as a macroeconomist. So I can't sit here and tell you, yes, we're going to see a recession next year, we're just having to manage our business.
Two to our own best abilities.
Abilities and Thats why we have taken cost control on various seriously. That's why pricing is still an important aspect of this and then at the same time for the long term these renewable natural gas facilities.
And the automation of.
A number of these positions.
A lot of sense, so that really is affected.
Affected by by any downturn in the economy.
Okay. Okay, great. Thank you.
Yes.
Thank you.
Our next question comes from Devin Dodge with BMO capital markets. You May proceed.
Thanks, Good morning.
I suspect, we'll get more color on April 5th, but can you provide a framework for how meaningful it could be from a wm perspective.
So.
Important thing to remember is the.
Proposed rule and EPA will be coming out with their final framework sometime over the summer I think from our perspective, though you got to look at the 66 landfill gas to electricity plants that we have that we own.
And we.
We believe will be a significant revenue stream for us long term.
Yeah.
It's a great example of our ability where we have owned these facilities and invested in them and retained the value now we're in a position to optimize the value with this pathway.
So really waiting for a bit more color from from EPA on what their final framework is going to look like but really optimistic again no incremental capex.
On that potential revenue stream.
Good color, okay. So maybe.
Maybe on that same thread do you think <unk> could.
The impact of the development pipeline per landfill R&D projects or do you still expect R&D to be the most desirable.
Landfill gas project, assuming the site is suitable for it.
Yes, great question.
I think we are first and foremost we're really confident on the path that we're on with the 20 projects that we have in the deck and we're actively looking at our portfolio, we're going to make the best economic decision the best Environmental decision and the good news is we have a lot of options here.
I mean, that's something that Jim said earlier on you know good really good or great.
Do these frameworks are great for Wm.
To evaluate what makes the most sense for us long term.
Okay, and then maybe just one kind of more detailed question, but in Q4, we saw that core price and.
And yield in the collection and disposal business, they really converged which is great.
But it was a much tighter spread than we've seen in recent quarters and then the 2023 guide suggests.
Jeff It will widen back out again, just can you provide some color on some of the factors that impacted that spread in Q4, yes.
Yes, it's a great question and one we wish we had a specific science towards being able to predict.
The Q4 results were our best ever.
In terms of the difference between core price and yield and in large part that speaks to the strong trend that John mentioned during his prepared remarks at the 400 basis point improvement there.
Is it really strong indicators that price is holding with our customers and that we're doing I'm sorry, the comment was on rollback on churn.
But our churn has been really strong as well and our ability to hold on to every corner price dollar and convert that to yield really was the best we've ever seen in terms of our ability to predict that we'd still see those levels in 2023, I think it actually goes back to Stephanie's question earlier about the macroeconomic.
Outlook, we used our long term averages of converting our core price dollar to yield rather than the fourth quarter launch pad because we view the macroeconomic environment is a little more uncertain.
Then it is today.
Softer session in 'twenty, three and we didn't want to over predict our ability to convert core price and yield in the year ahead.
Okay. Thanks for that makes sense I'll leave it there.
Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Jim fish for any closing remarks.
Okay. Thank you.
Ran.
A bit long today, but we had a lot to cover. Thank you for your patience. Thanks for joining us and we will talk to you next quarter.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly two reasons lower Johan during Q&A, you can dial star one one.
[music].
Okay.
Okay.
[music].
Okay.
[music].
Okay.
[music].
So.
Dan.
[music].
Yes.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Okay.
Okay.
Yes.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
So.
Dan.
[music].
Yes.
[music].